Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 FORM 10-K (Mark One) xANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2010OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-14129Commission File Number: 333-103873-01 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 ExchangeSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files).* Yes ¨ No ¨* The registrant has not yet been phased into the interactive data requirements.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 thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act (check one).Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of Star Gas Partners, L.P. Common Units held by non-affiliates of Star Gas Partners, L.P. on March 31, 2010 wasapproximately $304,139,000. As of November 30, 2010, the registrants had units and shares outstanding for each of the issuers’ classes of common stock asfollows: Star Gas Partners, L.P. Common Units 67,077,553Star Gas Partners, L.P. General Partner Units 325,729Star Gas Finance Company Common Shares 100Documents Incorporated by Reference: None Table of ContentsSTAR GAS PARTNERS, L.P.2010 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS Page PART I Item 1. Business 3 Item 1A. Risk Factors 9 Item 1B. Unresolved Staff Comments 18 Item 2. Properties 18 Item 3. Legal Proceedings—Litigation 18 Item 4. Reserved 18 PART II Item 5. Market for the Registrant’s Units and Related Matters 18 Item 6. Selected Historical Financial and Operating Data 20 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 45 Item 8. Financial Statements and Supplementary Data 45 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45 Item 9A. Controls and Procedures 45 Item 9B. Other Information 46 PART III Item 10. Directors and Executive Officers of the Registrant 47 Item 11. Executive Compensation 51 Item 12. Security Ownership of Certain Beneficial Owners and Management 60 Item 13. Certain Relationships and Related Transactions 60 Item 14. Principal Accounting Fees and Services 62 PART IV Item 15. Exhibits and Financial Statement Schedules 62 2 Table of ContentsPART IStatement Regarding Forward-Looking DisclosureThis Annual Report on Form 10-K includes “forward-looking statements” which represent our expectations or beliefs concerning future events thatinvolve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance, the price and supply of homeheating oil, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retainexisting customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, naturalgas conversions, union relations and the outcome of union negotiations, the impact of current and future governmental regulations, including environmental,health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness, marketing plans, generaleconomic conditions and new technology. 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 elsewhere herein, are forward-lookingstatements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that suchexpectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks anduncertainties include, but are not limited to, those set forth under the heading “Risk Factors” and “Business Initiatives and Strategy.” Without limiting theforegoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-lookingstatements. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this AnnualReport on Form 10-K. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expresslyqualified in their entirety by the Cautionary Statements. Unless otherwise required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Report. ITEM 1.BUSINESSStructureStar Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a home heating oil distributor and services provider with onereportable operating segment that principally provides services to residential and commercial customers to heat their homes and buildings. Star Gas Partnersis a master limited partnership, which at November 30, 2010, had outstanding 67.1 million common units (NYSE: “SGU”) representing a 99.5% limitedpartner interest in Star Gas Partners, and 0.3 million general partner units, representing a 0.5% general partner interest in Star Gas Partners.The Partnership is organized as follows: • Our general partner is Kestrel Heat, LLC, a Delaware limited liability company (“Kestrel Heat” or the “general partner”). The Board of Directors ofKestrel Heat is appointed by its sole member, Kestrel Energy Partners, LLC, a Delaware limited liability company (“Kestrel”). • Our operations are conducted through Petro Holdings, Inc. (a Minnesota corporation that is our indirect wholly owned subsidiary) and itssubsidiaries. • Star Gas Finance Company is our 100% owned subsidiary. Star Gas Finance Company serves as the co-issuer, jointly and severally with us, of ourRule 144A $125.0 million 8.875% Senior Notes (excluding discounts and premiums), which are due in 2017. We are dependent on distributions,including inter-company interest payments, from our subsidiaries to service our debt obligations. The distributions from our subsidiaries are notguaranteed and are subject to certain loan restrictions. Star Gas Finance Company has nominal assets and conducts no business operations. (SeeNote 6. - Long-Term Debt and Bank Facility Borrowings)We file annual, quarterly, current and other reports and information with the SEC. These filings can be viewed and downloaded from the Internet at theSEC’s website at www.sec.gov. In addition, these SEC filings are available at no cost as soon as reasonably practicable after the filing thereof on our websiteat www.star-gas.com/sec.cfm. These reports are also available to be read and copied at the SEC’s public reference room located at Judiciary Plaza, 100 FStreet, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. You may also obtain copies of these filings and other information at the offices of the New York Stock Exchange located at 11 Wall Street, New York,New York 10005.Partnership structureThe following chart summarizes our partnership structure as of September 30, 2010. 3 Table of ContentsRecent DevelopmentsOn November 16, 2010, we completed a Rule 144A offering of $125.0 million in aggregate principal amount of senior notes due 2017. The notes willaccrue interest at a rate of 8.875% and were priced at 99.350%, for total gross proceeds of $124.2 million. The net proceeds from the offering will be used toredeem on December 20, 2010 any and all of the Partnership’s outstanding 10.25% notes due 2013, which currently equate to approximately $82.5 million.All remaining cash will be utilized for general partnership purposes.Business OverviewAs of September 30, 2010, we sold home heating oil to approximately 404,000 full service residential and commercial home heating oil customers andpropane to approximately 10,000 propane customers. We believe we are the largest retail distributor of home heating oil in the United States. We also sellhome heating oil, gasoline and diesel fuel to approximately 35,000 customers on a delivery only basis. We install, maintain, and repair heating and airconditioning equipment for our customers and provide ancillary home services, including home security and plumbing, to approximately 11,000 customers.During fiscal 2010, total sales were comprised approximately 77% from sales of home heating oil; 15% from the installation and repair of heating and airconditioning equipment and ancillary services; and 8% from the sale of other petroleum products. We provide home heating equipment repair service 24hours a day, seven days a week, 52 weeks a year. These services are an integral part of our heating oil business, and are intended to maximize customersatisfaction and loyalty.In fiscal 2010, sales to residential customers represented 89% of the retail heating oil gallons sold and 93% of heating oil gross profits.We conduct our business through an operating subsidiary, Petro Holdings, Inc., utilizing over 30 local brand names such as Petro Heating & AirConditioning Services and Meenan Oil. We believe that the Petro, Meenan and other trademarks and service marks are an important part of our ability toattract new customers and to effectively maintain and service our customer base.We offer several pricing alternatives to our residential customers, including a variable price (market based) option and a price-protected option, thelatter of which either sets the maximum price or fixes the price that a customer will pay. Approximately 97% of our deliveries for our full service residentialand commercial home heating oil customers are automatically scheduled based on ongoing weather conditions. In addition, we offer a “smart pay” budgetpayment plan in which homeowners’ estimated annual oil deliveries and service billings are paid for in a series of equal monthly installments. We usederivative instruments on a daily basis to mitigate our exposure to market risk associated with our price-protected offerings and the storing of our physicalhome heating oil inventory. Given our size, we are able to realize benefits of scale and seek to provide consistent, strong customer service.We have operations and markets in the following states, regions and counties: Connecticut Massachusetts New York Rhode IslandFairfield Suffolk Dutchess ProvidenceNew Haven Norfolk Ulster KentMiddlesex Essex Orange WashingtonLitchfield Bristol Westchester NewportHartford Middlesex Putnam Bristol Barnstable Nassau Maryland Plymouth Suffolk New HampshireBaltimore Worcester Bronx RockinghamHarford Queens StraffordCecil New Jersey Kings Anne Arundel Salem Richmond MaineCarroll Gloucester New York YorkHoward Camden Montgomery Burlington Pennsylvania VirginiaNorth Calvert Ocean Philadelphia LoudounPrince George’s Monmouth Bucks Prince WilliamCalvert Somerset Montgomery FauquierCharles Middlesex Chester StaffordFrederick Mercer Lancaster Arlington Hunterdon Lebanon Fairfax Union Lehigh Hudson Northampton Washington, D.C. Bergen Berks District of Columbia Essex Monroe Passaic Delaware Sussex Perry Morris Dauphin Warren Cumberland York 4 Table of ContentsIndustry CharacteristicsHome heating oil is primarily used as a source of fuel to heat residences and businesses in the Northeast and Mid-Atlantic regions. According to theU.S. Department of Energy—Energy Information Administration, 2005 Residential Energy Consumption Survey (the latest survey published), these regionsaccount for 81% (6.2 million of 7.7 million) of the households in the United States where heating oil is the main space-heating fuel and 31% (6.2 million of20.0 million) of the homes in these regions use home heating oil as their main space-heating fuel. In recent years, as the price of home heating oil increased,customers have tended to increase their conservation efforts, which has decreased their consumption of home heating oil.The retail home heating oil industry is mature, with total market demand expected to decline in the foreseeable future due to conversions to naturalgas. Our customer losses to natural gas conversions for fiscal years 2010, 2009 and 2008 were 1.2%, 1.6% and 1.6%, respectively. Therefore, our ability tomaintain our business or grow within the industry is dependent on the acquisition of other retail distributors as well as the success of our marketing programs.It is common practice in our business to price products to customers based on a per gallon margin over wholesale costs. As a result, we believedistributors such as ourselves generally seek to maintain their per gallon margins by passing wholesale price increases through to customers, thus insulatingthemselves from the volatility in wholesale heating oil prices. However, distributors may be unable or unwilling to pass the entire product cost increasesthrough to customers. In these cases, significant decreases in per gallon margins may result. The timing of cost pass-throughs can also significantly affectmargins. The retail home heating oil industry is highly fragmented, characterized by a large number of relatively small, independently owned and operatedlocal distributors. Some dealers provide full service, as we do, and others offer delivery only on a cash-on-delivery basis, which we also do to a significantlylesser extent. The industry is becoming more complex and costly due to new regulations, working capital requirements and the cost to hedge for protectedprice customers. We utilize derivative instruments in order to hedge a substantial majority of the heating oil volume we expect to sell to protected pricecustomers that have renewed their protected price plans, mitigating our exposure to changing commodity prices. We also use derivative instruments as ahedge against our physical inventory and priced purchase commitments.Business strategyOur business strategy is to increase operating profits and cash flow by conservatively managing our operations and growing our customer base as aleading retail distributor of home heating oil and ancillary services. The key elements of this strategy include the following:Deliver superior customer service. We are completely focused on providing the best customer service in our regions, with the aim of maximizingcustomer retention. To engage our employees and enhance their ability to provide superior customer service (and reduce gross customer losses), we require allemployees to go through appropriate training—supplemented by customer service monitoring. Our Director of Quality Assurance is responsible for customerservice evaluation and directs teams that conduct district quality assurance assessments. These assessments are focused on improving our performance incustomer relations and retention—to drive customer service performance to the best level possible.Continue to focus on operating efficiencies. We constantly work to reduce operating costs and streamline our operations through the elimination ofredundant systems and appropriate reductions in overhead. By spreading certain administrative costs over a growing customer base, we believe we cancontinue to generate strong financial results.Pursue select acquisitions. Our senior management team has developed expertise in identifying acquisition opportunities and integrating acquiredcustomers into our operations. Through our acquisitions, we have been able to increase our presence in some of our existing geographic markets andselectively expand into new markets, while maintaining or improving our financial results. Our acquisition strategy has enabled us to achieve our currentmarket position and offers us the ability to continue to achieve operating efficiencies and economies of scale. 5 Table of ContentsBroaden products and services. We sell related and complementary products and services, such as air conditioning systems, plumbing services andhome security systems, in order to leverage our organizational structure and improve our sales penetration within the existing customer base. We continue toincrease the quality and breadth of our service offerings and believe that these actions will further enhance our position with existing and potentialcustomers, allowing us to maintain or improve customer retention.SeasonalityThe following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters andyears respectively in this document are to fiscal quarters and years unless otherwise noted. The seasonal nature of our business results in the sale ofapproximately 30% of our volume of home heating oil in the first fiscal quarter and 50% of our volume in the second fiscal quarter of each fiscal year, thepeak heating season. As a result, we generally realize net income in our first and second fiscal quarters and net losses during our third and fourth fiscalquarters and we expect that the negative impact of seasonality on our third and fourth fiscal quarter operating results will continue. In addition, sales volumetypically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.CompetitionMost of our district locations compete with numerous distributors, primarily on the basis of reliability of service, price, and response to customer needs.Each district location operates in its own competitive environment.We compete with distributors offering a broad range of services and prices, from full-service distributors, like ourselves, to those offering delivery only.Like many companies in the home heating oil business, we provide home heating equipment repair service on a 24-hour-a-day, seven-day-a-week, 52 weeks ayear basis. We believe that this level of service tends to help build customer loyalty. In some instances homeowners have formed buying cooperatives thatseek to purchase fuel oil from distributors at a price lower than individual customers are otherwise able to obtain. We also compete for retail customers withsuppliers of alternative energy products, principally natural gas, propane and electricity. The expansion of natural gas into traditional home heating oilmarkets in the Northeast has historically been inhibited by the capital costs required to expand distribution and pipeline systems.Customers and PricingOur full service home heating oil customer base is comprised of 96% residential customers and 4% commercial customers. Our residential customerreceives small deliveries on average of 160 gallons and our commercial accounts receive larger deliveries on average of 350 gallons. Typically, we make fourto six deliveries per customer per year. Currently, 97% of our deliveries are scheduled automatically and 3% of our home heating oil customer base call fromtime to time to schedule a delivery. Automatic deliveries are scheduled based on each customer’s historical consumption pattern and prevailing weatherconditions. Our practice is to bill customers promptly after delivery. We also offer a balanced payment plan in which a customer’s estimated annual oilpurchases and service contract fees are paid for in a series of equal monthly payments. Approximately 38% of our residential home heating oil customershave selected this billing option.We offer several pricing alternatives to our customers. Our variable pricing program allows the price to float with the home heating oil market andgenerally move up or down in response to market changes and other factors. In addition, we offer price protection programs, which establish either a ceilingor a fixed per gallon price that the customer would pay over a defined period. Over the last several years, a greater number of our price protected customershave selected the ceiling plan over the fixed price plan. September 30, 2010 2009 2008 2007 Variable 55.8% 52.3% 48.6% 61.0% Ceiling 41.8% 44.6% 34.4% 23.2% Fixed 2.4% 3.1% 17.0% 15.8% 100.0% 100.0% 100.0% 100.0% Sales to residential customers ordinarily generate higher per gallon margins than sales to commercial customers. Due to greater price sensitivity andhedging complexities of residential protected price customers, the per gallon margins realized from price protected customers generally are less than fromvariable priced residential customers. 6 Table of ContentsCustomer AttritionWe measure net customer attrition for our full service residential and commercial home heating oil customers. Net customer attrition is the differencebetween gross customer losses and customers added through marketing efforts. Customers added through acquisitions are not included in the calculation ofgross customer gains. Gross customer losses are the result of a number of factors, including price competition, move outs, service issues, credit losses andconversions to natural gas. When a customer moves out of an existing home we count the “move out” as a loss and if we are successful in signing up the newhomeowner, the “move in” is treated as a gain.For fiscal 2010, we lost 19,800 accounts (net), or 5.0% of our home heating oil customer base as compared to fiscal 2009, where we lost 30,300accounts (net), or 7.6% of our home heating oil customer base. Excluding customer gains and losses at the home heating oil operations that we acquired infiscal 2010, which acquisitions were completed after the fall marketing initiatives, we lost 17,600 accounts (net), or 4.7% of our home heating oil customerbase. In fiscal 2008, we lost 18,300 accounts (net), or 4.3% of our home heating oil customer base. Our net customer attrition decreased in fiscal 2010 whencompared to fiscal 2009, largely due to a reduction in gross losses (which is reflective of customer turn-over). In fiscal 2010 gross losses decreased to 16.8%,as compared to 21.1% in fiscal 2009 and 19.1% in fiscal 2008. (See Item 7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Customer Attrition)Suppliers and Supply ArrangementsWe purchase home heating oil for delivery in either barge, pipeline or truckload quantities, and as of September 30, 2010 have contracts withapproximately 80 third-party terminals for the right to temporarily store heating oil at their facilities. Purchases are made under supply contracts or on thespot market. Including our own physical storage, we have entered into market price based contracts for approximately 68% of our retail home heating oilrequirements for fiscal 2011. During fiscal 2010, Global Companies, Sunoco Inc., NIC Holding Corp. (Northville Industries) and BP North America provided19.6%, 12.0%, 11.2% and 11.1% respectively, of our product purchases. Aside from these four suppliers, no single supplier provided more than 10% of ourproduct supply during fiscal 2010. For fiscal 2011, we generally have supply contracts for similar quantities with Global Companies, Sunoco Inc., NICHolding Corp. (Northville Industries) and BP North America. Supply contracts typically have terms of 6 to 12 months. All of the supply contracts provide forminimum quantities. In all cases, the supply contracts do not establish in advance the price of fuel oil. This price is based upon a published market indexprice at the time of delivery or pricing date plus an agreed upon differential. We believe that our policy of contracting for the majority of our anticipatedsupply needs with diverse and reliable sources will enable us to obtain sufficient product should unforeseen shortages develop in worldwide supplies.DerivativesWe use derivative instruments in order to mitigate our exposure to market risk associated with the purchase of home heating oil for our protected pricecustomers, physical inventory on hand, inventory in transit and priced purchase commitments.The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-10-05 Derivatives and Hedging topic,established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheetas assets or liabilities. Currently, the Partnership has elected not to designate its derivative instruments as hedging instruments under this standard, and thechange in fair value of the derivative instruments are recognized in our statement of operations. While we largely expect our realized derivative gains andlosses to be offset by increases or decreases in the value of our physical purchases, we will experience volatility in reported earnings due to the recording ofunrealized non-cash gains and losses on our derivative instruments prior to their maturity. 7 Table of ContentsHome Heating Oil Price VolatilityIn recent years, the wholesale price of home heating oil has been extremely volatile, resulting in increased consumer price sensitivity to heating costsand increased gross customer attrition. Like any other market commodity, the price of home heating oil is generally impacted by many factors, includingeconomic and geopolitical forces. The price of home heating oil is closely linked to the price refiners pay for crude oil, which is the principal cost componentof home heating oil. The volatility in the wholesale cost of home heating oil, as measured by the New York Mercantile Exchange (“Nymex”) price per gallonfor fiscal 2010, 2009, and 2008 by quarter, is illustrated by the following chart: Fiscal 2010 Fiscal 2009 Fiscal 2008 Low High Low High Low High Quarter Ended December 31 $1.7810 $2.1190 $1.1983 $2.8469 $2.1596 $2.7066 March 31 1.8860 2.2030 1.1331 1.6263 2.4188 3.1483 June 30 1.8720 2.3450 1.3147 1.8630 2.8797 3.9748 September 30 1.9160 2.2440 1.5038 1.9569 2.7197 4.1060 AcquisitionsFrom April 1 to September 30, 2010 (after the heating season), the Partnership completed five acquisitions and added approximately 56,100 homeheating oil, propane and security accounts. While these acquisitions provided additional revenues in fiscal 2010, the Partnership’s profitability measuressuch as operating income and net income, were adversely impacted as product costs and operating expenses from these acquisitions have exceeded revenues,which is normal for this non-heating period. The fiscal 2010 acquisitions cost approximately $68.8 million, including $4.2 million of working capital. Infiscal 2009, we completed the purchase of one retail heating oil dealer with approximately 3,800 home heating oil customers for an aggregate cost ofapproximately $4.0 million, reduced by $0.7 million of working capital credits. In fiscal 2008, we completed the purchase of seven retail heating oil dealerswith approximately 5,700 home heating oil customers and one small home security business for an aggregate cost of approximately $2.6 million, reduced by$0.7 million of working capital credits.Income Taxes—Valuation Allowance and Net Operating Loss Carry ForwardBased upon a review of a number of factors, including historical operating performance and our expectation that we could generate sustainableconsolidated taxable income for the foreseeable future, we concluded at the end of fiscal 2009 that the majority of our net deferred tax assets should berecognized. Thus, pursuant to FASB ASC 740-10 Income Taxes topic (FAS 109), we recorded a tax benefit during fiscal 2009 reversing a majority of theopening valuation allowance, resulting in a non-cash increase in net income of $86.4 million. This benefit was offset by a current income tax expense of $3.8million and deferred income tax expense of $25.0 million related to current year activity (including net operating loss carry forward utilization), resulting ina net income tax benefit of $57.6 million. Most of the $86.4 million benefit relating to the valuation allowance release related to Federal and State loss carryforwards (NOLs), insurance reserves, and the net operating book versus tax timing of intangible amortization.At December 31, 2006, we had Federal NOLs of $160.8 million and at December 31, 2009, we had Federal NOLs of $51.7 million. Over this three yearperiod, we utilized $36.4 million of Federal NOLs on average each year to offset our taxable income. We expect that over the next twelve to fifteen months,we will utilize substantially all of the remaining unlimited Federal NOLs. After we exhaust the Federal NOLs, the amount of cash taxes that we will pay willincrease significantly and will reduce the annual amount of cash available for distribution to unitholders. For example, in calendar 2007, 2008 and 2009 wepaid Federal cash taxes of $1.0 million, $0.6 million, and $0.7 million respectively. If we did not have the Federal NOLs available to us for calendar 2007,2008 and 2009 our Federal cash taxes would have increased to $17.2 million, $11.1 million and $9.9 million for calendar 2007, 2008 and 2009 respectively.Income taxes—book versus tax deductionsThe amount of cash flow that we generate in any given year depends upon a variety of factors including the amount of cash income taxes that oursubsidiaries will pay. The amount of depreciation and amortization that we deduct for book (i.e. financial reporting) purposes will differ from the amount thatour subsidiaries can deduct for tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that oursubsidiaries expect to deduct for tax purposes. (Our subsidiaries file their tax returns based on a calendar year. The amounts below are based on our fiscalyear.)Estimated depreciation and amortization expense (in thousands)Fiscal year Book Tax 2011 $19,586 $30,835 2012 13,431 27,625 2013 10,224 24,339 2014 8,897 20,493 2015 8,032 17,597 8 Table of ContentsEmployeesAs of September 30, 2010, we had 2,729 employees, of whom 810 were office, clerical and customer service personnel; 848 were equipmenttechnicians; 388 were oil truck drivers and mechanics; 396 were management and 287 were employed in sales. Of these employees 909 are represented by 24different local chapters of labor unions. Some of these unions have union administered pension plans that have significant unfunded liabilities, a portion ofwhich could be assessed to us should we withdraw from these plans. The Partnership does not expect to withdraw from these plans. In addition, approximately456 seasonal employees (305 of which are represented by the local chapters of labor unions indicated earlier) are rehired annually to support the requirementsof the heating season. We are currently involved in 3 union negotiations. We believe that our relations with both our union and non-union employees aregenerally satisfactory.Government RegulationsWe are subject to various federal, state and local environmental, health and safety laws and regulations. Generally, these laws impose limitations on thedischarge or emission of pollutants and establish standards for the handling of solid and hazardous wastes. These laws include the Resource Conservationand Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Clean Air Act, the Occupational Safetyand Health Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act and comparable state statutes. CERCLA, also known asthe “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. Products stored and/or delivered by us andcertain automotive waste products generated by our fleet are hazardous substances within the meaning of CERCLA or otherwise subject to investigation andcleanup under other environmental laws and regulations. While we have implemented programs and policies designed to address potential liabilities andcosts under applicable environmental laws and regulations, failure to comply with such laws and regulations could result in civil or criminal penalties incases of non-compliance or impose liability for remediation costs.We have incurred and continue to incur costs to address soil and groundwater contamination at some of our locations, including legacy contaminationat properties that we have acquired. A number of our properties are currently undergoing remediation, in some instances funded and/or by prior owners oroperators contractually obligated to do so. To date, no material issues have arisen with respect to such prior owners or operators addressing such remediation,although we cannot assure you that this will continue to be the case. In addition, we have been subject to proceedings by regulatory authorities for allegedviolations of environmental and safety laws and regulations. We do not expect any of these liabilities or proceedings of which we are aware to result inmaterial costs to, or disruptions of, our business or operations.In addition, transportation of our products by truck are subject to regulations promulgated under the Federal Motor Carrier Safety Act. Theseregulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation or similar state agencies.We conduct ongoing training programs to help ensure that our operations are in compliance with applicable safety regulations. We maintain various permitsthat are necessary to operate some of our facilities, some of which may be material to our operations. ITEM 1A.RISK FACTORSYou should consider carefully the risk factors discussed below, as well as all other information, as an investment in the Partnership involves a highdegree of risk. Any of the risks described below could impair our business, financial condition and operating results, which could result in a partial or totalloss of your investment.We are subject to certain risks and hazards due to the nature of the business activities we conduct. The risks discussed below, any of which couldmaterially and adversely affect our business, financial condition, cash flows, and results of operations, are not the only risks we face. We may experienceadditional risks and uncertainties not currently known to us or, as a result of developments occurring in the future, conditions that we currently deem to beimmaterial may also materially and adversely affect our business, financial condition, cash flows and results of operations. 9 Table of ContentsCurrent economic conditions could adversely affect our results of operations and financial condition.Since 2008, economic conditions in the United States have experienced a downturn due to the sequential effects of the sub-prime lending crisis,general credit market crisis, the general unavailability of financing, collateral effects on the finance and banking industries, volatile energy prices, concernsabout inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions,increased unemployment, liquidity concerns and declines in housing prices and house sales.Uncertainty about current economic conditions poses a risk as our customers may reduce or postpone spending in response to tighter credit, negativefinancial news and/or declines in income or asset values, which could have a material negative effect on the demand for our equipment and services andcould lead to increased conservation and the possibility of certain of our customers seeking lower cost providers. Any increase in existing customers seekinglower cost providers and/or increase in our rejection rate of potential accounts because of credit considerations could increase our overall rate of net customerattrition. If adverse economic conditions persist, we could experience an increase in bad debts from financially distressed customers, which would have anegative effect on our liquidity, results of operations and financial condition.We rely on the continued solvency of our derivative and insurance counterparties. We regularly use derivative instruments such as futures, options, andswap agreements, in order to mitigate our exposure to market risk associated with the purchase of home heating oil for our price-protected customers,physical inventory on hand, inventory in transit and priced purchase commitments. We insure ourself against catastrophic property and other losseswith insurance companies.The financial turmoil affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out ofbusiness have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit,currency and equity markets that may also adversely affect our results of operations and financial condition. There could be a number of follow-on effectsfrom the credit crisis on our business, including insolvency of key suppliers resulting in product delays and failure of derivative counterparties and otherfinancial institutions negatively impacting our liquidity and financial condition.If counterparties to our derivative instruments were to fail, our liquidity, results of operations and financial condition could be materially impacted, aswe would be obligated to fulfill our operational requirement of purchasing, storing and selling home heating oil, while losing the mitigating benefits ofeconomic hedges with a failed counterparty. If one of our insurance carriers should fail, our liquidity, results of operations and financial condition could bematerially impacted, as we would have to fund any catastrophic loss. Currently, we have outstanding derivative instruments with the followingcounterparties: Cargill, Inc., Key Bank National Association, Bank of America, N.A., JPMorgan Chase Bank, NA, Societe Generale, Newedge USA, LLC, andWachovia Bank, N.A. (Wells Fargo Bank, N.A.). Our primary insurance carrier is a subsidiary of Chartis, formerly known as American International Group.Our operating results are subject to seasonal fluctuations.Our operating results are subject to seasonal fluctuations since the demand for home heating oil is greater during the first and second fiscal quarter ofour fiscal year, which is the peak heating season. The seasonal nature of our business has resulted on average in the last five years in the sale of approximately30% of our volume of home heating oil in the first fiscal quarter and 50% of our volume in the second fiscal quarter of each fiscal year. As a result, wegenerally realize net income in our first and second fiscal quarters and net losses during our third and fourth fiscal quarters and we expect that the negativeimpact of seasonality on our third and fourth fiscal quarter operating results will continue.Since weather conditions may adversely affect the demand for home heating oil, our financial condition is vulnerable to warm winters.Weather conditions in the Northeast and Mid-Atlantic regions in which we operate have a significant impact on the demand for home heating oilbecause our customers depend on this product principally for space heating purposes. As a result, weather conditions may materially adversely impact ouroperating results and financial condition. During the peak-heating season of October through March, sales of home heating oil historically have representedapproximately 80% of our annual home heating oil volume. Actual weather conditions can vary substantially from year to year or from month to month,significantly affecting our financial performance. Furthermore, warmer than normal temperatures in one or more regions in which we operate can significantlydecrease the total volume we sell and the gross profit realized and, consequently, our results of operations. For example, in fiscal 2002 and fiscal 2006,temperatures were significantly warmer than normal for the areas in which we sell home heating oil, which adversely affected the amount of net income,EBITDA and Adjusted EBITDA that we generated during these periods. As of September 30, 2010, approximately 42.6% of our total home heating oilvolume was sold to customers in New York State. In fiscal 2002, temperatures in 10 Table of ContentsCentral Park, New York City were an average of 22.7% warmer than in fiscal 2001 and 18.9% warmer than normal. To partially mitigate the adverse effect ofwarm weather on our cash flows, we have entered into a weather hedge contract with Renaissance Trading Ltd. under which we will receive a payment of$35,000 per degree-day, when the actual degree-days are less than the 10 year average by 7.5%. The hedge covers the period from November 1, 2010 throughMarch 31, 2011 taken as a whole and has a maximum payout of $12.5 million. However, there can be no assurance that this hedge will be adequate to protectus from adverse effects of weather conditions or that we may be able to obtain similar protection in the future.Our operating results will be adversely affected if we continue to experience significant net attrition in our home heating oil customer base.Our net attrition rate of home heating oil customers for fiscal 2010, 2009, and 2008 was approximately 5.0%, 7.6%, and 4.3%, respectively. Excludingcustomer gains and losses at the home heating oil operations that we acquired in fiscal 2010, which acquisitions were completed after the fall marketinginitiatives, we lost 17,600 accounts (net), or 4.7% of our home heating oil customer base, as the decline in gross customer gains of 10,200 accounts was morethan offset by the decline in gross customer losses of 22,800 accounts. This rate represents the net of our annual gross customer losses after gross customergains. For fiscal 2010, 2009, and 2008 we had gross customer losses of 16.8%, 21.1%, and 19.1%, respectively, which were partially offset by gross customergains during these periods of 11.9%, 13.5%, and 14.8%, respectively. The gain of a new customer does not fully compensate for the loss of an existingcustomer because of the expenses incurred during the first year to acquire a new customer. Customer losses are the result of various factors, including but notlimited to: • price competition; • customer relocations; • credit worthiness; and • conversions to natural gas.The continuing unprecedented volatility in the price of heating oil has intensified price competition and added to our difficulty in reducing netcustomer attrition.For additional information about customer attrition, See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results ofOperations – Customer Attrition.”Because of the highly competitive nature of the home heating oil business, we may not be able to retain existing customers or acquire new customers,which would have an adverse impact on our operating results and financial condition.Our home heating oil business is subject to substantial competition. Most of our district locations compete with numerous distributors, primarily on thebasis of reliability of service, price and response to customer service needs. Each district location operates in its own competitive environment.We compete with distributors offering a broad range of services and prices, from full-service distributors, like ourselves, to those offering delivery only.Like many companies in the home heating oil business, we provide home heating equipment repair service on a 24-hour-a-day, seven-day-a-week, 52 weeks ayear basis. We believe that this tends to build customer loyalty. In some instances homeowners have formed buying cooperatives that seek to purchase fueloil from distributors at a price lower than individual customers are otherwise able to obtain. We also compete for retail customers with suppliers of alternativeenergy products, principally natural gas, propane and electricity. Our customer losses to natural gas conversions for fiscal years 2010, 2009, and 2008 were1.2%, 1.6% and 1.6% respectively, which compares to an approximate 1.0% per annum loss in prior years.If we are unable to compete effectively, we may lose existing customers or fail to acquire new customers, which would have a material adverse effect onour operating results and financial condition.If we do not make acquisitions on economically acceptable terms, our future growth will be limited.The home heating oil industry is not a growth industry because new housing generally uses natural gas when it is available, and competition has alsoincreased from alternative energy sources. Accordingly, future growth will depend on our ability to make acquisitions on economically acceptable terms. Wecannot assure that we will be able to identify attractive acquisition candidates in the home heating oil sector in the future or that we will be able to acquirebusinesses on economically acceptable terms. Factors that may adversely affect home heating oil operating and financial results may limit our access tocapital and adversely affect our ability to make acquisitions. Under the terms of our revolving credit facility, our most restrictive agreement, as long as wemaintain certain financial ratios, we are not limited on the number of individual acquisitions or aggregate dollar amount of acquisitions we make in any fiscalyear, but we are restricted from making any individual acquisition in excess of $25.0 million without the lenders’ approval. In 11 Table of Contentsaddition, to make an acquisition, we are required to have Availability (as defined in the revolving credit facility) of $40.0 million, on a historical pro formaand forward-looking basis. This covenant restriction may limit our ability to make acquisitions. Any acquisition may involve potential risks to us andultimately to our unitholders, including: • an increase in our indebtedness; • an increase in our working capital requirements; • our inability to integrate the operations of the acquired business; • our inability to successfully expand our operations into new territories; • the diversion of management’s attention from other business concerns; • an excess of customer loss or loss of key employees from the acquired business; and • the assumption of additional liabilities including environmental liabilities.In addition, acquisitions may be dilutive to earnings and distributions to unitholders, and any additional debt incurred to finance acquisitions mayamong other things, affect our ability to make distributions to our unitholders.Our substantial debt and other financial obligations could impair our financial condition and our ability to fulfill our debt obligations.On November 16, 2010, we completed a Rule 144A offering of $125.0 million in aggregate principal amount of senior notes due 2017. The notes willaccrue interest at a rate of 8.875% and were priced at 99.350%, for total gross proceeds of $124.2 million. The net proceeds from the offering will be used toredeem on December 20, 2010 any and all of the Partnership’s outstanding 10.25% notes due 2013, which currently equate to approximately $82.5 million.Our substantial indebtedness and other financial obligations could: • impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes; • have a material adverse effect on us if we fail to comply with financial and affirmative and restrictive covenants in our debt agreements and an eventof default occurs as a result of a failure that is not cured or waived; • require us to dedicate a substantial portion of our cash flow for interest payments on our indebtedness and other financial obligations, therebyreducing the availability of our cash flow to fund working capital and capital expenditures; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and • place us at a competitive disadvantage compared to our competitors that have proportionately less debt.If we are unable to meet our debt service obligations and other financial obligations, we could be forced to restructure or refinance our indebtednessand other financial transactions, seek additional equity capital or sell our assets. We might then be unable to obtain such financing or capital or sell our assetson satisfactory terms, if at all.Unitholders may have to report income for Federal income tax purposes on their investment in the Partnership without receiving any cash distributionsfrom us.Star Gas Partners is a master limited partnership. Our unitholders are required to report for Federal income tax purposes their allocable share of ourincome, gains, losses, deductions and credits, regardless of whether we make cash distributions. We expect that an investor will be allocated taxable income(mostly dividend, interest income and cancellation of indebtedness income) regardless of whether a cash distribution has been paid.Our corporate subsidiary Star Acquisitions, Inc. and its subsidiaries (“Star Acquisitions”) are subject to Federal and State income taxes. See thefollowing risk factor regarding net operating loss availability.If the Partnership elects to be treated as a corporation for Federal and State income tax purposes, such an election may result in adverse taxconsequences to unitholders.Currently, our main asset and source of income is our 100% ownership interest in Star Acquisitions, which is the parent company of Petro Holdings,Inc. Our unitholders do not receive any of the tax benefits normally associated with owning units in a publicly traded partnership, as any cash coming fromStar Acquisitions to us will generally have been taxed first at a corporate level and then may also be taxable to our unitholders as dividends, reported viaannual Forms K-1. The production of the Forms K-1 themselves is an expensive and administratively intensive process. Thus, we have all the administrativeissues and costs associated with being a large, publicly traded partnership, but our unitholders do not currently receive any material tax benefits from thisstructure. 12 Table of ContentsTo reduce these administrative expenses and to better rationalize our tax reporting structure we are considering making an election sometime in thefuture to be treated as a corporation for Federal and State income tax purposes. While we would still remain a publicly traded partnership for legal andgovernance purposes, for income tax purposes our unitholders would be treated as owning stock in a corporation rather than being partners in a partnership.Subsequent to the year of election unitholders would receive Forms 1099-DIV annually for any dividends and would no longer receive K-1’s. In the year ofelection unitholders would receive both, each form covering part of the year.While there could be negative income tax consequences to our unitholders with this election, we intend to only make this election if we believe that itwill have no overall material adverse impact on our unitholders, of which there can be no assurance. Since determining this is a function of projecting taxableearnings, making assumptions regarding the payment of distributions, and trying to determine when, during any particular calendar year, making the electionwill have the least impact on the most number of unitholders, when or, even if, we will make this election is not determinable at this time. Unitholders areencouraged to consult their tax advisors with respect to these possible outcomes.Increases in wholesale home heating oil prices beyond current levels may have adverse effects on our business, financial condition and results ofoperations.Increases in wholesale home heating oil prices beyond current levels may have adverse effects on our business, financial condition and results ofoperations, including the following: • higher bad debt expense as a result of higher selling prices; • higher interest expense as a result of increased working capital borrowing to finance higher receivables and/or inventory balances; and • reduced liquidity as a result of higher receivables and/or inventory balances as we must fund a portion of any increase in receivables, inventory andhedging costs from our own resources thereby tying up funds that would otherwise be available for other purposes.The volatility in wholesale energy costs may adversely affect our liquidity.Our business requires a significant investment in working capital to finance accounts receivable and inventory during the heating season. Under ourrevolving credit facility, we may borrow up to $240 million, which increases to $290 million during the peak winter months from December through April ofeach year (subject to borrowing base limitations) for working capital purposes subject to maintaining availability (as defined in the revolving credit facility)of $43.5 million or a fixed charge coverage ratio of not less than 1.10x.If increases in home heating oil costs cause our working capital requirements to exceed the amounts available under our revolving credit facility orshould we fail to maintain the required availability, we would not have sufficient working capital to operate our business, which could have a materialadverse effect on our financial condition and results of operations.We generally use forward swaps with members of our lending group to manage market risk associated with our fixed price and ceiling customers, ourphysical inventory and fuel we use for our vehicles. These institutions have not required an initial cash margin deposit or any mark to market maintenancemargin for these swaps. Any mark to market exposure is reserved against our borrowing base and can thus reduce the amount available to us under ourrevolving credit facility. The mark to market reserve against our borrowing base for swap derivative instruments with our lending group was $6.2 million asof September 30, 2010 and $4.7 million as of September 30, 2009.For our ceiling price customers and some of our fixed price customers, we purchase call options, which usually require us to pay an up front cashpayment. This reduces our liquidity, as we must pay for the option before any sales are made to the customer. We also purchase synthetic call options whichrequire us to pay for these options as they expire.For certain of our supply contracts, we are required to establish the purchase price in advance of receiving the physical product. This occurs at the endof the month and is usually 20 days prior to receipt of the product. We use futures contracts or swaps to “short” the purchase commitment such that thecommitment floats with the market. As a result, any upward movement in the market for home heating oil would reduce our liquidity, as we would be requiredto post additional cash collateral for a futures contract or our availability to borrow under our bank facility would be reduced in the case of a swap. AtDecember 31, 2010, we expect to have approximately 40 million gallons of purchase commitments and physical inventory shorted with a futures contract orswap. Assuming a $1.00 per gallon increase in price, our near term liquidity would be reduced by $40 million. 13 Table of ContentsFor the majority of our fiscal year, the amount of cash received from customers with a balanced payment plan is greater than actual billings. Thisamount is reflected on the balance sheet under the caption “customer credit balances.” At September 30, 2010, customer credit balances aggregated $68.8million. Generally, customer credit balances are at their low point after the end of the heating season and at their peak prior to the beginning of the heatingseason.At September 30, 2010, we had approximately 146,000 customers, or 38% of our residential customer base, on the balanced payment plan. If homeheating oil prices increased and we failed to recalculate the balanced payments to reflect current heating oil prices on a timely basis, our liquidity could alsobe reduced.Sudden and sharp oil price increases that cannot be passed on to customers may adversely affect our operating results.The retail home heating oil industry is a “margin-based” business in which gross profit depends on the excess of retail sales prices per gallon oversupply costs per gallon. Consequently, our profitability is sensitive to changes in the wholesale price of home heating oil caused by changes in supply orother market conditions. These factors are beyond our control and thus, when there are sudden and sharp increases in the wholesale cost of home heating oil,we may not be able to pass on these increases to customers through increased retail sales prices. In an effort to retain existing accounts and attract newcustomers we may offer discounts, which will impact the net per gallon gross margin realized.A significant portion of our home heating oil volume is sold to price-protected customers (ceiling and fixed) and our gross margins could be adverselyaffected if we are not able to effectively hedge against fluctuations in the volume and cost of product sold to these customers.A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing the ceiling sales price or afixed price of home heating oil over a fixed period. When the customer makes a purchase commitment for the next period we currently purchase optioncontracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these price-protected customers. The amount ofhome heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer, per month. If theactual usage exceeds the amount of the hedged volume on a monthly basis, we could be required to obtain additional volume at unfavorable margins. Inaddition, should actual usage in any month be less than the hedged volume, (including, for example, as a result of early terminations by fixed pricecustomers) our hedging losses could be greater. Currently, we have elected not to designate our derivative instruments as hedging instruments under FASBASC 815-10-05 Derivatives and Hedging topic, and the change in fair value of the derivative instruments is recognized in our statement of operations.Therefore, we could experience great volatility in earnings as these currently outstanding derivative contracts are marked to market and non-cash gains orlosses are recorded in the statement of operations.We may be adversely affected by the impact of financial reform legislation on derivatives.The U.S. Congress has recently passed comprehensive financial reform legislation that requires regulated banks with derivatives trading units to spinthem off and that requires substantially all derivatives be traded through a central clearing house, subject to margin requirements. This legislation couldsubstantially increase our cost in using certain derivatives and could make such derivatives less available, which could subject us to additional risks to theextent we are not able to hedge the risks in another manner. The full impact of this legislation on us cannot be fully determined until the required rulesimplementing this legislation have been drafted and adopted by the Commodities Futures Trading Commission and the SEC.Significant declines in the wholesale price of home heating oil may cause price-protected customers to renegotiate or terminate their arrangementswhich may adversely impact our gross profit and net income.When the wholesale price of home heating oil declines significantly after a customer enters into a price protection arrangement with us, somecustomers elect to renegotiate their arrangement in order to enter into a lower cost pricing plan with us or terminate their arrangement and switch to acompetitor. As a result of significant decreases in the price of home heating oil following the summer of 2008, many price protection customers decided torenegotiate their agreements with us in fiscal 2009. It is our policy to bill a termination fee when customers terminate their arrangement with us. It is ourbelief that approximately 10,000 customers chose another supplier as a result of being billed the termination fee. 14 Table of ContentsWe are subject to operating and litigation risks that could adversely affect our operating results whether or not covered by insurance.Our operations are subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing customerswith our products. As a result, we may be a defendant in legal proceedings and litigation arising in the ordinary course of business.We maintain insurance policies with insurers in amounts and with coverage and deductibles that we believe are reasonable. However, there can be noassurance that this insurance will be adequate to protect us from all material expenses related to potential future claims for remediation costs and personal andproperty damage or that these levels of insurance will be available in the future at economical prices.Our operations are subject to operational hazards and our insurance reserves may not be adequate to cover actual losses.We self-insure workers’ compensation, automobile and general liability claims up to pre-established limits. In storing and delivering product to ourcustomers, our operations are subject to operational hazards such as natural disasters, adverse weather, accidents, fires, explosions, hazardous materialsreleases, mechanical failures and other events beyond our control. If any of these events were to occur, we could incur substantial losses because of personalinjury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment orsuspension of our related operations.We establish reserves based upon expectations as to what our ultimate liability will be for claims using our historical developmental factors. Weevaluate on an annual basis the potential for changes in loss estimates with the support of qualified actuaries. As of September 30, 2010, we hadapproximately $37.4 million of insurance reserves and had issued $40.2 million in letters of credit for current and future claims. The ultimate settlement ofthese claims could differ materially from the assumptions used to calculate the reserves, which could have a material effect on our results of operations.Our results of operations and financial condition may be adversely affected by governmental regulation and associated environmental and regulatorycosts.The home heating oil business is subject to a wide range of federal and state laws and regulations related to environmental and other matters. Such lawsand regulations have become increasingly stringent over time. We may experience increased costs due to stricter pollution control requirements or liabilitiesresulting from noncompliance with operating or other regulatory permits. New environmental regulations might adversely impact operations, including thoserelating to underground storage and transportation of home heating oil. In addition, there are environmental risks inherently associated with home heating oiloperations, such as the risks of accidental release or spill. We have incurred and continue to incur costs to address soil and groundwater contamination atsome of our locations. We cannot be sure that we have identified all such contamination, that we know the full extent of our obligations with respect tocontamination of which we are aware, or that we will not become responsible for additional contamination not yet discovered. It is possible that materialcosts and liabilities will be incurred, including those relating to claims for damages to property and persons.In addition, our results of operations and ability to issue distributions may be negatively impacted by significant changes in Federal and State tax law.Proposed legislation concerning the regulation of greenhouse gases and other issues that impact our operations could, if adopted, increase our costsand/or require changes to our operations, which could have a material adverse effect on our financial condition and results of operations.There is increasing attention in the United States and worldwide concerning the issue of climate change and the effect of emissions of greenhousegases, in particular from the combustion of fossil fuels. There are efforts by Congress and the EPA to develop new federal laws and regulations that could leadto the adoption of a mandatory program to reduce greenhouse gas emissions through, for example, an economy-wide cap-and-trade program, a carbon tax or acombination of both. Debate continues on the direction, scope and timing of U.S. policy on the regulation of greenhouse gas emissions. It is probable thatany regulatory program that caps emissions or imposes a carbon tax will increase costs for us and our customers which could lead to increased conservation orcustomers seeking lower cost alternatives. However, at this time an estimate of such costs to comply with, or impacts on our business of, potential national,regional or state greenhouse gas emissions reduction legislation, regulations or initiatives is not possible because these programs and proposals are in theearly stages of development and any final program, if adopted, could vary from current proposals. 15 Table of ContentsFurthermore, laws and regulations that affect our operations continue to evolve at both the state and federal levels, which may ultimately increase ourcompliance costs. Changes in regulations under different political administrations, the imposition of additional regulations, or the enactment of newlegislation that impacts employment, labor, trade, transportation or logistics, health care, tax or environmental issues could have the potential of materiallyimpacting our financial condition or results of operations. (See also the risks discussed above under the heading “We may be adversely affected by the impactof financial reform legislation on derivatives.”)We will continue to monitor and evaluate federal, regional or state programs and proposals and judicial and administrative decisions that could affectour customers or operations.Energy efficiency and new technology may reduce the demand for our products and adversely affect our operating results.Increased conservation and technological advances, including installation of improved insulation and the development of more efficient furnaces andother heating devices, have adversely affected the demand for our products by retail customers. Future conservation measures or technological advances inheating, conservation, energy generation or other devices might reduce demand and adversely affect our operating results.Conflicts of interest have arisen and could arise in the future as a result of relationships between the general partner and its affiliates on the one hand,and us and our limited partners and noteholders, on the other hand.Conflicts of interest have arisen and could arise in the future as a result of relationships between the general partner and its affiliates, on the one hand,and us or any of our limited partners and noteholders, on the other hand. As a result of these conflicts the general partner may favor its own interests and thoseof its affiliates over the interests of the unitholders and noteholders. The nature of these conflicts is ongoing and includes the following considerations: • The general partner’s affiliates are not prohibited from engaging in other business or activities, including direct competition with us. • The general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings and reserves, each of which canimpact the amount of cash, if any, available for distribution to unitholders, and available to pay principal and interest on debt. • The general partner controls the enforcement of obligations owed to us by the general partner. • The general partner decides whether to retain separate counsel or others to perform services for us. • In some instances the general partner may borrow funds in order to permit the payment of distributions to unitholders. • The general partner may limit its liability and reduce its fiduciary duties, while also restricting the remedies available to unitholders for actions thatmight, without limitations, constitute breaches of fiduciary duty. Unitholders are deemed to have consented to some actions and conflicts of interestthat might otherwise be deemed a breach of fiduciary or other duties under applicable state law. • The general partner is allowed to take into account the interests of parties in addition to the Partnership in resolving conflicts of interest, therebylimiting its fiduciary duty to the unitholders. • The general partner determines whether to issue additional units or other of our securities. • The general partner determines which costs are reimbursable by us. • The general partner is not restricted from causing us to pay the general partner or its affiliates for any services rendered on terms that are fair andreasonable to us or entering into additional contractual arrangements with any of these entities on our behalf.The risk of global terrorism and political unrest may adversely affect the economy and the price and availability of home heating oil and have amaterial adverse effect on our business, financial condition and results of operations.Terrorist attacks and political unrest may adversely impact the price and availability of home heating oil, our results of operations, our ability to raisecapital and our future growth. The impact that the foregoing may have on the heating oil industry in general, and on our business in particular, is not knownat this time. An act of terror could result in disruptions of crude oil supplies and markets, the source of home heating oil, and its facilities could be direct orindirect targets. Terrorist activity may also hinder our ability to transport home heating oil if our normal means of transportation become damaged as a resultof an attack. Instability in the financial markets as a result of terrorism could also affect our ability to raise capital. Terrorist activity could likely lead toincreased volatility in prices for home heating oil. Insurance carriers are routinely excluding coverage for terrorist activities from their normal policies, butare required to offer such coverage as a result of new federal legislation. We have opted to purchase this coverage with respect to our property and casualtyinsurance programs. This additional coverage has resulted in additional insurance premiums. 16 Table of ContentsThe impact of hurricanes and other natural disasters could cause disruptions in supply and have a material adverse effect on our business, financialcondition and results of operations.Hurricanes, particularly in the Gulf of Mexico, and other natural disasters may cause disruptions in the supply chains for home heating oil and otherproducts that we sell. Disruptions in supply could have a material adverse effect on our business, financial condition and results of operations, causing anincrease in wholesale prices and a decrease in supply.A change in ownership of Star Gas Partners may result in the limitation of the potential utilization of net operating loss carry forwards by ourcorporate subsidiary may impact our ability to pay cash distributions.If Star Gas Partners were to experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, its corporatesubsidiary, Star Acquisitions (the Parent of Petro) may be materially restricted in the potential utilization of its net operating loss carry forwards to offsetfuture taxable income. A restriction on Star Acquisitions’ ability to use its net operating loss carry forwards to reduce its Federal taxable income would reducethe amount of cash Star Acquisitions has available to make distributions to the Partnership, which would consequently reduce the amount of cash thePartnership has available to make distributions to its unitholders.As of the calendar tax year ended December 31, 2009, Star Acquisitions had a Federal net operating loss carry forward (“NOL”) of approximately $51.7million. The Federal NOLs, which will expire between 2018 and 2024, are generally available to offset any future taxable income. In general, the Partnershipwould be deemed to have an “ownership change” under Section 382 if, immediately after any owner shift involving a 5% unitholder or any equity structureshift, the percentage of units of the Partnership owned by one or more 5% unitholders has increased by more than 50% over the lowest percentage of units ofthe Partnership (or any predecessor entity) owned by such unitholder at any time during the three-year testing period.Cash distributions (if any) are not guaranteed and may fluctuate with performance and reserve requirements.Distributions of available cash by us to unitholders will depend on the amount of cash generated, and distributions may fluctuate based on ourperformance. The actual amount of cash that is available will depend upon numerous factors, including: • profitability of operations; • required principal and interest payments on debt or debt prepayments; • debt covenants; • margin account requirements; • cost of acquisitions; • issuance of debt and equity securities; • fluctuations in working capital; • capital expenditures; • adjustments in reserves; • prevailing economic conditions; • financial, business and other factors; • increased pension funding requirements; • the amount of our net operating loss carry forwards (as subject to any Section 382 limitation and utilization); and • the amount of cash taxes we have to pay in Federal, State and local corporate income and franchise taxes.Most of these factors are beyond the control of the general partner. The partnership agreement gives the general partner discretion in establishingreserves for the proper conduct of our business, including acquisitions. These reserves will also affect the amount of cash available for distribution.The revolving credit facility and the indenture for the senior notes both impose certain restrictions on our ability to pay distributions to unitholders.The most restrictive covenant is found in the Partnership’s revolving credit facility. Under the terms of our credit facility, the Partnership must haveavailability of at least $40 million plus a fixed charge coverage ratio of 1.15x to pay the minimum quarterly distribution of $0.0675. Any distribution inexcess of the minimum quarterly distribution requires the Partnership to have a fixed charge coverage ratio of 1.25x. (See Note 11-Long-Term Debt and BankFacility Borrowings) 17 Table of Contents ITEM 1B.UNRESOLVED STAFF COMMENTSNot applicable. ITEM 2.PROPERTIESWe provide services to our customers in the Northeast and Mid-Atlantic regions of the United States from 35 principal operating locations and 52depots, 33 of which are owned and 54 of which are leased. As of September 30, 2010, we had a fleet of 990 truck and transport vehicles, the majority of whichwere owned and 1,097 service vans, the majority of which were leased. We lease our corporate headquarters in Stamford, Connecticut. Our obligations underour credit facility are secured by liens and mortgages on substantially all of the Partnership’s and subsidiaries real and personal property. ITEM 3.LEGAL PROCEEDINGS—LITIGATIONWe are involved from time to time in litigation incidental to the conduct of our business, but we are not currently a party to any material lawsuit orproceeding. ITEM 4.RESERVEDPART II ITEM 5.MARKET FOR REGISTRANT’S UNITS AND RELATED MATTERSThe 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 following tables set forth the high and low closing price ranges for the common units and the cash distribution declared on each unit for the fiscal2010 and 2009 quarters indicated. SGU – Common Unit Price Range Distributions Declaredper Unit High Low FiscalYear2010 FiscalYear2009 FiscalYear2010 FiscalYear2009 FiscalYear2010 FiscalYear2009 Quarter Ended December 31, $4.17 $2.40 $3.55 $1.83 $0.0675 $— March 31, $4.51 $2.71 $3.98 $2.22 $0.0725 $0.0675 June 30, $4.46 $3.62 $4.25 $2.70 $0.0725 $0.0675 September 30, $4.74 $3.71 $4.32 $3.26 $0.0725 $0.0675 As of September 30, 2010, there were approximately 450 holders of record of common units.There is no established public trading market for the Partnership’s 0.3 million general partner units.Partnership Distribution ProvisionsCommencing with the fiscal quarter ended December 31, 2008, we are required to make distributions in an amount equal to our Available Cash, asdefined in our Partnership Agreement, no more than 45 days after the end of each fiscal quarter, to holders of record on the applicable record dates. AvailableCash, as defined in our Partnership Agreement, generally means all cash on hand at the end of the relevant fiscal quarter less the amount of cash reservesestablished by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for theproper conduct of our business, including acquisitions, the payment of debt principal and interest, for distributions during the next four quarters and tocomply with applicable laws and the terms of any debt agreements or other agreement to which we are subject. The Board of Directors of our general partnerreviews the level of Available Cash each quarter based upon information provided by management. 18 Table of ContentsAccording to the terms of our partnership agreement, minimum quarterly distributions on the common units accrue at the rate of $0.0675 per quarter($0.27 on an annual basis). The information concerning restrictions on distributions required by Item 5. of this report is incorporated by reference to Note 5.Quarterly Distribution of Available Cash, of the Partnership’s consolidated financial statements.The revolving credit facility and the indenture for the notes both impose certain restrictions on our ability to pay distributions to unitholders. The mostrestrictive covenant is found in the Partnership’s revolving credit facility. Under the terms of our credit facility, the Partnership must have availability of atleast $40 million plus a fixed charge coverage ratio of 1.15x to pay the minimum quarterly distribution of $0.0675 ($0.27 on an annual basis). Anydistribution in excess of the minimum quarterly distribution requires the Partnership to have a fixed charge coverage ratio of 1.25x. The Partnership iscurrently paying a distribution of $0.0725 per quarter ($0.29 annually).Common Unit Repurchase and RetirementOn July 21, 2009, the Board of Directors of the Partnership’s General Partner authorized the repurchase of up to 7.5 million of the Partnership’scommon units (“Plan I”). By the third fiscal quarter of 2010, all 7.5 million common units authorized for repurchase under the Plan I program wererepurchased at an average price paid per unit of $4.04 and retired. The Partnership’s repurchase activities took into account SEC safe harbor rules andguidance for issuer repurchases.On July 19, 2010, the Board of Directors of the Partnership’s General Partner authorized the repurchase of up to 7.0 million of the Partnership’scommon units (“Plan II”). The authorized common unit repurchases may be made from time-to-time in the open market, in privately negotiated transactionsor in such other manner deemed appropriate by management. In order to facilitate the repurchase program, the Partnership intends to enter into a prearrangedunit repurchase plan under Rule 10b5-1 of the Securities Act of 1933, as amended for up to 4.0 million common units with a third party broker. There is noguarantee of the exact number of units that will be purchased under the program and the Partnership may discontinue purchases at any time. The programdoes not have a time limit. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of thecommon units purchased in the repurchase program will be retired.(in thousands, except per unit amounts) Period Total Number of UnitsPurchased as Part of aPublicly Announced Plan orProgram Average PricePaid per Unit (a) Maximum Number of Unitsthat May Yet Be PurchasedUnder the Plan II Program Number of units authorized 7,000 July 2010 — $— 7,000 August 2010 1,063 $4.43 5,937 September 2010 134 $4.51 5,803 Fourth quarter fiscal year 2010 total 1,197 $4.44 5,803 (a)Amounts include repurchase costs. 19 Table of Contents ITEM 6.SELECTED HISTORICAL FINANCIAL AND OPERATING DATAThe selected financial data as of September 30, 2010 and 2009, and for the years ended September 30, 2010, 2009 and 2008 is derived from thefinancial statements of the Partnership included elsewhere in this Report. The selected financial data as of September 30, 2008, 2007 and 2006 and for theyears ended September 30, 2007 and 2006 is derived from financial statements of the Partnership not included in this Report. See Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations. Fiscal Years Ended September 30, (in thousands, except per unit data) 2010 2009 2008 2007 2006 Statement of Operations Data: Sales $1,212,776 $1,206,813 $1,543,093 $1,267,175 $1,296,512 Costs and expenses: Cost of sales 904,047 875,755 1,257,592 981,559 1,014,565 (Increase) decrease in the fair value of derivative instruments (5,622) (13,690) 25,467 (15,664) 45,677 Delivery and branch expenses 218,625 224,478 213,902 199,509 205,454 Depreciation and amortization expenses 15,745 19,406 26,784 28,995 32,415 General and administrative expenses 21,397 20,742 16,043 17,665 21,599 Operating income (loss) 58,584 80,122 3,305 55,111 (23,198) Interest expense, net 10,820 13,637 13,808 11,525 21,203 Amortization of debt issuance costs 2,680 2,750 2,339 2,282 2,438 (Gain) loss on redemption of debt 1,132 (9,706) — — 6,603 Income (loss) from continuing operations before income taxes 43,952 73,441 (12,842) 41,304 (53,442) Income tax expense (benefit) 15,632 (57,597) 566 2,002 477 Income (loss) from continuing operations 28,320 131,038 (13,408) 39,302 (53,919) Loss on sales of discontinued operations, net of income taxes — — — (1,061) — Income (loss) before cumulative effects of changes in accounting principle forcontinuing operations 28,320 131,038 (13,408) 38,241 (53,919) Cumulative effects of changes in accounting principles-change ininventory pricing method — — — — (344) Net income (loss) $28,320 $131,038 $(13,408) $38,241 $(54,263) Weighted average number of limited partner units: Basic 70,019 75,738 75,774 75,774 52,944 Diluted 70,019 75,738 75,774 75,774 52,944 20 Table of Contents Fiscal Years Ended September 30, (in thousands, except per unit data) 2010 2009 2008 2007 2006 Per Unit Data: Basic and diluted income (loss) from continuing operations per unit (a) $0.38 $1.43 $(0.18) $0.51 $(1.01) Basic and diluted net income (loss) per unit (a) $0.38 $1.43 $(0.18) $0.50 $(1.02) Cash distribution declared per common unit $0.2850 $0.2025 $— $— $— Balance Sheet Data (end of period): Current assets $246,863 $376,898 $344,299 $320,503 $295,880 Total assets $582,508 $664,126 $605,433 $602,104 $581,208 Long-term debt $82,770 $133,112 $173,752 $173,941 $174,056 Partners’ Capital $279,911 $306,334 $199,977 $216,331 $173,325 Summary Cash Flow Data: Net Cash provided by operating activities $44,429 $78,455 $71,555 $51,115 $18,364 Net Cash used in investing activities $(73,956) $(7,568) $(5,488) $(29,254) $(3,271) Net Cash used in financing activities $(104,571) $(54,535) $(145) $(96) $(23,120) Other Data: Earnings from continuing operations before net interest expense, income taxes,depreciation and amortization (EBITDA) (b) $73,197 $109,234 $30,089 $84,106 $2,614 Adjusted EBITDA (b) $68,707 $85,838 $55,556 $68,442 $54,894 Retail gallons sold 307,993 349,385 351,128 376,645 389,920 (a)Income (loss) from continuing operations per unit is computed by dividing the limited partners’ interest in income (loss) from continuing operations bythe weighted average number of limited partner units outstanding. Net income (loss) per unit is computed by dividing the limited partners’ interest innet income (loss) by the weighted average number of limited partner units outstanding.(b)EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA(Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value ofderivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measuresthat are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banksand research analysts, to assess: • our compliance with certain financial covenants included in our debt agreements; • our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis; • our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; • our operating performance and return on invested capital as compared to those of other companies in the retail distribution of refined petroleumproducts business, without regard to financing methods and capital structure; and • the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.The method of calculating Adjusted EBITDA may not be consistent with that of other companies and each of EBITDA and Adjusted EBITDA has itslimitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed inaccordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are: • EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures; • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDAand Adjusted EBITDA do not reflect the cash requirements for such replacements; • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements; • EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and • EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes. 21 Table of ContentsEBITDA and Adjusted EBITDA is calculated for the fiscal years ended September 30 as follows: (in thousands) 2010 2009 2008 2007 2006 Income (loss) from continuing operations $28,320 $131,038 $(13,408) $39,302 $(53,919) Plus: Income tax expense (benefit) 15,632 (57,597) 566 2,002 477 Amortization of debt issuance cost 2,680 2,750 2,339 2,282 2,438 Interest expense, net 10,820 13,637 13,808 11,525 21,203 Depreciation and amortization 15,745 19,406 26,784 28,995 32,415 EBITDA from continuing operations 73,197 109,234 30,089 84,106 2,614 (Increase)/decrease in the fair value of derivative instruments (5,622) (13,690) 25,467 (15,664) 45,677 (Gain) loss on redemption of debt 1,132 (9,706) — — 6,603 Adjusted EBITDA 68,707 85,838 55,556 68,442 54,894 Add/(subtract) Income tax (expense) benefit (15,632) 57,597 (566) (2,002) (477) Interest expense, net (10,820) (13,637) (13,808) (11,525) (21,203) Provision for losses on accounts receivable 5,279 10,310 11,961 5,726 6,105 (Increase) decrease in accounts receivables (4,570) 26,657 (28,002) 5,761 (3,809) (Increase) decrease in inventories (2,012) (17,747) 41,368 (8,222) (23,830) Increase (decrease) in customer credit balances (9,250) (11,964) 13,390 (3,724) 8,576 Change in deferred taxes 13,331 (61,355) — — — Change in other operating assets and liabilities (604) 2,756 (8,344) (3,341) (1,892) Net cash provided by operating activities $44,429 $78,455 $71,555 $51,115 $18,364 Net Cash used in investing activities $(73,956) $(7,568) $(5,488) $(29,254) $(3,271) Net Cash used in financing activities $(104,571) $(54,535) $(145) $(96) $(23,120) 22 Table of Contents ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSStatement Regarding Forward-Looking DisclosureThis Annual Report on Form 10-K includes “forward-looking statements” which represent our expectations or beliefs concerning future events thatinvolve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance, the price and supply of homeheating oil, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retainexisting customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, naturalgas conversions, future union relations and the outcome of union negotiations, the impact of current and future governmental regulations, includingenvironmental, health, and safety regulations, the ability to attract and retain employees, customer credit worthiness, counterparty credit worthiness,marketing plans, general economic conditions and new technology. All statements other than statements of historical facts included in this Report including,without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein,are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give noassurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks anduncertainties. These risks and uncertainties include, but are not limited to, those set forth under the heading “Risk Factors” and “Business Initiatives andStrategy.” Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended toidentify forward-looking statements. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) aredisclosed in this Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable to the Partnership or persons actingon its behalf are expressly qualified in their entirety by the Cautionary Statements. Unless otherwise required by law, we undertake no obligation to update orrevise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Report.OverviewThe following is a discussion of the historical financial condition and results of our operations and should be read in conjunction with the descriptionof our business and the historical financial and operating data and notes thereto included elsewhere in this document.In fiscal 2008, we completed our transition from a centralized customer service model to a more traditional customer service model in which themajority of our customer service calls are answered locally. We have implemented an employee-staffed centralized call center to augment our internal staffingrequirements for certain overflow, off-peak and weekend hours.SeasonalityThe following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters andyears respectively in this document are to fiscal quarters and years unless otherwise noted. The seasonal nature of our business has resulted on average in thelast five years in the sale of approximately 30% of our volume of home heating oil in the first fiscal quarter and 50% of our volume in the second fiscalquarter of each fiscal year, the peak heating season. We generally realize net income in both of these quarters and net losses during the quarters ending Juneand September. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.Degree DayA “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how farthe average temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperaturebelow 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or along-term (multi-year) average to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National WeatherService and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degreeday amount as reported by the National Weather Service in our operating areas. 23 Table of ContentsWeather Hedge Contract Warm WeatherWeather conditions have a significant impact on the demand for home heating oil because our customers depend on this product principally forheating purposes. Actual weather conditions can vary substantially from year to year, significantly affecting our financial performance. To partially mitigatethe adverse effect of warm weather on our cash flows, we have entered into a weather hedge contract with Renaissance Trading Ltd. Under the weather hedgecontract we will receive a payment of $35,000 per heating degree-day, when the total number of heating degree-days in the period covered is less than 92.5%of the 10-year average. The hedge covers the period from November 1, 2010 through March 31, 2011 taken as a whole and has a maximum payout of $12.5million.Per Gallon Gross Profit MarginsWe believe the change in home heating oil margins should be evaluated on a cents per gallon basis, before the effects of increases or decreases in thefair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value ofhedges before the settlement of the underlying transaction.A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing a ceiling sales price orfixed price for home heating oil over a fixed period of time. When these price-protected customers agree to purchase home heating oil from us for the nextheating season, we purchase option contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to thesecustomers. The amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per averagecustomer, per month. In the event that the actual usage exceeds the amount of the hedged volume on a monthly basis, we could be required to obtainadditional volume at unfavorable margins. In addition, should actual usage in any month be less than the hedged volume, our hedging losses could begreater.DerivativesFASB ASC 815-10-05 Derivatives and Hedging topic (FAS 133), established accounting and reporting standards requiring that derivative instrumentsbe recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent derivative instruments designated as cash flowhedges are effective, as defined under this standard, changes in fair value are recognized in other comprehensive income until the forecasted hedged item isrecognized in earnings. Currently, we have elected not to designate our derivative instruments as hedging instruments under this standard, and, as a result, thechanges in fair value of the derivative instruments are recognized in our statement of operations. Therefore, we experience great volatility in earnings asoutstanding home heating oil derivative instruments are marked to market and non-cash gains and losses are recorded prior to the sale of the commodity tothe customer. To the extent that we continue this accounting treatment, the volatility in any given period related to unrealized non-cash gains or losses onderivative home heating oil instruments can be significant to our overall results. However, we ultimately expect those gains and losses to be offset by the costof product when purchased.Impact on Liquidity of Wholesale Product Cost VolatilityThe wholesale price of home heating oil has been extremely volatile over the last several years. Our liquidity is adversely impacted in times ofincreasing heating oil prices, as we must use cash to pay for our hedging requirements and to fund a portion of the increased levels of accounts receivable andinventory. Our liquidity is also adversely impacted at times by sudden and sharp decreases in heating oil prices due to the increased margin requirements forfutures contracts and collateral requirements for swaps that we use to manage market risks related to our fixed price customers and physical inventory that arenot immediately offset by lower inventory and accounts receivable carrying costs.Income Taxes—Valuation Allowance and Net Operating Loss Carry ForwardBased upon a review of a number of factors, including historical operating performance and our expectation that we could generate sustainableconsolidated taxable income for the foreseeable future, we concluded at the end of fiscal 2009 that the majority of our net deferred tax assets should berecognized. Thus, pursuant to FASB ASC 740-10 Income Taxes topic (FAS 109), we recorded a tax benefit during fiscal 2009 reversing a majority of theopening valuation allowance, resulting in a non-cash increase in net income of $86.4 million. This benefit was offset by a current income tax expense of $3.8million and deferred income tax expense of $25.0 million related to current year activity (including net operating loss carry forward utilization), resulting ina net income tax benefit of $57.6 million. Most of the $86.4 million benefit relating to the valuation allowance release related to Federal and State loss carryforwards (NOLs), insurance reserves, and the net operating book versus tax timing of intangible amortization. 24 Table of ContentsAt December 31, 2006, we had Federal NOLs of $160.8 million and at December 31, 2009, we had Federal NOLs of $51.7 million. Over this three yearperiod, we utilized $36.4 million of Federal NOLs on average each year to offset our taxable income. We expect that over the next twelve to fifteen monthswe will utilize substantially all of the remaining unlimited Federal NOLs. After we exhaust the Federal NOLs, the amount of cash taxes that we will pay willincrease significantly and will reduce the annual amount of cash available for distribution to unitholders. For example, in calendar 2007, 2008 and 2009 wepaid Federal cash taxes of $1.0 million, $0.6 million, and $0.7 million respectively. If we did not have the Federal NOLs available to us for calendar 2007,2008 and 2009 our Federal cash taxes would have increased to $17.2 million, $11.1 million and $9.9 million for calendar 2007, 2008 and 2009 respectively.Income Taxes—Book Versus Tax DeductionsThe amount of cash flow that we generate in any given year depends upon a variety of factors including the amount of cash income taxes that oursubsidiaries will pay. The amount of depreciation and amortization that we deduct for book (i.e. financial reporting) purposes will differ from the amount thatour subsidiaries can deduct for tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that oursubsidiaries expect to deduct for tax purposes. (Our subsidiaries file their tax returns based on a calendar year. The amounts below are based on our fiscalyear.)Estimated Depreciation and Amortization Expense (in thousands)Fiscal year Book Tax 2011 $19,586 $30,835 2012 13,431 27,625 2013 10,224 24,339 2014 8,897 20,493 2015 8,032 17,597 Income Taxes—Election to be Taxed as an Association or “C Corporation”Currently, our main asset and source of income is our 100% ownership interest in Star Acquisitions, Inc. (“Star Acquisitions”), which is the parentcompany of Petro Holdings, Inc. Our unitholders do not receive any of the tax benefits normally associated with owning units in a publicly tradedpartnership, as any cash coming from Star Acquisitions to us will generally have been taxed first at a corporate level and then may also be taxable to ourunitholders as dividends, reported via annual Forms K-1. The production of the Forms K-1 themselves is an expensive and administratively intensive process.Thus, we have all the administrative issues and costs associated with being a large, publicly traded partnership, but our unitholders do not currently receiveany material tax benefits from this structure.To reduce these administrative expenses and to better rationalize our tax reporting structure we are considering making an election sometime in thefuture to be treated as a corporation for Federal and State income tax purposes. While we would still remain a publicly traded partnership for legal andgovernance purposes, for income tax purposes our unitholders would be treated as owning stock in a corporation rather than being partners in a partnership.Subsequent to the year of election unitholders would receive Forms 1099-DIV annually for any dividends and would no longer receive K-1’s. In the year ofelection unitholders would receive both, each form covering part of the year.While there could be negative income tax consequences to our unitholders with this election, we intend to only make this election if we believe that itwill have no overall material adverse impact on our unitholders, of which there can be no assurance. Since determining this is a function of projecting taxableearnings, making assumptions regarding the payment of distributions, and trying to determine when, during any particular calendar year, making the electionwill have the least impact on the most number of unitholders, when or, even if, we will make this election is not determinable at this time. Unitholders areencouraged to consult their tax advisors with respect to these possible outcomes.EBITDA and Adjusted EBITDA (non-GAAP financial measures)EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA(Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value ofderivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that areused as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and researchanalysts, to assess: • our compliance with certain financial covenants included in our debt agreements; 25 Table of Contents • our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis; • our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; • our operating performance and return on invested capital as compared to those of other companies in the retail distribution of refined petroleumproducts business, without regard to financing methods and capital structure; and • the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.The method of calculating Adjusted EBITDA may not be consistent with that of other companies and each of EBITDA and Adjusted EBITDA has itslimitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed inaccordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are: • EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures; • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDAand Adjusted EBITDA do not reflect the cash requirements for such replacements; • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements; • EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and • EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.AcquisitionsFrom April 1 to September 30, 2010 (after the heating season), the Partnership completed five acquisitions and added approximately 56,100 homeheating oil, propane and security accounts. While these acquisitions provided additional revenues in fiscal 2010, the Partnership’s profitability measuressuch as operating income and net income for fiscal 2010 were adversely impacted as product costs and operating expenses from these acquisitions duringfiscal 2010 exceeded revenues, which is normal for this non-heating period.Customer AttritionWe measure net customer attrition for our full service residential and commercial home heating oil customers. Net customer attrition is the differencebetween gross customer losses and customers added through internal marketing efforts. Customers purchased through acquisitions are not included in thecalculation of gross customer gains. Marketing activity for our acquisitions from the date that the acquisitions took place is included in the results below.Gross customer losses are the result of a number of factors, including price competition, move-outs, service issues, credit losses and conversion to natural gas.When a customer moves out of an existing home, we count the “move out” as a loss and, if we are successful in signing up the new homeowner, the “move in”is treated as a gain.Gross Customer Gains, Gross Customer Losses by Quarter and Net Customer Attrition: Fiscal Year Ended September 2010 2009 2008 Gross Customer Net Gross Customer Net Gross Customer Net Gains Losses Attrition Gains Losses Attrition Gains Losses Attrition First Quarter 19,000 21,600 (2,600) 26,300 31,800 (5,500) 22,000 27,500 (5,500) Second Quarter 11,000 14,200 (3,200) 11,700 24,100 (12,400) 12,400 19,000 (6,600) Third Quarter 5,300 12,600 (7,300) 5,900 12,300 (6,400) 8,100 13,700 (5,600) Fourth Quarter 10,100 16,800 (6,700) 10,500 16,500 (6,000) 18,700 19,300 (600) 45,400 65,200 (19,800) 54,400 84,700 (30,300) 61,200 79,500 (18,300) 26 Table of ContentsGross Customer Gains, Gross Customer Losses and Net Customer Attrition as a Percentage of the Home Heating Oil Customer Base: Fiscal Year Ended September 2010 2009 2008 Gross Customer Net Gross Customer Net Gross Customer Net Gains Losses Attrition Gains Losses Attrition Gains Losses Attrition First Quarter 5.1% 5.8% (0.7%) 6.5% 7.9% (1.4%) 5.3% 6.6% (1.3%) Second Quarter 3.0% 3.8% (0.8%) 2.9% 6.0% (3.1%) 3.0% 4.6% (1.6%) Third Quarter 1.4% 3.3% (1.9%) 1.5% 3.1% (1.6%) 2.0% 3.3% (1.3%) Fourth Quarter 2.4% 3.9% (1.6%) 2.6% 4.1% (1.5%) 4.5% 4.6% (0.1%) 11.9% 16.8% (5.0%) 13.5% 21.1% (7.6%) 14.8% 19.1% (4.3%) We lost 19,800 accounts (net) during fiscal 2010, or 5.0% of our home heating oil customer base compared to losing 30,300 accounts (net), or 7.6% ofour home heating oil customers, in fiscal 2009. Excluding customer gains and losses at the home heating oil operations we acquired in fiscal 2010, whichacquisitions were completed after the fall marketing initiatives, we lost 17,600 accounts (net), or 4.7% of our home heating oil customer base. As a result ofthe extreme price volatility in the summer and fall of 2008, the Partnership was able to take advantage of an unusually high number of consumers seeking analternate supplier in fiscal 2009, which resulted in an increase in gross customer gains for fiscal 2009. These favorable conditions did not reoccur in fiscal2010 and gross customer gains were lower. The reduction in gross customer losses of 22,800 accounts was primarily due to the aforementioned marketcondition, as losses due to price declined by 11,600 accounts. In addition, our credit losses improved by 7,600 accounts and natural gas conversions declinedby 1,800. The decline in price losses was largely due to the market conditions described below for fiscal 2009 relating to our fixed price customers and ourfocus on training and development of our customer service staff.In fiscal 2009, we lost 30,300 accounts, net, or 7.6% of our home heating oil customer base, as compared to fiscal 2008 in which we lost 18,300accounts, net, or 4.3 % of our home heating oil customer base. The increase in net losses of 12,000 accounts occurred primarily in the second and fourthquarters of fiscal 2009. In the second quarter of fiscal 2009, our gross customer losses were 24,100, or 5,100 accounts greater than the second quarter of fiscal2008. This increase in gross losses was largely from our fixed price customers, and to a lesser extent, our ceiling customers. As a result of significant decreasesin the price of home heating oil following the summer of 2008, many price-protected customers decided to renegotiate their agreements with us in fiscal2009. It is our policy to bill a termination fee when customers cancel their arrangement with us. It is our belief that approximately 10,000 customers choseanother supplier as a result of being billed the termination fee. This compares to approximately 4,300 customers who cancel their relationship in fiscal 2008after we billed a termination fee.In fiscal 2009, our gross customers gains decreased by 6,800 accounts to 54,400 accounts (13.5% of our home heating oil customer base) whencompared to gross customer gains of 61,200 (14.8% of our home heating oil customer base) generated in fiscal 2008. As mentioned above, the decline ingross customer gains that occurred in fiscal 2009 was largely experienced in the fourth quarter of fiscal 2009. In addition, we believe that gains from realestate sources in fiscal 2009 declined by 2,500 accounts primarily as a result of the reduction in house sales during this period.In fiscal 2009, our gross customer losses increased by 5,200 accounts to 84,700 (21.1% of our home heating oil customer base) when compared to79,500 in gross customer losses for fiscal 2008 (19.1% of our home heating oil customer base). As noted above, gross losses from customers that were billed atermination fee increased by 5,700 accounts and the number of accounts that we proactively cancelled for credit increased by 2,400 accounts.We believe that continued price volatility and high cost of home heating oil will adversely impact our ability to attract customers and retain existingcustomers in the future. 27 Table of ContentsFiscal Year Ended September 30, 2010Compared to the Fiscal Year Ended September 30, 2009VolumeFor fiscal 2010, retail volume of home heating oil decreased by 41.4 million gallons, or 11.8%, to 308.0 million gallons, as compared to 349.4 milliongallons for fiscal 2009. Volume of other petroleum products declined by 0.4 million gallons, or 1.1%, to 39.2 million gallons for fiscal 2010, as compared to39.6 million gallons for fiscal 2009, as the additional volume from acquisitions offset a decline in the base business. An analysis of the change in the retailvolume of home heating oil, which is based on management’s estimates, sampling and other mathematical calculations, is found below: (in millions of gallons) Heating Oil Volume—Fiscal 2009 349.4 Impact of warmer temperatures (31.7) Net customer attrition—residential / commercial (12.5) Acquisitions 3.7 Other (0.9) Change (41.4) Volume—Fiscal 2010 308.0 Temperatures in our geographic areas of operations for fiscal 2010 were 9.1% warmer than fiscal 2009 and 7.9% warmer than normal, as reported by theNational Oceanic Administration (“NOAA”). For fiscal 2010, net customer attrition excluding acquisitions, which were completed after the heating season,was 4.7%. (The impact on volume from our acquisitions is reported separately.) Due to the significant increase in the price per gallon of home heating oilover the last several years, we believe that customers are using less home heating oil given similar temperatures when compared to prior periods.The percentage of home heating oil volume sold to residential variable price customers increased to 42.0% of total home heating oil volume sales forfiscal 2010, as compared to 40.1% for fiscal 2009. Accordingly, the percentage of home heating oil volume sold to residential price-protected customersdecreased to 44.1% for fiscal 2010, as compared to 45.5% for fiscal 2009. For fiscal 2010, sales to commercial/industrial customers represented 13.8% of totalhome heating oil volume sales, as compared to 14.3% for fiscal 2009.Product SalesFor fiscal 2010, product sales decreased $5.0 million, or 0.4%, to $1.028 billion, as compared to $1.033 billion for fiscal 2009, as an 11.0% increase inhome heating oil selling prices and an increase in sales of other petroleum products of $15.9 million (1.5% of total product sales) was reduced by a 11.8%decrease in home heating oil volume. Selling prices rose largely due to an increase in wholesale product costs.Installation and Service SalesFor fiscal 2010, installation and service sales increased $10.4 million, or 5.9%, to $184.4 million, as compared to $174.0 million for fiscal 2009, as theadditional service and installation revenue from acquisitions of $6.9 million and higher air conditioning installation and service revenue of $5.4 million wasoffset slightly by a $1.1 million reduction in heating installations and a fall in service contract revenue due to net customer attrition and competitivepressures. The Partnership believes that the mild spring and relatively warm summer weather in fiscal 2010 in the areas in which the Partnership operates werethe main drivers of the increase in air conditioning related revenues while the warm winter adversely impacted heating installations.Cost of ProductFor fiscal 2010, cost of product increased $26.4 million, or 3.7%, to $734.6 million, as compared to $708.2 million for fiscal 2009, as the impact ofincreases in home heating oil and other petroleum products was reduced by the 11.8% decline in home heating oil volume. 28 Table of ContentsGross Profit ProductThe table below recalculates the Partnership’s per gallon margins and reconciles product gross profit for home heating oil and other petroleumproducts. We believe the change in home heating oil margins should be evaluated before the effects of increases or decreases in the fair value of derivativeinstruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before thesettlement of the underlying transaction. On that basis, home heating oil margins for fiscal 2010 increased by $0.0201 per gallon, or 2.2%, to $0.9136 pergallon, from $0.8935 per gallon in fiscal 2009. Product sales and cost of product include home heating oil, other petroleum products and liquidated damagesbillings. Fiscal Year End (In millions, except per gallon amounts) September 30, 2010 September 30, 2009 Amount PerGallon Amount PerGallon Home Heating Oil Volume 308.0 349.4 Sales $934.2 $3.0331 $954.5 $2.7318 Cost $652.8 $2.1195 $642.3 $1.8383 Gross Profit $281.4 $0.9136 $312.2 $0.8935 Amount PerGallon Amount PerGallon Other Petroleum Products Volume 39.2 39.6 Sales $94.2 $2.4064 $78.4 $1.9785 Cost $81.8 $2.0885 $65.9 $1.6640 Gross Profit $12.4 $0.3179 $12.5 $0.3145 Amount Amount Total Product Sales $1,028.4 $1,032.8 Cost $734.6 $708.2 Gross Profit $293.8 $324.6 For fiscal 2010, total product gross profit decreased by $30.8 million to $293.8 million, as compared to $324.6 million for fiscal 2009, as the impact ofhigher home heating oil per gallon margins ($6.2 million) was more than offset by the impact of lower home heating oil volume ($37.0 million.) In fiscal2010, gross profit from other petroleum products equaled fiscal 2009 and per gallon margins increased slightly.Cost of Installations and ServiceFor fiscal 2010, cost of installations and service increased $1.9 million, or 1.1%, to $169.5 million, as compared to $167.6 million for fiscal 2009,reflecting additional expense from acquisitions of $5.6 million, which was partially offset by lower vehicle fuel costs of $3.5 million.The gross profit realized from service (including installations) increased by $8.5 million, from $6.4 million for fiscal 2009 to $14.9 million for fiscal2010. Management views the service and installation department on a combined basis because many expenses cannot be separated or allocated to eitherservice or installation billings. Many overhead functions and direct expenses such as service technician time cannot be precisely allocated.Installation costs were $55.8 million, or 85.4% of installation sales during fiscal 2010, and were $52.9 million, or 88.5% of installation sales duringfiscal 2009. The decline in installation costs as a percentage of sales was largely the result of reduced staffing levels as the Partnership responded to theimpact on installation sales of the economic downturn of the last several years. In fiscal 2009, the Partnership did not reduce staffing levels as quickly as thedecline in installation revenue. Service expenses decreased to $113.7 million, or 95.5% of service sales during fiscal 2010, from $114.7 million in fiscal2009, or 100.4% of sales. The decrease in 29 Table of Contentsservice expenses of $1.0 million was largely due to the $3.5 million decline in vehicle fuel costs partially offset by additional service costs associated withacquisitions of $3.2 million. The decline in service costs as a percentage of service revenue was due to higher profitability of the increased air conditioningservice and the decline in vehicle fuels.(Increase) Decrease in the Fair Value of Derivative InstrumentsDuring fiscal 2010, the change in the fair value of derivative instruments resulted in the recording of a $5.6 million increase due to the expiration ofcertain hedged positions ($9.2 million increase), and a decrease in market value for unexpired hedges ($3.5 million charge).During fiscal 2009, the change in the fair value of derivative instruments resulted in the recording of a $13.7 million increase due to the expiration ofcertain hedged positions ($21.2 million increase), and a decrease in market value for unexpired hedges ($7.5 million charge).Delivery and Branch ExpensesFor fiscal 2010, delivery and branch expenses decreased $5.9 million, or 2.6%, to $218.6 million, as compared to $224.5 million in fiscal 2009. Whileacquisitions resulted in an increase in delivery and branch expenses of $8.4 million, delivery and branch expenses in the Partnership’s base business declinedby $14.3 million. Account losses due to poor credit declined by 47.5% which led a decline in bad debt expense of $5.3 million and vehicle fuel expenses fellby $3.6 million largely due to a decline in fuel costs. Delivery and branch expenses were reduced by $4.5 million due to the decline in home heating oilvolume which mitigated the impact of inflationary pressures on operating expenses. On a cents per gallon basis, delivery and branch expenses increased 6.7cents per gallon or 10.5%, from 64.3 cents for fiscal 2009 to 71.0 cents for fiscal 2010 due to the fixed nature of certain operating expenses that could not beadjusted due to the 11.8% decline in home heating oil volume. Our fiscal 2010 acquisitions, which were completed after the heating season, resulted in thePartnership having to incur operating costs for such acquisitions without any heating season volume being generated by them which adversely impacted theyear over year operating cost comparison by 1.9 cents per gallon.Depreciation and AmortizationFor fiscal 2010, depreciation and amortization expenses were $15.7 million, as compared to $19.4 million for fiscal 2009. Amortization expense waslower by $3.5 million, as the customer list of acquisitions from fiscal 2002 with 7 year lives and acquisitions from 1999 with 10 year lives became fullyamortized in fiscal 2009 partially offset by increased amortization expense from fiscal 2010 acquisitions having 7 and 10 year lives.General and Administrative ExpensesFor fiscal 2010, general and administrative expenses increased $0.7 million to $21.4 million, as compared to $20.7 million for fiscal 2009. Legal andprofessional expenses relating to acquisitions were $0.7 million in fiscal 2010 and pension expense relating to the Partnership’s frozen pension planincreased by $0.9 million to $3.1 million. Generally, a higher contribution to the frozen pension plan was required to offset lower than expected assetsreturns. In fiscal 2010, Adjusted EBITDA for profit sharing calculation purposes decreased resulting in a corresponding decrease in profit sharing expense of$0.5 million.The Partnership accrues approximately 6% of Adjusted EBITDA as defined in the profit sharing plan for distribution to its employees, and this amountis payable when the Partnership achieves actual adjusted EBITDA of at least 70% of the amount budgeted. If Adjusted EBITDA increases, the dollar amountof the profit sharing pool will increase. On the other hand, if Adjusted EBITDA decreases, the dollar amount of the profit sharing pool will be reduced.Interest ExpenseFor fiscal 2010, interest expense decreased by $3.5 million, or 19.7 % to $14.3 million, as compared to $17.8 million for fiscal 2009. Over the last twofiscal years, the Partnership has repurchased $90.3 million face value of its 10.25% Senior Notes lowering the average long-term debt outstanding for theseNotes by $44.7 million and the corresponding interest expense by $4.5 million. Bank charges increased by $1.0 million largely due to an increase in letter ofcredit fees.On November 16, 2010, the Partnership sold $125.0 million 8.875% Senior Notes due 2017 at a price of 99.35%. The proceeds will be used torepurchase $82.5 million of Senior Notes due February 2013. As a result, the Partnership expects that interest expense will increase in fiscal 2011. 30 Table of ContentsDuring fiscal 2010, average bank borrowings were $3.6 million and the corresponding interest expense increased by $0.2 million. There were no bankborrowings in fiscal 2009.Interest IncomeFor fiscal 2010, interest income decreased $0.7 million to $3.5 million, as compared to $4.2 million for fiscal 2009, due to lower invested cashbalances and lower finance charge income on past due accounts receivables balances.Amortization of Debt Issuance CostsFor fiscal 2010, amortization of debt issuance costs decreased slightly to $2.7 million, as compared to $2.8 million in fiscal 2009.Gain (loss) on Bond RepurchaseDuring fiscal 2010, the Partnership repurchased $50.0 million face value of its 10.25% Senior Notes due February 2013 at an average price of $101.7per $100 of principal plus accrued interest. The Partnership recorded a loss of $1.1 million for this transaction.During fiscal 2009, the Partnership repurchased $40.3 million face value of its 10.25% Senior Notes due February 2013 at an average price of $75.1 per$100 of principal plus accrued interest. The Partnership recorded a gain of $9.7 million.Income Tax Expense (Benefit)Income tax expense increased by $73.2 million in fiscal 2010 as compared to fiscal 2009 primarily due to 2010 having $82.5 million in lower benefitfrom the release of opening valuation allowance than in 2009. Based on a number of factors, including historical operating performance and our expectationthat we could generate enough sustainable taxable income for the foreseeable future in the jurisdictions for which the opening valuation allowance wasestablished, we concluded at the end of fiscal 2010 that these deferred tax assets should be recognized. For fiscal 2009 this benefit was $86.4, representingthe majority of our opening valuation allowance in that year.This decreased benefit of $82.5 million was offset in fiscal 2010 by $7.8 million in lower deferred tax expense and $1.5 million in lower current taxexpense as compared to fiscal 2009. These lower tax expenses were primarily due to fiscal 2010 having $29.5 million in lower income before income taxesthan fiscal 2009. Our effective tax rate for fiscal 2010 of 35.6% includes the impact of the release of the opening valuation allowance which reduced theeffective tax rate by 8.9%.Going forward, our income tax expense will consist of two components, a current income tax expense and a deferred income tax expense. The currenttax expense will represent our expected cash taxes for the current period. The deferred tax expense represents the amount of income taxes that we would havepaid if we did not have the benefit of our net loss carry forwards and other deferred tax assets. We expect that we will utilize substantially all of our unlimitednet Federal operating loss carryforward by the next twelve to fifteen months.Net Income (Loss)For fiscal 2010, net income of $28.3 million was recorded, as compared to a net income of $131.0 million for fiscal 2009. This decrease of $102.7million was primarily due to the recording of an $86.4 million income tax benefit in fiscal 2009 from the release of the majority of the Partnership’s openingvaluation allowance. In fiscal 2010, only $3.9 million of opening valuation allowance was released. In addition, the after tax impact of lower earningsreduced net income by $17.9 million.Adjusted EBITDAFor fiscal 2010, Adjusted EBITDA decreased by $17.1 million to $68.7 million, as compared to $85.8 million for fiscal 2009, as the impact of a declinein home heating oil volume and a $3.6 million Adjusted EBITDA loss from acquisitions more than offset an improvement in net service and installationprofitability, an increase in home heating oil per gallon margins and lower operating expense. The Adjusted EBITDA loss from fiscal 2010 acquisitions wasexpected as these assets were purchased subsequent to the heating season. 31 Table of ContentsEBITDA and Adjusted 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 our ability to make theMinimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows: Fiscal Year Ended September 30, (in thousands) 2010 2009 Income from continuing operations $28,320 $131,038 Plus: Income tax expense (benefit) 15,632 (57,597) Amortization of debt issuance cost 2,680 2,750 Interest expense, net 10,820 13,637 Depreciation and amortization 15,745 19,406 EBITDA (a) from continuing operations 73,197 109,234 (Increase) / decrease in the fair value of derivative instruments (5,622) (13,690) (Gain) loss on redemption of debt 1,132 (9,706) Adjusted EBITDA (a) 68,707 85,838 Add / (subtract) Income tax (expense) benefit (15,632) 57,597 Interest expense, net (10,820) (13,637) Provision for losses on accounts receivable 5,279 10,310 (Increase) decrease in accounts receivables (4,570) 26,657 Increase in inventories (2,012) (17,747) Decrease in customer credit balances (9,250) (11,964) Change in deferred taxes 13,331 (61,355) Change in other operating assets and liabilities (604) 2,756 Net cash provided by (used in) operating activities $44,429 $78,455 Net cash used in investing activities $(73,956) $(7,568) Net cash used in financing activities $(104,571) $(54,535) EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA(Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value ofderivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that areused as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and researchanalysts, to assess: • our compliance with certain financial covenants included in our debt agreements; • our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis; • our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; • our operating performance and return on invested capital as compared to those of other companies in the retail distribution of refined petroleumproducts business, without regard to financing methods and capital structure; and • the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities. 32 Table of ContentsThe method of calculating Adjusted EBITDA may not be consistent with that of other companies and each of EBITDA and Adjusted EBITDA has itslimitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed inaccordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are: • EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures; • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDAand Adjusted EBITDA do not reflect the cash requirements for such replacements; • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements; • EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and • EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes. 33 Table of ContentsFiscal Year Ended September 30, 2009Compared to the Fiscal Year Ended September 30, 2008VolumeFor fiscal 2009, retail volume of home heating oil decreased by 1.7 million gallons, or 0.5%, to 349.4 million gallons, as compared to 351.1 milliongallons for fiscal 2008. Volume of other petroleum products declined by 9.3 million gallons, or 19.0%, to 39.6 million gallons for fiscal 2009, as compared to48.9 million gallons for fiscal 2008. An analysis of the change in the retail volume of home heating oil, which is based on management’s estimates, samplingand other mathematical calculations, is found below: (In millions of gallons) Heating Oil Volume—Fiscal 2008 351.1 Impact of colder temperatures 28.4 Net customer attrition—retail and commercial (28.7)Acquisitions 6.1 Conservation/Other (7.5)Change (1.7)Volume—Fiscal 2009 349.4 Temperatures in our geographic areas of operations for fiscal 2009 were 8.1% colder than fiscal 2008 and 1.3% colder than normal, as reported by theNational Oceanic Administration (“NOAA”). For fiscal 2009, net customer attrition was 7.5%. Due to the significant increase in the price per gallon of homeheating oil over the last several years, we believe that customers are using less home heating oil given similar temperatures when compared to prior periodsand this decrease is reflected in the “Conservation/Other” heading in the above table.The percentage of home heating oil volume sold to residential variable price customers decreased to 40.1% of total home heating oil volume sales forfiscal 2009, as compared to 42.9% for fiscal 2008. Accordingly, the percentage of home heating oil volume sold to residential price-protected customersincreased to 45.5% for fiscal 2009, as compared to 42.4% for fiscal 2008. For fiscal 2009, sales to commercial/industrial customers represented 14.3% of totalhome heating oil volume sales, as compared to 14.7% for fiscal 2008.Product SalesFor fiscal 2009, product sales decreased $321.1 million, or 23.7%, to $1.033 billion, as compared to $1.354 billion for fiscal 2008, due to a 20.0%decrease in home heating oil selling prices, a 0.5% decrease in home heating oil volume, and a decline in sales of other petroleum products of $76.9 million.Installation and Service SalesFor fiscal 2009, installation and service sales decreased $15.1 million, or 8.0%, to $174.0 million, as compared to $189.1 million for fiscal 2008, as adecline in installation sales of $15.2 million was reduced by a slight increase in service revenue of $0.1 million. We believe that rising unemployment,reduced home equity loans and consumer credit, and reduced consumer confidence led to a decline in the demand for new heating systems ($8.3 million), airconditioning equipment ($2.2 million), as well as new construction plumbing installations ($4.5 million). The cool spring also adversely impacted thedemand for new and replacement air conditioning systems over the summer months. While service contract revenue increased by $2.2 million, revenue fromnon-essential services, which include plumbing and air conditioning service, declined $2.1 million. We believe that the decline in non-essential servicerevenue is the result of current economic conditions.Cost of ProductFor fiscal 2009, cost of product decreased $373.8 million, or 34.5%, to $708.2 million, as compared to $1.082 billion for fiscal 2008, due largely to adecline in the wholesale product cost for home heating oil and other petroleum products. The 0.5% decline in home heating oil volume sold and the 19.0%decline in other petroleum products sold also contributed to the decline in cost of product. 34 Table of ContentsGross Profit ProductThe table below recalculates the Partnership’s per gallon margins and reconciles product gross profit for home heating oil and other petroleumproducts. We believe the change in home heating oil margins should be evaluated before the effects of increases or decreases in the fair value of derivativeinstruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before thesettlement of the underlying transaction. On that basis, home heating oil margins for fiscal 2009 increased by $0.1522 per gallon, or 20.5%, to $0.8935 pergallon, from $0.7413 per gallon in fiscal 2008. Product sales and cost of product include home heating oil, other petroleum products and liquidated damagesbillings.For fiscal 2009, total product gross profit increased by $52.5 million to $324.6 million, as compared to $272.1 million for fiscal 2008, as the impact ofhigher home heating oil per gallon margins ($53.2 million) and an increase in gross profit from other petroleum products ($0.6 million) was reduced by theimpact of lower home heating oil volume ($1.3 million). Fiscal Year Ended (In millions, except per gallon amounts) September 30, 2009 September 30, 2008 Amount PerGallon Amount PerGallon Home Heating Oil Volume 349.4 351.1 Sales $954.5 $2.7318 $1,198.6 $3.4137 Cost $642.3 $1.8383 $938.3 $2.6724 Gross Profit $312.2 $0.8935 $260.3 $0.7413 Amount PerGallon Amount PerGallon Other Petroleum Products Volume 39.6 48.9 Sales $78.4 $1.9785 $155.3 $3.1761 Cost $65.9 $1.6640 $143.5 $2.9343 Gross Profit $12.5 $0.3145 $11.8 $0.2418 Amount Amount Change Total Product Sales $1,032.8 $1,353.9 $(321.1) Cost $708.2 $1,081.8 $(373.6) Gross Profit $324.6 $272.1 $52.5 During the heating season of fiscal 2009, home heating oil product costs continued to decline, which largely contributed to the Partnership’s ability toexpand its home heating oil margins during this period, as wholesale prices decreased more rapidly than retail prices. Conversely, during the heating seasonof fiscal 2008, home heating oil costs continued to escalate, which limited margin expansion capability.Cost of Installations and ServiceFor fiscal 2009, cost of installations and service decreased $8.2 million, or 4.7%, to $167.6 million, as compared to $175.8 million for fiscal 2008, as adecrease in installation costs of $11.6 million was partially offset by higher service expenses of $3.4 million. Installation costs were lower, largely due to thecorresponding decrease in installation sales as described above. Service expenses were higher due to an increase in vehicle fuel costs of $2.1 million, as thePartnership hedged a portion of its vehicle fuel costs during a higher cost period. For fiscal 2010, the Partnership has again hedged its vehicle fuel costs,which should lower this expense by approximately $2.3 million in fiscal 2010. Colder than normal winter temperatures also increased the operating expenseof the service department due to the increased need to service our customer’s heating equipment. The gross profit realized from service (includinginstallations) decreased by $7.0 million, from $13.4 million for fiscal 2008 to $6.4 million for fiscal 2009 due to the decline in installation sales and theincrease in vehicle fuel costs. Installation costs were $53.0 million, or 88.6% of installation sales during fiscal 2009, and were $64.5 million, or 86.0% ofinstallation sales during fiscal 2008. Installation costs as a percentage of installation sales increased due to the fixed nature of certain installation costs. 35 Table of ContentsService expenses increased to $114.7 million, or 100.4% of service sales, during fiscal 2009, from $111.3 million in fiscal 2008, or 97.5% of service sales.Service costs as a percentage of total service revenue increased due to the rise in vehicle fuel costs and, the impact on service costs of colder temperatures. Inaddition, the Partnership was not able to fully reduce its service expenses in response to unforeseen reductions in non-essential service billings such as airconditioning and plumbing services, which also contributed to the increase in the percentage of service expense to service revenues.(Increase) Decrease in the Fair Value of Derivative InstrumentsDuring fiscal 2009, the change in the fair value of derivative instruments resulted in the recording of a $13.7 million credit due to the expiration ofcertain hedged positions ($21.2 million credit), and a decrease in market value for unexpired hedges ($7.5 million charge).During fiscal 2008, the change in the fair value of derivative instruments resulted in the recording of a $25.5 million charge due to the expiration ofcertain hedged positions ($1.3 million charge), and a decrease in market value for unexpired hedges ($24.2 million charge).Delivery and Branch ExpensesFor fiscal 2009, delivery and branch expenses increased $10.6 million, or 5.0%, to $224.5 million, as compared to $213.9 million fiscal 2008. Whileour bad debt expense did decline by $1.6 million due in part to the decline in sales of 21.8 %, we increased our collections efforts which resulted in anincrease in overall credit collection expense by $1.0 million. Delivery and plant expense, rose by $4.8 million due in part to the impact of coldertemperatures and higher vehicle fuel costs of $2.2 million, as the Partnership hedged a portion of its vehicle fuels during a higher cost period. The balance ofthe increase in delivery and plant expense was $2.6 million, or 3.7%, largely driven by wage and benefit increases. In an effort to improve our customerexperience and improve our net attrition, we spent an additional $2.2 million on marketing, sales and customer service in fiscal 2009 as compared to fiscal2008. Insurance expense was also higher by $1.0 million largely due to both the frequency and size of our claims in fiscal 2009 versus fiscal 2008. Otherbranch expenses increased $3.4 million due to higher wages, benefits and rent. On a cents per gallon basis, delivery and branch expenses increased 3.33 centsper gallon, or 5.5%, from $0.6092 cents per gallon for fiscal 2008, to $0.6425 cents per gallon for fiscal 2009, due to the fixed nature of certain delivery andbranch expenses, the increases in insurance expense and vehicle fuel cost and inflationary pressures.Depreciation and AmortizationFor fiscal 2009, depreciation and amortization expenses were $19.4 million, as compared to $26.8 million for fiscal 2008. Amortization expense waslower by $6.3 million, as acquisitions from fiscal 2001 with 7 year lives and acquisitions from 1999 with 10 year lives became fully amortized in fiscal 2009.Depreciation expenses declined by $1.1 million as capital expenditures for technology acquired in fiscal 2003 became fully depreciated.General and Administrative ExpensesFor fiscal 2009, general and administrative expenses increased $4.7 million, or 29.4%, to $20.7 million, as compared to $16.0 million for fiscal 2008,largely due to higher compensation expense of $2.1 million relating to the Partnership’s profit sharing plan and an increase in pension expense of $1.6million largely due to the decline in the assets of the Partnership’s frozen defined benefit pension plan. The balance of the increase, or $1.0 million, was dueto wage increases and higher legal and professional expenses. The Partnership accrues approximately 6% of Adjusted EBITDA as defined in the profit sharingplan for distribution to its employees and is payable when the Partnership achieves actual adjusted EBITDA of at least 70% of the amount budgeted. In fiscal2009, adjusted EBITDA increased by $30.3 million to $85.8 million, which drove the increase in profit sharing expense. If Adjusted EBITDA increases, thedollar amount of the profit sharing pool will increase. On the other hand, if Adjusted EBITDA decreases, the dollar amount of the profit sharing pool will beless.Operating IncomeFor fiscal 2009, operating income increased $76.8 million to $80.1 million, as compared to $3.3 million for fiscal 2008 as a net positive change in thefair value of derivative instruments of $39.2 million and an increase in product gross profit of $52.5 million was reduced by lower installation and serviceprofitability totaling $7.0 million and an increase in operating expenses of $7.9 million (including depreciation and amortization). 36 Table of ContentsInterest ExpenseFor fiscal 2009, interest expense decreased $2.9 million, or 13.8%, to $17.8 million, as compared to $20.7 million in fiscal 2008. In fiscal 2009, thePartnership repurchased $40.3 million of its 10.25% Senior Notes due February 2013, which lowered the average long-term debt outstanding by $26.7million and corresponding interest expense by $2.7 million. Working capital interest expense, including letters of credit fees, increased by $0.5 million.Interest IncomeFor fiscal 2009, interest income decreased $2.7 million to $4.2 million, as compared to $6.9 million for fiscal 2008, due to a reduction in interestincome of $1.1 million from invested cash and a decrease in finance charge income on past due accounts receivable balances. While average cash balanceswere higher in fiscal 2009 than in fiscal 2008, the investment returns were lower. Finance charge income declined largely due to a lower level of agedaccounts receivables.Amortization of Debt Issuance CostsFor fiscal 2009, amortization of debt issuance costs increased to $2.8 million, as compared to fiscal 2008 of $2.3 million largely due to the acceleratedamortization of fees related to the revolving credit facility that was amended in July 2009.Gains on Bond RepurchaseDuring fiscal 2009, the Partnership repurchased $40.3 million face value of its 10.25% Senior Notes due February 2013 at an average price of $75.10per $100 of principal plus accrued interest. The Partnership recorded a gain of $9.7 million for these transactions.Income Tax Expense (Benefit)For fiscal 2009, an income tax benefit of $86.4 million was recorded for the release of a majority of our opening valuation allowance. This benefit wasoffset by a current income tax expense of $3.8 million and a deferred income tax expense of $25.0 million related to current year activity, resulting in a netincome tax benefit of $57.6 million, as compared to income tax expense of $0.6 million for fiscal 2008. Based upon a review of a number of factors,including historical operating performance and our expectation that we could generate sustainable consolidated taxable income for the foreseeable future, weconcluded at the end of fiscal 2009 that the majority of the Partnership’s net deferred tax assets should be recognized. Thus, pursuant to FASB ASC 740-10-05 Income Taxes topic (SFAS No. 109), we recorded a tax benefit during fiscal 2009 releasing a majority of the remaining valuation allowance, resulting in anon-cash increase in net income of $86.4 million.For the next several years, our income tax expense will consist of two components, a current income tax expense and a deferred income tax expense.The current tax expense will represent our expected cash taxes. The deferred tax expense will represent the amount of income tax that we would have paid ifwe do not have the benefit of our net loss carry forwards and other deferred tax assets.Net Income (Loss)For fiscal 2009, net income of $131.0 million was recorded, as compared to a net loss of $13.4 million for fiscal 2008. This increase of $144.4 millionwas primarily due to a $76.8 million increase in operating income, gains on bond repurchases of $9.7 million and lower income tax expense of $58.2 million.Adjusted EBITDAFor fiscal 2009, Adjusted EBITDA increased by $30.3 million to $85.8 million, as compared to $55.5 million for fiscal 2008, as an expansion in homeheating oil margins more than offset the impact of a decline in home heating oil volume and an increase in delivery and branch expense and general andadministrative expenses. 37 Table of ContentsEBITDA and Adjusted 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 our ability to make theMinimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows: Fiscal Year Ended September 30, (in thousands) 2009 2008 Income (loss) from continuing operations $131,038 $(13,408) Plus: Income tax expense (benefit) (57,597) 566 Amortization of debt issuance cost 2,750 2,339 Interest expense, net 13,637 13,808 Depreciation and amortization 19,406 26,784 EBITDA (a) from continuing operations 109,234 30,089 (Increase)/decrease in the fair value of derivative instruments (13,690) 25,467 Gain on redemption of debt (9,706) — Adjusted EBITDA (a) 85,838 55,556 Add/(subtract) Income tax (expense) benefit 57,597 (566) Interest expense, net (13,637) (13,808) Provision for losses on accounts receivable 10,310 11,961 (Increase) decrease in accounts receivables 26,657 (28,002) (Increase) decrease in inventories (17,747) 41,368 Increase (decrease) in customer credit balances (11,964) 13,390 Change in deferred taxes (61,355) — Change in other operating assets and liabilities 2,756 (8,344) Net cash provided by operating activities $78,455 $71,555 Net cash used in investing activities $(7,568) $(5,488) Net cash used in financing activities $(54,535) $(145) EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA(Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value ofderivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that areused as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and researchanalysts, to assess: • our compliance with certain financial covenants included in our debt agreements; • our financial performance without regard to financing methods, capital structure, income taxes or historical cost basis; • our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners; • our operating performance and return on invested capital as compared to those of other companies in the retail distribution of refined petroleumproducts business, without regard to financing methods and capital structure; and • the viability of acquisitions and capital expenditure projects and the overall rates of return of alternative investment opportunities.The method of calculating Adjusted EBITDA may not be consistent with that of other companies and each of EBITDA and Adjusted EBITDA has itslimitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed inaccordance with GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are: • EBITDA and Adjusted EBITDA do not reflect our cash used for capital expenditures; • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDAand Adjusted EBITDA do not reflect the cash requirements for such replacements; • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements; 38 Table of Contents • EBITDA and Adjusted EBITDA do not reflect the cash necessary to make payments of interest or principal on our indebtedness; and • EBITDA and Adjusted EBITDA do not reflect the cash required to pay taxes.LIQUIDITY AND CAPITAL RESOURCESOur ability to satisfy our obligations depends on our future performance, which will be subject to prevailing economic, financial, business and weatherconditions, the ability to pass on the full impact of high wholesale heating oil prices to customers, the effects of high net customer attrition, conservation andother factors, most of which are beyond our control. (see Item 1A — “Risk Factors).” Capital requirements, at least in the near term, are expected to beprovided by cash flows from operating activities, cash on hand at September 30, 2010 or a combination thereof. To the extent future capital requirementsexceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our revolving credit facility, asdiscussed below, and repaid from subsequent seasonal reductions in inventory and accounts receivable.DISCUSSION OF CASH FLOWSWe use the indirect method to prepare our Consolidated Statements of Cash Flows. Under this method, we reconcile net income to cash flows providedby operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payment during theperiod.Operating ActivitiesDue to the seasonal nature of the home heating oil business, cash is generally used in operations during the winter (our first and second fiscal quarters)as customers receive deliveries and pay for products purchased within our payment terms, and cash is generally provided by operating activities during thespring and summer (our third and fourth quarters) when customer payments exceed deliveries.During fiscal 2010, cash provided by operating activities declined by $34.1 million to $44.4 million, as compared to $78.5 million for fiscal 2009 asfavorable changes in cash used for inventory purchases of $15.7 million and option purchases of $12.2 million were more than offset by a decline in cashgenerated from operations of $17.9 million, increases in cash used to finance accounts receivable of $31.2 million and higher pension plan contributions of$11.2 million. During fiscal 2010, the Partnership bought 23.9 million fewer gallons of home heating oil for inventory than during fiscal 2009, whichresulted in a favorable change in cash flows of $15.7 million. At the beginning of fiscal 2009, the Partnership’s physical inventory of home heating oil wascomparatively low because the Partnership did not prebuy physical inventory due to the relatively high cost at the time. The change in inventory was alsoimpacted by price. During fiscal 2010, inventory costs increased by $0.42 per gallon as compared to the prior period which experienced a reduction ininventory cost of $1.54 per gallon. In fiscal 2010, the Partnership structured its option purchases such that the cost of the option will be paid as it expiresrather than at the time the hedge is entered into. This favorably impacted cash in fiscal 2010. Cash flow from operations declined by $17.9 million largelydue to the weather related decline in home heating oil volume and operating loss from acquisitions completed after the heating oil season. The Partnerships’accounts receivables increased by $4.6 million during fiscal 2010 which compares to fiscal 2009 when accounts receivable decreased by $26.7 million. Infiscal 2010, home heating oil prices rose from the beginning of the year which drove a slight increase in accounts receivable as compared to fiscal 2009 whenselling prices were much lower than the beginning of the fiscal year. Day’s sales outstanding were 50 days as of September 30, 2010 as compared to 50 daysas of September 30, 2009 and 57 days as of September 30, 2008. In addition, during fiscal 2010 the Partnership contributed $13.1 million into the frozenpension plan which exceeded the fiscal 2009 contribution of $1.9 million by $11.2 million.During fiscal 2009, we generated $78.5 million in cash flow from operating activities, which was $6.9 million higher than the $71.6 million of cashprovided by operations for fiscal 2008. This improvement was primarily due to the impact of lower wholesale product costs, which impacts accountsreceivable collections, inventory costs, prepaid hedging costs, hedging margin requirements, customer credit balances, accounts payable and accruedexpenses. Our cash flow from operations for fiscal 2009 also benefited from higher earnings from operations, when compared to fiscal 2008.While the Partnership generated $78.8 million in cash from operations during fiscal 2009, this amount was reduced by a net increase in operating assetsand liabilities of $0.3 million. Accounts receivable declined by $26.7 million largely due to lower wholesale product costs and an improvement in our dayssales outstanding. During the summer of fiscal 2009, cash was used to finance an increase in inventories of $17.7 million, as we purchased 18.0 milliongallons of home heating oil for our fiscal 2010 fall and winter needs and increased our inventory quantities to 28.5 million gallons as of September 30, 2009,compared to 8.9 million gallons as of September 30, 2008. We increased our inventory levels to take advantage of favorable home heating oil prices in thespot and futures market. 39 Table of ContentsApproximately 38% of our customers are on a budget payment plan and these customers pay their annual estimated heating bill in 12 monthlyinstallments. Typically, these plans begin before the heating season and a liability is created as payments exceed deliveries. In fiscal 2009, we experienced adecline in payments from our budget customers of $12.0 million as compared to fiscal 2008. This change was largely due to the decline in home heating oilprices which reduced the required budget payments for the upcoming heating season.Investing ActivitiesDuring fiscal 2010, we spent $5.6 million for fixed assets and received $0.4 million from the sale of fixed assets, as we invested in computer hardwareand software ($1.9 million), refurbished certain physical plants ($1.2 million) and made additions to our fleet and other equipment ($2.5 million). Wecompleted five acquisitions with a total cash outlay of $68.8 million (including $4.2 million in working capital) and allocated $64.1 million of the grosspurchase to intangible assets, $7.6 million to fixed assets and $2.9 million to other net liabilities.During fiscal 2009, our capital expenditures totaled $4.3 million, as we invested in computer hardware and software ($1.4 million), refurbished certainphysical plants ($1.0 million) and made additions to our fleet and other equipment ($1.9 million). We also completed one acquisition for $4.0 million andallocated $3.4 million of the gross purchase to intangible assets and $0.6 million to fleet. We paid $ 3.4 million in cash and assumed net working capitalcredits of $ 0.6 million.During fiscal 2008, we spent $4.1 million for fixed assets and received $0.5 million from the sale of certain assets as we invested in computer hardwareand software ($1.1 million), refurbished certain physical plants ($1.6 million) and made additions to our fleet and other equipment ($1.4 million). Wecompleted eight acquisitions for $ 2.6 million and allocated $2.2 million of the gross purchase to intangible assets and $0.4 million to fleet. We paid $1.9 million in cash and assumed net working capital credits of $ 0.7 million.Financing ActivitiesDuring fiscal 2010, the Partnership repurchased 8.1 million common units for $33.2 million in connection with the unit repurchase plan program andpaid distributions to the unit holders of $20.4 million. Also during fiscal 2010, we borrowed and repaid $36.8 million under our revolving credit facility. InFebruary 2010, the Partnership redeemed $50.0 million face value of its outstanding 10.25% Senior Notes due in 2013 at a price equal to 101.708% of facevalue.During fiscal 2009, the Partnership repurchased $40.3 million face value of its 10.25% Senior Notes due February 2013 for $30.2 million and paiddistributions to our unitholders of $15.4 million. During fiscal 2009, we did not borrow under our revolving credit facility but had letters-of-creditoutstanding under the facility. We also paid $6.6 million in fees for our new credit agreement and spent $2.3 million to purchase 637,285 common units inconnection with our unit repurchase plan program.For fiscal 2008, we borrowed and repaid $57.2 million under our revolving credit facility.FINANCING AND SOURCES OF LIQUIDITYLiquidity and Capital ResourcesOur ability to satisfy our financial obligations depends on our future performance, which will be subject to prevailing economic, financial, businessand weather conditions, the ability to pass on the full impact of high wholesale heating oil prices to customers, the effects of high net customer attrition,conservation and other economic and geo-political factors, most of which are beyond our control. In the near term, capital requirements are expected to beprovided by cash flows from operating activities, cash on hand at September 30, 2010, the $36.8 million in net cash raised from our November 2010 debtoffering or a combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate thatworking capital will be financed by a our revolving credit facility.In July 2009, we entered into an amended and restated asset based revolving credit facility with a group of lenders, that expires in July, 2012 andwhich provides us with the ability to borrow up to $240 million ($290 million during the heating season from November through April of each year) forworking capital purposes (subject to certain borrowing base limitations and coverage ratios), including the issuance of up to $100.0 million in letters ofcredit. The Partnership can increase the facility size by $50 million without the consent of the bank group. However, the bank group is not obligated to fundthe $50 million increase. If the bank group elects not to fund the increase, the Partnership can add additional lenders to the group, with the consent of theAgent, which shall not 40 Table of Contentsbe unreasonably withheld. Obligations under the new revolving credit facility are secured by liens on substantially all of our assets including accountsreceivable, inventory, general intangibles, real property, fixtures and equipment. During this past heating season, we did not borrow under our previous creditfacility. As of September 30, 2010, $42.3 million in letters of credit were outstanding, of which $42.0 million are for current and future insurance reserves andbonds and $0.3 million are for seasonal inventory purchases and other working capital purposes. We have reduced our reliance on letters of credit forinventory purposes as we have increased our trade credit to over $58.8 million.Under the terms of the credit facility, we must maintain at all times either availability (borrowing base less amounts borrowed and letters of creditissued) of $43.5 million (15% of the maximum facility size) or a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.1x. As ofSeptember 30, 2010, availability, as defined in the amended and restated credit agreement, was $104.8 million and the Partnership was in compliance withthe fixed charge coverage ratio. The fixed charge coverage ratio is calculated based upon Adjusted EBITDA. In the event that the Partnership is not able tocomply with these covenants it could have a material adverse effect on the Partnership’s liquidity and results of its operations.On November 16, 2010, the Partnership sold $125.0 million 8.875% Senior Notes due 2017 at a price of 99.35%. A portion of the net proceeds will beused on December 20, 2010, to repurchase $82.5 million of 10.25% Senior Notes due February 2013. After paying expenses of $3.5 million and a callpremium of $1.4 million, the Partnership’s cash balance increased by $36.8 million, which can be utilized for general partnership purposes.The Partnership’s scheduled interest payments for fiscal 2011 are $8.9 million on its Senior Notes and annual maintenance capital expenditures forfixed assets are estimated to be approximately $5.0 to $7.0 million, excluding the capital requirements for leased fleet. Based on the funding levels requiredby the Pension Protection Act of 2006, and certain actuarial assumptions, we estimate that the Partnership will be required to make minimum cashcontributions to fund its frozen defined benefit pension obligations of a total of approximately $10.0 million over the next five fiscal years. We anticipatepaying distributions of approximately $19.5 million in fiscal 2011 and we will continue to purchase common units as authorized under our unit repurchaseplan. In addition, we will continue to seek strategic acquisitions.Partnership Distribution ProvisionsCommencing with the fiscal quarter ended December 31, 2008, we are required to make distributions in an amount equal to our Available Cash, asdefined in our Partnership Agreement, no more than 45 days after the end of each fiscal quarter, to holders of record on the applicable record dates. AvailableCash, as defined in our Partnership Agreement, generally means all cash on hand at the end of the relevant fiscal quarter less the amount of cash reservesestablished by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for theproper conduct of our business, including acquisitions, the payment of debt principal and interest and for distributions during the next four quarters and tocomply with applicable laws and the terms of any debt agreements or other agreements to which we are subject. Under the terms of our credit facility, thePartnership must maintain availability of at least $40 million plus a fixed charge coverage ratio of 1.15x to pay the minimum quarterly distribution of$0.0675. Any distribution in excess of the minimum quarterly distribution requires the Partnership to have a fixed charge coverage ratio of 1.25x. These testsrestrict the amount of cash that the Partnership can use to pay distributions with respect to any fiscal quarter. The Board of Directors of our general partnerreviews the level of Available Cash each quarter based upon information provided by management.On October 26, 2010, we declared a quarterly distribution of $0.0725 per unit, or $0.29 per unit on an annualized basis, on all common units in respectof the fourth quarter of fiscal 2010 payable on November 12, 2010 to holders of record on November 4, 2010. The total quarterly distribution is $4.9 million.(See Part II—Item 5. Market for Registrant’s Units and Related Matters—Partnership Distribution Provisions and Note 5 Quarterly Distribution ofAvailable Cash)Contractual Obligations and Off-Balance Sheet ArrangementsWe have no special purpose entities or off balance sheet debt, other than operating leases entered into in the ordinary course of business.Long-term contractual obligations, except for our long-term debt obligations, are not recorded in our consolidated balance sheet. Non-cancelablepurchase obligations are obligations we incur during the normal course of business, based on projected needs. The Partnership had no capital leaseobligations as of September 30, 2010. 41 Table of ContentsReserves for income taxes under FASB ASC 740-10-05 Income Taxes Topic (“FIN 48”) are not included in the table because we cannot reasonablypredict the ultimate timing of settlement of our reserves for income taxes with the respective taxing authorities.The table below summarizes the payment schedule of our contractual obligations at September 30, 2010 (in thousands): Payments Due by Fiscal Year Total 2011 2012 and2013 2014 and2015 Thereafter Long-term debt obligations (a) $82,499 $— $82,499 $— $— Operating lease obligations (b) 55,979 10,541 19,241 14,413 11,784 Purchase obligations (c) 16,609 9,777 6,742 90 — Interest obligations (d) 23,890 9,956 13,934 — — Long-term liabilities reflected on the balance sheet (e) 4,425 350 700 700 2,675 $183,402 $30,624 $123,116 $15,203 $14,459 (a)On November 16, 2010, the Partnership sold $125.0 million 8.875% Senior Notes due 2017 at a price of 99.35%. The proceeds will be used torepurchase $82.5 million of Senior Notes due February 2013.(b)Represents various operating leases for office space, trucks, vans and other equipment with third parties.(c)Represents non-cancelable commitments as of September 30, 2010 for operations such as customer related invoice and statement processing and voiceand data phone/computer services.(d)Reflects 10.25% interest obligations on our $82.5 million senior notes (excluding discounts and premiums) due February 2013 and the unusedcommitment fee on the revolving credit facility.(e)Reflects long-term liabilities excluding a pension accrual of approximately $16.6 million. Under current prescribed regulatory minimum fundingrequirements, we have satisfied the minimum funding obligations related to our pension plans for fiscal 2010 and we estimate minimum cashcontributions of $3.2 million, $2.3 million, $2.0 million, $2.0 million and $0.4 million, for fiscal 2011, 2012, 2013, 2014 and 2015 respectively.Recent Accounting PronouncementsIn fiscal 2010, the Partnership adopted the revised provisions of FASB ASC 805-10 Business Combinations. This standard establishes in a businesscombination principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, goodwill acquired, liabilities assumed,and any noncontrolling interests.In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20 Receivables (Topic310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This standard requires companies to improve theirdisclosures about the credit quality of their financing receivables and the credit reserves held against them. The guidance covers trade accounts receivables,financing receivables, loans, loan syndications, factoring arrangements, and standby letters of credit. The Partnership is required to adopt this standard in thefirst quarter of fiscal 2011. The Partnership is currently assessing the impact of the disclosure requirements.Critical Accounting EstimatesThe preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to establish accountingpolicies and make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. StarGas evaluates its policies and estimates on an on-going basis. The Partnership’s Consolidated Financial Statements may differ based upon different estimatesand assumptions. The Partnership’s critical accounting estimates have been reviewed with the Audit Committee of the Board of Directors.Our significant accounting policies are discussed in Note 3. to the Consolidated Financial Statements. We believe the following are our criticalaccounting policies and estimates:Goodwill and Other Intangible AssetsWe calculate amortization using the straight-line method over periods ranging from five to twenty years for intangible assets with definite useful livesbased on historical statistics. We use amortization methods and determine asset values based on our best estimates using reasonable and supportableassumptions and projections. From time to time, we engage a third party valuation firm to 42 Table of Contentsascertain asset values for intangible assets. We assess the useful lives of intangible assets based on the estimated period over which we will receive benefitfrom such intangible assets such as historical evidence regarding customer churn rate. In some cases, the estimated useful lives are based on contractual terms.At September 30, 2010, we had $58.9 million of net intangible assets subject to amortization. If circumstances required a change in estimated useful lives ofthe assets, it could have a material effect on results of operations. For example, if lives were shortened by one year, we estimate that amortization for theseassets for fiscal 2010 would have increased by approximately $0.4 million.FASB ASC 350-10-05 Intangibles-Goodwill and Other topic requires goodwill to be assessed at least annually for impairment. These assessmentsinvolve management’s estimates of future cash flows, market trends and other factors to determine the fair value of the reporting unit, which includes thegoodwill to be assessed. If the carrying amount of goodwill exceeds its implied fair value and is determined to be impaired, an impairment charge is recordedto write-down goodwill to its fair value. At September 30, 2010, we had $199.1 million of goodwill. Intangible assets with finite lives must be assessed forimpairment whenever changes in circumstances indicate that the assets may be impaired. Similar to goodwill, the assessment for impairment requiresestimates of future cash flows related to the intangible asset. To the extent the carrying value of the assets exceeds its future undiscounted cash flows, animpairment loss is recorded based on the fair value of the asset.We test the carrying amount of goodwill annually during the fourth fiscal quarter. It was determined based on this analysis that there was no goodwillimpairment as of August 31, 2010. The preparation of this analysis was based upon management’s estimates and assumptions, and future impairmentcalculations would be affected by actual results that are materially different from projected amounts. To provide for a sensitivity of the discount rates andtransaction multiples used, ranges of high and low values are employed in the analysis, with the low values examined to ensure that a reasonably likelychange in an assumption would not cause the Partnership to reach a different conclusion.Although the Partnership believes that its projections reflect its best estimates of future performance, changes in estimated revenues, per gallon marginsor discount rates may have an impact on the estimated fair value. Any increase in estimated cash flows or a decrease in the discount rate would not have animpact on the carrying value of the goodwill. A decrease in future estimated cash flows or an increase in the discount rate could require the Partnership todetermine whether the recognition of a goodwill impairment charge would be required.The Partnership estimates the fair value of its sole reporting unit utilizing two generally accepted approaches: the Income Approach and the MarketApproach (which is a combination of the Market Comparable and the Market Transaction Approaches).The Income Approach uses management’s projections of cash flows, market trends and other factors to determine the value of the reporting unit basedon discounted cash flows. The Partnership’s discount rate was calculated based on the weighted average cost of capital, using inputs of comparablecompanies in the same industry. The Partnership’s conclusion of the fair value of the reporting unit was supported based on a sensitivity analysis performedusing a range of discount rates and terminal multiples.The Market Comparable Approach determines a fair value of the reporting unit based on comparable companies in similar industries, whose securitiesare actively traded in public markets. A financial multiple range was calculated and applied to the financial metrics of the Partnership. The Partnership’sconclusion was supported using the high and low range of multiples applied.The Market Transaction Approach determines a fair value of the reporting unit based on exchange prices in actual sales and purchases of comparablebusinesses. A transaction multiple was calculated and applied to the financial metrics of the Partnership. In addition, a transaction occurring after the analysisdate, but before the fiscal year-end was reviewed, and the Partnership’s conclusion of value was supported based on the calculations of these transactionmultiples.In addition, the Partnership performs a reasonableness check of its concluded value for its sole reporting unit by reconciling the results of the goodwillanalysis with its market capitalization.Depreciation of Property and EquipmentDepreciation is calculated using the straight-line method based on the estimated useful lives of the assets ranging from 1 to 40 years. Net property andequipment was $44.7 million at September 30, 2010. If circumstances required a change in estimated useful lives of the assets, it could have a material effecton results of operations. For example, if the remaining estimated useful lives of these assets were shortened by one year, we estimate that depreciation forfiscal 2010 would have increased by approximately $1.0 million. 43 Table of ContentsFair Values of DerivativesFASB ASC 815-10-05 Derivatives and Hedging topic, established accounting and reporting standards requiring that derivative instruments berecorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent derivative instruments designated as cash flowhedges are effective and FASB ASC 815-10-05 Derivatives and Hedging topic documentation requirements have been met, changes in fair value arerecognized in other comprehensive income until the underlying hedged item is recognized in earnings. Currently, the Partnership has elected not todesignate its derivative instruments as hedging instruments under this standard, and the change in fair value of the derivative instruments are recognized inour statement of operations.We have established the fair value of our derivative instruments using estimates determined by our counterparties and subsequently evaluated theminternally using established index prices and other sources. These values are based upon, among other things, future prices, volatility, time-to-maturity valueand credit risk. The estimate of fair value we report in our financial statements change as these estimates are revised to reflect actual results, changes in marketconditions, or other factors, many of which are beyond our control.Defined Benefit ObligationsFASB ASC 715-10-05 Compensation-Retirement Benefits topic, requires an employer to (i) measure the funded status of a defined benefitpostretirement plan as of the date of its fiscal year-end statement of financial position, (ii) to recognize the overfunded or underfunded status of this plan as anasset or liability in its statement of financial position and (iii) to recognize changes in that funded status in the year which the changes occur throughcomprehensive income.This standard requires the Partnership to make assumptions as to the expected long-term rate of return that could be achieved on defined benefit planassets and discount rates to determine the present value of the plans’ pension obligations. The Partnership evaluates these critical assumptions at leastannually.The discount rate enables the Partnership to state expected future cash flows at a present value on the measurement date. The rate is required torepresent the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increasespension expense in the following fiscal year. A 25 basis point decrease in the discount rated used for fiscal 2010 would have increased pension expense byapproximately $0.1 million and would have increased the pension liability by another $1.6 million. The discount rate used to determine net periodic pensionexpense was 5.4% in 2010, 7.6% in 2009, and 6.2% in 2008. The discount rate used in determining end of year pension obligations was 4.7% in 2010, 5.4%in 2009, and 7.6% in 2008. These rates reflect the yield of high quality (AA or better rating by a recognized rating agency) corporate bonds whose cash flowsare expected to match the timing and amounts of future benefit payments.We consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets to determine ourexpected long-term rate of return on pension plan assets. The expected long-term rate of return on assets is developed with input from the Partnership’squalified actuaries. The long-term rate of return assumption used for determining net periodic pension expense for fiscal 2010 and 2009 was 7.75% and8.25% respectively. A further 25 basis point decrease in the expected return on assets would have increased pension expense in fiscal 2010 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 30,2010, $33.2 million of unrecognized losses remain to be recognized by the plans. These losses may result in increases in future pension expense as they arerecognized.Recent market conditions have resulted in an unusually high degree of volatility and increased the risks associated with certain investments held bythe plans that could impact the value of investments after the date of these financial statements.In addition, we participate in a number of trustee-managed multi-employer pension and health and welfare plans for employees covered undercollective bargaining agreements. The Partnership makes timely contributions as required by the plans. Several factors could result in potentially higherfuture contributions to these plans, including unfavorable investment performance, changes in demographics, and increased benefits to participants. 44 Table of ContentsAllowance for Doubtful AccountsWe periodically review past due customer accounts receivable balances. After giving consideration to economic conditions, overdue status and otherfactors, we establish an allowance for doubtful accounts, representing the Partnership’s best estimate of amounts that may not be collectible. Actual lossescould differ from management’s estimates.Insurance ReservesWe currently self-insure a portion of workers’ compensation, auto and general liability claims. We establish reserves based upon expectations as towhat our ultimate liability may be for outstanding claims using developmental factors based upon historical claim experience, supplemented by a third-partyactuary. We periodically evaluate the potential for changes in loss estimates with the support of qualified actuaries. As of September 30, 2010, we hadapproximately $37.4 million of insurance reserves. The ultimate resolution of these claims could differ materially from the assumptions used to calculate thereserves, which could have a material adverse effect on results of operations. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to interest rate risk primarily through our bank credit facilities. We utilize these borrowings to meet our working capital needs.At September 30, 2010, we had outstanding borrowings totaling $82.5 million (excluding discounts and premiums), none of which is subject tovariable interest rates.We regularly use derivative financial instruments to manage our exposure to market risk related to changes in the current and future market price ofhome heating oil. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Sensitivity analysis is atechnique used to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product atSeptember 30, 2010, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $10.7million to a fair market value of $16.3 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market valueof these outstanding derivatives by $6.5 million to a fair market value of $(0.9) million. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and financial statement schedules referred to in the index contained on page F-1 of this report are incorporated herein byreference. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 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 that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of September 30, 2010. Based on thatevaluation, such principal executive officer and principal financial officer concluded that the Partnership’s disclosure controls and procedures were effectiveas of September 30, 2010 at the reasonable level of assurance. For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controlsand other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits underthe Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by anissuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive andprincipal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 45 Table of Contents(b) Management’s Report on Internal Control over Financial Reporting.Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision of management and with the participation ofour management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internalcontrol over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizationsof the Treadway Commission. Based on our evaluation of internal Control over financial reporting, our management concluded that our internal control overfinancial reporting was effective as of September 30, 2010. The effectiveness of our internal control over financial reporting as of September 30, 2010 hasbeen audited by our independent registered public accounting firm, as stated in their report which is included herein.On May 10, 2010, the Partnership completed the acquisition of Champion Energy Corporation (“CEC”). The Partnership is in the process ofintegrating CEC and as such it has been excluded by management from it’s assessment of the effectiveness of the Partnership’s internal control over financialreporting as of September 30, 2010, CEC’s internal control over financial reporting that is associated with total assets of $74 million (of which $52 millionrepresents goodwill and intangibles included within the scope of the assessment) and total revenues of $25 million in the consolidated financial statementsof the Partnership as of and for the year ended September 30, 2010.(c) Change in Internal Control over Financial Reporting.On May 10, 2010, the Partnership completed the acquisition of CEC. The Partnership is in the process of integrating CEC. The Partnership isanalyzing, evaluating and, where necessary, will implement changes in controls and procedures relating to the CEC business as integration proceeds. As aresult, this process may result in additions or changes to our internal control over financial reporting. Otherwise, there was no change in the Partnership’sinternal control over financial reporting during the Partnership’s most recent fiscal quarter that has materially affected, or is reasonably likely to materiallyaffect the Partnership’s internal control over financial reporting.(d) Other.The General Partner and the Partnership believe that a control system, no matter how well designed and operated, can not provide absolute assurancethat the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, ifany, within the Partnership have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonableassurances of achieving our desired control objectives, and the principal executive officer and principal financial officer of our general partner haveconcluded, as of September 30, 2010, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance. ITEM 9B.OTHER INFORMATIONNot applicable. 46 Table of ContentsPART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEPartnership ManagementThe general partner of the Partnership is Kestrel Heat, LLC. The Board of Directors of Kestrel Heat, LLC is appointed by its sole member, KestrelEnergy Partners, LLC. Kestrel Energy Partners, LLC is a private equity investment partnership formed by Yorktown Energy Partners VI, L.P., Paul A.Vermylen and other investors.The Partnership’s operations are conducted through Petro Holdings, Inc. and its subsidiaries. Petro Holdings, Inc. is a corporation that is a wholly-owned subsidiary of Star Acquisitions, which is a wholly-owned subsidiary of the Partnership.Kestrel Heat, LLC as the general partner of the Partnership, oversees the activities of the Partnership. Unitholders do not directly or indirectlyparticipate in the management or operation of the Partnership or elect the directors of the general partner. The Board of Directors of the general partner hasadopted a set of Partnership Governance Guidelines in accordance with the requirements of the New York Stock Exchange. A copy of these Guidelines isavailable on the Partnership’s website at www.Star-Gas.com or a copy may be obtained without charge by contacting Richard F. Ambury, (203) 328-7310.As of November 30, 2010, Kestrel Heat, LLC and its affiliates owned an aggregate of 12,803,128 common units, representing 19.09% of the issued andoutstanding common units, and Kestrel Heat, LLC owned 325,729 general partner units.The general partner owes a fiduciary duty to the unitholders. However, our partnership agreement contains provisions that allow the general partner totake into account the interests of parties other than the Limited Partners in resolving conflict of interest, thereby limiting such fiduciary duty.Notwithstanding any limitation on obligations or duties, the general partner will be liable, as the general partner of the Partnership, for all debts of thePartnership (to the extent not paid by the Partnership), except to the extent that indebtedness or other obligations incurred by the Partnership are madespecifically non-recourse to the general partner.As is commonly the case with publicly traded limited partnerships, the general partner does not directly employ any of the persons responsible formanaging or operating the Partnership.Directors and Executive Officers of the General PartnerDirectors are appointed for an indefinite term, subject to the discretion of Kestrel Energy Partners, LLC. The following table shows certain informationfor directors and executive officers of the general partner as of November 30, 2010: Name Age PositionPaul A. Vermylen, Jr. 63 Chairman, DirectorDaniel P. Donovan 64 President, Chief Executive Officer and DirectorRichard F. Ambury 53 Executive Vice President and Chief Financial OfficerSteven J. Goldman 50 Executive Vice President and Chief Operating OfficerRichard G. Oakley 50 Vice President and ControllerHenry D. Babcock 70 DirectorC. Scott Baxter 49 DirectorBryan H. Lawrence 68 DirectorSheldon B. Lubar 81 DirectorWilliam P. Nicoletti 65 Director Audit Committee memberPaul A. Vermylen, Jr. Mr. Vermylen has been the Chairman and a director of Kestrel Heat since April 28, 2006. Mr. Vermylen is a founder of Kestrel and hasserved as its President and as a manager since July, 2005. Mr. Vermylen had been employed since 1971, serving in various capacities, including as a VicePresident of Citibank N.A. and Vice President-Finance of Commonwealth Oil Refining Co. Inc. Mr. Vermylen served as Chief Financial Officer of Meenan OilCo., L.P. from 1982 until 1992 and as President of Meenan Oil Co., L.P. until 2001, when Meenan was acquired by the Partnership. Since 2001, Mr. Vermylenhas pursued private investment opportunities. Mr. Vermylen serves as a director of certain non-public companies in the energy industry in which Kestrelholds equity interests including Downeast LNG, Inc. and Moneta Energy Services Ltd. Mr. Vermylen is a graduate of Georgetown University and has aM.B.A. from Columbia University. 47(1)(1)(1)(1) Table of ContentsMr. Vermylen’s substantial experience in the home heating oil industry and his leadership skills and experience as an executive officer of Meenan, amongother factors, led the Board to conclude that he should serve as a director of Kestrel Heat.Daniel P. Donovan. Mr. Donovan has been Chief Executive Officer of Kestrel Heat since May 31, 2007 and has been President and director since April 28,2006. From April 28, 2006 to May 30, 2007 Mr. Donovan was also the Chief Operating Officer of Kestrel Heat. Mr. Donovan was President and ChiefOperating Officer of Star Gas from March 2005 until April 28, 2006. From May 2004 to March 2005 he was President and Chief Operating Officer of the StarGas heating oil segment. Mr. Donovan held various management positions with Meenan Oil Co. LP, from January 1980 to May 2004, including VicePresident and General Manager from 1998 to 2004. Mr. Donovan worked for Mobil Oil Corp. from 1971 to 1980. His last position with Mobil was Presidentand General Manager of its heating oil subsidiary in New York City and Long Island. Mr. Donovan is a graduate of St. Francis College in Brooklyn, NewYork and received an M.B.A. from Iona College.Mr. Donovan’s in-depth knowledge of the Partnership’s business as its chief executive officer and his substantial experience in the home heating oil industry,among other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.Richard F. Ambury. Mr. Ambury has been Executive Vice President of Kestrel Heat since May 1, 2010 and has been Chief Financial Officer, Treasurer andSecretary of Kestrel Heat since April 28, 2006. Mr. Ambury was Chief Financial Officer, Treasurer and Secretary of Star Gas from May 2005 until April 28,2006. From November 2001 to May 2005, Mr. Ambury was Vice President and Treasurer of Star Gas. From March 1999 to November 2001, Mr. Ambury wasVice President of Star Gas Propane, L.P. From February 1996 to March 1999, Mr. Ambury served as Vice President—Finance of Star Gas Corporation,predecessor general partner. Mr. Ambury was employed by Petro from June 1983 through February 1996, where he served in various accounting/financecapacities. From 1979 to 1983, Mr. Ambury was employed by a predecessor firm of KPMG, a public accounting firm. Mr. Ambury has been a Certified PublicAccountant since 1981 and is a graduate of Marist College.Steven J. Goldman. Mr. Goldman has been Executive Vice President and Chief Operating Officer of Kestrel Heat since May 1, 2010 and was Senior VicePresident of Operations of the Partnership from May 31, 2007 until April 30, 2010. Mr. Goldman was Vice President of Operations of Petro Holdings, Inc.from July 2004 until May 31, 2007. From February 2000 to June 2004, Mr. Goldman held various operating management positions with Petro Holdings, Inc.Prior to joining Petro Holdings, Inc. as a General Manager in 2000, Mr. Goldman worked for United Parcel Service from 1982 to 2000. Mr. Goldman has alsoheld various positions within the management of companies in industrial engineering and those with international operations. Mr. Goldman is a graduate ofthe State University of New York at Stony Brook.Richard G. Oakley. Mr. Oakley has been Vice President and Controller of Kestrel Heat since May 22, 2006. From September 1982 until May 2006 he heldvarious positions with Meenan Oil Co. LP, most recently that of Controller since 1993. Mr. Oakley is a graduate of Long Island University.Henry D. Babcock. Mr. Babcock has been a director of Kestrel Heat since April 28, 2006. Mr. Babcock is Chairman of Train, Babcock Advisors LLC, aprivately owned registered investment advisor. He joined the firm in 1976, became a partner in 1980 and CEO in 1999. Prior to this, he ran an affiliatedventure capital company that was active the in the U.S. and abroad. Mr. Babcock is a graduate of Yale University and received an MBA from ColumbiaUniversity. He serves on the Global Education Advisory Board of Save the Children and is President of the Caumsett Foundation.Mr. Babcock’s significant experience in capital markets, corporate finance and venture capital, among other factors, led the Board to conclude that he shouldserve as a director of Kestrel Heat.C. Scott Baxter. Mr. Baxter has been a director of Kestrel Heat since April 28, 2006. Mr. Baxter is currently the Managing Partner for Green River EnergyPartners, an energy investment banking firm headquartered in New York. Previously, Mr. Baxter was Managing Director & Head of the Global Energy Groupfor Houlihan Lokey who had acquired his previous firm’s assets, Green River Energy. At Green River Energy, Mr. Baxter was the Managing Partner andconducted M&A advisory and invested in public and private equity. From 1999 through 2001, he was Head of Americas for the Global Energy InvestmentBanking Group of JPMorgan. From 1989 to 1999, Mr. Baxter worked for Salomon Smith Barney’s Global Energy Investment Banking Group where he was aManaging Director. Mr. Baxter holds a B.S. degree in Economics from Weber State University where he graduated cum laude, and received an MBA degreefrom the University of Chicago Graduate School of Business. From 2002 to 2005 Mr. Baxter was also an adjunct professor of finance at ColumbiaUniversity’s Graduate School of Business. Since 1996, Mr. Baxter has also been on the President’s advisory board for Weber State University.Mr. Baxter’s significant experience as an investor and senior investment banker focused on the energy field, among other factors, led the Board to concludethat he should serve as a director of Kestrel Heat. 48 Table of ContentsBryan H. Lawrence. Mr. Lawrence has been a director of Kestrel Heat since April 28, 2006 and as a manager of Kestrel since July, 2005. Mr. Lawrence is afounder and senior manager of Yorktown, the manager of the Yorktown group of investment partnerships, which make investments in companies engaged inthe energy industry. The Yorktown partnerships were formerly affiliated with the investment firm of Dillon, Read & Co. Inc., where Mr. Lawrence wasemployed beginning in 1966, serving as a Managing Director until the merger of Dillon Read with SBC Warburg in September 1997. Mr. Lawrence alsoserves as a director of Approach Resources, Inc., Crosstex Energy, Inc., Hallador Petroleum Company (each a United States publicly traded company), WinstarResources Ltd. (a Canadian public company) and certain non-public companies in the energy industry in which Yorktown partnerships hold equity interests.Mr. Lawrence also serves as a director of Crosstex Energy GP, LLC, the general partner of Crosstex Energy, L.P. (a United States publicly traded company).Mr. Lawrence is a graduate of Hamilton College and received an M.B.A. from Columbia University.Mr. Lawrence’s significant financial and investment experience, and experience as a founder of Yorktown Energy Partners LLC, among other factors, led theBoard to conclude that he should serve as a director of Kestrel Heat.Sheldon B. Lubar. Mr. Lubar has been a director of Kestrel Heat since April 28, 2006 and a manager of Kestrel since July, 2005. Mr. Lubar has been Chairmanof the board of Lubar & Co. Incorporated, a private investment and venture capital firm he founded, since 1977. He was Chairman of the board of ChristianaCompanies, Inc., a logistics and manufacturing company, from 1987 until its merger with Weatherford International in 1995. Mr. Lubar had also beenChairman of Total Logistics, Inc., a logistics and manufacturing company until its acquisition in 2005 by SuperValu Inc. He has served as a director ofCrosstex Energy, Inc. since January 2004; Approach Resources, Inc. since June 2007 and Crosstex Energy GP, LLC, the General Partner of Crosstex Energy,L.P. He is also a director of several private companies. Mr. Lubar holds a bachelor’s degree in Business Administration and a Law degree from the Universityof Wisconsin-Madison. He was awarded an honorary Doctor of Commercial Science degree from the University of Wisconsin-Milwaukee.Mr. Lubar’s significant experience as a senior executive officer and as a director of other public company’s, among other factors, led the Board to concludethat he should serve as a director of Kestrel Heat.William P. Nicoletti. Mr. Nicoletti has been a director of Kestrel Heat since April 28, 2006. Mr. Nicoletti was the non-executive chairman of the board of StarGas from March 2005 until April 28, 2006. Mr. Nicoletti was a director of Star Gas from March 1999 until April 28, 2006 and was a director of Star GasCorporation, the predecessor general partner from November 1995 until March 1999. Since February 1, 2009, he has been a Managing Director of ParkmanWhaling LLC, a Houston, Texas based energy investment banking firm. Previously, he was Managing Director of Nicoletti & Company, Inc., a privateinvestment banking firm. Mr. Nicoletti was formerly a senior officer and head of Energy Investment Banking for E. F. Hutton & Company, Inc., PaineWebberIncorporated and McDonald Investments, Inc. Mr. Nicoletti is a director of MarkWest Energy Partners, L.P. Mr. Nicoletti is a graduate of Seton HallUniversity and received an M.B.A. from Columbia University.Mr. Nicoletti’s current and prior leadership experience in the energy investment banking industry and his significant experience in finance, accounting andcorporate governance matters, among other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.Director IndependenceIt is the policy of the Board of Directors that the number of independent Directors that comprise the Board shall at all times equal at least threeDirectors or such higher number as may be necessary to comply with the applicable federal securities law requirements. For the purposes of this policy,“independent director” shall have the meaning set forth in Section 10A(m) of the Securities Exchange Act of 1934, as amended, any applicable stockexchange rules and the rules and regulations promulgated in the Partnership governance guidelines available on its webpage www.Star-Gas.com. Messrs.Nicoletti, Babcock, and Baxter are independent Directors.Meetings of DirectorsDuring fiscal 2010, the Board of Directors of Kestrel Heat, LLC met nine times. All directors attended each meeting except for two meetings which onedirector did not attend.Committees of the Board of DirectorsKestrel Heat, LLC’s Board of Directors has one standing committee, the Audit Committee. Its members are appointed by the Board of Directors for aone-year term and until their respective successors are elected. The NYSE corporate governance standards do not require limited partnerships to have aNominating or Compensation Committee. 49 Table of ContentsAudit CommitteeWilliam P. Nicoletti, Henry D. Babcock and C. Scott Baxter have been appointed to serve on the Audit Committee of the general partner’s Board ofDirectors, which has adopted an Audit Committee Charter. Mr. Nicoletti serves as chairman of the Audit Committee. A copy of this charter is available on thePartnership’s website at www.Star-Gas.com or a copy may be obtained without charge by contacting Richard F. Ambury (203) 328-7310. The AuditCommittee reviews the external financial reporting of the Partnership, selects and engages the Partnership’s independent registered public accountants andapproves all non-audit engagements of the independent registered public accountants.Members of the Audit Committee may not be employees of Kestrel Heat, LLC’s or its affiliated companies and must otherwise meet the New YorkStock Exchange and SEC independence requirements for service on the Audit Committee. The Board of Directors has determined that Messrs. Nicoletti,Babcock and Baxter are independent directors in that they do not have any material relationships with the Partnership (either directly, or as a partner,shareholder or officer of an organization that has a relationship with the Partnership) and they otherwise meet the independence requirements of the NYSEand the SEC. The Partnership’s Board of Directors has also determined that at least one member of the Audit Committee, Mr. Nicoletti, meets the SEC criteriaof an “audit committee financial expert.”During fiscal 2010, the Audit Committee of Kestrel Heat, LLC met seven times. All members attended each meeting except for two meetings where onedirector did not attend.Reimbursement of Expenses of the General PartnerThe general partner does not receive any management fee or other compensation for its management of the Partnership. The general partner isreimbursed for all expenses incurred on behalf of the Partnership, including the cost of compensation, which is properly allocable to the Partnership. ThePartnership’s partnership agreement provides that the general partner shall determine the expenses that are allocable to the Partnership in any reasonablemanner determined by the general partner in its sole discretion. In addition, the general partner and its affiliates may provide services to the Partnership forwhich a reasonable fee would be charged as determined by the general partner. There were no reimbursements in fiscal year 2009.Adoption of Code of Business Conduct and EthicsThe Partnership has adopted a written Code of Business Conduct and Ethics that applies to the Partnership’s officers, directors and employees. A copyof the Code of Business Conduct and Ethics is available on the Partnership’s website at www.Star-Gas.com or a copy may be obtained without charge, bycontacting Investor Relations, (203) 328-7310.Section 16(a) Beneficial Ownership Reporting ComplianceBased on copies of reports furnished to us, we believe that during fiscal year 2009, all reporting persons complied with the Section 16(a) filingrequirements applicable to them.Non-Management Directors and Interested Party CommunicationsThe non-management directors on the Board of Directors of the general partner are Messrs. Babcock, Baxter, Lawrence, Lubar, Nicoletti and Vermylen.The non-management directors have selected Mr. Vermylen, the Chairman of the Board, to serve as lead director to chair executive sessions of the non-management directors. Interested parties who wish to contact the non-management directors as a group may do so by contacting Paul A. Vermylen, Jr. c/o StarGas Partners, L.P., 2187 Atlantic Street, Stamford, CT 06902. 50 Table of Contents ITEM 11.EXECUTIVE COMPENSATIONCompensation Discussion And AnalysisThe Partnership’s Amended and Restated Agreement of Limited Partnership provides that the general partner of the Partnership, Kestrel Heat, LLC,shall conduct, direct and manage all activities of the Partnership. The limited liability company agreement of the general partner provides that the business ofthe general partner shall be managed by a Board of Directors. The responsibility of the Board is to supervise and direct the management of the Partnership inthe interest and for the benefit of the Partnership’s unitholders. Among the Board’s responsibilities is to regularly evaluate the performance and to approvethe compensation of the Chief Executive Officer and, with the advice of the Chief Executive Officer, regularly evaluate the performance and approve thecompensation of key executives.As a limited partnership that is listed on the New York Stock Exchange, the Partnership is not required to have a Compensation Committee. Since theChairman of the general partner and the majority of the Board are not employees, the Board determined that it has adequate independence to act in thecapacity of a Compensation Committee to establish and review the compensation of the Partnership’s executive officers and directors. The Board iscomprised of Paul A. Vermylen Jr. (Chairman), Daniel P. Donovan (President and Chief Executive Officer), Henry D. Babcock, C. Scott Baxter, Bryan H.Lawrence, Sheldon B. Lubar, and William P. Nicoletti.Throughout this Report, each person who served as chief executive officer (“CEO”) during fiscal 2010, each person who served as chief financialofficer (“CFO”) during fiscal 2010 and the two other most highly compensated executive officers serving at September 30, 2010 (there being no otherexecutive officers who earned more than $100,000 during fiscal 2010) are referred to as the “named executive officers” and are included in the SummaryCompensation Table below.In this Compensation Discussion and Analysis, we address the compensation paid or awarded to Messrs. Donovan, Ambury, Goldman, and Oakley. Werefer to these executive officers as our “named executive officers.”Compensation decisions for the above officers were made by the Board of Directors of the Partnership.COMPENSATION PHILOSOPHY AND POLICIESThe primary objectives of the Partnership’s compensation program, including compensation of the named executive officers, are to attract and retainhighly qualified officers, employees and directors and to reward individual contributions to our success. The Board of Directors considers the followingpolicies in determining the compensation of the named executive officers: • compensation should be related to the performance of the individual executive and the performance measured against both financial andnon-financial achievements; • compensation levels should be competitive to ensure that we will be able to attract, motivate and retain highly qualified executiveofficers; and • compensation should be related to improving unitholder value.Compensation MethodologyThe elements of the Partnership’s compensation program for named executive officers are intended to provide a total incentive package designed todrive performance and reward contributions in support of business strategies at the Partnership and operating unit level. Subject to the terms of employmentagreements that have been entered into with the named executive officers, all compensation determinations are discretionary and subject to the decision-making authority of the Board of Directors. We do not use benchmarking as a fixed criteria to determine compensation. Rather, after subjectively settingcompensation based on the above factors, we reviewed the compensation paid to officers holding similar positions at our peer group companies to obtain ageneral understanding of the reasonableness of base salaries and other compensation payable to our named executive officers. Our peer group of companieswas comprised of the following companies: Amerigas Partners, L.P., Suburban Propane Partners, L.P., Inergy Holdings, L.P., Ferrellgas Partners, L.P. andGlobal Partners, L.P. We chose these companies because they are master limited partnerships that are engaged in the retail distribution of energy products likethe Partnership. 51 Table of ContentsElements of Executive CompensationFor the fiscal year ended September 30, 2010, the principal components of compensation for the named executive officers were: • base salary; • annual discretionary profit sharing allocation; • long-term management incentive compensation plan; and • retirement and health benefits.Under our compensation structure, the mix of base salary, discretionary profit sharing allocation and long-term compensation provided to eachexecutive officer varies depending on their position. The base salary for each executive officer is the only fixed component of compensation. All othercompensation, including annual discretionary profit sharing allocation and long-term incentive compensation, is variable in nature.For the CEO, CFO and COO, approximately 50% of the annual compensation is in the form of base salary and approximately 50% is from thediscretionary profit sharing allocation. For the Vice President- Controller, approximately 65% of the annual compensation is in the form of base salary and35% is from the discretionary profit sharing allocations. During fiscal 2010, $40,000 was paid to the named officers under the terms of the Partnership’s long-term incentive plan and represented a small portion of its executive compensation. The majority of the Partnership’s compensation allocation was weightedtowards base salary and annual discretionary profit sharing allocation.We believe that together all of our compensation components provide a balanced mix of base compensation and compensation that is contingent uponeach executive officer’s individual performance and our overall performance. A goal of the compensation program is to provide executive officers with areasonable level of security through base salary and benefits, while rewarding them through incentive compensation to achieve business objectives andcreate unitholder value. As a result, officers with lower overall compensation levels will tend to have a higher percentage of base compensation. We believethat each of our compensation components is important in achieving this goal. Base salaries provide executives with a base level of monthly income andsecurity. Annual discretionary profit sharing allocations motivate executives to drive our financial performance. Long-term incentive awards link theinterests of our executives with our unitholders, which motivates our executives to create unitholder value. In addition, we want to ensure that ourcompensation programs are appropriately designed to encourage executive officer retention, which is accomplished through all of our compensationelements.Base SalaryThe Board of Directors establishes base salaries for the named executive officers based on a number of factors, including: • The historical salaries for services rendered to the Partnership and responsibilities of the named executive officer. • The salaries of equivalent executive officers at our peer group companies. • The prevailing levels of compensation and cost of living in the location in which the named executive officer works.In determining the initial base compensation payable to individual named executive officers when they are first hired by the Partnership, our startingpoint is the historical compensation levels that the Partnership has paid to officers performing similar functions over the past few years. We also consider thelevel of experience and accomplishments of individual candidates and general labor market conditions, including the availability of candidates to fill aparticular position. When we make adjustments to the base salaries of existing named executive officers, we review the individual’s performance, the valueeach named executive officer brings to us and general labor market conditions.Elements of individual performance considered, among others, without any specific weighting given to each element, include business-relatedaccomplishments during the year, difficulty and scope of responsibilities, effective leadership, experience, expected future contributions to the Partnershipand difficulty of replacement. While base salary provides a base level of compensation intended to be competitive with the external market, the base salaryfor each named executive officer is determined on a subjective basis after 52 Table of Contentsconsideration of these factors and is not based on target percentiles or other formal criteria. Although we believe that base salaries for our named executiveofficers are generally competitive with the external market, we do not use benchmarking as a fixed criteria to determine base compensation. Rather, aftersubjectively setting base salaries based on the above factors, we review the compensation paid to officers holding similar positions at our peer groupcompanies to obtain a general understanding of the reasonableness of base salaries and other compensation payable to our named executive officers. ThePartnership also takes into account geographic differences for similar positions in the New York Metropolitan area. While cost of living is considered indetermining annual increases, the Partnership does not typically provide full cost of living adjustments as salary increases are constrained by budgetaryrestrictions and the ability to fund the Partnership’s current cash needs such as interest expense, maintenance capital, income taxes and distributions.Profit Sharing AllocationsThe Partnership maintains a profit sharing pool for employees, including named executive officers, which in fiscal 2010 was equal to approximately6.0% of the Partnership’s earnings before income taxes, depreciation and amortization, excluding items affecting comparability (“adjusted EBITDA”). Theannual discretionary profit sharing allocations paid to the named executive officers are payable from this pool. The size of the pool fluctuates based uponupward or downwards changes in adjusted EBITDA. The amount of cash paid to the named executive officers under the plan is based on the targetpercentages of overall compensation described above under the caption “Elements of Executive Compensation.” Depending upon the size of the profitsharing pool, the amount paid to the named officers could be more or less.There are no set formulas for determining the amount payable to our named executive officers from the profit sharing plan. Factors considered by ourCEO and the Board in determining the level of bonus compensation generally include, without assigning a particular weight to any factor: (i)whether or not we achieved certain budgeted goals for the year and any material shortfalls or superior performances relative to expectations.Under the plan, no profit sharing was payable with respect to fiscal 2010 unless the Partnership achieved actual adjusted EBITDA for fiscal 2010of at least 70% of the amount of budgeted adjusted EBITDA for fiscal 2010. The budget is developed annually using a bottom up process; (ii)the level of difficulty associated with achieving such objectives based on the opportunities and challenges encountered during the year and; (iii)significant transactions or accomplishments for the period not included in the goals for the year.Our CEO takes these factors into consideration as well as the relative contributions of each of the named executive officers to the year’s performance indeveloping his recommendations for bonus amounts. Based on such assessment, our CEO submits recommendations to the Board of Directors for the annualprofit sharing amounts to be paid to our named executive officers, for the Board’s review and approval. Similarly, the Chairman assesses the CEO’scontribution toward meeting the Partnership’s goals based upon the above factors, and recommends to the Board of Directors a bonus for the CEO it believesto be commensurate with such contribution.The Board of Directors retains the ultimate discretion to determine whether the named executive officers will receive annual discretionary bonusesbased upon the factors discussed above.Long-Term Management Incentive Compensation PlanThe long-term compensation structure is intended to align the employee’s performance with the long-term performance of our unitholders. In fiscal2007, following the Partnership’s recapitalization, the Board of Directors adopted the Management Incentive Compensation Plan (the “Plan”) for employeesof the Partnership. Under the Plan, employees who participate shall be entitled to receive a pro rata share of an amount in cash equal to: • 50% of the distributions (“Incentive Distributions”) of Available Cash in excess of the minimum quarterly distribution of $0.0675 per unitotherwise distributable to Kestrel Heat pursuant to the Partnership Agreement on account of its general partner units; and • 50% of the cash proceeds (the “Gains Interest”) which Kestrel Heat shall receive from the sale of its general partner units (as defined in thePartnership Agreement), less expenses and applicable taxes. 53 Table of ContentsThe pro rata share payable to each participant under the Plan is based on the number of participation points as described under “Fiscal 2010Compensation Decisions - Long-Term Management Incentive Plan.” The amount paid in Incentive Distributions is governed by the partnership agreementand the calculation of Available Cash. Available Cash from Operating Surplus (as defined in our partnership agreement) is distributed to the holders of thePartnership’s common units and general partner units in the following manner:First, 100% to all common units, pro rata, until there has been distributed to each common unit an amount equal to the minimum quarterly distributionof $0.0675 for that quarter;Second, 100% to all common units, pro rata, until there has been distributed to each common unit an amount equal to any arrearages in the payment ofthe minimum quarterly distribution for prior quarters;Third, 100% to all general partner units, pro rata, until there has been distributed to each general partner unit an amount equal to the minimumquarterly distribution;Fourth, 90% to all common units, pro rata, and 10% to all general partner units, pro rata, until each common unit has received the first targetdistribution of $0.1125; andFinally, 80% to all common units, pro rata, and 20% to all general partner units, pro rata.Available Cash, as defined in our partnership agreement, generally means all cash on hand at the end of the relevant fiscal quarter less the amount ofcash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves areestablished for the proper conduct of our business, including acquisitions, the payment of debt principal and interest and for distributions during the nextfour quarters and to comply with applicable law and the terms of any debt agreements or other agreements to which we are subject. The Board of Directors ofour general partner reviews the level of Available Cash each quarter based upon information provided by management.To fund the benefits under the Plan, Kestrel Heat has agreed to forego receipt of the amount of Incentive Distributions that are payable to planparticipants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will reduce both EBITDA andnet income but not adjusted EBITDA. Kestrel Heat has also agreed to contribute to the Partnership, as a contribution to capital, an amount equal to the GainsInterest payable to participants in the Plan by the Partnership. The Partnership is not required to reimburse Kestrel Heat for amounts payable pursuant to thePlan.The Plan is administered by the Partnership’s Chief Financial Officer under the direction of the Board or by such other officer as the Board may fromtime to time direct. Determination of the employees that participate in the Plan is under the sole discretion of the Board of Directors. In general, no paymentswill be made under this plan if the Partnership is not distributing cash under the Incentive Distributions described above.The Board of Directors reserves the right to amend, change or terminate the Plan at any time. Without limiting the foregoing, the Board of Directorsreserves the right to adjust the amount of Incentive Distributions to be allocated to the Bonus Pool if in its judgment extenuating circumstances warrantadjustment from the guidelines, and to change the timing of any payments due thereunder at any time in its sole discretion.The Partnership distributed approximately $116,000 in Incentive Distributions during fiscal 2010, initiating payments to the named executive officersof approximately $40,000 under its long-term incentive plan. With regard to the Gains Interest, Kestrel Heat has not given any indication that it will sell itsGeneral Partner Units within the next twelve months. Thus the Plan’s value attributable to the Gains Interest currently cannot be determined.Retirement and Health BenefitsThe Partnership offers a health and welfare and retirement program to all eligible employees. The named executive officers are generally eligible for thesame programs on the same basis as other employees of the Partnership. The Partnership maintains a tax-qualified 401(k) retirement plan that provideseligible employees with an opportunity to save for retirement on a tax advantaged basis. Under the Partnership’s 401(k) plan, subject to IRS limitations, eachparticipant can contribute from 0% to 60% of compensation. The Partnership makes a 4% (to a maximum of 5.5% for participants who had 10 or more yearsof service at the time the Defined Benefit Plans were frozen and who have reached the age 55) core contribution of a participant’s compensation and matches2/3 of each amount a participant contributes up to a maximum of 2.0% of a participant’s compensation, also subject to IRS limitations.In addition, the Partnership has two frozen defined benefit pension plans that were maintained for all its eligible employees, including the namedexecutive officers. The present value of accumulated benefits under these frozen defined benefit pension plans for each named executive officer is providedin the table labeled, Pension Plans Pursuant to Which Named Executive Officers Have an Accumulated Benefit But Are Not Currently Accruing Benefits. 54 Table of ContentsFiscal 2010 Compensation DecisionsFor fiscal 2010, the foregoing elements of compensation were applied as follows:Base SalaryThe following table sets forth each named executive officer’s base salary as of October 1, 2010 and the percentage increase in his base salary overOctober 1, 2009. The base salaries for our named executive officers were determined prior to fiscal 2009, based upon the factors discussed under the caption“Base Salary.” The increases in such base salaries that were granted in fiscal 2009 were generally intended to reflect continued improvement in thePartnership’s operating results. In addition, the increases to Messrs. Ambury and Goldman reflect Mr. Ambury’s promotion to Executive Vice President andMr. Goldman’s promotion to Executive Vice President and Chief Operating Officer. The average percentage increase in base salary for executives in our peergroup was 5.2%. Name Salary Percentage Over Prior Year Daniel P. Donovan $405,000 3.6%Richard F. Ambury $325,000 6.2%Steven J. Goldman $315,000 9.8%Richard G. Oakley $212,800 3.5%Annual Discretionary Profit Sharing AllocationBased on our CEO’s annual performance review and the individual performance of each of our named executive officers, our Board approved theannual profit sharing allocation reflected in the “Summary Compensation Table” and notes thereto. The aggregate profit sharing amounts reflected in theSummary Compensation Table are approximately 4.5% lower than the bonus amounts for fiscal 2009. One of the Partnership’s primary performance measuresis Adjusted EBITDA. Adjusted EBITDA for profit sharing purposes decreased by $6.8 million, or 8.3%, to $76.0 million for fiscal 2010. The averagepercentage decrease in Adjusted EBITDA for companies in our peer group was 10.6%.Long-Term Management Incentive Compensation PlanIn October 2006, the Board awarded 1,000 participation points in the Plan to certain officers, including the following points to the following currentand former named executive officers: Joseph Cavanaugh - 233 1/3, Dan Donovan - 233 1/3, Richard Ambury - 233 1/3, and Steven Goldman - 100.In fiscal year 2007, Mr. Cavanaugh’s points were reallocated upon his retirement as provided for in the Plan and additional participation points weregiven to certain officers, increasing the Plan’s total participation points to 1,025. The named executive officers have participation points in the Plan are asfollows: Dan Donovan - 300, Richard Ambury - 235, Steven Goldman - 150, and Richard Oakley - 30.The participation points were awarded based on the length of service and level of responsibility of the named executive and the Partnership’s desire toretain the named executives, which is in the long-term best interest of the Partnership. In general, the largest awards were granted to the CEO and CFO, whowere the most senior participants in the plan and each of whom had more than 25 years service with the Partnership and lesser awards were granted to theremaining participants, based upon their level of responsibility and length of service, without using a fixed formula to set such awards.In fiscal 2010, an additional 10 participation points were awarded to Mr. Oakley under the Plan.In fiscal 2010, $40,000 was paid to the named executive officers under the Long-Term Management Incentive Compensation Plan.Retirement and Health BenefitsThere were no changes to the retirement and health benefits applicable to the named executive officers in fiscal 2010. 55 Table of ContentsEmployment Contracts and Severance AgreementsAgreement with Daniel P. DonovanThe Partnership entered into an employment agreement on November 8, 2010 with Mr. Donovan effective as of June 1, 2010. Mr. Donovan’semployment agreement is for a term of three-years unless otherwise terminated in accordance with the employment agreement. Mr. Donovan will serve asPresident and Chief Executive Officer of the Partnership and its subsidiaries. The employment agreement provides for one year’s salary as severance ifMr. Donovan’s employment is terminated without cause or by Mr. Donovan for good reason.Agreement with Richard F. AmburyThe Partnership entered into an employment agreement with Mr. Ambury effective as of April 28, 2008. Mr. Ambury will serve as Chief FinancialOfficer and Treasurer of the Partnership and its subsidiaries. The employment agreement provides for one year’s salary as severance if Mr. Ambury’semployment is terminated without cause or by Mr. Ambury for good reason.Agreement with Steven J. GoldmanEffective May 31, 2007 Steven J. Goldman was appointed the Senior Vice President of Operations of the Partnership. On December 3, 2007Mr. Goldman entered into an employment agreement that provides for one year’s salary as severance if his employment is terminated without cause or byMr. Goldman for good reason.Agreement with Richard G. OakleyEffective November 2, 2009, the Partnership entered into an agreement with Mr. Richard G. Oakley pursuant to which Mr. Oakley will continue to beemployed as Vice President—Controller on an at-will basis, and provides for one year’s salary as severance if his employment is terminated for reasons otherthan cause.Change In Control AgreementsOn December 4, 2007, the Board of Directors authorized the Partnership and our general partner to enter into a Change In Control Agreement with thefollowing executive officers: Mr. Donovan, Chief Executive Officer and Mr. Ambury, Chief Financial Officer. Under the terms of each agreement, if the abovementioned executive officer’s employment is terminated as a result of a change in control (as defined in the agreement) that executive officer will be entitledto a payment equal to two times their base annual salary in the year of such termination plus two times the average amount paid as a bonus and/or as profitsharing during the three years preceding the year of such termination. The term change in control means the present equity owners of Kestrel and theiraffiliates collectively cease to beneficially own equity interests having the voting power to elect at least a majority of the members of the board of directors orother governing board of the general partner of the Partnership or any successor entity to the Partnership. If a change in control were to have occurred as ofthe date of this report, Mr. Donovan would have received a payment of $1.8 million and Mr. Ambury would have received a payment of $1.4 million.Indemnification AgreementsWe have entered into an indemnification agreement with each of our directors and senior executives. These agreements provide for us to, among otherthings, indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expensesincurred as a result of a proceeding as to which they may be indemnified and to cover such person under any directors’ and officers’ liability insurance policywe choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permittedunder applicable indemnification rights statutes in the State of Delaware and are in addition to any other rights such person may have under our partnershipagreement and the operating agreement of our general partner, and applicable law. We believe these indemnification agreements enhance our ability toattract and retain knowledgeable and experienced executives and independent, non-management directors. 56 Table of ContentsBoard of Directors ReportThe Board of Directors of the general partner of the Partnership does not have a separate compensation committee. Executive compensation isdetermined by the Board of Directors. Mr. Donovan is President, Chief Executive Officer and a Director.The Board of Directors reviewed and discussed with the Partnership’s management the Compensation Discussion and Analysis contained in this annualreport on Form 10-K. Based on that review and discussion, the Board of Directors recommends that the Compensation Discussion and Analysis be included inthe Partnership’s annual report on Form 10-K for the year ended September 30, 2010.Paul A. Vermylen, Jr.Daniel P. DonovanHenry D. BabcockC. Scott BaxterBryan H. LawrenceSheldon B. LubarWilliam P. NicolettiExecutive Compensation TableThe following table sets forth the annual salary compensation, bonus and all other compensation awards earned and accrued by the named executiveofficers in the fiscal year. Summary Compensation Table Name and Principal Position FiscalYear Salary Bonus UnitAwards OptionAwards Non-EquityIncentivePlanComp. Change inPensionValue andNonqualifiedDeferredComp.Earnings(1) All OtherComp.(2) Total Daniel P. Donovan 2010 $395,667 — — — $565,000 $85,384 $55,760 $1,101,811 President and Chief Executive Officer 2009 $388,333 — — — $615,000 $181,947 $38,004 $1,223,284 2008 $377,667 — — — $330,000 $(33,326) $33,321 $707,662 Richard F. Ambury 2010 $313,917 — — — $445,000 $30,699 $47,852 $837,468 Chief Financial Officer, Treasurer and Executive VicePresident 2009 $302,500 — — — $485,000 $64,798 $30,722 $883,020 2008 $292,028 — — — $260,000 $(19,423) $27,855 $560,460 Steven J. Goldman 2010 $298,667 — — — $361,000 $— $44,719 $704,386 Chief Operating Officer and Executive Vice President 2009 $285,000 — — — $337,000 $— $33,404 $655,404 2008 $277,000 — — — $182,000 $— $30,085 $489,085 Richard G. Oakley 2010 $205,600 — — — $145,000 $42,887 $32,491 $425,978 Vice President - Controller 2009 $199,600 — — — $150,000 $88,066 $29,284 $466,950 2008 $195,700 — — — $84,000 $(27,678) $26,657 $278,679 (1)The Partnership has two frozen defined benefit pension plans where participants are not accruing additional benefits. The change in the namedexecutive’s pension values are non-cash, and reflect normal adjustments resulting from changes in discount rates and government mandated mortalitytables. 57 Table of Contents (2)All other compensation is subdivided as follows: Name Long TermManagementCompensationPlan(s) Company Match andCore Contribution to401 (K) Plan ($) Car Allowance orMonetary Value forPersonal Use ofCompany OwnedVehicle ($) Total ($) Daniel P. Donovan 16,989 18,374 20,397 55,760 Richard F. Ambury 13,308 15,344 19,200 47,852 Steven J. Goldman 8,494 16,204 20,021 44,719 Richard G. Oakley 1,699 13,992 16,800 32,491 Grants of Plan-Based AwardsNoneOutstanding Equity Awards at Fiscal Year-EndNoneOption Exercises and Stock VestedNonePension Plans Pursuant to Which Named Executive Officers Have an Accumulated Benefit But Are Not Currently Accruing Benefits Name Plan Name Number of YearsCredited Service Present Value ofAccumulated Benefit Payments DuringLast Fiscal Year Daniel P. Donovan Retirement Plan 21 $790,834 $— Richard F. Ambury Retirement Plan 13 $152,457 $— Supplemental EmployeeRetirement Plan — $29,177 $— Steven J. Goldman Retirement Plan — $— $— Richard G. Oakley Retirement Plan 19 $232,760 $— Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation PlansNonePotential Payments upon TerminationIf Mr. Donovan’s employment is terminated by the Partnership for reasons other than for cause or if Mr. Donovan terminates his employment for goodreason prior to May 31, 2010, he will be entitled to receive one-year’s salary as severance except in the case of a termination following a change in controlwhich is discussed above under “Change in Control Agreements.” For 12 months following the termination of his employment, Mr. Donovan is prohibitedfrom competing with the Partnership or from becoming involved either as an employee, as a consultant or in any other capacity, in the sale of heating oil orpropane on a retail basis.If Mr. Ambury’s employment is terminated for reasons other than cause or if Mr. Ambury terminates his employment for a good reason, he will beentitled to receive a severance payment of one year’s salary except in the case of a termination following a change in control which is discussed above under“Change in Control Agreements.” For 12 months following the termination of his employment, Mr. Ambury is prohibited from competing with thePartnership or from becoming involved either as an employee, as a consultant or in any other capacity, in the sale of heating oil or propane on a retail basis.If Mr. Goldman’s employment is terminated by the Partnership for reasons other than for cause, or if Mr. Goldman terminates his employment for goodreason, he will be entitled to receive one-years salary as severance. For 12 months following the termination of his employment, Mr. Goldman is prohibitedfrom competing with the Partnership or from becoming involved either as an employee, as a consultant or in any other capacity, in the sale of heating oil orpropane on a retail basis.If Mr. Oakley’s employment is terminated by the Partnership without cause, he will be entitled to receive one-year’s salary as severance. For 12 monthsfollowing the termination of his employment, Mr. Oakley is prohibited from competing with the Partnership or from becoming involved either as anemployee, as a consultant or in any other capacity, in the sale of heating oil or propane on a retail basis. 58 Table of ContentsThe amounts shown in the table below assume that the triggering event for each named executive officer’s termination or change in control paymentwas effective as of the date of this report based upon their historical compensation arrangements as of such date. The actual amounts to be paid out can onlybe determined at the time of such named executive officer’s termination of employment or the Partnerships’ change of control. Name Potential PaymentsUpon Termination Potential PaymentsFollowinga Change of Control Daniel P. Donovan $405,000 $1,816,667 Richard F. Ambury $325,000 $1,443,333 Steven J. Goldman $315,000 $— Richard G. Oakley $212,800 $— The employment agreements of the foregoing officers also require that they not reveal confidential information of the Partnership within twelvemonths following the termination of their employment.Compensation of Directors Director Compensation Table Name FeesEarnedor Paidin Cash UnitAwards OptionAwards Non-EquityIncentivePlanCompensation Change inPensionValue andNonqualifiedDeferredCompensationEarnings (6) All OtherCompensation Total Paul A. Vermylen, Jr. (1) $132,000 — — — $83,863 — $215,863 Daniel P. Donovan (2) $— — — — — — $— Henry D. Babcock (3) $55,500 — — — — — $55,500 C. Scott Baxter (3) $55,500 — — — — — $55,500 Bryan H. Lawrence (4) $— — — — — — $— Sheldon B. Lubar $39,750 — — — — — $39,750 William P. Nicoletti (5) $62,250 — — — — — $62,250 (1)Mr. Vermylen is non-executive Chairman of the Board.(2)Mr. Donovan is a management director and the change in his pension value is already included in the summary compensation table.(3)Mr. Babcock and Mr. Baxter are Audit Committee members.(4)Mr. Lawrence has chosen not to receive any fees as a director of the general partner of the Partnership.(5)Mr. Nicoletti is Chairman of the Audit Committee.(6)Mr. Vermylen had participated in one of the Partnership’s frozen defined benefit pension plans. Participants are currently not accruing additionalbenefits under the frozen plan. The change in the pension value reflects normal non-cash adjustments resulting from changes in discount rates andgovernment mandated mortality tables.Each non-management director receives an annual fee of $30,000 plus $1,500 for each regular and telephonic meeting attended. The Chairman of theAudit Committee receives an annual fee of $12,000 while other Audit Committee members receive an annual fee of $6,000. Each member of the AuditCommittee receives $1,500 for every regular and telephonic meeting attended. The non-executive chairman of the Board receives an annual fee of $120,000. 59 Table of Contents ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following table shows the beneficial ownership as of November 30, 2010 of common units and general partner units by:(1) Kestrel and certain beneficial owners;(2) each of the named executive officers and directors of Kestrel Heat;(3) all directors and executive officers of Kestrel Heat as a group; and(4) each person the Partnership knows to hold 5% or more of the Partnership’s units.Except as indicated, the address of each person is c/o Star Gas Partners, L.P. at 2187 Atlantic Street, Stamford, Connecticut 06902-0011. Common Units General Partner Units Name Number Percentage Number Percentage Kestrel (a) 12,803,128 19.09% 325,729 100.00% Paul A. Vermylen, Jr. 155,000 * Daniel P. Donovan 19,500 * Steven J. Goldman 5,000 * Richard F. Ambury 12,125 * Richard G. Oakley — — Henry D. Babcock 96,121 * C. Scott Baxter 75,000 * Bryan H. Lawrence — — Sheldon B. Lubar — — William P. Nicoletti 35,000 * All officers and directors and Kestrel Heat, LLC as a group (10 persons) 13,200,874 19.68% 325,729 100.00% Bandera Partners LLC (b) 8,573,509 12.78% (a)Includes (i) 500,000 common units and 325,729 general partner units owned by Kestrel Heat, and (ii) 12,303,128 common units owned by KM2, as towhich Kestrel, in its capacity as sole member of Kestrel Heat and KM2, may be deemed to share beneficial ownership.(b)According to a Form 4 filed with the SEC on September 17, 2010, Bandera Partners LLC is the investment manager of Bandera Master Fund and maybe deemed to have beneficial ownership of the common units.*Amount represents less than 1%. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSThe Partnership has a written conflict of interest policy and procedure that requires all officers, directors and employees to report to senior corporatemanagement or the board of directors, all personal, financial or family interest in transactions that involve the individual and the Partnership. In addition, thePartnership Governance Guidelines provide that any monetary arrangement between a director and his or her affiliates (including any member of a director’simmediate family) and the Partnership or any of its affiliates for goods or services shall be subject to approval by the full Board of Directors.The general partner does not receive any management fee or other compensation for its management of the Partnership. The general partner isreimbursed for all expenses incurred on behalf of the Partnership, including the cost of compensation, which is properly allocable to the Partnership. ThePartnership’s partnership agreement provides that the general partner shall determine the expenses that are allocable to the Partnership in any reasonablemanner determined by the general partner in its sole discretion. In addition, the general partner and its affiliates may provide services to the Partnership forwhich a reasonable fee would be charged as determined by the general partner.Kestrel has the ability to elect the Board of Directors of Kestrel Heat, including Messrs. Vermylen, Lawrence and Lubar. Messrs. Vermylen, Lawrenceand Lubar are also members of the board of managers of Kestrel and, either directly or through affiliated entities, own equity interests in Kestrel. Kestrel ownsall of the issued and outstanding membership interests of Kestrel Heat and KM2, LLC, a Delaware limited liability company (“M2”). 60 Table of ContentsPolicies Regarding Transactions with Related PersonsOur Code of Business Conduct and Ethics, Partnership Governance Guidelines and Partnership Agreement set forth policies and procedures withrespect to transactions with persons affiliated with the Partnership and the resolution of conflicts of interest, which taken together provide the Partnershipwith a framework for the review and approval of “transactions” with “related persons” as such terms are defined in Item 404 of regulation S-K.For the years ended September 30, 2010, 2009 and 2008, the Partnership had no related party transactions or agreements pursuant to Item 404 ofregulation S-K.Our Code of Business Conduct and Ethics applies to our directors, officers, employees and their affiliates. It deals with conflicts of interest (e.g.,transactions with the Partnership), confidential information, use of Partnership assets, business dealings, and other similar topics. The Code requires officers,directors and employees to avoid even the appearance of a conflict of interest and to report potential conflicts of interest to the Director of Internal Audit.Our Partnership Governance Guidelines provide that any monetary arrangement between a director and his or her affiliates (including any member of adirector’s immediate family) and the Partnership or any of its affiliates for goods or services shall be subject to approval by the full Board of Directors.Although the Partnership Governance Guidelines by their terms only apply to directors the Board intends to apply this requirement to officers and employeesand their affiliates.To the extent that the Board determines that it would be in the best interests of the Partnership to enter into a transaction with a related person, theBoard intends to utilize the procedures set forth in the Partnership Agreement for the review and approval of potential conflicts of interest. Our PartnershipAgreement provides that whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates (including its directors,executive officers and controlling members), on the one hand, and the Partnership or any partner, on the other hand, any resolution or course of action inrespect of such conflict of interest shall be permitted and deemed approved by all partners, and shall not constitute a breach of the Partnership Agreement, ofany agreement contemplated therein, or of any duty stated or implied by law or equity, if the resolution or course of action is, or by operation of thePartnership Agreement is deemed to be, fair and reasonable to the Partnership.Any conflict of interest and any resolution of such conflict of interest shall be conclusively deemed fair and reasonable to the Partnership if suchconflict of interest or resolution is (i) approved by a committee of independent directors (the “Conflicts Committee”), (ii) on terms no less favorable to thePartnership than those generally being provided to or available from unrelated third parties or (iii) fair to the Partnership, taking into account the totality ofthe relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership).The General Partner (including the Conflicts Committee) is authorized in connection with its determination of what is “fair and reasonable” to thePartnership and in connection with its resolution of any conflict of interest to consider: (A)the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest; (B)any customary or accepted industry practices and any customary or historical dealings with a particular person; (C)any applicable generally accepted accounting practices or principles; and (D)such additional factors as the General Partner (including the Conflicts Committee) determines in its sole discretion to be relevant, reasonable orappropriate under the circumstances. 61, Table of Contents ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe following table represents the aggregate fees for professional audit services rendered by KPMG LLP including fees for the audit of thePartnership’s annual financial statements for the fiscal years 2010 and 2009, and for fees billed and accrued for other services rendered by KPMG LLP (inthousands). 2010 2009 Audit Fees $1,555 $1,510 Tax Fees 426 481 Total Fees $1,981 $1,991 Audit fees were for professional services rendered in connection with audits and quarterly reviews of the consolidated financial statements of thePartnershipTax 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. On June 18, 2003, the Audit Committee adopted its pre-approval policies and procedures. Since that date, there have been no audit or non-audit services rendered by the Partnership’s principal accountants thatwere not pre-approved.PART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES1. Financial StatementsSee “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 the following page. 62(1)(2)(1)(2) Table of ContentsINDEX TO EXHIBITS ExhibitNumber Incorp byRef. to Exh. Description 3.1 3.1(1) Amended and Restated Certificate of Limited Partnership 4.1 99.1(2) Second Amended and Restated Agreement of Limited Partnership 4.2 99.3(3) Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership 4.3 * Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership 4.4 99.1(3) Amended and Restated Unit Purchase Rights Agreement dated as of July 20, 2006 4.5 4.4(8) First Amendment to Amended and Restated Unit Purchase Rights Agreement dated as of June 7, 2007 4.6 (12) Second Amendment to Amended and Restated Unit Purchase Rights Agreement dated May 21, 2009.10.1 99.2(5) Letter Agreement and general release dated March 7, 2005 between Star Gas Partners L.P. and Irik P. Sevin†10.2 99.1(6) Unit Purchase Agreement dated as of December 5, 2005 among Star Gas Partners, L.P., Star Gas LLC, Kestrel Energy Partners, LLC,Kestrel Heat, LLC and KM2, LLC10.3 99.2(2) Indenture dated as of April 28, 2006 for the new senior notes due 201310.4 99.3(2) Amended and Restated Indenture dated as of April 28, 2006 for the existing senior notes due 201310.5 99.2(3) Management Incentive Compensation Plan†10.6 99.4(3) Form of Indemnification Agreement for Officers and Directors.10.7 (4) Approved Dealer / Contractor Agreement dated as of July 11, 2006 by and between AFC First Financial Corporation and PetroHoldings, Inc.10.8 99.4(7) Form of Amendment No. 1 to Indemnification Agreement.10.9 (9) Description of 2008 Profit Sharing Plan.†10.10 (10) Employment Agreement dated December 3, 2007 between Star Gas Partners, L.P. and Steven J. Goldman.†10.11 (10) Change in Control Agreement dated December 4, 2007 between Star Gas Partners, L.P. and Daniel P. Donovan.†10.13 (10) Change in Control Agreement dated December 4, 2007 between Star Gas Partners, L.P. and Richard F. Ambury.†10.14 (11) Employment Agreement dated April 28, 2008 between Star Gas Partners, L.P. and Richard Ambury†10.15 (13) Amended and Restated Credit Agreement dated as of July 2, 2009.10.16 (14) Agreement dated November 2, 2009 between Star Gas Partners, L.P. and Richard G. Oakley.†10.17 (15) First Amendment dated as of January 21, 2010, to Amended and Restated Credit Agreement dated as of July 2, 2009. 63 Table of Contents ExhibitNumber Incorp byRef. to Exh. Description10.18 * Third Amendment dated as of November 16, 2010 to Amended and Restated Credit Agreement dated as of July 9, 2009.10.19 (16) Equity Purchase Agreement dated as of May 10, 2010.10.20 (17) Employment Agreement dated as of November 8, 2010 between Star Gas Partners, L.P. and Daniel P. Donovan.10.21 * Purchase Agreement, dated as of November 10, 2010 between Star Gas Partners, L.P., J.P. Morgan Securities LLC and RBS.10.22 * Registration Rights Agreement, dated as of November 16, 2010 between Star Gas Partners, L.P. and J.P. Morgan Securities LLC.10.23 * Indenture dated as of November 16, 2010 for the 8.875% Senior Notes due 2017.14 (11) Code of Business Conduct and Ethics21 * Subsidiaries of the Registrant31.1 * Certification of Chief Executive Officer, Star Gas Partners, L.P., pursuant to Rule 13a-14(a)/15d-14(a).(1)31.2 * Certification of Chief Financial Officer, Star Gas Partners, L.P., pursuant to Rule 13a-14(a)/15d-14(a).(1)31.3 * Certification of Chief Executive Officer, Star Gas Finance Company, pursuant to Rule 13a-14(a)/15d-14(a).(1)31.4 * Certification of Chief Financial Officer, Star Gas Finance Company, 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 of 2002(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 of 2002(1) *Filed Herewith†Employee compensation plan.(1)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 9, 2006.(2)Incorporated by reference to an exhibit to the Registrant’s Form 8-K dated April 28, 2006.(3)Incorporated by reference to an exhibit to the Registrant’s Form 8-K dated July 20, 2006.(4)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2006, filed with theCommission on January 17, 2007.(5)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K filed with the Commission on March 8, 2005.(6)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated December 5, 2005.(7)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated October 19, 2006.(8)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated June 8, 2007.(9)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated October 22, 2007.(10)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007 filed with theCommission on December 7, 2007.(11)Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008 filed with theCommission on December 10, 2008.(12)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated May 21, 2009.(13)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated July 7, 2009.(14)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated November 3, 2009.(15)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010.(16)Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010.(17)Incorporated by reference to an exhibit to the Registrant’s Current Report on Form 8-K dated November 12, 2010. 64 Table of ContentsSIGNATUREPursuant 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: KESTREL HEAT, LLC (General Partner)By: /s/ Daniel P. Donovan Daniel P. Donovan President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on thedate indicated: Signature Title Date/s/ Daniel P. DonovanDaniel P. Donovan President and Chief Executive Officerand Director Kestrel Heat, LLC December 9, 2010/s/ Richard F. AmburyRichard F. Ambury Chief Financial Officer(Principal Financial Officer)Kestrel Heat, LLC December 9, 2010/s/ Richard G. OakleyRichard G. Oakley Vice President—Controller(Principal Accounting Officer)Kestrel Heat, LLC December 9, 2010/s/ Paul A. Vermylen, Jr.Paul A. Vermylen, Jr. Non-Executive Chairman of the Boardand Director Kestrel Heat, LLC December 9, 2010/s/ Henry D. BabcockHenry D. Babcock DirectorKestrel Heat, LLC December 9, 2010/s/ C. Scott BaxterC. Scott Baxter DirectorKestrel Heat, LLC December 9, 2010/s/ Bryan H. LawrenceBryan H. Lawrence DirectorKestrel Heat, LLC December 9, 2010/s/ Sheldon B. LubarSheldon B. Lubar DirectorKestrel Heat, LLC December 9, 2010/s/ William P. NicolettiWilliam P. Nicoletti DirectorKestrel Heat, LLC December 9, 2010 65 Table of ContentsSIGNATUREPursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized: STAR GAS FINANCE COMPANYBy: (Registrant)By: /s/ Daniel P. Donovan Daniel P. Donovan President and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on thedate indicated: Signature Title Date/s/ Daniel P. DonovanDaniel P. Donovan President, Chief Executive Officer andDirector(Principal Executive Officer)Star Gas Finance Company December 9, 2010/s/ RICHARD F. AMBURYRichard F. Ambury Chief Financial Officer(Principal Financial Officer)Star Gas Finance Company December 9, 2010/s/ RICHARD G. OAKLEYRichard G. Oakley Vice President—Controller(Principal Accounting Officer)Star Gas Finance Company December 9, 2010 66 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULE Page Part II Financial Information: Item 8—Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of September 30, 2010 and September 30, 2009 F-3 Consolidated Statements of Operations for the years ended September 30, 2010, September 30, 2009 and September 30, 2008 F-4 Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) for the years ended September 30, 2010, September 30,2009 and September 30, 2008 F-5 Consolidated Statements of Cash Flows for the years ended September 30, 2010, September 30, 2009 and September 30, 2008 F-6 Notes to Consolidated Financial Statements F-7 – F-28 Schedules for the years ended September 30, 2010, September 30, 2009 and September 30, 2008 I. Condensed Financial Information of Registrant F-29 – F-31 II. Valuation and Qualifying Accounts F-32 All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financialstatements or the notes therein. F-1 Table of ContentsReport of Independent Registered Public Accounting FirmThe Partners of Star Gas Partners, L.P.:We have audited the accompanying consolidated balance sheets of Star Gas Partners, L.P. and Subsidiaries (the “Partnership”) as of September 30,2010 and 2009, and the related consolidated statements of operations, partners’ capital and comprehensive income (loss), and cash flows for each of the yearsin the three-year period ended September 30, 2010. In connection with our audits of the consolidated financial statements, we have also audited the financialstatement schedules I and II listed in the accompanying index. We also have audited the Partnership’s internal control over financial reporting as ofSeptember 30, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). The Partnership’s management is responsible for these consolidated financial statements and financial statement schedules,for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on theseconsolidated financial statements and financial statement schedules and an opinion on the Partnership’s internal control over financial reporting based onour audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement andwhether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statementsincluded examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles usedand significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures aswe considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.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, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year periodended September 30, 2010, in conformity with U.S. generally accepted accounting principles. In addition, in our opinion, the related financial statementschedules I and II listed in the accompanying index, when considered in relation to the basic consolidated financial statements taken as a whole, presentfairly, in all material respects, the information set forth therein. Also in our opinion, Star Gas Partners, L.P. and Subsidiaries maintained, in all materialrespects, effective internal control over financial reporting as of September 30, 2010, based on criteria established in Internal Control – IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission.Star Gas Partners, L.P. acquired Champion Energy Corporation (“CEC”) during 2010, and management excluded from its assessment of theeffectiveness of the Partnership’s internal control over financial reporting as of September 30, 2010, CEC’s internal control over financial reportingassociated with total assets of $74 million (of which $52 million represents goodwill and intangibles included within the scope of the assessment) and totalrevenues of $25 million included in the consolidated financial statements of the Partnership as of and for the year ended September 30, 2010. Our audit ofinternal control over financial reporting of Star Gas Partners, L.P. also excluded an evaluation of the internal control over financial reporting of ChampionEnergy Corporation.KPMG LLPStamford, ConnecticutDecember 9, 2010 F-2 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS Years Ended September 30, (in thousands) 2010 2009 ASSETS Current assets Cash and cash equivalents $61,062 $195,160 Receivables, net of allowance of $5,443 and $6,267, respectively 70,443 58,854 Inventories 66,734 62,636 Fair asset value of derivative instruments 7,158 14,676 Current deferred tax asset, net 20,247 30,135 Prepaid expenses and other current assets 21,219 15,437 Total current assets 246,863 376,898 Property and equipment, net 44,712 37,494 Long-term portion of accounts receivables 583 504 Goodwill 199,052 182,942 Intangibles, net 58,894 20,468 Long-term deferred tax asset, net 26,551 36,265 Deferred charges and other assets, net 5,853 9,555 Total assets $582,508 $664,126 LIABILITIES AND PARTNERS’ CAPITAL Current liabilities Accounts payable $16,626 $17,103 Fair liability value of derivative instruments 1,586 665 Accrued expenses and other current liabilities 68,854 64,446 Unearned service contract revenue 40,110 37,121 Customer credit balances 68,762 74,153 Total current liabilities 195,938 193,488 Long-term debt 82,770 133,112 Other long-term liabilities 23,889 31,192 Partners’ capital Common unitholders 307,092 332,340 General partner 290 309 Accumulated other comprehensive income (loss), net of taxes (27,471) (26,315) Total partners’ capital 279,911 306,334 Total liabilities and partners’ capital $582,508 $664,126 See accompanying notes to consolidated financial statements. F-3 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Years Ended September 30, (in thousands, except per unit data) 2010 2009 2008 Sales: Product $1,028,423 $1,032,812 $1,353,950 Installations and service 184,353 174,001 189,143 Total sales 1,212,776 1,206,813 1,543,093 Cost and expenses: Cost of product 734,594 708,185 1,081,833 Cost of installations and service 169,453 167,570 175,759 (Increase) decrease in the fair value of derivative instruments (5,622) (13,690) 25,467 Delivery and branch expenses 218,625 224,478 213,902 Depreciation and amortization expenses 15,745 19,406 26,784 General and administrative expenses 21,397 20,742 16,043 Operating income 58,584 80,122 3,305 Interest expense (14,326) (17,842) (20,691) Interest income 3,506 4,205 6,883 Amortization of debt issuance costs (2,680) (2,750) (2,339) Gain (loss) on redemption of debt (1,132) 9,706 — Income (loss) before income taxes 43,952 73,441 (12,842) Income tax expense (benefit) 15,632 (57,597) 566 Net income (loss) $28,320 $131,038 $(13,408) General Partner’s interest in net income (loss) 128 561 (57) Limited Partners’ interest in net income (loss) $28,192 $130,477 $(13,351) Basic and diluted income (loss) per Limited Partner Unit (1): $0.38 $1.43 $(0.18) Weighted average number of Limited Partner units outstanding: Basic 70,019 75,738 75,774 Diluted 70,019 75,738 75,774 (1)See Note 17 Earnings Per Limited Partner Units.See accompanying notes to consolidated financial statements. F-4 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME (LOSS)Years Ended September 30, 2010, 2009 and 2008 Number of Units (in thousands) Common GeneralPartner Common GeneralPartner Accum. OtherComprehensiveIncome (Loss) TotalPartners’Capital Balance as of September 30, 2007 75,774 326 232,895 (129) (16,435) 216,331 Net loss (13,351) (57) (13,408) Unrealized loss on pension plan obligation (2,946) (2,946) Total comprehensive loss — — (13,351) (57) (2,946) (16,354) Balance as of September 30, 2008 75,774 326 219,544 (186) (19,381) 199,977 Net income 130,477 561 131,038 Unrealized loss on pension plan obligation (11,854) (11,854) Tax affect of unrealized loss on pension plan obligation 4,920 4,920 Total comprehensive income — — 130,477 561 (6,934) 124,104 Distributions (15,345) (66) (15,411) Retirement of units (1) (637) (2,336) (2,336) Balance as of September 30, 2009 75,137 326 $332,340 $309 $(26,315) $306,334 Net income 28,192 128 28,320 Unrealized loss on pension plan obligation (1,977) (1,977) Tax affect of unrealized loss on pension plan obligation 821 821 Total comprehensive income — — 28,192 128 (1,156) 27,164 Distributions (20,206) (147) (20,353) Retirement of units (1) (8,059) (33,234) (33,234) Balance as of September 30, 2010 67,078 326 $307,092 $290 $(27,471) $279,911 (1)See Note 2—Common Unit Repurchase and Retirement.See accompanying notes to consolidated financial statements. F-5 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended September 30, (in thousands) 2010 2009 2008 Cash flows provided by (used in) operating activities: Net income (loss) $28,320 $131,038 $(13,408) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: (Increase) decrease in fair value of derivative instruments (5,622) (13,690) 25,467 Depreciation and amortization 18,425 22,157 29,123 (Gain) loss on redemption of debt 1,132 (9,706) — Provision for losses on accounts receivable 5,279 10,310 11,961 Change in deferred taxes 13,331 (61,355) — Changes in operating assets and liabilities net of amounts related to acquisitions: (Increase) decrease in receivables (4,570) 26,657 (28,002) (Increase) decrease in inventories (2,012) (17,747) 41,368 (Increase) decrease in other assets 13,912 4,230 (8,797) Increase (decrease) in accounts payable (1,784) 216 (1,937) Increase (decrease) in customer credit balances (9,250) (11,964) 13,390 Increase (decrease) in other current and long-term liabilities (12,732) (1,691) 2,390 Net cash provided by operating activities 44,429 78,455 71,555 Cash flows provided by (used in) investing activities: Capital expenditures (5,567) (4,334) (4,145) Proceeds from sales of fixed assets 392 159 533 Acquisitions (net of cash acquired of $3,377, $0, and $0, respectively) (68,658) (3,393) (1,876) Earnout (123) — — Net cash used in investing activities (73,956) (7,568) (5,488) Cash flows provided by (used in) financing activities: Revolving credit facility borrowings 36,754 — 57,161 Revolving credit facility repayments (36,754) — (57,161) Repayment of debt (50,854) (30,230) Distributions (20,353) (15,411) — Unit repurchase (33,234) (2,336) — Increase in deferred charges (130) (6,558) (145) Net cash used in financing activities (104,571) (54,535) (145) Net increase (decrease) in cash (134,098) 16,352 65,922 Cash and equivalent at beginning of period 195,160 178,808 112,886 Cash and equivalent at end of period $61,062 $195,160 $178,808 See accompanying notes to consolidated financial statements. F-6 Table of ContentsSTAR GAS PARTNERS, L.P. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1) Partnership OrganizationStar Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a home heating oil distributor and services provider with onereportable operating segment that principally provides services to residential and commercial customers to heat their homes and buildings. Star Gas Partnersis a master limited partnership, which at September 30, 2010, had outstanding 67.1 million common units (NYSE: “SGU”) representing 99.5% limited partnerinterest in Star Gas Partners, and 0.3 million general partner units, representing 0.5% general partner interest in Star Gas Partners.The Partnership is organized as follows: • The general partner of the Partnership is Kestrel Heat, LLC, a Delaware limited liability company (“Kestrel Heat” or the “general partner”). TheBoard of Directors of Kestrel Heat is appointed by its sole member, Kestrel Energy Partners, LLC, a Delaware limited liability company(“Kestrel”). • The Partnership’s operations are conducted through Petro Holdings, Inc. and its subsidiaries (“Petro”). Petro is a Minnesota corporation that is anindirect wholly-owned subsidiary of the Partnership. Petro is a Northeast and Mid-Atlantic region retail distributor of home heating oil that atSeptember 30, 2010 served approximately 404,000 full-service residential and commercial home heating oil customers, and 10,000 propanecustomers. Petro also sold home heating oil, gasoline and diesel fuel to approximately 35,000 customers on a delivery only basis. In addition,Petro installed, maintained, and repaired heating and air conditioning equipment for its customers, and provided ancillary home services,including home security and plumbing, to approximately 11,000 customers. • Star Gas Finance Company is a 100% owned subsidiary of the Partnership. Star Gas Finance Company serves as the co-issuer, jointly andseverally with the Partnership, of its September 30, 2010 $82.5 million 10.25% Senior Notes (excluding discounts and premiums) due 2013, thaton November 16, 2010 was called for redemption subsequent to the Partnership’s issuance of its $125.0 million 8.875% Senior Notes due 2017(excluding discounts and premiums). The Partnership is dependent on distributions including inter-company interest payments from itssubsidiaries to service the Partnership’s debt obligations. The distributions from the Partnership’s subsidiaries are not guaranteed and are subjectto certain loan restrictions. Star Gas Finance Company has nominal assets and conducts no business operations. (See Note 10—Long-Term Debtand Bank Facility Borrowings)2) Common Unit Repurchase and RetirementOn July 21, 2009, the Board of Directors of the Partnership’s General Partner authorized the repurchase of up to 7.5 million of the Partnership’scommon units (“Plan I”). By the third fiscal quarter of 2010, all 7.5 million common units authorized for repurchase under the Plan I program wererepurchased at an average price paid per unit of $4.04 and retired. The Partnership’s repurchase activities took into account SEC safe harbor rules andguidance for issuer repurchases.On July 19, 2010, the Board of Directors of the Partnership’s General Partner authorized the repurchase of up to 7.0 million of the Partnership’scommon units (“Plan II”). The authorized common unit repurchases may be made from time-to-time in the open market, in privately negotiated transactionsor in such other manner deemed appropriate by management. In order to facilitate the repurchase program, the Partnership entered into a prearranged unitrepurchase plan under Rule 10b5-1 of the Securities Act of 1933, as amended for up to 4.0 million common units with a third party broker. There is noguarantee of the exact number of units that will be purchased under the program and the Partnership may discontinue purchases at any time. The programdoes not have a time limit. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of thecommon units purchased in the repurchase program will be retired. F-7 Table of Contents(in thousands, except per unit amounts) Period Total Number of UnitsPurchased as Part of aPublicly Announced Plan orProgram Average PricePaid per Unit (a) Maximum Number of Unitsthat May Yet Be PurchasedUnder the Plan I Program Plan I - Number of units authorized 7,500 Plan I - Fiscal year 2009 total 637 $3.67 6,863 October 2009 3,072 $3.97 3,791 November 2009 350 $3.96 3,441 December 2009 834 $3.95 2,607 Plan I - First quarter fiscal year 2010 total 4,256 $3.97 2,607 January 2010 — $— 2,607 February 2010 964 $4.03 1,643 March 2010 — $— 1,643 Plan I - Second quarter fiscal year 2010 total 964 $4.03 1,643 April 2010 110 $4.30 1,533 May 2010 254 $4.36 1,279 June 2010 1,279 $4.36 — Plan I - Third quarter fiscal year 2010 total 1,643 $4.36 — Plan I - Total number of units repurchased 7,500 $4.04 Plan II - Number of units authorized 7,000 July 2010 — $— 7,000 August 2010 1,063 $4.43 5,937 September 2010 134 $4.51 5,803 Plan II - Fourth quarter fiscal year 2010 total 1,197 $4.44 5,803 (a)Amounts include repurchase costs.3) Summary of Significant Accounting PoliciesBasis of PresentationThe 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.ReclassificationCertain prior year amounts have been reclassified to conform with the current year presentation.Use of EstimatesThe 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 and liabilities atthe date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from thoseestimates. F-8 Table of ContentsRevenue RecognitionSales of heating oil and other fuels are recognized at the time of delivery of the product to the customer and sales of heating and air conditioningequipment are recognized at the time of installation. Revenue from repairs and maintenance service is recognized upon completion of the service. Paymentsreceived from customers for heating oil equipment service contracts are deferred and amortized into income over the terms of the respective service contracts,on a straight-line basis, which generally do not exceed one year. To the extent that the Partnership anticipates that future costs for fulfilling its contractualobligations under its service maintenance contracts will exceed the amount of deferred revenue currently attributable to these contracts, the Partnershiprecognizes a loss in current period earnings equal to the amount that anticipated future costs exceed related deferred revenues.Cost of ProductCost of product includes the cost of heating oil, diesel, propane, kerosene, heavy oil, gasoline, throughput costs, barging costs, option costs, andrealized gains/losses on closed derivative positions for product sales.Cost of Installations and ServiceCost of installations and service includes equipment and material costs, wages and benefits for equipment technicians, dispatchers and other supportpersonnel, subcontractor expenses, commissions and vehicle related costs.Delivery and Branch ExpensesDelivery and branch expenses include wages and benefits and department related costs for drivers, dispatchers, mechanics, customer service, sales andmarketing, compliance, credit and branch accounting, information technology and operational support.General and Administrative ExpensesGeneral and administrative expenses include wages and benefits and department related costs for human resources, finance and accounting,administrative support and insurance.Allowance for Doubtful AccountsThe Partnership periodically reviews past due customer accounts receivable balances. After giving consideration to economic conditions, overduestatus and other factors, it establishes an allowance for doubtful accounts, representing the Partnership’s best estimate of amounts that may not be collectible.Allocation of Net Income (Loss)Net income (loss) for partners’ capital and statement of operations is allocated to the general partner and the limited partners in accordance with theirrespective ownership percentages, after giving effect to cash distributions paid to the general partner in excess of its ownership interest, if any.Net Income (Loss) per Limited Partner UnitIncome per limited partner unit is computed in accordance with FASB ASC 260-10-05 Earnings Per Share topic, Master Limited Partnerships subtopic(EITF 03-6), by dividing the limited partners’ interest in net income by the weighted average number of limited partner units outstanding. The pro formanature of the allocation required by this standard provides that in any accounting period where the Partnership’s aggregate net income exceeds its aggregatedistribution for such period, the Partnership is required to present net income per limited partner unit as if all of the earnings for the periods were distributed,regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective. This allocation doesnot impact the Partnership’s overall net income or other financial results. However, for periods in which the Partnership’s aggregate net income exceeds itsaggregate distributions for such period, it will have the impact of reducing the earnings per limited partner unit, as the calculation according to this standardresults in a theoretical increased allocation of undistributed earnings to the general partner. In accounting periods where aggregate net income does notexceed aggregate distributions for such period, this standard does not have any impact on the Partnership’s net income per limited partner unit calculation. Aseparate and independent calculation for each quarter and year-to-date period is required. F-9 Table of ContentsUntil the quarter ended March 31, 2009, either the partners had no rights to accrue or receive distributions, or the earnings of the period did not exceedthe aggregate distributions.Cash, Accounts Receivable, Notes Receivable, Revolving Credit Facility Borrowings, and Accounts PayableThe carrying amount of cash, accounts receivable, notes receivable, revolving credit facility borrowings, and accounts payable approximates fair valuebecause of the short maturity of these instruments.Cash EquivalentsThe Partnership considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents.InventoriesHeating oil and other fuels inventory are stated at the lower of cost or market using the weighted average cost method of accounting. All otherinventories, representing parts and equipment are stated at the lower of cost or market using the FIFO method.Property, and EquipmentProperty and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-linemethod.Goodwill and Intangible AssetsGoodwill 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. In accordance with FASB ASC 350-10-05 Intangibles-Goodwill and Other topic, goodwill and intangible assets with indefinite useful lives are not amortized, but instead are annually tested for impairment. Alsoin accordance with this standard, intangible assets with definite useful lives are amortized over their respective estimated useful lives to their estimatedresidual values, and reviewed for impairment. The Partnership performs its annual impairment review during its fiscal fourth quarter or more frequently ifevents or circumstances indicate that the value of goodwill might be impaired.Customer lists are the names and addresses of an acquired company’s customers. Based on historical retention experience, these lists are amortized on astraight-line basis over seven to ten years.Trade names are the names of acquired companies. Based on the economic benefit expected and historical retention experience of customers, tradenames are amortized on a straight-line basis over seven to twenty years.Covenants not to compete are agreements with the owners of acquired companies and are amortized over the respective lives of the covenants on astraight-line basis, which are generally five years.Business CombinationsThe Partnership uses the acquisition method of accounting in accordance to FASB ASC 805 Accounting for Business Combinations andNoncontrolling Interests. The acquisition method of accounting requires the Partnership to use significant estimates and assumptions, including fair valueestimates, as of the business combination date, and to refine those estimates as necessary during the measurement period (defined as the period, not to exceedone year, in which the amounts recognized for a business combination may be adjusted). Each acquired company’s operating results are included in thePartnership’s consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of considerationtransferred. Tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition, are recorded at the acquisition date fairvalue. The separately identifiable intangible assets generally are comprised of customer lists, trade names and covenants not to compete. Goodwill isrecognized for the excess of the purchase price over the net fair value of assets acquired and liabilities assumed.Costs that are incurred to complete the business combination such as investment banking, legal and other professional fees are not considered part ofconsideration transferred, and are charged to general and administrative expense as they are incurred. For any given acquisition, certain contingentconsideration may be identified. Estimates of the fair value of liability or asset classified contingent consideration are included under the acquisition methodas part of the assets acquired or liabilities assumed. At each reporting date, these estimates are remeasured to fair value, with changes recognized in earnings. F-10 Table of ContentsImpairment of Long-lived AssetsThe Partnership reviews intangible assets and other long-lived assets in accordance with FASB ASC 360-10-05-4 Property Plant and Equipment topic,Impairment or Disposal of Long-Lived Assets subsection, for impairment whenever events or changes in circumstances indicate that the carrying amount ofsuch assets may not be recoverable. The Partnership determines whether the carrying values of such assets are recoverable over their remaining estimatedlives through undiscounted future cash flow analysis. If such a review should indicate that the carrying amount of the assets is not recoverable, thePartnership will reduce the carrying amount of such assets to fair value.Deferred ChargesDeferred charges represent the costs associated with the issuance of debt instruments and are amortized over the lives of the related debt instruments.Advertising and Direct Mail ExpensesAdvertising and direct mail costs are expensed as they are incurred. Advertising and direct mail expenses were $9.6 million, $8.4 million, and $7.2million in 2010, 2009, and 2008, respectively and are recorded in delivery and branch expenses.Customer Credit BalancesCustomer credit balances represent payments received in advance from customers pursuant to a balanced payment plan (whereby customers pay on afixed monthly basis) and the payments made have exceeded the charges for heating oil deliveries.Environmental CostsCosts associated with managing hazardous substances and pollution are expensed on a current basis. Accruals are made for costs associated with theremediation of environmental pollution when it becomes probable that a liability has been incurred and the amount can be reasonably estimated.Insurance ReservesThe Partnership accrues for workers’ compensation, general liability and automobile claims not covered under its insurance policies and establishesestimates based upon actuarial assumptions as to what its ultimate liability will be for these claims.Income TaxesThe Partnership is a master limited partnership and is not subject to tax at the entity level for Federal and State income tax purposes. Rather, incomeand losses of the Partnership are allocated directly to the individual partners. While the Partnership will generate non-qualifying Master Limited Partnershiprevenue, distributions from the corporate subsidiaries to the Partnership are generally included in the determination of qualified Master Limited Partnershipincome. All or a portion of the distributions received by the Partnership from the corporate subsidiaries could be a dividend or capital gain to the partners.The accompanying financial statements are reported on a fiscal year, however, the Partnership and its Corporate subsidiaries file Federal and Stateincome tax returns on a calendar year.As most of the Partnership’s income is derived from its corporate subsidiaries, these financial statements reflect significant Federal and State incometaxes. For corporate subsidiaries of the Partnership, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases andoperating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if, based on the weight of available evidenceincluding historical tax losses, it is more likely than not that some or all of deferred tax assets will not be realized.Sales, Use and Value Added TaxesTaxes are assessed by various governmental authorities on many different types of transactions. Sales reported for product, installation and serviceexcludes taxes. F-11 Table of ContentsDerivatives and HedgingThe Financial Accounting Standards Board (“FASB”) ASC 815-10-05 Derivatives and Hedging topic established accounting and reporting standardsrequiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent derivativeinstruments designated as cash flow hedges are effective and the standard’s documentation requirements have been met, changes in fair value are recognizedin other comprehensive income until the underlying hedged item is recognized in earnings. Currently, the Partnership has elected not to designate itsderivative instruments as hedging instruments under this standard, and the change in fair value of the derivative instruments are recognized in our statementof operations.Weather Hedge ContractWeather hedge contract is recorded in accordance with the intrinsic value method defined by FASB ASC 815-45-15 Derivatives and Hedging topic,Weather Derivatives subtopic (EITF 99-2). The premium paid is amortized over the life of the contract and the intrinsic value method is applied at eachinterim period.Recent Accounting PronouncementsIn fiscal 2010, the Partnership adopted the revised provisions of FASB ASC 805-10 Business Combinations. This standard establishes in a businesscombination principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, goodwill acquired, liabilities assumed,and any noncontrolling interests.In July 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-20 Receivables (Topic 310): Disclosures about the Credit Quality ofFinancing Receivables and the Allowance for Credit Losses. This standard requires companies to improve their disclosures about the credit quality of theirfinancing receivables and the credit reserves held against them. The guidance covers trade accounts receivables, financing receivables, loans, loansyndications, factoring arrangements, and standby letters of credit. The Partnership is required to adopt this standard in the first quarter of fiscal 2011. ThePartnership is currently assessing the impact of the disclosure requirements.4) Quarterly Distribution of Available CashThe Partnership agreement provides that beginning October 1, 2008, minimum quarterly distributions on the common units will start accruing at therate of $0.0675 per quarter ($0.27 on an annual basis) in accordance with the Partnership agreement. There will be no distributions of available cash by usbefore February 2009. Thereafter, in general, the Partnership intends to distribute to its partners on a quarterly basis, all of its available cash, if any, in themanner described below. “Available cash” generally means, for any of its fiscal quarters, all cash on hand at the end of that quarter, less the amount of cashreserves that are necessary or appropriate in the reasonable discretion of the general partners to: • provide for the proper conduct of the Partnership’s business including acquisitions and debt payments; • comply with applicable law, any of its debt instruments or other agreements; or • provide funds for distributions to the common unitholders during the next four quarters, in some circumstances.Available cash will generally be distributed as follows: • first, 100% to the common units, pro rata, until the Partnership distributes to each common unit the minimum quarterly distribution of $0.0675; • second, 100% to the common units, pro rata, until the Partnership distributes to each common unit any arrearages in payment of the minimumquarterly distribution on the common units for prior quarters; • third, 100% to the general partner units, pro rata, until the Partnership distributes to each general partner unit the minimum quarterly distributionof $0.0675; • fourth, 90% to the common units, pro rata, and 10% to the general partner units, pro rata (subject to the Management Incentive Plan), until thePartnership distributes to each common unit the first target distribution of $0.1125; and • thereafter, 80% to the common units, pro rata, and 20% to the general partner units, pro rata.The revolving credit facility and the indenture for the 10.25% and 8.875% Senior Notes impose certain restrictions on the Partnership’s ability to paydistributions to unitholders. The most restrictive covenant is found in the Partnership’s revolving credit facility. Under the terms of our credit facility, thePartnership must have availability of at least $40 million plus a fixed charge coverage ratio of 1.15x to pay the minimum quarterly distribution of $0.0675.Any distribution in excess of the minimum quarterly distribution requires the Partnership to have a fixed charge coverage ratio of 1.25x. F-12 Table of Contents5) Derivatives and Hedging—Disclosures and Fair Value MeasurementsThe Partnership uses derivative instruments such as futures, options, and swap agreements, in order to mitigate exposure to market risk associated withthe purchase of home heating oil for price-protected customers, physical inventory on hand, inventory in transit and priced purchase commitments.To hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers as ofSeptember 30, 2010, the Partnership bought 4.3 million gallons of physical inventory and had 0.6 million gallons of swap contracts to buy heating oil with anotional value of $1.4 million and a fair value of $(0.04) million; 34.2 million gallons of call options with a notional value of $85.0 million and a fair valueof $4.9 million; 1.4 million gallons of put options with a notional value of $2.3 million and a fair value of $0.02 million and 58.4 million net gallons ofsynthetic calls with a notional value of $135.8 million and a fair value of $ 3.6 million. To hedge the inter-month differentials for our price-protectedcustomers, its physical inventory on hand, and inventory in transit, the Partnership as of September 30, 2010 had 0.3 million gallons of future contracts tobuy heating oil with a notional value of $0.6 million and a fair value of $0.03 million; 0.9 million gallons of future contracts to sell heating oil with anotional value of $2.0 million and a fair value of $(0.1) million; and 22.6 million gallons of swap contracts to sell heating oil with a notional value of $48.7million and a fair value of $(3.3) million. To hedge a portion of its internal fuel usage, the Partnership as of September 30, 2010, had 1.4 million gallons ofswap contracts to buy gasoline with a notional value of $2.8 million and a fair value of $0.2 million and 1.4 million gallons of swap contracts to buy dieselwith a notional value of $3.1 million and a fair value of $0.2 million.To hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers as ofSeptember 30, 2009, the Partnership had 4.3 million gallons of swap contracts to buy heating oil with a notional value of $7.8 million and a fair value of $0.5million; 0.1 million gallons of future contracts to buy heating oil with a notional value of $0.1 million and a fair value of $0.02 million; 0.3 million gallonsof future contracts to sell heating oil with a notional value of $0.4 million and a fair value of $(0.1) million; 85.0 million gallons of call options with anotional value of $176.3 million and a fair value of $16.5 million; 3.2 million gallons of put options with a notional value of $3.3 million and a fair value of$0.01 million and 12.1 million net gallons of synthetic calls with a notional value of $22.4 million and a fair value of $1.8 million. To hedge the inter-monthdifferentials for our price-protected customers, its physical inventory on hand, and inventory in transit, the Partnership as of September 30, 2009 had6.2 million gallons of future contracts to buy heating oil with a notional value of $16.5 million and a fair value of $(4.0) million; 12.5 million gallons offuture contracts to sell heating oil with a notional value of $28.1 million and a fair value of $4.1 million; and 22.3 million gallons of swap contracts to sellheating oil with a notional value of $36.7 million and a fair value of $(5.4) million. To hedge a portion of its internal fuel usage, the Partnership as ofSeptember 30, 2009, had 1.5 million gallons of swap contracts to buy gasoline with a notional value of $2.1 million and a fair value of $0.7 million and1.5 million gallons of swap contracts to buy diesel with a notional value of $2.4 million and a fair value of $0.4 million.The Partnership’s derivative instruments are with the following counterparties: Cargill, Inc., Key Bank National Association, Bank of America, N.A.,JPMorgan Chase Bank, NA, Societe Generale, Newedge USA, LLC, and Wachovia Bank, N.A. (Wells Fargo Bank, N.A.). The Partnership assessescounterparty credit risk and maintains master netting arrangements with its counterparties to help manage the risks, and records its derivative positions on anet basis. Based on its assessment, the Partnership considers counterparty credit risk to be low. At September 30, 2010, the aggregate cash posted as collateralin the normal course of business at counterparties was $0.02 million.FASB ASC 815-10-05 Derivatives and Hedging topic, established accounting and reporting standards requiring that derivative instruments berecorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivativeactivity. To the extent derivative instruments designated as cash flow hedges are effective and the standard’s documentation requirements have been met,changes in fair value are recognized in other comprehensive income until the underlying hedged item is recognized in earnings. The Partnership has electednot to designate its derivative instruments as hedging instruments under this standard and the change in fair value of the derivative instruments is recognizedin our statement of operations in the line item (increase) decrease in the fair value of derivative instruments. Realized gains and losses are recorded in cost ofproduct.FASB ASC 820-10 Fair Value Measurements and Disclosures topic, established a three-tier fair value hierarchy, which classified the inputs used inmeasuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2,defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs inwhich little or no market data exists, therefore requiring an entity to develop its own assumptions. The Partnership’s Level 1 derivative assets and liabilitiesrepresent the fair value of commodity F-13 Table of Contentscontracts used in its hedging activities that are identical and traded in active markets. The Partnership’s Level 2 derivative assets and liabilities represent thefair value of commodity contracts used in its hedging activities that are valued using either directly or indirectly observable inputs, whose nature, risk andclass are similar. No significant transfers of assets or liabilities have been made into and out of the Level 1 or Level 2 tiers. All derivative instruments werenon-trading positions. The market prices used to value the Partnership’s derivatives have been determined using the New York Mercantile Exchange(“NYMEX”) and independent third party prices that are reviewed for reasonableness.The Partnership had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. ThePartnership’s financial assets and liabilities measured at fair value on a recurring basis are listed on the following table. (In thousands) Fair Value Measurements at Reporting Date Using: Derivatives Not Designated as HedgingInstruments Under FASB ASC 815-10 Balance Sheet Location Total Quoted Prices inActive Markets forIdentical AssetsLevel 1 Significant OtherObservable InputsLevel 2 SignificantUnobservable InputsLevel 3 Asset Derivatives at September 30, 2010 Commodity contracts Fair asset and fair liability valueof derivative instruments $11,991 $29 $11,962 $— Commodity contracts Long-term derivative assetsincluded in the deferredcharges and other assets, netbalance 43 — 43 Commodity contract assets at September 30, 2010 $12,034 $29 $12,005 $— Liability Derivatives at September 30, 2010 Commodity contracts Fair liability and fair asset valueof derivative instruments $(6,419) $(101) $(6,318) $— Commodity contract liabilities at September 30, 2010 $(6,419) $(101) $(6,318) $— Asset Derivatives at September 30, 2009 Commodity contracts Fair asset and fair liability valueof derivative instruments $23,867 $3,875 $19,992 $— Commodity contracts Long-term derivative assetsincluded in the deferredcharges and other assets, netbalance 389 133 256 Commodity contract assets at September 30, 2009 $24,256 $4,008 $20,248 $— Liability Derivatives at September 30, 2009 Commodity contracts Fair liability and fair asset valueof derivative instruments $(9,856) $(3,986) $(5,870) $— Commodity contract liabilities at September 30, 2009 $(9,856) $(3,986) $(5,870) $— F-14 Table of Contents (In thousands) The Effect of Derivative Instruments on the Statement of Operations Amount of (Gain) or Loss Recognized Derivatives Not Designatedas Hedging InstrumentsUnder FASB ASC 815-10 Location of (Gain) or LossRecognized in Income on Derivative Twelve Months EndedSeptember 30,2010 Twelve Months EndedSeptember 30,2009 Twelve Months EndedSeptember 30,2008 Commodity contracts Cost of product (a) $22,942 $79,846 $(10,591) Commodity contracts (Increase) / decrease in the fair valueof derivative instruments $(5,622) $(13,690) $25,467 (a)Represents realized closed positions and includes the cost of options as they expire.6) InventoriesThe Partnership’s inventories of heating oil and other fuels are stated at the lower of cost or market computed on the weighted average cost method. Allother inventories, representing parts and equipment are stated at the lower of cost or market using the FIFO method. The components of inventory were asfollows (in thousands): September 30, 2010 2009 Heating oil and other fuels $51,678 $48,504 Fuel oil parts and equipment 15,056 14,132 $66,734 $62,636 Heating oil and other fuel inventories were comprised of 24.0 million gallons and 28.5 million gallons on September 30, 2010 and September 30,2009, respectively. The Partnership has market price based product supply contracts for approximately 217 million home heating oil gallons, that it expectsto fully utilize to meet its requirements over the next twelve months.During fiscal 2010, Global Companies, Sunoco Inc., NIC Holding Corp. (Northville Industries) and BP North America provided 19.6%, 12.0%, 11.2%and 11.1% respectively, of our product purchases. Aside from these four suppliers, no single supplier provided more than 10% of our product supply duringfiscal 2010.7) Property and EquipmentThe components of property and equipment and their estimated useful lives were as follows (in thousands): September 30, 2010 2009 Useful Estimated Lives Land and land improvements $13,445 $11,261 Land improvements - 30 years Buildings and leasehold improvements 25,608 24,319 1 -40 years Fleet and other equipment 41,454 38,444 1 -16 years Tanks and equipment 11,117 9,920 8 -35 years Furniture, fixtures and office equipment 54,870 51,325 3 -12 years Total 146,494 135,269 Less accumulated depreciation 101,782 97,775 Property and equipment, net $44,712 $37,494 Depreciation expense was $6.0 million, $6.2 million, and $7.2 million, for the fiscal years ended September 30, 2010, 2009, and 2008 respectively. F-15 Table of Contents8) Goodwill and Other Intangible AssetsGoodwillUnder FASB ASC 350-10-05 Intangibles-Goodwill and Other topic, goodwill impairment is deemed to exist if the net book value of a reporting unitexceeds its estimated fair value. If goodwill of a reporting unit is determined to be impaired, the amount of impairment is measured based on the excess of thenet book value of the goodwill over the implied fair value of the goodwill.The Partnership has selected August 31 of each year to perform its annual impairment review under this standard. The evaluations utilize an IncomeApproach and Market Approach (consisting of the Market Comparable and the Market Transaction Approach), which contain reasonable and supportableassumptions and projections reflecting management’s best estimate in deriving the Partnership’s total enterprise value. The Income Approach calculates overa discrete period the free cash flow generated by the Partnership to determine the enterprise value. The Market Comparable approach compares thePartnership to comparable companies in similar industries to determine the enterprise value. The Market Transaction approach uses exchange prices in actualsales and purchases of comparable businesses to determine the enterprise value.The total enterprise value as indicated by these two approaches is compared to the Partnership’s book value of net assets and reviewed in light of thePartnership’s market capitalization.The Partnership performed its annual goodwill impairment valuation in each of the periods ending August 31, 2010, 2009, and 2008, and it wasdetermined based on each year’s analysis that there was no goodwill impairment.The preparation of this analysis was based upon management’s estimates and assumptions, and future impairment calculations would be affected byactual results that are materially different from projected amounts. To provide for a sensitivity of the discount rates and transaction multiples used, ranges ofhigh and low values are employed in the analysis, with the low values examined to ensure that a reasonably likely change in an assumption would not causethe Partnership to reach a different conclusion.A summary of changes in the Partnership’s goodwill during the fiscal years ended September 30, 2010 and 2009 are as follows (in thousands): Balance as of September 30, 2008 $182,011 Fiscal year 2009 activity 931 Balance as of September 30, 2009 182,942 Fiscal year 2010 activity (Business Combinations see Note 11) 16,110 Balance as of September 30, 2010 $199,052 Intangibles, netIntangible assets subject to amortization consist of the following (in thousands): September 30, 2010 September 30, 2009 GrossCarryingAmount Accum.Amortization Net GrossCarryingAmount Accum.Amortization Net Customer lists and other intangibles $252,385 $193,491 $58,894 $204,426 $183,958 $20,468 Amortization expense for intangible assets was $9.5 million, $13.0 million, and $19.3 million, for the fiscal years ended September 30, 2010, 2009,and 2008, respectively. Total estimated annual amortization expense related to intangible assets subject to amortization, for the year ended September 30,2011 and the four succeeding fiscal years ended September 30, is as follows (in thousands): Amount 2011 $10,245 2012 $5,878 2013 $5,876 2014 $5,800 2015 $5,665 F-16 Table of Contents9) Accrued Expenses and Other Current LiabilitiesThe components of accrued expenses and other current liabilities were as follows (in thousands): September 30, 2010 2009 Accrued wages and benefits $16,135 $17,043 Accrued workers’ compensation, general liability, auto claims and environmental 42,466 35,712 Other accrued expenses and other current liabilities 10,253 11,691 $68,854 $64,446 10) Long-Term Debt and Bank Facility BorrowingsThe Partnership’s debt at September 30, 2010 and 2009 is as follows (in thousands): At September 30, 2010 At September 30, 2009 CarryingAmount EstimatedFair Value (a) CarryingAmount EstimatedFair Value (a) 10.25% Senior Notes (b) $82,770 $83,908 $133,112 $133,112 Revolving Credit Facility Borrowings (c) — — — — Total debt $82,770 $83,908 $133,112 $133,112 Total long-term portion of debt $82,770 $83,908 $133,112 $133,112 (a) Our fair value estimates of long-term debt are made at a specific point in time, based on relevant market information, open market quotations andinformation about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment andtherefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (b) These notes mature in February 2013 and accrue interest at an annual rate of 10.25% requiring semi-annual interest payments on February 15 andAugust 15 of each year. The net premium on these notes were $0.3 million and $0.6 million at September 30, 2010 and 2009 respectively. These notesare redeemable at the option of the Partnership, in whole or in part, from time to time by payment of a premium. Under the terms of the indenture datedas of April 28, 2006, these notes permit restricted payments of $22 million, permit the Partnership to incur debt up to $60 million for acquisitionswithout passing certain financial tests, and restrict the proceeds of asset sales from being invested in current assets for purposes of the “asset sale”covenant.In fiscal year September 30, 2010, the Partnership repurchased in total $50 million (face value) of these notes and recorded a total loss of $1.1million.On November 16, 2010 the 10.25% Senior Notes were called at a redemption price of 101.708% plus any accrued but unpaid interest thereonwith a redemption date of December 20, 2010. The 10.25% Senior Notes will be repaid with the proceeds of the Partnership’s Rule 144A 8.875%Senior Notes due 2017. The 8.875% Senior Notes require semi-annual interest payments on June 1 and December 1 of each year and have similarcovenants as the 10.25% Senior Notes described above. (c) In July 2009, the Partnership entered into an amended and restated asset based revolving credit facility agreement with a bank syndicationcomprised of nine banks. This amended facility, that extends to July 2012, provides the Partnership with the ability to borrow up to $240 million($290 million during the heating season from November to April each year) for working capital purposes (subject to certain borrowing base limitationsand coverage ratios), including the issuance of up to $100 million in letters of credit. The Partnership can increase the facility size by $50 millionwithout the consent of the bank group. The bank group is not obligated to fund the $50 million increase. If the bank group elects not to fund theincrease, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. The interestrate is LIBOR plus; 3.50% (if availability, as defined in the revolving credit facility agreement is greater than or equal to $150 million), or 3.75% (ifavailability is greater than $75 million but less than $150 million), or 4.00% (if availability is less than or equal to $75 million). The unusedcommitment fee is 0.75%In January 2010, the Partnership entered into a first amendment to the amended and restated asset based revolving credit facility agreement thatupdated the consolidated fixed charges defined term. F-17 Table of ContentsIn May 2010, the Partnership entered into a second amendment to the amended and restated asset based revolving credit facility agreement thatupdated the capitalized defined term.In November 2010, the Partnership entered into a third amendment to the amended and restated asset based revolving credit facility agreementthat updated the capitalized defined term.At September 30, 2010 and 2009, no amount was outstanding under the revolving credit facility and $42.3 million and $40.9 million of lettersof credit were issued, respectively.Obligations under the revolving credit facility are secured by liens on substantially all assets and are guaranteed by the Partnership. Therevolving credit facility imposes certain restrictions on the Partnership, including restrictions on its ability to incur additional indebtedness, to paydistributions to its unitholders, to pay inter-company dividends or distributions, make investments, grant liens, sell assets, make acquisitions andengage in certain other activities. The revolving credit facility also requires the Partnership to maintain certain financial ratios, and contains borrowingconditions and customary events of default, including nonpayment of principal or interest, violation of covenants, inaccuracy of representations andwarranties, cross-defaults to other indebtedness, bankruptcy and other insolvency events. The occurrence of an event of default or an accelerationunder the revolving credit facility would result in the Partnership’s inability to obtain further borrowings under that facility, which could adverselyaffect its results of operations. Such a default may also restrict the ability of the Partnership to obtain funds from its subsidiaries in order to pay interestor paydown debt. An acceleration under the revolving credit facility would result in a default under the Partnership’s other funded debt.Under the terms of the revolving credit facility, the Partnership must maintain at all times either availability (borrowing base less amountsborrowed and letters of credit issued) of $43.5 million or a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.10x. Inaddition, the Partnership must have availability of at least $40 million plus and maintain a fixed charge coverage ratio of 1.15x in order to make itsminimum quarterly distributions of $0.0675 per unit, and 1.25x to make any distributions in excess of the minimum quarterly distributions. No inter-company dividends or distributions can be made (including those needed to pay interest or principle on the 10.25% Senior Notes) if the relevantcovenant described above has not been met.As of September 30, 2010, availability was $104.8 million, the restricted net assets totaled approximately $356 million and the Partnership wasin compliance with the fixed charge coverage ratio. Restricted net assets are assets of the Partnership in its subsidiaries that any distribution or transferof which to Star Gas Partners, L.P. from the subsidiary, are subject to limitations under its revolving credit facility. As of September 30, 2009,availability was $194.4 million, the restricted net assets totaled approximately $432 million and the Partnership was in compliance with the fixedcharge coverage ratio.As of September 30, 2010, the maturities including working capital borrowings during fiscal years ending September 30, are set forth in thefollowing table (in thousands): 2011 $— 2012 $— 2013 $82,770(d)2014 $— 2015 $— Thereafter $— (d)This amount will be repaid on December 20, 2010 with a portion of the proceeds from the Partnership’s 8.875% $125.0 million Senior Notes issued onNovember 16, 2010.11) Business CombinationsDuring fiscal 2010, the Partnership acquired five retail heating oil dealers. The aggregate purchase price was approximately $68.8 million, includingworking capital of $4.2 million.During fiscal 2009, the Partnership acquired one retail heating oil dealer. The aggregate purchase price was approximately $4.0 million, reduced byworking capital credits of $0.7 million.During fiscal 2008, the Partnership acquired seven retail heating oil dealers. The aggregate purchase price was approximately $2.6 million, reduced by$0.7 million of working capital credits. F-18 Table of ContentsThe following table summarizes the preliminary fair values and purchase price allocation at the acquisition dates, of the assets acquired and liabilitiesassumed related to acquisitions made as of September 30, 2010. These values are preliminary pending final valuation of intangibles, certain deferred taxassets and certain working capital items. (in thousands) As of Acquisition Date Trade accounts receivable (a) $12,377 Inventories 2,086 Other current assets 5,567 Property and equipment 7,642 Customer lists and other intangibles 40,220 Trade names 7,740 Current liabilities (15,870) Long-term deferred tax liabilities (7,091) Total net identifiable assets acquired $52,671 Total consideration transferred $68,781 Less: Total net identifiable assets acquired 52,671 Goodwill $16,110 (a)The gross contractual receivable amount is $15.0 million, and the best estimate at the acquisition date of the contractual cash flows not expected to becollected is $2.6 million.The total costs related to these acquisitions were included in the Consolidated Statement of Operations under general and administrative expenses andwere $0.7 million.Of the $16.1 million of goodwill relating to these acquisitions, $1.8 million is deductible for income tax purposes. Goodwill is being derived from theability of the businesses to regenerate customers and to a lesser extent, certain synergies.Except for the acquisition of the Champion Energy Corporation (“Champion”), the other acquisitions noted above, individually and in the aggregatewere not material to the Partnership. Each acquired company’s operating results are included in the Partnership’s consolidated financial statements startingon the date of acquisition. Customer lists, other intangibles and trade names are amortized on a straight-line basis over seven to ten years.Included in the figures above is the acquisition of Champion. On May 10, 2010, the Partnership entered into an Equity Purchase Agreement pursuantto which it acquired 100% of the capital stock of Champion for a purchase price of approximately $50.1 million plus working capital of approximately $7.5million (net of cash acquired), payable in cash. The business reason for this acquisition is that Champion is an excellent fit for the Partnership, as it servesover 45,000 home heating oil customers in markets in which the Partnership currently operates, and sold 35.2 million gallons of residential home heating oil,4.1 million gallons of commercial home heating oil and 8.9 million gallons of other petroleum products for the twelve months ending June 30, 2009.A remediation liability of $4.1 million has been recognized as of the acquisition date in connection with Champion. The remediation liability wasdetermined by management and primarily represents the costs to remediate a Champion facility. An estimated range of the remediation costs is expected to bebetween $1.8 million and $5.9 million, with $4.1 million representing the fair value of the expected total cost as of the acquisition date.Sales and net loss of Champion for fiscal 2010 totaled $25.1 million and $(2.8) million, respectively for the period from the acquisition date throughSeptember 30, 2010.The following table provides unaudited pro forma results of operations as if the Champion acquisition had occurred on October 1, 2008. The unauditedpro forma results were prepared using Champion’s current and prior year financial information, reflecting certain adjustments related to the acquisition, suchas the elimination of select nonrecurring charges, and changes to administrative, interest and depreciation and amortization expenses. These pro formaadjustments do not include any potential synergies related to combining the businesses. Accordingly, such pro forma operating results were prepared forcomparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of October 1, 2008 or of resultsthat may occur in the future. F-19 Table of Contents September 30, (in thousands) 2010 2009 Net sales $1,328,786 $1,331,159 Net income 34,135 $134,801 12) Employee Benefit PlansDefined Contribution PlansThe Partnership has a 401(k) plan which covers eligible non-union and union employees. Subject to IRS limitations, the 401(k) plan provides for eachparticipant to contribute from 0% to 60% of compensation. The Partnership makes a 4% (to a maximum of 5.5% for participants who had 10 or more years ofservice at the time the Defined Benefit Plans were frozen and who have reached the age 55) core contribution of a participant’s compensation and matches2/3 of each amount a participant contributes up to a maximum of 2.0% of a participant’s compensation. The Partnership’s aggregate contributions to the401(k) plan during fiscal 2010, 2009, and 2008, were $4.4 million, $4.2 million, and $4.2 million, respectively.Long-Term Management Incentive Compensation PlanThe Partnership has a Long-Term Management Incentive Plan (see Item 11. Executive Compensation). The long-term compensation structure isintended to align the employee’s performance with the long-term performance of our unitholders. Under the Plan, employees who participate shall be entitledto receive a pro rata share of an amount in cash equal to: • 50% of the distributions (“Incentive Distributions”) of Available Cash in excess of the minimum quarterly distribution of $0.0675 per unitotherwise distributable to Kestrel Heat pursuant to the Partnership Agreement on account of its general partner units; and • 50% of the cash proceeds (the “Gains Interest”) which Kestrel Heat shall receive from the sale of its general partner units (as defined in thePartnership Agreement), less expenses and applicable taxes.The pro rata share payable to each participant under the Plan is based on the number of participation points as described under “Fiscal 2010Compensation Decisions - Long-Term Management Incentive Plan.” The amount paid in Incentive Distributions is governed by the partnership agreementand the calculation of Available Cash.To fund the benefits under the Plan, Kestrel Heat has agreed to forego receipt of the amount of Incentive Distributions that are payable to planparticipants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will reduce net income. KestrelHeat has also agreed to contribute to the Partnership, as a contribution to capital, an amount equal to the Gains Interest payable to participants in the Plan bythe Partnership. The Partnership is not required to reimburse Kestrel Heat for amounts payable pursuant to the Plan.The Plan is administered by the Partnership’s Chief Financial Officer under the direction of the Board or by such other officer as the Board may fromtime to time direct. Determination of the employees that participate in the Plan is under the sole discretion of the Board of Directors. In general, no paymentswill be made under this plan if the Partnership is not distributing cash under the Incentive Distributions described above.The Board of Directors reserves the right to amend, change or terminate the Plan at any time. Without limiting the foregoing, the Board of Directorsreserves the right to adjust the amount of Incentive Distributions to be allocated to the Bonus Pool if in its judgment extenuating circumstances warrantadjustment from the guidelines, and to change the timing of any payments due thereunder at any time in its sole discretion.The Partnership distributed approximately $116,000 in Incentive Distributions during fiscal 2010, of which named executive officers receivedapproximately $40,000 under its long-term incentive plan. . With regard to the Gains Interest, Kestrel Heat has not given any indication that it will sell itsGeneral Partner Units within the next twelve months. Thus the Plan’s value attributable to the Gains Interest currently cannot be determined. F-20 Table of ContentsUnion-Administered Pension PlansThe Partnership’s contributions to union-administered pension plans were $7.7 million for fiscal 2010, $7.2 million for fiscal 2009, and $6.9 millionfor fiscal 2008. Some of these union administered pension plans have significant unfunded liabilities, a portion of which could be assessed to the Partnershipshould we withdraw from these plans. The Partnership does not expect to withdraw from these plans.Defined Benefit PlansThe Partnership accounts for its two frozen defined benefit pension plans (“the Plan”) in accordance with FASB ASC 715-10-05 Compensation-Retirement Benefits topic. The Partnership has no post-retirement benefit plans. F-21 Table of ContentsThe following table provides the net periodic benefit cost for the period, a reconciliation of the changes in the Plan assets, projected benefit obligations, andthe amounts recognized in other comprehensive income and accumulated other comprehensive income at the dates indicated using a measurement date ofSeptember 30: (in thousands) Debit / (Credit) Net PeriodicPensionCost inIncomeStatement Cash FairValue ofPensionPlanAssets ProjectedBenefitObligation OtherComprehensiveIncome Gross PensionRelatedAccumulatedOtherComprehensiveIncome Fiscal Year 2008 Beginning balance $49,218 $(59,627) $16,435 Interest cost 3,533 (3,533) Actual return on plan assets 7,815 (7,815) Employer contributions (1,536) 1,536 Benefit payments (4,282) 4,282 Investment and other expenses (437) 437 Difference between actual and expected return on plan assets (11,282) 11,282 Anticipated expenses 246 (246) Actuarial gain 7,339 (7,339) Amortization of unrecognized net actuarial loss 997 (997) Annual cost/change $872 $(1,536) (10,561) 8,279 $2,946 2,946 Ending balance $38,657 $(51,348) $19,381 Funded status at the end of the year $(12,691) Fiscal Year 2009 Interest cost 3,647 (3,647) Actual return on plan assets (1,453) 1,453 Employer contributions (1,970) 1,970 Benefit payments (4,493) 4,493 Investment and other expenses (361) 361 Difference between actual and expected return on plan assets (1,227) 1,227 Anticipated expenses 193 (193) Actuarial loss (11,931) 11,931 Amortization of unrecognized net actuarial loss 1,304 (1,304) Annual cost/change $2,103 $(1,970) (1,070) (10,917) $11,854 11,854 Ending balance $37,587 $(62,265) $31,235 Funded status at the end of the year $(24,678) Fiscal Year 2010 Interest cost 3,250 (3,250) Actual return on plan assets (2,666) 2,666 Employer contributions (13,107) 13,107 Benefit payments (4,037) 4,037 Investment and other expenses (460) 460 Difference between actual and expected return on plan assets 276 (276) Anticipated expenses 188 (188) Actuarial loss (4,716) 4,716 Amortization of unrecognized net actuarial loss 2,463 (2,463) Annual cost/change $3,051 $(13,107) 11,736 (3,657) $1,977 1,977 Ending balance $49,323 $(65,922) $33,212 Funded status at the end of the year $(16,599) F-22 Table of ContentsAt September 30, 2010 and 2009, $16.6 million and $24.7 million respectively, were included in the other long-term liabilities amount on the balancesheet.The $33.2 million net actuarial loss balance for the two frozen defined benefit pension plans in accumulated other comprehensive income will berecognized and amortized into net periodic pension costs as an actuarial loss in future years. The estimated amount that will be amortized from accumulatedother comprehensive income into net periodic pension cost over the next fiscal year is $2.8 million. Years Ended September 30, 2010 2009 2008 Weighted-Average Assumptions Used in the Measurement of the Partnership’s Benefit Obligation as of the periodindicated Discount rate 4.70% 5.40% 7.60% Expected return on plan assets 7.75% 8.25% 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’s expected long-term rate of return on plan assets is updated at least annually, taking into consideration our asset allocation, historicalreturns on the types of assets held, and the current economic environment. Based on these factors, beginning in fiscal year 2011, the Partnership expects itspension assets will earn an average of 7.75% per annum.The discount rate used to determine net periodic pension expense was 5.4% in 2010, 7.6% in 2009 and 6.2% in 2008. The discount rate used by thePartnership in determining pension expense and pension obligations reflects the yield of high quality (AA or better rating by a recognized rating agency)corporate bonds whose cash flows are expected to match the timing and amounts of projected future benefit payments.The Plan’s objectives are to have the ability to pay benefit and expense obligations when due, to maintain the funded ratio of the Plan, to maximizereturn within reasonable and prudent levels of risk in order to minimize contributions and charges to the profit and loss statement, and to control costs ofadministering the Plan and managing the investments of the Plan. The strategic asset allocation of the Plan (currently 60% domestic fixed income, 30%domestic equities and 10% international equities) is based on a long-term perspective and the premise that the Plan can tolerate some interim fluctuations inmarket value and rates of return in order to achieve long-term objectives.The fair values and percentage of the Partnership’s pension plan assets by asset category are as follows: (in thousands) Level 1 Level 2 Level 3 Total ConcentrationPercentage Asset Category at September 30, 2010 Corporate and U.S. government bond fund (1) 27,014 — — 27,014 54% U.S. government and agency debt securities (1) 2,260 — — 2,260 5% U.S. large-cap equity (1) 14,791 — — 14,791 30% International equity (1) 4,958 — — 4,958 10% Cash and cash equivalents (2) — 300 — 300 1% Total 49,023 300 — 49,323 100% (1)Represent investments in Vanguard funds that seek to replicate the asset category description.(2)Represent investments in a diversified money market fund.Partnership expects to make pension contributions of approximately $3.2 million in fiscal 2011.Expected benefit payments over each of the next five years will total approximately $4.4 million per year. Expected benefit payments for the five yearsthereafter will aggregate approximately $21.5 million. F-23 Table of Contents13) Income TaxesIncome tax expense is comprised of the following for the indicated periods (in thousands): Years Ended September 30, 2010 2009 2008 Current: Federal $726 $2,068 $380 State 1,575 1,690 186 Deferred 13,331 (61,355) — $15,632 $(57,597) $566 The provision for income taxes differs from income taxes computed at the Federal statutory rate as a result of the following: Years Ended September 30, 2010 2009 2008 Income from continuing operations before taxes $43,952 $73,441 $(12,842) Tax at Federal statutory rate 15,383 25,704 (4,495) Less impact of Partnership income or loss not subject to federal income taxes 1,239 (2,447) 1,043 State taxes net of federal benefit 3,087 4,319 121 Permanent Differences (44) 52 368 Change in valuation allowance (3,928) (86,445) 3,603 Change in unrecognized tax benefit and other (105) 1,220 (74) Benefit / provision for income taxes per income statement $15,632 $(57,597) $566 The components of the net deferred taxes and the related valuation allowance for the years ended September 30, 2010 and September 30, 2009 usingcurrent tax rates are as follows (in thousands): Years Ended September 30, 2010 2009 Deferred Tax Assets: Net operating loss carryforwards $19,958 $25,341 Vacation accrual 2,624 2,479 Pension accrual 6,889 10,241 Allowance for bad debts 2,909 2,601 Intangibles — 5,723 Fair value of derivative instruments 2,016 4,349 Insurance accrual 15,530 14,432 Inventory 968 2,280 Alternative minimum tax credit carryforward 3,077 1,630 Other, net 2,692 1,639 Total deferred tax assets 56,663 70,715 Valuation allowance — (3,928) Net deferred tax assets $56,663 $66,787 Deferred Tax Liabilities: Property and equipment $927 $387 Intangibles 8,937 — Total deferred tax liabilities $9,864 $387 Net deferred taxes $46,799 $66,400 As of the calendar tax year ended December 31, 2009, Star Acquisitions had a Federal net operating loss carry forward (“NOL”) of approximately $51.7million. The Federal NOLs, which will expire between 2018 and 2024, are generally available to offset any F-24 Table of Contentsfuture taxable income. In general, the Partnership would be deemed to have an “ownership change” under Section 382 if, immediately after any owner shiftinvolving a 5% unitholder or any equity structure shift, the percentage of units of the Partnership owned by one or more 5% unitholders has increased bymore than 50% over the lowest percentage of units of the Partnership (or any predecessor entity) owned by such unitholder at any time during the three-yeartesting period.In June 2007, the Partnership amended its Amended and Restated Unit Purchase Rights Agreement dated as of July 20, 2006 in order to protect thePartnership’s Net Operating Loss Carry forwards (“NOLs”) for Federal income tax purposes by adding provisions which would have the effect of deterring anyperson or group from acquiring more than 5% (reduced from 15% prior to the amendment) of the Partnership’s issued and outstanding common units. Theamendment also discouraged existing 5% or greater unitholders (including the General Partner) from acquiring additional common units equal to 1% or moreof the outstanding common units. A person or group that acquires units in excess of these amounts would be subject to substantial dilution under the RightsAgreement. In May 2009, the Partnership entered into a further amendment to its Amended and Restated Unit Purchase Rights Agreement to amend thedefinition of acquiring person to restore the acquisition threshold to 15% of the outstanding common units.FASB ASC 740-10-05-6 Income Taxes topic, Tax Position subtopic, provides financial statement accounting guidance for uncertainty in income taxesand tax positions taken or expected to be taken in a tax return.At September 30, 2010, we had unrecognized income tax benefits totaling $2.2 million including related accrued interest and penalties of $0.2 million.These unrecognized tax benefits are primarily the result of Federal tax uncertainties. If recognized, these tax benefits and related interest and penalties wouldbe recorded as a benefit to the effective tax rate.Tax Uncertainties (in thousands) Balance at September 30, 2009 $1,393 Additions based on tax positions related to the current year 499 Additions for tax positions of prior years 480 Reduction for tax positions of prior years — Reductions due to lapse in statue of limitations/settlements (137) Balance at September 30, 2010 2,235 We believe that the total liability for unrecognized tax benefits will not materially change during the next 12 months ending September 30, 2011. Ourcontinuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense.We file U.S. Federal income tax returns and various state and local returns. A number of years may elapse before an uncertain tax position is auditedand finally resolved. For our Federal income tax returns we have four tax years subject to examination. In our major state tax jurisdictions of New York,Connecticut, Pennsylvania and New Jersey, we have four, four, five, and five tax years, respectively, that are subject to examination. While it is often difficultto predict the final outcome or the timing of resolution of any particular uncertain tax position, based on our assessment of many factors including pastexperience and interpretation of tax law, we believe that our provision for income taxes reflect the most probable outcome. This assessment relies onestimates and assumptions and may involve a series of complex judgments about future events. F-25 Table of Contents14) Lease CommitmentsThe Partnership has entered into certain operating leases for office space, trucks and other equipment. The future minimum rental commitments atSeptember 30, 2010 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows (in thousands): 2011 $10,541 2012 10,083 2013 9,157 2014 8,110 2015 6,303 Thereafter 11,784 Total future minimum lease payments $55,978 Rent expense for the fiscal years ended September 30, 2010, 2009, and 2008, was $13.3 million, $15.8 million, and $13.9 million, respectively.15) Supplemental Disclosure of Cash Flow Information Years Ended September 30, (in thousands) 2010 2009 2008 Cash paid during the period for: Income taxes, net $2,061 $2,091 $2,241 Interest $14,836 $18,221 $20,651 Non-cash financing activities: Decrease in interest expense—amortization of net debt premium $132 $226 $188 Decrease in net debt premium attributable to redemption of debt $203 $172 $— Decrease in deferred charges attributable to revolving credit facility amendment $— $322 $— 16) Commitments and ContingenciesThe Partnership’s operations are subject to all operating hazards and risks normally incidental to handling, storing and transporting and otherwiseproviding for use by consumers of combustible liquids such as home heating oil and propane. As a result, at any given time the Partnership is a defendant invarious legal proceedings and litigation arising in the ordinary course of business. The Partnership maintains insurance policies with insurers in amounts andwith coverages and deductibles we believe are reasonable and prudent. However, the Partnership cannot assure that this insurance will be adequate to protectit from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the futureat economical prices. 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. F-26 Table of Contents17) Earnings Per Limited Partner UnitsThe following table presents the net income allocation and per unit data in accordance with FASB ASC 260-10-45-60 Basic and Diluted Earnings perShare topic, Participating Securities and the Two-Class Method subtopic (EITF 03-06): Basic and Diluted Earnings Per Limited Partner:(in thousands, except per unit data) Years Ended September 30, 2010 2009 2008 Net income (loss) $28,320 $131,038 $(13,408) Less General Partners’ interest in net income (loss) 128 561 (57) Net income (loss) available to limited partners 28,192 130,477 (13,351) Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 * 1,258 22,252 — Limited Partner’s interest in net income (loss) under FASB ASC 260-10-45-60 $26,934 $108,225 $(13,351) Per unit data: Basic and diluted net income (loss) available to limited partners $0.40 $1.72 $(0.18) Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60 * 0.02 0.29 — Limited Partner’s interest in net income (loss) under FASB ASC 260-10-45-60 $0.38 $1.43 $(0.18) Weighted average number of Limited Partner units outstanding 70,019 75,738 75,774 *In any accounting period where the Partnership’s aggregate net income exceeds its aggregate distribution for such period, the Partnership is required as perFASB ASC 260-10-45-60 to present net income per limited partner unit as if all of the earnings for the period were distributed, based on the contractualparticipation rights of the security to share in earnings, regardless of whether those earnings would actually be distributed during a particular period froman economic or practical perspective. This allocation does not impact the Partnership’s overall net income or other financial results. F-27 Table of Contents18) 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 losses during thequarters ending June and September. Three Months Ended (in thousands - except per unit data) Dec. 31,2009 Mar. 31,2010 Jun. 30,2010 Sep. 30,2010 Total Sales $348,819 $551,732 $176,761 $135,464 $1,212,776 Gross profit for product, installation and service 88,632 147,502 43,350 29,245 308,729 Operating income (loss) 26,614 75,125 (13,881) (29,274) 58,584 Income (loss) before income taxes 22,082 70,371 (16,223) (32,278) 43,952 Net income (loss) 12,005 40,535 (9,991) (14,229) 28,320 Limited Partner interest in net income (loss) 11,951 40,348 (9,944) (14,163) 28,192 Net income (loss) per Limited Partner unit: Basic and diluted (a) $0.15 $0.48 $(0.14) $(0.21) $0.38 Three Months Ended (in thousands - except per unit data) Dec. 31,2008 Mar. 31,2009 Jun. 30,2009 Sep. 30,2009 Total Sales $402,850 $520,500 $167,669 $115,794 $1,206,813 Gross profit for product, installation and service 104,362 152,234 45,122 29,340 331,058 Operating income (loss) (7,366) 110,880 956 (24,348) 80,122 Income (loss) before income taxes (8,363) 113,369 (2,422) (29,143) 73,441 Net income (loss) (8,011) 108,667 (1,924) 32,306 131,038 Limited Partner interest in net income (loss) (7,976) 108,201 (1,916) 32,168 130,477 Net income (loss) per Limited Partner unit: Basic and diluted (a) $(0.11) $1.17 $(0.03) $0.36 $1.43 (a)The sum of the quarters do not add-up to the total due to the weighting of Limited Partner Units outstanding, rounding or the theoretical effects ofFASB ASC 260-10-45-60 to Master Limited Partners earnings per unit.19) Subsequent EventsQuarterly Distribution DeclaredOn October 26, 2010, the Partnership declared a quarterly distribution of $0.0725 per unit on all common and general partner units, for unitholders ofrecord on November 4, 2010, to be paid on November 12, 2010. The total distribution paid was approximately $4.9 million.Rule 144A Offering of Senior Notes due 2017On November 10, 2010, the Partnership priced its Rule 144A offering of Senior Notes due 2017 and closed on it on November 16, 2010. The notes willaccrue interest at a rate of 8.875% and were priced at 99.350%, for total gross proceeds of $124.2 million. The proceeds will be used to redeem all of theremaining $82.5 million in face amount of 10.25% Senior Notes due 2013 and for general partnership purposes.Election to Redeem 10.25% Senior Notes due 2013On November 16, 2010, the Partnership gave notice to Union Bank, N.A, the Trustee of the Issuers’ 10.25% Senior Notes due 2013 (the “Senior Notes”)of the Issuers’ election to redeem (the “Redemption”) all of the remaining $82.5 million in face amount of Senior Notes at a redemption price of 101.708%plus any accrued but unpaid interest thereon with a redemption date of December 20, 2010. The Trustee will also serve as the Paying Agent for theRedemption. F-28 Table of ContentsSchedule ISTAR GAS PARTNERS, L.P. (PARENT COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANT (in thousands) Sept. 30,2010 Sept. 30,2009 Balance Sheets ASSETS Current assets Cash and cash equivalents $230 $46 Prepaid expenses and other current assets 1,039 1,471 Total current assets 1,269 1,517 Investment in subsidiaries (a) 365,592 442,146 Deferred charges and other assets, net 589 1,404 Total Assets $367,450 $445,067 LIABILITIES AND PARTNERS’ CAPITAL Current liabilities Accrued expenses $2,300 $3,002 Total current liabilities 2,300 3,002 Long-term debt (b) 82,770 133,112 Other long-term liabilities 2,469 2,619 Partners’ capital 279,911 306,334 Total Liabilities and Partners’ Capital $367,450 $445,067 (a)Investments in Star Acquisitions, Inc. and subsidiaries are recorded in accordance with the equity method of accounting.(b)Scheduled principal repayments of long-term debt during each of the next five fiscal years ending September 30, are as follows: 2011—$0; 2012—$0;2013—$82,770 ($82,499 excluding discounts and premiums) due February 2013; 2014—$0; 2015—$0; thereafter $0. This amount will be repaid onDecember 20, 2010 with a portion of the proceeds from the Partnership’s 8.875% $125.0 million Senior Notes issued on November 16, 2010. F-29 Table of ContentsSTAR GAS PARTNERS, L.P. (PARENT COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANT Years Ended September 30, (in thousands) 2010 2009 2008 Statements of Operations Revenues $— $— $— General and administrative expenses 2,231 2,592 2,371 Operating loss (2,231) (2,592) (2,371) Net interest expense (10,299) (14,800) (17,512) Amortization of debt issuance costs (336) (444) (534) Gain (loss) on redemption of debt (1,132) 9,706 — Loss from continuing operations (13,998) (8,130) (20,417) Income (loss) from discontinued operations, net of income taxes — — — Gain (loss) on sale of discontinued operations, net of income taxes — — — Net income (loss) before equity income (loss) (13,998) (8,130) (20,417) Equity income of Star Acquisitions, Inc. and subs 42,426 139,168 7,009 Net income (loss) $28,428 $131,038 $(13,408) F-30 Table of ContentsSTAR GAS PARTNERS, L.P. (PARENT COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANT Years Ended September 30, (in thousands) 2010 2009 2008 Statements of Cash Flows Cash flows provided by operating activities: Net cash provided by (used in) operating activities (a) $104,625 $48,013 $(418) Cash flows provided by (used in) investing activities: Net cash provided by (used in) investing activities — — — Cash flows provided by (used in) financing activities: Repayment of debt (50,854) (30,230) — Distributions (20,353) (15,411) Unit repurchase (33,234) (2,336) Net cash provided by (used in) financing activities (104,441) (47,977) — Net increase (decrease) in cash 184 36 (418) Cash and cash equivalents at beginning of period 46 10 428 Cash and cash equivalents at end of period $230 $46 $10 (a) Includes distributions from subsidiaries $117,310 $65,164 $20,487 F-31 Table of ContentsSchedule IISTAR GAS PARTNERS, L.P. AND SUBSIDIARIESVALUATION AND QUALIFYING ACCOUNTSYears Ended September 30, 2010, 2009 and 2008(in thousands) Year Description Balance atBeginningof Year Chargedto Costs &Expenses OtherChangesAdd (Deduct) Balance atEnd of Year 2010 Allowance for doubtful accounts $6,267 $5,279 $(6,103) $5,443 2009 Allowance for doubtful accounts $10,821 $10,310 $(14,864) $6,267 2008 Allowance for doubtful accounts $7,645 $11,961 $(8,785) $10,821 Bad debts written off (net of recoveries). F-32(a)(a)(a)(a) Exhibit 4.3AMENDMENT NO. 2 TOSECOND AMENDED AND RESTATEDAGREEMENT OF LIMITED PARTNERSHIPOFSTAR GAS PARTNERS, L.P.This Amendment No. 2 to the Second Amended and Restated Agreement of Limited Partnership of Star Gas Partners, L.P. (the “Partnership”),dated as of February 21, 2008 (this “Amendment”), is entered into among Kestrel Heat, LLC, as the general partner of the Partnership (“Kestrel Heat” or the“General Partner”), and the limited partners of the Partnership. Initially capitalized terms used herein and not otherwise defined herein are used as defined inthe Partnership Agreement (as defined below).WHEREAS, the Partnership desires to modify the manner in which it makes available to unitholders its annual and quarterly reports; andWHEREAS, pursuant to Section 15.1(d)(i) of the Partnership Agreement, and subject to certain exceptions that the General Partner hasdetermined are not applicable in this instance, the General Partner, in its capacity as general partner of the Partnership, is authorized to make amendments tothe Partnership Agreement without the approval of any Limited Partner or assignee, so long as the amendments do not adversely affect the Limited Partners inany material respect; andWHEREAS, the General Partner has determined that the amendments to the Partnership Agreement set forth below do not adversely affect theLimited Partners in any material respect.NOW, THEREFORE, it is hereby agreed as follows:1. Amendments.A. Section 8.3 of the Partnership Agreement is hereby amended in its entirety to read as follows:Section 8.3 Reports. (a)As soon as practicable, but in no event later than 120 days after the close of each fiscal year of the Partnership, the General Partner shall makeavailable to each Record Holder of a Unit as of a date selected by the General Partner in its sole discretion (and shall cause to be mailed to eachsuch Unitholder upon their request) an annual report containing financial statements of the Partnership for such fiscal year of the Partnership, presented in accordance withgenerally accepted accounting principles, including a balance sheet and statements of operations, Partners’ equity and cash flows, suchstatements to be audited by a firm of independent public accountants selected by the General Partner. (b)As soon as practicable, but in no event later than 90 days after the close of each Quarter except the last Quarter of each fiscal year, the GeneralPartner shall make available to each Record Holder of a Unit, as of a date selected by the General Partner in its sole discretion (and shall cause tobe mailed to each such Unitholder upon their request) a report containing unaudited financial statements of the Partnership and such otherinformation as may be required by applicable law, regulation or rule of any National Securities Exchange on which the Units are listed fortrading, or as the General Partner determines to be necessary or appropriate.2. Binding Effect. This Amendment shall be binding upon, and shall inure to the benefit of, the parties hereto and all other parties to the PartnershipAgreement and their respective successors and assigns.3. Execution in Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which shallconstitute one and the same instrument.4. Agreement in Effect. Except as hereby amended, the Partnership Agreement shall remain in full force and effect.5. Governing Law. This Amendment shall be governed by, and interpreted in accordance with, the laws of the State of Delaware, all rights and remediesbeing governed by such laws without regard to principles of conflicts of laws.6. Severability. Each provision of this Amendment shall be considered severable and if for any reason any provision or provisions herein aredetermined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair theoperation of or affect those portions of this Amendment that are valid, enforceable and legal. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first above written. GENERAL PARTNER:KESTREL HEAT, LLCBy: /s/ Richard AmburyName: Richard AmburyTitle: Chief Financial OfficerLIMITED PARTNERS:All limited partners of the Partnership,pursuant to the Powers of Attorney grantedto the General Partner.By: KESTREL HEAT, LLCGeneral Partner, as attorney-in-fact for allLimited Partners pursuant to the Powers ofAttorney granted pursuant to Section 1.4 ofthe Partnership AgreementBy: /s/ Richard AmburyName: Richard AmburyTitle: Chief Financial Officer Exhibit 10.18THIRD AMENDMENTTHIRD AMENDMENT, dated as of November 12, 2010 (this “Amendment”), to the Amended and Restated Credit Agreement, dated as of July 2,2009, as amended by the First Amendment, dated as of January 21, 2010, and as further amended by the Second Amendment, dated as of May 10, 2010 (asfurther amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Petroleum Heat and PowerCo., Inc., a Minnesota corporation (the “Borrower”), the other Loan Parties, JPMorgan Chase Bank, N.A., a national banking association, as an LC Issuer andas the administrative agent (the “Administrative Agent”), Bank of America, N.A., as syndication agent and as an LC Issuer, RBS Citizens, N.A., asdocumentation agent, Société Générale and PNC Bank, National Association, as senior managing agents, and the lenders from time to time party thereto (the“Lenders”).W I T N E S S E T HWHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit tothe Borrower;WHEREAS, the Borrower has requested that the Credit Agreement be amended as set forth herein; andWHEREAS, the Required Lenders are willing to agree to this Amendment on the terms set forth herein.NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows:Capitalized Terms. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.Amendments. The Credit Agreement shall be amended as of the Effective Date (as defined below) as set forth below.(a) Amendments to Section 1.1 (Defined Terms). Section 1.1 of the Credit Agreement is hereby amended as follows:(i) by (A) deleting therefrom the definitions of “Parent Indentures” and “Parent Notes” and (B) adding thereto, in proper alphabetical order, thefollowing definitions:“2010 Note Redemption Date” means the date on which the 2003 Parent Notes and the 2006 Parent Notes are paid, redeemed, defeased orotherwise prepaid in full, in each case to the satisfaction of the Administrative Agent.“2010 Parent Indenture” means the Indenture, among the Parent, Star Gas Finance Company and Union Bank, N.A., as trustee, dated as ofNovember 16, 2010, as amended, supplemented or otherwise modified from time to time. “2010 Parent Notes” means the 8.875% Senior Notes due 2017 issued pursuant to the 2010 Parent Indenture.(ii) by amending the definition of “Availability” by deleting the word “New” in each of the three instances where it appears in the proviso thereto andreplacing it in each such case with the year “2010”.(iii) by amending the definition of “Borrowing Base Certificate” by deleting the word “New” in clause (b) of the second sentence thereof and replacingit with the year “2010”.(iv) by amending the definition of “Change in Control” by adding the year “2010” immediately before the word “Parent” in clause (v) thereof andreplacing the word “Indentures” in such clause with its singular form.(v) by amending the defined term “New Parent Indenture” by replacing the word “New” with the year “2006” and placing such defined term, asamended, in proper alphabetical order.(vi) by amending the defined term “New Parent Notes” by replacing the word “New” with the year “2006” and placing such defined term, as amended,in proper alphabetical order.(vii) by amending the defined term “Old Parent Indenture” by replacing the word “Old” with the year “2003” and placing such defined term, asamended, in proper alphabetical order.(viii) by amending the defined term “Old Parent Notes” by replacing the word “Old” with the year “2003” and placing such defined term, as amended,in proper alphabetical order.(b) Amendments to Section 2.15 (Mandatory Prepayments). Section 2.15 of the Credit Agreement is hereby amended as follows:(i) by inserting the year “2010” immediately before the word “Parent” in the first line of clause (b)(ii) thereof and replacing the words “Indentures are”in such line with the words “Indenture is”.(ii) by inserting the year “2010” immediately before the word “Parent” in the last sentence of clause (c) thereof and replacing the words “Indenturesare” in such sentence with the words “Indenture is”.(iii) by inserting the year “2010” immediately before the word “Parent” in the last sentence of clause (d) thereof and replacing the words “Indenturesare” in such sentence with the words “Indenture is”.(c) Amendment to Section 4.2 (Each Credit Extension). Section 4.2(d) of the Credit Agreement is hereby amended by inserting the year “2010”immediately before the word “Parent” in the third line thereof and replacing the word “Indentures” in such line with its singular form.(d) Amendment to Section 5.3 (No Conflict; Government Consent). Section 5.3 of the Credit Agreement is hereby amended by inserting the year“2010” immediately before the word “Parent” in clause three of the first sentence thereof and replacing the word “Indentures” in such clause with its singularform.(e) Amendment to Section 5.27 (Subordinated Indebtedness). Section 5.27 of the Credit Agreement is hereby amended by replacing the term “ParentIndentures” in each of the three instances where it appears therein with “2010 Parent Indenture”.(f) Amendment to Section 6.1 (Financial and Collateral Reporting). Section 6.1(f) of the Credit Agreement is hereby amended by deleting the word“New” in the last line thereof and replacing it with the year “2010”.(g) Amendment to Section 6.2 (Use of Proceeds). Section 6.2(b) of the Credit Agreement is hereby amended by inserting the year “2010” immediatelybefore the word “Parent” in clause (iv) thereof and replacing the words “Indentures are” in such clause with the words “Indenture is”. (h) Amendments to Section 6.17 (Indebtedness). Section 6.17 of the Credit Agreement is hereby amended as follows:(i) by deleting clause (m) in its entirety and replacing it with the following:“(m) until the 2010 Note Redemption Date, the 2003 Parent Notes and the 2006 Parent Notes;”(ii) by deleting clause (n) in its entirety and replacing it with the following:“(n) the 2010 Parent Notes; provided that the aggregate principal amount of such 2010 Parent Notes shall not exceed $125,000,000;”(iii) by deleting clause (o) thereof in its entirety.(i) Amendment to Section 6.21 (Liens). Section 6.21(c) of the Credit Agreement is hereby amended by inserting the year “2010” immediately beforethe word “Parent” in the first line thereof and replacing the word “Indentures” in such line with its singular form.(j) Amendment to Section 6.25 (Prepayment of Indebtedness; Subordinated Indebtedness). Section 6.25 of the Credit Agreement is hereby amended asfollows:(i) by amending clause (a) thereof and inserting the year “2010” immediately before the word “Parent” in sub-clause (v) therein and in the provisothereto.(ii) by adding the following new clause (c) at the end thereof:“(c) Notwithstanding anything herein to the contrary, the Loan Parties shall be permitted to voluntarily purchase, redeem, defease or prepay anyprincipal of, premium, if any, interest or other amount payable in respect of the 2003 Parent Notes and the 2006 Parent Notes.”(k) Amendment to Section 6.32 (Parent). Section 6.32 of the Credit Agreement is hereby amended as follows:(i) by replacing the parenthetical phrase immediately prior to the first proviso thereof with the following:“(other than the Secured Obligations, its existing Indebtedness (including the 2010 Parent Notes permitted under Section 6.17(n)) andGuaranties)”(ii) by (A) inserting the word “also” immediately before “(x)” in the first proviso thereto and (B) deleting the phrase “issue Additional Parent Notespursuant to Section 6.17(o) or” in clause (x) of the first proviso thereto and replacing the word “New” in such clause with the year “2010”.(iii) by deleting the second proviso thereto in its entirety and replacing it with the following:“provided further that, in the case of clause (y) above, (i) the Net Cash Proceeds of such Parent Subordinated Debt are contributed to Petro as acommon equity contribution and (ii) the Parent has provided the Agent with all documents evidencing such Parent Subordinated Debt at least 5Business Days prior to the issuance or incurrence thereof.” Conditions to Effectiveness of Amendment. This Amendment shall become effective on the date on which the following conditions precedent have beensatisfied or waived (the “Effective Date”):(l) The Administrative Agent shall have received a counterpart of this Amendment, executed and delivered by a duly authorized officer of each of(i) the Loan Parties and (ii) the Required Lenders.(m) The Parent shall have delivered (or caused to be delivered) an irrevocable notice of redemption in respect of the 2003 Parent Notes and the 2006Parent Notes to the trustee under the 2003 Parent Indenture and the 2006 Parent Indenture, respectively, and the Parent shall have segregated (or caused to besegregated) funds sufficient to pay, redeem, defease or otherwise prepay in full the 2003 Parent Notes and the 2006 Parent Notes, in each case to thesatisfaction of the Administrative Agent.Representations and Warranties. Each Loan Party hereby represents and warrants that (a) each of the representations and warranties contained in Article V ofthe Credit Agreement shall be, after giving effect to this Amendment, true and correct in all material respects as if made on and as of the Effective Date (unlesssuch representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct inall material respects as of such earlier date); provided, that each reference to the Credit Agreement therein shall be deemed to be a reference to the CreditAgreement after giving effect to this Amendment and (b) after giving effect to this Amendment, no Default shall have occurred and be continuing.Effects on Credit Documents. (n) Except as specifically amended herein, all Loan Documents shall continue to be in full force and effect and are hereby in allrespects ratified and confirmed.(o) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or theAdministrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of the Loan Documents.GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALLBE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBYAGREES AS SET FORTH FURTHER IN SECTIONS 16.2 AND 16.3 OF THE CREDIT AGREEMENT AS IF SUCH SECTIONS WERE SET FORTH IN FULLHEREIN.Amendments; Execution in Counterparts. (p) This Amendment shall not constitute an amendment of any other provision of the Credit Agreement not referredto herein and shall not be construed as a waiver or consent to any further or future action on the part of the Loan Parties that would require a waiver or consentof the Required Lenders or the Administrative Agent. Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain infull force and effect.(q) This Amendment may not be amended nor may any provision hereof be waived except pursuant to a writing signed by the Loan Parties, theAdministrative Agent and the Required Lenders. This Amendment may be executed in any number of counterparts and by the different parties hereto onseparate counterparts, including by means of facsimile or electronic transmission, each of which when so executed and delivered shall be an original, but allof which shall together constitute one and the same instrument.[Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective proper and dulyauthorized officers as of the day and year first above written. BORROWER:PETROLEUM HEAT AND POWER CO., INC.By: /s/ Richard F. AmburyName: Richard F. AmburyTitle: Chief Financial Officer, Treasurer & SecretaryOTHER LOAN PARTIES:STAR GAS FINANCE COMPANYTG&E SERVICE COMPANY, INC.STAR ACQUISITIONS, INC.PETRO HOLDINGS, INC.MEENAN OIL CO., INC.MEENAN HOLDINGS OF NEW YORK, INC.REGIONOIL PLUMBING, HEATING AND COOLING CO.,INC.PETRO PLUMBING CORPORATIONMINNWHALE LLCORTEP OF PENNSYLVANIA, INC.RICHLAND PARTNERS, LLCCOLUMBIA PETROLEUM TRANSPORTATION, LLCPETRO, INC.MAREX CORPORATIONA.P. WOODSON COMPANYCHAMPION ENERGY CORPORATIONCHAMPION OIL COMPANYJ.J. SKELTON OIL COMPANYRYE FUEL COMPANYLEWIS OIL COMPANY, INC.C. HOFFBERGER COMPANYHOFFMAN FUEL COMPANY OF BRIDGEPORTHOFFMAN FUEL COMPANY OF STAMFORDHOFFMAN FUEL COMPANY OF DANBURYBy: /s/ Richard F. AmburyName: Richard F. AmburyTitle: Chief Financial Officer, Secretary and TreasurerJPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender Exhibit 10.21$125,000,000STAR GAS PARTNERS, L.P.STAR GAS FINANCE COMPANY8.875% Senior Notes due 2017Purchase AgreementNovember 10, 2010J.P. Morgan Securities LLCAs Representative of theseveral Initial Purchasers listedin Schedule 1 heretoc/o J.P. Morgan Securities LLC383 Madison AvenueNew York, New York 10179Ladies and Gentlemen:Star Gas Partners, L.P., a Delaware limited partnership (the “Company”) and Star Gas Finance Company, a Delaware corporation (together with theCompany, the “Issuers”), propose to issue and sell to the several initial purchasers listed in Schedule 1 hereto (the “Initial Purchasers”), for whom you areacting as representative (the “Representative”), $125,000,000 principal amount of their 8.875% Senior Notes due 2017 (the “Securities”), for which theIssuers are joint and several obligors. The Securities will be issued pursuant to an Indenture to be dated as of November 16, 2010 (the “Indenture”) among theIssuers and Union Bank, N.A., as trustee (the “Trustee”).The Securities will be sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the “Securities Act”), inreliance upon an exemption therefrom. The Issuers have prepared a preliminary offering memorandum dated November 9, 2010 (the “Preliminary OfferingMemorandum”) and will prepare an offering memorandum dated the date hereof (the “Offering Memorandum”) setting forth information concerning theIssuers and the Securities. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by theIssuers to the Initial Purchasers pursuant to the terms of this Agreement. The Issuers hereby confirm that they have authorized the use of the PreliminaryOffering Memorandum, the other Time of Sale Information (as defined below) and the Offering Memorandum in connection with the offering and resale of theSecurities by the Initial Purchasers in the manner contemplated by this Agreement. Capitalized terms used but not defined herein shall have the meaningsgiven to such terms in the Preliminary Offering Memorandum. At or prior to the time when sales of the Securities were first made (the “Time of Sale”), the following information shall have been prepared(collectively, the “Time of Sale Information”): the Preliminary Offering Memorandum, as supplemented and amended by the written communications listedon Annex A hereto.Holders of the Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of a RegistrationRights Agreement, to be dated the Closing Date (as defined below) and substantially in the form attached hereto as Exhibit A (the “Registration RightsAgreement”), pursuant to which the Issuers will agree to file one or more registration statements with the Securities and Exchange Commission (the“Commission”) providing for the registration under the Securities Act of the Securities or the Exchange Securities referred to (and as defined) in theRegistration Rights Agreement.Each of the Issuers hereby confirms its agreement with the several Initial Purchasers concerning the purchase and resale of the Securities, as follows:1. Purchase and Resale of the Securities. (a) Each of the Issuers agrees to issue and sell the Securities to the several Initial Purchasers as provided in thisAgreement, and each Initial Purchaser, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forthherein, agrees, severally and not jointly, to purchase from the Issuers the respective principal amount of Securities set forth opposite such Initial Purchaser’sname in Schedule 1 hereto at a price equal to 97.04% of the principal amount thereof plus accrued interest, if any, from November 16, 2010 to the ClosingDate. The Issuers will not be obligated to deliver any of the Securities except upon payment for all the Securities to be purchased as provided herein.(b) Each of the Issuers understands that the Initial Purchasers intend to offer the Securities for resale on the terms set forth in the Time of SaleInformation. Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that:(i) it is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act (a “QIB”) and an accredited investor within themeaning of Rule 501(a) under the Securities Act;(ii) it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities by means of any form of generalsolicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act (“Regulation D”) or in any mannerinvolving a public offering within the meaning of Section 4(2) of the Securities Act; and 2 (iii) it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer or sell, the Securities as part of their initial offeringexcept:(A) within the United States to persons whom it reasonably believes to be QIBs in transactions pursuant to Rule 144A under the SecuritiesAct (“Rule 144A”) and in connection with each such sale, it has taken or will take reasonable steps to ensure that the purchaser of the Securitiesis aware that such sale is being made in reliance on Rule 144A; or(B) in accordance with the restrictions set forth in Annex C hereto.(c) Each Initial Purchaser acknowledges and agrees that the Issuers and, for purposes of the “no registration” opinions to be delivered to the InitialPurchasers pursuant to Sections 6(f) and 6(g), counsel for the Issuers and counsel for the Initial Purchasers, respectively, may rely upon the accuracy of therepresentations and warranties of the Initial Purchasers, and compliance by the Initial Purchasers with their agreements, contained in paragraph (b) above(including Annex C hereto), and each Initial Purchaser hereby consents to such reliance.(d) Each of the Issuers acknowledges and agrees that the Initial Purchasers may offer and sell Securities to or through any affiliate of an Initial Purchaserand that any such affiliate may offer and sell Securities purchased by it to or through any Initial Purchaser.(e) Each of the Issuers acknowledges and agree that the Initial Purchasers are acting solely in the capacity of an arm’s length contractual counterpartyto the Issuers with respect to the offering of Securities contemplated hereby (including in connection with determining the terms of the offering) and not asfinancial advisors or fiduciaries to, or agents of, the Issuers or any other person. Additionally, neither the Representative nor any other Initial Purchaser isadvising the Issuers or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Issuers shall consult withtheir own advisors concerning such matters and shall be responsible for making their own independent investigation and appraisal of the transactionscontemplated hereby, and neither the Representative nor any other Initial Purchaser shall have any responsibility or liability to the Issuers with respectthereto. Any review by the Representative or any Initial Purchaser of the Issuers and the transactions contemplated hereby or other matters relating to suchtransactions will be performed solely for the benefit of the Representative or such Initial Purchaser, as the case may be, and shall not be on behalf of theIssuers or any other person. 3 2. Payment and Delivery. (a) Payment for and delivery of the Securities will be made at the offices of Simpson Thacher & Bartlett LLP at 10:00 A.M.,New York City time, on November 16, 2010, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, asthe Representative and the Issuers may agree upon in writing. The time and date of such payment and delivery is referred to herein as the “Closing Date”.(b) Payment for the Securities shall be made by wire transfer in immediately available funds to the account(s) specified by the Issuers to theRepresentative against delivery to the nominee of The Depository Trust Company, for the account of the Initial Purchasers, of one or more global notesrepresenting the Securities (collectively, the “Global Note”), with any transfer taxes payable in connection with the sale of the Securities duly paid by theIssuers. The Global Note will be made available for inspection by the Representative not later than 1:00 P.M., New York City time, on the business day priorto the Closing Date.3. Representations and Warranties of the Issuers. The Issuers jointly and severally represent and warrant to each Initial Purchaser that:(a) Preliminary Offering Memorandum, Time of Sale Information and Offering Memorandum. The Preliminary Offering Memorandum, as of its date,did not, the Time of Sale Information, at the Time of Sale, did not, and at the Closing Date, will not, and the Offering Memorandum, in the form first used bythe Initial Purchasers to confirm sales of the Securities and as of the Closing Date, will not, contain any untrue statement of a material fact or omit to state amaterial fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided thatthe Issuers make no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relatingto any Initial Purchaser furnished to the Company in writing by such Initial Purchaser through the Representative expressly for use in the PreliminaryOffering Memorandum, the Time of Sale Information or the Offering Memorandum.(b) Additional Written Communications. Each of the Issuers (including their agents and representatives, other than the Initial Purchasers in theircapacity as such) have not prepared, made, used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any writtencommunication that constitutes an offer to sell or solicitation of an offer to buy the Securities (each such communication by the Issuers or their agents andrepresentatives (other than a communication referred to in clauses (i), (ii) and (iii) below) an “Issuer Written Communication”) other than (i) the PreliminaryOffering Memorandum, (ii) the Offering Memorandum, (iii) the documents listed on Annex A hereto, including a term sheet substantially in the form ofAnnex B hereto, which constitute part of the Time of Sale Information, and (iv) any electronic road show or other written communications, in each case usedin accordance with Section 4(c). Each such Issuer Written Communication, when taken together with the Time of Sale Information, did not, and at theClosing Date will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in thelight of the circumstances 4 under which they were made, not misleading; provided that the Issuers make no representation and warranty with respect to any statements or omissions madein each such Issuer Written Communication in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Issuers inwriting by such Initial Purchaser through the Representative expressly for use in any Issuer Written Communication.(c) Financial Statements. The financial statements and the related notes thereto included in each of the Time of Sale Information and the OfferingMemorandum present fairly the financial position of the Company and its subsidiaries as of the dates indicated and the results of their operations and thechanges in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accountingprinciples applied on a consistent basis throughout the periods covered thereby; and the other financial information included in each of the Time of SaleInformation and the Offering Memorandum has been derived from the accounting records of the Company and its subsidiaries and presents fairly theinformation shown thereby.(d) No Material Adverse Change. Since the date of the most recent financial statements of the Company included in each of the Time of SaleInformation and the Offering Memorandum (i) there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiariesother than repurchases of common units pursuant to the Company’s publicly announced unit purchase plan, or any dividend or distribution of any kinddeclared, set aside for payment, paid or made by the Company on any class of capital stock (other than the quarterly distributions declared on July 19, 2010and October 26, 2010), or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business,properties, management, financial position, results of operations or prospects of the Company and its subsidiaries taken as a whole; (ii) neither the Companynor any of its subsidiaries has entered into any transaction or agreement that is material to the Company and its subsidiaries taken as a whole or incurred anyliability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; and (iii) neither the Company nor any of itssubsidiaries has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance,or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each caseas otherwise disclosed in each of the Time of Sale Information and the Offering Memorandum.(e) Organization and Good Standing. The Company and each of its subsidiaries have been duly organized and are validly existing and in goodstanding under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction inwhich their respective ownership or lease of property or the conduct of their respective businesses requires 5 such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they areengaged, except where the failure to be so qualified, in good standing or have such power or authority would not, individually or in the aggregate, have amaterial adverse effect on the business, properties, management, financial position, results of operations or prospects of the Company and its subsidiariestaken as a whole or on the performance by the Issuers of their obligations under the Agreement and the Securities (a “Material Adverse Effect”). TheCompany does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Schedule 2 to thisAgreement.(f) Capitalization. The Company has an authorized capitalization as set forth in each of the Time of Sale Information and the Offering Memorandumunder the heading “Capitalization”; and all the outstanding shares of capital stock or other equity interests of each subsidiary of the Company have beenduly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of any lien,charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party, except liens created pursuant to the Amendedand Restated Credit Agreement dated as of July 2, 2009, among Petroleum Heat and Power Co, Inc, the loan parties thereto, the lenders from time to timeparty thereto, JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and an LC issuer, Bank of America, N.A., as syndication agent and an LCissuer, RBS Citizens, N.A., as documentation agent, Societe Generale and PNC Bank, National Association, as senior managing agents, and J.P. MorganSecurities Inc. and Banc of America Securities LLC, as joint lead arrangers and joint book runners (as amended, the “Credit Agreement”).(g) Due Authorization. Each of the Issuers has full right, power and authority to execute and deliver this Agreement, the Securities, the Indenture, theExchange Securities and the Registration Rights Agreement (collectively, the “Transaction Documents”) and to perform their respective obligationshereunder and thereunder; and all action required to be taken for the due and proper authorization, execution and delivery of each of the TransactionDocuments and the consummation of the transactions contemplated thereby has been duly and validly taken.(h) The Indenture. The Indenture has been duly authorized by each of the Issuers and, when duly executed and delivered in accordance with its termsby each of the parties thereto, will constitute a valid and legally binding agreement of each of the Issuers enforceable against each of the Issuers inaccordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement ofcreditors’ rights generally or by equitable principles relating to enforceability (collectively, the “Enforceability Exceptions”); and on the Closing Date, theIndenture will conform in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), and the rulesand regulations of the Commission applicable to an indenture that is qualified thereunder. 6 (i) The Securities. The Securities have been duly authorized by each of the Issuers and, when duly executed, authenticated, issued and delivered asprovided in the Indenture and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally bindingobligations of each of the Issuers enforceable against each of the Issuers in accordance with their terms, subject to the Enforceability Exceptions, and will beentitled to the benefits of the Indenture.(j) The Exchange Securities. On the Closing Date, the Exchange Securities will have been duly authorized by each of the Issuers and, when dulyexecuted, authenticated, issued and delivered as contemplated by the Registration Rights Agreement, will be duly and validly issued and outstanding andwill constitute valid and legally binding obligations of each of the Issuers, enforceable against each of the Issuers in accordance with their terms, subject tothe Enforceability Exceptions, and will be entitled to the benefits of the Indenture.(k) Purchase and Registration Rights Agreements. This Agreement has been duly authorized, executed and delivered by each of the Issuers; and theRegistration Rights Agreement has been duly authorized by each of the Issuers and on the Closing Date will be duly executed and delivered by each of theIssuers and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally bindingagreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, subject to the Enforceability Exceptions, and except thatrights to indemnity and contribution thereunder may be limited by applicable law and public policy.(l) Descriptions of the Transaction Documents. Each Transaction Document conforms in all material respects to the description thereof contained ineach of the Time of Sale Information and the Offering Memorandum.(m) No Violation or Default. Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizationaldocuments; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance orobservance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to whichthe Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of theCompany or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator orgovernmental or regulatory authority, except, in the case of clauses (ii) and (iii) above, for any such default or violation that would not, individually or in theaggregate, have a Material Adverse Effect. 7 (n) No Conflicts. The execution, delivery and performance by each of the Issuers of each of the Transaction Documents to which each is a party, theissuance and sale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated bythe Transaction Documents will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, orresult in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Issuers or any of their respective subsidiariespursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Issuers or any of their respectivesubsidiaries is a party or by which the Issuers or any of their respective subsidiaries is bound or to which any of the property or assets of the Issuers or any oftheir respective subsidiaries is subject, (ii) result in any violation of the provisions of the charter or bylaws or similar organizational documents of the Issuersor any of their respective subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator orgovernmental or regulatory authority, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation, default, lien, charge orencumbrance that would not, individually or in the aggregate, have a Material Adverse Effect.(o) No Consents Required. No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental orregulatory authority is required for the execution, delivery and performance by each of the Issuers of each of the Transaction Documents to which each is aparty, the issuance and sale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactionscontemplated by the Transaction Documents, except for such consents, approvals, authorizations, orders and registrations or qualifications as may berequired (i) under applicable state securities laws in connection with the purchase and resale of the Securities by the Initial Purchasers and (ii) with respect tothe Exchange Securities under the Securities Act, the Trust Indenture Act and applicable state securities laws as contemplated by the Registration RightsAgreement.(p) Legal Proceedings. Except as described in each of the Time of Sale Information and the Offering Memorandum, there are no legal, governmental orregulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is or may be a party or to which any propertyof the Company or any of its subsidiaries is or may be the subject that, individually or in the aggregate, if determined adversely to the Company or any of itssubsidiaries, could reasonably be expected to have a Material Adverse Effect; and to the best knowledge of each of the Issuers, no such investigations,actions, suits or proceedings are threatened or contemplated by any governmental or regulatory authority or by others.(q) Independent Accountants. KPMG LLP, who have certified certain financial statements of the Company and its subsidiaries are independent publicaccountants with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the PublicCompany Accounting Oversight Board (United States) and as required by the Securities Act. 8 (r) Title to Real and Personal Property. The Company and its subsidiaries have good and marketable title in fee simple to, or have valid rights to leaseor otherwise use, all items of real property and have good title to all personal property that are material to the respective businesses of the Company and itssubsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those created pursuant to the CreditAgreement and those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or(ii) could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.(s) Title to Intellectual Property. The Company and its subsidiaries own or possess adequate rights to use all material patents, patent applications,trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets andother unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses;and the conduct of their respective businesses will not conflict in any material respect with any such rights of others, and the Company and its subsidiarieshave not received any notice of any claim of infringement of or conflict with any such rights of others.(t) No Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand,and the directors, officers, stockholders or other affiliates of the Company or any of its subsidiaries, on the other, that would be required by the Securities Actto be described in a registration statement to be filed with the Commission and that is not so described in each of the Time of Sale Information and theOffering Memorandum.(u) Investment Company Act. Neither the Issuers nor any of their subsidiaries is, and after giving effect to the offering and sale of the Securities and theapplication of the proceeds thereof as described in each of the Time of Sale Information and the Offering Memorandum none of them will be, an “investmentcompany” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules andregulations of the Commission thereunder (collectively, the “Investment Company Act”).(v) Taxes. The Company and its subsidiaries have paid all federal, state, local and foreign taxes and filed all tax returns required to be paid or filedthrough the date hereof; and except as otherwise disclosed in each of the Time of Sale Information and the Offering Memorandum, there is no tax deficiencythat has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets,except where such tax deficiency would not, individually or in the aggregate, have a Material Adverse Effect. 9 (w) Licenses and Permits. The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have madeall declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership orlease of their respective properties or the conduct of their respective businesses as described in each of the Time of Sale Information and the OfferingMemorandum; and except as described in each of the Time of Sale Information and the Offering Memorandum, neither the Company nor any of itssubsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe thatany such license, certificate, permit or authorization will not be renewed in the ordinary course, except where the failure to be in compliance with theforegoing representations would not, individually or in the aggregate, have a Material Adverse Effect.(x) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the best knowledge ofeach of the Issuers, is contemplated or threatened and neither of the Issuers is aware of any existing or imminent labor disturbance by, or dispute with, theemployees of any of the Company’s or any of the Company’s subsidiaries’ principal suppliers, contractors or customers, except as would not have a MaterialAdverse Effect.(y) Compliance with Environmental Laws. (i) The Company and its subsidiaries (x) are, and at all prior times were, in compliance with any and allapplicable federal, state, local and foreign laws, rules, regulations, requirements, decisions and orders relating to the protection of human health or safety, theenvironment, natural resources, hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”), (y) have receivedand are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws toconduct their respective businesses, and (z) have not received notice of any actual or potential liability under or relating to any Environmental Laws,including for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants at anylocation, and have no knowledge of any circumstance, event or condition that would reasonably be expected to result in any such notice or liability, and(ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and(ii) above, for any such failure to comply, or failure to receive required permits, licenses or approvals, or cost or liability, as would not, individually or in theaggregate, have a Material Adverse Effect; and (iii) except as described in each of the Time of Sale Information and the Offering Memorandum, (x) there areno proceedings that are pending, or that are known to be contemplated, against the Company or any of its subsidiaries under any Environmental Laws inwhich a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 ormore will be imposed, (y) the Company and its subsidiaries are not aware of any issues regarding compliance with Environmental Laws, or liabilities or other 10 obligations under Environmental Laws or concerning hazardous or toxic substances or wastes, pollutants or contaminants, that could reasonably be expectedto have a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries, and (z) none of the Company andits subsidiaries anticipates material capital expenditures outside of the ordinary course of business relating to any Environmental Laws.(z) Compliance with ERISA. (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of acontrolled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have anyliability (each, a “Plan”) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations,including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code,has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption; (iii) no Plan has failed (whether ornot waived), or is reasonably expected to fail, to satisfy the minimum funding standards (within the meaning of Section 302 of ERISA or Section 412 of theCode) applicable to such Plan; (iv) as of January 1, 2010, the fair market value of the assets of the Plans, including contributions receivable, was $6.0 millionless than the present value of all benefits accrued under such Plans (determined based on those assumptions used to fund such Plans; (v) no “reportableevent” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur; and (vi) neither the Company nor any member ofthe Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums tothe PBGC, in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan”, within the meaning of Section 4001(a)(3) ofERISA).(aa) Disclosure Controls. The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule13a-15(e) of the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in reports that it files or submits underthe Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controlsand procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timelydecisions regarding required disclosure. The Company and its subsidiaries have carried out evaluations of the effectiveness of their disclosure controls andprocedures as required by Rule 13a-15 of the Exchange Act. 11 (bb) Accounting Controls. The Company and its subsidiaries maintain systems of “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respectiveprincipal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. TheCompany and its subsidiaries maintain internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed inaccordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements inconformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance withmanagement’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervalsand appropriate action is taken with respect to any differences. Except as disclosed in each of the Time of Sale Information and the Offering Memorandum,the Company is not currently aware of any material weaknesses or significant deficiencies in the Company’s internal controls.(cc) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, whichinsurance is in such amounts and insures against such losses and risks as are customary in the industry in which the Company and its subsidiaries are engagedand are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has(i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order tocontinue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or toobtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business.(dd) No Unlawful Payments. Neither the Company nor any of its subsidiaries nor, to the best knowledge of each of the Issuers, any director, officer,agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for anyunlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to anyforeign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt PracticesAct of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.(ee) Compliance with Money Laundering Laws. The operations of the Company and its subsidiaries are and have been conducted at all times incompliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, asamended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, 12 regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit orproceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respectto the Money Laundering Laws is pending or, to the best knowledge of each of the Issuers, threatened.(ff) Compliance with OFAC. None of the Company, any of its subsidiaries or, to the knowledge of the Issuers, any director, officer, agent, employee oraffiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S.Department of the Treasury (“OFAC”); and the Issuers will not directly or indirectly use the proceeds of the offering of the Securities hereunder, or lend,contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing theactivities of any person currently subject to any U.S. sanctions administered by OFAC.(gg) Solvency. On and immediately after the Closing Date, each of the Issuers (after giving effect to the issuance of the Securities and the othertransactions related thereto as described in each of the Time of Sale Information and the Offering Memorandum) will be Solvent. As used in this paragraph,the term “Solvent” means, with respect to a particular date, that on such date (i) the present fair market value (or present fair saleable value) of the assets of thesuch Issuer is not less than the total amount required to pay the liabilities of such Issuer on its total existing debts and liabilities (including contingentliabilities) as they become absolute and matured; (ii) such Issuer is able to realize upon its assets and pay its debts and other liabilities, contingentobligations and commitments as they mature and become due in the normal course of business; (iii) assuming consummation of the issuance of the Securitiesas contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum, each of the Issuers is not incurring debts or liabilitiesbeyond its ability to pay as such debts and liabilities mature; (iv) such Issuer is not engaged in any business or transaction, and does not propose to engage inany business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in theindustry in which such Issuer is engaged; and (v) such Issuer is not a defendant in any civil action that would result in a judgment that the Issuer is or wouldbecome unable to satisfy.(hh) No Restrictions on Subsidiaries. Except pursuant to the Credit Agreement, no subsidiary of the Company is currently prohibited, directly orindirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any otherdistribution on such subsidiary’s capital stock or similar ownership interest, from repaying to the Company any loans or advances to such subsidiary from theCompany or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company. 13 (ii) No Broker’s Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (otherthan this Agreement) that would give rise to a valid claim against any of them or any Initial Purchaser for a brokerage commission, finder’s fee or likepayment in connection with the offering and sale of the Securities.(jj) Rule 144A Eligibility. On the Closing Date, the Securities will not be of the same class as securities listed on a national securities exchangeregistered under Section 6 of the Exchange Act or quoted in an automated inter-dealer quotation system; and each of the Preliminary Offering Memorandumand the Offering Memorandum, as of its respective date, contains or will contain all the information that, if requested by a prospective purchaser of theSecurities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act.(kk) No Integration. Neither the Company nor any of its affiliates (as defined in Rule 501(b) of Regulation D) has, directly or through any agent, sold,offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act), that is or will be integrated withthe sale of the Securities in a manner that would require registration of the Securities under the Securities Act.(ll) No General Solicitation or Directed Selling Efforts. None of the Company or any of its affiliates or any other person acting on its or their behalf(other than the Initial Purchasers, as to which no representation is made) has (i) solicited offers for, or offered or sold, the Securities by means of any form ofgeneral solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within themeaning of Section 4(2) of the Securities Act or (ii) engaged in any directed selling efforts within the meaning of Regulation S under the Securities Act(“Regulation S”), and all such persons have complied with the offering restrictions requirement of Regulation S.(mm) Securities Law Exemptions. Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 1(b)(including Annex C hereto) and their compliance with their agreements set forth therein, it is not necessary, in connection with the issuance and sale of theSecurities to the Initial Purchasers and the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by this Agreement,the Time of Sale Information and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the TrustIndenture Act. 14 (nn) No Stabilization. Neither of the Issuers has taken, directly or indirectly, any action designed to or that could reasonably be expected to cause orresult in any stabilization or manipulation of the price of the Securities.(oo) Margin Rules. Neither the issuance, sale and delivery of the Securities nor the application of the proceeds thereof by the Issuers as described ineach of the Time of Sale Information and the Offering Memorandum will violate Regulation T, U or X of the Board of Governors of the Federal ReserveSystem or any other regulation of such Board of Governors.(pp) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of theExchange Act) contained in any of the Time of Sale Information or the Offering Memorandum has been made or reaffirmed without a reasonable basis or hasbeen disclosed other than in good faith.(qq) Statistical and Market Data. Nothing has come to the attention of the Issuers that has caused the Issuers to believe that the statistical and market-related data included in each of the Time of Sale Information and the Offering Memorandum is not based on or derived from sources that are reliable andaccurate in all material respects.(rr) Sarbanes-Oxley Act. There is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities assuch, to comply in all material respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connectiontherewith (the “Sarbanes-Oxley Act”), including Section 402 related to loans and Sections 302 and 906 related to certifications.4. Further Agreements of the Issuers. Each of the Issuers jointly and severally covenant and agree with each Initial Purchaser that:(a) Delivery of Copies. The Issuers will deliver, without charge, to the Initial Purchasers as many copies of the Preliminary Offering Memorandum, anyother Time of Sale Information, any Issuer Written Communication and the Offering Memorandum (including all amendments and supplements thereto) asthe Representative may reasonably request.(b) Offering Memorandum, Amendments or Supplements. Before finalizing the Offering Memorandum or making or distributing any amendment orsupplement to any of the Time of Sale Information or the Offering Memorandum or filing with the Commission any document that will be incorporated byreference therein, the Issuers will furnish to the Representative and counsel for the Initial Purchasers a copy of the proposed Offering Memorandum or suchamendment or supplement or document to be incorporated by reference therein for review, and will not distribute any such proposed Offering Memorandum,amendment or supplement or file any such document with the Commission to which the Representative reasonably objects. 15 (c) Additional Written Communications. Before making, preparing, using, authorizing, approving or referring to any Issuer Written Communication,the Issuers will furnish to the Representative and counsel for the Initial Purchasers a copy of such written communication for review and will not make,prepare, use, authorize, approve or refer to any such written communication to which the Representative reasonably objects.(d) Notice to the Representative. The Issuers will advise the Representative promptly, and confirm such advice in writing, (i) of the issuance by anygovernmental or regulatory authority of any order preventing or suspending the use of any of the Time of Sale Information, any Issuer WrittenCommunication or the Offering Memorandum or the initiation or threatening of any proceeding for that purpose; (ii) of the occurrence of any event at anytime prior to the completion of the initial offering of the Securities as a result of which any of the Time of Sale Information, any Issuer WrittenCommunication or the Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact or omit to state amaterial fact necessary in order to make the statements therein, in the light of the circumstances existing when such Time of Sale Information, Issuer WrittenCommunication or the Offering Memorandum is delivered to a purchaser, not misleading; and (iii) of the receipt by any of the Issuers of any notice withrespect to any suspension of the qualification of the Securities for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for suchpurpose; and each of the Issuers will use its reasonable best efforts to prevent the issuance of any such order preventing or suspending the use of any of theTime of Sale Information, any Issuer Written Communication or the Offering Memorandum or suspending any such qualification of the Securities and, if anysuch order is issued, will obtain as soon as possible the withdrawal thereof.(e) Time of Sale Information. If at any time prior to the Closing Date (i) any event shall occur or condition shall exist as a result of which any of theTime of Sale Information as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessaryin order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (ii) it is necessary to amend orsupplement any of the Time of Sale Information to comply with law, the Issuers will immediately notify the Initial Purchasers thereof and forthwith prepareand, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to any of the Time of Sale Information as may benecessary so that the statements in any of the Time of Sale Information as so amended or supplemented will not, in light of the circumstances under whichthey were made, be misleading or so that any of the Time of Sale Information will comply with law. 16 (f) Ongoing Compliance of the Offering Memorandum. If at any time prior to the completion of the initial offering of the Securities (i) any event shalloccur or condition shall exist as a result of which the Offering Memorandum as then amended or supplemented would include any untrue statement of amaterial fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the OfferingMemorandum is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Offering Memorandum to comply with law, theIssuers will immediately notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers suchamendments or supplements to the Offering Memorandum as may be necessary so that the statements in the Offering Memorandum as so amended orsupplemented will not, in the light of the circumstances existing when the Offering Memorandum is delivered to a purchaser, be misleading or so that theOffering Memorandum will comply with law.(g) Blue Sky Compliance. The Issuers will qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as theRepresentative shall reasonably request and will continue such qualifications in effect so long as required for the offering and resale of the Securities;provided that neither of the Issuers shall be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdictionwhere it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself totaxation in any such jurisdiction if it is not otherwise so subject.(h) Clear Market. During the period from the date hereof through and including the date that is 180 days after the date hereof, each of the Issuers willnot, without the prior written consent of the Representative, offer, sell, contract to sell or otherwise dispose of any debt securities issued or guaranteed by anyof the Issuers and having a tenor of more than one year.(i) Use of Proceeds. The Issuers will apply the net proceeds from the sale of the Securities as described in each of the Time of Sale Information and theOffering Memorandum under the heading “Use of proceeds”.(j) Supplying Information. While the Securities remain outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under theSecurities Act, each of the Issuers will, during any period in which the Issuers are not subject to and in compliance with Section 13 or 15(d) of the ExchangeAct, furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon the request of such holders or suchprospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.(k) DTC. The Issuers will assist the Initial Purchasers in arranging for the Securities to be eligible for clearance and settlement through The DepositoryTrust Company (“DTC”). 17 (l) No Resales by the Issuers. The Issuers will not, and will not permit any of their affiliates (as defined in Rule 144 under the Securities Act) to, resellany of the Securities that have been acquired by any of them, except for Securities purchased by the Issuers or any of their affiliates and resold in a transactionregistered under the Securities Act.(m) No Integration. Neither the Issuers nor any of their affiliates (as defined in Rule 501(b) of Regulation D) will, directly or through any agent, sell,offer for sale, solicit offers to buy or otherwise negotiate in respect of, any security (as defined in the Securities Act), that is or will be integrated with the saleof the Securities in a manner that would require registration of the Securities under the Securities Act.(n) No General Solicitation or Directed Selling Efforts. None of the Issuers or any of their affiliates or any other person acting on their behalf (otherthan the Initial Purchasers, as to which no covenant is given) will (i) solicit offers for, or offer or sell, the Securities by means of any form of generalsolicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning ofSection 4(2) of the Securities Act or (ii) engage in any directed selling efforts within the meaning of Regulation S, and all such persons will comply with theoffering restrictions requirement of Regulation S.(o) No Stabilization. Neither of the Issuers will take, directly or indirectly, any action designed to or that could reasonably be expected to cause orresult in any stabilization or manipulation of the price of the Securities.5. Certain Agreements of the Initial Purchasers. Each Initial Purchaser hereby represents and agrees that it has not and will not use, authorize use of,refer to, or participate in the planning for use of, any written communication that constitutes an offer to sell or the solicitation of an offer to buy the Securitiesother than (i) the Preliminary Offering Memorandum and the Offering Memorandum, (ii) a written communication that contains no “issuer information” (asdefined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary OfferingMemorandum or the Offering Memorandum, (iii) any written communication listed on Annex A or prepared pursuant to Section 4(c) above (including anyelectronic road show), (iv) any written communication prepared by such Initial Purchaser and approved by the Company in advance in writing or (v) anywritten communication relating to or that contains the terms of the Securities and/or other information that was included (including through incorporation byreference) in the Preliminary Offering Memorandum or the Offering Memorandum. 18 6. Conditions of Initial Purchasers’ Obligations. The obligation of each Initial Purchaser to purchase Securities on the Closing Date as provided hereinis subject to the performance by each of the Issuers of their respective covenants and other obligations hereunder and to the following additional conditions:(a) Representations and Warranties. The representations and warranties of each of the Issuers contained herein shall be true and correct on the datehereof and on and as of the Closing Date; and the statements of each of the Issuers and their respective officers made in any certificates delivered pursuant tothis Agreement shall be true and correct on and as of the Closing Date.(b) No Downgrade. Subsequent to the earlier of (A) the Time of Sale and (B) the execution and delivery of this Agreement, (i) no downgrading shallhave occurred in the rating accorded the Securities or any other debt securities or preferred stock issued or guaranteed by the Company or any of itssubsidiaries by any “nationally recognized statistical rating organization”, as such term is defined by the Commission for purposes of Rule 436(g)(2) underthe Securities Act; and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook withrespect to, its rating of the Securities or of any other debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries (otherthan an announcement with positive implications of a possible upgrading).(c) No Material Adverse Change. No event or condition of a type described in Section 3(d) hereof shall have occurred or shall exist, which event orcondition is not described in each of the Time of Sale Information (excluding any amendment or supplement thereto) and the Offering Memorandum(excluding any amendment or supplement thereto) the effect of which in the judgment of the Representative makes it impracticable or inadvisable to proceedwith the offering, sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement, the Time of Sale Information and theOffering Memorandum.(d) Officer’s Certificate. The Representative shall have received on and as of the Closing Date a certificate of an executive officer of each of the Issuerswho has specific knowledge of such Issuer’s financial matters and is satisfactory to the Representative (i) confirming that such officer has carefully reviewedthe Time of Sale Information and the Offering Memorandum and, to the best knowledge of such officer, the representations set forth in Sections 3(a) and 3(b)hereof are true and correct, (ii) confirming that the other representations and warranties of each of the Issuers in this Agreement are true and correct and thatthe Issuers have complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Dateand (iii) to the effect set forth in paragraphs (b) and (c) above.(e) Comfort Letters. On the date of this Agreement and on the Closing Date, KPMG LLP shall have furnished to the Representative, at the request of theIssuers, letters, dated the respective dates of delivery thereof and addressed to the Initial Purchasers, in form and substance reasonably satisfactory to theRepresentative, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to thefinancial statements and certainfinancial information contained in each of the Time of Sale Information and the Offering Memorandum; provided that the letter delivered on the ClosingDate shall use a “cut-off” date no more than three business days prior to the Closing Date. 19 (f) Opinion and 10b-5 Statement of Counsel for the Issuers. Phillips Nizer LLP, counsel for the Issuers, shall have furnished to the Representative, atthe request of the Issuers, their written opinion and 10b-5 statement, dated the Closing Date and addressed to the Initial Purchasers, in form and substancereasonably satisfactory to the Representative, to the effect set forth in Annex D hereto.(g) Opinion and 10b-5 Statement of Counsel for the Initial Purchasers. The Representative shall have received on and as of the Closing Date anopinion and 10b-5 statement of Simpson Thacher & Bartlett LLP, counsel for the Initial Purchasers, with respect to such matters as the Representative mayreasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon suchmatters.(h) No Legal Impediment to Issuance. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted orissued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date, prevent the issuance or sale of the Securities;and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date, prevent the issuance or sale of theSecurities.(i) Good Standing. The Representative shall have received on and as of the Closing Date satisfactory evidence of the good standing of each of theIssuers and their subsidiaries in their respective jurisdictions of organization and their good standing in such other jurisdictions as the Representative mayreasonably request, in each case in writing or any standard form of telecommunication, from the appropriate governmental authorities of such jurisdictions.(j) Registration Rights Agreement. The Initial Purchasers shall have received a counterpart of the Registration Rights Agreement that shall have beenexecuted and delivered by a duly authorized officer of each of the Issuers.(k) No Event of Default. At the Closing Date, after giving effect to the consummation of the transaction by the Transaction Documents, there shall existno default or event of default under the Credit Agreement.(l) DTC. The Securities shall be eligible for clearance and settlement through DTC.(m) Amendment to the Credit Agreement. On or prior to the Closing Date, the Issuers shall have furnished to the Representative a copy of the dulyexecuted amendment to the Credit Agreement as to the matters described under “Description of other indebtedness” in the Time of Sale Information and theOffering Memorandum. 20 (n) Additional Documents. On or prior to the Closing Date, the Issuers shall have furnished to the Representative such further certificates anddocuments as the Representative may reasonably request.(o) Redemption Notice. On or prior to the Closing Date, the Company shall have issued to the trustee under its 10.25% senior notes due 2013 (the“Existing Notes”) or caused to be issued a redemption notice with respect to its Existing Notes in accordance with the indenture governing the ExistingNotes, as contemplated by the Offering Memorandum.All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with theprovisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers.7. Indemnification and Contribution.(a) Indemnification of the Initial Purchasers. The Issuers jointly and severally agree to indemnify and hold harmless each Initial Purchaser, itsaffiliates, directors and officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act orSection 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and otherexpenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that ariseout of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum, any of theother Time of Sale Information, any Issuer Written Communication or the Offering Memorandum (or any amendment or supplement thereto) or any omissionor alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they weremade, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement oromission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser furnished tothe Issuers in writing by such Initial Purchaser through the Representative expressly for use therein.(b) Indemnification of the Issuers. Each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless each of the Issuers, each oftheir respective directors and officers, and each person, if any, who controls any of the Issuers within the meaning of Section 15 of the Securities Act orSection 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but 21 only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untruestatement or omission made in reliance upon and in conformity with any information relating to such Initial Purchaser furnished to the Issuers in writing bysuch Initial Purchaser through the Representative expressly for use in the Preliminary Offering Memorandum, any of the other Time of Sale Information, anyIssuer Written Communication or the Offering Memorandum (or any amendment or supplement thereto), it being understood and agreed that the only suchinformation consists of the following: (i) the third paragraph, (ii) the fourth sentence in the tenth paragraph and (iii) the twelfth paragraph under the heading“Plan of distribution”.(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be broughtor asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “IndemnifiedPerson”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that thefailure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that ithas been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify theIndemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If anysuch proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the IndemnifyingPerson shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to theIndemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to paragraph (a) or (b) above that theIndemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expenses of suchcounsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the feesand expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall havemutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the IndemnifiedPerson; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition tothose available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both theIndemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potentialdiffering interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedingin the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, andthat all such fees and expenses shall be 22 reimbursed as they are incurred. Any such separate firm for any Initial Purchaser, its affiliates, directors and officers and any control persons of such InitialPurchaser shall be designated in writing by J.P. Morgan Securities LLC and any such separate firm for the Issuers, their respective directors and officers, andany control persons of the Issuers shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of anyproceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Personagrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoingsentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses ofcounsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consentif (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall nothave reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without thewritten consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is orcould have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes anunconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims thatare the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalfof any Indemnified Person.(d) Contribution. If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respectof any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying suchIndemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages orliabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers on the one hand and the Initial Purchasers on the otherfrom the offering of the Securities or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate toreflect not only the relative benefits referred to in clause (i) but also the relative fault of the Issuers on the one hand and the Initial Purchasers on the other inconnection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.The relative benefits received by the Issuers on the one hand and the Initial Purchasers on the other shall be deemed to be in the same respective proportionsas the net proceeds (before deducting expenses) received by the Issuers from the sale of the Securities and the total discounts and commissions received bythe Initial Purchasers in connection therewith, as provided in this Agreement, bear to the aggregate offering price of the Securities. The relative fault of 23 the Issuers on the one hand and the Initial Purchasers on the other shall be determined by reference to, among other things, whether the untrue or allegeduntrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by Issuers or by the InitialPurchasers and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.(e) Limitation on Liability. The Issuers and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 7were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation thatdoes not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result ofthe losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal orother expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 7, in noevent shall an Initial Purchaser be required to contribute any amount in excess of the amount by which the total discounts and commissions received by suchInitial Purchaser with respect to the offering of the Securities exceeds the amount of any damages that such Initial Purchaser has otherwise been required topay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within themeaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. TheInitial Purchasers’ obligations to contribute pursuant to this Section 7 are several in proportion to their respective purchase obligations hereunder and notjoint.(f) Non-Exclusive Remedies. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies that may otherwisebe available to any Indemnified Person at law or in equity.8. Termination. This Agreement may be terminated in the absolute discretion of the Representative, by notice to the Company, if after the executionand delivery of this Agreement and on or prior to the Closing Date (i) trading generally shall have been suspended or materially limited on the New YorkStock Exchange or the over-the-counter market; (ii) trading of any securities issued or guaranteed by any of the Issuers shall have been suspended on anyexchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New YorkState authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, eitherwithin or outside the United States, that, in the judgment of the Representative, is material and adverse and makes it impracticable or inadvisable to proceedwith the offering, sale or delivery, of the Securities on the terms and in the manner contemplated by this Agreement, the Time of Sale Information and theOffering Memorandum. 24 9. Defaulting Initial Purchaser. (a) If, on the Closing Date, any Initial Purchaser defaults on its obligation to purchase the Securities that it has agreed topurchase hereunder, the non-defaulting Initial Purchasers may in their discretion arrange for the purchase of such Securities by other persons satisfactory tothe Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Initial Purchaser, the non-defaulting InitialPurchasers do not arrange for the purchase of such Securities, then the Issuers shall be entitled to a further period of 36 hours within which to procure otherpersons satisfactory to the non-defaulting Initial Purchasers to purchase such Securities on such terms. If other persons become obligated or agree to purchasethe Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Issuers may postpone the Closing Date for up to five fullbusiness days in order to effect any changes that in the opinion of counsel for the Issuers or counsel for the Initial Purchasers may be necessary in the Time ofSale Information, the Offering Memorandum or in any other document or arrangement, and the Issuers agree to promptly prepare any amendment orsupplement to the Time of Sale Information or the Offering Memorandum that effects any such changes. As used in this Agreement, the term “InitialPurchaser” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to thisSection 9, purchases Securities that a defaulting Initial Purchaser agreed but failed to purchase.(b) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Issuers as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchaseddoes not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Issuers shall have the right to require each non-defaultingInitial Purchaser to purchase the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder plus such Initial Purchaser’s pro ratashare (based on the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder) of the Securities of such defaulting InitialPurchaser or Initial Purchasers for which such arrangements have not been made.(c) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Issuers as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchasedexceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Issuers shall not exercise the right described in paragraph (b) above,then this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers. Any termination of this Agreement pursuant to thisSection 9 shall be without liability on the part of the Issuers, except that each of the Issuers will continue to be liable for the payment of expenses as set forthin Section 10 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect. 25 (d) Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Issuers or any non-defaulting InitialPurchaser for damages caused by its default.10. Payment of Expenses. (a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, theIssuers jointly and severally agree to pay or cause to be paid all costs and expenses incident to the performance of their respective obligations hereunder,including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in thatconnection; (ii) the costs incident to the preparation and printing of the Preliminary Offering Memorandum, any other Time of Sale Information, any IssuerWritten Communication and the Offering Memorandum (including any amendment or supplement thereto) and the distribution thereof; (iii) the costs ofreproducing and distributing each of the Transaction Documents; (iv) the fees and expenses of the Issuers’ counsel and independent accountants; (v) the feesand expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws ofsuch jurisdictions as the Representative may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related feesand expenses of counsel for the Initial Purchasers); (vi) any fees charged by rating agencies for rating the Securities; (vii) the fees and expenses of the Trusteeand any paying agent (including related fees and expenses of any counsel to such parties); (viii) all expenses and application fees incurred in connectionwith the approval of the Securities for book-entry transfer by DTC; and (ix) all expenses incurred by the Company in connection with any “road show”presentation to potential investors.(b) If (i) this Agreement is terminated pursuant to Section 8, (ii) the Issuers for any reason fail to tender the Securities for delivery to the InitialPurchasers or (iii) the Initial Purchasers decline to purchase the Securities for any reason permitted under this Agreement, each of the Issuers jointly andseverally agrees to reimburse the Initial Purchasers for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonablyincurred by the Initial Purchasers in connection with this Agreement and the offering contemplated hereby.11. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respectivesuccessors and any controlling persons referred to herein, and the affiliates, officers and directors of each Initial Purchaser referred to in Section 7 hereof.Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of thisAgreement or any provision contained herein. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor merely by reason ofsuch purchase. 26 12. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Issuers and the Initial Purchaserscontained in this Agreement or made by or on behalf of the Issuers or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuanthereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination of this Agreement orany investigation made by or on behalf of the Issuers or the Initial Purchasers.13. Certain Defined Terms. For purposes of this Agreement, (a) except where otherwise expressly provided, the term “affiliate” has the meaning set forthin Rule 405 under the Securities Act; (b) the term “business day” means any day other than a day on which banks are permitted or required to be closed inNew York City; (c) the term “Exchange Act” means the Securities Exchange Act of 1934, as amended; (d) the term “subsidiary” has the meaning set forth inRule 405 under the Securities Act; and (e) the term “written communication” has the meaning set forth in Rule 405 under the Securities Act.14. Miscellaneous. (a) Authority of the Representative. Any action by the Initial Purchasers hereunder may be taken by J.P. Morgan Securities LLC onbehalf of the Initial Purchasers, and any such action taken by J.P. Morgan Securities LLC shall be binding upon the Initial Purchasers.(b) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmittedand confirmed by any standard form of telecommunication. Notices to the Initial Purchasers shall be given to the Representative c/o J.P. Morgan SecuritiesLLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 270-1063); Attention: Jay Droogan. Notices to the Issuers shall be given to them at StarGas Partners, L.P., 2187 Atlantic Street, Stamford, Connecticut 06902, (fax: (203) 325-7470); Attention: Richard F. Ambury.(c) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by andconstrued in accordance with the laws of the State of New York.(d) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form oftelecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.(e) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shallin any event be effective unless the same shall be in writing and signed by the parties hereto. 27 (f) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning orinterpretation of, this Agreement. 28 If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below. Very truly yours,STAR GAS PARTNERS, L.P.By: KESTREL HEAT LLC, as General PartnerBy /s/ Richard F. Ambury Title: CFOSTAR GAS FINANCE COMPANYBy /s/ Richard F. Ambury Title: CFO[Signature Page to Purchase Agreement] Accepted: November 10, 2010J.P. MORGAN SECURITIES LLCFor itself and on behalf of theseveral Initial Purchasers listedin Schedule 1 hereto.By /s/ Cornelius J. Droogan Authorized Signatory CORNELIUS J. DROOGANManaging Director[Signature Page to Purchase Agreement] Schedule 1 Initial Purchasers Principal Amount J.P. Morgan Securities LLC $111,112,500 RBS Securities Inc. $13,887,500 Total $125,000,000 Schedule 2SubsidiariesA.P. Woodson CompanyColumbia Petroleum Transportation, LLCMarex CorporationMeenan Holdings of New York, Inc.Meenan Oil Co., Inc.Meenan Oil Co., L.P.Minnwhale, LLCOrtep of Pennsylvania, Inc.Petro Holdings, Inc.Petro Plumbing CorporationPetro, Inc.Petroleum Heat and Power Co., Inc.RegionOil Plumbing, Heating and Cooling Co., Inc.Richland Partners, LLCStar Gas Finance CompanyStar Acquisitions, Inc.TG&E Service Company, Inc.Champion Energy CorporationChampion Oil CompanyJ.J. Skelton Oil CompanyRye Fuel CompanyLewis Oil Company, Inc.C. Hoffberger CompanyHoffman Fuel Company of BridgeportHoffman Fuel Company of StamfordHoffman Fuel Company of Danbury ANNEX Aa. Additional Time of Sale Information1. list each document provided as an amendment or supplement to the Preliminary Offering Memorandum2. Term sheet containing the terms of the securities, substantially in the form of Annex B. ANNEX BPricing Supplement, dated November 10, 2010to Preliminary Offering Memorandum Dated November 9, 2010Strictly confidentialStar Gas Partners, L.P.Star Gas Finance Company$125,000,000 8.875% Senior Notes due 2017This Pricing Supplement is qualified in its entirety by reference to the Preliminary Offering Memorandum (as supplemented through and including the datehereof, the “Preliminary Offering Memorandum”). The information in this Pricing Supplement supplements the Preliminary Offering Memorandum andupdates and supersedes the information in the Preliminary Offering Memorandum to the extent it is inconsistent with the information in the PreliminaryOffering Memorandum. Terms used and not defined herein have the meanings assigned in the Preliminary Offering Memorandum.The notes have not been registered under the Securities Act of 1933, as amended, or the securities laws of any other place. The notes may not be offered orsold in the United States or to U.S. persons (as defined in Regulation S) except in transactions exempt from, or not subject to, the registration requirements ofthe Securities Act. Accordingly, the notes are being offered only to (1) “qualified institutional buyers” as defined in Rule 144A under the Securities Act and(2) outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act. Issuers: Star Gas Partners, L.P. and Star Gas Finance CompanySecurity description: 8.875% Senior Notes due 2017Distribution: 144A/Regulation S with registration rights as set forth in the Preliminary Offering MemorandumSize: $125,000,000Gross proceeds: $124,187,500Maturity: December 1, 2017Coupon: 8.875%Price: 99.350% of face amountYield to maturity: 9.000%Spread to Benchmark Treasury: +719 basis pointsBenchmark Treasury: UST 4.25% due 11/15/2017Interest Payment Dates: December 1 and June 1, commencing June 1, 2011Equity Clawback: Up to 35% at 108.875% plus accrued and unpaid interest until December 1, 2013Make-whole redemption Make-whole call @ T+50 basis points prior to December 1, 2014Optional redemption: On and after December 1, 2014, at the prices set forth below(expressed as a percentage of the principal amount), plus accruedand unpaid interest, if redeemed during the twelve-month periodbeginning on December 1 of the years indicated below: On or after: Price: 2014 104.438% 2015 102.219% 2016 and thereafter 100.000%Change of control: Puttable at 101% of principal plus accrued interest Trade date: November 10, 2010 Settlement: T+ 3; November 16, 2010CUSIP: 144A: 85512QAF1 Regulation S: U85527AC0ISIN: 144A: US85512QAF19 Regulation S: USU85527AC04Denominations/Multiple: $2,000/$1,000 Ratings: B2 (Moody’s)/B- (S&P)Book-Running Manager: J.P. Morgan Co-Manager: RBS Changes from Preliminary Offering MemorandumDescription of notes—Certain definitions—“Asset Sale”Clause (2) of the second paragraph of the definition of “Asset Sale” is hereby deleted and restated in its entirety as follows:(2) any sale or transfer of assets or Capital Stock by the Company or any of its Restricted Subsidiaries to any entity in exchange for other assets used ina related business and/or cash (provided that such cash portion must be applied in accordance with the provisions of the Asset Sales covenant) and having afair market value, as determined in good faith by the Board of Directors, reasonably equivalent to the fair market value of the assets so transferred; Other information presented in the Preliminary Offering Memorandum is deemed to have changed to the extent affected by the changes describedherein.This material is confidential and is for your information only and is not intended to be used by anyone other than you. This information does notpurport to be a complete description of these securities or the offering. Please refer to the offering memorandum for a complete description.This communication is being distributed in the United States solely to Qualified Institutional Buyers, as defined in Rule 144A under the Securities Act of1933, and outside the United States solely to non-U.S. persons as defined under Regulation S.This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction to any person to whom it isunlawful to make such offer or solicitation in such jurisdiction. ANNEX CRestrictions on Offers and Sales Outside the United StatesIn connection with offers and sales of Securities outside the United States:(a) Each Initial Purchaser acknowledges that the Securities have not been registered under the Securities Act and may not be offered or sold within theUnited States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registrationrequirements of the Securities Act.(b) Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that:(i) Such Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and(B) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance withRegulation S under the Securities Act (“Regulation S”) or Rule 144A or any other available exemption from registration under the Securities Act.(ii) None of such Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in anydirected selling efforts with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement ofRegulation S.(iii) At or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, such Initial Purchaser will have sent to eachdistributor, dealer or other person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distributioncompliance period a confirmation or notice to substantially the following effect:“The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and may not beoffered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or(ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities,except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms usedabove have the meanings given to them by Regulation S.”(iv) Such Initial Purchaser has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of theSecurities, except with its affiliates or with the prior written consent of the Company. Terms used in paragraph (a) and this paragraph (b) and not otherwise defined in this Agreement have the meanings given to them by Regulation S.(c) Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that:(i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation orinducement to engage in investment activity (within the meaning of Section 21 of the United Kingdom Financial Services and Markets Act 2000 (the“FSMA”)) received by it in connection with the issue or sale of any Securities in circumstances in which Section 21(1) of the FSMA does not apply tothe Issuers; and(ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securitiesin, from or otherwise involving the United Kingdom.(d) Each Initial Purchaser acknowledges that no action has been or will be taken by the Issuers that would permit a public offering of the Securities, orpossession or distribution of any of the Time of Sale Information, the Offering Memorandum, any Issuer Written Communication or any other offering orpublicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required. ANNEX D[Form of Opinion of Counsel for the Issuers](a) Each of the Issuers and each of their respective subsidiaries have been duly organized and are validly existing and in good standing under the lawsof their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respectiveownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own orhold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or have such power orauthority would not, individually or in the aggregate, have a Material Adverse Effect.(b) The Company has an authorized capitalization as set forth in each of the Time of Sale Information and the Offering Memorandum under theheading “Capitalization”; and all the outstanding shares of capital stock or other equity interests of each subsidiary of the Company have been duly andvalidly authorized and issued, are fully paid and non-assessable.(c) Each of the Issuers has full right, power and authority to execute and deliver each of the Transaction Documents to which each is a party and toperform their respective obligations thereunder; and all action required to be taken for the due and proper authorization, execution and delivery of each ofthe Transaction Documents and the consummation of the transactions contemplated thereby has been duly and validly taken.(d) The Indenture has been duly authorized, executed and delivered by each of the Issuers and, assuming due execution and delivery thereof by theTrustee, constitutes a valid and legally binding agreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, subject tothe Enforceability Exceptions; and the Indenture conforms in all material respects with the requirements of the Trust Indenture Act and the rules andregulations of the Commission applicable to an indenture that is qualified thereunder.(e) The Securities have been duly authorized, executed and delivered by each of the Issuers and, when duly authenticated as provided in the Indentureand paid for as provided in this Agreement, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of eachof the Issuers enforceable against each of the Issuers in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to thebenefits of the Indenture.(f) The Exchange Securities have been duly authorized by each of the Issuers and, when duly executed, authenticated, issued and delivered ascontemplated by the Registration Rights Agreement, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of each of the Issuers, enforceable against each of the Issuers in accordance with their terms, subject to theEnforceability Exceptions, and will be entitled to the benefits of the Indenture.(g) This Agreement has been duly authorized, executed and delivered by each of the Issuers; and the Registration Rights Agreement has been dulyauthorized, executed and delivered by each of the Issuers and, when duly executed and delivered by the other parties thereto, will constitute a valid andlegally binding agreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, subject to the Enforceability Exceptions,and except that rights to indemnity and contribution thereunder may be limited by applicable law and public policy.(h) Each Transaction Document conforms in all material respects to the description thereof contained in each of the Time of Sale Information and theOffering Memorandum.(i) The execution, delivery and performance by each of the Issuers of each of the Transaction Documents to which each is a party, the issuance and saleof the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated by the TransactionDocuments will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creationor imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any indenture, mortgage,deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any ofits subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of theprovisions of the charter or by-laws or similar organizational documents of the Company or any of its subsidiaries or (iii) result in the violation of any law orstatute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority, except, in the case of clauses (i) and(iii) above, for any such conflict, breach, violation, default, lien, charge or encumbrance that would not, individually or in the aggregate, have a MaterialAdverse Effect.(j) No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority isrequired for the execution, delivery and performance by each of the Issuers of each of the Transaction Documents to which each is a party, the issuance andsale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated by the TransactionDocuments, except for such consents, approvals, authorizations, orders and registrations or qualifications as may be required (i) under applicable statesecurities laws in connection with the purchase and resale of the Securities by the Initial Purchasers and (ii) with respect to the Exchange Securities under theSecurities Act and applicable state securities laws as contemplated by the Registration Rights Agreement. (k) To the best knowledge of such counsel, except as described in each of the Time of Sale Information and the Offering Memorandum, there are nolegal, governmental or regulatory investigations, actions, suits or proceedings pending to which the Company or any of its subsidiaries is or may be a party orto which any property of the Company or any of its subsidiaries is or may be the subject that, individually or in the aggregate, if determined adversely to theCompany or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; and no such investigations, actions, suits or proceedingsare threatened or, to the best knowledge of such counsel, contemplated by any governmental or regulatory authority or threatened by others.(l) The descriptions in each of the Time of Sale Information and the Offering Memorandum of statutes, legal, governmental and regulatory proceedingsand contracts and other documents are accurate in all material respects; and the statements in each of the Time of Sale Information and the OfferingMemorandum under the heading “Certain United States federal income tax considerations”, to the extent that they constitute summaries of matters of law orregulation or legal conclusions, fairly summarize the matters described therein in all material respects.(m) The statements made in each of the Time of Sale Information and the Offering Memorandum under the heading “Description of notes,” insofar asthey purport to constitute summaries of certain terms of documents referred to therein, constitute accurate summaries of the terms of such documents in allmaterial respects.(n) Neither of the Issuers nor any of their subsidiaries is, and after giving effect to the offering and sale of the Securities and the application of theproceeds thereof as described in each of the Time of Sale Information and the Offering Memorandum none of them will be, an “investment company” or anentity “controlled” by an “investment company” within the meaning of the Investment Company Act.(o) Neither the issuance, sale and delivery of the Securities nor the application of the proceeds thereof by the Issuers as described in each of the Time ofSale Information and the Offering Memorandum will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any otherregulation of such Board of Governors.(p) Assuming the accuracy of the representations, warranties and agreements of the Issuers and the Initial Purchasers contained in this Agreement, it isnot necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the offer, resale and delivery of the Securities by theInitial Purchasers in the manner contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum, to register the Securities underthe Securities Act or to qualify the Indenture under the Trust Indenture Act.Such counsel shall also state that they have participated in conferences with representatives of the Issuers and with representatives of its independentaccountants and counsel at which conferences the contents of the Time of Sale Information and the Offering Memorandum and any amendment andsupplement thereto and related matters were discussed and, although such counsel assume no responsibility for the accuracy, completeness or fairness of theTime of Sale Information and the Offering Memorandum and any amendment or supplement thereto (except as expressly provided above), nothing has come to the attention of such counsel to cause such counsel tobelieve that the Time of Sale Information, at the Time of Sale (which such counsel may assume to be the date of this Agreement), contained any untruestatement of a material fact or omitted to state a material fact or necessary to make the statements therein, in the light of the circumstances under which theywere made, not misleading, or that the Offering Memorandum or any amendment or supplement thereto, as of its date and the Closing Date, contained orcontains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of thecircumstances under which they were made, not misleading (other than, in each case, the financial statements and other financial information containedtherein, as to which such counsel need express no belief).In rendering such opinion, such counsel may rely as to matters of fact on certificates of responsible officers of the Issuers and public officials that arefurnished to the Initial Purchasers.The opinion of Phillips Nizer LLP described above shall be rendered to the Initial Purchasers at the request of the Company and shall so state therein. Exhibit A[Form of Registration Rights Agreement] FORM OFREGISTRATION RIGHTS AGREEMENTThis REGISTRATION RIGHTS AGREEMENT dated November 16, 2010 (this “Agreement”) is entered into by and among Star Gas Partners, L.P., aDelaware limited partnership (the “Company”), Star Gas Finance Company, a Delaware corporation (together with the Company, the “Issuers”), and J.P.Morgan Securities LLC (“J.P. Morgan”), as representative of the initial purchasers named on Schedule 1 hereto (collectively, the “Initial Purchasers”).The Issuers and the Initial Purchasers are parties to the Purchase Agreement dated November 10, 2010 (the “Purchase Agreement”), which provides forthe sale by the Issuers to the Initial Purchasers of $125,000,000 aggregate principal amount of the Issuers’ 8.875% Senior Notes due 2017 (the “Securities”).As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide to the Initial Purchasers and their directand indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing underthe Purchase Agreement.In consideration of the foregoing, the parties hereto agree as follows:1. Definitions. As used in this Agreement, the following terms shall have the following meanings:“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized orrequired by law to remain closed.“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.“Exchange Dates” shall have the meaning set forth in Section 2(a)(ii) hereof.“Exchange Offer” shall mean the exchange offer by the Issuers of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.“Exchange Offer Registration” shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof.“Exchange Offer Registration Statement” shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriateform) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein or deemed a part thereof,all exhibits thereto and any document incorporated by reference therein. “Exchange Securities” shall mean senior notes issued by the Issuers under the Indenture containing terms identical to the Securities (except that theExchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with this Agreement) and tobe offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer.“FINRA” means the Financial Industry Regulatory Authority, Inc.“Free Writing Prospectus” means each free writing prospectus (as defined in Rule 405 under the Securities Act) prepared by or on behalf of the Issuersor used or referred to by the Issuers in connection with the sale of the Securities or the Exchange Securities.“Holders” shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their successors, assigns and direct andindirect transferees who become owners of Registrable Securities under the Indenture; provided that, for purposes of Section 4 and Section 5 hereof, the term“Holders” shall include Participating Broker-Dealers.“Indemnified Person” shall have the meaning set forth in Section 5(c) hereof.“Indemnifying Person” shall have the meaning set forth in Section 5(c) hereof.“Indenture” shall mean the Indenture relating to the Securities dated as of November 16, 2010 among the Issuers and Union Bank, N.A., as trustee, andas the same may be amended from time to time in accordance with the terms thereof.“Initial Purchasers” shall have the meaning set forth in the preamble.“Inspector” shall have the meaning set forth in Section 3(a)(xiv) hereof.“Issuer Information” shall have the meaning set forth in Section 5(a) hereof.“Issuers” shall have the meaning set forth in the preamble and shall also include the Issuers’ successors.“J.P. Morgan” shall have the meaning set forth in the preamble.“Majority Holders” shall mean the Holders of a majority of the aggregate principal amount of the outstanding Registrable Securities; provided thatwhenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owneddirectly or indirectly by the Issuers or any of its affiliates shall not be counted in 2 determining whether such consent or approval was given by the Holders of such required percentage or amount; and provided, further, that if the Companyshall issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any ShelfRegistration Statement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class forpurposes of determining whether the consent or approval of Holders of a specified percentage of Registrable Securities has been obtained.“Notice and Questionnaire” shall mean a notice of registration statement and selling security holder questionnaire distributed to a Holder by the Issuersupon receipt of a Shelf Request from such Holder.“Participating Broker-Dealers” shall have the meaning set forth in Section 4(a) hereof.“Participating Holder” shall mean any Holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to theIssuers in accordance with Section 2(b) hereof.“Person” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government oragency or political subdivision thereof.“Prospectus” shall mean the prospectus included in, or, pursuant to the rules and regulations of the Securities Act, deemed a part of, a RegistrationStatement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including aprospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and byall other amendments and supplements to such prospectus, and in each case including any document incorporated by reference therein.“Purchase Agreement” shall have the meaning set forth in the preamble.“Registrable Securities” shall mean the Securities; provided that the Securities shall cease to be Registrable Securities (i) when a RegistrationStatement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant tosuch Registration Statement, (ii) when such Securities are sold pursuant to Rule 144 under the Securities Act (or any similar provision then in force, but notRule 144A), if following such resale such Securities do not bear any restrictive legend relating to the Securities Act and do not bear a restricted CUSIPnumber, (iii) when such Securities cease to be outstanding or (iv) except in the case of Securities that otherwise remain Registrable Securities and that areheld by an Initial Purchaser and that are ineligible to be exchanged in the Exchange Offer, when the Exchange Offer is consummated. 3 “Registration Default” shall mean the occurrence of any of the following: (i) the Exchange Offer is not completed on or prior to the Target RegistrationDate, (ii) the Shelf Registration Statement, if required pursuant to Section 2(b)(i) or Section 2(b)(ii) hereof, has not become effective on or prior to the TargetRegistration Date, (iii) if the Issuers receive a Shelf Request pursuant to Section 2(b)(iii), the Shelf Registration Statement required to be filed thereby has notbecome effective by the later of (a) the Target Registration Date and (b) 90 days after delivery of such Shelf Request, (iv) the Shelf Registration Statement, ifrequired by this Agreement, has become effective and thereafter ceases to be effective or the Prospectus contained therein ceases to be usable, in each casewhether or not permitted by this Agreement, at any time during the Shelf Effectiveness Period, and such failure to remain effective or usable exists for morethan 30 days (whether or not consecutive) in any 12-month period or (v) the Shelf Registration Statement, if required by this Agreement, has become effectiveand thereafter, on more than two occasions in any 12-month period during the Shelf Effectiveness Period, the Shelf Registration Statement ceases to beeffective or the Prospectus contained therein ceases to be usable, in each case whether or not permitted by this Agreement.“Registration Expenses” shall mean any and all expenses incident to performance of or compliance by the Issuers with this Agreement, includingwithout limitation: (i) all SEC, stock exchange or FINRA registration and filing fees, (ii) all fees and expenses incurred in connection with compliance withstate securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue skyqualification of any Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing,printing and distributing any Registration Statement, any Prospectus, any Free Writing Prospectus and any amendments or supplements thereto, anyunderwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliancewith this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws,(vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Issuers and, in the case of a Shelf RegistrationStatement, the fees and disbursements of one counsel for the Participating Holders (which counsel shall be selected by the Participating Holders holding amajority of the aggregate principal amount of Registrable Securities held by such Participating Holders and which counsel may also be counsel for the InitialPurchasers) and (viii) the fees and disbursements of the independent registered public accountants of the Issuers, including the expenses of any special auditsor “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to theUnderwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions, brokerage commissionsand transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. 4 “Registration Statement” shall mean any registration statement of the Issuers that covers any of the Exchange Securities or Registrable Securitiespursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments,in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and any document incorporated by reference therein.“SEC” shall mean the United States Securities and Exchange Commission.“Securities” shall have the meaning set forth in the preamble.“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.“Shelf Effectiveness Period” shall have the meaning set forth in Section 2(b) hereof.“Shelf Registration” shall mean a registration effected pursuant to Section 2(b) hereof.“Shelf Registration Statement” shall mean a “shelf” registration statement of the Issuers that covers all or a portion of the Registrable Securities (but noother securities unless approved by a majority in aggregate principal amount of the Securities held by the Participating Holders) on an appropriate form underRule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement,including post-effective amendments, in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and anydocument incorporated by reference therein.“Shelf Request” shall have the meaning set forth in Section 2(b) hereof.“Staff” shall mean the staff of the SEC.“Target Registration Date” shall mean June 14, 2011.“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended from time to time.“Trustee” shall mean the trustee with respect to the Securities under the Indenture.“Underwriter” shall have the meaning set forth in Section 3(e) hereof.“Underwritten Offering” shall mean an offering in which Registrable Securities are sold to an Underwriter for reoffering to the public. 5 2. Registration Under the Securities Act. (a) To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Issuersshall use their reasonable best efforts to (x) cause to be filed an Exchange Offer Registration Statement covering an offer to the Holders to exchange all theRegistrable Securities for Exchange Securities and (y) have such Registration Statement become and remain effective until 180 days after the last ExchangeDate for use by one or more Participating Broker-Dealers. The Issuers shall commence the Exchange Offer promptly after the Exchange Offer RegistrationStatement is declared effective by the SEC and use their reasonable best efforts to complete the Exchange Offer not later than 60 days after such effectivedate.The Issuers shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanyingdocuments to each Holder stating, in addition to such other disclosures as are required by applicable law, substantially the following: (i)that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered and not properly withdrawn willbe accepted for exchange; (ii)the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the “Exchange Dates”); (iii)that any Registrable Security not tendered will remain outstanding and continue to accrue interest but will not retain any rights under this Agreement,except as otherwise specified herein; (iv)that any Holder electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to (A) surrender such RegistrableSecurity, together with the appropriate letters of transmittal, to the institution and at the address and in the manner specified in the notice, or (B) effectsuch exchange otherwise in compliance with the applicable procedures of the depositary for such Registrable Security, in each case prior to the close ofbusiness on the last Exchange Date; and (v)that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, by (A) sending to the institutionand at the address specified in the notice, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount ofRegistrable Securities delivered for exchange and a statement that such Holder is withdrawing its election to have such Securities exchanged or(B) effecting such withdrawal in compliance with the applicable procedures of the depositary for the Registrable Securities. 6 As a condition to participating in the Exchange Offer, a Holder will be required to represent to Issuers that (1) any Exchange Securities to be receivedby it will be acquired in the ordinary course of its business, (2) at the time of the commencement of the Exchange Offer it has no arrangement orunderstanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of theprovisions of the Securities Act, (3) it is not an “affiliate” (within the meaning of Rule 405 under the Securities Act) of the Issuers and (4) if such Holder is abroker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-makingor other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) inconnection with any resale of such Exchange Securities.As soon as practicable after the last Exchange Date, the Issuers shall: (I)accept for exchange Registrable Securities or portions thereof validly tendered and not properly withdrawn pursuant to the Exchange Offer; and (II)deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Issuersand issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principalamount of the Registrable Securities tendered by such Holder.The Issuers shall use their reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirementsof the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not besubject to any conditions, other than that the Exchange Offer does not violate any applicable law or applicable interpretations of the Staff.(b) In the event that (i) the Issuers determine that the Exchange Offer Registration provided for in Section 2(a) hereof is not available or the ExchangeOffer may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations ofthe Staff, (ii) the Exchange Offer is not for any other reason completed by the Target Registration Date or (iii) upon receipt of a written request (a “ShelfRequest”) from any Initial Purchaser representing that it holds Registrable Securities that are or were ineligible to be exchanged in the Exchange Offer, theIssuers shall use their reasonable best efforts to cause to be filed as soon as practicable after such determination, date or Shelf Request, as the case may be, aShelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statementbecome effective; provided that no Holder will be entitled to have any Registrable Securities included in any Shelf Registration Statement, or entitled to usethe 7 prospectus forming a part of such Shelf Registration Statement, until such Holder shall have delivered a completed and signed Notice and Questionnaire andprovided such other information regarding such Holder to the Issuers as is contemplated by Section 3(b) hereof.In the event that the Issuers are required to file a Shelf Registration Statement pursuant to clause (iii) of the preceding sentence, the Issuers shall usetheir reasonable best efforts to file and have become effective both an Exchange Offer Registration Statement pursuant to Section 2(a) hereof with respect toall Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer RegistrationStatement) with respect to offers and sales of Registrable Securities held by the Initial Purchasers after completion of the Exchange Offer.The Issuers agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective until the Securities cease to beRegistrable Securities (the “Shelf Effectiveness Period”). The Issuers further agree to supplement or amend the Shelf Registration Statement, the relatedProspectus and any Free Writing Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Issuers for suchShelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder or if reasonably requested by a Holder of RegistrableSecurities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective, ifrequired, and such Shelf Registration Statement, Prospectus or Free Writing Prospectus, as the case may be, to become usable as soon as thereafter practicable.The Issuers agree to furnish to the Participating Holders copies of any such supplement or amendment promptly after its being used or filed with the SEC.(c) The Issuers shall pay all Registration Expenses in connection with any registration pursuant to Section 2(a) or Section 2(b) hereof. Each Holdershall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’sRegistrable Securities pursuant to the Shelf Registration Statement.(d) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof will not be deemed to have become effective unless it has been declaredeffective by the SEC. A Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declaredeffective by the SEC or is automatically effective upon filing with the SEC as provided by Rule 462 under the Securities Act.If a Registration Default occurs, the interest rate on the Registrable Securities will be increased by (i) 0.25% per annum for the first 90-day periodbeginning on the day immediately following such Registration Default and (ii) an additional 0.25% per annum with respect to each subsequent 90-dayperiod, in 8 each case until and including the date such Registration Default ends, up to a maximum increase of 1.00% per annum. A Registration Default ends when theSecurities cease to be Registrable Securities or, if earlier, (1) in the case of a Registration Default under clause (i) of the definition thereof, when the ExchangeOffer is completed, (2) in the case of a Registration Default under clause (ii) or clause (iii) of the definition thereof, when the Shelf Registration Statementbecomes effective or (3) in the case of a Registration Default under clause (iv) or clause (v) of the definition thereof, when the Shelf Registration Statementagain becomes effective or the Prospectus again becomes usable. If at any time more than one Registration Default has occurred and is continuing, then, untilthe next date that there is no Registration Default, the increase in interest rate provided for by this paragraph shall apply as if there occurred a singleRegistration Default that begins on the date that the earliest such Registration Default occurred and ends on such next date that there is no RegistrationDefault.(e) Without limiting the remedies available to the Initial Purchasers and the Holders, the Issuers acknowledge that any failure by the Issuers to complywith their obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Initial Purchasers or the Holders for whichthere is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, theInitial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Issuers’ obligations under Section 2(a) and Section 2(b)hereof.3. Registration Procedures. (a) In connection with their obligations pursuant to Section 2(a) and Section 2(b) hereof, the Issuers shall as expeditiouslyas possible:(i) prepare and file with the SEC a Registration Statement on the appropriate form under the Securities Act, which form (A) shall be selected by theIssuers, (B) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the Holders thereof and (C) shall comply as toform in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; anduse their reasonable best efforts to cause such Registration Statement to become effective and remain effective for the applicable period in accordance withSection 2 hereof;(ii) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep suchRegistration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any requiredprospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each Prospectus current during theperiod described in Section 4(3) of and Rule 174 under the Securities Act that is applicable to transactions by brokers or dealers with respect to theRegistrable Securities or Exchange Securities; 9 (iii) to the extent any Free Writing Prospectus is used, file with the SEC any Free Writing Prospectus that is required to be filed by the Issuers with theSEC in accordance with the Securities Act and to retain any Free Writing Prospectus not required to be filed;(iv) in the case of a Shelf Registration, furnish to each Participating Holder, to counsel for the Initial Purchasers, to counsel for such ParticipatingHolders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, preliminaryprospectus or Free Writing Prospectus, and any amendment or supplement thereto, as such Participating Holder, counsel or Underwriter may reasonablyrequest in order to facilitate the sale or other disposition of the Registrable Securities thereunder; and, subject to Section 3(c) hereof, the Issuers consent to theuse of such Prospectus, preliminary prospectus or such Free Writing Prospectus and any amendment or supplement thereto in accordance with applicable lawby each of the Participating Holders and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in themanner described in such Prospectus, preliminary prospectus or such Free Writing Prospectus or any amendment or supplement thereto in accordance withapplicable law;(v) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of suchjurisdictions as any Participating Holder shall reasonably request in writing by the time the applicable Registration Statement becomes effective; cooperatewith such Participating Holders in connection with any filings required to be made with FINRA; and do any and all other acts and things that may bereasonably necessary or advisable to enable each Participating Holder to complete the disposition in each such jurisdiction of the Registrable Securitiesowned by such Participating Holder; provided that neither of the Issuers shall be required to (1) qualify as a foreign corporation or other entity or as a dealerin securities in any such jurisdiction where it would not otherwise be required to so qualify, (2) file any general consent to service of process in any suchjurisdiction or (3) subject itself to taxation in any such jurisdiction if it is not so subject;(vi) notify counsel for the Initial Purchasers and, in the case of a Shelf Registration, notify each Participating Holder and counsel for such ParticipatingHolders promptly and, if requested by any such Participating Holder or counsel, confirm such advice in writing (1) when a Registration Statement has becomeeffective, when any post-effective amendment thereto has been filed and becomes effective, when any Free Writing Prospectus has been filed or anyamendment or supplement to the Prospectus or any Free Writing Prospectus has been filed, (2) of any request by the SEC or any state securities authority foramendments and supplements to a Registration Statement, Prospectus or any 10 Free Writing Prospectus or for additional information after the Registration Statement has become effective, (3) of the issuance by the SEC or any statesecurities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, includingthe receipt by the Issuers of any notice of objection of the SEC to the use of a Shelf Registration Statement or any post-effective amendment thereto pursuantto Rule 401(g)(2) under the Securities Act, (4) if, between the applicable effective date of a Shelf Registration Statement and the closing of any sale ofRegistrable Securities covered thereby, the representations and warranties of the Issuers contained in any underwriting agreement, securities sales agreementor other similar agreement, if any, relating to an offering of such Registrable Securities cease to be true and correct in all material respects or if the Issuersreceive any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of anyproceeding for such purpose, (5) of the happening of any event during the period a Registration Statement is effective that makes any statement made in suchRegistration Statement or the related Prospectus or any Free Writing Prospectus untrue in any material respect or that requires the making of any changes insuch Registration Statement or Prospectus or any Free Writing Prospectus in order to make the statements therein not misleading and (6) of any determinationby the Issuers that a post-effective amendment to a Registration Statement or any amendment or supplement to the Prospectus or any Free Writing Prospectuswould be appropriate;(vii) use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or, in the case of aShelf Registration, the resolution of any objection of the SEC pursuant to Rule 401(g)(2) under the Securities Act, including by filing an amendment to suchRegistration Statement on the proper form, at the earliest possible moment and provide immediate notice to each Holder or Participating Holder of thewithdrawal of any such order or such resolution;(viii) in the case of a Shelf Registration, furnish to each Participating Holder, without charge, at least one conformed copy of each RegistrationStatement and any post-effective amendment thereto (without any documents incorporated therein by reference or exhibits thereto, unless requested);(ix) in the case of a Shelf Registration, cooperate with the Participating Holders to facilitate the timely preparation and delivery of certificatesrepresenting Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in suchdenominations and registered in such names (consistent with the provisions of the Indenture) as such Participating Holders may reasonably request at leastone Business Day prior to the closing of any sale of Registrable Securities; 11 (x) upon the occurrence of any event contemplated by Section 3(a)(vi)(5) hereof, use their reasonable best efforts to prepare and file with the SEC asupplement or post-effective amendment to the applicable Exchange Offer Registration Statement or Shelf Registration Statement or the related Prospectus orany Free Writing Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered (or, to theextent permitted by law, made available) to purchasers of the Registrable Securities, such Prospectus or Free Writing Prospectus, as the case may be, will notcontain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances underwhich they were made, not misleading; and the Issuers shall notify the Participating Holders (in the case of a Shelf Registration Statement) and the InitialPurchasers and any Participating Broker-Dealers known to the Issuers (in the case of an Exchange Offer Registration Statement) to suspend use of theProspectus or any Free Writing Prospectus as promptly as practicable after the occurrence of such an event, and such Participating Holders, such ParticipatingBroker-Dealers and the Initial Purchasers, as applicable, hereby agree to suspend use of the Prospectus or any Free Writing Prospectus, as the case may be,until the Issuers have amended or supplemented the Prospectus or the Free Writing Prospectus, as the case may be, to correct such misstatement or omission;(xi) a reasonable time prior to the filing of any Registration Statement, any Prospectus, any Free Writing Prospectus, any amendment to a RegistrationStatement or amendment or supplement to a Prospectus or a Free Writing Prospectus or of any document that is to be incorporated by reference into aRegistration Statement, a Prospectus or a Free Writing Prospectus after initial filing of a Registration Statement, provide copies of such document to theInitial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, to the Participating Holders and their counsel) and make such of therepresentatives of the Issuers as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, theParticipating Holders or their counsel) available for discussion of such document; and the Issuers shall not, at any time after initial filing of a RegistrationStatement, use or file any Prospectus, any Free Writing Prospectus, any amendment of or supplement to a Registration Statement or a Prospectus or a FreeWriting Prospectus, or any document that is to be incorporated by reference into a Registration Statement, a Prospectus or a Free Writing Prospectus, of whichthe Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Participating Holders and their counsel) shall not havepreviously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, theParticipating Holders or their counsel) shall object;(xii) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the initial effective date of aRegistration Statement; 12 (xiii) cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or RegistrableSecurities, as the case may be; cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be soqualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, alldocuments as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be soqualified in a timely manner;(xiv) in the case of a Shelf Registration, make available for inspection by a representative of the Participating Holders (an “Inspector”), any Underwriterparticipating in any disposition pursuant to such Shelf Registration Statement, any attorneys and accountants designated by a majority in aggregate principalamount of the Securities held by the Participating Holders and any attorneys and accountants designated by such Underwriter, at reasonable times and in areasonable manner, all pertinent financial and other records, documents and properties of the Company and its subsidiaries, and cause the respective officers,directors and employees of the Issuers to supply all information reasonably requested by any such Inspector, Underwriter, attorney or accountant inconnection with a Shelf Registration Statement; provided that if any such information is identified by the Issuers as being confidential or proprietary, eachPerson receiving such information shall take such actions as are reasonably necessary to protect the confidentiality of such information to the extent suchaction is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of any Inspector, Holder or Underwriter);(xv) in the case of a Shelf Registration, use their reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange or anyautomated quotation system on which similar securities issued or guaranteed by the Issuers are then listed if requested by the Majority Holders, to the extentsuch Registrable Securities satisfy applicable listing requirements;(xvi) if reasonably requested by any Participating Holder, promptly include in a Prospectus supplement or post-effective amendment such informationwith respect to such Participating Holder as such Participating Holder reasonably requests to be included therein and make all required filings of suchProspectus supplement or such post-effective amendment as soon as the Issuers have received notification of the matters to be so included in such filing; and(xvii) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including thoserequested by the Holders of a majority in principal amount of the Registrable Securities covered by the Shelf Registration Statement) in order to expedite orfacilitate the disposition of such Registrable Securities including, but not limited to, an Underwritten Offering and in such connection, (1) to the extent 13 possible, make such representations and warranties to the Participating Holders and any Underwriters of such Registrable Securities with respect to thebusiness of the Issuers and its subsidiaries and the Registration Statement, Prospectus, any Free Writing Prospectus and documents incorporated by referenceor deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwrittenofferings and confirm the same if and when requested, (2) obtain opinions of counsel to the Issuers (which counsel and opinions, in form, scope andsubstance, shall be reasonably satisfactory to the Participating Holders and such Underwriters and their respective counsel) addressed to each ParticipatingHolder and Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (3) obtain“comfort” letters from the independent registered public accountants of the Issuers (and, if necessary, any other registered public accountant of any subsidiaryof the Company, or of any business acquired by the Issuers for which financial statements and financial data are or are required to be included in theRegistration Statement) addressed to each Participating Holder (to the extent permitted by applicable professional standards) and Underwriter of RegistrableSecurities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwrittenofferings, including but not limited to financial information contained in any preliminary prospectus, Prospectus or Free Writing Prospectus and (4) deliversuch documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold orthe Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties ofthe Issuers made pursuant to clause (1) above and to evidence compliance with any customary conditions contained in an underwriting agreement.(b) In the case of a Shelf Registration Statement, the Issuers may require each Holder of Registrable Securities to furnish to the Issuers a Notice andQuestionnaire and such other information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Issuersmay from time to time reasonably request in writing.(c) Each Participating Holder agrees that, upon receipt of any notice from the Issuers of the happening of any event of the kind described inSection 3(a)(vi)(3) or Section 3(a)(vi)(5) hereof, such Participating Holder will forthwith discontinue disposition of Registrable Securities pursuant to theShelf Registration Statement until such Participating Holder’s receipt of the copies of the supplemented or amended Prospectus and any Free WritingProspectus contemplated by Section 3(a)(x) hereof and, if so directed by the Issuers, such Participating Holder will deliver to the Company all copies in itspossession, other than permanent file copies then in such Participating Holder’s possession, of the Prospectus and any Free Writing Prospectus covering suchRegistrable Securities that is current at the time of receipt of such notice. 14 (d) If the Issuers shall give any notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Issuers shall extendthe period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period fromand including the date of the giving of such notice to and including the date when the Holders of such Registrable Securities shall have received copies ofthe supplemented or amended Prospectus or any Free Writing Prospectus necessary to resume such dispositions. The Issuers may give any such notice onlytwice during any 365-day period and any such suspensions shall not exceed 30 days for each suspension and there shall not be more than two suspensions ineffect during any 365-day period.(e) The Participating Holders who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering,the investment bank or investment banks and manager or managers (each an “Underwriter”) that will administer the offering will be selected by the Holders ofa majority in principal amount of the Registrable Securities included in such offering.4. Participation of Broker-Dealers in Exchange Offer. (a) The Staff has taken the position that any broker-dealer that receives Exchange Securities for itsown account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities(a “Participating Broker-Dealer”) may be deemed to be an “underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting therequirements of the Securities Act in connection with any resale of such Exchange Securities.The Issuers understand that it is the Staff’s position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan ofdistribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, withoutnaming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by ParticipatingBroker-Dealers (or, to the extent permitted by law, made available to purchasers) to satisfy their prospectus delivery obligation under the Securities Act inconnection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act.(b) In light of the above, and notwithstanding the other provisions of this Agreement, the Issuers agree to amend or supplement the Prospectuscontained in the Exchange Offer Registration Statement for a period of up to 180 days after the last Exchange Date (as such period may be extended pursuantto Section 3(d) hereof), in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with thepositions of the Staff recited in Section 4(a) above. The Issuers further agree that Participating Broker-Dealers shall be authorized to deliver such Prospectus(or, to the extent permitted by law, make available) during such period in connection with the resales contemplated by this Section 4. 15 (c) The Initial Purchasers shall have no liability to the Issuers or any Holder with respect to any request that they may make pursuant to Section 4(b)hereof.5. Indemnification and Contribution. (a) Each of the Issuers, jointly and severally, agree to indemnify and hold harmless each Initial Purchaser andeach Holder, their respective affiliates, directors and officers and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning ofSection 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, withoutlimitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses areincurred), joint or several, that arise out of, or are based upon, (1) any untrue statement or alleged untrue statement of a material fact contained in anyRegistration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make thestatements therein not misleading, or (2) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, any Free WritingProspectus or any “issuer information” (“Issuer Information”) filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or any omission oralleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they weremade, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement oromission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser orinformation relating to any Holder furnished to the Issuers in writing through J.P. Morgan or any selling Holder, respectively, expressly for use therein. Inconnection with any Underwritten Offering permitted by Section 3, the Issuers, jointly and severally, will also indemnify the Underwriters, if any, sellingbrokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls suchPersons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of theHolders, if requested in connection with any Registration Statement, any Prospectus, any Free Writing Prospectus or any Issuer Information.(b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Issuers, the Initial Purchasers and the other selling Holders, thedirectors of the Issuers, each officer of the Issuers who signed the Registration Statement and each Person, if any, who controls the Issuers, any InitialPurchaser and any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as theindemnity set forth in paragraph (a) above, but only with respect to any losses, 16 claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in relianceupon and in conformity with any information relating to such Holder furnished to the Issuers in writing by such Holder expressly for use in any RegistrationStatement, any Prospectus and any Free Writing Prospectus.(c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against anyPerson in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such Person (the “Indemnified Person”) shallpromptly notify the Person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify theIndemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materiallyprejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Personshall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If any such proceeding shallbe brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counselreasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 5that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expensesof such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but thefees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shallhave mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to theIndemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or inaddition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both theIndemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potentialdiffering interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedingin the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, andthat all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm (x) for any Initial Purchaser, its affiliates, directors and officersand any control Persons of such Initial Purchaser shall be designated in writing by J.P. Morgan, (y) for any Holder, its directors and officers and any controlPersons of such Holder shall be designated in writing by the Majority Holders and (z) in all other cases shall be designated in writing by the Company. TheIndemnifying Person shall not be liable for any settlement of any proceeding effected without 17 its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify eachIndemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time anIndemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated bythis paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement isentered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed theIndemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of theIndemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a partyand indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of suchIndemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of suchproceeding and (B) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.(d) If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses,claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Personthereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in suchproportion as is appropriate to reflect the relative benefits received by the Issuers from the offering of the Securities and the Exchange Securities, on the onehand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocationprovided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause(i) but also the relative fault of the Issuers on the one hand and the Holders on the other in connection with the statements or omissions that resulted in suchlosses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Issuers on the one hand and the Holderson the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission oralleged omission to state a material fact relates to information supplied by the Issuers or by the Holders and the parties’ relative intent, knowledge, access toinformation and opportunity to correct or prevent such statement or omission.(e) The Issuers and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rataallocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable 18 considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages andliabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred bysuch Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 5, in no event shall a Holder be requiredto contribute any amount in excess of the amount by which the total price at which the Securities or Exchange Securities sold by such Holder exceeds theamount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or allegedomission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution fromany Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute pursuant to this Section 5 are several and notjoint.(f) The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies that may otherwise be available to anyIndemnified Person at law or in equity.(g) The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) anytermination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers or any Holder or any Person controlling any InitialPurchaser or any Holder, or by or on behalf of the Issuers or the officers or directors of or any Person controlling the Issuers, (iii) acceptance of any of theExchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement.6. General.(a) No Inconsistent Agreements. The Issuers represent, warrant and agree that (i) the rights granted to the Holders hereunder do not in any way conflictwith and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Issuers under any otheragreement and (ii) neither of the Issuers has entered into, or on or after the date of this Agreement will enter into, any agreement that is inconsistent with therights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof.(b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified orsupplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Issuers have obtained the written consent ofHolders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement,waiver or consent; provided that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall 19 be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. Any amendments, modifications, supplements,waivers or consents pursuant to this Section 6(b) shall be by a writing executed by each of the parties hereto.(c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-classmail, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Issuers by means of anotice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Initial Purchasers, the address set forth in thePurchase Agreement; (ii) if to the Issuers, initially at the Issuers’ address set forth in the Purchase Agreement and thereafter at such other address, notice ofwhich is given in accordance with the provisions of this Section 6(c); and (iii) to such other persons at their respective addresses as provided in the PurchaseAgreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices andcommunications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited inthe mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courierguaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the sameto the Trustee, at the address specified in the Indenture.(d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of theparties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed topermit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If anytransferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall beheld subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to haveagreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. TheInitial Purchasers (in their capacity as Initial Purchasers) shall have no liability or obligation to the Issuers with respect to any failure by a Holder to complywith, or any breach by any Holder of, any of the obligations of such Holder under this Agreement.(e) Third Party Beneficiaries. Each Holder shall be a third party beneficiary to the agreements made hereunder between the Issuers, on the one hand,and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary oradvisable to protect its rights or the rights of other Holders hereunder. 20 (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of whichwhen so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.(g) Headings. The headings in this Agreement are for convenience of reference only, are not a part of this Agreement and shall not limit or otherwiseaffect the meaning hereof.(h) Governing Law. This Agreement, and any claim, controversy or dispute arising under or related to this Agreement, shall be governed by andconstrued in accordance with the laws of the State of New York.(i) Entire Agreement; Severability. This Agreement contains the entire agreement between the parties relating to the subject matter hereof andsupersedes all oral statements and prior writings with respect thereto. If any term, provision, covenant or restriction contained in this Agreement is held by acourt of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants andrestrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Issuers and the InitialPurchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect ofwhich comes as close as possible to that of the invalid, void or unenforceable provisions.[The remainder of this page is intentionally left blank.] 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. STAR GAS PARTNERS, L.P.By: KESTREL HEAT LLC, as General PartnerBy Name: Title: STAR GAS FINANCE COMPANYBy Name: Title: Confirmed and accepted as of the date first above written: J.P. MORGAN SECURITIES LLCFor itself and on behalf of the several Initial PurchasersBy Authorized Signatory Schedule 1RBS Securities Inc. Exhibit 10.22EXECUTION COPYREGISTRATION RIGHTS AGREEMENTThis REGISTRATION RIGHTS AGREEMENT dated November 16, 2010 (this “Agreement”) is entered into by and among Star Gas Partners, L.P., aDelaware limited partnership (the “Company”), Star Gas Finance Company, a Delaware corporation (together with the Company, the “Issuers”), and J.P.Morgan Securities LLC (“J.P. Morgan”), as representative of the initial purchasers named on Schedule 1 hereto (collectively, the “Initial Purchasers”).The Issuers and the Initial Purchasers are parties to the Purchase Agreement dated November 10, 2010 (the “Purchase Agreement”), which provides forthe sale by the Issuers to the Initial Purchasers of $125,000,000 aggregate principal amount of the Issuers’ 8.875% Senior Notes due 2017 (the “Securities”).As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide to the Initial Purchasers and their directand indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing underthe Purchase Agreement.In consideration of the foregoing, the parties hereto agree as follows:1. Definitions. As used in this Agreement, the following terms shall have the following meanings:“Business Day” shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized orrequired by law to remain closed.“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.“Exchange Dates” shall have the meaning set forth in Section 2(a)(ii) hereof.“Exchange Offer” shall mean the exchange offer by the Issuers of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.“Exchange Offer Registration” shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof.“Exchange Offer Registration Statement” shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriateform) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein or deemed a part thereof,all exhibits thereto and any document incorporated by reference therein.“Exchange Securities” shall mean senior notes issued by the Issuers under the Indenture containing terms identical to the Securities (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with this Agreement) and tobe offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer.“FINRA” means the Financial Industry Regulatory Authority, Inc.“Free Writing Prospectus” means each free writing prospectus (as defined in Rule 405 under the Securities Act) prepared by or on behalf of the Issuersor used or referred to by the Issuers in connection with the sale of the Securities or the Exchange Securities.“Holders” shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their successors, assigns and direct andindirect transferees who become owners of Registrable Securities under the Indenture; provided that, for purposes of Section 4 and Section 5 hereof, the term“Holders” shall include Participating Broker-Dealers.“Indemnified Person” shall have the meaning set forth in Section 5(c) hereof.“Indemnifying Person” shall have the meaning set forth in Section 5(c) hereof.“Indenture” shall mean the Indenture relating to the Securities dated as of November 16, 2010 among the Issuers and Union Bank, N.A., as trustee, andas the same may be amended from time to time in accordance with the terms thereof.“Initial Purchasers” shall have the meaning set forth in the preamble.“Inspector” shall have the meaning set forth in Section 3(a)(xiv) hereof.“Issuer Information” shall have the meaning set forth in Section 5(a) hereof.“Issuers” shall have the meaning set forth in the preamble and shall also include the Issuers’ successors.“J.P. Morgan” shall have the meaning set forth in the preamble.“Majority Holders” shall mean the Holders of a majority of the aggregate principal amount of the outstanding Registrable Securities; provided thatwhenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owneddirectly or indirectly by the Issuers or any of its affiliates shall not be counted in determining whether such consent or approval was given by the Holders ofsuch required percentage or amount; and provided, further, that if the Company shall 2 issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any Shelf RegistrationStatement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class for purposes ofdetermining whether the consent or approval of Holders of a specified percentage of Registrable Securities has been obtained.“Notice and Questionnaire” shall mean a notice of registration statement and selling security holder questionnaire distributed to a Holder by the Issuersupon receipt of a Shelf Request from such Holder.“Participating Broker-Dealers” shall have the meaning set forth in Section 4(a) hereof.“Participating Holder” shall mean any Holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to theIssuers in accordance with Section 2(b) hereof.“Person” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government oragency or political subdivision thereof.“Prospectus” shall mean the prospectus included in, or, pursuant to the rules and regulations of the Securities Act, deemed a part of, a RegistrationStatement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including aprospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and byall other amendments and supplements to such prospectus, and in each case including any document incorporated by reference therein.“Purchase Agreement” shall have the meaning set forth in the preamble.“Registrable Securities” shall mean the Securities; provided that the Securities shall cease to be Registrable Securities (i) when a RegistrationStatement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant tosuch Registration Statement, (ii) when such Securities are sold pursuant to Rule 144 under the Securities Act (or any similar provision then in force, but notRule 144A), if following such resale such Securities do not bear any restrictive legend relating to the Securities Act and do not bear a restricted CUSIPnumber, (iii) when such Securities cease to be outstanding or (iv) except in the case of Securities that otherwise remain Registrable Securities and that areheld by an Initial Purchaser and that are ineligible to be exchanged in the Exchange Offer, when the Exchange Offer is consummated.“Registration Default” shall mean the occurrence of any of the following: (i) the Exchange Offer is not completed on or prior to the Target Registration 3 Date, (ii) the Shelf Registration Statement, if required pursuant to Section 2(b)(i) or Section 2(b)(ii) hereof, has not become effective on or prior to the TargetRegistration Date, (iii) if the Issuers receive a Shelf Request pursuant to Section 2(b)(iii), the Shelf Registration Statement required to be filed thereby has notbecome effective by the later of (a) the Target Registration Date and (b) 90 days after delivery of such Shelf Request, (iv) the Shelf Registration Statement, ifrequired by this Agreement, has become effective and thereafter ceases to be effective or the Prospectus contained therein ceases to be usable, in each casewhether or not permitted by this Agreement, at any time during the Shelf Effectiveness Period, and such failure to remain effective or usable exists for morethan 30 days (whether or not consecutive) in any 12-month period or (v) the Shelf Registration Statement, if required by this Agreement, has become effectiveand thereafter, on more than two occasions in any 12-month period during the Shelf Effectiveness Period, the Shelf Registration Statement ceases to beeffective or the Prospectus contained therein ceases to be usable, in each case whether or not permitted by this Agreement.“Registration Expenses” shall mean any and all expenses incident to performance of or compliance by the Issuers with this Agreement, includingwithout limitation: (i) all SEC, stock exchange or FINRA registration and filing fees, (ii) all fees and expenses incurred in connection with compliance withstate securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue skyqualification of any Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing,printing and distributing any Registration Statement, any Prospectus, any Free Writing Prospectus and any amendments or supplements thereto, anyunderwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliancewith this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws,(vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Issuers and, in the case of a Shelf RegistrationStatement, the fees and disbursements of one counsel for the Participating Holders (which counsel shall be selected by the Participating Holders holding amajority of the aggregate principal amount of Registrable Securities held by such Participating Holders and which counsel may also be counsel for the InitialPurchasers) and (viii) the fees and disbursements of the independent registered public accountants of the Issuers, including the expenses of any special auditsor “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to theUnderwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions, brokerage commissionsand transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. 4 “Registration Statement” shall mean any registration statement of the Issuers that covers any of the Exchange Securities or Registrable Securitiespursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments,in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and any document incorporated by reference therein.“SEC” shall mean the United States Securities and Exchange Commission.“Securities” shall have the meaning set forth in the preamble.“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.“Shelf Effectiveness Period” shall have the meaning set forth in Section 2(b) hereof.“Shelf Registration” shall mean a registration effected pursuant to Section 2(b) hereof.“Shelf Registration Statement” shall mean a “shelf” registration statement of the Issuers that covers all or a portion of the Registrable Securities (but noother securities unless approved by a majority in aggregate principal amount of the Securities held by the Participating Holders) on an appropriate form underRule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement,including post-effective amendments, in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and anydocument incorporated by reference therein.“Shelf Request” shall have the meaning set forth in Section 2(b) hereof.“Staff” shall mean the staff of the SEC.“Target Registration Date” shall mean June 14, 2011.“Trust Indenture Act” shall mean the Trust Indenture Act of 1939, as amended from time to time.“Trustee” shall mean the trustee with respect to the Securities under the Indenture.“Underwriter” shall have the meaning set forth in Section 3(e) hereof.“Underwritten Offering” shall mean an offering in which Registrable Securities are sold to an Underwriter for reoffering to the public. 5 2. Registration Under the Securities Act. (a) To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Issuersshall use their reasonable best efforts to (x) cause to be filed an Exchange Offer Registration Statement covering an offer to the Holders to exchange all theRegistrable Securities for Exchange Securities and (y) have such Registration Statement become and remain effective until 180 days after the last ExchangeDate for use by one or more Participating Broker-Dealers. The Issuers shall commence the Exchange Offer promptly after the Exchange Offer RegistrationStatement is declared effective by the SEC and use their reasonable best efforts to complete the Exchange Offer not later than 60 days after such effectivedate.The Issuers shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanyingdocuments to each Holder stating, in addition to such other disclosures as are required by applicable law, substantially the following: (i)that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered and not properly withdrawn willbe accepted for exchange; (ii)the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the “Exchange Dates”); (iii)that any Registrable Security not tendered will remain outstanding and continue to accrue interest but will not retain any rights under this Agreement,except as otherwise specified herein; (iv)that any Holder electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to (A) surrender such RegistrableSecurity, together with the appropriate letters of transmittal, to the institution and at the address and in the manner specified in the notice, or (B) effectsuch exchange otherwise in compliance with the applicable procedures of the depositary for such Registrable Security, in each case prior to the close ofbusiness on the last Exchange Date; and (v)that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, by (A) sending to the institutionand at the address specified in the notice, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount ofRegistrable Securities delivered for exchange and a statement that such Holder is withdrawing its election to have such Securities exchanged or(B) effecting such withdrawal in compliance with the applicable procedures of the depositary for the Registrable Securities. 6 As a condition to participating in the Exchange Offer, a Holder will be required to represent to Issuers that (1) any Exchange Securities to be receivedby it will be acquired in the ordinary course of its business, (2) at the time of the commencement of the Exchange Offer it has no arrangement orunderstanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of theprovisions of the Securities Act, (3) it is not an “affiliate” (within the meaning of Rule 405 under the Securities Act) of the Issuers and (4) if such Holder is abroker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-makingor other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) inconnection with any resale of such Exchange Securities.As soon as practicable after the last Exchange Date, the Issuers shall: (I)accept for exchange Registrable Securities or portions thereof validly tendered and not properly withdrawn pursuant to the Exchange Offer; and (II)deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Issuersand issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principalamount of the Registrable Securities tendered by such Holder.The Issuers shall use their reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirementsof the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not besubject to any conditions, other than that the Exchange Offer does not violate any applicable law or applicable interpretations of the Staff.(b) In the event that (i) the Issuers determine that the Exchange Offer Registration provided for in Section 2(a) hereof is not available or the ExchangeOffer may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations ofthe Staff, (ii) the Exchange Offer is not for any other reason completed by the Target Registration Date or (iii) upon receipt of a written request (a “ShelfRequest”) from any Initial Purchaser representing that it holds Registrable Securities that are or were ineligible to be exchanged in the Exchange Offer, theIssuers shall use their reasonable best efforts to cause to be filed as soon as practicable after such determination, date or Shelf Request, as the case may be, aShelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statementbecome effective; provided that no Holder will be entitled to have any Registrable Securities included in any Shelf Registration Statement, or entitled to usethe 7 prospectus forming a part of such Shelf Registration Statement, until such Holder shall have delivered a completed and signed Notice and Questionnaire andprovided such other information regarding such Holder to the Issuers as is contemplated by Section 3(b) hereof.In the event that the Issuers are required to file a Shelf Registration Statement pursuant to clause (iii) of the preceding sentence, the Issuers shall usetheir reasonable best efforts to file and have become effective both an Exchange Offer Registration Statement pursuant to Section 2(a) hereof with respect toall Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer RegistrationStatement) with respect to offers and sales of Registrable Securities held by the Initial Purchasers after completion of the Exchange Offer.The Issuers agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective until the Securities cease to beRegistrable Securities (the “Shelf Effectiveness Period”). The Issuers further agree to supplement or amend the Shelf Registration Statement, the relatedProspectus and any Free Writing Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Issuers for suchShelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder or if reasonably requested by a Holder of RegistrableSecurities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective, ifrequired, and such Shelf Registration Statement, Prospectus or Free Writing Prospectus, as the case may be, to become usable as soon as thereafter practicable.The Issuers agree to furnish to the Participating Holders copies of any such supplement or amendment promptly after its being used or filed with the SEC.(c) The Issuers shall pay all Registration Expenses in connection with any registration pursuant to Section 2(a) or Section 2(b) hereof. Each Holdershall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’sRegistrable Securities pursuant to the Shelf Registration Statement.(d) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof will not be deemed to have become effective unless it has been declaredeffective by the SEC. A Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declaredeffective by the SEC or is automatically effective upon filing with the SEC as provided by Rule 462 under the Securities Act.If a Registration Default occurs, the interest rate on the Registrable Securities will be increased by (i) 0.25% per annum for the first 90-day periodbeginning on the day immediately following such Registration Default and (ii) an additional 0.25% per annum with respect to each subsequent 90-dayperiod, in 8 each case until and including the date such Registration Default ends, up to a maximum increase of 1.00% per annum. A Registration Default ends when theSecurities cease to be Registrable Securities or, if earlier, (1) in the case of a Registration Default under clause (i) of the definition thereof, when the ExchangeOffer is completed, (2) in the case of a Registration Default under clause (ii) or clause (iii) of the definition thereof, when the Shelf Registration Statementbecomes effective or (3) in the case of a Registration Default under clause (iv) or clause (v) of the definition thereof, when the Shelf Registration Statementagain becomes effective or the Prospectus again becomes usable. If at any time more than one Registration Default has occurred and is continuing, then, untilthe next date that there is no Registration Default, the increase in interest rate provided for by this paragraph shall apply as if there occurred a singleRegistration Default that begins on the date that the earliest such Registration Default occurred and ends on such next date that there is no RegistrationDefault.(e) Without limiting the remedies available to the Initial Purchasers and the Holders, the Issuers acknowledge that any failure by the Issuers to complywith their obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Initial Purchasers or the Holders for whichthere is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, theInitial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Issuers’ obligations under Section 2(a) and Section 2(b)hereof.3. Registration Procedures. (a) In connection with their obligations pursuant to Section 2(a) and Section 2(b) hereof, the Issuers shall as expeditiouslyas possible:(i) prepare and file with the SEC a Registration Statement on the appropriate form under the Securities Act, which form (A) shall be selected by theIssuers, (B) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the Holders thereof and (C) shall comply as toform in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; anduse their reasonable best efforts to cause such Registration Statement to become effective and remain effective for the applicable period in accordance withSection 2 hereof;(ii) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep suchRegistration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any requiredprospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each Prospectus current during theperiod described in Section 4(3) of and Rule 174 under the Securities Act that is applicable to transactions by brokers or dealers with respect to theRegistrable Securities or Exchange Securities; 9 (iii) to the extent any Free Writing Prospectus is used, file with the SEC any Free Writing Prospectus that is required to be filed by the Issuers with theSEC in accordance with the Securities Act and to retain any Free Writing Prospectus not required to be filed;(iv) in the case of a Shelf Registration, furnish to each Participating Holder, to counsel for the Initial Purchasers, to counsel for such ParticipatingHolders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, preliminaryprospectus or Free Writing Prospectus, and any amendment or supplement thereto, as such Participating Holder, counsel or Underwriter may reasonablyrequest in order to facilitate the sale or other disposition of the Registrable Securities thereunder; and, subject to Section 3(c) hereof, the Issuers consent to theuse of such Prospectus, preliminary prospectus or such Free Writing Prospectus and any amendment or supplement thereto in accordance with applicable lawby each of the Participating Holders and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in themanner described in such Prospectus, preliminary prospectus or such Free Writing Prospectus or any amendment or supplement thereto in accordance withapplicable law;(v) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of suchjurisdictions as any Participating Holder shall reasonably request in writing by the time the applicable Registration Statement becomes effective; cooperatewith such Participating Holders in connection with any filings required to be made with FINRA; and do any and all other acts and things that may bereasonably necessary or advisable to enable each Participating Holder to complete the disposition in each such jurisdiction of the Registrable Securitiesowned by such Participating Holder; provided that neither of the Issuers shall be required to (1) qualify as a foreign corporation or other entity or as a dealerin securities in any such jurisdiction where it would not otherwise be required to so qualify, (2) file any general consent to service of process in any suchjurisdiction or (3) subject itself to taxation in any such jurisdiction if it is not so subject;(vi) notify counsel for the Initial Purchasers and, in the case of a Shelf Registration, notify each Participating Holder and counsel for such ParticipatingHolders promptly and, if requested by any such Participating Holder or counsel, confirm such advice in writing (1) when a Registration Statement has becomeeffective, when any post-effective amendment thereto has been filed and becomes effective, when any Free Writing Prospectus has been filed or anyamendment or supplement to the Prospectus or any Free Writing Prospectus has been filed, (2) of any request by the SEC or any state securities authority foramendments and supplements to a Registration Statement, Prospectus or any 10 Free Writing Prospectus or for additional information after the Registration Statement has become effective, (3) of the issuance by the SEC or any statesecurities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, includingthe receipt by the Issuers of any notice of objection of the SEC to the use of a Shelf Registration Statement or any post-effective amendment thereto pursuantto Rule 401(g)(2) under the Securities Act, (4) if, between the applicable effective date of a Shelf Registration Statement and the closing of any sale ofRegistrable Securities covered thereby, the representations and warranties of the Issuers contained in any underwriting agreement, securities sales agreementor other similar agreement, if any, relating to an offering of such Registrable Securities cease to be true and correct in all material respects or if the Issuersreceive any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of anyproceeding for such purpose, (5) of the happening of any event during the period a Registration Statement is effective that makes any statement made in suchRegistration Statement or the related Prospectus or any Free Writing Prospectus untrue in any material respect or that requires the making of any changes insuch Registration Statement or Prospectus or any Free Writing Prospectus in order to make the statements therein not misleading and (6) of any determinationby the Issuers that a post-effective amendment to a Registration Statement or any amendment or supplement to the Prospectus or any Free Writing Prospectuswould be appropriate;(vii) use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or, in the case of aShelf Registration, the resolution of any objection of the SEC pursuant to Rule 401(g)(2) under the Securities Act, including by filing an amendment to suchRegistration Statement on the proper form, at the earliest possible moment and provide immediate notice to each Holder or Participating Holder of thewithdrawal of any such order or such resolution;(viii) in the case of a Shelf Registration, furnish to each Participating Holder, without charge, at least one conformed copy of each RegistrationStatement and any post-effective amendment thereto (without any documents incorporated therein by reference or exhibits thereto, unless requested);(ix) in the case of a Shelf Registration, cooperate with the Participating Holders to facilitate the timely preparation and delivery of certificatesrepresenting Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in suchdenominations and registered in such names (consistent with the provisions of the Indenture) as such Participating Holders may reasonably request at leastone Business Day prior to the closing of any sale of Registrable Securities; 11 (x) upon the occurrence of any event contemplated by Section 3(a)(vi)(5) hereof, use their reasonable best efforts to prepare and file with the SEC asupplement or post-effective amendment to the applicable Exchange Offer Registration Statement or Shelf Registration Statement or the related Prospectus orany Free Writing Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered (or, to theextent permitted by law, made available) to purchasers of the Registrable Securities, such Prospectus or Free Writing Prospectus, as the case may be, will notcontain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances underwhich they were made, not misleading; and the Issuers shall notify the Participating Holders (in the case of a Shelf Registration Statement) and the InitialPurchasers and any Participating Broker-Dealers known to the Issuers (in the case of an Exchange Offer Registration Statement) to suspend use of theProspectus or any Free Writing Prospectus as promptly as practicable after the occurrence of such an event, and such Participating Holders, such ParticipatingBroker-Dealers and the Initial Purchasers, as applicable, hereby agree to suspend use of the Prospectus or any Free Writing Prospectus, as the case may be,until the Issuers have amended or supplemented the Prospectus or the Free Writing Prospectus, as the case may be, to correct such misstatement or omission;(xi) a reasonable time prior to the filing of any Registration Statement, any Prospectus, any Free Writing Prospectus, any amendment to a RegistrationStatement or amendment or supplement to a Prospectus or a Free Writing Prospectus or of any document that is to be incorporated by reference into aRegistration Statement, a Prospectus or a Free Writing Prospectus after initial filing of a Registration Statement, provide copies of such document to theInitial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, to the Participating Holders and their counsel) and make such of therepresentatives of the Issuers as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, theParticipating Holders or their counsel) available for discussion of such document; and the Issuers shall not, at any time after initial filing of a RegistrationStatement, use or file any Prospectus, any Free Writing Prospectus, any amendment of or supplement to a Registration Statement or a Prospectus or a FreeWriting Prospectus, or any document that is to be incorporated by reference into a Registration Statement, a Prospectus or a Free Writing Prospectus, of whichthe Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Participating Holders and their counsel) shall not havepreviously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, theParticipating Holders or their counsel) shall object;(xii) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the initial effective date of aRegistration Statement; 12 (xiii) cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or RegistrableSecurities, as the case may be; cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be soqualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, alldocuments as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be soqualified in a timely manner;(xiv) in the case of a Shelf Registration, make available for inspection by a representative of the Participating Holders (an “Inspector”), any Underwriterparticipating in any disposition pursuant to such Shelf Registration Statement, any attorneys and accountants designated by a majority in aggregate principalamount of the Securities held by the Participating Holders and any attorneys and accountants designated by such Underwriter, at reasonable times and in areasonable manner, all pertinent financial and other records, documents and properties of the Company and its subsidiaries, and cause the respective officers,directors and employees of the Issuers to supply all information reasonably requested by any such Inspector, Underwriter, attorney or accountant inconnection with a Shelf Registration Statement; provided that if any such information is identified by the Issuers as being confidential or proprietary, eachPerson receiving such information shall take such actions as are reasonably necessary to protect the confidentiality of such information to the extent suchaction is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of any Inspector, Holder or Underwriter);(xv) in the case of a Shelf Registration, use their reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange or anyautomated quotation system on which similar securities issued or guaranteed by the Issuers are then listed if requested by the Majority Holders, to the extentsuch Registrable Securities satisfy applicable listing requirements;(xvi) if reasonably requested by any Participating Holder, promptly include in a Prospectus supplement or post-effective amendment such informationwith respect to such Participating Holder as such Participating Holder reasonably requests to be included therein and make all required filings of suchProspectus supplement or such post-effective amendment as soon as the Issuers have received notification of the matters to be so included in such filing; and(xvii) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including thoserequested by the Holders of a majority in principal amount of the Registrable Securities covered by the Shelf Registration Statement) in order to expedite orfacilitate the disposition of such Registrable Securities including, but not limited to, an Underwritten Offering and in such connection, (1) to the extent 13 possible, make such representations and warranties to the Participating Holders and any Underwriters of such Registrable Securities with respect to thebusiness of the Issuers and its subsidiaries and the Registration Statement, Prospectus, any Free Writing Prospectus and documents incorporated by referenceor deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwrittenofferings and confirm the same if and when requested, (2) obtain opinions of counsel to the Issuers (which counsel and opinions, in form, scope andsubstance, shall be reasonably satisfactory to the Participating Holders and such Underwriters and their respective counsel) addressed to each ParticipatingHolder and Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (3) obtain“comfort” letters from the independent registered public accountants of the Issuers (and, if necessary, any other registered public accountant of any subsidiaryof the Company, or of any business acquired by the Issuers for which financial statements and financial data are or are required to be included in theRegistration Statement) addressed to each Participating Holder (to the extent permitted by applicable professional standards) and Underwriter of RegistrableSecurities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwrittenofferings, including but not limited to financial information contained in any preliminary prospectus, Prospectus or Free Writing Prospectus and (4) deliversuch documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold orthe Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties ofthe Issuers made pursuant to clause (1) above and to evidence compliance with any customary conditions contained in an underwriting agreement.(b) In the case of a Shelf Registration Statement, the Issuers may require each Holder of Registrable Securities to furnish to the Issuers a Notice andQuestionnaire and such other information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Issuersmay from time to time reasonably request in writing.(c) Each Participating Holder agrees that, upon receipt of any notice from the Issuers of the happening of any event of the kind described inSection 3(a)(vi)(3) or Section 3(a)(vi)(5) hereof, such Participating Holder will forthwith discontinue disposition of Registrable Securities pursuant to theShelf Registration Statement until such Participating Holder’s receipt of the copies of the supplemented or amended Prospectus and any Free WritingProspectus contemplated by Section 3(a)(x) hereof and, if so directed by the Issuers, such Participating Holder will deliver to the Company all copies in itspossession, other than permanent file copies then in such Participating Holder’s possession, of the Prospectus and any Free Writing Prospectus covering suchRegistrable Securities that is current at the time of receipt of such notice. 14 (d) If the Issuers shall give any notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Issuers shall extendthe period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period fromand including the date of the giving of such notice to and including the date when the Holders of such Registrable Securities shall have received copies ofthe supplemented or amended Prospectus or any Free Writing Prospectus necessary to resume such dispositions. The Issuers may give any such notice onlytwice during any 365-day period and any such suspensions shall not exceed 30 days for each suspension and there shall not be more than two suspensions ineffect during any 365-day period.(e) The Participating Holders who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering,the investment bank or investment banks and manager or managers (each an “Underwriter”) that will administer the offering will be selected by the Holders ofa majority in principal amount of the Registrable Securities included in such offering.4. Participation of Broker-Dealers in Exchange Offer. (a) The Staff has taken the position that any broker-dealer that receives Exchange Securities for itsown account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities(a “Participating Broker-Dealer”) may be deemed to be an “underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting therequirements of the Securities Act in connection with any resale of such Exchange Securities.The Issuers understand that it is the Staff’s position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan ofdistribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, withoutnaming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by ParticipatingBroker-Dealers (or, to the extent permitted by law, made available to purchasers) to satisfy their prospectus delivery obligation under the Securities Act inconnection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act.(b) In light of the above, and notwithstanding the other provisions of this Agreement, the Issuers agree to amend or supplement the Prospectuscontained in the Exchange Offer Registration Statement for a period of up to 180 days after the last Exchange Date (as such period may be extended pursuantto Section 3(d) hereof), in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with thepositions of the Staff recited in Section 4(a) above. The Issuers further agree that Participating Broker-Dealers shall be authorized to deliver such Prospectus(or, to the extent permitted by law, make available) during such period in connection with the resales contemplated by this Section 4. 15 (c) The Initial Purchasers shall have no liability to the Issuers or any Holder with respect to any request that they may make pursuant to Section 4(b)hereof.5. Indemnification and Contribution. (a) Each of the Issuers, jointly and severally, agree to indemnify and hold harmless each Initial Purchaser andeach Holder, their respective affiliates, directors and officers and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning ofSection 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, withoutlimitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses areincurred), joint or several, that arise out of, or are based upon, (1) any untrue statement or alleged untrue statement of a material fact contained in anyRegistration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make thestatements therein not misleading, or (2) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, any Free WritingProspectus or any “issuer information” (“Issuer Information”) filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or any omission oralleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they weremade, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement oromission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser orinformation relating to any Holder furnished to the Issuers in writing through J.P. Morgan or any selling Holder, respectively, expressly for use therein. Inconnection with any Underwritten Offering permitted by Section 3, the Issuers, jointly and severally, will also indemnify the Underwriters, if any, sellingbrokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls suchPersons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of theHolders, if requested in connection with any Registration Statement, any Prospectus, any Free Writing Prospectus or any Issuer Information.(b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Issuers, the Initial Purchasers and the other selling Holders, thedirectors of the Issuers, each officer of the Issuers who signed the Registration Statement and each Person, if any, who controls the Issuers, any InitialPurchaser and any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as theindemnity set forth in paragraph (a) above, but only with respect to any losses, 16 claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in relianceupon and in conformity with any information relating to such Holder furnished to the Issuers in writing by such Holder expressly for use in any RegistrationStatement, any Prospectus and any Free Writing Prospectus.(c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against anyPerson in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such Person (the “Indemnified Person”) shallpromptly notify the Person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify theIndemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materiallyprejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Personshall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If any such proceeding shallbe brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counselreasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 5that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expensesof such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but thefees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shallhave mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to theIndemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or inaddition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both theIndemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potentialdiffering interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedingin the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, andthat all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm (x) for any Initial Purchaser, its affiliates, directors and officersand any control Persons of such Initial Purchaser shall be designated in writing by J.P. Morgan, (y) for any Holder, its directors and officers and any controlPersons of such Holder shall be designated in writing by the Majority Holders and (z) in all other cases shall be designated in writing by the Company. TheIndemnifying Person shall not be liable for any settlement of any proceeding effected without 17 its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify eachIndemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time anIndemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated bythis paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement isentered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed theIndemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of theIndemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a partyand indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of suchIndemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of suchproceeding and (B) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.(d) If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses,claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Personthereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in suchproportion as is appropriate to reflect the relative benefits received by the Issuers from the offering of the Securities and the Exchange Securities, on the onehand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocationprovided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause(i) but also the relative fault of the Issuers on the one hand and the Holders on the other in connection with the statements or omissions that resulted in suchlosses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Issuers on the one hand and the Holderson the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission oralleged omission to state a material fact relates to information supplied by the Issuers or by the Holders and the parties’ relative intent, knowledge, access toinformation and opportunity to correct or prevent such statement or omission.(e) The Issuers and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rataallocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable 18 considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages andliabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred bysuch Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 5, in no event shall a Holder be requiredto contribute any amount in excess of the amount by which the total price at which the Securities or Exchange Securities sold by such Holder exceeds theamount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or allegedomission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution fromany Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute pursuant to this Section 5 are several and notjoint.(f) The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies that may otherwise be available to anyIndemnified Person at law or in equity.(g) The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) anytermination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers or any Holder or any Person controlling any InitialPurchaser or any Holder, or by or on behalf of the Issuers or the officers or directors of or any Person controlling the Issuers, (iii) acceptance of any of theExchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement.6. General.(a) No Inconsistent Agreements. The Issuers represent, warrant and agree that (i) the rights granted to the Holders hereunder do not in any way conflictwith and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Issuers under any otheragreement and (ii) neither of the Issuers has entered into, or on or after the date of this Agreement will enter into, any agreement that is inconsistent with therights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof.(b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified orsupplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Issuers have obtained the written consent ofHolders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement,waiver or consent; provided that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall 19 be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. Any amendments, modifications, supplements,waivers or consents pursuant to this Section 6(b) shall be by a writing executed by each of the parties hereto.(c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-classmail, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Issuers by means of anotice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Initial Purchasers, the address set forth in thePurchase Agreement; (ii) if to the Issuers, initially at the Issuers’ address set forth in the Purchase Agreement and thereafter at such other address, notice ofwhich is given in accordance with the provisions of this Section 6(c); and (iii) to such other persons at their respective addresses as provided in the PurchaseAgreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices andcommunications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited inthe mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courierguaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the sameto the Trustee, at the address specified in the Indenture.(d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of theparties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed topermit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If anytransferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall beheld subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to haveagreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. TheInitial Purchasers (in their capacity as Initial Purchasers) shall have no liability or obligation to the Issuers with respect to any failure by a Holder to complywith, or any breach by any Holder of, any of the obligations of such Holder under this Agreement.(e) Third Party Beneficiaries. Each Holder shall be a third party beneficiary to the agreements made hereunder between the Issuers, on the one hand,and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary oradvisable to protect its rights or the rights of other Holders hereunder. 20 (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of whichwhen so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.(g) Headings. The headings in this Agreement are for convenience of reference only, are not a part of this Agreement and shall not limit or otherwiseaffect the meaning hereof.(h) Governing Law. This Agreement, and any claim, controversy or dispute arising under or related to this Agreement, shall be governed by andconstrued in accordance with the laws of the State of New York.(i) Entire Agreement; Severability. This Agreement contains the entire agreement between the parties relating to the subject matter hereof andsupersedes all oral statements and prior writings with respect thereto. If any term, provision, covenant or restriction contained in this Agreement is held by acourt of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants andrestrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Issuers and the InitialPurchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect ofwhich comes as close as possible to that of the invalid, void or unenforceable provisions.[The remainder of this page is intentionally left blank.] 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. STAR GAS PARTNERS, L.P.By: KESTREL HEAT LLC, as General PartnerBy /s/ Richard F. AmburyName: Richard F. AmburyTitle: STAR GAS FINANCE COMPANYBy /s/ Richard F. AmburyName: Richard F. AmburyTitle: Chief Financial OfficerConfirmed and accepted as of the date first above written: J.P. MORGAN SECURITIES LLCFor itself and on behalf of the several Initial PurchasersBy /s/ CORNELIUS J. DROOGAN Authorized Signatory CORNELIUS J. DROOGAN Managing Director Schedule 1RBS Securities Inc. Exhibit 10.23Execution Copy STAR GAS PARTNERS, L.P.,STAR GAS FINANCE COMPANYANDUNION BANK, N.A.AS TRUSTEE8.875% Senior Notes due 2017 INDENTUREDated as of November 16, 2010 Table of Contents Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE 1 SECTION 1.1 Definitions. 1 ARTICLE II THE SECURITIES 28 SECTION 2.2 Execution and Authentication 35 SECTION 2.3 Registrar and Paying Agent 36 SECTION 2.4 Paying Agent to Hold Money in Trust 36 SECTION 2.5 Securityholder Lists 37 SECTION 2.6 Transfer and Exchange 37 SECTION 2.7 Form of Certificate to be Delivered in Connection with Transfers to IAIs. 40 SECTION 2.8 Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S 42 SECTION 2.9 Mutilated, Destroyed, Lost or Stolen Securities 43 SECTION 2.10 Outstanding Securities 44 SECTION 2.11 Temporary Securities 44 SECTION 2.12 Cancellation 44 SECTION 2.13 Payment of Interest; Defaulted Interest 45 SECTION 2.14 Computation of Interest 46 SECTION 2.15 CUSIP Numbers 46 ARTICLE III COVENANTS 46 SECTION 3.1 Payment of Securities 46 SECTION 3.2 SEC Reports 46 SECTION 3.3 Incurrence of Indebtedness and Issuance of Preferred Stock 47 SECTION 3.4 Limitation on Restricted Payments 47 Page SECTION 3.5 Limitation on Liens 49 SECTION 3.6 Limitation on Distributions from Restricted Subsidiaries 49 SECTION 3.7 Limitation on Asset Sales 50 SECTION 3.8 Limitation on Affiliate Transactions 52 SECTION 3.9 Offer to Repurchase Upon Change of Control 52 SECTION 3.10 Limitation on Sale and Leaseback Transactions 54 SECTION 3.11 Limitation on Lines of Business 54 SECTION 3.12 Limitation on Co-Issuer 55 SECTION 3.13 Maintenance of Office or Agency 55 SECTION 3.14 Partnership and Corporate Existence 55 SECTION 3.15 Payment of Taxes and Other Claims 55 SECTION 3.16 Payments for Consent 56 SECTION 3.17 Compliance Certificate 56 SECTION 3.18 Further Instruments and Acts 56 SECTION 3.19 Statement by Officers as to Default 56 SECTION 3.20 Stay, Extension and Usury Laws 56 ARTICLE IV SUCCESSOR COMPANY 57 SECTION 4.1 Merger, Consolidation or Sale of Assets 57 ARTICLE V REDEMPTION OF SECURITIES 58 SECTION 5.1 Optional Redemption 58 SECTION 5.2 Applicability of Article 58 SECTION 5.3 Election to Redeem; Notice to Trustee 58 SECTION 5.4 Selection by Trustee of Securities to Be Redeemed 58 SECTION 5.5 Notice of Redemption 59 SECTION 5.6 Deposit of Redemption Price 60 Page SECTION 5.7 Securities Payable on Redemption Date 60 SECTION 5.8 Securities Redeemed in Part 60 ARTICLE VI DEFAULTS AND REMEDIES 60 SECTION 6.1 Events of Default 60 SECTION 6.2 Acceleration 62 SECTION 6.3 Other Remedies 63 SECTION 6.4 Waiver of Past Defaults 63 SECTION 6.5 Control by Majority 63 SECTION 6.6 Limitation on Suits 63 SECTION 6.7 Rights of Securityholders to Receive Payment 64 SECTION 6.8 Collection Suit by Trustee 64 SECTION 6.9 Trustee May File Proofs of Claim 64 SECTION 6.10 Priorities 64 SECTION 6.11 Undertaking for Costs 65 SECTION 6.12 Additional Payments 65 ARTICLE VII TRUSTEE 65 SECTION 7.1 Duties of Trustee 65 SECTION 7.2 Rights of Trustee 67 SECTION 7.3 Individual Rights of Trustee 68 SECTION 7.4 Trustee’s Disclaimer 68 SECTION 7.5 Notice of Defaults 68 SECTION 7.6 Reports by Trustee to Securityholders 68 SECTION 7.7 Compensation and Indemnity 69 SECTION 7.8 Replacement of Trustee 69 SECTION 7.9 Successor Trustee by Merger 70 Page SECTION 7.10 Eligibility; Disqualification 71 SECTION 7.11 Preferential Collection of Claims Against Company 71 ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE 71 SECTION 8.1 Discharge of Liability on Securities; Defeasance 71 SECTION 8.2 Conditions to Defeasance 72 SECTION 8.3 Application of Trust Money 74 SECTION 8.4 Repayment to Company 74 SECTION 8.5 Indemnity for U.S. Government Obligations 74 SECTION 8.6 Reinstatement 74 ARTICLE IX AMENDMENTS 74 SECTION 9.1 Without Consent of Securityholders 74 SECTION 9.2 With Consent of Securityholders 75 SECTION 9.3 Compliance with Trust Indenture Act 76 SECTION 9.4 Revocation and Effect of Consents and Waivers 76 SECTION 9.5 Notation on or Exchange of Securities 77 SECTION 9.6 Trustee to Sign Amendments 77 ARTICLE X MISCELLANEOUS 77 SECTION 10.1 Trust Indenture Act Controls 77 SECTION 10.2 Notices 77 SECTION 10.3 Communication by Securityholders with other Securityholders 78 SECTION 10.4 Certificate and Opinion as to Conditions Precedent 78 SECTION 10.5 Statements Required in Certificate or Opinion 78 SECTION 10.6 When Securities Disregarded 79 SECTION 10.7 Rules by Trustee, Paying Agent and Registrar 79 SECTION 10.8 Legal Holidays 79 Page SECTION 10.9 GOVERNING LAW; WAIVER OF JULY TRIAL 79 SECTION 10.10 No Recourse Against Others 79 SECTION 10.11 Successors 80 SECTION 10.12 Multiple Originals 80 SECTION 10.13 Qualification of Indenture 80 SECTION 10.14 Table of Contents; Headings 80 SECTION 10.15 Force Majeure 80 SECTION 10.16 U.S.A. Patriot Act 80 Exhibit A Form of Face of SecurityExhibit B Form of Face of Exchange Security CROSS-REFERENCE TABLE Trust Indenture Act Section Indenture Section 310(a)(1) 7.10 (a)(2) 7.10 (a)(3) N.A. (a)(4) N.A. (a)(5) 7.10 (b) 7.8;7.10 (c) N.A. 311(a) 7.11 (b) 7.11 (c) N.A. 312(a) 2.5 (b) 10.3 (c) 10.3 313(a) 7.6 (b)(1) N.A. (b)(2) 7.6 (c) 7.6 (d) N.A. 314(a) 3.2,10.2,10.5 (b) N.A. (c)(1) 10.4 (c)(2) 10.4 (c)(3) N.A. (d) N.A. (e) 10.5 315(a) 7.1 (b) 7.5,10.2 (c) 7.1 (d) 7.1 (e) 6.11 316(a)(last sentence) 2.10 (a)(1)(A) 6.5 (a)(1)(B) 6.4 (a)(2) N.A. (b) 6.7 (c) 2.13 317(a)(1) 6.8 (a)(2) 6.9 (b) 2.4 318(a) 10.1 (b) N.A. (c) 10.1 N.A. means Not Applicable. Security: This Cross-Reference Table shall not, for any purpose, be deemed to be part of this Indenture. INDENTURE dated as of November 16, 2010, among STAR GAS PARTNERS, L.P., a Delaware limited partnership (the “Company”), STAR GASFINANCE COMPANY, a Delaware corporation (the “Co-Issuer”, together with the Company, the “Issuers”) and UNION BANK, N.A., a national bankingassociation (the “Trustee”) as Trustee.Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Securityholders of (i) the Issuers’ 8.875%Senior Notes due 2017, issued on the date hereof (the “Initial Securities”), (ii) if and when issued, an unlimited principal amount of additional 8.875% SeniorNotes due 2017 in a non-registered offering or in a registered offering of the Issuers that may be offered from time to time subsequent to the Issue Date (the“Additional Securities”) and (iii) if and when issued, the Issuers’ 8.875% Senior Notes due 2017 that may be issued from time to time in exchange for InitialSecurities or any Additional Securities in an offer registered under the Securities Act (as hereinafter defined, the “Exchange Securities”, and, together with theInitial Securities and the Additional Securities, the “Securities”).ARTICLE IDefinitions and Incorporation by ReferenceSECTION 1.1 Definitions.“Acquired Indebtedness” means Indebtedness (i) of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiaryor (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or inanticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition. Acquired Indebtedness shall be deemedto have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect toclause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets.“Additional Securities” shall have the meaning assigned to such term in the second introductory paragraph to this Indenture.“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect commoncontrol with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct themanagement and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms“controlling” and “controlled” have meanings correlative to the foregoing; provided that beneficial ownership of 10% or more of the Voting Stock of aPerson shall be deemed to be control.“Applicable Premium” means, with respect to any Security on any applicable redemption date, the excess, if any, of (a) the present value at suchredemption date of (i) the redemption price of such Security at December 1, 2014 (such redemption price being specified in the form of Securities set forth inExhibits A and B hereto) plus (ii) all required interest payments (excluding 1 accrued and unpaid interest to such redemption date) due on such Security through December 1, 2014 computed using a discount rate equal to the TreasuryRate as of such redemption date plus 50 basis points over (b) the principal amount of such Security.“Asset Acquisition” means the following (in all cases, including assets acquired through a Flow-Through Acquisition):(1) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which the Person shall become a RestrictedSubsidiary, or shall be merged with or into the Company or any Restricted Subsidiary;(2) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person, other than a Restricted Subsidiary, which constituteall or substantially all of the assets of such Person; or(3) the acquisition by the Company or any Restricted Subsidiary of any division or line of business of any Person, other than a RestrictedSubsidiary.“Asset Sale” means either of the following, whether in a single transaction or a series of related transactions:(1) the sale, lease, conveyance or other disposition of any assets other than sales, leases or transfers of assets in the ordinary course of business(including but not limited to the sales of inventory in the ordinary course of business and the sale of receivables and accounts pursuant to a CreditFacility); or(2) the issuance or sale of Capital Stock of any direct Subsidiary.Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:(1) any sale, lease or transfer of assets or Capital Stock by the Company or any of its Restricted Subsidiaries to the Company or a RestrictedSubsidiary;(2) any sale or transfer of assets or Capital Stock by the Company or any of its Restricted Subsidiaries to any entity in exchange for other assetsused in a related business and/or cash (provided that such cash portion must be applied in accordance with Section 3.7), and having a fair market value,as determined in good faith by the Board of Directors, reasonably equivalent to the fair market value of the assets so transferred;(3) any sale, lease or transfer of assets in accordance with Permitted Investments;(4) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company;(5) the transfer or disposition of assets that are permitted Restricted Payments; and 2 (6) any sale, lease or transfer of assets pursuant to a Sale and Leaseback Transaction otherwise permitted by this Indenture.“Asset Sale Offer” shall have the meaning assigned to such term in Section 3.7(e).“Attributable Debt” means, with respect to any Sale and Leaseback Transactions not involving a Capital Lease, as of any date of determination, thetotal obligation, discounted to present value at the rate of interest implicit in the lease included in the transaction, of the lessee for rental payments during theremaining portion of the term of the lease, including extensions which are at the sole option of the lessor, of the lease included in the transaction. Forpurposes of this definition, the rental payments shall not include amounts required to be paid on account of property taxes, maintenance, repairs, insurance,assessments, utilities, operating and labor costs and other items which do not constitute payments for property rights. In the case of any lease which isterminable by the lessee upon the payment of a penalty, the rental obligation shall also include the amount of the penalty, but no rent shall be considered asrequired to be paid under such lease subsequent to the first date upon which it may be so terminated.“Available Cash” as to any quarter means the amount resulting from:(1) the sum of:(a) all cash receipts of the Company during such quarter from all sources (including, without limitation, distributions of cash received fromSubsidiaries and cash proceeds from Interim Capital Transactions, but excluding cash proceeds from Termination Capital Transactions); and(b) any reduction with respect to such quarter in a cash reserve previously established pursuant to clause (2)(b) below (either by reversal orutilization) from the level of such reserve at the end of the prior quarter;(2) less the sum of:(a) all cash disbursements of the Company during such quarter, including, without limitation, disbursements for operating expenses, taxes,if any, debt service (including, without limitation, the payment of principal, premium and interest), redemption of Capital Stock of the Company,capital expenditures, contributions, if any, to any Subsidiaries and cash distributions to partners of the Company (but only to the extent thatsuch cash distributions to partners exceed Available Cash for the immediately preceding quarter); and(b) any cash reserves established with respect to such quarter, and any increase with respect to such quarter in a cash reserve previouslyestablished pursuant to this clause (2)(b) from the level of such reserve at the end of the prior quarter, in such amounts as the Board of Directorsdetermines in its reasonable discretion to be necessary or appropriate (i) to provide for the proper conduct of the business of the Company(including, without limitation, reserves for future capital expenditures), (ii) to provide funds for distributions with respect to Capital Stock of theCompany in respect of any one or more of the next four quarters or 3 (iii) because the distribution of such amounts would be prohibited by applicable law or by any loan agreement, security agreement, mortgage,debt instrument or other agreement or obligation to which the Company is a party or by which it is bound or its assets are subject;(3) plus the lesser of:(a) an amount as calculated in accordance with clauses (1) and (2) above for the Company or its Restricted Subsidiaries for the first 45 daysof the quarter during which such Restricted Payment is made (rather than the quarter for which clauses (1) and (2) were calculated); and(b) an amount of working capital Indebtedness that the Company or its Restricted Subsidiaries could have Incurred on or before the 45thday after the last day of the quarter used to calculate clauses (1) and (2) above; provided, however, that Available Cash attributable to anyRestricted Subsidiary will be excluded to the extent dividends or distributions of Available Cash by the Restricted Subsidiary are not at the dateof determination permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or other regulation.Notwithstanding the foregoing, “Available Cash” shall not include any cash receipts or reductions in reserves or take into account any disbursementsmade or reserves established in each case after the date of liquidation of the Company. Taxes paid by the Company on behalf of, or amounts withheldwith respect to, all or less than all of the partners shall not be considered cash disbursements of the Company that reduce Available Cash, but thepayment or withholding thereof shall be deemed to be a distribution of Available Cash to the partners. Alternatively, in the discretion of the Board ofDirectors, such taxes (if pertaining to all partners) may be considered to be cash disbursements of the Company which reduce Available Cash, but thepayment or withholding thereof shall not be deemed to be a distribution of Available Cash to such partners.“Average Life” means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) thesum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtednessor redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments.“Bankruptcy Law” means Title 11, United States Code or any similar Federal or state law for the relief of debtors.“Board of Directors” means, as to any Person, the board of directors of such Person or any duly authorized committee thereof; provided that so long asthe Company is a limited partnership, as to the Company, “Board of Directors” means the board of directors of Kestrel Heat LLC, its general partner, or anyduly authorized committee thereof. 4 “Board Resolution” means (i) in the case of the Company, a resolution properly authorized and approved by the board of directors of the generalpartner of the Company; and (ii) in the case of the Co-Issuer, a resolution properly authorized and approved by the board of directors of the Co-Issuer.“Borrowing Base” means, as of any date of determination, an amount equal to the sum, without duplication, of (1) 85% of the net book value of all ofthe Company’s and its Restricted Subsidiaries’ accounts receivable at such date and (2) 75% of the net book value of the Company’s and its RestrictedSubsidiaries’ inventories at such date. Net book value shall be determined in accordance with GAAP and shall be reflected on the most recent availableconsolidated balance sheet of the Company (it being understood that the accounts receivable and inventories of an acquired business may be included ifsuch acquisition has been completed on or prior to the date of the determination).“Business Day” means each day that is not a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized orrequired by law to close.“Capital Lease” means any lease of property, real or personal, that, in accordance with GAAP, would be required to be capitalized on the balance sheetof the lessee.“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interestsin (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity.“Change of Control” means:(1) any transaction or series of related transactions pursuant to which any “person” or “group” or “groups” of related persons (as defined in theExchange Act) other than the Permitted Holders, becoming beneficial owners, in the aggregate, directly or indirectly, of 50% or more of the VotingStock of the general partner of the Company (or the successor by merger, consolidation or purchase of substantially all of the assets of the generalpartner) and the Permitted Holders beneficially owning at any time, in the aggregate, a lesser percentage of the Voting Stock of the general partner ofthe Company (or the successor by merger, consolidation or purchase of substantially all of the assets of the general partner) than such other person orgroup;(2) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of relatedtransactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term isused in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder;(3) the adoption of a plan or proposal for the liquidation or dissolution of the Company or the general partner of the Company; or(4) Kestrel Heat LLC or any affiliated entity shall fail to own beneficially 100% of the general partnership interest in the Company. 5 “Code” means the Internal Revenue Code of 1986, as amended.“Co-Issuer” shall have the meaning assigned to such term in the preamble to this Indenture.“Common Stock” means with respect to any Person, any and all shares, units, interests or other participations in, and other equivalents (howeverdesignated and whether voting or nonvoting) of such Person’s securities whether or not outstanding on the Issue Date, and includes, without limitation, allseries and classes of such common stock, and, in the case of the Company, means the units representing limited partner interests of the Company whether ornot outstanding on the Issue Date.“Company” shall have the meaning assigned to such term in the first introductory paragraph to this Indenture.“Consolidated Cash Flow Available for Fixed Charges” means, with respect to the Company and its Restricted Subsidiaries, for any period, the sum of,without duplication, the amounts for the period, taken as single accounting, of:(1) Consolidated Net Income;(2) Consolidated Non-Cash Charges;(3) Consolidated Interest Expense; and(4) Consolidated Income Tax Expense.“Consolidated Fixed Charge Coverage Ratio” means, with respect to the Company and its Restricted Subsidiaries, the ratio of (x) the aggregate amountof Consolidated Cash Flow Available for Fixed Charges of the Person for the four full fiscal quarters immediately preceding the date of the transaction (the“Transaction Date”) giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the “Four Quarter Period”), to (y) the aggregateamount of Consolidated Fixed Charges of the Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of thisdefinition, “Consolidated Cash Flow Available for Fixed Charges” and “Consolidated Fixed Charges” shall be calculated after giving effect on a pro formabasis for the period of the calculation to, without duplication:(1) the Incurrence or repayment, repurchase, defeasance, redemption or other acquisition or retirement for value (collectively, “repayment”) ofany Indebtedness, excluding revolving credit borrowings and repayments of revolving credit borrowings (other than any revolving credit borrowingsthe proceeds of which are used for Asset Acquisitions or Growth Related Capital Expenditures of the Company or any of its Restricted Subsidiaries andin the case of any Incurrence, the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period toand including the Transaction Date (the “Reference Period”), including, without limitation, the Incurrence of the Indebtedness giving rise to the needto make the calculation (and the application of the net proceeds thereof), as if the Incurrence (and application) or repayment occurred on the first day ofthe Reference Period; and 6 (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make the calculation asa result of the Company or one of its Restricted Subsidiaries, including any Person who becomes a Restricted Subsidiary as a result of the AssetAcquisition, Incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if the Asset Sale orAsset Acquisition occurred on the first day of the Reference Period; provided, however, that:(a) Consolidated Fixed Charges will be reduced by amounts attributable to businesses or assets that are so disposed of or discontinuedonly to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to theConsolidated Fixed Charges subsequent to the date of determination of the Consolidated Fixed Charge Coverage Ratio;(b) Consolidated Cash Flow Available for Fixed Charges generated by an acquired business or asset shall be determined by the actualgross profit, which is equal to revenues minus cost of goods sold, of the acquired business or asset during the immediately available precedingfour full fiscal quarters occurring in the Reference Period, minus the pro forma expenses that would have been Incurred by the Company and itsRestricted Subsidiaries in the operation of the acquired business or asset during the period computed on the basis of personnel expenses foremployees retained or to be retained by the Company and its Restricted Subsidiaries in the operation of the acquired business or asset and non-personnel costs and expenses Incurred by or to be Incurred by the Company and its Restricted Subsidiaries based upon the operation of theCompany’s business, all as determined in good faith by the Board of Directors; and(c) Consolidated Cash Flow Available for Fixed Charges shall not include the impact of any non-recurring cash charges Incurred inconnection with a restructuring, reorganization or other similar transaction, as determined in good faith by the Board of Directors.In calculating “Consolidated Fixed Charges” for purposes of determining the “Consolidated Fixed Charge Coverage Ratio”:(1) interest on outstanding Indebtedness, other than Indebtedness referred to in sub-paragraph (2) below, determined on a fluctuating basis as ofthe last day of the Four Quarter Period and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annumequal to the rate of interest on such Indebtedness in effect on that date;(2) only actual interest payments associated with Indebtedness Incurred in accordance with clause (4) of the definition of Permitted Indebtednessand all Permitted Refinancing Indebtedness in respect thereof, during the Four Quarter Period shall be included in the calculation; and 7 (3) if interest on any Indebtedness actually Incurred on the date may optionally be determined at an interest rate based upon a factor of a prime orsimilar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the last day of the Four Quarter Period will be deemedto have been in effect during the period.“Consolidated Fixed Charges” means, with respect to the Company and its Restricted Subsidiaries for any period, the sum of, without duplication:(1) the amounts for such period of Consolidated Interest Expense; and(2) the product of:(a) the aggregate amount of dividends and other distributions paid or accrued during the period in respect of Preferred Stock andRedeemable Capital Stock of the Company and its Restricted Subsidiaries on a consolidated basis; and(b) a fraction, the numerator of which is one and the denominator of which is one less the then applicable current combined federal, stateand local statutory tax rate, expressed as a percentage.“Consolidated Income Tax Expense” means, with respect to the Company and its Restricted Subsidiaries for any period, the provision for federal, state,local and foreign income taxes of the Company and its Restricted Subsidiaries for the period as determined on a consolidated basis in accordance with GAAP.“Consolidated Interest Expense” means, with respect to the Company and its Restricted Subsidiaries, for any period, without duplication, the sum of:(1) the interest expense of the Company and its Restricted Subsidiaries for the period as determined on a consolidated basis in accordance withGAAP, net of interest income in an amount not to exceed $5 million;(2) any amortization of debt discount;(3) the net cost under Interest Rate Agreements;(4) the interest portion of any deferred payment obligation;(5) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;(6) all accrued interest for all instruments evidencing Indebtedness; and(7) the interest component of Capital Leases paid or accrued or scheduled to be paid or accrued by the Company and its Restricted Subsidiariesduring the period as determined on a consolidated basis in accordance with GAAP. 8 “Consolidated Net Income” means the net income (loss) of the Company and its Restricted Subsidiaries, as determined on a consolidated basis inaccordance with GAAP and as adjusted to exclude:(1) net after-tax extraordinary gains or losses;(2) net after-tax gains or losses attributable to Asset Sales;(3) the net income or loss of any Person which is not a Restricted Subsidiary and which is accounted for by the equity method of accounting;provided that Consolidated Net Income shall include the amount of dividends or distributions actually paid to the Company or any RestrictedSubsidiary;(4) the net income or loss prior to the date of acquisition of any Person combined with the Company or any Restricted Subsidiary in a pooling ofinterest;(5) the net income of any Restricted Subsidiary to the extent that dividends or distributions of that net income are not at the date ofdetermination permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or other regulation; and(6) the cumulative effect of any changes in accounting principles.“Consolidated Non-Cash Charges” means, with respect to the Company and its Restricted Subsidiaries for any period, the aggregate of(1) depreciation, (2) amortization, (3) non-cash employee compensation expenses of the Company or its Restricted Subsidiaries for such period, and (4) anyother non-cash charges, in each case which reduces the Consolidated Net Income of the Company and its Restricted Subsidiaries for the period, as determinedon a consolidated basis in accordance with GAAP and excluding any such non-cash charge or expense to the extent it represents an accrual of or reserve forcash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period, and also excluding the non-cash impact of FASBASC 815-10-05 Derivatives and Hedging topic (FAS 133).“Credit Facilities” means, one or more debt facilities or commercial paper facilities, in each case with banks or other institutional lenders providing forrevolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed toborrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinancedin whole or in part from time to time.“Custodian” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.“Definitive Securities” means certificated Securities. 9 “DTC” means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depository institution hereinafterappointed by the Company.“Event of Default” means any of the events specified in Section 6.1.“Excess Proceeds” shall have the meaning assigned to such term in Section 3.7(d).“Exchange Act” means the Securities Exchange Act of 1934, as amended.“Exchange Securities” shall have the meaning assigned to such term in the second introductory paragraph to this Indenture.“Fiscal Year” shall mean the fiscal year of the Company as set forth in the audited financial statements of the Company, which as of the Issue Date wasthe period from October 1 through September 30 of each year.“Flow-Through Acquisition” means an acquisition by the general partner from a Person that is not an Affiliate of the general partner or the Company,of property (real or personal), assets or equipment (whether through the direct purchase of assets or the Capital Stock of the Person owning such assets) in aRelated Business, which is promptly sold, transferred or contributed on no less favorable terms by the general partner to the Company or one of its RestrictedSubsidiaries.“GAAP” means generally accepted accounting principles in the United States of America on the Issue Date, including those set forth in the opinionsand pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements ofthe Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accountingprofession. All ratios and computations based on GAAP contained in this Indenture will be computed in conformity with GAAP.“Growth Related Capital Expenditures” means, with respect to any Person, all capital expenditures by such Person made to improve or enhance theexisting capital assets or to increase the customer base of such Person or to acquire or construct new capital assets (but excluding capital expenditures madeto maintain, up to the level thereof that existed at the time of such expenditure, the operating capacity of the capital assets of such Person as such assetsexisted at the time of such expenditure).“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person andany obligation, direct or indirect, contingent or otherwise, of such Person:(1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising byvirtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintainfinancial statement conditions or otherwise); or 10 (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligeeagainst loss in respect thereof (in whole or in part); provided, however, that the term “Guarantee” will not include endorsements for collection ordeposit in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.“Incur” means issue, create, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of aPerson existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to beIncurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlativeto the foregoing.“Indebtedness” means, as applied to any Person, without duplication:(1)(a) any indebtedness for borrowed money and (b) all obligations evidenced by any (i) bond, note, debenture or other similar instrument or(ii) letters of credit, or reimbursement agreements in respect thereof, but only for any drawings that are not reimbursed within five Business Days afterthe date of such drawings, which in each case the Person has, directly or indirectly, created or Incurred;(2) any indebtedness for borrowed money and all obligations evidenced by any bond, note, debenture or other similar instrument secured by anyLien in respect of property owned by the Person, whether or not the Person has assumed or become liable for the payment of the indebtedness; providedthat the amount of the indebtedness, if the Person has not assumed the same or become liable therefor, shall in no event be deemed to be greater thanthe fair market value from time to time, as determined in good faith by the Person, of the property subject to the Lien;(3) any indebtedness, whether or not for borrowed money with respect to which the Person has become directly or indirectly liable and whichrepresents the deferred purchase price, or a portion thereof, or has been Incurred to finance the purchase price, or a portion thereof, of any property orbusiness acquired by, or service performed on behalf of, the Person, whether by purchase, consolidation, merger or otherwise;(4) the principal component of any obligations under Capital Leases to the extent the obligations would, in accordance with GAAP, appear onthe balance sheet of the Person;(5) all Attributable Debt of the Person in respect of Sale and Leaseback Transactions not involving a Capital Lease;(6) any indebtedness of any other Person of the character referred to in the foregoing clauses (1) through (5) of this definition with respect towhich the Person whose indebtedness is being determined has become liable by way of a Guarantee; and(7) all Redeemable Capital Stock of the Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrueddividends. 11 For purposes hereof, the “maximum fixed repurchase price” of any Redeemable Capital Stock which does not have a fixed repurchase price shall becalculated in accordance with the terms of the Redeemable Capital Stock as if it were purchased on any date on which Indebtedness shall be required tobe determined pursuant to this Indenture and if the price is based upon, or measured by, the fair market value of the Redeemable Capital Stock, the fairmarket value shall be determined in good faith by the board of directors of the issuer of the Redeemable Capital Stock. Furthermore, for purposeshereof, the term “Indebtedness” shall not include (x) accrual of interest, the accretion of accreted value and the payment of interest or any other similarIncurrence by the Company or its Subsidiaries related to Indebtedness otherwise permitted in this Indenture or (y) any trade payables or accruedexpenses arising in the ordinary course of business.“Indenture” means this Indenture as amended or supplemented from time to time.“Initial Securities” shall have the meaning assigned to such term in the second introductory paragraph of this Indenture.“Interest Rate Agreement” means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate optionagreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement orarrangement as to which such Person is party or a beneficiary.“Interim Capital Transactions” means (1) borrowings, refinancings or refundings of Indebtedness and sales of debt securities (other than for workingcapital purposes and other than for items purchased on open account in the ordinary course of business) by the Company, (2) sales of Capital Stock of theCompany by the Company and (3) sales or other voluntary or involuntary dispositions of any assets of the Company (other than (x) sales or otherdispositions of inventory in the ordinary course of business, (y) sales or other dispositions of other current assets excluding receivables and accounts and(z) sales or other dispositions of assets as a part of normal retirements or replacements), in each case prior to the commencement of the dissolution andliquidation of the Company.“Investment” means as applied to any Person:(1) any direct or indirect purchase or other acquisition by the Person of stock or other securities of any other Person; or(2) any direct or indirect loan, advance or capital contribution by the Person to any other Person and any other item which would be classified asan “investment” on a balance sheet of the Person prepared in accordance with GAAP, including without limitation any direct or indirect contributionby the Person of property or assets to a joint venture, partnership or other business entity in which the Person retains an interest, it being understoodthat a direct or indirect purchase or other acquisition by the Person of assets of any other Person, other than stock or other securities, shall not constitutean “Investment” for purposes of this Indenture. 12 The amount classified as Investments made during any period shall be the aggregate cost to the Company and its Restricted Subsidiaries of all theInvestments made during the period, determined in accordance with GAAP, but without regard to unrealized increases or decreases in value, or write-ups, write-downs or write-offs, of the Investments and without regard to the existence of any undistributed earnings or accrued interest with respectthereto accrued after the respective dates on which the Investments were made, less any net return of capital realized during the period upon the sale,repayment or other liquidation of the Investments, determined in accordance with GAAP, but without regard to any amounts received during the periodas earnings (in the form of dividends not constituting a return of capital, interest or otherwise) on the Investments or as loans from any Person in whomthe Investments have been made.“Issue Date” means the date on which the Securities are originally issued.“Issuers” shall have the meaning assigned to such term in the preamble to this Indenture.“Issuers’ Order” shall have the meaning assigned to such term in Section 2.2.“Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retentionagreement or lease in the nature thereof).“Net Proceeds” means, with respect to any Asset Sale or sale of Capital Stock, the proceeds therefrom in the form of cash or cash equivalents includingpayments in respect of deferred payment obligations when received in the form of cash or cash equivalents, except to the extent that the deferred paymentobligations are financed or sold with recourse to the Company or any of its Restricted Subsidiaries, net of:(1) brokerage commissions and other fees and expenses related to the Asset Sale, including, without limitation, fees and expenses of legalcounsel and accountants and fees, expenses, discounts or commissions of underwriters, placement agents and investment bankers;(2) provisions for all taxes payable as a result of the Asset Sale;(3) amounts required to be paid to any Person, other than the Company or any Restricted Subsidiary, owning a beneficial interest in the assetssubject to the Asset Sale;(4) appropriate amounts established by the Company or any Restricted Subsidiary, as the case may be, as a reserve required in accordance withGAAP against any liabilities associated with the Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after theAsset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters andliabilities under any indemnification obligations associated with the Asset Sale; and(5) amounts applied to the repayment of Indebtedness in connection with the asset or assets sold in the Asset Sale, including any transactioncosts and expenses 13 associated therewith and any make-whole or other premium owed in connection with such repayment.“Non-U.S. Person” means a person who is not a U.S. person, as defined in Regulation S.“Security Register” means the register of Securities, maintained by the Trustee, pursuant to Section 2.3.“Officer” means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer orthe Secretary of the Issuers or, so long as the Company is a limited partnership, of the Company’s general partner.“Officers’ Certificate” means a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of theIssuers or, so long as the Company is a limited partnership, of the Company’s general partner.“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel tothe Company or the Trustee.“Permitted Holders” means Kestrel Energy Partners, LLC or any Person controlled by it.“Permitted Indebtedness” shall mean any of the following:(1) Indebtedness evidenced by the Securities (but not Additional Securities);(2) Indebtedness outstanding as of the Issue Date;(3) Indebtedness of the Company or a Restricted Subsidiary Incurred (i) for the making of capital expenditures by the Company or its RestrictedSubsidiaries, or (ii) for the purpose of funding acquisitions of Related Businesses, including any Permitted Refinancing Indebtedness of suchIndebtedness in an aggregate principal amount of Indebtedness pursuant to this paragraph (3) not to exceed $100 million at any one time outstanding.(4) Indebtedness of the Company owed to the general partner or an Affiliate of the general partner that is unsecured and that is subordinated inright of payment to the Securities; provided that the aggregate principal amount of this Indebtedness outstanding at any time under this clause may notexceed $10 million and this Indebtedness has a final maturity date later than the final maturity date of the Securities;(5) Indebtedness (a) owed by the Company or any Restricted Subsidiary to any Restricted Subsidiary or (b) owed by any Restricted Subsidiary tothe Company or to any other Restricted Subsidiary;(6) Permitted Refinancing Indebtedness in respect of any Indebtedness permitted to be Incurred under this Indenture other than Indebtednessdescribed under clauses (3), (4), (8) or (13) of this definition; 14 (7) the Incurrence by the Company or a Restricted Subsidiary of Indebtedness owing directly to its insurance carriers, without duplication, inconnection with the Company’s, its Subsidiaries’ or its Affiliates’ self-insurance programs or other similar forms of retained insurable risks for theirrespective businesses, consisting of reinsurance agreements and indemnification agreements, and Guarantees of the foregoing;(8) Indebtedness of the Company and its Restricted Subsidiaries in respect of Capital Leases; provided that the aggregate amount of thisIndebtedness outstanding at any time may not exceed $7.5 million;(9) Indebtedness of the Company and its Restricted Subsidiaries for (a) obligations under workers’ compensation laws and (b) obligations tosuppliers of distillate and non-distillate petroleum products or energy commodity derivative providers in the ordinary course of business consistentwith past practices, not to exceed $10 million at any one time outstanding;(10) surety bonds and appeal bonds required in the ordinary course of business or in connection with the enforcement of rights or claims of theCompany or any of its Subsidiaries or in connection with judgments that do not result in a Default or Event of Default;(11) any Guarantee by any Restricted Subsidiary in respect of Indebtedness of any other Restricted Subsidiary;(12) any Guarantee by the Company of Indebtedness in respect of (x) senior Indebtedness of its Restricted Subsidiaries, or (y) trade credit ofRestricted Subsidiaries;(13) Indebtedness Incurred by any Restricted Subsidiary pursuant to any Credit Facility Incurred solely for working capital purposes not toexceed in the aggregate at any one time outstanding the Borrowing Base; and(14) Indebtedness under any hedging arrangement which provides for the right or obligation to purchase, sell or deliver any currency,commodity or security at a future date for a specified price entered into to protect such Person from fluctuations in prices or rates, including currencies,interest rates, commodity prices, and securities prices, including without limitation indebtedness under any interest rate, energy commodity derivativeor commodity price swap agreement, interest rate cap agreement, interest rate collar agreement or any forward sales arrangements, calls, options, swaps,or other similar transactions or any combination thereof.“Permitted Investments” means any of the following:(1) Investments made or owned by the Company or any Restricted Subsidiary in:(a) marketable obligations issued or unconditionally guaranteed by the United States, or issued by any agency thereof and backed by thefull faith and 15 credit of the United States, in each case maturing one year or less from the date of acquisition thereof;(b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any publicinstrumentality thereof maturing within one year from the date of acquisition thereof and having as at such date the highest rating obtainablefrom either Standard & Poor’s Ratings Group (“S&P”) and its successors or Moody’s Investors Service, Inc. (“Moody’s”) and its successors;(c) commercial paper maturing no more than 270 days from the date of creation thereof and having as at the date of acquisition thereof oneof the two highest ratings obtainable from either S&P or Moody’s;(d) certificates of deposit maturing one year or less from the date of acquisition thereof issued by commercial banks incorporated under thelaws of the United States or any state thereof or the District of Columbia or Canada; the commercial paper or other short term unsecured debtobligations of which are as at such date rated either “A-2” or better (or comparably if the rating system is changed) by S&P or “Prime-2” or better(or comparably if the rating system is changed) by Moody’s; the long-term debt obligations of which are, as at such date, rated either “A” orbetter (or comparably if the rating system is changed) by either S&P or Moody’s (“Permitted Banks”);(e) eurodollar time deposits having a maturity of less than 270 days from the date of acquisition thereof purchased directly from anyPermitted Bank;(f) bankers’ acceptances eligible for rediscount under requirements of the Board of Governors of the Federal Reserve System and acceptedby Permitted Banks;(g) obligations of the type described in clauses (a) through (e) above purchased from a securities dealer designated as a “primary dealer” bythe Federal Reserve Bank of New York or from a Permitted Bank as counterparty to a written repurchase agreement obligating such counterpartyto repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subjectthereof are held for the benefit of the Company or a Restricted Subsidiary by a custodian which is a Permitted Bank and which is not acounterparty to the repurchase agreement in question; and(h) securities issued by money market mutual funds which (i) comply with the criteria set forth in Rule 2a-7 under the InvestmentCompany Act of 1940, as amended, (ii) are rated “AAA” by S&P and “Aaa” by Moody’s and (iii) have portfolio assets in excess of $500 million.(2) the acquisition by the Company or any Restricted Subsidiary of Capital Stock or other ownership interests, whether in a single transaction orin a series of related transactions, of a Person located in the United States and engaged in a Related Business 16 such that, upon the completion of such transaction or series of transactions, the Person becomes a Restricted Subsidiary;(3) the making or ownership by the Company or any Restricted Subsidiary of Investments (in addition to any other Permitted Investments) in anyPerson incorporated or otherwise formed pursuant to the laws of the United States or any state thereof; provided that the aggregate amount of all suchInvestments made by the Company and its Restricted Subsidiaries following the Issue Date and outstanding pursuant to this third clause shall not atany date of determination exceed $20 million;(4) the making or ownership by the Company or any Restricted Subsidiary of Investments:(a) arising out of loans and advances to employees Incurred in the ordinary course of business;(b) arising out of extensions of trade credit or advances to third parties 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 orreorganization of a debtor;(5) the creation or Incurrence of liability by the Company or any Restricted Subsidiary, with respect to any Guarantee constituting an obligation,warranty or indemnity, not guaranteeing Indebtedness of any Person, which is undertaken or made in the ordinary course of business;(6) the making by any Restricted Subsidiary of Investments in the Company or another Restricted Subsidiary and the making by the Company ofInvestments in any Restricted Subsidiary;(7) Investments in any Person pursuant to joint venture arrangements, in an aggregate amount not to exceed $10 million outstanding at any onetime; provided that such Person is engaged in a Related Business; and(8) Investment with respect to any hedging arrangement which provides for the right or obligation to purchase, sell or deliver any currency,commodity or security at a future date for a specified price entered into to protect a Person from fluctuations in prices or rates, including currencies,interest rates, commodity prices, and securities prices, including without limitation indebtedness under any interest rate, energy commodity derivativeor commodity price swap agreement, interest rate cap agreement, interest rate collar agreement or any forward sales arrangements, calls, options, swaps,or other similar transactions or any combination thereof. 17 “Permitted Liens” means any of the following:(1) Liens for taxes, assessments or other governmental charges, the payment of which is not yet due or the payment of which is being contested ingood faith by appropriate proceedings promptly initiated and diligently conducted and as to which reserves or other appropriate provision, if any, asshall be required by GAAP, shall have been made therefor and be adequate in the good faith judgment of the obligor;(2) Liens of lessors, landlords and carriers, vendors, warehousemen, mechanics, materialmen, repairmen and other like Liens Incurred in theordinary course of business for sums not yet due or the payment of which is being contested in good faith by appropriate proceedings promptlyinitiated and diligently conducted and as to which reserves or other appropriate provisions, if any, as shall be required by GAAP, shall have been madetherefor and be adequate in the good faith judgment of the obligor, in each case:(a) not Incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferredpurchase price of property; or(b) Incurred in the ordinary course of business securing the unpaid purchase price of property or services constituting current accountspayable;(3) Liens, other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as may be amended from time to time,Incurred or deposits made in the ordinary course of business:(a) in connection with workers’ compensation, unemployment insurance and other types of social security; or(b) to secure or to obtain letters of credit that secure the performance of tenders, statutory obligations, surety and appeal bonds, bids,leases, performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not Incurred or made inconnection with the borrowing of money;(4) other deposits made or letters of credit issued to secure liability to insurance carriers under insurance or self-insurance arrangements;(5) Liens securing reimbursement obligations under letters of credit, provided in each case that such Liens cover only the title documents andrelated goods and any proceeds thereof covered by the related letter of credit;(6) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after notice of the entry thereof, have beendischarged or execution thereof stayed pending appeal or review, or shall not have been discharged within 60 days after expiration of any such stay; 18 (7) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, which, in each caseeither are granted, entered into or created in the ordinary course of the business of the Company or any Restricted Subsidiary or do not materiallyimpair the value or intended use of the property covered thereby;(8) Liens on property or assets of any Restricted Subsidiary securing Indebtedness of the Restricted Subsidiary owing to the Company or aRestricted Subsidiary;(9) Liens on assets of the Company or any Restricted Subsidiary existing on the Issue Date;(10) Liens on personal property leased under leases entered into by the Company or its Restricted Subsidiaries which are accounted for asoperating leases in accordance with GAAP;(11) Liens securing Indebtedness incurred in accordance with Clause (8) and (13) of the definition of Permitted Indebtedness.(12) Liens (i) existing on any property of any Person at the time it becomes a Subsidiary of the Company, or existing at the time of acquisitionupon any property acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by theCompany or the Subsidiary, or (ii) created to secure Indebtedness Incurred to finance the acquisition, construction, improvement or repair of property,including additions by way of acquisition of businesses and related assets (a “Purchase Money Lien”), including, without limitation, Capital Stock andother securities acquired by the Company or a Restricted Subsidiary; provided that:(a) the Lien shall be confined solely to the item or items of acquired or improved property and, if required by the terms of the instrumentoriginally creating the Lien, other property which is an improvement to or is acquired for use specifically in connection with the acquiredproperty;(b) in the case of a Purchase Money Lien, the principal amount of the Indebtedness secured by the Purchase Money Lien shall at no timeexceed an amount equal to the lesser of:(i) the cost to the Company and the Restricted Subsidiaries of the property; and(ii) the fair market value of the property at the time of the acquisition thereof as determined in good faith by the Board of Directors;(c) the Purchase Money Lien shall be created not later than 360 days after the acquisition or improvement of the property; and 19 (d) the Lien, other than a Purchase Money Lien, shall not have been created or assumed in contemplation of the Person’s becoming aSubsidiary of the Company or the acquisition of property by the Company or any Subsidiary;(13) easements, exceptions or reservations in any property of the Company or any Restricted Subsidiary granted or reserved for the purpose ofpipelines, roads, the removal of oil, gas, coal or other minerals, and other like purposes, or for the joint or common use of real property, facilities andequipment, which are incidental to, and do not materially interfere with, the ordinary conduct of the business of the Company or any RestrictedSubsidiary; and(14) any Lien renewing, extending or replacing any Lien permitted by clauses (9), (11) and (12) above; provided that, the principal amount ofthe Indebtedness secured by any such Lien shall not exceed the principal amount of the Indebtedness outstanding immediately prior to the renewal orextension of the Lien, and no assets encumbered by the Lien other than the assets encumbered immediately prior to the renewal or extension shall beencumbered thereby. The foregoing provisions of this clause (14) shall not be interpreted to limit the ability of the Company or any RestrictedSubsidiary to Incur additional Indebtedness or grant Liens in respect thereof as contemplated in clause (13) of the definition of Permitted Indebtedness.“Permitted Refinancing Indebtedness” means Indebtedness Incurred by the Company or any Restricted Subsidiary to substantially concurrently(excluding any notice period on redemptions) repay, refund, renew, replace, extend or refinance, in whole or in part, any Permitted Indebtedness of theCompany or any Restricted Subsidiary or any other Indebtedness Incurred by the Company or any Restricted Subsidiary pursuant to Section 3.3, to theextent:(1) the principal amount of the Permitted Refinancing Indebtedness does not exceed the principal or accreted amount plus the amount of accruedand unpaid interest of the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced (plus the amount of all expenses and premiumsIncurred in connection therewith);(2) with respect to any repayment, refunding, renewal, replacement, extension or refinancing of the Company’s and its Restricted Subsidiaries’Indebtedness, the Permitted Refinancing Indebtedness ranks no more favorably in right of payment with respect to the Securities than the Indebtednessso repaid, refunded, renewed, replaced, extended or refinanced; and(3) with respect to the repayment, refunding, renewal, replacement, extension or refinancing of the Company’s and its Restricted Subsidiaries’Indebtedness, the Permitted Refinancing Indebtedness has a Weighted Average Life to Stated Maturity and Stated Maturity equal to, or greater than,and has no fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts set forth in, theIndebtedness so repaid, refunded, renewed, replaced, extended or refinanced; 20 provided, however, that Permitted Refinancing Indebtedness shall not include Indebtedness Incurred by a Restricted Subsidiary to repay, refund, renew,replace, extend or refinance Indebtedness of the Company.“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limitedliability company, government or any agency or political subdivision hereof or any other entity.“Preferred Stock” as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred asto the payment of distributions or dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of suchcorporation, over shares of Capital Stock of any other class of such corporation.“Public Equity Offering” means a public offering or private placement of partnership interests (other than interests that are mandatorily redeemable) of:(a) any entity that directly or indirectly owns equity interests in the Company, to the extent the net proceeds are contributed to theCompany;(b) any Subsidiary of the Company to the extent the net proceeds are distributed, paid, lent or otherwise transferred to the Company thatresults in the net proceeds to the Company of at least $10 million; or(c) the Company;provided that a private placement of partnership interests will not be deemed a Public Equity Offering unless net proceeds of at least $10 million arereceived.A “Public Market” exists at any time with respect to the Common Stock of the Company if:(1) the Common Stock of the Company is then registered with the SEC pursuant to Section 12(b) or 12(g) of the Exchange Act and traded eitheron a national securities exchange or in the National Association of Securities Dealers Automated Quotation System; and(2) at least 15% of the total issued and outstanding Common Stock of the Company has been and remains distributed prior to such time bymeans of an effective registration statement under the Securities Act of 1933, as amended.“Redeemable Capital Stock” means any shares of any class or series of Capital Stock (excluding, but not limited to, the Common Stock issued by theCompany), that, either by the terms thereof, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or uponthe happening of an event or passage of time would be, required to be redeemed prior to the Stated Maturity of the principal of the Securities or is redeemableat the option of the holder thereof at any time prior to the Stated Maturity of the principal of the 21 Securities, or is convertible into or exchangeable for debt securities at any time prior to the Stated Maturity of the principal of the Securities.“Redemption Date” means the date selected by the Issuers for the redemption of Securities consistent with the provisions of Exhibits A and B to thisIndenture.“Refinancing Indebtedness” means Indebtedness that is Incurred to refund, refinance, replace, exchange, renew, repay or extend (including pursuant toany defeasance or discharge mechanism) (collectively, “refinance,” “refinances,” and “refinanced” shall have a correlative meaning) any Indebtednessexisting on the date of this Indenture or Incurred in compliance with this Indenture (including Indebtedness of the Issuers that refinances Indebtedness of anyRestricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtednessthat refinances Refinancing Indebtedness, provided, however, that:(1)(a) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Securities, the RefinancingIndebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of theIndebtedness being refinanced is later than the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity at least 91 dayslater than the Stated Maturity of the Securities;(2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than theAverage Life of the Indebtedness being refinanced;(3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issueprice) that is equal to or less than the sum of (x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value)then outstanding of Indebtedness being refinanced plus (y) without duplication, any additional Indebtedness Incurred to pay interest or premiumsrequired by the instruments governing such existing Indebtedness and fees, underwriting discounts, commissions and other expenses incurred inconnection the issuance of the Refinancing Indebtedness and the repayment of the Indebtedness being refinanced); and(4) if the Indebtedness being refinanced is subordinated in right of payment to the Securities, such Refinancing Indebtedness is subordinated inright of payment to the Securities on terms at least as favorable to the Securityholders of Securities as those contained in the documentation governingthe Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.“Related Business” means any business which is the same as or related, ancillary or complementary to any of the businesses of the Company on theIssue Date. The term “Related Business” shall include, by way of example and not limitation, the marketing and sale of propane, deregulated natural gas andderegulated electricity and the provision of equipment and services offered by heating oil companies or by any companies offering any such products for 22 sale to customers, including HVAC sales and service, home security systems, bottled water, electrical and plumbing services.“Restricted Subsidiary” means any Subsidiary of the Company other than an Unrestricted Subsidiary.“Restricted Payment” shall have the meaning assigned to such term in Section 3.4(a).“Sale and Leaseback Transaction” means any arrangement (other than between the Company and a Restricted Subsidiary or between RestrictedSubsidiaries) whereby property has been or will be disposed of by a transferor to another entity with the intent of taking back a lease on the property pursuantto which the rental payments are calculated to amortize the purchase price of the property over its life.“SEC” means the United States Securities and Exchange Commission.“Secured Indebtedness” means Indebtedness that is secured by a Lien on the property or assets of the relevant obligor.“Securities” shall have the meaning assigned to such term in the second introductory paragraph to this Indenture.“Securityholders” means any holder from time to time of the Securities issued pursuant to this Indenture.“Securities Act” means the Securities Act of 1933, as amended.“Securities Custodian” means the custodian with respect to the Global Security (as appointed by DTC), or any successor Person thereto and shallinitially be the Trustee.“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02under Regulation S-X promulgated by the SEC.“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of suchsecurity is due and payable, including pursuant to any mandatory redemption provision, but shall not include any contingent obligations to repay, redeem orrepurchase any such principal prior to the date originally scheduled for the payment thereof.“Subsidiary” of any Person means any corporation, association, partnership, joint venture, limited liability company or other business entity of whichmore than 50% of the total voting power of shares of Capital Stock or other interests (including partnership and joint venture interests) entitled (withoutregard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly orindirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless otherwisespecified herein, each reference to a Subsidiary will refer to a Subsidiary of the Company. 23 “Termination Capital Transactions” means any sale, transfer or other disposition of property of the Company occurring upon or incident to theliquidation and winding up of the Company.“TIA” or “Trust Indenture Act” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as in effect on the date of this Indenture, except asprovided in Section 9.3.“Treasury Rate” means, as of any redemption date, the yield to maturity at the time of computation of United States Treasury securities with a constantmaturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least twoBusiness Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) mostnearly equal to the period from the redemption date to December 1, 2014; provided, however, that if the period from the redemption date to December 1,2014 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtainedby linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which suchyields are given, except that if the period from the redemption date to December 1, 2014 is less than one year, the weekly average yield on actually tradedUnited States Treasury securities adjusted to a constant maturity of one year shall be used. The Issuer will (a) calculate the Treasury Rate as of the secondBusiness Day preceding the applicable redemption date and (b) prior to such redemption date file with the Trustee an Officers’ Certificate setting forth theApplicable Premium and the Treasury Rate and showing the calculation of each in reasonable detail.“Trustee” means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor.“Trust Officer” shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vicepresident, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functionssimilar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of suchperson’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.“Unrestricted Subsidiary” means any Person that is designated as such by the Board of Directors; provided that no portion of the Indebtedness of suchPerson:(1) is Guaranteed by the Company or any Restricted Subsidiary;(2) is recourse to or obligates the Company or any Restricted Subsidiary in any way; or(3) subjects any property or assets of the partnership or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to thesatisfaction thereof.Notwithstanding the foregoing, the Company or a Restricted Subsidiary may Guarantee or agree to provide funds for the payment ormaintenance of, or otherwise 24 become liable with respect to Indebtedness of an Unrestricted Subsidiary, but only to the extent that the Company or a Restricted Subsidiary would bepermitted to:(1) make an Investment in the Unrestricted Subsidiary pursuant to the third clause of the definition of Permitted Investments; and(2) Incur the Indebtedness represented by the Guarantee or agreement pursuant to Section 3.3. The Board of Directors may designate anUnrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to the designation there exists no Default or Eventof Default, and if the Unrestricted Subsidiary has, as of the date of the designation, outstanding Indebtedness other than Permitted Indebtedness, theCompany could Incur at least $1.00 of Indebtedness other than Permitted Indebtedness.Notwithstanding the foregoing, no Subsidiary may be designated an Unrestricted Subsidiary if the Subsidiary, directly or indirectly, holdsCapital Stock of a Restricted Subsidiary.“U.S. Government Obligations” means securities that are (a) direct obligations of the United States of America for the timely payment of which its fullfaith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States ofAmerica the timely payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, which, in either case,are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) ofthe Securities Act), as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S.Government Obligations held by such custodian for the account of the holder of such depositary receipt; provided that (except as required by law) suchcustodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by thecustodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced bysuch depositary receipt.“Voting Stock” of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled to vote in the election of directors.“Weighted Average Life to Stated Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:(1) The sum of the products obtained by multiplying:(a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, includingpayment at final maturity, in respect thereof, by(b) the number of years, calculated to the nearest one-twelfth, that will elapse between the date and the making of the payment, by 25 (2) The then outstanding principal amount of the Indebtedness;provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Stated Maturity shall bedetermined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount andthe required payments of principal, respectively.SECTION 1.2 Other Definitions. Term Defined inSection“Additional Global Securities” 2.1(b)“Agent Members” 2.1(e)“Authenticating Agent” 2.2“Change of Control Offer” 3.9“Change of Control Payment” 3.9“Change of Control Payment Date” 3.9“Corporate Trust Office” 3.14“covenant defeasance option” 8.1(b)“cross acceleration provision” 6.1(6)(b)“Defaulted Interest” 2.13“Excess Proceeds” 3.7(c)“Exchange Global Security” 2.1(b)“Global Securities” 2.1(b)“IAIs” 2.1(b)“Institutional Accredited Investor Security” 2.1(b)“Institutional Accredited Investor Global Securities” 2.1(b)“judgment default provision” 6.1(8)“legal defeasance option” 8.1(b)“payment default” 6.1(6)“Paying Agent” 2.3“Private Placement Legend” 2.1(d)“QIB” 2.1(b)“Registrar” 2.3“Regulation S” 2.1(d)“Regulation S Global Security” 2.1(b)“Regulation S Legend” 2.1(d)“Regulation S Securities” 2.1(b)“Resale Restriction Termination Date” 2.6(a)“Restricted Payment” 3.4“Rule 144A” 2.1(b)“Rule 144A Global Security” 2.1(b)“Rule 144A Securities” 2.1(b)“Special Interest Payment Date” 2.13(a)“Special Record Date” 2.13(a) 26 SECTION 1.3 Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which areincorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings:“Commission” means the Securities and Exchange Commission.“indenture securities” means the Securities.“indenture security holder” means a Securityholder.“indenture to be qualified” means this Indenture.“indenture trustee” or “institutional trustee” means the Trustee.“obligor” on this Indenture securities means the Company and any other obligor on this Indenture securities.All other TIA terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule havethe meanings assigned to them by such definitions.SECTION 1.4 Rules of Construction. Unless the context otherwise requires:(1) a term has the meaning assigned to it;(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;(3) “or” is not exclusive;(4) “including” means including without limitation;(5) words in the singular include the plural and words in the plural include the singular;(6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecuredIndebtedness;(7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would beshown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and(8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximummandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. 27 ARTICLE IIThe SecuritiesSECTION 2.1 Form, Dating and Terms.(a) The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Initial Securitiesissued on the date hereof will be limited in an aggregate principal amount to $125,000,000. In addition, the Company may issue, from time to time inaccordance with the provisions of this Indenture (including, without limitation, Section 3.3 hereof), Additional Securities and Exchange Securities.Furthermore, Securities may be authenticated and delivered upon registration or transfer, or in lieu of, other Securities pursuant to Sections 2.6, 2.9, 2.11 or9.5 or in connection with a Change of Control Offer pursuant to Section 3.9.With respect to any Additional Securities, the Issuers shall set forth in Board Resolutions and Officers’ Certificates, the following information:(1) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture;(2) the issue price and the issue date of such Additional Securities, including the date from which interest shall accrue; and(3) whether such Additional Securities shall be Global Securities issued in the form of Exhibit A hereto and/or shall be issued in the formof Exhibit B hereto.The Initial Securities, the Additional Securities and the Exchange Securities shall be considered collectively as a single class for all purposes of thisIndenture. Securityholders of the Initial Securities, the Additional Securities and the Exchange Securities will vote and consent together on all matters towhich such Securityholders are entitled to vote or consent as one class, and none of the Securityholders of the Initial Securities, the Additional Securities orthe Exchange Securities shall have the right to vote or consent as a separate class on any matter to which such Securityholders are entitled to vote or consent.(b) The Initial Securities are being offered and sold by the Company pursuant to a Purchase Agreement, dated November 10, 2010, among theIssuers, J.P. Morgan Securities LLC and the other initial purchasers named therein. The Initial Securities and any Additional Securities (if issued as restrictedGlobal Securities) (the “Additional Global Securities”) will be resold initially only to (A) qualified institutional buyers (as defined in Rule 144A under theSecurities Act (“Rule 144A”)) in reliance on Rule 144A (“QIBs”) and (B) Persons other than U.S. Persons (as defined in Regulation S under the Securities Act(“Regulation S”)) in reliance on Regulation S. Such Initial Securities and Additional Global Securities may thereafter be transferred to, among others, QIBs,purchasers in reliance on Regulation S and institutional “accredited investors” (as defined in Rules 501(a)(1), (2), (3) and (7) under the Securities Act) whoare not QIBs (“IAIs”) in accordance with Rule 501 of the Securities Act in accordance with the procedure described herein. 28 Initial Securities and Additional Global Securities offered and sold to qualified institutional buyers in the United States of America in reliance on Rule144A (the “Rule 144A Securities”) shall be issued in the form of a permanent global Security, without interest coupons, substantially in the form of Exhibit A,which is hereby incorporated by reference and made a part of this Indenture, including appropriate legends as set forth in Section 2.1(d) (the “Rule 144AGlobal Security”), deposited with the Trustee, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided.The Rule 144A Global Security may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount tobe represented by a single certificate. The aggregate principal amount of the Rule 144A Global Security may from time to time be increased or decreased byadjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided.Initial Securities and Additional Securities offered and sold outside the United States of America (the “Regulation S Securities”) in reliance onRegulation S shall be issued in the form of a permanent global Security, without interest coupons, substantially in the form of Exhibit A (the “Regulation SGlobal Security”) deposited with the Trustee, as custodian for DTC, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided.The Regulation S Global Security may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount tobe represented by a single certificate. The aggregate principal amount of the Regulation S Global Security may from time to time be increased or decreasedby adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided.Initial Securities and Additional Securities resold to IAIs (the “Institutional Accredited Investor Securities”) in the United States of America shall beissued in the form of a permanent global Security, without interest coupons, substantially in the form of Exhibit A (the “Institutional Accredited InvestorGlobal Security”) deposited with the Trustee, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided.The Institutional Accredited Investor Global Security may be represented by more than one certificate, if so required by DTC’s rules regarding the maximumprincipal amount to be represented by a single certificate. The aggregate principal amount of the Institutional Accredited Investor Global Security may fromtime to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided.Exchange Securities exchanged for interests in the Rule 144A Securities, the Regulation S Securities and the Institutional Accredited InvestorSecurities will be issued in the form of a permanent global Security, without interest coupons, substantially in the form of Exhibit B, which is herebyincorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth inSection 2.1(d) (the “Exchange Global Security”). The Exchange Global Security may be represented by more than one certificate, if so required by DTC’srules regarding the maximum principal amount to be represented by a single certificate.The Rule 144A Global Security, the Regulation S Global Security, the Institutional Accredited Investor Global Security and the Exchange GlobalSecurity are sometimes collectively herein referred to as the “Global Securities.” 29 The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Issuers maintained for such purposein The City of New York, or at such other office or agency of the Issuers as may be maintained for such purpose pursuant to Section 2.3; provided, however,that, at the option of the Issuers, each installment of interest may be paid by (i) check mailed to addresses of the Persons entitled thereto as such addressesshall appear on the Security Register or (ii) wire transfer to an account located in the United States maintained by the payee. Payments in respect of Securitiesrepresented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accountsspecified by DTC.The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage, in addition to those set forth on Exhibit Aand Exhibit B and in Section 2.1(d). The Issuers and the Trustee shall approve the forms of the Securities and any notation, endorsement or legend on them.Each Security shall be dated the date of its authentication. The terms of the Securities set forth in Exhibit A and Exhibit B are part of the terms of thisIndenture and, to the extent applicable, the Issuers and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by suchterms.(c) Denominations. The Securities shall be issueable only in fully registered form, without coupons, and only in denominations of $2,000 andintegral multiples of $1,000 in excess of $2,000.(d) Restrictive Legends. Unless and until (i) the Rule 144A Securities, the Regulation S Securities and the Institutional Accredited InvestorSecurities are sold under an effective registration statement or (ii) the Rule 144A Securities, the Regulation S Securities and the Institutional AccreditedInvestor Securities are exchanged for an Exchange Security in connection with an effective registration statement,(A) the Rule 144A Global Security and the Institutional Accredited Investor Global Security shall bear the following legend (the “PrivatePlacement Legend”) on the face thereof:“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THESECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREINMAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OFSUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OFTHIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FORWHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE“RESALE RESTRICTION TERMINATION DATE”) THAT IS ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF, THEORIGINAL ISSUE DATE OF THE ISSUANCE OF ANY ADDITIONAL SECURITIES AND THE LAST DATE ON WHICH THE ISSUERS OR ANYAFFILIATE OF ANY ISSUER WAS 30 THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARYTHEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT,(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THATPURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVENTHAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THATOCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO ANINSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THATIS NOT A QUALIFIED INSTITUTIONAL BUYER AND THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHERINSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF SECURITIES OR (F) PURSUANT TOANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER’SAND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THEDELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THISLEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.BY ITS ACQUISITION OF THIS SECURITY, THE HOLDER THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THATEITHER (1) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST HEREINCONSTITUTES THE ASSETS OF (A) AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENTINCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), (B) A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENTTHAT IS SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) OR PROVISIONS UNDERANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OFERISA OR THE CODE (COLLECTIVELY, “SIMILAR LAWS”) OR (C) AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TOINCLUDE “PLAN ASSETS” OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENT, OR (2) THE ACQUISITION AND HOLDING OF THISSECURITY OR ANY INTERESTS HEREIN WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OFERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAW.” 31 (B) the Regulation S Global Security shall bear the following legend (the “Regulation S Legend”) on the face thereof:“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THESECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREINMAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OFSUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OFTHIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FORWHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE“RESALE RESTRICTION TERMINATION DATE”) THAT IS 40 DAYS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THEDATE ON WHICH THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) WAS FIRST OFFERED TO PERSONS OTHER THANDISTRIBUTORS (AS DEFINED IN RULE 902 OF REGULATION S) IN RELIANCE ON REGULATION S, ONLY (A) TO THE COMPANY OR ANYSUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THESECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIESACT (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144ATHAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE ISGIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONSTHAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO ANINSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THATIS NOT A QUALIFIED INSTITUTIONAL BUYER AND THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHERINSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF SECURITIES OR (F) PURSUANT TOANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS’AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THEDELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THISLEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. BY ITSACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNTOF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN 32 OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.BY ITS ACQUISITION OF THIS SECURITY, THE HOLDER THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THATEITHER (1) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST HEREINCONSTITUTES THE ASSETS OF (A) AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENTINCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), (B) A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENTTHAT IS SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) OR PROVISIONS UNDERANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OFERISA OR THE CODE (COLLECTIVELY “SIMILAR LAWS”) OR (C) AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TOINCLUDE “PLAN ASSETS” OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENT, OR (2) THE ACQUISITION AND HOLDING OF THISSECURITY OR ANY INTEREST HEREIN WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OFERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAW.”(C) The Initial Global Securities, whether or not an Initial Security, shall bear the following legend on the face thereof:“UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEWYORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER,EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME ASIS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHERENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FORVALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS ANINTEREST HEREIN.TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC ORTO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BELIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THIS INDENTURE REFERRED TO ON THEREVERSE HEREOF.”(e) Book-Entry Provisions. 33 (i) This Section 2.1(e) shall apply only to Global Securities deposited with the Trustee, as custodian for DTC.(ii) Each Global Security initially shall (x) be registered in the name of DTC for such Global Security or the nominee of DTC,(y) be delivered to the Trustee as custodian for DTC and (z) bear legends as set forth in Section 2.1(d).(iii) Members of, or participants in, DTC (“Agent Members”) shall have no rights under this Indenture with respect to any GlobalSecurity held on their behalf by DTC or by the Trustee as the custodian of DTC or under such Global Security, and DTC may be treatedby the Issuers, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposeswhatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the Trusteefrom giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its AgentMembers, the operation of customary practices of DTC governing the exercise of the rights of a Securityholder of a beneficial interest inany Global Security.(iv) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to subsection (f) of thisSection 2.1 to beneficial owners who are required to hold Definitive Securities, the Securities Custodian shall reflect on its books andrecords the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of thebeneficial interest in the Global Security to be transferred, and the Issuers shall execute, and the Trustee shall authenticate and deliver,one or more Definitive Securities of like tenor and amount.(v) In connection with the transfer of an entire Global Security to beneficial owners pursuant to subsection (f) of this Section 2.1,such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Issuers shall execute, and the Trusteeshall authenticate and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in such Global Security,an equal aggregate principal amount of Definitive Securities of authorized denominations.(vi) The registered Securityholder of a Global Security may grant proxies and otherwise authorize any person, including AgentMembers and persons that may hold interests through Agent Members, to take any action which a Securityholder is entitled to take underthis Indenture or the Securities.(f) Definitive Securities. (i) Except as provided below, owners of beneficial interests in Global Securities will not be entitled to receive DefinitiveSecurities. If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for theirbeneficial interests in a Global Security upon written request in accordance with DTC’s and the Registrar’s procedures. In addition, Definitive Securities shallbe 34 transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (a) DTC notifies the Issuers that it is unwilling or unable tocontinue as depositary for such Global Security or DTC ceases to be a clearing agency registered under the Exchange Act, at a time when DTC is required tobe so registered in order to act as depositary, and in each case a successor depositary is not appointed by the Issuers within 90 days of such notice or, (b) theCompany executes and delivers to the Trustee and Registrar an Officers’ Certificate stating that such Global Security shall be so exchangeable or (c) an Eventof Default has occurred and is continuing and the Registrar has received a request from DTC.(i) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(e)(iv) or (v) shall,except as otherwise provided by Section 2.6(c), bear the applicable legend regarding transfer restrictions applicable to the DefinitiveSecurity set forth in Section 2.1(d).(ii) In connection with the exchange of a portion of a Definitive Security for a beneficial interest in a Global Security, the Trusteeshall cancel such Definitive Security, and the Issuers shall execute, and the Trustee shall authenticate and deliver, to the transferringSecurityholder a new Definitive Security representing the principal amount not so transferred.SECTION 2.2 Execution and Authentication. One Officer of each of the Issuers shall sign the Securities for the Issuers by manual or facsimile signature.If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be validnevertheless.A Security shall not be valid until an authorized signatory of the Trustee manually authenticates the Security. The signature of the Trustee on aSecurity shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. A Security shall be datedthe date of its authentication.At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery:(1) Initial Securities for original issue on the Issue Date in an aggregate principal amount of $125,000,000, (2) Additional Securities for original issue and(3) Exchange Securities for issue only in an Exchange Offer, and only in exchange for Additional Securities of an equal principal amount, in each case upon awritten order of the Issuers signed by two Officers of each of the Issuers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of each ofthe Issuers (the “Issuers’ Order”). Such Issuers’ Order shall specify the amount of the Securities to be authenticated and the date on which the original issue ofSecurities is to be authenticated and whether the Securities are to be Additional Securities or Exchange Securities.The Trustee may appoint an agent (the “Authenticating Agent”) reasonably acceptable to the Issuers to authenticate the Securities. Unless limited bythe terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indentureto authentication by the Trustee includes authentication by the Authenticating Agent. 35 In case any Issuer, pursuant to Article IV, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwisedispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving suchmerger, or into which any Issuer shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition asaforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article IV, any of the Securities authenticated or delivered priorto such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged forother Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance oflike tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Issuers’ Order of the successor Person, shallauthenticate and deliver Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and deliveredin any new name of a successor Person pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Securities, suchsuccessor Person, at the option of the Securityholders but without expense to them, shall provide for the exchange of all Securities at the time outstanding forSecurities authenticated and delivered in such new name.SECTION 2.3 Registrar and Paying Agent. The Issuers shall maintain an office or agency where Securities may be presented for registration of transferor for exchange (the “Registrar”) and an office or agency where Securities may be presented for payment (the “Paying Agent”). The Registrar shall keep aregister of the Securities and of their transfer and exchange (the “Security Register”). The Issuers may have one or more co-registrars and one or moreadditional paying agents. The term “Paying Agent” includes any additional paying agent.The Issuers shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shallincorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuers shall notify the Trusteeof the name and address of each such agent. If the Issuers fail to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled toappropriate compensation therefor pursuant to Section 7.7. The Issuers or any of their Restricted Subsidiaries may act as Paying Agent, Registrar, co-registraror transfer agent.The Issuers initially appoint the Trustee as Registrar and Paying Agent for the Securities.SECTION 2.4 Paying Agent to Hold Money in Trust. By no later than 10:00 a.m. (New York City time) on the date on which any principal of or intereston any Security is due and payable, the Issuers shall deposit with the Paying Agent a sum sufficient in immediately available funds to pay such principal orinterest when due. The Issuers shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for thebenefit the Securityholders or the Trustee all money held by such Paying Agent for the payment of principal of or interest on the Securities and shall notifythe Trustee in writing of any default by any of the Issuers in making any such payment. If either Issuer or a Subsidiary acts as Paying Agent, it shall segregatethe money held by it as Paying Agent and hold it as a separate trust fund. The Issuers at any time may require a Paying Agent (other than the Trustee) to payall money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section, the Paying Agent (ifother than any Issuer or a Subsidiary) 36 shall have no further liability for the money delivered to the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to each Issuer,the Trustee shall serve as Paying Agent for the Securities.SECTION 2.5 Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of thenames and addresses of Securityholders. If the Trustee is not the Registrar, or to the extent otherwise required under the TIA, the Issuers shall furnish to theTrustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in suchform and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders.SECTION 2.6 Transfer and Exchange.(a) The following provisions shall apply with respect to any proposed transfer of a Rule 144A Security or an Institutional Accredited InvestorSecurity prior to the date which is one year after the later of the date of its original issue and the last date on which the Issuers or any affiliate of the Companywas the owner of such Securities (or any predecessor thereto) (the “Resale Restriction Termination Date”):(i) a transfer of a Rule 144A Security or an Institutional Accredited Investor Security or a beneficial interest therein to a QIB shallbe made upon the representation of the transferee in the form as set forth on the reverse of the Security that it is purchasing for its ownaccount or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualifiedinstitutional buyer” within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A andacknowledges that it has received such information regarding the Issuers as the undersigned has requested pursuant to Rule 144A or hasdetermined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order toclaim the exemption from registration provided by Rule 144A;(ii) a transfer of a Rule 144A Security or an Institutional Accredited Investor Security or a beneficial interest therein to an IAI shallbe made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.7 from the proposedtransferee and, if requested by the Issuers or the Trustee, the delivery of an opinion of counsel, certification and/or other informationsatisfactory to each of them; and(iii) a transfer of a Rule 144A Security or an Institutional Accredited Investor Security or a beneficial interest therein to a Non-U.S.Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.8 from theproposed transferee and, if requested by the Issuers or the Trustee, the delivery of an opinion of counsel, certification and/or otherinformation satisfactory to each of them. 37 (b) The following provisions shall apply with respect to any proposed transfer of a Regulation S Security prior to the expiration of the RestrictedPeriod:(i) a transfer of a Regulation S Security or a beneficial interest therein to a QIB shall be made upon the representation of thetransferee, in the form of assignment on the reverse of the certificate, that it is purchasing the Security for its own account or an accountwith respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” withinthe meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has receivedsuch information regarding the Issuers as the undersigned has requested pursuant to Rule 144A or has determined not to request suchinformation and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption fromregistration provided by Rule 144A;(ii) a transfer of a Regulation S Security or a beneficial interest therein to an IAI shall be made upon receipt by the Trustee or itsagent of a certificate substantially in the form set forth in Section 2.7 from the proposed transferee and, if requested by the Issuers or theTrustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them; and(iii) a transfer of a Regulation S Security or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by theTrustee or its agent of a certificate substantially in the form set forth in Section 2.8 hereof from the proposed transferee and, if requestedby the Issuers or the Trustee, receipt by the Trustee or its agent of an opinion of counsel, certification and/or other informationsatisfactory to each of them.After the expiration of the Restricted Period, interests in the Regulation S Security may be transferred without requiring the certification set forth inSection 2.7, Section 2.8 or any additional certification.(c) Restricted Global Securities Legend. Upon the transfer, exchange or replacement of Securities not bearing a restricted Global SecuritiesLegend, the Registrar shall deliver Securities that do not bear a restricted Global Securities Legend. Upon the transfer, exchange or replacement of Securitiesbearing a restricted Global Securities Legend, the Registrar shall deliver only Securities that bear a restricted Global Securities Legend unless there isdelivered to the Registrar an Opinion of Counsel to the effect that neither such legend nor the related restrictions on transfer are required in order to maintaincompliance with the provisions of the Securities Act.(d) The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.1 or this Section 2.6.The Issuers shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the givingof reasonable prior written notice to the Registrar. 38 (e) Obligations with Respect to Transfers and Exchanges of Securities.(i) To permit registrations of transfers and exchanges, the Issuers shall, subject to the other terms and conditions of this Article II,execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar’s or co-registrar’s request.(ii) No service charge shall be made to a Securityholder for any registration of transfer or exchange, but the Issuers may requirepayment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (otherthan any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 3.7, 3.9or 9.5).(iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning(1) 15 days before the mailing of a notice of an offer to repurchase or redeem Securities and ending at the close of business on the day ofsuch mailing or (2) 15 days before an interest payment date and ending on such interest payment date.(iv) Prior to the due presentation for registration of transfer of any Security, the Issuers, the Trustee, the Paying Agent, the Registraror any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for thepurpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not suchSecurity is overdue, and none of the Issuers, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice tothe contrary.(v) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(e) shall, except asotherwise provided by Section 2.6(c), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security setforth in Section 2.1(d).(vi) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt andshall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange.(f) No Obligation of the Trustee.(i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or aparticipant in, DTC or other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or memberthereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficialowner or other Person (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery ofany Securities 39 (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Securityholdersand all payments to be made to Securityholders in respect of the Securities shall be given or made only to or upon the order of theregistered Securityholders (which shall be DTC or its nominee in the case of a Global Security). The rights of beneficial owners in anyGlobal Security shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee may rely andshall be fully protected in conclusively relying upon information furnished by DTC with respect to its members, participants and anybeneficial owners.(ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transferimposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfersbetween or among DTC participants, members or beneficial owners in any Global Security) other than to require delivery of suchcertificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the termsof this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.SECTION 2.7 Form of Certificate to be Delivered in Connection with Transfers to IAIs.[Date]Star Gas Partners, L.P.Star Gas Finance Companyc/o Union Bank, N.A.[Address][Address][Address]Ladies and Gentlemen:This certificate is delivered to request a transfer of $ principal amount of the 8.875% Senior Notes due 2017 (the “Securities”) of Star GasPartners, L.P. and Star Gas Finance Company (together, the “Issuers”).Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows: Name: Address: Taxpayer ID Number: The undersigned represents and warrants to you that: 40 1. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the“Securities Act”)) purchasing for our own account or for the account of such an institutional “accredited investor” at least $250,000 principal amount of theSecurities, and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. Wehave such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Securitiesand we invest in or purchase securities similar to the Securities in the normal course of our business. We and any accounts for which we are acting are eachable to bear the economic risk of our or its investment.2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except aspermitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell orotherwise transfer such Securities prior to the date that is one year after the later of the date of original issue and the last date on which the Issuers or anyaffiliate of the Issuers was the owner of such Securities (or any predecessor thereto) (the “Resale Restriction Termination Date”) only (a) to the Issuers,(b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements ofRule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a “QIB”) that purchases for its ownaccount or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales thatoccur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional “accredited investor” within the meaningof Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional “accreditedinvestor,” in each case in a minimum principal amount of Securities of $250,000 or (f) pursuant to any other available exemption from the registrationrequirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of suchinvestor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictionson resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be madepursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the formof this letter to the Issuers and the Trustee, which shall provide, among other things, that the transferee is an institutional “accredited investor” (within themeaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and that it is acquiring such Securities for investment purposes and not for distribution inviolation of the Securities Act. Each purchaser acknowledges that the Issuers and the Trustee reserve the right prior to any offer, sale or other transfer prior tothe Resale Termination Date of the Securities pursuant to clauses (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications and/orother information satisfactory to the Issuers and the Trustee. TRANSFEREE: BY: 41 SECTION 2.8 Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S.[Date]Star Gas Partners, L.P.Star Gas Finance Companyc/o Union Bank, N.A.[Address][Address][Address] Re: Star Gas Partners, L.P. Star Gas Finance Company 8.875% Senior Notes due 2017 (the “Securities”)Ladies and Gentlemen:In connection with our proposed sale of $ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant toand in accordance with Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we represent that:(a) the offer of the Securities was not made to a person in the United States;(b) either (i) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalfreasonably believed that the transferee was outside the United States or (ii) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;(c) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) ofRegulation S, as applicable; and(d) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act.In addition, if the sale is made during a restricted period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicablethereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interestedparty in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have themeanings set forth in Regulation S. 42 Very truly yours,[Name of Transferor]By: Authorized SignatureSECTION 2.9 Mutilated, Destroyed, Lost or Stolen Securities. If a mutilated Security is surrendered to the Registrar or if the Securityholder of aSecurity claims that the Security has been lost, destroyed or wrongfully taken, the Issuers shall issue and the Trustee shall authenticate a replacement Securityif the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Securityholder (a) satisfies the Issuers or the Trustee within areasonable time after such Securityholder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior toreceiving such notification, (b) makes such request to the Issuers or the Trustee prior to the Security being acquired by a protected purchaser as defined inSection 8-303 of the Uniform Commercial Code (a “protected purchaser”) and (c) satisfies any other reasonable requirements of the Trustee. If required by theTrustee or the Company, such Securityholder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect theIssuers, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced, and, in theabsence of notice to the Issuers or the Trustee that such Security has been acquired by a bona fide purchaser, the Issuers shall execute and upon Issuers’ Orderthe Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolenSecurity, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding.In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Issuers in their discretion may,instead of issuing a new Security, pay such Security.Upon the issuance of any new Security under this Section, the Issuers may require the payment of a sum sufficient to cover any tax or othergovernmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connectiontherewith.Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additionalcontractual obligation of the Issuers (if applicable) and any other obligor upon the Securities, whether or not the mutilated, destroyed, lost or stolen Securityshall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securitiesduly issued hereunder. 43 The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement orpayment of mutilated, destroyed, lost or stolen Securities.SECTION 2.10 Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled byit, those paid pursuant to Section 2.09, those delivered to it for cancellation and those described in this Section as not outstanding. A Security ceases to beoutstanding in the event the Issuers or a Subsidiary of the Issuers holds the Security, provided, however, that (i) for purposes of determining which areoutstanding for consent or voting purposes hereunder, the provisions of Section 10.6 shall apply and (ii) in determining whether the Trustee shall beprotected in making a determination whether the Securityholders of the requisite principal amount of outstanding Securities are present at a meeting ofSecurityholders of Securities for quorum purposes or have consented to or voted in favor of any request, demand, authorization, direction, notice, consent,waiver, amendment or modification hereunder, or relying upon any such quorum, consent or vote, only Securities which a Trust Officer of the Trusteeactually knows to be held by the Issuers or an Affiliate of the Issuers shall not be considered outstanding.If a Security is replaced pursuant to Section 2.9, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them thatthe replaced Security is held by a bona fide purchaser.If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay allprincipal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the PayingAgent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date suchSecurities (or portions thereof) cease to be outstanding and interest on them ceases to accrue.SECTION 2.11 Temporary Securities. In the event that Definitive Securities are to be issued under the terms of this Indenture, until such DefinitiveSecurities are ready for delivery, the Issuers may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantiallyin the form of Definitive Securities but may have variations that the Issuers consider appropriate for temporary Securities. Without unreasonable delay, theIssuers shall prepare and the Trustee shall authenticate Definitive Securities. After the preparation of Definitive Securities, the temporary Securities shall beexchangeable for Definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Issuers for that purpose and suchexchange shall be without charge to the Securityholder. Upon surrender for cancellation of any one or more temporary Securities, the Issuers shall execute,and the Trustee shall authenticate and make available for delivery in exchange therefor, one or more Definitive Securities representing an equal principalamount of Securities. Until so exchanged, the Securityholder of temporary Securities shall in all respects be entitled to the same benefits under this Indentureas a Securityholder of Definitive Securities.SECTION 2.12 Cancellation. The Issuers at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shallforward to the Trustee any 44 Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Securities surrendered forregistration of transfer, exchange, payment or cancellation and dispose of such Securities in accordance with its internal policies (subject to the recordretention requirements of the Exchange Act). The Issuers may not issue new Securities to replace Securities it has paid or delivered to the Trustee forcancellation for any reason other than in connection with a transfer or exchange.SECTION 2.13 Payment of Interest; Defaulted Interest. Interest on any Security which is payable, and is punctually paid or duly provided for, on anyinterest payment date shall be paid to the Person in whose name such Security (or one or more predecessor Securities) is registered at the close of business onthe regular record date for such interest at the office or agency of the Issuers maintained for such purpose pursuant to Section 2.3.Any interest on any Security which is payable, but is not paid when the same becomes due and payable and such nonpayment continues for a period of30 days shall forthwith cease to be payable to the Securityholder on the regular record date by virtue of having been such Securityholder, and such defaultedinterest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon hereincollectively called “Defaulted Interest”) shall be paid by the Issuers, at its election in each case, as provided in clause (a) or (b) below:(a) The Issuers may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective predecessorSecurities) are registered at the close of business on a Special Record Date (as defined below) for the payment of such Defaulted Interest, which shall be fixedin the following manner. The Issuers shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date(not less than 30 days after such notice) of the proposed payment (the “Special Interest Payment Date”), and at the same time the Issuers shall deposit with theTrustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactoryto the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitledto such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a record date (the “Special Record Date”) for the payment of suchDefaulted Interest, which date shall be not more than 15 days and not less than 10 days prior to the Special Interest Payment Date and not less than 10 daysafter the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Issuers of such Special Record Date, and in thename and at the expense of the Issuers, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special InterestPayment Date therefor to be given in the manner provided for in Section 10.2, not less than 10 days prior to such Special Record Date. Notice of the proposedpayment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor having been so given, such Defaulted Interestshall be paid on the Special Interest Payment Date to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at theclose of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b).(b) The Issuers may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securitiesexchange on which the 45 Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Issuers to the Trustee of the proposedpayment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of, transfer of or in exchangefor or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.SECTION 2.14 Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months.SECTION 2.15 CUSIP Numbers. The Issuers in issuing the Securities may use “CUSIP” numbers (if then generally in use) and, if so, the Trustee shalluse “CUSIP” numbers in notices of redemption as a convenience to Securityholders; provided, however, that any such notice may state that no representationis made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placedonly on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such CUSIPnumbers. The Issuers shall promptly notify the Trustee in writing of any change in the CUSIP numbers.ARTICLE IIICovenantsSECTION 3.1 Payment of Securities. The Issuers shall promptly pay the principal of and interest on the Securities on the dates and in the mannerprovided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due to the extent on such date the Trustee or thePaying Agent holds in accordance with this Indenture immediately available funds sufficient to pay all principal and interest then due.The Issuers shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments ofinterest at the same rate to the extent lawful.Notwithstanding anything to the contrary contained in this Indenture, the Issuers may, to the extent it is required to do so by law, deduct or withholdincome or other similar taxes imposed by the United States of America from principal or interest payments hereunder.SECTION 3.2 SEC Reports. Notwithstanding that the Issuers may not be subject to the reporting requirements of Section 13 or 15(d) of the ExchangeAct, to the extent permitted by the Exchange Act, the Company shall file with the Commission, and make available to the Trustee and the registeredSecurityholders of the Securities, all quarterly and annual financial information that would be required to be contained in a filing with the Commission onForms 10-Q and 10-K, and any successor or substitute forms thereto, if the Issuers were required to file reports on such forms, including a Management’sDiscussion and Analysis of Financial Condition and Results of Operations, and all current reports that are required to be filed with the Commission on Form8-K, and any successor or substitute form thereto, if the Issuers were 46 required to file such reports on such form, and proxy statements if the Issuers were required to file proxy statements, and any other reports required to be filedpursuant to Sections 13 and 15(d) of the Exchange Act, in each case, within the time periods specified therein. In the event that the Issuers are not permittedto file such reports, documents and information with the Commission pursuant to the Exchange Act, the Issuers will nevertheless provide such Exchange Actinformation to the Trustee and, upon request, to the Securityholders of the Securities as if the Issuers were subject to the reporting requirements of Section 13or 15(d) of the Exchange Act within the time periods specified therein.SECTION 3.3 Incurrence of Indebtedness and Issuance of Preferred Stock. The Company will not, and will not permit any of its Restricted Subsidiariesto, directly or indirectly, create, Incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for thepayment, in each case, to Incur, any Indebtedness, unless at the time of the Incurrence and after giving pro forma effect to the receipt and application of theproceeds of the Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.00 to 1.00; provided that the foregoingrestrictions will not prohibit the Incurrence by the Company and its Restricted Subsidiaries of Permitted Indebtedness.SECTION 3.4 Limitation on Restricted Payments.(a) The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to (all such payments and other actions setforth in the following clauses (1) through (4) are collectively the “Restricted Payments”):(1) declare or pay any dividend or any other distribution or payment on or with respect to Capital Stock of the Company or any of itsRestricted Subsidiaries or any payment made to the direct or indirect holders, in their capacities as such, of Capital Stock of the Company or anyof its Restricted Subsidiaries, other than (a) dividends or distributions payable solely in Capital Stock of the Company (including CommonStock, but excluding Redeemable Capital Stock), or in options, warrants or other rights to purchase Capital Stock of the Company (includingCommon Stock, but excluding Redeemable Capital Stock); (b) dividends or other distributions to the extent declared or paid to the Company orany Restricted Subsidiary of the Company; or (c) dividends or other distributions by any Restricted Subsidiary of the Company to all holders ofCapital Stock of that Restricted Subsidiary on a pro rata basis;(2) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any of its RestrictedSubsidiaries, other than any Capital Stock owned by a Restricted Subsidiary;(3) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduledmaturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any subordinated Indebtedness of the Company, otherthan any such Indebtedness owed to the Company or a Restricted Subsidiary; or 47 (4) make any investment, other than a Permitted Investment, in any entity, unless, at the time of and after giving effect to the proposedRestricted Payment,(i) no Default or Event of Default shall have occurred and be continuing, and(ii) the Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its RestrictedSubsidiaries during the fiscal quarter during which the Restricted Payment is made, will not exceed:(A) if the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 1.75 to 1.00, an amount equal to Available Cash forthe immediately preceding fiscal quarter; or(B) if the Consolidated Fixed Charge Coverage Ratio of the Company is equal to or less than 1.75 to 1.00, an amount equal to the sum of$22 million plus the aggregate net cash proceeds of capital contributions to the Company from any Person other than a Restricted Subsidiary of theCompany, or issuance and sale of shares of Capital Stock, other than Redeemable Capital Stock, of the Company to any entity other than to a RestrictedSubsidiary of the Company, in any case made during the period ending on the last day of the fiscal quarter of the Company immediately preceding the dateof the Restricted Payment and beginning on the Issue Date, less the aggregate amount of all Restricted Payments made by the Company and its RestrictedSubsidiaries in accordance with this clause during the period ending on the last day of the fiscal quarter of the Company immediately preceding the date ofthe Restricted Payment and beginning on the Issue Date.(b) The foregoing provisions of this Section 3.4 will not prohibit:(1) the payment of any dividend or distribution within 60 days after the date of its declaration if, at the date of declaration, the paymentwould be permitted as summarized above;(2) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Company or anyRestricted Subsidiary of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to theCompany from any entity other than a Restricted Subsidiary of the Company; or issuance and sale of other Capital Stock, other than RedeemableCapital Stock, of the Company to any entity other than to a Restricted Subsidiary of the Company; provided, however, that the amount of anynet cash proceeds that are utilized for any redemption, repurchase or other acquisition or retirement will be excluded from the calculation ofAvailable Cash;(3) the repurchase of any Common Stock or the payment of any dividend or distribution under any employment agreement, stock or unitoption agreement, or restricted stock agreement not to exceed $1 million in any calendar year and not to exceed $5 million in the aggregateamount since the Issue Date; or 48 (4) any redemption, repurchase or other acquisition or retirement of subordinated Indebtedness of the Company in exchange for, or out ofthe net cash proceeds of, a substantially concurrent capital contribution to the Company from any entity other than a Restricted Subsidiary of theCompany; or issuance and sale of Indebtedness of the Company issued to any entity other than a Restricted Subsidiary or the Company, so longas the Indebtedness is Permitted Refinancing Indebtedness; provided, however, that the amount of any net cash proceeds that are utilized for anyredemption, repurchase or other acquisition or retirement will be excluded from the calculation of Available Cash;provided that, in each case set forth above, in computing the amount of Restricted Payments previously made for purposes of the RestrictedPayments test above, Restricted Payments made under clauses (1) and (3) above will be included and Restricted Payments made under clauses(2) and (4) above shall not be so included. The amount of all Restricted Payments (other than cash) will be the fair market value on the date ofthe Restricted Payment of the assets proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to theRestricted Payment.SECTION 3.5 Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, Incur any Liens, unless the Lien is aPermitted Lien or the Securities are directly secured equally and ratably with the obligation or liability secured by such Lien.SECTION 3.6 Limitation on Distributions from Restricted Subsidiaries. (a) The Company will not, and will not permit any of its Restricted Subsidiariesto, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (all suchrestrictions and other actions set forth in the following clauses (1) through (5) being collectively referred to as the “Payment Restrictions”):(1) pay dividends, in cash or otherwise, or make any other distributions on or with respect to its Capital Stock or any other interest orparticipation in, or measured by, its profits;(2) pay any Indebtedness owed to the Company or any other Restricted Subsidiary;(3) make loans or advances to, or any investment in, the Company or any other Restricted Subsidiary;(4) transfer any of its properties or assets to the Company or any other Restricted Subsidiary; or(5) Guarantee any Indebtedness of the Company or any other Restricted Subsidiary.(b) The provisions of Section 3.6(a) will not apply to encumbrances or restrictions existing under or by reason of: 49 (1) applicable law;(2) any agreement in effect at the Issue Date;(3) any agreement relating to any Indebtedness permitted to be Incurred under this Indenture (including agreements or instrumentsevidencing Indebtedness Incurred after the Issue Date); provided that such encumbrances or restrictions contained in any such agreement orinstrument, incurred after the Issue Date will not materially adversely affect the Company’s ability to make anticipated principal or interestpayments on the Securities (as determined by the Board of Directors of the Company);(4) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Company or any RestrictedSubsidiary;(5) specific purchase money obligations or Capital Leases for property subject to such obligations;(6) any agreement of an entity (or any of its Restricted Subsidiaries) acquired by the Company or any Restricted Subsidiary, in existence atthe time of the acquisition but not created in contemplation of the acquisition, which encumbrance or restriction is not applicable to any thirdparty other than the entity;(7) provisions contained in instruments relating to Indebtedness which prohibit the transfer of all or substantially all of the assets of theobligor of the Indebtedness unless the transferee shall assume the obligations of the obligor under the agreement or instrument; or(8) any amendment, modification, renewal, refunding, replacement or refinancing of an agreement referred to in clauses (2), (3) or (6) ofthis paragraph or this clause (8); provided, that such amendment, modification, renewal, refunding, replacement or refinancing will notmaterially adversely affect the Company’s ability to make anticipated principal or interest payments on the Securities (as determined by theBoard of Directors of the Company).SECTION 3.7 Limitation on Asset Sales. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, undertake an Asset Saleunless:(1) the Company or its Restricted Subsidiary, as the case may be, receives consideration at the time of the Asset Sale at least equal to thefair market value, as determined in good faith by the Board of Directors, of the assets sold or otherwise disposed of; and(2) at least 80% of the consideration received by the Company or the Restricted Subsidiary is in the form of cash.(b) For purposes of determining the amount of cash received in an Asset Sale, the following will be deemed to be cash: 50 (1) the amount of any liabilities on the Company’s or any Restricted Subsidiary’s balance sheet that are assumed by the transferee of theassets; and(2) the amount of any notes or other obligations received by the Company or the Restricted Subsidiary from the transferee that isconverted within 180 days by the Company or the Restricted Subsidiary into cash, to the extent of the cash received.(c) The 80% limitation set forth in Section 3.7(a)(2) will not apply to any Asset Sale in which the cash portion of the consideration received isequal to or greater than the amount of the after-tax proceeds there would have been had the Asset Sale complied with such limitation.(d) If the Company or any of its Restricted Subsidiaries receives Net Proceeds exceeding $10 million from one or more Asset Sales in any fiscalyear, then within 360 days after the date the aggregate amount of Net Proceeds exceeds $10 million, the Company must apply the amount of such NetProceeds, to the extent not already so applied, either (i) to reduce senior Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, with apermanent reduction of availability, in the case of revolving Indebtedness, or (ii) to make an investment in assets (except any assets that are classified ascurrent assets under GAAP) or capital expenditures useful to the Company’s or any of its Subsidiaries’ business as in effect on the Issue Date or any RelatedBusiness. Any Net Proceeds that are not applied or invested as set forth above, will be considered “Excess Proceeds”.(e) On the 361 day after an Asset Sale, if the aggregate amount of Excess Proceeds exceeds $10 million, the Company will be required to makean offer (“Asset Sale Offer”) within ten (10) days to all Securityholders to purchase for cash that amount of Securities that may be purchased out of the ExcessProceeds at a purchase price equal to 100% of the principal amount of the Securities plus accrued and unpaid interest to the date of purchase pursuant to theprocedures set forth in the terms of this Indenture and in compliance with the requirements of Rule 14e-1 under the Exchange Act and any other applicablesecurities laws, notwithstanding any provision of this Indenture to the contrary. To the extent that the aggregate amount of Securities tendered in response toany such purchase offer is less than the Excess Proceeds, the Company or any Restricted Subsidiary may use such excess amounts for general businesspurposes, subject to other covenants contained in the Indenture. If the aggregate principal amount of the Securities surrendered by the Securityholdersexceeds the amount of Excess Proceeds, the Trustee shall select the Securities to be purchased in accordance with the procedures for selection and notice ofredemption set forth herein. Notwithstanding the foregoing, if the Issuers make this purchase offer at any time when the Issuers have securities outstandingranking equally in right of payment with the Securities and the terms of those securities provide that a similar offer must be made with respect to those othersecurities, then the Issuers’ offer to purchase the Securities will be made concurrently with the other offers, and securities of each issue will be accepted on apro rata basis in proportion to the aggregate principal amount of securities of each issue which their holders elect to have purchased. Upon completion of theoffer to the Securityholders, the amount of Excess Proceeds shall be reset at zero. 51st SECTION 3.8 Limitation on Affiliate Transactions. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly orindirectly, enter into or otherwise cause any transaction or series of related transactions, including the sale, transfer, disposition, purchase, exchange or leaseof assets, property or services, other than as provided for in the Company’s partnership agreement, with, or for the benefit of any Affiliates of the Companyunless:(1) the transaction or series of related transactions are between the Company and its Restricted Subsidiaries or between two RestrictedSubsidiaries; or(2) the transaction or series of related transactions are on terms that are no less favorable to the Company or the Restricted Subsidiary, asthe case may be, than those which would have been obtained in a comparable transaction at such time from an entity that is not an Affiliate ofthe Company or Restricted Subsidiary, and, with respect to transaction(s) involving aggregate payments or value equal to or greater than $5million, the Company shall have delivered an Officers’ Certificate to the Trustee certifying that the transaction(s) is on terms that are no lessfavorable to the Company or the Restricted Subsidiary than those which would have been obtained from an entity that is not an Affiliate of theCompany or Restricted Subsidiary and has been approved by a majority of the Board of Directors, including a majority of the disinteresteddirectors.(b) The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 3.8(a) orotherwise be restricted by this Indenture or the Securities:(1) any employment agreement, stock option agreement, restricted stock agreement, employee stock ownership plan related agreements, orsimilar agreement and arrangements, in the ordinary course of business;(2) transactions not prohibited by Section 3.4 hereof;(3) transactions in the ordinary course of business in connection with reinsuring the self-insurance programs or other similar forms ofretained insurance risks of the business operated by the Company, its Subsidiaries and Affiliates;(4) any Affiliate trading transactions done in the ordinary course of business; and(5) any transaction that is a Flow-Through Acquisition.SECTION 3.9 Offer to Repurchase Upon Change of Control.(a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a “Change of Control Offer”) to each Securityholder to repurchaseall or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of that Securityholder at a purchase price in cash equal to 101% of theaggregate principal amount of the Securities or portion of Securities validly tendered for payment thereof plus accrued and unpaid interest on the Securitiesrepurchased, if any, to the date of purchase (the “Change of Control Payment”). Within 30 days 52 following any Change of Control, the Issuers will mail a notice to each Securityholder describing the transaction or transactions that constitute the Change ofControl and stating:(1) that the Change of Control Offer is being made pursuant to this Section 3.9 and that all Securities tendered will be accepted forpayment;(2) the purchase price and the purchase date, which shall be no later than 30 Business Days from the date such notice is mailed (the“Change of Control Payment Date”);(3) that any Security not tendered will continue to accrue interest;(4) that, unless the Issuers default in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to theChange of Control Offer will cease to accrue interest after the Change of Control Payment Date;(5) that Securityholders electing to have any Securities purchased pursuant to a Change of Control Offer will be required to surrender theSecurities, with the form entitled “Option of Securityholder to Elect Purchase” on the reverse of the Securities completed, to the Paying Agent atthe address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;(6) that Securityholders will be entitled to withdraw any election to have their Securities purchased if the Paying Agent receives, not laterthan the close of business on the second Business Day preceding the Change of Control Payment Date, a facsimile transmission or letter settingforth the name of the Securityholder, the principal amount of Securities delivered for purchase, and a statement that such Securityholder iswithdrawing his election to have the Securities purchased; and(7) that Securityholders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to theunpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integralmultiple thereof.The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to theextent those laws and regulations are applicable in connection with the repurchase of the Securities as a result of a Change in Control. To the extent that theprovisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers will comply with the applicable securities laws andregulations and will not be deemed to have breached their obligations under the applicable provisions of this Indenture by virtue of such conflict.(b) On the Change of Control Payment Date, the Issuers will, to the extent lawful:(1) accept for payment all Securities or portions thereof properly tendered in accordance with the Change of Control Offer; 53 (2) deposit an amount equal to the Change of Control Payment for the Securities with the Paying Agent in respect of all Securities orportion of Securities properly tendered; and(3) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers’ Certificate stating the aggregateprincipal amount of Securities or portions of Securities being tendered to the Issuers.The Paying Agent will promptly mail to each Securityholder properly tendered the Change of Control Payment for such Securities, and the Trustee willpromptly authenticate and mail (or cause to be transferred by book entry) to each Securityholder a new Security equal in principal amount to anyunpurchased portion of the Securities surrendered, if any; provided that each new Security will be in a principal amount of $2,000 or an integral multiple of$1,000 in excess thereof. The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change ofControl Payment Date.If the Change of Control Payment Date is on or after an interest record date, and on or before the related interest payment date, any accrued and unpaidinterest, if any, will be paid to the Person in whose name a Security is registered at the close of business on such record date, and no additional interest will bepayable to Securityholders who tender pursuant to the Change of Control Offer.Prior to mailing a Change of Control Offer, and as a condition to such mailing, (i) the requisite holders of each issue of Indebtedness issued under anindenture or other agreement that may be violated by such payment shall have consented to such Change of Control Offer being made and waived the eventof default, if any, caused by the Change of Control or (ii) the Company will repay all outstanding Indebtedness issued under an indenture or other agreementthat may be violated by a payment to the Securityholders under a Change of Control Offer or the Company must offer to repay all Indebtedness and makepayment to the holders of such Indebtedness that accept such offer and obtain waivers of any event of default from the remaining holders of suchIndebtedness. The Issuers covenant to effect such repayment or obtain such consent and waiver within 30 days following Change of Control.(c) Notwithstanding anything to the contrary in this Section 3.9, the Issuers will not be required to make a Change of Control Offer upon aChange of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forthin this Section 3.9 and Section 3.7 hereof and purchases all Securities validly tendered and not withdrawn under the Change of Control Offer.SECTION 3.10 Limitation on Sale and Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enterinto any Sale and Leaseback Transaction with respect to their properties unless the Company or the Restricted Subsidiary would be permitted under thisIndenture to Incur Indebtedness secured by a Lien on the property in an amount equal to the Attributable Debt with respect to the Sale and LeasebackTransaction.SECTION 3.11 Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business otherthan a Related Business. 54 SECTION 3.12 Limitation on Co-Issuer. In addition to the other restrictions set forth in this Indenture, the Co-Issuer will not Incur any Indebtednessunless:(a) the Company is a co-obligor or guarantor of the Indebtedness; or(b) the net proceeds of the Indebtedness are either lent to the Company, used to acquire outstanding debt securities issued by the Company, orused, directly or indirectly, to refinance or discharge Indebtedness permitted under the limitation of this Section 3.12.Co-Issuer will not engage in any business not related, directly or indirectly, to obtaining money or arranging financing for the Company.SECTION 3.13 Maintenance of Office or Agency. The Issuers will maintain an office or agency where the Securities may be presented or surrenderedfor payment, where, if applicable, the Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon theIssuers in respect of the Securities and this Indenture may be served. The designated corporate trust office of the Trustee, or if the Trustee’s designatedcorporate trust office is not located in The City of New York, any other office or agency maintained by the Trustee in The City of New York (the “CorporateTrust Office”), shall be such office or agency of the Issuers, unless the Issuers shall designate and maintain some other office or agency for one or more of suchpurposes. The Issuers will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Issuers shallfail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices anddemands may be made or served at the Corporate Trust Office of the Trustee, and the Issuers hereby appoint the Trustee as its agent to receive all suchpresentations, surrenders, notices and demands.The Issuers may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities maybe presented or surrendered for any or all such purposes and may from time to time rescind any such designation. The Issuers will give prompt written noticeto the Trustee of any such designation or rescission and any change in the location of any such other office or agency.SECTION 3.14 Partnership and Corporate Existence. Subject to Article IV, the Company and the Co-Issuer will do or cause to be done all thingsnecessary to preserve and keep in full force and effect its partnership or corporate existence and that of the Co-Issuer and each Restricted Subsidiary and thepartnership or corporate rights (charter and statutory) licenses and franchises of the Company and each Restricted Subsidiary; provided, however, that theCompany shall not be required to preserve any such existence (except the Company and the Co-Issuer), right, license or franchise if the Board of Directorsshall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and each of its Restricted Subsidiaries,taken as a whole, and that the loss thereof would not have a material adverse effect on the ability of the Company to perform its obligations under theSecurities or this Indenture, provided, further, the Company may merge in accordance with Section 4.1.SECTION 3.15 Payment of Taxes and Other Claims. The Issuers will pay or discharge or cause to be paid or discharged, before the same shall becomedelinquent, (i) all material taxes, 55 assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company orany Subsidiary and (ii) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a material liability or Lien upon theproperty of the Company or any Restricted Subsidiary, except for any Lien permitted to be Incurred pursuant to the definition of “Permitted Liens”; provided,however, that the Issuers shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount,applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate reserves, if necessary (in the good faithjudgment of management of the Company), are being maintained in accordance with GAAP or where the failure to pay or discharge the same would not havea material adverse effect on the ability of the Issuers to perform their obligations under the Securities or this Indenture.SECTION 3.16 Payments for Consent. Neither the Company, the Co-Issuer, nor any of the Company’s Restricted Subsidiaries will, directly orindirectly, pay or cause to be paid any consideration, whether by way of interest, fees or otherwise, to any holder of any Securities for or as an inducement toany consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or ispaid to all holders of the Securities that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent,waiver or amendment.SECTION 3.17 Compliance Certificate. The Issuers shall deliver to the Trustee within 120 days after the end of each Fiscal Year of each of the Issuersan Officers’ Certificate, one of the signers of which shall be a principal executive officer, the principal accounting officer or the principal financial officer ofthe Company, stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge ofany Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, thecertificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. TheCompany also shall comply with TIA § 314(a)(4).SECTION 3.18 Further Instruments and Acts. Upon the reasonable request of the Trustee, the Issuers will execute and deliver such further instrumentsand do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture.SECTION 3.19 Statement by Officers as to Default. The Issuers shall deliver to the Trustee, as soon as possible and in any event within fifteen days afterthe Issuers become aware of the occurrence of any Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event ofDefault, Officers’ Certificates setting forth the details of such Event of Default or default and the action which the Issuers propose to take with respect thereto.SECTION 3.20 Stay, Extension and Usury Laws. The Issuers covenant (to the extent they may lawfully do so) that they will not at any time insist upon,plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, nor or any time hereafter inforce, that may affect the covenant or performance of this Indenture; and the Issuers (to the extent they may lawfully do so) hereby expressly waive all benefitor advantage of any such law, and covenant that they will not, by resort to any such law, 56 hinder, delay or impede the execution of any power herein grated to the Trustee, but will suffer and permit the execution of every such power as though nosuch law had been enacted.ARTICLE IVSuccessor CompanySECTION 4.1 Merger, Consolidation or Sale of Assets. The Company may not consolidate or merge with or into, or sell, assign, transfer, lease, conveyor otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another entity unless:(1) the Company is the surviving entity or the entity formed by or surviving the transaction, if other than the Company, or the entity towhich the sale was made is a corporation or partnership organized or existing under the laws of the United States, any state thereof or the Districtof Columbia;(2) the entity formed by or surviving the transaction, if other than the Company, or the entity to which the sale was made assumes all theobligations of the Company in accordance with a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Securitiesand this Indenture;(3) immediately after the transaction no Default or Event of Default exists; and(4) at the time of the transaction and after giving pro forma effect to it as if the transaction had occurred at the beginning of the applicablefour-quarter period, the Company or such other entity or survivor is permitted to Incur at least $1.00 of additional Indebtedness in accordancewith the Consolidated Fixed Charge Coverage Ratio as described in Section 3.3.The Co-Issuer may not consolidate or merge with or into, whether or not it is the surviving entity, or sell, assign, transfer, lease, convey or otherwisedispose of all or substantially all of its properties or assets in one or more related transactions to, another entity except under conditions described in theparagraph above.For purposes of this Section 4.1, the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties andassets of one or more Subsidiaries of the Company (including any disposition by means of any merger, consolidation or similar transaction), which propertiesand assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on aconsolidated basis, shall be deemed to be the disposition of all or substantially all of the properties and assets of the Company.The Company will be released from its obligations under this Indenture, and the entity formed by or surviving the transaction will succeed to, and besubstituted for, and may exercise every right and power of the Company under this Indenture; provided that, in the case of a lease 57 of all or substantially all its assets, the Company will not be released from the obligation to pay the principal of and interest on the Securities.ARTICLE VRedemption of SecuritiesSECTION 5.1 Optional Redemption. The Securities may be redeemed, as a whole or from time to time in part, subject to the conditions and at theredemption prices specified in the form of Securities set forth in Exhibits A and B hereto, which are hereby incorporated by reference and made a part of thisIndenture, together with accrued and unpaid interest to the Redemption Date.SECTION 5.2 Applicability of Article. Redemption of Securities at the election of the Issuers or otherwise, as permitted or required by any provision ofthis Indenture, shall be made in accordance with such provision and this Article.SECTION 5.3 Election to Redeem; Notice to Trustee. The election of the Issuers to redeem any Securities pursuant to Section 5.1 shall be evidenced bya Board Resolution. In case of any redemption at the election of the Issuers, the Issuers shall, upon not later than the earlier of the date that is 30 days prior tothe Redemption Date fixed by the Issuers or the date on which notice is given to the Securityholders (except as provided in Section 5.5 or unless a shorternotice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shalldeliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 5.4.SECTION 5.4 Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed at any time pursuant to an optionalredemption, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from theoutstanding Securities not previously called for redemption, in compliance with the requirements of the principal securities exchange, if any, on which suchSecurities are listed, or, if such Securities are not so listed, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate(and in such manner as complies with applicable legal requirements) and which may provide for the selection for redemption of portions of the principal ofthe Securities; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than$1,000.The Trustee shall promptly notify the Issuers in writing of the Securities selected for redemption and, in the case of any Securities selected for partialredemption, the principal amount thereof to be redeemed.For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case ofany Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. 58 SECTION 5.5 Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 10.2 not less than 20 nor more than 60days prior to the Redemption Date, to each Securityholder of Securities to be redeemed. The Trustee shall give notice of redemption in the Issuers’ names andat the Issuers’ expense; provided, however, that the Issuers shall deliver to the Trustee, at least 35 days prior to the Redemption Date, an Officers’ Certificaterequesting that the Trustee give such notice at the Issuers’ expense and setting forth the information to be stated in such notice as provided in the followingitems.All notices of redemption shall state:(1) the Redemption Date,(2) the redemption price and the amount of accrued interest to the Redemption Date payable as provided in Section 5.7, if any,(3) if less than all outstanding Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to beredeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to beoutstanding after such partial redemption,(4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after theRedemption Date, upon surrender of such Security, the Securityholder will receive, without charge, a new Security or Securities of authorizeddenominations for the principal amount thereof remaining unredeemed,(5) that on the Redemption Date the redemption price (and accrued interest, if any, to the Redemption Date payable as provided inSection 5.7) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and, unless the Issuers default inmaking the redemption payment, that interest on Securities called for redemption (or the portion thereof) will cease to accrue on and after saiddate,(6) the place or places where such Securities are to be surrendered for payment of the redemption price and accrued interest, if any,(7) the name and address of the Paying Agent,(8) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price,(9) the CUSIP number, and that no representation is made as to the accuracy or correctness of the CUSIP number, if any, listed in suchnotice or printed on the Securities, and(10) the paragraph of the Securities pursuant to which the Securities are to be redeemed. 59 SECTION 5.6 Deposit of Redemption Price. Prior to any Redemption Date, the Issuers shall deposit with the Trustee or with a Paying Agent (or, ifeither of the Issuers is acting as its own Paying Agent, segregate and hold in trust as provided in Section 2.4) an amount of money sufficient to pay theredemption price of, and accrued interest on, all the Securities which are to be redeemed on that date.SECTION 5.7 Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, onthe Redemption Date, become due and payable at the redemption price therein specified (together with accrued interest, if any, to the Redemption Date), andfrom and after such date (unless the Issuers shall default in the payment of the redemption price and accrued interest) such Securities shall cease to bearinterest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Issuers at the redemption price,together with accrued interest, if any, to the Redemption Date (subject to the rights of Securityholders of record on the relevant record date to receive interestdue on the relevant interest payment date).If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid,bear interest from the Redemption Date at the rate borne by the Securities.SECTION 5.8 Securities Redeemed in Part. Any Security which is to be redeemed only in part (pursuant to the provisions of this Article) shall besurrendered at the office or agency of the Issuers maintained for such purpose pursuant to Section 3.13 (with, if the Issuers or the Trustee so requires, dueendorsement by, or a written instrument of transfer in form satisfactory to the Issuers and the Trustee duly executed by, the Securityholder thereof or suchSecurityholder’s attorney duly authorized in writing), and the Issuers shall execute, and the Trustee shall authenticate and make available for delivery to theSecurityholder of such Security at the expense of the Issuers, a new Security or Securities, of any authorized denomination as requested by suchSecurityholder, in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered,provided, that each such new Security will be in a principal amount of $1,000 or integral multiple thereof.ARTICLE VIDefaults and RemediesSECTION 6.1 Events of Default. Each of the following is an Event of Default:(1) default in any payment of interest or additional interest on any Security when due, continued for 30 days;(2) default in the payment of principal of or premium, if any, on any Security when due at its Stated Maturity, upon optional redemption,upon required repurchase, upon declaration or otherwise;(3) failure by the Company to comply with its obligations under Article IV; 60 (4) default in the performance of any of the obligations described under Section 3.9 or Section 3.7 above or under the covenants describedunder Article III above and such default shall have continued for a period of 30 days after the Issuers shall have been given notice (in each case,other than a failure to purchase Securities which will constitute an Event of Default under clause (2) above and other than a failure to complywith Section 4.1 which is covered by clause (3));(5) default in the performance of any of the other agreements contained in this Indenture and such default shall have continued for a periodof 60 days after the Issuers shall have been given notice;(6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidencedany Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by theCompany or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether suchIndebtedness or Guarantee now exists, or is created after the Issue Date, which default:(A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of theapplicable grace period provided (“payment default”) which payment default has not been waived; or(B) results in the acceleration of such Indebtedness prior to its maturity (the “cross acceleration provision”);and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which therehas been a payment default or the maturity of which has been so accelerated, aggregates $5 million or more;(7) the Company, the Co-Issuer or any Restricted Subsidiary (pursuant to or within the meaning of any Bankruptcy Law):(A) commences a voluntary insolvency proceeding;(B) consents to the entry of an order for relief against it in an involuntary insolvency proceeding;(C) consents to the appointment of a custodian of it or for any substantial part of its property; or(D) makes a general assignment for the benefit of its creditors;or takes any comparable action under any foreign laws relating to insolvency; provided however, that the liquidation of any RestrictedSubsidiary into another Restricted Subsidiary or the Company other than as part of a credit reorganization, shall not constitute an Eventof Default under this clause (7); 61 (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:(A) is for relief against the Company, the Co-Issuer or any restricted Subsidiary in an involuntary insolvency proceeding;(B) appoints a Custodian of the Company, the Co-Issuer or any Restricted Subsidiary or for any substantial part of its property; or(C) orders the winding up or liquidation of the Company, the Co-Issuer or any Restricted Subsidiary; or(D) grants any similar relief under any foreign laws;and in each case the order or decree remains unstayed and in effect for 60 days; or(9) failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest auditedconsolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay finaljudgments aggregating in excess of $5 million (net of any amounts that a reputable and creditworthy insurance company has acknowledgedliability for in writing), which judgments are not paid, discharged or stayed for a period of 60 days (the “judgment default provision”).However, a default under clauses (4) and (5) of this paragraph will not constitute an Event of Default until the Trustee or the holders of 25% inprincipal amount of the outstanding Securities notify the Company of the default and the Company does not cure such default within the time specified inclauses (4) and (5) of this paragraph after receipt of such notice.SECTION 6.2 Acceleration. If an Event of Default (other than an Event of Default described in clauses (7) and (8) above) occurs and is continuing, theTrustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Securities by notice to the Company and the Trustee,may, and the Trustee at the request of such holders shall, declare the principal of, premium, if any, and accrued and unpaid interest, if any, on all theSecurities to be due and payable. Upon such a declaration, such principal, premium and accrued and unpaid interest will be due and payable immediately. Inthe event of a declaration of acceleration of the Securities because an Event of Default described in clause (6) under “Events of Default” has occurred and iscontinuing, the declaration of acceleration of the Securities shall be automatically annulled if the event of default or payment default triggering such Eventof Default pursuant to clause (6) shall be remedied or cured by the Company or a Restricted Subsidiary of the Company or waived by the holders of therelevant Indebtedness within 20 days after the declaration of acceleration with respect thereto and if (1) the annulment of the acceleration of the Securitieswould not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, except nonpayment of principal,premium or interest on the Securities that became due solely because of the acceleration of the Securities, have been cured or waived. If an Event of Defaultdescribed in clauses (7) and (8) above occurs and is continuing, the principal of, premium, if any, and accrued and unpaid 62 interest on all the Securities will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders.The holders of a majority in principal amount of the outstanding Securities may waive all past defaults (except with respect to nonpayment of principal,premium or interest) and rescind any such acceleration with respect to the Securities and its consequences if (1) rescission would not conflict with anyjudgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, other than the nonpayment of the principal of, premium, if any,and interest on the Securities that have become due solely by such declaration of acceleration, have been cured or waived.SECTION 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment ofprincipal of (or premium, if any) or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture.The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay oromission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy orconstitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative.SECTION 6.4 Waiver of Past Defaults. The Securityholders of a majority in principal amount of the outstanding Securities by notice to the Trustee may(a) waive, by their consent (including, without limitation consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities),an existing Default or Event of Default and its consequences except (i) a Default or Event of Default in the payment of the principal of, or premium, if any, orinterest on a Security or (ii) a Default or Event of Default in respect of a provision that under Section 9.2 cannot be amended without the consent of eachSecurityholder affected and (b) rescind any such acceleration with respect to the Securities and its consequences if such rescission would not conflict withany judgment or decree of a court of competent jurisdiction. When a Default or Event of Default is waived, it is deemed cured, but no such waiver shallextend to any subsequent or other Default or Event of Default or impair any consequent right.SECTION 6.5 Control by Majority. The Securityholders of a majority in principal amount of the outstanding Securities may direct the time, methodand place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, theTrustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Sections 7.1 and 7.2, that the Trustee determines is undulyprejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any otheraction deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled toindemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.SECTION 6.6 Limitation on Suits. Subject to Section 6.7, a Securityholder may not pursue any remedy with respect to this Indenture or the Securitiesunless: 63 (1) such Securityholder has previously given to the Trustee written notice stating that an Event of Default is continuing;(2) Securityholders of at least 25% in principal amount of the outstanding Securities have requested in writing that the Trustee pursue theremedy;(3) such Securityholders have offered to the Trustee security or indemnity satisfactory to it against any loss, liability or expense;(4) the Trustee has not complied with such request within 60 days after receipt of the request and the offer of security or indemnity; and(5) the Securityholders of a majority in principal amount of the outstanding Securities have not given the Trustee a direction that, in theopinion of the Trustee, is inconsistent with such request within such 60-day period.A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over anotherSecurityholder (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are undulyprejudicial to such Securityholders).SECTION 6.7 Rights of Securityholders to Receive Payment. Notwithstanding any other provision of this Indenture (including, without limitation,Section 6.6), the right of any Securityholder to receive payment of principal of, premium (if any) or interest on the Securities held by such Securityholder, onor after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shallnot be impaired or affected without the consent of such Securityholder.SECTION 6.8 Collection Suit by Trustee. If an Event of Default specified in clauses (1) or (2) of Section 6.1 occurs and is continuing, the Trustee mayrecover judgment in its own name and as trustee of an express trust against the Issuers for the whole amount then due and owing (together with interest on anyunpaid interest to the extent lawful) and the amounts provided for in Section 7.7.SECTION 6.9 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary oradvisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Issuers, the Company’sSubsidiaries or its or their respective creditors or properties and, unless prohibited by law or applicable regulations, may vote on behalf of the Securityholdersin any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is herebyauthorized by each Securityholder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directlyto the Securityholders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, itsagents and its counsel, and any other amounts due the Trustee under Section 7.7.SECTION 6.10 Priorities. If the Trustee collects any money or property pursuant to this Article VI, it shall pay out the money or property in thefollowing order: 64 FIRST: to the Trustee for amounts due under Section 7.7;SECOND: to Securityholders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, withoutpreference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; andTHIRD: to the Issuers.The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such recorddate, the Issuers shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid.SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee forany action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costsof the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit,having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suitby the Issuers, a suit by a Securityholder pursuant to Section 6.7 or a suit by Securityholders of more than 10% in outstanding principal amount of theSecurities.SECTION 6.12 Additional Payments. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) byor on behalf of the Issuers with the intention of avoiding payment of the premium that the Issuers would have had to pay if the Issuers then had elected toredeem the Securities pursuant to the optional redemption provisions of this Indenture or was required to repurchase the Securities, an equivalent premiumshall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Securities. If an Event of Default occursprior to December 1, 2014 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Issuers with the intention of avoiding theprohibition on redemption of the Securities prior to December 1, 2014, the premium specified in this Indenture shall also become immediately due andpayable to the extent permitted by law upon the acceleration of the Securities.ARTICLE VIITrusteeSECTION 7.1 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in itby this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conductof such Person’s own affairs; provided that if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise the rights orpowers under this Indenture at the request or direction of any of the Securityholders unless such 65 Securityholders have offered to the Trustee reasonable indemnity or security against loss, liability or expense.(b) Except during the continuance of an Event of Default:(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no impliedcovenants or obligations shall be read into this Indenture against the Trustee; and(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of theopinions expressed therein, upon certificates, opinions or orders furnished to the Trustee and conforming to the requirements of this Indenture.However, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee,the Trustee shall examine such certificates and opinions to determine whether or not they conform on their face to the requirements of thisIndenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct,except that:(1) this paragraph does not limit the effect of paragraph (b) of this Section;(2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee wasnegligent in ascertaining the pertinent facts; and(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction receivedby it pursuant to Section 6.5.(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.(e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers.(f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.(g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in theperformance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment ofsuch funds or adequate indemnity against such risk or liability is not reasonably assured to it. 66 (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject tothe provisions of this Section and to the provisions of the TIA.(i) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from each Issuer shall be sufficient if signedby an Officer of such Issuer.(j) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of anyof the Securityholders unless such Securityholders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses(including reasonable attorneys’ fees and expenses) and liabilities that might be incurred by it in compliance with such request or direction.(k) The Trustee shall not be deemed to have knowledge of any Default or Event of Default unless and until an officer at the Trustee’s corporatetrust office responsible for the administration of its duties hereunder shall have actual knowledge thereof or the Trustee shall have received written noticethereof at such office.SECTION 7.2 Rights of Trustee. Subject to Section 7.1:(a) The Trustee may conclusively rely on any document (whether in its original or facsimile form) reasonably believed by it to be genuine and tohave been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.(b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate and/or an Opinion of Counsel. The Trustee shall not beliable for any action it takes or omits to take in good faith in reliance on an Officers’ Certificate or Opinion of Counsel.(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointedwith due care.(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights orpowers, unless the Trustee’s conduct constitutes willful misconduct or negligence.(e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to thisIndenture and the Securities shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by ithereunder in good faith and in accordance with the advice or opinion of such counsel.(f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument,opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee,in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to 67 make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers, personally or by agent or attorney atthe sole cost of the Issuers and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.(g) In no event shall the Trustee be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever(including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless ofthe form of action.(h) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, areextended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to acthereunder.(i) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.(j) The Trustee may request that the Issuers deliver a certificate setting forth the names of individuals and/or titles of officers authorized at suchtime to take specified actions pursuant to this Indenture.SECTION 7.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and mayotherwise deal with the Company or its Affiliates with respect to such Securities with the same rights it would have if it were not Trustee. Any Paying Agent,Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11.SECTION 7.4 Trustee’s Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of thisIndenture or the Securities, it shall not be accountable for the Issuers’ use of the proceeds from the Securities, and it shall not be responsible for any statementof the Issuers in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee’s certificateof authentication.SECTION 7.5 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if a Trust Officer has actual knowledge thereof, theTrustee shall mail to each Securityholder notice of the Default or Event of Default within the earlier of 90 days after it occurs or 30 days after the Trustee hasknowledge of such default. Except in the case of a Default or Event of Default in payment of principal of, premium (if any), or interest on any Security(including payments pursuant to the optional redemption or required repurchase provisions of such Security, if any), the Trustee may withhold the notice ifand so long as it in good faith determines that withholding the notice is in the interests of Securityholders.SECTION 7.6 Reports by Trustee to Securityholders. If required, as promptly as practicable after each May 15 beginning with the May 15 followingthe date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such May 15that complies with TIA § 313(a). The Trustee also shall 68 comply with TIA § 313(b). The Trustee shall also transmit by mail all reports required by TIA § 313(c).A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securitiesare listed. The Company agrees to notify promptly the Trustee in writing whenever the Securities become listed on any stock exchange and of any delistingthereof.SECTION 7.7 Compensation and Indemnity. The Issuers shall pay to the Trustee from time to time such compensation for its acceptance of thisIndenture and services hereunder as the Issuers and the Trustee shall from time to time agree in writing. The Trustee’s compensation shall not be limited byany law on compensation of a trustee of an express trust. The Issuers shall reimburse the Trustee upon request for all reasonable out-of-pocket expensesincurred or made by it, including costs of collection, costs of preparing and reviewing reports, certificates and other documents, costs of preparation andmailing of notices to Securityholders, in addition to the compensation for its services. Such expenses shall include the reasonable compensation andexpenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Issuers shall indemnify the Trustee against any and allloss, liability, damages, claims or expense (including reasonable attorneys’ fees and expenses) incurred by it without negligence or willful misconduct on itspart in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing thisIndenture (including this Section 7.7) and of defending itself against any claims (whether asserted by any Securityholder, the Issuers or otherwise). TheTrustee shall notify the Issuers promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuers shall not relieve theIssuers of their obligations hereunder. The Issuers shall defend the claim and the Trustee shall provide reasonable cooperation at the Issuers’ expense in thedefense. The Trustee may have separate counsel and the Issuers shall pay the fees and expenses of such counsel provided that the Issuers shall not be requiredto pay such fees and expenses if it assumes the Trustee’s defense, and, in the reasonable judgment of outside counsel to the Trustee, there is no conflict ofinterest between the Issuers and the Trustee in connection with such defense. The Issuers shall not be under any obligation to pay for any written settlementwithout its consent, which consent shall not be unreasonably delayed, conditioned or withheld. The Issuers need not reimburse any expense or indemnifyagainst any loss, liability or expense incurred by the Trustee through the Trustee’s own willful misconduct or negligence.To secure the Issuers’ payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held orcollected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities.The Issuers’ payment obligations pursuant to this Section shall survive the discharge of this Indenture. When the Trustee incurs expenses after theoccurrence of a Default specified in clauses (7) or (8) of Section 6.1 with respect to the Company, the expenses are intended to constitute expenses ofadministration under any Bankruptcy Law.SECTION 7.8 Replacement of Trustee. The Trustee may resign at any time by so notifying the Issuers. The Securityholders of a majority in principalamount of the Securities may 69 remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Issuers shall remove the Trustee if:(1) the Trustee fails to comply with Section 7.10;(2) the Trustee is adjudged bankrupt or insolvent;(3) a receiver or other public officer takes charge of the Trustee or its property; or(4) the Trustee otherwise becomes incapable of acting.If the Trustee resigns or is removed by the Issuers or by the Securityholders of a majority in principal amount of the Securities and suchSecurityholders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of the Trustee for any reason (the Trustee in suchevent being referred to herein as the retiring Trustee), the Issuers shall promptly appoint a successor Trustee.A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon the resignation orremoval of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under thisIndenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it asTrustee to the successor Trustee, subject to the lien provided for in Section 7.7.If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or theSecurityholders of at least 10% in principal amount of the Securities may petition, at the Issuers’ expense, any court of competent jurisdiction for theappointment of a successor Trustee.If the Trustee fails to comply with Section 7.10, unless the Trustee’s duty to resign is stayed as provided in Section 310(b) of the TIA, anySecurityholder who has been a bona fide Securityholder of a Security for at least six months may petition any court of competent jurisdiction for the removalof the Trustee and the appointment of a successor Trustee.Notwithstanding the replacement of the Trustee pursuant to this Section, the Company’s obligations under Section 7.7 shall continue for thebenefit of the retiring Trustee.SECTION 7.9 Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporatetrust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be thesuccessor Trustee.In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by thisIndenture, any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authenticationof any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, anysuccessor to the 70 Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such casessuch certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have.SECTION 7.10 Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA § 310(a). The Trustee shall have a combinedcapital and surplus of at least $50 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA § 310(b);provided, however, that there shall be excluded from the operation of TIA § 310(b)(1) any indenture or indentures under which other securities or certificatesof interest or participation in other securities of the Issuers are outstanding if the requirements for such exclusion set forth in TIA § 310(b)(1) are met. ThisIndenture will always have a Trustee that satisfies the requirements of TIA § 310(a)(1), (2) and (5).SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA § 311(a), excluding any creditor relationshiplisted in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated.ARTICLE VIIIDischarge of Indenture; DefeasanceSECTION 8.1 Discharge of Liability on Securities; Defeasance. (a) Subject to Section 8.1(c), when (i)(x) the Issuers deliver to the Trustee alloutstanding Securities (other than Securities replaced pursuant to Section 2.9) for cancellation or (y) all outstanding Securities not theretofore delivered forcancellation have become due and payable, whether at maturity or upon redemption or will become due and payable within one year or are to be called forredemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption pursuant to Article V hereof and the Issuersirrevocably deposit or cause to be deposited with the Trustee as trust funds in trust solely for the benefit of the Securityholders money in U.S. dollars, non-callable U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest topay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, andaccrued interest to the date of maturity or redemption; (ii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit orshall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to whicheach of the Issuers is a party or by which each of the Issuers is bound; (iii) the Issuers have paid or caused to be paid all sums payable under this Indenture andthe Securities; and (iv) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward thepayment of such Securities at maturity or the Redemption Date, as the case may be, then the Trustee shall acknowledge satisfaction and discharge of thisIndenture on demand of the Issuers (accompanied by an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent specified hereinrelating to the satisfaction and discharge of this Indenture have been complied with) and at the cost and expense of the Issuers. 71 (b) Subject to Sections 8.1(c) and 8.2, the Issuers at any time may terminate (i) all its obligations under the Securities and this Indenture (“legaldefeasance option”), and after giving effect to such legal defeasance, any omission to comply with such obligations shall no longer constitute a Default orEvent of Default or (ii) its obligations under Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.15, 3.17 and 4.1 and the Issuers may omit to complywith and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of anyreference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other documentand such omission to comply with such covenants shall no longer constitute a Default or an Event of Default under Section 6.1(3), 6.1(4) and 6.1(5) and theoperation of Sections 6.1(6), 6.1(7), 6.1(8) (but only with respect to a Significant Subsidiary or group of Restricted Subsidiaries that would constitute aSignificant Subsidiary), or 6.1(9), and the events specified in such Sections shall no longer constitute an Event of Default (clause (ii) being referred to as the“covenant defeasance option”), but except as specified above, the remainder of this Indenture and the Securities shall be unaffected thereby. The Issuers mayexercise their legal defeasance option notwithstanding its prior exercise of its covenant defeasance option.If the Issuers exercise their legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Issuersexercise their covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Section 6.1(3), 6.1(4)(as such Section relates to Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11 and 3.16), 6.1(5), 6.1(6), 6.1(7), 6.1(8) (but only with respect to a SignificantSubsidiary or group of Restricted Subsidiaries that would constitute a Significant Subsidiary), 6.1(9) or because of the failure of the Issuers to comply withSection 4.1.Upon satisfaction of the conditions set forth herein and upon request of the Issuers, the Trustee shall acknowledge in writing the discharge of thoseobligations that the Issuers terminate.(c) Notwithstanding the provisions of Sections 8.1(a) and (b), the Issuers’ obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.9, 2.10, 2.11, 3.1, 3.13,3.13, 3.14, 3.15, 3.17, 3.18, 3.19, 6.7, 7.7, 7.8 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Issuers’ obligationsin Sections 7.7, 8.4 and 8.5 shall survive.SECTION 8.2 Conditions to Defeasance. The Issuers may exercise their legal defeasance option or their covenant defeasance option only if:(1) the Issuers irrevocably deposit in trust with the Trustee for the benefit of the Securityholders money in U.S. dollars or U.S. GovernmentObligations or a combination thereof for the payment of principal, premium, if any, and interest on the Securities to maturity or redemption, asthe case may be;(2) the Issuers deliver to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinionthat the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus anydeposited money without investment will provide cash 72 at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity;(3) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or, with respect to certain bankruptcyor insolvency Events of Default, on the 91st day after such date of deposit;(4) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under, this Indenture orany other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of itsSubsidiaries is bound;(5) the Issuers shall have delivered to the Trustee an Opinion of Counsel (subject to customary assumptions and exclusions) to the effectthat (A) the Securities and (B) assuming no intervening bankruptcy of the Issuers between the date of deposit and the 91st day following thedeposit and that no Securityholder of the Securities is an insider of the Issuers, after the 91st day following the deposit, the trust funds will not besubject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ right generally;(6) the Issuers deliver to the Trustee an Opinion of Counsel (subject to customary assumptions and exclusions) to the effect that the trustresulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940;(7) in the case of the legal defeasance option, the Issuers shall have delivered to the Trustee an Opinion of Counsel (subject to customaryassumptions and exclusions) in the United States stating that (i) the Company has received from, or there has been published by, the InternalRevenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case tothe effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss forfederal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner andat the same times as would have been the case if such legal defeasance had not occurred;(8) in the case of the covenant defeasance option, the Issuers shall have delivered to the Trustee an Opinion of Counsel (subject tocustomary assumptions and exclusions) in the United States to the effect that the Securityholders will not recognize income, gain or loss forfederal income tax purposes as a result of such deposit and covenant defeasance and will be subject to federal income tax on the same amount, inthe same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred; and(9) the Issuers deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent to thedefeasance and 73 discharge of the Securities and this Indenture as contemplated by this Article VIII have been complied with.SECTION 8.3 Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to thisArticle VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with thisIndenture to the payment of principal of and interest on the Securities.SECTION 8.4 Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Issuers upon request any excess money, U.S.Government Obligations or securities held by them upon payment of all the obligations under this Indenture.Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Issuers upon request any money held by them forthe payment of principal of or interest on the Securities that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must lookto the Issuers for payment as general creditors.SECTION 8.5 Indemnity for U.S. Government Obligations. The Issuers shall pay and shall indemnify the Trustee against any tax, fee or other chargeimposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations.SECTION 8.6 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with thisArticle VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining orotherwise prohibiting such application, the obligations of the Issuers under this Indenture and the Securities shall be revived and reinstated as though nodeposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. GovernmentObligations in accordance with this Article VIII; provided, however, that, if the Issuers have made any payment of interest on or principal of any Securitiesbecause of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Securityholders of such Securities to receive such paymentfrom the money or U.S. Government Obligations held by the Trustee or Paying Agent.ARTICLE IXAmendmentsSECTION 9.1 Without Consent of Securityholders. The Issuers and the Trustee may amend this Indenture or the Securities without notice to or consentof any Securityholder:(1) cure any ambiguity, omission, defect or inconsistency;(2) provide for the assumption by a successor corporation, partnership, trust or limited liability company of the obligations of the Issuersunder this Indenture; 74 (3) provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities areissued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described inSection 163(f) (2) (B) of the Code);(4) add Guarantees with respect to the Securities;(5) secure the Securities;(6) add to the covenants of the Issuers for the benefit of the holders or surrender any right or power conferred upon the Issuers;(7) make any change that does not materially adversely affect the rights of any holder;(8) comply with any requirement of the SEC in connection with the qualification of this Indenture under the Trust Indenture Act;(9) provide for the issuance of exchange securities which shall have terms substantially identical in all respects to the Securities (exceptthat the transfer restrictions contained in the Securities shall be modified or eliminated as appropriate) and which shall be treated, together withany outstanding Securities, as a single class of securities; or(10) conform the text of this Indenture or the Securities to any provision under the heading “Description of Notes” in the offeringmemorandum, dated November 10, 2010, relating to the offering by the Company of $125.0 million of the 8.875% Senior Notes due 2017 to theextent that such provision in the offering memorandum is intended to be a recitation of a provision of this Indenture or the Securities.After an amendment under this Section becomes effective, the Issuers shall mail to Securityholders a notice briefly describing such amendment. Thefailure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section.SECTION 9.2 With Consent of Securityholders. The Issuers may amend this Indenture or the Securities without notice to any Securityholder but withthe written consent of the Securityholders of at least a majority in principal amount of the Securities then outstanding (including, without limitation,consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities). However, without the consent of each Securityholderaffected, an amendment may not:(1) reduce the principal amount of Securities whose Securityholders must consent to an amendment;(2) reduce the rate of or extend the time for payment of interest on any Security; 75 (3) reduce the principal of or extend the Stated Maturity of any Security;(4) reduce the premium payable upon the redemption or repurchase of any Security or change the time at which any Security may or shallbe redeemed or repurchased as described under Section 3.7, Section 3.9 and Article V;(5) make any Security payable in currency other than that stated in the Security;(6) impair the right of any Securityholder to receive payment of principal of, premium, if any, and interest on such Securityholder’sSecurities on or after the due dates therefor (other than a repurchase required under Section 3.7 or Section 3.9) or to institute suit for theenforcement of any payment on or with respect to such Securityholder’s Securities; or(7) make any change to the amendment provisions which require each Securityholder’s consent or to the waiver provisions.It shall not be necessary for the consent of the Securityholders under this Section to approve the particular form of any proposed amendment, but itshall be sufficient if such consent approves the substance thereof. A consent to any amendment or waiver under this Indenture by any Securityholder of theSecurities given in connection with a tender of such Securityholder’s Securities will not be rendered invalid by such tender.After an amendment under this Section becomes effective, the Issuers shall mail to Securityholders a notice briefly describing such amendment. Thefailure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section.SECTION 9.3 Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect.SECTION 9.4 Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Securityholder of a Security shall bind theSecurityholder and every subsequent Securityholder of that Security or portion of the Security that evidences the same debt as the consentingSecurityholder’s Security, even if notation of the consent or waiver is not made on the Security. However, any such Securityholder or subsequentSecurityholder may revoke the consent or waiver as to such Securityholder’s Security or portion of the Security if the Trustee receives the notice ofrevocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder.An amendment or waiver shall become effective upon receipt by the Trustee of the requisite number of written consents under Section 9.1 or Section 9.2 asapplicable.The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or takeany other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding theimmediately preceding paragraph, those Persons who were 76 Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consentpreviously given or to take any such action, whether or not such Persons continue to be Securityholders after such record date. No such consent shall becomevalid or effective more than 120 days after such record date.SECTION 9.5 Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Securityholder ofthe Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to theSecurityholder. Alternatively, if the Issuers or the Trustee so determines, the Issuers in exchange for the Security shall issue and the Trustee shall authenticatea new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of suchamendment.SECTION 9.6 Trustee to Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does notadversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment theTrustee shall be entitled to receive indemnity reasonably satisfactory to it and shall receive, and (subject to Sections 7.1 and 7.2) shall be fully protected inconclusively relying upon an Officers’ Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture and isthe legal, valid and binding obligation of the Issuers, enforceable in accordance with its terms.ARTICLE XMiscellaneousSECTION 10.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required tobe included in this Indenture by the TIA, the provision required by the TIA shall control.SECTION 10.2 Notices. Any notice or communication shall be in writing (including facsimile) and delivered in person or mailed by first-class mailaddressed as follows:if to the Issuers:Star Gas Partners, L.P.2187 Atlantic StreetStamford, Connecticut 06902Attention: Daniel P. Donovan, Chief Executive OfficerFAX: (203) 325-7470with a copy to:Phillips Nizer LLP666 Fifth AvenueNew York, NY 10103Attention: Alan Shapiro, Esq.FAX: (212) 262-5152 77 if to the Trustee:Union Bank, N.A.Attention: Corporate Trust Department551 Madison Avenue, 11 Fl.New York, NY 10022FAX: (646-452-2000)The Issuers or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.Any notice or communication mailed to a registered Securityholder shall be mailed to the Securityholder at the Securityholder’s address as it appearson the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed.Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. Ifa notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it.SECTION 10.3 Communication by Securityholders with other Securityholders. Securityholders may communicate pursuant to TIA § 312(b) with otherSecurityholders with respect to their rights under this Indenture or the Securities. The Issuers, the Trustee, the Registrar and anyone else shall have theprotection of TIA § 312(c).SECTION 10.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuers to the Trustee to take or refrain fromtaking any action under this Indenture, the Issuers shall furnish to the Trustee:(1) an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, allconditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and(2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all suchconditions precedent have been complied with.SECTION 10.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or conditionprovided for in this Indenture shall include:(1) a statement that the individual making such certificate or opinion has read such covenant or condition; 78th (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained insuch certificate or opinion are based;(3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him toexpress an informed opinion as to whether or not such covenant or condition has been complied with; and(4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with.In giving an Opinion of Counsel, counsel may rely as to factual matters on an Officers’ Certificate or on certificates of public officials.SECTION 10.6 When Securities Disregarded. In determining whether the Securityholders of the required principal amount of Securities have concurredin any direction, waiver or consent, Securities owned by the Issuers or by any Person directly or indirectly controlling or controlled by or under direct orindirect common control with the Issuers shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether theTrustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Trust Officer of the Trustee actually knows are soowned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination.SECTION 10.7 Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by, or a meeting of, Securityholders.The Registrar and the Paying Agent may make reasonable rules for their functions.SECTION 10.8 Legal Holidays. A “Legal Holiday” is a Saturday, a Sunday or other day on which commercial banking institutions are authorized orrequired to be closed in New York City. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday,and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected.SECTION 10.9 GOVERNING LAW; WAIVER OF JULY TRIAL. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLESTHEREOF. EACH OF THE ISSUERS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BYAPPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THISINDENTURE, THE SECURITIES OR THE TRANSACTION CONTEMPLATED HEREBY.SECTION 10.10 No Recourse Against Others. An incorporator, director, officer, employee, stockholder, limited partner or controlling person, as such,of the Issuers or of Kestrel Heat LLC shall not have any liability for any obligations of the Issuers under the Securities, this Indenture or for any claim basedon, in respect of or by reason of such obligations or their 79 creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of theconsideration for the issue of the Securities.SECTION 10.11 Successors. All agreements of the Issuers in this Indenture and the Securities shall bind their respective successors. All agreements ofthe Trustee in this Indenture shall bind its successors.SECTION 10.12 Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of themtogether represent the same agreement. One signed copy is enough to prove this Indenture.SECTION 10.13 Qualification of Indenture. The Issuers shall qualify this Indenture under the TIA and shall pay all reasonable costs and expenses(including attorneys’ fees and expenses for the Company, the Trustee and the Securityholders) incurred in connection therewith, including, but not limitedto, costs and expenses of qualification of this Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled toreceive from the Company any such Officers’ Certificates or other documentation as it may reasonably request in connection with any such qualification ofthis Indenture under the TIA.SECTION 10.14 Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenturehave been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms orprovisions hereof.SECTION 10.15 Force Majeure. In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligationshereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, actsof war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities,communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent withaccepted practices in the banking industry to resume performance as soon as practicable under the circumstances.SECTION 10.16 U.S.A. Patriot Act. The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, the Trustee, like allfinancial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information thatidentifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they willprovide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the U.S.A. Patriot Act.[The remainder of this page is intentionally blank] 80 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. STAR GAS PARTNERS, L.P.By: KESTREL HEAT LLC, its General PartnerBy: Name: Title:STAR GAS FINANCE COMPANYBy: Name: Title:UNION BANK, N.A.as TrusteeBy: Name: Title: 81 EXHIBIT A[FORM OF FACE OF SECURITY][Applicable Restricted Global Securities Legend][Depository Legend, if applicable] No. [ ] Principal Amount $[ ] CUSIP NO. [ ]STAR GAS PARTNERS, L.P.STAR GAS FINANCE COMPANY8.875% Senior Notes due 2017Star Gas Partners, L.P., a Delaware limited partnership (such partnership herein called the “Company”), and Star Gas Finance Company, a Delawarecorporation, (such corporation, together with the Company, herein called the “Issuers”), promise to pay to [ ], or registered assigns, the principal sum of[ ] Dollars or such greater or lesser amount as shall be reflected on the books and records of the custodian with respect to the Global Security (asappointed by DTC) (the “Securities Custodian”), on December 1, 2017 pursuant to the Indenture (as defined below).Interest Payment Dates: June 1 and December 1Record Dates: May 15 and November 15Additional provisions of this Security are set forth on the other side of this Security. Global Security only. A-111 STAR GAS PARTNERS, L.P.By: KESTREL HEAT LLC, its General PartnerBy: STAR GAS FINANCE COMPANYBy: TRUSTEE’S CERTIFICATE OF AUTHENTICATION UNION BANK, N.A. as Trustee, certifies that this is one of the Securities referred to in the Indenture. By Authorized Signatory Date: A-2 [FORM OF REVERSE SIDE OF SECURITY]8.875% Senior Notes due 2017 1.InterestStar Gas Partners, L.P., a Delaware limited partnership (such partnership being herein called the “Company”), and Star Gas Finance Company, aDelaware corporation, (such corporation, together with the Company, under the Indenture hereinafter referred to, being herein called the “Issuers”), promise topay interest on the principal amount of this Security at the rate per annum shown above.The Issuers will pay interest semiannually on June 1 and December 1 of each year commencing June 1, 2011. Interest on the Securities will accrue fromthe most recent date to which interest has been paid on the Securities or, if no interest has been paid, from November 16, 2010. The Issuers shall pay intereston overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interestwill be computed on the basis of a 360-day year of twelve 30-day months. 2.Method of PaymentBy no later than 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Issuers shalldeposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Issuers will pay interest (exceptDefaulted Interest) to the Persons who are registered Securityholders of Securities at the close of business on the May 15 or November 15 next preceding theinterest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date.Securityholders must surrender Securities to a Paying Agent to collect principal payments. The Issuers will pay principal and interest in money of the UnitedStates that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security(including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The DepositoryTrust Company. The Issuers will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a checkto the registered address of each Securityholder thereof. 3.Paying Agent and RegistrarInitially, Union Bank, N.A. (the “Trustee”), will act as Trustee, Paying Agent and Registrar. The Issuers may appoint and change any Paying Agent,Registrar or co-registrar without notice to any Securityholder. The Issuers or any of the Restricted Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4.IndentureThe Issuers issued the Securities under an Indenture dated as of November 16, 2010 (as it may be amended or supplemented from time to time inaccordance with the terms thereof, the A-3 “Indenture”), among the Issuers and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture byreference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”). Capitalized terms used hereinand not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to theIndenture and the Act for a statement of those terms.The Securities are general unsecured senior obligations of the Issuers. The aggregate principal amount of securities that may be authenticated anddelivered under the Indenture is unlimited.The Indenture imposes certain limitations, among other things, on the ability of the Issuers and the Restricted Subsidiaries, to Incur additional debt;pay dividends on stock; redeem stock or redeem subordinated debt; make investments; create Liens in favor of other senior subordinated debt andsubordinated debt; enter into agreements that restrict dividends from Restricted Subsidiaries; sell assets; enter into transactions with Affiliates; sell CapitalStock of Restricted Subsidiaries; merge or consolidate; enter into different lines of business and pay consent fees. 5.RedemptionExcept as described below, the Securities are not redeemable until December 1, 2014. On and after December 1, 2014, the Issuers may redeem all or,from time to time, a part of the Securities upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentageof principal amount) plus accrued and unpaid interest on the Securities, if any, to the applicable redemption date (subject to the right of holders of record onthe relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period beginning on December 1 ofthe years indicated below: Year Percentage 2014 104.438% 2015 102.219% 2016 and thereafter 100.000% At any time, or from time to time, on or prior to December 1, 2013, the Issuer may, at its option, use all or a portion of the Net Cash Proceeds of one ormore Public Equity Offerings to redeem up to 35% of the aggregate principal amount of the Securities (including any Additional Securities) issued under thisIndenture at a redemption price equal to 108.875% of the aggregate principal amount of the Securities to be redeemed, plus accrued and unpaid interest, ifany, thereon to the date of redemption; provided, that: (1) there is a Public Market at the time of such redemption; (2) at least 65% of the aggregate principalamount of Securities issued under this Indenture on the Issue Date remains outstanding immediately after giving effect to any such redemption; and (3) theIssuer makes such redemption not more than 60 days after the consummation of any such Public Equity Offering. A-4 In addition, the Securities may be redeemed, in whole or in part, at any time prior to December 1, 2014 at the option of the Issuers upon not less than 30nor more than 60 days’ prior notice mailed by first class mail to each Holder at its registered address, at a redemption price equal to 100% of the principalamount of the Securities redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the applicable redemption date.If the optional redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest,if any, will be paid to the Person in whose name the Security is registered at the close of business on such record date, and no additional interest will bepayable to Securityholders whose Securities will be subject to redemption by the Issuers.In the case of any partial redemption, the Trustee will select the Securities for redemption in compliance with the requirements of the principal nationalsecurities exchange, if any, on which the Securities are listed or, if the Securities are not listed, then on a pro rata basis, by lot or by such other method as theTrustee in its sole discretion will deem to be fair and appropriate, although no Security of $1,000 in original principal amount or less will be redeemed inpart. If any Security is to be redeemed in part only, the notice of redemption relating to that Security will state the portion of the principal amount thereof tobe redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellationof the original Security. 6.Repurchase Provisions(a) Upon a Change of Control any Securityholder will have the right to cause the Issuers to repurchase all or any part of the Securities of suchSecurityholder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase(subject to the right of Securityholders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, andsubject to the terms of, the Indenture.(b) In the event of an Asset Sale that requires the purchase of Securities pursuant to Section 3.7(e) of the Indenture, the Company will be required toapply such Excess Proceeds to the repayment of the Securities and any pari passu notes in accordance with the procedures set forth in Section 3.7 of theIndenture. 7.Denominations; Transfer; ExchangeThe Securities are in registered form without coupons in denominations of principal amount of $2,000 and whole multiples of $1,000 in excess thereof.A Securityholder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Securityholder, among other things, tofurnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need notregister the transfer of or exchange of any Security for a period beginning (i) 15 days before the mailing of a notice of an offer to repurchase or redeemSecurities and ending at the close of A-5 business on the day of such mailing or (ii) any Securities for a period beginning 15 days before an interest payment date and ending on such interest paymentdate. 8.Persons Deemed OwnersThe registered Securityholder of this Security may be treated as the owner of it for all purposes. 9.Unclaimed MoneyIf money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Issuersat their request unless an abandoned property law designates another Person. After any such payment, Securityholders entitled to the money must look onlyto the Issuers and not to the Trustee for payment. 10.DefeasanceSubject to certain conditions set forth in the Indenture, the Issuers at any time may terminate some or all of their obligations under the Securities andthe Indenture if the Issuers deposit with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities toredemption or maturity, as the case may be. 11.Amendment, WaiverSubject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without notice to any Securityholder butwith the written consent of the Securityholders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other thanwith respect to nonpayment or in respect of a provision that cannot be amended without the written consent of each Securityholder affected) ornoncompliance with any provision may be waived with the written consent of the Securityholders of a majority in principal amount of the then outstandingSecurities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuers and the Trustee may amend theIndenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article IV of the Indenture, or to provide foruncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities, to secure the Securities, or toadd additional covenants of the Issuers, or surrender rights and powers conferred on the Issuers, or to comply with any request of the SEC in connection withqualifying the Indenture under the Act, or to make any change that does not materially adversely affect the rights of any Securityholder, or to provide for theissuance of Exchange Securities or to conform the text of the Indenture or the Securities to any provision under the heading “Description of Notes” in theoffering memorandum, dated November 10, 2010 relating to the offering by the Company of $125.0 million of the 8.875% Senior Notes due 2017 to theextent such provision in the offering memorandum is intended to be a recitation of a provision of the Indenture or the Securities. A-6 12.Defaults and RemediesUnder the Indenture, Events of Default include in summary form: (i) default for 30 days in payment of interest or additional interest when due on theSecurities; (ii) default in payment of principal or premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemptionpursuant to paragraphs 5 and 6 of the Securities, upon declaration or otherwise; (iii) the failure by the Issuers to comply with its obligations under Article IVof the Indenture; (iv) default in the performance of any of the obligations described under Section 3.9 or Section 3.7 inclusive or under the covenantsdescribed under Article III inclusive of the Indenture and such default shall have continued for a period of 30 days after the Issuers shall have been givennotice (in each case, other than a failure to purchase Securities which will constitute an Event of Default under clause (ii) above and other than a failure tocomply with Section 4.1 which is covered by clause (iii); (v) default in the performance of any of the agreements contained in the Indenture and such defaultshall have continued for a period of 60 days after the Issuers shall have been given notice; (vi) default under any mortgage, indenture or instrument underwhich there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuers or any of their RestrictedSubsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to each of theIssuers or a Restricted Subsidiary of such Issuer, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the applicable grace periodprovided (“Payment Default”) which payment default has not been waived or (b) results in the acceleration of such Indebtedness prior to its maturity (the“cross acceleration provision”) and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other suchIndebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (vii) theCompany, the Co-Issuer or any Restricted Subsidiary (pursuant to or within the meaning of any Bankruptcy Law): (a) commences a voluntary insolvencyproceeding; (b) consents to the entry of an order for relief against it in an involuntary insolvency proceeding; (c) consents to the appointment of a custodianof it or for any substantial part of its property; or (d) makes a general assignment for the benefit of its creditors; or takes any comparable action under anyforeign laws relating to insolvency; provided however, that the liquidation of any Restricted Subsidiary into another Restricted Subsidiary or the Companyother than as part of a credit reorganization, shall not constitute an Event of Default under this clause (vii); (viii) a court of competent jurisdiction enters anorder or decree under any Bankruptcy Law that: (a) is for relief against the Company, the Co-Issuer or any restricted Subsidiary in an involuntary insolvencyproceeding; (b) appoints a Custodian of the Company, the Co-Issuer or any Restricted Subsidiary or for any substantial part of its property; or (c) orders thewinding up or liquidation of the Company, the Co-Issuer or any Restricted Subsidiary; or (d) grants any similar relief under any foreign laws; and in each casethe order or decree remains unstayed and in effect for 60 days; or (ix) failure by the Company or any Significant Subsidiary or group of RestrictedSubsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitutea Significant Subsidiary to pay final judgments aggregating in excess of $5.0 million (net of any amounts with respect to which a reputable and creditworthyinsurance company has acknowledged liability for in writing), which judgments are not paid, discharged or stayed for a period of 60 days (the A-7 “judgment default provision”). However, a default under clauses (iv) and (v) will not constitute an Event of Default until the Trustee or the Securityholders ofat least 25% in principal amount of the outstanding Securities notify the Issuers and the Trustee, in the case of a notice given by the Securityholders, of thedefault and the Issuers does not cure such default within the time specified in clauses (iv) and (v) hereof after receipt of such notice.If an Event of Default occurs and is continuing (other than an Event of Default described in clause (vii) above), the Trustee or the Securityholders of atleast 25% in principal amount of the Securities may declare all the Securities to be due and payable. Certain events of bankruptcy or insolvency are Events ofDefault which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default.Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture orthe Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Securityholders of a majority in principal amount of theSecurities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default orEvent of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 13.Trustee Dealings with the IssuersSubject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owneror pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuers or their Affiliates and may otherwise deal with theIssuers or their Affiliates with the same rights it would have if it were not Trustee. 14.No Recourse Against OthersNo director, officer, employee, incorporator, partner, stockholder, limited partner or controlling person of the Issuers, or of Kestrel Heat LLC as such,shall have any liability for any obligations of the Issuers under the Securities, the Indenture, or for any claim based on, in respect of, or by reason of, suchobligations of their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of theconsideration for issuance of the Securities. 15.AuthenticationThis Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs thecertificate of authentication on the other side of this Security. 16.AbbreviationsCustomary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenantsby the entirety), JT TEN (= A-8 joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift to Minors Act). 17.CUSIP NumbersPursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbersto be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. Norepresentation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may beplaced only on the other identification numbers placed thereon. 18.Governing LawThis Security shall be governed by, and construed in accordance with, the laws of the State of New York; without regard to conflicts of law principlesthereof.The Issuers will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture, which has in it thetext of this Security in larger type. Requests may be made to:Star Gas Partners, L.P.Star Gas Finance Company1287 Atlantic StreetStamford, Connecticut 06902Attention: Chief Financial Officer A-9 ASSIGNMENT FORMTo assign this Security, fill in the form below:I or we assign and transfer this Security to (Print or type assignee’s name, address and zip code) (Insert assignee’s soc. sec. or tax I.D. No.)and irrevocably appoint agent to transfer this Security on the books of theCompany. The agent may substitute another to act for him. Date: Your Signature:_______________________Signature Guarantee: (Signature must be guaranteed) Sign exactly as your name appears on the other side of this Security.The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions withmembership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15.In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after thelater of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of theCompany, the undersigned confirms that such Securities are being:CHECK ONE BOX BELOW: 1 ¨ • acquired for the undersigned’s own account, without transfer; or2 ¨ • transferred to the Issuers; or3 ¨ • transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “SecuritiesAct”); or4 ¨ • transferred pursuant to an effective registration statement under the Securities Act; or A-10 5 ¨ • transferred pursuant to and in compliance with Regulation S under the Securities Act; or6 ¨ • transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act),that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of whichletter appears as Section 2.7 of the Indenture); or7 ¨ • transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933.Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other thanthe registered Securityholder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee or the Issuers may require, prior to registering anysuch transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Issuers may reasonablyrequest to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of theSecurities Act of 1933, such as the exemption provided by Rule 144 under such Act. SignatureSignature Guarantee: (Signature must be guaranteed) Signature The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions withmembership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15.TO BE COMPLETED BY PURCHASER IF (1) OR (3) ABOVE IS CHECKED. A-11 The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises soleinvestment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933,as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding theIssuers as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor isrelying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated A-12 OPTION OF HOLDER TO ELECT PURCHASEIf you want to elect to have this Security purchased by the Issuers pursuant to Section 3.7 or 3.9 of the Indenture, check either box: ¨ ¨3.9 3.7 If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount inprincipal amount (must be integral multiple of $1,000): $ Date: __________ Your Signature________________________________________________________________ (Sign exactly as your name appears on the other side of this Security)Signature Guarantee: _______________________________________________________________ (Signature must be guaranteed)The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions withmembership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. A-13 EXHIBIT B[FORM OF FACE OF EXCHANGE SECURITY][Depository Legend, if applicable] No. [ ] Principal Amount $[ ] CUSIP NO. [ ]STAR GAS PARTNERS, L.P.STAR GAS FINANCE COMPANY8.875% Senior Notes due 2017Star Gas Partners, L.P., a Delaware limited partnership (such partnership herein called the “Company”), and Star Gas Finance Company, a Delawarecorporation, (such corporation, together with the Company, herein called the “Issuers”), promise to pay to [ ], or registered assigns, the principal sum of[ ] Dollars or such greater or lesser amount as shall be reflected on the books and records of the of the custodian with respect to the Global Security (asappointed by DTC) (the “Securities Custodian”), on December 1, 2017 pursuant to the Indenture (as defined below).Interest Payment Dates: June 1 and December 1Record Dates: May 15 and November 15Additional provisions of this Security are set forth on the other side of this Security. Global Security only. B-122 STAR GAS PARTNERS, L.P.By: KESTREL HEAT LLC, its General PartnerBy: STAR GAS FINANCE COMPANYBy: TRUSTEE’S CERTIFICATEOF AUTHENTICATIONUNION BANK, N.A. as Trustee, certifies that this is one of the Securities referred to in the Indenture. By Date: Authorized Signatory B-2 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY]8.875% Senior Notes due 2017 1.InterestStar Gas Partners, L.P., a Delaware limited partnership (such partnership being herein called the “Company”), and Star Gas Finance Company, aDelaware corporation, (such corporation, together with the Company, under the Indenture hereinafter referred to, being herein called the “Issuers”), promise topay interest on the principal amount of this Security at the rate per annum shown above.The Issuers will pay interest semiannually on June 1 and December 1 of each year commencing June 1, 2011. Interest on the Securities will accrue fromthe most recent date to which interest has been paid on the Securities or, if no interest has been paid, from November 16, 2010. The Issuers shall pay intereston overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities to the extent lawful. Interestwill be computed on the basis of a 360-day year of twelve 30-day months. 2.Method of PaymentBy no later than 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Issuers shalldeposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Issuers will pay interest (exceptDefaulted Interest) to the Persons who are registered Securityholders of Securities at the close of business on the May 15 or November 15 next preceding theinterest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date.Securityholders must surrender Securities to a Paying Agent to collect principal payments. The Issuers will pay principal and interest in money of the UnitedStates that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security(including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The DepositoryTrust Company. The Issuers will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a checkto the registered address of each Securityholder thereof. 3.Paying Agent and RegistrarInitially, Union Bank, N.A. (the “Trustee”), will act as Trustee, Paying Agent and Registrar. The Issuers may appoint and change any Paying Agent,Registrar or co-registrar without notice to any Securityholder. The Issuers or any of the Restricted Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4.IndentureThe Issuers issued the Securities under an Indenture dated as of November 16, 2010 (as it may be amended or supplemented from time to time inaccordance with the terms thereof, the “Indenture”), among the Issuers and the Trustee. The terms of the Securities include those stated B-3 in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date ofthe Indenture (the “Act”). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities aresubject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms.The Securities are general unsecured senior obligations of the Issuers. The aggregate principal amount of securities that may be authenticated anddelivered under the Indenture is unlimited.The Indenture imposes certain limitations, among other things, on the ability of the Issuers and the Restricted Subsidiaries, to Incur additional debt;pay dividends on stock; redeem stock or redeem subordinated debt; make investments; create Liens in favor of other senior subordinated debt andsubordinated debt; enter into agreements that restrict dividends from Restricted Subsidiaries; sell assets; enter into transactions with Affiliates; sell CapitalStock of Restricted Subsidiaries; merge or consolidate; enter into different lines of business and pay consent fees. 5.RedemptionExcept as described below, the Securities are not redeemable until December 1, 2014. On and after December 1, 2014, the Issuers may redeem all or,from time to time, a part of the Securities upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentageof principal amount) plus accrued and unpaid interest on the Securities, if any, to the applicable redemption date (subject to the right of holders of record onthe relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period beginning on December 1 ofthe years indicated below: Year Percentage 2014 104.438% 2015 102.219% 2016 and thereafter 100.000% At any time, or from time to time, on or prior to December 1, 2013, the Issuer may, at its option, use all or a portion of the Net Cash Proceeds of one ormore Public Equity Offerings to redeem up to 35% of the aggregate principal amount of the Securities (including any Additional Securities) issued under thisIndenture at a redemption price equal to 108.875% of the aggregate principal amount of the Securities to be redeemed, plus accrued and unpaid interest, ifany, thereon to the date of redemption; provided, that: (1) there is a Public Market at the time of such redemption; (2) at least 65% of the aggregate principalamount of Securities issued under this Indenture on the Issue Date remains outstanding immediately after giving effect to any such redemption; and (3) theIssuer makes such redemption not more than 60 days after the consummation of any such Public Equity Offering.In addition, the Securities may be redeemed, in whole or in part, at any time prior to December 1, 2014 at the option of the Issuers upon not less than 30nor more than 60 days’ prior notice mailed by first class mail to each Holder at its registered address, at a redemption price B-4 equal to 100% of the principal amount of the Securities redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the applicableredemption date.If the optional redemption date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest,if any, will be paid to the Person in whose name the Security is registered at the close of business on such record date, and no additional interest will bepayable to Securityholders whose Securities will be subject to redemption by the Issuers.In the case of any partial redemption, the Trustee will select the Securities for redemption in compliance with the requirements of the principal nationalsecurities exchange, if any, on which the Securities are listed or, if the Securities are not listed, then on a pro rata basis, by lot or by such other method as theTrustee in its sole discretion will deem to be fair and appropriate, although no Security of $1,000 in original principal amount or less will be redeemed inpart. If any Security is to be redeemed in part only, the notice of redemption relating to that Security will state the portion of the principal amount thereof tobe redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellationof the original Security. 6.Repurchase Provisions(a) Upon a Change of Control any Securityholder will have the right to cause the Issuers to repurchase all or any part of the Securities of suchSecurityholder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase(subject to the right of Securityholders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, andsubject to the terms of, the Indenture.(b) In the event of an Asset Sale that requires the purchase of Securities pursuant to Section 3.7 (e) of the Indenture, the Company will be required toapply such Excess Proceeds to the repayment of the Securities and any pari passu notes in accordance with the procedures set forth in Section 3.7 of theIndenture. 7.Denominations; Transfer; ExchangeThe Securities are in registered form without coupons in denominations of principal amount of $2,000 and whole multiples of $1,000 in excess thereof.A Securityholder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Securityholder, among other things, tofurnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need notregister the transfer of or exchange of any Security for a period beginning (i) 15 days before the mailing of a notice of an offer to repurchase or redeemSecurities and ending at the close of business on the day of such mailing or (ii) any Securities for a period beginning 15 days before an interest payment dateand ending on such interest payment date. B-5 8.Persons Deemed OwnersThe registered Securityholder of this Security may be treated as the owner of it for all purposes. 9.Unclaimed MoneyIf money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Issuersat their request unless an abandoned property law designates another Person. After any such payment, Securityholders entitled to the money must look onlyto the Issuers and not to the Trustee for payment. 10.DefeasanceSubject to certain conditions set forth in the Indenture, the Issuers at any time may terminate some or all of their obligations under the Securities andthe Indenture if the Issuers deposit with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities toredemption or maturity, as the case may be. 11.Amendment, WaiverSubject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without notice to any Securityholder butwith the written consent of the Securityholders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other thanwith respect to nonpayment or in respect of a provision that cannot be amended without the written consent of each Securityholder affected) ornoncompliance with any provision may be waived with the written consent of the Securityholders of a majority in principal amount of the then outstandingSecurities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuers and the Trustee may amend theIndenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article IV of the Indenture, or to provide foruncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities, to secure the Securities, or toadd additional covenants of the Issuers, or surrender rights and powers conferred on the Issuers, or to comply with any request of the SEC in connection withqualifying the Indenture under the Act, or to make any change that does not materially adversely affect the rights of any Securityholder, or to provide for theissuance of Exchange Securities or to conform the text of the Indenture or the Securities to any provision under the heading “Description of Notes” in theoffering memorandum, dated November 10, 2010 relating to the offering by the Company of $125.0 million of the 8.875% Senior Notes due 2017 to theextent such provision in the offering memorandum is intended to be a recitation of a provision of the Indenture or the Securities. 12.Defaults and RemediesUnder the Indenture, Events of Default include in summary form: (i) default for 30 days in payment of interest or additional interest when due on theSecurities; (ii) default in payment of principal or premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemptionpursuant to paragraphs 5 and 6 of the Securities, upon declaration or B-6 otherwise; (iii) the failure by the Issuers to comply with its obligations under Article IV of the Indenture; (iv) default in the performance of any of theobligations described under Section 3.9 or Section 3.7 inclusive or under the covenants described under Article III inclusive of the Indenture and such defaultshall have continued for a period of 30 days after the Issuers shall have been given notice (in each case, other than a failure to purchase Securities which willconstitute an Event of Default under clause (ii) above and other than a failure to comply with Section 4.1 which is covered by clause (iii); (v) default in theperformance of any of the agreements contained in the Indenture and such default shall have continued for a period of 60 days after the Issuers shall havebeen given notice; (vi) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidencedany Indebtedness for money borrowed by the Issuers or any of their Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any ofits Restricted Subsidiaries), other than Indebtedness owed to each of the Issuers or a Restricted Subsidiary of such Issuer, whether such Indebtedness orguarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of, or interest or premium, if any, onsuch Indebtedness prior to the expiration of the applicable grace period provided (“Payment Default”) which payment default has not been waived or(b) results in the acceleration of such Indebtedness prior to its maturity (the “cross acceleration provision”) and, in each case, the principal amount of anysuch Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of whichhas been so accelerated, aggregates $5.0 million or more; (vii) the Company, the Co-Issuer or any Restricted Subsidiary (pursuant to or within the meaning ofany Bankruptcy Law): (a) commences a voluntary insolvency proceeding; (b) consents to the entry of an order for relief against it in an involuntaryinsolvency proceeding; (c) consents to the appointment of a custodian of it or for any substantial part of its property; or (d) makes a general assignment forthe benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; provided however, that the liquidation of anyRestricted Subsidiary into another Restricted Subsidiary or the Company other than as part of a credit reorganization, shall not constitute an Event of Defaultunder this clause (vii); (viii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for relief against the Company,the Co-Issuer or any restricted Subsidiary in an involuntary insolvency proceeding; (b) appoints a Custodian of the Company, the Co-Issuer or any RestrictedSubsidiary or for any substantial part of its property; or (c) orders the winding up or liquidation of the Company, the Co-Issuer or any Restricted Subsidiary;or (d) grants any similar relief under any foreign laws; and in each case the order or decree remains unstayed and in effect for 60 days; or (ix) failure by theCompany or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements forthe Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $5.0 million (net ofany amounts with respect to which a reputable and creditworthy insurance company has acknowledged liability for in writing), which judgments are not paid,discharged or stayed for a period of 60 days (the “judgment default provision”). However, a default under clauses (iv) and (v) will not constitute an Event ofDefault until the Trustee or the Securityholders of at least 25% in principal amount of the outstanding Securities notify the Issuers and the Trustee, in the caseof a notice given by the Securityholders, of the default and the Issuers does not cure such default within the time specified in clauses (iv) and (v) hereof afterreceipt of such notice. B-7 If an Event of Default occurs and is continuing (other than an Event of Default described in clause (vii) above), the Trustee or the Securityholders of atleast 25% in principal amount of the Securities may declare all the Securities to be due and payable. Certain events of bankruptcy or insolvency are Events ofDefault which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default.Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture orthe Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Securityholders of a majority in principal amount of theSecurities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default orEvent of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 13.Trustee Dealings with the IssuersSubject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owneror pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuers or their Affiliates and may otherwise deal with theIssuers or their Affiliates with the same rights it would have if it were not Trustee. 14.No Recourse Against OthersNo director, officer, employee, incorporator, partner, stockholder, limited partner or controlling person of the Issuers, or of Kestrel Heat LLC, as such,shall have any liability for any obligations of the Issuers under the Securities, the Indenture or for any claim based on, in respect of, or by reason of, suchobligations of their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of theconsideration for issuance of the Securities. 15.AuthenticationThis Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs thecertificate of authentication on the other side of this Security. 16.AbbreviationsCustomary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenantsby the entirety), JT TEN (= joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift toMinors Act). 17.CUSIP NumbersPursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbersto be printed on the B-8 Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as tothe accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the otheridentification numbers placed thereon. 18.Governing LawThis Security shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of laws principlesthereof.The Issuers will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture, which has in it thetext of this Security in larger type. Requests may be made to:Star Gas Partners, L.P.Star Gas Finance Company1287 Atlantic StreetStamford, Connecticut 06902Attention: Chief Financial Officer B-9 ASSIGNMENT FORMTo assign this Security, fill in the form below:I or we assign and transfer this Security to (Print or type assignee’s name, address and zip code)(Insert assignee’s soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: Signature Guarantee: (Signature must be guaranteed) Sign exactly as your name appears on the other side of this Security.Sign exactly as your name appears on the other side of this Security.The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions withmembership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. B-10 OPTION OF HOLDER TO ELECT PURCHASEIf you want to elect to have this Security purchased by the Issuers pursuant to Section 3.7 or 3.9 of the Indenture, check either box: ¨ ¨3.7 3.9If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount inprincipal amount (must be integral multiple of $1,000): $ Date: Your Signature (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: (Signature must be guaranteed)The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions withmembership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15. B-11 Exhibit 21Partnership SubsidiariesA.P. Woodson Company—District of ColumbiaC. Hoffberger Company —MarylandChampion Energy Corporation—DelawareChampion Oil Company —ConnecticutColumbia Petroleum Transportation, LLC—DelawareHoffman Fuel Company of Bridgeport —DelawareHoffman Fuel Company of Danbury—DelawareHoffman Fuel Company of Stamford —DelawareJ.J. Skelton Oil Company —PennsylvaniaLewis Oil Company, Inc. —New YorkMarex Corporation—MarylandMeenan Holdings of New York, Inc.—New YorkMeenan Oil Co., Inc.—DelawareMeenan Oil Co., L.P.—DelawareMinnwhale, LLC .—New YorkOrtep 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—PennsylvaniaRye Fuel Company —DelawareStar Gas Finance Company—DelawareStar Acquisitions, Inc.—MinnesotaTG&E Service Company, Inc.—Florida Exhibit 31.1CERTIFICATIONSI, Daniel P. Donovan, certify that: 1.I have reviewed this annual report on Form 10-K of Star Gas Partners, L.P. (“Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s 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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted principles; (c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors: (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s 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 registrant’s internal controlover financial reporting.Date: December 9, 2010 /s/ Daniel P. DonovanDaniel P. DonovanPresident and Chief Executive OfficerStar Gas Partners, L.P. Exhibit 31.2CERTIFICATIONSI, Richard F. Ambury, certify that: 1.I have reviewed this annual report on Form 10-K of Star Gas Partners, L.P. (“Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this 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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted principles; (c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors: (c)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s 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 registrant’s internal controlover financial reporting.Date: December 9, 2010 /s/ RICHARD F. AMBURYRichard F. AmburyChief Financial OfficerStar Gas Partners, L.P. Exhibit 31.3CERTIFICATIONSI, Daniel P. Donovan, certify that: 1.I have reviewed this annual report on Form 10-K of Star Gas Finance Company (“Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s 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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted principles; (c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors: (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s 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 registrant’s internal controlover financial reporting.Date: December 9, 2010 /s/ Daniel P. DonovanDaniel P. DonovanPresident and Chief Executive OfficerStar Gas Finance Company Exhibit 31.4CERTIFICATIONSI, Richard F. Ambury, certify that: 1.I have reviewed this annual report on Form 10-K of Star Gas Finance Company (“Registrant”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s 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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted principles; (c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors: (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s 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 registrant’s internal controlover financial reporting.Date: December 9, 2010 /s/ RICHARD F. AMBURYRichard F. AmburyChief Financial OfficerStar Gas Finance Company Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In 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, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel P. Donovan, President and ChiefExecutive Officer of the Partnership and Star Gas Finance Company, certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 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 GasPartners, L.P. and furnished to the Securities and Exchange Commission or its staff upon request. STAR GAS PARTNERS, L.P.STAR GAS FINANCE COMPANYBy: KESTREL HEAT, LLC (General Partner)Date: December 9, 2010 By: /s/ Daniel P. Donovan Daniel P. DonovanPresident and Chief Executive OfficerStar Gas Partners, L.P.Star Gas Finance Company Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In 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, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard F. Ambury, Chief Financial Officer ofthe Partnership and Star Gas Finance Company, certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-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 GasPartners, L.P. and furnished to the Securities and Exchange Commission or its staff upon request. STAR GAS PARTNERS, L.P.STAR GAS FINANCE COMPANYBy: KESTREL HEAT, LLC (General Partner)Date: December 9, 2010 By: /s/ RICHARD F. AMBURY Richard F. AmburyChief Financial OfficerStar Gas Partners, L.P.Star Gas Finance Company
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