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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

(Mark One)
 
x	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
    	For the fiscal year ended September 30, 2010	
OR
 
¨	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: 001-14129
Commission File Number: 333-103873-01

STAR GAS PARTNERS, L.P.
STAR GAS FINANCE COMPANY
(Exact name of registrants as specified in its charters)

 
 	 	 	
Delaware	 	06-1437793	
Delaware	 	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 registered	
Common Units	 	New York Stock Exchange	
Securities 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  x
Indicate 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  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during 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 filing requirements 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 File required 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 shorter period 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 the best 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 this Form 10-K.   x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions 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  x
The aggregate market value of Star Gas Partners, L.P. Common Units held by non-affiliates of Star Gas Partners, L.P. on March 31, 2010 was approximately $304,139,000. As of November 30, 2010, the registrants had units and shares outstanding for each of the issuers’ classes of common stock as follows:

Star Gas Partners, L.P.	 	                    Common Units	 	67,077,553	
Star Gas Partners, L.P.	 	                    General Partner Units	 	325,729	
Star Gas Finance Company	 	                    Common Shares	 	100	
Documents Incorporated by Reference: None

 

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STAR GAS PARTNERS, L.P.
2010 FORM 10-K ANNUAL REPORT
TABLE 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	  	
 
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PART I
Statement Regarding Forward-Looking Disclosure
This Annual Report on Form 10-K includes “forward-looking statements” which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance, the price and supply of home heating oil, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, natural gas 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, 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 no assurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth under the heading “Risk Factors” and “Business Initiatives and Strategy.” Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified 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.	BUSINESS	
Structure
Star Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a home heating oil distributor and services provider with one reportable operating segment that principally provides services to residential and commercial customers to heat their homes and buildings. Star Gas Partners is a master limited partnership, which at November 30, 2010, had outstanding 67.1 million common units (NYSE: “SGU”) representing a 99.5% limited partner 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 of Kestrel 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 its subsidiaries.	
 
 	•	 	Star Gas Finance Company is our 100% owned subsidiary. Star Gas Finance Company serves as the co-issuer, jointly and severally with us, of our Rule 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 not guaranteed and are subject to certain loan restrictions. Star Gas Finance Company has nominal assets and conducts no business operations. (See Note 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 the SEC’s website at www.sec.gov. In addition, these SEC filings are available at no cost as soon as reasonably practicable after the filing thereof on our website at 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 F Street, 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 structure
The following chart summarizes our partnership structure as of September 30, 2010.

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Recent Developments
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 will accrue 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 to redeem 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 Overview
As of September 30, 2010, we sold home heating oil to approximately 404,000 full service residential and commercial home heating oil customers and propane to approximately 10,000 propane customers. We believe we are the largest retail distributor of home heating oil in the United States. We also sell home heating oil, gasoline and diesel fuel to approximately 35,000 customers on a delivery only basis. We install, maintain, and repair heating and air conditioning 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 air conditioning equipment and ancillary services; and 8% from the sale of other petroleum products. We provide home heating equipment repair service 24 hours 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 customer satisfaction 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 & Air Conditioning Services and Meenan Oil. We believe that the Petro, Meenan and other trademarks and service marks are an important part of our ability to attract 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, the latter 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 residential and commercial home heating oil customers are automatically scheduled based on ongoing weather conditions. In addition, we offer a “smart pay” budget payment plan in which homeowners’ estimated annual oil deliveries and service billings are paid for in a series of equal monthly installments. We use derivative instruments on a daily basis to mitigate our exposure to market risk associated with our price-protected offerings and the storing of our physical home 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 Island	
Fairfield	  	Suffolk	  	Dutchess	  	Providence	
New Haven	  	Norfolk	  	Ulster	  	Kent	
Middlesex	  	Essex	  	Orange	  	Washington	
Litchfield	  	Bristol	  	Westchester	  	Newport	
Hartford	  	Middlesex	  	Putnam	  	Bristol	
 	  	Barnstable	  	Nassau	  	 	
Maryland	  	Plymouth	  	Suffolk	  	New Hampshire	
Baltimore	  	Worcester	  	Bronx	  	Rockingham	
Harford	  	 	  	Queens	  	Strafford	
Cecil	  	New Jersey	  	Kings	  	 	
Anne Arundel	  	Salem	  	Richmond	  	Maine	
Carroll	  	Gloucester	  	New York	  	York	
Howard	  	Camden	  	 	  	 	
Montgomery	  	Burlington	  	Pennsylvania	  	Virginia	
North Calvert	  	Ocean	  	Philadelphia	  	Loudoun	
Prince George’s	  	Monmouth	  	Bucks	  	Prince William	
Calvert	  	Somerset	  	Montgomery	  	Fauquier	
Charles	  	Middlesex	  	Chester	  	Stafford	
Frederick	  	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	  	 	
 
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Industry Characteristics
Home heating oil is primarily used as a source of fuel to heat residences and businesses in the Northeast and Mid-Atlantic regions. According to the U.S. Department of Energy—Energy Information Administration, 2005 Residential Energy Consumption Survey (the latest survey published), these regions account 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 of 20.0 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 natural gas. 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 to maintain 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 believe distributors such as ourselves generally seek to maintain their per gallon margins by passing wholesale price increases through to customers, thus insulating themselves from the volatility in wholesale heating oil prices. However, distributors may be unable or unwilling to pass the entire product cost increases through to customers. In these cases, significant decreases in per gallon margins may result. The timing of cost pass-throughs can also significantly affect margins. The retail home heating oil industry is highly fragmented, characterized by a large number of relatively small, independently owned and operated local 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 significantly lesser extent. The industry is becoming more complex and costly due to new regulations, working capital requirements and the cost to hedge for protected price customers. We utilize derivative instruments in order to hedge a substantial majority of the heating oil volume we expect to sell to protected price customers that have renewed their protected price plans, mitigating our exposure to changing commodity prices. We also use derivative instruments as a hedge against our physical inventory and priced purchase commitments.
Business strategy
Our business strategy is to increase operating profits and cash flow by conservatively managing our operations and growing our customer base as a leading 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 maximizing customer retention. To engage our employees and enhance their ability to provide superior customer service (and reduce gross customer losses), we require all employees to go through appropriate training—supplemented by customer service monitoring. Our Director of Quality Assurance is responsible for customer service evaluation and directs teams that conduct district quality assurance assessments. These assessments are focused on improving our performance in customer 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 of redundant systems and appropriate reductions in overhead. By spreading certain administrative costs over a growing customer base, we believe we can continue to generate strong financial results.
Pursue select acquisitions. Our senior management team has developed expertise in identifying acquisition opportunities and integrating acquired customers into our operations. Through our acquisitions, we have been able to increase our presence in some of our existing geographic markets and selectively expand into new markets, while maintaining or improving our financial results. Our acquisition strategy has enabled us to achieve our current market position and offers us the ability to continue to achieve operating efficiencies and economies of scale.
 
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Broaden products and services. We sell related and complementary products and services, such as air conditioning systems, plumbing services and home security systems, in order to leverage our organizational structure and improve our sales penetration within the existing customer base. We continue to increase the quality and breadth of our service offerings and believe that these actions will further enhance our position with existing and potential customers, allowing us to maintain or improve customer retention.
Seasonality
The following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters and years respectively in this document are to fiscal quarters and years unless otherwise noted. The seasonal nature of our business results 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 fiscal quarter of each fiscal year, the peak 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 fiscal quarters and we expect that the negative impact of seasonality on our third and fourth fiscal quarter operating results will continue. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.
Competition
Most 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 a year basis. We believe that this level of service tends to help build customer loyalty. In some instances homeowners have formed buying cooperatives that seek to purchase fuel oil from distributors at a price lower than individual customers are otherwise able to obtain. We also compete for retail customers with suppliers of alternative energy products, principally natural gas, propane and electricity. The expansion of natural gas into traditional home heating oil markets in the Northeast has historically been inhibited by the capital costs required to expand distribution and pipeline systems.
Customers and Pricing
Our full service home heating oil customer base is comprised of 96% residential customers and 4% commercial customers. Our residential customer receives small deliveries on average of 160 gallons and our commercial accounts receive larger deliveries on average of 350 gallons. Typically, we make four to six deliveries per customer per year. Currently, 97% of our deliveries are scheduled automatically and 3% of our home heating oil customer base call from time to time to schedule a delivery. Automatic deliveries are scheduled based on each customer’s historical consumption pattern and prevailing weather conditions. Our practice is to bill customers promptly after delivery. We also offer a balanced payment plan in which a customer’s estimated annual oil purchases and service contract fees are paid for in a series of equal monthly payments. Approximately 38% of our residential home heating oil customers have 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 and generally move up or down in response to market changes and other factors. In addition, we offer price protection programs, which establish either a ceiling or 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 customers have 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 and hedging complexities of residential protected price customers, the per gallon margins realized from price protected customers generally are less than from variable priced residential customers.
 
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Customer Attrition
We measure net customer attrition for our full service residential and commercial home heating oil customers. Net customer attrition is the difference between gross customer losses and customers added through marketing efforts. Customers added through acquisitions are not included in the calculation of gross customer gains. Gross customer losses are the result of a number of factors, including price competition, move outs, service issues, credit losses and conversions 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.
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 30,300 accounts (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 in fiscal 2010, which acquisitions were completed after the fall marketing initiatives, we lost 17,600 accounts (net), or 4.7% of our home heating oil customer base. 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 when compared 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 of Operations – Customer Attrition)
Suppliers and Supply Arrangements
We purchase home heating oil for delivery in either barge, pipeline or truckload quantities, and as of September 30, 2010 have contracts with approximately 80 third-party terminals for the right to temporarily store heating oil at their facilities. Purchases are made under supply contracts or on the spot market. Including our own physical storage, we have entered into market price based contracts for approximately 68% of our retail home heating oil requirements for fiscal 2011. 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 during fiscal 2010. For fiscal 2011, we generally have supply contracts for similar quantities with Global Companies, Sunoco Inc., NIC Holding Corp. (Northville Industries) and BP North America. Supply contracts typically have terms of 6 to 12 months. All of the supply contracts provide for minimum 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 index price 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 anticipated supply needs with diverse and reliable sources will enable us to obtain sufficient product should unforeseen shortages develop in worldwide supplies.
Derivatives
We use derivative instruments in order to mitigate our exposure to market risk associated with the purchase of home heating oil for our protected price customers, 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 sheet as assets or liabilities. Currently, the Partnership has elected not to designate its derivative instruments as hedging instruments under this standard, and the change in fair value of the derivative instruments are recognized in our statement of operations. While we largely expect our realized derivative gains and losses 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 of unrealized non-cash gains and losses on our derivative instruments prior to their maturity.
 
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Home Heating Oil Price Volatility
In recent years, the wholesale price of home heating oil has been extremely volatile, resulting in increased consumer price sensitivity to heating costs and increased gross customer attrition. Like any other market commodity, the price of home heating oil is generally impacted by many factors, including economic 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 component of home heating oil. The volatility in the wholesale cost of home heating oil, as measured by the New York Mercantile Exchange (“Nymex”) price per gallon for 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	  	
Acquisitions
From April 1 to September 30, 2010 (after the heating season), the Partnership completed five acquisitions and added approximately 56,100 home heating oil, propane and security accounts. While these acquisitions provided additional revenues in fiscal 2010, the Partnership’s profitability measures such 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. In fiscal 2009, we completed the purchase of one retail heating oil dealer with approximately 3,800 home heating oil customers for an aggregate cost of approximately $4.0 million, reduced by $0.7 million of working capital credits. In fiscal 2008, we completed the purchase of seven retail heating oil dealers with 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 Forward
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, we concluded at the end of fiscal 2009 that the majority of our net deferred tax assets should be recognized. Thus, pursuant to FASB ASC 740-10 Income Taxes topic (FAS 109), we recorded a tax benefit during fiscal 2009 reversing a majority of the opening 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 $3.8 million and deferred income tax expense of $25.0 million related to current year activity (including net operating loss carry forward utilization), resulting in a 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 carry forwards (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 year period, 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 will increase significantly and will reduce the annual amount of cash available for distribution to unitholders. For example, in calendar 2007, 2008 and 2009 we paid 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 deductions
The 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 our subsidiaries will pay. The amount of depreciation and amortization that we deduct for book (i.e. financial reporting) purposes will differ from the amount that our subsidiaries can deduct for tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that our subsidiaries expect to deduct for tax purposes. (Our subsidiaries file their tax returns based on a calendar year. The amounts below are based on our fiscal year.)
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	  	
 
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Employees
As of September 30, 2010, we had 2,729 employees, of whom 810 were office, clerical and customer service personnel; 848 were equipment technicians; 388 were oil truck drivers and mechanics; 396 were management and 287 were employed in sales. Of these employees 909 are represented by 24 different local chapters of labor unions. Some of these unions have union administered pension plans that have significant unfunded liabilities, a portion of which could be assessed to us should we withdraw from these plans. The Partnership does not expect to withdraw from these plans. In addition, approximately 456 seasonal employees (305 of which are represented by the local chapters of labor unions indicated earlier) are rehired annually to support the requirements of the heating season. We are currently involved in 3 union negotiations. We believe that our relations with both our union and non-union employees are generally satisfactory.
Government Regulations
We are subject to various federal, state and local environmental, health and safety laws and regulations. Generally, these laws impose limitations on the discharge or emission of pollutants and establish standards for the handling of solid and hazardous wastes. These laws include the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Clean Air Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act and comparable state statutes. CERCLA, also known as the “Superfund” law, imposes joint and several liabilities without regard to fault or the legality of the original conduct on certain classes of persons that are considered to have contributed to the release or threatened release of a hazardous substance into the environment. Products stored and/or delivered by us and certain automotive waste products generated by our fleet are hazardous substances within the meaning of CERCLA or otherwise subject to investigation and cleanup under other environmental laws and regulations. While we have implemented programs and policies designed to address potential liabilities and costs under applicable environmental laws and regulations, failure to comply with such laws and regulations could result in civil or criminal penalties in cases 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 contamination at properties that we have acquired. A number of our properties are currently undergoing remediation, in some instances funded and/or by prior owners or operators 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 alleged violations of environmental and safety laws and regulations. We do not expect any of these liabilities or proceedings of which we are aware to result in material 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. These regulations 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 permits that are necessary to operate some of our facilities, some of which may be material to our operations.
 
ITEM 1A.	RISK FACTORS	
You should consider carefully the risk factors discussed below, as well as all other information, as an investment in the Partnership involves a high degree of risk. Any of the risks described below could impair our business, financial condition and operating results, which could result in a partial or total loss 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 could materially and adversely affect our business, financial condition, cash flows, and results of operations, are not the only risks we face. We may experience additional risks and uncertainties not currently known to us or, as a result of developments occurring in the future, conditions that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, cash flows and results of operations.
 
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Current 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, concerns about 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, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for our equipment and services and could lead to increased conservation and the possibility of certain of our customers seeking lower cost providers. Any increase in existing customers seeking lower cost providers and/or increase in our rejection rate of potential accounts because of credit considerations could increase our overall rate of net customer attrition. If adverse economic conditions persist, we could experience an increase in bad debts from financially distressed customers, which would have a negative 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, and swap 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 losses with insurance companies.
The financial turmoil affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of business 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 effects from the credit crisis on our business, including insolvency of key suppliers resulting in product delays and failure of derivative counterparties and other financial 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, as we would be obligated to fulfill our operational requirement of purchasing, storing and selling home heating oil, while losing the mitigating benefits of economic hedges with a failed counterparty. If one of our insurance carriers should fail, our liquidity, results of operations and financial condition could be materially impacted, as we would have to fund any catastrophic loss. Currently, we have outstanding derivative instruments 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.). 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 of our 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 approximately 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. As a result, we generally 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 negative impact 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 oil because our customers depend on this product principally for space heating purposes. As a result, weather conditions may materially adversely impact our operating results and financial condition. During the peak-heating season of October through March, sales of home heating oil historically have represented approximately 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 significantly decrease 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 oil volume was sold to customers in New York State. In fiscal 2002, temperatures in
 
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Central 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 of warm 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 through March 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 protect us 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. Excluding customer gains and losses at the home heating oil operations that we acquired in fiscal 2010, which acquisitions were completed after the fall marketing initiatives, 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 more than 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 customer gains. 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 customer gains 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 existing customer because of the expenses incurred during the first year to acquire a new customer. Customer losses are the result of various factors, including but not limited 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 net customer attrition.
For additional information about customer attrition, See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – 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 the basis 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 a year basis. We believe that this tends to build customer loyalty. In some instances homeowners have formed buying cooperatives that seek to purchase fuel oil from distributors at a price lower than individual customers are otherwise able to obtain. We also compete for retail customers with suppliers of alternative energy products, principally natural gas, propane and electricity. Our customer losses to natural gas conversions for fiscal years 2010, 2009, and 2008 were 1.2%, 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 on our 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 also increased from alternative energy sources. Accordingly, future growth will depend on our ability to make acquisitions on economically acceptable terms. We cannot 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 acquire businesses on economically acceptable terms. Factors that may adversely affect home heating oil operating and financial results may limit our access to capital and adversely affect our ability to make acquisitions. Under the terms of our revolving credit facility, our most restrictive agreement, as long as we maintain certain financial ratios, we are not limited on the number of individual acquisitions or aggregate dollar amount of acquisitions we make in any fiscal year, but we are restricted from making any individual acquisition in excess of $25.0 million without the lenders’ approval. In
 
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addition, 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 forma and forward-looking basis. This covenant restriction may limit our ability to make acquisitions. Any acquisition may involve potential risks to us and ultimately 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 may among 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 will accrue 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 to redeem 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 event of 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, thereby reducing 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 indebtedness and 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 assets on 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 distributions from us.
Star Gas Partners is a master limited partnership. Our unitholders are required to report for Federal income tax purposes their allocable share of our income, 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 the following 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 tax consequences 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 from Star 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 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 receive any material tax benefits from this structure.
 
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To reduce these administrative expenses and to better rationalize our tax reporting structure we are considering making an election sometime in the future to be treated as a corporation for Federal and State income tax purposes. While we would still remain a publicly traded partnership for legal and governance 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 of election 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 it will have no overall material adverse impact on our unitholders, of which there can be no assurance. Since determining this is a function of projecting taxable earnings, making assumptions regarding the payment of distributions, and trying to determine when, during any particular calendar year, making the election will 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 are encouraged 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 of operations.
Increases in wholesale home heating oil prices beyond current levels may have adverse effects on our business, financial condition and results of operations, 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 and hedging 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 our revolving credit facility, we may borrow up to $240 million, which increases to $290 million during the peak winter months from December through April of each 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 or should we fail to maintain the required availability, we would not have sufficient working capital to operate our business, which could have a material adverse 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, our physical inventory and fuel we use for our vehicles. These institutions have not required an initial cash margin deposit or any mark to market maintenance margin for these swaps. Any mark to market exposure is reserved against our borrowing base and can thus reduce the amount available to us under our revolving credit facility. The mark to market reserve against our borrowing base for swap derivative instruments with our lending group was $6.2 million as of 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 cash payment. 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 which require 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 end of 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 the commitment 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 required to 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. At December 31, 2010, we expect to have approximately 40 million gallons of purchase commitments and physical inventory shorted with a futures contract or swap. Assuming a $1.00 per gallon increase in price, our near term liquidity would be reduced by $40 million.
 
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For the majority of our fiscal year, the amount of cash received from customers with a balanced payment plan is greater than actual billings. This amount is reflected on the balance sheet under the caption “customer credit balances.” At September 30, 2010, customer credit balances aggregated $68.8 million. 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 heating season.
At September 30, 2010, we had approximately 146,000 customers, or 38% of our residential customer base, on the balanced payment plan. If home heating oil prices increased and we failed to recalculate the balanced payments to reflect current heating oil prices on a timely basis, our liquidity could also be 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 over supply costs per gallon. Consequently, our profitability is sensitive to changes in the wholesale price of home heating oil caused by changes in supply or other 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 new customers 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 adversely affected 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 a fixed price of home heating oil over a fixed period. When the customer makes a purchase commitment for the next period we currently purchase option contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these price-protected customers. The amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer, per month. If the actual usage exceeds the amount of the hedged volume on a monthly basis, we could be required to obtain additional volume at unfavorable margins. In addition, should actual usage in any month be less than the hedged volume, (including, for example, as a result of early terminations by fixed price customers) our hedging losses could be greater. Currently, we have elected not to designate our derivative instruments as hedging instruments under FASB ASC 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 or losses 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 spin them off and that requires substantially all derivatives be traded through a central clearing house, subject to margin requirements. This legislation could substantially increase our cost in using certain derivatives and could make such derivatives less available, which could subject us to additional risks to the extent 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 rules implementing 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 arrangements which 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, some customers elect to renegotiate their arrangement in order to enter into a lower cost pricing plan with us or terminate their arrangement and switch to a competitor. As a result of significant decreases in the price of home heating oil following the summer of 2008, many price protection customers decided to renegotiate 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 our belief that approximately 10,000 customers chose another supplier as a result of being billed the termination fee.
 
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We 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 customers with 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 no assurance that this insurance will be adequate to protect us from all material expenses related to potential future claims for remediation costs and personal and property 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 our customers, our operations are subject to operational hazards such as natural disasters, adverse weather, accidents, fires, explosions, hazardous materials releases, mechanical failures and other events beyond our control. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension 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. We evaluate on an annual basis the potential for changes in loss estimates with the support of qualified actuaries. As of September 30, 2010, we had approximately $37.4 million of insurance reserves and had issued $40.2 million in letters of credit for current and future claims. The ultimate settlement of these 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 regulatory costs.
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 laws and regulations have become increasingly stringent over time. We may experience increased costs due to stricter pollution control requirements or liabilities resulting from noncompliance with operating or other regulatory permits. New environmental regulations might adversely impact operations, including those relating to underground storage and transportation of home heating oil. In addition, there are environmental risks inherently associated with home heating oil operations, such as the risks of accidental release or spill. We have incurred and continue to incur costs to address soil and groundwater contamination at some 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 to contamination of which we are aware, or that we will not become responsible for additional contamination not yet discovered. It is possible that material costs 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 costs and/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 greenhouse gases, 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 lead to 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 a combination of both. Debate continues on the direction, scope and timing of U.S. policy on the regulation of greenhouse gas emissions. It is probable that any regulatory program that caps emissions or imposes a carbon tax will increase costs for us and our customers which could lead to increased conservation or customers 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 the early stages of development and any final program, if adopted, could vary from current proposals.
 
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Furthermore, laws and regulations that affect our operations continue to evolve at both the state and federal levels, which may ultimately increase our compliance costs. Changes in regulations under different political administrations, the imposition of additional regulations, or the enactment of new legislation that impacts employment, labor, trade, transportation or logistics, health care, tax or environmental issues could have the potential of materially impacting our financial condition or results of operations. (See also the risks discussed above under the heading “We may be adversely affected by the impact of 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 affect our 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 and other heating devices, have adversely affected the demand for our products by retail customers. Future conservation measures or technological advances in heating, 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 those of 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 can impact 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 that might, without limitations, constitute breaches of fiduciary duty. Unitholders are deemed to have consented to some actions and conflicts of interest that might otherwise be deemed a breach of fiduciary or other duties under applicable state law.	
 
 	•	 	The general partner is allowed to take into account the interests of parties in addition to the Partnership in resolving conflicts of interest, thereby limiting 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 and reasonable 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 a material 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 raise capital 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 known at 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 or indirect targets. Terrorist activity may also hinder our ability to transport home heating oil if our normal means of transportation become damaged as a result of 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 to increased volatility in prices for home heating oil. Insurance carriers are routinely excluding coverage for terrorist activities from their normal policies, but are 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 casualty insurance programs. This additional coverage has resulted in additional insurance premiums.
 
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The impact of hurricanes and other natural disasters could cause disruptions in supply and have a material adverse effect on our business, financial condition 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 other products that we sell. Disruptions in supply could have a material adverse effect on our business, financial condition and results of operations, causing an increase 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 our corporate 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 corporate subsidiary, Star Acquisitions (the Parent of Petro) may be materially restricted in the potential utilization of its net operating loss carry forwards to offset future taxable income. A restriction on Star Acquisitions’ ability to use its net operating loss carry forwards to reduce its Federal taxable income would reduce the amount of cash Star Acquisitions has available to make distributions to the Partnership, which would consequently reduce the amount of cash the Partnership 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 $51.7 million. The Federal NOLs, which will expire between 2018 and 2024, are generally available to offset any future taxable income. In general, the Partnership would be deemed to have an “ownership change” under Section 382 if, immediately after any owner shift involving a 5% unitholder or any equity structure shift, 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 of the 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 our performance. 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 establishing reserves 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 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. (See Note 11-Long-Term Debt and Bank Facility Borrowings)
 
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ITEM 1B.	UNRESOLVED STAFF COMMENTS	
Not applicable.
 
ITEM 2.	PROPERTIES	
We provide services to our customers in the Northeast and Mid-Atlantic regions of the United States from 35 principal operating locations and 52 depots, 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 which were owned and 1,097 service vans, the majority of which were leased. We lease our corporate headquarters in Stamford, Connecticut. Our obligations under our 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—LITIGATION	
We 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 or proceeding.
 
ITEM 4.	RESERVED	
PART II
 
ITEM 5.	MARKET FOR REGISTRANT’S UNITS AND RELATED MATTERS	
The common units, representing common limited partner interests in the Partnership, are listed and traded on the New York Stock Exchange, Inc. (“NYSE”) under the symbol “SGU”.
The 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 fiscal 2010 and 2009 quarters indicated.

 	  	SGU – Common Unit Price Range	 	  	Distributions Declared
per Unit	 	
 	  	High	 	  	Low	 	  	 	 	
 	  	Fiscal
Year
2010	 	  	Fiscal
Year
2009	 	  	Fiscal
Year
2010	 	  	Fiscal
Year
2009	 	  	Fiscal
Year
2010	 	  	Fiscal
Year
2009	 	
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 Provisions
Commencing with the fiscal quarter ended December 31, 2008, we are required to make distributions in an amount equal to our Available Cash, as defined 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. 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 of cash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for the proper conduct of our business, including acquisitions, the payment of debt principal and interest, for distributions during the next four quarters and to comply 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 partner reviews the level of Available Cash each quarter based upon information provided by management.
 
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According 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 most restrictive covenant is found in the Partnership’s revolving credit facility. Under the terms of our credit facility, the Partnership 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 ($0.27 on an annual basis). Any distribution in excess of the minimum quarterly distribution requires the Partnership to have a fixed charge coverage ratio of 1.25x. The Partnership is currently paying a distribution of $0.0725 per quarter ($0.29 annually).
Common Unit Repurchase and Retirement
On 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’s common units (“Plan I”). By the third fiscal quarter of 2010, all 7.5 million common units authorized for repurchase under the Plan I program were repurchased at an average price paid per unit of $4.04 and retired. The Partnership’s repurchase activities took into account SEC safe harbor rules and guidance 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’s common units (“Plan II”). The authorized common unit repurchases may be made from time-to-time in the open market, in privately negotiated transactions or in such other manner deemed appropriate by management. In order to facilitate the repurchase program, the Partnership intends to enter into a prearranged unit 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 no guarantee of the exact number of units that will be purchased under the program and the Partnership may discontinue purchases at any time. The program does not have a time limit. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the common units purchased in the repurchase program will be retired.
(in thousands, except per unit amounts)

Period	  	Total Number of Units
Purchased as Part of a
Publicly Announced Plan or
Program	 	  	Average Price
Paid per Unit (a)	 	  	Maximum Number of Units
that May Yet Be Purchased
Under 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.	
 
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ITEM 6.	SELECTED HISTORICAL FINANCIAL AND OPERATING DATA	
The selected financial data as of September 30, 2010 and 2009, and for the years ended September 30, 2010, 2009 and 2008 is derived from the financial statements of the Partnership included elsewhere in this Report. The selected financial data as of September 30, 2008, 2007 and 2006 and for the years ended September 30, 2007 and 2006 is derived from financial statements of the Partnership not included in this Report. See Item 7. Management’s Discussion 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 for continuing operations	  	 	28,320	  	 	 	131,038	  	 	 	(13,408	) 	 	 	38,241	  	 	 	(53,919	) 	
Cumulative effects of changes in accounting principles-change in inventory 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	  	

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 	  	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 by the weighted average number of limited partner units outstanding. Net income (loss) per unit is computed by dividing the limited partners’ interest in net 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 of derivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and 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 petroleum products 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 its limitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed in accordance 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 EBITDA and 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.	
 
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EBITDA 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	) 	

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
Statement Regarding Forward-Looking Disclosure
This Annual Report on Form 10-K includes “forward-looking statements” which represent our expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance, the price and supply of home heating oil, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new customers and retain existing customers, our ability to make strategic acquisitions, the impact of litigation, our ability to contract for our current and future supply needs, natural gas conversions, future 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, 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 no assurance that such expectations will prove to be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth under the heading “Risk Factors” and “Business Initiatives and Strategy.” Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate,” and similar expressions are intended to identify forward-looking statements. Important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”) are disclosed in this Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified 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.
Overview
The following is a discussion of the historical financial condition and results of our operations and should be read in conjunction with the description of 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 the majority of our customer service calls are answered locally. We have implemented an employee-staffed centralized call center to augment our internal staffing requirements for certain overflow, off-peak and weekend hours.
Seasonality
The following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters and years respectively in this document are to fiscal quarters and years unless otherwise noted. The seasonal nature of our business has resulted on average in the last 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 fiscal quarter 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 June and September. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices and other factors.
Degree Day
A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 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 a long-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 Weather Service and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by the National Weather Service in our operating areas.
 
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Weather Hedge Contract Warm Weather
Weather conditions have a significant impact on the demand for home heating oil because our customers depend on this product principally for heating purposes. Actual weather conditions can vary substantially from year to year, significantly affecting our financial performance. To partially mitigate the adverse effect of warm weather on our cash flows, we have entered into a weather hedge contract with Renaissance Trading Ltd. Under the weather hedge contract 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 $12.5 million.
Per Gallon Gross Profit Margins
We 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 the fair 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 of hedges 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 or fixed 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 next heating season, we purchase option contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these customers. The amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer, 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 obtain additional volume at unfavorable margins. In addition, should actual usage in any month be less than the hedged volume, our hedging losses could be greater.
Derivatives
FASB ASC 815-10-05 Derivatives and Hedging topic (FAS 133), established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent derivative instruments designated as cash flow hedges are effective, as defined under this standard, changes in fair value are recognized in other comprehensive income until the forecasted hedged item is recognized in earnings. Currently, we have elected not to designate our derivative instruments as hedging instruments under this standard, and, as a result, the changes in fair value of the derivative instruments are recognized in our statement of operations. Therefore, we experience great volatility in earnings as outstanding home heating oil derivative instruments are marked to market and non-cash gains and losses are recorded prior to the sale of the commodity to the customer. To the extent that we continue this accounting treatment, the volatility in any given period related to unrealized non-cash gains or losses on derivative home heating oil instruments can be significant to our overall results. However, we ultimately expect those gains and losses to be offset by the cost of product when purchased.
Impact on Liquidity of Wholesale Product Cost Volatility
The wholesale price of home heating oil has been extremely volatile over the last several years. Our liquidity is adversely impacted in times of increasing 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 and inventory. Our liquidity is also adversely impacted at times by sudden and sharp decreases in heating oil prices due to the increased margin requirements for futures contracts and collateral requirements for swaps that we use to manage market risks related to our fixed price customers and physical inventory that are not immediately offset by lower inventory and accounts receivable carrying costs.
Income Taxes—Valuation Allowance and Net Operating Loss Carry Forward
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, we concluded at the end of fiscal 2009 that the majority of our net deferred tax assets should be recognized. Thus, pursuant to FASB ASC 740-10 Income Taxes topic (FAS 109), we recorded a tax benefit during fiscal 2009 reversing a majority of the opening 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 $3.8 million and deferred income tax expense of $25.0 million related to current year activity (including net operating loss carry forward utilization), resulting in a 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 carry forwards (NOLs), insurance reserves, and the net operating book versus tax timing of intangible amortization.
 
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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 year period, 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 will increase significantly and will reduce the annual amount of cash available for distribution to unitholders. For example, in calendar 2007, 2008 and 2009 we paid 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 Deductions
The 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 our subsidiaries will pay. The amount of depreciation and amortization that we deduct for book (i.e. financial reporting) purposes will differ from the amount that our subsidiaries can deduct for tax purposes. The table below compares the estimated depreciation and amortization for book purposes to the amount that our subsidiaries expect to deduct for tax purposes. (Our subsidiaries file their tax returns based on a calendar year. The amounts below are based on our fiscal year.)
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 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 from Star 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 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 receive any 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 the future to be treated as a corporation for Federal and State income tax purposes. While we would still remain a publicly traded partnership for legal and governance 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 of election 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 it will have no overall material adverse impact on our unitholders, of which there can be no assurance. Since determining this is a function of projecting taxable earnings, making assumptions regarding the payment of distributions, and trying to determine when, during any particular calendar year, making the election will 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 are encouraged 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 of derivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess:
 
 	•	 	our compliance with certain financial covenants included in our debt agreements;	
 
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 	•	 	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 petroleum products 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 its limitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed in accordance 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 EBITDA and 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.	
Acquisitions
From April 1 to September 30, 2010 (after the heating season), the Partnership completed five acquisitions and added approximately 56,100 home heating oil, propane and security accounts. While these acquisitions provided additional revenues in fiscal 2010, the Partnership’s profitability measures such as operating income and net income for fiscal 2010 were adversely impacted as product costs and operating expenses from these acquisitions during fiscal 2010 exceeded revenues, which is normal for this non-heating period.
Customer Attrition
We measure net customer attrition for our full service residential and commercial home heating oil customers. Net customer attrition is the difference between gross customer losses and customers added through internal marketing efforts. Customers purchased through acquisitions are not included in the calculation 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	) 	

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Gross 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% of our home heating oil customers, in fiscal 2009. Excluding customer gains and losses at the home heating oil operations we acquired in fiscal 2010, which acquisitions 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 of the 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 an alternate supplier in fiscal 2009, which resulted in an increase in gross customer gains for fiscal 2009. These favorable conditions did not reoccur in fiscal 2010 and gross customer gains were lower. The reduction in gross customer losses of 22,800 accounts was primarily due to the aforementioned market condition, as losses due to price declined by 11,600 accounts. In addition, our credit losses improved by 7,600 accounts and natural gas conversions declined by 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 our focus 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 18,300 accounts, 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 fourth quarters 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 fiscal 2008. 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 decreases in the price of home heating oil following the summer of 2008, many price-protected customers decided to renegotiate their agreements with us in fiscal 2009. 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 chose another supplier as a result of being billed the termination fee. This compares to approximately 4,300 customers who cancel their relationship in fiscal 2008 after 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) when compared 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 in gross customer gains that occurred in fiscal 2009 was largely experienced in the fourth quarter of fiscal 2009. In addition, we believe that gains from real estate 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 to 79,500 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 a termination 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 existing customers in the future.
 
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Fiscal Year Ended September 30, 2010
Compared to the Fiscal Year Ended September 30, 2009
Volume
For 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 million gallons 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 to 39.6 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 retail volume 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 the National 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 oil over 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 for fiscal 2010, as compared to 40.1% for fiscal 2009. Accordingly, the percentage of home heating oil volume sold to residential price-protected customers decreased 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 total home heating oil volume sales, as compared to 14.3% for fiscal 2009.
Product Sales
For 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 in home 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 Sales
For 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 the additional service and installation revenue from acquisitions of $6.9 million and higher air conditioning installation and service revenue of $5.4 million was offset slightly by a $1.1 million reduction in heating installations and a fall in service contract revenue due to net customer attrition and competitive pressures. The Partnership believes that the mild spring and relatively warm summer weather in fiscal 2010 in the areas in which the Partnership operates were the main drivers of the increase in air conditioning related revenues while the warm winter adversely impacted heating installations.
Cost of Product
For 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 of increases in home heating oil and other petroleum products was reduced by the 11.8% decline in home heating oil volume.
 
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Gross Profit Product
The table below recalculates the Partnership’s per gallon margins and reconciles product gross profit for home heating oil and other petroleum products. We believe the change in home heating oil margins should be evaluated before the effects of increases or decreases in the fair 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 of hedges before the settlement 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 per gallon, from $0.8935 per gallon in fiscal 2009. Product sales and cost of product include home heating oil, other petroleum products and liquidated damages billings.

 	  	Fiscal Year End	 	
(In millions, except per gallon amounts)	  	September 30, 2010	 	  	September 30, 2009	 	
 	  	Amount	 	  	Per
Gallon	 	  	Amount	 	  	Per
Gallon	 	
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	 	  	Per
Gallon	 	  	Amount	 	  	Per
Gallon	 	
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 of higher 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 fiscal 2010, gross profit from other petroleum products equaled fiscal 2009 and per gallon margins increased slightly.
Cost of Installations and Service
For 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 fiscal 2010. Management views the service and installation department on a combined basis because many expenses cannot be separated or allocated to either service 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 during fiscal 2009. The decline in installation costs as a percentage of sales was largely the result of reduced staffing levels as the Partnership responded to the impact 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 the decline in installation revenue. Service expenses decreased to $113.7 million, or 95.5% of service sales during fiscal 2010, from $114.7 million in fiscal 2009, or 100.4% of sales. The decrease in
 
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service 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 with acquisitions of $3.2 million. The decline in service costs as a percentage of service revenue was due to higher profitability of the increased air conditioning service and the decline in vehicle fuels.
(Increase) Decrease in the Fair Value of Derivative Instruments
During 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 of certain 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 of certain hedged positions ($21.2 million increase), and a decrease in market value for unexpired hedges ($7.5 million charge).
Delivery and Branch Expenses
For 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. While acquisitions resulted in an increase in delivery and branch expenses of $8.4 million, delivery and branch expenses in the Partnership’s base business declined by $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 fell by $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 oil volume which mitigated the impact of inflationary pressures on operating expenses. On a cents per gallon basis, delivery and branch expenses increased 6.7 cents 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 be adjusted due to the 11.8% decline in home heating oil volume. Our fiscal 2010 acquisitions, which were completed after the heating season, resulted in the Partnership having to incur operating costs for such acquisitions without any heating season volume being generated by them which adversely impacted the year over year operating cost comparison by 1.9 cents per gallon.
Depreciation and Amortization
For fiscal 2010, depreciation and amortization expenses were $15.7 million, as compared to $19.4 million for fiscal 2009. Amortization expense was lower 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 fully amortized in fiscal 2009 partially offset by increased amortization expense from fiscal 2010 acquisitions having 7 and 10 year lives.
General and Administrative Expenses
For fiscal 2010, general and administrative expenses increased $0.7 million to $21.4 million, as compared to $20.7 million for fiscal 2009. Legal and professional expenses relating to acquisitions were $0.7 million in fiscal 2010 and pension expense relating to the Partnership’s frozen pension plan increased by $0.9 million to $3.1 million. Generally, a higher contribution to the frozen pension plan was required to offset lower than expected assets returns. 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 amount is payable when the Partnership achieves actual adjusted EBITDA of at least 70% of the amount budgeted. If Adjusted EBITDA increases, the dollar 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 be reduced.
Interest Expense
For 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 two fiscal years, the Partnership has repurchased $90.3 million face value of its 10.25% Senior Notes lowering the average long-term debt outstanding for these Notes 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 of credit 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 to repurchase $82.5 million of Senior Notes due February 2013. As a result, the Partnership expects that interest expense will increase in fiscal 2011.
 
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During fiscal 2010, average bank borrowings were $3.6 million and the corresponding interest expense increased by $0.2 million. There were no bank borrowings in fiscal 2009.
Interest Income
For 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 cash balances and lower finance charge income on past due accounts receivables balances.
Amortization of Debt Issuance Costs
For 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 Repurchase
During fiscal 2010, the Partnership repurchased $50.0 million face value of its 10.25% Senior Notes due February 2013 at an average price of $101.7 per $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 benefit from the release of opening valuation allowance than in 2009. Based on a number of factors, including historical operating performance and our expectation that we could generate enough sustainable taxable income for the foreseeable future in the jurisdictions for which the opening valuation allowance was established, we concluded at the end of fiscal 2010 that these deferred tax assets should be recognized. For fiscal 2009 this benefit was $86.4, representing the 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 tax expense as compared to fiscal 2009. These lower tax expenses were primarily due to fiscal 2010 having $29.5 million in lower income before income taxes than 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 the effective 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 current tax expense will represent our expected cash taxes for the current period. The deferred tax expense represents the amount of income taxes that we would have paid 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 unlimited net 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 $102.7 million 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 opening valuation allowance. In fiscal 2010, only $3.9 million of opening valuation allowance was released. In addition, the after tax impact of lower earnings reduced net income by $17.9 million.
Adjusted EBITDA
For 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 decline in home heating oil volume and a $3.6 million Adjusted EBITDA loss from acquisitions more than offset an improvement in net service and installation profitability, an increase in home heating oil per gallon margins and lower operating expense. The Adjusted EBITDA loss from fiscal 2010 acquisitions was expected as these assets were purchased subsequent to the heating season.
 
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EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations), but provides additional information for evaluating our ability to make the Minimum 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 of derivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and 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 petroleum products 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.	
 
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The method of calculating Adjusted EBITDA may not be consistent with that of other companies and each of EBITDA and Adjusted EBITDA has its limitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed in accordance 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 EBITDA and 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.	
 
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Fiscal Year Ended September 30, 2009
Compared to the Fiscal Year Ended September 30, 2008
Volume
For 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 million gallons 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 to 48.9 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, sampling and 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 the National Oceanic Administration (“NOAA”). For fiscal 2009, net customer attrition was 7.5%. Due to the significant increase in the price per gallon of home heating oil over the last several years, we believe that customers are using less home heating oil given similar temperatures when compared to prior periods and 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 for fiscal 2009, as compared to 42.9% for fiscal 2008. Accordingly, the percentage of home heating oil volume sold to residential price-protected customers increased 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 total home heating oil volume sales, as compared to 14.7% for fiscal 2008.
Product Sales
For 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 Sales
For 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 a decline 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), air conditioning equipment ($2.2 million), as well as new construction plumbing installations ($4.5 million). The cool spring also adversely impacted the demand for new and replacement air conditioning systems over the summer months. While service contract revenue increased by $2.2 million, revenue from non-essential services, which include plumbing and air conditioning service, declined $2.1 million. We believe that the decline in non-essential service revenue is the result of current economic conditions.
Cost of Product
For 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 a decline 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.
 
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Gross Profit Product
The table below recalculates the Partnership’s per gallon margins and reconciles product gross profit for home heating oil and other petroleum products. We believe the change in home heating oil margins should be evaluated before the effects of increases or decreases in the fair 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 of hedges before the settlement 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 per gallon, from $0.7413 per gallon in fiscal 2008. Product sales and cost of product include home heating oil, other petroleum products and liquidated damages billings.
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 of higher 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 the impact 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	 	  	Per
Gallon	 	  	Amount	 	  	Per
Gallon	 	
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	 	  	Per
Gallon	 	  	Amount	 	  	Per
Gallon	 	
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 to expand its home heating oil margins during this period, as wholesale prices decreased more rapidly than retail prices. Conversely, during the heating season of fiscal 2008, home heating oil costs continued to escalate, which limited margin expansion capability.
Cost of Installations and Service
For 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 a decrease 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 the corresponding decrease in installation sales as described above. Service expenses were higher due to an increase in vehicle fuel costs of $2.1 million, as the Partnership 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 expense of the service department due to the increased need to service our customer’s heating equipment. The gross profit realized from service (including installations) 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 the increase 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% of installation sales during fiscal 2008. Installation costs as a percentage of installation sales increased due to the fixed nature of certain installation costs.
 
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Service 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. In addition, the Partnership was not able to fully reduce its service expenses in response to unforeseen reductions in non-essential service billings such as air conditioning 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 Instruments
During 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 of certain 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 of certain hedged positions ($1.3 million charge), and a decrease in market value for unexpired hedges ($24.2 million charge).
Delivery and Branch Expenses
For 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. While our 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 an increase 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 colder temperatures 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 of the 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 customer experience and improve our net attrition, we spent an additional $2.2 million on marketing, sales and customer service in fiscal 2009 as compared to fiscal 2008. 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. Other branch 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 cents per 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 and branch expenses, the increases in insurance expense and vehicle fuel cost and inflationary pressures.
Depreciation and Amortization
For fiscal 2009, depreciation and amortization expenses were $19.4 million, as compared to $26.8 million for fiscal 2008. Amortization expense was lower 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 Expenses
For 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 $1.6 million 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 due to wage increases and higher legal and professional expenses. The Partnership accrues approximately 6% of Adjusted EBITDA as defined in the profit sharing plan for distribution to its employees and is payable when the Partnership achieves actual adjusted EBITDA of at least 70% of the amount budgeted. In fiscal 2009, adjusted EBITDA increased by $30.3 million to $85.8 million, which drove the increase in profit sharing expense. If Adjusted EBITDA increases, the dollar 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 be less.
Operating Income
For 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 the fair 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 service profitability totaling $7.0 million and an increase in operating expenses of $7.9 million (including depreciation and amortization).
 
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Interest Expense
For 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, the Partnership repurchased $40.3 million of its 10.25% Senior Notes due February 2013, which lowered the average long-term debt outstanding by $26.7 million and corresponding interest expense by $2.7 million. Working capital interest expense, including letters of credit fees, increased by $0.5 million.
Interest Income
For 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 interest income of $1.1 million from invested cash and a decrease in finance charge income on past due accounts receivable balances. While average cash balances were higher in fiscal 2009 than in fiscal 2008, the investment returns were lower. Finance charge income declined largely due to a lower level of aged accounts receivables.
Amortization of Debt Issuance Costs
For 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 accelerated amortization of fees related to the revolving credit facility that was amended in July 2009.
Gains on Bond Repurchase
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 $75.10 per $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 was offset 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 net income 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, we concluded 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 a non-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 if we 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 million was 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 EBITDA
For 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 home heating 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 and administrative expenses.
 
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EBITDA and Adjusted EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations), but provides additional information for evaluating our ability to make the Minimum 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 of derivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges) are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and 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 petroleum products 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 its limitations as an analytical tool, should not be considered in isolation and should be viewed in conjunction with measurements that are computed in accordance 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 EBITDA and 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;	
 
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 	•	 	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 RESOURCES
Our ability to satisfy our obligations depends on our future performance, which will be subject to prevailing economic, financial, business and 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 factors, most of which are beyond our control. (see Item 1A — “Risk Factors).” Capital requirements, at least in the near term, are expected to be provided by cash flows from operating activities, cash on hand at September 30, 2010 or a combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by our revolving credit facility, as discussed below, and repaid from subsequent seasonal reductions in inventory and accounts receivable.
DISCUSSION OF CASH FLOWS
We use the indirect method to prepare our Consolidated Statements of Cash Flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payment during the period.
Operating Activities
Due 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 the spring 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 as favorable 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 cash generated 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, which resulted 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 was comparatively low because the Partnership did not prebuy physical inventory due to the relatively high cost at the time. The change in inventory was also impacted by price. During fiscal 2010, inventory costs increased by $0.42 per gallon as compared to the prior period which experienced a reduction in inventory 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 expires rather 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 largely due 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. In fiscal 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 when selling 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 days as 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 frozen pension 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 cash provided by operations for fiscal 2008. This improvement was primarily due to the impact of lower wholesale product costs, which impacts accounts receivable collections, inventory costs, prepaid hedging costs, hedging margin requirements, customer credit balances, accounts payable and accrued expenses. 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 assets and liabilities of $0.3 million. Accounts receivable declined by $26.7 million largely due to lower wholesale product costs and an improvement in our days sales 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 million gallons 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 the spot and futures market.
 
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Approximately 38% of our customers are on a budget payment plan and these customers pay their annual estimated heating bill in 12 monthly installments. Typically, these plans begin before the heating season and a liability is created as payments exceed deliveries. In fiscal 2009, we experienced a decline 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 oil prices which reduced the required budget payments for the upcoming heating season.
Investing Activities
During 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 hardware and software ($1.9 million), refurbished certain physical plants ($1.2 million) and made additions to our fleet and other equipment ($2.5 million). We completed 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 gross purchase 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 certain physical 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 and allocated $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 capital credits 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 hardware and software ($1.1 million), refurbished certain physical plants ($1.6 million) and made additions to our fleet and other equipment ($1.4 million). We completed 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 Activities
During fiscal 2010, the Partnership repurchased 8.1 million common units for $33.2 million in connection with the unit repurchase plan program and paid 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. In February 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 face value.
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 paid distributions to our unitholders of $15.4 million. During fiscal 2009, we did not borrow under our revolving credit facility but had letters-of-credit outstanding 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 in connection 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 LIQUIDITY
Liquidity and Capital Resources
Our ability to satisfy our financial obligations depends on our future performance, which will be subject to prevailing economic, financial, business and 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 be provided 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 debt offering or a combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working 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 and which provides us with the ability to borrow up to $240 million ($290 million during the heating season from November through April of each year) for working capital purposes (subject to certain borrowing base limitations and coverage ratios), including the issuance of up to $100.0 million in letters of credit. 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 fund the $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 the Agent, which shall not
 
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be unreasonably withheld. Obligations under the new revolving credit facility are secured by liens on substantially all of our assets including accounts receivable, inventory, general intangibles, real property, fixtures and equipment. During this past heating season, we did not borrow under our previous credit facility. 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 and bonds and $0.3 million are for seasonal inventory purchases and other working capital purposes. We have reduced our reliance on letters of credit for inventory 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 credit issued) 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 of September 30, 2010, availability, as defined in the amended and restated credit agreement, was $104.8 million and the Partnership was in compliance with the fixed charge coverage ratio. The fixed charge coverage ratio is calculated based upon Adjusted EBITDA. In the event that the Partnership is not able to comply 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 be used 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 call premium 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 for fixed assets are estimated to be approximately $5.0 to $7.0 million, excluding the capital requirements for leased fleet. Based on the funding levels required by the Pension Protection Act of 2006, and certain actuarial assumptions, we estimate that the Partnership will be required to make minimum cash contributions to fund its frozen defined benefit pension obligations of a total of approximately $10.0 million over the next five fiscal years. We anticipate paying distributions of approximately $19.5 million in fiscal 2011 and we will continue to purchase common units as authorized under our unit repurchase plan. In addition, we will continue to seek strategic acquisitions.
Partnership Distribution Provisions
Commencing with the fiscal quarter ended December 31, 2008, we are required to make distributions in an amount equal to our Available Cash, as defined 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. 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 of cash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for the proper conduct of our business, including acquisitions, the payment of debt principal and interest and for distributions during the next four quarters and to comply 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, the Partnership 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 tests restrict 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 partner reviews 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 respect of 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 of Available Cash)
Contractual Obligations and Off-Balance Sheet Arrangements
We 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-cancelable purchase obligations are obligations we incur during the normal course of business, based on projected needs. The Partnership had no capital lease obligations as of September 30, 2010.
 
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Reserves for income taxes under FASB ASC 740-10-05 Income Taxes Topic (“FIN 48”) are not included in the table because we cannot reasonably predict 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 and
2013	 	  	2014 and
2015	 	  	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 to repurchase $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 voice and 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 unused commitment 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 funding requirements, we have satisfied the minimum funding obligations related to our pension plans for fiscal 2010 and we estimate minimum cash contributions 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 Pronouncements
In fiscal 2010, the Partnership adopted the revised provisions of FASB ASC 805-10 Business Combinations. This standard establishes in a business combination 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 (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This standard requires companies to improve their disclosures 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 the first quarter of fiscal 2011. The Partnership is currently assessing the impact of the disclosure requirements.
Critical Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to establish accounting policies and make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. Star Gas evaluates its policies and estimates on an on-going basis. The Partnership’s Consolidated Financial Statements may differ based upon different estimates and 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 critical accounting policies and estimates:
Goodwill and Other Intangible Assets
We calculate amortization using the straight-line method over periods ranging from five to twenty years for intangible assets with definite useful lives based on historical statistics. We use amortization methods and determine asset values based on our best estimates using reasonable and supportable assumptions and projections. From time to time, we engage a third party valuation firm to
 
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ascertain asset values for intangible assets. We assess the useful lives of intangible assets based on the estimated period over which we will receive benefit from 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 of the 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 these assets 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 assessments involve management’s estimates of future cash flows, market trends and other factors to determine the fair value of the reporting unit, which includes the goodwill to be assessed. If the carrying amount of goodwill exceeds its implied fair value and is determined to be impaired, an impairment charge is recorded to 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 for impairment whenever changes in circumstances indicate that the assets may be impaired. Similar to goodwill, the assessment for impairment requires estimates of future cash flows related to the intangible asset. To the extent the carrying value of the assets exceeds its future undiscounted cash flows, an impairment 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 goodwill impairment as of August 31, 2010. The preparation of this analysis was based upon management’s estimates and assumptions, and future impairment calculations would be affected by actual results that are materially different from projected amounts. To provide for a sensitivity of the discount rates and transaction multiples used, ranges of high 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 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 margins or 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 an impact 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 to determine 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 Market Approach (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 based on discounted cash flows. The Partnership’s discount rate was calculated based on the weighted average cost of capital, using inputs of comparable companies in the same industry. The Partnership’s conclusion of the fair value of the reporting unit was supported based on a sensitivity analysis performed using 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 securities are actively traded in public markets. A financial multiple range was calculated and applied to the financial metrics of the Partnership. The Partnership’s conclusion 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 comparable businesses. A transaction multiple was calculated and applied to the financial metrics of the Partnership. In addition, a transaction occurring after the analysis date, but before the fiscal year-end was reviewed, and the Partnership’s conclusion of value was supported based on the calculations of these transaction multiples.
In addition, the Partnership performs a reasonableness check of its concluded value for its sole reporting unit by reconciling the results of the goodwill analysis with its market capitalization.
Depreciation of Property and Equipment
Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets ranging from 1 to 40 years. Net property and equipment 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 effect on results of operations. For example, if the remaining estimated useful lives of these assets were shortened by one year, we estimate that depreciation for fiscal 2010 would have increased by approximately $1.0 million.
 
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Fair Values of Derivatives
FASB 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 sheet as assets or liabilities. To the extent derivative instruments designated as cash flow hedges are effective and FASB ASC 815-10-05 Derivatives and Hedging topic documentation requirements have been met, changes in fair value are recognized in other comprehensive income until the underlying hedged item is recognized in earnings. Currently, the Partnership has elected not to designate its derivative instruments as hedging instruments under this standard, and the change in fair value of the derivative instruments are recognized in our statement of operations.
We have established the fair value of our derivative instruments using estimates determined by our counterparties and subsequently evaluated them internally using established index prices and other sources. These values are based upon, among other things, future prices, volatility, time-to-maturity value and 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 market conditions, or other factors, many of which are beyond our control.
Defined Benefit Obligations
FASB ASC 715-10-05 Compensation-Retirement Benefits topic, requires an employer to (i) measure the funded status of a defined benefit postretirement 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 an asset or liability in its statement of financial position and (iii) to recognize changes in that funded status in the year which the changes occur through comprehensive 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 plan assets and discount rates to determine the present value of the plans’ pension obligations. The Partnership evaluates these critical assumptions at least annually.
The discount rate enables the Partnership to state expected future cash flows at a present value on the measurement date. The rate is required to represent the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit obligations and increases pension expense in the following fiscal year. A 25 basis point decrease in the discount rated used for fiscal 2010 would have increased pension expense by approximately $0.1 million and would have increased the pension liability by another $1.6 million. 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 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 flows are 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 our expected 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’s qualified actuaries. The long-term rate of return assumption used for determining net periodic pension expense for fiscal 2010 and 2009 was 7.75% and 8.25% 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 are recognized.
Recent market conditions have resulted in an unusually high degree of volatility and increased the risks associated with certain investments held by the 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 under collective bargaining agreements. The Partnership makes timely contributions as required by the plans. Several factors could result in potentially higher future contributions to these plans, including unfavorable investment performance, changes in demographics, and increased benefits to participants.
 
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Allowance for Doubtful Accounts
We periodically review past due customer accounts receivable balances. After giving consideration to economic conditions, overdue status and other factors, we establish an allowance for doubtful accounts, representing the Partnership’s best estimate of amounts that may not be collectible. Actual losses could differ from management’s estimates.
Insurance Reserves
We currently self-insure a portion of workers’ compensation, auto and general liability claims. We establish reserves based upon expectations as to what our ultimate liability may be for outstanding claims using developmental factors based upon historical claim experience, supplemented by a third-party actuary. We periodically evaluate the potential for changes in loss estimates with the support of qualified actuaries. As of September 30, 2010, we had approximately $37.4 million of insurance reserves. The ultimate resolution of these claims could differ materially from the assumptions used to calculate the reserves, which could have a material adverse effect on results of operations.
 
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
We 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 to variable 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 of home heating oil. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Sensitivity analysis is a technique used to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product at September 30, 2010, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $10.7 million 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 value of these outstanding derivatives by $6.5 million to a fair market value of $(0.9) million.
 
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	
The financial statements and financial statement schedules referred to in the index contained on page F-1 of this report are incorporated herein by reference.
 
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	
NONE
 
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 controls and 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 that evaluation, such principal executive officer and principal financial officer concluded that the Partnership’s disclosure controls and procedures were effective as of September 30, 2010 at the reasonable level of assurance. For purposes of Rule 13a-15(e), the term  disclosure controls and procedures  means controls and 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 under the 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 an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
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(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 in Exchange Act Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision of management and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in  Internal Control—Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation of internal Control over financial reporting, our management concluded that our internal control over financial reporting was effective as of September 30, 2010. The effectiveness of our internal control over financial reporting as of September 30, 2010 has been 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 of integrating CEC and as such it has been excluded by management from it’s assessment of the effectiveness of the Partnership’s internal control over financial reporting as of September 30, 2010, CEC’s internal control over financial reporting that is associated with total assets of $74 million (of which $52 million represents goodwill and intangibles included within the scope of the assessment) and total revenues of $25 million in the consolidated financial statements of 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 is analyzing, evaluating and, where necessary, will implement changes in controls and procedures relating to the CEC business as integration proceeds. As a result, this process may result in additions or changes to our internal control over financial reporting. Otherwise, there was no change in the Partnership’s internal control over financial reporting during the Partnership’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect 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 assurance that 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, if any, within the Partnership have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the principal executive officer and principal financial officer of our general partner have concluded, as of September 30, 2010, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.
 
ITEM 9B.	OTHER INFORMATION	
Not applicable.
 
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PART III
 
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	
Partnership Management
The general partner of the Partnership is Kestrel Heat, LLC. The Board of Directors of Kestrel Heat, LLC is appointed by its sole member, Kestrel Energy 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 indirectly participate in the management or operation of the Partnership or elect the directors of the general partner. The Board of Directors of the general partner has adopted a set of Partnership Governance Guidelines in accordance with the requirements of the New York Stock Exchange. A copy of these Guidelines is available 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 and outstanding 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 to take 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 the Partnership (to the extent not paid by the Partnership), except to the extent that indebtedness or other obligations incurred by the Partnership are made specifically 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 for managing or operating the Partnership.
Directors and Executive Officers of the General Partner
Directors are appointed for an indefinite term, subject to the discretion of Kestrel Energy Partners, LLC. The following table shows certain information for directors and executive officers of the general partner as of November 30, 2010:

Name	  	Age	 	  	Position	
Paul A. Vermylen, Jr.	  	 	63	  	  	Chairman, Director	
Daniel P. Donovan	  	 	64	  	  	President, Chief Executive Officer and Director	
Richard F. Ambury	  	 	53	  	  	Executive Vice President and Chief Financial Officer	
Steven J. Goldman	  	 	50	  	  	Executive Vice President and Chief Operating Officer	
Richard G. Oakley	  	 	50	  	  	Vice President and Controller	
Henry D. Babcock(1)	  	 	70	  	  	Director	
C. Scott Baxter(1)	  	 	49	  	  	Director	
Bryan H. Lawrence	  	 	68	  	  	Director	
Sheldon B. Lubar	  	 	81	  	  	Director	
William P. Nicoletti (1)	  	 	65	  	  	Director	
 
(1)	Audit Committee member	
Paul 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 has served as its President and as a manager since July, 2005. Mr. Vermylen had been employed since 1971, serving in various capacities, including as a Vice President of Citibank N.A. and Vice President-Finance of Commonwealth Oil Refining Co. Inc. Mr. Vermylen served as Chief Financial Officer of Meenan Oil Co., 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. Vermylen has pursued private investment opportunities. Mr. Vermylen serves as a director of certain non-public companies in the energy industry in which Kestrel holds equity interests including Downeast LNG, Inc. and Moneta Energy Services Ltd. Mr. Vermylen is a graduate of Georgetown University and has a M.B.A. from Columbia University.
 
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Mr. Vermylen’s substantial experience in the home heating oil industry and his leadership skills and experience as an executive officer of Meenan, among other 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 Chief Operating 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 Star Gas heating oil segment. Mr. Donovan held various management positions with Meenan Oil Co. LP, from January 1980 to May 2004, including Vice President and General Manager from 1998 to 2004. Mr. Donovan worked for Mobil Oil Corp. from 1971 to 1980. His last position with Mobil was President and 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, New York 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 and Secretary 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 was Vice 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/finance capacities. From 1979 to 1983, Mr. Ambury was employed by a predecessor firm of KPMG, a public accounting firm. Mr. Ambury has been a Certified Public Accountant 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 Vice President 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 also held various positions within the management of companies in industrial engineering and those with international operations. Mr. Goldman is a graduate of the 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 held various 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, a privately 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 affiliated venture 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 Columbia University. 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 should serve 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 Energy Partners, an energy investment banking firm headquartered in New York. Previously, Mr. Baxter was Managing Director & Head of the Global Energy Group for Houlihan Lokey who had acquired his previous firm’s assets, Green River Energy. At Green River Energy, Mr. Baxter was the Managing Partner and conducted M&A advisory and invested in public and private equity. From 1999 through 2001, he was Head of Americas for the Global Energy Investment Banking Group of JPMorgan. From 1989 to 1999, Mr. Baxter worked for Salomon Smith Barney’s Global Energy Investment Banking Group where he was a Managing Director. Mr. Baxter holds a B.S. degree in Economics from Weber State University where he graduated cum laude, and received an MBA degree from the University of Chicago Graduate School of Business. From 2002 to 2005 Mr. Baxter was also an adjunct professor of finance at Columbia University’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 conclude that he should serve as a director of Kestrel Heat.
 
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Bryan 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 a founder and senior manager of Yorktown, the manager of the Yorktown group of investment partnerships, which make investments in companies engaged in the energy industry. The Yorktown partnerships were formerly affiliated with the investment firm of Dillon, Read & Co. Inc., where Mr. Lawrence was employed beginning in 1966, serving as a Managing Director until the merger of Dillon Read with SBC Warburg in September 1997. Mr. Lawrence also serves as a director of Approach Resources, Inc., Crosstex Energy, Inc., Hallador Petroleum Company (each a United States publicly traded company), Winstar Resources 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 the Board 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 Chairman of the board of Lubar & Co. Incorporated, a private investment and venture capital firm he founded, since 1977. He was Chairman of the board of Christiana Companies, Inc., a logistics and manufacturing company, from 1987 until its merger with Weatherford International in 1995. Mr. Lubar had also been Chairman of Total Logistics, Inc., a logistics and manufacturing company until its acquisition in 2005 by SuperValu Inc. He has served as a director of Crosstex 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 University of 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 conclude that 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 Star Gas 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 Gas Corporation, the predecessor general partner from November 1995 until March 1999. Since February 1, 2009, he has been a Managing Director of Parkman Whaling LLC, a Houston, Texas based energy investment banking firm. Previously, he was Managing Director of Nicoletti & Company, Inc., a private investment banking firm. Mr. Nicoletti was formerly a senior officer and head of Energy Investment Banking for E. F. Hutton & Company, Inc., PaineWebber Incorporated and McDonald Investments, Inc. Mr. Nicoletti is a director of MarkWest Energy Partners, L.P. Mr. Nicoletti is a graduate of Seton Hall University 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 and corporate governance matters, among other factors, led the Board to conclude that he should serve as a director of Kestrel Heat.
Director Independence
It 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 three Directors 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 stock exchange 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 Directors
During fiscal 2010, the Board of Directors of Kestrel Heat, LLC met nine times. All directors attended each meeting except for two meetings which one director did not attend.
Committees of the Board of Directors
Kestrel Heat, LLC’s Board of Directors has one standing committee, the Audit Committee. Its members are appointed by the Board of Directors for a one-year term and until their respective successors are elected. The NYSE corporate governance standards do not require limited partnerships to have a Nominating or Compensation Committee.
 
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Audit Committee
William P. Nicoletti, Henry D. Babcock and C. Scott Baxter have been appointed to serve on the Audit Committee of the general partner’s Board of Directors, which has adopted an Audit Committee Charter. Mr. Nicoletti serves as chairman of the Audit Committee. A copy of this charter is available 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. The Audit Committee reviews the external financial reporting of the Partnership, selects and engages the Partnership’s independent registered public accountants and approves 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 York Stock 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 NYSE and 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 criteria of 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 one director did not attend.
Reimbursement of Expenses of the General Partner
The general partner does not receive any management fee or other compensation for its management of the Partnership. The general partner is reimbursed for all expenses incurred on behalf of the Partnership, including the cost of compensation, which is properly allocable to the Partnership. The Partnership’s partnership agreement provides that the general partner shall determine the expenses that are allocable to the Partnership in any reasonable manner determined by the general partner in its sole discretion. In addition, the general partner and its affiliates may provide services to the Partnership for which 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 Ethics
The Partnership has adopted a written Code of Business Conduct and Ethics that applies to the Partnership’s officers, directors and employees. A copy of 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, by contacting Investor Relations, (203) 328-7310.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on copies of reports furnished to us, we believe that during fiscal year 2009, all reporting persons complied with the Section 16(a) filing requirements applicable to them.
Non-Management Directors and Interested Party Communications
The 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 Star Gas Partners, L.P., 2187 Atlantic Street, Stamford, CT 06902.
 
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ITEM 11.	EXECUTIVE COMPENSATION	
Compensation Discussion And Analysis
The 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 of the 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 in the interest and for the benefit of the Partnership’s unitholders. Among the Board’s responsibilities is to regularly evaluate the performance and to approve the compensation of the Chief Executive Officer and, with the advice of the Chief Executive Officer, regularly evaluate the performance and approve the compensation 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 the Chairman of the general partner and the majority of the Board are not employees, the Board determined that it has adequate independence to act in the capacity of a Compensation Committee to establish and review the compensation of the Partnership’s executive officers and directors. The Board is comprised 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 financial officer (“CFO”) during fiscal 2010 and the two other most highly compensated executive officers serving at September 30, 2010 (there being no other executive officers who earned more than $100,000 during fiscal 2010) are referred to as the “named executive officers” and are included in the Summary Compensation Table below.
In this Compensation Discussion and Analysis, we address the compensation paid or awarded to Messrs. Donovan, Ambury, Goldman, and Oakley. We refer 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 POLICIES
The primary objectives of the Partnership’s compensation program, including compensation of the named executive officers, are to attract and retain highly qualified officers, employees and directors and to reward individual contributions to our success. The Board of Directors considers the following policies 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 and non-financial achievements;	
 
 	•	 	compensation levels should be competitive to ensure that we will be able to attract, motivate and retain highly qualified executive officers; and	
 
 	•	 	compensation should be related to improving unitholder value.	
Compensation Methodology
The elements of the Partnership’s compensation program for named executive officers are intended to provide a total incentive package designed to drive performance and reward contributions in support of business strategies at the Partnership and operating unit level. Subject to the terms of employment agreements 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 setting compensation based on the above factors, we reviewed the compensation paid to officers holding similar positions at our peer group companies to obtain a general understanding of the reasonableness of base salaries and other compensation payable to our named executive officers. Our peer group of companies was comprised of the following companies: Amerigas Partners, L.P., Suburban Propane Partners, L.P., Inergy Holdings, L.P., Ferrellgas Partners, L.P. and Global Partners, L.P. We chose these companies because they are master limited partnerships that are engaged in the retail distribution of energy products like the Partnership.
 
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Elements of Executive Compensation
For 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 each executive officer varies depending on their position. The base salary for each executive officer is the only fixed component of compensation. All other compensation, 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 the discretionary profit sharing allocation. For the Vice President- Controller, approximately 65% of the annual compensation is in the form of base salary and 35% 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 weighted towards 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 upon each executive officer’s individual performance and our overall performance. A goal of the compensation program is to provide executive officers with a reasonable level of security through base salary and benefits, while rewarding them through incentive compensation to achieve business objectives and create unitholder value. As a result, officers with lower overall compensation levels will tend to have a higher percentage of base compensation. We believe that each of our compensation components is important in achieving this goal. Base salaries provide executives with a base level of monthly income and security. Annual discretionary profit sharing allocations motivate executives to drive our financial performance. Long-term incentive awards link the interests of our executives with our unitholders, which motivates our executives to create unitholder value. In addition, we want to ensure that our compensation programs are appropriately designed to encourage executive officer retention, which is accomplished through all of our compensation elements.
Base Salary
The 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 starting point is the historical compensation levels that the Partnership has paid to officers performing similar functions over the past few years. We also consider the level of experience and accomplishments of individual candidates and general labor market conditions, including the availability of candidates to fill a particular position. When we make adjustments to the base salaries of existing named executive officers, we review the individual’s performance, the value each 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-related accomplishments during the year, difficulty and scope of responsibilities, effective leadership, experience, expected future contributions to the Partnership and difficulty of replacement. While base salary provides a base level of compensation intended to be competitive with the external market, the base salary for each named executive officer is determined on a subjective basis after
 
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consideration of these factors and is not based on target percentiles or other formal criteria. Although we believe that base salaries for our named executive officers are generally competitive with the external market, we do not use benchmarking as a fixed criteria to determine base compensation. Rather, after subjectively setting base salaries based on the above factors, we review the compensation paid to officers holding similar positions at our peer group companies to obtain a general understanding of the reasonableness of base salaries and other compensation payable to our named executive officers. The Partnership also takes into account geographic differences for similar positions in the New York Metropolitan area. While cost of living is considered in determining annual increases, the Partnership does not typically provide full cost of living adjustments as salary increases are constrained by budgetary restrictions and the ability to fund the Partnership’s current cash needs such as interest expense, maintenance capital, income taxes and distributions.
Profit Sharing Allocations
The Partnership maintains a profit sharing pool for employees, including named executive officers, which in fiscal 2010 was equal to approximately 6.0% of the Partnership’s earnings before income taxes, depreciation and amortization, excluding items affecting comparability (“adjusted EBITDA”). The annual discretionary profit sharing allocations paid to the named executive officers are payable from this pool. The size of the pool fluctuates based upon upward or downwards changes in adjusted EBITDA. The amount of cash paid to the named executive officers under the plan is based on the target percentages of overall compensation described above under the caption “Elements of Executive Compensation.” Depending upon the size of the profit sharing 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 our CEO 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 2010 of 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 in developing his recommendations for bonus amounts. Based on such assessment, our CEO submits recommendations to the Board of Directors for the annual profit sharing amounts to be paid to our named executive officers, for the Board’s review and approval. Similarly, the Chairman assesses the CEO’s contribution toward meeting the Partnership’s goals based upon the above factors, and recommends to the Board of Directors a bonus for the CEO it believes to be commensurate with such contribution.
The Board of Directors retains the ultimate discretion to determine whether the named executive officers will receive annual discretionary bonuses based upon the factors discussed above.
Long-Term Management Incentive Compensation Plan
The long-term compensation structure is intended to align the employee’s performance with the long-term performance of our unitholders. In fiscal 2007, following the Partnership’s recapitalization, the Board of Directors adopted the Management Incentive Compensation Plan (the “Plan”) for employees of 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 unit otherwise 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 the Partnership Agreement), less expenses and applicable taxes.	
 
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The pro rata share payable to each participant under the Plan is based on the number of participation points as described under “Fiscal 2010 Compensation Decisions - Long-Term Management Incentive Plan.” The amount paid in Incentive Distributions is governed by the partnership agreement and the calculation of Available Cash. Available Cash from Operating Surplus (as defined in our partnership agreement) is distributed to the holders of the Partnership’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 distribution of $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 of the 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 minimum quarterly 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 target distribution of $0.1125; and
Finally, 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 of cash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for the proper conduct of our business, including acquisitions, the payment of debt principal and interest and for distributions during the next four 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 of our 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 plan participants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will reduce both EBITDA and net 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 Gains Interest payable to participants in the Plan by the 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 from time 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 payments will 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 Directors reserves the right to adjust the amount of Incentive Distributions to be allocated to the Bonus Pool if in its judgment extenuating circumstances warrant adjustment 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 officers of 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 its General Partner Units within the next twelve months. Thus the Plan’s value attributable to the Gains Interest currently cannot be determined.
Retirement and Health Benefits
The Partnership offers a health and welfare and retirement program to all eligible employees. The named executive officers are generally eligible for the same programs on the same basis as other employees of the Partnership. The Partnership maintains a tax-qualified 401(k) retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Under the Partnership’s 401(k) plan, subject to IRS limitations, each participant 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 years of 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 matches 2/3 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 named executive officers. The present value of accumulated benefits under these frozen defined benefit pension plans for each named executive officer is provided in the table labeled, Pension Plans Pursuant to Which Named Executive Officers Have an Accumulated Benefit But Are Not Currently Accruing Benefits.
 
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Fiscal 2010 Compensation Decisions
For fiscal 2010, the foregoing elements of compensation were applied as follows:
Base Salary
The following table sets forth each named executive officer’s base salary as of October 1, 2010 and the percentage increase in his base salary over October 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 the Partnership’s operating results. In addition, the increases to Messrs. Ambury and Goldman reflect Mr. Ambury’s promotion to Executive Vice President and Mr. Goldman’s promotion to Executive Vice President and Chief Operating Officer. The average percentage increase in base salary for executives in our peer group 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 Allocation
Based on our CEO’s annual performance review and the individual performance of each of our named executive officers, our Board approved the annual profit sharing allocation reflected in the “Summary Compensation Table” and notes thereto. The aggregate profit sharing amounts reflected in the Summary Compensation Table are approximately 4.5% lower than the bonus amounts for fiscal 2009. One of the Partnership’s primary performance measures is Adjusted EBITDA. Adjusted EBITDA for profit sharing purposes decreased by $6.8 million, or 8.3%, to $76.0 million for fiscal 2010. The average percentage decrease in Adjusted EBITDA for companies in our peer group was 10.6%.
Long-Term Management Incentive Compensation Plan
In October 2006, the Board awarded 1,000 participation points in the Plan to certain officers, including the following points to the following current and 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 were given to certain officers, increasing the Plan’s total participation points to 1,025. The named executive officers have participation points in the Plan are as follows: 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 to retain 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, who were 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 the remaining 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 Benefits
There were no changes to the retirement and health benefits applicable to the named executive officers in fiscal 2010.
 
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Employment Contracts and Severance Agreements
Agreement with Daniel P. Donovan
The Partnership entered into an employment agreement on November 8, 2010 with Mr. Donovan effective as of June 1, 2010. Mr. Donovan’s employment agreement is for a term of three-years unless otherwise terminated in accordance with the employment agreement. Mr. Donovan will serve as President and Chief Executive Officer of the Partnership and its subsidiaries. The employment agreement provides for one year’s salary as severance if Mr. Donovan’s employment is terminated without cause or by Mr. Donovan for good reason.
Agreement with Richard F. Ambury
The Partnership entered into an employment agreement with Mr. Ambury effective as of April 28, 2008. Mr. Ambury will serve as Chief Financial Officer and Treasurer of the Partnership and its subsidiaries. The employment agreement provides for one year’s salary as severance if Mr. Ambury’s employment is terminated without cause or by Mr. Ambury for good reason.
Agreement with Steven J. Goldman
Effective May 31, 2007 Steven J. Goldman was appointed the Senior Vice President of Operations of the Partnership. On December 3, 2007 Mr. Goldman entered into an employment agreement that provides for one year’s salary as severance if his employment is terminated without cause or by Mr. Goldman for good reason.
Agreement with Richard G. Oakley
Effective November 2, 2009, the Partnership entered into an agreement with Mr. Richard G. Oakley pursuant to which Mr. Oakley will continue to be employed 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 other than cause.
Change In Control Agreements
On December 4, 2007, the Board of Directors authorized the Partnership and our general partner to enter into a Change In Control Agreement with the following executive officers: Mr. Donovan, Chief Executive Officer and Mr. Ambury, Chief Financial Officer. Under the terms of each agreement, if the above mentioned executive officer’s employment is terminated as a result of a change in control (as defined in the agreement) that executive officer will be entitled to 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 profit sharing during the three years preceding the year of such termination. The term change in control means the present equity owners of Kestrel and their affiliates 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 or other 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 of the 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 Agreements
We have entered into an indemnification agreement with each of our directors and senior executives. These agreements provide for us to, among other things, indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses incurred 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 policy we choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under applicable indemnification rights statutes in the State of Delaware and are in addition to any other rights such person may have under our partnership agreement and the operating agreement of our general partner, and applicable law. We believe these indemnification agreements enhance our ability to attract and retain knowledgeable and experienced executives and independent, non-management directors.
 
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Board of Directors Report
The Board of Directors of the general partner of the Partnership does not have a separate compensation committee. Executive compensation is determined 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 annual report on Form 10-K. Based on that review and discussion, the Board of Directors recommends that the Compensation Discussion and Analysis be included in the Partnership’s annual report on Form 10-K for the year ended September 30, 2010.
Paul A. Vermylen, Jr.
Daniel P. Donovan
Henry D. Babcock
C. Scott Baxter
Bryan H. Lawrence
Sheldon B. Lubar
William P. Nicoletti
Executive Compensation Table
The following table sets forth the annual salary compensation, bonus and all other compensation awards earned and accrued by the named executive officers in the fiscal year.

 	  	Summary Compensation Table	 	 	
Name and Principal Position	  	Fiscal
Year	 	  	Salary	 	  	Bonus	 	  	Unit
Awards	 	  	Option
Awards	 	  	Non-
Equity
Incentive
Plan
Comp.	 	  	Change in
Pension
Value and
Nonqualified
Deferred
Comp.
Earnings(1)	 	 	All Other
Comp.(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 Vice President	  	 	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 named executive’s pension values are non-cash, and reflect normal adjustments resulting from changes in discount rates and government mandated mortality tables.	
 
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(2)	All other compensation is subdivided as follows:	

Name	  	Long Term
Management
Compensation
Plan(s)	 	  	Company Match and
Core Contribution to
401 (K) Plan ($)	 	  	Car Allowance or
Monetary Value for
Personal Use of
Company Owned
Vehicle ($)	 	  	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 Awards
None
Outstanding Equity Awards at Fiscal Year-End
None
Option Exercises and Stock Vested
None
Pension Plans Pursuant to Which Named Executive Officers Have an Accumulated Benefit But Are Not Currently Accruing Benefits

Name	  	Plan Name	  	Number of Years
Credited Service	 	  	Present Value of
Accumulated Benefit	 	  	Payments During
Last Fiscal Year	 	
Daniel P. Donovan	  	Retirement Plan	  	 	21	  	  	$	790,834	  	  	$	—  	  	
Richard F. Ambury	  	Retirement Plan	  	 	13	  	  	$	152,457	  	  	$	—  	  	
 	  	Supplemental Employee

Retirement Plan	  	 	—  	  	  	$	29,177	  	  	$	—  	  	
Steven J. Goldman	  	Retirement Plan	  	 	—  	  	  	$	—  	  	  	$	—  	  	
Richard G. Oakley	  	Retirement Plan	  	 	19	  	  	$	232,760	  	  	$	—  	  	
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
None
Potential Payments upon Termination
If Mr. Donovan’s employment is terminated by the Partnership for reasons other than for cause or if Mr. Donovan terminates his employment for good reason 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 control which is discussed above under “Change in Control Agreements.” For 12 months following the termination of his employment, Mr. Donovan is prohibited from 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 or propane 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 be entitled 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 the Partnership 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 good reason, he will be entitled to receive one-years salary as severance. For 12 months following the termination of his employment, Mr. Goldman is prohibited from 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 or propane 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 months following the termination of his employment, Mr. Oakley is prohibited from 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 or propane on a retail basis.
 
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The amounts shown in the table below assume that the triggering event for each named executive officer’s termination or change in control payment was 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 only be determined at the time of such named executive officer’s termination of employment or the Partnerships’ change of control.

Name	  	Potential Payments
Upon Termination	 	  	Potential Payments
Following
a 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 twelve months following the termination of their employment.
Compensation of Directors

 	  	Director Compensation Table	 	
Name	  	Fees
Earned
or Paid
in Cash	 	  	Unit
Awards	 	  	Option
Awards	 	  	Non-Equity
Incentive
Plan
Compensation	 	  	Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (6)	 	  	All Other
Compensation	 	  	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 additional benefits under the frozen plan. The change in the pension value reflects normal non-cash adjustments resulting from changes in discount rates and government 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 the Audit Committee receives an annual fee of $12,000 while other Audit Committee members receive an annual fee of $6,000. Each member of the Audit Committee receives $1,500 for every regular and telephonic meeting attended. The non-executive chairman of the Board receives an annual fee of $120,000.
 
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ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	
The 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 to which 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 may be deemed to have beneficial ownership of the common units.	
*	Amount represents less than 1%.	
 
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	
The Partnership has a written conflict of interest policy and procedure that requires all officers, directors and employees to report to senior corporate management or the board of directors, all personal, financial or family interest in transactions that involve the individual and the Partnership. In addition, the Partnership Governance Guidelines provide that any monetary arrangement between a director and his or her affiliates (including any member of a director’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.
The general partner does not receive any management fee or other compensation for its management of the Partnership. The general partner is reimbursed for all expenses incurred on behalf of the Partnership, including the cost of compensation, which is properly allocable to the Partnership. The Partnership’s partnership agreement provides that the general partner shall determine the expenses that are allocable to the Partnership in any reasonable manner determined by the general partner in its sole discretion. In addition, the general partner and its affiliates may provide services to the Partnership for which 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, Lawrence and Lubar are also members of the board of managers of Kestrel and, either directly or through affiliated entities, own equity interests in Kestrel. Kestrel owns all of the issued and outstanding membership interests of Kestrel Heat and KM2, LLC, a Delaware limited liability company (“M2”).
 
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Policies Regarding Transactions with Related Persons
Our Code of Business Conduct and Ethics, Partnership Governance Guidelines and Partnership Agreement set forth policies and procedures with respect to transactions with persons affiliated with the Partnership and the resolution of conflicts of interest, which taken together provide the Partnership with 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 of regulation 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 a director’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 employees and 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, the Board intends to utilize the procedures set forth in the Partnership Agreement for the review and approval of potential conflicts of interest. Our Partnership Agreement 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 in respect of such conflict of interest shall be permitted and deemed approved by all partners, and shall not constitute a breach of the Partnership Agreement, of any 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 the Partnership 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 such conflict of interest or resolution is (i) approved by a committee of independent directors (the “Conflicts Committee”), (ii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) fair to the Partnership, taking into account the totality of the relationships between the parties involved (including other ,  transactions that may be particularly favorable or advantageous to the Partnership).
The General Partner (including the Conflicts Committee) is authorized in connection with its determination of what is “fair and reasonable” to the Partnership and in connection with its resolution of any conflict of interest to consider:
 
 	(A)	the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest;	
 
 	(B)	any customary or accepted industry practices and any customary or historical dealings with a particular person;	
 
 	(C)	any applicable generally accepted accounting practices or principles; and	
 
 	(D)	such additional factors as the General Partner (including the Conflicts Committee) determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances.	
 
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ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	
The following table represents the aggregate fees for professional audit services rendered by KPMG LLP including fees for the audit of the Partnership’s annual financial statements for the fiscal years 2010 and 2009, and for fees billed and accrued for other services rendered by KPMG LLP (in thousands).

 	  	2010	 	  	2009	 	
Audit Fees(1)	  	$	1,555	  	  	$	1,510	  	
Tax Fees(2)	  	 	426	  	  	 	481	  	
 	  	 	 	 	  	 	 	 	
Total Fees	  	$	1,981	  	  	$	1,991	  	

(1)	Audit fees were for professional services rendered in connection with audits and quarterly reviews of the consolidated financial statements of the Partnership	
(2)	Tax fees related to services for tax consultation and tax compliance.	
Audit Committee: Pre-Approval Policies and Procedures. At its regularly scheduled and special meetings, the Audit Committee of the Board of Directors considers and pre-approves any audit and non-audit services to be performed by the Partnership’s independent accountants. The Audit Committee has delegated to its chairman, an independent member of the Partnership’s Board of Directors, the authority to grant pre-approvals of non-audit services provided that 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 that were not pre-approved.
PART IV
 
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	
1. Financial Statements
See “Index to Consolidated Financial Statements and Financial Statement Schedule” set forth on page F-1.
2. Financial Statement Schedule.
See “Index to Consolidated Financial Statements and Financial Statement Schedule” set forth on page F-1.
3. Exhibits.
See “Index to Exhibits” set forth on the following page.
 
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INDEX TO EXHIBITS

Exhibit
Number	  	Incorp by
Ref. 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, LLC	
 	 	 	
10.3	  	99.2(2)	  	Indenture dated as of April 28, 2006 for the new senior notes due 2013	
 	 	 	
10.4	  	99.3(2)	  	Amended and Restated Indenture dated as of April 28, 2006 for the existing senior notes due 2013	
 	 	 	
10.5	  	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 Petro Holdings, 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.	
 
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Exhibit
Number	  	Incorp by
Ref. to Exh.	  	Description	
10.18	  	*	  	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 Ethics	
 	 	 	
21    	  	*	  	Subsidiaries of the Registrant	
 	 	 	
31.1  	  	*	  	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 the Commission 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 the Commission 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 the Commission 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.	
 
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the General Partner has duly caused this report to be signed on its behalf by the undersigned 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 Officer	
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated:

Signature	 	  	  	Title	  	 	  	Date	
 	 	 	 	 	
/s/ Daniel P. Donovan
Daniel P. Donovan	 	 	  	President and Chief Executive Officer
and Director Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ Richard F. Ambury
Richard F. Ambury	 	 	  	Chief Financial Officer
(Principal Financial Officer)
Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ Richard G. Oakley
Richard 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 Board
and Director Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ Henry D. Babcock
Henry D. Babcock	 	 	  	Director
Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ C. Scott Baxter
C. Scott Baxter	 	 	  	Director
Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ Bryan H. Lawrence
Bryan H. Lawrence	 	 	  	Director
Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ Sheldon B. Lubar
Sheldon B. Lubar	 	 	  	Director
Kestrel Heat, LLC	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ William P. Nicoletti
William P. Nicoletti	 	 	  	Director
Kestrel Heat, LLC	  	 	  	December 9, 2010	
 
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

STAR GAS FINANCE COMPANY	
By:	 	(Registrant)	
 	 	
By:	 	/s/ Daniel P. Donovan	
 	 	Daniel P. Donovan	
 	 	President and Chief Executive Officer	
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated:

Signature	  	 	  	Title	  	 	  	Date	
 	 	 	 	 	
/s/ Daniel P. Donovan
Daniel P. Donovan	  	 	  	President, Chief Executive Officer and
Director
(Principal Executive Officer)
Star Gas Finance Company	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ RICHARD F. AMBURY
Richard F. Ambury	  	 	  	Chief Financial Officer
(Principal Financial Officer)
Star Gas Finance Company	  	 	  	December 9, 2010	
 	 	 	 	 	
/s/ RICHARD G. OAKLEY
Richard G. Oakley	  	 	  	Vice President—Controller
(Principal Accounting Officer)
Star Gas Finance Company	  	 	  	December 9, 2010	
 
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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND 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 financial statements or the notes therein.	  	 	 	 	
 
F-1

Table of Contents
Report of Independent Registered Public Accounting Firm
The 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 years in the three-year period ended September 30, 2010. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedules I and II listed in the accompanying index. We also have audited the Partnership’s internal control over financial reporting as of September 30, 2010, based on criteria established in  Internal Control – Integrated Framework  issued by the Committee of Sponsoring Organizations of the Treadway 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 these consolidated financial statements and financial statement schedules and an opinion on the Partnership’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we 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 financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal 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 as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of 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 period ended September 30, 2010, in conformity with U.S. generally accepted accounting principles. In addition, in our opinion, the related financial statement schedules I and II listed in the accompanying index, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Also in our opinion, Star Gas Partners, L.P. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010, based on criteria established in  Internal Control – Integrated Framework  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 the effectiveness of the Partnership’s internal control over financial reporting as of September 30, 2010, CEC’s internal control over financial reporting associated with total assets of $74 million (of which $52 million represents goodwill and intangibles included within the scope of the assessment) and total revenues of $25 million included in the consolidated financial statements of the Partnership as of and for the year ended September 30, 2010. Our audit of internal control over financial reporting of Star Gas Partners, L.P. also excluded an evaluation of the internal control over financial reporting of Champion Energy Corporation.
KPMG LLP
Stamford, Connecticut
December 9, 2010
 
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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED 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.
 
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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED 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.
 
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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME (LOSS)
Years Ended September 30, 2010, 2009 and 2008

 	  	Number of Units	 	  	 	 	 	 	 	 	 	 	 	 	 	
(in thousands)	  	Common	 	 	General
Partner	 	  	Common	 	 	General
Partner	 	 	Accum. Other
Comprehensive
Income (Loss)	 	 	Total
Partners’
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.
 
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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED 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.
 
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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Partnership Organization
Star Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a home heating oil distributor and services provider with one reportable operating segment that principally provides services to residential and commercial customers to heat their homes and buildings. Star Gas Partners is a master limited partnership, which at September 30, 2010, had outstanding 67.1 million common units (NYSE: “SGU”) representing 99.5% limited partner interest 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”). The Board 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 an indirect wholly-owned subsidiary of the Partnership. Petro is a Northeast and Mid-Atlantic region retail distributor of home heating oil that at September 30, 2010 served approximately 404,000 full-service residential and commercial home heating oil customers, and 10,000 propane customers. 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 and severally with the Partnership, of its September 30, 2010 $82.5 million 10.25% Senior Notes (excluding discounts and premiums) due 2013, that on 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 its subsidiaries to service the Partnership’s debt obligations. The distributions from the Partnership’s subsidiaries are not guaranteed and are subject to certain loan restrictions. Star Gas Finance Company has nominal assets and conducts no business operations. (See Note 10—Long-Term Debt and Bank Facility Borrowings)	
2) Common Unit Repurchase and Retirement
On 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’s common units (“Plan I”). By the third fiscal quarter of 2010, all 7.5 million common units authorized for repurchase under the Plan I program were repurchased at an average price paid per unit of $4.04 and retired. The Partnership’s repurchase activities took into account SEC safe harbor rules and guidance 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’s common units (“Plan II”). The authorized common unit repurchases may be made from time-to-time in the open market, in privately negotiated transactions or in such other manner deemed appropriate by management. In order to facilitate the repurchase program, the Partnership entered into a prearranged unit 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 no guarantee of the exact number of units that will be purchased under the program and the Partnership may discontinue purchases at any time. The program does not have a time limit. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the common units purchased in the repurchase program will be retired.
 
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(in thousands, except per unit amounts)

Period	  	Total Number of Units
Purchased as Part of a
Publicly Announced Plan or
Program	 	  	Average Price
Paid per Unit (a)	 	  	Maximum Number of Units
that May Yet Be Purchased
Under 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 Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of Star Gas Partners, L.P. and its subsidiaries. All material intercompany items and transactions have been eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
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Revenue Recognition
Sales 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 conditioning equipment are recognized at the time of installation. Revenue from repairs and maintenance service is recognized upon completion of the service. Payments received 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 contractual obligations under its service maintenance contracts will exceed the amount of deferred revenue currently attributable to these contracts, the Partnership recognizes a loss in current period earnings equal to the amount that anticipated future costs exceed related deferred revenues.
Cost of Product
Cost of product includes the cost of heating oil, diesel, propane, kerosene, heavy oil, gasoline, throughput costs, barging costs, option costs, and realized gains/losses on closed derivative positions for product sales.
Cost of Installations and Service
Cost of installations and service includes equipment and material costs, wages and benefits for equipment technicians, dispatchers and other support personnel, subcontractor expenses, commissions and vehicle related costs.
Delivery and Branch Expenses
Delivery and branch expenses include wages and benefits and department related costs for drivers, dispatchers, mechanics, customer service, sales and marketing, compliance, credit and branch accounting, information technology and operational support.
General and Administrative Expenses
General and administrative expenses include wages and benefits and department related costs for human resources, finance and accounting, administrative support and insurance.
Allowance for Doubtful Accounts
The Partnership periodically reviews past due customer accounts receivable balances. After giving consideration to economic conditions, overdue status 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 their respective 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 Unit
Income 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 forma nature of the allocation required by this standard provides that in any accounting period where the Partnership’s aggregate net income exceeds its aggregate distribution 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 does not impact the Partnership’s overall net income or other financial results. However, for periods in which the Partnership’s aggregate net income exceeds its aggregate distributions for such period, it will have the impact of reducing the earnings per limited partner unit, as the calculation according to this standard results in a theoretical increased allocation of undistributed earnings to the general partner. In accounting periods where aggregate net income does not exceed aggregate distributions for such period, this standard does not have any impact on the Partnership’s net income per limited partner unit calculation. A separate and independent calculation for each quarter and year-to-date period is required.
 
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Until 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 exceed the aggregate distributions.
Cash, Accounts Receivable, Notes Receivable, Revolving Credit Facility Borrowings, and Accounts Payable
The carrying amount of cash, accounts receivable, notes receivable, revolving credit facility borrowings, and accounts payable approximates fair value because of the short maturity of these instruments.
Cash Equivalents
The Partnership considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents.
Inventories
Heating oil and other fuels inventory are stated at the lower of cost or market using the weighted average cost method of accounting. All other inventories, representing parts and equipment are stated at the lower of cost or market using the FIFO method.
Property, and Equipment
Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-line method.
Goodwill and Intangible Assets
Goodwill and intangible assets include goodwill, customer lists and covenants not to compete.
Goodwill is the excess of cost over the fair value of net assets in the acquisition of a company. 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. Also in accordance with this standard, intangible assets with definite useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. The Partnership performs its annual impairment review during its fiscal fourth quarter or more frequently if events 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 a straight-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, trade names 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 a straight-line basis, which are generally five years.
Business Combinations
The Partnership uses the acquisition method of accounting in accordance to FASB ASC 805 Accounting for Business Combinations and Noncontrolling Interests. The acquisition method of accounting requires the Partnership to use significant estimates and assumptions, including fair value estimates, as of the business combination date, and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which the amounts recognized for a business combination may be adjusted). Each acquired company’s operating results are included in the Partnership’s consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of consideration transferred. Tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition, are recorded at the acquisition date fair value. The separately identifiable intangible assets generally are comprised of customer lists, trade names and covenants not to compete. Goodwill is recognized 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 of consideration transferred, and are charged to general and administrative expense as they are incurred. For any given acquisition, certain contingent consideration may be identified. Estimates of the fair value of liability or asset classified contingent consideration are included under the acquisition method as part of the assets acquired or liabilities assumed. At each reporting date, these estimates are remeasured to fair value, with changes recognized in earnings.
 
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Impairment of Long-lived Assets
The 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 of such assets may not be recoverable. The Partnership determines whether the carrying values of such assets are recoverable over their remaining estimated lives through undiscounted future cash flow analysis. If such a review should indicate that the carrying amount of the assets is not recoverable, the Partnership will reduce the carrying amount of such assets to fair value.
Deferred Charges
Deferred 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 Expenses
Advertising and direct mail costs are expensed as they are incurred. Advertising and direct mail expenses were $9.6 million, $8.4 million, and $7.2 million in 2010, 2009, and 2008, respectively and are recorded in delivery and branch expenses.
Customer Credit Balances
Customer credit balances represent payments received in advance from customers pursuant to a balanced payment plan (whereby customers pay on a fixed monthly basis) and the payments made have exceeded the charges for heating oil deliveries.
Environmental Costs
Costs associated with managing hazardous substances and pollution are expensed on a current basis. Accruals are made for costs associated with the remediation of environmental pollution when it becomes probable that a liability has been incurred and the amount can be reasonably estimated.
Insurance Reserves
The Partnership accrues for workers’ compensation, general liability and automobile claims not covered under its insurance policies and establishes estimates based upon actuarial assumptions as to what its ultimate liability will be for these claims.
Income Taxes
The Partnership is a master limited partnership and is not subject to tax at the entity level for Federal and State income tax purposes. Rather, income and losses of the Partnership are allocated directly to the individual partners. While the Partnership will generate non-qualifying Master Limited Partnership revenue, distributions from the corporate subsidiaries to the Partnership are generally included in the determination of qualified Master Limited Partnership income. 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 State income 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 income taxes. For corporate subsidiaries of the Partnership, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if, based on the weight of available evidence including 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 Taxes
Taxes are assessed by various governmental authorities on many different types of transactions. Sales reported for product, installation and service excludes taxes.
 
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Derivatives and Hedging
The Financial Accounting Standards Board (“FASB”) 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 sheet as assets or liabilities. 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. Currently, the Partnership has elected not to designate its derivative instruments as hedging instruments under this standard, and the change in fair value of the derivative instruments are recognized in our statement of operations.
Weather Hedge Contract
Weather 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 each interim period.
Recent Accounting Pronouncements
In fiscal 2010, the Partnership adopted the revised provisions of FASB ASC 805-10 Business Combinations. This standard establishes in a business combination 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 of Financing Receivables and the Allowance for Credit Losses. This standard requires companies to improve their disclosures 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 the first quarter of fiscal 2011. The Partnership is currently assessing the impact of the disclosure requirements.
4) Quarterly Distribution of Available Cash
The Partnership agreement provides that beginning October 1, 2008, minimum quarterly distributions on the common units will start accruing at the rate 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 us before 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 the manner 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 cash reserves 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 minimum quarterly 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 distribution of $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 the Partnership 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 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 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.
 
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5) Derivatives and Hedging—Disclosures and Fair Value Measurements
The Partnership uses derivative instruments such as futures, options, and swap agreements, in order to mitigate exposure to market risk associated with the 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 of September 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 a notional 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 value of $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 of synthetic 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-protected customers, its physical inventory on hand, and inventory in transit, the Partnership as of September 30, 2010 had 0.3 million gallons of future contracts to buy 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 a notional 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 $48.7 million 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 of swap 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 diesel with 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 of September 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 $0.5 million; 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 gallons of 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 a notional 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-month differentials for our price-protected customers, its physical inventory on hand, and inventory in transit, the Partnership as of September 30, 2009 had 6.2 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 of future 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 sell heating 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 of September 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 and 1.5 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 assesses counterparty credit risk and maintains master netting arrangements with its counterparties to help manage the risks, and records its derivative positions on a net basis. Based on its assessment, the Partnership considers counterparty credit risk to be low. At September 30, 2010, the aggregate cash posted as collateral in 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 be recorded at fair value and included in the consolidated balance sheet as assets or liabilities, along with qualitative disclosures regarding the derivative activity. 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 elected not to designate its derivative instruments as hedging instruments under this standard and the change in fair value of the derivative instruments is recognized in 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 of product.
FASB ASC 820-10 Fair Value Measurements and Disclosures topic, established a three-tier fair value hierarchy, which classified the inputs used in measuring 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 in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Partnership’s Level 1 derivative assets and liabilities represent the fair value of commodity
 
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contracts used in its hedging activities that are identical and traded in active markets. The Partnership’s Level 2 derivative assets and liabilities represent the fair value of commodity contracts used in its hedging activities that are valued using either directly or indirectly observable inputs, whose nature, risk and class 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 were non-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. The Partnership’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 Hedging
Instruments Under FASB ASC 815-10	  	Balance Sheet Location	  	Total	 	 	Quoted Prices in
Active Markets for
Identical Assets
Level 1	 	 	Significant Other
Observable Inputs
Level 2	 	 	Significant
Unobservable
Inputs
Level 3	 	
Asset Derivatives at September 30, 2010	 	
Commodity contracts	  	Fair asset and fair liability value of derivative instruments	  	$	11,991	  	 	$	29	  	 	$	11,962	  	 	$	—  	  	
Commodity contracts	  	Long-term derivative assets included in the deferred charges and other assets, net balance	  	 	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 value of 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 value of derivative instruments	  	$	23,867	  	 	$	3,875	  	 	$	19,992	  	 	$	—  	  	
Commodity contracts	  	Long-term derivative assets included in the deferred charges and other assets, net balance	  	 	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 value of derivative instruments	  	$	(9,856	) 	 	$	(3,986	) 	 	$	(5,870	) 	 	$	—  	  	
 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commodity contract liabilities at September 30, 2009	  	$	(9,856	) 	 	$	(3,986	) 	 	$	(5,870	) 	 	$	—  	  	

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(In thousands)	  	 	  	 	 	 	 	 	 	 	 	
 	
The Effect of Derivative Instruments on the Statement of Operations	 	
 	  	 	  	Amount of (Gain) or Loss Recognized	 	
Derivatives Not Designated
as Hedging Instruments
Under FASB ASC 815-10	  	Location of (Gain) or Loss
Recognized in Income on Derivative	  	Twelve Months  Ended
September 30, 2010	 	 	Twelve Months  Ended
September 30, 2009	 	 	Twelve Months  Ended
September 30, 2008	 	
Commodity contracts	  	Cost of product (a)	  	$	22,942	  	 	$	79,846	  	 	$	(10,591	) 	
Commodity contracts	  	(Increase) / decrease in the fair value of derivative instruments	  	$	(5,622	) 	 	$	(13,690	) 	 	$	25,467	  	
 
(a)	Represents realized closed positions and includes the cost of options as they expire.	
6) Inventories
The 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. All other inventories, representing parts and equipment are stated at the lower of cost or market using the FIFO method. The components of inventory were as follows (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 expects to 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 during fiscal 2010.
7) Property and Equipment
The 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.
 
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8) Goodwill and Other Intangible Assets
Goodwill
Under FASB ASC 350-10-05 Intangibles-Goodwill and Other topic, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds 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 the net 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 Income Approach and Market Approach (consisting of the Market Comparable and the Market Transaction Approach), which contain reasonable and supportable assumptions and projections reflecting management’s best estimate in deriving the Partnership’s total enterprise value. The Income Approach calculates over a discrete period the free cash flow generated by the Partnership to determine the enterprise value. The Market Comparable approach compares the Partnership to comparable companies in similar industries to determine the enterprise value. The Market Transaction approach uses exchange prices in actual sales 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 the Partnership’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 was determined 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 by actual results that are materially different from projected amounts. To provide for a sensitivity of the discount rates and transaction multiples used, ranges of high 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 cause the 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, net
Intangible assets subject to amortization consist of the following (in thousands):

 	  	September 30, 2010	 	  	September 30, 2009	 	
 	  	Gross
Carrying
Amount	 	  	Accum.
Amortization	 	  	Net	 	  	Gross
Carrying
Amount	 	  	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	  	
 
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9) Accrued Expenses and Other Current Liabilities
The 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 Borrowings
The Partnership’s debt at September 30, 2010 and 2009 is as follows (in thousands):

 	  	At September 30, 2010	 	  	At September 30, 2009	 	
  	  	Carrying
Amount	 	  	Estimated
Fair Value (a)	 	  	Carrying
Amount	 	  	Estimated
Fair 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 and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.	
 
(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 and August 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 notes are 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 dated as of April 28, 2006, these notes permit restricted payments of $22 million, permit the Partnership to incur debt up to $60 million for acquisitions without 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 $1.1 million.
On November 16, 2010 the 10.25% Senior Notes were called at a redemption price of 101.708% plus any accrued but unpaid interest thereon with 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 similar covenants 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 syndication comprised 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 limitations and coverage ratios), including the issuance of up to $100 million in letters of credit. The Partnership can increase the facility size by $50 million without 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 the increase, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. The interest rate 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% (if availability is greater than $75 million but less than $150 million), or 4.00% (if availability is less than or equal to $75 million). The unused commitment 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 that updated the consolidated fixed charges defined term.
 
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In May 2010, the Partnership entered into a second amendment to the amended and restated asset based revolving credit facility agreement that updated the capitalized defined term.
In November 2010, the Partnership entered into a third amendment to the amended and restated asset based revolving credit facility agreement that 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 letters of credit were issued, respectively.
Obligations under the revolving credit facility are secured by liens on substantially all assets and are guaranteed by the Partnership. The revolving credit facility imposes certain restrictions on the Partnership, including restrictions on its ability to incur additional indebtedness, to pay distributions to its unitholders, to pay inter-company dividends or distributions, make investments, grant liens, sell assets, make acquisitions and engage in certain other activities. The revolving credit facility also requires the Partnership to maintain certain financial ratios, and contains borrowing conditions and customary events of default, including nonpayment of principal or interest, violation of covenants, inaccuracy of representations and warranties, cross-defaults to other indebtedness, bankruptcy and other insolvency events. The occurrence of an event of default or an acceleration under the revolving credit facility would result in the Partnership’s inability to obtain further borrowings under that facility, which could adversely affect 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 interest or 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 amounts borrowed 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. In addition, 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 its minimum 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 relevant covenant 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 was in compliance with the fixed charge coverage ratio. Restricted net assets are assets of the Partnership in its subsidiaries that any distribution or transfer of 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 fixed charge coverage ratio.
As of September 30, 2010, the maturities including working capital borrowings during fiscal years ending September 30, are set forth in the following 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 on November 16, 2010.	
11) Business Combinations
During fiscal 2010, the Partnership acquired five retail heating oil dealers. The aggregate purchase price was approximately $68.8 million, including working 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 by working 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.
 
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The following table summarizes the preliminary fair values and purchase price allocation at the acquisition dates, of the assets acquired and liabilities assumed related to acquisitions made as of September 30, 2010. These values are preliminary pending final valuation of intangibles, certain deferred tax assets 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 be collected is $2.6 million.	
The total costs related to these acquisitions were included in the Consolidated Statement of Operations under general and administrative expenses and were $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 the ability 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 aggregate were not material to the Partnership. Each acquired company’s operating results are included in the Partnership’s consolidated financial statements starting on 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 pursuant to which it acquired 100% of the capital stock of Champion for a purchase price of approximately $50.1 million plus working capital of approximately $7.5 million (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 serves over 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 was determined by management and primarily represents the costs to remediate a Champion facility. An estimated range of the remediation costs is expected to be between $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 through September 30, 2010.
The following table provides unaudited pro forma results of operations as if the Champion acquisition had occurred on October 1, 2008. The unaudited pro forma results were prepared using Champion’s current and prior year financial information, reflecting certain adjustments related to the acquisition, such as the elimination of select nonrecurring charges, and changes to administrative, interest and depreciation and amortization expenses. These pro forma adjustments do not include any potential synergies related to combining the businesses. Accordingly, such pro forma operating results were prepared for comparative 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 results that may occur in the future.
 
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 	  	September 30,	 	
(in thousands)	  	2010	 	  	2009	 	
Net sales	  	$	1,328,786	  	  	$	1,331,159	  	
Net income	  	 	34,135	  	  	$	134,801	  	
12) Employee Benefit Plans
Defined Contribution Plans
The Partnership has a 401(k) plan which covers eligible non-union and union employees. Subject to IRS limitations, the 401(k) plan provides for each participant 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 of 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 matches 2/3 of each amount a participant contributes up to a maximum of 2.0% of a participant’s compensation. The Partnership’s aggregate contributions to the 401(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 Plan
The Partnership has a Long-Term Management Incentive Plan (see Item 11. Executive Compensation). The long-term compensation structure is intended to align the employee’s performance with the long-term performance of our unitholders. 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 unit otherwise 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 the Partnership 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 2010 Compensation Decisions - Long-Term Management Incentive Plan.” The amount paid in Incentive Distributions is governed by the partnership agreement and 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 plan participants. For accounting purposes, amounts payable to management under this Plan will be treated as compensation and will reduce net income. Kestrel Heat 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 by the 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 from time 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 payments will 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 Directors reserves the right to adjust the amount of Incentive Distributions to be allocated to the Bonus Pool if in its judgment extenuating circumstances warrant adjustment 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 received 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 its General Partner Units within the next twelve months. Thus the Plan’s value attributable to the Gains Interest currently cannot be determined.
 
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Union-Administered Pension Plans
The Partnership’s contributions to union-administered pension plans were $7.7 million for fiscal 2010, $7.2 million for fiscal 2009, and $6.9 million for fiscal 2008. Some of these union administered pension plans have significant unfunded liabilities, a portion of which could be assessed to the Partnership should we withdraw from these plans. The Partnership does not expect to withdraw from these plans.
Defined Benefit Plans
The 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.
 
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The following table provides the net periodic benefit cost for the period, a reconciliation of the changes in the Plan assets, projected benefit obligations, and the amounts recognized in other comprehensive income and accumulated other comprehensive income at the dates indicated using a measurement date of September 30:

(in thousands) Debit / (Credit)	  	Net Periodic
Pension
Cost in
Income
Statement	 	 	Cash	 	 	Fair
Value of
Pension
Plan
Assets	 	 	Projected
Benefit
Obligation	 	 	Other
Comprehensive
Income	 	 	Gross Pension
Related
Accumulated
Other
Comprehensive
Income	 	
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	) 	 	 	 	 	 	 	 	 	

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At September 30, 2010 and 2009, $16.6 million and $24.7 million respectively, were included in the other long-term liabilities amount on the balance sheet.
The $33.2 million net actuarial loss balance for the two frozen defined benefit pension plans in accumulated other comprehensive income will be recognized and amortized into net periodic pension costs as an actuarial loss in future years. The estimated amount that will be amortized from accumulated other 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 period indicated	  	 	 	 	 	 	 	 	 	 	 	 	
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 plan assets 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, historical returns on the types of assets held, and the current economic environment. Based on these factors, beginning in fiscal year 2011, the Partnership expects its pension 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 the Partnership 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 maximize return within reasonable and prudent levels of risk in order to minimize contributions and charges to the profit and loss statement, and to control costs of administering 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 in market 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	 	  	Concentration
Percentage	 	
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 years thereafter will aggregate approximately $21.5 million.
 
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13) Income Taxes
Income 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 using current 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 $51.7 million. The Federal NOLs, which will expire between 2018 and 2024, are generally available to offset any
 
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future taxable income. In general, the Partnership would be deemed to have an “ownership change” under Section 382 if, immediately after any owner shift involving a 5% unitholder or any equity structure shift, 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 of the Partnership (or any predecessor entity) owned by such unitholder at any time during the three-year testing 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 the Partnership’s Net Operating Loss Carry forwards (“NOLs”) for Federal income tax purposes by adding provisions which would have the effect of deterring any person or group from acquiring more than 5% (reduced from 15% prior to the amendment) of the Partnership’s issued and outstanding common units. The amendment also discouraged existing 5% or greater unitholders (including the General Partner) from acquiring additional common units equal to 1% or more of the outstanding common units. A person or group that acquires units in excess of these amounts would be subject to substantial dilution under the Rights Agreement. In May 2009, the Partnership entered into a further amendment to its Amended and Restated Unit Purchase Rights Agreement to amend the definition 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 taxes and 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 would be 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. Our continuing 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 audited and 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 difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, based on our assessment of many factors including past experience and interpretation of tax law, we believe that our provision for income taxes reflect the most probable outcome. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.
 
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14) Lease Commitments
The Partnership has entered into certain operating leases for office space, trucks and other equipment. The future minimum rental commitments at September 30, 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 Contingencies
The Partnership’s operations are subject to all operating hazards and risks normally incidental to handling, storing and transporting and otherwise providing 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 in various legal proceedings and litigation arising in the ordinary course of business. The Partnership maintains insurance policies with insurers in amounts and with coverages and deductibles we believe are reasonable and prudent. However, the Partnership cannot assure that this insurance will be adequate to protect it from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices. In the opinion of management the Partnership is not a party to any litigation, which individually or in the aggregate could reasonably be expected to have a material adverse effect on the Partnership’s results of operations, financial position or liquidity.
 
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17) Earnings Per Limited Partner Units
The following table presents the net income allocation and per unit data in accordance with FASB ASC 260-10-45-60 Basic and Diluted Earnings per Share 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 per FASB 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 contractual participation rights of the security to share in earnings, regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective. This allocation does not impact the Partnership’s overall net income or other financial results.	
 
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18) 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 and 45% 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 the quarters 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 of FASB ASC 260-10-45-60 to Master Limited Partners earnings per unit.	
19) Subsequent Events
Quarterly Distribution Declared
On October 26, 2010, the Partnership declared a quarterly distribution of $0.0725 per unit on all common and general partner units, for unitholders of record 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 2017
On 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 will accrue 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 the remaining $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 2013
On 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 the Redemption.
 
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Schedule I
STAR 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 on December 20, 2010 with a portion of the proceeds from the Partnership’s 8.875% $125.0 million Senior Notes issued on November 16, 2010.	
 
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STAR 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	) 	

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STAR 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 Contents
Schedule II
STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended September 30, 2010, 2009 and 2008
(in thousands)

Year	 	Description	  	Balance at
Beginning
of Year	 	  	Charged
to Costs &
Expenses	 	  	Other
Changes
Add (Deduct)	 	 	Balance at
End of Year	 	
2010	 	Allowance for doubtful accounts	  	$	6,267	  	  	$	5,279	  	  	$	(6,103	) (a) 	 	$	5,443	  	
2009	 	Allowance for doubtful accounts	  	$	10,821	  	  	$	10,310	  	  	$	(14,864	) (a) 	 	$	6,267	  	
2008	 	Allowance for doubtful accounts	  	$	7,645	  	  	$	11,961	  	  	$	(8,785	) (a) 	 	$	10,821	  	
 
(a)	Bad debts written off (net of recoveries).	
 
F-32

Exhibit 4.3
AMENDMENT NO. 2 TO
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
STAR 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 in the 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; and
WHEREAS, pursuant to Section 15.1(d)(i) of the Partnership Agreement, and subject to certain exceptions that the General Partner has determined are not applicable in this instance, the General Partner, in its capacity as general partner of the Partnership, is authorized to make amendments to the Partnership Agreement without the approval of any Limited Partner or assignee, so long as the amendments do not adversely affect the Limited Partners in any material respect; and
WHEREAS, the General Partner has determined that the amendments to the Partnership Agreement set forth below do not adversely affect the Limited 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 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 to be mailed to each such Unitholder upon their	

 	request) an annual report containing financial statements of the Partnership for such fiscal year of the Partnership, presented in accordance with generally accepted accounting principles, including a balance sheet and statements of operations, Partners’ equity and cash flows, such statements 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 General Partner 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 to be mailed to each such Unitholder upon their request) a report containing unaudited financial statements of the Partnership and such other information as may be required by applicable law, regulation or rule of any National Securities Exchange on which the Units are listed for trading, or as the 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 Partnership Agreement 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 shall constitute 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 remedies being 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 are determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation 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, LLC	
 	 	
By:	 	/s/ Richard Ambury	
Name:	 	Richard Ambury	
Title:	 	Chief Financial Officer	
 	
LIMITED PARTNERS:	
 	
All limited partners of the Partnership,

pursuant to the Powers of Attorney granted
to the General Partner.	
 	 	
By:	 	KESTREL HEAT, LLC	
 	
General Partner, as attorney-in-fact for all

Limited Partners pursuant to the Powers of
Attorney granted pursuant to Section 1.4 of
the Partnership Agreement	
 	 	
By:	 	/s/ Richard Ambury	
Name:	 	Richard Ambury	
Title:	 	Chief Financial Officer	

Exhibit 10.18
THIRD AMENDMENT
THIRD 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 (as further amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Petroleum Heat and Power Co., Inc., a Minnesota corporation (the “ Borrower ”), the other Loan Parties, JPMorgan Chase Bank, N.A., a national banking association, as an LC Issuer and as the administrative agent (the “ Administrative Agent ”), Bank of America, N.A., as syndication agent and as an LC Issuer, RBS Citizens, N.A., as documentation agent, Société Générale and PNC Bank, National Association, as senior managing agents, and the lenders from time to time party thereto (the “ Lenders ”).
WITNESSETH
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrower;
WHEREAS, the Borrower has requested that the Credit Agreement be amended as set forth herein; and
WHEREAS, 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, the following definitions:
“2010 Note Redemption Date” means the date on which the 2003 Parent Notes and the 2006 Parent Notes are paid, redeemed, defeased or otherwise 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 of November 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 and replacing 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 replacing it 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 and replacing 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, as amended, 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, as amended, 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 “Indentures are” 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 “Indentures are” 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 singular form.
(e) Amendment to Section 5.27 (Subordinated Indebtedness). Section 5.27 of the Credit Agreement is hereby amended by replacing the term “Parent Indentures” 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” immediately before 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 before the 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 as follows:
(i) by amending clause (a) thereof and inserting the year “2010” immediately before the word “Parent” in sub-clause (v) therein and in the proviso thereto.
(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 any principal 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)) and Guaranties)”
(ii) by (A) inserting the word “also” immediately before “(x)” in the first proviso thereto and (B) deleting the phrase “issue Additional Parent Notes pursuant 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 a common equity contribution and (ii) the Parent has provided the Agent with all documents evidencing such Parent Subordinated Debt at least 5 Business 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 been satisfied 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 2006 Parent Notes to the trustee under the 2003 Parent Indenture and the 2006 Parent Indenture, respectively, and the Parent shall have segregated (or caused to be segregated) funds sufficient to pay, redeem, defease or otherwise prepay in full the 2003 Parent Notes and the 2006 Parent Notes, in each case to the satisfaction 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 of the 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 (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all 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 Credit Agreement 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 all respects 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 the Administrative 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 SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY AGREES AS SET FORTH FURTHER IN SECTIONS 16.2 AND 16.3 OF THE CREDIT AGREEMENT AS IF SUCH SECTIONS WERE SET FORTH IN FULL HEREIN.
Amendments; Execution in Counterparts. (p) This Amendment shall not constitute an amendment of any other provision of the Credit Agreement not referred to 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 consent of the Required Lenders or the Administrative Agent. Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain in full 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, the Administrative Agent and the Required Lenders. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, including by means of facsimile or electronic transmission, each of which when so executed and delivered shall be an original, but all of 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 duly authorized officers as of the day and year first above written.

BORROWER:	
 	
PETROLEUM HEAT AND POWER CO., INC.	
 	 	
By:	 	/s/ Richard F. Ambury	
Name:	 	Richard F. Ambury	
Title:	 	Chief Financial Officer, Treasurer & Secretary	
 	
OTHER LOAN PARTIES:	
 	
STAR GAS FINANCE COMPANY	
TG&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 CORPORATION	
MINNWHALE LLC	
ORTEP OF PENNSYLVANIA, INC.	
RICHLAND PARTNERS, LLC	
COLUMBIA PETROLEUM TRANSPORTATION, LLC	
PETRO, INC.	
MAREX CORPORATION	
A.P. WOODSON COMPANY	
CHAMPION ENERGY CORPORATION	
CHAMPION OIL COMPANY	
J.J. SKELTON OIL COMPANY	
RYE FUEL COMPANY	
LEWIS OIL COMPANY, INC.	
C. HOFFBERGER COMPANY	
HOFFMAN FUEL COMPANY OF BRIDGEPORT	
HOFFMAN FUEL COMPANY OF STAMFORD	
HOFFMAN FUEL COMPANY OF DANBURY	
 	 	
By:	 	/s/ Richard F. Ambury	
Name:	 	Richard F. Ambury	
Title:	 	Chief Financial Officer, Secretary and Treasurer	
JPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender

Exhibit 10.21
$125,000,000
STAR GAS PARTNERS, L.P.
STAR GAS FINANCE COMPANY
8.875% Senior Notes due 2017
Purchase Agreement
November 10, 2010
J.P. Morgan Securities LLC
As Representative of the
several Initial Purchasers listed
in Schedule 1 hereto
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
Ladies and Gentlemen:
Star Gas Partners, L.P., a Delaware limited partnership (the “Company”) and Star Gas Finance Company, a Delaware corporation (together with the Company, the “Issuers”), propose to issue and sell to the several initial purchasers listed in Schedule 1 hereto (the “Initial Purchasers”), for whom you are acting as representative (the “Representative”), $125,000,000 principal amount of their 8.875% Senior Notes due 2017 (the “Securities”), for which the Issuers 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 the Issuers 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”), in reliance upon an exemption therefrom. The Issuers have prepared a preliminary offering memorandum dated November 9, 2010 (the “Preliminary Offering Memorandum”) and will prepare an offering memorandum dated the date hereof (the “Offering Memorandum”) setting forth information concerning the Issuers and the Securities. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Issuers to the Initial Purchasers pursuant to the terms of this Agreement. The Issuers hereby confirm that they have authorized the use of the Preliminary Offering Memorandum, the other Time of Sale Information (as defined below) and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers in the manner contemplated by this Agreement. Capitalized terms used but not defined herein shall have the meanings given 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 listed on 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 Registration Rights Agreement, to be dated the Closing Date (as defined below) and substantially in the form attached hereto as Exhibit A (the “Registration Rights Agreement”), 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 the Registration 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 this Agreement, and each Initial Purchaser, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase from the Issuers the respective principal amount of Securities set forth opposite such Initial Purchaser’s name 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 Closing Date. 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 Sale Information. 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 the meaning 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 general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act (“Regulation D”) or in any manner involving 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 offering except:
(A) within the United States to persons whom it reasonably believes to be QIBs in transactions pursuant to Rule 144A under the Securities Act (“Rule 144A”) and in connection with each such sale, it has taken or will take reasonable steps to ensure that the purchaser of the Securities is 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 Initial Purchasers 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 the representations 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 Purchaser and 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 counterparty to the Issuers with respect to the offering of Securities contemplated hereby (including in connection with determining the terms of the offering) and not as financial advisors or fiduciaries to, or agents of, the Issuers or any other person. Additionally, neither the Representative nor any other Initial Purchaser is advising the Issuers or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Issuers shall consult with their own advisors concerning such matters and shall be responsible for making their own independent investigation and appraisal of the transactions contemplated hereby, and neither the Representative nor any other Initial Purchaser shall have any responsibility or liability to the Issuers with respect thereto. Any review by the Representative or any Initial Purchaser of the Issuers and the transactions contemplated hereby or other matters relating to such transactions 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 the Issuers 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, as the 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 the Representative against delivery to the nominee of The Depository Trust Company, for the account of the Initial Purchasers, of one or more global notes representing the Securities (collectively, the “Global Note”), with any transfer taxes payable in connection with the sale of the Securities duly paid by the Issuers. 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 prior to 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 by the 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 a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;  provided  that the Issuers make no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Company in writing by such Initial Purchaser through the Representative expressly for use in the Preliminary Offering 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 their capacity as such) have not prepared, made, used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any written communication that constitutes an offer to sell or solicitation of an offer to buy the Securities (each such communication by the Issuers or their agents and representatives (other than a communication referred to in clauses (i), (ii) and (iii) below) an “Issuer Written Communication”) other than (i) the Preliminary Offering Memorandum, (ii) the Offering Memorandum, (iii) the documents listed on Annex A hereto, including a term sheet substantially in the form of Annex B hereto, which constitute part of the Time of Sale Information, and (iv) any electronic road show or other written communications, in each case used in accordance with Section 4(c). Each such Issuer Written Communication, when taken together with the Time of Sale Information, did not, and at the Closing 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 the light 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 made in each such Issuer Written Communication in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Issuers in writing 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 Offering Memorandum present fairly the financial position of the Company and its subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby; and the other financial information included in each of the Time of Sale Information and the Offering Memorandum has been derived from the accounting records of the Company and its subsidiaries and presents fairly the information 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 Sale Information 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 subsidiaries other than repurchases of common units pursuant to the Company’s publicly announced unit purchase plan, or any dividend or distribution of any kind declared, 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, 2010 and 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 Company nor 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 any liability 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 its subsidiaries 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 case as 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 good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires
 
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such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, 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 a material adverse effect on the business, properties, management, financial position, results of operations or prospects of the Company and its subsidiaries taken as a whole or on the performance by the Issuers of their obligations under the Agreement and the Securities (a “Material Adverse Effect”). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Schedule 2 to this Agreement.
(f) Capitalization. The Company has an authorized capitalization as set forth in each of the Time of Sale Information and the Offering Memorandum under the heading “Capitalization”; and all the outstanding shares of capital stock or other equity interests of each subsidiary of the Company have been duly 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 Amended and 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 time party 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 LC issuer, RBS Citizens, N.A., as documentation agent, Societe Generale and PNC Bank, National Association, as senior managing agents, and J.P. Morgan Securities 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, the Exchange Securities and the Registration Rights Agreement (collectively, the “Transaction Documents”) and to perform their respective obligations hereunder and thereunder; and all action required to be taken for the due and proper authorization, execution and delivery of each of the Transaction Documents 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 terms by each of the parties thereto, will constitute a valid and legally binding agreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability (collectively, the “Enforceability Exceptions”); and on the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), and the rules and regulations of the Commission applicable to an indenture that is qualified thereunder.
 
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(i) The Securities. The Securities have been duly authorized by each of the Issuers and, when duly executed, authenticated, issued and delivered as provided in the Indenture and paid for as provided herein, 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 the Enforceability Exceptions, and will be entitled 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 duly executed, authenticated, issued and delivered as contemplated 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 the 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 the Registration 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 the Issuers and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally 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.
(l) Descriptions of the Transaction Documents. Each Transaction Document conforms in all material respects to the description thereof contained in each 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 organizational documents; (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 or observance of any term, covenant or condition contained in 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 of its subsidiaries is bound or to which any of the property or assets of the Company 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 or governmental 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 the aggregate, have a Material Adverse Effect.
 
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(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, the issuance and sale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated by the 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, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Issuers or any of their respective subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Issuers or any of their respective subsidiaries 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 of their respective subsidiaries is subject, (ii) result in any violation of the provisions of the charter or bylaws or similar organizational documents of the Issuers or 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 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 Material Adverse Effect.
(o) No Consents Required. No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required 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 and sale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for such consents, approvals, authorizations, orders and registrations or qualifications as may be required (i) under applicable state securities laws in connection with the purchase and resale of the Securities by the Initial Purchasers and (ii) with respect to the Exchange Securities under the Securities Act, the Trust Indenture Act and applicable state securities laws as contemplated by the Registration Rights Agreement.
(p) Legal Proceedings. Except as described in each of the Time of Sale Information and the Offering Memorandum, there are no legal, governmental or regulatory 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 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 the Company or any of its subsidiaries, 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 public accountants with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
 
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(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 lease or 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 its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those created pursuant to the Credit Agreement 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 and other 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 subsidiaries have 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 Act to 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 the Offering 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 the application of the proceeds thereof as described in each of the Time of Sale Information and the Offering Memorandum none of them will be, an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations 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 filed through the date hereof; and except as otherwise disclosed in each of the Time of Sale Information and the Offering Memorandum, there is no tax deficiency that 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.
 
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(w) Licenses and Permits. The Company and its subsidiaries possess all licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in each of the Time of Sale Information and the Offering Memorandum; and except as described in each of the Time of Sale Information and the Offering Memorandum, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, certificate, permit or authorization or has any reason to believe that any such license, certificate, permit or authorization will not be renewed in the ordinary course, except where the failure to be in compliance with the foregoing 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 of each 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, the employees of any of the Company’s or any of the Company’s subsidiaries’ principal suppliers, contractors or customers, except as would not have a Material Adverse 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 all applicable federal, state, local and foreign laws, rules, regulations, requirements, decisions and orders relating to the protection of human health or safety, the environment, natural resources, hazardous or toxic substances or wastes, pollutants or contaminants (collectively, “Environmental Laws”), (y) have received and are in compliance with all permits, licenses, certificates or other authorizations or approvals required of them under applicable Environmental Laws to conduct 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 any location, 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 the aggregate, have a Material Adverse Effect; and (iii) except as described in each of the Time of Sale Information and the Offering Memorandum, (x) there are no proceedings that are pending, or that are known to be contemplated, against the Company or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed, (y) the Company and its subsidiaries are not aware of any issues regarding compliance with Environmental Laws, or liabilities or other
 
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obligations under Environmental Laws or concerning hazardous or toxic substances or wastes, pollutants or contaminants, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries, and (z) none of the Company and its 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 of 1974, as amended (“ERISA”), for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (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 or not 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 the Code) 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 million less than the present value of all benefits accrued under such Plans (determined based on those assumptions used to fund such Plans; (v) no “reportable event” (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 of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the 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) of ERISA).
(aa) Disclosure Controls. The Company and its subsidiaries maintain an effective system of “disclosure controls and procedures” (as defined in Rule 13a-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 under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure. The Company and its subsidiaries have carried out evaluations of the effectiveness of their disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act.
 
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(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 respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company and its subsidiaries maintain internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and 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, which insurance 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 engaged and 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 to continue 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 to obtain 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 any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act 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 in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules,
 
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regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to 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 or affiliate 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 the activities 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 other transactions 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 the such Issuer is not less than the total amount required to pay the liabilities of such Issuer on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured; (ii) such Issuer is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business; (iii) assuming consummation of the issuance of the Securities as contemplated by this Agreement, the Time of Sale Information and the Offering Memorandum, each of the Issuers is not incurring debts or liabilities beyond 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 in any business or transaction, for which its property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry 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 would become unable to satisfy.
(hh) No Restrictions on Subsidiaries. Except pursuant to the Credit Agreement, no subsidiary of the Company is currently prohibited, directly or indirectly, 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 other distribution on such subsidiary’s capital stock or similar ownership interest, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s properties or assets to the Company or any other subsidiary of the Company.
 
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(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 (other than 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 like payment 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 exchange registered under Section 6 of the Exchange Act or quoted in an automated inter-dealer quotation system; and each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its respective date, contains or will contain all the information that, if requested by a prospective purchaser of the Securities, 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 with the 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 of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning 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 the Securities 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 Trust Indenture Act.
 
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(nn) No Stabilization. Neither of the Issuers has taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result 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 in each 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 Reserve System 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 the Exchange Act) contained in any of the Time of Sale Information or the Offering Memorandum has been made or reaffirmed without a reasonable basis or has been 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 and accurate 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 as such, to comply in all material respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (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, any other Time of Sale Information, any Issuer Written Communication and the Offering Memorandum (including all amendments and supplements thereto) as the Representative may reasonably request.
(b) Offering Memorandum, Amendments or Supplements. Before finalizing the Offering Memorandum or making or distributing any amendment or supplement to any of the Time of Sale Information or the Offering Memorandum or filing with the Commission any document that will be incorporated by reference therein, the Issuers will furnish to the Representative and counsel for the Initial Purchasers a copy of the proposed Offering Memorandum or such amendment 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.
 
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(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 any governmental or regulatory authority of any order preventing or suspending the use of any of the Time of Sale Information, any Issuer Written Communication or the Offering Memorandum or the initiation or threatening of any proceeding for that purpose; (ii) of the occurrence of any event at any time 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 Written Communication or the Offering Memorandum as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when such Time of Sale Information, Issuer Written Communication or the Offering Memorandum is delivered to a purchaser, not misleading; and (iii) of the receipt by any of the Issuers of any notice with respect 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 such purpose; 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 the Time of Sale Information, any Issuer Written Communication or the Offering Memorandum or suspending any such qualification of the Securities and, if any such 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 the Time of Sale Information as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in 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 or supplement any of the Time of Sale Information to comply with law, the Issuers will immediately notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to any of the Time of Sale Information as may be necessary 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 which they were made, be misleading or so that any of the Time of Sale Information will comply with law.
 
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(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 shall occur or condition shall exist as a result of which the Offering Memorandum as then amended or supplemented would include any untrue statement of a material 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 Offering Memorandum is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Offering Memorandum to comply with law, the Issuers will immediately notify the Initial Purchasers thereof and forthwith prepare and, subject to paragraph (b) above, furnish to the Initial Purchasers such amendments or supplements to the Offering Memorandum as may be necessary so that the statements in the Offering Memorandum as so amended or supplemented will not, in the light of the circumstances existing when the Offering Memorandum is delivered to a purchaser, be misleading or so that the Offering 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 the Representative 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 jurisdiction where 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 to taxation 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 will not, without the prior written consent of the Representative, offer, sell, contract to sell or otherwise dispose of any debt securities issued or guaranteed by any of 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 the Offering 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 the Securities 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 Exchange Act, furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon the request of such holders or such prospective 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 Depository Trust Company (“DTC”).
 
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(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, resell any 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 transaction registered 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 sale of 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 (other than 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 general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D or in any manner involving a public offering within the meaning of Section 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 the offering 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 or result 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 Securities other than (i) the Preliminary Offering Memorandum and the Offering Memorandum, (ii) a written communication that contains no “issuer information” (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Offering Memorandum or the Offering Memorandum, (iii) any written communication listed on Annex A or prepared pursuant to Section 4(c) above (including any electronic road show), (iv) any written communication prepared by such Initial Purchaser and approved by the Company in advance in writing or (v) any written communication relating to or that contains the terms of the Securities and/or other information that was included (including through incorporation by reference) in the Preliminary Offering Memorandum or the Offering Memorandum.
 
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6. Conditions of Initial Purchasers’ Obligations. The obligation of each Initial Purchaser to purchase Securities on the Closing Date as provided herein is 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 date hereof 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 to this 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 shall have occurred in the rating accorded the Securities or any other debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries by any “nationally recognized statistical rating organization”, as such term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act; and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect 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 (other than 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 or condition 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 proceed with 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 the Offering 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 Issuers who has specific knowledge of such Issuer’s financial matters and is satisfactory to the Representative (i) confirming that such officer has carefully reviewed the 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 that the 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 Date and (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 the Issuers, letters, dated the respective dates of delivery thereof and addressed to the Initial Purchasers, in form and substance reasonably satisfactory to the Representative, containing statements and information of the type customarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain
financial information contained in each of the Time of Sale Information and the Offering Memorandum; provided that the letter delivered on the Closing Date shall use a “cut-off” date no more than three business days prior to the Closing Date.
 
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(f) Opinion and 10b-5 Statement of Counsel for the Issuers. Phillips Nizer LLP, counsel for the Issuers, shall have furnished to the Representative, at the request of the Issuers, their written opinion and 10b-5 statement, dated the Closing Date and addressed to the Initial Purchasers, in form and substance reasonably 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 an opinion and 10b-5 statement of Simpson Thacher & Bartlett LLP, counsel for the Initial Purchasers, with respect to such matters as the Representative may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(h) No Legal Impediment to Issuance. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued 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 the Securities.
(i) Good Standing. The Representative shall have received on and as of the Closing Date satisfactory evidence of the good standing of each of the Issuers and their subsidiaries in their respective jurisdictions of organization and their good standing in such other jurisdictions as the Representative may reasonably 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 been executed 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 exist no 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 duly executed amendment to the Credit Agreement as to the matters described under “Description of other indebtedness” in the Time of Sale Information and the Offering Memorandum.
 
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(n) Additional Documents. On or prior to the Closing Date, the Issuers shall have furnished to the Representative such further certificates and documents 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 Existing Notes, 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 the provisions 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, its affiliates, directors and officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum, any of the other Time of Sale Information, any Issuer Written Communication or the Offering Memorandum (or any amendment or supplement thereto) or any omission or 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 were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser furnished to the 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 of their 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 or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph (a) above, but
 
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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 untrue statement or omission made in reliance upon and in conformity with any information relating to such Initial Purchaser furnished to the Issuers in writing by such Initial Purchaser through the Representative expressly for use in the Preliminary Offering Memorandum, any of the other Time of Sale Information, any Issuer Written Communication or the Offering Memorandum (or any amendment or supplement thereto), it being understood and agreed that the only such information 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 brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing;  provided  that the failure 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 it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and  provided ,  further , that the failure to notify the Indemnifying 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 any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to paragraph (a) or (b) above that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expenses of 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 the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in 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, and that all such fees and expenses shall be
 
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reimbursed as they are incurred. Any such separate firm for any Initial Purchaser, its affiliates, directors and officers and any control persons of such Initial Purchaser shall be designated in writing by J.P. Morgan Securities LLC and any such separate firm for the Issuers, their respective directors and officers, and any control persons of the Issuers shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without 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 each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (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 not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are 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 behalf of 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 respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (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 other from 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 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 Initial Purchasers on the other in connection 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 proportions as the net proceeds (before deducting expenses) received by the Issuers from the sale of the Securities and the total discounts and commissions received by the 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 alleged untrue 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 Initial Purchasers 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 7 were 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 that does 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 of the 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 or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Initial Purchaser be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Initial Purchaser with respect to the offering of the Securities exceeds the amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers’ obligations to contribute pursuant to this Section 7 are several in proportion to their respective purchase obligations hereunder and not joint.
(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 otherwise be 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 execution and 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 York Stock 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 any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representative, is material and adverse and makes it impracticable or inadvisable to proceed with 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 the Offering Memorandum.
 
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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 to purchase hereunder, the non-defaulting Initial Purchasers may in their discretion arrange for the purchase of such Securities by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Initial Purchaser, the non-defaulting Initial Purchasers 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 other persons satisfactory to the non-defaulting Initial Purchasers to purchase such Securities on such terms. If other persons become obligated or agree to purchase the Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Issuers may postpone the Closing Date for up to five full business 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 of Sale Information, the Offering Memorandum or in any other document or arrangement, and the Issuers agree to promptly prepare any amendment or supplement to the Time of Sale Information or the Offering Memorandum that effects any such changes. As used in this Agreement, the term “Initial Purchaser” includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 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 unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Issuers shall have the right to require each non-defaulting Initial Purchaser to purchase the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder plus such Initial Purchaser’s  pro rata  share (based on the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder) of the Securities of such defaulting Initial Purchaser 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 unpurchased exceeds 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 this Section 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 forth in Section 10 hereof and except that the provisions of Section 7 hereof shall not terminate and shall remain in effect.
 
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(d) Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Issuers or any non-defaulting Initial Purchaser 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, the Issuers 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 that connection; (ii) the costs incident to the preparation and printing of the Preliminary Offering Memorandum, any other Time of Sale Information, any Issuer Written Communication and the Offering Memorandum (including any amendment or supplement thereto) and the distribution thereof; (iii) the costs of reproducing and distributing each of the Transaction Documents; (iv) the fees and expenses of the Issuers’ counsel and independent accountants; (v) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws of such jurisdictions as the Representative may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related fees and 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 Trustee and any paying agent (including related fees and expenses of any counsel to such parties); (viii) all expenses and application fees incurred in connection with 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 Initial Purchasers or (iii) the Initial Purchasers decline to purchase the Securities for any reason permitted under this Agreement, each of the Issuers jointly and severally agrees to reimburse the Initial Purchasers for all out-of-pocket costs and expenses (including the fees and expenses of their counsel) reasonably incurred 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 respective successors 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 this Agreement or any provision contained herein. No purchaser of Securities from any Initial Purchaser shall be deemed to be a successor merely by reason of such purchase.
 
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12. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Issuers and the Initial Purchasers contained in this Agreement or made by or on behalf of the Issuers or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuant hereto 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 or any 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 forth in 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 in New 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 in Rule 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 on behalf 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 transmitted and confirmed by any standard form of telecommunication. Notices to the Initial Purchasers shall be given to the Representative c/o J.P. Morgan Securities LLC, 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 Star Gas 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 and construed 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 of telecommunication), 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, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.
 
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(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 or interpretation of, this Agreement.
 
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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 Partner	
 	 	
By	 	/s/    Richard F. Ambury	
 	 	Title: CFO	
 	
STAR GAS FINANCE COMPANY	
 	 	
By	 	/s/    Richard F. Ambury	
 	 	Title: CFO	
[Signature Page to Purchase Agreement]

 
 	 	 	
Accepted: November 10, 2010	
 	
J.P. MORGAN SECURITIES LLC	
 	
For itself and on behalf of the
several Initial Purchasers listed
in Schedule 1 hereto.	
 	 	
By	 	/s/ Cornelius J. Droogan	
 	 	Authorized Signatory	
 	 	CORNELIUS J. DROOGAN
Managing 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 2
Subsidiaries
A.P. Woodson Company
Columbia Petroleum Transportation, LLC
Marex Corporation
Meenan Holdings of New York, Inc.
Meenan Oil Co., Inc.
Meenan Oil Co., L.P.
Minnwhale, LLC
Ortep of Pennsylvania, Inc.
Petro Holdings, Inc.
Petro Plumbing Corporation
Petro, Inc.
Petroleum Heat and Power Co., Inc.
RegionOil Plumbing, Heating and Cooling Co., Inc.
Richland Partners, LLC
Star Gas Finance Company
Star Acquisitions, Inc.
TG&E Service Company, Inc.
Champion Energy Corporation
Champion Oil Company
J.J. Skelton Oil Company
Rye Fuel Company
Lewis Oil Company, Inc.
C. Hoffberger Company
Hoffman Fuel Company of Bridgeport
Hoffman Fuel Company of Stamford
Hoffman Fuel Company of Danbury

ANNEX A
a. Additional Time of Sale Information
1. list each document provided as an amendment or supplement to the Preliminary Offering Memorandum
2. Term sheet containing the terms of the securities, substantially in the form of Annex B.

ANNEX B
Pricing Supplement, dated November 10, 2010
to Preliminary Offering Memorandum Dated November 9, 2010
Strictly confidential
Star Gas Partners, L.P.
Star Gas Finance Company
$125,000,000 8.875% Senior Notes due 2017
This Pricing Supplement is qualified in its entirety by reference to the Preliminary Offering Memorandum (as supplemented through and including the date hereof, the “Preliminary Offering Memorandum”). The information in this Pricing Supplement supplements the Preliminary Offering Memorandum and updates and supersedes the information in the Preliminary Offering Memorandum to the extent it is inconsistent with the information in the Preliminary Offering 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 or sold 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 of the 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	
 	  	Company	
Security description:	  	8.875% Senior Notes due 2017	
Distribution:	  	144A/Regulation S with registration rights as	
 	  	set forth in the Preliminary Offering	
 	  	Memorandum	
Size:	  	$125,000,000	
Gross proceeds:	  	$124,187,500	
Maturity:	  	December 1, 2017	
Coupon:	  	8.875%	
Price:	  	99.350% of face amount	
Yield to maturity:	  	9.000%	
Spread to Benchmark Treasury:	  	+719 basis points	
Benchmark Treasury:	  	UST 4.25% due 11/15/2017	
Interest Payment Dates:	  	December 1 and June 1, commencing June 1,	
 	  	2011	
Equity Clawback:	  	Up to 35% at 108.875% plus accrued and	
 	  	unpaid interest until December 1, 2013	
Make-whole redemption	  	Make-whole call @ T+50 basis points prior to	
 	  	December 1, 2014	
Optional redemption:	  	On and after December 1, 2014, at the prices set forth below (expressed as a percentage of the principal amount), plus accrued and unpaid interest, if redeemed during the twelve-month period beginning 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, 2010	
CUSIP:	  	144A: 85512QAF1	  	 	
 	  	Regulation S: U85527AC0	
ISIN:	  	144A: US85512QAF19	
 	  	Regulation S: USU85527AC04	
Denominations/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 Memorandum
Description 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 in a 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 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;

Other information presented in the Preliminary Offering Memorandum is deemed to have changed to the extent affected by the changes described herein.
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 not purport 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 of 1933, 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 is unlawful to make such offer or solicitation in such jurisdiction.

ANNEX C
Restrictions on Offers and Sales Outside the United States
In 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 the United 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 registration requirements 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 with Regulation 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 any directed selling efforts with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement of Regulation 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 each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchases Securities from it during the distribution compliance 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 be offered 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 used above 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 the Securities, 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 or inducement 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 to the 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 Securities in, 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, or possession or distribution of any of the Time of Sale Information, the Offering Memorandum, any Issuer Written Communication or any other offering or publicity 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 laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold 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 or authority 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 the heading “Capitalization”; and all the outstanding shares of capital stock or other equity interests of each subsidiary of the Company have been duly and validly 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 to perform their respective obligations thereunder; and all action required to be taken for the due and proper authorization, execution and delivery of each of the 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 the Trustee, constitutes a valid and legally binding agreement of each of the Issuers enforceable against each of the Issuers in accordance with its terms, subject to the Enforceability Exceptions; and the Indenture conforms in all material respects with the requirements of the Trust Indenture Act and the rules and regulations 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 Indenture and paid for as provided in this 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 the Enforceability Exceptions, and will be entitled to the benefits of the Indenture.
(f) The Exchange Securities have been duly authorized by each of the Issuers and, when duly executed, authenticated, issued and delivered as contemplated 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 the Enforceability 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 duly authorized, executed and delivered by each of the Issuers and, when duly executed and delivered by the other parties thereto, will constitute a valid and legally 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 the Offering 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 sale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated by the 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, or result in the creation or 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 of its 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 the provisions 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 or statute 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 Material Adverse Effect.
(j) No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required 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 and sale of the Securities and compliance by each of the Issuers with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for such consents, approvals, authorizations, orders and registrations or qualifications as may be required (i) under applicable state securities laws in connection with the purchase and resale of the Securities by the Initial Purchasers and (ii) with respect to the Exchange Securities under the Securities 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 no legal, governmental or regulatory 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 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 the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect; and no such investigations, actions, suits or proceedings are 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 proceedings and contracts and other documents are accurate in all material respects; and the statements in each of the Time of Sale Information and the Offering Memorandum under the heading “Certain United States federal income tax considerations”, to the extent that they constitute summaries of matters of law or regulation 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 as they purport to constitute summaries of certain terms of documents referred to therein, constitute accurate summaries of the terms of such documents in all material 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 the proceeds thereof as described in each of the Time of Sale Information and the Offering Memorandum none of them will be, an “investment company” or an entity “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 of Sale Information and the Offering Memorandum will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation 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 is not 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 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 Trust Indenture Act.
Such counsel shall also state that they have participated in conferences with representatives of the Issuers and with representatives of its independent accountants and counsel at which conferences the contents of the Time of Sale Information and the Offering Memorandum and any amendment and supplement thereto and related matters were discussed and, although such counsel assume no responsibility for the accuracy, completeness or fairness of the Time 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 to believe 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 untrue statement 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 they were made, not misleading, or that the Offering Memorandum or any amendment or supplement thereto, as of its date and the Closing Date, contained or contains 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 the circumstances under which they were made, not misleading (other than, in each case, the financial statements and other financial information contained therein, 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 are furnished 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 OF
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated November 16, 2010 (this “Agreement”) is entered into by and among Star Gas Partners, L.P., a Delaware 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 for the 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 direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the 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 or required 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 appropriate form) 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 to be 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 Issuers or 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 and indirect 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, and as 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  that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owned directly or indirectly by the Issuers or any of its affiliates shall not be counted in
 
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determining whether such consent or approval was given by the Holders of such required percentage or amount; and provided, further, that if the Company shall issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any Shelf Registration Statement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class for purposes 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 Issuers upon 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 the Issuers in accordance with Section 2(b) hereof.
“Person” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency 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 Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all 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 Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant to such Registration Statement, (ii) when such Securities are sold pursuant to Rule 144 under the Securities Act (or any similar provision then in force, but not Rule 144A), if following such resale such Securities do not bear any restrictive legend relating to the Securities Act and do not bear a restricted CUSIP number, (iii) when such Securities cease to be outstanding or (iv) except in the case of Securities that otherwise remain Registrable Securities and that are held by an Initial Purchaser and that are ineligible to be exchanged in the Exchange Offer, when the Exchange Offer is consummated.
 
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“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 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 Target Registration 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 not become 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, if required by this Agreement, has become effective and thereafter ceases to be effective or the Prospectus contained therein ceases to be usable, in each case whether or not permitted by this Agreement, at any time during the Shelf Effectiveness Period, and such failure to remain effective or usable exists for more than 30 days (whether or not consecutive) in any 12-month period or (v) the Shelf Registration Statement, if required by this Agreement, has become effective and thereafter, on more than two occasions in any 12-month period during the Shelf Effectiveness Period, the Shelf Registration Statement ceases to be effective 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, including without limitation: (i) all SEC, stock exchange or FINRA registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue sky qualification 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, any underwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliance with 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 Registration Statement, the fees and disbursements of one counsel for the Participating Holders (which counsel shall be selected by the Participating Holders holding a majority of the aggregate principal amount of Registrable Securities held by such Participating Holders and which counsel may also be counsel for the Initial Purchasers) and (viii) the fees and disbursements of the independent registered public accountants of the Issuers, including the expenses of any special audits or “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to the Underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.
 
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“Registration Statement” shall mean any registration statement of the Issuers that covers any of the Exchange Securities or Registrable Securities pursuant 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 no other securities unless approved by a majority in aggregate principal amount of the Securities held by the Participating Holders) on an appropriate form under Rule 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 any document 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.
 
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2. Registration Under the Securities Act. (a) To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Issuers shall 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 the Registrable Securities for Exchange Securities and (y) have such Registration Statement become and remain effective until 180 days after the last Exchange Date for use by one or more Participating Broker-Dealers. The Issuers shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the SEC and use their reasonable best efforts to complete the Exchange Offer not later than 60 days after such effective date.
The Issuers shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanying documents 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 will be 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 Registrable Security, together with the appropriate letters of transmittal, to the institution and at the address and in the manner specified in the notice, or (B) effect such exchange otherwise in compliance with the applicable procedures of the depositary for such Registrable Security, in each case prior to the close of business 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 institution and at the address specified in the notice, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable 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.	
 
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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 received by 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 or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions 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 a broker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-making or other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) in connection 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 Issuers and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount 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 requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject 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 Exchange Offer may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations of the 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 “ Shelf Request ”) from any Initial Purchaser representing that it holds Registrable Securities that are or were ineligible to be exchanged in the Exchange Offer, the Issuers 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, a Shelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statement become effective;  provided  that no Holder will be entitled to have any Registrable Securities included in any Shelf Registration Statement, or entitled to use the
 
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prospectus forming a part of such Shelf Registration Statement, until such Holder shall have delivered a completed and signed Notice and Questionnaire and provided 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 use their reasonable best efforts to file and have become effective both an Exchange Offer Registration Statement pursuant to Section 2(a) hereof with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) 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 be Registrable Securities (the “ Shelf Effectiveness Period ”). The Issuers further agree to supplement or amend the Shelf Registration Statement, the related Prospectus and any Free Writing Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Issuers for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder or if reasonably requested by a Holder of Registrable Securities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective, if required, 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 Holder shall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable 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 declared effective 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 declared effective 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 period beginning on the day immediately following such Registration Default and (ii) an additional 0.25% per annum with respect to each subsequent 90-day period, in
 
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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 the Securities 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 Exchange Offer is completed, (2) in the case of a Registration Default under clause (ii) or clause (iii) of the definition thereof, when the Shelf Registration Statement becomes effective or (3) in the case of a Registration Default under clause (iv) or clause (v) of the definition thereof, when the Shelf Registration Statement again becomes effective or the Prospectus again becomes usable. If at any time more than one Registration Default has occurred and is continuing, then, until the 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 single Registration Default that begins on the date that the earliest such Registration Default occurred and ends on such next date that there is no Registration Default.
(e) Without limiting the remedies available to the Initial Purchasers and the Holders, the Issuers acknowledge that any failure by the Issuers to comply with 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 which there 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, the Initial 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 expeditiously as 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 the Issuers, (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 to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective for the applicable period in accordance with Section 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 such Registration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each Prospectus current during the period 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 the Registrable Securities or Exchange Securities;
 
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(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 the SEC 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 Participating Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, preliminary prospectus or Free Writing Prospectus, and any amendment or supplement thereto, as such Participating Holder, counsel or Underwriter may reasonably request 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 the use of such Prospectus, preliminary prospectus or such Free Writing Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the Participating Holders and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus, preliminary prospectus or such Free Writing Prospectus or any amendment or supplement thereto in accordance with applicable law;
(v) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of such jurisdictions as any Participating Holder shall reasonably request in writing by the time the applicable Registration Statement becomes effective; cooperate with 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 be reasonably necessary or advisable to enable each Participating Holder to complete the disposition in each such jurisdiction of the Registrable Securities owned 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 dealer in 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 such jurisdiction 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 Participating Holders promptly and, if requested by any such Participating Holder or counsel, confirm such advice in writing (1) when a Registration Statement has become effective, when any post-effective amendment thereto has been filed and becomes effective, when any Free Writing Prospectus has been filed or any amendment 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 for amendments and supplements to a Registration Statement, Prospectus or any
 
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Free Writing Prospectus or for additional information after the Registration Statement has become effective, (3) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, including the 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 pursuant to 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 of Registrable Securities covered thereby, the representations and warranties of the Issuers contained in any underwriting agreement, securities sales agreement or 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 Issuers receive any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (5) of the happening of any event during the period a Registration Statement is effective that makes any statement made in such Registration Statement or the related Prospectus or any Free Writing Prospectus untrue in any material respect or that requires the making of any changes in such Registration Statement or Prospectus or any Free Writing Prospectus in order to make the statements therein not misleading and (6) of any determination by the Issuers that a post-effective amendment to a Registration Statement or any amendment or supplement to the Prospectus or any Free Writing Prospectus would 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 a Shelf 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 such Registration Statement on the proper form, at the earliest possible moment and provide immediate notice to each Holder or Participating Holder of the withdrawal 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 Registration Statement 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 certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in such denominations and registered in such names (consistent with the provisions of the Indenture) as such Participating Holders may reasonably request at least one Business Day prior to the closing of any sale of Registrable Securities;
 
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(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 a supplement or post-effective amendment to the applicable Exchange Offer Registration Statement or Shelf Registration Statement or the related Prospectus or any Free Writing Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered (or, to the extent permitted by law, made available) to purchasers of the Registrable Securities, such Prospectus or Free Writing Prospectus, as the case may be, will not contain 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 under which they were made, not misleading; and the Issuers shall notify the Participating Holders (in the case of a Shelf Registration Statement) and the Initial Purchasers and any Participating Broker-Dealers known to the Issuers (in the case of an Exchange Offer Registration Statement) to suspend use of the Prospectus or any Free Writing Prospectus as promptly as practicable after the occurrence of such an event, and such Participating Holders, such Participating Broker-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 Registration Statement or amendment or supplement to a Prospectus or a Free Writing Prospectus or of any document that is to be incorporated by reference into a Registration Statement, a Prospectus or a Free Writing Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, to the Participating Holders and their counsel) and make such of the representatives of the Issuers as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Participating Holders or their counsel) available for discussion of such document; and the Issuers shall not, at any time after initial filing of a Registration Statement, use or file any Prospectus, any Free Writing Prospectus, any amendment of or supplement to a Registration Statement or a Prospectus or a Free Writing Prospectus, or any document that is to be incorporated by reference into a Registration Statement, a Prospectus or a Free Writing Prospectus, of which the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Participating Holders and their counsel) shall not have previously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Participating 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 a Registration Statement;
 
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(xiii) cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or Registrable Securities, 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 so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents 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 so qualified 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 Underwriter participating in any disposition pursuant to such Shelf Registration Statement, any attorneys and accountants designated by a majority in aggregate principal amount of the Securities held by the Participating Holders and any attorneys and accountants designated by such Underwriter, at reasonable times and in a reasonable 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 in connection with a Shelf Registration Statement;  provided  that if any such information is identified by the Issuers as being confidential or proprietary, each Person receiving such information shall take such actions as are reasonably necessary to protect the confidentiality of such information to the extent such action 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 any automated quotation system on which similar securities issued or guaranteed by the Issuers are then listed if requested by the Majority Holders, to the extent such 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 information with respect to such Participating Holder as such Participating Holder reasonably requests to be included therein and make all required filings of such Prospectus 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 those requested by the Holders of a majority in principal amount of the Registrable Securities covered by the Shelf Registration Statement) in order to expedite or facilitate the disposition of such Registrable Securities including, but not limited to, an Underwritten Offering and in such connection, (1) to the extent
 
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possible, make such representations and warranties to the Participating Holders and any Underwriters of such Registrable Securities with respect to the business of the Issuers and its subsidiaries and the Registration Statement, Prospectus, any Free Writing Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (2) obtain opinions of counsel to the Issuers (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Participating Holders and such Underwriters and their respective counsel) addressed to each Participating Holder 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 subsidiary of 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 the Registration Statement) addressed to each Participating Holder (to the extent permitted by applicable professional standards) and Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings, including but not limited to financial information contained in any preliminary prospectus, Prospectus or Free Writing Prospectus and (4) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the 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 and Questionnaire and such other information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Issuers may 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 in Section 3(a)(vi)(3) or Section 3(a)(vi)(5) hereof, such Participating Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration Statement until such Participating Holder’s receipt of the copies of the supplemented or amended Prospectus and any Free Writing Prospectus 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 its possession, other than permanent file copies then in such Participating Holder’s possession, of the Prospectus and any Free Writing Prospectus covering such Registrable Securities that is current at the time of receipt of such notice.
 
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(d) If the Issuers shall give any notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Issuers shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and 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 of the supplemented or amended Prospectus or any Free Writing Prospectus necessary to resume such dispositions. The Issuers may give any such notice only twice 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 in effect 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 of a 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 its own 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 the requirements 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 of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers (or, to the extent permitted by law, made available to purchasers) to satisfy their prospectus delivery obligation under the Securities Act in connection 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 Prospectus contained 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 pursuant to Section 3(d) hereof), in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions 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.
 
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(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 and each Holder, their respective affiliates, directors and officers and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), 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 any Registration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (2) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, any Free Writing Prospectus or any “issuer information” (“ Issuer Information ”) filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or any omission or 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 were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or information relating to any Holder furnished to the Issuers in writing through J.P. Morgan or any selling Holder, respectively, expressly for use therein. In connection with any Underwritten Offering permitted by Section 3, the Issuers, jointly and severally, will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders, 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, the directors of the Issuers, each officer of the Issuers who signed the Registration Statement and each Person, if any, who controls the Issuers, any Initial Purchaser 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 the indemnity set forth in paragraph (a) above, but only with respect to any losses,
 
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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 reliance upon and in conformity with any information relating to such Holder furnished to the Issuers in writing by such Holder expressly for use in any Registration Statement, 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 any Person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such Person (the “ Indemnified Person ”) shall promptly notify the Person against whom such indemnification may be sought (the “ Indemnifying Person ”) in writing; provided  that the failure 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 it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and  provided ,  further , that the failure to notify the Indemnifying 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 any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 5 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expenses of 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 the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in 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, and that 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 officers and 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 control Persons 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. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without
 
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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 each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (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 not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding 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 Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers from the offering of the Securities and the Exchange Securities, on the one hand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocation provided 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 such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Issuers on the one hand and the Holders on 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 or alleged omission to state a material fact relates to information supplied by the Issuers or by the Holders and the parties’ relative intent, knowledge, access to information 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 prorata allocation (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
 
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considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the 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 or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 5, in no event shall a Holder be required to 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 the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute pursuant to this Section 5 are several and not joint.
(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 any Indemnified 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) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers or any Holder or any Person controlling any Initial Purchaser 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 the Exchange 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 conflict with and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Issuers under any other agreement 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 the rights 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 or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Issuers have obtained the written consent of Holders 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
 
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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-class mail, 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 a notice 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 the Purchase Agreement; (ii) if to the Issuers, initially at the Issuers’ address set forth in the Purchase Agreement and thereafter at such other address, notice of which 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 Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to 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 the parties, including, without limitation and without the need for an express assignment, subsequent Holders;  provided  that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed 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. The Initial 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 comply with, 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 or advisable to protect its rights or the rights of other Holders hereunder.
 
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(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when 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 otherwise affect 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 and construed 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 and supersedes all oral statements and prior writings with respect thereto. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Issuers and the Initial Purchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, void or unenforceable provisions.
[The remainder of this page is intentionally left blank.]
 
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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 Partner	
 	 	
By	 	 	
Name:	 	 	
Title:	 	 	
 	
STAR GAS FINANCE COMPANY	
 	 	
By	 	 	
Name:	 	 	
Title:	 	 	
Confirmed and accepted as of the date first above written:

J.P. MORGAN SECURITIES LLC	
 	
For itself and on behalf of the several Initial Purchasers	
 	 	
By	 	 	
 	 	Authorized Signatory	

Schedule 1
RBS Securities Inc.

Exhibit 10.22
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated November 16, 2010 (this “Agreement”) is entered into by and among Star Gas Partners, L.P., a Delaware 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 for the 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 direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the 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 or required 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 appropriate form) 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 to be 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 Issuers or 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 and indirect 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, and as 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  that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owned directly 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 of such required percentage or amount; and  provided ,  further , that if the Company shall
 
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issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any Shelf Registration Statement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class for purposes 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 Issuers upon 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 the Issuers in accordance with Section 2(b) hereof.
“Person” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency 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 Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all 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 Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant to such Registration Statement, (ii) when such Securities are sold pursuant to Rule 144 under the Securities Act (or any similar provision then in force, but not Rule 144A), if following such resale such Securities do not bear any restrictive legend relating to the Securities Act and do not bear a restricted CUSIP number, (iii) when such Securities cease to be outstanding or (iv) except in the case of Securities that otherwise remain Registrable Securities and that are held 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
 
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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 Target Registration 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 not become 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, if required by this Agreement, has become effective and thereafter ceases to be effective or the Prospectus contained therein ceases to be usable, in each case whether or not permitted by this Agreement, at any time during the Shelf Effectiveness Period, and such failure to remain effective or usable exists for more than 30 days (whether or not consecutive) in any 12-month period or (v) the Shelf Registration Statement, if required by this Agreement, has become effective and thereafter, on more than two occasions in any 12-month period during the Shelf Effectiveness Period, the Shelf Registration Statement ceases to be effective 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, including without limitation: (i) all SEC, stock exchange or FINRA registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue sky qualification 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, any underwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliance with 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 Registration Statement, the fees and disbursements of one counsel for the Participating Holders (which counsel shall be selected by the Participating Holders holding a majority of the aggregate principal amount of Registrable Securities held by such Participating Holders and which counsel may also be counsel for the Initial Purchasers) and (viii) the fees and disbursements of the independent registered public accountants of the Issuers, including the expenses of any special audits or “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to the Underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.
 
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“Registration Statement” shall mean any registration statement of the Issuers that covers any of the Exchange Securities or Registrable Securities pursuant 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 no other securities unless approved by a majority in aggregate principal amount of the Securities held by the Participating Holders) on an appropriate form under Rule 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 any document 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.
 
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2. Registration Under the Securities Act. (a) To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Issuers shall 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 the Registrable Securities for Exchange Securities and (y) have such Registration Statement become and remain effective until 180 days after the last Exchange Date for use by one or more Participating Broker-Dealers. The Issuers shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the SEC and use their reasonable best efforts to complete the Exchange Offer not later than 60 days after such effective date.
The Issuers shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanying documents 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 will be 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 Registrable Security, together with the appropriate letters of transmittal, to the institution and at the address and in the manner specified in the notice, or (B) effect such exchange otherwise in compliance with the applicable procedures of the depositary for such Registrable Security, in each case prior to the close of business 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 institution and at the address specified in the notice, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable 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.	
 
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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 received by 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 or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions 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 a broker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-making or other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) in connection 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 Issuers and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount 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 requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject 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 Exchange Offer may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or applicable interpretations of the 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 “ Shelf Request ”) from any Initial Purchaser representing that it holds Registrable Securities that are or were ineligible to be exchanged in the Exchange Offer, the Issuers 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, a Shelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statement become effective;  provided  that no Holder will be entitled to have any Registrable Securities included in any Shelf Registration Statement, or entitled to use the
 
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prospectus forming a part of such Shelf Registration Statement, until such Holder shall have delivered a completed and signed Notice and Questionnaire and provided 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 use their reasonable best efforts to file and have become effective both an Exchange Offer Registration Statement pursuant to Section 2(a) hereof with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) 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 be Registrable Securities (the “ Shelf Effectiveness Period ”). The Issuers further agree to supplement or amend the Shelf Registration Statement, the related Prospectus and any Free Writing Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Issuers for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder or if reasonably requested by a Holder of Registrable Securities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective, if required, 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 Holder shall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable 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 declared effective 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 declared effective 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 period beginning on the day immediately following such Registration Default and (ii) an additional 0.25% per annum with respect to each subsequent 90-day period, in
 
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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 the Securities 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 Exchange Offer is completed, (2) in the case of a Registration Default under clause (ii) or clause (iii) of the definition thereof, when the Shelf Registration Statement becomes effective or (3) in the case of a Registration Default under clause (iv) or clause (v) of the definition thereof, when the Shelf Registration Statement again becomes effective or the Prospectus again becomes usable. If at any time more than one Registration Default has occurred and is continuing, then, until the 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 single Registration Default that begins on the date that the earliest such Registration Default occurred and ends on such next date that there is no Registration Default.
(e) Without limiting the remedies available to the Initial Purchasers and the Holders, the Issuers acknowledge that any failure by the Issuers to comply with 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 which there 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, the Initial 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 expeditiously as 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 the Issuers, (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 to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective for the applicable period in accordance with Section 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 such Registration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each Prospectus current during the period 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 the Registrable Securities or Exchange Securities;
 
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(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 the SEC 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 Participating Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, preliminary prospectus or Free Writing Prospectus, and any amendment or supplement thereto, as such Participating Holder, counsel or Underwriter may reasonably request 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 the use of such Prospectus, preliminary prospectus or such Free Writing Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the Participating Holders and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus, preliminary prospectus or such Free Writing Prospectus or any amendment or supplement thereto in accordance with applicable law;
(v) use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of such jurisdictions as any Participating Holder shall reasonably request in writing by the time the applicable Registration Statement becomes effective; cooperate with 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 be reasonably necessary or advisable to enable each Participating Holder to complete the disposition in each such jurisdiction of the Registrable Securities owned 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 dealer in 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 such jurisdiction 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 Participating Holders promptly and, if requested by any such Participating Holder or counsel, confirm such advice in writing (1) when a Registration Statement has become effective, when any post-effective amendment thereto has been filed and becomes effective, when any Free Writing Prospectus has been filed or any amendment 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 for amendments and supplements to a Registration Statement, Prospectus or any
 
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Free Writing Prospectus or for additional information after the Registration Statement has become effective, (3) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, including the 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 pursuant to 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 of Registrable Securities covered thereby, the representations and warranties of the Issuers contained in any underwriting agreement, securities sales agreement or 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 Issuers receive any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (5) of the happening of any event during the period a Registration Statement is effective that makes any statement made in such Registration Statement or the related Prospectus or any Free Writing Prospectus untrue in any material respect or that requires the making of any changes in such Registration Statement or Prospectus or any Free Writing Prospectus in order to make the statements therein not misleading and (6) of any determination by the Issuers that a post-effective amendment to a Registration Statement or any amendment or supplement to the Prospectus or any Free Writing Prospectus would 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 a Shelf 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 such Registration Statement on the proper form, at the earliest possible moment and provide immediate notice to each Holder or Participating Holder of the withdrawal 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 Registration Statement 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 certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in such denominations and registered in such names (consistent with the provisions of the Indenture) as such Participating Holders may reasonably request at least one 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 a supplement or post-effective amendment to the applicable Exchange Offer Registration Statement or Shelf Registration Statement or the related Prospectus or any Free Writing Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered (or, to the extent permitted by law, made available) to purchasers of the Registrable Securities, such Prospectus or Free Writing Prospectus, as the case may be, will not contain 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 under which they were made, not misleading; and the Issuers shall notify the Participating Holders (in the case of a Shelf Registration Statement) and the Initial Purchasers and any Participating Broker-Dealers known to the Issuers (in the case of an Exchange Offer Registration Statement) to suspend use of the Prospectus or any Free Writing Prospectus as promptly as practicable after the occurrence of such an event, and such Participating Holders, such Participating Broker-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 Registration Statement or amendment or supplement to a Prospectus or a Free Writing Prospectus or of any document that is to be incorporated by reference into a Registration Statement, a Prospectus or a Free Writing Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, to the Participating Holders and their counsel) and make such of the representatives of the Issuers as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Participating Holders or their counsel) available for discussion of such document; and the Issuers shall not, at any time after initial filing of a Registration Statement, use or file any Prospectus, any Free Writing Prospectus, any amendment of or supplement to a Registration Statement or a Prospectus or a Free Writing Prospectus, or any document that is to be incorporated by reference into a Registration Statement, a Prospectus or a Free Writing Prospectus, of which the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Participating Holders and their counsel) shall not have previously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Participating 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 a Registration Statement;
 
12

(xiii) cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or Registrable Securities, 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 so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents 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 so qualified 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 Underwriter participating in any disposition pursuant to such Shelf Registration Statement, any attorneys and accountants designated by a majority in aggregate principal amount of the Securities held by the Participating Holders and any attorneys and accountants designated by such Underwriter, at reasonable times and in a reasonable 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 in connection with a Shelf Registration Statement;  provided  that if any such information is identified by the Issuers as being confidential or proprietary, each Person receiving such information shall take such actions as are reasonably necessary to protect the confidentiality of such information to the extent such action 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 any automated quotation system on which similar securities issued or guaranteed by the Issuers are then listed if requested by the Majority Holders, to the extent such 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 information with respect to such Participating Holder as such Participating Holder reasonably requests to be included therein and make all required filings of such Prospectus 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 those requested by the Holders of a majority in principal amount of the Registrable Securities covered by the Shelf Registration Statement) in order to expedite or facilitate 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 the business of the Issuers and its subsidiaries and the Registration Statement, Prospectus, any Free Writing Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (2) obtain opinions of counsel to the Issuers (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Participating Holders and such Underwriters and their respective counsel) addressed to each Participating Holder 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 subsidiary of 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 the Registration Statement) addressed to each Participating Holder (to the extent permitted by applicable professional standards) and Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings, including but not limited to financial information contained in any preliminary prospectus, Prospectus or Free Writing Prospectus and (4) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the 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 and Questionnaire and such other information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Issuers may 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 in Section 3(a)(vi)(3) or Section 3(a)(vi)(5) hereof, such Participating Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Shelf Registration Statement until such Participating Holder’s receipt of the copies of the supplemented or amended Prospectus and any Free Writing Prospectus 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 its possession, other than permanent file copies then in such Participating Holder’s possession, of the Prospectus and any Free Writing Prospectus covering such Registrable 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 extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and 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 of the supplemented or amended Prospectus or any Free Writing Prospectus necessary to resume such dispositions. The Issuers may give any such notice only twice 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 in effect 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 of a 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 its own 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 the requirements 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 of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers (or, to the extent permitted by law, made available to purchasers) to satisfy their prospectus delivery obligation under the Securities Act in connection 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 Prospectus contained 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 pursuant to Section 3(d) hereof), in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions 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 and each Holder, their respective affiliates, directors and officers and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), 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 any Registration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (2) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus, any Free Writing Prospectus or any “issuer information” (“ Issuer Information ”) filed or required to be filed pursuant to Rule 433(d) under the Securities Act, or any omission or 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 were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or information relating to any Holder furnished to the Issuers in writing through J.P. Morgan or any selling Holder, respectively, expressly for use therein. In connection with any Underwritten Offering permitted by Section 3, the Issuers, jointly and severally, will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders, 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, the directors of the Issuers, each officer of the Issuers who signed the Registration Statement and each Person, if any, who controls the Issuers, any Initial Purchaser 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 the indemnity 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 reliance upon and in conformity with any information relating to such Holder furnished to the Issuers in writing by such Holder expressly for use in any Registration Statement, 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 any Person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such Person (the “ Indemnified Person ”) shall promptly notify the Person against whom such indemnification may be sought (the “ Indemnifying Person ”) in writing; provided  that the failure 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 it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and  provided ,  further , that the failure to notify the Indemnifying 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 any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 5 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expenses of 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 the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in 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, and that 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 officers and 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 control Persons 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. The Indemnifying 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 each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (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 not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding 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 Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuers from the offering of the Securities and the Exchange Securities, on the one hand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocation provided 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 such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Issuers on the one hand and the Holders on 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 or alleged omission to state a material fact relates to information supplied by the Issuers or by the Holders and the parties’ relative intent, knowledge, access to information 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 prorata allocation (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 and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 5, in no event shall a Holder be required to 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 the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute pursuant to this Section 5 are several and not joint.
(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 any Indemnified 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) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers or any Holder or any Person controlling any Initial Purchaser 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 the Exchange 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 conflict with and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Issuers under any other agreement 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 the rights 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 or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Issuers have obtained the written consent of Holders 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-class mail, 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 a notice 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 the Purchase Agreement; (ii) if to the Issuers, initially at the Issuers’ address set forth in the Purchase Agreement and thereafter at such other address, notice of which 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 Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to 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 the parties, including, without limitation and without the need for an express assignment, subsequent Holders;  provided  that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed 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. The Initial 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 comply with, 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 or advisable to protect its rights or the rights of other Holders hereunder.
 
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(f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when 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 otherwise affect 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 and construed 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 and supersedes all oral statements and prior writings with respect thereto. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Issuers and the Initial Purchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, void or unenforceable provisions.
[The remainder of this page is intentionally left blank.]
 
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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 Partner	
 	 	
By	 	/s/ Richard F. Ambury	
Name:	 	Richard F. Ambury	
Title:	 	 	
 	
STAR GAS FINANCE COMPANY	
 	 	
By	 	/s/ Richard F. Ambury	
Name:	 	Richard F. Ambury	
Title:	 	Chief Financial Officer	
Confirmed and accepted as of the date first above written:

J.P. MORGAN SECURITIES LLC	
 	
For itself and on behalf of the several Initial Purchasers	
 	 	
By	 	/s/ CORNELIUS J. DROOGAN	
 	 	Authorized Signatory	
 	 	CORNELIUS J. DROOGAN	
 	 	Managing Director	

Schedule 1
RBS Securities Inc.

Exhibit 10.23
Execution Copy

 
STAR GAS PARTNERS, L.P.,
STAR GAS FINANCE COMPANY
AND
UNION BANK, N.A.
AS TRUSTEE
8.875% Senior Notes due 2017

 
INDENTURE
Dated 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 Security	
Exhibit 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 GAS FINANCE COMPANY, a Delaware corporation (the “ Co-Issuer ”, together with the Company, the “ Issuers ”) and UNION BANK, N.A., a national banking association (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% Senior Notes 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 Initial Securities or any Additional Securities in an offer registered under the Securities Act (as hereinafter defined, the “ Exchange Securities ”, and, together with the Initial Securities and the Additional Securities, the “ Securities ”).
ARTICLE I
Definitions and Incorporation by Reference
SECTION 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 Subsidiary or (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 in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition. Acquired Indebtedness shall be deemed to have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect to clause (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 common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management 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 a Person 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 such redemption 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 in Exhibits A and B hereto) plus (ii) all required interest payments (excluding
 
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accrued and unpaid interest to such redemption date) due on such Security through December 1, 2014 computed using a discount rate equal to the Treasury Rate 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 Restricted Subsidiary, 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 constitute all 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 Restricted Subsidiary.
“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 Credit Facility); 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 Restricted Subsidiary;
(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 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, the total 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 the remaining 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. For purposes 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 is terminable 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 as required 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 from Subsidiaries 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 or utilization) 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 that such 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 previously established 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 Directors determines 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 the Company 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 days of 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 45th day after the last day of the quarter used to calculate clauses (1) and (2) above; provided, however, that Available Cash attributable to any Restricted Subsidiary will be excluded to the extent dividends or distributions of Available Cash by the Restricted Subsidiary are not at the date of 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 disbursements made or reserves established in each case after the date of liquidation of the Company. Taxes paid by the Company on behalf of, or amounts withheld with respect to, all or less than all of the partners shall not be considered cash disbursements of the Company that reduce Available Cash, but the payment or withholding thereof shall be deemed to be a distribution of Available Cash to the partners. Alternatively, in the discretion of the Board of Directors, such taxes (if pertaining to all partners) may be considered to be cash disbursements of the Company which reduce Available Cash, but the payment 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) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or 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 as the 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 any duly 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 general partner 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 of the 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 Restricted Subsidiaries’ inventories at such date. Net book value shall be determined in accordance with GAAP and shall be reflected on the most recent available consolidated balance sheet of the Company (it being understood that the accounts receivable and inventories of an acquired business may be included if such 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 or required 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 sheet of the lessee.
“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or interests in (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 the Exchange Act) other than the Permitted Holders, becoming beneficial owners, in the aggregate, directly or indirectly, of 50% or more of the Voting Stock of the general partner of the Company (or the successor by merger, consolidation or purchase of substantially all of the assets of the general partner) and the Permitted Holders beneficially owning at any time, in the aggregate, a lesser percentage of the Voting Stock of the general partner of the Company (or the successor by merger, consolidation or purchase of substantially all of the assets of the general partner) than such other person or group;
(2) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, 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 is used 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 (however designated and whether voting or nonvoting) of such Person’s securities whether or not outstanding on the Issue Date, and includes, without limitation, all series and classes of such common stock, and, in the case of the Company, means the units representing limited partner interests of the Company whether or not 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 amount of 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 aggregate amount of Consolidated Fixed Charges of the Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, “Consolidated Cash Flow Available for Fixed Charges” and “Consolidated Fixed Charges” shall be calculated after giving effect on a pro forma basis 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 ”) of any Indebtedness, excluding revolving credit borrowings and repayments of revolving credit borrowings (other than any revolving credit borrowings the proceeds of which are used for Asset Acquisitions or Growth Related Capital Expenditures of the Company or any of its Restricted Subsidiaries and in 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 to and including the Transaction Date (the “ Reference Period ”), including, without limitation, the Incurrence of the Indebtedness giving rise to the need to make the calculation (and the application of the net proceeds thereof), as if the Incurrence (and application) or repayment occurred on the first day of the Reference Period; and
 
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(2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make the calculation as a result of the Company or one of its Restricted Subsidiaries, including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition, Incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if the Asset Sale or Asset 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 discontinued only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to the Consolidated 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 actual gross profit, which is equal to revenues minus cost of goods sold, of the acquired business or asset during the immediately available preceding four full fiscal quarters occurring in the Reference Period, minus the pro forma expenses that would have been Incurred by the Company and its Restricted Subsidiaries in the operation of the acquired business or asset during the period computed on the basis of personnel expenses for employees 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 the Company’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 in connection 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 of the 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 annum equal 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 Indebtedness and all Permitted Refinancing Indebtedness in respect thereof, during the Four Quarter Period shall be included in the calculation; and
 
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(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 or similar 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 deemed to 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 and Redeemable 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, state and 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 with GAAP, 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 Subsidiaries during the period as determined on a consolidated basis in accordance with GAAP.
 
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“Consolidated Net Income” means the net income (loss) of the Company and its Restricted Subsidiaries, as determined on a consolidated basis in accordance 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 Restricted Subsidiary;
(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 of interest;
(5) the net income of any Restricted Subsidiary to the extent that dividends or distributions of that net income are not at the date of determination 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) any other non-cash charges, in each case which reduces the Consolidated Net Income of the Company and its Restricted Subsidiaries for the period, as determined on 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 for cash 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 FASB ASC 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 for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in 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.
 
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“DTC” means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depository institution hereinafter appointed 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 was the 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 a Related Business, which is promptly sold, transferred or contributed on no less favorable terms by the general partner to the Company or one of its Restricted Subsidiaries.
“GAAP” means generally accepted accounting principles in the United States of America on the Issue Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. 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 the existing capital assets or to increase the customer base of such Person or to acquire or construct new capital assets (but excluding capital expenditures made to 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 assets existed 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 and any 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 by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or
 
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(2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);  provided ,  however , that the term “Guarantee” will not include endorsements for collection or deposit 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 a Person existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlative to 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 after the 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 any Lien in respect of property owned by the Person, whether or not the Person has assumed or become liable for the payment of the indebtedness; provided  that 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 than the 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 which represents the deferred purchase price, or a portion thereof, or has been Incurred to finance the purchase price, or a portion thereof, of any property or business 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 on the 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 to which 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 accrued dividends.
 
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For purposes hereof, the “maximum fixed repurchase price” of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of the Redeemable Capital Stock as if it were purchased on any date on which Indebtedness shall be required to be 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 fair market value shall be determined in good faith by the board of directors of the issuer of the Redeemable Capital Stock. Furthermore, for purposes hereof, the term “Indebtedness” shall not include (x) accrual of interest, the accretion of accreted value and the payment of interest or any other similar Incurrence by the Company or its Subsidiaries related to Indebtedness otherwise permitted in this Indenture or (y) any trade payables or accrued expenses 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 option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement 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 working capital 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 the Company by the Company and (3) sales or other voluntary or involuntary dispositions of any assets of the Company (other than (x) sales or other dispositions 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 and liquidation 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 as an “investment” on a balance sheet of the Person prepared in accordance with GAAP, including without limitation any direct or indirect contribution by the Person of property or assets to a joint venture, partnership or other business entity in which the Person retains an interest, it being understood that 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 constitute an “Investment” for purposes of this Indenture.
 
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The amount classified as Investments made during any period shall be the aggregate cost to the Company and its Restricted Subsidiaries of all the Investments 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 respect thereto 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 period as 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 whom the 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 retention agreement 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 including payments in respect of deferred payment obligations when received in the form of cash or cash equivalents, except to the extent that the deferred payment obligations 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 legal counsel 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 assets subject 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 with GAAP against any liabilities associated with the Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after the Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities 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 transaction costs and expenses
 
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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 or the 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 the Issuers 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 to the 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 Restricted Subsidiaries, or (ii) for the purpose of funding acquisitions of Related Businesses, including any Permitted Refinancing Indebtedness of such Indebtedness 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 in right of payment to the Securities;  provided  that the aggregate principal amount of this Indebtedness outstanding at any time under this clause may not exceed $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 to the 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 Indebtedness described under clauses (3), (4), (8) or (13) of this definition;
 
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(7) the Incurrence by the Company or a Restricted Subsidiary of Indebtedness owing directly to its insurance carriers, without duplication, in connection with the Company’s, its Subsidiaries’ or its Affiliates’ self-insurance programs or other similar forms of retained insurable risks for their respective 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 this Indebtedness 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 to suppliers of distillate and non-distillate petroleum products or energy commodity derivative providers in the ordinary course of business consistent with 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 the Company 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 of Restricted Subsidiaries;
(13) Indebtedness Incurred by any Restricted Subsidiary pursuant to any Credit Facility Incurred solely for working capital purposes not to exceed 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 derivative or 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 the full faith and
 
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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 public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at such date the highest rating obtainable from 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 one of 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 the laws of the United States or any state thereof or the District of Columbia or Canada; the commercial paper or other short term unsecured debt obligations 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” or better (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 any Permitted Bank;
(f) bankers’ acceptances eligible for rediscount under requirements of the Board of Governors of the Federal Reserve System and accepted by Permitted Banks;
(g) obligations of the type described in clauses (a) through (e) above purchased from a securities dealer designated as a “primary dealer” by the Federal Reserve Bank of New York or from a Permitted Bank as counterparty to a written repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the Company or a Restricted Subsidiary by a custodian which is a Permitted Bank and which is not a counterparty 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 Investment Company 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 or in a series of related transactions, of a Person located in the United States and engaged in a Related Business
 
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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 any Person incorporated or otherwise formed pursuant to the laws of the United States or any state thereof; provided that the aggregate amount of all such Investments made by the Company and its Restricted Subsidiaries following the Issue Date and outstanding pursuant to this third clause shall not at any 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 or reorganization 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 of Investments 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 one time; 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 derivative or 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.
 
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“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 in good faith by appropriate proceedings promptly initiated and diligently conducted and as to which reserves or other appropriate provision, if any, as shall 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 the ordinary course of business for sums not yet due or the payment of which is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and as to which reserves or other appropriate provisions, if any, as shall be required by GAAP, shall have been made therefor 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 deferred purchase price of property; or
(b) Incurred in the ordinary course of business securing the unpaid purchase price of property or services constituting current accounts payable;
(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 in connection 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 and related 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 been discharged or execution thereof stayed pending appeal or review, or shall not have been discharged within 60 days after expiration of any such stay;
 
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(7) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, which, in each case either are granted, entered into or created in the ordinary course of the business of the Company or any Restricted Subsidiary or do not materially impair 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 a Restricted 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 as operating 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 acquisition upon any property acquired by the Company or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the Company 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 and other 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 instrument originally creating the Lien, other property which is an improvement to or is acquired for use specifically in connection with the acquired property;
(b) in the case of a Purchase Money Lien, the principal amount of the Indebtedness secured by the Purchase Money Lien shall at no time exceed 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
 
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(d) the Lien, other than a Purchase Money Lien, shall not have been created or assumed in contemplation of the Person’s becoming a Subsidiary 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 of pipelines, 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 and equipment, which are incidental to, and do not materially interfere with, the ordinary conduct of the business of the Company or any Restricted Subsidiary; and
(14) any Lien renewing, extending or replacing any Lien permitted by clauses (9), (11) and (12) above; provided that, the principal amount of the Indebtedness secured by any such Lien shall not exceed the principal amount of the Indebtedness outstanding immediately prior to the renewal or extension of the Lien, and no assets encumbered by the Lien other than the assets encumbered immediately prior to the renewal or extension shall be encumbered thereby. The foregoing provisions of this clause (14) shall not be interpreted to limit the ability of the Company or any Restricted Subsidiary 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 the Company or any Restricted Subsidiary or any other Indebtedness Incurred by the Company or any Restricted Subsidiary pursuant to Section 3.3 , to the extent:
(1) the principal amount of the Permitted Refinancing Indebtedness does not exceed the principal or accreted amount plus the amount of accrued and unpaid interest of the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced (plus the amount of all expenses and premiums Incurred 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 Indebtedness so 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, the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced;
 
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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, limited liability 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 as to the payment of distributions or dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, 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 the Company;
(b) any Subsidiary of the Company to the extent the net proceeds are distributed, paid, lent or otherwise transferred to the Company that results 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 are received.
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 either on 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 by means 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 the Company), 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 upon the 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 redeemable at the option of the holder thereof at any time prior to the Stated Maturity of the principal of the
 
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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 this Indenture.
“Refinancing Indebtedness” means Indebtedness that is Incurred to refund, refinance, replace, exchange, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, “refinance,” “refinances,” and “refinanced” shall have a correlative meaning) any Indebtedness existing on the date of this Indenture or Incurred in compliance with this Indenture (including Indebtedness of the Issuers that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that 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 Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity at least 91 days later 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 the Average 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 issue price) 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 premiums required by the instruments governing such existing Indebtedness and fees, underwriting discounts, commissions and other expenses incurred in connection 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 in right of payment to the Securities on terms at least as favorable to the Securityholders of Securities as those contained in the documentation governing the 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 the Issue Date. The term “Related Business” shall include, by way of example and not limitation, the marketing and sale of propane, deregulated natural gas and deregulated electricity and the provision of equipment and services offered by heating oil companies or by any companies offering any such products for
 
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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 Restricted Subsidiaries) 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 pursuant to 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 shall initially be the Trustee.
“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02 under 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 such security is due and payable, including pursuant to any mandatory redemption provision, but shall not include any contingent obligations to repay, redeem or repurchase 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 which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership and joint venture interests) entitled (without regard 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 or indirectly, 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 otherwise specified herein, each reference to a Subsidiary will refer to a Subsidiary of the Company.
 
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“Termination Capital Transactions” means any sale, transfer or other disposition of property of the Company occurring upon or incident to the liquidation 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 as provided 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 constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly 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 obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields 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 traded United 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 second Business Day preceding the applicable redemption date and (b) prior to such redemption date file with the Trustee an Officers’ Certificate setting forth the Applicable 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 vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar 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 such person’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 such Person:
(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 the satisfaction thereof.
Notwithstanding the foregoing, the Company or a Restricted Subsidiary may Guarantee or agree to provide funds for the payment or maintenance of, or otherwise
 
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become liable with respect to Indebtedness of an Unrestricted Subsidiary, but only to the extent that the Company or a Restricted Subsidiary would be permitted 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 an Unrestricted Subsidiary to be a Restricted Subsidiary;  provided  that immediately after giving effect to the designation there exists no Default or Event of Default, and if the Unrestricted Subsidiary has, as of the date of the designation, outstanding Indebtedness other than Permitted Indebtedness, the Company 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, holds Capital 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 full faith 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 of America 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) of the 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) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such 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, including payment 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
 
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(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 be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively.
SECTION 1.2 Other Definitions.

Term	  	Defined in
Section	
“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)	
 
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SECTION 1.3 Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated 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 have the 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 unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown 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 maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater.
 
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ARTICLE II
The Securities
SECTION 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 Securities issued 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 in accordance 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 or  9.5  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 form of 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 this Indenture. Securityholders of the Initial Securities, the Additional Securities and the Exchange Securities will vote and consent together on all matters to which such Securityholders are entitled to vote or consent as one class, and none of the Securityholders of the Initial Securities, the Additional Securities or the 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 the Issuers, J.P. Morgan Securities LLC and the other initial purchasers named therein. The Initial Securities and any Additional Securities (if issued as restricted Global Securities) (the “ Additional Global Securities ”) will be resold initially only to (A) qualified institutional buyers (as defined in Rule 144A under the Securities 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) who are not QIBs (“ IAIs ”) in accordance with Rule 501 of the Securities Act in accordance with the procedure described herein.
 
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Initial Securities and Additional Global Securities offered and sold to qualified institutional buyers in the United States of America in reliance on Rule 144A (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 144A Global 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 to be represented by a single certificate. The aggregate principal amount of the Rule 144A Global Security may from time 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.
Initial Securities and Additional Securities offered and sold outside the United States of America (the “Regulation S Securities”) in reliance on Regulation S shall be issued in the form of a permanent global Security, without interest coupons, substantially in the form of  Exhibit A  (the “ Regulation S Global 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 to be represented by a single certificate. The aggregate principal amount of the Regulation S Global Security may from time 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.
Initial Securities and Additional Securities resold to IAIs (the “Institutional Accredited Investor Securities”) in the United States of America shall be issued in the form of a permanent global Security, without interest coupons, substantially in the form of  Exhibit A  (the “ Institutional Accredited Investor Global 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 maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Institutional Accredited Investor Global Security may from time 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 Investor Securities will be issued in the form of a permanent global Security, without interest coupons, substantially in the form o f Exhibit B , which is hereby incorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth in  Section 2.1 (d) (the “ Exchange Global Security ”). The Exchange Global Security may be represented by more than one certificate, if so required by DTC’s rules 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 Global Security are sometimes collectively herein referred to as the “ Global Securities. ”
 
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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 purpose in 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 addresses shall 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 Securities represented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified 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 A  and  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 this Indenture and, to the extent applicable, the Issuers and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by such terms.
(c) Denominations. The Securities shall be issueable only in fully registered form, without coupons, and only in denominations of $2,000 and integral 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 Investor Securities are sold under an effective registration statement or (ii) the Rule 144A Securities, the Regulation S Securities and the Institutional Accredited Investor 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 “ Private Placement Legend ”) on the face thereof:
“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH 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, THE ORIGINAL ISSUE DATE OF THE ISSUANCE OF ANY ADDITIONAL SECURITIES AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF ANY ISSUER WAS
 
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THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (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 (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER AND THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF SECURITIES OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND 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 THAT EITHER (1) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF (A) AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), (B) A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) OR PROVISIONS UNDER ANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY, “SIMILAR LAWS”) OR (C) AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE “PLAN ASSETS” OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENT, OR (2) THE ACQUISITION AND HOLDING OF THIS SECURITY OR ANY INTERESTS HEREIN WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAW.”
 
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(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 THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH 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 THE DATE ON WHICH THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) WAS FIRST OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN RULE 902 OF REGULATION S) IN RELIANCE ON REGULATION S, ONLY (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (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 (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER AND THAT IS PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANOTHER INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF SECURITIES OR (F) PURSUANT TO ANOTHER 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 THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
 
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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 THAT EITHER (1) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST HEREIN CONSTITUTES THE ASSETS OF (A) AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), (B) A PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) OR PROVISIONS UNDER ANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY “SIMILAR LAWS”) OR (C) AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE “PLAN ASSETS” OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENT, OR (2) THE ACQUISITION AND HOLDING OF THIS SECURITY OR ANY INTEREST HEREIN WILL NOT CONSTITUTE A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA 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 NEW YORK 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 AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THIS INDENTURE REFERRED TO ON THE REVERSE HEREOF.”
(e) Book-Entry Provisions.
 
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(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 Global Security held on their behalf by DTC or by the Trustee as the custodian of DTC or under such Global Security, and DTC may be treated by the Issuers, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a Securityholder of a beneficial interest in any Global Security.
(iv) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to subsection (f) of this Section 2.1  to beneficial owners who are required to hold Definitive Securities, the Securities Custodian shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial 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 Trustee shall 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 Agent Members and persons that may hold interests through Agent Members, to take any action which a Securityholder is entitled to take under this 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 Definitive Securities. If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for their beneficial interests in a Global Security upon written request in accordance with DTC’s and the Registrar’s procedures. In addition, Definitive Securities shall be
 
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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 to continue 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 to be 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) the Company executes and delivers to the Trustee and Registrar an Officers’ Certificate stating that such Global Security shall be so exchangeable or (c) an Event of 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 Definitive Security 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 Trustee shall cancel such Definitive Security, and the Issuers shall execute, and the Trustee shall authenticate and deliver, to the transferring Securityholder 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 valid nevertheless.
A Security shall not be valid until an authorized signatory of the Trustee manually authenticates the Security. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. A Security shall be dated the 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 a written 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 of the 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 of Securities 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 by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by the Authenticating Agent.
 
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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 otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which any Issuer shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to  Article IV , any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Issuers’ Order of the successor Person, shall authenticate and deliver Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in 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, such successor Person, at the option of the Securityholders but without expense to them, shall provide for the exchange of all Securities at the time outstanding for Securities 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 transfer or for exchange (the “ Registrar ”) and an office or agency where Securities may be presented for payment (the “ Paying Agent ”). The Registrar shall keep a register of the Securities and of their transfer and exchange (the “ Security Register ”). The Issuers may have one or more co-registrars and one or more additional 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 shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuers shall notify the Trustee of 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 to appropriate compensation therefor pursuant to  Section 7.7 . The Issuers or any of their Restricted Subsidiaries may act as Paying Agent, Registrar, co-registrar or 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 interest on 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 or interest 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 the benefit 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 notify the 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 segregate the 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 pay all 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 (if other than any Issuer or a Subsidiary)
 
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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 the names 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 the Trustee, 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 such form 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 Investor Security 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 Company was 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 shall be 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 own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the 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 received such information regarding the Issuers 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 is relying upon its foregoing representations in order to claim 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 shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in  Section 2.7  from the proposed transferee and, if requested by the Issuers or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory 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 the proposed transferee and, if requested by the Issuers or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them.
 
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(b) The following provisions shall apply with respect to any proposed transfer of a Regulation S Security prior to the expiration of the Restricted Period:
(i) a transfer of a Regulation S Security or a beneficial interest therein to a QIB shall be made upon the representation of the transferee, in the form of assignment on the reverse of the certificate, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the 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 received such information regarding the Issuers 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 is relying upon its foregoing representations in order to claim the exemption from registration 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 its agent of a certificate substantially in the form set forth in  Section 2.7  from the proposed transferee and, if requested by the Issuers or the Trustee, 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 the Trustee or its agent of a certificate substantially in the form set forth in  Section 2.8  hereof from the proposed transferee and, if requested by the Issuers or the Trustee, receipt by the Trustee or its agent of an opinion of counsel, certification and/or other information satisfactory 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 in Section 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 Securities Legend, the Registrar shall deliver Securities that do not bear a restricted Global Securities Legend. Upon the transfer, exchange or replacement of Securities bearing a restricted Global Securities Legend, the Registrar shall deliver only Securities that bear a restricted Global Securities Legend unless there is delivered 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 maintain compliance 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 giving of reasonable prior written notice to the Registrar.
 
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(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 require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 3.7 ,  3.9  or  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 of such 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 Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Issuers, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary.
(v) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(e) shall, except as otherwise provided by  Section 2.6(c) , bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth 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 and shall 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 a participant in, DTC or other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Securities
 
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(or other security or property) under or with respect to such Securities. All notices and communications to be given to the Securityholders and all payments to be made to Securityholders in respect of the Securities shall be given or made only to or upon the order of the registered Securityholders (which shall be DTC or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee may rely and shall be fully protected in conclusively relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among DTC participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of 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 Company
c/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 Gas Partners, 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:
 
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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 the Securities, 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. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Securities and 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 each able 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 as permitted 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 or otherwise 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 any affiliate 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 of Rule 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 own account 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 that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional “accredited investor” within the meaning of 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 “accredited investor,” in each case in a minimum principal amount of Securities of $250,000 or (f) pursuant to any other available exemption from the registration requirements 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 such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Issuers and the Trustee, which shall provide, among other things, that the transferee is an institutional “accredited investor” (within the meaning 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 in violation 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 to the 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/or other information satisfactory to the Issuers and the Trustee.

TRANSFEREE: 	 	 	

 	 	
BY: 	 	 	
 
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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 Company
c/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 to and 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 behalf reasonably 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) of Regulation 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 applicable thereto, 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 interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S.
 
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Very truly yours,	
 	
[Name of Transferor]	
 	
By:                                                                                                  	

Authorized Signature	
SECTION 2.9 Mutilated, Destroyed, Lost or Stolen Securities. If a mutilated Security is surrendered to the Registrar or if the Securityholder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Issuers shall issue and the Trustee shall authenticate a replacement Security if 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 a reasonable time after such Securityholder has notice of such loss, destruction or wrongful taking and the Registrar does not register a transfer prior to receiving such notification, (b) makes such request to the Issuers or the Trustee prior to the Security being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a “protected purchaser”) and (c) satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Securityholder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Issuers, 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 the absence 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’ Order the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, 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 other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith.
Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Issuers (if applicable) and any other obligor upon the Securities, whether or not the mutilated, destroyed, lost or stolen Security shall 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 Securities duly issued hereunder.
 
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The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment 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 by it, 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 be outstanding in the event the Issuers or a Subsidiary of the Issuers holds the Security,  provided ,  however , that (i) for purposes of determining which are outstanding for consent or voting purposes hereunder, the provisions of  Section 10.6  shall apply and (ii) in determining whether the Trustee shall be protected in making a determination whether the Securityholders of the requisite principal amount of outstanding Securities are present at a meeting of Securityholders 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 Trustee actually 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 that the 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 all principal 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 Paying Agent 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 such Securities (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 Definitive Securities are ready for delivery, the Issuers may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Issuers consider appropriate for temporary Securities. Without unreasonable delay, the Issuers shall prepare and the Trustee shall authenticate Definitive Securities. After the preparation of Definitive Securities, the temporary Securities shall be exchangeable for Definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Issuers for that purpose and such exchange 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 principal amount of Securities. Until so exchanged, the Securityholder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as 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 shall forward to the Trustee any
 
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Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment or cancellation and dispose of such Securities in accordance with its internal policies (subject to the record retention requirements of the Exchange Act). The Issuers may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation 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 any interest 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 on the 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 of 30 days shall forthwith cease to be payable to the Securityholder on the regular record date by virtue of having been such Securityholder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively 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 predecessor Securities) 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 fixed in 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 the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to 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 entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a record date (the “ Special Record Date ”) for the payment of such Defaulted 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 days after 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 the name 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 Interest Payment 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 proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor having been so given, such Defaulted Interest shall be paid on the Special Interest Payment Date to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at the close 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 securities exchange on which the
 
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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 proposed payment 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 exchange for 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 shall use “CUSIP” numbers in notices of redemption as a convenience to Securityholders;  provided ,  however , that any such notice may state that no representation is 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 placed only 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 CUSIP numbers. The Issuers shall promptly notify the Trustee in writing of any change in the CUSIP numbers.
ARTICLE III
Covenants
SECTION 3.1 Payment of Securities. The Issuers shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided 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 the Paying 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 of interest 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 withhold income 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 Exchange Act, to the extent permitted by the Exchange Act, the Company shall file with the Commission, and make available to the Trustee and the registered Securityholders of the Securities, all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 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’s Discussion and Analysis of Financial Condition and Results of Operations, and all current reports that are required to be filed with the Commission on Form 8-K, and any successor or substitute form thereto, if the Issuers were
 
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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 filed pursuant 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 permitted to file such reports, documents and information with the Commission pursuant to the Exchange Act, the Issuers will nevertheless provide such Exchange Act information to the Trustee and, upon request, to the Securityholders of the Securities as if the Issuers were subject to the reporting requirements of Section 13 or 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 Subsidiaries to, directly or indirectly, create, Incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for the payment, 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 the proceeds of the Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.00 to 1.00; provided that the foregoing restrictions 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 set forth 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 its Restricted Subsidiaries or any payment made to the direct or indirect holders, in their capacities as such, of Capital Stock of the Company or any of its Restricted Subsidiaries, other than (a) dividends or distributions payable solely in Capital Stock of the Company (including Common Stock, but excluding Redeemable Capital Stock), or in options, warrants or other rights to purchase Capital Stock of the Company (including Common Stock, but excluding Redeemable Capital Stock); (b) dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary of the Company; or (c) dividends or other distributions by any Restricted Subsidiary of the Company to all holders of Capital 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 Restricted Subsidiaries, 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 scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any subordinated Indebtedness of the Company, other than any such Indebtedness owed to the Company or a Restricted Subsidiary; or
 
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(4) make any investment, other than a Permitted Investment, in any entity, unless, at the time of and after giving effect to the proposed Restricted 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 Restricted Subsidiaries 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 for the 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 the Company, or issuance and sale of shares of Capital Stock, other than Redeemable Capital Stock, of the Company to any entity other than to a Restricted Subsidiary 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 date of the Restricted Payment and beginning on the Issue Date, less the aggregate amount of all Restricted Payments made by the Company and its Restricted Subsidiaries in accordance with this clause during the period ending on the last day of the fiscal quarter of the Company immediately preceding the date of the 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 payment would 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 any Restricted Subsidiary of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to the Company from any entity other than a Restricted Subsidiary of the Company; or issuance and sale of other Capital Stock, other than Redeemable Capital Stock, of the Company to any entity other than to a Restricted Subsidiary of the Company;  provided ,  however , that the amount of any net cash proceeds that are utilized for any redemption, repurchase or other acquisition or retirement will be excluded from the calculation of Available Cash;
(3) the repurchase of any Common Stock or the payment of any dividend or distribution under any employment agreement, stock or unit option agreement, or restricted stock agreement not to exceed $1 million in any calendar year and not to exceed $5 million in the aggregate amount since the Issue Date; or
 
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(4) any redemption, repurchase or other acquisition or retirement of subordinated Indebtedness of the Company in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to the Company from any entity other than a Restricted Subsidiary of the Company; or issuance and sale of Indebtedness of the Company issued to any entity other than a Restricted Subsidiary or the Company, so long as the Indebtedness is Permitted Refinancing Indebtedness;  provided ,  however , that the amount of any net cash proceeds that are utilized for any redemption, 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 Restricted Payments 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 of the Restricted Payment of the assets proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted 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 a Permitted 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 Subsidiaries to, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (all such restrictions 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 or participation 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:
 
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(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 instruments evidencing Indebtedness Incurred after the Issue Date); provided that such encumbrances or restrictions contained in any such agreement or instrument, incurred after the Issue Date will not materially adversely affect the Company’s ability to make anticipated principal or interest payments 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 Restricted Subsidiary;
(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 at the time of the acquisition but not created in contemplation of the acquisition, which encumbrance or restriction is not applicable to any third party 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 the obligor 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) of this paragraph or this clause (8); provided, that such amendment, modification, renewal, refunding, replacement or refinancing will not materially adversely affect the Company’s ability to make anticipated principal or interest payments on the Securities (as determined by the Board 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 Sale unless:
(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 the fair 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:
 
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(1) the amount of any liabilities on the Company’s or any Restricted Subsidiary’s balance sheet that are assumed by the transferee of the assets; and
(2) the amount of any notes or other obligations received by the Company or the Restricted Subsidiary from the transferee that is converted 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 is equal 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 fiscal year, then within 360 days after the date the aggregate amount of Net Proceeds exceeds $10 million, the Company must apply the amount of such Net Proceeds, to the extent not already so applied, either (i) to reduce senior Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, with a permanent reduction of availability, in the case of revolving Indebtedness, or (ii) to make an investment in assets (except any assets that are classified as current 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 Related Business. Any Net Proceeds that are not applied or invested as set forth above, will be considered “ Excess Proceeds ”.
(e) On the 361st day after an Asset Sale, if the aggregate amount of Excess Proceeds exceeds $10 million, the Company will be required to make an 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 Excess Proceeds 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 the procedures 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 applicable securities laws, notwithstanding any provision of this Indenture to the contrary. To the extent that the aggregate amount of Securities tendered in response to any such purchase offer is less than the Excess Proceeds, the Company or any Restricted Subsidiary may use such excess amounts for general business purposes, subject to other covenants contained in the Indenture. If the aggregate principal amount of the Securities surrendered by the Securityholders exceeds the amount of Excess Proceeds, the Trustee shall select the Securities to be purchased in accordance with the procedures for selection and notice of redemption set forth herein. Notwithstanding the foregoing, if the Issuers make this purchase offer at any time when the Issuers have securities outstanding ranking 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 other securities, 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 a pro rata basis in proportion to the aggregate principal amount of securities of each issue which their holders elect to have purchased. Upon completion of the offer to the Securityholders, the amount of Excess Proceeds shall be reset at zero.
 
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SECTION 3.8 Limitation on Affiliate Transactions. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or otherwise cause any transaction or series of related transactions, including the sale, transfer, disposition, purchase, exchange or lease of 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 Company unless:
(1) the transaction or series of related transactions are between the Company and its Restricted Subsidiaries or between two Restricted Subsidiaries; or
(2) the transaction or series of related transactions are on terms that are no less favorable to the Company or the Restricted Subsidiary, as the 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 of the Company or Restricted Subsidiary, and, with respect to transaction(s) involving aggregate payments or value equal to or greater than $5 million, the Company shall have delivered an Officers’ Certificate to the Trustee certifying that the transaction(s) is on terms that are no less favorable to the Company or the Restricted Subsidiary than those which would have been obtained from an entity that is not an Affiliate of the Company or Restricted Subsidiary and has been approved by a majority of the Board of Directors, including a majority of the disinterested directors.
(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) or otherwise be restricted by this Indenture or the Securities:
(1) any employment agreement, stock option agreement, restricted stock agreement, employee stock ownership plan related agreements, or similar 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 of retained 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 repurchase all 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 the aggregate principal amount of the Securities or portion of Securities validly tendered for payment thereof plus accrued and unpaid interest on the Securities repurchased, if any, to the date of purchase (the “ Change of Control Payment ”). Within 30 days
 
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following any Change of Control, the Issuers will mail a notice to each Securityholder describing the transaction or transactions that constitute the Change of Control 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 for payment;
(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 the Change 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 the Securities, with the form entitled “Option of Securityholder to Elect Purchase” on the reverse of the Securities completed, to the Paying Agent at the 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 later than the close of business on the second Business Day preceding the Change of Control Payment Date, a facsimile transmission or letter setting forth the name of the Securityholder, the principal amount of Securities delivered for purchase, and a statement that such Securityholder is withdrawing 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 the unpurchased portion of the Securities surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple 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 the extent 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 the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers will comply with the applicable securities laws and regulations 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;
 
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(2) deposit an amount equal to the Change of Control Payment for the Securities with the Paying Agent in respect of all Securities or portion 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 aggregate principal 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 will promptly authenticate and mail (or cause to be transferred by book entry) to each Securityholder a new Security equal in principal amount to any unpurchased 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 of Control 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 unpaid interest, 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 be payable 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 an indenture or other agreement that may be violated by such payment shall have consented to such Change of Control Offer being made and waived the event of default, if any, caused by the Change of Control or (ii) the Company will repay all outstanding Indebtedness issued under an indenture or other agreement that 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 make payment to the holders of such Indebtedness that accept such offer and obtain waivers of any event of default from the remaining holders of such Indebtedness. 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 a Change 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 forth in 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, enter into any Sale and Leaseback Transaction with respect to their properties unless the Company or the Restricted Subsidiary would be permitted under this Indenture to Incur Indebtedness secured by a Lien on the property in an amount equal to the Attributable Debt with respect to the Sale and Leaseback Transaction.
SECTION 3.11 Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Related Business.
 
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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 Indebtedness unless:
(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, or used, 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 surrendered for payment, where, if applicable, the Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuers in respect of the Securities and this Indenture may be served. The designated corporate trust office of the Trustee, or if the Trustee’s designated corporate 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 “ Corporate Trust 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 such purposes. 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 shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands 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 such presentations, 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 may be 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 notice to 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 things necessary 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 the partnership or corporate rights (charter and statutory) licenses and franchises of the Company and each Restricted Subsidiary;  provided ,  however , that the Company shall not be required to preserve any such existence (except the Company and the Co-Issuer), right, license or franchise if the Board of Directors shall 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 the Securities 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 become delinquent, (i) all material taxes,
 
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assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (ii) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a material liability or Lien upon the property 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 faith judgment of management of the Company), are being maintained in accordance with GAAP or where the failure to pay or discharge the same would not have a 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 or indirectly, 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 to any 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 is paid 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 Issuers an Officers’ Certificate, one of the signers of which shall be a principal executive officer, the principal accounting officer or the principal financial officer of the 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 of any 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, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company 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 instruments and 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 after the 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 of Default, 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 in force, 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 benefit or advantage of any such law, and covenant that they will not, by resort to any such law,
 
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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 no such law had been enacted.
ARTICLE IV
Successor Company
SECTION 4.1 Merger, Consolidation or Sale of Assets. The Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or 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 to which the sale was made is a corporation or partnership organized or existing under the laws of the United States, any state thereof or the District of 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 the obligations of the Company in accordance with a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Securities and 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 applicable four-quarter period, the Company or such other entity or survivor is permitted to Incur at least $1.00 of additional Indebtedness in accordance with 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 otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another entity except under conditions described in the paragraph 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 and assets of one or more Subsidiaries of the Company (including any disposition by means of any merger, consolidation or similar transaction), which properties and 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 a consolidated 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 be substituted for, and may exercise every right and power of the Company under this Indenture; provided that, in the case of a lease
 
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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 V
Redemption of Securities
SECTION 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 the redemption 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 this Indenture, 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 of this 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 by a 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 to the 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 shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver 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 optional redemption, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the outstanding Securities not previously called for redemption, in compliance with the requirements of the principal securities exchange, if any, on which such Securities 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 of the 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 partial redemption, 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 of any 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.
 
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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 60 days prior to the Redemption Date, to each Securityholder of Securities to be redeemed. The Trustee shall give notice of redemption in the Issuers’ names and at the Issuers’ expense;  provided ,  however , that the Issuers shall deliver to the Trustee, at least 35 days prior to the Redemption Date, an Officers’ Certificate requesting 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 following items.
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 be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding 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 the Redemption Date, upon surrender of such Security, the Securityholder will receive, without charge, a new Security or Securities of authorized denominations 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 in Section 5.7 ) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and, unless the Issuers default in making the redemption payment, that interest on Securities called for redemption (or the portion thereof) will cease to accrue on and after said date,
(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 such notice or printed on the Securities, and
(10) the paragraph of the Securities pursuant to which the Securities are to be redeemed.
 
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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, if either 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 the redemption 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, on the Redemption Date, become due and payable at the redemption price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Issuers shall default in the payment of the redemption price and accrued interest) such Securities shall cease to bear interest. 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 interest due 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 be surrendered 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, due endorsement by, or a written instrument of transfer in form satisfactory to the Issuers and the Trustee duly executed by, the Securityholder thereof or such Securityholder’s attorney duly authorized in writing), and the Issuers shall execute, and the Trustee shall authenticate and make available for delivery to the Securityholder of such Security at the expense of the Issuers, a new Security or Securities, of any authorized denomination as requested by such Securityholder, 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 VI
Defaults and Remedies
SECTION 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;
 
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(4) default in the performance of any of the obligations described under Section 3.9 or Section 3.7 above or under the covenants described under 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 comply with  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 period of 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 evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness 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 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 any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has 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 Restricted Subsidiary into another Restricted Subsidiary or the Company other than as part of a credit reorganization, shall not constitute an Event of Default under this clause (7);
 
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(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 audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $5 million (net of any amounts that 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 (4) and (5) of this paragraph will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Securities notify the Company of the default and the Company does not cure such default within the time specified in clauses (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, the Trustee 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 the Securities to be due and payable. Upon such a declaration, such principal, premium and accrued and unpaid interest will be due and payable immediately. In the 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 is continuing, the declaration of acceleration of the Securities shall be automatically annulled if the event of default or payment default triggering such Event of 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 the relevant Indebtedness within 20 days after the declaration of acceleration with respect thereto and if (1) the annulment of the acceleration of the Securities would 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 Default described in clauses (7) and (8) above occurs and is continuing, the principal of, premium, if any, and accrued and unpaid
 
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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 any judgment 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 of principal 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 or omission 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 or constitute 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, or interest 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 each Securityholder affected and (b) rescind any such acceleration with respect to the Securities and its consequences if such rescission would not conflict with any 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 shall extend 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, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee 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 unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability;  provided ,  however , that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification 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 Securities unless:
 
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(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 the remedy;
(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 the opinion 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 another Securityholder (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such actions or forbearances are unduly prejudicial 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, on or 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, shall not 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 may recover 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 any unpaid 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 or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Issuers, the Company’s Subsidiaries or its or their respective creditors or properties and, unless prohibited by law or applicable regulations, may vote on behalf of the Securityholders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Securityholder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents 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 the following order:
 
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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, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and
THIRD: 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 record date, 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 for any 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 costs of 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 suit by 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 the Securities.
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) by or 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 to redeem the Securities pursuant to the optional redemption provisions of this Indenture or was required to repurchase the Securities, an equivalent premium shall 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 occurs prior 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 the prohibition on redemption of the Securities prior to December 1, 2014, the premium specified in this Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Securities.
ARTICLE VII
Trustee
SECTION 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 it by 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 conduct of 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 or powers under this Indenture at the request or direction of any of the Securityholders unless such
 
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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 implied covenants 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 the opinions 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 this Indenture (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 was negligent 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 received by 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 the performance 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 of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 
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(h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the 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 signed by 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 any of 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 corporate trust office responsible for the administration of its duties hereunder shall have actual knowledge thereof or the Trustee shall have received written notice thereof 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 to have 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 be liable 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 appointed with 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 or powers, 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 this Indenture and the Securities shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder 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
 
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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 at the 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 of the form of action.
(h) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
(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 such time 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 may otherwise 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 this Indenture 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 statement of 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 certificate of 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, the Trustee 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 has knowledge 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 if and 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 following the 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 15 that complies with TIA § 313(a). The Trustee also shall
 
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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 Securities are listed. The Company agrees to notify promptly the Trustee in writing whenever the Securities become listed on any stock exchange and of any delisting thereof.
SECTION 7.7 Compensation and Indemnity. The Issuers shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture 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 by any law on compensation of a trustee of an express trust. The Issuers shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, costs of preparing and reviewing reports, certificates and other documents, costs of preparation and mailing of notices to Securityholders, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Issuers shall indemnify the Trustee against any and all loss, liability, damages, claims or expense (including reasonable attorneys’ fees and expenses) incurred by it without negligence or willful misconduct on its part in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture (including this  Section 7.7 ) and of defending itself against any claims (whether asserted by any Securityholder, the Issuers or otherwise). The Trustee 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 the Issuers of their obligations hereunder. The Issuers shall defend the claim and the Trustee shall provide reasonable cooperation at the Issuers’ expense in the defense. 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 required to 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 of interest between the Issuers and the Trustee in connection with such defense. The Issuers shall not be under any obligation to pay for any written settlement without its consent, which consent shall not be unreasonably delayed, conditioned or withheld. The Issuers need not reimburse any expense or indemnify against 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 or collected 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 the occurrence 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 of administration 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 principal amount of the Securities may
 
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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 such Securityholders 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 such event 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 or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee 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 the Securityholders of at least 10% in principal amount of the Securities may petition, at the Issuers’ expense, any court of competent jurisdiction for the appointment 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, any Securityholder who has been a bona fide Securityholder of a Security for at least six months may petition any court of competent jurisdiction for the removal of 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 the benefit 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 corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor 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 this Indenture, any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the
 
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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 cases such 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 combined capital 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 certificates of 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. This Indenture 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 relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.1 Discharge of Liability on Securities; Defeasance. (a) Subject to Section 8.1(c), when (i)(x) the Issuers deliver to the Trustee all outstanding Securities (other than Securities replaced pursuant to  Section 2.9 ) for cancellation or (y) all outstanding Securities not theretofore delivered for cancellation 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 for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption pursuant to  Article V  hereof and the Issuers irrevocably 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 to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued 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 or shall 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 which each 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 and the Securities; and (iv) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of such Securities at maturity or the Redemption Date, as the case may be, then the Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Issuers (accompanied by an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with) and at the cost and expense of the Issuers.
 
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(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 (“ legal defeasance option ”), and after giving effect to such legal defeasance, any omission to comply with such obligations shall no longer constitute a Default or Event 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 comply with 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 any reference 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 document and 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 the operation 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 a Significant 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 may exercise 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 Issuers exercise 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 Significant Subsidiary or group of Restricted Subsidiaries that would constitute a Significant Subsidiary),  6.1(9)  or because of the failure of the Issuers to comply with  Section 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 those obligations 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’ obligations in  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. Government Obligations or a combination thereof for the payment of principal, premium, if any, and interest on the Securities to maturity or redemption, as the case may be;
(2) the Issuers deliver to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash
 
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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 bankruptcy or 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 or any 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 its Subsidiaries is bound;
(5) the Issuers shall have delivered to the Trustee an Opinion of Counsel (subject to customary assumptions and exclusions) to the effect that (A) the Securities and (B) assuming no intervening bankruptcy of the Issuers between the date of deposit and the 91st day following the deposit 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 be subject 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 trust resulting 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 customary assumptions and exclusions) in the United States stating that (i) the Company has received from, or there has been published by, the Internal Revenue 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 to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for federal 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 and at 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 to customary assumptions and exclusions) in the United States to the effect that the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to federal income tax on the same amount, in the 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 the defeasance and
 
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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 this  Article VIII . It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture 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 for the payment of principal of or interest on the Securities that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to 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 charge imposed 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 this Article VIII  by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Issuers under this Indenture and the Securities shall be revived and reinstated as though no deposit 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. Government Obligations in accordance with this  Article VIII ;  provided ,  however , that, if the Issuers have made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Securityholders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
SECTION 9.1 Without Consent of Securityholders. The Issuers and the Trustee may amend this Indenture or the Securities without notice to or consent of 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 Issuers under this Indenture;
 
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(3) provide for uncertificated Securities in addition to or in place of certificated Securities (provided that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Securities are described in Section 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 (except that the transfer restrictions contained in the Securities shall be modified or eliminated as appropriate) and which shall be treated, together with any 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 offering 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 the extent 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. The failure 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 with the 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 Securityholder affected, 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;
 
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(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 shall be 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’s Securities 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 the enforcement 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 it shall be sufficient if such consent approves the substance thereof. A consent to any amendment or waiver under this Indenture by any Securityholder of the Securities 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. The failure 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 the Securityholder and every subsequent Securityholder of that Security or portion of the Security that evidences the same debt as the consenting Securityholder’s Security, even if notation of the consent or waiver is not made on the Security. However, any such Securityholder or subsequent Securityholder may revoke the consent or waiver as to such Securityholder’s Security or portion of the Security if the Trustee receives the notice of revocation 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  as applicable.
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 take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were
 
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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 consent previously given or to take any such action, whether or not such Persons continue to be Securityholders after such record date. No such consent shall become valid 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 of the 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 the Securityholder. Alternatively, if the Issuers or the Trustee so determines, the Issuers in exchange for the Security shall issue and the Trustee shall authenticate a 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 such amendment.
SECTION 9.6 Trustee to Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article IX if the amendment does not adversely 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 the Trustee 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 in conclusively relying upon an Officers’ Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture and is the legal, valid and binding obligation of the Issuers, enforceable in accordance with its terms.
ARTICLE X
Miscellaneous
SECTION 10.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be 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 mail addressed as follows:
if to the Issuers:
Star Gas Partners, L.P.
2187 Atlantic Street
Stamford, Connecticut 06902
Attention: Daniel P. Donovan, Chief Executive Officer
FAX: (203) 325-7470
with a copy to:
Phillips Nizer LLP
666 Fifth Avenue
New York, NY 10103
Attention: Alan Shapiro, Esq.
FAX: (212) 262-5152
 
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if to the Trustee:
Union Bank, N.A.
Attention: Corporate Trust Department
551 Madison Avenue, 11th Fl.
New York, NY 10022
FAX: (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 appears on 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. If a 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 other Securityholders with respect to their rights under this Indenture or the Securities. The Issuers, the Trustee, the Registrar and anyone else shall have the protection 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 from taking 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, all conditions 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 such conditions 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 condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion has read such covenant or condition;
 
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(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such 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 to express 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 concurred in any direction, waiver or consent, Securities owned by the Issuers or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuers shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Trust Officer of the Trustee actually knows are so owned 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 or required 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, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. EACH OF THE ISSUERS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, 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 based on, in respect of or by reason of such obligations or their
 
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creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration 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 of the 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 them together 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 limited to, costs and expenses of qualification of this Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers’ Certificates or other documentation as it may reasonably request in connection with any such qualification of this 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 Indenture have 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 or provisions 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 obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of 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 with accepted 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 all financial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide 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]
 
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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 Partner	
 	 	
By:	 	 	
 	 	 	
 	 	Name:	
 	 	Title:	
 	
STAR GAS FINANCE COMPANY	
 	 	
By:	 	 	
 	 	 	
 	 	Name:	
 	 	Title:	
 	
UNION BANK, N.A.
as Trustee	
 	 	
By:	 	 	
 	 	 	
 	 	Name:	
 	 	Title:	
 
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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 COMPANY
8.875% Senior Notes due 2017
Star Gas Partners, L.P., a Delaware limited partnership (such partnership herein called the “Company”), and Star Gas Finance Company, a Delaware corporation, (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 (as appointed by DTC) (the “Securities Custodian”), 1  on December 1, 2017 pursuant to the Indenture (as defined below).
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Additional provisions of this Security are set forth on the other side of this Security.

1	Global Security only.	
 
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STAR GAS PARTNERS, L.P.	
 	 	
By:	 	KESTREL HEAT LLC, its General Partner	
 	 	
By:	 	 	

STAR GAS FINANCE COMPANY	
 	 	
By:	 	 	

 	 	 	 	 	 	 	
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:	 	 	

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[FORM OF REVERSE SIDE OF SECURITY]
8.875% Senior Notes due 2017
 
1.	Interest	
Star Gas Partners, L.P., a Delaware limited partnership (such partnership being herein called the “Company”), and Star Gas Finance Company, a Delaware corporation, (such corporation, together with the Company, under the Indenture hereinafter referred to, being herein called the “Issuers”), promise to pay 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 from the 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 interest on 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. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
 
2.	Method of Payment	
By 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 shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Issuers will pay interest (except Defaulted Interest) to the Persons who are registered Securityholders of Securities at the close of business on the May 15 or November 15 next preceding the interest 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 United States 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 Depository Trust Company. The Issuers will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Securityholder thereof.
 
3.	Paying Agent and Registrar	
Initially, 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.	Indenture	
The Issuers issued the Securities under an Indenture dated as of November 16, 2010 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the
 
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“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 by reference 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 herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject 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 and delivered 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 and subordinated debt; enter into agreements that restrict dividends from Restricted Subsidiaries; sell assets; enter into transactions with Affiliates; sell Capital Stock of Restricted Subsidiaries; merge or consolidate; enter into different lines of business and pay consent fees.
 
5.	Redemption	
Except 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 percentage of 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 on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period beginning on December 1 of the 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 or more Public Equity Offerings to redeem up to 35% of the aggregate principal amount of the Securities (including any Additional Securities) issued under this Indenture at a redemption price equal to 108.875% of the aggregate principal amount of the Securities to be redeemed, plus accrued and unpaid interest, if any, 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 principal amount of Securities issued under this Indenture on the Issue Date remains outstanding immediately after giving effect to any such redemption; and (3) the Issuer makes such redemption not more than 60 days after the consummation of any such Public Equity Offering.
 
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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 30 nor 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 principal amount 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 be payable 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 national securities 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 the Trustee 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 in part. 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 to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of 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 such Securityholder 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, and subject 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 to apply 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 the Indenture.
 
7.	Denominations; Transfer; Exchange	
The 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, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register 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 redeem Securities and ending at the close of
 
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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 payment date.
 
8.	Persons Deemed Owners	
The registered Securityholder of this Security may be treated as the owner of it for all purposes.
 
9.	Unclaimed Money	
If 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 Issuers at their request unless an abandoned property law designates another Person. After any such payment, Securityholders entitled to the money must look only to the Issuers and not to the Trustee for payment.
 
10.	Defeasance	
Subject to certain conditions set forth in the Indenture, the Issuers at any time may terminate some or all of their obligations under the Securities and the Indenture if the Issuers deposit with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be.
 
11.	Amendment, Waiver	
Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without notice to any Securityholder but with the written consent of the Securityholders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment or in respect of a provision that cannot be amended without the written consent of each Securityholder affected) or noncompliance with any provision may be waived with the written consent of the Securityholders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuers and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with  Article IV  of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities, to secure the Securities, or to add 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 with qualifying 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 the issuance of Exchange Securities or to conform the text of the Indenture or the Securities to any provision under the heading “Description of Notes” in the offering 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 the extent such provision in the offering memorandum is intended to be a recitation of a provision of the Indenture or the Securities.
 
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12.	Defaults and Remedies	
Under the Indenture, Events of Default include in summary form: (i) default for 30 days in payment of interest or additional interest when due on the Securities; (ii) default in payment of principal or premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemption pursuant 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 IV of 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 covenants described 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 given notice (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 to comply 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 default shall have continued for a period of 60 days after the Issuers shall have been given notice; (vi) default under any mortgage, indenture or instrument under which 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 Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to each of the Issuers 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 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 there has been a Payment Default or the maturity of which has 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 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 Restricted Subsidiary into another Restricted Subsidiary or the Company other 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 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 (ix) failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $5.0 million (net of any 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
 
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“judgment default provision”). However, a default under clauses (iv) and (v) will not constitute an Event of Default 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 case of 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 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 at least 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 of Default 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 or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Securityholders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event 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 Issuers	
Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or 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 the Issuers or their Affiliates with the same rights it would have if it were not Trustee.
 
14.	No Recourse Against Others	
No 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, such obligations of their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities.
 
15.	Authentication	
This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security.
 
16.	Abbreviations	
Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (=
 
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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 Numbers	
Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation 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 be placed only on the other identification numbers placed thereon.
 
18.	Governing Law	
This Security shall be governed by, and construed in accordance with, the laws of the State of New York; without regard to conflicts of law principles thereof.
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 the text of this Security in larger type. Requests may be made to:
Star Gas Partners, L.P.
Star Gas Finance Company
1287 Atlantic Street
Stamford, Connecticut 06902
Attention: Chief Financial Officer
 
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ASSIGNMENT FORM
To 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.	
The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership 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 the later 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 the Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:

1 ¨ •	  	acquired for the undersigned’s own account, without transfer; or	
 	 	
2 ¨ •	  	transferred to the Issuers; or	
 	 	
3 ¨ •	  	transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”); or	
 	 	
4 ¨ •	  	transferred pursuant to an effective registration statement under the Securities Act; or	
 
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5 ¨ •	  	transferred pursuant to and in compliance with Regulation S under the Securities Act; or	
 	 	
6 ¨ •	  	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 which letter appears as Section 2.7 of the Indenture); or	
 	 	
7 ¨ •	  	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 than the registered Securityholder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee or the Issuers may require, prior to registering any such transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Issuers may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act.

 	 	 	  	 	
 	 	 	  	Signature	
 	 	 	
Signature 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 with membership 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.
 
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The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment 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 the Issuers 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 is relying 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 PURCHASE
If 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 in principal 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 with membership 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 COMPANY
8.875% Senior Notes due 2017
Star Gas Partners, L.P., a Delaware limited partnership (such partnership herein called the “Company”), and Star Gas Finance Company, a Delaware corporation, (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 (as appointed by DTC) (the “Securities Custodian”), 2  on December 1, 2017 pursuant to the Indenture (as defined below).
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Additional provisions of this Security are set forth on the other side of this Security.

2	Global Security only.	
 
B-1

 
 	
STAR GAS PARTNERS, L.P.	
 	
By: KESTREL HEAT LLC, its General Partner	
 	
By:                                                                                                  	
 	
STAR GAS FINANCE COMPANY	
 	
By:                                                                                                  	
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                                                                                                   	 	 	 	 	  	Date:                                          	
Authorized Signatory	 	 	 	 	  	 	
 
B-2

[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
8.875% Senior Notes due 2017
 
1.	Interest	
Star Gas Partners, L.P., a Delaware limited partnership (such partnership being herein called the “Company”), and Star Gas Finance Company, a Delaware corporation, (such corporation, together with the Company, under the Indenture hereinafter referred to, being herein called the “ Issuers ”), promise to pay 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 from the 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 interest on 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. Interest will be computed on the basis of a 360-day year of twelve 30-day months.
 
2.	Method of Payment	
By 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 shall deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Issuers will pay interest (except Defaulted Interest) to the Persons who are registered Securityholders of Securities at the close of business on the May 15 or November 15 next preceding the interest 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 United States 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 Depository Trust Company. The Issuers will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Securityholder thereof.
 
3.	Paying Agent and Registrar	
Initially, 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.	Indenture	
The Issuers issued the Securities under an Indenture dated as of November 16, 2010 (as it may be amended or supplemented from time to time in accordance 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 of the Indenture (the “ Act ”). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject 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 and delivered 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 and subordinated debt; enter into agreements that restrict dividends from Restricted Subsidiaries; sell assets; enter into transactions with Affiliates; sell Capital Stock of Restricted Subsidiaries; merge or consolidate; enter into different lines of business and pay consent fees.
 
5.	Redemption	
Except 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 percentage of 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 on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period beginning on December 1 of the 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 or more Public Equity Offerings to redeem up to 35% of the aggregate principal amount of the Securities (including any Additional Securities) issued under this Indenture at a redemption price equal to 108.875% of the aggregate principal amount of the Securities to be redeemed, plus accrued and unpaid interest, if any, 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 principal amount of Securities issued under this Indenture on the Issue Date remains outstanding immediately after giving effect to any such redemption; and (3) the Issuer 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 30 nor 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 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 be payable 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 national securities 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 the Trustee 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 in part. 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 to be redeemed. A new Security in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of 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 such Securityholder 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, and subject 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 to apply 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 the Indenture.
 
7.	Denominations; Transfer; Exchange	
The 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, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register 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 redeem Securities 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 date and ending on such interest payment date.
 
B-5

 
8.	Persons Deemed Owners	
The registered Securityholder of this Security may be treated as the owner of it for all purposes.
 
9.	Unclaimed Money	
If 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 Issuers at their request unless an abandoned property law designates another Person. After any such payment, Securityholders entitled to the money must look only to the Issuers and not to the Trustee for payment.
 
10.	Defeasance	
Subject to certain conditions set forth in the Indenture, the Issuers at any time may terminate some or all of their obligations under the Securities and the Indenture if the Issuers deposit with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be.
 
11.	Amendment, Waiver	
Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended without notice to any Securityholder but with the written consent of the Securityholders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment or in respect of a provision that cannot be amended without the written consent of each Securityholder affected) or noncompliance with any provision may be waived with the written consent of the Securityholders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuers and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with  Article IV  of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities, to secure the Securities, or to add 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 with qualifying 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 the issuance of Exchange Securities or to conform the text of the Indenture or the Securities to any provision under the heading “Description of Notes” in the offering 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 the extent such provision in the offering memorandum is intended to be a recitation of a provision of the Indenture or the Securities.
 
12.	Defaults and Remedies	
Under the Indenture, Events of Default include in summary form: (i) default for 30 days in payment of interest or additional interest when due on the Securities; (ii) default in payment of principal or premium, if any, on the Securities at Stated Maturity, upon required repurchase or upon optional redemption pursuant 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 the obligations described under  Section 3.9  or  Section 3.7  inclusive or under the covenants described 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 given notice (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 to comply 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 default shall have continued for a period of 60 days after the Issuers shall have been given notice; (vi) default under any mortgage, indenture or instrument under which 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 Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to each of the Issuers 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 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 there has been a Payment Default or the maturity of which has 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 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 Restricted Subsidiary into another Restricted Subsidiary or the Company other 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 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 (ix) failure by the Company or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $5.0 million (net of any 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 of Default 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 case of 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 after receipt 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 at least 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 of Default 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 or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Securityholders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event 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 Issuers	
Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or 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 the Issuers or their Affiliates with the same rights it would have if it were not Trustee.
 
14.	No Recourse Against Others	
No 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, such obligations of their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities.
 
15.	Authentication	
This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security.
 
16.	Abbreviations	
Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by 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 to Minors Act).
 
17.	CUSIP Numbers	
Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to 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 to the 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 other identification numbers placed thereon.
 
18.	Governing Law	
This Security shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of laws principles thereof.
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 the text of this Security in larger type. Requests may be made to:
Star Gas Partners, L.P.
Star Gas Finance Company
1287 Atlantic Street
Stamford, Connecticut 06902
Attention: Chief Financial Officer
 
B-9

ASSIGNMENT FORM
To 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 with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15.
 
B-10

OPTION OF HOLDER TO ELECT PURCHASE
If 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	  	3.9	
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 in principal 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 with membership in an approved signature guarantee medallion program), pursuant to SEC Rule 17Ad-15.
 
B-11

Exhibit 21
Partnership Subsidiaries
A.P. Woodson Company—District of Columbia
C. Hoffberger Company —Maryland
Champion Energy Corporation—Delaware
Champion Oil Company —Connecticut
Columbia Petroleum Transportation, LLC—Delaware
Hoffman Fuel Company of Bridgeport —Delaware
Hoffman Fuel Company of Danbury—Delaware
Hoffman Fuel Company of Stamford —Delaware
J.J. Skelton Oil Company —Pennsylvania
Lewis Oil Company, Inc. —New York
Marex Corporation—Maryland
Meenan Holdings of New York, Inc.—New York
Meenan Oil Co., Inc.—Delaware
Meenan Oil Co., L.P.—Delaware
Minnwhale, LLC .—New York
Ortep of Pennsylvania, Inc.—Pennsylvania
Petro Holdings, Inc.—Minnesota
Petro Plumbing Corporation—New Jersey
Petro, Inc.—Delaware
Petroleum Heat and Power Co., Inc.—Minnesota
RegionOil Plumbing, Heating and Cooling Co., Inc.—New Jersey
Richland Partners, LLC—Pennsylvania
Rye Fuel Company —Delaware
Star Gas Finance Company—Delaware
Star Acquisitions, Inc.—Minnesota
TG&E Service Company, Inc.—Florida

Exhibit 31.1
CERTIFICATIONS
I, 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness 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 recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, 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 the registrant’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 reasonably likely 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 control over financial reporting.	
Date: December 9, 2010

/s/ Daniel P. Donovan	
Daniel P. Donovan	
President and Chief Executive Officer	
Star Gas Partners, L.P.	

Exhibit 31.2
CERTIFICATIONS
I, 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness 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 recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, 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 the registrant’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 reasonably likely 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 control over financial reporting.	
Date: December 9, 2010

/s/ RICHARD F. AMBURY	
Richard F. Ambury
Chief Financial Officer
Star Gas Partners, L.P.	

Exhibit 31.3
CERTIFICATIONS
I, 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness 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 recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, 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 the registrant’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 reasonably likely 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 control over financial reporting.	
Date: December 9, 2010

/s/ Daniel P. Donovan	
Daniel P. Donovan
President and Chief Executive Officer
Star Gas Finance Company	

Exhibit 31.4
CERTIFICATIONS
I, 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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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 in Exchange 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, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external 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 the effectiveness 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 recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, 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 the registrant’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 reasonably likely 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 control over financial reporting.	
Date: December 9, 2010

/s/ RICHARD F. AMBURY	
Richard F. Ambury
Chief Financial Officer
Star Gas Finance Company	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Star Gas Partners, L.P. (the “Partnership”) and Star Gas Finance Company on Form 10-K for the year ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel P. Donovan, President and Chief Executive Officer of the 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 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 the Partnership and Star Gas Finance Company.	
A signed original of this written statement required by Section 906 has been provided to Star Gas Partners, L.P. and will be retained by Star Gas Partners, L.P. and furnished to the Securities and Exchange Commission or its staff upon request.

 	 	 	 	STAR GAS PARTNERS, L.P.
STAR GAS FINANCE COMPANY
By: KESTREL HEAT, LLC (General Partner)	
 	 	 	 	
Date: December 9, 2010	 	 	 	By:	 	/s/ Daniel P. Donovan	
 	 	 	 	 	 	 	 	Daniel P. Donovan
President and Chief Executive Officer
Star Gas Partners, L.P.
Star Gas Finance Company	

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Star Gas Partners, L.P. (the “Partnership”) and Star Gas Finance Company on Form 10-K for the year ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard F. Ambury, Chief Financial Officer of the 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 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 the Partnership and Star Gas Finance Company.	
A signed original of this written statement required by Section 906 has been provided to Star Gas Partners, L.P. and will be retained by Star Gas Partners, L.P. and furnished to the Securities and Exchange Commission or its staff upon request.

 	 	 	 	STAR GAS PARTNERS, L.P.
STAR GAS FINANCE COMPANY
By: KESTREL HEAT, LLC (General Partner)	
 	 	 	 	
Date: December 9, 2010	 	 	 	By:	 	/s/ RICHARD F. AMBURY	
 	 	 	 	 	 	 	 	Richard F. Ambury
Chief Financial Officer
Star Gas Partners, L.P.
Star Gas Finance Company