UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2001
--------------

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:  33-98490
--------

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

Delaware                                06-1437793
--------                                -------------------------------------
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
incorporation or organization)  

2187 Atlantic Street, Stamford, Connecticut             06902
--------------------------------------------------------------------------------
(Address of principal executive office)

(203) 328-7300
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

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 the number of shares outstanding of each issuer's classes of common
stock, as of May 3, 2001:

19,724,967   Common Units
2,696,946   Senior Subordinated Units
345,364   Junior Subordinated Units
325,729   General Partner Units

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO FORM 10-Q

Part I         Financial Information                                                                             Page
----

Item 1 - Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of
September 30, 2000 and March 31, 2001                                                   3

Condensed Consolidated Statements of Operations for the
Three months ended March 31, 2000 and March 31, 2001
and for the Six months ended March 31, 2000 and 
March 31, 2001                                                                         4

Condensed Consolidated Statements of Comprehensive Income
for the Three months ended March 31, 2000 and March
31, 2001 and for the Six months ended March 31, 2000 
and March 31, 2001                                                                     5

Condensed Consolidated Statement of Partners' Capital for the six months ended
March 31, 2001                                                                         6

Condensed Consolidated Statements of Cash Flows for the six months ended
March 31, 2000 and March 31, 2001                                                      7

Notes to Condensed Consolidated Financial Statements                                     8-15

Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations                                                              16-22

Item 3 - Quantitative and Qualitative Disclosures About Market Risk                               23

Part II        Other Information:

Item 6 - Exhibits and Reports on Form 8-K                                                         23

Signature                                                                                         24

2

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

March 31,
September 30,      2001
2000       (unaudited)
--------   --------------------
Assets
Current assets:

Cash and cash equivalents                                                              $ 10,910               $ 16,908
Receivables, net of allowance of $1,956 and $5,648 respectively                          66,858                199,842
Inventories                                                                              34,407                 26,001
Prepaid expenses and other current assets                                                14,815                 18,337
--------               --------
Total current assets                                                                126,990                261,088
--------               --------

Property and equipment, net                                                                171,300                202,162
Long-term portion of accounts receivable                                                     7,282                  7,266
Intangibles and other assets, net                                                          313,404                333,923
--------               --------
Total assets                                                                       $618,976               $804,439
========               ========

Liabilities and Partners' Capital
Current liabilities:
Accounts payable                                                                       $ 27,874               $ 37,070
Working capital facility borrowings                                                      24,400                 58,953
Current maturities of long-term debt                                                     16,515                 34,644
Accrued expenses                                                                         42,410                 50,920
Unearned service contract revenue                                                        15,654                 16,254
Customer credit balances                                                                 37,943                  9,189
--------               --------
Total current liabilities                                                           164,796                207,030
--------               --------

Long-term debt                                                                             310,414                335,198
Other long-term liabilities                                                                  4,588                  4,416

Partners' Capital:
Common unitholders                                                                      134,672                241,606
Subordinated unitholders                                                                  6,090                 16,554
General partner                                                                          (1,584)                  (524)
Accumulated other comprehensive income                                                        -                    159
--------               --------
Total Partners' Capital                                                             139,178                257,795
--------               --------

Total Liabilities and Partners' Capital                                            $618,976               $804,439
========               ========

See accompanying notes to condensed consolidated financial statements.

3

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Three Months Ended March 31,  Six Months Ended March 31,
----------------------------  --------------------------

(in thousands, except per unit data)                              2000           2001          2000          2001
--------       --------      --------      --------
Sales:

Product                                                    $298,012       $439,723      $458,552      $730,314
Installation, service and appliances                         23,683         30,724        50,029        63,637
--------       --------      --------      --------
Total sales                                             321,695        470,447       508,581       793,951

Costs and expenses:
Cost of product                                             175,288        281,529       261,834       475,915
Cost of installation, service and appliances                 29,449         36,441        60,334        73,357
Delivery and branch                                          45,275         57,839        85,577       107,173
Depreciation and amortization                                 8,196         10,372        16,600        20,019
General and administrative                                    4,595          8,669         9,276        15,562
TG&E customer acquisition expense                                 -            718             -         1,371
Unit compensation expense                                         -            719             -         1,219
Net gain on sales of assets                                      38             31            50            42
--------       --------      --------      --------
Operating income                                         58,930         74,191        75,010        99,377
Interest expense, net                                            6,900          9,003        13,373        17,120
Amortization of debt issuance costs                                128            151           257           296
--------       --------      --------      --------
Income before income taxes and cumulative
effect of change in accounting principle               51,902         65,037        61,380        81,961
Income tax expense                                                 215            923           328         1,639
--------       --------      --------      --------
Income before cumulative change in accounting
principle                                              51,687         64,114        61,052        80,322
Cumulative effect of change in accounting principle
for adoption of SFAS No. 133, net of income taxes                  -              -             -         1,466
--------       --------      --------      --------

Net income                                             $ 51,687       $ 64,114      $ 61,052      $ 81,788
========       ========      ========      ========

General Partner's interest in net income               $    915       $    964      $  1,105      $  1,247
--------       --------      --------      --------

Limited Partners' interest in net income                      $ 50,772       $ 63,150      $ 59,947      $ 80,541
========       ========      ========      ========

Net income per Limited Partner unit:
Basic                                                         $2.80          $2.86         $3.40         $3.83
========       ========      ========      ========
Diluted                                                       $2.80          $2.85         $3.40         $3.81
========       ========      ========      ========

Weighted average number of Limited Partner
units outstanding:
Basic                                                        18,107         22,063        17,651        21,022
========       ========      ========      ========
Diluted                                                      18,107         22,176        17,651        21,135
========       ========      ========      ========

See accompanying notes to condensed consolidated financial statements.

4

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

Three Months Ended March 31,   Six Months Ended March 31,
-----------------------------  ---------------------------
(in thousands)                                                       2000           2001           2000          2001
-------------        -------   ------------       -------

Net income                                                        $51,687        $64,114        $61,052       $81,788

Other comprehensive income (loss)                        
Unrealized gain (loss) on derivative instruments                     -         (1,803)             -        (8,108)
-------------        -------   ------------       -------
Comprehensive income                                              $51,687        $62,311        $61,052       $73,680
=============        =======   ============       =======

Reconciliation of Accumulated Other Comprehensive
Income

Balance, beginning of period                                $          -         $ 3,889   $          -       $     -
Cumulative effect of the adoption of SFAS No. 133                    -              -              -        10,544
Current period reclassification to earnings                          -         (1,927)             -        (2,277)
Current period other comprehensive gain (loss)                       -         (1,803)             -        (8,108)
-------------        -------   ------------       -------
Balance, end of period                                      $           -        $   159   $          -       $   159
=============        =======   ============       =======

See accompanying notes to condensed consolidated financial statements.

5

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(unaudited)

(in thousands, except per unit amounts)

Number of Units
--------------------------------

Other         Total
Senior  Junior  General               Senior     Junior    General   Comprehensive    Partners'
Common   Sub.    Sub.   Partner    Common      Sub.       Sub.     Partner       Income       Capital
------  ------  ------  -------  ----------  ---------  --------  ---------  --------------  ----------
Balance as of

September 30, 2000      16,045   2,587     345      326   $134,672    $ 6,125    $  (35)   $(1,584)     $       -     $139,178

Issuance of Common
Units                    3,680                              59,314                                                      59,314

Issuance of Senior
Subordinated Units                 110                                  1,388                                            1,388

Net income                                                    69,038     10,179     1,324      1,247                      81,788

Other comprehensive
Income                                                                                                                         
Net change                                                                                                   159          159 

Distributions:
($1.150 per common
unit)                                                   (21,418)                                                    (21,418)
($0.825 per senior
subordinated unit)                                                  (2,228)                                          (2,228)
($0.575 per junior
subordinated unit)                                                              (199)                                  (199)
($0.575 per general
partner unit)                                                                              (187)                       (187)
-------------------------------------------------------------------------------------------------------
Balance as of
March 31, 2001          19,725   2,697     345      326   $241,606    $15,464    $1,090    $  (524)     $     159     $257,795
=======================================================================================================

See accompanying notes to condensed consolidated financial statements.

6

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Six Months Ended March 31,
----------------------------
(in thousands)                                                                           2000           2001
--------------                                                                           ----           ----

Cash flows used in operating activities:

Net income                                                                           $ 61,052      $  81,788
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization                                                          16,600         20,019
Amortization of debt issuance cost                                                        257            296
Unit compensation expense                                                                   -          1,219
Provision for losses on accounts receivable                                               869          3,747
Gain on sales of assets                                                                   (50)           (42)
Cumulative effect of change in accounting principle for the adoption
of SFAS No. 133                                                                           -         (1,466)
Changes in operating assets and liabilities:
Increase in receivables                                                            (77,443)      (132,641)
Decrease in inventories                                                              6,744         12,594
Decrease in other assets                                                               307            727
Increase in accounts payable                                                           976          9,137
Decrease in other current and long-term liabilities                                (28,102)       (23,656)
--------      ---------
Net cash used in operating activities                                          (18,790)       (28,278)
--------      ---------

Cash flows used in investing activities:
Capital expenditures                                                                   (3,294)        (7,065)
Proceeds from sales of fixed assets                                                       283            207
Acquisitions                                                                          (29,577)       (70,210)
--------      ---------
Net cash used in investing activities                                          (32,588)       (77,068)
--------      ---------

Cash flows provided by financing activities:
Working capital facility borrowings                                                    70,600        120,850
Working capital facility repayments                                                   (30,750)       (86,297)
Acquisition facility borrowings                                                        29,700         31,700
Acquisition facility repayments                                                       (36,000)       (51,600)
Proceeds from issuance of debt                                                         27,500         69,647
Repayment of debt                                                                      (3,222)        (6,834)
Increase in deferred charges                                                                -           (415)
Proceeds from issuance of Common Units, net                                            22,611         59,314
Distributions                                                                         (16,527)       (24,032)
Other                                                                                    (797)          (989)
--------      ---------
Net cash provided by financing activities                                       63,115        111,344
--------      ---------

Net increase in cash                                                            11,737          5,998
Cash at beginning of period                                                             4,492         10,910
--------      ---------
Cash at end of period                                                                $ 16,229      $  16,908
========      =========

See accompanying notes to condensed consolidated statements.

7

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1)   Partnership Organization

Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
diversified home energy distributor and services provider, specializing in
heating oil, propane, natural gas and electricity.  Star Gas Partners is a
Master Limited Partnership that at March 31, 2001 had 19.7 million common
limited partner units (trading symbol "SGU" representing a 85.4% limited
partner interest in Star Gas Partners) and 2.7 million senior subordinated
units  (trading symbol "SGH" representing an 11.7% limited partnership
interest in Star Gas Partners) which are traded on the New York Stock
Exchange.  Additional interest in Star Gas Partners are represented by 0.3
million junior subordinated units (representing a 1.5% limited partner
interest in Star Gas Partners) and 0.3 million general partner units
(representing a 1.4% general partner interest in Star Gas Partners).

Operationally the Partnership is organized as follows:

.    Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is
the nation's largest retail distributor of home heating oil and
serves approximately 385,000 customers in the Northeast and
Mid-Atlantic. Petro is an indirect wholly owned subsidiary of
Star Gas Propane, L.P.

.    Star Gas Propane, L.P., ("Star Gas Propane" or the "propane
segment") is a wholly owned subsidiary of Star Gas Partners. Star
Gas Propane markets and distributes propane gas and related
products to more than 260,000 customers in the Midwest,
Northeast, Florida and Georgia.

.    Total Gas and Electric ("TG&E" or the "natural gas and electric
reseller segment") is an energy reseller that markets natural gas
and electricity to residential homeowners in deregulated energy
markets in the Northeast and Mid- Atlantic states of New York,
New Jersey, Pennsylvania, Maryland and Florida and serves
approximately 100,000 residential customers. TG&E is a 72.7%
owned subsidiary of Star Gas Partners.

2)   Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements for the period October 1, 1999
through April 6, 2000 include the accounts of Star Gas Partners, L.P., and
subsidiaries, principally Petro and Star Gas Propane.  Beginning April 7,
2000, the Consolidated Financial Statements also include the accounts and
results of operations of TG&E and reflect the amounts related to the 27.3%
minority interest holder.

The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for the
fair statement of financial condition and results for the interim periods.
The results of operations for the three and six month periods ended March
31, 2001 are not necessarily indicative of the results to be expected for
the full year.

Inventories
Inventories are stated at the lower of cost or market and are computed on a
first-in, first-out basis.  At the dates indicated, the components of
inventory were as follows:

September 30, 2000           March 31, 2001
------------------           --------------
(in thousands)

Propane gas                                        $ 6,323                    $ 4,092
Propane appliances and equipment                     2,313                      3,664
Fuel oil                                            14,263                      7,552
Fuel oil parts and equipment                         7,374                      8,090
Natural gas                                          4,134                      2,603
-------                    -------
$34,407                    $26,001
=======                    =======

8

2)    Summary of Significant Accounting Policies - (continued)

Accounting Changes

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133) as amended by
SFAS No. 137 and No. 138.  SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.
It requires the recognition of all derivative instruments as assets or
liabilities in the Partnership's balance sheet and measurement of those
instruments at fair value and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting.

The accounting treatment of changes in fair value is dependent upon whether
or not a derivative instrument is designated as a hedge, and if so, the
type of hedge.  For derivatives designated as Cash Flow Hedges, changes in
fair value are recognized in other comprehensive income until the hedged
item is recognized in earnings.  For derivatives recognized as Fair Value
Hedges, changes in fair value are recognized in the income statement and
are offset by related changes in the fair value of the item hedged.
Changes in the fair value of derivative instruments, which are not
designated as hedges or which do not qualify for hedge accounting are
recognized currently in earnings.

The Partnership periodically hedges a portion of its oil, propane and
natural gas purchases through the use of futures, options, collars and swap
agreements.  The purpose of the hedges is to provide a measure of price
stability in the volatile market of oil, propane and natural gas and to
manage its exposure to commodity price risk under certain existing sales
commitments.  The Partnership also has derivative agreements that
management has decided not to treat as hedge transactions for accounting
purposes and as such, mark-to-market adjustments are recognized currently
in earnings.

The Partnership adopted SFAS No. 133 on October 1, 2000, and records its
derivatives at fair market value.  As a result of adopting the Standard,
the Partnership recognized current assets of $12.0 million, a $1.5 million
increase in net income and a $10.5 million increase in additional other
comprehensive income which were recorded as cumulative effect of a change
in accounting principle.

For the three and six month period ended March 31, 2001, the Partnership
recorded a net decrease to other comprehensive income of $3.7 million and
$10.4 million respectively, representing in part cash flow hedges
reclassified into earnings totaling $1.9 million and $2.3 million for the
three and six month period ended March 31, 2001, respectively.  The
estimated net amount of existing unrealized gains currently within other
comprehensive income are expected to be reclassified into earnings within
the next twelve months.

3)   Long-term Debt

On October 25, 2000, the heating oil division completed a refinancing of
$40 million of indebtedness incurred under its bank acquisition facility
through the issuance of senior notes.  The senior notes bear an average
interest rate of 8.96% per year, have an average life of five and three-
quarter years and are guaranteed by Star Gas Partners.  The first maturity
date of the senior notes is November 1, 2004 with a final maturity date of
November 1, 2010.

On March 29, 2001, the propane division issued $29.5 million of senior
notes to refinance $25.0 million of indebtedness incurred under its bank
acquisition facility.  The balance of the proceeds, $4.5 million, will be
used to fund future acquisition activity and to refinance maturities of
senior notes.  The senior notes bear an average interest rate of 7.89% per
year and have an average life of nine years.  The senior notes require two
equal prepayments of $2.5 million on April 1, 2006 and April 1, 2007.  The
first maturity date of these notes is April 1, 2008 with a final maturity
date of April 1, 2011.

In March 2001, the natural gas and electric reseller segment replaced its
existing revolving credit facility with a new revolving credit facility
comprised of a $15.4 million working capital facility and a $3.0 million
acquisition facility.

9

4)   Segment Reporting

In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", the Partnership has four reportable
segments, a retail distributor of heating oil, a retail distributor of
propane, a reseller of natural gas and electricity and the public master
limited partnership, Star Gas Partners.  Management has chosen to organize
the enterprise under these four segments in order to leverage the expertise
it has in each industry, allow each segment to continue to strengthen its
core competencies and provide a clear means for evaluation of operating
results.

The heating oil segment is primarily engaged in the retail distribution of
home heating oil, related equipment services, and equipment sales to
residential and commercial customers.  It operates primarily in the
Northeast and  Mid-Atlantic states.  Home heating oil is principally used
by the Partnership's residential and commercial customers to heat their
homes and buildings, and as a result, weather conditions have a significant
impact on the demand for home heating oil.

The propane segment is primarily engaged in the retail distribution of
propane and related supplies and equipment to residential, commercial,
industrial, agricultural and motor fuel customers, in the Midwest,
Northeast, Florida and Georgia.  Propane is used primarily for space
heating, water heating and cooking by the Partnership's residential and
commercial customers and as a result, weather conditions also have a
significant impact on the demand for propane.

The natural gas and electric reseller segment is primarily engaged in
offering natural gas and electricity to residential consumers in
deregulated energy markets.  In deregulated energy markets customers have a
choice in selecting energy suppliers to power and / or heat their homes.
As a result, a significant portion of this segment's revenue is directly
related to weather conditions.  TG&E operates in nine markets in the
Northeast, Mid-Atlantic states and Florida where competition for energy
suppliers range from independent resellers, like TG&E, to large public
utilities.

The public master limited partnership segment includes the office of the
Chief Executive Officer and has the responsibility for maintaining investor
relations and investor reporting for the Partnership.

The following are the statements of operations and balance sheets for each
segment as of and for the periods indicated.  The electric and natural gas
reselling segment was added beginning April 7, 2000.  There were no inter-
segment sales.

10

4)   Segment Reporting - (continued)

Three Months Ended
--------------------------------------------------------------------------------------------------
March 31, 2000                                    March 31, 2001
(unaudited)                                       (unaudited)
--------------------------------------------------------------------------------------------------
Heating                                      Heating
(in thousands)                      Oil     Propane   Partners    Consol.        Oil     Propane     TG&E    Partners    Consol.
---------  --------  ---------  ---------    ---------  --------  --------  ---------  ---------

Statements of Operations
------------------------
Sales:

Product                        $240,857   $57,155  $      -    $298,012     $306,962   $87,246   $45,515  $      -    $439,723
Installation, service,
and appliance                   20,778     2,905         -      23,683       25,650     5,074         -         -      30,724
--------   -------  --------    --------     --------   -------   -------   -------    --------
Total sales                 261,635    60,060         -     321,695      332,612    92,320    45,515         -     470,447
Cost and expenses:                                                                                                  -
Cost of product                 144,993    30,295         -     175,288      191,506    49,602    40,421         -     281,529
Cost of installation,
service, and appliances         28,561       888         -      29,449       34,740     1,701         -         -      36,441
Delivery and branch              33,219    12,056         -      45,275       42,056    15,783         -         -      57,839
Depreciation and
amortization                     5,359     2,837         -       8,196        6,838     3,294       238         2      10,372
General and
administrative                   2,417     1,554       624       4,595        2,888     1,615     2,610     1,556       8,669
TG&E customer
acquisition expense                  -         -         -           -            -         -       718         -         718
Unit compensation
expense                              -         -         -           -            -         -         -       719         719
Net gain on sales of assets          11        27         -          38            5        26         -         -          31
--------   -------  --------    --------     --------   -------   -------   -------    --------
Operating income (loss)      47,097    12,457      (624)     58,930       54,589    20,351     1,528    (2,277)     74,191
Interest expense (income), net       4,634     2,274        (8)      6,900        5,747     2,967       805      (516)      9,003
Amortization of debt
issuance costs                         83        45         -         128           98        53         -         -         151
--------   -------  --------    --------     --------   -------   -------   -------    --------
Income (loss) before
income taxes                42,380    10,138      (616)     51,902       48,744    17,331       723    (1,761)     65,037
Income tax expense                     200        15         -         215          850        72         1         -         923
--------   -------  --------    --------     --------   -------   -------   -------    --------
Net income (loss)          $ 42,180   $10,123     $(616)   $ 51,687     $ 47,894   $17,259   $   722   $(1,761)   $ 64,114
========   =======  ========    ========     ========   =======   =======   =======    ========

Capital expenditures              $    559   $ 1,166  $      -    $  1,725     $  2,021   $   914   $    12  $      -    $  2,947
========   =======  ========    ========     ========   =======   =======  ========    ========

11

4)  Segment Reporting - (continued)

Six Months Ended
----------------------------------------------------------------------------------------------------
March 31, 2000                                     March 31, 2001
(unaudited)                                         (unaudited)
----------------------------------------------------------------------------------------------------
Heating                                     Heating
(in thousands)                      Oil     Propane   Partners   Consol.        Oil       Propane      TG&E      Partners   Consol.
--------  --------  --------- ---------    ----------  ----------  ---------  --------------------

Statements of Operations
------------------------
Sales:

Product                        $364,742  $ 93,810   $     -   $458,552     $511,906    $152,895    $65,513   $        -  $730,314
Installation, service, and
Appliance                       43,226     6,803         -     50,029       52,769      10,868          -            -    63,637
--------  --------   -------   --------     --------    --------    -------    ---------  --------
Total sales                 407,968   100,613         -    508,581      564,675     163,763     65,513            -   793,951
Costs and expenses:                                                                                                      -
Cost of product                 213,880    47,954         -    261,834      328,600      89,019     58,296            -   475,915
Cost of installation,
service, and appliances         58,073     2,261         -     60,334       69,682       3,675          -            -    73,357
Delivery and branch              62,395    23,182         -     85,577       77,733      29,440          -            -   107,173
Depreciation and
amortization                    10,665     5,935         -     16,600       13,111       6,427        477            4    20,019
General and administrative        5,003     3,025     1,248      9,276        5,278       3,285      4,302        2,697    15,562
TG&E customer
acquisition expense                  -         -         -          -            -           -      1,371            -     1,371
Unit compensation expense             -         -         -          -            -           -          -        1,219     1,219
Net gain (loss) on sales
of assets                           14        36         -         50           (8)         50          -            -        42
--------  --------   -------   --------     --------    --------    -------    ---------  --------
Operating income (loss)      57,966    18,292    (1,248)    75,010       70,263      31,967      1,067       (3,920)   99,377
Interest expense (income),        8,910     4,473       (10)    13,373       10,911       5,693      1,331         (815)   17,120
net
Amortization of debt
issuance costs                     167        90         -        257          192         104          -            -       296
--------  --------   -------   --------     --------    --------    -------    ---------  --------
Income (loss) before
income taxes                48,889    13,729    (1,238)    61,380       59,160      26,170       (264)      (3,105)   81,961
Income tax expense                     275        53         -        328        1,525         113          1            -     1,639
--------  --------   -------   --------     --------    --------    -------    ---------  --------
Income (loss) before
cumulative effect of
adoption of accounting
principle                       48,614    13,676    (1,238)    61,052       57,635      26,057       (265)      (3,105)   80,322
Cumulative effect of
adoption of accounting
principle                               -         -         -          -        2,093        (229)      (398)           -     1,466
--------  --------   -------   --------     --------    --------    -------    ---------  --------

Net income (loss)          $ 48,614  $ 13,676   $(1,238)  $ 61,052     $ 59,728    $ 25,828    $  (663)   $  (3,105) $ 81,788
========  ========   =======   ========     ========    ========    =======    =========  ========

Capital expenditures              $  1,012  $  2,282   $     -   $  3,294     $  4,461    $  2,535    $    69    $       -  $  7,065
========  ========   =======   ========     ========    ========    =======    =========  ========

12

4)   Segment Reporting - (continued)

September 30, 2000                   
-------------------------------------------------------
Heating                                        (1)    
(in thousands)                 Oil       Propane      TG&E    Partners    Consol.  
---------   ---------   --------  ---------  --------- 

Balance Sheets
--------------

Assets
Current assets:
Cash and cash
equivalents              $  6,288    $  2,765    $   222   $  1,635   $ 10,910 
Receivables, net            51,475       9,976      5,407          -     66,858 
Inventories                 21,637       8,636      4,134          -     34,407 
Prepaid expenses and
other current assets       12,502       1,017      2,157          -     14,815 
--------    --------    -------   --------   -------- 
Total current           
assets                 91,902      22,394     11,920      1,635    126,990  
Property and
equipment,  net            39,026     132,008        266          -    171,300 
Long-term portion of
accounts receivable         7,282           -          -          -      7,282 
Investment in
subsidiaries                    -      69,309          -    143,036          - 
Intangibles and other
assets, net               236,069      63,003     14,174        158    313,404 
--------    --------    -------   --------   -------- 
Total assets          $374,279    $286,714    $26,360   $144,829   $618,976 
========    ========    =======   ========   ======== 

Liabilities and              Heating                                        (1)
Oil       Propane      TG&E    Partners    Consol.  
Partners' Capital          ---------   ---------   --------  ---------  --------- 

Current Liabilities:
Accounts payable          $ 11,887    $  7,436    $ 8,551  $  -        $ 27,874 
Working capital
facility                   
borrowings                 17,000         800      6,600          -     24,400  
Current maturities of
long-term debt              7,669       8,846          -          -     16,515 
Accrued expenses and
other current              
liabilities               36,882       4,006      1,521          -     42,410 
Due to affiliate            (1,115)     (3,674)         -      4,789          - 
Unearned service
contract revenue           15,654           -          -          -     15,654 
Customer credit
balances                   26,101       9,805      2,037          -     37,943 
--------    --------    -------   --------   -------- 
Total current
liabilities           114,078      27,219     18,709      4,789    164,796 
Long-term debt                186,397     122,154      1,863          -    310,414 
Other long-term
liabilities                    4,495          93          -          -      4,588 
Partners' Capital:
Equity Capital              69,309     137,248      5,788    140,040    139,178 
--------    --------    -------   --------   -------- 
Total liabilities and
Partners' Capital           $374,279    $286,714    $26,360   $144,829   $618,976 
========    ========    =======   ========   ======== 

March 31, 2001
(unaudited)
---------------------------------------------------------
Heating                                        (1)
(in thousands)                     Oil       Propane      TG&E    Partners    Consol.
---------   ---------   --------  ---------  ---------

Balance Sheets
--------------

Assets
Current assets:
Cash and cash
equivalents                  $  1,951    $ 10,591    $ 1,554   $  2,812   $ 16,908
Receivables, net               146,865      26,739     26,238          -    199,842
Inventories                     15,642       7,756      2,603          -     26,001
Prepaid expenses and
other current assets           14,750       1,433      2,952         64     18,337
--------    --------    -------   --------   --------
Total current              
assets                    179,208      46,519     33,347      2,876    261,088
Property and
equipment, net                 43,127     158,741        294          -    202,162
Long-term portion of
accounts receivable             7,266           -          -          -      7,266
Investment in
subsidiaries                        -     133,896          -    257,725          -
Intangibles and other
assets, net                   248,562      71,400     13,737        224    333,923
--------    --------    -------   --------   --------
Total assets              $478,163    $410,556    $47,378   $260,825   $804,439
========    ========    =======   ========   ========

Liabilities and                  Heating                                        (1)
Oil       Propane      TG&E    Partners    Consol.
Partners' Capital              ---------   ---------   --------  ---------  ---------

Current Liabilities:
Accounts payable              $ 17,581    $  5,055    $14,434       $  -   $ 37,070
Working capital
facility                       
borrowings                     46,000           -     12,953          -     58,953     
Current maturities of
long-term debt                 33,178       1,466          -          -     34,644
Accrued expenses and
other current                  
liabilities                   41,277       5,961      2,609      1,073     50,920
Due to affiliate                (1,823)       (222)       950      1,095          -
Unearned service
contract revenue               16,254           -          -          -     16,254
Customer credit
balances                        5,964       2,170      1,055          -      9,189
--------    --------    -------   --------   --------
Total current
liabilities               158,431      14,430     32,001      2,168    207,030
Long-term debt                    181,558     151,077      2,563          -    335,198
Other long-term
liabilities                        4,278          98         40          -      4,416
Partners' Capital:
Equity Capital                 133,896     244,951     12,774    258,657    257,795
--------    --------    -------   --------   --------
Total liabilities and
Partners' Capital               $478,163    $410,556    $47,378   $260,825   $804,439
========    ========    =======   ========   ========

(1)  The consolidated amounts include the necessary entries to eliminate the
investment in Petro Holdings, Star Gas Propane and TG&E.

13

5)   Acquisitions

During the six-month period ending March 31, 2001, the Partnership acquired
six unaffiliated retail heating oil dealers and four unaffiliated retail
propane dealers.  The aggregate consideration for these acquisitions
accounted for by the purchase method of accounting was approximately $70.2
million.  Purchase prices have been allocated to the acquired assets and
liabilities based on their respective fair market values on the dates of
acquisition.  The purchase prices in excess of the fair values of net
assets acquired were classified as intangibles in the Condensed
Consolidated Balance Sheets.

The following table indicates the allocation of the aggregate purchase
price paid for these acquisitions and the respective periods of
amortization assigned:

(in thousands)                                       Useful Lives
------------
Land                                   $ 2,032       -
Buildings                                1,523       30 years
Furniture & fixtures                       532       10 years
Fleet                                    5,900       5 - 30 years
Tanks and equipment                     21,579       5 - 30 years
Customer lists                          20,935       7 - 15 years
Restrictive covenants                    2,860       5 years
Goodwill                                 8,224       25 years
Working capital                          6,625       -
-------      
Total                           $70,210      
=======      

Sales and net income have been included in the Condensed Consolidated
Statements of Operations from the respective dates of acquisition.  The
following pro forma information presents the results of operations for the
six months ending March 31, 2001 of the Partnership and the acquisitions
previously described, as if the acquisitions had taken place on October 1,
2000.

(in thousands, except per share data)
Sales                                                $840,190
Net income                                           $ 86,269
General Partner's interest in net income             $  1,315
Limited Partners' interest in net income             $ 84,954
Basic net income per limited partner unit            $   4.04
Diluted net income per limited partner unit          $   4.02

6)   Supplemental Disclosure of Cash Flow Information

(in thousands)                                 Six Months Ended March 31,
-------------------------
2000                    2001
----                    ----
Cash paid during the period for:
Income taxes                            $ 3,544                 $   577
Interest                                $17,217                 $15,460

14

7)  Earnings Per Limited Partner Units

(in thousands, except per unit data)                            Three Months Ended   Six Months Ended
March 31,           March 31,
------------------  ------------------
2000      2001      2000      2001
-------   -------   -------   -------
Income before cumulative effect of change in
accounting principle per Limited Partner unit

Basic                                                          $  2.80   $  2.86   $  3.40   $  3.76
Diluted                                                        $  2.80   $  2.85   $  3.40   $  3.74

Cumulative effect of change in accounting principle per
Limited Partner unit
Basic                                                          $  -      $  -      $  -      $  0.07
Diluted                                                        $  -      $  -      $  -      $  0.07

Net income per Limited Partner unit
Basic                                                          $  2.80   $  2.86   $  3.40   $  3.83
Diluted                                                        $  2.80   $  2.85   $  3.40   $  3.81

Basic Earnings Per Unit:
------------------------

Net income                                                       $51,687   $64,114   $61,052   $81,788
Less:  General Partner's interest in net income                      915       964     1,105     1,247
-------   -------   -------   -------
Limited Partners' interest in net income                       $50,772   $63,150   $59,947   $80,541
=======   =======   =======   =======

Common Units                                                      15,285    19,021    14,829    18,020
Senior Subordinated Units                                          2,477     2,697     2,477     2,657
Junior Subordinated Units                                            345       345       345       345
-------   -------   -------   -------
Weighted average number of Limited Partner units
outstanding                                                  18,107    22,063    17,651    21,022
=======   =======   =======   =======
Basic earnings per unit                                        $  2.80   $  2.86   $  3.40   $  3.83
=======   =======   =======   =======

Diluted Earnings Per Unit:
--------------------------

Limited Partners' interest in net income                       $50,772   $63,150   $59,947   $80,541

Weighted average number of Limited Partner units
outstanding                                                  18,107    22,063    17,651    21,022
Senior subordinated units anticipated to be issued under
employee incentive plan                                           -       113         -       113
-------   -------   -------   -------
Diluted number of Limited Partner units                       18,107    22,176    17,651    21,135
=======   =======   =======   =======
Diluted earnings per unit                                   $  2.80   $  2.85   $  3.40   $  3.81
=======   =======   =======   =======

8)   Subsequent Events

Cash Distributions - On April 20, 2001, the Partnership announced that it
would pay a cash distribution of $0.575 per unit on all units for the three
months ended March 31, 2001. The distribution will be paid on May 15, 2001,
to unitholders of record on May 4, 2001.

15

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Disclosure

This Report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act which represent
the Partnership's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the Partnership's financial performance, the price and supply of
home heating oil, propane, electricity and natural gas and the ability of the
Partnership to obtain new accounts and retain existing accounts.  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 the Partnership believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Partnership's expectations ("Cautionary Statements") are disclosed in this
Report, including without limitation and in conjunction with the forward-looking
statements included in this Report.  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.

Overview

In analyzing the financial results of the Partnership, the following matters
should be considered.

The Total Gas and Electric (TG&E) acquisition was made on April 7, 2000.
Accordingly, the results of operations for the three and six month periods ended
March 31, 2001 include TG&E's results whereas the results for the previous
corresponding quarter and six month period do not include TG&E's results.

The primary use for heating oil, propane and natural gas is for space heating in
residential and commercial applications.  As a result, weather conditions have a
significant impact on financial performance and should be considered when
analyzing changes in financial performance.  In addition, gross margins vary
according to customer mix.  For example, sales to residential customers generate
higher profit margins than sales to other customer groups, such as agricultural
customers.  Accordingly, a change in customer mix can effect gross margins
without necessarily impacting total sales.

Also, the heating oil, propane and natural gas industries are seasonal in nature
with peak activity occurring during the winter months.  Accordingly, results of
operations for the periods presented are not indicative of the results to be
expected for a full year.

The Partnership adopted SFAS No. 133 on October 1, 2000 and records its 
derivatives at fair market value. As a result of adopting the Standard, the 
Partnership's net income for the three and six month periods ended March 31, 
2001 was $0.7 million more and $0.4 million less respectively, than what they 
would have been had the Standard not been adopted. The effect of the Standard 
will have no impact in how the Partnership will evaluate its ability to make the
minimum quarterly distribution.

16

THREE MONTHS ENDED MARCH 31, 2001
COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
---------------------------------------------

Volume

For the three months ended March 31, 2001, retail volume of home heating oil and
propane increased 50.6 million gallons, or 24.2%, to 259.4 million gallons, as
compared to 208.8 million gallons for the three months ended March 31, 2000.
This increase was due to an additional 39.8 million gallons provided by the
heating oil segment and a 10.8 million gallon increase in the propane segment.
Volume increased in the heating oil and propane segments largely due to the
impact of colder temperatures and additional volume provided by acquisitions.
Temperatures in the Partnership's areas of operations were an average of 9.9%
colder than in the prior year's comparable quarter and approximately 3% warmer
than normal.

Sales

For the three months ended March 31, 2001, sales increased $148.8 million, or
46.2%, to $470.4 million, as compared to $321.7 million for the three months
ended March 31, 2000.  This increase was due to an additional $71.0 million
provided by the home heating oil segment, $45.5 million of TG&E sales and a
$32.3 million increase in the propane segment.  Sales rose in both the heating
oil and propane segments largely due to increased retail volume and to a lesser
extent from increased selling prices.  Selling prices increased versus the prior
year's comparable period in response to higher supply costs.  Sales also
increased in the heating oil division by $4.9 million and by $2.2 million in the
propane division due to an increased focus on the sales of rationally related
products including heating equipment installation and service and water
softeners.

Cost of Product

For the three months ended March 31, 2001, cost of product increased $106.2
million, or 60.6%, to $281.5 million, as compared to $175.3 million for the
three months ended March 31, 2000.  This increase was due to an additional $46.5
million of cost of product at the home heating segment, $40.4 million of TG&E
cost of product and a $19.3 million increase in the propane segment.  The cost
of product for both the heating oil and propane segments increased due to the
impact of higher retail volume sales and as a result of higher supply cost.
While selling prices and supply cost increased on a per gallon basis the
increase in selling prices was greater than the increase in supply costs, which
resulted in an increase in per gallon margins.

Cost of Installation, Service and Appliances

For the three months ended March 31, 2001, cost of installation, service and
appliances increased $7.0 million, or 23.7%, to $36.4 million, as compared to
$29.4 million for the three months ended March 31, 2000.  This increase was due
to an additional $6.2 million of expenses for the heating oil segment and a $0.8
million increase in cost for the propane segment.  The cost of installation,
service and appliances for both the heating oil and propane segments increased
due to the additional sales of rationally related products and as a result of
additional service cost due to the colder temperatures.

17

Delivery and Branch Expenses

For the three months ended March 31, 2001, delivery and branch expenses
increased $12.6 million, or 27.8%, to $57.8 million, as compared to $45.3
million for the three months ended March 31, 2000.  This increase was due to an
additional $8.8 million of delivery and branch expenses at the heating oil
segment and a $3.7 million increase in delivery and branch expenses for the
propane segment.  Delivery and branch expenses increased both at the heating oil
and propane segments due to additional operating cost associated with higher
retail volume sales, inflation and for additional operating cost of acquired
companies.

Depreciation and Amortization Expenses

For the three months ended March 31, 2001, depreciation and amortization
expenses increased $2.2 million, or 26.5%, to $10.4 million, as compared to $8.2
million for the three months ended March 31, 2000.  This increase was primarily
due to $0.2 million of depreciation and amortization expense for TG&E and
additional depreciation and amortization for heating oil and propane
acquisitions.

General and Administrative Expenses

For the three months ended March 31, 2001, general and administrative expenses
increased $4.1 million, or 88.7%, to $8.7 million, as compared to $4.6 million
for the three months ended March 31, 2000.  The increase was due to $2.6 million
of TG&E general and administrative expenses, a $0.5 million increase in the
heating oil segment largely due to increased incentive compensation and wage
inflation and a $0.9 million increase in general and administrative expenses at
the Partnership level.  The Partnership level increase was primarily due to an
accrual for compensation earned for unit appreciation rights previously granted.

TG&E Customer Acquisition Expense

For the three months ended March 31, 2001, TG&E customer acquisition expense was
$0.7 million.  This TG&E segment expense is for the cost of acquiring new
accounts through the services of a third party direct marketing company.

Unit Compensation Expense

For the three months ended March 31, 2001, unit compensation expense was $0.7
million.  This expense was incurred under the Partnership's Unit Incentive Plan
whereby certain employees were granted senior subordinated units as an incentive
for increased efforts during employment and as an inducement to remain in the
service of the Partnership.

Interest Expense, net

For the three months ended March 31, 2001, net interest expense increased $2.1
million, or 30.5%, to $9.0 million, as compared to $6.9 million for the three
months ended March 31, 2000.  This increase was due to additional interest
expense for higher working capital borrowings necessitated by the higher cost of
product as well as for additional interest expense for the financing of propane
and heating oil acquisitions.

18

Income Tax Expense (Benefit)

For the three months ended March 31, 2001, income tax expense increased $0.7
million to $0.9 million, as compared to $0.2 million for the three months ended
March 31, 2000.  This increase was due to additional state income taxes for
higher pretax earnings achieved for the three months ended March 31, 2001.

Net Income

For the three months ended March 31, 2001, net income increased $12.4 million,
or 24.0%, to $64.1 million, as compared to $51.7 million for the three months
ended March 31, 2000.  The increase was due to an additional $5.7 million of net
income at the heating oil segment, $0.7 million of TG&E net income and a $7.1
million increase in net income at the propane segment.  The improvement in the
net income for these segments was largely due to colder weather, acquisitions
and a per gallon improvement in gross profit margins.  Partially offsetting
these increases in net income were $1.1 million more of net loss at the
Partnership level, largely the result of the increase in unit compensation
expense recorded at the Partnership level.

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA)

For the three months ended March 31, 2001, earnings before interest, taxes,
depreciation and amortization, TG&E customer acquisition expense and unit
compensation expense, less net gain (loss) on sales of assets (EBITDA) increased
$18.9 million, or 28.1% to $86.0 million as compared to $67.1 million, for the
three months ended March 31, 2000.  This increase was due to $9.0 million of
additional EBITDA generated by the heating oil segment, $2.5 million of TG&E
EBITDA, a $8.4 million increase in the propane segment EBITDA partially offset
by $0.9 million of additional expenses at the Partnership level.   The increase
in the heating oil and propane segments was due to additional EBITDA provided by
the impact of colder temperatures, acquisitions and by higher per gallon gross
profit margins.  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 the Partnership's ability to make the
Minimum Quarterly Distribution.  The definition of "EBITDA" set forth above may
be different from that used by other companies. The extent to which TG&E 
customer acquisition expense is not deducted in arriving at "EBITDA" is 
currently being reviewed by the Partnership.

19

SIX MONTHS ENDED MARCH 31, 2001
COMPARED TO SIX MONTHS ENDED MARCH 31, 2000
-------------------------------------------

Volume

For the six months ended March 31, 2001, retail volume of home heating oil and
propane increased 89.4 million gallons, or 25.9%, to 434.3 million gallons, as
compared to 344.9 million gallons for the six months ended March 31, 2000.  This
increase was due to an additional 66.6 million gallons provided by the heating
oil segment and a 22.8 million gallon increase in the propane segment.  Volume
increased in the heating oil and propane segments largely due to the impact of
colder temperatures and as a result of additional volume provided by
acquisitions.  Temperatures in the Partnership's areas of operations were an
average of 16.1% colder than in the prior year's comparable period and
approximately 3% colder than normal.

Sales

For the six months ended March 31, 2001, sales increased $285.4 million, or
56.1%, to $794.0 million, as compared to $508.6 million for the six months ended
March 31, 2000.  This increase was attributable to $156.7 million provided by
the home heating oil segment, $65.5 million of TG&E sales and a $63.2 million
increase in the propane segment.  Sales rose in both the heating oil and propane
segments due to increased retail volume and to a lesser extent from increased
selling prices.  Selling prices increased versus the prior year's comparable
period in response to higher supply costs.  Sales also increased in the heating
oil division by $9.5 million and by $4.1 million in the propane division due to
increases in the sales of rationally related products including heating
equipment installation and service and water softeners.

Cost of Product

For the six months ended March 31, 2001, cost of product increased $214.1
million, or 81.8%, to $475.9 million, as compared to $261.8 million for the six
months ended March 31, 2000.  This increase was due to $114.7 million of
additional cost of product at the home heating segment, $58.3 million of TG&E
cost of product and a $41.1 million increase in the propane segment.  The cost
of product for both the heating oil and propane segments increased due to the
impact of higher retail volumes sales and as a result of higher supply cost.
While both selling prices and supply cost increased on a per gallon basis, the
increase in selling prices was equal to the increase in supply costs, which
resulted in six months ended March 31, 2001 having approximately the same per
gallon margins as were achieved in six months ended March 31, 2000.

Cost of Installation, Service and Appliances

For the six months ended March 31, 2001, cost of installation, service and
appliances increased $13.0 million, or 21.6%, to $73.4 million, as compared to
$60.3 million for the six months ended March 31, 2000.  This increase was
primarily due to $11.6 million of expenses for the heating oil segment and a
$1.4 million increase in cost for the propane segment.  The cost of
installation, service and appliances for both the heating oil and propane
segments increased due to the additional sales of rationally related products
and as a result of additional service cost due to the colder temperatures.

Delivery and Branch Expenses

For the six months ended March 31, 2001, delivery and branch expenses increased
$21.6 million, or 25.2%, to $107.2 million, as compared to $85.6 million for the
six months ended March 31, 2000.  This increase was due to an additional $15.3
million of delivery and branch expenses at the heating oil segment and a $6.3
million increase in delivery and branch expenses for the propane segment.
Delivery and branch expenses increased both at the heating oil and propane
segments due to additional operating cost associated with higher retail volume
sales, inflation and for additional operating cost of acquired companies.

20

Depreciation and Amortization

For the six months ended March 31, 2001, depreciation and amortization expenses
increased $3.4 million, or 20.6%, to $20.0 million, as compared to $16.6 million
for the six months ended March 31, 2000.  This increase was primarily due to
$0.5 million of depreciation and amortization expenses for TG&E and additional
depreciation and amortization for heating oil and propane acquisitions.

General and Administrative Expenses

For the six months ended March 31, 2001, general and administrative expenses
increased $6.3 million, or 67.8%, to $15.6 million, as compared to $9.3 million
for the six months ended March 31, 2000.  This increase was primarily due to
$4.3 million of TG&E general and administrative expenses and a $1.5 million
increase in general and administrative expenses at the Partnership level.  The
Partnership level increase was primarily due to an accrual for compensation
earned for unit appreciation rights previously granted and for professional fees
incurred for the recruitment of certain executive positions.

TG&E Customer Acquisition Expense

For the six months ended March 31, 2001, TG&E customer acquisition expense was
$1.4 million.  This TG&E segment expense is for the cost of acquiring new
accounts through the services of a third party direct marketing company.

Unit Compensation Expense

For the six months ended March 31, 2001, unit compensation expense was $1.2
million.  This expense was incurred under the Partnership's Unit Incentive Plan
whereby certain employees and outside directors were granted senior subordinated
units as an incentive for increased efforts during employment and as an
inducement to remain in the service of the Partnership.

Interest Expense, net

For the six months ended March 31, 2001, net interest expense increased $3.7
million, or 28.0%, to $17.1 million, as compared to $13.4 million for the six
months ended March 31, 2000.  This increase was due to additional interest
expense for higher working capital borrowings necessitated by the higher cost of
product as well as for additional interest expense for the financing of propane
and heating oil acquisitions.

Income Tax Expense

For the six months ended March 31, 2001, income tax expense increased $1.3
million to $1.6 million, as compared to $0.3 million for the six months ended
March 31, 2000.  This increase was due to additional state income taxes for
higher pretax earnings achieved for the six months ended March 31, 2001.

Cumulative Effect of Adoption of Accounting Principle

For the six months ended March 31, 2001, the Partnership recorded a $1.5 million
increase in net income arising from the adoption of SFAS No. 133.

Net Income

For the six months ended March 31, 2001, net income increased $20.7 million, or
34.0%, to $81.8 million, as compared to $61.1 million for the six months ended
March 31, 2000.  The increase was due to an additional $11.1 million of net
income at the heating oil segment and a $12.2 million increase in net income at
the propane segment.  The improvement in the net income for these segments was
largely due to colder weather and as a result of acquisitions.  Partially
offsetting these increases in net income were $0.7 million of net loss for TG&E
and $1.9 million of additional net loss at the Partnership level, largely the
result of the increase in unit compensation expense recorded at the Partnership
level.

21

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA)

For the six months ended March 31, 2001, earnings before interest, taxes,
depreciation and amortization, TG&E customer acquisition expense and unit
compensation expense, less net gain (loss) on sales of assets (EBITDA) increased
$30.4 million, or 33.2%, to $121.9 million as compared to $91.6 million, for the
six months ended March 31, 2000.  This increase was due to $14.8 million of
additional EBITDA generated by the heating oil segment, $2.9 million of TG&E
EBITDA, a $14.2 million increase in the propane segment EBITDA partially offset
by $1.5 million of additional expenses at the Partnership level.  The increase
in the heating oil and propane segments was largely due to additional EBITDA
provided by the impact of colder temperatures and acquisitions.  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 the Partnership's ability to make the Minimum Quarterly Distribution.
The definition of "EBITDA" set forth above may be different from that used by
other companies. The extent to which TG&E customer acquisition expense is not
deducted in arriving at "EBITDA" is currently being reviewed by the Partnership.

Liquidity and Capital Resources
-------------------------------

During the six months ended March 31, 2001, the Partnership sold 3.7 million
common units (including 0.5 million of overallotment units exercised), the net
proceeds of which, net of underwriter's discount, commission, and offering
expenses was $59.3 million.  These funds combined with net cash provided by
$66.3 million in net working capital and acquisition facility borrowings, $69.6
million of long-term debt borrowings ($40.0 million of senior secured notes
issued by the heating oil segment, $29.5 million of senior notes issued by the
propane segment and $0.1 million of acquisition related notes) and $0.2 million
in proceeds from the sale of fixed assets amounted to $195.4 million.  Such
funds were used for operating activities of $28.3 million, acquisitions of $70.2
million, distributions of $24.0 million, debt and acquisition facility repayment
of $58.4 million, capital expenditures of $7.1 million and other financing
activities of $1.4 million.  As a result of the above activity, cash increased
by $6.0 million to $16.9 million.

The $40.0 million of senior secured notes mentioned above were issued to three
institutional lenders by the heating oil segment to complete a refinancing of
$40.0 million of indebtedness incurred under its bank acquisition facility.  The
senior notes bear interest at the rate of 8.96% per year and have an average
life of five and three-quarter years with a final maturity date of November 1,
2010.

The $29.5 million of senior notes mentioned above were issued to several
institutional lenders by the propane segment to complete a refinancing of $25.0
million of indebtedness incurred under its bank acquisition facility.  The
balance of the proceeds, $4.5 million, will be used to fund future acquisition
activity and to refinance maturities of senior notes.  The senior notes bear
interest at the rate of 7.89% per year and have an average life of nine years
with a final maturity date of April 1, 2011.

For the remainder of fiscal 2001, the Partnership anticipates paying interest of
approximately $15 million and anticipates growth and maintenance capital
additions of approximately $7 million.  In addition, the Partnership plans to
pay distributions on its units in accordance with the partnership agreement.
The Partnership also plans to pursue strategic acquisitions as part of its
business strategy and to prudently fund such acquisitions through a combination
of debt and equity.  Based on its current cash position, bank credit
availability and net cash from operating activities, the Partnership expects to
be able to meet all of its obligations for fiscal 2001.

22

Item. 3.        Quantitive and Qualitative Disclosures About Market Risk
--------------------------------------------------------

The Partnership is exposed to interest rate risk primarily through its bank
credit facilities.  The Partnership utilizes these borrowings to meet its
working capital needs and also to fund the short-term needs of its acquisition
program.

At March 31, 2001, the Partnership had outstanding borrowings of approximately
$80.0 million under its Bank Credit Facilities.  In the event that interest
rates associated with these facilities were to increase 100 basis points, the
impact on future cash flows would be a decrease of approximately $0.8 million
annually.

The Partnership also selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in the current and future market
price of home heating oil, propane and natural gas.  The Partnership does not
hold derivatives for trading purposes.  The value of market sensitive derivative
instruments is subject to change as a result of movements in market prices.
Consistent with the nature of hedging activity, associated unrealized gains and
losses would be offset by corresponding decreases or increases in the purchase
price the Partnership would pay for the product being hedged.  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
March 31, 2001, the potential gain on the Partnership's hedging activity would
be to increase the fair market value of these outstanding derivatives by $2.5
million to a fair market value $4.8 million; and conversely a hypothetical ten
percent decrease in the cost of product would decrease the fair market value of
these outstanding derivatives by $2.5 million to a fair market value of ($0.2)
million.

PART II OTHER INFORMATION
-------------------------

Item 6.  Exhibits and Reports on Form 8-K

(a)    Exhibits Included Within:
------------------------ 

10.23  Note Purchase Agreement for $7,500,000 - 7.62% First Mortgage
Notes, Series A, due April 1, 2008 and $22,000,000 - 7.95% 
First Mortgage Notes, Series B, due April 1, 2011.

10.24  Credit Agreement, dated as of March 30, 2001, by Total Gas &
Electric, Inc. and Chase Manhattan Bank, as agent.

27.0   Financial Data Schedule

(b)    Reports on Form 8-K:
------------------- 

1/22/01 - This Form 8-K consists of the following two historical press
releases; Star Gas Partners, L.P. Reports Fiscal 2000 Year-End and Fourth
Quarter Results and Completion of Seven Acquisitions (Released December
14, 2000), Star Gas Partners, L.P. Reports Record Q1 FY '01 Earnings
Announces Significant Increase in Senior Subordinated Unit Distribution
and Declares Regular Common Unit Distribution (Released January 18,
2001).

1/26/01 - This Form 8-K consists of a copy of the underwriting agreement
for a firm commitment public offering of up to 1,900,000 common units of
the registrant that were previously registered pursuant to a shelf
registration statement on Form S-3 (SEC File No. 333-94031).

23

SIGNATURE
---------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized:

Star Gas Partners, L.P.
By:  Star Gas LLC (General Partner)

Signature                 Title                           Date
---------                 -----                           ----

/s/  George Leibowitz            Chief Financial Officer           May 10, 2001
-------------------------   Star Gas LLC
George Leibowitz            (Principal Financial Officer)

/s/  James J. Bottiglieri        Vice President                    May 10, 2001
-------------------------   Star Gas LLC
James J. Bottiglieri        

24

Exhibit 10.23
================================================================================

Star Gas Propane, L.P.

Star/Petro, Inc.

$7,500,000 7.62% First Mortgage Notes, Series A,
Due April 1, 2008

and

$22,000,000 7.95% First Mortgage Notes, Series B,
Due April 1, 2011

___________________

Note Agreement

___________________

Dated as of March 15, 2001

================================================================================

Table of Contents

Section                                     Heading                                                                         Page

Section 1.           Authorization of Notes..............................................................................     1

Section 2.           Sale and Purchase of Notes..........................................................................     1

Section 3.           Closing.............................................................................................     2

Section 4.           Conditions to Closing...............................................................................     2

Section 4.1.    Representations and Warranties......................................................................     2
Section 4.2.    Performance; No Default.............................................................................     2
Section 4.3.    Compliance Certificates.............................................................................     2
Section 4.4.    Opinions of Counsel.................................................................................     3
Section 4.5.    Legal Investment....................................................................................     3
Section 4.6.    Trust Agreement.....................................................................................     3
Section 4.7.    Security Documents..................................................................................     3
Section 4.8.    Intentionally Omitted...............................................................................     4
Section 4.9.    Operative Agreements................................................................................     4
Section 4.10.   Other Conditions Satisfied..........................................................................     4
Section 4.11.   Proceeding and Documents............................................................................     4
Section 4.12.   Insurance Broker's Certificate......................................................................     4
Section 4.13.   Payment of Closing Fees.............................................................................     4
Section 4.14.   Private Placement Numbers...........................................................................     4

Section 5.           Representations and Warranties, Etc. of the Obligors................................................     4

Section 5.1.    Organization, Standing, Etc.........................................................................     5
Section 5.2.    Partnership Interests...............................................................................     5
Section 5.3.    Qualification.......................................................................................     5
Section 5.4.    Business; Financial Statements......................................................................     6
Section 5.5.    Changes, Etc........................................................................................     6
Section 5.6.    Tax Returns and Payments............................................................................     6
Section 5.7.

Indebtedness........................................................................................     7
Section 5.8.    Transfer of Assets and Business.....................................................................     7
Section 5.9.    Litigation, Etc.....................................................................................     8
Section 5.10.   Compliance with Other Instruments, Etc..............................................................     8
Section 5.11.   Governmental Consent................................................................................     8
Section 5.12.   Offer of Notes......................................................................................     8
Section 5.13.   Use of Proceeds.....................................................................................     8
Section 5.14.   Federal Reserve Regulations.........................................................................     9
Section 5.15.   Investment Company Act..............................................................................     9

-i-

Section 5.16.   Public Utility Holding Company Act; Federal Power Act.............................................     9
Section 5.17.   ERISA.............................................................................................     9
Section 5.18.   Environmental Matters.............................................................................    10
Section 5.19.   Foreign Assets Control Regulations, Etc...........................................................    11
Section 5.20.   Disclosure........................................................................................    11
Section 5.21.   Chief Executive Office............................................................................    12
Section 5.22.   Parity Lenders....................................................................................    12
Section 5.23.   Filing and Recordation............................................................................    12

Section 6.           Purchaser's Representations; Source of Funds......................................................    12

Section 6.1.    Purchase for Investment...........................................................................    12
Section 6.2.    Source of Funds...................................................................................    12

Section 7.           Accounting; Financial Statements and Other Information............................................    14

Section 8.           Inspection........................................................................................    19

Section 9.           Prepayment of Notes...............................................................................    20

Section 9.1.    Required Prepayments of the Notes.................................................................    20
Section 9.2.    Optional Prepayments of the Notes with Make Whole Amount..........................................    20
Section 9.3.    Contingent Prepayments on Disposition of Property.................................................    20
Section 9.4.    Prepayment on Taking or Destruction...............................................................    21
Section 9.5.    Notice of Prepayments; Officers' Certificate......................................................    21
Section 9.6.    Allocation of Partial Prepayments.................................................................    22
Section 9.7.    Maturity; Surrender, Etc..........................................................................    22
Section 9.8.    Acquisition of Notes..............................................................................    22

Section 10.          Business and Financial Covenants of the Obligors..................................................    22

Section 10.1.   Indebtedness......................................................................................    22
Section 10.2.   Liens, Etc........................................................................................    26
Section 10.3.   Investments, Guaranties, Etc......................................................................    28
Section 10.4.   Restricted Payments...............................................................................    30
Section 10.5.   Transactions with Affiliates......................................................................    31
Section 10.6.   Subsidiary Stock and Indebtedness.................................................................    31
Section 10.7.   Consolidation, Merger, Sale of Assets, Etc........................................................    32
Section 10.8.   Partnership or Corporate Existence, Etc.; Business................................................    36
Section 10.9.   Payment of Taxes and Claims.......................................................................    37
Section 10.10.  Compliance with ERISA.............................................................................    37
Section 10.11.  Maintenance of Properties; Insurance..............................................................    38
Section 10.12.  Operative Agreements; Security Documents..........................................................    38
Section 10.13.  Chief Executive Office............................................................................    39
Section 10.14.  Recordation.......................................................................................    39

-ii-

Section 10.15.   Information Required by Rule 144A...............................................................    39
Section 10.16.   Covenant to Secure Notes Equally................................................................    39
Section 10.17.   Compliance with Laws............................................................................    39
Section 10.18.   Further Assurances..............................................................................    40
Section 10.19.   Subsidiaries....................................................................................    40
Section 10.20.   Rating..........................................................................................    42
Section 10.21.   Accounting Changes..............................................................................    42
Section 10.22.   Certain Real Property...........................................................................    42
Section 10.23.   Sale and Lease-Back Transactions................................................................    43
Section 10.24.   Acquisitions....................................................................................    43
Section 10.25.   Impairment of Security Interests................................................................    43
Section 10.26.   Limitation on Restrictions on Subsidiary Dividends, Etc.........................................    43
Section 10.27.   No Other Negative Pledges.......................................................................    44
Section 10.28.   Sales of Receivables............................................................................    44
Section 10.29.   Fixed Price Supply Contracts; Certain Policies..................................................    44
Section 10.30.   Certain Operations..............................................................................    44
Section 10.31.   Independent Organizational Existence............................................................    45
Section 10.32.   Damage, Destruction, Taking, Etc................................................................    46

Section 11.           Events of Default; Acceleration.................................................................    46

Section 12.           Remedies on Default; Recourse, Etc..............................................................    50

Section 13.           Definitions.....................................................................................    51
Section 14.           Registration, Transfer and Substitution of Notes................................................    69

Section 14.1.    Note Register; Ownership of Notes...............................................................    69
Section 14.2.    Transfer and Exchange of Notes..................................................................    70
Section 14.3.    Replacement of Notes............................................................................    70
Section 14.4.    Notes Held by Obligors Etc., Deemed Not Outstanding.............................................    70

Section 15.           Payments on Notes...............................................................................    71

Section 15.1.    Place of Payment................................................................................    71
Section 15.2.    Home Office Payment.............................................................................    71

Section 16.           Expenses, Indemnification, Etc..................................................................    71

Section 17.           Survival of Representations and Warranties......................................................    74

Section 18.           Amendments and Waivers..........................................................................    74

Section 19.           Notices, Etc....................................................................................    74

-iii-

Section 20.           Reproduction of Documents.......................................................................    75

Section 21.           Adjustment of Interest Rate.....................................................................    75

Section 22.           Miscellaneous...................................................................................    76

Section 23.           Submission to Jurisdiction......................................................................    76

Section 24.           Waiver of Jury Trial............................................................................    77

Section 25.           Governing Law...................................................................................    77

-iv-

Attachments to Note Agreement

Schedule A        --   Schedule of Purchasers

Schedule 5.2      --   Partnership Interests, Subsidiaries and Investments

Schedule 5.4(b)   --   Financial Statements

Schedule 5.7      --   Indebtedness

Schedule 5.18     --   Environmental Matters

Schedule 10.2     --   Liens

Schedule 10.31    --   Organizational Matters

Schedule 13       --   Restricted Subsidiaries

Exhibit A1        --   Form of Series A Note

Exhibit A2        --   Form of Series B Note

Exhibit B1        --   Form of Opinion of Counsel to the Obligors

Exhibit B2        --   Form of Opinion of Chapman and Cutler

Exhibit C         --   Form of Intercompany Note

-v-

Star Gas Propane, L.P.
Star/Petro, Inc.
2187 Atlantic Street
Stamford, CT 06902

$7,500,000 7.62% First Mortgage Notes, Series A, due April 1, 2008
and
$22,000,000 7.95% First Mortgage Notes, Series B, due April 1, 2011

Dated as of March 15, 2001

To Each of the Purchasers Listed
in the Attached Schedule A

Ladies and Gentlemen:

Star Gas Propane, L.P., a Delaware limited partnership ("Star Gas"), and
Star/Petro, Inc., a Minnesota corporation ("Star/Petro"; Star Gas together with
Star/Petro are each hereinafter referred to as an "Obligor" and collectively as
the "Obligors"), hereby jointly and severally agree with the purchasers named on
Schedule A to this Agreement (the "Purchasers") as follows:

Section 1. Authorization of Notes.

The Obligors will authorize the issue and sale of (a) $7,500,000 aggregate
principal amount of their 7.62% First Mortgage Notes, Series A, due April 1,
2008 (the "Series A Notes") and (b) $22,000,000 aggregate principal amount of
their 7.95% First Mortgage Notes, Series B, due April 1, 2011 (the "Series B
Notes"; said Series B Notes together with the Series A Notes are hereinafter
referred to collectively as the "Notes," such term to include any Notes issued
in substitution therefor or replacement thereof pursuant to Section 14). The
Series A Notes and the Series B Notes shall be substantially in the forms of
Exhibits A1 and A2, respectively, with such changes therefrom, if any, as may be
approved by the Purchasers and the Obligors. Certain capitalized terms used in
this Agreement are defined in Section 13; references to a "Section" or a
"Schedule" or an "Exhibit" are, unless otherwise specified, to a Section of this
Agreement or to a Schedule or an Exhibit attached to this Agreement.

Section 2. Sale and Purchase of Notes.

Subject to the terms and conditions of this Agreement, the Obligors will
issue and sell to the Purchasers and the Purchasers will purchase from the
Obligors, at the Closing provided for in Section 3, Notes in the principal
amount and of the series specified opposite such Purchaser's name for purchase
by such Purchaser at the Closing in Schedule A, at the purchase price of 100% of
the principal amount thereof.

Section 3.  Closing.

The sale of the Notes to the Purchasers shall take place at the offices of
Phillips Nizer Benjamin Krim & Ballon LLP, 666 Fifth Avenue, New York, New York
10103-0084, at 10:00 a.m., New York, New York time, at a closing (the "Closing")
on March 29, 2001, or such later date as may be agreed upon by the Obligors and
the Purchasers. At the Closing, the Obligors will deliver to each Purchaser
Notes of the series to be purchased by such Purchaser in the principal amount to
be purchased by such Purchaser, in the form of a single Note of such series (or
such greater number of Notes of such series as such Purchaser may request), each
dated the date of the Closing and registered in such Purchaser's name (or in the
name of such Purchaser's nominee as indicated in Schedule A), against payment of
the purchase price therefor by transfer of immediately available funds to the
Obligors, or as otherwise directed by the Obligors in writing, on the date of
the Closing. If at the Closing the Obligors shall fail to tender such Notes to
any such Purchaser as provided above in this Section 3 or if any of the
conditions specified in Section 4 shall not have been fulfilled to any such
Purchaser's satisfaction, such Purchaser shall, at its election, be relieved of
all further obligations under this Agreement, without thereby waving any other
rights such Purchaser may have by reason of such failure or such nonfulfillment.

Section 4.  Conditions to Closing.

Each Purchaser's obligation to purchase and pay for the Notes to be sold to
it at the Closing is subject to the fulfillment to such Purchaser's
satisfaction, prior to or at the Closing, of the following conditions:

Section 4.1. Representations and Warranties. The representations and
warranties of each of the Obligors and its Affiliates contained in this
Agreement, the other Operative Agreements, and those otherwise made in writing
by or on behalf of either Obligor or any of its Affiliates in connection with
the transactions contemplated by this Agreement, shall be true and correct when
made and at the time of the Closing, except as affected by the consummation of
such transactions.

Section 4.2. Performance; No Default. Each of the Obligors and its
Affiliates shall have performed and complied with all agreements and conditions
contained in this Agreement or any other Operative Agreement required to be
performed or complied with by it prior to or at the Closing, and at the time of
the Closing no Event of Default or Potential Event of Default under this
Agreement or default by any party under any other Operative Agreement shall have
occurred and be continuing.

Section 4.3. Compliance Certificates. Each of the Obligors shall have
delivered to such Purchaser an Officers' Certificate, dated the date of the
Closing and satisfactory in substance and form to such Purchaser, certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and
certifying that no material adverse change has occurred in the financial
condition of the Business subsequent to the date of the most recent audited
financial statements delivered pursuant to Section 5.4(b).

D-2

Section 4.4.  Opinions of Counsel. Such Purchaser shall have received
favorable opinions from (a) Phillips Nizer Benjamin Krim & Ballon LLP, counsel
for the Obligors and their Affiliates, substantially in the form of Exhibit B1,
and (b) Chapman and Cutler, special counsel to the Purchasers in connection with
the transactions contemplated by this Agreement, substantially in the form of
Exhibit B2, and in each case covering such other matters incident to such
transactions as such Purchaser may reasonably request, each addressed to such
Purchaser, dated the date of the Closing and otherwise reasonably satisfactory
in substance and form to such Purchaser. The Obligors hereby direct their
counsel referred to in clause (a) of this Section 4.4 to deliver to such
Purchaser such opinions and letters to be delivered by it and authorizes such
Purchaser to rely thereon.

Section 4.5. Legal Investment. On the date of the Closing, such Purchaser's
purchase of Notes shall be permitted by the laws and regulations of each
jurisdiction to which such Purchaser's investments are subject, but without
recourse to provisions (such as section 1404(b) or 1405(a)(8) of the New York
Insurance Law) permitting, limited investments by insurance companies in
securities not otherwise legally eligible for investment. If requested by such
Purchaser by prior written request to the Obligors, such Purchaser shall have
received, at least five Business Days prior to the Closing, an Officers'
Certificate of each Obligor certifying as to such matters of fact as such
Purchaser may reasonably specify to enable it to determine whether such purchase
is so permitted.

Section 4.6. Trust Agreement. Each of the Obligors, the General Partner and
the Trustee shall have duly authorized, executed and delivered the Trust
Agreement. The Trust Agreement shall be in full force and effect and shall
constitute the valid and binding obligation of each of the Obligors, the General
Partner and the Trustee and no default on the part of either of the Obligors or
the General Partner shall exist thereunder.

Section 4.7. Security Documents. (a) The General Partner, Star Gas and the
Restricted Subsidiaries shall have duly authorized, executed and delivered the
Mortgages relating to the Mortgaged Property located in Connecticut, Florida,
Georgia, Indiana, Kentucky, Maine, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio, Pennsylvania, Rhode Island and Wisconsin. Each such
Mortgage shall be in full force and effect and shall (i) constitute the valid
and binding obligation of the General Partner, Star Gas and the Restricted
Subsidiaries, (ii) constitute a valid first mortgage lien of record on the real
property and all other interests described therein which may be subjected to a
mortgage lien, subject only to Permitted Encumbrances, and (iii) constitute a
valid assignment of, and create a valid, presently effective security interest
of record in, equipment and all other interests (other than real property
interests) described therein, subject to no prior security interest in any such
property other than as specifically permitted therein, and no default on the
part of the General Partner, Star Gas or any Restricted Subsidiary shall exist
thereunder.

(b)  Each of the Security Documents shall have been duly authorized,
executed and delivered by each of the Obligors and/or their Affiliates party
thereto, shall be in full force and effect and shall (i) constitute the valid
and binding obligation of each such party and (ii) constitute a valid assignment
of, and create a valid, presently effective security interest of

D-3

record in, property covered by such Security Document and all other interests
described therein, subject to no prior security interest in any such personal
property other than as specifically permitted therein, and no default on the
part of any such party shall exist thereunder.

Section 4.8.  [Intentionally Omitted]

Section 4.9.  Operative Agreements. Each of the Operative Agreements shall
have been duly authorized, executed and delivered by the respective parties
thereto, in form and substance satisfactory to such Purchaser, shall be in full
force and effect, and shall constitute the legal, valid and binding obligations
of the respective parties thereto, and all actions required to be performed or
taken thereunder on or prior to the date of the Closing shall have been duly
taken and no default or accrued right of termination on the part of any of the
parties thereto shall exist thereunder as of the date of the Closing, and such
Purchaser shall have received a fully executed original, or a true and correct
copy, of each such document.

Section 4.10. Other Conditions Satisfied . The conditions specified in
Section 10.2(i) of the 1995 Note Agreements, Section 10.2(i) of the 1998 Note
Agreement, Section 10.2(i) of the 2000 Note Agreement and Section 6.02(h) of the
Bank Credit Facilities have been fulfilled and such Purchaser shall have
received such evidence as it may reasonably request (including copies of the
certificates and opinions required by such Sections) demonstrating fulfillment
of such conditions.

Section 4.11. Proceeding and Documents. All proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to such
Purchaser and such Purchaser's special counsel, and such Purchaser and such
Purchaser's special counsel shall have received all such counterpart originals
or certified or other copies of such documents as such Purchaser or its special
counsel may reasonably request.

Section 4.12. Insurance Broker's Certificate. Insurance complying with the
provisions of Section 15 of the Mortgages shall be in full force and effect and
such Purchaser shall have received a certificate from Weeks & Calloway or such
other independent insurance brokers or consultants as shall be reasonably
satisfactory to such Purchaser, dated the date of the Closing.

Section 4.13. Payment of Closing Fees. The Obligors shall have paid the
fees and disbursements required by Section 16 to be paid by the Obligors on the
date of the Closing.

Section 4.14. Private Placement Numbers. The Obligors shall have obtained
for each series of the Notes a Private Placement Number issued by Standard &
Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office
of the National Association of Insurance Commissioners).

Section 5.  Representations and Warranties, Etc. of the Obligors.

Each of the Obligors and the General Partner represents and warrants that:

D-4

Section 5.1. Organization, Standing, Etc. Star Gas is a limited partnership
duly organized, validly existing and in good standing under the Delaware Revised
Uniform Limited Partnership Act and has all requisite partnership power and
authority to own and operate its properties (including, without limitation, the
Assets), to conduct the business it conducts and proposes to conduct, to enter
into this Agreement and the other Operative Agreements to which it is a party,
to issue and sell the Notes and to carry out the terms of this Agreement, such
other Operative Agreements and the Notes. Star/Petro is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to own and operate
its properties, to conduct the business it conducts and proposes to conduct, to
enter into this Agreement and the other Operative Agreements to which it is a
party, to issue and sell the Notes and to carry out the terms of this Agreement,
such other Operative Agreements and the Notes. The General Partner is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite limited liability
company power and authority to own and operate its properties, to conduct the
business it conducts and proposes to conduct, to enter into and carry out the
terms of this Agreement and the other Operative Agreements to which it is a
party, and to execute and deliver as the general partner of Star Gas this
Agreement and the other Operative Agreements to which Star Gas is a party and
the Notes.

Section 5.2. Partnership Interests. The only general partner of Star Gas is
the General Partner, which owns a 0.8488% general partner interest in Star Gas.
The only limited partner of Star Gas is the Public Partnership which owns a
99.1512% limited partner interest in Star Gas. Star Gas does not have any other
partner. Except as disclosed in Schedule 5.2, Star Gas does not have any
Subsidiaries or any Investments in any Person (other than Investments of the
types described in Section 10.3(a)).

Section 5.3. Qualification. Star Gas is duly qualified or registered and is
in good standing as a foreign limited partnership for the transaction of
business, and the General Partner is duly qualified or registered and is in good
standing as a foreign limited liability company for the transaction of business,
in Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Maine,
Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New York, Ohio,
Pennsylvania, Rhode Island, West Virginia and Wisconsin which are the only
jurisdictions in which the nature of their respective activities or the
character of the properties they own, lease or use makes such qualification or
registration necessary and in which the failure so to qualify or to be so
registered would have a Material Adverse Effect. Star/Petro is qualified or
registered and in good standing as a foreign corporation for the transaction of
business in New York, which is the only jurisdiction in which the nature of its
activities or the character of the properties it owns, leases or uses makes such
qualification or registration necessary and in which the failure to be so
qualified or registered would have a Material Adverse Effect. Each of the
Obligors and the General Partner has taken all necessary partnership corporate
or limited liability company action to authorize the execution, delivery and
performance by it of this Agreement, the Notes and each other Operative
Agreement to which it is a party. Each of the Obligors and the General Partner
has duly executed and delivered each of this Agreement, the Notes and the other
Operative Agreements to which it is a party, and each of them constitutes its
legal, valid and binding obligation enforceable in accordance with its terms.

D-5

Section 5.4. Business; Financial Statements. (a) The Obligors have
delivered to each Purchaser complete and correct copies of (i) a memorandum
dated February 2001, prepared by Banc of America Securities LLC and A.G. Edwards
& Sons, Inc. for use in connection with the Obligors' private placement of the
Notes, (ii) the Public Partnership's SEC Form 10-K for the fiscal year ended
September 30, 2000 and (iii) the Public Partnership's SEC Form 10-Q for the
fiscal quarter ended December 31, 2000 (the "Offering Materials"). The financial
statements and schedules included in the Offering Materials (other than with
respect to pro forma matters) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods specified and present fairly the
financial position of the corporation or partnership to which they relate as of
the respective dates specified and the results of their operations and cash
flows for the respective periods specified.

(b) The Obligors have delivered to each Purchaser copies of the financial
statements of each of the Obligors and its Subsidiaries listed on Schedule
5.4(b). All of said financial statements (including the related schedules and
notes) fairly present in all material respects the financial position of the
Obligor and its Subsidiaries to which they relate as of the respective dates
specified in such Schedule and the results of their operations and cash flows
for the respective periods so specified and have been prepared in accordance
with GAAP consistently applied throughout the periods involved, except as set
forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).

Section 5.5. Changes, Etc. Except as contemplated by this Agreement, the
other Operative Agreements or the Offering Materials, subsequent to the date as
of which information is given in the Offering Materials, (a) neither of the
Obligors nor their Affiliates have incurred any material liabilities or
obligations, direct or contingent, or entered into any material transaction not
in the ordinary course of business except for material liabilities or
obligations and material transactions permitted by the 2000 Note Agreement, the
1998 Note Agreement, the 1995 Note Agreements and the Bank Credit Facilities,
(b) no events have occurred, which individually or in the aggregate, could have
a Material Adverse Effect, and (c) there has not been (i) any Restricted Payment
of any kind declared, paid or made by either of the Obligors, the General
Partner or the Public Partnership other than Restricted Payments that were
permitted under the 2000 Note Agreement, the 1998 Note Agreement, the 1995 Note
Agreement and the Bank Credit Facilities or (ii) any Indebtedness incurred under
the Bank Credit Facilities except for Indebtedness incurred under the Bank
Credit Facilities that was and is permitted by the 2000 Note Agreement, the 1998
Note Agreement, the 1995 Note Agreements and the Bank Credit Facilities.

Section 5.6. Tax Returns and Payments. Each of the Obligors and its
Affiliates has filed all tax returns required by law to be filed by it and has
paid all taxes, assessments and other governmental charges levied upon it or any
of its properties, assets, income or franchises which are due and payable, other
than those which are not past due or are presently being contested in good faith
by appropriate proceedings diligently conducted for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP have been made.
Star Gas is a limited partnership not subject to taxation with respect to its
income or gross receipts under applicable Federal laws.

D-6

Section 5.7. Indebtedness. Other than the Indebtedness represented by the
Notes and the Indebtedness listed in Schedule 5.7, neither of the Obligors nor
the General Partner has any secured or unsecured Indebtedness outstanding. No
instrument or agreement to which either of the Obligors or, other than Section
6.6(g) of the MLP Agreement, the General Partner is a party or by which either
of the Obligors or the General Partner is bound or which is applicable to either
of the Obligors or the General Partner (other than this Agreement, the 1995 Note
Agreements, the 1998 Note Agreement, the 2000 Note Agreement and the Bank Credit
Facilities) contains any restrictions on the incurrence by either of the
Obligors or the General Partner of additional Indebtedness.

Section 5.8. Transfer of Assets and Business. (a) Each of the Obligors is
in possession of and operating in compliance in all respects with all
franchises, grants, authorizations, approvals, licenses, permits, easements,
rights-of-way, consents, certificates and orders required to own, lease or use
its properties and to permit the conduct of the Business as now conducted and
proposed to be conducted, except for those franchises, grants, authorizations,
approvals, licenses, permits, easements, rights-of-way, consents, certificates
and orders (collectively, "Permitted Exceptions") (i) which are not required at
this time and are routine or administrative in nature and are expected in the
reasonable judgment of Star/Petro or the General Partner, as the case may be, to
be obtained or given in the ordinary course of business after the date of the
Closing, or (ii) which, if not obtained or given, would not, individually or in
the aggregate, have a Material Adverse Effect.

(b) Each of the Obligors has (i) good and marketable title to the portion
of the Assets constituting real property owned in fee simple by such Obligor,
(ii) good and valid leasehold interests in the portion of the Assets
constituting real property and leased by such Obligor and (iii) good and
sufficient title to the portion of the Assets constituting personal property for
the use and operation of such personal property as it has been used in the past
and as it is proposed to be used in the Business, in each case subject to no
Liens except Permitted Encumbrances. The Assets are all of the assets and
properties necessary to enable the Obligors to conduct the Business and include
all options to purchase or rights of first refusal granted to or for the General
Partner with respect to any of the Assets leased by the General Partner. Each of
the Obligors enjoys peaceful and undisturbed possession under all leases
necessary for the operation of its properties and assets, and all such leases
are valid and subsisting and are in full force and effect. Except to perfect and
to protect security interests of the character described by Section 10.2, (A) at
the time of the Closing, no effective financing statement under the Uniform
Commercial Code which names either of the Obligors or the General Partner (with
respect to any of the Assets) as debtor, which individually or in the aggregate
relates to any part of the Assets, will be on file in any jurisdiction and (B)
at the time of the Closing, neither of the Obligors nor the General Partner
(with respect to the Assets) will have signed any effective financing statement
(other than financing statements in favor of the Trustee) or any effective
security agreement, which relates to any part of the Assets, authorizing any
secured party thereunder to file any such financing statement, except for
financing statements to be executed and filed in connection with the Closing.

D-7

Section 5.9.  Litigation, Etc. There is no action, proceeding or
investigation pending or, to the best knowledge of either of the Obligors or the
General Partner upon reasonable inquiry, threatened (or any basis therefor known
to either of the Obligors or the General Partner) which questions the validity
of this Agreement, any other Operative Agreement or the Notes or any action
taken or to be taken pursuant to this Agreement, any other Operative Agreement
or the Notes, or which might have, either in any case or in the aggregate, a
Material Adverse Effect.

Section 5.10. Compliance with Other Instruments, Etc. Neither of the
Obligors nor the General Partner (a) is in violation of, in the case of Star
Gas, any term of the Partnership Agreement or, in the case of Star/Petro, its
certificate of incorporation or by-laws, or, in the case of the General Partner,
its limited liability company agreement, or (b) is in violation of any term of
any other agreement or instrument to which such Obligor or the General Partner
is a party or by which any of them or any of their properties is bound or any
term of any applicable law, ordinance, rule or regulation of any governmental
authority or any term of any applicable order, judgment or decree of any court,
arbitrator or governmental authority, the consequences of which, in the case of
clause (b), would have a Material Adverse Effect; the execution, delivery and
performance by each of the Obligors and the General Partner of this Agreement
and the other Operative Agreements to which it is a party and the Notes will not
result in any violation of or be in conflict with or constitute a default under
any such term or result in the creation of (or impose any obligation on either
of the Obligors or the General Partner to create) any Lien upon any of the
properties or assets of either of the Obligors or the General Partner prohibited
by any such term; and there is no such term the compliance with which would
have, or in the future may in the reasonable judgment of either of the Obligors
or the General Partner be likely to have, a Material Adverse Effect.

Section 5.11. Governmental Consent. No consent, approval or authorization
of, or declaration or filing with, any governmental authority is required for
the valid execution, delivery and performance of this Agreement or the other
Operative Agreements (other than Permitted Exceptions), and no such consent,
approval, authorization, declaration or filing is required for the valid offer,
issue, sale and delivery of the Notes pursuant to this Agreement.

Section 5.12. Offer of Notes. Neither of the Obligors nor any of their
Affiliates nor anyone acting on any of their behalf has directly or indirectly
offered the Notes or any part thereof or any similar securities for sale to, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, anyone other than the Purchasers and not
more than 46 other institutional investors. Neither of the Obligors nor the
General Partner nor anyone acting on any of their behalf has taken or will take
any action which would subject the issuance and sale of the Notes to the
registration and prospectus delivery provisions of the Securities Act of 1933,
as amended, or to the registration or qualification provisions of any securities
or Blue Sky law of any applicable jurisdiction or require registration of any
Security Document under the Trust Indenture Act of 1939, as amended.

Section 5.13. Use of Proceeds. The proceeds of the sale of the Notes will
be used to refinance Indebtedness incurred under the Initial Acquisition
Facility and for the improvement or repair of the Assets.

D-8

Section 5.14. Federal Reserve Regulations. Neither of the Obligors nor the
General Partner will, directly or indirectly, use any of the proceeds of the
sale of the Notes for the purpose, whether immediate, incidental or ultimate, of
buying a "margin stock" or of maintaining, reducing or retiring any indebtedness
originally incurred to purchase a stock that is currently a "margin stock," or
for any other purpose which might constitute this transaction a "purpose
credit," in each case within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 C.F.R. 221, as amended), or
otherwise take or permit to be taken any action which would involve a violation
of such Regulation U or of Regulation X (12 C.F.R. 224, as amended) or any other
applicable regulation of such Board. No indebtedness being reduced or retired,
directly or indirectly, out of the proceeds of the sale of the Notes was
incurred for the purpose of purchasing or carrying any stock which is currently
a "margin stock," and none of the Obligors, the General Partner or the Public
Partnership owns or has any present intention of acquiring any amount of such
"margin stock."

Section 5.15. Investment Company Act. Neither of the Obligors nor the
General Partner is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

Section 5.16. Public Utility Holding Company Act; Federal Power Act.
Neither of the Obligors nor the General Partner is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended; none of
the Obligors, the General Partner or the issue and sale of the Notes is subject
to regulation under such Act; and neither of the Obligors nor the General
Partner is a "public utility" as such term is defined in the Federal Power Act,
as amended.

Section 5.17. ERISA. (a) None of the Obligors, the General Partner or any
Related Person (other than Petro or any of its Non-Related Subsidiaries) has
ever established, maintained, contributed to or been obligated to contribute to,
and neither of the Obligors nor any Related Person of either of the Obligors has
any liability or obligation with respect to, any Plan. Neither of the Obligors
nor any Related Person of either of the Obligors has assumed, either by
agreement (including the Partnership Agreement and the other Operative
Agreements), by operation of law or otherwise, any liability or obligation with
respect to any "employee benefit plan" (as defined in ERISA) or any other
compensation or benefit arrangement, agreement, policy, practice or
understanding and neither of the Obligors nor any Related Person of either of
the Obligors has any liability or obligation to provide any amount or type of
compensation or benefit in respect of any employee or former employee of the
Business which relates to periods, services performed or benefits or amounts
accrued prior to the transfer of the Business or the Assets pursuant to the
Operative Agreements and the transactions contemplated thereby. None of the
Obligors, the General Partner nor any Related Person has incurred any material
liability under Title IV of ERISA with respect to any such Plan and no event or
condition exists or has occurred as a result of which such a liability would
reasonably be expected to be incurred. None of the Obligors, the General Partner
nor any Related Person has engaged in any transaction, including the
transactions contemplated hereunder which could subject either of the Obligors
or any Related Person of either of the Obligors to liability pursuant to section
4069(a) or 4212(c) of

D-9

ERISA. There has been no reportable event (within the meaning of section 4043(b)
of ERISA) or any other event or condition with respect to any Plan which
presents a risk of the termination of, or the appointment of a trustee to
administer, any such Plan by the PBGC. No prohibited transaction (within the
meaning of section 406(a) of ERISA or section 4975 of the Code) exists or has
occurred with respect to any Plan which has subjected or could reasonably be
expected to subject either of the Obligors or the General Partner to a material
liability under section 502(i) of ERISA or section 4975 of the Code. No
liability to the PBGC (other than liability for premiums not yet due) has been
or is expected to be incurred with regard to any Plan by either of the Obligors,
the General Partner nor any Related Person. Neither of the Obligors, the General
Partner nor any Related Person contributes or is obligated to contribute or has
ever contributed or been obligated to contribute to any single employer plan
that has at least two contributing sponsors not under common control. Neither of
the Obligors is, nor are either of them expected to become, a "substantial
employer" as defined in section 4001(a)(2) of ERISA with respect to any Plan.
Neither of the Obligors nor the General Partner has ever maintained or
contributed to any plan or arrangement which provides post-employment welfare
benefits or coverage (other than continuation coverage provided pursuant to
section 4980B of the Code).

(b) The execution and delivery of this Agreement and the issue and sale of
the Notes will not involve any non-exempt "prohibited transaction" within the
meaning of section 406 of ERISA or section 4975 of the Code. The representations
by each of the Obligors and the General Partner in the immediately preceding
sentence are made in reliance upon and subject to the accuracy of each
Purchaser's representation in Section 6.2 of this Agreement as to the source of
the funds to be used to pay the purchase price of the Notes to be purchased by
such Purchaser. With respect to each employee benefit plan identified to the
Obligors in accordance with clause (c) of Section 6.2 of this Agreement, neither
of the Obligors nor the General Partner nor any "affiliate" (as defined in
Section V(c) of the QPAM Exemption) of either of the Obligors or the General
Partner has at this time, and has not exercised at any time within the one year
period preceding the date of the Closing, the authority to appoint or terminate
any Purchaser as manager of any of the assets of any such plan or to negotiate
the terms of any management agreement with such Purchaser on behalf of any such
plan.

Section 5.18. Environmental Matters. (a) Except as disclosed in Schedule
5.18, each of the Obligors and the General Partner is in compliance with all
Environmental Laws applicable to it or to the Business or Assets except where
such noncompliance would not have a Material Adverse Effect. Each of the
Obligors has timely and properly applied for renewal of all environmental
permits or licenses that have expired or are about to expire and are necessary
for the conduct of the Business as now conducted and as proposed to be
conducted, except where the failure to timely and properly reapply would not
have a Material Adverse Effect. Schedule 5.18 lists (i) all notices from
Federal, state or local environmental agencies to either of the Obligors or to
the General Partner citing environmental violations that have not been finally
resolved and disposed of, and no such violation, whether or not notice regarding
such violation is listed on Schedule 5.18, if ultimately resolved against either
of the Obligors or the General Partner, as the case may be, would have a
Material Adverse Effect, and (ii) all current reports filed by either of the
Obligors or the General Partner with any Federal, state or local environmental
agency having jurisdiction over the Assets, true and complete copies of which
reports have been made available

D-10

to the Purchasers and their special counsel and environmental advisor, if any.
Notwithstanding any such notice, the Obligors and the General Partner are
currently operating in all material respects within the limits set forth in such
environmental permits or licenses and any current noncompliance with such
permits or licenses will not result in any material liability or penalty to
either of the Obligors or the General Partner or in the revocation, loss or
termination of any such environmental permits or licenses, the revocation, loss
or termination of which would have a Material Adverse Effect.

(b) Except as disclosed in Schedule 5.18, all facilities located on the
real property included in the Assets which are subject to regulation by RCRA are
and have been operated in compliance with RCRA, except where such noncompliance
would not have a Material Adverse Effect and neither of the Obligors nor the
General Partner has received, or, to the knowledge of either of the Obligors or
the General Partner, been threatened with, a notice of violation of RCRA
regarding such facilities.

(c) Except as disclosed in Schedule 5.18, no hazardous substance (as
defined in CERCLA) or hazardous waste (as defined in RCRA) is located or present
at any of the real property included in the Assets in violation of any
Environmental Law, which violation will have a Material Adverse Effect, and with
respect to such real property there has not occurred (i) any release or
threatened release of any such hazardous substance, (ii) any discharge or
threatened discharge of any substance into ground, surface, or navigable waters
which violates any Federal, state, local or foreign laws, rules or regulations
concerning water pollution, or (iii) any assertion of any Lien pursuant to
Environmental Laws resulting from any use, spill, discharge or clean-up of any
hazardous or toxic substance or waste, which occurrence will have a Material
Adverse Effect.

(d) None of the matters disclosed in Schedule 5.18, either individually or
in the aggregate, involves a violation of or a liability under any Environmental
Law the consequences of which will have a Material Adverse Effect.

Section 5.19. Foreign Assets Control Regulations, Etc. The issue and sale
of the Notes by the Obligors and their use of the proceeds thereof as
contemplated by this Agreement will not violate any of the regulations (other
than those regulations, if any, that are implicated solely as a result of the
actions of the Purchasers) administered by the Office of Foreign Assets Control,
the United States Department of the Treasury.

Section 5.20. Disclosure. Neither this Agreement, the other Operative
Agreements, the Offering Materials, nor any other historical financial
statement, document, certificate or instrument delivered to any Purchaser by or
on behalf of either Obligor, any Restricted Subsidiary or the General Partner in
connection with the transactions contemplated by this Agreement, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein not misleading. There is no
fact known to either of the Obligors or the General Partner which has or in the
future would (so far as either of the Obligors or the General Partner can now
foresee) have a Material Adverse Effect which has not been set forth or referred
to in this Agreement or the Offering Materials.

D-11

Section 5.21. Chief Executive Office. The chief executive office of each of
the Obligors and the General Partner and the office where each maintains its
records relating to the transactions contemplated by the Operative Agreements is
located at 2187 Atlantic Street, Stamford, CT 06902.

Section 5.22. Parity Lenders. The Notes constitute "Parity Debt" under the
Trust Agreement and, upon agreeing in writing to be bound by the terms and
provisions of the Trust Agreement, the Purchasers shall be entitled to all the
benefits of "Parity Lenders" under the Trust Agreement.

Section 5.23. Filing and Recordation. On the date of Closing, all UCC
financing statements have been duly filed in all public offices wherein such
filing is necessary to perfect the Lien created by the Trust Agreement. The
Trust Agreement creates a valid security interest in the collateral described
therein, which, on the date of Closing, constitutes a first priority perfected
security interest therein.

Section 6.  Purchaser's Representations; Source of Funds.

Section 6.1. Purchase for Investment. Each Purchaser represents that it is
purchasing the Notes for its own account or for one or more separate accounts
maintained by such Purchaser or for the account of one or more pension or trust
funds, in each case not with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended, or with any present intention of distributing or selling any of the
Notes, provided that the disposition of such Purchaser's property shall at all
times be within its control. If a Purchaser is purchasing for the account of one
or more pension or trust funds (other than pension or trust funds included in
the general account of an insurance company), such Purchaser represents that
(except to the extent that such Purchaser has otherwise advised Chapman and
Cutler and the Obligors in writing) it has sole investment discretion with
respect to the purchase of the Notes to be purchased by such Purchaser pursuant
to this Agreement and the determination and decision on such Purchaser's behalf
to purchase such Notes for such pension or trust funds is being made by the same
individual or group of individuals who customarily pass on such investments.

Section 6.2. Source of Funds. Each Purchaser represents that at least one
of the following statements is an accurate representation as to the source of
funds to be used by such Purchaser to pay the purchase price of the Notes
purchased by such Purchaser hereunder:

(a)  if such Purchaser is an insurance company, no part of such
funds constitutes assets allocated to any separate account maintained by
such Purchaser in which an employee benefit plan (or its related trust) has
any interest other than a separate account that is maintained solely in
connection with its fixed contractual obligations under which the amounts
payable, or credited, to such plan and to any participant or beneficiary of
such plan (including any annuitant) are not affected in any manner by the
investment performance of the separate account; or

D-12

(b)  if such Purchaser is an insurance company, to the extent that
any of such funds constitutes assets allocated to any separate account
maintained by such Purchaser, (i) such separate account is a "pooled
separate account" within the meaning of Prohibited Transaction Class
Exemption 90-1, in which case such Purchaser has disclosed to the Obligors
the names of each employee benefit plan whose assets in such separate
account exceed 10% of the total assets or are expected to exceed 10% of the
total assets of such account as of the date of such purchase (and for the
purposes of this subdivision (b), all employee benefit plans maintained by
the same employer or employee organization are deemed to be a single plan),
or (ii) such separate account contains only the assets of a specific
employee benefit plan, complete and accurate information as to the identity
of which such Purchaser has delivered to the Obligors in writing; or

(c)  if such Purchaser is a "qualified professional asset manager"
or "QPAM" (as defined in Part V of Prohibited Transaction Class Exemption
84-14, issued March 13, 1984 (the "QPAM Exemption")), all of such funds
constitute assets of an "investment fund" (as defined in Part V of the QPAM
Exemption) managed by such Purchaser, no employee benefit plan assets which
are included in such investment fund, when combined with the assets of all
other employee benefit plans (i) established or maintained by the same
employer or an affiliate of such employer or by the same employee
organization and (ii) managed by such Purchaser, exceed 20% of the total
client assets managed by such Purchaser, the conditions of Section I(g) of
the QPAM Exemption are satisfied and such Purchaser has disclosed to the
Obligors the names of all employee benefit plans whose assets are included
in such investment fund; or

(d)  if such Purchaser is other than an insurance company, all or a
portion of such funds consists of funds which do not constitute assets of
any employee benefit plan (other than a governmental plan exempt from the
coverage of ERISA) and the remaining portion, if any, of such funds
consists of funds which may be deemed to constitute assets of one or more
specific employee benefit plans, complete and accurate information as to
the identity of each of which such Purchaser has delivered to the Obligors
in writing; or

(e)  if such Purchaser is an insurance company, to the extent that
any of such funds constitutes assets of such Purchaser's general account,
such Purchaser has disclosed to the Obligors the names of each employee
benefit plan with respect to which the amount of the reserves and
liabilities for such Purchaser's general account contracts held by or on
behalf of such plan (within the meaning of Prohibited Transaction Class
Exemption 95-60) exceed or are expected to exceed on the date of such
purchase 10% of the total reserves and liabilities of such Purchaser's
general account (and for the purposes of this subdivision (e), all employee
benefit plans maintained by the same employer or employee organization are
deemed to be a single plan).

As used in this Section 6.2, the terms "employee benefit plan," "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in section 3 of ERISA.

D-13

Section 7.  Accounting; Financial Statements and Other Information.

Each Obligor will maintain, and each Obligor will cause each Restricted
Subsidiary to maintain, a system of accounting established and administered in
accordance with GAAP, and will accrue, and will cause each Restricted Subsidiary
to accrue, all such liabilities as shall be required by GAAP. The Obligors will
deliver to each Purchaser (in duplicate, unless such Purchaser has advised the
Obligors otherwise), so long as such Purchaser shall be entitled to purchase
Notes under this Agreement or such Purchaser or such Purchaser's nominee shall
be the holder of any Notes, and to each other institutional investor holding any
Notes :

(a)(i) as soon as practicable, but in any event within 60 days after
the end of each of the first three quarterly fiscal periods in each fiscal
year of Star Gas, consolidated (and (a) if the Restricted Subsidiaries
constitute a Substantial Portion, then as to the Restricted Subsidiaries or
(b) if the Restricted Subsidiaries do not constitute a Substantial Portion,
but one or more Restricted Subsidiaries have outstanding Indebtedness owing
to Persons other than Star Gas or any Restricted Subsidiary, or other than
Star/Petro Intercompany Subordinated Debt, then as to such Restricted
Subsidiaries, consolidating) balance sheets of Star Gas and the Restricted
Subsidiaries as at the end of such period and the related consolidated
(and, as to statements of operations and cash flows, if applicable and as
appropriate, consolidating) statements of operations, partners' capital and
cash flows of Star Gas and the Restricted Subsidiaries (A) for such period
and (B) (in the case of the second and third quarterly periods) for the
period from the beginning of the current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the
consolidated and, where applicable and as appropriate, consolidating
figures for the corresponding periods of the previous fiscal year, all in
reasonable detail and certified by the principal financial officer of the
general partner of Star Gas as presenting fairly, in all material respects,
the information contained therein (subject to changes resulting from normal
year-end adjustments), in accordance with GAAP applied on a basis
consistent with prior fiscal periods, (ii) as soon as practicable, but in
any event within 60 days after the end of each of the first three quarterly
fiscal periods in each fiscal year of Star Gas, financial statements of the
type described in clause (i) but adjusted to show Petro Holdings as an
investment of, and not consolidated with, Star Gas, provided that delivery
within the time period specified above of copies of the Public
Partnership's Quarterly Report on Form 10-Q prepared in compliance with the
requirements therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements hereof, but only to the extent
such reports otherwise satisfy the requirements of clause (i) and clause
(ii) of this Section 7(a) (for purposes of this Section 7, "Substantial
Portion" shall mean that either (x) the book value of the assets of the
Restricted Subsidiaries exceed 5% of the book value of the consolidated
assets of Star Gas and the Restricted Subsidiaries, or (y) the Restricted
Subsidiaries account of more than 5% of the Consolidated Net Income of Star
Gas and the Restricted Subsidiaries, in each case in respect of the four
fiscal quarters ended as of the date of the applicable financial statement,
provided that, with respect to Star/Petro, (I) the book value of the common
stock of Petro Holdings shall be excluded from the determination of
Substantial

D-14

Portion in clause (x) above and (II) the income of Petro Holdings shall be
excluded from the determination of Substantial Portion in clause (y)
above);

(b)(i) as soon as practicable, but in any event within 120 days
after the end of each fiscal year of Star Gas, consolidated (and (a) if the
Restricted Subsidiaries constitute a Substantial Portion, then as to the
Restricted Subsidiaries or (b) if the Restricted Subsidiaries do not
constitute a Substantial Portion, but one or more Restricted Subsidiaries
have outstanding Indebtedness owing to Persons other than Star Gas or any
Restricted Subsidiary, or other than Star/Petro Intercompany Subordinated
Debt, then as to such Restricted Subsidiaries, consolidating) balance
sheets of Star Gas and the Restricted Subsidiaries and the consolidated
balance sheet of the general partner of Star Gas as at the end of such year
and the related consolidated (and, as to statements of operations and cash
flows, if applicable and as appropriate, consolidating) statements of
operations, partners' capital and cash flows of Star Gas and the Restricted
Subsidiaries, and the consolidated statements of income, surplus, cash flow
and members' equity of the general partner of Star Gas for such fiscal
year, setting forth in each case in comparative form the consolidated and,
where applicable and as appropriate, consolidating figures for the previous
fiscal year, all in reasonable detail, and (ii) as soon as practicable, but
in any event within 120 days after the end of each fiscal year of Star Gas,
financial statements of the type described in clause (i) but adjusted to
show Petro Holdings as an investment of, and not consolidated with Star
Gas, provided that delivery within the time periods specified above of
copies of the Public Partnership's Annual Report on Form 10-K prepared in
compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements hereof, but
only to the extent such reports otherwise satisfy the requirements of
clause (i) and clause (ii) of this Section 7(b) and (x) in the case of such
consolidated financial statements of Star Gas specified in clause (i) and
with respect to the financial statements specified in clause (ii),
accompanied by a report thereon of KPMG Peat Marwick LLP or other
independent public accountants of recognized national standing selected by
Star Gas and acceptable to the Required Holders, which report shall state
that such consolidated financial statements present fairly the financial
position of Star Gas and the Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years and
that the audit by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards in effect in the United States from time to time (except
that with respect to the financial statements specified in clause (ii),
Petro Holdings and its Subsidiaries have not been consolidated), and (y) in
the case of such consolidated financial statements of the general partner
of Star Gas, such consolidating financial statements of Star Gas as
described in clause (i), and the financial statements specified in clause
(ii), certified by the principal financial officer of the general partner
of Star Gas, as presenting fairly the information contained therein, in
accordance with GAAP applied on a basis consistent with prior fiscal
periods;

(c) together with each delivery of financial statements pursuant to
subdivisions (a) and (b) of this Section 7, an Officers' Certificate of
each Obligor 

D-15

(i) stating that the signers have reviewed the terms of this Agreement and
the other Operative Agreements and the Notes, and have made, or caused to
be made under their supervision, a review in reasonable detail of the
transactions and condition of the Obligors and the Restricted Subsidiaries
during the accounting period covered by such financial statements and that
the signers do not have knowledge of the existence and continuance as at
the date of such Officers' Certificate of any condition or event which
constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event exists, specifying the nature and period of
existence thereof and what action the Obligors have taken or are taking or
propose to take with respect thereto, (ii) specifying the amount available
at the end of such accounting period for Restricted Payments in compliance
with Section 10.4 and showing in reasonable detail all calculations
required in arriving at such amount, (iii) demonstrating in reasonable
detail, if applicable, compliance during and at the end of such accounting
period with the restrictions contained in Sections 10.1(b), (d), (e), (f),
(h) and (i), 10.3(b), 10.7(a)(ii), 10.7(a)(iii) and 10.7(c)(iii), (iv) if
not specified in the related financial statements being delivered pursuant
to subdivisions (a) and (b) above, specifying the aggregate amount of
interest paid or accrued by the Obligors and the Restricted Subsidiaries,
and the aggregate amount of depreciation, depletion and amortization
charged on the books of the Obligors and the Restricted Subsidiaries,
during the fiscal period covered by such financial statements and
describing in reasonable detail the number and nature of the parcels of
real property, or rights thereto or interests therein, caused to be
released by the Obligors from the Liens of the Security Documents pursuant
to the Trust Agreement and in the case of the fee owned property, the value
of the fee owned property caused to be released by the Obligors during such
accounting period;

(d) together with each delivery of consolidated financial statements
pursuant to subdivision (b) of this Section 7, a written statement by the
independent public accountants giving the report thereon (i) stating that
in connection with their audit examination, the terms of this Agreement,
the other Operative Agreements and the Notes were reviewed to the extent
considered necessary for the purpose of expressing an opinion on the
consolidated financial statements and for making the statement contained in
clause (ii) hereof (it being understood that no special audit procedures in
addition to those required by generally accepted auditing standards then in
effect in the United States shall be required) and (ii) stating whether, in
the course of their audit examination, they obtained knowledge (and
whether, as of the date of such written statement, they have knowledge) of
the existence and continuance of any condition or event which constitutes
an Event of Default or Potential Event of Default, and, if so, specifying
the nature and period of existence thereof;

(e) promptly upon receipt thereof, copies of all reports submitted
to Star Gas by independent public accountants in connection with each
special audit or each annual or interim audit of the books of Star Gas or
any Restricted Subsidiary made by such accountants, including, without
limitation, the comment letter submitted by the accountants to management
in connection with their annual audit;

D-16

(f) promptly upon their becoming publicly available, copies of all
financial statements, reports, notices and proxy statements sent or made
available by either Obligor, the general partner of Star Gas or the Public
Partnership to all of its security holders in compliance with the
Securities Exchange Act of 1934, as amended from time to time, or any
comparable Federal or state laws relating to the disclosure by any Person
of information to its security holders, of all regular and periodic reports
and all registration statements and prospectuses filed by either Obligor,
the general partner of Star Gas or the Public Partnership with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions (other than
Registration Statements on Form S-8), and of all press releases and other
statements made available by either Obligor, the general partner of Star
Gas or the Public Partnership to the public concerning material
developments in the business of either Obligor, the general partner of Star
Gas or the Public Partnership, as the case may be;

(g) promptly, but in any event within five days, after any
Responsible Officer knows or should (in the course of the normal
performance of his or her duties) know that (i) any condition or event
which constitutes an Event of Default or Potential Event of Default has
occurred or exists, or is expected to occur or exist, (ii) the holder of
any Note has given any notice or taken any other action with respect to a
claimed Event of Default or Potential Event of Default under this Agreement
or default under any other Operative Agreement or (iii) any Person has
given any notice to either Obligor or any Restricted Subsidiary or taken
any other action with respect to a claimed default or event or condition of
the type referred to in Section 11(f), an Officers' Certificate of each
Obligor describing the same and the period of existence thereof and what
action the Obligors have taken, are taking and propose to take with respect
thereto;

(h) promptly, but in any event within five days, after any
Responsible Officer knows or should (in the course of the normal
performance of his or her duties) know of the commencement of or
significant development in any material litigation or material proceeding
(including those regarding environmental matters) with respect to either
Obligor or affecting either Obligor, any Restricted Subsidiary or any of
their assets, a written notice describing in reasonable detail such
commencement of or significant development in such litigation or
proceeding;

(i) promptly, but in any event within five days after any
Responsible Officer knows or should (in the course of the normal
performance of his or her duties) know that any of the events or conditions
specified below with respect to any Plan has occurred or exists, or is
expected to occur or exist, a statement setting forth details respecting
such event or condition and the action, if any, that the Obligors or any
Related Person has taken, is taking and proposes to take or cause to be
taken with respect thereto (and a copy of any notice or report filed with
or given to or communication received from the PBGC, the Internal Revenue
Service or the Department of Labor with respect to such event or
condition):

D-17

(i)    any reportable event, as defined in section 4043(b) of
ERISA and the regulations issued thereunder;

(ii)   the filing under section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan;

(iii)  a substantial cessation of operations within the
meaning of section 4062(e) of ERISA under circumstances which could
result in the treatment of either Obligor or any Related Person as a
substantial employer under a "multiple employer plan" or the
application of the provisions of section 4062, 4063 or 4064 of ERISA
to either Obligor or any Related Person;

(iv)   the taking of any steps by the PBGC or the institution
by the PBGC of proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Plan, or the receipt by either Obligor or any Related Person of a
notice from a Multiemployer Plan that such action has been taken by
the PBGC with respect to such Multiemployer Plan;

(v)    the complete or partial withdrawal by either Obligor or
any Related Person under section 4063, 4203 or 4205 of ERISA from a
Plan which is a "multiple employer plan" or a Multiemployer Plan, or
the receipt by either Obligor or any Related Person of notice from a
Multiemployer Plan regarding any alleged withdrawal or that it intends
to impose withdrawal liability on either Obligor or any Related Person
or that it is in reorganization or is insolvent within the meaning of
section 4241 or 4245 of ERISA or that it intends to terminate under
section 4041A of ERISA or from a "multiple employer plan" that it
intends to terminate;

(vi)   the taking of any steps concerning the threat or the
institution of a proceeding against either Obligor or any Related
Person to enforce section 515 of ERISA;

(vii)  the occurrence or existence of any event or series of
events which could result in a liability to either Obligor or any
Related Person pursuant to section 4069(a) or 4212(c) of ERISA;

(viii) the failure to make a contribution to any Plan, which
failure, either alone or when taken together with any other such
failure, is sufficient to result in the imposition of a Lien on any
property of either Obligor or any Related Person pursuant to section
302(f) of ERISA or section 412(n) of the Code or could result in the
imposition of a material tax or material penalty pursuant to section
4971 of the Code on either Obligor or any Related Person;

(ix)   the amendment of any Plan in a manner which would be
treated as a termination of such Plan under section 4041(e) of ERISA
or require either 

D-18

Obligor or any Related Person to provide security to such Plan
pursuant to section 307 of ERISA or section 401(a)(29) of the Code; or

(x) the incurrence of liability in connection with the
occurrence of a "prohibited transaction" (within the meaning of
section 406 of ERISA or section 4975 of the Code);

(j)     promptly, but in any event within five days, after an officer
of either of the Obligors, any Subsidiary or the general partner of Star
Gas receives any notice or request from any Person (other than any
Affiliate or any agent, attorney or similar party employed by either
Obligor or the general partner of Star Gas) for information, or if either
Obligor, any Subsidiary or the general partner of Star Gas provides any
notice or information to any such Person (other than any Affiliate or any
agent, attorney or similar party employed by either Obligor or the general
partner of Star Gas) concerning the presence or release of any hazardous
substance (as defined in CERCLA) or hazardous waste (as defined in RCRA) or
other contaminants (as defined by any applicable Federal, state, local or
foreign laws) within, on, from, relating to or affecting any property
owned, leased, or subleased by either Obligor, any Subsidiary or the
general partner of Star Gas, copies of each such notice, request or
information; and

(k)   with reasonable promptness, such other financial reports and
information and data with respect to either Obligor, any Restricted
Subsidiary, any Subsidiary (to the extent such reports, information and
data relate to environmental matters or any material litigation or
proceeding) or the general partner of Star Gas as from time to time may be
requested by the holder of any Note.

Section 8.  Inspection.

Each Obligor will permit or, in the case of Star Gas, cause the general
partner of Star Gas to permit any authorized representatives designated by a
Purchaser, so long as such Purchaser shall be entitled to purchase the Notes
under this Agreement or such Purchaser or such Purchaser's nominee shall be the
holder of any Notes, or by any other institutional holder of any Notes, to visit
and inspect any of the properties of either Obligor, any Restricted Subsidiary
and any other Subsidiary (to the extent relating to environmental or litigation
matters) and any properties of the general partner of Star Gas or of such
general partner's Subsidiaries relating to the Business, including the books of
account of the Obligors, the Restricted Subsidiaries, such other Subsidiaries,
the general partner of Star Gas and such general partner's Subsidiaries, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and (with reasonable notice)
independent public accountants (and by this provision each of the Obligors and
the general partner of Star Gas authorizes such accountants to discuss with such
representatives the affairs, finances and accounts of such Obligor, any
Restricted Subsidiary, such other Subsidiaries, the general partner of Star Gas
or any of such general partner's Subsidiaries, as the case may be), all at such
times and as often as may be requested, provided that the Obligors will bear the
expense for the foregoing if an Event of Default or Potential Event of Default
has occurred and is continuing.

D-19

Section 9.  Prepayment of Notes.

Section 9.1.  Required Prepayments of the Notes. (a) On April 1, 2006
and on April 1, 2007, the Obligors will prepay $2,500,000 aggregate principal
amount of the Series A Notes (or such lesser principal amount of the Series A
Notes as shall at the time be outstanding), at the principal amount of the
Series A Notes so prepaid, without premium, together with interest accrued
thereon.  No acquisition of the Series A Notes by either Obligor or any of their
Affiliates shall relieve the Obligors from their obligation to make the required
prepayments provided for in this Section 9.1(a).

(b)    The Series B Notes shall not be subject to a required prepayment
prior to the final maturity thereof.

(c)    Any partial prepayment of the Notes pursuant to Section 9.2, 9.3 or
9.4 shall be applied pro rata to the Series A Notes and the Series B Notes then
outstanding to reduce (i) in the case of the Series A Notes, the prepayments
required under Section 9.1(a) pro rata and (ii) in the case of the Series B
Notes, the outstanding principal amount of the Series B Notes; provided that, in
the case of the Series A Notes, any amounts prepaid pursuant to Section 9.3 on
April 1, 2006 or April 1, 2007, may be applied first to satisfy the prepayment
required on such date under Section 9.1(a).

(d)   On the maturity date of each series of Notes, the Obligors will pay
the then outstanding principal amount of such series of Notes together with
interest accrued thereon.

Section 9.2.  Optional Prepayments of the Notes with Make Whole Amount. The
Notes shall be subject to prepayment, in whole at any time or from time to time
in part (in an amount of not less than $1,000,000), at the option of the
Obligors, upon notice as provided in Section 9.5 at 100% of the principal amount
of the Notes so prepaid plus interest thereon to the prepayment date and the
Make Whole Amount.

Section 9.3.  Contingent Prepayments on Disposition of Property. If at any
time either Obligor or any of the Restricted Subsidiaries disposes of property
or such property shall be damaged, destroyed or taken in eminent domain or there
shall be title insurance proceeds with respect to such property, in any such
case, with the result that there are Excess Proceeds, and the Obligors do not
apply such Excess Proceeds in the manner described in Section
10.7(c)(iii)(B)(x), the Obligors shall prepay, upon notice as provided in
Section 9.5 (which notice shall be given not later than 180 days after the date
of such sale of property), a principal amount of the outstanding Notes equal to
the amount of such Excess Proceeds allocable to the Notes, determined by
allocating such Excess Proceeds pro rata among the holders of the Notes, the
2000 Notes, the 1998 Notes, the 1995 Notes and Parity Debt, if any, outstanding
on the date such prepayment is to be made together with the make-whole amounts,
if any, due with respect thereto, according to the aggregate then unpaid
principal amounts of the Notes (and the Make Whole Amount, if any, on the
principal amount of the Notes to be prepaid), the 2000 Notes, the 1998 Notes,
the 1995 Notes and Parity Debt (and any applicable make-whole amounts due with
respect thereto), respectively; provided, that if such Excess Proceeds are
received

D-20

Star Gas Propane, L.P.                                          
Star/Petro, Inc.

within 180 days of a scheduled prepayment of the Series A Notes pursuant to
Section 9.1(a), the Excess Proceeds allocable to the Series A Notes may first be
applied to such scheduled prepayment. If the Obligors shall have elected to
apply any portion of the Excess Proceeds in accordance with the proviso to the
immediately preceding sentence, the Obligors shall notify the holders of the
Series A Notes of such application within 5 days thereof. Each prepayment of
Notes pursuant to this Section 9.3 shall be made at 100% of the principal amount
of the Notes to be prepaid, plus interest thereon to the prepayment date plus,
to the extent the prepayment is not made in satisfaction of a required
prepayment in accordance with Section 9.1(a), the Make Whole Amount thereon.

Section 9.4. Prepayment on Taking or Destruction. In the event that damage,
destruction or a taking shall occur in respect of all or a portion of the
properties subject to any of the Security Documents, or there shall be proceeds
under title insurance policies with respect to any real property, all Net
Insurance Proceeds (as defined in the Mortgages), self-insurance amounts, Net
Awards (as defined in the Mortgages) or title insurance proceeds which, as of
any date, shall not theretofore have been applied to the cost of Restoration (as
defined in the Mortgages) shall be deemed to be proceeds of property disposed of
voluntarily, shall be subject to the provisions of Section 10.7(c) and, if
subdivision (iii)(B)(y) of Section 10.7(c) is applicable thereto, shall be
subject to the prepayment provisions of Section 9.3.

Section 9.5. Notice of Prepayments; Officers' Certificate. The Obligors
will give each holder of any Notes irrevocable written notice of each prepayment
under Section 9.2, 9.3 or 9.4 not less than 10 days and not more than 30 days
prior to the date fixed for such prepayment, in each case specifying such
prepayment date, the aggregate principal amount of the Notes and the principal
amount of each Note held by such holder to be prepaid and the Section under
which such prepayment is to be made. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the prepayment date and together with the Make Whole
Amount, if any, with respect thereto, shall become due and payable on such
prepayment date. The Obligors shall, on or before the day on which they provide
such written notice, give telephonic notice of the principal amount of the Notes
to be prepaid and the prepayment date to each holder of any Notes which shall
have designated a recipient of such notices in the Schedule of Purchasers
attached hereto or by notice in writing to the Obligors. Each holder of a Note
shall receive, on the Business Day immediately preceding the date scheduled for
any such prepayment, an Officers' Certificate from each of the Obligors
certifying that the conditions of the Section under which such prepayment is to
be made have been fulfilled and specifying the particulars of such fulfillment.
In the event that there shall have been a partial prepayment of the Notes under
Section 9.2, 9.3 or 9.4, the Obligors shall promptly give notice to the holders
of the Notes, accompanied by an Officers' Certificate from each of the Obligors
setting forth the principal amount of each of the Notes that was prepaid and
specifying how each such amount was determined and, in the case of the Series A
Notes, setting forth the reduced amount of each required prepayment thereafter
becoming due under Section 9.1(a), and certifying that such reduction has been
computed in accordance with Section 9.1(c).

D-21

Section 9.6. Allocation of Partial Prepayments. Upon any partial prepayment
of the Notes, the principal amount so prepaid shall be allocated (in integral
multiples of $1,000 as nearly as practicable) to all Notes at the time
outstanding in proportion to the respective outstanding principal amounts
thereof not theretofore called for prepayment, with adjustments, to the extent
practicable, to compensate for any prior prepayments not made exactly in such
proportion.

Section 9.7. Maturity; Surrender, Etc. In the case of each prepayment, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make Whole Amount, if
any. From and after such date, unless the Obligors shall fail to pay such
principal amount when so due and payable, together with the interest and Make
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall, after such payment or
prepayment in full, be surrendered to the Obligors and cancelled and shall not
be reissued, and no Note shall be issued in lieu of any prepaid principal amount
of any Note.

Section 9.8. Acquisition of Notes. Neither of the Obligors nor the general
partner of Star Gas shall, nor shall either of the Obligors or the general
partner of Star Gas permit any of their respective Subsidiaries or Affiliates
to, prepay or otherwise retire in whole or in part prior to their stated final
maturity (other than by prepayment pursuant to Section 9.1, 9.2, 9.3 or 9.4 or
upon acceleration of such final maturity pursuant to Section 11), or purchase or
otherwise acquire, directly or indirectly, Notes held by any holder or any 2000
Notes, 1998 Notes, 1995 Notes or Parity Debt (other than pursuant to scheduled
prepayments in accordance with the terms of such Notes, the 2000 Notes, 1998
Notes, 1995 Notes or Parity Debt or any other prepayment of indebtedness
outstanding under the Bank Credit Facilities or any other Parity Debt of a
similar revolving nature). Any Notes prepaid or otherwise retired or purchased
or otherwise acquired by either of the Obligors, the general partner of Star Gas
or any of their respective Subsidiaries or Affiliates shall not be deemed to be
outstanding for any purpose under this Agreement.

Section 10.  Business and Financial Covenants of the Obligors.

Each Obligor, jointly and severally, covenants that from the date of
this Agreement through the Closing and thereafter so long as any of the Notes
are outstanding:

Section 10.1. Indebtedness. Neither Obligor will, nor will either Obligor
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except that:

(a)  the Obligors may become and remain liable with respect to
the Indebtedness evidenced by the 2000 Notes, the 1998 Notes, the 1995
Notes and the Notes;

(b)  Star Gas and the Restricted Subsidiaries may become and
remain liable with respect to Funded Debt incurred by Star Gas and the
Restricted Subsidiaries to 

D-22

finance the making of expenditures for the improvement or repair of or
additions to the Assets, or to renew, refund, refinance or replace any
such Funded Debt provided that (i) the aggregate principal amount of
Funded Debt incurred under this Section 10.1(b) and outstanding at any
time would not exceed the sum of $35,000,000 plus the aggregate amount
of Capital Contributions made during the period from and after the
date of Closing to and including the date such Funded Debt is
incurred, and (ii) if such Funded Debt is to be secured under the
Security Documents as provided in Section 10.2(i), the agreement or
instrument pursuant to which such Funded Debt is incurred (A) contains
no financial or business covenants that are more restrictive on the
Obligors or their Subsidiaries than, or that are in addition to, those
contained in this Section 10 (unless prior to or simultaneously with
the incurrence of such Funded Debt this Agreement is amended to
provide the benefits of such more restrictive covenants to the holders
of the Notes) and (B) specifies no events of default (other than with
respect to the payment of principal and interest on such Funded Debt
or the accuracy of representations and warranties made in connection
with such agreement or instrument) which are capable of occurring
prior to the occurrence of the Events of Default specified in Section
11 (unless prior to or simultaneously with the incurrence of such
Funded Debt this Agreement is amended to provide the benefit of such
events of default to the holders of the Notes);

(c)  any Restricted Subsidiary may become and remain liable with
respect to Indebtedness of such Restricted Subsidiary owing to Star
Gas or to another Restricted Subsidiary, provided that such
Indebtedness is created and is outstanding under an agreement or
instrument pursuant to which such Indebtedness is subordinated to the
Notes and to Indebtedness secured under the Security Documents at
least to the extent provided in the subordination provisions set forth
in Exhibit C and provided further that such Indebtedness is evidenced
by an Intercompany Note pledged to the Trustee;

(d)  Star Gas and the Restricted Subsidiaries may become and
remain liable with respect to unsecured Indebtedness owing to the
general partner of Star Gas or an Affiliate of the general partner of
Star Gas, provided that (i) the aggregate principal amount of such
Indebtedness of Star Gas and the Restricted Subsidiaries outstanding
at any time shall not be in excess of $10,000,000 plus Star/Petro
Intercompany Subordinated Debt and (ii) such Indebtedness is created
and is outstanding under an agreement or instrument pursuant to which
such Indebtedness is subordinated to the Notes and to Indebtedness
secured under the Security Documents at least to the extent provided
in the subordination provisions set forth in Exhibit C.

(e)  Star Gas may become and remain liable with respect to
Indebtedness incurred under the Bank Credit Facilities, provided that

(i)   the Initial Acquisition Facility will be in an
aggregate principal amount not in excess of $25,000,000
outstanding at any time, and

(ii)  in respect of the Working Capital Facility:

D-23

(1)  there shall be a period of at least 30 consecutive
days during each fiscal year of Star Gas on each day of
which there shall be no such Indebtedness outstanding under
the Working Capital Facility,

(2)  the aggregate principal amount of loans in respect
of the Working Capital Facility at any time outstanding
thereunder plus any Tranche A Letter of Credit Exposure (or
similar exposure under letters of credit) in respect of the
Working Capital Facility (collectively, the "Exposure")
shall not be in excess of $24,000,000;

(3)  on the date the Exposure exceeds $18,000,000 and
on each day thereafter until the date the Exposure no longer
exceeds $18,000,000 (x) the ratio of Consolidated Cash Flow
to Consolidated Interest Expense will be greater than 2.0 to
1.0, (y) the Exposure shall not exceed the Borrowing Base
except that, for purposes hereof, the percentage in respect
of Eligible Commodities Inventory included in the definition
of Loan Value of Eligible Commodities Inventory shall be
80%, and (z) Star Gas will deliver a Borrowing Base
Certificate to each holder of a Note at the same time it
delivers a Borrowing Base Certificate to the Agent or to any
Bank under the Bank Credit Facilities;

(for purposes of this subdivision (e), the terms Borrowing
Base, Borrowing Base Certificate, Loan Value of Eligible
Commodities Inventory, Tranche A Letter of Credit Exposure
and any other capitalized term used by reference in any of
the foregoing shall have the meanings specified in the Bank
Credit Facilities as in effect on the date of the Closing);

(f)  Star Gas and the Restricted Subsidiaries may become and
remain liable with respect to Indebtedness, in addition to that
otherwise permitted by the foregoing subdivisions of this Section
10.1, if on the date Star Gas or any Restricted Subsidiary becomes
liable with respect to any such additional Indebtedness and
immediately after giving effect thereto and to the substantially
concurrent repayment of any other Indebtedness (i) the ratio of
Consolidated Cash Flow to Consolidated Pro Forma Debt Service is
greater than 2.50 to 1.0 and (ii) the ratio of Consolidated Cash Flow
to Maximum Consolidated Pro Forma Debt Service is greater than 1.25 to
1.0, provided that, in addition to the foregoing, if such Indebtedness
is Funded Debt incurred by Star Gas or any Restricted Subsidiary to
finance the making of expenditures for the improvement or repair of or
additions to the Assets, and if such Indebtedness is to be secured
under the Security Documents as provided in Section 10.2(i), such
Indebtedness shall be incurred pursuant to an agreement or instrument
which complies with the requirements set forth in clause (ii) of the
proviso to Section 10.1(b);

(g)  [Intentionally omitted.]

D-24

(h)  Star Gas and any Restricted Subsidiary may become and remain
liable with respect to pre-existing Indebtedness relating to any
Person, business or assets acquired by Star Gas or such Restricted
Subsidiary, as the case may be, provided that (1) no condition or
event shall exist which constitutes an Event of Default or Potential
Event of Default, (2) such Indebtedness was not incurred in
anticipation of the acquisition of such Person, business or assets and
(3) after giving effect to such Person becoming a Restricted
Subsidiary, or the acquisition of such business or assets, Star Gas or
such Restricted Subsidiary could incur at least $1 of additional
Indebtedness in compliance with the requirements set forth in clause
(ii) of Section 10.1(f);

(i)  so long as no Event of Default or Potential Event of Default
has occurred and is continuing, Star Gas and the Restricted
Subsidiaries may become and remain liable with respect to Indebtedness
evidenced by Funded Debt incurred for any refinancing, refunding, or
replacement of Indebtedness permitted pursuant to subdivisions (a) and
(e)(i) of this Section 10.1 (any such refinancing, refunding, or
replacement of Funded Debt originally incurred pursuant to Section
10.1(e)(i) shall be referred to as "Refinanced Acquisition Debt"),
provided that (i) the aggregate principal amount of such Funded Debt
shall not exceed the aggregate principal amount of such outstanding
Indebtedness being refinanced, refunded or replaced together with any
accrued interest and Make Whole Amount with respect thereto, (ii) at
the time of such refinancing, refunding, or replacement of such Funded
Debt and after giving effect thereto, the ratio of Consolidated Cash
Flow to Consolidated Interest Expenses shall exceed 2.25 to 1.0, (iii)
the maturity date of such Funded Debt shall not be sooner than the
maturity date of such Indebtedness being refinanced, refunded or
replaced, and (iv) such Funded Debt shall be secured on a pari passu
basis with the Indebtedness secured by the Security Documents;

(j)  so long as no Event of Default or Potential Event of Default
has occurred and is continuing, Star Gas and the Restricted
Subsidiaries may become and remain liable with respect to unsecured
Indebtedness incurred for any extension, renewal, refunding or
replacement of Indebtedness permitted pursuant to subdivisions (a),
(b), (e), (f) and (h) of this Section 10.1, or other unsecured
Indebtedness permitted by this Section 10.1, provided that (i) the
principal amount of such unsecured Indebtedness to be incurred shall
not exceed the principal amount of such Indebtedness or such unsecured
Indebtedness being extended, renewed or refunded together with any
accrued interest and Make Whole Amount with respect thereto and (ii)
the maturity date of such unsecured Indebtedness shall not be sooner
than the maturity date of such Indebtedness being extended, renewed or
refunded;

(k)  any Restricted Subsidiary may become and remain liable with
respect to Indebtedness evidenced by the Security Documents; and

(l)  Star Gas may become and remain liable with respect to
unsecured Indebtedness owing to a Seller in connection with the
acquisition of an Acquired Business Entity from such Seller, provided
that (i) the aggregate principal amount of such 

D-25

Indebtedness of Star Gas at any time shall not exceed $5,000,000, and
(ii) the aggregate EBITDA generated by such Acquired Business Entity
for so long as such Indebtedness is outstanding shall exceed the
aggregate amount of all principal and interest that will become due
and payable on such Indebtedness until such Indebtedness is repaid in
full.

Notwithstanding the foregoing, the aggregate principal amount of all
Indebtedness of all Restricted Subsidiaries at any time outstanding (other than
Indebtedness permitted by Section 10.1(k)) shall not exceed $10 million plus
Star/Petro Intercompany Subordinated Debt.  For the purpose of this Section
10.1, any Person becoming a Restricted Subsidiary after the date of this
Agreement shall be deemed to have become liable with respect to all of its then
outstanding Indebtedness at the time it becomes a Restricted Subsidiary, and any
Person extending, renewing or refunding any Indebtedness shall be deemed to have
become liable with respect to such Indebtedness at the time of such extension,
renewal or refunding.  Star Gas or any Restricted Subsidiary shall be deemed to
have become liable with respect to any Indebtedness securing any real property
acquired by Star Gas or such Restricted Subsidiary, as the case may be, at the
time of such acquisition.

Section 10.2. Liens, Etc. Neither Obligor will, nor will either Obligor
permit any Restricted Subsidiary to, directly or indirectly create, incur,
assume or permit to exist any Lien on or with respect to any property or asset
(including any document or instrument in respect of goods or accounts
receivable) of such Obligor or any Restricted Subsidiary, whether now owned or
held or hereafter acquired, or any income or profits therefrom (whether or not
provision is made for the equal and ratable securing of the Notes in accordance
with the provisions of Section 10.17), except:

(a)  Liens for taxes, assessments or other governmental charges
the payment of which is not at the time required by Section 10.9;

(b)  Liens of 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 not at the time required by Section 10.9, in each case 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;

(c)  Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (i) in connection
with workers' compensation, unemployment insurance and other types of
social security, or (ii) to secure (or to obtain letters of credit
that secure) the performance 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,
the obtaining of advances or credit or the payment of the deferred
purchase price of property;

(d)  any attachment or judgment Lien, unless the judgment it
secures shall not, within 60 days after the entry thereof, have been
discharged or execution thereof stayed 

D-26

pending appeal, or shall not have been discharged within 60 days after
expiration of any such stay;

(e)  leases or subleases granted to others, easements, rights-of-
way, restrictions and other similar charges or encumbrances, which, in
each case, are granted, entered into or created in the ordinary course
of the business of Star Gas or any Subsidiary and which do not
interfere with the ordinary conduct of the business of Star Gas or any
Subsidiary;

(f)  Liens on property or assets of any Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary owing to Star Gas
or any other Restricted Subsidiary;

(g)  Liens existing on the Assets at the time of the acquisition
thereof by Star Gas and described in Schedule 10.2;

(h)  Liens created by any of the Security Documents;

(i)  Liens created by any of the Security Documents securing
Indebtedness incurred in accordance with Section 10.1(b) or, to the
extent incurred to finance the making of capital improvements, repairs
and additions to Star Gas's Assets, Section 10.1(f) (but only to the
extent it complies with the requirements thereof), provided that (1)
such Liens are effected through an amendment to the Security Documents
to the extent necessary to provide the holders of such Indebtedness
equal and ratable security in the property and assets subject to the
Security Documents with the holders of the Notes and of other
Indebtedness secured under the Security Documents as provided in
Section 10.1(b) or 10.1(f), (2) the Security Documents are amended to
the extent necessary to extend the Lien thereof to any property or
assets acquired or otherwise financed with the proceeds of such
Indebtedness, (3) Star Gas has delivered to the Trustee an Officers'
Certificate demonstrating that the principal amount of such
Indebtedness does not exceed the lesser of the cost to Star Gas of
such property or assets and the fair market value of such property or
assets (as determined in good faith by the general partner of Star
Gas), that such incurrence of Indebtedness pursuant to Section 10.1(b)
or 10.1(f), as the case may be, complies in all respects with the
requirements of such Section and that the amendments to the Security
Documents required by this Section 10.2(i) and the filing and
recordation of such amendments and related supplements will not have a
Material Adverse Effect, and (4) Star Gas has delivered to the Trustee
an opinion of counsel reasonably satisfactory to the Trustee to the
effect that the Lien of the Security Documents has attached and is
perfected with respect to such additional property and assets;

(j)  Liens existing on any property of any Person at the time it
becomes a Restricted Subsidiary, or existing prior to the time of
acquisition (and not created in anticipation of such acquisition) upon
any property acquired by Star Gas or any Restricted Subsidiary through
purchase, merger or consolidation or otherwise, whether or not assumed
by Star Gas or such Restricted Subsidiary, or created to secure
Indebtedness 

D-27

incurred under Section 10.1(f) to pay all or any part of the purchase
price ("Purchase Money Lien") of property acquired by Star Gas or a
Restricted Subsidiary, provided that (i) any such Lien shall be
confined solely to the item or items of property so acquired and, if
required by the terms of the instrument originally creating such Lien,
other property which is an improvement to or is acquired for specific
use in connection with such acquired property, (ii) such item or items
of property so acquired (other than property (which may include stock
or other equity interests) subject to Liens existing prior to the time
of acquisition and not created in anticipation of such acquisition)
are not required to become part of the Mortgaged Property under the
terms of the Security Documents, (iii) the principal amount of the
Indebtedness secured by any such Lien shall at no time exceed an
amount equal to the lesser of (A) the cost of such property to Star
Gas or such Restricted Subsidiary, as the case may be, and (B) the
fair market value of such property (as determined in good faith by the
general partner of Star Gas) at the time such Person owning such
property becomes a Restricted Subsidiary or at the time of such
acquisition by Star Gas or such Restricted Subsidiary, as the case may
be, (iv) any such Purchase Money Lien shall be created not later than
90 days after, in the case of property, its acquisition, or, in the
case of improvements, their completion and (v) any such Lien (other
than a Purchase Money Lien) shall not have been created or assumed in
contemplation of such Person's becoming a Restricted Subsidiary or
such acquisition of property by Star Gas or any Subsidiary;

(k)  Liens in amounts not exceeding $100,000 incurred, required
or provided for under state law in connection with self-insurance
arrangements;

(l)  Liens arising from or constituting Permitted Encumbrances;
and

(m)  any Lien renewing, extending or refunding any Lien permitted
by the foregoing subdivisions of this Section 10.2, provided that (i)
the Indebtedness secured by any such Lien shall not exceed the amount
of such Indebtedness outstanding immediately prior to the renewal,
extension or refunding of such Lien, (ii) no Assets encumbered by any
such Lien other than the Assets encumbered immediately prior to such
renewal, extension or refunding shall be encumbered thereby and (iii)
the maturity date of the Indebtedness secured by any such Lien shall
not be sooner than the maturity date of such Indebtedness outstanding
immediately prior to the renewal, extension or refunding of such Lien.

Section 10.3. Investments, Guaranties, Etc. Neither Obligor will, nor will
either Obligor permit any Restricted Subsidiary to, directly or indirectly (i)
make or own any Investment in any Person, or (ii) create or become liable with
respect to any Guaranty, except:

(a)  Star Gas or any Restricted Subsidiary may make and own
Investments in:

(1)  marketable obligations issued or unconditionally
guaranteed by the United States of America, or issued by any
agency thereof and backed by the full

D-28

faith and credit of the United States, in each case maturing
within one year from the date of acquisition thereof,

(2)  marketable direct obligations issued by any state of
the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within
one year from the date of acquisition thereof and having as at
any date of determination the highest generic rating obtainable
from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.,

(3)  commercial paper maturing no more than 270 days from
the date of creation thereof and having as at any date of
determination one of the two highest generic ratings obtainable
from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc.,

(4)  certificates of deposit maturing one year or less from
the date of acquisition thereof issued by commercial banks
incorporated under the laws of the United States of America or
any state thereof or the District of Columbia or Canada, (A) the
commercial paper or other short-term unsecured debt obligations
of which are rated either A-2 or better (or comparably if the
rating system is changed) by Standard & Poor's Ratings Group or
Prime-2 or better (or comparably if the rating system is changed)
by Moody's Investors Service, Inc. or (B) the long-term debt
obligations of which are rated either AA- or better (or
comparably if the rating system is changed) by Standard & Poor's
Ratings Group or Aa3 or better (or comparably if the rating
system is changed) by Moody's Investors Service, Inc. ("Permitted
Banks"),

(5)  bankers' acceptances eligible for rediscount under
requirements of The Board of Governors of the Federal Reserve
System and accepted by Permitted Banks, and

(6)  obligations of the type described in clause (1), (2),
(3) or (4) 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 Star Gas or a Subsidiary by a
custodian which is a Permitted Bank and which is not a
counterparty to the repurchase agreement in question;

(b)  Star Gas and any Restricted Subsidiary may make and own
Investments in any Restricted Subsidiary or Investments in capital
stock of, or other equity interests in, any Person which
simultaneously therewith becomes a Restricted Subsidiary, and any
Restricted Subsidiary may make and permit to be outstanding
Investments in Star Gas 

D-29

and may create or become liable with respect to any Guaranty in
respect of the Obligors' obligations under the Notes, the 2000 Notes,
the 1998 Notes and the 1995 Notes;

(c)(i)   Star Gas or any Restricted Subsidiary may make and own
Investments in the capital stock of, or joint venture, partnership or
other equity interests in, or may make contributions to capital in the
ordinary course of business in any Unrestricted Subsidiary, except
Petro Holdings, if immediately after giving effect to the making of
any such Investment, (A) the aggregate amount of all such Investments
made and outstanding pursuant to this subdivision (c) shall not at any
time exceed $15,000,000 and (B) the aggregate amount of all
Investments made and outstanding pursuant to this subdivision (c)(i)
as at the end of any fiscal quarter of Star Gas shall not exceed by
more than $5,000,000 the amount of such Investments outstanding as at
the end of the corresponding fiscal quarter of the immediately
preceding fiscal year of Star Gas, in the case of both clauses (A) and
(B) of this subdivision (c)(i), disregarding any such investment which
on the date of determination could be made pursuant to subdivision (b)
of this Section 10.3 and net of cash distributions received from all
Unrestricted Subsidiaries, excluding Petro Holdings, for such period;
and

(ii)  Star/Petro may make and own Investments in Petro
Holdings, but only with the Public Partnership Restricted Proceeds;

(d)   Star Gas or any Restricted Subsidiary may make and own
Investments (i) constituting trade credits or advances to any Person
incurred in the ordinary course of business, (ii) arising out of loans
and advances to employees for travel, entertainment and relocation
expenses, in each case incurred in the ordinary course of business or
(iii) acquired by reason of the exercise of customary creditors'
rights upon default or pursuant to the bankruptcy, insolvency or
reorganization of a debtor;

(e)   Star Gas or any Restricted Subsidiary may create or
become liable with respect to any Guaranty constituting an obligation,
warranty or indemnity, not guaranteeing Indebtedness of any Person,
which is undertaken or made in the ordinary course of business;

(f)   Star Gas may create and become liable with respect to
any Interest Rate Agreements; and

(g)   Star Gas may create and become liable with respect to
Commodity Hedging Agreements.

Section 10.4. Restricted Payments. (a) Star Gas will not directly or
indirectly declare, order, pay, make or set apart any sum for any Restricted
Payment, except that Star Gas may make, pay or set apart once within 45 days
from the last day of each calendar quarter a Restricted Payment if (i) such
Restricted Payment is in an amount not exceeding Available Cash, (ii) prior to
and immediately after giving effect to any such proposed action no condition or
event shall exist which constitutes an Event of Default or Potential Event of
Default under Section 11(b), 

D-30

(iii) the ratio of Consolidated Cash Flow to Consolidated Interest Expense is
greater than 1.75 to 1.00, and (iv) Star Gas shall have given to each holder of
a Note written notice thereof on the date such Restricted Payment is declared,
which date shall be at least 10 days prior to the date such Restricted Payment
is made. Star Gas will not, in any event directly or indirectly declare, order,
pay or make any Restricted Payment except in cash.

(b)   Notwithstanding 10.4(a) above, Star Gas may make, pay or set apart
once within 45 days from the last day of each calendar quarter a Restricted
Payment in an amount equal to the amount of dividends or distributions actually
received in cash indirectly from Petro Holdings within 45 days from the last day
of such calendar quarter, provided that the following conditions are met: (i)
prior to and immediately after giving effect to any such proposed action, no
condition or event shall exist which constitutes an Event of Default or
Potential Event of Default under Section 11(b), (ii) the ratio of Consolidated
Cash Flow plus dividends/distributions from Petro Holdings to Consolidated
Interest Expense is greater than 1.75 to 1.00, and (iii) Star Gas shall have
given to each holder of a Note written notice thereof on the date such
Restricted Payment is declared, which date shall be at least 10 days prior to
the date such Restricted Payment is made. Star Gas will not, in any event,
directly or indirectly declare, order, pay or make any Restricted Payment except
in cash.

(c)   Notwithstanding any other provision of the Star/Petro Intercompany
Subordinated Note, (i) until all amounts due under the Notes and this Agreement
shall have been paid in full, no principal payment on the Star/Petro
Intercompany Subordinated Note may be made, except (A) if the proceeds used for
such repayment have been received from the proceeds of capital contributions or
equity investments indirectly made by the Public Partnership in Star/Petro and
(B) prior to and immediately after giving effect to any such prepayment no
condition or event shall exist which constitutes an Event of Default or
Potential Event of Default; and (ii) no interest payment shall be payable on the
Star/Petro Intercompany Subordinated Debt, unless (A) the ratio of Consolidated
Cash Flow to Consolidated Interest Expense is greater than 2.0 to 1.0 for the
most recent four quarter period ending prior to the time of such payment and (B)
prior to and immediately after giving effect to any such interest payment, no
condition or event shall exist which constitutes an Event of Default or
Potential Event of Default.

Section 10.5.  Transactions with Affiliates. Neither Obligor will, nor
will either Obligor permit any Restricted Subsidiary to, directly or indirectly,
engage in any transaction with any Affiliate of Star Gas, including, without
limitation, the purchase, sale or exchange of assets or the rendering of any
service, except pursuant to the reasonable requirements of Star Gas's or such
Restricted Subsidiary's business and upon fair and reasonable terms that are no
less favorable to Star Gas or such Restricted Subsidiary, as the case may be,
than those which might be obtained in an arm's-length transaction at the time
such transaction is agreed upon from Persons which are not such an Affiliate,
provided that the foregoing limitations and restrictions shall not apply to any
transaction between Star Gas and any Restricted Subsidiary or between Restricted
Subsidiaries.

Section 10.6.  Subsidiary Stock and Indebtedness. Neither Obligor will:

D-31

(a)  directly or indirectly sell, assign, pledge or otherwise
dispose of any Indebtedness of or any shares of stock or similar interests
of (or warrants, rights or options to acquire stock or similar interests
of) any Subsidiary, except to a Restricted Subsidiary;

(b)  permit any Restricted Subsidiary directly or indirectly to
sell, assign, pledge or otherwise dispose of any Indebtedness of (i) Star
Gas or (ii) any other Restricted Subsidiary, or any shares of stock or
similar interests of (or warrants, rights or options to acquire stock or
similar interests of) any other Subsidiary, except to, in the case of
clause (i), Star Gas or, in all other cases, a Restricted Subsidiary;

(c)  permit any Restricted Subsidiary to have outstanding any shares
of stock or similar interests which are preferred over any other shares of
stock or similar interests owned by Star Gas unless such shares of
preferred stock or similar interests are owned by Star Gas; or

(d)  permit any Subsidiary directly or indirectly to issue or sell
(including, without limitation, in connection with a merger or
consolidation of a Restricted Subsidiary otherwise permitted by Section
10.7(a)) any shares of its stock or similar interests (or warrants, rights
or options to acquire its stock or similar interests) except to Star Gas or
a Restricted Subsidiary;

provided that, (i) any Restricted Subsidiary may sell, assign or otherwise
dispose of Indebtedness of Star Gas if, assuming such Indebtedness were incurred
immediately after such sale, assignment or disposition, such Indebtedness would
be permitted under Section 10.1 (and if such Indebtedness is secured, such Lien
would be permitted pursuant to Section 10.2) and (ii) subject to compliance with
Section 10.7(c), all Indebtedness and shares of stock or partnership interests
of any Restricted Subsidiary owned by Star Gas may be simultaneously sold as an
entirety for a cash consideration at least equal to the fair value thereof (as
determined in good faith by the general partner of Star Gas) at the time of such
sale if such Restricted Subsidiary does not at the time own (A) any Indebtedness
of Star Gas (other than Indebtedness which, if incurred immediately after such
transaction, would be permitted under Section 10.1) or (B) any Indebtedness,
stock or other interest in any other Restricted Subsidiary which is not also
being simultaneously sold as an entirety in compliance with this proviso or
Section 10.7(b)(ii).

Section 10.7.  Consolidation, Merger, Sale of Assets, Etc. Neither Obligor
will, nor will either Obligor permit any Restricted Subsidiary to, directly or
indirectly,

(a)   consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into it, except that:

(i)  any Restricted Subsidiary may consolidate with or merge
into Star Gas or, except in the case of Star/Petro, another Restricted
Subsidiary if, in the case of a consolidation with or merger into Star
Gas, Star Gas shall be the surviving Person and if, immediately after
giving effect to such transaction, no 

D-32

condition or event shall exist which constitutes an Event of Default
or Potential Event of Default; and

(ii)   any entity (other than a Restricted Subsidiary) may
consolidate with or merge into Star Gas or a Restricted Subsidiary if
Star Gas or such Restricted Subsidiary, as the case may be, shall be
the surviving Person and if, immediately after giving effect to such
transaction, (A) Star Gas (1) shall not have a Consolidated Net Worth
(determined in accordance with GAAP applied on a basis consistent with
the financial statements of Star Gas most recently delivered pursuant
to Section 7(b)) of less than the Consolidated Net Worth of Star Gas
immediately prior to the effectiveness of such transaction, (2) shall
not be liable with respect to any Indebtedness or allow its property
to be subject to any Lien which it could not become liable with
respect to or allow its property to become subject to under this
Agreement on the date of such transaction, and (3) could incur, if the
consolidating or merging entity has outstanding Indebtedness, at least
$1 of additional Indebtedness in compliance with Section 10.1(f) after
giving effect to such transaction, (x) substantially all of the assets
of Star Gas and the Restricted Subsidiaries shall be located and
substantially all of their business shall be conducted within the
continental United States, (B) no condition or event shall exist which
constitutes an Event of Default or Potential Event of Default and (C)
at the expense of the Obligors, the Notes are promptly, but in any
event within 20 Business Days from the date of such transaction, re-
rated by an Approved Rating Agency; and

(iii)  Star Gas may consolidate with or merge into any other
entity if (A) the surviving entity is a corporation or limited
partnership organized and existing under the laws of the United States
of America or a state thereof or the District of Columbia, with
substantially all of its properties located and its business conducted
within the continental United States, (B) such corporation or limited
partnership expressly and unconditionally assumes the obligations of
Star Gas under this Agreement, each of the other Operating Agreements
and the Notes, and delivers to each holder of a Note at the time
outstanding in connection with such assumption an opinion of counsel
reasonably satisfactory to the Required Holders with respect to such
matters incident to such assumption as may be reasonably requested by
such holders, including, without limitation, as to the due
authorization and execution of the related agreement of assumption and
the enforceability of such agreement against such corporation or
partnership, (C) immediately after giving effect to such transaction,
such corporation or limited partnership (1) shall not have a
Consolidated Net Worth (determined in accordance with GAAP applied on
a basis consistent with the financial statements of Star Gas most
recently delivered pursuant to Section 7(b)) of less than the
Consolidated Net Worth of Star Gas immediately prior to the
effectiveness of such transaction, (2) shall not be liable with
respect to any Indebtedness or allow its property to be subject to any
Lien which it could not become liable with respect to or allow its
property to become subject to under this Agreement on the 

D-33

date of such transaction and (3) could incur at least $1 of additional
Indebtedness in compliance with Section 10.1(f) after giving effect to
such transaction, (D) immediately after giving effect to such
transaction no condition or event shall exist which constitutes an
Event of Default or a Potential Event of Default and (E) at the
expense of the Obligors, the Notes are promptly, but in any event
within 20 Business Days from the date of such transaction, re-rated by
an Approved Rating Agency; or

(b)  sell, lease, abandon or otherwise dispose of all or substantially
all its assets, except that:

(i)    any Restricted Subsidiary may sell, lease or otherwise
dispose of all or substantially all its assets to Star Gas or, except
in the case of Star/Petro, to another Restricted Subsidiary; and

(ii)   Star Gas may sell, lease or otherwise dispose of all or
substantially all its assets to any corporation or limited partnership
into which Star Gas could be consolidated or merged in compliance with
subdivision (a)(iii) of this Section 10.7, provided that (A) each of
the conditions set forth in such subdivision (a)(iii) shall have been
fulfilled, and (B) no such disposition shall relieve Star Gas from its
obligations under this Agreement, the other Operative Agreements or
the Notes; or

(c)  sell, lease abandon or otherwise dispose of any property to any
Person other than Star Gas or any Restricted Subsidiary (except in a
transaction permitted by subdivision (a)(iii) or (b)(ii) of this Section
10.7 or an abandonment or other disposition of Inventory in the ordinary
course of business) unless:

(i)   at least 80% of the consideration therefor shall be in the
form of cash consideration,

(ii)  immediately after giving effect to such proposed
disposition no condition or event shall exist which constitutes an
Event of Default or Potential Event of Default,

(iii) either

(A)  the aggregate net proceeds of all property so disposed
of (whether or not leased back) by Star Gas and all Restricted
Subsidiaries during the current fiscal year (including property
disposed of through dispositions of shares pursuant to Section
10.6 or sales of assets pursuant to Section 10.7(b) and including
all proceeds under title insurance policies with respect to real
property and all Net Insurance Proceeds (as defined in the
Mortgages), self-insurance amount and Net Awards (as defined in
the Mortgages) with respect to property lost as a result of
damage, destruction

D-34

or a taking which have not been applied to the cost of
Restoration (as defined in the Mortgages)), less the amount of
all such net proceeds previously applied in accordance with
subdivision (iii)(B) of this Section 10.7(c) and the amount of
such net proceeds equal to the purchase price of any assets
acquired to the extent that (1) such assets were acquired within
180 days prior to the date of such disposal of property, (2) the
purchase price of such assets was not previously applied to
reduce the amount of net proceeds of property disposed of under
this Section 10.7(c), (3) such assets were acquired for
subsequent replacement of the property so disposed of or may be
productively used in the United States in the conduct of the
Business, (4) such assets are subject to the Lien of the Security
Documents, and (5) to the extent such assets were acquired (in
whole or in part) with borrowed money, such borrowing has been
repaid in full, (x) shall not exceed $5,000,000 during such
fiscal year and (y) when aggregated with such net proceeds of all
prior transactions under this Section 10.7(c), shall not exceed
$15,000,000; or

(B)  in the event that such net proceeds (less the amount
thereof previously applied in accordance with this subdivision
(iii)(B) and the amount thereof equal to the purchase price of
any assets acquired to the extent that (1) such assets were
acquired within 180 days prior to the date of such disposal of
property, (2) the purchase price of such assets was not
previously applied to reduce the amount of net proceeds of
property disposed of under this Section 10.7(c), (3) such assets
were acquired for subsequent replacement of the property so
disposed of or may be productively used in the United States in
the conduct of the Business, (4) such assets are subject to the
Lien of the Security Documents, and (5) to the extent such assets
were acquired (in whole or in part) with borrowed money, such
borrowing has been repaid in full) during the current fiscal year
exceed $5,000,000 or, when aggregated with such net proceeds of
all prior transactions under this Section 10.7(c), exceed
$15,000,000 (the larger amount of such excess net proceeds
actually realized being herein called "Excess Proceeds"), Star
Gas shall promptly pay over to the Trustee under the Trust
Agreement such Excess Proceeds not at the time held by the
Trustee for application by the Trustee (x) within 180 days of the
date of the disposal or loss of property to the acquisition of
assets in replacement of the property so disposed of or lost or
of assets which may be productively used in the United States in
the conduct of the Business (and such newly acquired assets shall
be subjected to the Lien of the Security Documents) or to the
cost of Restoration (as defined in the Mortgages), or (y) to the
extent of Excess Proceeds not applied pursuant to the immediately
preceding clause (x), to the payment and/or prepayment of the
Notes, the 2000 Notes, the 1998 Notes, the 1995 Notes and Parity
Debt, if any, pursuant to Section 9.1 and/or 9.3, all as provided
in Section 4(d) of the Trust Agreement and such Section 9.1
and/or 9.3, and the
D-35

Trustee shall have received an Officers' Certificate from the
general partner of Star Gas certifying that the consideration
received for such property is at least equal to its fair value
(as determined in good faith by the general partner of Star Gas)
and that such consideration has been applied in accordance with
the terms of this Agreement, and

(iv)  in the case of any sale, lease or other disposition of
Mortgaged Property which includes real property (or any interest
therein), or any sale, lease or other disposition of Mortgaged
Property resulting in the aggregate net proceeds of all such sales,
leases or other dispositions exceeding $10,000,000, the Trustee shall
have received an Officers' Certificate from the general partner of
Star Gas certifying that such sale, lease or other disposition is in
the best interest of Star Gas and will not have a Material Adverse
Effect.

Notwithstanding the foregoing, Star Gas and any Restricted Subsidiary may
sell or dispose of (i) real property assets sold or disposed of within 12 months
of the acquisition of such assets, and (ii) all other assets sold or disposed of
within 6 months of the acquisition of such assets, in each case constituting a
portion of an acquired business, if (y) such assets are specifically designated
to the holders of any Notes in writing prior to such acquisition as assets to be
disposed of, and (z) the Trustee shall have received an Officers' Certificate
from the general partner of Star Gas certifying that the consideration received
for such property is at least equal to its fair value (as determined in good
faith by the general partner of Star Gas).  Such sales under this paragraph will
not be applied towards the annual or cumulative limitations in subdivision (c)
of this Section 10.7.  The holders of Notes agree to take all actions necessary
to cause dispositions of Mortgaged Property made in compliance with this Section
10.7 to be made free and clear of the Liens created by the Security Documents.

Section 10.8.  Partnership or Corporate Existence, Etc.; Business. (a) (i)
Star Gas will at all times preserve and keep in full force and effect its
partnership existence and (subject to the provisions of subdivision (b) of this
Section 10.8) its status as a partnership not taxable as a corporation for
Federal income tax purposes; (ii) Star/Petro will at all times keep in full
force and effect its corporate existence; (iii) each Obligor will cause each
Restricted Subsidiary to keep in full force and effect its partnership or
corporate existence; and (iv) each Obligor will, and each Obligor will cause
each Restricted Subsidiary to, at all times preserve and keep in full force and
effect all of its material rights and franchises (in each case except as
otherwise specifically permitted in Sections 10.6 and 10.7 and except that the
partnership or corporate existence of any Restricted Subsidiary (other than
Star/Petro), and any right or franchise of Star Gas or any Restricted
Subsidiary, may be terminated if, in the good faith judgment of the general
partner of Star Gas, such termination is in the best interest of Star Gas, is
not disadvantageous to the holders of the Notes in any material respect and
would not have a Material Adverse Effect).

(b)  Star Gas shall not be obligated to preserve its status as a
partnership not taxable as a corporation for Federal income tax purposes if (i)
Star Gas's failure to preserve such status shall be the result of an amendment
to the tax laws enacted by the Congress of the United States and (ii) after
giving effect to the loss of such status the ratio of Consolidated Cash Flow to
Maximum 

D-36

Consolidated Pro Forma Debt Service, determined as of the date of the loss of
such status, would be greater than 1.1 to 1.0, assuming, for the purposes of the
computation of Consolidated Cash Flow, that Consolidated Cash Flow would be
reduced by taxes at the applicable tax rate for Star Gas for such period had
Star Gas been taxable as a corporation.

(c)   Neither Obligor will, nor will either Obligor permit any
Restricted Subsidiary to, engage in any lines of business other than the
Business in which the Obligors and their Restricted Subsidiaries are engaged in
on the date of this Agreement and described in the Public Partnership's SEC Form
10-K for the fiscal year ended September 30, 2000 and other activities
incidental or related to the Business.

Section 10.9.   Payment of Taxes and Claims. Each Obligor will, and each
Obligor will cause each Subsidiary to, pay all taxes, assessments and other
governmental charges or levies imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or profits when
the same become due and payable, but in any event before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become a Lien upon any of its properties
or assets, and promptly reimburse the holders of the Notes for any such taxes,
assessments, charges or claims paid by them; provided that no such tax,
assessment, charge or claim need be paid or reimbursed if being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted and if such 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 general partner of Star Gas.

Section 10.10.  Compliance with ERISA.  Neither Obligor will, nor will
either Obligor permit any Subsidiary or Related Person of either Obligor to:

(a)  (i) engage in any transaction in connection with which either
Obligor or any Subsidiary could be subject to either a civil penalty
assessed pursuant to section 502(i) of ERISA or a tax imposed by section
4975 of the Code, (ii) terminate (within the meaning of Title IV of
ERISA) or withdraw from any Plan in a manner, or take, or fail to take,
any other action with respect to any Plan (including, without
limitation, a substantial cessation of operations within the meaning of
section 4062(e) of ERISA), (iii) establish, maintain, contribute to or
become obligated to contribute to any welfare benefit plan (as defined
in section 3(1) of ERISA) or other welfare benefit arrangement which
provides post-employment benefits, which cannot be unilaterally
terminated by either Obligor, (iv) fail to make full payment when due of
all amounts which, under the provisions of any Plan or applicable law,
either Obligor or any Subsidiary or Related Person of either Obligor is
required to pay as contributions thereto, result in the imposition of a
Lien or permit to exist any material accumulated funding deficiency,
whether or not waived, with respect to any Plan or (v) engage in any
transaction in connection with which either Obligor, any Subsidiary or
any Related Person of either Obligor could be subject to liability
pursuant to section 4069(a) or 4212(c) of ERISA, if, as a result of any
such event, condition or transaction described in clauses (i) through
(v) above, either individually or together with any other such event or

D-37

condition, could result in (x) the imposition of a Lien on any assets or
property of either Obligor or (y) any liability to either Obligor, any
Subsidiary or any Related Person of either Obligor, which liability could
have a Material Adverse Effect; or

(b)  as of any date of determination (i) permit the amount of
unfunded benefit liabilities under any Plan maintained at such time by
either Obligor or any Subsidiary or Related Persons of either Obligor to
exceed the current value of the assets of any such Plan or (ii) permit the
aggregate liability incurred by either Obligor and any Subsidiary and
Related Persons of either Obligor pursuant to Title IV of ERISA with
respect to one or more terminations of, or one or more complete or partial
withdrawals from, any Plan to exceed $1,000,000.

As used in this Section 10.10, the term "accumulated funding deficiency" has the
meaning specified in section 302 of ERISA and section 412 of the Code, the term
"current value" has the meaning specified in section 3 of ERISA and the terms
"benefit liabilities" and "amount of unfunded benefit liabilities" have the
meanings specified in section 4001 of ERISA.

Section 10.11.  Maintenance of Properties; Insurance. To the extent
required by the Security Documents, each Obligor will maintain or cause to be
maintained in working order and condition, in accordance with normal industry
standards, all properties used or useful in the business of either Obligor and
the Restricted Subsidiaries and from time to time will make or cause to be made
all appropriate repairs, renewals and replacements thereof. To the extent
required by the Security Documents, each Obligor will maintain or cause to be
maintained, with Permitted Insurers, insurance with respect to its properties
and business and the properties and business of the Restricted Subsidiaries of
the types and in the amounts specified in the Security Documents and the Trustee
shall be named as an additional insured party on each insurance policy obtained
or maintained pursuant thereto.

Section 10.12.  Operative Agreements; Security Documents.  Each
Obligor will, and each Obligor will cause each Restricted Subsidiary to, perform
and comply with all of its obligations under each of the Operative Agreements to
which it is a party, will enforce each such Operative Agreement against each
other party thereto and will not accept the termination of any such Operative
Agreement, unless the taking of or omitting to take any such action would not
have a Material Adverse Effect, and will not amend, modify or supplement any
Operative Agreement without the prior written consent of the Required Holders,
provided that (a) the MLP Agreement and the Partnership Agreement may be
amended, modified or supplemented without the prior written consent of the
Required Holders if such amendment, modification or supplement would not have a
Material Adverse Effect and Star Gas shall have delivered to each holder of a
Note a copy of such proposed amendment, modification or supplement together with
an Officers' Certificate describing such proposed amendment, modification or
supplement and confirming that such proposed amendment, modification or
supplement would not have a Material Adverse Effect and (b) the Bank Credit
Facilities may be amended, modified or supplemented without the prior written
consent of the Required Holders if such amendment, modification or supplement
may be made without the written consent of any holders of the Notes under the
Trust Agreement.

D-38

Section 10.13.  Chief Executive Office. Neither Obligor will move its chief
executive office and the office at which it maintains its records relating to
the transactions contemplated by this Agreement and the Security Documents
unless (a) not less than 45 days' prior written notice of its intention to do
so, clearly describing the new location, shall have been given to the Trustee
and each holder of a Note and (b) such action, reasonably satisfactory to the
Trustee and each holder of a Note, to maintain any security interest in the
property subject to the Security Documents at all times fully perfected and in
full force and effect shall have been taken.

Section 10.14.  Recordation. The Obligors will promptly, but in any event
within 30 days from the date of the Closing, cause to be duly recorded,
published, registered and filed all Security Documents (in each case, not
previously recorded, published, registered or filed in accordance with Section
4.8), in such manner and in such places as is required by law to establish,
perfect, preserve and protect the rights and first priority security interests
of the parties thereto and their respective successors and assigns in all of the
Mortgaged Property. The Obligors will pay all taxes, fees and other charges then
due in connection with the execution, delivery, recording, publishing,
registration and filing of such documents or instruments in such places.

Section 10.15.  Information Required by Rule 144A. Each Obligor covenants
that it will, upon the prior written request of the holder of any Note, provide
such holder, and any qualified institutional buyer designated by such holder,
such financial and other information as such holder may reasonably determine to
be necessary in order to permit compliance with the information requirements of
Rule 144A under the Securities Act of 1933, as amended, in connection with the
resale of Notes, except at such times as such Obligor is subject to the
reporting requirements of section 13 or 15(d) of the Securities Exchange Act of
1934, as amended. For the purpose of this Section 10.15, the term "qualified
institutional buyer" shall have the meaning specified in Rule 144A under the
Securities Act of 1933, as amended.

Section 10.16.  Covenant to Secure Notes Equally. Each Obligor covenants
that, if it or any Restricted Subsidiary shall create or assume any Lien upon
any of its property or assets, whether now owned or hereafter acquired, other
than Liens permitted by the provisions of Section 10.2 (unless prior written
consent to the creation or assumption thereof shall have been obtained pursuant
to Section 18), it will make or cause to be made effective provision whereby the
Notes will be secured by such Lien equally and ratably with any and all other
Indebtedness thereby secured so long as any such other Indebtedness shall be so
secured, it being understood that the provision of such equal and ratable
security shall not constitute a cure or waiver of any related Event of Default.

Section 10.17.  Compliance with Laws. Each Obligor will, and each Obligor
will cause each Subsidiary to, comply with all applicable statutes, rules,
regulations, and orders of, and all applicable restrictions imposed by, the
United States, foreign countries, states, provinces and municipalities, and of
or by any governmental department, commission, board, regulatory authority,
bureau, agency and instrumentality of the foregoing, and of or by any court,
arbitrator or grand jury, in respect of the conduct of their respective
businesses and the ownership of their respective properties or business
(including, without limitation, Environmental Laws), except

D-39

such as are being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted and if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor or
the failure to so comply would not be expected to have a Material Adverse
Effect.

Section 10.18.  Further Assurances. At any time and from to time promptly,
the Obligors shall, at their expense, execute and deliver to each holder of a
Note and to the Trustee such further instruments and documents, and take such
further action, as the holders of the Notes may from time to time reasonably
request, in order to further carry out the intent and purpose of this Agreement
and to establish and protect the rights, interests and remedies created, or
intended to be created, in favor of the holders of the Notes, including, without
limitation, the execution, delivery and recordation and filing of security
agreements and financing statements and continuation statements under the
Uniform Commercial Code of any applicable jurisdiction.

Section 10.19.  Subsidiaries. (a) Star Gas may designate any Restricted
Subsidiary or newly acquired or formed Subsidiary as an Unrestricted Subsidiary
or any Unrestricted Subsidiary or newly acquired or formed Subsidiary as a
Restricted Subsidiary, in each case subject to satisfaction of the following
conditions:

(i)   immediately before and after giving effect to such
designation no condition or event shall exist which constitutes an
Event of Default or Potential Event of Default;

(ii)  immediately after giving effect to such designation, (1)
(other than in the case of a designation of an Unrestricted Subsidiary
that does not have any Indebtedness as a Restricted Subsidiary), Star
Gas would be permitted to incur at least $1 of additional Indebtedness
in compliance with subdivisions (i) and (ii) of Section 10.1(f), (2)
Star Gas and the Restricted Subsidiaries would not be liable with
respect to Indebtedness or any Guarantee, would not own any
Investments and their property would not be subject to any Lien which
is not permitted by this Agreement and (3) substantially all of Star
Gas's assets will be located, and substantially all of Star Gas's
business will be conducted, in the United States;

(iii) in the case of a designation as an Unrestricted Subsidiary,
(A) if such designation (and all other prior designations of
Restricted Subsidiaries or newly acquired or formed Subsidiaries as
Unrestricted Subsidiaries during the current fiscal year) were deemed
to constitute a sale by Star Gas of all the assets of the Subsidiary
so designated, such sale would be in compliance with subdivision
(iii)(A) of Section 10.7(c) and (B) if such designation (and all other
prior designations of Restricted Subsidiaries or newly acquired or
formed Subsidiaries as Unrestricted Subsidiaries during the current
fiscal year) were deemed to constitute an Investment by Star Gas in
respect of all the assets of the Subsidiary so designated, such
Investment would be in compliance with Section 10.3(c), in each case
with the net proceeds of such sale or the amount of such Investment
being deemed to equal the net book value of such assets in the case of
a Restricted Subsidiary or the cost of acquisition or formation in the
case of a newly

D-40

acquired or formed Subsidiary, provided, that this subdivision (iii) of
this Section 10.19(a) shall not apply to an acquisition or formation by
Star Gas or a Restricted Subsidiary of a newly acquired or formed
Unrestricted Subsidiary to the extent such acquisition or formation (1) is
funded solely by the net cash proceeds received by Star Gas from the
general partner of Star Gas or from the Public Partnership as a capital
contribution or as consideration for the issuance by Star Gas of additional
partnership interests or (2) the assets involved in such acquisition are
acquired in exchange for additional partnership interests of Star Gas or
the Public Partnership;

(iv)   in the case of a designation of a Restricted Subsidiary as an
Unrestricted Subsidiary, such Restricted Subsidiary shall not have been an
Unrestricted Subsidiary prior to being designated a Restricted Subsidiary;

(v)    in the case of a designation of an Unrestricted Subsidiary as
a Restricted Subsidiary, such Unrestricted Subsidiary at the time of such
designation has a positive Consolidated Net Worth;

(vi)   Star Gas shall deliver to each holder of Notes, within 20
Business Days after any such designation, an Officers' Certificate stating
the effective date of such designation and confirming compliance with the
provisions of this Section 10.19;

(vii)  On the date of the Closing, Star/Petro shall be designated as
a Restricted Subsidiary and, notwithstanding any other provision of this
Section 10.19(a), such designation shall not be changed without the consent
of the Required Holders; and

(viii) On the date of the Closing, Petro Holdings shall be
designated as an Unrestricted Subsidiary and, notwithstanding any other
provision of this Section 10.19(a), such designation shall not be changed
without the consent of the Required Holders.

In the case of the designation of any Unrestricted Subsidiary as a
Restricted Subsidiary, such new Restricted Subsidiary shall be deemed to have
(A) made or acquired all Investments owned by it, and (B) incurred all
Indebtedness owing by it and all Liens to which it or any of its properties are
subject, on the date of such designation.

(b) Star Gas will cause each Restricted Subsidiary, at the time it is or is
deemed to be designated as a Restricted Subsidiary, to (i) become a party to the
Obligor Security Agreement and the Subsidiary Guarantee Agreement by execution
of a Supplemental Agreement and (ii) enter into such documents (in form and
substance satisfactory to the Required Holders) as may be necessary or as any
holder of Notes may request in order to secure such Restricted Subsidiary's
obligations under the Subsidiary Guarantee Agreement with all or substantially
all of the assets of such Restricted Subsidiary.

(c) Star Gas will not own any Subsidiaries other than Wholly-Owned
Subsidiaries satisfying the requirements in clauses (a), (b) and (c) of the
definition of Restricted Subsidiary.

D-41

Section 10.20. Rating. If (i) the General Partner of Star Gas shall
withdraw as general partner of Star Gas or (ii) if any person (as such term is
used in rule 13(d) or rule 14(d)(2) of the Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of the Closing), or related persons
constituting a group (as such term is used in rule 13d-5 under the Exchange Act,
as in effect on the date of the Closing), or related persons constituting a
group (as such term is used in rule 13d-5 under the Exchange Act, as in effect
on the date of the Closing) shall acquire a majority of the Common Units, then
the Obligors at their expense shall promptly, but in any event within 20
Business Days from the date of such event or condition, have the Notes re-rated
by an Approved Rating Agency.

Section 10.21. Accounting Changes. Neither Obligor will, nor will either
Obligor suffer or permit any Restricted Subsidiary to, make any significant
change in accounting treatment or reporting practices, except as required by
GAAP. Each Obligor will, and each Obligor will cause each Restricted Subsidiary
to, cause its fiscal year to end on September 30 in each year.

Section 10.22. Certain Real Property. Without affecting the obligations of
either Obligor or any of the Restricted Subsidiaries under any of the Security
Documents, in the event that either Obligor or any Restricted Subsidiary, at any
time after the date of this Agreement, whether directly or indirectly, acquires
any interest in any real property, including any fee or other ownership interest
in one or more properties with an aggregate cost in excess of $50,000, or any
interest under one or more leases of real property for a term in excess of three
years and involving aggregate average payments in excess of $100,000 per annum
(each such interest, an "After Acquired Property"), the Obligors will, or the
Obligors will cause such Restricted Subsidiary to, as soon as practical provide
written notice thereof to each holder of a Note, setting forth with specificity
a description of such After Acquired Property, the location of such After
Acquired Property, any structures or improvements thereon and an appraisal or
its good-faith estimate of the current value of such real property ("Current
Value"). The Required Holders may require the applicable Obligor or the
applicable Restricted Subsidiary to grant and record a mortgage in favor of the
Trustee on such After Acquired Property, provided that no new mortgage on such
After Acquired Property shall be required if the costs that would be incurred as
a result thereof are excessive in relation to the benefits that would be
conferred thereby. In the event a mortgage is granted, the applicable Obligor or
the applicable Restricted Subsidiary shall execute and deliver to the Trustee a
mortgage, together with such documents or instruments as the Required Holders
shall require. In no event shall any title insurance policy for any such After
Acquired Property be in an amount which is less than the Current Value of such
After Acquired Property. If, at any time, the aggregate cost to the Obligors and
the Restricted Subsidiaries of each interest in real property (a) acquired by
either Obligor or any Restricted Subsidiary, whether directly or indirectly, at
any time after the date of this Agreement, at a cost equal to or less than
$50,000, (b) at such time, owned directly or indirectly by either Obligor or any
Restricted Subsidiary and (c) for which a mortgage in favor of the Trustee is
not in effect (the "Aggregate Cost of Unmortgaged Property"), exceeds $500,000,
the Obligors will, as soon as practical, and in any event within 10 Business
Days, provide written notice thereof to each holder of a Note, setting forth
with specificity a description of each such interest in real property, the
location of such real property and an appraisal or its good-faith estimate of
the current value of each such real property. The Required Holders may require
the applicable Obligor or the 

D-42

applicable Restricted Subsidiary to grant and record a mortgage in favor of the
Trustee on one or more of such real property so that the Aggregate Cost of
Unmortgaged Property does not exceed $500,000, provided that no new mortgage on
any such real property shall be required if the costs that would be incurred as
a result thereof are excessive in relation to the benefits that would be
conferred thereby. In the event a mortgage is required, the applicable Obligor
or the applicable Restricted Subsidiary shall execute and deliver to the Trustee
a mortgage, together with such documents or instruments as the Required Holders
shall require. Further, with regard to any interest in real property, including
any fee or other ownership interest in real property or any material lease of
real property, currently owned or held by either Obligor or any Restricted
Subsidiary and which is not being encumbered by a mortgage of even date herewith
(each such interest, an "Existing Unmortgaged Property"), upon the written
request of the Required Holders, the applicable Obligor will, or the Obligors
will cause any applicable Restricted Subsidiary to, execute and deliver to the
Trustee a mortgage, together with such documents or instruments as the Required
Holders shall require. In no event shall the title insurance policy for any such
Existing Unmortgaged Property be in an amount which is less than the Current
Value of such Existing Unmortgaged Property. The Obligors shall pay all fees and
expenses, including reasonable attorneys' fees and expenses and expenses of any
customary environmental due diligence, and title insurance charges and premiums,
in connection with the obligations of the Obligors and the Restricted
Subsidiaries under this Section 10.22.

Section 10.23. Sale and Lease-Back Transactions. Neither Obligor will, nor
will either Obligor cause or permit any of the Restricted Subsidiaries to, enter
into any arrangement, directly or indirectly, with any Person whereby it shall
sell or transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property which it intends to use for substantially the same
purpose or purposes as the property being sold or transferred.

Section 10.24. Acquisitions. Except as otherwise permitted by Section 10.7,
neither Obligor will, nor will either Obligor cause or permit any of the
Restricted Subsidiaries to, purchase, lease or otherwise acquire (in one
transaction or a series of transactions) all or any substantial part of the
assets of any other Person, except that (a) either Obligor or any Restricted
Subsidiary may purchase inventory in the ordinary course of business and (b)
either Obligor or any Restricted Subsidiary may engage in any such acquisition
if no Event of Default or Potential Event of Default has occurred and is
continuing at the time of any such acquisition or would occur immediately after
giving effect thereto.

Section 10.25. Impairment of Security Interests. Neither Obligor will, nor
will either Obligor permit any of the Subsidiaries to, take or omit to take any
action, which action or omission might or would have the result of materially
impairing the security interests in favor of the Trustee with respect to the
Mortgaged Property, and neither Obligor will, nor will either Obligor permit any
of the Subsidiaries to, grant to any Person (other than the Trustee) any
interest whatsoever in the Mortgaged Property.

Section 10.26. Limitation on Restrictions on Subsidiary Dividends, Etc.
Neither Obligor will, nor will either Obligor cause or permit any of the
Restricted Subsidiaries to, directly or 

D-43

indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on or in respect
of its capital stock, or pay any indebtedness owed to Star Gas or any Restricted
Subsidiary, (b) make loans or advances to Star Gas or any Restricted Subsidiary
or (c) transfer any of its properties or assets to Star Gas or any Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) customary non-assignment provisions in any lease governing a
leasehold interest or other contract entered into in the ordinary course of
business consistent with past practices or (ii) this Agreement or any other
Operative Agreement.

Section 10.27. No Other Negative Pledges. Neither Obligor will, nor will
either Obligor cause or permit any of the Restricted Subsidiaries to, directly
or indirectly, enter into any agreement prohibiting the creation or assumption
of any Lien upon the properties or assets of either Obligor or any Restricted
Subsidiary, whether now owned or hereafter acquired, or requiring an obligation
to be secured if some other obligation is secured, except for this Agreement,
the 2000 Note Agreement, the 1998 Note Agreement, the 1995 Note Agreements, the
Bank Credit Facilities and any Parity Debt Agreement (as defined in the Trust
Agreement).

Section 10.28. Sales of Receivables. Neither Obligor will, nor will either
Obligor cause or permit any of the Restricted Subsidiaries to, sell with
recourse, discount or otherwise sell or dispose of its notes or accounts
receivable, except for accounts receivable consisting of assets of an operating
unit sold as a going concern in accordance with all other provisions of this
Agreement.

Section 10.29. Fixed Price Supply Contracts; Certain Policies. (a) Neither
Obligor will, nor will either Obligor permit any of the Restricted Subsidiaries
to, at any time be a party or subject to any contract for the purchase or supply
by such parties of propane or other product except where (i) the purchase price
is set with reference to a spot index or indices substantially contemporaneously
with the delivery of such product or (ii) delivery of such propane or other
product is to be made no more than one year after the purchase price is agreed
to.

(b) Star Gas will not amend, modify or waive the trading policy or
supply inventory position policy existing as of the date of the Closing except
that Star Gas may amend its supply inventory position policy such that such
policy provides that neither it nor any of the Restricted Subsidiaries will hold
on hand more than 90 days of commodities inventory. The Obligors will provide
each holder of a Note with prompt written notice of any such new commodity
hedging agreement or any such change in such policy. Subject to the foregoing
exception, Star Gas and the Restricted Subsidiaries will comply in all material
respects with such policies at all times.

Section 10.30.  Certain Operations.  Neither Obligor shall permit
Petro or any of its Affiliates (other than the Star Gas and the Restricted
Subsidiaries) to acquire a business which derives any revenues from the sale of
propane if, after giving effect to such acquisition, Petro's Pro Forma Propane
Volumes would equal or exceed the lesser of (a) 15% of Star Gas's reported
propane volumes sold for the most recently completed four fiscal quarters which
ended at least 90 days prior to the date of such acquisition and (b) 15 million
gallons of propane (such lesser 

D-44

amount, the "maximum permitted amount"). If as a result of an acquisition,
Petro's Pro Forma Propane Volumes exceed the maximum permitted amount, Petro
shall not be in violation of this Section 10.30 if within the period of 90 days
following such acquisition it completes the disposition of sufficient propane
volume to reduce Petro's Pro Forma Propane Volumes below the maximum permitted
amount. For purposes of this Section 10.30, "Petro's Pro Forma Propane Volumes"
shall mean the actual propane volumes sold by Petro and any of its Affiliates
(other than Star Gas and the Restricted Subsidiaries) for the most recently
completed four fiscal quarters which ended at least 90 days prior to the date of
determination plus the propane volumes sold of the propane business to be
acquired for the most recently completed four fiscal quarters which ended at
least 90 days prior to the date of determination. In addition, in the event
Petro or any of its Affiliates (other than Star Gas and the Restricted
Subsidiaries) owns a propane business, Star Gas shall not permit Petro or any
such Affiliate to accept as a customer (except for de minimis, unintentional and
isolated acceptances) any Person who is (or was during the last billing cycle of
Star Gas and the Restricted Subsidiaries) a customer of Star Gas and the
Restricted Subsidiaries.

Section 10.31. Independent Organizational Existence. Except as set forth on
Schedule 10.31, (a) each Obligor shall maintain, and each Obligor shall cause
each of the Subsidiaries (other than Petro and its Subsidiaries) to maintain,
books, records and accounts that are separate from the books, records and
accounts of Petro or any of its Subsidiaries such that: (i) the revenues of Star
Gas and its Subsidiaries will be credited to the accounts of Star Gas and its
Subsidiaries only; (ii) all expenses incurred by Star Gas and its Subsidiaries
shall be paid only from the accounts of Star Gas and its Subsidiaries (other
than those paid by Petro and allocated to Star Gas in the manner set forth in
clause (c) of this Section); (iii) only officers and employees of the general
partner of Star Gas, Star Gas and its Subsidiaries in their capacity as such
shall have the authority to make disbursements with respect to the accounts of
Star Gas and its Subsidiaries; (iv) there shall occur no sharing of accounts or
funds between Star Gas and its Subsidiaries (other than Petro and its
Subsidiaries), on the one hand, and Petro or any of its Subsidiaries, on the
other hand, and (v) all cash and funds of Star Gas and its Subsidiaries (other
than Petro and its Subsidiaries) shall be managed separately from the cash and
funds of Petro or any of its Subsidiaries, and there shall not occur any
commingling including for investment purposes, of funds or assets of Star Gas
and its Subsidiaries (other than Petro and its Subsidiaries) with the funds or
assets of Petro or any of its Subsidiaries.

(b) All full-time employees, consultants and agents of Star Gas and
its Subsidiaries (other than Petro and its Subsidiaries) shall be compensated
directly from the bank accounts of the general partner of Star Gas, Star Gas and
such Subsidiaries for services provided by such employees, consultants and
agents and, to the extent any employee, consultant or agent is also an employee,
consultant or agent of Petro or any of its Subsidiaries, the compensation of
such employee, consultant or agent shall be allocated in accordance with clause
(c) of this Section among Star Gas and its Subsidiaries (other than Petro and
its Subsidiaries), on the one hand, and Petro and any of its Subsidiaries, on
the other hand, on a basis which reasonably reflects the services rendered to
Star Gas and its Subsidiaries (other than Petro and its Subsidiaries).

D-45

(c) All overhead expenses (including telephone and other utility
charges) for items shared by Star Gas and its Subsidiaries (other than Petro and
its Subsidiaries), on the one hand, and Petro or any of its Subsidiaries, on the
other hand, shall be allocated on the basis of actual use to the extent
practicable and, to the extent such allocation is not practicable, on a basis
reasonably related to actual use.

(d) Star Gas shall not permit Petro or any of its Subsidiaries to be
named as a loss payee or additional insured on the insurance policy covering the
property of Star Gas or any of its Subsidiaries (other than Petro and its
Subsidiaries), or enter into an agreement with the holder of such policy whereby
in the event of a loss in connection with such property, proceeds are paid to
Petro and its Subsidiaries.

Section 10.32. Damage, Destruction, Taking, Etc. In the event of any
damage, destruction or a taking in respect of all or a portion of the properties
subject to any of the Security Documents or in the event there shall be proceeds
under title insurance policies with respect to any real property, neither
Obligor will apply any Net Insurance Proceeds (as defined in the Mortgages),
self-insurance amounts, Net Awards (as defined in the Mortgages) or title
insurance proceeds, if such proceeds (whether resulting from one or a series of
events or circumstances) exceed $25,000,000 in the aggregate, to the cost of
Restoration (as defined in the Mortgages) or to replacements or other assets
without the prior written consent of the Required Holders.

Section 11. Events of Default; Acceleration.

If any of the following conditions or events ("Events of Default") shall
occur and be continuing

(a) the Obligors shall default in the payment of any principal of or
Make Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or

(b) the Obligors shall default in the payment of any interest on any
Note or any amount due and payable under any Operative Agreement for more
than 5 Business Days after the same becomes due and payable; or

(c) the Obligors shall default in the performance of or compliance
with any term contained in Section 7(h) or any of Sections 10.1 through
10.8, inclusive and Section 10.10(b); or

(d) either Obligor, the general partner of Star Gas, the Public
Partnership or any Restricted Subsidiary shall default in the performance
of or compliance with any other term contained in this Agreement or any
other Operative Agreement and such default shall not have been remedied
within 30 days after such default shall first have become known to any
officer of such Person or written notice thereof shall have been received
by either Obligor or the general partner of Star Gas; or

D-46

(e) any representation or warranty made in writing by or on behalf of
either Obligor or any of their Affiliates in this Agreement, any other
Operative Agreement or in any instrument furnished in connection with the
transactions contemplated by this Agreement shall prove to have been false
or incorrect in any material respect on the date as of which made or deemed
made; or

(f) either Obligor or any Restricted Subsidiary (as principal or
guarantor or other surety) shall default in the payment of any amount of
principal of or premium or interest on the Bank Credit Facilities, or other
Indebtedness which is outstanding in a principal amount of at least
$2,000,000 in the aggregate (other than the Notes); or any event shall
occur or condition shall exist in respect of the Bank Credit Facilities, or
other Indebtedness which is outstanding in a principal amount of at least
$2,000,000 or under any evidence of any such Indebtedness or of any
mortgage, indenture or other agreement relating to the Bank Credit
Facilities or such other Indebtedness the effect of which is to cause (or
to permit one or more Persons to cause) such Bank Credit Facilities or
other Indebtedness to become due before its stated maturity or before its
regularly scheduled dates of payment or to permit the holders thereof to
cause either Obligor or any Restricted Subsidiary to repurchase or repay
such Bank Credit Facilities or other Indebtedness, and such default, event
or condition shall continue for more than the period of grace, if any,
specified therein and shall not have been waived pursuant thereto; or

(g) filing by or on the behalf of either Obligor or the general
partner of Star Gas of a voluntary petition or an answer seeking
reorganization, arrangement, readjustment of its debts or for any other
relief under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar act
or law, state or Federal, now or hereafter existing ("Bankruptcy Law"), or
any action by either Obligor or the general partner of Star Gas for, or
consent or acquiescence to, the appointment of receiver, trustee or other
custodian of either Obligor, or the general partner of Star Gas, or of all
or a substantial part of its property; or the making by either Obligor or
the general partner of Star Gas of any assignment for the benefit of
creditors, or the admission by either Obligor or the general partner of
Star Gas in writing of its inability to pay its debts as they become due;
or

(h) filing of any involuntary petition against either Obligor or the
general partner of Star Gas in bankruptcy or seeking reorganization,
arrangement, readjustment of its debts or for any other relief under any
Bankruptcy Law and an order for relief by a court having jurisdiction in
the premises shall have been issued or entered therein; or any other
similar relief shall be granted under any applicable Federal or state law;
or a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee or other
officer having similar powers over either Obligor or the general partner of
Star Gas or over all or a part of its property shall have been entered; or
the involuntary appointment of an interim receiver, trustee or other
custodian of either Obligor or the general partner of Star Gas or of all or
a substantial part of its property; or the issuance of a warrant of
attachment, execution or similar process against any substantial part of
the property of either Obligor or the general partner of Star Gas; 

D-47

and continuance of any such event for 60 consecutive days unless dismissed,
bonded to the satisfaction of the court having jurisdiction in the premises
or discharged; or

(i) filing by or on the behalf of any Restricted Subsidiary of a
voluntary petition or an answer seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any Bankruptcy Law,
or any action by any Restricted Subsidiary for, or consent or acquiescence
to, the appointment of a receiver, trustee or other custodian of such
Restricted Subsidiary or of all or a substantial part of its property; or
the making by any Restricted Subsidiary of any assignment for the benefit
of creditors; or the admission by any Restricted Subsidiary in writing of
its inability to pay its debts as they become due; or

(j) filing of any involuntary petition against any Restricted
Subsidiary in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any Bankruptcy Law
and an order for relief by a court having jurisdiction in the premises
shall have been issued or entered therein; or any other similar relief
shall be granted under any applicable Federal or state law; or a decree or
order of a court having jurisdiction in the premises for the appointment of
a receiver, liquidator, sequestrator, trustee or other officer having
similar powers over any Restricted Subsidiary or over all or a part of its
property shall have been entered; or the involuntary appointment of an
interim receiver, trustee or other custodian of any Restricted Subsidiary
or of all or a substantial part of its property; or the issuance of a
warrant of attachment, execution or similar process against any substantial
part of the property of any Restricted Subsidiary; and continuance of any
such event for 60 consecutive days unless dismissed, bonded to the
satisfaction of the court having jurisdiction in the premises or
discharged, or

(k) a final judgment or judgments (which is or are non-appealable or
which has or have not been stayed pending appeal or as to which all rights
to appeal have expired or been exhausted) shall be rendered against either
Obligor or any Restricted Subsidiary for the payment of money in excess of
$1,000,000 in the aggregate and any one of such judgments shall not be
discharged or execution thereon stayed pending appeal within 45 days after
the date due, or, in the event of such a stay, such judgment shall not be
discharged within 30 days after such stay expires or any action shall be
legally taken by a creditor to levy upon the assets or properties of either
Obligor or any Restricted Subsidiary to enforce any such judgment; or

(l) any of the Operative Agreements shall at any time, for any reason,
cease to be in full force and effect or shall be declared to be null and
void in whole or in any material part by the final judgment (which is non-
appealable or has not been stayed pending appeal or as to which all rights
to appeal have expired or been exhausted) of any court or other
governmental or regulatory authority having jurisdiction in respect
thereof, or if the validity or the enforceability of any of the Operative
Agreements shall be contested by or on behalf of either Obligor, the
General Partner, the general partner of Star Gas, the Public Partnership or
any Restricted Subsidiary, or either Obligor, the 

D-48

General Partner, the general partner of Star Gas, the Public Partnership or
any Restricted Subsidiary shall renounce any of the Operative Agreements,
or deny that it is bound by the terms of any of the Operative Agreements;
or

(m) any order, judgement or decree is entered in any proceedings
against an Obligor decreeing a split-up of such Obligor which requires the
divestiture of assets of such Obligor or the divestiture of the stock of a
Restricted Subsidiary which would not be permitted if such divestiture were
considered a partial disposition of assets pursuant to Section 10.7(c) and
such order, judgment or decree shall not be dismissed or execution thereon
stayed pending appeal within 30 days after entry thereof, or, in the event
of such a stay, such order, judgment or decree shall not be discharged
within 30 days after such stay expires; or

(n) there shall occur at any time a change in Legal Requirements
specifically applicable to either Obligor or to the Business or to the
business of the wholesale and retail sale, distribution and storage of
propane gas and related petroleum derivative products and the related
retail sale of supplies and equipment, including home appliances which
would have a Material Adverse Effect (other than on the prospects
(financial or otherwise) of the Obligors or the Business) and 60 days after
the earlier of (i) such occurrence shall first have become known to any
officer of either Obligor or the general partner of Star Gas or (ii)
written notice thereof shall have been received by either Obligor or the
general partner of Star Gas from any holder of any Note, such Material
Adverse Effect shall be continuing; or

(o) any Lien purported to be created by any Security Document shall
cease to be, or shall for any reason be asserted by either Obligor, the
general partner of Star Gas or any Restricted Subsidiary not to be, a
valid, perfected, first priority Lien on the securities, properties or
assets covered thereby, other than as a result of an act or omission of the
Trustee or any holder of a Note; or

(p) any governmental authority revokes or fails to renew any material
license, permit or franchise of either Obligor or any Restricted
Subsidiary, or either Obligor or any Restricted Subsidiary for any reason
loses any material license, permit or franchise, or either Obligor or any
Restricted Subsidiary suffers the imposition of any restraining order,
escrow, suspension or impound of funds in connection with any proceeding,
(judicial or administrative) with respect to any material license, permit
or franchise;

then, (x) upon the occurrence of any Event of Default described in subdivision
(g) or (h) of this Section 11, the unpaid principal amount of and accrued
interest on the Notes shall automatically become due and payable, or, (y) upon
the occurrence and continuance of any other Event of Default, any holder or
holders of 50% or more in principal amount of the Notes at the time outstanding,
may at any time (unless all defaults shall theretofore have been remedied in
accordance with the terms hereof) at its or their option, by written notice or
notices to either Obligor, declare all the Notes to be due and payable,
whereupon the same shall forthwith mature and become due and payable, together
with interest accrued thereon and, to the extent permitted

D-49

by applicable law, the applicable Make Whole Amount, if any, with respect to
such Notes, all without presentment, demand, protest or further notice, which
are hereby waived, provided that during the existence of an Event of Default
described in subdivision (a) or (b) (insofar as it relates to interest on any
Note) of this Section 11, any holder of the Notes at the time outstanding may,
at its option, by notice in writing to either Obligor, declare the Notes then
held by such holder to be due and payable, whereupon the Notes then held by such
holder shall forthwith mature and become due and payable, together with interest
accrued thereon and, to the extent permitted by applicable law, the applicable
Make Whole Amount, if any, with respect to such Notes.

At any time after the principal of, and interest accrued on, all the Notes
are declared due and payable, the Required Holders, by written notice to the
Obligors, may rescind and annul any such declaration and its consequences (other
than in respect of any Note which has been individually accelerated pursuant to
the proviso contained in the immediately preceding paragraph) if (x) the
Obligors have paid all overdue interest on the Notes, the principal of and Make
Whole Amount, if any, on any such Notes which have become due otherwise than by
reason of such declaration, and interest on such overdue principal and the
applicable Make Whole Amount, if any, and (to the extent permitted by applicable
law) overdue interest, at a rate per annum equal to the rate of interest stated
on the face of such Notes plus 2.0%, (y) all Events of Default, other than
nonpayment of amounts which have become due solely by reason of such
declaration, and all conditions and events which constitute Events of Default or
Potential Events of Default have been cured or waived, and (z) no judgment or
decree has been entered for the payment of any monies due pursuant to the Notes
or this Agreement; but no such rescission and annulment shall extend to or
affect any subsequent Event of Default or Potential Event of Default or impair
any right consequent thereon.

Section 12. Remedies on Default; Recourse, Etc.

In case any one or more Events of Default or Potential Events of Default
shall occur and be continuing, (a) the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in such Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise, and (b) the Trustee and the holders of the Notes may exercise any
rights or remedies in their respective capacities under the Security Documents
in accordance with the provisions thereof.  In case of a default in the payment
or performance of any provision hereof or of the Notes or of the Security
Documents, the Obligors will pay to the holder of each Note such further amount
as shall be sufficient to cover the cost and expenses of collection, including,
without limitation, reasonable attorneys' fees, expenses and disbursements, and
any out-of-pocket costs and expenses of any such holder incurred in connection
with analyzing, evaluating, protecting, ascertaining, defending or enforcing any
of its rights as set forth herein or in any of the Security Documents.  No
course of dealing and no delay on the part of any holder of any Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies.  No right, power
or remedy conferred by this Agreement or by any Note upon any 

D-50

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise.

Section 13.    Definitions.

As used herein the following terms have the following respective meanings:

"Acquired Business Entity" means (i) any business entity the capital stock
or assets of which have been acquired substantially as an entirety by Star Gas
by purchase, merger or consolidation, and (ii) any other assets which were
operated as an identifiable business unit, i.e., a branch or division of a
business entity and which have been acquired substantially as an entirety by
Star Gas.

"Administrative Agent" shall mean Fleet National Bank f/k/a BankBoston,
N.A., in its capacity as administrative agent for the Banks under the Bank
Credit Facilities, and its successors in such capacity.

"Affiliate" shall mean as applied to any Person, any other Person directly
or indirectly controlling or controlled by or under common control with such
Person, provided that (a) for purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") as used with respect to any Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether as a general partner or through the ownership
of voting securities or by contract or otherwise, (b) as applied to either
Obligor, the term "Affiliate" shall include Petro, the general partner of Star
Gas and the Public Partnership, and (c) no Purchaser nor any other Person which
is an institution shall be deemed to be an Affiliate of either Obligor solely by
reason of ownership of the Notes or other securities issued in exchange for the
Notes or by reason of having the benefits of any agreements or covenants
contained in this Agreement or other Operative Agreements.

"After Acquired Property" shall have the meaning provided in Section 10.22.

"Aggregate Cost of Unmortgaged Property" shall have the meaning specified
in Section 10.22.

"All Star Gas Mortgages" shall mean those certain deeds of trust and/or
mortgages to be entered into between Star Gas and/or a Restricted Subsidiary and
the Trustee in respect of certain parcels of real property located in Indiana,
Michigan and Ohio acquired by Star Gas from All Star Gas Inc. of Indiana, All
Star Gas Inc. of Michigan and All Star Gas Inc. of Ohio pursuant to that certain
Purchase Agreement dated January 27, 2000.

"Approved Rating Agency" shall mean Standard & Poor's Rating Group, Moody's
Investor Service, Inc., or Fitch Investors Service, Inc.

D-51

Star Gas Propane, L.P.                                           
Star/Petro, Inc.

"Assets" shall mean the assets conveyed to Star Gas pursuant to the
Conveyance Agreements and/or the assets covered by the Security Documents, as
the context may require.

"Available Cash" shall mean with respect to any calendar quarter, (a) the
sum of (i) all cash of Star Gas and the Restricted Subsidiaries on hand at the
end of such quarter (other than Public Partnership Restricted Proceeds) and (ii)
all additional cash of Star Gas and the Restricted Subsidiaries on hand on the
date of determination of Available Cash with respect to such quarter obtained
through available borrowings under the Working Capital Facility made after the
end of such quarter (provided that such borrowings under the Working Capital
Facility shall in no event exceed available borrowings under the Working Capital
Facility as of the end of such quarter), less (b) any cash reserves in such
amounts as the general partner of Star Gas shall determine to be necessary or
appropriate in its reasonable discretion to (A) provide for the proper conduct
of the business of Star Gas and the Restricted Subsidiaries (including, without
limitation, cash reserves for future capital expenditures) or (B) provide funds
for distributions under sections 5.4(a)(i), (ii), and (iii) or 5.4(b)(i) of the
MLP Agreement in respect of any one or more of the next four quarters or (C)
comply with applicable law or any loan agreement (including this Agreement),
mortgage, security agreement, debt instrument or other agreement or obligation
to which Star Gas or any Restricted Subsidiary is a party or its assets are
subject, (including the payment of principal, Make Whole Amount, if applicable,
and interest) of the Obligors in respect of the Notes; provided that Available
Cash shall exclude without duplication (x) in each calendar quarter a reserve
equal to at least 50% of the aggregate amount of all interest payments in
respect of all Indebtedness of Star Gas and the Restricted Subsidiaries upon
which interest is due semiannually or less frequently to be made in the next
quarter (assuming, in the case of Indebtedness incurred under the Bank Credit
Facilities and other Indebtedness bearing interest at fluctuating interest rates
which cannot be determined in advance, that the interest rate in effect on the
last Business Day of the immediately preceding calendar quarter will remain in
effect until such Indebtedness is due to be paid), (y) with respect to any
Indebtedness secured equally and ratably with the Notes of which principal is
payable annually, in the third calendar quarter immediately preceding each
calendar quarter in which any scheduled principal payment is due with respect to
such Notes and other Indebtedness (a "principal payment quarter"), a reserve
equal to at least 25% of the aggregate amount of all principal to be paid in
respect of such Notes and other such Indebtedness secured equally and ratably
with the Notes in such principal payment quarter; in the second calendar quarter
immediately preceding a principal payment quarter, a reserve equal to at least
50% of the aggregate amount of all principal to be paid in respect of such Notes
and other such Indebtedness in such principal payment quarter; and in the
calendar quarter immediately preceding a principal payment quarter, a reserve
equal to at least 75% of the aggregate amount of all principal to be paid in
respect of such Notes and other such Indebtedness in such principal payment
quarter, and (z) with respect to the Notes and any other Indebtedness secured
equally and ratably with the Notes of which principal is payable semiannually,
in each calendar quarter which immediately precedes a quarter in which principal
is payable in respect of such Notes and such Indebtedness a reserve equal to at
least 50% of the aggregate amount of all principal to be paid in respect of such
Notes and other such Indebtedness in the next quarter; provided further that the
amount of such reserve specified in clauses (x), (y) and (z) of this definition
for principal amounts to be paid shall be reduced by the aggregate

D-52

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

principal amount of all binding, irrevocable letters of credit established to
refinance such principal amounts.

"Bank Credit Facilities" shall mean that Credit Agreement, dated as of
December 13, 1995, among Star Gas, Fleet National Bank f/k/a Bank Boston, N.A.,
as administrative agent, Bank of America, N.A. as successor to NationsBank,
N.A., as documentation agent and the lenders named therein as amended by the
First Amendment dated as of May 31, 1996, the Second Amendment dated as of
October 21, 1997, the Third Amendment dated as of April 15, 1998, the Fourth
Amendment dated as of November 3, 1998, the Fifth Amendment dated as of January
22, 1999, the Sixth Amendment dated as of March 25, 1999, the Seventh Amendment
dated as of June 18, 1999, the Eighth Amendment dated as of June 30, 2000, the
Ninth Amendment dated as of September 29, 2000 and the Tenth Amendment dated as
of November 27, 2000, and any extension, renewal, refunding, or replacement
thereof otherwise permitted to be incurred and outstanding under Section
10.1(e), pursuant to which the Initial Acquisition Facility and the Working
Capital Facility will be made available to Star Gas.

"Bankruptcy Law" shall have the meaning specified in Section 11(g).

"Banks" shall mean the financial institutions listed in the signature pages
of the Bank Credit Facilities, each assignee which becomes a lender under the
Bank Credit Facilities pursuant to the terms thereof and their respective
successors.

"Business" shall mean the operation by Star Gas and its Subsidiaries of the
wholesale and retail sale, distribution and storage of propane gas and related
petroleum derivative products and the related retail sale of supplies and
equipment, including home appliances.

"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which commercial banks in New York City are required or authorized by law to
be closed.

"Called Principal" shall mean with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 9.2, 9.3 or 9.4 or becomes
or is declared to be immediately due and payable pursuant to Section 11, as the
context requires.

"Capital Contribution" shall mean the net cash proceeds received by Star
Gas from the general partner of Star Gas or from the Public Partnership as a
capital contribution or as consideration for the issuance by Star Gas of
additional partnership interests, in each case for the sole purpose of financing
the expenditures referred to in Section 10.1(b).

"Capital Lease" shall mean as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person (as lessee or
guarantor or other surety) which would, in accordance with GAAP, be required to
be classified and accounted for as a capital lease on a balance sheet of such
Person.

D-53

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

"Cash Collateral Agreement" shall mean the Cash Collateral Agreement dated
as of December 13, 1995, between Star Gas and the Administrative Agent, as
amended from time to time.

"CERCLA" shall mean the Federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended.

"Closing" shall have the meaning specified in Section 3.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.

"Commodity Hedging Agreement(s)" shall mean any agreement or arrangement
designed solely to protect Star Gas against fluctuations in the price of propane
with respect to quantities of propane that Star Gas reasonably expects to
purchase from suppliers, sell to its customers or need for its inventory during
the period covered by such agreement or arrangement.

"Common Units" shall have the meaning provided for in the MLP Agreement.

"Consolidated Cash Flow" shall mean, at any date of determination, for the
period of four consecutive fiscal quarters most recently completed at least 45
days (except that in connection with any calculation required pursuant to
Section 10.4, for the period of four consecutive fiscal quarters most recently
completed) prior to such date of determination,

(a)  the sum of, without duplication, the amounts for such period,
taken as a single accounting period, (i) Consolidated Net Income and (ii)
all amounts deducted in arriving at such Consolidated Net Income in respect
of (1) interest charges (including amortization of debt discount and
expense and imputed interest on Capital Lease obligations), (2) provisions
for all taxes and reserves (including, reserves for deferred income taxes)
and (3) non-cash items, less

(b)  without duplication, any cash items added in the determination of
such Consolidated Net Income for such period.

Consolidated Cash Flow shall be calculated after giving effect, on a pro forma
basis for the four consecutive fiscal quarters most recently completed at least
45 days (except that in connection with any calculation required pursuant to
Section 10.4, for the period of four consecutive fiscal quarters most recently
completed) prior to such date of determination to, without duplication, any
asset sales or asset acquisitions (including, without limitation, any asset
acquisition giving rise to the need to make such calculation as a result of Star
Gas or any Restricted Subsidiary (including any Person who becomes a Restricted
Subsidiary as a result of such asset acquisition) incurring, assuming or
otherwise being liable for acquired Indebtedness) occurring during the period
commencing on the first day of such four fiscal quarter period to and including
the date of determination (the "Reference Period"), as if such asset sale or
asset acquisition occurred on the first day of the Reference Period; provided,
that Consolidated Cash Flow generated by an acquired business or asset shall be
determined for the four full fiscal quarters preceding the date

D-54

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

of acquisition of such business or asset, on the basis of, without duplication,
(x) the historical sales volume of the acquired asset less an estimated post-
acquisition loss of sales volume of three percent (3%) minus (y) the actual cost
to Star Gas of the goods sold as determined for the volume determined in clause
(x) above minus (z) the pro forma expenses that would have been incurred by Star
Gas in the operation of such acquired business or asset during such period
computed on the basis of personnel expenses for employees retained or to be
retained by Star Gas in the operation of such acquired business or asset and 
non-personnel costs and expenses incurred by Star Gas or the general partner of
Star Gas in the operation of Star Gas's business at similarly situated Star Gas
facilities or Restricted Subsidiary facilities.

"Consolidated Interest Expense" shall mean, as of any date of
determination, the total amount payable by Star Gas and the Restricted
Subsidiaries on a consolidated basis, during the period of four consecutive
fiscal quarters most recently completed at least 45 days (except that in
connection with any calculation required pursuant to Section 10.4, during the
period of four consecutive fiscal quarters most recently completed) prior to
such date of determination, in respect of all interest charges (including
amortization of debt discount and expense and imputed interest on actual
payments under Capital Lease obligations) with respect to Indebtedness of Star
Gas and the Restricted Subsidiaries outstanding during such period of four
consecutive fiscal quarters.

"Consolidated Net Income" shall mean, with reference to any period, the net
income (or deficit) of Star Gas and its Restricted Subsidiaries for such period
(taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves (including reserves for deferred income
taxes) and all other proper deductions, all determined in accordance with GAAP
on a consolidated basis, after eliminating all intercompany transactions and
after deducting portions of income properly attributable to minority interests,
if any, in the stock and surplus of Restricted Subsidiaries, provided that there
shall be excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated with
Star Gas or a Restricted Subsidiary, (b) the income (or deficit) of any Person
(other than a Restricted Subsidiary) in which Star Gas or any Restricted
Subsidiary has an ownership interest, except to the extent that any such income
has been actually received by Star Gas or such Restricted Subsidiary in the form
of dividends (but subject to the limitations specified in the proviso below),
(c) the undistributed earnings of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary is not at the time permitted by the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary, (d) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such period,
(e) any aggregate net gain (but not any aggregate net loss) during such period
arising from the sale, exchange or other disposition of capital assets (such
terms to include all fixed assets, whether tangible or intangible, all Inventory
sold in conjunction with the disposition of fixed assets, and all securities),
(f) any write-up of any asset, (g) any net gain from the collection of the
proceeds of life insurance policies, (h) any gain arising from the acquisition
of any securities, or the extinguishment, under GAAP, of any Indebtedness, of
Star Gas or any Restricted Subsidiary, (i) any net income or gain (but not any
net loss) during such period from any change in

D-55

Star Gas Propane, L.P.                                           
Star/Petro, Inc.

accounting, from any discontinued operations or the disposition thereof, from
any extraordinary events or from any prior period adjustments, (j) any deferred
credit representing the excess equity in any Restricted Subsidiary at the date
of acquisition over the cost of the investment in such Restricted Subsidiary,
and (k) in the case of a successor to Star Gas by consolidation or merger or as
a transferee of its assets, any earnings of the successor corporation prior to
such consolidation, merger or transfer of assets; provided, further, that
notwithstanding clause (b) above, there shall be excluded in any event the
income (or deficit) of Petro Holdings, whether or not any amounts are actually
received by Star Gas or any Restricted Subsidiary from or through Petro Holdings
in the form of dividends or otherwise.

"Consolidated Net Worth" shall mean, as to Star Gas, the amount by which

(a)  the total assets of Star Gas and the Restricted Subsidiaries
appearing on a consolidated balance sheet of Star Gas and the Restricted
Subsidiaries prepared in accordance with GAAP as of the date of
determination (after eliminating all amounts properly attributable to
minority interests in the stock and surplus, if any, of the Restricted
Subsidiaries) exceeds

(b) total liabilities of Star Gas and the Restricted Subsidiaries
appearing on a consolidated balance sheet of Star Gas and the Restricted
Subsidiaries prepared in accordance with GAAP as of the date of
determination on a consolidated basis,

in each case after eliminating all intercompany transactions, and as to any
other Person, the amount by which

(i)  the total assets of such Person and its Subsidiaries appearing on
a consolidated balance sheet of such Person and its Subsidiaries prepared
in accordance with GAAP as of the date of determination (after eliminating
all amounts properly attributable to minority interests in the stock and
surplus, if any, of its Subsidiaries) exceeds

(ii) total liabilities of such Person and its Subsidiaries appearing
on a consolidated balance sheet of such Person and its Subsidiaries
prepared in accordance with GAAP as of the date of determination on a
consolidated basis,

in each case after eliminating all intercompany transactions.

"Consolidated Pro Forma Debt Service" shall mean as of any date of
determination, the total amount payable by Star Gas and the Restricted
Subsidiaries on a consolidated basis, during the four consecutive calendar
quarters next succeeding the date of determination, in respect of scheduled
principal payments and all interest charges (excluding amortization of debt
discount and expense) with respect to Indebtedness of Star Gas and the
Restricted Subsidiaries outstanding on such date of determination, after giving
effect to any Indebtedness proposed to be incurred on such date and to the
substantially concurrent repayment of any other Indebtedness, and (a) including
actual payments under Capital Lease obligations, (b) assuming, in the case of

D-56

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

Indebtedness (other than Indebtedness incurred under the Bank Credit Facilities)
bearing interest at fluctuating interest rates which cannot be determined in
advance, that the rate in effect on such date will remain in effect throughout
such period, (c) assuming in the case of Indebtedness incurred under the Bank
Credit Facilities, that (1) the interest payments payable during such four
consecutive calendar quarters next succeeding the date of determination will
equal the actual interest payments associated with the Bank Credit Facilities
during the most recent four fiscal quarters, (2) except for the twelve-month
period immediately prior to the termination or final maturity thereof (unless
extended, renewed or replaced), no principal payments will be made under the
Working Capital Facility and (3) principal payments relating to the Initial
Acquisition Facility will become due based on the assumption that the conversion
to the fixed amortization schedule pursuant to sections 2.01(c) and 2.02(g) of
the Bank Credit Facilities, (d) treating the principal amount of all
Indebtedness outstanding as of such date of determination under a revolving
credit or similar agreement (other than the Bank Credit Facilities as maturing
and becoming due and payable on the scheduled maturity date or dates thereof
(including, the maturity of any payment required by any commitment reduction or
similar amortization provision), without regard to any provision permitting such
maturity to be extended, (e) including any other designated debt repayments due
within twelve months from such date of determination and (f) excluding principal
and interest payments in connection with Star/Petro Intercompany Subordinated
Debt.

"Conveyance Agreements" shall mean (a) the Contribution, Conveyance and
Assumption Agreement, dated as of December 20, 1995, among Star Gas Corporation,
Star Gas, Star Gas Partners, L.P., Stellar Propane Services Corp., Star Gas
Silgas of Illinois, Inc. and Silgas Inc. and (b) each of the individual
conveyances, assignments and bills of sale delivered to Star Gas pursuant to the
Contribution, Conveyance and Assumption Agreement referred to in the foregoing
clause (a).

"Current Value" shall have the meaning provided for in Section 10.22.

"Discounted Value" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on a semi-annual
basis) equal to the Reinvestment Yield plus 50 basis points with respect to such
Called Principal.

"Documentation Agent" shall mean Bank of America, N.A. as successor to
NationsBank, N.A., in its capacity as documentation agent for the Banks under
the Bank Credit Facilities, and its successors in such capacity.

"Dollar" and sign "$" shall mean lawful money of the United States of
America.

"EBITDA" shall mean for any period the net income of an Acquired Business
Entity, plus (to the extent deducted in determining such net income) the sum of
(i) all interest and income tax expense of such Acquired Business Entity during
such period, and (ii) all

D-57

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

depreciation and amortization expense of such Acquired Business Entity during
such period, all such items of income and expense being calculated in accordance
with GAAP.

"Environmental Laws" shall mean applicable Federal, state, local and
foreign laws, rules or regulations relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment (including, without
limitation, air, surface water, ground water or land), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

"Event of Default" shall have the meaning specified in Section 11.

"Excess Proceeds" shall have the meaning specified in Section 10.7(c).

"Existing Unmortgaged Property" shave have the meaning specified in Section
10.22.

"Funded Debt" shall mean, as applied to any Person, all Indebtedness of
such Person which by its terms or by the terms of any instrument or agreement
relating thereto matures more than one year from the date of the initial
creation thereof, provided that Funded Debt shall include any Indebtedness which
does not otherwise come within the foregoing definition but which is directly or
indirectly renewable or extendible at the option of the debtor to a date one
year or more (including an option of the debtor under a revolving credit or
similar agreement obligating the lender or lenders to extend credit over a
period of one year or more) from the date of the initial creation thereof,
provided further that, in the case of Star Gas, Funded Debt shall not include
any Indebtedness under the Working Capital Facility.

"GAAP" shall mean generally accepted accounting principles in effect in the
United States from time to time.

"General Partner" shall mean Star Gas LLC, a Delaware limited liability
company.

"General Partner Guarantee Agreement" shall mean the General Partner
Guarantee Agreement between the General Partner and the Trustee, dated as of
March 25, 1999, as amended from time to time.

"General Partner of Star Gas" shall mean the General Partner, so long as it
holds a general partner interest in Star Gas, and any successor to such interest
or any part thereof, so long as such successor shall hold such interest or part
thereof.

"Guaranty" shall mean, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other

D-58

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business) or discounted or sold with recourse
by such Person, or in respect of which such Person is otherwise directly or
indirectly liable or any other obligation under any contract which, in economic
effect, is substantially equivalent to a guaranty, including, without
limitation, any such obligation of a partnership in which such Person is a
general partner or of a joint venture in which such Person is a joint venturer,
and any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or nonfurnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof.

"Hazardous Materials" shall mean any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos or asbestos-containing materials,
pollutants, contaminants, radioactivity, and any other materials or substances
of any kind, whether or not any such substance is defined as hazardous under any
Environmental Law, that is regulated pursuant to any Environmental Law or that
could give rise to liability under any Environmental Law.

"Indebtedness" shall mean as applied to any Person (without duplication):

(a)  any indebtedness for borrowed money which such Person has
directly or indirectly created, incurred or assumed;

(b)  any indebtedness, whether or not for borrowed money, with respect
to which such Person has become directly or indirectly liable and which
represents the deferred purchase price (or a portion thereof) or has been
incurred to finance the purchase price (or a portion thereof) of any
property or service or business acquired by such Person, whether by
purchase, consolidation, merger or otherwise;

(c)  all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with
the acquisition or property, assets or businesses;

(d)  all indebtedness created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either case
with respect to property acquired by the Person (even though the rights and
remedies of the seller or bank under such agreement in the event of default
are limited to repossession or sale of such property);

D-59

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

(e)  any obligations under Capital Leases to the extent such
obligations would, in accordance with GAAP, appear on a balance sheet of
such Person;

(f)  any indebtedness, whether or not for borrowed money, secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien in respect of property
owned by such Person, whether or not such Person has assumed or become
liable for the payment of such indebtedness, provided that the amount of
such Indebtedness if not so assumed shall in no event be deemed to be
greater than the fair market value from time to time (as determined in good
faith by such Person) of the property subject to such Lien;

(g)  all redeemable capital stock of such Person valued at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued
dividends;

(h)  any preferred stock of any Subsidiary of such Person valued at
the sum of the liquidation preference thereof or any mandatory redemption
payment obligations in respect thereof plus, in either case, accrued
dividends thereon;

(i)  any indebtedness of the character referred to in clause (a)
through (h) of this definition deemed to be extinguished under GAAP but for
which such Person remains legally liable; and

(j)  any indebtedness of any other Person of the character referred to
in clause (a) through (i) of this definition with respect to which the
Person whose Indebtedness is being determined has become liable by way of a
Guaranty.

Notwithstanding the foregoing, in determining the Indebtedness of Star Gas and
the Restricted Subsidiaries, there shall be excluded all undrawn letters of
credit (not yet due and payable), trade accounts payable, accrued interest and
other accrued expenses and customer credit balances arising in the ordinary
course of business on ordinary terms.

"Initial Acquisition Facility" shall mean that Initial Acquisition Facility
under the Bank Credit Facilities which shall permit borrowings thereunder in an
aggregate amount of up to $25,000,000 (not including any Refinanced Acquisition
Debt) and which shall be secured by the Mortgaged Property pursuant to the
Security Documents, and any extension, renewal, refunding or replacement
thereof, provided that the aggregate amount that may be outstanding pursuant
thereto shall not exceed $25,000,000 (not including any Refinanced Acquisition
Debt).

"Intercompany Notes" shall mean any and all promissory notes of a
Restricted Subsidiary issued to Star Gas or to another Restricted Subsidiary, in
the form attached as Exhibit C hereto or such other form as may be satisfactory
to the Required Holders, representing all Indebtedness of such Restricted
Subsidiary to Star Gas or such other Restricted Subsidiary, as the case may be.

D-60

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

"Interest Rate Agreement" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed solely to protect Star Gas against
fluctuations in interest rates on Indebtedness outstanding under the Bank Credit
Facilities entered into with one or more of the banks party to the Bank Credit
Facilities.

"Inventory" shall mean goods held by a Person for sale or lease or to be
furnished under contracts of service or if such Person has so furnished them, or
if they are raw materials, work in process or materials used or consumed in the
Business (but not goods which are, or may become, fixed assets, or which have a
relatively long period of use).

"Investment" shall mean, as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of any
other Person, or any direct or indirect loan, advance or capital contribution by
such Person to any other Person, and any other item which would be classified as
an "investment" on a balance sheet of such Person prepared in accordance with
GAAP, including, without limitation, any direct or indirect contribution by such
Person of property or assets to a joint venture, partnership or other business
entity in which such Person retains an interest.  For the purposes of Section
10.3(b), the amount involved in Investments made during any period shall be the
aggregate cost to Star Gas of all such Investments made during such 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 such
investments and without regard to the existence of any undistributed earnings or
accrued interest with respect thereto accrued after the respective dates on
which such Investments were made, less any net return of capital realized during
such period upon the sale, repayment or other liquidation of such Investment
(determined in accordance with GAAP, but without regard to any amounts received
during such period as earnings (in the form of dividends not constituting a
return of capital, interest or otherwise) on such Investment) or as loans from
any Person in whom such Investments have been made.

"Investment Grade" shall mean, in any case, the lowest of (a) in the case
of a rating conducted by Standard & Poor's Ratings Group, a rating of at least
BBB- or PPR2-, (b) in the case of a rating conducted by Duff and Phelps Credit
Rating Co. or Fitch Investors Service, Inc., a rating of at least BBB- or (c) in
the case of a rating conducted by Moody's Investor Service, Inc., a rating of at
least Baa3.

"Legal Requirement" shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule or regulation (or published official
interpretation by any governmental authority of any of the foregoing) of any
governmental authority.

"Lien" shall mean, as to any Person, any mortgage, lien (statutory or
otherwise), pledge, reservation, right of entry, encroachment, easement, right
of way, restrictive covenant, license, charge, security interest or other
encumbrance in or on, or any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional sale or other
title retention agreement or Capital Lease with respect to, any property or
asset owned or held by such Person, or the signing or filing of a financing
statement with respect to any of the foregoing

D-61

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

which names such Person as debtor, or the signing of any security agreement with
respect to any of the foregoing authorizing any other party as the secured party
thereunder to file any financing statement or any other agreement to give or
grant any of the foregoing. For the purposes of this Agreement, a Person shall
be deemed to be the owner of any asset which it has placed in trust for the
benefit of the holders of Indebtedness of such Person and such trust shall be
deemed to be a Lien if such Person remains legally liable therefor,
notwithstanding that such Indebtedness is or may be deemed to be extinguished
under GAAP.

"Lockbox Agreements" shall mean any and all agreements among any bank, in
its capacity as the depository bank, Star Gas or a Restricted Subsidiary and the
Trustee in substantially the form attached hereto as Exhibit Q to the 1995 Note
Agreements, as amended from time to time.

"Make Whole Amount" shall mean with respect to any Note, an amount equal to
the excess, if any, of the Discounted Value of the Remaining Scheduled Payments
of the Called Principal of such Note over such Called Principal.  The Make Whole
Amount shall in no event be less than zero.

"Material Adverse Effect" shall mean a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or prospects
(financial or otherwise) of the Obligors or the Business, (b) the ability of
either Obligor, the General Partner or any Restricted Subsidiary to perform its
obligations under this Agreement or any other Operative Agreement or (c) the
validity, enforceability, perfection or priority of this Agreement or any other
Operative Agreement or of the rights or remedies of the holder of any Notes or
the Trustee.

"Maximum Consolidated Pro Forma Debt Service" shall mean, as of any date of
determination, the highest total amount payable by Star Gas and the Restricted
Subsidiaries on a consolidated basis, during any period of four consecutive
fiscal quarters, commencing with the fiscal quarter in which such date of
determination occurs and ending on the latest maturity date of the Notes, in
respect of scheduled principal payments and all interest charges with respect to
all Indebtedness of Star Gas and the Restricted Subsidiaries outstanding or to
be outstanding, after giving effect to any Indebtedness proposed to be incurred
on such date and to the substantially concurrent repayment of any other
Indebtedness, and (a) including actual payments under Capital Lease obligations,
(b) assuming, in the case of Indebtedness (other than Indebtedness incurred
under the Bank Credit Facilities) bearing interest at fluctuating interest rates
which cannot be determined in advance, that the rate in effect on such date will
remain in effect throughout such period, (c) assuming in the case of
Indebtedness incurred under the Bank Credit Facilities, that (1) the interest
payments payable during such four consecutive calendar quarters next succeeding
the date of determination will equal the actual interest payments associated
with the Bank Credit Facilities during the most recent four fiscal quarters, (2)
except for the twelve-month period immediately prior to the termination or final
maturity thereof (unless extended or renewed) no principal payments will be made
under the Working Capital Facility and (3) principal payments relating to the
Initial Acquisition Facility will become due based on the assumption that the
conversion to the fixed amortization schedule pursuant to section 2.01(c) and
2.02(g) of the Bank Credit Facilities, (d) treating the principal amount of all

D-62

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

Indebtedness outstanding as of such date of determination under a revolving
credit or similar agreement (other than the Bank Credit Facilities) as maturing
and becoming due and payable on the scheduled maturity date or dates thereof
(including the maturity of any payment required by any commitment reduction or
similar amortization provision), without regard to any provision permitting such
maturity date to be extended, (e) including any other designated debt repayments
due within twelve months from such date of determination and (f) excluding
principal and interest payments in connection with Star/Petro Intercompany
Subordinated Debt.

"maximum permitted amount" shall have the meaning specified in Section
10.30.

"MLP Agreement" shall mean the Agreement of Limited Partnership of Star Gas
Partners, L.P., dated as of December 20, 1995, as amended from time to time.

"Mortgage(s)" shall mean the separate mortgage, security agreement and
fixture filings among Star Gas, Star Gas LLC as successor to Petroleum Heat and
Power Co., Inc. and Star Gas Corporation and the Trustee, substantially in the
form of Exhibit D1 to the 1995 Note Agreements, and the All Star Gas Mortgages,
each as amended from time to time.

"Mortgaged Property" shall mean collectively, the properties referred to as
the "Mortgaged Property" in the Mortgages or as the "Collateral" under the
Obligor Security Agreement and as the "Security" in the Trust Agreement.

"Multiemployer Plan" shall mean a Plan which is a "multiemployer plan"
within the meaning of section 4001(a)(3) of ERISA.

"1995 Note Agreements" shall mean the separate Note Agreements, each dated
as of December 13, 1995, among Star Gas, Star Gas LLC as successor to Petroleum
Heat and Power Co., Inc. and Star Gas Corporation and the respective purchasers
listed in the Schedule of Purchasers attached thereto, as amended by the First
Amendment to Note Agreements dated as of May 31, 1996 and the Second Amendment
to Note Agreements dated as of March 25, 1999, as further amended, supplemented,
restated or modified from time to time.

"1995 Notes" shall mean the 8.04% First Mortgage Notes due September 15,
2009 of the Obligors issued pursuant to the 1995 Note Agreements in an original
aggregate principal amount of $85,000,000.

"1998 Note Agreement" shall mean the Note Agreement, dated as of January
22, 1998, between the Obligors and the purchaser listed in the Schedule of
Purchasers attached thereto, as amended by that certain First Amendment to Note
Agreement dated as of March 25, 1999, and as further amended, supplemented,
restated or modified from time to time.

"1998 Notes" shall mean the 7.17% First Mortgage Notes due September 15,
2010 of the Obligors issued pursuant to the 1998 Note Agreement in an original
aggregate principal amount of $11,000,000.

D-63

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

"Non-Related Subsidiaries" shall mean Subsidiaries of Petro other than any
such Subsidiary which is a Related Person.

"Notes" shall have the meaning specified in Section 1.

"Obligor Security Agreement" shall mean the Pledge and Security Agreement,
dated as of December 13, 1995, among Star Gas, Star Gas LLC as successor to
Petroleum Heat and Power Co., Inc. and Star Gas Corporation, the Restricted
Subsidiaries named therein and the Trustee, as amended from time to time.

"Obligors" shall have the meaning specified in the Introduction.

"Offering Materials" shall have the meaning specified in Section 5.4.

"Officers' Certificate" shall mean as to any corporation, a certificate
executed on its behalf by the Chairman of the Board of Directors (if an officer)
or its President or one of its Vice Presidents and its Treasurer, or Controller,
or one of its Assistant Treasurers or Assistant Controllers, and, as to any
partnership, a certificate executed on behalf of such partnership by its general
partner in a manner which would qualify such certificate as an Officers'
Certificate of such general partner hereunder.

"Operative Agreements" shall mean this Agreement, the Notes, the 2000 Note
Agreement, the 1998 Note Agreement, the 1995 Note Agreements, the Bank Credit
Facilities, the Security Documents, the Intercompany Notes, the Conveyance
Agreements, the MLP Agreement and the Partnership Agreement.

"Parity Debt" shall mean Indebtedness of either Obligor incurred in
accordance with Section 10.1(b), 10.1(e), 10.1(f) or 10.1(i) and secured by the
Lien of the Security Documents in accordance with Section 10.2(h) or 10.2(i).

"Partnership Agreement" shall mean the Agreement of Limited Partnership of
Star Gas, as in effect on the date of the Closing, and as the same may from time
to time be amended, modified or supplemented in accordance with the terms
thereof and Section 10.12 hereof.

"Partners Security Agreement" shall mean the Amended and Restated Pledge
and Security Agreement among the Public Partnership, the General Partner and the
Trustee, dated as of March 25, 1999, as amended from time to time.

"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.

"Perfection Certificate" shall mean a certificate from Star Gas in
substantially the form attached thereto as Exhibit S to the 1995 Note
Agreements.

"Permitted Banks" shall have the meaning specified in Section 10.3(a)(4).

D-64

Star Gas Propane, L.P.                                            
Star/Petro, Inc.

"Permitted Encumbrances" shall mean the encumbrances and exceptions to
title to the Assets described in the Security Documents.

"Permitted Exceptions" shall have the meaning specified in Section 5.8(a).

"Permitted Insurers" shall mean insurers with ratings of A or better
according to Best's Insurance Reports or a comparable rating agency for
insurance companies located outside of the United States and Canada and with
assets of no less than $500 million.

"Person" shall mean a corporation, a firm, a joint venture, an association,
a partnership, a limited liability company, an organization, a business, a trust
or other entity or enterprise, an individual, a government or political
subdivision thereof or a governmental agency, department or instrumentality.

"Petro" shall mean Petroleum Heat and Power Co., Inc., a Minnesota
corporation.

"Petro Holdings" shall mean Petro Holdings, Inc. and its Subsidiaries.

"Petro's Pro Forma Propane Volumes" shall have the meaning specified in
Section 10.30.

"Plan" shall mean an "employee benefit plan" (as defined in section 3(3) of
ERISA) subject to Title IV of ERISA which is or has been established or
maintained, or to which contributions are or have been made, by the General
Partner, either Obligor or any Related Person or to which the General Partner,
either Obligor or any Related Person is or has been obligated to contribute, or
an employee benefit plan as to which the General Partner, either Obligor or any
Related Person could be treated as a contributory sponsor under section 4069 or
section 4212 of ERISA if such plan were terminated.

"Potential Event of Default" shall mean any condition or event which, with
notice or lapse of time or both, would become an Event of Default.

"Public Partnership" shall mean Star Gas Partners, L.P., a Delaware limited
partnership.

"Public Partnership Restricted Proceeds" shall mean all proceeds of (a)
borrowings by Star/Petro from the Public Partnership and (b) capital
contributions or equity investments indirectly made by the Public Partnership in
Star/Petro, which proceeds, upon receipt thereof, are designated  for investment
by Star/Petro in Petro Holdings.

"Purchase Money Lien" shall have the meaning specified in Section 10.2(j).

"Purchasers" shall have the meaning set forth in the Introduction.

"QPAM Exemption" shall have the meaning specified in Section 6.2(c).

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Star Gas Propane, L.P.                                            
Star/Petro, Inc.

"RCRA" shall mean the Federal Resource Conservation and Recovery Act, as
amended.

"Refinanced Acquisition Debt" shall mean any Indebtedness originally
incurred under the Initial Acquisition Facility which has been refinanced
pursuant to Section 10.1(i).

"Reinvestment Yield" shall mean with respect to the Called Principal of any
Note, the yield to maturity implied by (a) the yields reported, as of 10:00 a.m.
(New York City time) on the Business Day next preceding the Settlement Date with
respect to such Called Principal, on the display designated as "Page PX-1" on
the Bloomberg Financial Market Screen (or such other display as may replace Page
PX-1 on the Bloomberg Financial Market Screen) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or if such yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
(b) the Treasury constant maturity series yields reported, for the latest day
for which such yields shall have been so reported as of the Business Day next
preceding the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15(519) (or any comparable successor publication)
for actively traded U.S. Treasury securities having a constant maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, if necessary, by (i) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with accepted
financial practice and (ii) interpolating linearly between yields reported to
various maturities.

"Related Person" shall mean any trade or business, whether or not
incorporated, which, as of any date of determination, would be treated as a
single employer together with the General Partner or either Obligor under
section 414 of the Code.

"Remaining Average Life" shall mean with respect to the Called Principal of
any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (a) such Called Principal into (b) the sum of the products
obtained by multiplying (i) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (ii) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.

"Remaining Scheduled Payments" shall mean with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that if such Settlement Date is not a date on which
interest payments are due to be made under the terms of the Notes, then the
amount of the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Sections 9 or 11.

"Required Holders" shall mean the holders of at least 66-2/3% principal
amount of the Notes at the time outstanding.

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Star Gas Propane, L.P.                                            
Star/Petro, Inc.

"Responsible Officer" shall mean the President, any Vice President, the
Chief Financial Officer, the Treasurer and the Secretary of the general partner
of Star Gas or Star/Petro, as the case may be, and any other officer of the
general partner of Star Gas or Star/Petro, as the case may be, who is
responsible for compliance with or performance of any obligation under this
Agreement or the other Operative Agreements and any employee of Star Gas or
Star/Petro or any employee or officer of Petro performing any of the above
functions.

"Restricted Payment" shall mean as to any Person, (a) any payment, dividend
or other distribution, direct or indirect, in respect of any partnership
interest (general or limited) or membership interest in, or on account of any
shares of any class of stock of, such Person, except a distribution payable
solely in additional partnership interests or membership interests in, or shares
of stock of, such Person, and (b) any payment, direct or indirect, on account of
the redemption, retirement, purchase or other acquisition of any partnership
interest or membership interest in, or any shares of any class of stock of, such
Person now or hereafter outstanding or of any warrants, rights or options to
acquire any such shares, except to the extent that the consideration therefor
consists of shares of stock of such Person.

"Restricted Subsidiary" shall mean any Wholly-Owned Subsidiary of Star Gas
(a) organized under the laws of the United States or any state thereof or the
District of Columbia, (b) none of the capital stock or ownership interests of
which is owned by Unrestricted Subsidiaries, (c) substantially all of the
operating assets of which are located in, and substantially all of the business
of which is conducted within the United States and which business consists of
the wholesale and retail sale, distribution and storage of propane gas and
related petroleum derivative products and/or the related retail sale of supplies
and equipment, including home appliances, and (d) designated by Star Gas as a
Restricted Subsidiary in Schedule 13 or at a subsequent date; provided, however,
that (i) to the extent a newly formed or acquired Wholly-Owned Subsidiary
satisfying the requirements of the foregoing clauses (a), (b) and (c) is not
declared either a Restricted Subsidiary or an Unrestricted Subsidiary within 90
days of its formation or acquisition, such Wholly-Owned Subsidiary shall be
deemed a Restricted Subsidiary and (ii) a Restricted Subsidiary may be
designated as an Unrestricted Subsidiary in accordance with the provisions of
Section 10.19(a).

"Security Documents" shall mean the Trust Agreement, the Mortgage(s), the
Obligor Security Agreement, the General Partner Guarantee Agreement, the
Subsidiary Guarantee Agreement, the Partners Security Agreement, the Perfection
Certificate, the Lockbox Agreements, the Cash Collateral Agreement, and all
other security agreements and documents and instruments executed and delivered
in order to secure the Indebtedness and/or perfect the Liens referred to in the
Trust Agreement.

"Seller" shall mean, with respect to any Acquired Business Entity, the
Person from whom Star Gas acquires (whether by purchase, merger or
consolidation) such Acquired Business Entity.

"Series A Notes" shall have the meaning specified in Section 1.

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Star Gas Propane, L.P.                                          
Star/Petro, Inc.

"Series B Notes" shall have the meaning specified in Section 1.

"Settlement Date" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 9.2, 9.3 or 9.4 or is declared to be or becomes immediately due and
payable pursuant to Section 11, as the context requires.

"Star Gas" shall have the meaning specified in the Introduction.

"Star/Petro" shall have the meaning specified in the Introduction.

"Star/Petro Intercompany Subordinated Debt" shall mean the borrowing of
Star/Petro from the Public Partnership evidenced by the Star/Petro Intercompany
Subordinated Note.

"Star/Petro Intercompany Subordinated Note" shall mean the note evidencing
the Star/Petro Intercompany Subordinated Debt, which shall be fully subordinate
to the prior payment, in full, of the principal, interest and premium, if any,
on the Notes, with the terms as specified in the form of Intercompany Note
annexed as Exhibit C hereto, but modified (as set forth more fully in Section
10.4(c) hereof) to permit (i) investments indirectly made by the Public
Partnership, and (ii) interest payments in the event that the ratio of
Consolidated Cash Flow to Consolidated Interest Expense is greater than 2.0 to
1.0.

"Subsidiary" shall mean, as to any Person, any corporation, association,
partnership, joint venture or other business entity at least a majority (by
number of votes) of the stock of any class or classes (or equivalent interests)
of which is at the time owned by such Person or by one or more Subsidiaries of
such Person or by such Person and one or more of its Subsidiaries, if the
holders of the stock of such class or classes (or equivalent interests) (a) are
ordinarily, in the absence of contingencies, entitled to vote for the election
of a majority of the directors (or Persons performing similar functions) of such
business entity, even though the right so to vote has been suspended by the
happening of such a contingency, or (b) are at the time entitled, as such
holders, to vote for the election of the majority of the directors (or Persons
performing similar functions) of such business entity, whether or not the right
so to vote exists by reason of the happening of a contingency.  Unless the
context otherwise requires, any reference to a Subsidiary shall mean a
Subsidiary of Star Gas.

"Subsidiary Guarantee Agreement" shall mean the Guarantee Agreement among
the Restricted Subsidiaries and the Trustee, dated as of December 13, 1995, as
amended from time to time.

"Substantial Portion" shall have the meaning specified in Section 7(a).

"Supplemental Agreement" shall mean an agreement between a Restricted
Subsidiary and the Trustee in the form attached as Exhibit U to the 1995 Note
Agreements, as amended from time to time.

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Star Gas Propane, L.P.                                           
Star/Petro, Inc.

"Trust Agreement" shall mean the Intercreditor and Trust Agreement, dated
as of December 13, 1995, among Star Gas, Star Gas LLC as successor to Petroleum
Heat and Power Co., Inc. and Star Gas Corporation, the Public Partnership, the
Restricted Subsidiaries named therein, the Trustee, the purchasers of the 1995
Notes, the Administrative Agent, the Documentation Agent and the Banks, as
amended from time to time.

"Trustee" shall mean HSBC Bank USA f/k/a Marine Midland Bank, as Trustee
under the Trust Agreement and its successors and assigns thereunder.

"2000 Note Agreement" shall mean the Note Agreement, dated as of March 30,
2000, among the Obligors and the purchasers listed in the Schedule of Purchasers
attached thereto, as amended by the First Amendment to Note Agreement dated as
of September 30, 2000, as further amended, supplemented, restated or modified
from time to time.

"2000 Notes" shall mean the 8.67% First Mortgage Notes, Series A, due March
30, 2012 and the 8.72% First Mortgage Notes, Series B, due March 30, 2015, of
the Obligors issued pursuant to the 2000 Note Agreement in an original aggregate
principal amount of $27,500,000.

"Uniform Commercial Code" shall mean the Uniform Commercial Code or similar
statute in effect from time to time in any jurisdiction.

"Unrestricted Subsidiary" shall mean any Wholly-Owned Subsidiary other than
a Restricted Subsidiary which is organized under the laws of the United States
or any state thereof or the District of Columbia and substantially all of the
operating assets of which are located in, and substantially all of the business
of which is conducted within the United States and which business consists of
the wholesale and retail sale, distribution and storage of propane gas and
related petroleum derivative products and the related retail sale of supplies
and equipment, including home appliances.

"Wholly-Owned" shall mean as applied to any Subsidiary, a Subsidiary all of
the outstanding shares (other than directors' qualifying shares, if required by
law) of every class of stock or other equity interests of which are at the time
owned by Star Gas or by one or more Wholly-Owned Subsidiaries or by Star Gas and
one or more Wholly-Owned Subsidiaries.

"Working Capital Facility" shall mean that Working Capital Facility under
the Bank Credit Facilities which shall permit borrowings thereunder in aggregate
amount outstanding at any time no greater than as permitted by Section
10.1(e)(ii) and which shall be secured by the Mortgaged Property pursuant to the
Security Documents and any extension, renewal, refunding or replacement thereof,
provided that the aggregate amounts that may be outstanding pursuant thereto
shall be permitted by Section 10.1(e)(ii).

Section 14.    Registration, Transfer and Substitution of Notes.

Section 14.1. Note Register; Ownership of Notes. Any Notes issued in
substantially the form of Exhibit A1 or A2 are in "registered form." The
Obligors will keep at the principal office

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of Star Gas a register in which the Obligors will provide for the registration
of Notes in registered form and the registration of transfers of Notes in
registered form. The Obligors may treat the Person in whose name any Note is
registered on such register as the owner thereof for the purpose of receiving
payment of the principal of and the Make Whole Amount, if any, and interest on
such Note and for all other purposes, whether or not such Note shall be overdue,
and the Obligors shall not be affected by any notice to the contrary. All
references in this Agreement or in a Note to a "holder" of any Note shall mean
the Person in whose name such Note is at the time registered on such register.

Section 14.2.  Transfer and Exchange of Notes.  Upon surrender of any
Note for registration of transfer or for exchange to the Obligors at the
principal office of Star Gas, the Obligors at their expense will execute and
deliver in exchange therefor a new Note or Notes of the same series in
denominations of at least $100,000 (except one Note may be issued in a lesser
principal amount if the unpaid principal amount of the surrendered Note is not
evenly divisible by, or is less than, $100,000), as requested by the holder or
transferee, which aggregate the unpaid principal amount of such surrendered
Note. Each such new Note shall be in registered form.  Each such Note shall be
dated so that there will be no loss of interest on such surrendered Note and
otherwise of like tenor, and shall be registered in the name or names of such
Person as such holder or transferee may request.  Any Note in lieu of which any
such new Note has been executed and delivered shall not be deemed to be an
outstanding Note for any purpose of this Agreement.

Section 14.3.  Replacement of Notes.  Upon receipt of evidence
reasonably satisfactory to the Obligors of the loss, theft, destruction or
mutilation of any Note and, in the case of any such loss, theft or destruction
of any Note, upon delivery of an indemnity bond in such reasonable amount as the
Obligors may determine (or, in the case of any Note held by a Purchaser or
another institutional holder or such Purchaser's or other institutional holder's
nominee, of an indemnity agreement from such Purchaser or such other
institutional holder), or, in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Obligors at the principal office
of Star Gas, the Obligors at their expense will execute and deliver, in lieu
thereof, a new Note of the same series in the unpaid principal amount of such
lost, stolen, destroyed or mutilated Note, dated so that there will be no loss
of interest on such Note and otherwise of like tenor.  Any Note in lieu of which
any such new Note has been so executed and delivered by the Obligors shall not
be deemed to be an outstanding Note for any purpose of this Agreement.

Section 14.4.  Notes Held by Obligors Etc., Deemed Not Outstanding.
For the purposes of determining whether the holders of the Notes of the
requisite principal amount at the time outstanding have taken any action
authorized by this Agreement or any other Operative Agreement with respect to
the giving of consents or approvals or with respect to the acceleration upon an
Event of Default, any Notes directly or indirectly owned by either Obligor, the
general partner of Star Gas or any of their respective Affiliates shall be
disregarded and deemed not to be outstanding.

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Section 15.    Payments on Notes.

Section 15.1.  Place of Payment.  Payments of principal, Make Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
at the principal office of the Trustee, in the Borough of Manhattan, the City
and State of New York, unless the Obligors, by written notice to each holder of
any Notes, shall designate the principal office of another bank or trust company
in such Borough as such place of payment, in which case the principal office of
such other bank or trust company shall thereafter be such place of payment.

Section 15.2.  Home Office Payment.  So long as a Purchaser or its
nominee shall be the holder of any Note, and notwithstanding anything contained
in Section 15.1 or in such Note to the contrary, the Obligors will pay all sums
becoming due on such Note for principal, Make Whole Amount, if any, and interest
no later than 12:00 noon (New York City time) and by the method and at the
address specified for such Purchaser for such purpose in Schedule A, or by such
other reasonable method or at such other address as such Purchaser shall have
from time to time specified to the Obligors in writing for such purpose, without
the presentation or surrender of such Note or the making of any notation
thereon, except than any Note paid or prepaid in full shall, after such payment
or prepayment in full, be surrendered to the Obligors at the principal office of
Star Gas or at the place of payment maintained by the Obligors pursuant to
Section 15.1 for cancellation.  Prior to any sale or other disposition of any
Note held by a Purchaser or such Purchaser's nominee such Purchaser will, at its
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Obligors in exchange for a new Note or Notes pursuant to Section 14.2.  The
Obligors will afford the benefits of this Section 15.2 to any institutional
investor which is the direct or indirect transferee of any Note purchased by a
Purchaser under this Agreement and which has made the same agreement relating to
such Note as such Purchaser has made in this Section 15.2.

Section 16.    Expenses, Indemnification, Etc.

(a)  Whether or not the transactions contemplated hereby shall be
consummated, the Obligors will pay all expenses in connection with such
transactions and in connection with any amendments or waivers (whether or not
the same become effective) under or in respect of this Agreement or the other
Operative Agreements, including, without limitation:  (i) the costs and expenses
of preparing and reproducing this Agreement and the other Operative Agreements,
of furnishing all opinions by counsel for the Obligors or the general  partner
of Star Gas (including any opinions requested by the Purchasers' special
counsel, Chapman and Cutler, as to any legal matter arising hereunder) and all
certificates on behalf of the Obligors or the general partner of Star Gas, and
of the Obligors' or the general partner of Star Gas's performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with; (ii) the cost of delivering to each Purchaser's
principal office, insured to such Purchaser's satisfaction, the Notes sold to
such Purchaser hereunder and any Notes delivered to such Purchaser upon any
substitution thereof pursuant to Section 14 and of such Purchaser's delivering
any Notes, insured to such Purchaser's satisfaction, upon any such substitution;
(iii) the fees, expenses and disbursements of the Purchasers' special counsel,
Chapman and 

D-71

Cutler, and the Purchasers' local counsel in connection with such transactions
and any such amendments or waivers; (iv) the costs and expenses, including
attorneys' fees, incurred by any Purchaser or any subsequent holder of a Note in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or any other Operative Agreement including, without limitation, the
Notes or in responding to any subpoena or other legal process in connection with
this Agreement or the transactions contemplated hereby or by reason of any
Purchaser or any subsequent holder of Notes having acquired any Note, including
without limitation, costs and expenses incurred in any bankruptcy case; (v) the
cost and expenses of obtaining a Private Placement Number for each series of the
Notes; and (vi) the reasonable out-of-pocket expenses incurred by any Purchaser
in connection with such transactions and any such amendments or waivers. The
Obligors also will pay, and will save the Purchasers and each other holder of
any Notes harmless from, all claims in respect of the fees, if any, of brokers
and finders (unless engaged by the Purchasers) and any and all liabilities with
respect to any taxes (including interest and penalties) which may be payable in
respect of the execution and delivery hereof, the issue of the Notes hereunder
and any amendment or waiver under or in respect hereof or of the Notes. In
furtherance of the foregoing, on the date of the Closing, the Obligors will pay
the fees and disbursements of the Purchasers' special counsel which are
reflected as unpaid in the statement of Chapman and Cutler, their special
counsel, delivered to Star Gas prior to the date of the Closing; and thereafter
the Obligors will pay, promptly upon receipt of supplemental statements therefor
from time to time, additional fees, if any, and disbursements of the Purchasers'
special counsel in connection with the transactions hereby contemplated
(including unposted disbursements as of the date of the Closing).

(b) The Obligors will protect, indemnify and save harmless the Trustee and
each present, future and former holder of any Note and their respective 
officers, directors, trustees, employees, agents and representatives 
(individually, an "Indemnified Party" and collectively, the "Indemnified
Parties") from and against all losses, liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, attorneys' fees and expenses) imposed upon or incurred by or
asserted against any Indemnified Party by reason of (i) ownership of the
Mortgaged Property, or any interest therein, or receipt of any rent or other sum
therefrom, (ii) any accident or injury to or death of persons or loss of or
damage to property occurring on or about the Mortgaged Property or any part
thereof, (iii) any use, non-use or condition of the Mortgaged Property or any
part thereof, (iv) any failure on the part of either Obligor, the General
Partner, the general partner of Star Gas or any of their respective Subsidiaries
or Affiliates to perform or comply with any of the terms of this Agreement or
any other Operative Agreement, (v) the performance of any labor or services or
the furnishing of any materials or other property in respect of the Mortgaged
Property or any part thereof, (vi) any negligence or tortious act on the part of
either Obligor, the General Partner, the general partner of Star Gas, any of
their respective Subsidiaries or Affiliates or any of their respective agents,
contractors, sublessees, licensees or invitees, (vii) any work in connection
with any alterations, changes or construction of the Mortgaged Property, (viii)
any other relationship that has arisen or may arise between either Obligor, the
General Partner, the general partner of Star Gas or any of their respective
Subsidiaries or Affiliates and the Indemnified Parties or the Mortgaged Property
as a result of the delivery or performance of this Agreement, any other
Operative Agreement or any action contemplated hereby or thereby or by any other
document executed in connection

D-72

herewith or therewith, (ix) the presence or removal, or the discharge, spillage,
leakage, emission, release, threat of release or disposal, of any Hazardous
Substances on, under, about or from the Mortgaged Property or the noncompliance
with any Legal Requirement relating thereto, whether arising prior to the
issuance of the Notes or at any time thereafter and whether or not either
Obligor, the General Partner, the general partner of Star Gas or any of their
respective Subsidiaries or Affiliates is responsible therefor or (x) the holding
of, or any interest in, any sum deposited or paid under this Agreement, the
Notes or any other Operative Agreement, provided that nothing contained herein
shall be deemed to require the Obligors to indemnify the Indemnified Parties for
conditions (other than matters covered by clause (vi) above) first occurring
subsequent to the earlier of (1) the taking of exclusive possession and control
of the Mortgaged Property for operational purposes pursuant to Section 21.10 of
the Mortgages or Section 6.03 of the Obligor Security Agreement, or (2) the
foreclosure of the Lien under any Security Document and the transfer of title to
the Trustee.

In case any action, claim, suit or proceeding is brought against an
Indemnified Party by reason of any such occurrence, the Obligors may, and upon
the request of such Indemnified Party will, at the Obligors' expense resist and
defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel for the insurer of the liability or by counsel designated by
the Obligors and reasonably satisfactory to the Indemnified Party, as the case
may be, provided that any Indemnified Party shall be entitled to participate in
any such action, suit or proceeding with counsel of its own choice but at its
own expense.  In any event, if the Obligors fail to assume the defense within a
reasonable time after any such request, the Indemnified Party may assume such
defense or other indemnification obligations and the fees and expenses of its
attorney will be paid by the Obligors.  The obligations of the Obligors under
this Section 16 shall survive any termination or satisfaction of this Agreement.
Any amounts payable to any Indemnified Party under this Section 16 which are not
paid within 15 days after written demand therefor by any Indemnified Party shall
bear interest at the rate of 9.95% per annum from the date of such demand.  In
the event that the Obligors shall be required to pay any indemnity under this
Section 16, the Obligors shall pay the Indemnified Party an amount which, after
deduction of all taxes required to be paid by such Indemnified Party in respect
of the receipt or accrual thereof (after giving credit for any savings in
respect of any such taxes by reason of deductions, credit or allowances in
respect of the payment of the expense indemnified against, and of any other such
taxes), shall be equal to the amount of such indemnity.

(c)  In connection with the Closing, the General Partner and the Obligors
are requesting that each Purchaser make available for funding an amount equal to
the principal amount specified opposite such Purchaser's name in Schedule A.
If, for any reason, on the date scheduled by the General Partner and the
Obligors as the date for the Closing, (i) the closing conditions are not
satisfied by 11:00 a.m. on such scheduled date, (ii) the General Partner and the
Obligors do not, by 11:00 a.m. on such scheduled date reschedule such Closing
for a subsequent date, and (iii) the Closing in fact does not occur on such
scheduled date, the General Partner and the Obligors will protect, indemnify and
hold each Purchaser harmless from and against any and all losses resulting from
such Purchaser's failure or inability to invest on the scheduled date for the
Closing the purchase price of the Notes to be purchased by such Purchaser, for
the period 

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ending on the next following Business Day at a rate of interest equal to or
greater than the rate of interest on such Purchaser's Notes.

Section 17.    Survival of Representations and Warranties.

All representations and warranties contained in this Agreement or the other
Operative Agreements, or made in writing by or on behalf of the General Partner,
either Obligor, the general partner of Star Gas or any of their Affiliates in
connection with the transactions contemplated by this Agreement or the other
Operative Agreements, shall survive the execution and delivery of this Agreement
and the other Operative Agreements, any investigation at any time made by any
Purchaser or on any Purchaser's behalf, the purchase of the Notes by the
Purchasers under this Agreement and any disposition or payment of the Notes.
All statements contained in any certificate or other instrument delivered by or
on behalf of either Obligor, the General Partner, any Restricted Subsidiary or
the general partner of Star Gas pursuant to this Agreement and/or the other
Operative Agreements or in connection with any amendment, waiver or modification
of this Agreement, any of the other Operative Agreements or the Notes shall be
deemed representations and warranties of the Obligors under this Agreement.

Section 18.    Amendments and Waivers.

Any term of this Agreement or of the Notes may be amended and the
observance of any term of this Agreement or of the Notes may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of the Obligors and the Required Holders, provided
that, without the prior written consent of the holders of all the Notes at the
time outstanding, no such amendment or waiver shall (a) change the maturity or
the principal amount of, or change the rate of interest or the time of payment
of interest on, or change the amount or the time of payment of any principal or
Make Whole Amount payable on any prepayment of, any Note, (b) release any Lien
against the Mortgaged Property for the benefit of the holders of the Notes, (c)
reduce the aforesaid percentage of the principal amount of the Notes the holders
of which are required to consent to any such amendment or waiver or change the
rights of the holders with respect thereto, (d) change the percentage of the
principal amount of the Notes the holders of which may declare the Notes to be
due and payable as provided in Section 11 or change the rights of the holders
with respect thereto, (e) decrease the percentage of the principal amount of the
Notes the holders of which may rescind and annul any such declaration as
provided in Section 11 or (f) modify the provisions of Section 9.8.  Any
amendment or waiver effected in accordance with this Section 18 shall be binding
upon each holder of any Note at the time outstanding, each future holder of any
Note and the Obligors.

Section 19.    Notices, Etc.

Except as otherwise provided in this Agreement, notices and other
communications under this Agreement shall be in writing and shall be delivered
by hand, by express courier service or by registered or certified mail, return
receipt requested, postage prepaid, addressed, (a) if to a Purchaser, at the
address for such Purchaser set forth in Schedule A or at such other address as
such Purchaser shall have furnished to the Obligors in writing, except as
otherwise provided in 

D-74

Section 15.2 with respect to payments on Notes held by such Purchaser or such
Purchaser's nominee, or (b) if to any other holder of any Note, at such address
as such other holder shall have furnished to the Obligors in writing, or, until
such other holder so furnishes to the Obligors an address, then to and at the
address of the last holder of such Note who has furnished an address to the
Obligors, or (c) if to either Obligor, at 2187 Atlantic Street, Stamford,
Connecticut 06902 to the attention of Secretary, Star Gas Propane, L.P., with a
copy to Vice President-Finance, Star Gas LLC, at the address listed immediately
above, or at such other address, or to the attention of such other officer, as
the Obligors shall have furnished to each such Purchaser and each such holder in
writing. Any notice so addressed and mailed shall be deemed to be given three
Business Days after being so mailed.

Section 20.    Reproduction of Documents.

This Agreement, each other Operative Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and notifications
which may hereafter be executed, (b) documents received by the Purchasers at the
Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to the
Purchasers or any other holder of any Note, may be reproduced by any such
Purchaser or holder by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and such Purchaser or holder may
destroy any original document so reproduced.  Each of the Obligors and the
General Partner agrees and stipulates that, to the extent permitted by
applicable law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by such
Purchaser or holder in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.

Section 21.    Adjustment of Interest Rate.

(a)  Star Gas agrees to maintain a continuing rating relationship with an
Approved Rating Agency lasting as long as the Notes are outstanding, pursuant to
which the Notes shall be re-rated at least annually.

(b)  After April 30, 2001, if the Notes shall cease to have a rating from
an Approved Rating Agency, the interest rate payable on the Notes shall be
increased by 150 basis points effective 20 Business Days from the date that the
Notes cease to have such rating until the date that the Notes are assigned a new
rating by an Approved Rating Agency.

(c)  In the event that the Notes receive a rating below Investment Grade in
a rating of the Notes conducted by an Approved Rating Agency pursuant to
subdivision (ii)(C) or (iii)(E) of Section 10.7(a) or Section 10.20, the
interest rate payable by the Obligors on the Notes shall be increased by 150
basis points effective from the date of the event giving rise to the requirement
that such rating be obtained until such date an Approved Rating Agency gives the
Notes a rating equivalent to or higher than Investment Grade.

D-75

(d)  If and when Petro ceases to be a Wholly-Owned Subsidiary, at the
expense of the Obligors, the Notes shall be promptly, but in any event within 20
days from the date of such occurrence, re-rated by an Approved Rating Agency.
In the event the Notes receive a rating below Investment Grade in a rating of
the Notes conducted by an Approved Rating Agency pursuant to the preceding
sentence, the interest rate payable by the Obligors on the Notes shall be
increased by 150 basis points effective from the date Petro ceases to be a
Wholly-Owned Subsidiary until such date an Approved Rating Agency gives the
Notes a rating equivalent to or higher than Investment Grade.

Section 22.    Miscellaneous.

This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not, and, in particular, shall inure to the benefit of
and be enforceable by any holder or holders at the time of the Notes or any part
thereof.  Except as stated in Section 17, this Agreement embodies the entire
agreement and understanding between the Purchasers and the Obligors and
supersedes all prior agreements and understandings relating to the subject
matter hereof.  The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect the meaning hereof.  This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.

Section 23.    Submission to Jurisdiction.

For the purpose of assuring that any holder of Notes may enforce its rights
under this Agreement and the Notes, each of the Obligors and the General
Partner, for itself and its successors and assigns, hereby, to the fullest
extent permitted by applicable law, irrevocably (a) agrees that any legal or
equitable action, suit or proceeding brought against it arising out of or
relating to this Agreement or any transaction contemplated hereby or the subject
matter of any of the foregoing or for recognition or enforcement of any judgment
rendered in any such action, suit or proceeding may be instituted in any state
or Federal court sitting in the State of New York, (b) waives any objection
which it may now or hereafter have to the laying of venue of any such action,
suit or proceeding brought in any such court, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum, or any right to require the proceeding to be conducted in any other
jurisdiction by reason of its present or future domicile, (c) irrevocably
submits itself to the non-exclusive jurisdiction of any state or Federal court
of competent jurisdiction sitting in the State of New York for purposes of any
such action, suit or proceeding, and (d) irrevocably waives any immunity from
jurisdiction to which it might otherwise be entitled in any such action, suit or
proceeding which may be instituted in any state or Federal court sitting in the
State of New York, and irrevocably waives any immunity from, or objection to,
the maintaining of an action against it to enforce any judgment for money
obtained in any such action, suit or proceeding and any immunity from execution.

D-76

Section 24.    Waiver of Jury Trial.

Each of the parties hereto irrevocably and unconditionally waives the right
to trial by jury in any legal or equitable action, suit or proceeding arising
out of or relating to this Agreement or the Notes or any transaction
contemplated hereby or thereby or the subject matter of any of the foregoing.

Section 25.    Governing Law.

This Agreement has been executed and delivered in the City of New York,
State of New York, United States of America.  This Agreement and (unless
otherwise expressly provided) all amendments and supplements to, and all
consents and waivers pursuant to, this Agreement shall in all respects be
governed by, and construed and enforced in accordance with, the internal laws of
the State of New York, including all matters of construction, validity and
performance.

D-77

If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement between you
and the undersigned.

Very truly yours,                 

Star Gas Propane, L.P.            

By: Star Gas LLC, General Partner 

By:______________________________
Title

Star/Petro, Inc.

By_________________________________
Title:

The foregoing Agreement is hereby accepted and agreed to as of the date
first above written.

[Variation]                          
[The Canada Life Assurance Company]   
[The Guardian Life Insurance Company of 
America]
[Country Life Insurance Company]      

By_________________________________
Name:
Title:

D-78

Schedules and Exhibits Omitted

D-79

Exhibit 10.24
________________________________________________________________________________

CREDIT AGREEMENT

Dated as of March 30, 2001

by and among

TOTAL GAS & ELECTRIC, INC.

and

THE CHASE MANHATTAN BANK
as Agent

and

THE LENDERS PARTY HERETO

_______________________________________________________________________________

TABLE OF CONTENTS

PAGE

ARTICLE I                                                                                                       1
DEFINITIONS AND ACCOUNTING TERMS                                                                           1
SECTION 1.1  Defined Terms                                                                            1
-------------
SECTION 1.2  Use of Defined Terms                                                                     21
--------------------
SECTION 1.3  Other Interpretive Provisions                                                            21
-----------------------------
SECTION 1.4  Accounting and Financial Determinations                                                  22
---------------------------------------

ARTICLE II                                                                                                      23
COMMITMENTS, BORROWING PROCEDURES AND NOTES                                                                23
SECTION 2.1  Commitments                                                                              23
-----------  
SECTION 2.1.1  Facility A Commitment                                                             23
---------------------
SECTION 2.1.2  Facility B Commitment                                                             24
---------------------
SECTION 2.1.3  Restrictions on Loans                                                             24
---------------------     
SECTION 2.2  Reduction and Termination of Commitments                                                 24
----------------------------------------  
SECTION 2.2.1  Optional Subject to Section 5.4                                                   24
-------------------------------
SECTION 2.2.2  Mandatory                                                                         24
---------
SECTION 2.2.3  Termination                                                                       24
-----------
SECTION 2.3  Borrowing Procedure                                                                      25
-------------------
SECTION 2.4  Continuation and Conversion Elections                                                    25
-------------------------------------
SECTION 2.5  Funding                                                                                  25
-------
SECTION 2.6  Loan Accounts/Notes                                                                      26
-------------------

ARTICLE III                                                                                                     27
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES                                                                 27
SECTION 3.1  Repayment and Prepayments                                                                27
-------------------------
SECTION 3.1.1  Repayment                                                                         27
---------
SECTION 3.1.2  Voluntary Prepayments                                                             27
---------------------
SECTION 3.1.3  Mandatory Prepayments                                                             27
---------------------
SECTION 3.2  Interest Provisions                                                                      29
-------------------
SECTION 3.2.1  Rates                                                                             29
-----
SECTION 3.2.2  Post-Default Rate

29
-----------------
SECTION 3.2.3  Payment Dates                                                                     29
-------------
SECTION 3.3 Fees                                                                                      30
----
SECTION 3.3.1  Commitment Fee                                                                    30
--------------
SECTION 3.3.2  Arrangement and Agency Fees                                                       30
---------------------------

ARTICLE IV                                                                                                      30
INTENTIONALLY OMITTED NUMBERING RESERVED                                                                   30

ARTICLE V                                                                                                       30
CERTAIN LIBOR AND OTHER PROVISIONS                                                                         30
SECTION 5.1 LIBOR Lending Unlawfu1                                                                    30
----------------------

i

SECTION 5.2  Deposits Unavailable                                                                      30
--------------------
SECTION 5.3  Increased LIBOR Loan Costs, etc.                                                          31
--------------------------------
SECTION 5.4  Funding Losses                                                                            32
--------------
SECTION 5.5  Increased Capital Costs                                                                   32
-----------------------
SECTION 5.6  Taxes                                                                                     33
-----
SECTION 5.7  Payments, Computations, etc                                                               34
---------------------------
SECTION 5.8  Sharing of Payments                                                                       34
-------------------
SECTION 5.9  Setoff                                                                                    35
------
SECTION 5.10 Recourse                                                                                  35
--------
SECTION 5.11 Replacement of Lenders                                                                    35
----------------------

ARTICLE VI                                                                                                       36
CONDITIONS TO EFFECTIVENESS AND TO BORROWING                                                                36
SECTION 6.1  Conditions to Effectiveness                                                               36
---------------------------   
SECTION 6.1.1  Credit Agreement and Loan Documents                                                36
-----------------------------------
SECTION 6.1.2  Resolutions; Incumbency                                                            36
-----------------------
SECTION 6.1.3  Organization Documents; Good Standing                                              36
-------------------------------------
SECTION 6.1.4  Closing Certificate                                                                37
-------------------
SECTION 6.1.5  Security Agreements; Prior Liens Removed; Prior Indebtedness Paid                  37
-----------------------------------------------------------------
SECTION 6.1.6  Permits                                                                            38
-------
SECTION 6.1.7  RESERVED                                                                           38
--------
SECTION 6.1.8  Opinion of Counsel                                                                 38
------------------
SECTION 6.1.9  Closing Fees, Expenses, etc.                                                       38
----------------------------
SECTION 6.1.10 Insurance                                                                          39
---------
SECTION 6.1.11 Solvency Certificate                                                               39
--------------------
SECTION 6.1.12 Borrowing Base Certificate                                                         39
--------------------------
SECTION 6.1.13 RESERVED                                                                           39
--------
SECTION 6.1.14 Material Contracts                                                                 39
------------------
SECTION 6.1.15 Consent of Petro Lenders                                                           39
------------------------
SECTION 6.1.16 Other Documents                                                                    39
---------------
SECTION 6.2  All Borrowings                                                                            39
--------------  
SECTION 6.2.1  Compliance with Warranties, No Default, etc.                                       39
--------------------------------------------
SECTION 6.2.2  Borrowing Request                                                                  40
-----------------
SECTION 6.2.3  Lien Searches                                                                      40
-------------
SECTION 6.2.4  Satisfactory Legal Form                                                            40
-----------------------

ARTICLE VII                                                                                                      40
REPRESENTATIONS AND WARRANTIES                                                                              40
SECTION 7.1  Organization etc                                                                          40
----------------
SECTION 7.2  Material Subsidiaries                                                                     41
---------------------
SECTION 7.3  Qualification                                                                             41
-------------
SECTION 7.4  Enforceability                                                                            41
--------------
SECTION 7.5  Due Authorization; Non-contravention; etc                                                 42
-----------------------------------------
SECTION 7.6  Government Approvals; Regulations, etc                                                    42
--------------------------------------
SECTION 7.7  Business; Financial Statements                                                            42
------------------------------

ii

SECTION 7.8  No Material Adverse Change                                                                43
--------------------------
SECTION 7.9  Litigation; Labor Controversies, etc                                                      43
------------------------------------
SECTION 7.10 Ownership of Properties; Project Contracts; Liens                                         44
-------------------------------------------------
SECTION 7.11 Taxes                                                                                     44
-----
SECTION 7.12 ERISA Compliance                                                                          44
----------------
SECTION 7.13 Environmental Warranties                                                                  45
------------------------
SECTION 7.14 Regulations U and X and Use of Proceeds                                                   47
---------------------------------------
SECTION 7.15 Accuracy of Information                                                                   47
-----------------------
SECTION 7.16 Solvency                                                                                  47
--------  
SECTION 7.17 Compliance with Agreements and Laws                                                       48
-----------------------------------

ARTICLE VIII                                                                                                     48
COVENANTS                                                                                                   48
SECTION 8.1  Affirmative Covenants                                                                     48
---------------------
SECTION 8.1.1  Financial Information, Reports, Notices, etc                                       48
--------------------------------------------
SECTION 8.1.2  Maintenance of Properties                                                          52
-------------------------
SECTION 8.1.3  Insurance                                                                          52
--------- 
SECTION 8.1.4  Payment of Obligations                                                             53
----------------------
SECTION 8.1.5  Compliance with Laws                                                               53
--------------------
SECTION 8.1.6  Books and Records                                                                  53
-----------------
SECTION 8.1.7  Inspection                                                                         53
----------
SECTION 8.1.8  Environmental Covenant                                                             54
----------------------
SECTION 8.1.9  Compliance with ERISA                                                              54
---------------------
SECTION 8.1.10 Collateral                                                                         54
----------
SECTION 8.1.11 Update of Project Contracts                                                        55
---------------------------
SECTION 8.1.12 Agreements Regarding Receipts Account                                              55
-------------------------------------
SECTION 8.1.13 Preservation of Corporate Existence                                                55
-----------------------------------
SECTION 8.1.14 Use of Proceeds                                                                    56
---------------
SECTION 8.1.15 Update of Customer Lists                                                           56
------------------------
SECTION 8.1.16 Further Assurances                                                                 56
------------------
SECTION 8.2  Negative Covenants                                                                        57
------------------
SECTION 8.2.1  Business Activities                                                                57
-------------------
SECTION 8.2.2  Indebtedness                                                                       57
------------
SECTION 8.2.3  Liens                                                                              57
-----
SECTION 8.2.4  Financial Covenants                                                                58
-------------------
SECTION 8.2.5  Investments                                                                        59
-----------
SECTION 8.2.6  Restricted Payments, etc                                                           59
------------------------
SECTION 8.2.7  Consolidation, Merger, etc                                                         60
--------------------------
SECTION 8.2.8  Asset Dispositions, etc                                                            60
-----------------------
SECTION 8.2.9  RESERVED                                                                           61
--------
SECTION 8.2.10 Transactions with Affiliates                                                       61
----------------------------
SECTION 8.2.11 Negative Pledges, Restrictive Agreements, etc                                      61
---------------------------------------------
SECTION 8.2.12 RESERVED                                                                           61
--------
SECTION 8.2.13 Operating Leases                                                                   61
----------------
SECTION 8.2.14 Prepayments                                                                        62
-----------
SECTION 8.2.15 Organization  Documents                                                            62
-----------------------

iii

SECTION 8.2.16 Capital Expenditures                                                               62
--------------------
SECTION 8.2.17 Contingent Liabilities                                                             62
----------------------
SECTION 8.2.18 ERISA                                                                              62
-----
SECTION 8.2.19 Accounting Changes                                                                 62
------------------
SECTION 8.2.20 Bank Accounts                                                                      62
-------------

ARTICLE IX                                                                                                       63
EVENTS OF DEFAULT                                                                                           63
SECTION 9.1   Listing of Events of Default                                                             63
----------------------------
SECTION 9.1.1  Non-Payment of Obligations                                                         63
--------------------------
SECTION 9.1.2  Breach of Warranty                                                                 63
------------------
SECTION 9.1.3  Non-Performance of Other Covenants and Obligations                                 63
--------------------------------------------------
SECTION 9.1.4  Default on Other Indebtedness                                                      63
-----------------------------
SECTION 9.1.5  Judgments                                                                          64
---------
SECTION 9.1.6  ERISA                                                                              64
-----
SECTION 9.1.7  Change in Control                                                                  64
-----------------
SECTION 9.1.8  Bankruptcy, Insolvency, etc                                                        64
---------------------------
SECTION 9.1.9  Impairment of Security, etc                                                        65
---------------------------
SECTION 9.1.10 Split-Up                                                                           65
--------
SECTION 9.1.11 Guarantor Defaults                                                                 66
------------------
SECTION 9.2   Action if Bankruptcy                                                                     66
--------------------
SECTION 9.3   Action if Other Event of Default                                                         66
--------------------------------

ARTICLE X                                                                                                        67
THE AGENT                                                                                                   67
SECTION 10.1  Appointment and Authorization                                                            67
-----------------------------
SECTION 10.2  Delegation of Duties                                                                     67
--------------------
SECTION 10.3  Liability of Agent                                                                       67
------------------
SECTION 10.4  Reliance by Agent                                                                        67
-----------------
SECTION 10.5  Notice of Default                                                                        68
-----------------
SECTION 10.6  Credit Decision                                                                          68
---------------
SECTION 10.7  Indemnification of Agent                                                                 69
------------------------
SECTION 10.8  Agent in Individual Capacity                                                             69
----------------------------
SECTION 10.9  Successor Agent                                                                          70
---------------
SECTION 10.10 Withholding Tax                                                                          70
---------------
SECTION 10.11 Collateral Matters                                                                       71
------------------

ARTICLE XI                                                                                                       72
MISCELLANEOUS PROVISIONS                                                                                    72
SECTION 11.1  Waivers, Amendments, etc                                                                 72
------------------------
SECTION 11.2  Notices                                                                                  73
-------
SECTION 11.3  Payment of Costs and Expenses                                                            73
-----------------------------
SECTION 11.4  Indemnification                                                                          74
---------------
SECTION 11.5  Survival                                                                                 75
--------
SECTION 11.6  Severability                                                                             75
------------

iv

SECTION 11.7  Headings                                                                                 75
--------
SECTION 11.8  Execution in Counterparts, Effectiveness, etc                                            75
---------------------------------------------
SECTION 11.9  Governing Law; Entire Agreement                                                          75
-------------------------------
SECTION 11.10 Successors and Assigns                                                                   76
----------------------
SECTION 11.11 Sale and Transfer of Loans and Notes; Participations in its Loans and Notes              76
---------------------------------------------------------------------------
SECTION 11.11.1 Assignments                                                                       76
-----------
SECTION 11.11.2 Participations                                                                    77
--------------
SECTION 11.12 Other Transactions                                                                       78
------------------
SECTION 11.13 Forum Selection and Consent to Jurisdiction                                              78
-------------------------------------------
SECTION 11.14 Waiver of Jury Trial                                                                     79
--------------------

SCHEDULE 1.1        - Disclosure Schedule
SCHEDULE 2.1.1      - Facility Percentages and Commitments
SCHEDULE 6.2.3      - Lien Search Locations
SCHEDULE 7.2        - Subsidiaries of the Borrower
SCHEDULE 8.2.20     - Bank Accounts

EXHIBIT A-1         - Form of Facility A Note
EXHIBIT A-2         - Form of Facility B Note
EXHIBIT B           - Form of Borrowing Base Certificate
EXHIBIT C           - Form of Borrowing Request
EXHIBIT D           - Form of Continuation/Conversion Notice
EXHIBIT E           - Form of Assignment & Acceptance Agreement
EXHIBIT F           - Form of Compliance Certificate
EXHIBIT G           - Form of Opinion of Counsel
EXHIBIT H-1         - Form of Guarantee Agreement of Star Gas Partners
EXHIBIT H-2         - Form of Guarantee Agreement of the Material Subsidiaries
EXHIBIT I           - Form of Solvency Certificate
EXHIBIT J-1         - Form of Company Security Agreement
EXHIBIT J-2         - Form of Material Subsidiaries Security Agreement
EXHIBIT K           - Form of Accounts Security Deposit Agreement
EXHIBIT L           - Form of Securities Account Control Agreement
EXHIBIT M           - Form of Company Share Pledge Agreement
EXHIBIT N           - Form of Irrevocable Letter of Instruction
EXHIBIT O           - List of Project Contracts and Related Project Parties
EXHIBIT P           - Form of Subordination Agreement

v

CREDIT AGREEMENT (as the same may be amended, supplemented or otherwise
modified from time to time, this "Agreement"), dated as of March 30, 2001,
---------                               
between TOTAL GAS & ELECTRIC, INC., a Florida corporation (the "Borrower"), the
--------       
LENDERS which from time to time are parties to this Agreement (individually, a
"Lender" and collectively, the "Lenders")  and THE CHASE MANHATTAN BANK
------                         -------                                
("Chase") as agent for the Lenders (the "Agent").
-----                                  -----   

RECITALS
--------

A.   The Borrower is a provider of certain energy and energy related
products and services for customers related to the deregulated natural gas and
electric industry (the "Business").
--------   

B.   The Borrower has requested the following credit facilities from the
Lenders: (i) a $15,350,000 revolving credit facility for working capital
purposes and (ii) a $3,000,000 revolving credit facility which converts to a
term loan facility for financing acquisitions for customer accounts and Capital
Expenditures (as defined herein).

C.   The Lenders are willing, on the terms and subject to the conditions
set forth in this Agreement, to agree to the Borrower's requests.

Accordingly, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.1  Defined Terms.  The following terms (whether or not 
-------------                                       
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings:

"Affiliate" of any Person means as applied to any Person, any other Person
---------                                                                
directly or indirectly controlling or controlled by or under common control with
such Person, provided that, for purposes, of this definition, "control" as used
with respect to any Person shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether as a general partner or through the ownership of voting
securities or by contract or otherwise; and provided further that no member of
-------- -------                  
the Sevin Group shall be an Affiliate for purposes of this Agreement.

"Agent" is defined in the preamble and includes each other Person as shall
-----                    --------                                        
have subsequently been appointed as a successor agent pursuant to Section 10.9.
------------ 

"Agent-Related Person" means Chase in its capacity as agent and any
--------------------                                              
successor agent arising under Section 10.9, and their respective Affiliates, and
------------                                      
the officers, directors, employees, agents and attorneys-in-fact of such Persons
and Affiliates.

vi

"Agreement" is defined in the preamble.
---------                    -------- 

"Applicable Prime Rate Margin" means, with respect to any Prime Rate Loan,
----------------------------                                             
1.00 percent per annum.

"Applicable Lending Office" means, with respect to each Lender, with
-------------------------                                          
respect to each  type of Loan, the lending office as designated for such type of
Loan below its name on the signature pages hereof or such other office of such
Lender or of an affiliate of such Lender as such Lender may from time to time
specify to the Agent and the Borrower as the office at which its Loans of such
type are to be made and maintained.

"Applicable LIBOR Margin" means, with respect any LIBOR Loan, 3.00 percent
-----------------------                                                  
per annum.

"Asset Disposition" is defined in Section 8.2.8.
-----------------                ------------- 

"Assignee Lender" is defined in Section 11.11.1.
---------------                --------------- 

"Assignment and Acceptance Agreement" means an Assignment and Acceptance
-----------------------------------                                    
Agreement substantially in the form of Exhibit E hereto.
---------        

"Bankruptcy Code" means Title 11 of the United States Code, as amended from
---------------                                                           
time to time, or any successor statute.

"Bankruptcy Law" is defined in Section 9.1.8.
--------------                ------------- 

"Borrower" is defined in the preamble.
--------                    -------- 

"Borrowing" means the Loans of the same type and, in the case of LIBOR
---------                                                            
Loans, having the same Interest Period made by all Lenders on the same Business
Day and pursuant to the same Borrowing Request in accordance with Section 2.3.
----------- 

"Borrowing Base Certificate" means a certificate executed by a Responsible
--------------------------                                               
Officer of the Borrower substantially in the form of Exhibit B hereto.
---------        

"Borrowing Request" means a Loan request and certificate duly executed by a
------------------                                                         
Responsible Officer of the Borrower, substantially in the form of Exhibit C
---------
hereto.

"Business" is defined in the preamble.
--------                    -------- 

"Business Day" means:
------------        

(a)  any day which is neither a Saturday or Sunday nor a legal holiday
on which banks are authorized or required to be closed in New York, New
York; and

2

(b)  relative to the making, continuing, prepaying or repaying of any
LIBOR Loans, any day on which dealings in Dollars are carried on in the
London interbank market.

"Capital Expenditures" means, for any period, the aggregate amount of all
--------------------                                                    
payments made during such period by any Person directly or indirectly for the
purpose of acquiring, constructing or maintaining fixed assets, real property or
equipment that, in accordance with GAAP, would be added as a debit to the fixed
asset account of such Person, including, without limitation, all amounts paid or
payable during such period with respect to Capitalized Lease Liabilities and
interest that are required to be capitalized in accordance with GAAP.

"Capital Stock" means, with respect to any Person, any capital stock
-------------                                                      
(including preferred stock), shares, units, interests, participations or other
ownership interests (however designated, including without limitation such items
as they may apply to a partnership, limited liability company or similar Person)
of such Person and any rights, warrants or options to purchase any thereof.

"Capitalized Lease Liabilities" means all monetary obligations of the
-----------------------------                                       
Borrower or any Material Subsidiary under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.

"Casualty Event" means, with respect to any Property of the Borrower or any
--------------                                                            
of the Material Subsidiaries, any loss of or damage to, or any condemnation or
other taking of, such Property for which such Person receives insurance
proceeds, or proceeds of a condemnation award or other compensation.

"Casualty Proceeds" is defined in Section 3.1.3(g).
-----------------                ---------------- 

"CERCLA" means the Comprehensive Environmental Response, Compensation and
------                                                                  
Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended.

"CERCLIS" means the Comprehensive Environmental Response Compensation
-------                                                             
Liability Information System List.

"Change in Control" means:
-----------------        

(a)  the Sevin Group shall fail to own directly at least a 51%
ownership interest in the Managing General Partner with voting power to
elect the board of directors or other governing body; or

3

(b)  the Managing General Partner shall fail to own directly 100% of
the general partnership interests in Star Propane, or if Star Propane shall
have been converted to corporate form, at least 51 % of the voting shares
of Star Propane; or

(c)  the Managing General Partner shall fail to own directly 100% of
the general partnership interests in Star Gas Partners, or if Star Gas
Partners shall have been converted to corporate form, at least 51 % of the
voting shares of Star Gas Partners; or

(d)  (i)  Star Gas Partners shall fail to own directly or indirectly
at least 72.7% of the voting shares of the Borrower, or (ii) Star Gas
Partners shall fail to own directly or indirectly at least an 72.7%
ownership interest in the Borrower provided that the 72.7%  may be reduced
--------                               
by 11 % due to the exercise of certain stock options outstanding as of the
Effective Date; or

(e)  Star Gas Partners shall fail to own directly at least 99% in Star
Propane; or

(f)  Star Gas Partners shall fail to own, directly or indirectly, 51 %
of each of Petro Holdings Inc.  and its Subsidiaries existing as of the
Effective Date; or

(g)  (i)  the Borrower shall fail to own directly 100% of the voting
shares of each Material Subsidiary, or (ii) the Borrower shall fail to own
directly at least a 100% ownership interest in each Material Subsidiary.

"Chase" means The Chase Manhattan Bank.
-----                                 

"Code" means the Internal Revenue Code of 1986, as amended, reformed or
----                                                                  
otherwise modified from time to time.

"Collateral" is defined in the respective Security Documents.
----------                                                  

"Commitment" means, as the context may require, a Lender's Facility A
----------                                                          
Commitment, Facility B Commitment, or both thereof.

"Commitment Termination Date" means, as the context may require, the
---------------------------                                        
Facility A Commitment Termination Date or the Facility B Commitment Termination
Date.

"Commitment Termination Event" means:
----------------------------        

(a)  the occurrence of any Default described in Section 9.1.8; or
-------------    

(b)  the occurrence and continuance of any other Event of Default and
either:

(i)  the declaration of the Loans to be due and payable pursuant
to Section 9.3; or
-----------    

4

(ii)  in the absence of such declaration in clause (i) above, the
----------           
giving of notice by the Agent, acting at the direction of the Required
Lenders, to the Borrower that the Commitments have been terminated.

"Compliance Certificate" means a certificate signed by a Responsible
----------------------                                             
Officer of the Borrower substantially in the form of Exhibit F, demonstrating
---------               
compliance with the covenants contained in Sections 8.2.2(a), 8.2.4, 8.2.5,
-----------------  -----  ----- 
8.2.6, 8.2.8, 8.2.13 and 8.2.16 and certifying that no Default or Event of
-----  -----  -------    ------                                           
Default exists, or, if any Default or Event of Default exists, stating the
nature and status thereof.

"Consolidated" or "consolidated" means, when used with reference to any
------------      ------------                                        
accounting term, the amount described by such accounting term, determined on a
consolidated basis in accordance with GAAP, after elimination of intercompany
items.

"Consolidated EBITDA" shall mean for any period of four consecutive
-------------------                                               
quarters, Consolidated Net Income (or consolidated net loss) of the Borrower and
the Material Subsidiaries for such period, plus the sum, without duplication, of
(a) gross interest expense, (b) depreciation and amortization expenses and
charges, (c) all income taxes to any government or governmental instrumentality
expensed on the Borrower and Material Subsidiaries' books (whether paid or
accrued), (d) the cost to acquire additional customers to the extent such costs
were deducted in computing Consolidated Net Income, and (e) all other non-cash
expenses to the extent deducted in computing Consolidated Net Income as
indicated on the income and expense statements of the Borrower and the Material
Subsidiaries, minus all extraordinary or unusual gains, in each case determined
on a consolidated basis for the Borrower and the Material Subsidiaries in
accordance with GAAP, applied on a consistent basis.  All of the foregoing
categories shall be calculated (without duplication) over the four fiscal
quarters next preceding the date of calculation thereof.

"Consolidated Net Income" means, for any period, the net income (or
-----------------------                                           
deficit) of the Borrower and the Material Subsidiaries for such period (taken as
a cumulative whole) including, without limitation, provisions for all taxes and
reserves (including reserves for deferred income taxes) and all other proper
deductions, all determined in accordance with GAAP on a consolidated basis,
after eliminating all intercompany transactions, provided that there shall be
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Material Subsidiary or is merged into or consolidated with the
Borrower or a Material Subsidiary, (b) the income (or deficit) of any Person
(other than a Material Subsidiary) in which the Borrower or any Material
Subsidiary has an ownership interest, except to the extent that any such income
has been actually received by the Borrower or such Material Subsidiary in the
form of dividends, or similar distributions, (c) the undistributed earnings of
the Borrower and any Material Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by the Borrower and such Material
Subsidiary is not at the time permitted by the terms of its charter of any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to the Borrower and such Material Subsidiary, (d) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such period,
(e) any aggregate net after tax gain or net after tax loss during such period
arising from the sale, exchange or other disposition of capital assets (such
term to include 

5

all fixed assets, whether tangible or intangible, all Inventory sold in
conjunction with the disposition of fixed assets, and all securities), (f) any
write-up of any asset, (g) any net gain from the collection of the proceeds of
life insurance polices, (h) any gain arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any Indebtedness, of the
Borrower or any Material Subsidiary, (i) any after tax gain or loss during such
period from any change in accounting, from any discontinued operations or the
disposition thereof, from any extraordinary events or from any prior period
adjustments, (j) any deferred credit representing the excess of equity in any
Material Subsidiary at the date of acquisition over the cost of the investment
in such Material Subsidiary, and (k) in the case of a successor to the Borrower
by consolidation or merger or as a transferee of its assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of assets.

"Consolidated Total Assets" means, as of any date of determination, the
-------------------------                                             
total assets of the Borrower and the Material Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.

"Contingent Liability" means any agreement, undertaking or arrangement by
--------------------                                                    
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be deemed to be the outstanding
principal amount of the debt, obligation or other liability guaranteed thereby.

"Continuation/Conversion Notice" means a notice of continuation or
------------------------------                                   
conversion of LIBOR Loans or Prime Rate Loans, as applicable, and certificate
duly executed by an Responsible Officer of the Borrower, substantially in the
form of Exhibit D hereto.
---------        

"Customer List" means, at any time, the names and addresses of all
-------------                                                    
customers of the Borrower and the Material Subsidiaries at such time, together
with all trade names and trademarks and all supporting documents, including but
not limited to computer discs, programs, tapes, trial balances and carrying
media.

"Default" means any event or occurrence which, with the giving of notice or
-------                                                                   
the lapse of time or both, would constitute an Event of Default.

"Depositary" means Bank of America N.A.
----------                            

"Disclosure Schedule" means the Disclosure Schedule attached hereto as
-------------------                                                  
Schedule 1.1, as it may be amended, supplemented or otherwise modified from time
------------                                                                    
to time by the Borrower with the written consent of the Agent and the Required
Lenders.

"Disqualified Stock" means, with respect to any Person, any Capital Stock
------------------                                                      
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is 

6

exchangeable or exercisable), upon the happening of any event or otherwise (i)
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, (ii) is convertible into or exchangeable or exercisable for
Indebtedness or Disqualified Stock, or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the stated maturity of such Capital Stock.

"Dollar" and the sign "$" mean lawful money of the United States.
------               ---                                        

"Effective Amount" means, with respect to any Loans on any date, the
----------------                                                   
aggregate outstanding principal amount thereof after giving effect to any
Borrowings and prepayments or repayments of Loans occurring on such date.  For
purposes of Section 3.1 the Effective Amount shall be determined without giving
-----------                                                        
effect to any mandatory prepayments to be made under such Section 3.1.
----------- 

"Effective Date" means the date on which all conditions precedent set forth
--------------                                                            
in Section 6.1, Section 6.2 and Section 11.8 are satisfied or waived by all
-----------  -----------     ------------                               
Lenders, which date shall occur on or before March 30, 2001 or such later date
upon which the Borrower and the Lenders shall mutually agree.

"Eligible Accounts" means, as to any Person at a particular date, the total
-----------------                                                         
outstanding balance of Accounts (as defined in the Uniform Commercial Code in
effect in the State of New York) of such Person recorded on the books of such
Person in accordance with GAAP after giving effect to all normal reserves
(including, without limitation, bad debt reserves) in connection therewith (a)
which are bona fide, valid and legally enforceable obligations of the account
debtor in respect thereof and arise from the actual sale and delivery of goods
or rendition and acceptance of services in the ordinary course of business to
such account debtor (but, for clarification, do not include amounts in respect
of which no invoice has been rendered to such account debtor), (b) which are not
owed by an obligor which is an affiliate or Subsidiary of such Person, (c) which
are not owed by an obligor which has taken any of the actions or suffered any of
the events of the kind described in Section 9.1.8, (d) which are owed solely by
-------------                              
such Person free and clear of all liens or other rights or claims of any other
Person (except in favor of the Agent for the ratable benefit of the Lenders),
(e) with respect to which no more than sixty (60) days have elapsed since the
date payment is due, and (f) in which the Agent has a perfected, first priority
security interest.

"Eligible Inventory" means natural gas inventory of the Borrower or any
------------------                                                    
Material Subsidiary to the extent that such inventory:

(a)  is valued on any date of determination based on the then current
midpoint market price set forth in the "Gas Daily - Daily Price Survey", for the
closest delivery point of natural gas of similar physical and chemical
characteristics: (i) which is owned by the Borrower and in storage pursuant to a
gas storage contract and as to which there is a firm transportation contract
giving the Borrower the irrevocable unconditional right to cause such natural
gas to be transported to the Borrower's customers pursuant to utility
nominations and delivery schedules set forth in such contracts or (ii) as to
which irrevocable unconditional rights to receive natural gas have been prepaid
in full by the Borrower to a Person which has unconditional rights and is

7

unconditionally obligated to the Borrower, at any time the Borrower shall elect
pursuant to utility nomination and delivery schedules (set forth in a contract
approved by the Agent) to deliver such natural gas to customers of the Borrower;

(b)  is owned by the Borrower or such Material Subsidiary, is subject to
the security interest in favor of the Agent for the benefit of the Lenders
pursuant to the Security Agreements, which security interest is (to the extent
required by the Agent) perfected as to such inventory, and is subject to no
other than Lien whatsoever;

(c)  is of customary quality and meets all standards applicable to natural
gas, its use or sale imposed by any Governmental Authority having regulatory
authority over such matters;

(d)  is of a quality and type sold in the ordinary course of the business
of the Borrower or such Material Subsidiary;

(e)  is located within the United States (i) in a Federal Energy Regulatory
Commission ("FERC") regulated pipeline system in or (ii) in commercial storage
facilities;

(f)  is stored in storage facilities of the Borrower or a Material
Subsidiary, a utility controlled storage facility or in a pipeline system
regulated by the FERC and if located in another facility leased by the Borrower
or such Material Subsidiary, the lessor has delivered to the Agent a waiver,
consent and agreement in form and substance satisfactory to the Agent;

(g)  has not been delivered to a customer of the Borrower or any Material
Subsidiary (regardless of whether such delivery is on a consignment basis); and

(h)  is not determined by the Agent, on behalf of the Lenders, to be
ineligible for any other reason, based upon credit, collateral or other
considerations customarily taken into account by the Agent in making such
determinations.

"Environmental Claim" means any written or oral notice, claim demand or
-------------------                                                   
other communication (collectively, a "claim") for investigatory costs, cleanup
costs, Government Authority response costs, damages to natural resources or
other property, personal injuries, fines or penalties arising out of, based on
or resulting from (a) the presence, or release into the environment, of any
Hazardous Material at any location, or (b) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law.  The term
"Environmental Claim" shall include, without limitation, any claim by any
Government Authority for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and any
claim by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of injury to
health, public safety or the environment.

"Environmental Law" means any law, regulation, statute, ordinance, code,
-----------------                                                      
rule, regulation, order or guideline (including consent decrees or
administrative orders) relating to human health, public safety or the
environment or to emissions, discharges, releases or 

8

threatened releases of Hazardous Materials into the environment (including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), or otherwise relating to the presence, existence,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----                                                               
amended and regulations promulgated thereunder.

"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------                                                           
under common control with the Borrower within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).

"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan;
-----------                                                              
(b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which could constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; or (f) the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate.

"Event of Default" is defined in Section 9.1.
----------------                ----------- 

"Excess Sale Proceeds" is defined in Section 8.2.8(b).
--------------------                ---------------- 

"Facility A Borrowing Base" means, on any date of determination thereof, an
-------------------------                                                 
amount equal to the sum of (a) 85% of the aggregate amount of Eligible Accounts
of the Borrower and its Material Subsidiaries, plus (b) the lesser of (x) seven
----                            
million dollars and (y) 85% of Eligible Inventory.  The Facility A Borrowing
Base (including, without limitation, the aforesaid amounts) on any date shall be
determined by the Agent in accordance with the provisions of Section 2.1.1(c).
---------------- 

"Facility A Commitment" is defined in Section 2.1.1.
---------------------                ------------- 

"Facility A Commitment Termination Date" means the earliest of:
--------------------------------------                        

(a)  the date 364 days after, but including, the Effective Date;

(b)  the date on which the Facility A Commitments are terminated in
full or reduced to zero pursuant to Section 2.2; and
-----------     

9

(c)  the date on which any Commitment Termination Event occurs.

"Facility A Loan" is defined in Section 2.1.1(a).
---------------                ---------------- 

"Facility A Note" is defined in Section 2.6(b).
---------------                -------------- 

"Facility A Percentage" means, relative to any Lender, the Facility A
---------------------                                               
Percentage set forth on Schedule 2.1.1, as such percentage may be adjusted from
--------------                                         
time to time pursuant to Assignment and Acceptance Agreement(s) executed by such
Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11.1.
--------------- 

"Facility B Commitment" means, as to any Lender, the Facility B Commitment
---------------------                                                    
set forth opposite such Lender's name on Schedule 2.1.1 under the caption
--------------                  
"Facility B Commitment" as such amount must be reduced from time to time as
provided herein.

"Facility B Commitment Termination Date" means the earliest of
--------------------------------------                       

(a)  the date 364 days after, but including, the Effective Date;

(b)  the date on which the Facility B Commitment is terminated in full
or reduced to zero pursuant to Section 2.2; and
-----------     

(c)  the date on which any Commitment Termination Event occurs.

"Facility B Loan" is defined in Section 2.1.2.
---------------                ------------- 

"Facility B Note" is defined in Section 2.6(c).
---------------                -------------- 

"Facility B Percentage" means, relative to any Lender, the Facility B
---------------------                                               
Percentage set forth on Schedule 2.1.1, as such percentage may be adjusted from
--------------                                         
time to time pursuant to Assignment and Acceptance Agreement(s) executed by such
Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11.1.
---------------  
The Facility B Percentage of each Lender shall equal the Facility A Percentage
of such Lender if any Facility A Loan shall be outstanding at the time of
determination.

"Facility B Loan Conversion Date" means the earliest of
-------------------------------                       

(a)  the date 364 days after, but including, the Effective Date ;

(b)  the date on which the Facility B Commitments are terminated in
full or reduced to zero pursuant to Section 2.2; and
-----------     

(c)  the date on which any Commitment Termination Event occurs.

10

"Fiscal Quarter" means, with respect to any Person, the three (3) month
--------------                                                        
period ending on March 31, June 30, September 30 and December 31.

"Fiscal Year" means with respect to Star Gas Partners, the Borrower and the
-----------                                                               
Material Subsidiaries, any period of twelve consecutive calendar months ending
on September 30 occurring during the referred to calendar year (e.g., the "2001
Fiscal Year" refers to a Fiscal Year ending on the September 30, 2001);
provided, however, that for years ended on or prior to December 31, 1999, Fiscal
--------  -------                                                               
Year for the Borrower and the Material Subsidiaries means calendar year."

"F.R.S.  Board" means the Board of Governors of the Federal Reserve System
-------------                                                            
or any successor thereto.

"GAAP" is defined in Section 1.4.
----                ----------- 

"Government Authority" means any agency, authority, board, bureau,
--------------------                                             
commission, department, office or instrumentality of any nature whatsoever of
any governmental or quasigovernmental unit, whether federal, state, county,
district, city or other political subdivision, foreign or otherwise and whether
now or hereafter in existence, or any officer or official of any thereof.

"Guarantee Agreements" means (i) the Guarantee Agreement, dated as of the
--------------------                                                    
date hereof among Star Gas Partners and the Agent substantially in the form of
Exhibit H-1 hereto, and (ii) the Guarantee Agreement, dated as of the date
-----------                                                               
hereof, among the Material Subsidiaries and the Agent substantially in the form
of Exhibit H-2 hereto.
-----------        

"Hazardous Material" means:
------------------        

(a)  any "hazardous substance", as defined by CERCLA;

(b)  any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;

(c)  any "pollutant" pursuant to the Clean Water Act, as amended;

(d)  any petroleum product or related compound;

(e)  any polychlorinated biphenyls or friable asbestos;

(f)  any radioactive material or substance; or

(g)  any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, substance or waste within the meaning of any other
Environmental Law, all as amended or hereafter amended.

"Indebtedness" of any Person means, without duplication:
------------                                           

11

(a)  any indebtedness for borrowed money which such Person has
directly or indirectly created, incurred or assumed;

(b)  any indebtedness, whether or not for borrowed money, with respect
to which such Person has become directly or indirectly liable and which
represents the deferred purchase price (or a portion thereof) or has been
incurred to finance the purchase price (or a portion thereof) of any
property or service or business acquired by such Person, whether, by
purchase, consolidation, merger or otherwise;

(c)  all obligations of such Person evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses;

(d)  all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property);

(e)  all Capitalized Lease Liabilities;

(f)  any indebtedness, whether or not for borrowed money, secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien in respect of property
owned by such Person, whether or not such Person has assumed or become
liable for the payment of such indebtedness, provided that the amount of
such Indebtedness if not so assumed shall in no event be deemed to be
greater than the fair market value from time to time (as determined in good
faith, by such Person) of the property subject to such Lien;

(g)  all liabilities of such Person in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);

(h)  any indebtedness of the character referred to in clauses (a)
-----------
through (g) of this definition deemed to be extinguished under GAAP but for
---                                                                
which such Person remains legally liable but only to the extent of such
legal liability; and

(i)  any indebtedness of any other Person of the character referred to
in clauses (a) through (h) of this definition with respect to which the
------------        ---                                             
Person whose Indebtedness is being determined has become liable by way of a
Contingent Liability.

"Indemnified Liabilities" is defined in Section 11.4.
-----------------------                ------------ 

"Indemnified Parties" is defined in Section 11.4.
-------------------                ------------ 
12

"Interest Period" means, relative to any LIBOR Loan, the period beginning
---------------                                                         
on (and including) the date on which such LIBOR Loan is made or continued as, or
converted into, a LIBOR Loan pursuant to Section 2.3 or 2.4 and ending on (but
-----------    ---                   
excluding) the day which numerically corresponds to such date one, two, three or
six months thereafter (or, if such month has no numerically corresponding day,
on the last Business Day of such month) or any shorter period if acceptable to
all the Lenders, in each case as the Borrower may select in its relevant notice
pursuant to Section 2.3 or 2.4; provided, however, that:
------------   ---                          

(a)  the Borrower shall not be permitted to select Interest Periods to
be in effect at any one time which have expiration dates occurring on more
than two (2) different dates;

(b)  Interest Periods commencing on the same date for Loans comprising
part of the same Borrowing shall be of the same duration;

(c)  if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next following
Business Day (unless, if such Interest Period applied to LIBOR Loans, such
next following Business Day is the first Business Day of a calendar month,
in which case such Interest Period shall end on the Business Day next
preceding such numerically corresponding day); and

(d)  no Interest Period may end later than the date set forth in

clause (a) of the definition "Facility A Commitment Termination Date", in
----------                                                               
the case of Interest Periods for Facility A Loans, or in the case of
Interest Periods for Facility B Loans any date on which a principal payment
is due if it would be necessary to repay Facility B Loans before the end of
the Interest Period applicable thereto.

"Investment" means, relative to any Person, any direct or indirect purchase
----------                                                                
or other acquisition by such Person of stock or other securities of any other
Person, or any direct or indirect loan, advance or capital contribution by such
Person to any other Person, and any other item, which in any such case; would be
classified as an "investment" on a balance sheet of such Person prepared in
accordance with GAAP, including, without limitation, any direct or indirect
contribution by such Person of property or assets to a joint venture,
partnership or other business entity in which such Person retains an interest,
but excluding any Permitted Hedging Agreement investments in any company by
which such company becomes a Material Subsidiary.  For the purposes of Section
-------
8.2.5, the amount involved in Investments made during any period shall be the
-----                                                                        
aggregate cost during such period to the Borrower and the Material Subsidiaries
of all such Investments, determined in accordance with GAAP, but without regard
to unrealized increases or decreases in value, or write-ups, write-downs or
write-offs, of such investments and without regard to the existence of any
undistributed earnings or accrued interest with respect thereto accrued after
the respective dates on which such Investments were made, less any net return of
capital realized during such period upon the sale, repayment or other
liquidation of such Investment (determined in accordance with GAAP, but without
regard to any amounts received as earnings (in the form of dividends not
constituting a return of capital, interest or otherwise) on such Investment or
as loans from any Person in whom such Investment has been made).

13

"Lender" has the meaning set forth in the preamble hereto.
------                                                   

"LIBOR" means, for each Interest Period for each LIBOR Loan, the interest
-----                                                                   
per annum obtained by the Agent as offered quotations (rounded upwards, if
necessary, to the nearest 1/100 of 1%) that appear on the Telerate Screen which
displays an average British Bankers Association Interest Settlement Rate (such
page number 3740 or 3750, as applicable) for deposits (on the date two (2)
Business Days prior to the first day of such Interest Period) with a term
equivalent to such period in Dollars, determined as of approximately 11:00 a.m.,
London time; provided that if such rate does not appear on such page or service
or such service shall cease to be available, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) which the Agent has
determined to be the offered rate on such other page or other service which
displays an average British Bankers Association Interest Settlement Rate for
deposits on the date two (2) Business Days prior to the first day of such
Interest Period) with a term equivalent to such period in Dollars, determined as
of approximately 11:00 a.m., London time.

"LIBOR Loan" means any Loan bearing interest, at all times during an
----------                                                         
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBOR (Reserve Adjusted).

"LIBOR (Reserve Adjusted)" means, relative to any Loan to be made,
------------------------                                         
continued or maintained as, or converted into, a LIBOR Loan for any Interest
Period, a rate per annum (rounded upward, if necessary, to the nearest 1 / 100
of 1 %) determined pursuant to the following formula:

LIBOR                    LIBOR
-----
=      
(Reserve Adjusted)          1.00 - LIBOR Reserve Percentage

The LIBOR (Reserve Adjusted) for any Interest Period for LIBOR Loans will be
determined by the Agent on the basis of the LIBOR Reserve Percentage in effect
on, and the applicable rates furnished to and received by the Agent from the
Reference Lender, two (2) Business Days before the first day of such Interest
Period.

"LIBOR Reserve Percentage" means, relative to any Interest Period for LIBOR
------------------------                                                  
Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S.  Board and then applicable to assets or
liabilities consisting of and including "Eurocurrency Liabilities", as currently
defined in Regulation D of the F.R.S.  Board, having a term approximately equal
or comparable to such Interest Period.

"Lien" means, as to any Person, any mortgage, lien (statutory or
----                                                           
otherwise), pledge, reservation, right of entry, encroachment, easement, right
of way, restrictive covenant, license, charge, security interest or other
encumbrance in or on, or any interest or title of any vendor, lessor, lender or
other secured party to or of such Person under any conditional sale or other
title 

14

retention agreement or capital lease with respect to, any property or asset
owned or held by such Person, or the signing or filing of a financing statement
with respect to any of the foregoing which names such Person as debtor, the
signing of any security agreement with respect to any of the foregoing
authorizing any other party as the secured party thereunder to file any
financing statement or any other agreement to give or grant any of the
foregoing. For the purposes of this Agreement, a Person shall be deemed to be
the owner of any asset which it has placed in trust for the benefit of the
holders of Indebtedness of such Person and such trust shall be deemed to be a
Lien if such Person remains legally liable therefor, notwithstanding that such
Indebtedness is or may be deemed to be extinguished under GAAP.

"Loan" means, as the context may require, a Facility A Loan or a Facility B
----                                                                      
Loan.

"Loan Documents" means this Agreement, the Notes, the Guarantee Agreements,
--------------                                                            
the Security Documents, any pledge agreement, security agreement, guaranty, or
mortgage or subordination agreement delivered to the Agent pursuant to this
Agreement, as the same may be amended, supplemented, restated or otherwise
modified from time to time.

"Managing General Partner" means Star Gas LLC, a Delaware limited liability
------------------------                                                  
company.

"Material Adverse Effect" means, without limitation, a material adverse
-----------------------                                               
effect on (i) the condition (financial or otherwise), business, prospects,
operations, assets or properties of Star Gas Partners and its Subsidiaries taken
as a whole, (ii) the condition (financial or otherwise), business, prospects,
operations, assets or properties of the Borrower and the Material Subsidiaries
(taken as a whole), (iii) any Obligor's ability to perform its obligations under
any Loan Document to which it is a party, (iv) the security interests (or the
value or priority thereof) granted under the Security Documents, or (v) the
validity of the Loan Documents.

"Material Subsidiary" means unless waived by the Agent all existing,
-------------------                                                
future, direct or indirect Subsidiaries of the Borrower.

"Multiemployer Plan" means a "multiemployer plan", within the meaning of
------------------                                                     
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes,
is making, or is obligated to make contributions or, during the preceding three
(3) calendar years, has made, or been obligated to make, contributions.

"Note" means, as the context may require, either a Facility A Note or a
----                                                                  
Facility B Note, or both.

"Obligations" means the obligations of the Borrower to the Agent and the
-----------                                                            
Lenders under this Agreement, the Notes and each other Loan Document.

"Obligor" means Star Gas Partners, the Borrower, the Material Subsidiaries
-------                                                                  
and any other Person (other than the Agent or any Lender) obligated under any
Loan Document.

"Other Facilities" is defined in Section 11.12.
----------------                ------------- 

15

"Organization Document" means, relative to any Obligor, its partnership
---------------------                                                 
agreement, certificate of incorporation, certificate of formation, its by-laws
or operating agreement and all shareholder agreements, voting trusts and similar
arrangements applicable to any of its authorized shares of Capital Stock or
other equity interests.

"Participant" is defined in Section 11.11.2.
-----------                --------------- 

"PBGC" means the Pension Benefit Guaranty Corporation or any Government
----                                                                  
Authority succeeding to any of its principal functions under ERISA.

"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
------------                                                            
subject to Title IV of ERISA (other than a Multiemployer Plan) which the
Borrower and/or any ERISA Affiliate sponsors, maintains, or to which it makes,
is making, or is obligated to make contributions, or in the case of multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding five (5) plan years.

"Percentage" means the Facility A Percentage or the Facility B Percentage,
----------                                                               
or both, as applicable.

"Permitted Hedging Agreement" means natural gas or electricity hedging
---------------------------                                          
agreements for the purpose of hedging (i) price fluctuations of inventory of the
Borrower and its Material Subsidiaries, and (ii) the Borrower's obligation to
deliver natural gas or electricity at capped or fixed prices (and not for
investment or speculative purposes).

"Person" means any natural person, corporation, partnership, firm,
------                                                           
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.

"Petro Credit Facility" means that certain Amended and Restated Credit
---------------------                                                
Agreement, dated as of December 8, 2000, by and among Petroleum Heat and Power
Co., Inc., Bank of America N.A. and certain other financial institutions, as
amended, modified or restated from time to time.

"Plan" means an employee benefit plan (as defined in Section 3(3) of
----                                                               
ERISA), subject to Part 4 of Title I (B) of ERISA which the Borrower sponsors or
maintains or to which the Borrower makes, is making, or is obligated to make
contributions and includes any Pension Plan.

"Post-Default Rate" means (a) in respect of any Loans a rate per annum
-----------------                                                    
equal to: (i) if such Loans are Prime Rate Loans, 2% above the Alternate Prime
Rate as in effect from time to time plus the Applicable Prime Rate Margin (but
in no event less than the interest rate in effect on the due date), or (ii) if
such Loans are LIBOR Loans, 2% above the rate of interest in effect thereon at
the time of the Event of Default that resulted in the Post-Default Rate being
instituted until the end of the then current Interest Period therefor and,
thereafter, 2% above the Alternate Prime Rate as in effect from time to time
plus the Applicable Prime Rate Margin (but in no event less than the interest
rate in effect on the due date); and (b) in respect of other amounts payable 

16

by the Borrower hereunder (other than interest) not paid when due (whether at
stated maturity, by acceleration or otherwise), a rate per annum during the
period commencing on the due date until such other amounts are paid in full
equal to 2% above the Prime Rate as in effect from time to time plus the
Applicable Prime Rate Margin (but in no event less than the interest rate in
effect on the due date).

"Prior Lien" means all Liens of whatever nature against the Borrower or any
----------                                                                
of its Material Subsidiaries or any of their respective assets or properties
existing on the date hereof before giving effect to the transactions
contemplated by this Agreement.

"Prime Rate" means the rate per annum announced by the Reference Lender
----------                                                            
from time to time as its Prime Rate in effect at its principal office.  The
Prime Rate is not necessarily intended to be the lowest rate of interest
determined by the Reference Lender in connection with extensions of credit.
Changes in the rate of interest on that portion of any Loans maintained as Prime
Rate Loans will take effect simultaneously with each change in the Prime Rate.
The Agent will give notice promptly to the Borrower and the Lenders of changes
in the Prime Rate.

"Prime Rate Loans" means loans at such times as they are being made and/or
----------------                                                         
maintained at a rate of interest based on the Prime Rate.

"Project Contract" means each agreement of the Borrower and the Material
----------------                                                       
Subsidiaries listed on Exhibit O (as the same may be amended or supplemented
---------                                            
from time to time) hereto, together with each other agreement entered into by
the Borrower or the Material Subsidiaries pursuant to which the Borrower or the
Material Subsidiaries agrees to provide services and products anticipated by the
Borrower in its reasonable judgement to provide revenues to the Borrower or the
Material Subsidiaries in excess of $200,000 over any 12-month period.

"Project Party" means each Person listed on Exhibit O hereto, who is a
-------------                              ---------                 
party to the Project Contract listed thereon, and each other Person who is, in
the future, party to a Project Contract.

"Property" means any right or interest in or to property whatsoever,
--------                                                           
whether real, personal or mixed and whether tangible or intangible.

"Qualified Capital Stock" means Capital Stock not constituting Disqualified
-----------------------                                                   
Stock.

"Quarterly Payment Date" means the last day of each March, June, September,
----------------------                                                    
and December or, if any such day is not a Business Day, the next succeeding
Business Day.

"Receipts Account" shall mean account no. 375-1508531of the Borrower
----------------                                                   
maintained with the Depositary.

"Reference Lender" means, so long as Chase is the Agent, Chase, and
----------------                                                  
otherwise "Reference Lender" means the Lender serving for the time being as a
successor Agent to Chase pursuant to Section 10.9.
------------ 

17

"Regulatory Change" means, relative to the Agent or any Lender, any change
-----------------                                                        
after the date hereof in any (or the adoption after the date hereof of any new):

(a)  United States Federal or state law or foreign law applicable to
the Agent or such Lender; or

(b)  regulation, interpretation, directive, or request (whether or not
having the force of law) applicable to such Agent or such Lender or any
court or government authority charged with the interpretation or
administration of any law referred to in the immediately preceding clause
------
(a) or of any fiscal, monetary, or other authority having jurisdiction over
---                                                                        
the Agent or such Lender.

"Release" means a "release", as such term is defined in CERCLA.
-------                                                       

"Reportable Event" means, any of the events set forth in Section 4043(c) of
----------------                                                          
ERISA or the regulations thereunder, other than any such event for which the 30-
day notice requirement under ERISA has been waived in regulations issued by the
PBGC.

"Required Lenders" means, Lenders holding 100 % of the Commitments (or, if
----------------                                                         
the Commitments have been terminated, Lenders holding 100% of the outstanding
Obligations).

"Resource Conservation and Recovery Act" means the Resource Conservation
--------------------------------------                                 
and Recovery Act, 42 U.S.C.  Section 6901, et seq., as amended.

"Responsible Officer" means with respect to any Person, the President, any
-------------------                                                      
Vice President, the Chief Financial Officer, the Treasurer and the Secretary of
such Person and any other officer of such Person who is responsible for
compliance with or performance of any obligation under or matter referred to in
this Agreement with respect to the Borrower, and, in any case, any employee of
the Borrower performing any of the above functions.

"Restricted Payment" means any payment or other distribution made after the
------------------                                                        
Effective Date in respect of stock in the Borrower, and the Material
Subsidiaries, except a distribution payable solely in additional stock of such
Person, and any payment, by the Borrower or a Material Subsidiary on account of
the redemption, retirement, purchase or other acquisition of stock or a
distribution by a Material Subsidiary to the Borrower.

"Securities Act" means the Securities Act of 1933, as amended from time to
--------------                                                           
time.

"Security" is defined in Section 2(1) of the Securities Act.
--------                                                   

"Security Agreement" means (i) the Company Security Agreement dated as of
------------------                                                      
the date hereof, between the Borrower and the Agent, substantially in the form
of Exhibit J-1 hereto; and (ii) the Material Subsidiary Guarantor Security
-----------                                                            
Agreement dated as of the date hereof, among the Material Subsidiaries and the
Agent, substantially in the form of Exhibit J-2 hereto.
-----------        

18

"Security Agreements" means (i) the Security Agreement, and (ii) the
-------------------                                                
Accounts Security Deposit Agreement, dated as of the date hereof, between the
Borrower and the Agent, substantially in the form of Exhibit K hereto, and (iii)
---------                  
the Securities Account Control Agreement, dated the date hereof, between the
Borrower, as securities intermediary and the Agent, substantially in the form of
Exhibit L hereto, and (iv) the Company Share Pledge Agreement, dated the date
---------                                                                    
hereof, among all of the shareholders of the Borrower and the Agent,
substantially in the form of Exhibit M hereto.
---------        

"Security Documents" means any of the documents securing the Notes,
------------------                                                
including without limitation, the Security Agreements.

"Senior Debt" means the Obligations.
-----------                        

"Senior Interest Expense" shall mean the gross interest expense incurred by
-----------------------                                                   
the Borrower in connection with the Obligations, calculated in accordance with
GAAP applied on a consistent basis and calculated over the four fiscal quarters
next preceding the date of calculation thereof.

"Sevin Group" means Irik P.  Sevin, Audrey L.  Sevin and the estate of Irik
-----------                                                               
P.  Sevin and Audrey L.  Sevin, so long as the survivor has the power to vote
membership interest in the Managing General Partner, and any testamentary trust,
all beneficiaries of which are members of the immediate family of Irik P.  Sevin
or Audrey L.  Sevin, and all trustees which are members of the immediate family
of Irik P.  Sevin or Audrey L.  Sevin and, under the terms of the trust, have
the power to vote membership interests in the Managing General Partner.

"Star Gas Partners" means Star Gas Partners, L.P., a Delaware limited
-----------------                                                   
partnership.

"Star Propane" means Star Gas Propane, L.P., a Delaware limited
------------                                                  
partnership.

"Stated Maturity Date" means, with respect to the Facility A Loans the date
--------------------                                                      
that is 364 days after, but including, the Effective Date, and, with respect to
the Facility B Loans the date that is eighteen (18) months after, but including,
the Effective Date.

"Subordinated Indebtedness" shall mean Indebtedness of the Borrower to an
-------------------------                                               
Affiliate of the Borrower subordinated to the Senior Debt upon terms and
conditions substantially as are set forth in the Subordination Agreement.

"Subordination Agreement" shall mean a Subordination Agreement in the form
-----------------------                                                  
of Exhibit P hereto.

"Subsidiary" means, with respect to any Person, any corporation, limited
----------                                                             
liability company, business trust, association, partnership, joint venture or
other business entity at least a majority (by number of votes) of the stock of
any class or classes (or equivalent interest) of which is at the time owned by
such Person or by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries of such Person, if the holders of the stock of such
class or classes (or equivalent interests) (a) are ordinarily, in the absence of
contingencies, entitled to vote for the election of a majority of the directors
(or Persons performing similar functions) of 

19

such business entity, even though the right so to vote has been suspended by the
happening of such a contingency, or (b) are at the time entitled, as such
holders, to vote for the election of the majority of the directors (or Persons
performing similar functions) of such business entity, whether or not the right
so to vote exists by reason of the happening of a contingency. Unless the
context otherwise requires, any reference to a Subsidiary shall mean a
Subsidiary of the Borrower. Star Propane shall be deemed to be a Subsidiary of
Star Gas Partners so long as Star Gas Partners owns a majority of the limited
partnership interests in Star Propane and the Managing General Partner is the
sole general partner of Star Propane.

"Synthetic Lease" means each arrangement, however described, under which
---------------                                                        
the obligor: (a) accounts for its interest in the property covered thereby under
GAAP as if the obligor were the lessee of a lease which is not a capital lease;
and (b) accounts for its interest in the property covered thereby for Federal
income tax purposes as if the obligor were the owner.

"Synthetic Lease Interest Component" means, with respect to any Person for
------------------------------------                                     
any period, the portion of rent paid or payable (without duplication) for such
period under Synthetic Leases of such Person that would be treated as interest
in accordance with Financial Accounting Standards Board Statement No.  13 if
such Synthetic Leases were treated as capital leases under GAAP.

"Synthetic Lease Obligation" means, as to any Person with respect to any
--------------------------                                             
Synthetic Lease at any time of determination, the amount of the liability of
such Person in respect of such Synthetic Lease that would (if such lease was
required to be classified and accounted for as a capital lease on a balance
sheet of such Person in accordance with GAAP) be required to be capitalized on
the balance sheet of such Person at such time.

"Taxes" is defined in Section 5.6.
-----                ----------- 

"type" means, relative to any Loan, the portion thereof, if any, being
----                                                                 
maintained as a Prime  Rate Loan or a LIBOR Loan.

"Unfunded Pension Liability" means the excess of a Pension Plan's benefit
--------------------------                                              
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.

"United States" or "U.S." means the United States of America, its fifty
-------------      ---                                                
States and the District of Columbia.

"Wholly-Owned Subsidiary" means any corporation in which (other than
-----------------------                                            
directors' qualifying shares required by law) 100% of the Capital Stock of each
class having ordinary voting power, and 100% of the Capital Stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Borrower, or by one or more of the
other Wholly-Owned Subsidiaries of the Borrower, or any of them.

20

SECTION 1.2  Use of Defined Terms. Unless otherwise defined or the context 
--------------------                                    
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in the Disclosure Schedule and in each Note,
Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and
other communication delivered from time to time in connection with this
Agreement or any other Loan Document.

SECTION 1.3  Other Interpretive Provisions.
-----------------------------  

(a)  The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.

(b)  The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.

(c)  (i)    The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.

(ii)   The term "including" is not limiting and means "including
without limitation."

(iii)  In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding",
and the word "through" means "to and including."

(d)  Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.

(e)  The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this
Agreement.

(f)  This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters.
All such limitations, tests and measurements are cumulative and shall each
be performed in accordance with their terms.

21

(g)  Unless otherwise expressly provided herein, financial
calculations applicable to the Borrower shall be made on a consolidated
basis among the Borrower and the Material Subsidiaries.

SECTION 1.4  Accounting and Financial Determinations.  Unless otherwise
---------------------------------------                    
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 8.2.4) shall be made, and all financial
-------------                                  
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles in effect in the
United States of America from time to time ("GAAP").  Notwithstanding the
----                        
foregoing, if the Borrower, the Required Lenders or the Agent determines that a
change in GAAP from that in effect on the date hereof, has altered the treatment
of certain financial data to its detriment under this Agreement, such party may
seek of the others a renegotiation of any financial covenant affected thereby.
If the Borrower, the Required Lenders and Agent cannot agree on renegotiated
covenants, then, for the purposes of this Agreement, GAAP will refer to
generally accepted accounting principles on the date just prior to the date on
which the change that gave rise to the renegotiation occurred.

ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES

SECTION 2.1  Commitments. On the terms and subject to the conditions of
-----------                                                  
this Agreement (including Article VI), each Lender severally agrees to make
----------                                       
Loans pursuant to the Commitments described in this Section 2.1.
----------- 

SECTION 2.1.1  Facility A Commitment.
---------------------  

(a)  On the terms and subject to the conditions of this Agreement
(including, without limitation, Section 2.1.3), from time to time on any
-------------                           
Business Day occurring prior to the Facility A Commitment Termination Date,
each Lender will make loans (relative to such Lender, its "Facility A
----------
Loans") to the Borrower in an aggregate principal amount not to exceed at
-----
anytime outstanding the lesser of (a) the amount set forth opposite such
Lender's name on Schedule 2.1.1 under the caption "Facility A Commitment"
--------------                                          
(such amount as the same may be reduced hereunder or as reduced or
increased as a result of one or more assignments, under Section 11.11.1,
--------------- 
such Lender's "Facility A Commitment"), and (b) such Lender's pro rata
---------------------                                  
portion of the Facility A Borrowing Base.   On the terms and subject to the
conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow Facility A Loans.

(b)  The Borrower shall deliver a Borrowing Base Certificate to the
Agent prior to the Effective Date to permit the Agent to determine the
Facility A Borrowing Base to be in effect on the Effective Date and,
thereafter, shall deliver Borrowing Base Certificates and such other
materials to the Agent in accordance with the provisions of Section
-------
8.1.1(j).  Each  such Borrowing Base Certificate shall certify the Facility
--------                                                                   
A Borrowing Base in effect on the last day of the applicable reporting
period.  Promptly 

22

following its receipt of each Borrowing Base Certificate, the Agent shall
confirm the then current Facility A Borrowing Base using the information
previously provided to the Agent by the Borrower and shall notify the
Borrower and each Lender of the Facility A Borrowing Base so determined.
Each determination of the Facility A Borrowing Base by the Agent shall
remain in effect until notice of a redetermined Facility A Borrowing Base
shall have been given by the Agent in accordance with the provisions of 
this Section 2.1.1(b); provided, however, if the Borrower fails to deliver
----------------                                    
a Borrowing Base Certificate, the Borrower will be unable to borrow
Facility A Loans until such time that a Borrowing Base Certificate is
delivered.

SECTION 2.1.2  Facility B Commitment.  On the terms and subject to the
---------------------                                
conditions of this Agreement (including without limitation Section 2.1.3), 
-------------
from time to time on any Business Day occurring prior to the Facility B
Loan Conversion Date, each Lender will make loans (relative to such
Lender, its "Facility B Loans") to the Borrower in an aggregate principal 
----------------                                  
amount not to exceed at any time outstanding the amount set forth opposite
such Lender's name on Schedule 2.1.1 under the caption "Facility B
--------------                              
Commitment" (such amount as the same may be reduced hereunder or as reduced
or increased as a result of one or more assignments under Section 11.11.1,
--------------- 
such Lender's "Facility B Commitment").  On the terms and subject to the
---------------------                                    
conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow Facility B Loans prior to the Facility B Loan Conversion Date.

SECTION 2.1.3  Restrictions on Loans.   None of the Lenders shall be
---------------------                                 
permitted or required to:

(a)  make any Facility A Loan if, after giving effect thereto, the
Effective Amount of all Facility A Loans, would exceed the lesser of (x)
the combined Facility A Commitments and (y) the Facility A Borrowing Base;
or

(b)  make any Facility A Loan or Facility B Loan, if after giving
effect thereto, Section 8.1.14(b) would be breached.
-----------------                   

SECTION 2.2  Reduction and Termination of Commitments.  The Commitments
----------------------------------------                    
are subject to reduction and termination from time to time pursuant to this
Section 2.2.
----------- 

SECTION 2.2.1  Optional Subject to Section 5.4.  The Borrower may,
-------------------------------                      
from time to time on any Business Day occurring after the Effective Date,
voluntarily reduce the unused amount of any Commitment; provided, however,
that all such reductions shall require at least three (3) Business Days'
prior notice to the Agent and be permanent, and any partial reduction of
any Commitment shall be in an integral multiple of $1,000,000.

SECTION 2.2.2  Mandatory.  The applicable Commitment shall be
---------                                       
reduced by an amount equal to any amount required as a mandatory prepayment
of the Facility A Loans or Facility B Loans as applicable pursuant to
Section 3.1.1, 3.1.3(a), 3.1.3(d) or 3.1.3(g) (whether or not any Loans
-------------  --------  --------    --------                          
shall then be outstanding under the applicable Commitment).

23

SECTION 2.2.3  Termination.
-----------  

(a)  Upon the occurrence of any event described in the definition of
Facility A Commitment Termination Date, the Facility A Commitment shall be
reduced to zero and shall terminate automatically and without further
action.

(b)  Upon the occurrence of any event described in the definition of
Facility B Commitment Termination Date, the Facility B Commitment shall be
reduced to zero and shall terminate automatically and without further
action.

SECTION 2.3  Borrowing Procedure. By delivering a Borrowing Request to the
Agent on or before 11:00 a.m., New York City time, on a Business Day, the
Borrower may from time to time irrevocably request, on not less than three (3)
nor more than five (5) Business Days' notice in the case of LIBOR Loans, and on
the same day or no more than five (5) Business Days' notice in the case of Prime
Rate Loans, that a Borrowing be made in a minimum amount of $100,000 in the case
of LIBOR Loans, and in a minimum amount of $50,000 in the case of Prime Rate
Loans, and in both instances in any integral multiple of $50,000 in excess
thereof, or in the unused amount of the applicable Commitment. On the terms and
subject to the conditions of this Agreement, each Borrowing shall be comprised
of the type of Loans, and shall be made on the Business Day, specified in such
Borrowing Request. Each Borrowing Request must be signed by a Responsible
Officer of the Borrower. Upon receipt of any Borrowing Request, the Agent shall
promptly notify the Lenders of such Borrowing Request. On or before 1:00 p.m.,
New York City time, on such Business Day each Lender shall deposit with the
Agent same day funds in an amount equal to such Lender's Percentage of the
requested Borrowing. Such deposit will be made to an account which the Agent
shall specify from time to time by notice to the Lenders. To the extent funds
are received from the Lenders, the Agent shall make such funds available to the
Borrower by wire transfer to the accounts specified in the applicable Borrowing
Request. No Lender's obligation to make any Loan shall be affected by any other
Lender's failure to make any Loan.

SECTION 2.4  Continuation and Conversion Elections.   By delivering a
-------------------------------------                    
Continuation/Conversion Notice to the Agent on or before 11:00 a.m., New York
City time, on a Business Day, the Borrower may from time to time irrevocably
elect, on not less than three (3) nor more than five (5) Business Days' notice
that all, or any portion in a minimum amount of $100,000, in the case of LIBOR
Loans, and in a minimum amount of $50,000 in the case of Prime Rate Loans, and
in both instances any integral multiple of $50,000 in excess thereof, of any
Loans be, in the case of Prime Rate Loans, converted into LIBOR Loans or, in the
case of LIBOR Loans, be converted into a Prime Rate Loan or a LIBOR Loan or
continued as a LIBOR Loan (in the absence of delivery of a
Continuation/Conversion Notice with respect to any LIBOR Loan at least three (3)
Business Days before the last day of the then current Interest Period with
respect thereto, such LIBOR Loan shall, on such last day, automatically convert
to a Prime Rate Loan); provided, however, that (i) each such conversion or
continuation shall be pro rated among the applicable outstanding Loans of all
Lenders, and (ii) no portion of the outstanding principal amount of any Loans
may be continued as, or be converted into, LIBOR Loans when any Default or Event
of Default has occurred and is continuing.

24

SECTION 2.5  Funding.   Each Lender may, if it so elects, fulfill its
-------                                                  
obligation to make, continue or convert LIBOR Loans hereunder by causing one of
its foreign branches or Affiliates (or an international banking facility created
by such Lender) to make or maintain such LIBOR Loan; provided, however, that
such LIBOR Loan shall nonetheless be deemed to have been made and to be held by
such Lender, and the obligation of the Borrower to repay such LIBOR Loan shall
nevertheless be to such Lender for the account of such foreign branch, Affiliate
or international banking facility.  In addition, the Borrower hereby consents
and agrees that, for purposes of any determination to be made for purposes of
Sections 5.1, 5.2, 5.3 or 5.4, it shall be conclusively assumed that each Lender
------------  ---  ---    ---                                                   
elected to fund all LIBOR Loans by purchasing, as the case may be, Dollar
certificates of deposit in the U.S.  or Dollar deposits in its Applicable
Lending Office.

SECTION 2.6  Loan Accounts/Notes.
-------------------  

(a)  The Loans made by each Lender shall be evidenced by one or more
loan accounts or records maintained by such Lender in the ordinary course
of business.  The loan accounts or records maintained by the Agent and each
Lender shall be conclusive absent manifest error of the amount of the Loans
made by the Lenders to the Borrower and the interest and payments thereon.
Any failure so to record or any error in doing so shall not, however, limit
or otherwise affect the obligation of the Borrower hereunder to pay any
amount owing with respect to the Loans.  In case of a discrepancy between
the entries in the Agent's books and any Lender's books, the Agent's books
shall be conclusive absent manifest error.

(b)  Upon the request of any Lender made through the Agent, the
Facility A Loans made by such Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A-1
-----------
hereto (each, a "Facility A Note" and collectively, the "Facility A
---------------                         ----------
Notes"), instead of loan accounts.  Each Facility A Note shall be dated the
-----
Effective Date, shall be payable to the order of such Lender in a principal
amount equal to such Lender's Facility A Commitment as originally in
effect, and shall otherwise be duly completed.  The Notes shall be payable
as provided in Article III.
----------- 

(c)  Upon the request of any Lender made through the Agent, the
Facility B Loans made by such Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A-2
-----------
hereto (each, a "Facility B Note" and collectively, the "Facility B
---------------                         ----------
Notes"), instead of loan accounts.  Each Facility B Note shall be dated the
-----
Effective Date, shall be payable to the order of such Lender in a principal
amount equal to such Lender's Facility B Commitment as originally in
effect, and shall otherwise be duly completed.  The Notes shall be payable
as provided in Article III.
----------- 

(d)  Each Lender shall enter on a schedule attached to its Notes a
notation with respect to each Loan made hereunder of: (i) the date and
principal amount thereof, (ii) each payment and prepayment of principal
thereof, (iii) whether the interest rate is initially to be determined in
accordance with Section 3.2.1(a) or Section 3.2.1(b), and (iv) the Interest
----------------    ----------------                       
Period, if applicable.  Such notations shall be conclusive and binding on

25

the Borrower absent manifest error; provided, however, that the failure of
any Lender to make a notation on the schedule to its Note as aforesaid
shall not limit or otherwise affect the obligation of the Borrower to repay
the Loans in accordance with their respective terms as set forth herein.

ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES

SECTION 3.1  Repayment and Prepayments.
-------------------------  

SECTION 3.1.1  Repayment
---------

(a)  Facility A Loans.  The Borrower shall pay to the Agent, for the
----------------                                               
account of each Lender, on the Facility A Commitment Termination Date the
aggregate principal amount of Facility A Loans outstanding on such date,
together with all accrued and unpaid interest thereon.

(b)  Facility B Loans.  The Borrower shall pay to the Agent, for the
----------------                                               
account of each Lender, the principal of the Facility B Loans made by such
Lender outstanding at the close of business on the Facility B Loan
Conversion Date (together with all accrued and unpaid interest thereon) in
a single payment on the date eighteen (18) months after the Effective Date.

SECTION 3.1.2  Voluntary Prepayments. The Borrower may, from time to 
---------------------                                
time on any Business Day, make a voluntary prepayment, in whole or in part,
of the outstanding principal amount of any Loans; provided, however, that:

(a)  any such prepayment shall be made pro rata among Loans of the
same type and, if applicable, having the same Interest Period, of all
Lenders;

(b)  all such voluntary prepayments of LIBOR Loans shall require at
least three (3) but no more than five (5) Business Days' prior written
notice to the Agent and all such voluntary prepayments of Prime Rate Loans
shall require prior written notice to the Agent at least by 1:00 p.m., New
York City time, at least one (1) Business Day prior to such repayment but
no more than five (5) Business Days prior to such repayment; and

(c)  all such voluntary prepayments of LIBOR Loans or Prime Rate Loans
shall be made in a minimum amount of $100,000 and any integral multiple of
$50,000 in excess thereof, or in the whole outstanding principal amount of
such Loans;

Each prepayment of any Loans made pursuant to this Section shall be without
premium or penalty, except as required by Section 5.4.
------------

SECTION 3.1.3  Mandatory Prepayments.
---------------------  

26

(a)  The Borrower shall, on each date when any reduction in the
applicable Commitment shall become effective, including pursuant to Section
-------
2.2, make a mandatory prepayment of all applicable Loans equal to the
---                                                                  
excess, if any, of the aggregate principal amount of all applicable Loans
over the applicable Commitment.

(b)  If at any time the Effective Amount of the Facility A Loans
exceeds the lesser of (x) the combined Facility A Commitments then in
effect and (y) the Facility A Borrowing Base, the Borrower shall
immediately prepay such Facility A Loan in an aggregate principal amount
equal to such excess.  Amounts prepaid pursuant to this Section may be
reborrowed; provided that the aggregate Facility A Commitment is not
exceeded thereby.

(c)  If at any time the Effective Amount of the Facility B Loans
exceeds the combined Facility B Loan Commitments then in effect, the
Borrower shall immediately prepay such Facility B Loan in an aggregate
principal amount equal to such excess, together with commitment fees
accrued to the date of such payment.

(d)  In the event any Asset Disposition results in Excess Sale
Proceeds which are (i) not reinvested within ninety (90) days of such
disposition in replacement assets or not deposited with the Agent within
ninety (90) days of such disposition to be reinvested in such replacement
assets, or (ii) deposited with the Agent within ninety (90) days of such
disposition but which are not reinvested within one-hundred eighty (180)
days of such disposition all as provided Section 8.2.8(b), such Excess Sale
----------------                  
Proceeds shall be applied first to the prepayment of the Facility B Loans
in inverse order of maturity and, second to prepayment of the Facility A
Loans.  In the instance that Facility A Loans are so prepaid, the Facility
A Commitment shall be reduced permanently by the amount of such prepayment.

(e)  The Borrower shall, immediately upon any acceleration of the
Stated Maturity Date of any Loans pursuant to Section 9.2 or Section 9.3,
------------   ----------- 
repay all such Loans.

(f)  The Borrower shall prepay amounts in accordance with Section
-------
8.1.11.
------ 

(g)  In the event any Casualty Event affecting any property of the
Borrower or any of the Material Subsidiaries which results in insurance,
condemnation award or other compensation in excess of $250,000 ("Casualty
--------
Proceeds") which Casualty Proceeds are (i) not reinvested within ninety
--------                                                               
(90) days of receipt of such Casualty Proceeds in replacement assets shall
be applied to the prepayment of the Senior Debt in accordance with the
procedures set forth in the foregoing clause (d) for Excess Proceeds.

Except as otherwise provided above, mandatory prepayments shall be applied first
to the Facility B Loans, then the Facility A Loans.  Subsequent to the Facility
B Loan Conversion Date, each voluntary prepayment of Facility B Loans made
pursuant to Section 3.1.2 and each mandatory prepayment of Facility B Loans made
-------------                                                       
pursuant to Section 3.1.3 shall be applied, to the extent of such prepayment, to
-------------                                                       
the repayments of the Facility B Loans installments in inverse order of
maturity.  Each prepayment of any Loans made pursuant to this Section shall be
without 

27

premium or penalty, except as may be required by Section 5.4. No voluntary
-----------     
prepayment of principal of any Facility A Loan or Facility B Loan prior to the
applicable Commitment Termination Date, shall cause a reduction in the Facility
A Commitment or Facility B Commitment, as applicable.

SECTION 3.2  Interest Provisions.  Interest on the outstanding principal
-------------------                                         
amount of Loans shall accrue and be payable in accordance with this Section 3.2.
----------- 

SECTION 3.2.1  Rates.  Pursuant to an appropriately delivered
-----                                          
Borrowing Request or Continuation/Conversion Notice, the Borrower may elect
that Loans comprising a Borrowing accrue interest at a rate per annum:

(a)  on that portion maintained from time to time as a Prime Rate
Loan, equal to the sum of the Prime Rate from time to time in effect plus
the Applicable Prime Rate Margin; and

(b)  on that portion maintained as a LIBOR Loan, during each Interest
Period applicable thereto, equal to the sum of the LIBOR (Reserve Adjusted)
for such Interest Period plus the Applicable LIBOR Margin.

All LIBOR Loans shall bear interest from and including the first day
of the applicable Interest Period to (but not including) the last day of
such Interest Period at the rate determined as applicable to such LIBOR
Loan.

SECTION 3.2.2  Post-Default Rate.   Notwithstanding Section 3.2.1,
-----------------                    ------------- 
whenever an Event of Default has occurred and is continuing, the Borrower
shall pay interest on any Loan, and on any other amount payable by the
Borrower hereunder (to the extent permitted by law) for the period
commencing on the occurrence of such Event of Default until such Event of
Default has been cured or waived as acknowledged in writing by the Agent at
the applicable Post-Default Rate.

SECTION 3.2.3  Payment Dates.   Interest accrued on each Loan shall
-------------                                        
be payable, without duplication:

(a)  on the Stated Maturity Date applicable to such Loan;

(b)  with respect to any prepayment of a Loan in connection with a
reduction in the applicable Commitment, on the date of any such prepayment;

(c)  with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the date of the initial Borrowing hereunder;

(d)  with respect to LIBOR Loans, on the last day of each applicable
Interest Period (and, if such Interest Period shall exceed three months, on
the three month anniversary of the first day of such Interest Period); and

28

(e)  on that portion of any Loans the Stated Maturity Date of which is
accelerated pursuant to Section 9.2 or Section 9.3, immediately upon such
-----------    -----------                       
acceleration.

Interest accruing on the Loans or other monetary Obligations arising under
this Agreement or any other Loan Document during the continuance of any
Event of Default shall be payable upon demand.

SECTION 3.3 Fees.  The Borrower agrees to pay the fees set forth in this
----                                                         
Section 3.3.  All such fees shall be non-refundable.
-----------                                         

SECTION 3.3.1 Commitment Fee.  The Borrower shall pay to the Agent
--------------                                       
for the account of each Lender a commitment fee in an amount equal to 0.75%
times the daily actual unused amount of (a) such Lender's Facility A
-----                                                               
Commitment and (b) such Lender's Facility B Commitment from the date hereof
until the Facility B Loan Conversion Date.  Accrued commitment fees shall
be payable in arrears on each Quarterly Payment Date and on the date on
which the Commitments terminate as provided herein, commencing on the first
of such dates to occur after the date hereof.

SECTION 3.3.2 Arrangement and Agency Fees.  The Borrower agrees to
---------------------------                          
pay to Chase those fees specified in the letter agreement dated March 30,
2001, between the Borrower and Chase at the times specified in such letter
agreement.

ARTICLE IV
INTENTIONALLY OMITTED NUMBERING RESERVED

ARTICLE V
CERTAIN LIBOR AND OTHER PROVISIONS

SECTION 5.1 LIBOR Lending Unlawfu1.  If any Lender shall determine (which
----------------------                                        
determination shall, upon notice thereof to the Borrower, the Agent and the
Lenders, be conclusive and binding on the Borrower) that after the Effective
Date the introduction of, or any change in, or in the interpretation of, any law
makes it unlawful, or any central bank or other government authority asserts
that it is unlawful, for such Lender to make, continue or maintain any Loan as,
or to convert any Loan into, a LIBOR Loan of a certain type, the obligations of
such Lender to make, continue, maintain or convert any such Loans shall, upon
such determination, forthwith be suspended until such Lender shall notify the
Agent that the circumstances causing such suspension no longer exist, and all
LIBOR Loans of such type shall automatically convert into Prime Rate Loans at
the end of the then current Interest Periods with respect thereto or sooner, if
required by such law or assertion.

SECTION 5.2 Deposits Unavailable.  If the Agent shall have determined that:
--------------------                                      

29

(a)  Dollar deposits in the relevant amount and for the relevant
Interest Period are not available to the Reference Lender in the London
interbank market; or

(b)  by reason of circumstances affecting the London interbank market,
adequate means do not exist for ascertaining the interest rate applicable
hereunder to LIBOR Loans of such type;

then, upon notice from the Agent to the Borrower and the Lenders, the
obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue
-----------     -----------                    
any Loans as, or to convert any Loans into, LIBOR Loans of such type shall
forthwith be suspended until the Agent shall notify the Borrower and the Lenders
that the circumstances causing such suspension no longer exist.

SECTION 5.3 Increased LIBOR Loan Costs, etc.   The Borrower agrees to
-------------------------------                          
reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBOR Loans, in any case from time to time by reason of:

(a)  to the extent not included in the calculation of the LIBOR
(Reserve Adjusted), any reserve, special deposit, or similar requirement
against assets of, deposits with or for the account of, or credit extended
by such Lender, under or pursuant to any change in any law, treaty, rule,
regulation (including any F.R.S.  Board regulation), or requirement from
that in effect on the Effective Date, or as the result of any Regulatory
Change; or

(b)  any Regulatory Change which shall subject such Lender to any tax
(other than taxes on net income including franchise taxes based on income,
and franchises), levy, impost, charge, fee, duty, deduction, or withholding
or any kind whatsoever or change the taxation of any Loan made or
maintained as a LIBOR Loan and the interest thereon (other than any change
which affects, and to the extent that it affects, the taxation of net
income including franchise taxes based on income and franchises).

Such Lender shall promptly and in no event later than ninety (90) days after its
knowledge of the occurrence of any such event notify the Agent and the Borrower
in writing of the occurrence of any such event, such notice to state, in
reasonable detail, the reasons therefor and the additional amount required fully
to compensate such Lender for such increased cost or reduced amount; provided,
however, no Lender may make any demand for any such amounts accrued under this
Section 5.3 for any period commencing more than ninety (90) days prior to the
-----------                                                                  
receipt by the Borrower of such notice or, should such cost have accrued
retroactively, within ninety (90) days of the determination by such Lender of
such cost.  Such additional amounts shall be payable by the Borrower directly to
such Lender within five (5) days of its receipt of such notice, and such notice
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.

SECTION 5.4 Funding Losses. In the event any Lender shall incur any loss or
--------------                                                
expense (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to make,
continue or maintain any portion of the 

30

principal amount of any Loan as, or to convert any portion of the principal
amount of any Loan into, a LIBOR Loan) as a result of:

(a)  any conversion or repayment or prepayment of the principal amount
of any LIBOR Loans on a date other than the scheduled last day of the
Interest Period applicable thereto, whether pursuant to Section 3.1 or
-----------   
otherwise;

(b)  any Loans not being made as LIBOR Loans in accordance with the
Borrowing Request therefor; or

(c)  any Loans not being continued as, or converted into, LIBOR Loans
in accordance with the Continuation/Conversion Notice therefor;

then, upon the written notice of such Lender to the Borrower (with a copy to the
Agent), the Borrower shall, within five (5) days of its receipt thereof, pay
directly to such Lender such amount as will (in the reasonable determination of
such Lender) reimburse such Lender for such loss or expense.  Such written
notice (which shall include calculations in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the Borrower.

SECTION 5.5  Increased Capital Costs.  If after the Effective Date any
-----------------------                                   
change in, or the introduction, adoption, effectiveness, interpretation,
reinterpretation or phase-in of, any law or regulation, directive, guideline,
decision or request (whether or not having the force of law) of any court,
central bank, regulator or other government authority affects or would affect
the amount of capital required or expected to be maintained by any Lender or any
Person controlling such Lender, and such Lender determines (in its sole and
absolute discretion) that the rate of return on its or such controlling Person's
capital as a consequence of its Commitments or the Loans made by such Lender is
reduced to a level below that which such Lender or such controlling Person could
have achieved but for the occurrence of any such circumstance, then, in any such
case upon notice from time to time by such Lender to the Borrower (with copies
to the Agent), the Borrower shall within five (5) days of its receipt thereof
pay directly to such Lender additional amounts sufficient to compensate such
Lender or such controlling Person for such reduction in rate of return.  Such
Lender shall promptly and in no event later than ninety (90) days after its
knowledge of any such event notify the Agent and the Borrower of the occurrence
of any such event; provided, however, no Lender may make any demand for any such
amounts accrued under this Section 5.5 for any period commencing more than
-----------                                    
ninety (90) days prior to the receipt by the Borrower of any such notice or,
should such cost have accrued retroactively, within ninety (90) days of the
determination by such Lender of such cost.  A statement of such Lender as to any
such additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding on
the Borrower.  In determining such amount, such Lender may use any reasonable
method of averaging and attribution that it (in its sole and absolute
discretion) shall deem applicable.

SECTION 5.6 Taxes.  Without duplication of any payments made under any
-----                                                      
other provisions of this Article V, all payments by the Borrower of principal
---------                                           
of, and interest on, the Loans and all other amounts payable hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, 

31

but excluding franchise taxes and taxes imposed on or measured by any Lender's
net income (including franchise taxes based upon income) or receipts (such non-
excluded items being called "Taxes"). In the event that any withholding or
-----
deduction from any payment to be made by the Borrower hereunder is required in
respect of any Taxes pursuant to any applicable law, rule or regulation, then
the Borrower will:

(a)  pay directly to the relevant authority the full amount required
to be so withheld or deducted;

(b)  promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and

(c)  pay to the Agent for the account of the Agent and the Lenders
such additional amount or amounts as is necessary to ensure that the net
amount actually received by the Agent and each Lender will equal the full
amount such Lender or the Agent would have received had no such withholding
or deduction been required; provided that the Agent or each Lender shall
promptly and in no event later than ninety (90) days after its knowledge
that any amount is payable under this clause (c) notify the Agent and the
----------                         
Borrower of the same;

provided, however, no Lender or the Agent may make any demand for any such
amounts accrued under this Section 5.6 for any period commencing more than
-----------                                    
ninety (90) days prior to the receipt by the Borrower of any such notice or,
should such cost have accrued retroactively, within ninety (90) days of the
determination by such Lender or the Agent of such cost.

Moreover, if any Taxes are directly asserted against the Agent or any
Lender with respect to any payment received by the Agent or such Lender
hereunder, the Agent or such Lender may pay such Taxes and the Borrower will pay
on demand such additional amounts (including any penalties, interest or
expenses) as is necessary in order that the net amount received by such person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such person would have received had not such Taxes been
asserted.

If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Lenders and the Agent, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders and the Agent for any
incremental Taxes, interest or penalties that may become payable by any Lender
as a result of any such failure.

For purposes of this Section 5.6, a distribution hereunder by the Agent or any
-----------                                              
Lender to or for the account of any Lender or the Agent shall be deemed a
payment by the Borrower.

Each Lender that is organized under the laws of a jurisdiction other than
the United States shall, prior to the due date of any payments under the Notes,
(i) execute and deliver to the Borrower and the Agent, on or about the first
scheduled payment date in each Fiscal Year, one or more (as the Borrower or the
Agent may reasonably request) United States Internal Revenue Service Forms 4224
or Forms 1001 or such other forms or documents (or successor forms or

32

documents), appropriately completed, as may be applicable to establish the
extent, if any, to which a payment to such Lender is exempt from withholding or
deduction of Taxes, and (ii) comply with the requirements of Section 10.10.
------------- 

SECTION 5.7 Payments, Computations, etc.  Unless otherwise expressly
---------------------------                              
provided, all payments by the Borrower pursuant to this Agreement, the Notes or
any other Loan Document shall be made in Dollars, in immediately available funds
by the Borrower to the Agent for the pro rata account of the Lenders entitled to
receive such payment.  All such payments required to be made to the Agent shall
be made, without setoff, counterclaim, recoupment or other deduction, not later
than 11:00 a.m., New York City time, on the date due, in immediately available
funds, to such account as the Agent shall specify from time to time by notice to
the Borrower.  Funds received after that time shall be deemed to have been
received by the Agent on the next succeeding Business Day.  The Agent shall
promptly remit in same day funds to each Lender its share, if any, of such
payments received by the Agent for the account of such Lender.  All interest
(other than interest computed at the Prime Rate) and fees shall be computed on
the basis of the actual number of days (including the first day but excluding
the last day) occurring during the period for which such interest or fee is
payable over a year comprised of three-hundred sixty (360) days.  Interest
computed at the Prime  Rate shall be computed on the basis of its actual number
of days (including the first day but excluding the last day) occurring during
the period for which such interest is payable over a year comprised of 365 or
366 days, as the case may be.  Whenever any payment day is not a Business Day,
such payment shall (except as otherwise required by clause (c) of the definition
----------                  
of the term "Interest Period" with respect to LIBOR Loans) be made on the next
---------------                                                  
succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.

SECTION 5.8 Sharing of Payments.  If any Lender shall obtain any payment
-------------------                                          
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Loan (other than pursuant to the terms of Section
-------
5.3, 5.4 or 5.5 in excess of its pro rata share of payments then or therewith
---  ---    ---                  --- ----                                    
obtained by all Lenders, such Lender shall purchase from the other Lenders such
participations in Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Lender,
the purchase shall be rescinded and each Lender which has sold a participation
to the purchasing Lender shall repay to the purchasing Lender the purchase price
to the ratable extent of such recovery together with an amount equal to such
selling Lender's ratable share (according to the proportion of (a) the amount of
such selling Lender's required repayment to the purchasing Lender to (b) the
--        
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered.  The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights of payment (including pursuant to
Section 5.9) with respect to such participation as fully as if such Lender were
-----------                                                                    
the direct creditor of the Borrower in the amount of such participation.  If
under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this Section applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner 

33

consistent with the rights of the Lenders entitled under this Section to share
in the benefits of any recovery on such secured claim.

SECTION 5.9 Setoff.  Each Lender shall, upon the occurrence of any Default
------                                                         
or any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter maintained with such Lender; provided, however, that
any such appropriation and application shall be subject to the provisions of
Section 5.8.  Each Lender agrees promptly to notify the Borrower and the Agent
-----------                                                                   
after any such setoff and application made by such Lender; provided, however,
that the failure to give such notice shall not affect the validity of such
setoff and application.  The rights of each Lender under this Section are in
addition to other rights and remedies (including other rights of setoff under
applicable law or otherwise) which such Lender may have.

SECTION 5.10 Recourse.  The Obligations of the Borrower to the Agent, and
--------                                                     
the Lenders are secured and rank pari passu with all other Senior Debt.  All of
the Collateral of the Borrower and the Material Subsidiaries will be pledged to
secure the Obligations and all other Senior Debt.  In the event that the
Borrower obtains or creates any Material Subsidiaries (a) each such Material
Subsidiary must issue a guarantee of the Obligations in the form of Exhibit H-2
-----------
and each such guarantee will be in favor of the Agent for the benefit of the
Lenders and secured by a pledge of all of the accounts receivable, inventory,
cash, Customer Lists and stock of such Material Subsidiary, and (b) the Borrower
shall cause the Security Agreements to be amended to add such Material
Subsidiary as an Obligor thereunder and shall deliver, or cause such Material
Subsidiary to deliver, such other agreements, documents, instruments and
opinions in connection therewith as the Agent may request.

SECTION 5.11 Replacement of Lenders.  In the event any Lender shall
----------------------                                 
provide notice to the Agent pursuant to Section 5.3, 5.5 or 5.6 hereunder, the
-----------  ---    ---               
Borrower shall be permitted to replace such Lender, provided, however, that such
Lender's replacement shall agree to all the obligations and conditions relating
to an Assignee Lender contained in Section 11.11.1 hereto.  Any such replacement
---------------                              
shall be subject to the Agent's consent which consent shall not be unreasonably
withheld.

ARTICLE VI
CONDITIONS TO EFFECTIVENESS AND TO BORROWING

SECTION 6.1 Conditions to Effectiveness.  The effectiveness of this
---------------------------                             
Agreement shall be subject to the prior or concurrent satisfaction of each of
the conditions precedent set forth in this Section 6.1.
----------- 

SECTION 6.1.1 Credit Agreement and Loan Documents.  This Agreement
-----------------------------------                  
and the other Loan Documents shall have been duly executed and delivered by
each party thereto.

34

SECTION 6.1.2 Resolutions; Incumbency.  The Agent shall have received
-----------------------                                 
each of the following documents:

(a)  Copies of the resolutions of the board of directors of each of
the Managing General Partner, the Borrower and the Material Subsidiaries
and partnership authorizations of Star Gas Partners authorizing the
transactions contemplated hereby, certified as of the Effective Date by the
Secretary or an Assistant Secretary of each of the Managing General
Partner, the Borrower and the Material Subsidiaries; and

(b)  A certificate of the Secretary or Assistant Secretary of each of
the Borrower and the Material Subsidiaries certifying the names and true
signatures of the officers of each of the Borrower and the Material
Subsidiaries authorized to execute, deliver and perform, as applicable, on
behalf of each of the Borrower and the Material Subsidiaries, this
Agreement and all other Loan Documents to be delivered by each of the
Borrower and the Material Subsidiaries hereunder (upon which certificate
the Agent and each Lender may conclusively rely until they shall have
received a further certificate of a Responsible Officer canceling or
amending such prior certificate).

(c)  A certificate of the Secretary or Assistant Secretary of the
Managing General Partner certifying the names and the signatures of the
officers of the Managing General Partner authorized to execute, deliver and
perform, as applicable, on behalf of the Managing General Partner and Star
Gas Partners, the Loan Documents to be delivered by Star Gas Partners and
the Managing General Partner (upon which certificate the Agent and each
Lender may conclusively rely until they shall have received a further
certificate of a Responsible Officer canceling or amending such prior
certificate).

SECTION 6.1.3 Organization Documents; Good Standing.  The Agent shall
-------------------------------------                   
have received each of the following documents:

(a)  the articles or certificate of incorporation and the bylaws or
other organizational documents of each of the Managing General Partner, the
Borrower and the Material Subsidiaries, and the certificate of limited
partnership and the partnership agreement of Star Gas Partners, in each
case as in effect on the Effective Date, certified by the Secretary or
Assistant Secretary of the relevant entity as of the Effective Date; and

(b)  a good standing and tax good standing certificate for each of
Star Gas Partners, the Borrower and the Material Subsidiaries from the
Secretary of State (or similar, applicable Government Authority) of its
state of incorporation or organization, as applicable, and each other state
designated by the Agent where such entity conducts significant business, in
each case as of a recent date.

SECTION 6.1.4 Closing Certificate.  A certificate signed by a
-------------------                             
Responsible Officer of each of Star Gas Partners and the Borrower, dated as
of the Effective Date, certifying:

35

(a)  the representations and warranties contained in Article VII are
-----------    
true and correct on and as of such date, as though made on and as of such
date;

(b)  since December 31, 2000, there has been no material adverse
change in the condition (financial or otherwise), operations, business
assets, liabilities (actual or contingent) or prospects taken as a whole of
the Borrower and its Material Subsidiaries from that set forth in the
financial statements as of December 31, 2000 for the period ending on that
date (which financial statements shall be attached);

(c)  since December 31, 2000, there has been no material adverse
change in the condition (financial or otherwise), operations, business
assets, liabilities (actual or contingent) or prospects taken as a whole of
Star Gas Partners and its subsidiaries taken as a whole from that set forth
in the financial statements as of December 31, 2000 (which financial
statements shall be attached);

(d)  There shall not have occurred since December 31, 2000 a material
adverse change in the condition (financial or otherwise), operations,
business, assets, liabilities (actual or contingent) or prospects of
regarding Star Gas Partners, the Borrower and the Material Subsidiaries
taken as a whole; and

(e)  the financial statements delivered to the Lenders and Agent on
and prior the date of this Agreement are true and correct.

SECTION 6.1.5 Security Agreements; Prior Liens Removed; Prior
-----------------------------------------------
Indebtedness Paid.  The Agent shall have received duly executed
-----------------                                               
counterparts of the Security Agreements, dated as of the date hereof, duly
executed by the Borrower, Star Gas Partners, and the Material Subsidiaries,
as the case may be, together with:

(a)  copies of properly executed Uniform Commercial Code financing
statements (Form UCC-1), naming (i) the Borrower as the debtor and the
Agent as the secured party, and (ii) each of the Material Subsidiaries as
the debtor and the Agent as the secured party;

(b)  executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in the Collateral;

(c)  copies of Uniform Commercial Code Requests for Information or
Copies (Form UCC-11), or a similar search report, dated a date reasonably
near to the date of the initial Borrowing, listing all effective financing
statements which name any of the Borrower, and the Material Subsidiaries
(under its present name and any previous names) as the debtor and which are
filed in the jurisdictions in which filings were made pursuant to clause
------
(a) above, together with copies of such financing statements (none of which
---                                                                        
shall cover any collateral described in the Security Agreements);

36

(d)  letters of instruction to each of the depository banks in respect
of banking accounts of the Borrower and each Material Subsidiary at such
depository banks in form and substance satisfactory to the Agent; and

(e)  each Prior Lien shall have been removed on or before the
Effective Date and all Indebtedness of the Borrower (except for
Indebtedness hereunder and the Subordinated Indebtedness) shall have been
paid and discharged in full, and no Person shall have any interest
whatsoever in, or be a creditor of, the Borrower except the existing
Shareholders of the Borrower as holders of common and preferred equity in
the Borrower, and the Agent shall have received evidence satisfactory to it
to such effect.

SECTION 6.1.6 Permits.  The Agent shall have received a duly executed
-------                                                 
certificate of a Responsible Officer of the Borrower certifying that there
are no permits, licenses or regulatory approvals required for the
execution, delivery and performance of the Loan Documents.

SECTION 6.1.7 RESERVED
--------

SECTION 6.1.8 Opinion of Counsel.  The Agent shall have received
------------------                                 
opinions, dated the Effective Date and addressed to the Agent and all
Lenders, from Phillips Nizer Benjamin Krim & Ballon, special counsel to the
Managing General Partner, Star Gas Partners, the Borrower and the Material
Subsidiaries substantially in the form of Exhibit G hereto and opinions of
---------                       
counsel to the Borrower and its Material Subsidiaries covering such matters
of law of the State of Florida, New York, New Jersey, Maryland,
Pennsylvania and the District of Columbia as shall be reasonably requested
by the Agent or any Lender.

SECTION 6.1.9 Closing Fees, Expenses, etc.   The Agent shall have
---------------------------                        
received evidence satisfactory to it of payment for its own account, or for
the account of each Lender, as the case may be, all fees, costs and
expenses due and payable pursuant to Section 3.3 and, if then invoiced,
-----------                       
Section 11.3.
------------ 

SECTION 6.1.10 Insurance.  Insurance complying with the Loan Documents
---------                                     
shall be in full force and effect and the Agent shall have received a
certificate to that effect from independent insurance brokers or
consultants as shall be satisfactory to the Agent and the Required Lenders.

SECTION 6.1.11 Solvency Certificate.  The Authorized Officer of each
--------------------                                  
of the Borrower and the Guarantors shall have delivered to the Agent a
solvency certificate dated the Effective Date, substantially in the form of
Exhibit I hereto.
---------        

SECTION 6.1.12 Borrowing Base Certificate.   The Agent shall have
--------------------------                         
received a Borrowing Base Certificate.

SECTION 6.1.13 RESERVED
--------

37

SECTION 6.1.14 Material Contracts.  The Agent and the Lenders shall
------------------                                   
have received true and complete copies of all Project Contracts and each
other material agreement, entered into as of April 6, 2000, between the
Borrower, each Material Subsidiary and their respective suppliers and the
purchasers from them of services.  Each such Project Contract shall be in
full force and effect without default thereunder and the Agent shall have
received a certificate of a Responsible Officer of the Borrower to such
effect.

SECTION 6.1.15 Consent of Petro Lenders.  The Agent shall have
------------------------                        
received evidence satisfactory to it of the consent of the lenders under
the Petro Credit Facility to the issuance by Star Gas Partners of its
Guarantee Agreement.

SECTION 6.1.16 Other Documents.  The Agent and each Lender shall have
---------------                                        
received such other approvals, opinions, documents or materials as the
Agent or such Lender may reasonably request.

SECTION 6.2 All Borrowings.  The obligation of each Lender to fund any
--------------                                             
Loan on the occasion of any Borrowing (including the initial Borrowing) shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 6.2.

SECTION 6.2.1 Compliance with Warranties, No Default, etc.   Both
--------------------------------------------       
before and after giving effect to any Borrowing (but, if any Default of the
nature referred to in Section 9.1.4 shall have occurred with respect to any
-------------                                        
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds thereof) the following statements shall be true
and correct:

(a)  the representations and warranties set forth in Article VII and
-----------    
in the Security Agreements shall be true and correct with the same effect
as if then made (unless stated to relate solely to an earlier date, in
which case such representations and warranties shall be true and correct as
of such earlier date);

(b)  no Default or Event of Default shall have then occurred and be
continuing;

(c)  the Borrower shall not have made any distribution or payment to
shareholders of the Borrower or any payment in respect of Indebtedness of
the Borrower in violation of the provisions of Section 8.2.6 hereof; and
-------------            

(d)  no event or circumstance shall have occurred which could have a
Material Adverse Effect.

SECTION 6.2.2 Borrowing Request.  The Agent shall have received a
-----------------                                   
Borrowing Request, for such Borrowing.  Each delivery of a Borrowing
Request and the acceptance by the Borrower of the proceeds of such
Borrowing shall constitute a representation and warranty by Star Gas
Partners, the Borrower and the Material Subsidiaries that on the date of
such Borrowing (both immediately before and after giving effect to such
Borrowing and the application of the proceeds thereof) each of the
statements made in Section 6.2.1 is true and correct.
-------------                     

38

SECTION 6.2.3 Lien Searches.  With respect to the initial Borrowing
-------------                                         
only, satisfactory results of lien searches against the Borrower in the
locations set forth on Schedule 6.2.3.
-------------- 

SECTION 6.2.4 Satisfactory Legal Form.  All documents executed or
-----------------------                             
submitted pursuant hereto by or on behalf of the Borrower, any other
Obligor or any Subsidiary shall be satisfactory in form and substance to
the Agent and its counsel; the Agent and its counsel shall have received
all information, approvals, opinions, documents or instruments as the Agent
or its counsel may reasonably request.

ARTICLE VII
REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders and the Agent to enter into this Agreement
and to make Loans hereunder, the Borrower represents and warrants unto the Agent
and each Lender as set forth in this Article VII.
----------- 

SECTION 7.1 Organization etc.
----------------  

(a)  Each of the Managing General Partner, the Borrower and its
Material Subsidiaries is a corporation (or a limited liability company in
the case of the Managing General Partner) duly organized, validly existing
and in good standing under the laws of its state of organization and has
all requisite power and authority to own and operate its properties, to
conduct its business as conducted on the Effective Date, to enter into this
Agreement, the Notes and the other Loan Documents to which it is a party,
and to carry out the terms of this Agreement, the Notes and such other Loan
Documents.

(b)  Star Gas Partners is a limited partnership duly organized,
validly existing and in good standing under the laws of its state of its
organization and has all requisite partnership power and authority to own
and operate its properties, to conduct its business as conducted on the
Effective Date, and to execute, deliver and carry out the terms of the Loan
Documents to which it is a party.

(c)  Item 7.1 of the Disclosure Schedule accurately and completely
--------                                                     
lists, as to each of Star Gas Partners, the Borrower and each Material
Subsidiary: (i) the state of incorporation or organization of each such
entity, and the type of legal entity that each of them is, (ii) as to each
of them that is a corporation, the classes and number of authorized and
outstanding shares of Capital Stock of each such corporation, and the
owners of such outstanding shares of Capital Stock, (iii) as to each of
them that is a legal entity other than a corporation (but not a natural
person), the type and amount of equity interests authorized and outstanding
of each such entity, and the owners of such equity interests, and (iv) the
business in which each of such entities is engaged.  All of the foregoing
shares or other equity interests that are issued and outstanding have been
duly and validly issued and are fully paid and non-assessable, and are
owned by the Persons referred to in 

39

Item 7.1 of the Disclosure Schedule, free and clear of any Lien except as
--------          
otherwise provided for herein. Except as set forth on Item 7.1 of the
--------
Disclosure Schedule, there are no outstanding warrants, options, contracts
or commitments of any kind entitling any Person to purchase or otherwise
acquire any shares of Capital Stock or other equity interests of the
Borrower or any Material Subsidiary nor are there outstanding any
securities that are convertible into or exchangeable for any shares of
Capital Stock or other equity interests of the Borrower or any Material
Subsidiary.

SECTION 7.2 Material Subsidiaries.  The Material Subsidiaries of the
---------------------                                    
Borrower are listed on Schedule 7.2 hereto, and none of the Borrower or any of
------------                                           
its Material Subsidiaries existing on the date of this Agreement has made any
Investments in any other Person (other than Investments of the types permitted
in Section 8.2.5).
-------------  

SECTION 7.3 Qualification.  Each of Star Gas Partners, the Borrower and
-------------                                               
its Material Subsidiaries is duly qualified or registered and is in good
standing as a foreign corporation or partnership for the transaction of
business, in the jurisdictions set forth in Item 7.3 of the Disclosure Schedule
--------                           
which are the only jurisdictions, on the date hereof, in which the nature of
their respective activities or the character of the properties they own, lease
or use makes such qualification or registration necessary and, in the case of
Star Gas Partners only, in which the failure so to qualify or to be so
registered could be reasonably expected to have a Material Adverse Effect.

SECTION 7.4 Enforceability.  Each of Star Gas Partners, the Borrower and
--------------                                               
the Material Subsidiaries has taken all necessary partnership or corporate
action to authorize the execution, delivery and performance by it of this
Agreement, the Notes and each other Loan Document to which is a party.  Each of
Star Gas Partners, the Borrower and the Material Subsidiaries has duly executed
and delivered each of this Agreement, the Notes and the other Loan Documents to
which it is a party, and each of them constitutes its legal, valid and binding
obligation enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating to
or affecting the rights and remedies of creditors and by general equitable
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law; provided, however, that such laws shall not
materially interfere with the practical realization of the Security Documents or
the Liens created thereby, except for (i) possible delay, (ii) situations that
may arise under Chapter 11 of the Bankruptcy Code, and (iii) equitable orders of
a bankruptcy court.

SECTION 7.5 Due Authorization; Non-contravention; etc.  The execution,
-----------------------------------------                  
delivery and performance by each of Star Gas Partners, the Borrower and the
Material Subsidiaries of this Agreement, the Notes and each other Loan Document
required to be executed by it hereunder are within Star Gas Partner's, the
Borrower's and such Material Subsidiary's powers, have been duly authorized by
all necessary action, and do not:

(a)  contravene Star Gas Partners', the Borrower's or any Material
Subsidiary's Organization Documents;

40

(b)  contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting Star Gas
Partners, the Borrower or any Material Subsidiary; or

(c)  result in, or require the creation or imposition of, any Lien on
any of Star Gas Partners', the Borrower's or such Material Subsidiary's
properties, except as contemplated hereby.

SECTION 7.6 Government Approvals; Regulations, etc.  No authorization or
--------------------------------------                       
approval or other action, by, and no notice to or filing with, any government
authority or regulatory body or other Person (that has not been obtained) is
required for the due execution, delivery or performance by Star Gas Partners,
the Borrower or any Material Subsidiary of this Agreement, the Notes or any
other Loan Document to which it is a party.  All such required authorizations
and approvals have been obtained and such required notices and filings have been
made.

SECTION 7.7 Business; Financial Statements.
------------------------------  

(a)  The audited consolidated financial statements of the Borrower and
its Subsidiaries dated for their fiscal year ending in 2000, together with
the related statements of income or operations, shareholders' equity and
cash flows for the fiscal periods ended on those respective dates:

(i)    were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly
noted therein;

(ii)   fairly present in accordance with GAAP the financial
condition of the Borrower and its Subsidiaries as of the date thereof
and results of operations for the period covered thereby; and

(iii)  show all material indebtedness and other liabilities,
direct or contingent of the Borrower and its Subsidiaries required to
be disclosed in accordance with GAAP as of the date thereof including
liabilities for taxes, material commitment and Contingent Liabilities.

(b)  The audited consolidated financial statements of Star Gas
Partners and its Subsidiaries for its fiscal years ending during 1998, 1999
and 2000, in each case together with the related consolidated statements of
income or operations, partners' (or shareholders) capital and cash flow for
the fiscal periods ended on those respective dates:

(i)  were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly
noted therein;

41

(ii)  fairly present in accordance with GAAP the financial
condition of Star Gas Partners and its Subsidiaries as of the date
thereof and results of operations for the period covered thereby; and

(iii) show all material indebtedness and other liabilities,
direct or contingent, of such Person and its consolidated Subsidiaries
required to be disclosed, including liabilities for taxes, material
commitments and Contingent Liabilities in accordance with GAAP as of
the date thereof.

SECTION 7.8 No Material Adverse Change. Since the date of the most recent
--------------------------
financial statements described in Section 7.7 or, for any determination after
-----------
the delivery of the first financial statements pursuant to Section 8.1.1(b),
---------------
since the date of such financial statements (if such financial statements shall
be satisfactory to the Required Lenders), there has been no material adverse
change in the condition (financial or otherwise), business, prospects,
operations, assets or properties of (a) the Borrower and the Material
Subsidiaries (taken as a whole), or (b) Star Gas Partners and its Subsidiaries
(taken as a whole).

SECTION 7.9 Litigation; Labor Controversies, etc. There is no pending or,
------------------------------------
to the knowledge of Star Gas Partners, the Borrower, or any of its Material
Subsidiaries, threatened litigation, action, proceeding, or labor controversy
affecting Star Gas Partners, the Borrower or any of their Subsidiaries, or any
of their respective properties, businesses, assets or revenues, (a) which has,
or could have, a Material Adverse Effect, (b) which could affect the legality,
validity or enforceability of this Agreement, the Notes or any other Loan
Document, or (c) which could affect the transaction contemplated hereby or the
ability of Star Gas Partners, the Borrower or any of its Material Subsidiary to
perform their respective obligations under the Loan Documents.

SECTION 7.10 Ownership of Properties; Project Contracts; Liens.
-------------------------------------------------  

(a)   Star Gas Partners, the Borrower and each of the Material
Subsidiaries have (i) title to all of their respective assets constituting
real property owned in fee simple, (ii) good and valid leasehold interests
in their respective assets constituting leased real property, pursuant to
which they enjoy undisturbed possession thereof, except for defects in, or
lack of recorded title and exceptions to, leasehold interests which could
not, in the aggregate, be reasonably expected to have a Material Adverse
Effect, and (iii) sufficient title to the portion of their respective
assets constituting personal property (including patents, trademarks, trade
names, service marks, copyrights and other intellectual property rights)
reasonably necessary for the use and operation of such personal property as
it has been used in the past and as it is proposed to be used, in each case
subject to no Liens except as permitted pursuant to Section 8.2.3.

(b)   Each Prior Lien has been removed.

(c)   Each Project Contract is in full force and effect without 
default thereunder .

42

(d)  The Liens that, simultaneously with the execution and delivery of
this Agreement and the consummation of the initial Loans, have been created
and granted by the Security Documents and upon filing will constitute valid
perfected first Liens on the properties and assets covered by the Security
Documents; provided, however, that Liens on the Project Contracts shall be
created and granted only to the maximum extent permitted by such documents.

SECTION 7.11 Taxes. Star Gas Partners, the Borrower and each Material
-----                                                      
Subsidiary, and any predecessor entity thereto, have filed all tax returns and
reports required by law to have been filed by them and have paid all taxes and
governmental charges thereby shown to be owing, except (a) any such taxes or
charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books, and (b) in the case only of Star Gas Partners,
where the failure to do so could not have a Material Adverse Effect.

SECTION 7.12 ERISA Compliance.
----------------  

(a)   Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
and, to the best knowledge of the Borrower, nothing has occurred which
would cause the loss of such qualification. The Borrower and each ERISA
Affiliate has made all required contributions to any Plan subject to
Section 412 of the Code, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.

(b)   There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Government
Authority, with respect to any Plan which has resulted in or could
reasonably be expected to have a Material Adverse Effect on the condition
(financial or otherwise), business, operations, assets or properties of
Star Gas Partners, the Borrower and the Subsidiaries (taken as a whole).
There has been no prohibited transaction or violation of the fiduciary
responsibility rules, or failure to be able to accurately value Plan assets
with respect to any Plan which has resulted in or could reasonably be
expected to have a Material Adverse Effect.

(c)   (i) No ERISA Event has occurred or could reasonably be expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii)
neither the Borrower nor any ERISA Affiliate has incurred, or could
reasonably be expected to incur, any liability under Title IV of ERISA with
respect to any Pension Plan (other than premiums due and not delinquent
under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA
Affiliate has incurred, or reasonably could be expected to incur, any
liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, could result in such liability under Section 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the
Borrower nor any ERISA Affiliate has engaged 

43

in a transaction that could reasonably be expected to be subject to Section
4069 or 4212(c) of ERISA.

(d)   From this date hereafter, each year the Borrower shall have no
underfunded Pension Plans.

SECTION 7.13 Environmental Warranties.
------------------------  

(a)   All facilities and property owned, leased, used, occupied or
controlled (in whole or in part) by Star Gas Partners, the Borrower or any
Material Subsidiary have been, and continue to be, owned, leased, used,
occupied or controlled by Star Gas Partners, the Borrower or such Material
Subsidiary in compliance with all Environmental Laws except where the
failure of any of the foregoing to be done could not reasonably be expected
to have a Material Adverse Effect.

(b)   There have been no past, and there are no pending or threatened

(i)  Environmental Claims received by Star Gas Partners, the
Borrower or any Material Subsidiary with respect to any alleged
violation of any Environmental Law, or

(ii) complaints, notices or inquiries to Star Gas Partners, the
Borrower or any Material Subsidiary regarding potential liability
under any Environmental Law;

which in either the case of clauses (i) or (ii) above, could be reasonably
-----------    ----                           
expected to have a Material Adverse Effect on Star Gas Partners, the
Borrower and the Subsidiaries (taken as a whole).

(c)   To the knowledge of each of Star Gas Partners, the Borrower and
the Material Subsidiaries there have been no Releases of Hazardous
Materials at, on or under any property now or previously owned or leased by
Star Gas Partners, the Borrower or any Material Subsidiary that, singly or
in the aggregate, have, or could reasonably be expected to have, a Material
Adverse Effect.

(d)   Star Gas Partners, the Borrower and each Material Subsidiary
have been issued and are in material compliance with all permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for their businesses, the
absence of or non compliance with which could reasonably be expected to
have a Material Adverse Effect, and no order has been issued, no
Environmental Claim has been made, no penalty has been assessed and, to the
knowledge of the Borrower or any Material Subsidiary, no investigation or
review has occurred or is pending or threatened by any Person with respect
to any alleged failure by Star Gas Partners, the Borrower or any Material
Subsidiary to have any permit, certificate, approval, license or other
governmental authorization required under applicable Environmental Laws in
connection with the conduct of the business or operations of any 

44

of them, except where the failure of any of the foregoing to be done could
not reasonably be expected individually or in the aggregate to have a
Material Adverse Effect.

(e)   No property now or previously owned or leased by the Borrower or
any Material Subsidiary is listed or to the knowledge of Borrower is
proposed for listing (with respect to owned property only) on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state
list of sites requiring investigation or clean-up where the circumstances
giving rise to such listing or proposed listing or the effect of such
listing or proposed listing has, or could reasonably be expected to have, a
Material Adverse Effect.

(f)   To the knowledge of each of Star Gas Partners, the Borrower and
the Material Subsidiaries there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property now
leased, used, occupied or controlled (in whole or in part) by Star Gas
Partners, the Borrower or any Material Subsidiary.

(g)   To the knowledge of each of Star Gas Partners, the Borrower and
each Material Subsidiary, none of Star Gas Partners, the Borrower or any
Material Subsidiary has directly transported or directly arranged for the
transportation of any Hazardous Material to any location, including
locations which are listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state
list or which is the subject of federal, state or local enforcement actions
or other investigations.

(h)   To the knowledge of each of Star Gas Partners, the Borrower and
each Material Subsidiary there are no polychlorinated biphenyls or friable
asbestos present at any property now or previously owned, leased, used,
occupied or controlled (in whole or in part) by Star Gas Partners, the
Borrower or any Material Subsidiary that, singly or in the aggregate, have,
or could reasonably be expected to have, a Material Adverse Effect.

SECTION 7.14 Regulations U and X and Use of Proceeds.
---------------------------------------  

(a)   The Borrower is not engaged in the business of extending credit
for the purpose of buying or carrying margin stock, and no proceeds of any
Loans will be used for a purpose which violates, or would be inconsistent
with, F.R.S. Board Regulation U or X. Terms for which meanings are provided
in F.R.S. Board Regulation U or X or any regulations substituted therefor,
as from time to time in effect, are used in this Section with such
meanings.

(b)   The Borrower shall (i) use the proceeds of the Facility A Loans,
solely for working capital purposes, and (ii) use the proceeds of the
Facility B Loans, solely for purposes of financing that portion of the
purchase price for acquisitions of customer accounts from direct marketers
which does not exceed $40 per customer and to finance capital expenditures
relating to the Borrower's Business or future acquired businesses of the
Borrower.

45

SECTION 7.15 Accuracy of Information. All factual information heretofore 
-----------------------                                      
or contemporaneously furnished by or on behalf of Star Gas Partners, the
Borrower in writing to the Agent or any Lender for purposes of or in connection
with this Agreement or any transaction contemplated hereby which were furnished
to the Agent and all other such factual information hereafter furnished by or on
behalf of Star Gas Partners, the Borrower or any of its Material Subsidiaries in
writing to the Agent or any Lender does not contain any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading. There is no fact known to either of
Star Gas Partners or the Borrower which has or in the future would (so far as
either of Star Gas Partners or the Borrower can now foresee) have a Material
Adverse Effect which has not been set forth or referred to in this Agreement or
the other factual information furnished by Star Gas Partners or the Borrower in
writing.

SECTION 7.16 Solvency. The Borrower, both before and after giving effect 
--------                                                     
to any Borrowing hereunder (including the initial Borrowings), (i) is not
"insolvent" (as such term is defined in (S) 101(31)(A) of the Bankruptcy Code),
(ii) is able to pay its debts and other liabilities, contingent obligations and
commitments as they mature, and (iii) does not have unreasonably small capital
for the business in which it is engaged or for any business or transaction in
which it is about to engage.

SECTION 7.17 Compliance with Agreements and Laws. None of Star Gas 
-----------------------------------                    
Partners, the Borrower or any of their Subsidiaries is in default under any
agreement by which it is bound or in violation of any statute, law or
governmental rule or regulation or court or arbitrator's judgment, decree or
order, in any such case, which either individually or in the aggregate, could
have a Material Adverse Effect.

SECTION 7.18 Investment Company Act; Other Regulations. None of Star Gas
-----------------------------------------                   
Partners, the Borrower or any Material Subsidiary is an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. None of Star Gas Partners, the
Borrower or any Material Subsidiary is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other federal or state
statute or regulation limiting its ability to incur Indebtedness.

ARTICLE VIII
COVENANTS

SECTION 8.1 Affirmative Covenants. The Borrower agrees with the Agent and
---------------------
each Lender that, until all Commitments have terminated and all Obligations have
been paid and performed in full, the Borrower will perform the obligations set
forth in this Section 8.1.
----------- 

SECTION 8.1.1 Financial Information, Reports, Notices, etc. The
--------------------------------------------       
Borrower will furnish, or will cause to be furnished, to each Lender and
the Agent copies of the following financial statements, reports, notices
and information:

46

(a)  (i)  as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three quarterly fiscal periods
in each Fiscal Year of the Borrower, consolidated balance sheets of the
Borrower and the Material Subsidiaries as at the end of such period and the
related consolidated (and, as to statements of income and cash flows, if
applicable and to the extent that such are being prepared, consolidating)
statements of income, surplus or partners' capital, cash flows and
stockholders' equity of the Borrower and the Material Subsidiaries for such
period, all in reasonable detail and certified by an authorized financial
officer of the Borrower as presenting fairly, in all material respects, the
information contained therein (subject to changes resulting from normal
year-end adjustments), in accordance with GAAP applied on a basis
consistent with prior fiscal periods;

(ii) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three quarterly fiscal
periods in each Fiscal Year of Star Gas Partners, the report on Form
10-Q submitted by Star Gas Partners to the Securities Exchange
Commission in respect of such quarterly period;

(b)  (i)  as soon as practicable but in any event within one hundred
five (105) days after the end of each Fiscal Year of the Borrower,
consolidated balance sheets of the Borrower and the Material Subsidiaries
as at the end of such year and the related consolidated (and, as to
statements of income and cash flows, if applicable and to the extent that
such are being prepared, consolidating) statements of income, cash flows
and stockholders' equity of the Borrower and the Material Subsidiaries for
such Fiscal Year, setting forth in each case in comparative form the
consolidated and, where applicable and to the extent that such are being
prepared, consolidating figures for the previous Fiscal Year, all in
reasonable detail, and accompanied by a report thereon of KPMG LLP or other
independent public accountants of recognized national standing selected by
the Borrower, which report shall (1) contain no limitation on the scope of
the audit and no material qualification or exception and (2) state that
such consolidated financial statements present fairly in all material
respects the financial position of the Borrower and the Material
Subsidiaries as at the dates indicated and the results of their operations
and cash flows for the periods indicated in conformity with GAAP applied on
a basis consistent with prior years and that the audit by such accountants
in connection with such consolidated financial statements has been made in
accordance with GAAP;

(ii) as soon as practicable but in any event within ninety (90)
days after the end of each Fiscal Year of Star Gas Partners,
consolidated (and to the extent that such are being prepared,
consolidating) balance sheets of Star Gas Partners and its
Subsidiaries as at the end of such year and the related consolidated
(and, as to statements of income and cash flows, if applicable and to
the extent that such are being prepared, consolidating) statements of
income, partners' capital and cash flows of Star Gas Partners and its
Subsidiaries for such Fiscal Year of Star Gas Partners, setting forth
in each case in comparative form the consolidated and, where
applicable and to the extent that such are being prepared,
consolidating figures for the previous Fiscal Year of Star Gas
Partners, all in reasonable detail, 

47

and accompanied by a report thereon of KPMG LLP or other independent
public accountants of recognized national standing selected by Star
Gas Partners, which report shall (1) contain no limitation on the
scope of the audit and no material qualification or exception and (2)
state that such consolidated financial statements present fairly in
all material respects the financial position of Star Gas Partners and
its Subsidiaries as at the dates indicated and the results of their
operations and cash flows for the periods indicated in conformity with
GAAP applied on a basis consistent with prior years and that the audit
by such accountants in connection with such consolidated financial
statements has been made in accordance with GAAP;

(iii)  as soon as practicable, but in any event not later than
June 30, 2001 for Fiscal Year 2001, and thereafter, not later than the
beginning of each Fiscal Year of the Borrower, a copy of the annual
budget of the Borrower and each Material Subsidiary for such beginning
fiscal year of such Person, in each case in detail satisfactory to the
Agent and containing information sufficient to verify monthly
operation and maintenance expenses;

(c)  as soon as available and in any event within forty-five (45) days
after the end of each of the first three (3) Fiscal Quarters of the
Borrower and within ninety (90) days after the end of each Fiscal Year of
the Borrower, a Compliance Certificate with respect to the period covered
by the financial statements referred to in Section 8.1.1(a) and 8.1.1(b)
----------------     --------
above together with an enumeration of the aggregate number of customers of
the Borrower and its Subsidiaries existing as at the end of such Fiscal
Quarters, and the number of customers acquired through use of the proceeds
of Facility B Loans during such Fiscal Quarter, in each case with
supporting calculations and such other supporting detail as the Agent and
the Required Lenders may require;

(d)   promptly upon receipt thereof, copies of all reports, management
letters and other detailed information (if any) prepared with respect to
Star Gas Partners, the Borrower or any Material Subsidiary by any
independent public accountant in connection with each annual or interim
audit of such Person;

(e)   as soon as possible and in any event within three (3) Business
Days after knowledge by a Responsible Officer of the occurrence of each
Default or Event of Default, a statement of the chief financial officer of
the Borrower setting forth details of such Default or Event of Default and
the action which the Borrower has taken and propose to take with respect
thereto;

(f)   as soon as possible and in any event within three (3) Business
Days after knowledge by a Responsible Officer of (x) the occurrence of any
material adverse development with respect to any litigation, action,
proceeding, or labor controversy described in Section 7.9 or (y) the
-----------           
commencement of any labor controversy, litigation, action, proceeding of
the type described in Section 7.9, notice thereof and copies of all
-----------                                  
documentation relating thereto;

48

(g)   within five (5) Business Days after the sending or filing
thereof, all reports, registration statements and prospectuses which Star
Gas Partners, the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange;

(h)   as soon as possible and in any event within ten (10) days after
knowledge by a Responsible Officer of the occurrence of any of the
following events affecting the Borrower or any ERISA Affiliate, deliver to
the Agent and each Lender a copy of any notice with respect to such event
that is filed with the Government Authority and any notice delivered by a
Government Authority to the Borrower or any ERISA Affiliate with respect to
such event:

(i)   an ERISA Event;

(ii)  any Unfunded Pension Liability of any Pension Plan;

(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Borrower or any
ERISA Affiliate;

(iv)  the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment could result in a material increase
in contributions or Unfunded Pension Liability; or

(v)   any Pension Plan's having incurred an "accumulated funding
deficiency" (as defined in Section 412 of the Code), or receiving
notice from the PBGC, Internal Revenue Service or any governmental
agency that it is the subject of an audit, review or any other
governmental action;

in addition, the Borrower shall instruct the actuaries for all Pension Plans to
deliver to the Agent a copy of each Pension Plan's Actuarial Valuation and each
Pension Plan's Schedule B to Form 5500 at the earliest time that such is
delivered to the Borrower or any ERISA Affiliate;

(i)   within sixty (60) Business Days after each Fiscal Quarter end, a
certificate setting forth the net proceeds from Asset Dispositions, the
application of such proceeds as permitted under Section 8.2.8, and the
-------------         
mandatory prepayments made as required by Section 3.1.3;
------------- 

(j)   on the twenty fifth (25/th/) day of each month (or if such day
shall not be a Business Day, the next preceding Business Day) and promptly
after any day on which the Agent requests, a Borrowing Base Certificate
showing the Facility A Borrowing Base as of the last day of the most
recently ended calendar month or such other date as reasonably requested by
the Agent, as the case may be, in each case certified as complete and
correct by the chief financial officer of the Borrower together with
supporting documents reasonably acceptable to the Agent; provided however,
that for the first three (3) months after the Effective Date, such
Borrowing Base Certificates shall be due thirty (30) days after the last
day of the most recently ended calendar month;

49

(k)   within ten (10) days of knowledge by a Responsible Officer
thereof, notice of any litigation, proceeding, investigation or dispute
which may exist at any time between Star Gas Partners, the Borrower or any
Material Subsidiary and any governmental regulatory body which might
interfere with the normal business operations of Star Gas Partners, the
Borrower or any Material Subsidiary, such other information respecting the
condition or operations, financial or otherwise, of Star Gas Partners, the
Borrower or any Subsidiary as any Lender through the Agent may from time to
time reasonably request;

(l)   within ten (10) days of knowledge by a Responsible Officer
thereof and to the extent not otherwise covered in clauses (a) - (k) above,
-----------------
notice of any event or circumstance that could have a Material Adverse
Effect, including without limitation an event or circumstance which leads
the Borrower to believe it will not meet the financial covenants set forth
in Section 8.2.4 on a pro forma basis;
--------------                     

(m)   within ten (10) days of the occurrence thereof, a notice of the
occurrence of any default by Star Gas Partners or any of its Subsidiaries
under any agreement the breach of which could have a Material Adverse
Effect to which such Person is a party, setting forth in reasonable detail
the circumstances of such default; and

(n)   not later than ten (10) Business Days after the occurrence
thereof, notice of any change, amendment, waiver or entering into of any
Project Contract.

SECTION 8.1.2 Maintenance of Properties. The Borrower will, and will
-------------------------                          
cause each of its Material Subsidiaries to, maintain, preserve, protect and
keep its properties in good repair, working order and condition, and make
necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at
all times unless the Borrower determines in good faith that the continued
maintenance of any of its or its Subsidiaries' properties is no longer
economically desirable.

SECTION 8.1.3 Insurance. In addition to insurance requirements set
---------                                             
forth in the Security Documents, the Borrower shall maintain, and shall
cause each of the Material Subsidiaries to maintain, with financially sound
and reputable independent insurers, insurance with respect to its
properties and business against loss or damage of the kinds customarily
insured against by Persons engaged in the same or similar business, of such
types and in such amounts as are customarily carried under similar
circumstances by such other Persons; including workers' compensation
insurance, public liability and property and casualty insurance which
amount shall not be reduced by the Borrower or any Material Subsidiary in
the absence of thirty (30) days' prior notice to the Agent. All such
insurance shall name the Agent as loss payee/mortgagee and as additional
insured, for the benefit of the Lenders, as their interests may appear. All
casualty insurance maintained by the Borrower and the Material Subsidiaries
shall name the Agent as loss payee and all liability insurance shall name
the Agent as additional insured for the benefit of the Borrower, as their
interests may appear. Upon request of the Agent or any Lender, the Borrower
shall furnish the Agent, with sufficient copies for each Lender, at

50

reasonable intervals (but not more than once per calendar year) a
certificate of a Responsible Officer of the Borrower (and, if requested by
the Agent, any insurance broker of the Borrower) setting forth the nature
and extent of all insurance maintained by the Borrower and the Material
Subsidiaries in accordance with this Section or any Security Documents (and
which, in the case of a certificate of a broker, were placed through such
broker).

SECTION 8.1.4 Payment of Obligations. The Borrower shall, and shall
----------------------                                 
cause each of its Material Subsidiaries to, pay and discharge as the same
shall become due and payable (except to the extent the failure to so pay
and discharge could not reasonably be expected to have a Material Adverse
Effect), all their respective obligations and liabilities, including:

(a)   all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Borrower or such Material
Subsidiary;

(b)   all lawful claims which, if unpaid, would by law become a Lien
upon its property; and

(c)   all Indebtedness, as and when due and payable, but subject to
any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.

SECTION 8.1.5 Compliance with Laws. The Borrower shall, and shall
--------------------                                 
cause each of its Material Subsidiaries to comply, in all material respects
with all Requirements of Law of any Government Authority having
jurisdiction over it or its business (including the Federal Fair Labor
Standards Act), except such as may be contested in good faith or as to
which a bona fide dispute may exist.

SECTION 8.1.6 Books and Records. Star Gas Partners and the Borrower 
-----------------                             
will, and will cause each of the Material Subsidiaries to, keep books and
records which accurately reflect all of its business affairs and
transactions.

SECTION 8.1.7 Inspection. The Borrower shall permit the
----------                                 
representatives of each Lender and the Agent, at the expense of the
Borrower at any time when a Default or Event of Default has occurred and is
in existence, and otherwise representatives of any Lender or the Agent with
prior written notice at the expense of such Lender or the Agent, to visit
and inspect during normal business hours any of the properties of the
Borrower or any Material Subsidiary, to examine all their respective books
of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts
with their respective officers, employees and independent public
accountants all at such reasonable times and intervals and as often as may
be reasonably requested. The Borrower hereby authorizes the Borrower's and
the Material Subsidiaries' independent accountants, and shall upon such
request deliver a letter to the 

51

Borrower's and the Material Subsidiaries' independent public accountants
authorizing them, to reply to and comply with the provisions of this
Section 8.1.7.
------------- 

SECTION 8.1.8  Environmental Covenant. The Borrower will, and will
----------------------                               
cause each of the Material Subsidiaries to:

(a) use and operate all of its facilities and properties in compliance
with all Environmental Laws, keep all necessary permits, approvals,
certificates, licenses and other authorizations relating to environmental
matters in effect and remain in compliance therewith, and handle all
Hazardous Materials in compliance with all applicable Environmental Laws
except where non-compliance could not singly or in the aggregate be
reasonably expected to have a Material Adverse Effect;

(b) immediately notify the Agent and provide copies upon receipt of
all written claims, complaints, notices or inquiries relating to the
condition of its facilities and properties or compliance with Environmental
Laws other than those claims, complaints, notices or inquiries which singly
or in the aggregate could not have a Material Adverse Effect, and shall
promptly cure and have dismissed with prejudice to the satisfaction of the
Agent any such actions and proceedings relating to compliance with
Environmental Laws except to the extent being diligently contested in good
faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books; and

(c) provide such information and certifications which the Agent may
reasonably request from time to time to evidence compliance with this
Section 8.1.8.
------------- 

SECTION 8.1.9  Compliance with ERISA. The Borrower shall, and shall
---------------------                                 
cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance
in all material respects with the applicable provisions of ERISA, the Code
and other federal or state law; (b) cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; and (c)
make all required contributions to any Plan subject to Section 412 of the
Code.

SECTION 8.1.10 Collateral.
----------  

(a)  All of the Collateral will be pledged to secure the Senior Debt.

(b)  In the event that the Borrower obtains or creates any Material
Subsidiary (after the date hereof), the Borrower shall (i) cause each such
Material Subsidiary to issue a guarantee of the Obligations and each such
guarantee will be in favor of the Agent and secured by a pledge of all of
the accounts receivable, inventory, cash, Customer Lists and stock of such
Material Subsidiary, and (ii) cause the Security Agreements to be amended
to add such Material Subsidiary as an Obligor thereunder and shall deliver,
or cause such Material Subsidiary to deliver, such other agreements,
documents, instruments and opinions in connection therewith as the Agent
may request.

52

(c)  The Borrower shall, and shall cause each Material Subsidiary to,
use commercially reasonable efforts to cause each Project Contract entered
into after the date hereof to become subject to the grant of liens set out
in of the Security Agreements.

(d)  All of the funds received by the Borrower and the Material
Subsidiaries under the Contracts (as defined in the Security Agreements)
shall be deposited into the Receipts Account for application in accordance
with the Security Agreements.

SECTION 8.1.11 Update of Project Contracts. The Borrower shall
---------------------------                      
deliver to the Agent and the Lenders, not later than June 30, 2001, an
updated Exhibit O indicating all Project Contracts in effect as of the date
---------                                                          
of delivery of such updated Exhibit O. Each Project Contract shall be in
---------                                    
full force and effect without default thereunder and the Borrower shall
deliver to the Agent a certificate of a Responsible Officer of the Borrower
to such effect.

SECTION 8.1.12 Agreements Regarding Receipts Account .  The Borrower
-------------------------------------                
shall, not later than June 30, 2001 execute and deliver (i) an amendment to
this Agreement, (ii) an amendment and restatement of the Accounts Security
Deposit Agreement and (iii) an amendment and restatement of the Securities
Account Control Agreement, in each case in form and substance satisfactory
to the Agent, pursuant to which the Receipts Account shall be established
with Chase, and Chase shall become (a) the Depositary under the Accounts
Security Deposit Agreement and (b) the Securities Intermediary under the
Securities Account Control Agreement, together with such other documents,
certificates or other instruments the Agent determines are necessary to
effectuate the foregoing.

SECTION 8.1.13 Preservation of Corporate Existence. The Borrower
-----------------------------------                
shall, and shall cause each of its Material Subsidiaries to:

(a)  preserve and maintain in full force and effect its corporate or
partnership existence (as applicable) and good standing under the laws of
its state or jurisdiction of organization or incorporation, except to the
extent permitted by Section 8.2.7;
------------- 

(b)  preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises
necessary or desirable in the normal conduct of its business except in
connection with transactions permitted by Section 8.2.7 and sale of assets
-------------                   
permitted by Section 8.2.8 or where the lapse could not reasonably be
-------------                                           
expected to have a Material Adverse Effect;

(c)  use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and

(d)  preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could have a
Material Adverse Effect.

SECTION 8.1.14 Use of Proceeds.
---------------  

53

(a) The Borrower shall not, and shall not suffer or permit any
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly
for the purpose of buying or carrying margin stock or any purpose which
violates, or would be inconsistent with F.R.S. Board Regulation U or X.
Terms for which meanings are provided in F.R.S. Board Regulation U or X or
any regulations substituted therefor, as from time to time in effect, are
used in this Section with such meanings;

(b) The proceeds of the Loans shall be used for the purposes set forth
in Section 7.14.
------------ 

SECTION 8.1.15 Update of Customer Lists.  The Borrower shall, and
------------------------                           
shall cause its Material Subsidiaries to, provide to the Agent and the
Lenders on such dates as the Agent reasonably may request one or more
computer information (or such other medium as may be acceptable to the
Agent) containing each Customer List owned by the Borrower or any of the
Material Subsidiaries and within fifteen (15) days of such request the
Borrower and the Agent agree that each Lender shall be permitted to review
such information (or other medium) during the reasonable business hours of
the Agent; provided that the Agent and the Lenders shall not disclose such
information unless an Event of Default has occurred and is continuing;
provided, however, that prior to an Event of Default, the Agent and the
Lenders may disclose such information only to (a) their respective
attorneys, auditors, employees, consultants or other agents, and (b) to any
Government Authority to the extent required by such Government Authority.

SECTION 8.1.16 Further Assurances.
------------------  

(a)  The Borrower shall ensure that all written information, exhibits
and reports furnished to the Agent or the Lenders by the Borrower do not
and will not contain any untrue statement of a material fact and do not and
will not omit to state any material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances
in which made, and will promptly disclose to the Agent and the Lenders and
correct any defect or error that may be discovered therein or in any Loan
Document or in the execution, acknowledgment or recordation thereof.

(b)  Promptly upon request by the Agent or the Required Lenders, the
Borrower shall (and shall cause any of its Subsidiaries to) do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and re-
register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing
statements and continuations thereof, termination statements, notices of
assignment, transfers, certificates, assurances and other instruments the
Agent or such Lenders, as the case may be, may reasonably require from time
to time in order (i) to carry out more effectively the purposes of this
Agreement or any other Loan Document, (ii) to subject to the Liens created
by any of the Security Documents any of the properties, rights or interests
covered by any of the Security Documents, (iii) to perfect and maintain the
validity, effectiveness and priority of any of the Security Documents and
the Liens intended to be created thereby, and (iv) to better assure,

54

convey, grant, assign, transfer, preserve, protect and confirm to the Agent
and Lenders the rights granted or now or hereafter intended to be granted
to the Agent and the Lenders under any Loan Document or under any other
document executed in connection therewith.

SECTION 8.2 Negative Covenants.  The Borrower agrees with the Agent and
------------------                                          
each Lender that, until all Commitments have terminated and all Obligations have
been paid and performed in full, the Borrower will perform the obligations set
forth in this Section 8.2.
----------- 

SECTION 8.2.1 Business Activities.  The Borrower will not, nor will
-------------------                                   
it permit any of the Material Subsidiaries to, engage in any line of
business, if, as a result, the general nature of the business in which the
Borrower and the Material Subsidiaries taken as a whole are engaged in
would be substantially different from the nature of the business in which
the Borrower and the Material Subsidiaries are engaged in as of the
Effective Date.

SECTION 8.2.2 Indebtedness.
------------  

(a) The Borrower will not, nor will it permit any of the Material
Subsidiaries to, create, incur, assume or suffer to exist or otherwise
become or be liable in respect of any Indebtedness, other than, (i)
Indebtedness evidenced by the Obligations; (ii) and Subordinated
Indebtedness to persons having an equity ownership interest in the Borrower
and which is subordinated on terms and conditions satisfactory to the
Agent; and (iii) Indebtedness incurred in connection with Section 8.2.3(e).

(b) Star Gas Partners will not create, incur, assume or suffer to
exist or otherwise become liable in respect of any Indebtedness except
Indebtedness evidenced by the Obligations and its Guaranty dated the date
hereof, and other Indebtedness permitted by Section 8.2.2(b) of the Petro
Credit Facility.

SECTION 8.2.3 Liens.  The Borrower shall not, nor shall it permit any
-----                                                   
of the Material Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its property, revenues or assets, whether now owned or
hereafter acquired, except the Liens referred to below:

(a) Liens in the Collateral created in favor of the Agent for the
benefit of the Agent and the Lenders;

(b) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside
on its books;

(c) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
and being diligently 

55

contested in good-faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;

(d)  Liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;

(e)  the purchase money security interests on any property acquired or
held by the Borrower or Material Subsidiaries in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such property; provided
that (i) any such Lien attaches to such property concurrently with or
within twenty (20) days after the acquisition thereof, (ii) such Lien
attaches solely to the property so acquired in such transaction, (iii) the
principal amount of the debt secured thereby does not exceed 100% of the
cost of such property and (iv) the principal amount of the Indebtedness
secured by any and all such purchase money security interests shall not at
any time exceed $100,000;

(f)  leases or subleases granted to others, zoning restrictions,
easements, licenses, reservations, rights-of-way, restrictions on the use
of property or irregularities of title and other similar changes,
encumbrances and Liens which do not materially impair the use thereof by
the Borrower or any of the Material Subsidiaries; and

(g)  Liens (other than any Lien imposed by ERISA and other than on the
Collateral) consisting of pledges or deposits required in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other social security legislation;

provided, however, that the Borrower shall not purchase any real estate without
the prior written consent of the Lenders.

SECTION 8.2.4 Financial Covenants.  The Borrower shall at all times:
-------------------                                    

(a) maintain Consolidated EBITDA of not less than $2,000,000;

(b) not permit the ratio of Consolidated EBITDA to Senior Interest
Expense to be  less than 1.25:1.00.

SECTION 8.2.5 Investments.  Subject to Section 8.2.6, none of the
-----------               -------------             
Borrower or any of the Material Subsidiaries shall make or suffer to exist,
any Investment in any Person, including without limitation, any shareholder
of the Borrower or any Subsidiary except in accordance with Section 4 of
the Accounts Security Deposit Agreement referred to in the definition of
Security Agreements, and which are one of the following:

(a)  Investments in:
56

(i)    obligations issued or guaranteed by the United States of
America or any agency thereof maturing or being due or payable in full
not more than 1 year after the Borrower's acquisition thereof;

(ii)   certificates of deposit, bankers acceptances and other
"money market instruments" issued by any Lender or a bank having
capital and surplus in an aggregate amount of not less than
$500,000,000 and a rating of at least A- by Standard & Poor's
Corporation or A3 by Moodys Investors Service or equivalent rating by
another nationally recognized credit rating agency maturing or being
due or payable in full not more than 1 year after the Borrower's
acquisition thereof;

(iii)  open market commercial paper having a rating of at least
A-1 by Standard & Poor's Corporation or Prime-1 by Moody's Investors
Service maturing or being due or payable in full not more than 270
days after the Borrower's acquisition thereof;

(iv)   collateralized repurchase agreements entered into with any
bank or trust company organized under the laws of the United States of
America or any State thereof and having capital and surplus in an
aggregate amount of not less than $100,000,000 relating to United
States of America government obligations maturing or being due or
payable in full not more than 90 days after the Borrower's acquisition
thereof; and

(v)    tax exempt short term securities having a rating of at
least A-1 by Standard & Poor's Corporation or Prime-1 by Moody's
Investors Service and tax exempt long-term securities having a rating
of at least A by Standard & Poor's Corporation or A2 by Moodys
Investors Service in each case maturing or being due or payable in
full not more than 180 days after the Borrower's acquisition thereof;
and

(b) Investments by the Borrower in any Material Subsidiary and by any
Material Subsidiary in the Borrower or another Material Subsidiary as in
effect on the date hereof.

SECTION 8.2.6 Restricted Payments, etc .
------------------------  

(a)  Except as permitted by subparagraph (b) below, the Borrower will
not, and will not permit any of the Material Subsidiaries to make or
authorize any Restricted Payment or any payment in respect of Subordinated
Indebtedness.

(b)  The Borrower and any of the Material Subsidiaries may make or
authorize a Restricted Payment if such Restricted Payment is payable within
sixty (60) days of its declaration and no Default or Event of Default
exists on the day of such distribution or would exist after making such
declaration or distribution.

57

SECTION 8.2.7 Consolidation, Merger, etc.  The Borrower shall not,
--------------------------                           
and shall not suffer or permit any Material Subsidiary to, merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired)
to or in favor of any Person, except:

(a)  any Material Subsidiary may merge with the Borrower, provided
that the Borrower shall be the continuing or surviving corporation, or with
any one or more Subsidiaries, provided that if any transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation; and

(b)  any Material Subsidiary may sell or otherwise transfer all or
substantially all of its assets (upon voluntary liquidation or otherwise),
to the Borrower or another Wholly-Owned Material Subsidiary.

SECTION 8.2.8 Asset Dispositions, etc.  Except in connection with a
-----------------------                               
transaction permitted under Section 8.2.7, none of the Borrower or any of
-------------                                
the Material Subsidiaries may sell or dispose of any portion of its
property (excepting abandonment, sale of inventory or other dispositions in
the ordinary course of business), or sell equity interests in any Material
Subsidiary to any third party (all of the foregoing, are herein called     
"Asset Dispositions"), unless:
-------------------           

(a)  immediately before and after giving effect to such transaction,
no Default or Event of Default shall exist or be continuing;

(b)  one of the following two conditions shall be satisfied:

(i)  the aggregate net after tax proceeds from such Asset
Disposition do not exceed 5% of the Consolidated Total Assets of the
Borrower during such Fiscal Year; or

(ii) in the event that such net after tax proceeds from such
Asset Disposition exceed 5% of such Consolidated Total Assets ("Excess
------
Sale Proceeds"), the Borrower shall within ninety (90) days of the
-------------                                                     
date of the disposal of the assets giving rise to such proceeds, cause
an amount equal to such Excess Sale Proceeds to be applied (x) to the
acquisition of assets in replacement of the assets so disposed of or
of assets which may be productively used in the United States in the
conduct of the Borrower's or any Material Subsidiary's business (and
such newly acquired assets shall become part of the Collateral and
shall be subjected to the Lien of the Security Documents), or may be
deemed by the Borrower to have been applied to fund the purchase of
such replacement assets purchased not earlier than 30 days prior to
such Asset Disposition or (y) to the extent not applied pursuant to
the immediately preceding clause (x) , for deposit with the Agent no
----------                                
later than ninety (90) days of after such disposition to be reinvested
in assets described in clause (x) and to the extent such Excess Sale
----------                                   

58

Proceeds are not reinvested as described above within one-hundred
eighty (180) days of such disposition to the prepayment of the
Obligations pursuant to Section 3.1; and
-----------     

(c) 100% of the consideration received is in cash or marketable
securities or notes secured by a letter of credit issued by a financial
institution acceptable to the Lenders.

SECTION 8.2.9 RESERVED.
--------  

SECTION 8.2.10 Transactions with Affiliates.  The Borrower will not,
----------------------------                          
and will not permit any Material Subsidiary to, directly or indirectly,
engage in any transaction with any Affiliate, including, without
limitation, the purchase, sale or exchange of assets or the rendering of
any service, to the Borrower's or such Material Subsidiary's business
except upon fair and reasonable terms that are no less favorable to the
Borrower or such Material Subsidiary, as the case may be, than those which
might be obtained in an arm's-length transaction at the time such
transaction is agreed upon from Persons which are not such an Affiliate.

SECTION 8.2.11 Negative Pledges, Restrictive Agreements, etc.  The
---------------------------------------------       
Borrower will not, and will not permit any of the Material Subsidiaries to,
enter into any agreement (excluding this Agreement, any other Loan Document
and any agreement governing any Indebtedness permitted herein) prohibiting
the creation or assumption of any Lien upon its properties, revenues or
assets, whether now owned or hereafter acquired, or the ability of the
Borrower or any other Obligor to amend or otherwise modify this Agreement
or any other Loan Document.

SECTION 8.2.12 RESERVED
--------

SECTION 8.2.13 Operating Leases.  The aggregate obligations of the
----------------                                    
Borrower and the Material Subsidiaries for the payment of rent for any
property under lease or agreement to lease for any Fiscal Year shall not
exceed $100,000.

SECTION 8.2.14 Prepayments.  None of the Borrower or any Material
-----------                                        
Subsidiary shall make any voluntary or optional prepayment of any
Indebtedness for borrowed money incurred or permitted to exist under the
terms of this Agreement other than (i) the Indebtedness hereunder, and (ii)
Subordinated Indebtedness repaid out of funds otherwise available for
distribution to the shareholders of the Borrower in full compliance with
the provisions of this Agreement.

SECTION 8.2.15 Organization  Documents.  Star Gas Partners and the
-----------------------                             
Borrower will not, and will not permit any Material Subsidiary, to alter
any Organization Document of such entity in any manner which could have a
Material Adverse Effect.

SECTION 8.2.16 Capital Expenditures.  The Borrower will not, nor will
--------------------                                   
it permit any of the Material Subsidiaries to, make at any time Capital
Expenditures in 

59

respect of any line of business other than the Business which, in the
aggregate over the term of this Agreement, exceed 10% of the consolidated
tangible assets of the Borrower and the Material Subsidiaries as determined
in accordance with GAAP at such time.

SECTION 8.2.17 Contingent Liabilities.  The Borrower shall not, and
----------------------                               
shall not suffer or permit any Material Subsidiary to, create, incur,
assume or suffer to exist any Contingent Liabilities except endorsements
for collection or deposit in the ordinary course of business or guarantees
of Indebtedness incurred by the Borrower or a Material Subsidiary in
accordance with the provisions of this Agreement.

SECTION 8.2.18 ERISA. The Borrower shall not, and shall not suffer or
-----                                                  
permit any of its ERISA Affiliates to: (a) engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect
to any Plan which has resulted, or otherwise act or fail to make a
contribution if such action or failure to act could result in liability of
the Borrower and/or ERISA Affiliate with respect to any Pension Plan; (b)
engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA; or (c) permit to exist any "accumulated funding deficiency" (as
defined in Section 412 of the Code) with respect to any Pension Plan.

SECTION 8.2.19 Accounting Changes.  The Borrower shall not, and shall
------------------                                     
not suffer or permit any Material Subsidiary to, make any significant
change in accounting treatment or reporting practices, except as required
by GAAP, or change the Fiscal Year of the Borrower or of any Material
Subsidiary.

SECTION 8.2.20 Bank Accounts.  None of the Borrower or any of the
-------------                                      
Material Subsidiaries shall have any bank accounts other than those bank
accounts subject to the Security Agreements; provided that the Borrower and
its Material Subsidiaries may continue to have the bank accounts in
existence on the date hereof for sixty (60) days from the date hereof and
may draw funds from such bank accounts for a period of twenty (20) days
from the date hereof; provided, however, no receivables or other funds of
the Borrower shall be deposited into any other account after the date
hereof.

ARTICLE IX
EVENTS OF DEFAULT

SECTION 9.1 Listing of Events of Default.  Each of the following events or
----------------------------                                   
occurrences described in this Section 9.1 shall constitute an "Event of 
-----------                      --------
Default".
-------

SECTION 9.1.1 Non-Payment of Obligations.  The Borrower shall default
--------------------------                              
in the payment or prepayment when due of any principal or interest of any
Loan, or the payment of any fee or other Obligation.

SECTION 9.1.2 Breach of Warranty.  Any material representation or
------------------                                  
warranty of the Borrower or any other Obligor made or deemed to be made
hereunder or in any other Loan Document executed by it or any other writing
or certificate furnished by or on 

60

behalf of the Borrower or any other Obligor to the Agent or any Lender for the
purposes of or in connection with this Agreement or any such other Loan Document
(including any certificates delivered pursuant to Article VI) is or shall be
----------
incorrect when made in any material respect.

SECTION 9.1.3 Non-Performance of Other Covenants and Obligations.
--------------------------------------------------  

(a)  Any Obligor shall default in the due performance and observance of any
term, covenant or agreement contained in any of Sections 8.1.5, 8.1.10 or 
--------------  ------
8.1.14 or in Section 8.2; or
-------      -----------    

(b)  any Obligor shall default in the due performance and observance of any
other Obligation or agreement contained herein or in any other Loan Document,
and such default shall continue unremedied for a period of fifteen (15) days
after actual knowledge thereof by a Responsible Officer.

SECTION 9.1.4 Default on Other Indebtedness.  Star Gas Partners, any of its
-----------------------------                          
Subsidiaries, the Borrower or any Material Subsidiary shall default (after
notice and the expiration of any applicable grace period) in the payment of any
amount of principal, premium or interest on any Indebtedness (other than the
Notes) (including, without limitation, Indebtedness under the Petro Credit
Facility), or any event shall occur or condition shall exist in respect of any
Indebtedness of Star Gas Partners, the Borrower or any of their Subsidiaries
(other than the Notes) and the effect of such event or condition is to cause (or
to permit the holders of such Indebtedness to cause) such Indebtedness to become
due before its stated maturity, in each case, if the outstanding principal
balance of such Indebtedness is in excess of $2,000,000 in the aggregate.

SECTION 9.1.5 Judgments.  Any judgment or order for the payment of money in
---------                                            
excess of $1,000,000, net of insurance coverage, shall be rendered against Star
Gas Partners the Borrower or any of their Subsidiaries and:

(a)  such judgment or order is non appealable, has not been stayed pending
appeal, or all rights to appeal such judgment have expired or been exhausted;
and

(b)  such judgment or order shall remain undischarged for a period of sixty
(60) consecutive days after the date due.

SECTION 9.1.6 ERISA.  (a) An ERISA Event shall occur with respect to a 
-----                                                  
Pension Plan or Multiemployer Plan which has resulted or could result in
liability of the Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $500,000; or
(b) there shall exist an Unfunded Pension Liability among all Pension Plans of
Star Gas Partners and its Affiliates at any time in excess of $7,000,000; or (c)
with respect to any Pension Plan, the Borrower or any ERISA Affiliate shall fail
to pay when due, after the expiration of any applicable grace period, any
contribution required or needed in order to avoid (i) an "accumulated funding
deficiency" (as defined in Section 412 of the Code), or (ii) adverse PBGC 
action;

61

or (d) $500,000 is not contributed each year among the underfunded Pension Plans
related to Star Gas Partners and its Affiliates. For purposes of clause (d), the
-----------
$500,000 amount shall be in addition to contributions necessary
to satisfy Section 412 of the Code for such year.

SECTION 9.1.7 Change in Control.  Any Change in Control shall occur except
-----------------                                     
as is permitted by Section 8.2.7.
------------- 

SECTION 9.1.8 Bankruptcy, Insolvency, etc.  Any of the following events
---------------------------                        
shall occur:

(a)  filing by or on the behalf of the Managing General Partner, Star Gas
Partners, the Borrower, or any of their Subsidiaries of a voluntary petition or
an answer seeking reorganization, arrangement, readjustment of its debts or for
any other relief under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar act or
law, state or federal, now or hereafter existing ("Bankruptcy Law"), or any
--------------
action by the Managing General Partner, Star Gas Partners, the Borrower or any
of their Subsidiaries for, or consent or acquiescence to, the appointment of a
receiver, trustee or other custodian of the Managing General Partner, Star Gas
Partners, the Borrower or any of their Subsidiaries, or of all or a substantial
part of its property; or the making by the Managing General Partner, Star Gas
Partners, the Borrower or any of their Subsidiaries of any assignment for the
benefit of creditors; or the admission by the Managing General Partner, Star Gas
Partners, the Borrower or any of their Subsidiaries in writing of its inability
to pay its debts as they become due; or

(b)  filing of any involuntary petition against the Managing General
Partner, Star Gas Partners, the Borrower or any of their Subsidiaries in
bankruptcy or seeking reorganization, arrangement, readjustment or its debts or
for any other relief under any Bankruptcy Law and an order for relief by a court
having jurisdiction in the premises shall have been issued or entered therein;
or any other similar relief shall be granted under any applicable Federal or
state law; or a decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee or other
officer having similar powers over the Managing General Partner, Star Gas
Partners, the Borrower or any of their Subsidiaries or over all or a part of its
property shall have been entered; or the involuntary appointment of an interim
receiver, trustee or other custodian of the Managing General Partner, Star Gas
Partners, the Borrower or any of their Subsidiaries or of all or a substantial
part of its property; or the issuance of a warrant of attachment, execution or
similar process against any substantial part of the property of the Managing
General Partner, Star Gas Partners, the Borrower or any of their Subsidiaries
and continuance of any such event for sixty (60) consecutive days unless
dismissed, bonded to the satisfaction of the court having jurisdiction in the
premises or discharged; or

(c)  taking any action authorizing, or in furtherance of, any of the
foregoing by Star Gas Partners, the Borrower or any Material Subsidiary.

62

SECTION 9.1.9 Impairment of Security, etc.  Any of the Security Documents
---------------------------                       
or documents guaranteeing the Notes shall cease in any material respect to be in
full force and effect or shall be declared to be null and void in whole or in a
material part by the final judgment (which is non-appealable or has not been
stayed pending appeal or as to which all rights to appeal have expired or have
been exhausted) of a court or other governmental or regulatory authority having
jurisdiction or the validity or enforceability thereof shall be contested by or
on behalf of the Borrower or any Material Subsidiary or the Borrower or any
Material Subsidiary shall renounce any of the same or deny that it has any or
further liability thereunder or any security interest purported to be created by
any Security Document shall cease to be, or shall be asserted by the Borrower or
any Material Subsidiary not to be, a valid, perfected, first priority (except as
expressly otherwise provided in this Agreement or such Security Document)
security interest in the collateral covered thereby.

SECTION 9.1.10 Split-Up.  Any order, judgment or decree is entered in any
--------                                               
proceeding against the Borrower decreeing a split-up of the Borrower which
requires the divestiture of assets representing a substantial part, or the
divestiture of the stock of any Material Subsidiary whose assets represent a
substantial part, of the consolidated assets of the Borrower and its Material
Subsidiaries (determined in accordance with GAAP) or which requires the
divestiture of assets, or stock of any of their Material Subsidiaries, which
shall have contributed a substantial part of the Consolidated Net Income of the
Borrower and its Material Subsidiaries for any of the three Fiscal Years then
most recently ended, and such order, judgment or decree shall not be dismissed
or execution thereon stayed pending appeal or review within sixty (60) days
after entry thereof, or in the event of such a stay, such order, judgment or
decree shall not be dismissed within sixty (60) days after such stay expires.

SECTION 9.1.11 Guarantor Defaults.  Any of Star Gas Partners or any
------------------                                   
Material Subsidiary fails in any material respect to perform or observe any
term, covenant or agreement in its Guarantee Agreement; or any Guarantee
Agreement is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or any of Star Gas Partners or any Material Subsidiary or any
other Person contests in any manner the validity or enforceability thereof or
denies that it has any further liability or obligation thereunder.

SECTION 9.2 Action if Bankruptcy.  If any Event of Default described in
--------------------                                        
Section 9.1.8 shall occur, the Commitments shall automatically terminate and the
-------------                                                                   
outstanding principal amount of all outstanding Loans, and all other Obligations
shall automatically be and become immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower.

SECTION 9.3 Action if Other Event of Default.
--------------------------------  

(a)  If any Event of Default (other than any Event of Default
described in Section 9.1.8) shall occur for any reason, whether voluntary 
-------------  
or involuntary, and be continuing, the Agent, upon the direction of the
Required Lenders, shall by notice to the Borrower:

63

(i)    declare the commitment of each Lender to make Loans to be
terminated, whereupon such commitments and obligation shall be
terminated;

(ii)   declare the unpaid principal amount of all outstanding
Loans, all interest accrued and unpaid thereon, and all other amounts
owing or payable hereunder or under any other Loan Document to be
immediately due and payable (including, without limitation, amounts
due under Section 5.4), without presentment, demand, protest or other
-----------                                                
notice of any kind, all of which are hereby expressly waived by the
Borrower; and

(iii)  exercise on behalf of itself and the Lenders all rights
and remedies available to it and the Lenders under the Loan Documents
or applicable law.

(b)  The affirmative vote of Lenders holding at least 66-2/3% of the
outstanding principal amount of the Obligations may rescind or annul the
acceleration at any time; provided, that, all Events of Default have been
cured or waived at such time.

(c)  The rights provided for in this Agreement and the other Loan
Documents are cumulative and are not exclusive of any other rights, powers,
privileges or remedies provided by law or in equity, or under any other
instrument, document or agreement now existing or hereafter arising.

ARTICLE X
THE AGENT

SECTION 10.1 Appointment and Authorization.  Each Lender hereby
-----------------------------                      
irrevocably (subject to Section 10.9) appoints, designates and authorizes the
------------                                         
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent.

SECTION 10.2 Delegation of Duties.  The Agent may execute any of its 
--------------------                                    
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.

64

SECTION 10.3 Liability of Agent.  None of the Agent-Related Persons shall
------------------                                           
(a) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (b) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by Star Gas Partners, the
Borrower or any Subsidiary or Affiliate of the Borrower, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or for the value or title to any Collateral or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of the Borrower's Subsidiaries or Affiliates.

SECTION 10.4 Reliance by Agent.
-----------------  

(a)  The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, facsimile or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon
advice and statements of legal counsel (including counsel to the Borrower),
independent accountants and other experts selected by the Agent. The Agent
shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive
such advice or concurrence of the Required Lenders as it deems appropriate
and, if it so requests, it shall first be indemnified to its satisfaction
by the Lenders against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any other Loan Document in accordance
with a request or consent of the Required Lenders and such request and any
action taken or failure to act pursuant thereto shall be binding upon all
of the Lenders; and

(b)  For purposes of determining compliance with the conditions
specified in Section 6.1, each Lender that has executed this Agreement
-----------                                              
shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent by the Agent to
such Lender for consent, approval, acceptance or satisfaction, or required
thereunder to be consented to or approved by or acceptable or satisfactory
to the Lender.

SECTION 10.5 Notice of Default.  The Agent shall not be deemed to have
-----------------                                         
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or the Borrower 

65

referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". The Agent will notify the
Lenders, and the Borrower of its receipt of any such notice. The Agent shall
take such action with respect to such Default or Event of Default as may be
requested by the Required Lenders in accordance with Article IX; provided,
----------  
however, that unless and until the Agent has received any such request, the
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable or in the best interest of the Lenders.

SECTION 10.6 Credit Decision.  Each Lender acknowledges that none of the
---------------                                             
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of Star
Gas Partners, the Borrower and its Subsidiaries, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Borrower
hereunder. Each Lender also represents that it will, independently and without
reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower.
Except for notices, reports and other documents expressly herein required to be
furnished to the Lenders by the Agent, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrower which may come into the possession
of any of the Agent-Related Persons.

SECTION 10.7 Indemnification of Agent.  Whether or not the transactions
------------------------                                   
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
that no Lender shall be liable for the payment to the Agent-Related Persons of
any portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including attorney costs) incurred by the Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.

66

SECTION 10.8 Agent in Individual Capacity.  Chase and each other Lender
----------------------------                               
that may become the Agent and their respective Affiliates may make loans to,
issue letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial
advisory, underwriting or other business with the Borrower and its Subsidiaries
and Affiliates as though Chase (or such other Lender) were not the Agent or a
Lender hereunder and without notice to or consent of the Lenders. The Lenders
acknowledge that, pursuant to such activities, Chase (or such other Lender) or
their respective Affiliates may receive information regarding the Borrower or
its Affiliates (including information that may be subject to confidentiality
obligations in favor of the Borrower or such Subsidiary) and acknowledge that
the Agent shall be under no obligation to provide such information to them. With
respect to its Loans, Chase (or other Lender) shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not the Agent.

SECTION 10.9 Successor Agent.  The Agent may, and at the request of the
---------------                                            
Required Lenders shall, resign as Agent upon thirty (30) days' notice to the
Lenders. If the Agent resigns under this Agreement, the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders. If no
successor agent is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with the Lenders and the
Borrower, a successor agent from among the Lenders. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article X and Sections 11.4 and 11.5
---------     -------------     ----
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement. If no successor agent has accepted
appointment as Agent by the date which is thirty (30) days following a retiring
Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. Any successor agent shall have
a market capitalization equal to or greater than $500,000,000.

SECTION 10.10 Withholding Tax.
---------------  

(a)  If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Lender claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code,
such Lender agrees with and in favor of the Agent and the Borrower, to
deliver to the Agent (with a copy to the Borrower):

(i)    if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 (or any successor forms) before the
payment of any interest in the first calendar year and before the
payment of any interest, in each third succeeding calendar year during
which interest may be paid under this Agreement;

67

(ii)   if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224
(or any successor form) before the payment of any interest is due in
the first taxable year of such Lender and in each succeeding taxable
year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9 (or any successor form); and

(iii)  such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.

Such Lender agrees to promptly notify the Agent and the Borrower of any change
in circumstances which would modify or render invalid any claimed exemption or
reduction.

(b)  If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such
Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Borrower to such Lender, such Lender
agrees to notify the Agent of the percentage amount in which it is no
longer the beneficial owner of Obligations of the Borrower to such Lender.
To the extent of such percentage amount, the Agent will treat such Lender's
IRS Form 1001 as no longer valid.

(c)  If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
the Borrower to such Lender, such Lender agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed
by Sections 1441 and 1442 of the Code.

(d)  If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such
Lender an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required
by subsection (a) of this Section are not delivered to the Agent, then the
Agent may withhold from any interest payment to such Under not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax.

(e)  If the Internal Revenue Service or any other Government Authority
of the United States or other jurisdiction asserts a claim that the Agent
did not properly withhold tax from amounts paid to or for the account of
any Lender (because the appropriate form was not delivered, was not
properly executed, or because such Lender failed to notify the Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses
(including attorney costs). The obligation of the Lenders under this

68

subsection shall survive the payment of all Obligations and the resignation
or replacement of the Agent.

SECTION 10.11 Collateral Matters.
------------------  

(a)  The Agent is authorized on behalf of all the Lenders, without the
necessity of any notice to or further consent from the Lenders, from time
to time to take any action with respect to any Collateral or the Security
Documents which may be necessary to perfect and maintain perfected the
security interest in and Liens upon the Collateral granted pursuant to the
Security Documents.

(b)  The Lenders irrevocably authorize the Agent, at its option and in
its discretion, to authorize the release of any Lien granted for the
benefit of the Agent and the Lenders upon any Collateral (i) upon
termination of the Commitments and payment in full of all Loans and all
other Obligations known to the Agent and payable under this Agreement or
any other Loan Document; (ii) constituting property sold or to be sold or
disposed of as part of or in connection with any disposition permitted
hereunder; (iii) constituting property leased to the Borrower or any
Material Subsidiary under a lease which has expired or been terminated in a
transaction permitted under this Agreement or is about to expire and which
has not been, and is not intended by the Borrower or such Material
Subsidiary to be, renewed or extended; (iv) consisting of an instrument
evidencing Indebtedness or other debt instrument, if the indebtedness
evidenced thereby has been paid in full; or (v) if approved, authorized or
ratified in writing by the Required Lenders or all the Lenders, as the case
may be, as provided in Section 11.1. Upon request by the Agent at any
------------                                   
time, the Lenders will confirm in writing the Agent's authority to
authorize the release of particular types or items of Collateral pursuant
to this Section 10.  11 (b).
---------------     

(c)  Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Borrower or any Subsidiary)
that the Borrower's and the other Obligors' obligations to such Lender
under this Agreement and the other Loan Documents are not and shall not be
secured by any Lien on real property collateral now or hereafter granted to
such Lender.

ARTICLE XI
MISCELLANEOUS PROVISIONS

SECTION 11.1 Waivers, Amendments, etc.  The provisions of this Agreement
------------------------                                    
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Required Lenders; provided, however, that no such
amendment, modification or waiver which would:

69

(a)  modify any requirement hereunder that any particular action be
taken by all the Lenders or by the Required Lenders shall be effective
unless consented to by each Lender;

(b)  modify this Section 11.1, change the definition of "Required
------------                                    
Lenders", increase any Commitment or the Percentage of any Lender other
than pursuant to Section 11.11.1, reduce any fees described in Article III,
---------------                               ----------- 
release any substantial portion of collateral security, except as otherwise
specifically provided in any Loan Document, extend the Commitment
Termination Date or Stated Maturity Dates or change the interest provisions
contained in Section 3.2 shall be made without the consent of each Lender
-----------                                                 
and each holder of a Note;

(c)  extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment of principal of or interest on any Loan (or reduce
the principal amount of or rate of interest on any Loan) shall be made
without the consent of the holder of that Note evidencing such Loan; or

(d)  affect adversely the interests, rights or obligations of the
Agent shall be made without consent of the Agent.

No failure or delay on the part of the Agent, any Lender, or the holder of any
Note in exercising any power or right under this Agreement or any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
the Borrower in any case shall entitle it to any notice or demand in similar or
other circumstances. No waiver or approval by the Agent, any Lender or the
holder of any Note under this Agreement or any other Loan Document shall, except
as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.

SECTION 11.2  Notices.  All notices and other communications provided to
-------                                                    
any party hereto under this Agreement or any other Loan Document shall be in
writing or facsimile and addressed, delivered or transmitted to such party at
its address or by facsimile number set forth below its signature hereto or, with
respect to Persons that become Lenders after the date hereof, set forth in an
Assignment and Acceptance Agreement or at such other address or facsimile number
as may be designated by such party in a notice to the other parties. Any notice,
if mailed and properly addressed with postage prepaid or if properly addressed
and sent by pre-paid courier service, shall be deemed given when received; any
notice, if transmitted by facsimile, shall be deemed given when transmitted.

SECTION 11.3  Payment of Costs and Expenses.  The Borrower agrees to pay
-----------------------------                              
on demand all expenses of the Agent (including the fees and out-of-pocket
expenses of counsel to the Agent and of local counsel, if any, who may be
retained by counsel to the Agent) in connection with:

70

(a)  the negotiation, preparation, execution, delivery, syndication
and administration of this Agreement and of each other Loan Document,
including schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other Loan
Document as may from time to time hereafter be required, whether or not the
transactions contemplated hereby are consummated;

(b)  the filing, recording, refiling or re-recording of the Security
Agreements and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements and modifications to any thereof
and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or re-recorded by the terms
hereof or of the Security Agreements; and

(c)  the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.

The Borrower agrees to pay to the Agent customary fees in connection with any
amendment or waiver in respect of the Loan Documents in accordance with the then
current market as determined by the Agent.

The Borrower further agrees to pay, and to save the Agent and each Lender
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the borrowings
hereunder, or the issuance of the Notes or any other Loan Documents. The
Borrower also agrees to reimburse the Agent and each Lender upon demand for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
legal expenses) incurred by the Agent or such Lender in connection with (x) the
negotiation of any restructuring or "work-out" whether or not consummated, of
any Obligations and (y) the enforcement of any Obligations.

SECTION 11.4 Indemnification.  In consideration of the execution and
---------------                                         
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds the Agent and each Lender
and each of their respective officers, directors, employees and agents
(collectively, the "Indemnified Parties") free and harmless from and against any
-------------------                                         
and all actions, causes of action, suits, losses, costs, liabilities and
damages, and expenses incurred in connection therewith (irrespective of whether
any such Indemnified Party is a party to the action for which indemnification
hereunder is sought), including reasonable attorneys' fees and disbursements
(collectively, the "Indemnified Liabilities"), incurred by the Indemnified
-----------------------                               
Parties or any of them as a result of, or arising out of, or relating to:

(a)  any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan;

(b)  the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties;

71

(c)  any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any Subsidiaries of
all or any portion of the stock or assets of any Person, whether or not the
Agent or such Lender is party thereto;

(d)  any Environmental Claim or other matter relating to the
protection of the environment or the Release by the Borrower or any
Subsidiary of any Hazardous Material; or

(e)  the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary of any
Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, the Borrower or
such Subsidiary,

except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or willful misconduct.  If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.

SECTION 11.5 Survival.  The obligations of the Borrower under Section 5.3,
--------                                         ----------- 
5.4, 5.5, 5.6, 11.3 and 11.4, and the obligations of the Lenders under Section
---  ---  ---  ----     ----                                           -------
10.1, shall in each case survive until the applicable statute of limitations has
----                                                                            
run on the bringing of any action thereon any termination of this Agreement, the
payment in full of all Obligations and the termination of all Commitments.  The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.

SECTION 11.6 Severability.  Any provision of this Agreement or any other
------------                                                
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.

SECTION 11.7 Headings.  The various headings of this Agreement and of each
--------                                                      
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.

SECTION 11.8 Execution in Counterparts, Effectiveness, etc.  This Agreement
---------------------------------------------        
may be executed by the parties hereto in several counterparts, all of which
shall constitute together but one and the same agreement. This Agreement shall
become effective when counterparts hereof executed on behalf of the Borrower,
the Agent and each Lender (or notice thereof satisfactory to the Agent) shall
have been received by the Agent and notice thereof shall have

72

been given by the Agent to the Borrower and each Lender and satisfaction of the
conditions set forth in Section 6.1.
----------- 

SECTION 11.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND
-------------------------------                            
EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. On the Effective Date,
this Agreement, the Notes, the Security Agreements and the other Loan Documents
shall constitute the entire understanding among the parties hereto with respect
to the subject matter hereof and supersede any prior agreements, written or
oral, with respect thereto.

SECTION 11.10 Successors and Assigns.  This Agreement shall be binding upon
----------------------                                   
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:

(a)  the Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Agent and all Lenders
(and any attempted or purported assignment or transfer in contravention of
the foregoing shall be null and void); and

(b)  the rights of sale, assignment and transfer of the Lenders are
subject to Section 11.11.
------------- 

SECTION 11.11 Sale and Transfer of Loans and Notes; Participations in its
-----------------------------------------------------------
Loans and Notes.  Each Lender may assign or sell participations in, its Loans
---------------                                                               
and Commitments to one or more other Persons in accordance with this 
Section 11.11.
-------------

SECTION 11.11.1 Assignments.  Any Lender:
-----------               

(a)  with the written consents of the Borrower and the Agent (which
consents shall not be unreasonably delayed or withheld and which consent,
in the case of the Borrower, shall be deemed to have been given in the
absence of a written notice delivered by the Borrower to the Agent, on or
before the fifth (5th) Business Day after receipt by the Borrower of such
Lender's request for consent, stating, in reasonable detail, the reasons
why the Borrower proposes to withhold such consent) may at any time assign
and delegate to one or more commercial banks or other financial
institutions; provided that such consent of the Borrower shall not be
required at any time a Default has occurred and is continuing;

(b)  with notice to the Borrower and the Agent, but without the
consent of the Borrower or the Agent, may assign and delegate to any of its
Affiliates or to any other Lender; and

(c)  notwithstanding the foregoing, any Lender may at any time pledge
or assign a security interest in all or any portion of its rights under
this Agreement to secure obligations of such Lender, including any pledge
or assignment to secure obligations to a 

73

Federal Reserve Bank, and this Section shall not apply to any such pledge
or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto;

(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans and
---------------                                                        
Commitments which assignment shall be a pro rata portion of the assigning
Lender's Facility A Loans, Facility A Commitment, Facility B Commitment and
Facility B Loans in a minimum aggregate amount of $2,000,000; provided, however,
that any such Assignee Lender will comply, if applicable, with the provisions
contained in Section 10.10 and the last sentence of Section 5.6 and provided,
-------------                          -----------              
further, however, that the Borrower, each other Obligor and the Agent shall be
entitled to continue to deal solely and directly with such Lender in connection
with the interests so assigned and delegated to an Assignee Lender until:

(d)  written notice of such assignment and delegation, together with
payment instructions, addresses (of credit and administrative contacts) and
related information with respect to such Assignee Lender, shall have been
given to the Borrower and the Agent by such Lender and such Assignee
Lender;

(e)  such Assignee Lender shall have executed and delivered to the
Borrower and the Agent an Assignment and Acceptance Agreement, accepted by
the Agent; and

(f)  the processing fees described below shall have been paid.

From and after the date that the Agent accepts such Assignment and Acceptance
Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and to the extent that rights and obligations
hereunder have been assigned and delegated to such Assignee Lender in connection
with such Assignment and Acceptance Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Assignment and
Acceptance Agreement, shall be released from its obligations hereunder and under
the other Loan Documents.  Such Assignee Lender must also pay a processing fee
to the Agent upon delivery of any Assignment and Acceptance Agreement in the
amount of $3,500; provided, however, with respect to assignments made by a
Lender to any of its Affiliates such processing fee shall be $2,000.  Any
attempted assignment and delegation not made in accordance with this Section
-------
11.11.1 shall be null and void.
-------                       

SECTION 11.11.2 Participations.  Any Lender may at any time sell to one or
--------------                                             
more commercial banks or other Persons (each of such commercial banks and other
Persons being herein called a "Participant") participating interests in any of
-----------                                    
the Loans, Commitments, or other interests of such Lender hereunder, provided,
however, that:

74

(a)  no participation contemplated in this Section 11.11 shall relieve
-------------              
such Lender from its Commitments or its other obligations hereunder or
under any other Loan Document;

(b)  such Lender shall remain solely responsible for the performance
of its Commitments and such other obligations;

(c)  the Borrower, each other Obligor and the Agent shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement and each of the other Loan
Documents;

(d)  no Participant, unless such Participant is an Affiliate of such
Lender, or is itself a Lender, shall be entitled to require such Lender to
take or refrain from taking any action hereunder or under any other Loan
Document, except that such Lender may agree with any Participant that such
Lender will not, without such Participant's consent, take any actions of
the type described in clauses (b) or (c) of Section 11.1; and
-----------    ---    ------------     

(e)  the Borrower shall not be required to pay any amount under
Sections 5.3, 5.4, 5.5 or 5.6 that is greater than the amount which it
------------  --------    ---                                         
would have been required to pay had no participating interest been sold.

The Borrower acknowledges and agrees that, subject to the preceding sentence, a
Participant, for purposes of Sections 5.3, 5.4, 5.5, 5.6, 5.8, 5.9, 11.3 and
-----------------------------------------------
11.4, shall be considered a Lender.
-----------------------------------

SECTION 11.12 Other Transactions.  Nothing contained herein shall preclude
--------------------------------                                          
the Agent, or any Lender from engaging in any transaction, in addition to those
contemplated by this Agreement or any other Loan Document, with the Borrower or
any of the Borrower's Affiliates in which the Borrower or such Affiliate is not
restricted hereby from engaging with any other Person. The Lenders hereby
acknowledge that Chase is involved in other financings with Affiliates of Star
Gas Partners, the Borrower and the Material Subsidiaries (the "Other 
-----
Facilities") and that Chase's decisions with respect to its exercise of rights
----------
and remedies with respect to the Other Facilities will be made independently and
as if not involved in the credit facilities provided hereunder.

75

SECTION 11.13 Forum Selection and Consent to Jurisdiction.  ANY LITIGATION
-------------------------------------------                  
BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW
YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE
COURTS OF AND JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
EACH OF STAR GAS PARTNERS AND BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED
STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK FOR THE PURPOSE OF
ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.  EACH OF STAR GAS
PARTNERS AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF NEW YORK.  THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR
HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.

SECTION 11.14 Waiver of Jury Trial.  EACH OF THE AGENT, THE LENDERS AND THE
--------------------                                      
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER THE
BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.

[SIGNATURE PAGE ON NEXT PAGE]

76

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.

TOTAL GAS & ELECTRIC, INC.

By:
Name: George Leibowitz
Title:    Treasurer

Address:   2101 N.  Andrews Avenue
Suite 104
Ft.  Lauderdale, Florida 33311

Facsimile No.: (954) 564-7042

Attention: Treasurer

Copies to:

Richard F.  Ambury
Star Gas Partners, LLC
2187 Atlantic Street
Stamford, CT 06902

With copies to:

Alan Shapiro, Esq.
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103

Acknowledged and Agreed:

STAR GAS PARTNERS, L.P.

By: Star Gas LLC, its General Partner

By:  ____________
Name:  George Leibowitz
Title: Chief Financial Officer

77

THE CHASE MANHATTAN BANK,
as Agent

By:_________________________________
Name:  William A. DeMilt, Jr.
Title: Vice President

Address:  395 North Service Road
Melville, NY   11747

Facsimile No.: (631) 755-5184

Lending Office Base Rate Loans and
LIBOR Loans:
395 North Service Road
Melville, NY 11747
Attention: William A. DeMilt, Jr.
Facsimile No.: (631) 755-5187

Address for Notices:

395 North Service Road
Melville, NY 11747
Attention: William A. DeMilt, Jr.
Facsimile No.: (631) 755-5187

78

BANK OF AMERICA N.A.

By:
Name:  Paul Squires
Title: Managing Director

Address:   333 Clay Street, Suite 4550
Mail Code TX5-383-45-02
Houston, Texas 77002

Facsimile No.: (713) 651-4808

Lending Office Base Rate Loans and LIBOR 
Loans:

Bank of America Plaza
901 Main Street
Dallas, TX 75202-3714
Attention: Ronald Cosgrove
Mail Code TX1-492-14-12
Facsimile No.: (214) 290-9439

Address for Notices:

Bank of America Plaza
901 Main Street
Dallas, TX 75202-3714
Attention: Ronald Cosgrove
Mail Code TX1-492-14-12
Facsimile No.: (214) 290-9439

With a Copy to:

Pamela K. Rodgers
Bank of America NT & SA
333 Clay Street, Suite 4550
Mail Code TX5-383-45-02
Houston, Texas 77002
Facsimile No.: (713) 651-4904

79

Schedules and Exhibits Omitted
------------------------------

80

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

EXHIBIT 27

STAR GAS PARTNERS, L.P.

THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STAR GAS
PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 2001 AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
INTERIM PERIOD OCTOBER 1, 2000 THROUGH MARCH 31, 2001 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

MULTIPLIER                                                  1,000
NAME                                      STAR GAS PARTNERS, L.P.
CIK                                                    0001002590
PERIOD START                                          OCT-01-2000
PERIOD TYPE                                                 6-MOS
FISCAL-YEAR-END                                      SEPT-30-2001
PERIOD-END                                            MAR-31-2001
CASH                                                       16,908
SECURITIES                                                      0
RECEIVABLES                                               205,490
ALLOWANCES                                                  5,648
INVENTORY                                                  26,001
CURRENT-ASSETS                                            261,088
PP&E                                                      247,891
DEPRECIATION                                               45,729
TOTAL-ASSETS                                              804,439
CURRENT LIABILITIES                                       207,030
BONDS                                                     335,198
PREFERRED-MANDATORY                                             0
PREFERRED                                                       0
COMMON                                                    257,795
OTHER-SE                                                        0
TOTAL LIABILITY-AND-EQUITY                                804,439
SALES                                                     730,314
TOTAL-REVENUES                                            793,951
CGS                                                       475,915
TOTAL-COSTS                                               549,272
OTHER-EXPENSE                                             141,851
LOSS-PROVISION                                              3,747
INTEREST EXPENSE                                           17,120
INCOME-PRETAX                                              81,961
INCOME-TAX                                                  1,639
INCOME-CONTINUING                                          80,322
DISCONTINUED                                                    0
EXTRAORDINARY                                                   0
CHANGES                                                     1,466
NET INCOME                                                 81,788
EPS-PRIMARY                                                  3.83
EPS-DILUTED                                                  3.81