Star Gas Enters into Amendment to Kestrel Unit Purchase Agreement to Improve Kestrel Recapitalization Transaction

Business Wire, March 30, 2006

The New Soros Group proposal contains a number of additional conditions not contained in any prior proposal. The proposal is conditioned on the Board approving the transactions, including the tender offer, contemplated by the New Soros Group proposal and revoking all anti-takeover protections currently contained in the formation and governance documents of Star and its general partner solely with respect to the New Soros Group proposal. The New Soros Group proposal is also conditioned upon the transfer, for nominal consideration, of a minority equity interest in Star Gas LLC to the Soros Group and the agreement by all of the equity holders of Star Gas LLC to: (i) grant the Soros Group the right to appoint all of the members of the board of directors of Star Gas LLC and (ii) not sell their equity interests in Star Gas, LLC without the prior written consent of the Soros Group. The proposal is further conditioned on the Soros Group being granted the option to acquire all of the equity interests in Star Gas LLC for a price equal to the value of Star Gas LLC's invested capital in Star at the time of exercise of such option.

After carefully reviewing and considering the transaction risks, financial terms, timing considerations, market risks and potential benefits and detriments of the Amended Kestrel Unit Purchase Agreement and the New Soros Group proposal, and after consulting with its financial advisors and outside legal counsel, the Board concluded that the New Soros Group proposal was not a "Superior Proposal" under the terms of the Amended Kestrel Unit Purchase Agreement.

The New Soros Group proposal was determined not to be superior for a number of reasons. While the Soros Group indicated that they were confident that they would be able to secure or provide sufficient financing to alleviate the risks associated with a potential alleged default being asserted by the Partnership's senior noteholders after April 30, 2006 (the date upon which the Partnership's lockup agreements with Star's senior noteholders terminate), the Soros Group did not provide any details of such financing. The Board considered these factors in light of a recent letter received from counsel to certain of Star's senior noteholders who have entered into lockup agreements, which indicated that while such noteholders have not determined whether to exercise their rights and remedies under the senior notes Indenture, such noteholders reserved the right to do so following the termination of their lockup agreements. In addition, the Board believed that the New Soros Group proposal would likely trigger the change in control provisions under the Partnership's senior note Indenture, which could result in the Partnership having to offer to repurchase all $265 million of these senior notes. The Soros Group has not provided any details as to how it would meet that obligation.

The conditions contained in the New Soros Group proposal also were problematic, as a number of the conditions related to the equity interests of Star's general partner. Neither the Board nor Star has the ability to compel the equity holders of Star's general partner to comply with the conditions set forth in the New Soros Group proposal and accordingly, there could be no assurance that these conditions would be satisfied. These additional conditions were assessed by the Board in determining the ability of the Soros Group to consummate the transaction contemplated by the New Soros Group proposal.