Contract

EXHIBIT 4.2 ———– AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP FOR ATLAS AMERICA SERIES 26-2005 L.P. DATED AUGUST 25, 2005

TABLE OF CONTENTSSECTION NO. DESCRIPTION PAGE SECTION NO. DESCRIPTION PAGE I. FORMATION VII. DURATION, DISSOLUTION, AND 1.01 Formation…………………………….1 WINDING UP 1.02 Certificate of Limited Partnership………1 7.01 Duration…………………………….47 1.03 Name, Principal Office and Residence…….1 7.02 Dissolution and Winding Up…………….47 1.04 Purpose………………………………1 VIII. MISCELLANEOUS PROVISIONSII. DEFINITION OF TERMS 8.01 Notices……………………………..48 2.01 Definitions…………………………..2 8.02 Time………………………………..49 8.03 Applicable Law……………………….49III. SUBSCRIPTIONS AND FURTHER CAPITAL CONTRIBUTIONS 8.04 Agreement in Counterparts……………..49 3.01 Designation of Managing General Partner 8.05 Amendment……………………………49 and Participants…………………11 8.06 Additional Partners…………………..49 3.02 Participants…………………………11 8.07 Legal Effect…………………………49 3.03 Subscriptions to the Partnership……….12 3.04 Capital Contributions of the Managing EXHIBITS General Partner………………………13 3.05 Payment of Subscriptions………………14 EXHIBIT (I-A) – Managing General Partner 3.06 Partnership Funds…………………….14 Signature Page for Atlas America Series 26-2005 L.P.IV. CONDUCT OF OPERATIONS 4.01 Acquisition of Leases…………………15 EXHIBIT (I-B) – Subscription Agreement for 4.02 Conduct of Operations…………………17 Atlas America Series 26-2005 4.03 General Rights and Obligations of the L.P. Participants and Restricted and Prohibited Transactions……………….20 EXHIBIT (II) – Drilling and Operating 4.04 Designation, Compensation and Agreement for Atlas America Removal of Managing General Series 26-2005 L.P. Partner and Removal of Operator…….28 4.05 Indemnification and Exoneration………..31 4.06 Other Activities……………………..33V. PARTICIPATION IN COSTS AND REVENUES, CAPITAL ACCOUNTS, ELECTIONS AND DISTRIBUTIONS 5.01 Participation in Costs and Revenues…….34 5.02 Capital Accounts and Allocations Thereto………………………….37 5.03 Allocation of Income, Deductions and Credits………………………….39 5.04 Elections……………………………40 5.05 Distributions………………………..41VI. TRANSFER OF INTERESTS 6.01 Transferability………………………42 6.02 Special Restrictions on Transfers………43 6.03 Right of Managing General Partner to Hypothecate and/or Withdraw Its Interests………………..44 6.04 Presentment………………………….45

iThese securities have not been registered under the Securities Act of 1933, asamended, or any applicable state securities acts. These securities must beacquired for investment, are restricted as to transferability, and may not betransferred or sold except in conformance with the restrictions contained inArticle VI of this Amended and Restated Certificate and Agreement of LimitedPartnership and in the Subscription Agreement and Annex A, Exhibit (I-B) to thisAmended and Restated Certificate and Agreement of Limited Partnership. AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP ATLAS AMERICA SERIES 26-2005 L.P.THIS AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP(“AGREEMENT”), amending and restating the original Certificate of LimitedPartnership, is made and entered into as of August 25, 2005, by and among AtlasResources, Inc., referred to as “Atlas” or the “Managing General Partner,” andthe remaining parties from time to time signing a Subscription Agreement forLimited Partner Units, these parties sometimes referred to as “LimitedPartners,” or for Investor General Partner Units, these parties sometimesreferred to as “Investor General Partners.” ARTICLE I FORMATION1.01. FORMATION. The parties have formed a limited partnership under theDelaware Revised Uniform Limited Partnership Act on the terms and conditions setforth in this Agreement.1.02. CERTIFICATE OF LIMITED PARTNERSHIP. This document is not only an agreementamong the parties, but also is the Amended and Restated Certificate andAgreement of Limited Partnership of the Partnership. This document shall befiled or recorded in the public offices required under applicable law or deemedadvisable in the discretion of the Managing General Partner. Amendments to thecertificate of limited partnership shall be filed or recorded in the publicoffices required under applicable law or deemed advisable in the discretion ofthe Managing General Partner.1.03. NAME, PRINCIPAL OFFICE AND RESIDENCE.1.03(a). NAME. The name of the Partnership is Atlas America Series 26-2005 L.P.1.03(b). RESIDENCE. The residence of the Managing General Partner is itsprincipal place of business at 311 Rouser Road, Moon Township, Pennsylvania15108, which shall also serve as the principal place of business of thePartnership.The residence of each Participant shall be as set forth on the SubscriptionAgreement executed by the Participant.All addresses shall be subject to change on notice to the parties.1.03(c). AGENT FOR SERVICE OF PROCESS. The name and address of the agent forservice of process shall be Andrew M. Lubin at 110 S. Poplar Street, Suite 101,Wilmington, Delaware 19801.1.04. PURPOSE. The Partnership shall engage in all phases of the natural gas andoil business. This includes, without limitation, exploration for, developmentand production of natural gas and oil on the terms and conditions set forthbelow and any other proper purpose under the Delaware Revised Uniform LimitedPartnership Act.The Managing General Partner may not, without the affirmative vote ofParticipants whose Units equal a majority of the total Units, do the following: (i) change the investment and business purpose of the Partnership; or 1 (ii) cause the Partnership to engage in activities outside the stated business purposes of the Partnership through joint ventures with other entities. ARTICLE II DEFINITION OF TERMS2.01. DEFINITIONS. As used in this Agreement, the following terms shall have themeanings set forth below: 1. “Accredited Investor” means Accredited Investor, as that term is defined in Regulation D as adopted by the Securities and Exchange Commission as of the date of acceptance of the Participant’s subscription. As of the date of the Private Placement Memorandum the term includes “any person who comes within any of the following categories or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person: (i) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; (ii) Any private business development company as defined in section 202(a)(22) of the Investment Advisors Act of 1940; (iii) Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; (iv) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer; (v) Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000; (vi) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; (vii) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in ss.230.506(b)(2)(ii); and (viii) Any entity in which all the equity owners are accredited investors.” 2 2. “Administrative Costs” means all customary and routine expenses incurred by the Sponsor for the conduct of Partnership administration, including: in-house legal, finance, in-house accounting, secretarial, travel, office rent, telephone, data processing and other items of a similar nature. Administrative Costs shall be limited as follows: (i) no Administrative Costs charged shall be duplicated under any other category of expense or cost; and (ii) no portion of the salaries, benefits, compensation or remuneration of controlling persons of the Managing General Partner shall be reimbursed by the Partnership as Administrative Costs. Controlling persons include directors, executive officers and those holding 5% or more equity interest in the Managing General Partner or a person having power to direct or cause the direction of the Managing General Partner, whether through the ownership of voting securities, by contract, or otherwise. 3. “Administrator” means the official or agency administering the securities laws of a state. 4. “Affiliate” means with respect to a specific person: (i) any person directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of the specified person; (ii) any person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the specified person; (iii) any person directly or indirectly controlling, controlled by, or under common control with the specified person; (iv) any officer, director, trustee or partner of the specified person; and (v) if the specified person is an officer, director, trustee or partner, any person for which the person acts in any such capacity. 5. “Agreement” means this Amended and Restated Certificate and Agreement of Limited Partnership, including all exhibits to this Agreement. 6. “Anthem Securities” means Anthem Securities, Inc., whose principal executive offices are located at 311 Rouser Road, P.O. Box 926, Moon Township, Pennsylvania 15108-0926. 7. “Assessments” means additional amounts of capital which may be mandatorily required of or paid voluntarily by a Participant beyond his subscription commitment. 8. “Atlas” means Atlas Resources, Inc., a Pennsylvania corporation, whose principal executive offices are located at 311 Rouser Road, Moon Township, Pennsylvania 15108. 9. “Capital Account” or “account” means the account established for each party, maintained as provided in ss.5.02 and its subsections. 10. “Capital Contribution” means the amount agreed to be contributed to the Partnership by a Partner pursuant to ss.ss.3.04 and 3.05 and their subsections. 11. “Carried Interest” means an equity interest in the Partnership issued to a Person without consideration, in the form of cash or tangible property, in an amount proportionately equivalent to that received from the Participants. 3 12. “Code” means the Internal Revenue Code of 1986, as amended. 13. “Cost,” when used with respect to the sale or transfer of property to the Partnership, means: (i) the sum of the prices paid by the seller or transferor to an unaffiliated person for the property, including bonuses; (ii) title insurance or examination costs, brokers’ commissions, filing fees, recording costs, transfer taxes, if any, and like charges in connection with the acquisition of the property; (iii) a pro rata portion of the seller’s or transferor’s actual necessary and reasonable expenses for seismic and geophysical services; and (iv) rentals and ad valorem taxes paid by the seller or transferor for the property to the date of its transfer to the buyer, interest and points actually incurred on funds used to acquire or maintain the property, and the portion of the seller’s or transferor’s reasonable, necessary and actual expenses for geological, engineering, drafting, accounting, legal and other like services allocated to the property cost in conformity with generally accepted accounting principles and industry standards, except for expenses in connection with the past drilling of wells which are not producers of sufficient quantities of oil or gas to make commercially reasonable their continued operations, and provided that the expenses enumerated in this subsection (iv) shall have been incurred not more than 36 months before the sale or transfer to the Partnership. “Cost,” when used with respect to services, means the reasonable, necessary and actual expense incurred by the seller on behalf of the Partnership in providing the services, determined in accordance with generally accepted accounting principles. As used elsewhere, “Cost” means the price paid by the seller in an arm’s-length transaction. 14. “Dealer-Manager” means Anthem Securities, Inc., an Affiliate of the Managing General Partner, the broker/dealer which will manage the offering and sale of the Units. 15. “Development Well” means a well drilled within the proved area of a natural gas or oil reservoir to the depth of a stratigraphic Horizon known to be productive. 16. “Direct Costs” means all actual and necessary costs directly incurred for the benefit of the Partnership and generally attributable to the goods and services provided to the Partnership by parties other than the Sponsor or its Affiliates. Direct Costs may not include any cost otherwise classified as Organization and Offering Costs, Administrative Costs, Intangible Drilling Costs, Tangible Costs, Operating Costs or costs related to the Leases; but may include the cost of services provided by the Sponsor or its Affiliates if the services are provided pursuant to written contracts and in compliance with ss.4.03(d)(7) or pursuant to the Managing General Partner’s role as Tax Matters Partner. 17. “Distribution Interest” means an undivided interest in the Partnership’s assets after payments to the Partnership’s creditors or the creation of a reasonable reserve therefor, in the ratio the positive balance of a party’s Capital Account bears to the aggregate positive balance of the Capital Accounts of all of the parties determined after taking into account all Capital Account adjustments for the taxable year during which liquidation occurs (other than those made pursuant to liquidating distributions or restoration of deficit Capital Account balances). Provided, however, after the Capital Accounts of all of the parties have been reduced to zero, the interest in the remaining Partnership assets shall equal a party’s interest in the related Partnership revenues as set forth in ss.5.01 and its subsections of this Agreement. 4 18. “Drilling and Operating Agreement” means the proposed Drilling and Operating Agreement between the Managing General Partner or an Affiliate as Operator, and the Partnership as Developer, a copy of the proposed form of which is attached to this Agreement as Exhibit (II). 19. “Exploratory Well” means a well drilled to: (i) find commercially productive hydrocarbons in an unproved area; (ii) find a new commercially productive Horizon in a field previously found to be productive of hydrocarbons at another Horizon; or (iii) significantly extend a known prospect. 20. “Farmout” means an agreement by the owner of the leasehold or Working Interest to assign his interest in certain acreage or well to the assignees, retaining some interest such as an Overriding Royalty Interest, an oil and gas payment, offset acreage or other type of interest, subject to the drilling of one or more specific wells or other performance as a condition of the assignment. 21. “Final Terminating Event” means any one of the following: (i) the expiration of the Partnership’s fixed term; (ii) notice to the Participants by the Managing General Partner of its election to terminate the Partnership’s affairs; (iii) notice by the Participants to the Managing General Partner of their similar election through the affirmative vote of Participants whose Units equal a majority of the total Units; or (iv) the termination of the Partnership under ss.708(b)(1)(A) of the Code or the Partnership ceases to be a going concern. 22. “Horizon” means a zone of a particular formation; that part of a formation of sufficient porosity and permeability to form a petroleum reservoir. 23. “Independent Expert” means a person with no material relationship to the Sponsor or its Affiliates who is qualified and in the business of rendering opinions regarding the value of natural gas and oil properties based on the evaluation of all pertinent economic, financial, geologic and engineering information available to the Sponsor or its Affiliates. 24. “Initial Closing Date” means the date after the minimum amount of subscription proceeds has been received when subscription proceeds are first withdrawn from the escrow account. 25. “Intangible Drilling Costs” or “Non-Capital Expenditures” means those expenditures associated with property acquisition and the drilling and completion of natural gas and oil wells that under present law are generally accepted as fully deductible currently for federal income tax purposes. This includes: (i) all expenditures made for any well before production in commercial quantities for wages, fuel, repairs, hauling, supplies and other costs and expenses incident to and necessary for drilling the well and preparing the well for production of natural gas or oil, that are currently deductible pursuant to Section 263(c) of the Code and Treasury Reg. Section 1.612-4, and are generally termed “intangible drilling and development costs,” (ii) the expense of plugging and abandoning any well before a completion attempt; and 5 (iii) the costs (other than Tangible Costs and Lease costs) to re-enter and deepen an existing well, complete the well to deeper reservoirs, or plug and abandon the well if it is nonproductive from the targeted deeper reservoirs. 26. “Interim Closing Date” means those date(s) after the Initial Closing Date, but before the Offering Termination Date, that the Managing General Partner, in its sole discretion, applies additional subscription proceeds to additional Partnership activities, including drilling activities. 27. “Investor General Partners” means: (i) the persons signing the Subscription Agreement as Investor General Partners; and (ii) the Managing General Partner to the extent of any optional subscription as an Investor General Partner under ss.3.03(b)(2). All Investor General Partners shall be of the same class and have the same rights. 28. “Landowner’s Royalty Interest” means an interest in production, or its proceeds, to be received free and clear of all costs of development, operation, or maintenance, reserved by a landowner on the creation of a Lease. 29. “Leases” means full or partial interests in natural gas and oil leases, oil and natural gas mineral rights, fee rights, licenses, concessions, or other rights under which the holder is entitled to explore for and produce oil and/or natural gas, and includes any contractual rights to acquire any such interest. 30. “Limited Partners” means: (i) the persons signing the Subscription Agreement as Limited Partners; (ii) the Managing General Partner to the extent of any optional subscription as a Limited Partner under ss.3.03(b)(2); (iii) the Investor General Partners on the conversion of their Investor General Partner Units to Limited Partner Units pursuant to ss.6.01(b); and (iv) any other persons who are admitted to the Partnership as additional or substituted Limited Partners. Except as provided in ss.3.05(b), with respect to the required additional Capital Contributions of Investor General Partners, all Limited Partners shall be of the same class and have the same rights. 31. “Managing General Partner” means: (i) Atlas Resources, Inc.; or (ii) any Person admitted to the Partnership as a general partner other than as an Investor General Partner who is designated to exclusively supervise and manage the operations of the Partnership. 32. “Managing General Partner Signature Page” means an execution and subscription instrument in the form attached as Exhibit (I-A) to this Agreement, which is incorporated in this Agreement by reference. 33. “Offering Termination Date” means the date set forth in the Private Placement Memorandum after the minimum amount of subscription proceeds has been received on which the Managing General Partner determines, in its sole discretion, the Partnership’s subscription period is closed and the acceptance of subscriptions ceases. 6 Notwithstanding the above, the Offering Termination Date may not extend beyond the time that subscriptions for the maximum number of Units set forth in ss.3.03(c)(1) have been received and accepted by the Managing General Partner. 34. “Operating Costs” means expenditures made and costs incurred in producing and marketing natural gas or oil from completed wells. These costs include, but are not limited to: (i) labor, fuel, repairs, hauling, materials, supplies, utility charges and other costs incident to or related to producing and marketing natural gas and oil; (ii) ad valorem and severance taxes; (iii) insurance and casualty loss expense; and (iv) compensation to well operators or others for services rendered in conducting these operations. Operating Costs also include reworking, workover, subsequent equipping, and similar expenses relating to any well, but do not include the costs to re-enter and deepen an existing well, complete the well to deeper formations or reservoirs, or plug and abandon the well if it is nonproductive from the targeted deeper formations or reservoirs. 35. “Operator” means the Managing General Partner, as operator of Partnership Wells in Pennsylvania, and the Managing General Partner or an Affiliate as Operator of Partnership Wells in other areas of the United States. 36. “Organization and Offering Costs” means all costs of organizing and selling the offering including, but not limited to: (i) total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys); (ii) expenses for printing, engraving, mailing, salaries of employees while engaged in sales activities, charges of transfer agents, registrars, trustees, escrow holders, depositaries, engineers and other experts; (iii) expenses of qualification of the sale of the securities under federal and state law, including taxes and fees, accountants’ and attorneys’ fees; and (iv) other front-end fees. 37. “Organization Costs” means all costs of organizing the offering including, but not limited to: (i) expenses for printing, engraving, mailing, salaries of employees while engaged in sales activities, charges of transfer agents, registrars, trustees, escrow holders, depositaries, engineers and other experts; (ii) expenses of qualification of the sale of the securities under federal and state law, including taxes and fees, accountants’ and attorneys’ fees; and (iii) other front-end fees. 38. “Overriding Royalty Interest” means an interest in the natural gas and oil produced under a Lease, or the proceeds from the sale thereof, carved out of the Working Interest, to be received free and clear of all costs of development, operation, or maintenance. 7 39. “Participants” means: (i) the Managing General Partner to the extent of its optional subscription under ss.3.03(b)(2); (ii) the Limited Partners; and (iii) the Investor General Partners. 40. “Partners” means: (i) the Managing General Partner; (ii) the Investor General Partners; and (iii) the Limited Partners. 41. “Partnership” means Atlas America Series 26-2005 L.P. 42. “Partnership Net Production Revenues” means gross revenues after deduction of the related Operating Costs, Direct Costs, Administrative Costs and all other Partnership costs not specifically allocated. 43. “Partnership Well” means a well, some portion of the revenues from which is received by the Partnership. 44. “Person” means a natural person, partnership, corporation, association, trust or other legal entity. 45. “Private Placement Memorandum” means the offering document dated July 15, 2005, as amended or supplemented from time to time, by which the Units are offered and sold. 46. “Production Purchase” or “Income” Program means any program whose investment objective is to directly acquire, hold, operate, and/or dispose of producing oil and gas properties. Such a program may acquire any type of ownership interest in a producing property, including, but not limited to, working interests, royalties, or production payments. A program which spends at least 90% of capital contributions and funds borrowed (excluding offering and organizational expenses) in the above described activities is presumed to be a production purchase or income program. 47. “Program” means one or more limited or general partnerships or other investment vehicles formed, or to be formed, for the primary purpose of: (i) exploring for natural gas, oil and other hydrocarbon substances; or (ii) investing in or holding any property interests which permit the exploration for or production of hydrocarbons or the receipt of such production or its proceeds. 48. “Prospect” means the drilling or spacing unit on which one Partnership well will be drilled and, if warranted, completed, which is the minimum area permitted by state law or local practice on which one well may be drilled. 49. “Proved Developed Oil and Gas Reserves” means reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as “proved developed reserves” only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. 8 50. “Proved Reserves” means the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. (i) Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes: (a) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (b) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. (ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the “proved” classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. (iii) Estimates of proved reserves do not include the following: (a) oil that may become available from known reservoirs but is classified separately as “indicated additional reserves”; (b) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (c) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (d) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources. 51. “Proved Undeveloped Reserves” means reserves that are expected to be recovered from either: (i) new wells on undrilled acreage; or (ii) from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. 52. “Roll-Up” means a transaction involving the acquisition, merger, conversion or consolidation, either directly or indirectly, of the Partnership and the issuance of securities of a Roll-Up Entity. The term does not include: 9 (i) a transaction involving securities of the Partnership that have been listed for at least 12 months on a national exchange or traded through the National Association of Securities Dealers Automated Quotation National Market System; or (ii) a transaction involving the conversion to corporate, trust or association form of only the Partnership if, as a consequence of the transaction, there will be no significant adverse change in any of the following: (a) voting rights; (b) the Partnership’s term of existence; (c) the Managing General Partner’s compensation; and (d) the Partnership’s investment objectives. 53. “Roll-Up Entity” means a partnership, trust, corporation or other entity that would be created or survive after the successful completion of a proposed roll-up transaction. 54. “Sales Commissions” means all underwriting and brokerage discounts and commissions incurred in the sale of Units payable to registered broker/dealers, but excluding the following: (a) the 1.5% nonaccountable due diligence fee; (b) the .5% nonaccountable marketing expense fee; (c) the 2.5% Dealer-Manager fee; and (d) payments to broker/dealers from the Managing General Partner in an amount equal to 1% of the Partnership Net Production Revenues. 55. “Selling Agents” means those broker/dealers selected by the Dealer-Manager which will participate in the offer and sale of the Units. 56. “Sponsor” means any person directly or indirectly instrumental in organizing, wholly or in part, a program or any person who will manage or is entitled to manage or participate in the management or control of a program. The definition includes: (i) the managing and controlling general partner(s) and any other person who actually controls or selects the person who controls 25% or more of the exploratory, development or producing activities of the program, or any segment thereof, even if that person has not entered into a contract at the time of formation of the program; and (ii) whenever the context so requires, the term “sponsor” shall be deemed to include its affiliates. “Sponsor” does not include wholly independent third-parties such as attorneys, accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of units. 57. “Subscription Agreement” means an execution and subscription instrument in the form attached as Exhibit (I-B) to this Agreement, which is incorporated in this Agreement by reference. 58. “Tangible Costs” or “Capital Expenditures” means those costs associated with property acquisition and drilling and completing natural gas and oil wells which are generally accepted as capital expenditures under the Code. This includes all of the following: 10 (i) costs of equipment, parts and items of hardware used in drilling and completing a well; (ii) the costs (other than Intangible Drilling Costs and Lease costs) to re-enter and deepen an existing well, complete the well to deeper reservoirs, or plug and abandon the well if it is nonproductive from the targeted deeper reservoirs; and (iii) those items necessary to deliver acceptable natural gas and oil production to purchasers to the extent installed downstream from the wellhead of any well and which are required to be capitalized under the Code and its regulations. 59. “Tax Matters Partner” means the Managing General Partner. 60. “Units” or “Units of Participation” means Limited Partner interests and Investor General Partner interests, which will be converted to Limited Partner Units as set forth in ss.6.01(b), purchased by Participants in the Partnership under the provisions of ss.3.03 and its subsections, including any rights to profits, losses, income, gain, credits, deductions, cash distributions or returns of capital or other attributes of the Units. 61. “Working Interest” means an interest in a Lease which is subject to some portion of the cost of development, operation, or maintenance of the Lease. ARTICLE III SUBSCRIPTIONS AND FURTHER CAPITAL CONTRIBUTIONS3.01. DESIGNATION OF MANAGING GENERAL PARTNER AND PARTICIPANTS. Atlas shallserve as Managing General Partner of the Partnership. Atlas shall further serveas a Participant to the extent of any subscription made by it pursuant toss.3.03(b)(2).Limited Partners and Investor General Partners, including Affiliates of theManaging General Partner, shall serve as Participants.3.02. PARTICIPANTS.3.02(a). LIMITED PARTNER AT FORMATION. Atlas America, Inc., as Original LimitedPartner, has acquired one Unit and has made a Capital Contribution of $100. Onthe admission of one or more Limited Partners, the Partnership shall return tothe Original Limited Partner its Capital Contribution and shall reacquire itsUnit. The Original Limited Partner shall then cease to be a Limited Partner inthe Partnership with respect to the Unit.3.02(b). OFFERING OF INTERESTS. The Partnership is authorized to admit to thePartnership at the Initial Closing Date, any Interim Closing Date(s), and theOffering Termination Date additional Participants whose Subscription Agreementsare accepted by the Managing General Partner if, after the admission of theadditional Participants, the total Units do not exceed the maximum number ofUnits set forth in ss.3.03(c)(1).3.02(c). ADMISSION OF PARTICIPANTS. No action or consent by the Participantsshall be required for the admission of additional Participants pursuant to thisAgreement.All subscribers’ funds shall be held in an interest-bearing account or accountsby an independent escrow holder and shall not be released to the Partnershipuntil the receipt of the minimum amount of subscription proceeds set forth inss.3.03(c)(2). Thereafter, subscriptions may be paid directly to the Partnershipaccount. 113.03. SUBSCRIPTIONS TO THE PARTNERSHIP.3.03(a). SUBSCRIPTIONS BY PARTICIPANTS.3.03(a)(1). SUBSCRIPTION PRICE AND MINIMUM SUBSCRIPTION. The subscription priceof a Unit in the Partnership shall be $25,000, except as set forth below, andshall be designated on each Participant’s Subscription Agreement and payable asset forth in Section 3.05(b)(1). The minimum subscription per Participant shallbe one Unit ($25,000); however, the Managing General Partner, in its discretion,may accept at any time one-half Unit ($12,500) subscriptions. Largersubscriptions shall be accepted in $1,000 increments.Notwithstanding the foregoing, the subscription price for: (i) the Managing General Partner, its officers, directors, and Affiliates, and Participants who buy Units through the officers and directors of the Managing General Partner, shall be reduced by an amount equal to the 2.5% Dealer-Manager fee, the 7% Sales Commission, the 1.5% nonaccountable marketing expense fee, and the .5% nonaccountable due diligence fee, regardless of when they subscribe, which shall not be paid with respect to these sales; and (ii) Registered Investment Advisors and their clients, and Selling Agents and their registered representatives and principals, shall be reduced by an amount equal to the 7% Sales Commission, which shall not be paid with respect to these sales.No more than 10% of the total Units shall be sold with the discounts describedabove.3.03(a)(2). EFFECT OF SUBSCRIPTION. Execution of a Subscription Agreement shall serve as an agreement by the Participant to be bound by each and every term of this Agreement.3.03(b). SUBSCRIPTIONS BY MANAGING GENERAL PARTNER.3.03(b)(1). MANAGING GENERAL PARTNER’S REQUIRED SUBSCRIPTION. The Managing General Partner, as a general partner and not as a Participant, shall: (i) contribute to the Partnership the Leases which will be drilled by the Partnership on the terms set forth in ss.4.01(a)(4); and (ii) pay the costs or make the required contributions charged to it under this Agreement.These Capital Contributions shall be paid or made by the Managing GeneralPartner at the time the costs are required to be paid by the Partnership, but nolater than December 31, 2006.3.03(b)(2). MANAGING GENERAL PARTNER’S OPTIONAL ADDITIONAL SUBSCRIPTION. Inaddition to the Managing General Partner’s required subscription underss.3.03(b)(1), the Managing General Partner may subscribe for Units under theprovisions of ss.3.03(a) and its subsections up to the minimum subscriptionswhich are required under ss.3.03(c)(2) for the Partnership to begin operations,and, subject to the limitations on voting rights set forth in ss.4.03(c)(3), tothat extent shall be deemed a Participant in the Partnership for all purposesunder this Agreement.3.03(b)(3). EFFECT OF AND EVIDENCING SUBSCRIPTION. The Managing General Partnerhas executed a Managing General Partner Signature Page which: (i) evidences the Managing General Partner’s required subscription under ss.3.03(b)(1); and (ii) may be amended to reflect the amount of any optional subscription under ss.3.03(b)(2). 12Execution of the Managing General Partner Signature Page serves as an agreementby the Managing General Partner to be bound by each and every term of thisAgreement.3.03(c). MAXIMUM AND MINIMUM NUMBER OF UNITS.3.03(c)(1). MAXIMUM NUMBER OF UNITS. The maximum number of Units may not exceed1,400 Units, which is up to $35,000,000 of cash subscription proceeds excludingthe subscription discounts permitted under ss.3.03(a)(1).3.03(c)(2). MINIMUM NUMBER OF UNITS. The minimum number of Units shall equal atleast 80 Units, but in any event not less than that number of Units whichprovides the Partnership with cash subscription proceeds of $2,000,000,excluding the subscription discounts permitted under ss.3.03(a)(1). Pursuant toss.3.03(b)(2), the Managing General Partner, its officers, directors, andAffiliates may purchase the number of Units required to satisfy the minimumsubscription proceeds required under ss.3.03(c)(1) to the extent paid in cashand after the discounts permitted under ss.3.03(a)(1).If subscriptions for the minimum number of Units have not been received andaccepted at the Offering Termination Date, then all monies deposited bysubscribers shall be promptly returned to them. They shall receive interestearned on their subscription proceeds from the date the monies were deposited inescrow through the date of refund.The Partnership may break escrow and begin its drilling activities in theManaging General Partner’s sole discretion on receipt of the minimumsubscription proceeds.3.03(d). ACCEPTANCE OF SUBSCRIPTIONS.3.03(d)(1). DISCRETION BY THE MANAGING GENERAL PARTNER. Acceptance ofsubscriptions is discretionary with the Managing General Partner. The ManagingGeneral Partner may reject any subscription for any reason it deems appropriate.3.03(d)(2). TIME PERIOD IN WHICH TO ACCEPT SUBSCRIPTIONS. Subscriptions shall beaccepted or rejected by the Partnership within 30 days of their receipt. If asubscription is rejected, then all funds shall be returned to the subscriberpromptly.3.03(d)(3). ADMISSION TO THE PARTNERSHIP. The Participants shall be admitted tothe Partnership as follows: (i) not later than 15 days after the release from escrow of Participants’ funds to the Partnership; and (ii) after the close of the escrow account not later than the last day of the calendar month in which their Subscription Agreements were accepted by the Partnership.3.04. CAPITAL CONTRIBUTIONS OF THE MANAGING GENERAL PARTNER.3.04(a). MINIMUM AMOUNT OF MANAGING GENERAL PARTNER’S REQUIRED CONTRIBUTION. TheManaging General Partner is required to: (i) make aggregate Capital Contributions to the Partnership, including Leases contributed under ss.3.03(b)(1)(i), of not less than 25% of all Capital Contributions to the Partnership; and (ii) maintain a minimum Capital Account balance equal to not less than 1% of total positive Capital Account balances for the Partnership.3.04(b). ON LIQUIDATION THE MANAGING GENERAL PARTNER MUST CONTRIBUTE DEFICITBALANCE IN ITS CAPITAL ACCOUNT. The Managing General Partner shall contribute tothe Partnership any deficit balance in its Capital Account on the occurrence ofeither of the following events: (i) the liquidation of the Partnership; or (ii) the liquidation of the Managing General Partner’s interest in the Partnership. 13This shall be determined after taking into account all adjustments for thePartnership’s taxable year during which the liquidation occurs, other thanadjustments made pursuant to this requirement, by the end of the taxable year inwhich its interest in the Partnership is liquidated or, if later, within 90 daysafter the date of the liquidation.3.04(c). INTEREST FOR CONTRIBUTIONS. The interest of the Managing GeneralPartner, as Managing General Partner and not as a Participant, in the capitaland revenues of the Partnership is fully vested and nonforfeitable as of thedate of the formation of the Partnership and is in consideration for, and is theonly consideration for, its required Capital Contributions to the Partnership.3.05. PAYMENT OF SUBSCRIPTIONS.3.05(a). MANAGING GENERAL PARTNER’S SUBSCRIPTIONS. The Managing General Partnershall pay any optional subscription under ss.3.03(b)(2) as set forth in Section3.05(b)(1).3.05(b). PARTICIPANT SUBSCRIPTIONS AND ADDITIONAL CAPITAL CONTRIBUTIONS OF THEINVESTOR GENERAL PARTNERS.3.05(b)(1). PAYMENT OF SUBSCRIPTION AGREEMENTS. A Participant shall pay theamount designated as the subscription price on the Subscription Agreementexecuted by the Participant 100% in cash at the time of subscribing. AParticipant shall receive interest on the amount he pays from the time hissubscription proceeds are deposited in the escrow account, or the Partnershipaccount after the minimum number of Units have been received as provided inss.3.06(b), up until the Offering Termination Date at a rate of the greater of6% per annum or the market rate paid by National City Bank of Pennsylvania.If the amount of interest paid by National City Bank of Pennsylvania is lessthan 6% per annum, then the difference shall be paid by the Managing GeneralPartner.3.05(b)(2). ADDITIONAL REQUIRED CAPITAL CONTRIBUTIONS OF THE INVESTOR GENERALPARTNERS. Investor General Partners must make Capital Contributions to thePartnership when called by the Managing General Partner, in addition to theirsubscriptions, for their pro rata share of any Partnership obligations andliabilities which are recourse to the Investor General Partners and arerepresented by their ownership of Units before the conversion of InvestorGeneral Units to Limited Partner Units under ss.6.01(b).3.05(b)(3). DEFAULT PROVISIONS. The failure of an Investor General Partner totimely make a required additional Capital Contribution under this sectionresults in his personal liability to the other Investor General Partners for theamount in default. The remaining Investor General Partners, in proportion totheir respective number of Units, must pay the defaulting Investor GeneralPartner’s share of Partnership liabilities and obligations. In that event, theremaining Investor General Partners: (i) shall have a first and preferred lien on the defaulting Investor General Partner’s interest in the Partnership to secure payment of the amount in default plus interest at the legal rate; (ii) shall be entitled to receive 100% of the defaulting Investor General Partner’s cash distributions, in proportion to their respective number of Units, until the amount in default is recovered in full plus interest at the legal rate; and (iii) may commence legal action to collect the amount due plus interest at the legal rate.3.06. PARTNERSHIP FUNDS.3.06(a). FIDUCIARY DUTY. The Managing General Partner has a fiduciaryresponsibility for the safekeeping and use of all funds and assets of thePartnership, whether or not in the Managing General Partner’s possession orcontrol. The Managing General Partner shall not employ, or permit another toemploy, the funds and assets in any manner except for the exclusive benefit ofthe Partnership. 143.06(b). SPECIAL ACCOUNT AFTER THE RECEIPT OF THE MINIMUM PARTNERSHIPSUBSCRIPTIONS. Following the receipt of the minimum number of Units and breakingescrow, the funds of the Partnership shall be held in a separateinterest-bearing account maintained for the Partnership and shall not becommingled with funds of any other entity.3.06(c). INVESTMENT.3.06(c)(1). INVESTMENTS IN OTHER ENTITIES. Partnership funds may not be investedin the securities of another person except in the following instances: (i) investments in Working Interests or undivided Lease interests made in the ordinary course of the Partnership’s business; (ii) temporary investments made as set forth in ss.3.06(c)(2); (iii) multi-tier arrangements meeting the requirements of ss.4.03(d)(15); (iv) investments involving less than 5% of the Partnership’s subscription proceeds which are a necessary and incidental part of a property acquisition transaction; and (v) investments in entities established solely to limit the Partnership’s liabilities associated with the ownership or operation of property or equipment, provided that duplicative fees and expenses shall be prohibited.3.06(c)(2). PERMISSIBLE INVESTMENTS BEFORE INVESTMENT IN PARTNERSHIP ACTIVITIES.After the Initial Closing Date and until proceeds from the offering are investedin the Partnership’s operations, the proceeds may be temporarily invested inincome producing short-term, highly liquid investments, in which there isappropriate safety of principal, such as U.S. Treasury Bills. ARTICLE IV CONDUCT OF OPERATIONS4.01. ACQUISITION OF LEASES.4.01(a). ASSIGNMENT TO PARTNERSHIP.4.01(a)(1). IN GENERAL. The Managing General Partner shall select, acquire andassign or cause to have assigned to the Partnership full or partial interests inLeases, by any method customary in the natural gas and oil industry, subject tothe terms and conditions set forth below.The Partnership shall acquire only Leases reasonably expected to meet the statedpurposes of the Partnership. No Leases shall be acquired for the purpose of asubsequent sale, Farmout, or other disposition unless the acquisition is madeafter a well has been drilled to a depth sufficient to indicate that theacquisition would be in the Partnership’s best interest.4.01(a)(2). FEDERAL AND STATE LEASES. The Partnership is authorized to acquireLeases on federal and state lands.4.01(a)(3). MANAGING GENERAL PARTNER’S DISCRETION AS TO TERMS AND BURDENS OFACQUISITION. Subject to the provisions of ss.4.03(d) and its subsections, theacquisitions of Leases or other property may be made under any terms andobligations, including: (i) any limitations as to the Horizons to be assigned to the Partnership; and (ii) subject to any burdens as the Managing General Partner deems necessary in its sole discretion.4.01(a)(4). COST OF LEASES. All Leases shall be: (i) contributed to the Partnership by the Managing General Partner or its Affiliates; and 15 (ii) credited towards the Managing General Partner’s required Capital Contribution set forth in ss.3.03(b)(1) at the Cost of the Lease, unless the Managing General Partner has cause to believe that Cost is materially more than the fair market value of the property, in which case the credit for the contribution must be made at a price not in excess of the fair market value.A determination of fair market value must be: (i) supported by an appraisal from an Independent Expert; and (ii) maintained in the Partnership’s records for six years along with associated supporting information.4.01(a)(5). THE MANAGING GENERAL PARTNER, OPERATOR OR THEIR AFFILIATES’ RIGHTSIN THE REMAINDER INTERESTS. Subject to the provisions of ss.4.03(d) and itssubsections, to the extent the Partnership does not acquire a full interest in aLease from the Managing General Partner or its Affiliates, the remainder of theinterest in the Lease may be held by the Managing General Partner or itsAffiliates. They may either: (i) retain and exploit the remaining interest for their own account; or (ii) sell or otherwise dispose of all or a part of the remaining interest.Profits from the exploitation and/or disposition of their retained interests inthe Leases shall be for the benefit of the Managing General Partner or itsAffiliates to the exclusion of the Partnership.4.01(a)(6). NO BREACH OF DUTY. Subject to the provisions of ss.4.03 and itssubsections, acquisition of Leases from the Managing General Partner, theOperator or their Affiliates shall not be considered a breach of any obligationowed by them to the Partnership or the Participants.4.01(b). NO OVERRIDING ROYALTY INTERESTS. Neither the Managing General Partner,the Operator nor any Affiliate shall retain any Overriding Royalty Interest onthe Leases acquired by the Partnership.4.01(c). TITLE AND NOMINEE ARRANGEMENTS.4.01(c)(1). LEGAL TITLE. Legal title to all Leases acquired by the Partnershipshall be held on a permanent basis in the name of the Partnership. However,Partnership properties may be held temporarily in the name of: (i) the Managing General Partner; (ii) the Operator; (iii) their Affiliates; or (iv) in the name of any nominee designated by the Managing General Partner to facilitate the acquisition of the properties.4.01(c)(2). MANAGING GENERAL PARTNER’S DISCRETION. The Managing General Partnershall take the steps which are necessary in its best judgment to render title tothe Leases to be acquired by the Partnership acceptable for the purposes of thePartnership. The Managing General Partner shall be free, however, to use its ownbest judgment in waiving title requirements.The Managing General Partner shall not be liable to the Partnership or to theother parties for any mistakes of judgment; nor shall the Managing GeneralPartner be deemed to be making any warranties or representations, express orimplied, as to the validity or merchantability of the title to the Leasesassigned to the Partnership or the extent of the interest covered thereby exceptas otherwise provided in the Drilling and Operating Agreement.4.01(c)(3). COMMENCEMENT OF OPERATIONS. The Partnership shall not beginoperations on the Leases acquired by the Partnership unless the Managing GeneralPartner is satisfied that necessary title requirements have been satisfied. 164.02. CONDUCT OF OPERATIONS.4.02(a). IN GENERAL. The Managing General Partner shall establish a program ofoperations for the Partnership. Subject to the limitations contained in ArticleIII of this Agreement concerning the maximum Capital Contribution which can berequired of a Limited Partner, the Managing General Partner, the LimitedPartners, and the Investor General Partners agree to participate in the programso established by the Managing General Partner.4.02(b). MANAGEMENT. Subject to any restrictions contained in this Agreement,the Managing General Partner shall exercise full control over all operations ofthe Partnership.4.02(c). GENERAL POWERS OF THE MANAGING GENERAL PARTNER.4.02(c)(1). IN GENERAL. Subject to the provisions of ss.4.03 and itssubsections, and to any authority which may be granted the Operator underss.4.02(c)(3)(b), the Managing General Partner shall have full authority to doall things deemed necessary or desirable by it in the conduct of the business ofthe Partnership. Without limiting the generality of the foregoing, the ManagingGeneral Partner is expressly authorized to engage in: (i) the making of all determinations of which Leases, wells and operations will be participated in by the Partnership, which includes: (a) which Leases are developed; (b) which Leases are abandoned; or (c) which Leases are sold or assigned to other parties, including other investor ventures organized by the Managing General Partner, the Operator, or any of their Affiliates; (ii) the negotiation and execution on any terms deemed desirable in its sole discretion of any contracts, conveyances, or other instruments, considered useful to the conduct of the operations or the implementation of the powers granted it under this Agreement, including, without limitation: (a) the making of agreements for the conduct of operations, including agreements and financial instruments relating to hedging the Partnership’s natural gas and oil; (b) the exercise of any options, elections, or decisions under any such agreements; and (c) the furnishing of equipment, facilities, supplies and material, services, and personnel; (iii) the exercise, on behalf of the Partnership or the parties, as the Managing General Partner in its sole judgment deems best, of all rights, elections and options granted or imposed by any agreement, statute, rule, regulation, or order; (iv) the making of all decisions concerning the desirability of payment, and the payment or supervision of the payment, of all delay rentals and shut-in and minimum or advance royalty payments; (v) the selection of full or part-time employees and outside consultants and contractors and the determination of their compensation and other terms of employment or hiring; (vi) the maintenance of insurance for the benefit of the Partnership and the parties as it deems necessary, but in no event less in amount or type than the following: (a) worker’s compensation insurance in full compliance with the laws of the Commonwealth of Pennsylvania and any other applicable state laws; (b) liability insurance, including automobile, which has a $1,000,000 combined single limit for bodily injury and property damage in any one accident or occurrence and in the aggregate; and 17 (c) liability and excess liability insurance as to bodily injury and property damage with combined limits of $50,000,000 during drilling operations and thereafter, per occurrence or accident and in the aggregate, which includes $1,000,000 of seepage, pollution and contamination insurance which protects and defends the insured against property damage or bodily injury claims from third-parties, other than a co-owner of the Working Interest, alleging seepage, pollution or contamination damage resulting from a pollution incident. The excess liability insurance shall be in place and effective no later than the date drilling operations begin, and the Partnership shall have the benefit of the Managing General Partner’s $50,000,000 liability insurance on the same basis as the Managing General Partner and its Affiliates, including the Managing General Partner’s other Programs; (vii) the use of the funds and revenues of the Partnership, and the borrowing on behalf of, and the loan of money to, the Partnership, on any terms it sees fit, for any purpose, including without limitation: (a) the conduct or financing, in whole or in part, of the drilling and other activities of the Partnership; (b) the conduct of additional operations; and (c) the repayment of any borrowings or loans used initially to finance these operations or activities; (viii) the disposition, hypothecation, sale, exchange, release, surrender, reassignment or abandonment of any or all assets of the Partnership, including without limitation, the Leases, wells, equipment and production therefrom, provided that the sale of all or substantially all of the assets of the Partnership shall only be made as provided in ss.4.03(d)(6); (ix) the formation of any further limited or general partnership, tax partnership, joint venture, or other relationship which it deems desirable with any parties who it, in its sole and absolute discretion, selects, including any of its Affiliates; (x) the control of any matters affecting the rights and obligations of the Partnership, including: (a) the employment of attorneys to advise and otherwise represent the Partnership; (b) the conduct of litigation and other incurring of legal expense; and (c) the settlement of claims and litigation; (xi) the operation of producing wells drilled on the Leases or on a Prospect which includes any part of the Leases; (xii) the exercise of the rights granted to it under the power of attorney created under this Agreement; and (xiii) the incurring of all costs and the making of all expenditures in any way related to any of the foregoing.4.02(c)(2). SCOPE OF POWERS. The Managing General Partner’s powers shall extendto any operation participated in by the Partnership or affecting its Leases, orother property or assets, irrespective of whether or not the Managing GeneralPartner is designated operator of the operation by any outside personsparticipating therein.4.02(c)(3). DELEGATION OF AUTHORITY.4.02(c)(3)(a). IN GENERAL. The Managing General Partner may subcontract anddelegate all or any part of its duties under this Agreement to any entity chosenby it, including an entity related to it. The party shall have the same powersin the conduct of the duties as would the Managing General Partner. Thedelegation, however, shall not relieve the Managing General Partner of itsresponsibilities under this Agreement. 184.02(c)(3)(b). DELEGATION TO OPERATOR. The Managing General Partner isspecifically authorized to delegate any or all of its duties to the Operator byexecuting the Drilling and Operating Agreement. This delegation shall notrelieve the Managing General Partner of its responsibilities under thisAgreement.4.02(c)(4). RELATED PARTY TRANSACTIONS. Subject to the provisions of ss.4.03 andits subsections, any transaction which the Managing General Partner isauthorized to enter into on behalf of the Partnership under the authoritygranted in this section and its subsections, may be entered into by the ManagingGeneral Partner with itself or with any other general partner, the Operator, orany of their Affiliates.4.02(d). ADDITIONAL POWERS. In addition to the powers granted the ManagingGeneral Partner under ss.4.02(c) and its subsections or elsewhere in thisAgreement, the Managing General Partner, when specified, shall have thefollowing additional express powers.4.02(d)(1). DRILLING CONTRACTS. All Partnership Wells shall be drilled under theDrilling and Operating Agreement at Cost plus an unaccountable, fixed paymentreimbursement to the Managing General Partner of $15,000 per well for theParticipants’ share of the Managing General Partner’s general and administrativeoverhead plus 15%.4.02(d)(2). POWER OF ATTORNEY.4.02(d)(2)(a). IN GENERAL. Each Participant appoints the Managing GeneralPartner his true and lawful attorney-in-fact for him and in his name, place, andstead and for his use and benefit, from time to time: (i) to create, prepare, complete, execute, file, swear to, deliver, endorse, and record any and all documents, certificates, government reports, or other instruments as may be required by law, or are necessary to amend this Agreement as authorized under the terms of this Agreement, or to qualify the Partnership as a limited partnership or partnership in commendam and to conduct business under the laws of any jurisdiction in which the Managing General Partner elects to qualify the Partnership or conduct business; and (ii) to create, prepare, complete, execute, file, swear to, deliver, endorse and record any and all instruments, assignments, security agreements, financing statements, certificates, and other documents as may be necessary from time to time to implement the borrowing powers granted under this Agreement.4.02(d)(2)(b). FURTHER ACTION. Each Participant authorizes the attorney-in-factto take any further action which the attorney-in-fact considers necessary oradvisable in connection with any of the foregoing powers and rights granted theManaging General Partner under this section and its subsections. Each partyacknowledges that the power of attorney granted under Subsection 4.02(d)(2)(a): (i) is a special power of attorney coupled with an interest and is irrevocable; and (ii) shall survive the assignment by the Participant of the whole or a portion of his Units; except when the assignment is of all of the Participant’s Units and the purchaser, transferee, or assignee of the Units is admitted as a successor Participant, the power of attorney shall survive the delivery of the assignment for the sole purpose of enabling the attorney-in-fact to execute, acknowledge, and file any agreement, certificate, instrument or document necessary to effect the substitution.4.02(d)(2)(c). POWER OF ATTORNEY TO OPERATOR. The Managing General Partner ishereby authorized to grant a Power of Attorney to the Operator on behalf of thePartnership. 194.02(e). BORROWINGS AND USE OF PARTNERSHIP REVENUES.4.02(e)(1). POWER TO BORROW OR USE PARTNERSHIP REVENUES.4.02(e)(1)(a). IN GENERAL. If additional funds over the Participants’ CapitalContributions are needed for Partnership operations, then the Managing GeneralPartner may: (i) use Partnership revenues for such purposes; or (ii) the Managing General Partner and its Affiliates may advance to the Partnership the funds necessary under ss.4.03(d)(8)(b), although they are not obligated to advance the funds to the Partnership.4.02(e)(1)(b). LIMITATION ON BORROWING. The borrowings, other than credittransactions on open account customary in the industry to obtain goods andservices, shall be subject to the following limitations: (i) the borrowings must be without recourse to the Investor General Partners and the Limited Partners except as otherwise provided in this Agreement; and (ii) the amount that may be borrowed at any one time may not exceed an amount equal to 5% of the Partnership’s subscription proceeds.4.02(f). TAX MATTERS PARTNER.4.02(f)(1). DESIGNATION OF TAX MATTERS PARTNER. The Managing General Partner ishereby designated the Tax Matters Partner of the Partnership under Section6231(a)(7) of the Code. The Managing General Partner is authorized to act inthis capacity on behalf of the Partnership and the Participants and to take anyaction, including settlement or litigation, which it in its sole discretiondeems to be in the best interest of the Partnership.4.02(f)(2). COSTS INCURRED BY TAX MATTERS PARTNER. Costs incurred by the TaxMatters Partner shall be considered a Direct Cost of the Partnership.4.02(f)(3). NOTICE TO PARTICIPANTS OF IRS PROCEEDINGS. The Tax Matters Partnershall notify all Participants of any partnership administrative or other legalproceedings involving the IRS, and thereafter shall furnish all Participantsperiodic reports at least quarterly on the status of the proceedings.4.02(f)(4). PARTICIPANT RESTRICTIONS. Each Participant agrees as follows: (i) he will not file the statement described in Section 6224(c)(3)(B) of the Code prohibiting the Managing General Partner as the Tax Matters Partner for the Partnership from entering into a settlement on his behalf with respect to partnership items, as that term is defined in Section 6231(a)(3) of Code, of the Partnership; (ii) he will not form or become and exercise any rights as a member of a group of Partners having a 5% or greater interest in the profits of the Partnership under Section 6223(b)(2) of the Code; and (iii) the Managing General Partner is authorized to file a copy of this Agreement, or pertinent portions of this Agreement, with the IRS under Section 6224(b) of the Code if necessary to perfect the waiver of rights under this subsection.4.03. GENERAL RIGHTS AND OBLIGATIONS OF THE PARTICIPANTS AND RESTRICTED ANDPROHIBITED TRANSACTIONS.4.03(a)(1). LIMITED LIABILITY OF LIMITED PARTNERS. Limited Partners shall not bebound by the obligations of the Partnership other than as provided under theDelaware Revised Uniform Limited Partnership Act. Limited Partners shall not bepersonally liable for any debts of the Partnership or any of the obligations orlosses of the Partnership beyond the amount of the subscription price designatedon the Subscription Agreement executed by each respective Limited Partnerunless: 20 (i) they also subscribe to the Partnership as Investor General Partners; or (ii) in the case of the Managing General Partner, it purchases Limited Partner Units.4.03(a)(2). NO MANAGEMENT AUTHORITY OF PARTICIPANTS. Participants, other thanthe Managing General Partner if it buys Units, shall have no power over theconduct of the affairs of the Partnership. No Participant, other than theManaging General Partner if it buys Units, shall take part in the management ofthe business of the Partnership, or have the power to sign for or to bind thePartnership.4.03(b). REPORTS AND DISCLOSURES.4.03(b)(1). ANNUAL REPORTS AND FINANCIAL STATEMENTS. Beginning with the 2005calendar year, the Partnership shall provide each Participant an annual reportwithin 120 days after the close of the calendar year, and beginning with the2006 calendar year, a report within 75 days after the end of the first sixmonths of its calendar year, containing unaudited financial statements of thePartnership. The reports shall include a balance sheet and statements of income,cash flow, and Partners’ equity, which shall be prepared either in accordancewith accounting principals followed for federal tax reporting purposes orgenerally accepted accounting principles which shall be determined in thediscretion of the Managing General Partner. Notwithstanding the above, if thePartnership sells Units to 500 or more Participants and receives and acceptscash subscription proceeds exceeding $10 million, which the Partnership may doin the Managing General Partner’s sole discretion, it must register the Unitswith the SEC under the Securities Exchange Act of 1934 (“Exchange Act”). Thiswould require the Partnership to comply with the reporting requirements of theExchange Act, including timely filing of quarterly reports on Form 10-Q, annualreports on Form 10-K and current reports on Form 8-K, and would subject thePartnership to other actions including, but not limited to, corporate governanceand disclosure requirements under the Sarbanes-Oxley Act of 2002. This wouldincrease the Partnership’s Administrative Costs and Direct Costs, includinglegal and accounting fees, which would be paid by the Participants and theManaging General Partner as described in ss.5.01(a)(4). These additionalexpenses also would include the costs of required annual audited financialstatements which would not otherwise be required under this Agreement.4.03(b)(2). TAX INFORMATION. The Partnership shall, by March 15 of each year,prepare, or supervise the preparation of, and transmit to each Participant theinformation needed for the Participant to file the following: (i) his federal income tax return; (ii) any required state income tax return; and (iii) any other reporting or filing requirements imposed by any governmental agency or authority.4.03(b)(3). RESERVE REPORT. Annually, beginning January 1, 2007 and every yearthereafter, the Partnership shall provide to each Participant the following: (i) a summary of the computation of the Partnership’s total oil and gas Proved Reserves; (ii) a summary of the computation of the present worth of the reserves determined using: (a) a discount rate of 10%; (b) a constant price for the oil; (c) basing the price of gas on the existing gas contracts; and (iii) a statement of each Participant’s interest in the reserves. 21The reserve computations shall be based on engineering reports prepared by theManaging General Partner and reviewed by an Independent Expert.4.03(b)(4). COST OF REPORTS. The cost of all reports described in thisss.4.03(b), including the additional required reports if the Units must beregistered with the SEC as described in ss.4.03(b)(1), shall be paid by thePartnership as Direct Costs.4.03(b)(5). PARTICIPANT ACCESS TO RECORDS. The Participants and/or theirrepresentatives shall be permitted access to all Partnership records. TheParticipant may inspect and copy any of the records after giving adequate noticeto the Managing General Partner at any reasonable time.Notwithstanding the foregoing, the Managing General Partner may keep logs, wellreports, and other drilling and operating data confidential for reasonableperiods of time. The Managing General Partner may release information concerningthe operations of the Partnership to the sources that are customary in theindustry or required by rule, regulation, or order of any regulatory body.4.03(b)(6). REQUIRED LENGTH OF TIME TO HOLD RECORDS. The Managing GeneralPartner must maintain and preserve during the term of the Partnership and forsix years thereafter all accounts, books and other relevant documents whichinclude: (i) a record that a Participant meets the suitability standards established in connection with an investment in the Partnership; and (ii) any appraisal of the fair market value of the Leases as set forth in ss.4.01(a)(4) or fair market value of any producing property as set forth in ss.4.03(d)(3).4.03(b)(7). PARTICIPANT LIST. The following provisions apply regarding access toa list of Participants: (i) A current alphabetical list of the names, addresses, and business telephone numbers of the Participants along with the number of Units held by each of them (the “Participant List”) must be maintained as a part of the Partnership’s books and records and be available for inspection by any Participant or his designated agent at the home office of the Partnership on the Participant’s request. (ii) The purposes for which a Participant may request a copy of the Participant List only include matters relating to Participant’s voting rights under this Agreement and the exercise of Participants’ rights under the federal proxy laws. (iii) The Managing General Partner shall require the Participant requesting the Participant List to represent in writing that the list was not requested for a commercial purpose unrelated to the Participant’s interest in the Partnership and the Participant shall pay the costs of copying the list. It shall be a defense in any action or proceeding related to the Managing General Partner’s refusal to provide the Participant List to any Participant if the Managing General Partner determines that the actual purpose and reason for the Participant’s request for inspection or for a copy of the Participant List is to secure the list of Participants or other information for the purpose of selling the list or information or copies of the list, or of using the same for a commercial purpose other than in the interest of the applicant as a Participant relative to the affairs of the Partnership.4.03(c). MEETINGS OF PARTICIPANTS.4.03(c)(1). PROCEDURE FOR A PARTICIPANT MEETING.4.03(c)(1)(a). MEETINGS MAY BE CALLED BY MANAGING GENERAL PARTNER ORPARTICIPANTS. Meetings of the Participants may be called as follows: (i) by the Managing General Partner; or 22 (ii) by Participants whose Units equal 10% or more of the total Units for any matters for which Participants may vote.The call for a meeting by Participants shall be deemed to have been made onreceipt by the Managing General Partner of a written request from holders of therequisite percentage of Units stating the purpose(s) of the meeting.4.03(c)(1)(b). NOTICE REQUIREMENT. The Managing General Partner shall deposit inthe United States mail within 15 days after the receipt of the request, writtennotice to all Participants of the meeting and the purpose of the meeting. Themeeting shall be held on a date not less than 30 days nor more than 60 daysafter the date of the mailing of the notice, at a reasonable time and place.Notwithstanding the foregoing, the date for notice of the meeting may beextended for the period needed if, in the opinion of the Managing GeneralPartner, the additional time is necessary to permit preparation of proxy orinformation statements or other documents required to be delivered in connectionwith the meeting by the SEC or other regulatory authorities.4.03(c)(1)(c). MAY VOTE BY PROXY. Participants shall have the right to vote atany Participant meeting either: (i) in person; or (ii) by proxy.4.03(c)(2). SPECIAL VOTING RIGHTS. At the request of Participants whose Unitsequal 10% or more of the total Units, the Managing General Partner shall callfor a vote by Participants. Each Unit is entitled to one vote on all matters,and each fractional Unit is entitled to that fraction of one vote equal to thefractional interest in the Unit. Participants whose Units equal a majority ofthe total Units may, without the concurrence of the Managing General Partner orits Affiliates, vote to: (i) dissolve the Partnership; (ii) remove the Managing General Partner and elect a new Managing General Partner; (iii) elect a new Managing General Partner if the Managing General Partner elects to withdraw from the Partnership; (iv) remove the Operator and elect a new Operator; (v) approve or disapprove the sale of all or substantially all of the assets of the Partnership; (vi) cancel any contract for services with the Managing General Partner, the Operator, or their Affiliates that is not described in the Private Placement Memorandum or this Agreement without penalty on 60 days notice; and (vii) amend this Agreement; provided however: (a) any amendment may not increase the duties or liabilities of any Participant or the Managing General Partner or increase or decrease the profit or loss sharing or required Capital Contribution of any Participant or the Managing General Partner without the approval of the Participant or the Managing General Partner; and (b) any amendment may not affect the classification of Partnership income and loss for federal income tax purposes without the unanimous approval of all Participants.4.03(c)(3). RESTRICTIONS ON MANAGING GENERAL PARTNER’S VOTING RIGHTS. Withrespect to Units owned by the Managing General Partner or its Affiliates, theManaging General Partner and its Affiliates may vote or consent on all mattersother than the matters set forth in ss.4.03(c)(2)(ii) and (iv) above. 23In determining the requisite percentage in interest of Units necessary toapprove any Partnership matter on which the Managing General Partner and itsAffiliates may not vote or consent, any Units owned by the Managing GeneralPartner and its Affiliates shall not be included.4.03(c)(4). RESTRICTIONS ON LIMITED PARTNER VOTING RIGHTS. The exercise by theLimited Partners of the rights granted Participants under ss.4.03(c), except forthe special voting rights granted Participants under ss.4.03(c)(2), shall besubject to the prior legal determination that the grant or exercise of thepowers will not adversely affect the limited liability of Limited Partners.Notwithstanding the foregoing, if in the opinion of counsel to the Partnershipthe legal determination is not necessary under Delaware law to maintain thelimited liability of the Limited Partners, then it shall not be required. Alegal determination under this paragraph may be made either pursuant to: (i) an opinion of counsel, the counsel being independent of the Partnership and selected on the vote of Limited Partners whose Units equal a majority of the total Units held by Limited Partners; or (ii) a declaratory judgment issued by a court of competent jurisdiction.The Investor General Partners may exercise the rights granted to theParticipants whether or not the Limited Partners can participate in the vote ifthe Investor General Partners represent the requisite percentage of Unitsnecessary to take the action.4.03(d). TRANSACTIONS WITH THE MANAGING GENERAL PARTNER.4.03(d)(1). TRANSFER OF EQUAL PROPORTIONATE INTEREST. When the Managing GeneralPartner or an Affiliate (excluding another Program in which the interest of theManaging General Partner or its Affiliates is substantially similar to or lessthan their interest in the Partnership) sells, transfers or conveys any naturalgas, oil or other mineral interests or property to the Partnership, it must, atthe same time, sell, transfer or convey to the Partnership an equalproportionate interest in all its other property in the same Prospect. EachProspect shall consist of the drilling or spacing unit on which the well will bedrilled by the Partnership, which is the minimum area permitted by state law orlocal practice on which one well may be drilled.Additionally, for a period of five years after the drilling of the PartnershipWell neither the Managing General Partner nor its Affiliates may drill any well: (i) in the Clinton/Medina geological formation within 1,650 feet of an existing Partnership Well in Pennsylvania or within 1,000 feet of an existing Partnership Well in Ohio; or (ii) in the Mississippian/Upper Devonian Sandstone reservoirs in Fayette County, Greene County and Westmoreland County, Pennsylvania within at least 1,000 feet from a producing well, although the Partnership may drill a new well or re-enter an existing well which is closer than 1,000 feet to a plugged and abandoned well.If the Partnership abandons its interest in a well, then this restriction willcontinue for one year following the abandonment.4.03(d)(2). TRANSFER OF LESS THAN THE MANAGING GENERAL PARTNER’S AND ITSAFFILIATES’ ENTIRE INTEREST. A sale, transfer or a conveyance to the Partnershipof less than all of the ownership of the Managing General Partner or anAffiliate (excluding another Program in which the interest of the ManagingGeneral Partner or its Affiliates is substantially similar to or less than theirinterest in the Partnership) in any Prospect shall not be made unless: (i) the interest retained by the Managing General Partner or the Affiliate is a proportionate Working Interest; (ii) the respective obligations of the Managing General Partner or its Affiliates and the Partnership are substantially the same after the sale of the interest by the Managing General Partner or its Affiliates; and (iii) the Managing General Partner’s interest in revenues does not exceed the amount proportionate to its retained Working Interest. 24This section does not prevent the Managing General Partner or its Affiliatesfrom subsequently dealing with their retained interest as they may choose withunaffiliated parties or Affiliated partnerships.4.03(d)(3). LIMITATIONS ON SALE OF UNDEVELOPED AND DEVELOPED LEASES TO THEMANAGING GENERAL PARTNER. Other than another Program managed by the ManagingGeneral Partner and its Affiliates as set forth in ss.4.03(d)(5), the ManagingGeneral Partner and its Affiliates shall not purchase any undeveloped Leasesfrom the Partnership other than at the higher of Cost or fair market value.Farmouts to the Managing General Partner and its affiliates may be made as setforth in ss.4.03(d)(9).The Managing General Partner and its Affiliates, other than an Affiliated IncomeProgram, may not purchase any producing natural gas or oil property from thePartnership unless: (i) the sale is in connection with the liquidation of the Partnership; or (ii) the Managing General Partner’s well supervision fees under the Drilling and Operating Agreement for the well have exceeded the net revenues of the well, determined without regard to the Managing General Partner’s well supervision fees for the well, for a period of at least three consecutive months.In both (i) and (ii), the sale must be at fair market value supported by anappraisal of an Independent Expert selected by the Managing General Partner.4.03(d)(4). TRANSACTIONS MUST BE FAIR AND REASONABLE. Neither the ManagingGeneral Partner nor any Affiliate shall sell, transfer, or convey any propertyto, or purchase any property from, the Partnership, directly or indirectly,except under transactions that are fair and reasonable, nor take any action withrespect to the assets or property of the Partnership which does not primarilybenefit the Partnership.4.03(d)(5). TRANSFER OF LEASES BETWEEN AFFILIATED LIMITED PARTNERSHIPS. Thetransfer of an undeveloped Lease from the Partnership to an Affiliated DrillingProgram must be made at fair market value if the undeveloped Lease has been heldfor more than two years. Otherwise, if the Managing General Partner deems it tobe in the best interest of the Partnership, the transfer may be made at Cost.An Affiliated Income Program may purchase a producing natural gas and oilproperty from the Partnership at any time at: (i) fair market value as supported by an appraisal from an Independent Expert if the property has been held by the Partnership for more than six months or significant expenditures have been made in connection with the property; or (ii) Cost as adjusted for intervening operations if the Managing General Partner deems it to be in the best interest of the Partnership.However, these prohibitions shall not apply to joint ventures or Farmouts amongAffiliated partnerships, provided that: (i) the respective obligations and revenue sharing of all parties to the transaction are substantially the same; and (ii) the compensation arrangement or any other interest or right of either the Managing General Partner or its Affiliates is the same in each Affiliated partnership or, if different, the aggregate compensation of the Managing General Partner or the Affiliate is reduced to reflect the lower compensation arrangement.4.03(d)(6). SALE OF ALL ASSETS. The sale of all or substantially all of theassets of the Partnership, including without limitation, Leases, wells,equipment and production therefrom, shall be made only with the consent ofParticipants whose Units equal a majority of the total Units. 254.03(d)(7). SERVICES.4.03(d)(7)(a). COMPETITIVE RATES. The Managing General Partner and any Affiliateshall not render to the Partnership any oil field, equipage, or other servicesnor sell or lease to the Partnership any equipment or related supplies unlessthe compensation, price, or rental therefor is competitive with thecompensation, price, or rental of other persons in the area engaged in thebusiness of rendering comparable services or selling or leasing comparableequipment and supplies which could reasonably be made available to thePartnership.4.03(d)(7)(b). IF NOT DISCLOSED IN THE PRIVATE PLACEMENT MEMORANDUM OR THISAGREEMENT THEN SERVICES BY THE MANAGING GENERAL PARTNER MUST BE DESCRIBED IN ASEPARATE CONTRACT AND CANCELABLE. Any services for which the Managing GeneralPartner or an Affiliate is to receive compensation other than those described inthis Agreement or the Private Placement Memorandum shall be set forth in awritten contract which precisely describes the services to be rendered and allcompensation to be paid. These contracts shall be cancelable without penalty on60 days written notice by Participants whose Units equal a majority of the totalUnits.4.03(d)(8). LOANS.4.03(d)(8)(a). NO LOANS FROM THE PARTNERSHIP. No loans or advances shall be madeby the Partnership to the Managing General Partner or any Affiliate.4.03(d)(8)(b). LOANS TO THE PARTNERSHIP. Neither the Managing General Partnernor any Affiliate shall loan money to the Partnership if the interest to becharged exceeds either: (i) the Managing General Partner’s or the Affiliate’s interest cost; or (ii) that which would be charged to the Partnership, without reference to the Managing General Partner’s or the Affiliate’s financial abilities or guarantees, by unrelated lenders, on comparable loans for the same purpose.Neither the Managing General Partner nor any Affiliate shall receive points orother financing charges or fees, regardless of the amount, although the actualamount of the charges incurred from third-party lenders may be reimbursed to theManaging General Partner or the Affiliate.4.03(d)(9). FARMOUTS. The Managing General Partner shall not enter into aFarmout to avoid its paying its share of costs related to drilling anundeveloped Lease. The Partnership may Farmout an undeveloped lease or wellactivity to the Managing General Partner, its Affiliates, or unaffiliatedthird-parties only if the Managing General Partner, exercising the standard of aprudent operator, determines that: (i) the Partnership lacks the funds to complete the oil and gas operations on the Lease or well and cannot obtain suitable financing; (ii) drilling on the Lease or the intended well activity would concentrate excessive funds in one location, creating undue risks to the Partnership; (iii) the Leases or well activity have been downgraded by events occurring after assignment to the Partnership so that development of the Leases or well activity would not be desirable; or (iv) the best interests of the Partnership would be served.If the Partnership Farmouts a Lease or well activity, the Managing GeneralPartner must retain on behalf of the Partnership the economic interests andconcessions as a reasonably prudent oil and gas operator would or could retainunder the circumstances prevailing at the time, consistent with industrypractices.4.03(d)(10). NO COMPENSATING BALANCES. Neither the Managing General Partner norany Affiliate shall use the Partnership’s funds as compensating balances for itsown benefit. 264.03(d)(11). FUTURE PRODUCTION. Neither the Managing General Partner nor anyAffiliate shall commit the future production of a well developed by thePartnership exclusively for its own benefit.4.03(d)(12). MARKETING ARRANGEMENTS. Subject to ss.4.06(c), all benefits frommarketing arrangements or other relationships affecting the property of theManaging General Partner or its Affiliates and the Partnership shall be fairlyand equitably apportioned according to the respective interests of each in theproperty. The Managing General Partner shall treat all wells in a geographicarea equally concerning to whom and at what price the Partnership’s natural gasand oil will be sold and to whom and at what price the natural gas and oil ofother natural gas and oil Programs which the Managing General Partner hassponsored or will sponsor will be sold. For example, each seller of natural gasand oil in a given area will be paid a weighted average selling price for allnatural gas and oil sold in that geographic area. The Managing General Partner,in its sole discretion, shall determine what constitutes a geographic area.4.03(d)(13). ADVANCE PAYMENTS. Advance payments by the Partnership to theManaging General Partner and its Affiliates are prohibited except with respectto the drilling contracts.4.03(d)(14). NO REBATES. No rebates or give-ups may be received by the ManagingGeneral Partner or any Affiliate nor may the Managing General Partner or anyAffiliate participate in any reciprocal business arrangements which wouldcircumvent these guidelines.4.03(d)(15). PARTICIPATION IN OTHER PARTNERSHIPS. If the Partnershipparticipates in other partnerships or joint ventures (multi-tier arrangements),then the terms of any of these arrangements shall not result in thecircumvention of any of the requirements or prohibitions contained in thisAgreement, including the following: (i) there shall be no duplication or increase in Organization and Offering Costs, the Managing General Partner’s compensation, Partnership expenses or other fees and costs; (ii) there shall be no substantive alteration in the fiduciary and contractual relationship between the Managing General Partner and the Participants; and (iii) there shall be no diminishment in the voting rights of the Participants.4.03(d)(16). ROLL-UP LIMITATIONS.4.03(d)(16)(a). REQUIREMENT FOR APPRAISAL AND ITS ASSUMPTIONS. In connectionwith a proposed Roll-Up, an appraisal of all Partnership assets shall beobtained from a competent Independent Expert. If the appraisal will be includedin a prospectus used to offer securities of a Roll-Up Entity, then the appraisalshall be filed with the SEC and the Administrator as an exhibit to theregistration statement for the offering. Thus, an issuer using the appraisalshall be subject to liability for violation of Section 11 of the Securities Actof 1933 and comparable provisions under state law for any materialmisrepresentations or material omissions in the appraisal.Partnership assets shall be appraised on a consistent basis. The appraisal shallbe based on all relevant information, including current reserve estimatesprepared by an independent petroleum consultant, and shall indicate the value ofthe Partnership’s assets as of a date immediately before the announcement of theproposed Roll-Up transaction. The appraisal shall assume an orderly liquidationof the Partnership’s assets over a 12-month period.The terms of the engagement of the Independent Expert shall clearly state thatthe engagement is for the benefit of the Partnership and the Participants. Asummary of the independent appraisal, indicating all material assumptionsunderlying the appraisal, shall be included in a report to the Participants inconnection with a proposed Roll-Up.4.03(d)(16)(b). RIGHTS OF PARTICIPANTS WHO VOTE AGAINST PROPOSAL. In connectionwith a proposed Roll-Up, Participants who vote “no” on the proposal shall beoffered the choice of: (i) accepting the securities of the Roll-Up Entity offered in the proposed Roll-Up; or 27 (ii) one of the following: (a) remaining as Participants in the Partnership and preserving their Units in the Partnership on the same terms and conditions as existed previously; or (b) receiving cash in an amount equal to the Participants’ pro rata share of the appraised value of the net assets of the Partnership based on their respective number of Units.4.03(d)(16)(c). NO ROLL-UP IF DIMINISHMENT OF VOTING RIGHTS. The Partnershipshall not participate in any proposed Roll-Up which, if approved, would resultin the diminishment of any Participant’s voting rights under the Roll-UpEntity’s chartering agreement.In no event shall the democracy rights of Participants in the Roll-Up Entity beless than those provided for under ss.ss.4.03(c)(1) and 4.03(c)(2) of thisAgreement. If the Roll-Up Entity is a corporation, then the democracy rights ofParticipants shall correspond to the democracy rights provided for in thisAgreement to the greatest extent possible.4.03(d)(16)(d). NO ROLL-UP IF ACCUMULATION OF SHARES WOULD BE IMPEDED. ThePartnership shall not participate in any proposed Roll-Up transaction whichincludes provisions which would operate to materially impede or frustrate theaccumulation of shares by any purchaser of the securities of the Roll-Up Entity,except to the minimum extent necessary to preserve the tax status of the Roll-UpEntity.The Partnership shall not participate in any proposed Roll-Up transaction whichwould limit the ability of a Participant to exercise the voting rights of itssecurities of the Roll-Up Entity on the basis of the number of Units held bythat Participant.4.03(d)(16)(e). NO ROLL-UP IF ACCESS TO RECORDS WOULD BE LIMITED. ThePartnership shall not participate in a Roll-Up in which Participants’ rights ofaccess to the records of the Roll-Up Entity would be less than those providedfor under ss.ss.4.03(b)(5) and 4.03(b)(6).4.03(d)(16)(f). COST OF ROLL-UP. The Partnership shall not participate in anyproposed Roll-Up transaction in which any of the costs of the transaction wouldbe borne by the Partnership if Participants whose Units equal a majority of thetotal Units do not vote to approve the proposed Roll-Up.4.03(d)(16)(g). ROLL-UP APPROVAL. The Partnership shall not participate in aRoll-Up transaction unless the Roll-Up transaction is approved by Participantswhose Units equal a majority of the total Units.4.03(d)(17). DISCLOSURE OF BINDING AGREEMENTS. Any agreement or arrangementwhich binds the Partnership must be disclosed in the Private PlacementMemorandum.4.04. DESIGNATION, COMPENSATION AND REMOVAL OF MANAGING GENERAL PARTNER ANDREMOVAL OF OPERATOR.4.04(a). MANAGING GENERAL PARTNER.4.04(a)(1). TERM OF SERVICE. Atlas shall serve as the Managing General Partnerof the Partnership until either it: (i) is removed pursuant to ss.4.04(a)(3); or (ii) withdraws pursuant to ss.4.04(a)(3)(f).4.04(a)(2). COMPENSATION OF MANAGING GENERAL PARTNER. In addition to thecompensation set forth in ss.ss.4.01(a)(4) and 4.02(d)(1), the Managing GeneralPartner shall receive the compensation set forth in ss.ss.4.04(a)(2)(b) through4.04(a)(2)(g).4.04(a)(2)(a). CHARGES MUST BE NECESSARY AND REASONABLE. Charges by the ManagingGeneral Partner for goods and services must be fully supportable as to: (i) the necessity of the goods and services; and 28 (ii) the reasonableness of the amount charged.All actual and necessary expenses incurred by the Partnership may be paid out ofthe Partnership’s subscription proceeds and revenues.4.04(a)(2)(b). DIRECT COSTS. The Managing General Partner and its Affiliatesshall be reimbursed for all Direct Costs. Direct Costs, however, shall be billeddirectly to and paid by the Partnership to the extent practicable.4.04(a)(2)(c). ADMINISTRATIVE COSTS. The Managing General Partner shall receivean unaccountable, fixed payment reimbursement for its Administrative Costs of$75 per well per month. The unaccountable, fixed payment reimbursement of $75per well per month shall be subject to the following: (i) it shall be proportionately reduced to the extent the Partnership acquires less than 100% of the Working Interest in the well; and (ii) it shall not be received for plugged or abandoned wells.4.04(a)(2)(d). GAS GATHERING. The Managing General Partner shall be responsiblefor gathering and transporting the natural gas produced by the Partnership tointerstate pipeline systems, local distribution companies and/or end-users inthe area and shall receive a gathering fee at a competitive rate for gatheringand transporting the Partnership’s gas. If the Partnership’s natural gasproduction is gathered and transported through the gathering system owned byAtlas Pipeline Partners, then the Managing General Partner shall apply itsgathering fee towards the agreement between Atlas Pipeline Partners and AtlasAmerica, Inc., Resource Energy, Inc., and Viking Resources Corporation. If thePartnership’s natural gas production is gathered and transported through agathering system owned by a third-party, then the Managing General Partner shallpay a portion or all of its gathering fee to the third-party gathering andtransporting the natural gas. If the Partnership’s natural gas production isgathered and transported through a gathering system owned by the ManagingGeneral Partner or its Affiliates other than Atlas Pipeline Partners, then theManaging General Partner or its Affiliates shall receive, or retain in the caseof the Managing General Partner, the gathering fee paid to the Managing GeneralPartner. Also, in the Mississippian and Devonian Shale Reservoirs in Anderson,Campbell, Morgan, Roane and Scott Counties, Tennessee, if the Coalfield Pipelinedoes not have sufficient capacity to compress and transfer the natural gasproduced from the Partnership’s wells as determined by Atlas America, then AtlasAmerica or an Affiliate other than Atlas Pipeline Partners may construct anadditional gathering system and/or enhancements to the Coalfield Pipeline. Oncompletion of the construction, Atlas America will transfer its ownership in theadditional gathering system and/or enhancements to the owners of the CoalfieldPipeline, which will then pay Atlas America an amount equal to $.12 per mcf ofnatural gas transported through the newly constructed and/or enhanced gatheringsystem. Coalfield Pipeline will charge this $.12 per mcf to the Partnership inaddition to the rate that it is charging at that time. As of the date of thePrivate Placement Memorandum, Coalfield Pipeline was charging $.55 per mcf fortransportation plus fees for compression.4.04(a)(2)(e). DEALER-MANAGER FEE. Subject to ss.3.03(a)(1), the Dealer-Managershall receive on each Unit sold: (i) a 2.5% Dealer-Manager fee; (ii) a 7% Sales Commission; (iii) a 1.5% nonaccountable marketing expense fee; and (iv) a .5% nonaccountable due diligence fee.Finally, as an additional incentive, to the extent permitted by applicable law,all Selling Agents and the Dealer-Manager that have one or more registeredrepresentatives and/or principals who sell at least six Units (including Unitssold at discounted prices) each shall share in payments from the ManagingGeneral Partner in an amount equal to 1% of the Partnership Net ProductionRevenues. A qualifying broker/dealer’s participation in these payments shall bein the ratio which the total amount of Units sold by all of its registeredrepresentatives and/or principals who sell at least six Units each bears to thetotal amount of Units sold by all registered representatives and/or principalswho sell at least six Units each. 294.04(a)(2)(f). DRILLING AND OPERATING AGREEMENT. The Managing General Partnerand its Affiliates shall receive compensation as set forth in the Drilling andOperating Agreement.4.04(a)(2)(g). OTHER TRANSACTIONS. The Managing General Partner and itsAffiliates may enter into transactions pursuant to ss.4.03(d)(7) with thePartnership and shall be entitled to compensation under that section.4.04(a)(3). REMOVAL OF MANAGING GENERAL PARTNER.4.04(a)(3)(a). MAJORITY VOTE REQUIRED TO REMOVE THE MANAGING GENERAL PARTNER.The Managing General Partner may be removed at any time on 60 days’ advancewritten notice to the outgoing Managing General Partner by the affirmative voteof Participants whose Units equal a majority of the total Units. If theParticipants vote to remove the Managing General Partner from the Partnership,then Participants must elect by an affirmative vote of Participants whose Unitsequal a majority of the total Units either to: (i) terminate, dissolve, and wind up the Partnership; or (ii) continue as a successor limited partnership under all the terms of this Partnership Agreement as provided in ss.7.01(c).If the Participants elect to continue as a successor limited partnership, thenthe Managing General Partner shall not be removed until a substituted ManagingGeneral Partner has been selected by an affirmative vote of Participants whoseUnits equal a majority of the total Units and installed as such.4.04(a)(3)(b). VALUATION OF MANAGING GENERAL PARTNER’S INTEREST IN THEPARTNERSHIP. If the Managing General Partner is removed, then its interest inthe Partnership shall be determined by appraisal by a qualified IndependentExpert. The Independent Expert shall be selected by mutual agreement between theremoved Managing General Partner and the incoming Managing General Partner. Theappraisal shall take into account an appropriate discount to reflect the risk ofrecovery of natural gas and oil reserves, but not less than that used tocalculate the presentment price in the most recent presentment offer underss.6.04, if any.The cost of the appraisal shall be borne equally by the removed Managing GeneralPartner and the Partnership.4.04(a)(3)(c). INCOMING MANAGING GENERAL PARTNER’S OPTION TO PURCHASE. Theincoming Managing General Partner shall have the option to purchase 20% of theremoved Managing General Partner’s interest in the Partnership as ManagingGeneral Partner, and not as a Participant, for the value determined by theIndependent Expert.4.04(a)(3)(d). METHOD OF PAYMENT. The method of payment for the removed ManagingGeneral Partner’s interest must be fair and protect the solvency and liquidityof the Partnership. The method of payment shall be as follows: (i) when the termination is voluntary, the method of payment shall be a non-interest bearing unsecured promissory note with principal payable, if at all, from distributions which the Managing General Partner otherwise would have received under the Partnership Agreement had the Managing General Partner not been terminated; and (ii) when the termination is involuntary, the method of payment shall be an interest bearing promissory note coming due in no less than five years with equal installments each year. The interest rate shall be that charged on comparable loans.4.04(a)(3)(e). TERMINATION OF CONTRACTS. At the time of its removal the removedManaging General Partner shall cause, to the extent it is legally possible, itssuccessor to be transferred or assigned all its rights, obligations andinterests as Managing General Partner of the Partnership in contracts enteredinto by it on behalf of the Partnership. In any event, the removed ManagingGeneral Partner shall cause its rights, obligations and interests as ManagingGeneral Partner of the Partnership in any such contract to terminate at the timeof its removal. 30Notwithstanding any other provision in this Agreement, the Partnership or thesuccessor Managing General Partner shall not: (i) be a party to any natural gas supply agreement that the Managing General Partner or its Affiliates enters into with a third-party; (ii) have any rights pursuant to such natural gas supply agreement; or (iii) receive any interest in the Managing General Partner’s and its Affiliates’ pipeline or gathering system or compression facilities.4.04(a)(3)(f). THE MANAGING GENERAL PARTNER’S RIGHT TO VOLUNTARILY WITHDRAW. Atany time beginning 10 years after the Offering Termination Date and thePartnership’s primary drilling activities, the Managing General Partner mayvoluntarily withdraw as Managing General Partner on giving 120 days’ writtennotice of withdrawal to the Participants. If the Managing General Partnerwithdraws, then the following conditions shall apply: (i) the Managing General Partner’s interest in the Partnership shall be determined as described in ss.4.04(a)(3)(b) above with respect to removal; and (ii) the interest shall be distributed to the Managing General Partner as described in ss.4.04(a)(3)(d)(i) above.Any successor Managing General Partner shall have the option to purchase 20% ofthe withdrawing Managing General Partner’s interest in the Partnership at thevalue determined as described above with respect to removal.4.04(a)(3)(g). THE MANAGING GENERAL PARTNER’S RIGHT TO WITHDRAW PROPERTYINTEREST. The Managing General Partner has the right at any time to withdraw aproperty interest held by the Partnership in the form of a Working Interest inthe Partnership Wells equal to or less than its respective interest in therevenues of the Partnership under the conditions set forth in ss.6.03. If theManaging General Partner withdraws an interest, then the Managing GeneralPartner shall: (i) pay the expenses of withdrawing; and (ii) fully indemnify the Partnership against any additional expenses which may result from a partial withdrawal of its interests, including insuring that a greater amount of Direct Costs or Administrative Costs is not allocated to the Participants.4.04(a)(4). REMOVAL OF OPERATOR. The Operator may be removed and a new Operatormay be substituted at any time on 60 days advance written notice to the outgoingOperator by the Managing General Partner acting on behalf of the Partnership onthe affirmative vote of Participants whose Units equal a majority of the totalUnits.The Operator shall not be removed until a substituted Operator has been selectedby an affirmative vote of Participants whose Units equal a majority of the totalUnits and installed as such.4.05. INDEMNIFICATION AND EXONERATION.4.05(a)(1). STANDARDS FOR THE MANAGING GENERAL PARTNER NOT INCURRING LIABILITYTO THE PARTNERSHIP OR PARTICIPANTS. The Managing General Partner, the Operator,and their Affiliates shall not have any liability whatsoever to the Partnership,or to any Participant, for any loss suffered by the Partnership or Participantswhich arises out of any action or inaction of the Managing General Partner, theOperator, or their Affiliates if: (i) the Managing General Partner, the Operator, and their Affiliates determined in good faith that the course of conduct was in the best interest of the Partnership; (ii) the Managing General Partner, the Operator, and their Affiliates were acting on behalf of, or performing services for, the Partnership; and 31 (iii) the course of conduct did not constitute negligence or misconduct of the Managing General Partner, the Operator, or their Affiliates.4.05(a)(2). STANDARDS FOR MANAGING GENERAL PARTNER INDEMNIFICATION. The ManagingGeneral Partner, the Operator, and their Affiliates shall be indemnified by thePartnership against any losses, judgments, liabilities, expenses, and amountspaid in settlement of any claims sustained by them in connection with thePartnership, provided that: (i) the Managing General Partner, the Operator, and their Affiliates determined in good faith that the course of conduct which caused the loss or liability was in the best interest of the Partnership; (ii) the Managing General Partner, the Operator, and their Affiliates were acting on behalf of, or performing services for, the Partnership; and (iii) the course of conduct was not the result of negligence or misconduct of the Managing General Partner, the Operator, or their Affiliates.Provided, however, payments arising from such indemnification or agreement tohold harmless are recoverable only out of the following: (i) the Partnership’s tangible net assets, which includes revenues from operations; and (ii) any insurance proceeds received by the Partnership.4.05(a)(3). STANDARDS FOR SECURITIES LAW INDEMNIFICATION. Notwithstandinganything to the contrary contained in the above, the Managing General Partner,the Operator, and their Affiliates and any person acting as a broker/dealershall not be indemnified for any losses, liabilities or expenses arising from orout of an alleged violation of federal or state securities laws by such partyunless: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee; (ii) the claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC with respect to the issue of indemnification for violation of securities laws.4.05(a)(4). STANDARDS FOR ADVANCEMENT OF FUNDS TO THE MANAGING GENERAL PARTNERAND INSURANCE. The advancement of Partnership funds to the Managing GeneralPartner, the Operator, or their Affiliates for legal expenses and other costsincurred as a result of any legal action for which indemnification is beingsought is permissible only if the Partnership has adequate funds available andthe following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Partnership; (ii) the legal action is initiated by a third-party who is not a Participant, or the legal action is initiated by a Participant and a court of competent jurisdiction specifically approves the advancement; and (iii) the Managing General Partner or its Affiliates undertake to repay the advanced funds to the Partnership, together with the applicable legal rate of interest thereon, in cases in which such party is found not to be entitled to indemnification. 32The Partnership shall not bear the cost of that portion of insurance whichinsures the Managing General Partner, the Operator, or their Affiliates for anyliability for which they could not be indemnified pursuant to ss.ss.4.05(a)(1)and 4.05(a)(2).4.05(b). LIABILITY OF PARTNERS. Under the Delaware Revised Uniform LimitedPartnership Act, the Investor General Partners are liable jointly and severallyfor all liabilities and obligations of the Partnership. Notwithstanding theforegoing, as among themselves, the Investor General Partners agree that eachshall be solely and individually responsible only for his pro rata share of theliabilities and obligations of the Partnership based on his respective number ofUnits.In addition, the Managing General Partner agrees to use its corporate assets toindemnify each of the Investor General Partners against all Partnership relatedliabilities which exceed the Investor General Partner’s interest in theundistributed net assets of the Partnership and insurance proceeds, if any.Further, the Managing General Partner agrees to indemnify each Investor GeneralPartner against any personal liability as a result of the unauthorized acts ofanother Investor General Partner.If the Managing General Partner provides indemnification, then each InvestorGeneral Partner who has been indemnified shall transfer and subrogate his rightsfor contribution from or against any other Investor General Partner to theManaging General Partner.4.05(c). ORDER OF PAYMENT OF CLAIMS. Claims shall be paid as follows: (i) first, out of any insurance proceeds; (ii) second, out of Partnership assets and revenues; and (iii) last, by the Managing General Partner as provided in ss.ss.3.05(b)(2) and (3) and 4.05(b).No Limited Partner shall be required to reimburse the Managing General Partner,the Operator, their Affiliates or the Investor General Partners for anyliability in excess of his agreed Capital Contribution, except: (i) for a liability resulting from the Limited Partner’s unauthorized participation in Partnership management; or (ii) from some other breach by the Limited Partner of this Agreement.4.05(d). AUTHORIZED TRANSACTIONS ARE NOT DEEMED TO BE A BREACH. No transactionentered into or action taken by the Partnership, or the Managing GeneralPartner, the Operator, or their Affiliates, which is authorized by thisAgreement shall be deemed a breach of any obligation owed by the ManagingGeneral Partner, the Operator, or their Affiliates to the Partnership or theParticipants.4.06. OTHER ACTIVITIES.4.06(a). THE MANAGING GENERAL PARTNER MAY PURSUE OTHER NATURAL GAS AND OILACTIVITIES FOR ITS OWN ACCOUNT. The Managing General Partner, the Operator, andtheir Affiliates are now engaged, and will engage in the future, for their ownaccount and for the account of others, including other investors, in all aspectsof the natural gas and oil business. This includes without limitation, theevaluation, acquisition, and sale of producing and nonproducing Leases, and theexploration for and production of natural gas, oil and other minerals.The Managing General Partner is required to devote only so much of its time asis necessary to manage the affairs of the Partnership. Except as expresslyprovided to the contrary in this Agreement, and subject to fiduciary duties, theManaging General Partner, the Operator, and their Affiliates may do thefollowing: (i) continue their activities, or initiate further such activities, individually, jointly with others, or as a part of any other limited or general partnership, tax partnership, joint venture, or other entity or activity to which they are or may become a party, in any locale and in the same fields, areas of operation or prospects in which the Partnership may likewise be active; 33 (ii) reserve partial interests in Leases being assigned to the Partnership or any other interests not expressly prohibited by this Agreement; (iii) deal with the Partnership as independent parties or through any other entity in which they may be interested; (iv) conduct business with the Partnership as set forth in this Agreement; and (v) participate in such other investor operations, as investors or otherwise.The Managing General Partner and its Affiliates shall not be required to permitthe Partnership or the Participants to participate in any of the operations inwhich the Managing General Partner and its Affiliates may be interested or sharein any profits or other benefits from the operations.4.06(b). MANAGING GENERAL PARTNER MAY MANAGE MULTIPLE PARTNERSHIPS. The ManagingGeneral Partner or its Affiliates may manage multiple Programs simultaneously.4.06(c). PARTNERSHIP HAS NO INTEREST IN NATURAL GAS CONTRACTS OR PIPELINES ANDGATHERING SYSTEMS. Notwithstanding any other provision in this Agreement, thePartnership shall not: (i) be a party to any natural gas supply agreement that the Managing General Partner, the Operator, or their Affiliates enter into with a third-party or have any rights pursuant to such natural gas supply agreement; or (ii) receive any interest in the Managing General Partner’s, the Operator’s, and their Affiliates’ pipeline or gathering system or compression facilities. ARTICLE V PARTICIPATION IN COSTS AND REVENUES, CAPITAL ACCOUNTS, ELECTIONS AND DISTRIBUTIONS5.01. PARTICIPATION IN COSTS AND REVENUES. Except as otherwise provided in thisAgreement, costs and revenues shall be charged and credited to the ManagingGeneral Partner and the Participants as set forth in this section and itssubsections.5.01(a). COSTS. Costs shall be charged as set forth below.5.01(a)(1). ORGANIZATION AND OFFERING COSTS. Organization and Offering Costsshall be charged 100% to the Managing General Partner. For purposes of sharingin revenues under ss.5.01(b)(4), the Managing General Partner shall be creditedwith Organization and Offering Costs paid by it and for services provided by itas Organization Costs up to and including 15% of the Partnership’s subscriptionproceeds. Any Organization and Offering Costs paid and/or provided in servicesby the Managing General Partner in excess of this amount shall not be creditedtowards the Managing General Partner’s required Capital Contribution or revenueshare set forth in ss.5.01(b)(4). The Managing General Partner’s credit forservices provided to the Partnership as Organization Costs shall be determinedbased on generally accepted accounting principles.5.01(a)(2). INTANGIBLE DRILLING COSTS. Ninety percent (90%) of the Partnership’ssubscription proceeds received from the Participants shall be used to pay 100%of the Intangible Drilling Costs.5.01(a)(3). TANGIBLE COSTS. Ten percent (10%) of the Partnership’s subscriptionproceeds received from the Participants shall be used by the Partnership to payTangible Costs. All remaining Tangible Costs in excess of an amount equal to 10%of the Partnership’s subscription proceeds shall be charged 100% to the ManagingGeneral Partner.5.01(a)(4). OPERATING COSTS, DIRECT COSTS, ADMINISTRATIVE COSTS AND ALL OTHERCOSTS. Operating Costs, Direct Costs, Administrative Costs, and all otherPartnership costs not specifically allocated shall be charged to the parties inthe same ratio as the related production revenues are being credited. 345.01(a)(5). ALLOCATION OF INTANGIBLE DRILLING COSTS AND TANGIBLE COSTS ATPARTNERSHIP CLOSINGS. Intangible Drilling Costs and the Participants’ share ofTangible Costs of a well or wells to be drilled and completed with the proceedsof a Partnership closing shall be charged 100% to the Participants who areadmitted to the Partnership in that closing and shall not be reallocated to takeinto account other Partnership closings.Although the proceeds of each Partnership closing will be used to pay the costsof drilling different wells, 90% of each Participant’s subscription proceedsshall be applied to Intangible Drilling Costs and 10% of each Participant’ssubscription proceeds shall be applied to Tangible Costs regardless of when hesubscribes.5.01(a)(6). LEASE COSTS. The Leases shall be contributed to the Partnership bythe Managing General Partner as set forth in ss.4.01(a)(4).5.01(b). REVENUES. Revenues shall be credited as set forth below.5.01(b)(1). ALLOCATION OF REVENUES ON DISPOSITION OF PROPERTY. If the parties’Capital Accounts are adjusted to reflect the simulated depletion of a naturalgas or oil property of the Partnership, then the portion of the total amountrealized by the Partnership on the taxable disposition of the property thatrepresents recovery of its simulated tax basis in the property shall beallocated to the parties in the same proportion as the aggregate adjusted taxbasis of the property was allocated to the parties or their predecessors ininterest. If the parties’ Capital Accounts are adjusted to reflect the actualdepletion of a natural gas or oil property of the Partnership, then the portionof the total amount realized by the Partnership on the taxable disposition ofthe property that equals the parties’ aggregate remaining adjusted tax basis inthe property shall be allocated to the parties in proportion to their respectiveremaining adjusted tax bases in the property. Thereafter, any excess shall beallocated to the Managing General Partner in an amount equal to the differencebetween the fair market value of the Lease at the time it was contributed to thePartnership and its simulated or actual adjusted tax basis at that time.Finally, any excess shall be credited as provided in ss.5.01(b)(4), below.In the event of a sale of developed natural gas and oil properties withequipment on the properties, the Managing General Partner may make anyreasonable allocation of proceeds between the equipment and the Leases.5.01(b)(2). INTEREST. Interest earned on each Participant’s subscriptionproceeds before the Offering Termination Date under ss.3.05(b)(1) shall becredited to the accounts of the respective subscribers who paid the subscriptionproceeds to the Partnership. The interest shall be paid to the Participant notlater than the Partnership’s first cash distribution from operations.After the Offering Termination Date and until proceeds from the offering areinvested in the Partnership’s natural gas and oil operations, any interestincome from temporary investments shall be allocated pro rata to theParticipants providing the subscription proceeds.All other interest income, including interest earned on the deposit ofproduction revenues, shall be credited as provided in ss.5.01(b)(4), below.5.01(b)(3). SALE OR DISPOSITION OF EQUIPMENT. Proceeds from the sale ordisposition of equipment shall be credited to the parties charged with the costsof the equipment in the ratio in which the costs were charged.5.01(b)(4). OTHER REVENUES. Subject to ss.5.01(b)(4)(a), the Managing GeneralPartner and the Participants shall share in all other Partnership revenues inthe same percentage as their respective Capital Contribution bears to the totalPartnership Capital Contributions, except that the Managing General Partnershall receive an additional 7% of Partnership revenues. However, the ManagingGeneral Partner’s total revenue share may not exceed 40% of Partnershiprevenues. For example, if the Managing General Partner contributes 25% of thetotal Partnership Capital Contributions and the Participants contribute 75% ofthe total Partnership Capital Contributions, then the Managing General Partnershall receive 32% of the Partnership revenues and the Participants shall receive68% of the Partnership revenues. On the other hand, if the Managing GeneralPartner contributes 35% of the total Partnership Capital Contributions and theParticipants contribute 65% of the total Partnership Capital Contributions, thenthe Managing General Partner shall receive 40% of the Partnership revenues, not42%, because its revenue share cannot exceed 40% of Partnership revenues, andthe Participants shall receive 60% of Partnership revenues. 355.01(b)(4)(a). SUBORDINATION. The Managing General Partner shall subordinate upto 50% of its share of Partnership Net Production Revenues (after deducting the1% broker/dealer participation) to the receipt by Participants of cashdistributions from the Partnership equal to $2,500 (10%) per Unit, based on$25,000 per Unit, regardless of the actual subscription price paid by theParticipants for their Units, in each of the first five 12-month periods. Inthis regard: (i) the 60-month subordination period shall begin with the first cash distribution from operations to the Participants; (ii) subsequent subordination distributions, if any, shall be determined and made at the time of each subsequent distribution of revenues to the Participants; and (iii) the Managing General Partner shall not subordinate more than 50% of its share of Partnership Net Production Revenues in any subordination period.The subordination shall be determined by: (i) carrying forward to subsequent 12-month periods the amount, if any, by which cumulative cash distributions to Participants, including any subordination payments, are less than: (a) $2,500 per Unit (10% per Unit) in the first 12-month period; (b) $5,000 per Unit (20% per Unit) in the second 12-month period; (c) $7,500 per Unit (30% per Unit) in the third 12-month period; or (d) $10,000 per Unit (40% per Unit) in the fourth 12-month period (no carry forward is required if such distributions are less than $12,500 per Unit (50% per Unit) in the fifth 12-month period because the Managing General Partner’s subordination obligation terminates on the expiration of the fifth 12-month period); and (ii) reimbursing the Managing General Partner for any previous subordination payments to the extent cumulative cash distributions to Participants, including any subordination payments, would exceed: (a) $2,500 per Unit (10% per Unit) in the first 12-month period; (b) $5,000 per Unit (20% per Unit) in the second 12-month period; (c) $7,500 per Unit (30% per Unit) in the third 12-month period; (d) $10,000 per Unit (40% per Unit) in the fourth 12-month period; or (e) $12,500 per Unit (50% per Unit) in the fifth 12-month period.The Managing General Partner’s subordination obligation shall be further subjectto the following conditions: (i) the subordination obligation may be prorated in the Managing General Partner’s discretion (e.g. in the case of a monthly distribution, the Managing General Partner will not have any subordination obligation if the distributions to Participants equal $208.33 per Unit (8.33% of $2,500 per Unit per year) or more assuming there is no subordination owed for any preceding period); (ii) the Managing General Partner shall not be required to return Partnership distributions previously received by it, even though a subordination obligation arises after the distributions; (iii) subject to the foregoing provisions of this section, only Partnership revenues in the current distribution period shall be debited or credited to the Managing General Partner as may be necessary to provide, to the extent possible, subordination distributions to the Participants and reimbursements to the Managing General Partner; 36 (iv) no subordination payments to the Participants or reimbursements to the Managing General Partner shall be made after the expiration of the fifth 12-month subordination period; and (v) subordination payments to the Participants shall be subject to any lien or priority required by the Managing General Partner’s lenders pursuant to agreements previously entered into or subsequently entered into or renewed by the Managing General Partner.5.01(b)(5). COMMINGLING OF REVENUES FROM ALL PARTNERSHIP WELLS. The revenuesfrom all Partnership wells will be commingled, so regardless of when aParticipant subscribes he will share in the revenues from all wells on the samebasis as the other Participants.5.01(c). ALLOCATIONS.5.01(c)(1). ALLOCATIONS AMONG PARTICIPANTS. Except as provided otherwise in thisAgreement, costs (other than Intangible Drilling Costs and Tangible Costs) andrevenues charged or credited to the Participants as a group, which includes allrevenue credited to the Participants under ss.5.01(b)(4), shall be allocatedamong the Participants, including the Managing General Partner to the extent ofany optional subscription under ss.3.03(b)(2), in the ratio of their respectiveUnits based on $25,000 per Unit regardless of the actual subscription price fora Participant’s Units.Intangible Drilling Costs and Tangible Costs charged to the Participants as agroup shall be allocated among the Participants, including the Managing GeneralPartner to the extent of any optional subscription under ss.3.03(b)(2), in theratio of the subscription price designated on their respective SubscriptionAgreements rather than the number of their respective Units.5.01(c)(2). COSTS AND REVENUES NOT DIRECTLY ALLOCABLE TO A PARTNERSHIP WELL.Costs and revenues not directly allocable to a particular Partnership Well oradditional operation shall be allocated among the Partnership Wells oradditional operations in any manner the Managing General Partner in itsreasonable discretion, shall select, and shall then be charged or credited inthe same manner as costs or revenues directly applicable to the Partnership Wellor additional operation are being charged or credited.5.01(c)(3). MANAGING GENERAL PARTNER’S DISCRETION IN MAKING ALLOCATIONS FORFEDERAL INCOME TAX PURPOSES. In determining the proper method of allocatingcharges or credits among the parties, allocating any item of income, gain, loss,deduction or credit which is not otherwise specifically allocated in thisAgreement or is clearly inconsistent with a party’s economic interest in thePartnership, or making any other allocations under this Agreement, the ManagingGeneral Partner may adopt any method of allocation which it, in its reasonablediscretion, selects in its sole discretion, after consultation with thePartnership’s legal counsel or accountants. Any new allocation provisions shallbe made in a manner that is consistent with the parties’ economic interests inthe Partnership and which would result in the most favorable aggregateconsequences to the Participants as nearly as possible consistent with theoriginal allocations described in this Agreement.5.02. CAPITAL ACCOUNTS AND ALLOCATIONS THERETO.5.02(a). CAPITAL ACCOUNTS FOR EACH PARTY TO THE AGREEMENT. A single, separateCapital Account shall be established for each party, regardless of the number ofinterests owned by the party, the class of the interests and the time or mannerin which the interests were acquired.5.02(b). CHARGES AND CREDITS.5.02(b)(1). GENERAL STANDARD. Except as otherwise provided in this Agreement,the Capital Account of each party shall be determined and maintained inaccordance with Treas. Reg. ss.1.704-l(b)(2)(iv) and shall be increased by: (i) the amount of money contributed by him to the Partnership; 37 (ii) the fair market value of property contributed by him, without regard to ss.7701(g) of the Code, to the Partnership, net of liabilities secured by the contributed property that the Partnership is considered to assume or take subject to under ss.752 of the Code; and (iii) allocations to him of Partnership income and gain, or items thereof, including income and gain exempt from tax and income and gain described in Treas. Reg. ss.1.704-l(b)(2)(iv)(g), but excluding income and gain described in Treas. Reg. ss.1.704-l(b)(4)(i);and shall be decreased by: (iv) the amount of money distributed to him by the Partnership; (v) the fair market value of property distributed to him, without regard to ss.7701(g) of the Code, by the Partnership, net of liabilities secured by the distributed property that he is considered to assume or take subject to under ss.752 of the Code; (vi) allocations to him of Partnership expenditures described in ss.705(a)(2)(B) of the Code; and (vii) allocations to him of Partnership loss and deduction, or items thereof, including loss and deduction described in Treas. Reg. ss.1.704-l(b)(2)(iv)(g), but excluding items described in (vi) above, and loss or deduction described in Treas. Reg. ss.1.704-l(b)(4)(i) or (iii).5.02(b)(2). EXCEPTION. If Treas. Reg. ss.1.704-l(b)(2)(iv) fails to provideguidance, Capital Account adjustments shall be made in a manner that: (i) maintains equality between the aggregate governing Capital Accounts of the parties and the amount of Partnership capital reflected on the Partnership’s balance sheet, as computed for book purposes; (ii) is consistent with the underlying economic arrangement of the parties; and (iii) is based, wherever practicable, on federal tax accounting principles.5.02(c). PAYMENTS TO THE MANAGING GENERAL PARTNER. The Capital Account of theManaging General Partner shall be reduced by payments to it pursuant toss.4.04(a)(2) only to the extent of the Managing General Partner’s distributiveshare of any Partnership deduction, loss, or other downward Capital Accountadjustment resulting from the payments. Also, in the event, and to the extent,that the Managing General Partner is treated under the Code as having beentransferred an interest in the Partnership in connection with the performance ofservices for the Partnership (whether before or after the formation of thePartnership): (i) any resulting compensation income shall be allocated 100% to the Managing General Partner; (ii) any associated increase in Capital Accounts shall be credited 100% to the Managing General Partner; and (iii) any associated deduction to which the Partnership is entitled shall be allocated 100% to the Managing General Partner.5.02(d). DISCRETION OF MANAGING GENERAL PARTNER IN THE METHOD OF MAINTAININGCAPITAL ACCOUNTS. Notwithstanding any other provisions of this Agreement, themethod of maintaining Capital Accounts may be changed from time to time, in thediscretion of the Managing General Partner, to take into consideration ss.704and other provisions of the Code and the related rules, regulations andinterpretations as may exist from time to time.5.02(e). REVALUATIONS OF PROPERTY. In the discretion of the Managing GeneralPartner the Capital Accounts of the parties may be increased or decreased toreflect a revaluation of Partnership property, including intangible assets suchas goodwill, on a property-by-property basis except as otherwise permitted underss.704(c) of the Code and the regulations thereunder, on the Partnership’sbooks, in accordance with Treas. Reg. ss.1.704-l(b)(2)(iv)(f). 385.02(f). AMOUNT OF BOOK ITEMS. In cases where ss.704(c) of the Code orss.5.02(e) applies, Capital Accounts shall be adjusted in accordance with Treas.Reg. ss.1.704-l(b)(2)(iv)(g) for allocations of depreciation, depletion,amortization and gain and loss, as computed for book purposes, with respect tothe property.5.03. ALLOCATION OF INCOME, DEDUCTIONS AND CREDITS.5.03(a). IN GENERAL.5.03(a)(1). DEDUCTIONS ARE ALLOCATED TO PARTY CHARGED WITH EXPENDITURE. To theextent permitted by law and except as otherwise provided in this Agreement, alldeductions and credits, including, but not limited to, intangible drilling anddevelopment costs and depreciation, shall be allocated to the party who has beencharged with the expenditure giving rise to the deductions and credits; and tothe extent permitted by law, these parties shall be entitled to the deductionsand credits in computing taxable income or tax liabilities to the exclusion ofany other party. Also, any Partnership deductions that would be nonrecoursedeductions if they were not attributable to a loan made or guaranteed by theManaging General Partner or its Affiliates shall be allocated to the ManagingGeneral Partner to the extent required by law.5.03(a)(2). INCOME AND GAIN ALLOCATED IN ACCORDANCE WITH REVENUES. Except asotherwise provided in this Agreement, all items of income and gain, includinggain on disposition of assets, shall be allocated in accordance with the relatedrevenue allocations set forth in ss.5.01(b) and its subsections.5.03(b). TAX BASIS OF EACH PROPERTY. Subject to ss.704(c) of the Code, the taxbasis of each oil and gas property for computation of cost depletion and gain orloss on disposition shall be allocated and reallocated when necessary based onthe capital interest in the Partnership as to the property and the capitalinterest in the Partnership for this purpose as to each property shall beconsidered to be owned by the parties in the ratio in which the expendituregiving rise to the tax basis of the property has been charged as of the end ofthe year.5.03(c). GAIN OR LOSS ON OIL AND GAS PROPERTIES. Each party shall separatelycompute its gain or loss on the disposition of each natural gas and oil propertyin accordance with the provisions of ss.613A(c)(7)(D) of the Code, and thecalculation of the gain or loss shall consider the party’s adjusted basis in hisproperty interest computed as provided in ss.5.03(b) and the party’s allocableshare of the amount realized from the disposition of the property.5.03(d). GAIN ON DEPRECIABLE PROPERTY. Gain from each sale or other dispositionof depreciable property shall be allocated to each party whose share of theproceeds from the sale or other disposition exceeds its contribution to theadjusted basis of the property in the ratio that the excess bears to the sum ofthe excesses of all parties having an excess.5.03(e). LOSS ON DEPRECIABLE PROPERTY. Loss from each sale, abandonment or otherdisposition of depreciable property shall be allocated to each party whosecontribution to the adjusted basis of the property exceeds its share of theproceeds from the sale, abandonment or other disposition in the proportion thatthe excess bears to the sum of the excesses of all parties having an excess.5.03(f). ALLOCATION IF RECAPTURE TREATED AS ORDINARY INCOME. Any recapturetreated as an increase in ordinary income by reason of ss.ss.1245, 1250, or 1254of the Code shall be allocated to the parties in the amounts in which therecaptured items were previously allocated to them; provided that to the extentrecapture allocated to any party is in excess of the party’s gain from thedisposition of the property, the excess shall be allocated to the other partiesbut only to the extent of the other parties’ gain from the disposition of theproperty.5.03(g). TAX CREDITS. If a Partnership expenditure, whether or not deductible,that gives rise to a tax credit in a Partnership taxable year also gives rise tovalid allocations of Partnership loss or deduction, or other downward CapitalAccount adjustments, for the year, then the parties’ interests in thePartnership with respect to the credit, or the cost giving rise thereto, shallbe in the same proportion as the parties’ respective distributive shares of theloss or deduction, and adjustments. If Partnership receipts, whether or nottaxable, that give rise to a tax credit, including a marginal well productioncredit under ss.45I of the Code, in a Partnership taxable year also give rise tovalid allocations of Partnership income or gain, or other upward Capital Accountadjustments, for the year, then the parties’ interests in the Partnership withrespect to the credit, or the Partnership’s receipts or production of naturalgas and oil production giving rise thereto, shall be in the same proportion asthe parties’ respective shares of the Partnership’s production revenues from thesales of its natural gas and oil production as provided in ss.5.01(b)(4). 395.03(h). DEFICIT CAPITAL ACCOUNTS AND QUALIFIED INCOME OFFSET. Notwithstandingany provisions of this Agreement to the contrary, an allocation of loss ordeduction which would result in a party having a deficit Capital Account balanceas of the end of the taxable year to which the allocation relates, if charged tothe party, to the extent the Participant is not required to restore the deficitto the Partnership, taking into account: (i) adjustments that, as of the end of the year, reasonably are expected to be made to the party’s Capital Account for depletion allowances with respect to the Partnership’s natural gas and oil properties; (ii) allocations of loss and deduction that, as of the end of the year, reasonably are expected to be made to the party under ss.ss.704(e)(2) and 706(d) of the Code and Treas. Reg. ss.1.751-1(b)(2)(ii); and (iii) distributions that, as of the end of the year, reasonably are expected to be made to the party to the extent they exceed offsetting increases to the party’s Capital Account, assuming for this purpose that the fair market value of Partnership property equals its adjusted tax basis, that reasonably are expected to occur during or prior to the Partnership taxable years in which the distributions reasonably are expected to be made;shall be charged to the Managing General Partner. Further, the Managing GeneralPartner shall be credited with an additional amount of Partnership income orgain equal to the amount of the loss or deduction as quickly as possible to theextent such chargeback does not cause or increase deficit balances in theparties’ Capital Accounts which are not required to be restored to thePartnership.Notwithstanding any provisions of this Agreement to the contrary, if a partyunexpectedly receives an adjustment, allocation, or distribution described in(i), (ii), or (iii) above, or any other distribution, which causes or increasesa deficit balance in the party’s Capital Account which is not required to berestored to the Partnership, the party shall be allocated items of income andgain, consisting of a pro rata portion of each item of Partnership income,including gross income, and gain for the year, in an amount and mannersufficient to eliminate the deficit balance as quickly as possible.5.03(i). MINIMUM GAIN CHARGEBACK. To the extent there is a net decrease during aPartnership taxable year in the minimum gain attributable to a Partnernonrecourse debt, then any Partner with a share of the minimum gain attributableto the debt at the beginning of the year shall be allocated items of Partnershipincome and gain in accordance with Treas. Reg. ss.1.704-2(i).5.03(j). PARTNERS’ ALLOCABLE SHARES. Except as otherwise provided in thisAgreement, each party’s allocable share of Partnership income, gain, loss,deductions and credits shall be determined by the use of any method prescribedor permitted by the Secretary of the Treasury by regulations or other guidelinesand selected by the Managing General Partner which takes into account thevarying interests of the parties in the Partnership during the taxable year. Inthe absence of such regulations or guidelines, except as otherwise provided inthis Agreement, the allocable share shall be based on actual income, gain, loss,deductions and credits economically accrued each day during the taxable year inproportion to each party’s varying interest in the Partnership on each dayduring the taxable year.5.04. ELECTIONS.5.04(a). ELECTION TO DEDUCT INTANGIBLE COSTS. The Partnership’s federal incometax return shall be made in accordance with an election under the option grantedby the Code to deduct intangible drilling and development costs.5.04(b). NO ELECTION OUT OF SUBCHAPTER K. No election shall be made by thePartnership, any Partner, or the Operator for the Partnership to be excludedfrom the application of the partnership provisions of the Code, includingSubchapter K of Chapter 1 of Subtitle A of the Code. 405.04(c). CONTINGENT INCOME. If it is determined that any taxable income resultsto any party by reason of its entitlement to a share of profits or revenues ofthe Partnership before the profit or revenue has been realized by thePartnership, the resulting deduction as well as any resulting gain, shall notenter into Partnership net income or loss but shall be separately allocated tothe party.5.04(d). SS.754 ELECTION. In the event of the transfer of an interest in thePartnership, or on the death of an individual party hereto, or in the event ofthe distribution of property to any party, the Managing General Partner maychoose for the Partnership to file an election in accordance with the applicableTreasury Regulations to cause the basis of the Partnership’s assets to beadjusted for federal income tax purposes as provided by ss.ss.734 and 743 of theCode.5.04(e). SS.83 ELECTION. The Partnership, the Managing General Partner and eachParticipant hereby agree to be legally bound by the provisions of thisss.5.04(e) and further agree that, in the Managing General Partner’s solediscretion, the Partnership and all of its Partners may elect a safe harborunder which the fair market value of a Partnership interest that is transferredin connection with the performance of services is treated as being equal to theliquidation value of that interest for transfers on or after the date finalregulations providing the safe harbor are published in the Federal Register. Ifthe Managing General Partner determines to elect the safe harbor on behalf ofthe Partnership and all of its Partners, which determination may be made solelyin the best interests of the Managing General Partner, the Partnership, theManaging General Partner and each Participant further agree that: (i) the Partnership shall be authorized and directed to elect the safe harbor; (ii) the Partnership and each of its Partners (including any Person to whom a Partnership interest is transferred in connection with the performance of services) shall comply with all requirements of the safe harbor with respect to all Partnership interests transferred in connection with the performance of services while the election remains effective; and (iii) the Managing General Partner, in its sole discretion, may cause the Partnership to terminate the safe harbor election, which determination may be made in the sole interests of the Managing General Partner.5.05. DISTRIBUTIONS.5.05(a). IN GENERAL.5.05(a)(1). MONTHLY REVIEW OF ACCOUNTS. The Managing General Partner shallreview the accounts of the Partnership at least monthly to determine whethercash distributions are appropriate and the amount to be distributed, if any.5.05(a)(2). DISTRIBUTIONS. The Partnership shall distribute funds to theManaging General Partner and the Participants allocated to their accounts whichthe Managing General Partner deems unnecessary to retain by the Partnership.5.05(a)(3). NO BORROWINGS. In no event, however, shall funds be advanced orborrowed for distributions if the amount of the distributions would exceed thePartnership’s accrued and received revenues for the previous four quarters, lesspaid and accrued Operating Costs with respect to the revenues. The determinationof revenues and costs shall be made in accordance with generally acceptedaccounting principles, consistently applied.5.05(a)(4). DISTRIBUTIONS TO THE MANAGING GENERAL PARTNER. Cash distributionsfrom the Partnership to the Managing General Partner shall only be made asfollows: (a) in conjunction with distributions to Participants; and (b) out of funds properly allocated to the Managing General Partner’s account. 415.05(a)(5). RESERVE. At any time after one year from the date each PartnershipWell is placed into production, the Managing General Partner shall have theright to deduct each month from the Partnership’s proceeds of the sale of theproduction from the well up to $200 for the purpose of establishing a fund tocover the estimated costs of plugging and abandoning the well. All of thesefunds shall be deposited in a separate interest bearing account for the benefitof the Partnership, and the total amount so retained and deposited shall notexceed the Managing General Partner’s reasonable estimate of the costs.5.05(b). DISTRIBUTION OF UNCOMMITTED SUBSCRIPTION PROCEEDS. Any net subscriptionproceeds not expended or committed for expenditure, as evidenced by a writtenagreement, by the Partnership within 12 months of the Offering Termination Date,except necessary operating capital, shall be distributed to the Participants inthe ratio that the subscription price designated on each Participant’sSubscription Agreement bears to the total subscription prices designated on allof the Participants’ Subscription Agreements, as a return of capital.For purposes of this subsection, “committed for expenditure” shall meancontracted for, actually earmarked for or allocated by the Managing GeneralPartner to the Partnership’s drilling operations, and “necessary operatingcapital” shall mean those funds which, in the opinion of the Managing GeneralPartner, should remain on hand to assure continuing operation of thePartnership.5.05(c). DISTRIBUTIONS ON WINDING UP. On the winding up of the Partnershipdistributions shall be made as provided in ss.7.02.5.05(d). INTEREST AND RETURN OF CAPITAL. Except as otherwise provided in thisAgreement, no party shall under any circumstances be entitled to any interest onamounts retained by the Partnership. Each Participant shall look only to hisshare of distributions, if any, from the Partnership for a return of his CapitalContribution. ARTICLE VI TRANSFER OF INTERESTS6.01. TRANSFERABILITY.6.01(a). IN GENERAL.6.01(a)(1). CONSENT REQUIRED. In addition to other restrictions ontransferability provided in this Agreement, Units shall be nontransferableexcept transfers to or with the written consent of the Managing General Partner.6.01(a)(2). RIGHTS OF ASSIGNEE. On a transfer, unless an assignee becomes asubstituted Participant in accordance with the provisions set forth below, heshall not be entitled to any of the rights granted to a Participant under thisAgreement, other than the right to receive all or part of the share of theprofits, losses, income, gain, credits and cash distributions or returns ofcapital to which his assignor would otherwise be entitled.6.01(b). CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER UNITS.6.01(b)(1). AUTOMATIC CONVERSION. After all of the Partnership Wells have beendrilled and completed, as determined by the Managing General Partner, theManaging General Partner shall file an amended certificate of limitedpartnership with the Secretary of State of the State of Delaware for the purposeof converting the Investor General Partner Units to Limited Partner Units.6.01(b)(2). INVESTOR GENERAL PARTNERS SHALL HAVE CONTINGENT LIABILITY. Onconversion the Investor General Partners shall be Limited Partners entitled tolimited liability; however, they shall remain liable to the Partnership for anyadditional Capital Contribution required for their proportionate share of anyPartnership obligation or liability arising before the conversion of their Unitsas provided in ss.3.05(b)(2).6.01(b)(3). CONVERSION SHALL NOT AFFECT ALLOCATIONS. The conversion shall notaffect the allocation to any Participant of any item of Partnership income,gain, loss, deduction or credit or other item of special tax significance otherthan Partnership liabilities, if any. Further, the conversion shall not affectany Participant’s interest in the Partnership’s natural gas and oil propertiesand unrealized receivables. 426.01(b)(4). RIGHT TO CONVERT IF REDUCTION OF INSURANCE. Notwithstanding theforegoing, the Managing General Partner shall notify all Participants at least30 days before the effective date of any adverse material change in thePartnership’s insurance coverage. If the insurance coverage is to be materiallyreduced, then the Investor General Partners shall have the right to converttheir Units into Limited Partner Units before the reduction by giving writtennotice to the Managing General Partner.6.02. SPECIAL RESTRICTIONS ON TRANSFERS.6.02(a). IN GENERAL. Transfers are subject to the following general conditions: (i) except as provided by operation of law: (a) only whole Units may be assigned unless the Participant owns less than a whole Unit, in which case his entire fractional interest must be assigned; and (b) Units may not be assigned to a person who is under the age of 18 or incompetent (unless an attorney-in-fact, guardian, custodian or conservator has been appointed to handle the affairs of that person) without the Managing General Partner’s consent; (ii) the costs and expenses associated with the assignment must be paid by the assignor Participant; (iii) the assignment must be in a form satisfactory to the Managing General Partner; and (iv) the terms of the assignment must not contravene those of this Agreement.Transfers of Units are subject to the following additional restrictions setforth in ss.ss.6.02(a)(1) and 6.02(a)(2).6.02(a)(1). TAX LAW RESTRICTIONS. Subject to transfers permitted by ss.6.04 andtransfers by operation of law, no sale, assignment, exchange or transfer of aUnit shall be made which, in the opinion of counsel to the Partnership, wouldresult in the Partnership being either: (i) terminated for tax purposes under ss.708 of the Code; or (ii) treated as a “publicly-traded” partnership for purposes of ss.469(k) of the Code.6.02(a)(2). SECURITIES LAWS RESTRICTION. Subject to transfers permitted byss.6.04 and transfers by operation of law, no Unit shall be sold, assigned,pledged, hypothecated, or transferred unless there is either: (i) an effective registration of the Unit under the Securities Act of 1933, as amended, and qualification under applicable state securities laws; or (ii) an opinion of counsel acceptable to the Managing General Partner that the registration and qualification of the Unit is not required.Transfers are also subject to any conditions contained in the SubscriptionAgreement and Annex A to the Subscription Agreement.6.02(a)(3). SUBSTITUTE PARTICIPANT.6.02(a)(3)(a). PROCEDURE TO BECOME SUBSTITUTE PARTICIPANT. Subject toss.ss.6.02(a)(1) and 6.02(a)(2), an assignee of a Participant’s Unit shallbecome a substituted Participant entitled to all the rights of a Participant if,and only if: (i) the assignor gives the assignee the right; 43 (ii) the Managing General Partner consents to the substitution, which shall be in the Managing General Partner’s absolute discretion; (iii) the assignee pays to the Partnership all costs and expenses incurred in connection with the substitution; and (iv) the assignee executes and delivers the instruments necessary to establish that a legal transfer has taken place and to confirm the agreement of the assignee to be bound by all of the terms of this Agreement.6.02(a)(3)(b). RIGHTS OF SUBSTITUTE PARTICIPANT. A substitute Participant isentitled to all of the rights attributable to full ownership of the assignedUnits including the right to vote.6.02(b). EFFECT OF TRANSFER.6.02(b)(1). AMENDMENT OF RECORDS. The Partnership shall amend its records atleast once each calendar quarter to effect the substitution of substitutedParticipants.Any transfer permitted under this Agreement when the assignee does not become asubstituted Participant shall be effective as follows: (i) midnight of the last day of the calendar month in which it is made; or (ii) at the Managing General Partner’s election, 7:00 A.M. of the following day.6.02(b)(2). TRANSFER DOES NOT RELIEVE TRANSFEROR OF CERTAIN COSTS. No transfer,including a transfer of less than all of a Participant’s Units or the transferof Units to more than one party, shall relieve the transferor of itsresponsibility for its proportionate part of any expenses, obligations andliabilities under this Agreement related to the Units so transferred, whetherarising before or after the transfer.6.02(b)(3). TRANSFER DOES NOT REQUIRE AN ACCOUNTING. No transfer of a Unit shallrequire an accounting by the Managing General Partner. Also, no transfer shallgrant rights under this Agreement, including the exercise of any elections, asbetween the transferring parties and the remaining parties to this Agreement tomore than one party unanimously designated by the transferees and, if he shouldhave retained an interest under this Agreement, the transferor.6.02(b)(4). NOTICE. Until the Managing General Partner receives a proper noticeof designation acceptable to it, the Managing General Partner shall continue toaccount only to the person to whom it was furnishing notices before the timepursuant to ss.8.01 and its subsections. This party shall continue to exerciseall rights applicable to the Units previously owned by the transferor.6.03. RIGHT OF MANAGING GENERAL PARTNER TO HYPOTHECATE AND/OR WITHDRAW ITSINTERESTS. The Managing General Partner shall have the authority without theconsent of the Participants and without affecting the allocation of costs andrevenues received or incurred under this Agreement, to hypothecate, pledge, orotherwise encumber, on any terms it chooses for its own general purposes either: (i) its Partnership interest; or (ii) an undivided interest in the assets of the Partnership equal to or less than its respective interest in the revenues of the Partnership.All repayments of these borrowings and costs, interest or other charges relatedto the borrowings shall be borne and paid separately by the Managing GeneralPartner. In no event shall the repayments, costs, interest, or other chargesrelated to the borrowing be charged to the account of the Participants.In addition, subject to a required participation of not less than 1% in thePartnership as Managing General Partner, the Managing General Partner maywithdraw a property interest held by the Partnership in the form of a WorkingInterest in the Partnership Wells equal to or less than its respective interestin the revenues of the Partnership without the consent of the Participants. 446.04. PRESENTMENT.6.04(a). IN GENERAL. Participants shall have the right to present their Units tothe Managing General Partner for purchase subject to the conditions andlimitations set forth in this section. A Participant, however, is not obligatedto present his Units for purchase.The Managing General Partner shall not be obligated to purchase more than 5% ofthe Units in any calendar year and this 5% limit may not be waived. The ManagingGeneral Partner shall not purchase less than one Unit unless the lesser amountrepresents the Participant’s entire interest in the Partnership, however, theManaging General Partner may waive this limitation.A Participant may present his Units in writing to the Managing General Partnerevery year beginning in 2010 subject to the following conditions: (i) the presentment must be made within 120 days of the reserve report set forth in ss.4.03(b)(3); (ii) in accordance with Treas. Reg. ss.1.7704-1(f), the purchase may not be made until at least 60 calendar days after the Participant notifies the Partnership in writing of the Participant’s intention to exercise the presentment right; and (iii) the purchase shall not be considered effective until the presentment price has been paid in cash or other consideration to the Participant.6.04(b). REQUIREMENT FOR INDEPENDENT PETROLEUM CONSULTANT. The amount of thepresentment price attributable to Partnership reserves shall be determined basedon the last reserve report of the Partnership prepared by the Managing GeneralPartner and reviewed by an Independent Expert. The Managing General Partnershall estimate the present worth of future net revenues attributable to thePartnership’s interest in the Proved Reserves. In making this estimate, theManaging General Partner shall use the following terms: (i) a discount rate equal to 10%; (ii) a constant price for the oil; and (iii) base the price of natural gas on the existing natural gas contracts at the time of the purchase.The calculation of the presentment price shall be as set forth in ss.6.04(c).6.04(c). CALCULATION OF PRESENTMENT PRICE. The presentment price shall be basedon the Participant’s share of the net assets and liabilities of the Partnershipand allocated pro rata to each Participant in the ratio that his number of Unitsbears to the total number of Units. The presentment price shall include the sumof the following Partnership items: (i) an amount based on 70% of the present worth of future net revenues from the Proved Reserves determined as described in ss.6.04(b); (ii) cash on hand; (iii) prepaid expenses and accounts receivable less a reasonable amount for doubtful accounts; and (iv) the estimated market value of all assets, not separately specified above, determined in accordance with standard industry valuation procedures.There shall be deducted from the foregoing sum the following items: 45 (i) an amount equal to all debts, obligations, and other liabilities, including accrued expenses; and (ii) any distributions made to the Participants between the date of the request and the actual payment. However, if any cash distributed was derived from the sale after the presentment request of natural gas, oil or other mineral production, or of a producing property owned by the Partnership, for purposes of determining the reduction of the presentment price, the distributions shall be discounted at the same rate used to take into account the risk factors employed to determine the present worth of the Partnership’s Proved Reserves.6.04(d). FURTHER ADJUSTMENT MAY BE ALLOWED. The presentment price may be furtheradjusted by the Managing General Partner for estimated changes therein from thedate of the report to the date of payment of the presentment price to theParticipants because of the following: (i) the production or sales of, or additions to, reserves and lease and well equipment, sale or abandonment of Leases, and similar matters occurring before the request for purchase; and (ii) any of the following occurring before payment of the presentment price to the selling Participants: (a) changes in well performance; (b) increases or decreases in the market price of natural gas, oil or other minerals; (c) revision of regulations relating to the importing of hydrocarbons; (d) changes in income, ad valorem, and other tax laws such as material variations in the provisions for depletion; and (e) similar matters.6.04(e). SELECTION BY LOT. If less than all Units presented at any time are tobe purchased, then the Participants whose Units are to be purchased will beselected by lot.The Managing General Partner’s obligation to purchase Units presented may bedischarged for its benefit by a third-party or an Affiliate. The Units of theselling Participant will be transferred to the party who pays for it. A sellingParticipant will be required to deliver an executed assignment of his Units,together with any other documentation as the Managing General Partner mayreasonably request.6.04(f). NO OBLIGATION OF THE MANAGING GENERAL PARTNER TO ESTABLISH A RESERVE.The Managing General Partner shall have no obligation to establish any reserveto satisfy the presentment obligations under this section.6.04(g). SUSPENSION OF PRESENTMENT FEATURE. The Managing General Partner maysuspend this presentment feature by so notifying Participants at any time if it: (i) does not have sufficient cash flow; or (ii) is unable to borrow funds or arrange other consideration for this purpose on terms it deems reasonable.In addition, the presentment feature may be conditioned, in the Managing GeneralPartner’s sole discretion, on the Managing General Partner’s receipt of anopinion of counsel that the transfers will not cause the Partnership to betreated as a “publicly traded partnership” under the Code.The Managing General Partner shall hold the purchased Units for its own accountand not for resale. 46 ARTICLE VII DURATION, DISSOLUTION, AND WINDING UP7.01. DURATION.7.01(a). FIFTY YEAR TERM. The Partnership shall continue in existence for a termof 50 years from the effective date of this Agreement unless sooner terminatedas set forth below.7.01(b). TERMINATION. The Partnership shall terminate following the occurrenceof: (i) a Final Terminating Event; or (ii) any event which under the Delaware Revised Uniform Limited Partnership Act causes the dissolution of a limited partnership.7.01(c). CONTINUANCE OF PARTNERSHIP EXCEPT ON FINAL TERMINATING EVENT. Otherthan the occurrence of a Final Terminating Event, the Partnership or anysuccessor limited partnership shall not be wound up, but shall be continued bythe parties and their respective successors as a successor limited partnershipunder all the terms of this Agreement. The successor limited partnership shallsucceed to all of the assets of the Partnership. As used throughout thisAgreement, the term “Partnership” shall include the successor limitedpartnership and the parties to the successor limited partnership.7.02. DISSOLUTION AND WINDING UP.7.02(a). FINAL TERMINATING EVENT. On the occurrence of a Final Terminating Eventthe affairs of the Partnership shall be wound up and there shall be distributedto each of the parties its Distribution Interest in the remaining Partnershipassets.7.02(b). TIME OF LIQUIDATING DISTRIBUTION. To the extent practicable and inaccordance with sound business practices in the judgment of the Managing GeneralPartner, liquidating distributions shall be made by: (i) the end of the taxable year in which liquidation occurs, determined without regard to ss.706(c)(2)(A) of the Code; or (ii) if later, within 90 days after the date of the liquidation.Notwithstanding, the following amounts are not required to be distributed withinthe foregoing time periods so long as the withheld amounts are distributed assoon as practical: (i) amounts withheld for reserves reasonably required for liabilities of the Partnership; and (ii) installment obligations owed to the Partnership.7.02(c). IN-KIND DISTRIBUTIONS. The Managing General Partner shall not beobligated to offer in-kind property distributions to the Participants, but maydo so, in its discretion. Any in-kind property distributions to the Participantsshall be made to a liquidating trust or similar entity for the benefit of theParticipants, unless at the time of the distribution: (i) the Managing General Partner offers the individual Participants the election of receiving in-kind property distributions and the Participants accept the offer after being advised of the risks associated with direct ownership; or (ii) there are alternative arrangements in place which assure the Participants that they will not, at any time, be responsible for the operation or disposition of Partnership properties. 47If the Managing General Partner has not received a Participant’s consent within30 days after the Managing General Partner mailed the request for consent, thenit shall be presumed that the Participant has refused his consent.7.02(d). SALE IF NO CONSENT. Any Partnership asset which would otherwise bedistributed in-kind to a Participant, except for the failure or refusal of theParticipant to give his written consent to the distribution, may instead be soldby the Managing General Partner at the best price reasonably obtainable from anindependent third-party, who is not an Affiliate of the Managing General Partneror to itself or its Affiliates, including an Affiliated Income Program, at fairmarket value as determined by an Independent Expert selected by the ManagingGeneral Partner. ARTICLE VIII MISCELLANEOUS PROVISIONS8.01. NOTICES.8.01(a). METHOD. Any notice required under this Agreement shall be: (i) in writing; and (ii) given by mail or wire addressed to the party to receive the notice at the address designated in ss.1.03.If there is a transfer of Units under this Agreement, no notice to thetransferee shall be required, nor shall the transferee have any rights underthis Agreement, until notice has been given to the Managing General Partner.Any transfer of rights under this Agreement shall not increase the duty to givenotice. If there is a transfer of Units under this Agreement to more than oneparty, then notice to any owner of any interest in the Units shall be notice toall owners of the Units.8.01(b). CHANGE IN ADDRESS. The address of any party to this Agreement may bechanged by written notice as follows: (i) to the Participants if there is a change of address by the Managing General Partner; or (ii) to the Managing General Partner if there is a change of address by a Participant.8.01(c). TIME NOTICE DEEMED GIVEN. If the notice is given by the ManagingGeneral Partner, then the notice shall be considered given, and any applicabletime shall run, from the date the notice is placed in the mail or delivered tothe telegraph company.If the notice is given by any Participant, then the notice shall be consideredgiven and any applicable time shall run from the date the notice is received.8.01(d). EFFECTIVENESS OF NOTICE. Any notice to a party other than the ManagingGeneral Partner, including a notice requiring concurrence or nonconcurrence,shall be effective, and any failure to respond binding, irrespective of thefollowing: (i) whether or not the notice is actually received; or (ii) any disability or death on the part of the noticee, even if the disability or death is known to the party giving the notice.8.01(e). FAILURE TO RESPOND. Except pursuant to ss.7.02(c) or when thisAgreement expressly requires affirmative approval of a Participant, anyParticipant who fails to respond in writing within the time specified to arequest by the Managing General Partner as set forth below for approval of, orconcurrence in, a proposed action shall be conclusively deemed to have approvedthe action. The Managing General Partner shall send the first request and thetime period shall be not less than 15 business days from the date of mailing ofthe request. If the Participant does not respond to the first request, then theManaging General Partner shall send a second request. If the Participant doesnot respond within seven calendar days from the date of the mailing of thesecond request, then the Participant shall be conclusively deemed to haveapproved the action. 488.02. TIME. Time is of the essence of each part of this Agreement.8.03. APPLICABLE LAW. The terms and provisions of this Agreement shall beconstrued under the laws of the State of Delaware.8.04. AGREEMENT IN COUNTERPARTS. This Agreement may be executed in counterpartand shall be binding on all parties executing this or similar agreements fromand after the date of execution by each party.8.05. AMENDMENT.8.05(a). PROCEDURE FOR AMENDMENT. No changes in this Agreement shall be bindingunless: (i) proposed in writing by the Managing General Partner, and adopted with the consent of Participants whose Units equal a majority of the total Units; or (ii) proposed in writing by Participants whose Units equal 10% or more of the total Units and approved by an affirmative vote of Participants whose Units equal a majority of the total Units.8.05(b). CIRCUMSTANCES UNDER WHICH THE MANAGING GENERAL PARTNER ALONE MAY AMEND.The Managing General Partner is authorized to amend this Agreement and itsexhibits without the consent of Participants in any way deemed necessary ordesirable by it to do any or all of the following: (i) add, or substitute in the case of an assigning party, additional Participants; (ii) enhance the tax benefits of the Partnership to the parties; (iii) satisfy any requirements, conditions, guidelines, options, or elections contained in any opinion, directive, order, ruling, or regulation of the SEC, the IRS, or any other federal or state agency, or in any federal or state statute, compliance with which it deems to be in the best interest of the Partnership; or (iv) cure any ambiguity, correct or supplement any provision in this Agreement that may be inconsistent with any other provision in this Agreement, or add any other provision to this Agreement with respect to matters, events or issues arising under this Agreement that is not inconsistent with the provisions of this Agreement.Notwithstanding the foregoing, no amendment materially and adversely affectingthe interests or rights of Participants shall be made without the consent of theParticipants whose interests will be so affected.8.06. ADDITIONAL PARTNERS. Each Participant hereby consents to the admission tothe Partnership of additional Participants as the Managing General Partner, inits discretion, chooses to admit.8.07. LEGAL EFFECT. This Agreement shall be binding on and inure to the benefitof the parties, their heirs, devisees, personal representatives, successors andassigns, and shall run with the interests subject to this Agreement. The terms”Partnership,” “Limited Partner,” “Investor General Partner,” “Participant,””Partner,” “Managing General Partner,” “Operator,” or “parties” shall equallyapply to any successor limited partnership, and any heir, devisee, personalrepresentative, successor or assign of a party.IN WITNESS WHEREOF, the parties hereto set their hands as of the day and yearhereinabove shown.ATLAS: ATLAS RESOURCES, INC. Managing General Partner By: /s/ Frank P. Carolas Frank P. Carolas, EVP 49