-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BgXrylB+lEJ3snPJf4zkZvLYjCu05yNnrHhAmqtxbhSumVW3A+YIxTH3ZSdCXrkc CtAAYrXDKC49fEnAoKrbTA== 0001047469-99-034702.txt : 19990906 0001047469-99-034702.hdr.sgml : 19990906 ACCESSION NUMBER: 0001047469-99-034702 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990903 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLAS ENERGY FOR NINETIES PUBLIC NO 8 LTD CENTRAL INDEX KEY: 0001088451 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 251836294 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-82389 FILM NUMBER: 99705958 BUSINESS ADDRESS: STREET 1: 311 ROUSER RD CITY: MOON TOWNSHIP STATE: PA ZIP: 15108 BUSINESS PHONE: 4122622830 MAIL ADDRESS: STREET 1: 311 ROUSER RD CITY: MOON TOWNSHIP STATE: PA ZIP: 15108 SB-2/A 1 SB-2/A As filed with the Securities and Exchange Commission on September 3, 1999 Registration No. 333-82389 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT Under The Securities Act of 1933 ---------------------------- ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. (Exact name of Registrant as Specified in its Charter) 311 ROUSER ROAD MOON TOWNSHIP, PENNSYLVANIA 15108 (412) 262-2830 (Address and Telephone Number of Principal Executive Offices and Principal Place of Business) --------------------------------------- JAMES R. O'MARA, PRESIDENT ATLAS RESOURCES, INC. 311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108 (412) 262-2830 (Name, Address and Telephone Number of Agent for Service) ------------------------------------------ Copies to: WALLACE W. KUNZMAN, JR., ESQ. JAMES R. O'MARA KUNZMAN & BOLLINGER, INC. ATLAS RESOURCES, INC. 5100 N. BROOKLINE 311 ROUSER ROAD SUITE 600 MOON TOWNSHIP, PENNSYLVANIA 15108 OKLAHOMA CITY, OKLAHOMA 73112 ------------------------------ Approximate Date of Commencement of Proposed Sale to the Public; AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: /X/ ------------------------------- CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- Proposed Proposed Title of Each Dollar Maximum Maximum Amount of Class of Securities Amount Offering Aggregate Registration to be Registered to be Registered Price per Unit Offering Price Fee - ----------------------------------------------------------------------------------------------------------------------------- Units (1) $18,000,000 $10,000 $18,000,000 $5,310.00 - -----------------------------------------------------------------------------------------------------------------------------
(1) "Units" means the limited partner interests and the investor general partner interests offered to investors in the partnership. THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. CROSS REFERENCE SHEET PURSUANT TO RULE 404
Item of Form SB-2 Caption in Prospectus ----------------- --------------------- 1. Front of Registration Statement and Outside Front Cover of Prospectus.................................... Front Page of Registration Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus......................................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors................... Summary of the Offering; Risk Factors 4. Use of Proceeds........................................ Capitalization and Source of Funds and Use of Proceeds 5. Determination of Offering Price........................ Not Applicable 6. Dilution............................................... Not Applicable 7. Selling Security Holders............................... Not Applicable 8. Plan of Distribution................................... Plan of Distribution 9. Legal Proceedings...................................... Litigation 10. Directors, Executive Officers, Promoters and Control Persons................................................ Management 11. Security Ownership of Certain Beneficial Owners and Management............................................. Management 12. Description of Securities.............................. Summary of the Offering; Terms of the Offering; Summary of Partnership Agreement 13. Interest of Named Experts and Counsel.................. Legal Opinions; Experts 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities......................... Fiduciary Responsibilities of the Managing General Partner 15. Organization Within Last Five Years.................... Management 16. Description of Business................................ Proposed Activities; Management 17. Management's Discussion and Analysis or Plan of Operation.............................................. Proposed Activities 18. Description of Property................................ Proposed Activities A. Issuers Engaged or to Be Engaged in Significant Mining Operations............................... Not Applicable B. Supplementing Financial Information about Oil and Gas Producing Activities.................... Not Applicable 19. Certain Relationships and Related Transactions......... Compensation; Management; Conflicts of Interest 20. Market for Common Equity and Related Stockholder Matters................................................ Not Applicable 21. Executive Compensation................................. Management 22. Financial Statements................................... Financial Information Concerning the Managing General Partner and the Partnership 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.................... Not Applicable
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Preliminary Prospectus (Subject to Completion) Dated ____________, 1999 Prospectus ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. - General and Limited Partner Interests at $10,000 per Unit - $1,000,000 (100 Units) Minimum Aggregate Capital Contributions - $18,000,000 (1,800 Units) Maximum Aggregate Capital Contributions - - The units will be offered on a "best efforts" "minimum-maximum" basis. This means the broker-dealers must sell at least 100 units in order for this offering to close, and they are required to use only their best efforts to sell the remaining 1,700 units. Therefore, this offering may close even though all of the 1,800 units offered have not been sold. All subscription proceeds will be held in an interest bearing escrow account until 100 units have been sold. This offering will close on or before December 31, 1999, and will not be extended. If subscriptions for $1,000,000 are not received by December 31, 1999, then your subscription will be promptly returned to you from the escrow account with interest and without deduction for any fees. - - Atlas-Energy for the Nineties-Public #8 Ltd., a limited partnership, is managed by Atlas Resources, Inc. of Pittsburgh, Pennsylvania, and will be funded to drill natural gas development wells. If you elect to invest in the partnership as a general partner, then you will receive a 1999 deduction for intangible drilling costs from the partnership that generally may be used to offset any type of income. However, you will have unlimited liability regarding the partnership's activities. If you elect to invest in the partnership as a limited partner, then your 1999 deduction for intangible drilling costs from the partnership generally may be used to offset only "passive" income, which generally includes income from other limited partner investments. However, you will have limited liability regarding the partnership's activities. - - The Offering
Total Total Per Unit Minimum Maximum -------- ------- ------- Public Price $ 10,000 $ 1,000,000 $18,000,000 Dealer-manager fee, sales $ 1,050 $ 105,000 $ 1,890,000 commis-sions, and reimburse- ments (1) Proceeds to partnership $ 10,000 $ 1,000,000 $18,000,000
- ------------- (1) These fees and expenses will be paid by the managing general partner and not from subscription proceeds. -------------------------------- THESE SECURITIES ARE SPECULATIVE AND ARE SUBJECT TO CERTAIN RISKS. (See "Risk Factors," Page 2.) NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS
Page SUMMARY OF THE OFFERING........................................................1 Atlas-Energy for the Nineties-Public #8 Ltd................................1 Description of Units.......................................................1 RISK FACTORS...................................................................2 Special Risks of the Partnership...........................................2 No Guarantee of Return of Investment or Rate of Return on Investment Because of Speculative Nature of Drilling Gas Wells...................................................2 Risk That a Well Does Not Return the Amount Paid to Drill and Complete It.................................2 Risk of Nonproductive Wells in Development Drilling.............................................................2 Risks of Reduced Partnership Distributions Because of Decrease in the Price of Gas..............................2 Risks Regarding the Partnership's Gas Market Which Could Reduce Partnership Distributions.........................3 Risk of Reduced or Delayed Partnership Distributions If Gas Production is Curtailed.........................3 If You Choose to Invest as a General Partner for the Tax Benefits, Then You Have a Greater Risk Than a Limited Partner..................................3 Risk That the Managing General Partner Cannot Meet Its Indemnification and Repurchase Obligations Because Its Liquid Net Worth Is Not Guaranteed....................................................4 Risk That the Managing General Partner Will Not Devote the Necessary Time to the Partnership Because Its Management Obligations Are Not Exclusive........................................4 Risks of a Long-Term Investment Because the Units Are Illiquid and Not Readily Transferable.........................................................4 The Number of Partnership Wells Drilled Depends Upon the Amount of Subscription Proceeds.............................................................4 Risk Regarding Lack of Information Regarding a Portion of the Wells...............................................5 There is a Risk That the Data Regarding Currently Proposed Wells is Incomplete or Incorrect............................5 Managing General Partner's Subordination is not a Guarantee of the Return of Any of Your Investment...................................................5 Risk That Borrowings by the Managing General Partner Could Reduce Funds Available for Its Subordination Obligation...........................5 Compensation and Fees to the Managing General Partner Regardless of Success of the Partnership's Activities.............................................5 Risk of Circumstances Causing Distributions to Investors to be Reduced or Delayed................................5 Risks Arising From Conflicts of Interest Between Managing General Partner and the Investors...........................5 Risks That Presentment Obligation May Not Be Funded and Repurchase Price May Not Reflect Full Value...................................................5 Risk Regarding Participation with Third Parties in Drilling Wells....................................................6 Risk of Prepaying Subscription Proceeds to Managing General Partner.............................................6 Year 2000 Risks Could Adversely Affect Partnership Operations, Revenues, and Expenses.........................................................6 Tax Risks..................................................................6 You May Owe Taxes in Excess of Your Cash Distributions from the Partnership...................................6 Your Deduction for Intangible Drilling Costs May Be Limited for Purposes of the Alternative Minimum Tax..............................................6 Investment Interest Deductions of Investor General Partners May Be Limited......................................7 Lack of Tax Shelter Registration........................................7 ADDITIONAL INFORMATION.........................................................7 FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS...............................................................7 INVESTMENT OBJECTIVES..........................................................8 ACTIONS TO BE TAKEN BY MANAGING GENERAL PARTNER TO REDUCE RISKS OF ADDITIONAL PAYMENTS BY INVESTOR GENERAL PARTNERS..........................................9 CAPITALIZATION AND SOURCE OF FUNDS AND USE OF PROCEEDS...........................................................10 Source of Funds...........................................................10 Use of Proceeds...........................................................10 Subsequent Source of Funds and Borrowings.................................11 COMPENSATION..................................................................12 Oil and Gas Revenues......................................................12 Lease Costs...............................................................12 Drilling Contracts........................................................13 Per Well Charges..........................................................13 Gathering Fees............................................................14 Dealer-Manager Fees.......................................................14 Other Compensation........................................................15 Estimate of Administrative Costs and Direct Costs to be Borne by the Partnership.........................................15 TERMS OF THE OFFERING.........................................................15 Subscription to the Partnership...........................................15 Partnership Closings and Escrow...........................................16 Acceptance of Subscriptions...............................................16 Drilling Period...........................................................17 Suitability Standards.....................................................17 PRIOR ACTIVITIES..............................................................19 MANAGEMENT....................................................................26 Managing General Partner and Operator.....................................26 Recent Merger of Managing General Partner's Parent Company, Atlas Group............................................26 Organizational Diagram....................................................27 Officers, Directors and Key Personnel.....................................27 Remuneration..............................................................29 Security Ownership of Certain Beneficial Owners...........................30 Transactions with Management and Affiliates...............................30 PROPOSED ACTIVITIES...........................................................30 Intended Areas of Operations..............................................30 Acquisition of Leases.....................................................32 Interests of Parties......................................................32 Title to Properties.......................................................33 Drilling and Completion Activities; Operation of Producing Wells.....................................................33 Sale of Oil and Gas Production............................................34 Insurance.................................................................36 Use of Consultants and Subcontractors.....................................37 Information Regarding Currently Proposed Wells............................37 COMPETITION, MARKETS AND REGULATION...........................................67 Competition and Markets...................................................67 Crude Oil Regulation......................................................68 Federal Gas Regulation....................................................68 State Regulations.........................................................68 Environmental Regulation..................................................69 Proposed Regulation.......................................................69 PARTICIPATION IN COSTS AND REVENUES...........................................70 In General................................................................70 Costs.....................................................................70 Revenues..................................................................70 Subordination of Portion of Managing General Partner's Net Revenue Share............................................71 Table of Participation in Costs and Revenues..............................71 Allocation and Adjustment Among Investors.................................72 Distributions.............................................................72 Liquidation...............................................................72 ii TABLE OF CONTENTS Page CONFLICTS OF INTEREST.........................................................73 In General................................................................73 Conflicts Regarding Transactions with the Managing General Partner and its Affiliates.....................................73 Conflict Regarding the Drilling and Operating Agreement..............................................................73 Conflicts Regarding Sharing of Costs and Revenues.........................74 Conflicts Regarding Tax Matters Partner...................................74 Conflicts Regarding Other Activities of the Managing General Partner, the Operator and Their Affiliates.......................................................74 Conflicts Involving the Acquisition of Leases.............................75 Conflicts Between Investors and the Managing General Partner as an Investor.........................................77 Lack of Independent Underwriter and Due Diligence Investigation................................................77 Conflicts Concerning Legal Counsel........................................77 Conflicts Regarding Presentment Feature...................................77 Conflicts Regarding Managing General Partner Withdrawing an Interest................................................77 Conflicts Regarding Order of Pipeline Construction........................77 Procedures to Reduce Conflicts of Interest................................77 Policy Regarding Roll-Ups.................................................78 Certain Transactions......................................................80 FIDUCIARY RESPONSIBILITY OF THE MANAGING GENERAL PARTNER......................................................80 In General................................................................80 Limitations on Managing General Partner Liability as Fiduciary...........................................................81 TAX ASPECTS...................................................................81 Summary of Tax Opinion....................................................81 Partnership Classification................................................83 Limitations on Passive Activities.........................................83 Taxable Year..............................................................84 1999 Expenditures.........................................................84 Availability of Certain Deductions........................................84 Intangible Drilling Costs.................................................84 Drilling Contracts........................................................85 Depletion Allowance.......................................................86 Depreciation - Modified Accelerated Cost Recovery System ("MACRS")..............................................86 Leasehold Costs and Abandonment...........................................86 Tax Basis of Investors' Interests.........................................86 "At Risk" Limitation for Losses...........................................87 Distributions from a Partnership..........................................87 Sale of the Properties....................................................87 Disposition of Partnership Interests......................................87 Minimum Tax - Tax Preferences.............................................88 Limitations on Deduction of Investment Interest...........................88 Allocations...............................................................88 Partnership Borrowings....................................................89 Partnership Organization and Syndication Fees.............................89 Tax Elections.............................................................89 Disallowance of Deductions under Section 183 of the Internal Revenue Code...........................................89 Termination of a Partnership..............................................89 Lack of Registration as a Tax Shelter.....................................89 Tax Returns and Audits....................................................90 Penalties and Interest....................................................90 State and Local Taxes.....................................................91 Severance and Ad Valorem (Real Estate) Taxes..............................91 Social Security Benefits and Self-Employment Tax..........................91 Foreign Partners..........................................................91 Estate and Gift Taxation..................................................91 SUMMARY OF PARTNERSHIP AGREEMENT..............................................91 Liability of Limited Partners.............................................92 Amendments................................................................92 Notice....................................................................92 Voting Rights.............................................................92 Access to Records.........................................................93 Withdrawal of Managing General Partner....................................93 SUMMARY OF DRILLING AND OPERATING AGREEMENT.....................................................................93 REPORTS TO INVESTORS..........................................................94 PRESENTMENT FEATURE...........................................................95 TRANSFERABILITY OF UNITS......................................................97 Restrictions on Transfer Imposed by the Securities and Tax Law ...........................................................97 Transfer Provisions.......................................................97 PLAN OF DISTRIBUTION..........................................................98 Commissions...............................................................98 Indemnification...........................................................98 SALES MATERIAL................................................................99 LEGAL OPINIONS................................................................99 EXPERTS.......................................................................99 LITIGATION...................................................................100 FINANCIAL INFORMATION CONCERNING THE MANAGING GENERAL PARTNER AND THE PARTNERSHIP..........................................................100
Exhibits Exhibit (A) Amended and Restated Certificate and Agreement of Limited Partnership Exhibit (I-A) Managing General Partner Signature Page Exhibit (I-B) Subscription Agreement Exhibit (II) Drilling and Operating Agreement Exhibit (B) Special Suitability Requirements and Disclosures to Investors SUMMARY OF THE OFFERING ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. The partnership is a Pennsylvania limited partnership. Atlas Resources, Inc., 311 Rouser Road, Moon Township, Pennsylvania 15108, (412) 262-2830, will manage the partnership as managing general partner and supervise the drilling, completion and operation of the wells to be drilled as operator. The partnership will drill development wells, primarily in the Mercer County area of Pennsylvania, which will test the Clinton/Medina geological formation. However, up to 20% of the subscription proceeds may be used to drill development wells in other areas of the United States, primarily in the Appalachian Basin. A development well means a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. The managing general partner anticipates that all the wells will be classified as gas wells which may produce a small amount of oil. DESCRIPTION OF UNITS You may purchase either: - investor general partner units; or - limited partner units. Regardless of which type of unit you buy, costs, revenues and cash distributions will be allocated between you and the other investors pro rata based upon the amount of your subscription. There are, however, material differences in the federal income tax effects and liability associated with each type of unit. INVESTOR GENERAL PARTNER UNITS. - TAX EFFECT. If you invest as an investor general partner, then your share of the partnership's 1999 deduction for intangible drilling costs will not be subject to the passive activity limitations. This means that generally you may deduct approximately 85% of your subscription, $8,500 per unit, in 1999. Intangible drilling costs generally means those costs of drilling and completing a well that are currently deductible, as compared to lease costs which must be recovered through the depletion allowance and costs for equipment in the well which must be recovered through depreciation deductions. - LIABILITY. If you invest as an investor general partner, then you will have unlimited liability regarding partnership activities. This means if: - the insurance proceeds, - the managing general partner's indemnification, and - partnership assets were not sufficient to satisfy a partnership liability for which you and the other investor general partners were also liable, then the managing general partner would call upon you and the other investor general partners to make additional capital contributions to the partnership from your personal assets to satisfy the liability. You and the other investor general partners do not have an option to refuse to make this additional capital contribution. In addition, you and the other investor general partners have joint and several liability which means generally that a person with a claim against the partnership may sue all or any one or more of the partnership's general partners, including you, for the entire amount of the liability. 1 LIMITED PARTNER UNITS. - TAX EFFECT. If you invest as a limited partner, then your use of the partnership's deduction for intangible drilling costs generally will be limited to net passive income from "passive" trade or business activities. This generally includes the partnership and other limited partner investments. This means that you will not be able to deduct your share of the partnership's intangible drilling costs in 1999 unless you have passive income from investments other than the partnership. - LIABILITY. If you invest as a limited partner, then you will have limited liability and generally will not be liable for amounts beyond your initial investment and your share of undistributed net profits. THE FOREGOING SUMMARY IS NOT COMPLETE. YOU AND YOUR ADVISERS SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS AND ALL ATTACHED EXHIBITS BEFORE MAKING AN INVESTMENT IN THE PARTNERSHIP. RISK FACTORS An investment in the partnership involves a high degree of risk and is suitable only if you have substantial financial means and no need of liquidity in your investment. SPECIAL RISKS OF THE PARTNERSHIP NO GUARANTEE OF RETURN OF INVESTMENT OR RATE OF RETURN ON INVESTMENT BECAUSE OF SPECULATIVE NATURE OF DRILLING GAS WELLS. Gas exploration is an inherently speculative activity. Before the drilling of a well the managing general partner cannot predict with any certainty the amount of gas recoverable from the well or the time it will take to recover the gas. There is a risk that you will not recover all of your investment or if you do recover your investment that you will not receive a rate of return on your investment which is competitive with other types of investment. You will be able to recover your investment only through the partnership's distributions of the sales proceeds from the production of its gas reserves from productive wells. Gas reserves generally deplete over time until the wells are no longer economical to operate. All of these distributions to you may be considered a return of capital until you have received 100% of your investment. RISK THAT A WELL DOES NOT RETURN THE AMOUNT PAID TO DRILL AND COMPLETE IT. There is a risk that even if a well is completed by the partnership and produces gas in commercial quantities it will not produce enough gas to pay for the costs of drilling and completing the well, even if tax benefits are considered. The managing general partner has formed 32 partnerships since 1985, 27 of which were formed in 1990 or subsequent years. All the partnerships are continuing to make cash distributions, however, 29 of the 32 partnerships have not yet returned to the investor 100% of his capital contributions without taking tax savings into account. RISK OF NONPRODUCTIVE WELLS IN DEVELOPMENT DRILLING. Although drilling development wells reduces the risk of drilling nonproductive wells, there is a risk that the partnership will drill some wells which are nonproductive and must be plugged and abandoned. If one or more of the partnership's wells are nonproductive, then the partnership's productive wells may not produce enough revenues to offset the loss of investment in the nonproductive wells. RISK OF REDUCED PARTNERSHIP DISTRIBUTIONS BECAUSE OF DECREASE IN THE PRICE OF GAS. There is no assurance of the price at which the partnership's gas will be sold. If gas prices decrease, then your share of partnership revenues will decrease accordingly. The price will depend on supply and demand factors largely beyond the control of the partnership. During most of the 1980's and 1990's gas prices have been volatile and there is a risk that gas prices could decrease in the future. There is a further risk that the price of gas may decrease during the first years of production when the wells achieve their greatest level of production. This would have the greatest adverse affect on partnership distributions to you. 2 RISKS REGARDING THE PARTNERSHIP'S GAS MARKET WHICH COULD REDUCE PARTNERSHIP DISTRIBUTIONS. Difficulties in marketing the partnership's gas could result in reduced distributions from the partnership to you and the other investors. The managing general partner estimates that approximately 10% to 15% of the partnership's gas production in the Mercer County area, which is the primary area of interest, will be sold directly to an industrial end-user situated in the area where the wells will be drilled. Selling gas to industrial end-users can create risks that the partnership may not be paid or may experience delays in receiving payment for natural gas that has already been delivered. For example, after Sharon Steel Corporation filed Chapter 11 bankruptcy in 1987, it continued to purchase most of the managing general partner's and its affiliates' natural gas production in the Mercer County area until it filed a second Chapter 11 bankruptcy in 1992 owing monies to the managing general partner and the partnerships. The remainder of the partnership's gas from the Mercer County area, with certain exceptions, will be sold under a 10-year agreement. This agreement provides that the gas price may be adjusted upward or downward in accordance with the spot market price and market conditions, and for the negotiation of the gas price annually after either the first or second year depending upon the delivery point. Thus, there is no assurance of a specific gas price for the term of the agreement, and there is a risk that the price for the partnership's gas will be decreased under the agreement because of market conditions. Also, in the past low gas prices or other difficulties in marketing gas have resulted in some purchasers renegotiating existing agreements to reduce the contract price for gas. Finally, the revenues received by the partnership will be less the farther the gas is transported because of the increased transportation costs. RISK OF REDUCED OR DELAYED PARTNERSHIP DISTRIBUTIONS IF GAS PRODUCTION IS CURTAILED. During the term of the partnership there is a risk that production from the wells may be curtailed either because of limited demand or the managing general partner awaits a better price. This would reduce or delay distributions from the partnership to you and the other investors. For example, there are seasonal marketing demands and gas prices are usually higher in the winter months because of residential heating requirements than the summer months. IF YOU CHOOSE TO INVEST AS A GENERAL PARTNER FOR THE TAX BENEFITS, THEN YOU HAVE GREATER RISK THAN A LIMITED PARTNER. If you invest as an investor general partner for the tax benefits instead of as a limited partner, then under Pennsylvania law you will have unlimited liability for the partnership's activities. This could result in you being required to make payments in addition to your original investment in amounts that are impossible to predict because of their uncertain nature. Under the terms of the partnership agreement, if you are an investor general partner you agree to pay only your proportionate share of the partnership's obligations and liabilities. This agreement, however, does not eliminate your liability to third parties if another investor general partner does not pay his proportionate share of the partnership's obligations and liabilities. Also, the partnership may own less than 100% of the interest in some of the wells. If a court holds you and the other third party owners of the well to be liable for the development and operation of a well and the third party well owner does not pay its proportionate share of the costs and liabilities associated with the well, then the partnership and you and the other investor general partners would be liable to third parties for those costs and liabilities. The partnership will have the benefit of general and excess liability insurance of $50,000,000 during drilling operations and $11,000,000 thereafter, per occurrence and in the aggregate. Nevertheless, as an investor general partner you may become subject to the following: - contract liability which is not covered by insurance; - liability for drilling hazards such as well blowouts, fires and explosions resulting in property damage or injury or death to third parties in excess of the amounts insured under the policies; and 3 - liability for pollution, abuses of the environment and other damages against which the managing general partner cannot insure because coverage is not available or against which it may elect not to insure because of high premium costs or other reasons. If the insurance proceeds, partnership assets, and the managing general partner's indemnification of you and the other investors general partners were not sufficient to satisfy the liability, then your personal assets could be required to be used to satisfy the liability. If this occurs, then you will not have an option to refuse to contribute the additional funds called for by the managing general partner to pay partnership liabilities. RISK THAT THE MANAGING GENERAL PARTNER CANNOT MEET ITS INDEMNIFICATION AND REPURCHASE OBLIGATIONS BECAUSE ITS LIQUID NET WORTH IS NOT GUARANTEED. The managing general partner has made commitments to you and the other investors regarding the following: - indemnification of the investor general partners for liabilities in excess of their pro rata share of partnership assets; and - repurchasing the units. A significant financial reversal for the managing general partner could adversely affect its ability to honor these obligations. This would reduce the value of the units. The net worth of the managing general partner is based primarily on the estimated value of its producing gas properties and is not available in cash without borrowings or a sale of the properties. Also, if gas prices decrease the estimated value of the properties and the net worth of the managing general partner will be reduced. There is no assurance that the managing general partner will have the necessary net worth, either currently or in the future, to meet its financial commitments under the partnership agreement. These risks are increased because the managing general partner has made and will make similar financial commitments in other partnerships. RISK THAT THE MANAGING GENERAL PARTNER WILL NOT DEVOTE THE NECESSARY TIME TO THE PARTNERSHIP BECAUSE ITS MANAGEMENT OBLIGATIONS ARE NOT EXCLUSIVE. The managing general partner must devote the amount of time to the partnership's affairs that it determines is reasonably necessary. However, the managing general partner and its affiliates will be engaged in other oil and gas activities and other unrelated business ventures for their own account or for the account of others during the term of the partnership, including other partnerships. Thus, there is a risk that the managing general partner will not devote the necessary time to the partnership. RISKS OF A LONG-TERM INVESTMENT BECAUSE THE UNITS ARE ILLIQUID AND NOT READILY TRANSFERABLE. If you invest in the partnership, then you must assume the risks of an illiquid investment. The transferability of the units is limited by the partnership agreement and the state and federal securities laws. The units cannot be readily liquidated, and there is no market for the sale of the units. Also, a sale of your units could create adverse tax and economic consequences for you. THE NUMBER OF PARTNERSHIP WELLS DRILLED DEPENDS UPON THE AMOUNT OF SUBSCRIPTION PROCEEDS. If all of the units offered are not sold, then fewer wells will be drilled which decreases the partnership's ability to spread the risks of drilling. The managing general partner anticipates that approximately 4.96 wells will be drilled if the minimum required subscriptions of $1,000,000 are received, and approximately 89.35 wells will be drilled if subscriptions for $18,000,000 are received. On the other hand, to the extent more than the minimum subscriptions are received and the number of wells drilled increases, the partnership's overall investment return may decrease if the managing general partner is unable to find enough suitable wells to be drilled. Also, in a large partnership greater demands will be placed on the management capabilities of the managing general partner. 4 RISK REGARDING LACK OF INFORMATION REGARDING A PORTION OF THE WELLS. The wells currently proposed to be drilled represent approximately 66% of the wells that will be drilled if all the units are sold. Also, the managing general partner has reserved the right to substitute wells and to drill in other areas. Thus, not all of the wells may be specified and you do not have any geological, economic, or other information to evaluate any additional and/or substituted wells. Instead, you must rely entirely on the managing general partner to select those wells. Also, the partnership does not have the right of first refusal in the selection of well locations from the inventory of the managing general partner and its affiliates, and they may sell their well locations to other partnerships, companies, joint ventures or other persons at any time. THERE IS A RISK THAT THE DATA REGARDING CURRENTLY PROPOSED WELLS IS INCOMPLETE OR INCORRECT. The information in this prospectus regarding the wells currently proposed to be drilled has been prepared by the managing general partner from sources which it believes are reliable. However, there is a risk that the data does not reflect all the wells drilled in the area, or the amount of gas production is not always accurate. Also, the production information for some of the wells is incomplete because the information is unavailable to the managing general partner or the wells have been producing for only a short period of time or are not yet completed or on-line. MANAGING GENERAL PARTNER'S SUBORDINATION IS NOT A GUARANTEE OF THE RETURN OF ANY OF YOUR INVESTMENT. If your cash distributions are less than a 10% return for each of the first five 12-month periods of partnership operations, then the managing general partner has agreed to subordinate a portion of its share of the partnership's net production revenues. However, if the wells produce only a small gas volume, and/or gas prices decrease, then even with subordination your cash flow may be very small and you may not receive a return of your entire investment. RISK THAT BORROWINGS BY THE MANAGING GENERAL PARTNER COULD REDUCE FUNDS AVAILABLE FOR ITS SUBORDINATION OBLIGATION. The managing general partner anticipates that it will pledge either its partnership interest and/or an undivided interest in the assets of the partnership to secure borrowings for its own corporate purposes. If there was a default to the lender under this pledge arrangement, then this would reduce the amount of the partnership's net production revenues available to the managing general partner for its subordination obligation to you and the other investors. COMPENSATION AND FEES TO THE MANAGING GENERAL PARTNER REGARDLESS OF SUCCESS OF THE PARTNERSHIP'S ACTIVITIES. The managing general partner and its affiliates can be expected to profit from the partnership even if partnership activities result in little or no profit, or a loss to you. RISK OF CIRCUMSTANCES CAUSING DISTRIBUTIONS TO INVESTORS TO BE REDUCED OR DELAYED. There is a risk that you will not receive cash distributions every quarter. Although the managing general partner intends to distribute the cash quarterly, distributions may be deferred to the extent partnership revenues are used for the following: - costs related to completing some of the wells in a third zone; - remedial work to improve a well's producing capability; - reserves, including a reserve for the estimated costs of eventually plugging and abandoning the wells; or - indemnification of the managing general partner and its affiliates by the partnership for losses or liabilities incurred in connection with the partnership's activities. RISKS ARISING FROM CONFLICTS OF INTEREST BETWEEN MANAGING GENERAL PARTNER AND THE INVESTORS. There are conflicts of interest between you and the managing general partner and its affiliates. Other than certain guidelines set forth in "Conflicts of Interest," the managing general partner has no established procedures to resolve a conflict of interest. RISKS THAT PRESENTMENT OBLIGATION MAY NOT BE FUNDED AND REPURCHASE PRICE MAY NOT REFLECT FULL VALUE. Subject to certain conditions, beginning in 2004 you may present your units to the managing general partner for purchase. There is a risk that the managing general partner will determine, in its sole discretion, that it does not have the necessary cash flow or 5 cannot arrange financing for these purposes on reasonable terms. In either event the managing general partner is able to suspend the presentment feature. This risk is further increased because the managing general partner has and will incur similar presentment obligations in connection with other partnerships. There is a risk that the presentment price may not reflect the full value of the partnership's property or your units because of the difficulty in accurately estimating oil and gas reserves. The estimates are merely appraisals of value and may not correspond to realizable value. Also, there can be no assurance that the presentment price paid for your units and any revenues received by you before the presentment will be equal to the purchase price of the units. You might realize a greater return if you retain the units, which you may elect, rather than selling the units to the managing general partner. RISK REGARDING PARTICIPATION WITH THIRD PARTIES IN DRILLING WELLS. It is anticipated that the partnership will own all of the interest in its wells subject to royalties and any other burdens on the leases. However, the partnership has reserved the right to own as little as 25% of the interest and it is possible that third parties will participate with the partnership in drilling some of the wells. Additional financial risks exist when the cost of drilling, equipping, completing and operating wells is shared by more than one person. If the partnership pays its share of the costs but another interest owner does not, then the partnership would have to pay the costs of the defaulting party. RISK OF PREPAYING SUBSCRIPTION PROCEEDS TO MANAGING GENERAL PARTNER. Under the drilling and operating agreement the partnership will be required to immediately pay the managing general partner the investors' share of the entire contract price for drilling and completing the partnership's wells. Thus, these funds could be subject to claims of the managing general partner's creditors. YEAR 2000 RISKS COULD ADVERSELY AFFECT PARTNERSHIP OPERATIONS, REVENUES, AND EXPENSES. The "year 2000 issue" is the result of computer programs which cannot distinguish between the year 2000 and the year 1900. This could result in miscalculations or an inability to process transactions, send invoices, or engage in similar normal business activities. Actions are being taken by the managing general partner to respond to year 2000 remediation requirements. There can be no assurance that those actions will be successful or adequate or that any year 2000 problems that exist will be discovered or remedied in sufficient time. The managing general partner and the partnership are also vulnerable to potential losses of revenue, goods or services caused by failures of suppliers and customers or other persons to remedy their year 2000 problems. TAX RISKS YOU MAY OWE TAXES IN EXCESS OF YOUR CASH DISTRIBUTIONS FROM THE PARTNERSHIP. There is a risk that you may become subject to income tax liability in excess of cash actually received from the partnership. For example: - if the partnership borrows money your share of partnership revenues used to pay principal on the loan will be included in your taxable income from the partnership and will not be deductible; - taxable income or gain may be allocated to you if there is a deficit in your capital account even though you do not receive a corresponding distribution of partnership revenues; - partnership revenues may be retained by the managing general partner for partnership costs or to establish a reserve for future estimated costs, including a reserve for the estimated costs of eventually plugging and abandoning the wells; and - the taxable disposition of partnership property or your units may result in income tax liability in excess of cash distributions. YOUR DEDUCTION FOR INTANGIBLE DRILLING COSTS MAY BE LIMITED FOR PURPOSES OF THE ALTERNATIVE MINIMUM TAX. You will be allocated a share of the partnership's deduction for intangible drilling costs. However, alternative minimum taxable income of most investors cannot be reduced by more than 40% by the deduction for intangible drilling costs. 6 INVESTMENT INTEREST DEDUCTIONS OF INVESTOR GENERAL PARTNERS MAY BE LIMITED. An investor general partner's share of the partnership's deduction for intangible drilling costs will reduce his investment income and may adversely affect the deductibility of his investment interest expense, if any. LACK OF TAX SHELTER REGISTRATION. The managing general partner believes that the partnership is not be a tax shelter required to register with the IRS. If it is subsequently determined by the IRS or the courts that the partnership was required to be registered with the IRS as a tax shelter, you would be liable for a $250 penalty for failure to include a tax registration number of the partnership on your tax return, unless this failure was due to reasonable cause. ADDITIONAL INFORMATION The partnership currently is not required to file reports with the SEC. However, a registration statement on Form SB-2 has been filed on behalf of the partnership with the SEC. Certain portions of the registration statement have been deleted from this prospectus under SEC rules and regulations. Also, statements in this prospectus concerning the contents of any document are incomplete. You are urged to refer to the registration statement and exhibits for further information including the provisions of any document referred to in the prospectus. You may read and copy any materials filed as a part of the registration statement, including the tax opinion as set forth on Exhibit 8, at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Also, you may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, a copy of the tax opinion may be obtained by you or your advisors from the managing general partner at no cost. The delivery of this prospectus does not imply that its information is correct as of any time after its date. FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS Statements, other than statements of historical facts, included in this prospectus and its exhibits address activities, events or developments that the managing general partner and the partnership anticipate will or may occur in the future. These forward-looking statements include such things as: - investment objectives, - business strategy, - estimated future capital expenditures, - competitive strengths and goals, - references to future success, and - other similar matters. These statements are based on certain assumptions and analyses made by the partnership and the managing general partner in light of their experience and their perception of historical trends, current conditions and expected future developments. However, whether actual results will conform with these expectations is subject to a number of risks and uncertainties, many of which are beyond the control of the partnership, including: 7 - general economic, market or business conditions, - changes in laws or regulations, - the risk that the wells are productive but do not produce enough revenue to return the investment made, - dry holes, - uncertainties concerning the price of gas, and - other risks. Thus, all of the forward-looking statements made in this prospectus and its exhibits are qualified by these cautionary statements. There can be no assurance that actual results will conform with the managing general partner's and the partnership's expectations. INVESTMENT OBJECTIVES The partnership's principal investment objectives are to invest the subscription proceeds in natural gas development wells which will: - Provide quarterly cash distributions to you until the wells are depleted, historically 20+ years, with a preferred annual cash flow of 10% during the first five years based on your original subscription amount. - Obtain tax deductions in 1999 from intangible drilling costs and depreciation of equipment costs to offset a portion of your taxable income, subject to the passive activity rules if you invest as a limited partner. One unit will produce a 1999 tax deduction of $8,500, 85%, against ordinary income if you invest as an investor general partner and against passive income if you invest as a limited partner. If you are in either the 39.6% or 36% tax bracket, then one unit will save you $3,366 or $3,000 respectively in federal taxes this year. Most states also allow this type of a deduction against the state income tax. - Offset a portion of any taxable income generated by the partnership with tax deductions from percentage depletion, which is 24% in 1999 and is estimated to be 26% on net revenue. The managing general partner estimates that this feature should reduce your effective tax rate from 39.6% to 29.3%, which is 74% of 39.6%, on partnership net revenues. - Obtain tax deductions of the remaining 15% of the initial investment from 2000 through 2007. You will receive an additional $1,500 tax deduction per unit generated through the remaining depreciation over a seven-year cost recovery period of the partnership's equipment costs for the wells. ATTAINMENT OF THE PARTNERSHIP'S INVESTMENT OBJECTIVES WILL DEPEND ON MANY FACTORS, INCLUDING THE ABILITY OF THE MANAGING GENERAL PARTNER TO SELECT SUITABLE WELLS WHICH WILL BE PRODUCTIVE AND PRODUCE ENOUGH REVENUE TO RETURN THE INVESTMENT MADE. THE SUCCESS OF THE PARTNERSHIP DEPENDS LARGELY ON FUTURE ECONOMIC CONDITIONS, ESPECIALLY THE FUTURE PRICE OF NATURAL GAS WHICH IS VOLATILE AND MAY DECREASE. THERE CAN BE NO GUARANTEE THAT THE FOREGOING OBJECTIVES WILL BE ATTAINED. 8 ACTIONS TO BE TAKEN BY MANAGING GENERAL PARTNER TO REDUCE RISKS OF ADDITIONAL PAYMENTS BY INVESTOR GENERAL PARTNERS You may choose to invest as an investor general partner so that you can receive an immediate tax deduction against any type of income. To help reduce the risk that you and other investor general partners could be required to make additional payments to the partnership, the managing general partner will take the following actions: - INSURANCE. Fifty million dollars of liability coverage during drilling operations plus eleven million dollars umbrella policy during and after drilling operations cease. - CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER INTERESTS. Your investor general partner units will be automatically converted to limited partner interests after substantially all of the partnership wells have been drilled and completed. Conversion is anticipated to be in late summer of 2000. After conversion you will have the lesser liability of a limited partner under Pennsylvania law for obligations and liabilities arising after the conversion. However, you will continue to have the responsibilities of a general partner for partnership liabilities and obligations incurred before the effective date of the conversion. Thus, you might become liable for partnership obligations in excess of your subscription during the time the partnership is engaged in drilling activities and for environmental claims that arose during drilling activities but were not discovered until after conversion. - NONRECOURSE DEBT. The partnership will be permitted to borrow funds only from the managing general partner or its affiliates without recourse against your non-partnership assets. Thus, if there is a default under this loan arrangement you cannot be required to contribute funds to the partnership. Any borrowings will be repaid from partnership revenues. The amount that may be borrowed at any one time may not exceed an amount equal to 5% of the investors' subscriptions. Because you do not bear the risk of repaying these borrowings with non-partnership assets, the borrowings will not increase the extent to which you are allowed to deduct your individual shares of partnership losses. To further protect you, during producing operations all third party goods and services will be acquired by the managing general partner and its affiliates, and the partnership will then acquire the goods and services from the managing general partner and its affiliates at their cost. - INDEMNIFICATION. The managing general partner will indemnify you from any liability incurred in connection with the partnership which is in excess of: - your interest in the undistributed net assets of the partnership; and - insurance proceeds, if any. The managing general partner's indemnification obligation, however, will not eliminate your potential liability if the insurance is not sufficient or available to cover a liability and the managing general partner's assets are insufficient to satisfy its indemnification obligation. There can be no assurance that the managing general partner's assets, including its liquid assets, will be sufficient to satisfy its indemnification obligation. 9 CAPITALIZATION AND SOURCE OF FUNDS AND USE OF PROCEEDS SOURCE OF FUNDS Upon completion of the offering the capital contributions to the partnership of you and the other investors will range from $1,000,000 if 100 units are sold to $18,000,000 if 1,800 units are sold. The capital contributions of the managing general partner will be not less than 22.15% of all capital contributions to the partnership and will range from $284,436 if 100 units are sold, to $5,121,742 if 1,800 units are sold. The total amount of capital contributions available to the partnership from both the managing general partner and you and the other investors will range from $1,284,436 if 100 units are sold, to $23,121,742 if 1,800 units are sold. USE OF PROCEEDS All of the subscription proceeds will be used to pay 100% of the intangible drilling costs and 56.25% of the equipment costs of drilling and completing the partnership's wells. The managing general partner will pay 43.75% of the equipment costs and all of the organization and offering costs, and contribute all of the leases to the partnership covering the acreage on which the wells will be drilled. The following tables present information concerning the partnership's use of the proceeds provided by both the investors and the managing general partner. Substantially all of the proceeds available to the partnership will be expended for the following purposes and in the following manner:
INVESTOR CAPITAL ENTITY RECEIVING 100 UNITS 1,800 UNITS PAYMENT NATURE OF PAYMENT SOLD % (1) SOLD % (1) - ------- ----------------- ---- ----- ---- ----- TOTAL INVESTOR CAPITAL $1,000,000 100% $18,000,000 100% LESS: ORGANIZATION AND OFFERING EXPENSES Broker-Dealers Dealer-manager fee, sales - 0 - - 0 - - 0 - - 0 - commissions, reimbursement of marketing expenses, and reimbursement for bona fide accountable due diligence expenses Various Organization costs - 0 - - 0 - - 0 - - 0 - AMOUNT AVAILABLE FOR INVESTMENT: Managing General Partner Intangible drilling costs and $1,000,000 100% $18,000,000 100% equipment Managing General Partner Leases - 0 - - 0 - - 0 - - 0 -
- -------------------------------------------- (1) The percentage is based upon total investor subscriptions and excludes the managing general partner's capital contribution. 10 MANAGING GENERAL PARTNER CAPITAL
ENTITY RECEIVING 100 UNITS 1,800 UNITS PAYMENT NATURE OF PAYMENT SOLD % (1) SOLD % (1) - ------- ----------------- ---- ----- ---- ----- TOTAL MANAGING GENERAL PARTNER CAPITAL $284,436 100% $5,121,742 100% LESS: ORGANIZATION AND OFFERING EXPENSES Broker-Dealers Dealer-manager fee, sales $105,000 36.9% $1,890,000 36.9% commissions, reimbursement of marketing expenses, and reimbursement for bona fide accountable due diligence expenses Various Organization costs $45,000 15.8% $810,000 15.8% AMOUNT AVAILABLE FOR INVESTMENT: Managing General Partner Equipment costs $116,580 41.0% $2,100,082 41.0% Managing General Partner Leases (2) $17,856 6.3% $321,660 6.3%
- -------------------------------------- (1) The percentage is based upon the managing general partner's capital contribution and excludes the investors' subscriptions. (2) Instead of contributing cash for the leases, the managing general partner will assign the leases to the partnership. SUBSEQUENT SOURCE OF FUNDS AND BORROWINGS It is anticipated that substantially all the partnership's initial capital will be committed or expended after the offering. If the partnership requires additional funds for completing some of the wells in a third zone, or additional development or remedial work is required for a well after it begins producing, then these funds may be provided by borrowings from the managing general partner or its affiliates or retaining partnership revenues. The managing general partner, however, does not anticipate that any borrowings will be required before there are production revenues, and the managing general partner is not contractually committed to loan money to the partnership. There will be no borrowings from third parties. The amount that may be borrowed by the partnership from the managing general partner and its affiliates may not at any time exceed 5% of the investors' subscriptions and must be without recourse to you and the other investors. The partnership's repayment of any borrowings would be from partnership production revenues and would reduce or delay your cash distributions. If the managing general partner loans money to the partnership then: - the interest charged to the partnership must not exceed the managing general partner's interest cost or the interest that would be charged to the partnership without reference to the managing general partner's financial abilities or guarantees by unrelated lenders, on comparable loans for the same purpose, and - the managing general partner may not receive points or other financing charges or fees although the actual amount of the charges incurred from third-party lenders may be reimbursed to the managing general partner. Currently, the managing general partner participates in a $45 million revolving credit facility at PNC Bank. The revolving credit facility has a term ending in November 2002. The revolving credit facility contains certain financial covenants of the managing general partner, including maintaining a current ratio of .85 to 1, a ratio of fixed charges to earnings of 1.5 to 1, increasing to 2.5 to 1 over the next several years, and a leverage ratio, essentially a ratio of debt to equity, of not less than 3.25 to 1, reducing to 3.00 to 1 in March 2000. The credit facility also imposes the following limits: 11 - the managing general partner's exploration expense can be no more than 20% of capital expenditures plus exploration expense, without PNC Bank's consent; - sales, leases or transfers of property by the managing general partner are limited to $1 million without PNC Bank's consent; and - the managing general partner cannot incur debt in excess of $2 million to lenders other than PNC Bank without PNC Bank's consent. As of August 31, 1999, there was $27 million outstanding under the revolving credit facility. COMPENSATION The items of compensation paid to the managing general partner and its affiliates from the partnership are set forth below. OIL AND GAS REVENUES Under the partnership agreement the managing general partner will be allocated 29% of the oil and gas revenues of the partnership in return for paying organization and offering costs equal to 15% of the investors' subscriptions, 43.75% of equipment costs, and contributing all leases to the partnership. LEASE COSTS Under the partnership agreement the managing general partner will contribute to the partnership all the undeveloped leases necessary to drill the partnership's wells. The managing general partner will receive a credit to its capital account equal to the cost of the leases, or fair market value if the managing general partner has reason to believe that cost is materially more than fair market value. The cost of the leases will include a portion of the managing general partner's reasonable, necessary and actual expenses for: - geological, geophysical and engineering expenses, - interest expense, - legal expense, and - expenses for other like services allocated to the partnership's leases determined using industry guidelines. In the Mercer County area, which is the partnership's primary area of interest, the managing general partner's lease cost is approximately $3,600 per well location. Assuming all the leases are situated in the Mercer County area and the partnership acquires 100% of the interest, the managing general partner estimates that its credit for lease costs will be: - $17,856 if the minimum subscriptions of $1,000,000 are received, which is 4.96 wells at $3,600 per well; and - $321,660 if the maximum subscriptions of $18,000,000 are received, which is 89.35 wells at $3,600 per well. 12 The development of wells on the acreage may provide the managing general partner with offset drill sites by allowing it to determine at the partnership's expense the value of adjacent acreage in which the partnership would not have any interest. DRILLING CONTRACTS The partnership will enter into the drilling and operating agreement with the managing general partner to drill and complete the partnership wells at a competitive industry rate. In the Appalachian Basin the partnership will pay for each well completed and placed into production an amount equal to the depth of the well in feet at its deepest penetration multiplied by $37.81 per foot or, for each well which the partnership elects not to complete, an amount equal to $20.60 per foot multiplied by the depth of the well. To the extent that the partnership acquires less than a 100% interest in a well, its drilling and completion costs of that well will be proportionately decreased. If the foregoing rates exceed competitive rates available from other non-affiliated persons in the area engaged in the business of rendering or providing comparable services or equipment, then the rates will be adjusted to the competitive rate. The managing general partner expects to subcontract some of the actual drilling and completion of the partnership's wells to third parties selected by it. However, the managing general partner may not benefit by interpositioning itself between the partnership and the actual provider of drilling contractor services. The footage price includes all ordinary costs of drilling, testing and completing the well. This includes the cost of a second completion and frac which means, in general, treating a second potentially productive geological formation in an attempt to enhance the gas production from the well. It also includes installing gathering lines and other necessary facilities for the production of natural gas. Although the following costs are possible, it is not anticipated that these costs will be incurred, and the footage price will not include the cost of a pumping unit for an oil well or the cost of a third completion and frac. Each additional frac is anticipated to be approximately $8,000. These extra costs will be paid from subscription proceeds or partnership revenues and charged at invoice cost plus 10% if provided by third parties and at competitive rates in the area if provided by the managing general partner or its affiliates. The amount of compensation which the managing general partner could earn as a result of these arrangements depends on many factors, including the actual cost of the wells and the number of wells drilled. The managing general partner anticipates that in the Mercer County area of the Appalachian Basin it will have reimbursement of general and administrative overhead of $3,600 per well and a profit of approximately 15% ($33,206) per well for a well drilled to a depth of 5,950 feet. Assuming all the wells are situated in the Mercer County area, drilled and completed to a depth of 5,950 feet, and the partnership acquires 100% of the interest in the wells, it is estimated that the managing general partner's general and administrative overhead reimbursement and profit will be: - $182,558 if $1,000,000 is received, which is 4.96 wells at $36,806 profit and overhead per well; and - $3,288,616 if $18,000,000 is received, which is 89.35 wells at $36,806 profit and overhead per well. PER WELL CHARGES Under the drilling and operating agreement when the wells begin producing the managing general partner, as operator of the wells, will be reimbursed at actual cost for all direct expenses incurred on behalf of the partnership and will receive well supervision fees for operating and maintaining the wells during producing operations at a competitive rate. In the Appalachian Basin the competitive rate is currently $275 per well per month. The well supervision fees will be proportionately reduced to the extent the partnership acquires less than 100% of the interest in the well. The fee may be adjusted for inflation annually beginning January 1, 2001. If the foregoing rates exceed competitive rates available from other non-affiliated persons in the area engaged in the business of providing comparable services or equipment, then the rates will be adjusted to the competitive rate. The managing general partner may not benefit by interpositioning itself between the partnership and the actual provider of operator services. In no event will any consideration received for operator services be duplicative of any consideration or reimbursement received pursuant to the partnership agreement. The well supervision fee covers all normal and regularly recurring operating expenses for the production, delivery and sale of gas, such as: 13 - well tending, routine maintenance and adjustment; - reading meters, recording production, pumping, maintaining appropriate books and records; - preparing reports to the partnership and to government agencies; and - collecting and disbursing revenues. The well supervision fees do not include costs and expenses related to: - the production and sale of oil; - purchase of equipment, materials or third party services; - brine disposal; and - rebuilding of access roads. These costs will be charged at the invoice cost of the materials purchased, or the third party services performed. Assuming all the wells are drilled and completed in the Appalachian Basin and the partnership acquires 100% of the interest in the wells, it is estimated that the managing general partner will receive well supervision fees for the partnership's first 12 months of operation of: - $16,368 if the minimum subscriptions of $1,000,000 are received, which is 4.96 wells at $275 per well per month; and - $294,855 if the maximum subscription of $18,000,000 are received, which is 89.35 wells at $275 per well per month. GATHERING FEES The managing general partner and its affiliates, which may include a limited partnership sponsored by an affiliate of Atlas America, will gather and deliver natural gas produced by the partnership to either industrial end-users in the area or interstate pipeline systems and local distribution companies. The partnership will pay a gathering charge at a competitive rate, which is currently 29 cents per MCF. MCF means one thousand cubic feet of natural gas. The actual amount to be paid cannot be quantified because the amount of gas that will be produced from the wells cannot be predicted. DEALER-MANAGER FEES The dealer-manager will receive on each unit sold to an investor a 2.5% dealer-manager fee, a 7% sales commission, a .5% reimbursement of marketing expenses, and a .5% reimbursement of the selling agents' bona fide accountable due diligence expenses. The dealer-manager will receive: - $105,000 if $1,000,000 is received; and - $1,890,000 if $18,000,000 is received. All or a portion of the sales commissions, reimbursement of marketing expenses, and reimbursement of the selling agents' bona fide accountable due diligence expenses will be reallowed to the selling agents. The 2.5% dealer-manager fee will be reallowed to the three wholesalers who are associated with Anthem Securities for subscriptions obtained through the wholesalers' effort. 14 OTHER COMPENSATION The managing general partner or an affiliate will be reimbursed by the partnership for any loan it or an affiliate may make to or on behalf of the partnership and will have the right to charge a competitive rate of interest on any loan. If the managing general partner provides equipment, supplies and other services to the partnership, then it may do so at competitive industry rates. ESTIMATE OF ADMINISTRATIVE COSTS AND DIRECT COSTS TO BE BORNE BY THE PARTNERSHIP The managing general partner and its affiliates will receive an unaccountable, fixed payment reimbursement for their administrative costs which has been determined by the managing general partner to be $75 per well per month. This fee will be proportionately reduced to the extent the partnership acquires less than 100% of the interest in the well, and will not be received for plugged and abandoned wells. The managing general partner estimates that the unaccountable, fixed payment reimbursement for administrative costs allocable to the partnership's first 12 months of operation will not exceed approximately: - $4,464 if the minimum subscription are received, which is 4.96 wells at $75 per well per month, and - $80,415 if the maximum subscriptions are received, which is 89.35 wells at $75 per well per month. Direct costs will be billed directly to and paid by the partnership to the extent practicable. The anticipated direct costs set forth below for the partnership's first 12 months of operation may vary from the estimates shown for numerous reasons which cannot accurately be predicted. These reasons include: - the number of investors, - the number of wells drilled, - the partnership's degree of success in its activities, - the extent of any production problems, - inflation and various other factors involving the administration of the partnership.
Minimum Maximum Subscriptions Subscriptions ($1,000,000) ($18,000,000) ------------ ------------- DIRECT COSTS External Legal....................................................... $ 6,000 $ 6,000 Accounting Fees...................................................... 2,500 6,000 Independent Engineering Reports...................................... 1,500 3,000 ------- ------- TOTAL ............................................................... $10,000 $15,000 ------- ------- ------- -------
TERMS OF THE OFFERING SUBSCRIPTION TO THE PARTNERSHIP The partnership will offer a minimum of 100 units and a maximum of 1,800 units. Units in the partnership are offered at a subscription price of $10,000 per unit. Your minimum subscription is one unit. However, the managing general partner, in its discretion, may accept one-half unit ($5,000) subscriptions from you at any time. Larger subscriptions will be accepted in $1,000 increments. You must pay your subscription 100% in cash at the time of subscribing. The managing general partner will have exclusive management authority for the partnership. You will have the election to purchase units as either an investor general partner or a limited partner. 15 PARTNERSHIP CLOSINGS AND ESCROW The offering period will begin on the date of this prospectus, and will end on or before December 31, 1999, as determined by the managing general partner, in its sole discretion. The offering period will not be extended beyond December 31, 1999. Subject to the receipt of the minimum subscriptions of $1,000,000, the managing general partner may close the offering period on or before December 31, 1999. No subscriptions to the partnership will be accepted after the first to occur: - the receipt of the maximum subscriptions, or - the close of the offering by the managing general partner. If subscriptions for $1,000,000 are not received by December 31, 1999, then the sums deposited in the escrow account will be promptly returned to you and the other subscribers with interest and without deduction for any fees. Although the managing general partner and its affiliates may buy up to 10% of the units, they do not currently anticipate purchasing any units. If they do buy units those units will not be applied towards the minimum subscriptions required for the partnership to begin operations. Subscription proceeds will be held in a separate interest bearing escrow account at National City Bank of Pennsylvania until receipt of the minimum subscriptions. Upon receipt of the minimum subscriptions, the partnership will break escrow. The partnership will begin all activities, including drilling, after breaking escrow, however, it is not anticipated there will be any gas production before the offering closes. After breaking escrow the partnership funds and additional subscription payments will be paid directly to the partnership account and will continue to earn interest until the offering closes. You will receive interest on your subscription up until the date the offering closes at the market rate paid by National City Bank of Pennsylvania. The interest will be paid to you approximately eight weeks after the offering closes. Subscription proceeds will be invested during the escrow period only in institutional investments comprised of or secured by securities of the United States government. The funds in the partnership account, pending their use for partnership operations, may be temporarily invested in income producing short-term, highly liquid investments, in which there is appropriate safety of principal, such as U.S. Treasury Bills. If the managing general partner determines that the partnership may be deemed an investment company under the Investment Company Act of 1940, then the investment activity will cease. Subscriptions will not be commingled with the funds of the managing general partner or its affiliates nor will subscriptions be subject to the claims of their creditors. ACCEPTANCE OF SUBSCRIPTIONS Your execution of your subscription agreement constitutes your offer to buy units and to hold the offer open until either: - your subscription is accepted or rejected by the managing general partner or - you withdraw your offer. If you elect to withdraw your offer before it is accepted by the managing general partner, then you must provide written notice to the managing general partner. Your subscription will be accepted or rejected by the partnership within 30 days of its receipt. Acceptance of subscriptions is discretionary with the managing general partner. The managing general partner may reject any subscription for any reason it deems appropriate and will not incur any liability to you for this decision. If your subscription is rejected, then all funds will be promptly returned to you. If your subscription is accepted before breaking escrow, then you will be admitted to the partnership not later than 15 days after the release from escrow of the investors' funds to the partnership. If your subscription is accepted after breaking escrow, then you will be admitted to the partnership not later than the last day of the calendar month in which your subscription was accepted by the partnership. 16 Your execution of the subscription agreement and the managing general partner's acceptance also constitutes the execution of the partnership agreement and your agreement to be bound by its terms as a partner. This includes your grant of a special power of attorney to the managing general partner to file amended certificates of limited partnership, governmental reports and certifications, and other matters. DRILLING PERIOD Although it is anticipated that the partnership will spend the entire subscription proceeds soon after the offering closes, the partnership will have a 12-month period after the offering closes to use or commit funds to drilling activities. If, within the 12-month period, the partnership has not used, or committed for use, the net subscription proceeds, then the managing general partner will cause the remainder of the net subscription proceeds to be distributed pro rata to you and the other investors as a return of capital. The managing general partner will also reimburse you and the other investors for selling or other offering expenses allocable to the return of capital. SUITABILITY STANDARDS IN GENERAL. It is the obligation of persons selling the units to make every reasonable effort to assure that the units are suitable for you. This suitability determination will be based on your investment objectives and financial situation, regardless of your income or net worth. Subscriptions will not be accepted from IRAs, Keogh plans and qualified retirement plans because the partnership's income would be unrelated business taxable income. Additionally, the managing general partner will not accept your subscription until it has reviewed your apparent qualifications. The decision to accept or reject your subscription will be made by the managing general partner, in its sole discretion, and is final. The managing general partner will maintain during the term of the partnership and for at least six years thereafter a record of your suitability. Units will be sold to you only if you have: - a minimum net worth of $225,000; or - a minimum net worth of $60,000 and had during the last tax year or estimate that you will have during the current tax year "taxable income" as defined in Section 63 of the Internal Revenue Code of at least $60,000 without regard to an investment in the partnership. Net worth will be determined exclusive of home, home furnishings and automobiles. However, if you are a resident of the states set forth below, then additional suitability requirements are applicable to you. PURCHASERS OF LIMITED PARTNER UNITS. If you are a resident of California and you purchase limited partner units, then you must: - have a net worth of not less than $250,000, exclusive of home, furnishings, and automobiles, and expect to have gross income in the current tax year of $65,000 or more; or - have a net worth of not less than $500,000, exclusive of home, furnishings, and automobiles; or - have a net worth of not less than $1,000,000; or - expect to have gross income in the current tax year of not less than $200,000. If you are a resident of Michigan or North Carolina and you purchase limited partner units, then you must: - have a net worth of not less than $225,000, exclusive of home, furnishings, and automobiles; or 17 - have a net worth of not less than $60,000, exclusive of home, furnishings, and automobiles, and estimated current tax year taxable income as defined in Section 63 of the Internal Revenue Code of $60,000 or more without regard to an investment in the partnership. In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you must not make an investment in the partnership in excess of 10% of your net worth, exclusive of home, furnishings and automobiles. PURCHASERS OF INVESTOR GENERAL PARTNER UNITS. If you are a resident of Alabama, Maine, Massachusetts, Minnesota, North Carolina, Ohio, Pennsylvania, Tennessee or Texas and you purchase investor general partner units, then you must: - have an individual or joint net worth with your spouse of $225,000 or more, without regard to the investment in the partnership, exclusive of home, furnishings, and automobiles, and a combined gross income of $100,000 or more for the current year and for the two previous years; or - have an individual or joint net worth with your spouse in excess of $1,000,000, inclusive of home, home furnishings and automobiles; or - have an individual or joint net worth with your spouse in excess of $500,000, exclusive of home, home furnishings, and automobiles; or - have a combined "gross income" as defined in Internal Revenue Code Section 61 in excess of $200,000 in the current year and the two previous years. If you are a resident of Arizona, Indiana, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, New Hampshire, New Mexico, Oklahoma, Oregon, South Dakota, Vermont or Washington and you purchase investor general partner units, then you must: - have an individual or joint net worth with your spouse of $225,000 or more, without regard to the investment in the partnership, exclusive of home, furnishings, and automobiles, and a combined "taxable income" of $60,000 or more for the previous year and expect to have a combined "taxable income" of $60,000 or more for the current year and for the succeeding year; or - have an individual or joint net worth with your spouse in excess of $1,000,000, inclusive of home, home furnishings and automobiles; or - have an individual or joint net worth with your spouse in excess of $500,000, exclusive of home, home furnishings, and automobiles; or - have a combined "gross income" as defined in Internal Revenue Code Section 61 in excess of $200,000 in the current year and the two previous years. In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you must not make an investment in the partnership in excess of 10% of your net worth, exclusive of home, furnishings and automobiles. If you are a resident of California and you purchase investor general partner units, then you must: - have a net worth of not less than $250,000, exclusive of home, furnishings, and automobiles, and expect to have gross income in the current tax year of $120,000 or more; or - have a net worth of not less than $500,000, exclusive of home, furnishings, and automobiles; or - have a net worth of not less than $1,000,000; or - expect to have gross income in the current tax year of not less than $200,000. 18 MISCELLANEOUS. In the case of sales to fiduciary accounts, all the suitability standards set forth above must be met by the beneficiary, the fiduciary account, or by the donor or grantor who directly or indirectly supplies the funds to purchase the units if the donor or grantor is the fiduciary. Generally, you are required to execute your own subscription agreement. The managing general partner will not accept any subscription agreement that has been executed by someone other than you unless you have given someone else the legal power of attorney to sign on your behalf and you meet all of the conditions in this prospectus. The managing general partner may not complete a sale of units to you until at least five business days after the date you receive a final prospectus. In addition, the managing general partner will send you a confirmation of purchase. PRIOR ACTIVITIES The following tables, other than Table 5, reflect certain historical data with respect to 25 private drilling partnerships which raised a total of $75,690,936, and 7 public drilling partnerships which raised a total of $48,985,595, which the managing general partner has sponsored. FOR SEVERAL REASONS, INCLUDING: - - DIFFERENCES IN PARTNERSHIP TERMS, - - PROPERTY LOCATIONS, - - PARTNERSHIP SIZE, AND - - ECONOMIC CONSIDERATIONS, IT SHOULD NOT BE ASSUMED THAT YOU AND THE OTHER INVESTORS WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR DRILLING PARTNERSHIPS. THE RESULTS OF THE PRIOR DRILLING PARTNERSHIPS SHOULD BE VIEWED ONLY AS A MEASURE OF THE LEVEL OF ACTIVITY AND EXPERIENCE OF THE MANAGING GENERAL PARTNER WITH RESPECT TO DRILLING PARTNERSHIPS. 19 Table 1 sets forth certain sales information of previous development drilling partnerships sponsored by the managing general partner and its affiliates. TABLE 1 ------- EXPERIENCE IN RAISING FUNDS As of January 15, 1999
- --------------------------------------------------------------------------------------------------------------------------- Date of Com- Years mence- Date of Wells Number Investor Atlas ment of First In of Subscrip- Invest- Total Opera- Distri- Produc- Previous Partnership Investors tions ment Capital tions butions tion Assessments - ----------- --------- --------- -------- ------- -------- -------- ------- ----------- Atlas L.P. #1-1985 19 $ 600,000 $ 114,800 $ 714,800 12/31/85 07/02/86 13.05 -0- A.E. Partners 1986 24 631,250 120,400 751,650 12/31/86 04/02/87 12.05 -0- A.E. Partners 1987 17 721,000 158,269 879,269 12/31/87 04/02/88 11.05 -0- A.E. Partners 1988 21 617,050 135,450 752,500 12/31/88 04/02/89 10.05 -0- A.E. Partners 1989 21 550,000 120,731 670,731 12/31/89 04/02/90 9.05 -0- A.E. Partners 1990 27 887,500 244,622 1,132,122 12/31/90 04/02/91 8.05 -0- A.E. Nineties-10 60 2,200,000 484,380 2,684,380 12/31/90 03/31/91 7.83 -0- A.E. Nineties-11 25 750,000 268,003 1,018,003 09/30/91 01/31/92 7.00 -0- A.E. Partners 1991 26 868,750 318,063 1,186,813 12/31/91 04/02/92 6.83 -0- A.E. Nineties-12 87 2,212,500 791,833 3,004,333 12/31/91 04/30/92 6.75 -0- A.E. Nineties-JV 92 155 4,004,813 1,414,917 5,419,730 10/28/92 04/05/93 5.58 -0- A.E. Partners 1992 21 600,000 176,100 776,100 12/14/92 07/02/93 6.08 -0- A.E. Nineties-Public #1 221 2,988,960 528,934 3,517,894 12/31/92 07/15/93 5.33 -0- A.E. Nineties-1993 Ltd. 125 3,753,937 1,264,183 5,018,120 10/08/93 02/10/94 5.00 -0- A.E. Partners 1993 21 700,000 219,600 919,600 12/31/93 07/02/94 4.75 -0- A.E. Nineties-Public #2 269 3,323,920 587,340 3,911,260 12/31/93 06/15/94 4.50 -0- A.E. Nineties-14 263 9,940,045 3,584,027 13,524,072 08/11/94 01/10/95 4.00 -0- A.E. Partners 1994 23 892,500 231,500 1,124,000 12/31/94 07/02/95 3.75 -0- A.E. Nineties-Public #3 391 5,799,750 928,546 6,728,296 12/31/94 06/05/95 3.75 -0- A.E. Nineties-15 244 10,954,715 3,435,936 14,390,651 09/12/95 02/07/96 2.92 -0- A.E. Partners 1995 23 600,000 244,725 844,725 12/31/95 01/02/96 2.50 -0- A.E. Nineties-Public #4 324 6,991,350 1,287,752 8,279,102 12/31/95 07/08/96 2.75 -0- A.E. Nineties-16 274 10,955,465 1,643,320 12,598,785 07/31/96 01/12/97 2.08 -0- A.E. Partners 1996 21 800,000 367,416 1,167,416 12/31/96 07/02/97 1.75 -0- A.E. Nineties-Public #5 378 7,992,240 1,654,740 9,646,980 12/31/96 06/08/97 1.75 -0- A.E. Nineties-17 217 8,813,488 1,133,917 9,947,405 08/29/97 12/12/97 1.17 -0- A.E. Partners 1997 13 506,250 231,050 737,300 12/31/97 07/02/98 0.75 -0- A.E. Nineties-Public #6 393 9,901,025 1,950,345 11,851,370 12/31/97 06/08/98 0.58 -0- A.E. Nineties-18 225 11,391,673 1,767,949 13,159,622 07/31/98 01/07/99 0.08 -0- A.E. Partners 1998 26 1,740,000 495,360 2,235,360 12/31/98 1999 N/A -0- A.E. Nineties-Public #7 366 11,988,350 3,852,439 15,840,789 12/31/98 1999 N/A -0- - ---------------------------------------------------------------------------------------------------------------------------
20 Table 2 reflects the drilling activity of previous development drilling partnerships sponsored by the managing general partner and its affiliates. All the wells were development wells. YOU SHOULD NOT ASSUME THAT THE PAST PERFORMANCE OF PRIOR PARTNERSHIPS IS INDICATIVE OF THE FUTURE RESULTS OF THE PARTNERSHIP. TABLE 2 ------- WELL STATISTICS - DEVELOPMENT WELLS As of January 15, 1999
- --------------------------------------------------------------------------------------------------------------------------- Gross Wells(l) Net Wells(2) ------------------------------------ -------------------------------------- Partnership Oil Gas Dry (3) Oil Gas Dry (3) - ----------- --- --- ------- --- --- ------- Atlas L.P. #1-1985 (4) 0 7 1 0 3.15 0.25 A.E. Partners 1986 0 8 0 0 3.50 0.00 A.E. Partners 1987 0 9 0 0 4.10 0.00 A.E. Partners 1988 0 9 0 0 3.80 0.00 A.E. Partners 1989 0 10 0 0 3.30 0.00 A.E. Partners 1990 0 12 0 0 5.00 0.00 A.E. Nineties-10 0 12 0 0 11.50 0.00 A.E. Nineties-11 0 14 0 0 4.30 0.00 A.E. Partners 1991 0 12 0 0 4.95 0.00 A.E. Nineties-12 0 14 0 0 12.50 0.00 A.E. Nineties-JV 92 0 52 0 0 24.44 0.00 A.E. Partners 1992 0 7 0 0 3.50 0.00 A.E. Nineties-Public #1 0 14 0 0 14.00 0.00 A.E. Nineties-1993 Ltd. (4) 0 20 2 0 19.40 2.00 A.E. Partners 1993 0 8 0 0 4.00 0.00 A.E. Nineties-Public #2 0 16 0 0 15.31 0.00 A.E. Nineties-14 (4) 0 55 1 0 55.00 1.00 A.E. Partners 1994 (4) 0 12 0 0 5.00 0.00 A.E. Nineties-Public #3 0 27 0 0 26.00 0.00 A.E. Nineties-15 (4) 0 61 0 0 55.50 0.00 A.E. Partners 1995 0 6 0 0 3.00 0.00 A.E. Nineties-Public #4 0 31 0 0 30.50 0.00 A.E. Nineties-16 (4) 0 57 0 0 47.50 0.00 A.E. Partners 1996 0 13 0 0 4.84 0.00 A.E. Nineties-Public #5 0 36 0 0 35.91 0.00 A.E. Nineties-17 (4) 0 52 2 0 38.00 1.50 A.E. Partners 1997 0 6 0 0 2.81 0.00 A.E. Nineties-Public #6 0 55 0 0 44.45 0.00 A.E. Nineties-18 0 63 0 0 58.00 0.00 A.E. Partners 1998 0 0 0 0 0.00 0.00 A.E. Nineties-Public #7 0 0 0 0 0.00 0.00 --- --- --- --- ------ ---- TOTALS 0 698 6 0 543.26 4.75 === === === === ====== ==== - ---------------------------------------------------------------------------------------------------------------------------
(1) A "gross well" is one in which a leasehold interest is owned. (2) A "net well" equals the actual leasehold interest owned in one gross well divided by one hundred. Example: a 50% leasehold interest in a well is one gross well, but a .50 net well. (3) For purposes of this Table only, a "Dry Hole" means a well which is plugged and abandoned without a completion attempt because the operator has determined that it will not be productive of gas and/or oil in commercial quantities. (4) (i) Atlas L.P. #1-1985 had 1 gross well (.25 net well) which was completed but non-commercial; (ii) A.E. Nineties-1993 Ltd. had 1 gross well (1 net well) which was completed but non-commercial; (iii) A.E. Nineties-14 had 2 gross wells (2 net wells) which were completed but non-commercial; (iv) A.E. Partners-1994 had 1 gross well (.25 net well) which was completed but non-commercial; (v) A.E. Nineties-15 had 1 gross well (1 net well) which was completed but non-commercial; (vi) A.E. Nineties-16 had 5 gross wells (4.5 net wells) which were completed but non-commercial; and (vii) A.E. Nineties-17 had 3 gross wells (2.5 net wells) which were completed but non-commercial. 21 Table 3 provides information concerning the operating results of previous development drilling partnerships sponsored by the managing general partner and its affiliates. YOU SHOULD NOT ASSUME THAT THE PAST PERFORMANCE OF PRIOR PARTNERSHIPS IS INDICATIVE OF THE FUTURE RESULTS OF THE PARTNERSHIP. TABLE 3 INVESTOR OPERATING RESULTS - INCLUDING EXPENSES As of January 15, 1999
Cash Total Costs -on- ----------------------------------- Cash Cash Partnership Capitalization(1) Operating Admin. Direct Distributions(2) Return - ----------- ------------ --------- ------ ------ ---------------- ------ Atlas L.P. #1-1985 $ 600,000 $ 144,544 $ 31,920 $ 6,970 $ 1,285,745 214% A.E. Partners 1986 631,250 109,569 45,565 5,872 608,431 96% A.E. Partners 1987 721,000 107,552 42,585 5,993 501,239 70% A.E. Partners 1988 617,050 84,616 38,667 5,583 455,232 74% A.E. Partners 1989 550,000 78,352 40,470 4,400 600,273 109% A.E. Partners 1990 887,500 113,037 54,066 5,147 745,095 84% A.E. Nineties-10 2,200,000 249,874 53,711 19,190 1,319,682 60% A.E. Nineties-11 750,000 90,889 57,429 32,483 799,329 107% A.E. Partners 1991 868,750 91,483 68,050 13,273 788,510 91% A.E. Nineties-12 2,212,500 258,194 55,557 101,020 1,510,809 68% A.E. Nineties-JV 92 4,004,813 374,866 81,348 189,235 2,795,173(3) 70% A.E. Partners 1992 600,000 52,769 32,175 3,365 551,535 92% A.E. Nineties-Public #1 2,988,960 209,757 51,075 73,688 1,610,199 54% A.E. Nineties-1993 Ltd. 3,753,937 284,827 55,470 27,852 1,730,647 46% A.E. Partners 1993 700,000 58,495 24,338 2,775 596,673 85% A.E. Nineties-Public #2 3,323,920 212,199 41,141 32,698 1,384,411 42% A.E. Nineties-14 9,940,045 620,693 120,685 16,921 3,720,641 37% A.E. Partners 1994 892,500 41,261 23,811 2,153 528,576 59% A.E. Nineties-Public #3 5,799,750 282,557 57,187 36,739 2,241,446 39% A.E. Nineties-15 10,954,715 480,379 97,549 14,115 3,739,100 34% A.E. Partners 1995 600,000 25,578 6,638 1,593 218,442 36% A.E. Nineties-Public #4 6,991,350 291,345 54,593 26,981 1,674,416 24% A.E. Nineties-16 10,955,465 336,521 55,978 28,057 2,148,028 20% A.E. Partners 1996 800,000 26,295 6,264 38,648 144,665 18% A.E. Nineties-Public #5 7,992,240 203,143 35,891 15,782 1,385,828 17% A.E. Nineties-17 8,813,488 141,975 25,428 86,268 1,160,367 13% A.E. Partners 1997 506,250 5,691 1,200 24,745 28,607 6% A.E. Nineties-Public #6 9,901,025 115,537 16,211 8,189 770,940 8% A.E. Nineties-18 11,391,673 8,227 2,004 329 92,193 1% A.E. Partners 1998 1,740,000 0 0 0 0 0% A.E. Nineties-Public #7 11,988,350 0 0 0 0 0% Average Latest Quarterly Yearly Cash Distribution Return As of Date of Table ------ ------------------- Atlas L.P. #1-1985 16% $ 9,835 A.E. Partners 1986 8% 5,237 A.E. Partners 1987 6% 1,624 A.E. Partners 1988 7% 2,755 A.E. Partners 1989 12% 4,453 A.E. Partners 1990 10% 11,411 A.E. Nineties-10 8% 16,698 A.E. Nineties-11 15% 11,535 A.E. Partners 1991 13% 14,762 A.E. Nineties-12 10% 21,136 A.E. Nineties-JV 92 13% 86,999 A.E. Partners 1992 15% 9,212 A.E. Nineties-Public #1 10% 30,184 A.E. Nineties-1993 Ltd. 9% 26,063 A.E. Partners 1993 18% 15,268 A.E. Nineties-Public #2 9% 35,849 A.E. Nineties-14 9% 127,274 A.E. Partners 1994 16% 24,980 A.E. Nineties-Public #3 10% 76,218 A.E. Nineties-15 12% 133,663 A.E. Partners 1995 15% 6,221 A.E. Nineties-Public #4 9% 71,529 A.E. Nineties-16 9% 213,707 A.E. Partners 1996 10% 17,791 A.E. Nineties-Public #5 10% 142,054 A.E. Nineties-17 11% 226,498 A.E. Partners 1997 10% 12,455 A.E. Nineties-Public #6 10% 303,970 A.E. Nineties-18 10% 92,193 A.E. Partners 1998 0% 0 A.E. Nineties-Public #7 0% 0
(1) There have been no partnership borrowings other than from the managing general partner. The approximate principal amounts of such borrowings were as follows: (i) A.E. Nineties-10 - $330,000; (ii) A.E. Nineties-11 - $112,500; and (iii) A.E. Nineties-12 - $331,875. A portion of each partnership's cash distributions was used to repay that partnership's loan. (2) All cash distributions were from the sale of gas, and not sales of properties. (3) A portion of the cash distributions was used to drill three reinvestment wells at a cost of $333,860 in accordance with the terms of the offering. 22 Table 3A provides information concerning the operating results of previous development drilling partnerships sponsored by the managing general partner and its affiliates. TABLE 3A MANAGING GENERAL PARTNER OPERATING RESULTS - INCLUDING EXPENSES As of January 15, 1999
Total Costs ------------------------------------ Cash Partnership Capitalization Operating Admin. Direct Distributions(1) - ----------- -------------- --------- ------ ------ ---------------- Atlas L.P. #1-1985 $ 114,800 $ 27,532 $ 6,080 $ 1,328 $ 243,453 A.E. Partners 1986 120,400 20,870 8,679 1,118 116,220 A.E. Partners 1987 158,269 31,010 12,278 1,728 126,784 A.E. Partners 1988 135,450 27,251 12,453 1,798 112,347 A.E. Partners 1989 120,731 17,199 8,884 966 137,398 A.E. Partners 1990 244,622 37,679 0 0 287,214 A.E. Nineties-10 484,380 83,291 0 0 464,194 A.E. Nineties-11 268,003 38,953 24,612 8,863 335,844 A.E. Partners 1991 318,063 30,494 0 0 343,792 A.E. Nineties-12 791,833 110,655 23,810 17,787 647,489 A.E. Nineties-JV 92 1,414,917 184,635 40,067 11,666 794,372 A.E. Partners 1992 176,100 17,590 0 0 264,445 A.E. Nineties-Public #1 528,934 66,239 16,129 11,463 440,664 A.E. Nineties-1993 Ltd. 1,264,183 122,069 23,773 8,354 317,836 A.E. Partners 1993 219,600 19,498 0 0 220,394 A.E. Nineties-Public #2 587,340 67,010 12,992 10,326 272,151 A.E. Nineties-14 3,584,027 305,714 59,442 8,334 1,113,680 A.E. Partners 1994 231,500 13,754 0 0 185,492 A.E. Nineties-Public #3 928,546 94,186 19,062 12,246 747,149 A.E. Nineties-15 3,435,936 205,877 41,807 6,049 1,602,370 A.E. Partners 1995 244,725 8,526 0 0 61,438 A.E. Nineties-Public #4 1,287,752 97,115 18,198 8,994 492,165 A.E. Nineties-16 1,643,320 92,168 15,332 2,879 422,624 A.E. Partners 1996 367,416 8,765 0 0 63,192 A.E. Nineties-Public #5 1,654,740 67,714 11,964 5,261 439,660 A.E. Nineties-17 1,133,917 51,188 9,168 1,759 447,708 A.E. Partners 1997 231,050 1,897 0 0 18,184 A.E. Nineties-Public #6 1,950,345 38,512 5,404 2,730 256,980 A.E. Nineties-18 1,767,949 3,783 921 151 42,395 A.E. Partners 1998 495,360 0 0 0 0 A.E. Nineties-Public #7 3,852,439 0 0 0 0 Cash -on- Latest Quarterly Cash Cash Distribution Return As of Date of Table ------ ------------------- Atlas L.P. #1-1985 212% $ 1,873 A.E. Partners 1986 97% 998 A.E. Partners 1987 80% 468 A.E. Partners 1988 83% 887 A.E. Partners 1989 114% 977 A.E. Partners 1990 117% 4,404 A.E. Nineties-10 96% 6,116 A.E. Nineties-11 125% 4,943 A.E. Partners 1991 108% 5,771 A.E. Nineties-12 82% 9,058 A.E. Nineties-JV 92 56% 0 A.E. Partners 1992 150% 3,521 A.E. Nineties-Public #1 83% 9,532 A.E. Nineties-1993 Ltd. 25% 0 A.E. Partners 1993 100% 5,389 A.E. Nineties-Public #2 46% 11,321 A.E. Nineties-14 31% 1,938 A.E. Partners 1994 80% 8,795 A.E. Nineties-Public #3 80% 25,406 A.E. Nineties-15 47% 57,284 A.E. Partners 1995 25% 2,299 A.E. Nineties-Public #4 38% 12,623 A.E. Nineties-16 26% (45,489) A.E. Partners 1996 17% 6,241 A.E. Nineties-Public #5 27% 25,068 A.E. Nineties-17 39% 81,663 A.E. Partners 1997 8% 7,665 A.E. Nineties-Public #6 13% 174,574 A.E. Nineties-18 2% 42,395 A.E. Partners 1998 0% 0 A.E. Nineties-Public #7 0% 0
(1) All cash distributions were from the sale of gas and not sales of properties. 23 Table 4 sets forth the aggregate cash distributions and estimated federal tax savings to investors in the managing general partner's prior development drilling partnerships, based on the maximum marginal tax rate in each year, as reported in the partnerships' tax returns and such share of tax deductions as a percentage of their subscriptions. YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISORS CONCERNING YOUR SPECIFIC TAX SITUATION AND SHOULD NOT ASSUME THAT THE PAST PERFORMANCE OF PRIOR PARTNERSHIPS IS INDICATIVE OF THE FUTURE RESULTS OF THE PARTNERSHIP. TABLE 4 SUMMARY OF INVESTOR TAX BENEFITS AND CASH DISTRIBUTION RETURNS As of January 15, 1999
Estimated Federal Tax Savings From(1): -------------------------------------- 1st Year Eff. 1st Year Investor Tax Tax I.D.C. Depletion Section 29 Partnership Capital Deduct(2) Rate Deduct(3) Allowance(3) Depreciation(3) Tax Credit(4) - ----------- -------- --------- ---- --------- ------------ -------------- ------------- Atlas L.P. #1-1985 $ 600,000 99.0% 50.0% $ 298,337 $109,251 N/A $55,915 A.E. Partners 1986 631,250 99.0% 50.0% 312,889 58,666 N/A 13,507 A.E. Partners 1987 721,000 99.0% 38.5% 356,895 43,088 N/A N/A A.E. Partners 1988 617,050 99.0% 33.0% 244,351 38,870 N/A N/A A.E. Partners 1989 550,000 99.0% 33.0% 179,685 54,468 N/A N/A A.E. Partners 1990 887,500 99.0% 33.0% 275,125 69,725 N/A 204,974 A.E. Nineties-10 2,200,000 100.0% 33.0% 726,000 127,070 N/A 377,382 A.E. Nineties-11 750,000 100.0% 31.0% 232,500 73,616 N/A 242,570 A.E. Partners 1991 868,750 100.0% 31.0% 269,313 80,940 N/A 227,733 A.E. Nineties-12 2,212,500 100.0% 31.0% 685,875 152,236 N/A 451,939 A.E. Nineties-JV 92 4,004,813 92.5% 31.0% 1,322,905 243,071 N/A 658,181 A.E. Partners 1992 600,000 100.0% 31.0% 186,000 61,099 N/A 169,353 A.E. Nineties-Public #1 2,988,960 80.5% 36.0% 877,511 156,090 211,416 N/A A.E. Nineties-1993 Ltd. 3,753,937 92.5% 39.6% 1,378,377 159,360 N/A N/A A.E. Partners 1993 700,000 100.0% 39.6% 273,216 58,280 N/A N/A A.E. Nineties-Public #2 3,323,920 78.7% 39.6% 1,036,343 120,785 222,534 N/A A.E. Nineties-14 9,940,045 95.0% 39.6% 3,739,445 319,177 N/A N/A A.E. Partners 1994 892,500 100.0% 39.6% 353,430 44,117 N/A N/A A.E. Nineties-Public #3 5,799,750 76.2% 39.6% 1,752,761 199,611 371,833 N/A A.E. Nineties-15 10,954,715 90.0% 39.6% 3,904,261 340,946 N/A N/A A.E. Partners 1995 600,000 100.0% 39.6% 237,600 13,393 N/A N/A A.E. Nineties-Public #4 6,991,350 80.0% 39.6% 2,214,860 139,953 372,541 N/A A.E. Nineties-16 10,955,465 86.8% 39.6% 3,361,289 168,993 492,710 N/A A.E. Partners 1996 800,000 100.0% 39.6% 316,800 14,610 N/A N/A A.E. Nineties-Public #5 7,992,240 84.9% 39.6% 2,530,954 111,196 185,032 N/A A.E. Nineties-17 8,813,488 85.2% 39.6% 2,966,366 98,161 169,029 N/A A.E. Partners 1997 506,250 100.0% 39.6% 200,475 4,194 N/A N/A A.E. Nineties-Public #6 9,901,025 85.1% 39.6% 3,166,406 61,261 108,333 N/A A.E. Nineties-18 11,391,673 90.0% 39.6% 4,030,884 7,084 10,417 N/A A.E. Partners 1998 1,740,000 100.0% 39.6% 689,040 0 N/A N/A A.E. Nineties-Public #7 11,988,350 85.0% 39.6% 4,043,670 0 0 N/A Cumulative Cash Percent of Distribution Total Cash Cash Dist. As of Dist. and and Tax Date of Tax Savings Savings to Partnership ( Total Table(5) Savings Date - ----------- -------- -------- ------- ---- Atlas L.P. #1-1985 $ 463,503 $1,285,745 $1,749,248 292% A.E. Partners 1986 385,062 608,431 993,493 157% A.E. Partners 1987 399,983 501,239 901,222 125% A.E. Partners 1988 283,221 455,232 738,453 120% A.E. Partners 1989 234,153 600,273 834,426 152% A.E. Partners 1990 549,824 745,095 1,294,919 146% A.E. Nineties-10 1,230,452 1,319,682 2,550,134 116% A.E. Nineties-11 548,686 799,329 1,348,015 180% A.E. Partners 1991 577,986 788,510 1,366,496 157% A.E. Nineties-12 1,290,050 1,510,809 2,800,859 127% A.E. Nineties-JV 92 2,224,157 2,795,173 5,019,330 125% A.E. Partners 1992 416,452 551,535 967,987 161% A.E. Nineties-Public #1 1,245,017 1,610,199 2,855,216 96% A.E. Nineties-1993 Ltd. 1,537,737 1,730,647 3,268,384 87% A.E. Partners 1993 331,496 596,673 928,169 133% A.E. Nineties-Public #2 1,379,662 1,384,411 2,764,073 83% A.E. Nineties-14 4,058,622 3,720,641 7,779,263 78% A.E. Partners 1994 397,547 528,576 926,123 104% A.E. Nineties-Public #3 2,324,205 2,241,446 4,565,651 79% A.E. Nineties-15 4,245,207 3,739,100 7,984,307 73% A.E. Partners 1995 250,993 218,442 469,435 78% A.E. Nineties-Public #4 2,727,354 1,674,416 4,401,770 63% A.E. Nineties-16 4,022,992 2,148,028 6,171,020 56% A.E. Partners 1996 331,410 144,665 476,075 60% A.E. Nineties-Public #5 2,827,182 1,385,828 4,213,010 53% A.E. Nineties-17 3,233,556 1,160,367 4,393,923 50% A.E. Partners 1997 204,669 28,607 233,276 46% A.E. Nineties-Public #6 3,336,000 770,940 4,106,940 41% A.E. Nineties-18 4,048,385 92,193 4,140,578 36% A.E. Partners 1998 689,040 0 689,040 40% A.E. Nineties-Public #7 4,043,670 0 4,043,670 34%
(1) These columns reflect the savings in taxes which would have been paid by an investor, assuming full use of deductions available to the investor. (2) It is anticipated that approximately 85% of an investor general partner's subscription to the partnership will be deductible in 1999. (3) The I.D.C. Deductions, Depletion Allowance and MACRS depreciation deductions have been reduced to credit equivalents. (4) The Section 29 tax credit is not available with respect to wells drilled after December 31, 1992. N/A means not applicable. (5) These distributions were all from production revenues. See footnotes 1 and 3 of Table 3. 24 Table 5 sets forth partnerships in which the managing general partner and its affiliates served as operator and/or drilling contractor for third party general partners as well as the partnerships in which Atlas served as managing general partner. The table includes the managing general partner's share of costs and revenues set forth in Table 3A, above. The managing general partner and its affiliates have drilled more than 1,650 wells over the 27-year period from 1972 to 1999. In the current primary area of interest in Mercer County the managing general partner and its affiliates have completed 97% of approximately 810 wells drilled. These results are summarized below. TABLE 5 ATLAS RESOURCES, INC. AND ITS AFFILIATES' HISTORICAL PRODUCTION RECORD As of January 15, 1999 (4)
Last 3 Mo. Year Wells Total Total Amount Total Distribution Were Placed Total MCF's Invested In Amount Cum % Return Ending As of Into Production Wells(l) Produced Wells(2) Returned(2) Cash-On-Cash(3) Date of Table - --------------- ---------- ----------- ------------- ------------- --------------- ------------- 1973 6 2,509,236 $ 576,000 $ 4,015,217 697% $ 17,511 1974 18 2,946,593 2,387,200 3,912,076 164% 14,114 1975 21 4,216,675 2,814,200 6,646,801 236% 23,861 1976 14 2,886,085 1,819,200 4,371,213 240% 10,801 1977 26 9,249,096 3,912,600 16,290,635 416% 68,048 1978 78 7,908,916 12,399,900 19,089,393 154% 63,033 1979 46 9,254,567 7,404,000 19,743,042 267% 73,953 1980 41 5,784,913 6,561,100 13,659,970 208% 49,642 1981 77 6,393,648 15,382,850 17,131,621 111% 34,003 1982 63 2,483,831 12,438,500 5,795,400 47% 7,885 1983 22 1,296,607 6,725,480 3,036,981 45% 19,580 1984 47 4,709,058 10,663,250 10,323,461 97% 54,893 1985 39 4,913,152 8,971,200 10,264,820 114% 60,477 1986 45 5,632,560 9,649,100 10,735,876 111% 70,547 1987 12 1,559,947 2,425,800 2,713,796 112% 11,405 1988 37 3,865,839 7,688,386 6,926,354 90% 42,001 1989 48 3,969,740 9,967,768 7,005,989 70% 59,191 1990 46 5,051,865 9,038,238 9,111,581 101% 58,587 1991 79 8,590,676 16,034,382 15,741,230 98% 188,043 1992 64 8,015,782 14,250,032 14,383,556 101% 184,915 1993 107 10,318,207 21,958,681 17,077,751 78% 127,435 1994 94 6,432,284 20,418,366 10,413,865 51% 266,316 1995 105 6,466,579 22,350,889 10,936,284 49% 365,915 1996 114 4,744,470 25,396,708 8,092,130 32% 380,867 1997 102 2,785,785 20,678,334 4,886,603 24% 701,383 1998 111 1,160,369 23,270,358 1,921,602 8% 803,657 ---------- ----------- ------------- ------------- --------------- ------------- TOTAL 1,462 133,146,480 $295,182,522 $254,227,247 86% $3,758,065 ---------- ----------- ------------- ------------- --------------- ------------- ---------- ----------- ------------- ------------- --------------- -------------
(1) The above numbers do not include information for: (i) 87 wells drilled for General Motors from 1971 to 1973 which were subsequently purchased by General Motors; (ii) 25 wells successfully drilled in 1981 and 1982 for an industrial customer which requested that the wells be capped and not placed into production; (iii) 127 wells drilled from 1980 to 1985 which were sold in 1993 and are no longer operated by the managing general partner; and (iv) wells which were drilled recently but are not yet in production. (2) (i) The column "Total Amount Invested in Wells" only includes funds paid to the managing general partner or its affiliates as operator and/or drilling contractor for drilling and completing the designated wells. This column does not include all of the costs paid by investors to the third party managing general partner and/or sponsor of the program because such information is generally not available to the managing general partner or its affiliates. (ii) Similarly, the column "Total Amount Returned" only includes amounts paid by the managing general partner or its affiliates as operator of the wells to the third party managing general partner and/or sponsor of the program. This column does not set forth the revenues which were actually received by the investors from the third party managing general partner and/or sponsor because such information is generally not available to the managing general partner or its affiliates. Notwithstanding, the columns "Total Amount Invested in Wells" and "Total Amount Returned" also include the partnerships in which Atlas serves as managing general partner and are presented on the same basis as the third party partnerships. (3) This column reflects total cash distributions beginning with the first production from the well, as a percentage of the total amount invested in the well, and includes the return of the investors' capital. (4) THE RESULTS OF TABLE 5 SHOULD BE VIEWED ONLY AS A MEASURE OF THE LEVEL OF ACTIVITY AND EXPERIENCE OF THE MANAGING GENERAL PARTNER WITH RESPECT TO DEVELOPMENT DRILLING PARTNERSHIPS. 25 MANAGEMENT MANAGING GENERAL PARTNER AND OPERATOR The managing general partner, Atlas, a Pennsylvania corporation, was incorporated in 1979, and its affiliate, Atlas Energy, an Ohio corporation, was incorporated in 1973. As of December 31, 1998, the managing general partner and its affiliates operated approximately 1,242 oil or natural gas wells located in Ohio and Pennsylvania. The managing general partner and its affiliates have acted as operator with respect to the drilling of a total of approximately 1,685 gas wells, approximately 1,624 of which were capable of production in commercial quantities. The managing general partner and certain of its affiliates' primary offices are located at 311 Rouser Road, Moon Township, Pennsylvania 15108, near the Pittsburgh International Airport. The managing general partner has previously sponsored 7 public and 25 private partnerships formed since 1985 to conduct natural gas drilling and development activities in Pennsylvania and Ohio. In addition, as operator, the managing general partner acted as general contractor with respect to the drilling and completion of the partnerships' natural gas wells located in Pennsylvania and is responsible for operating these wells. An affiliate acted in the same capacity as operator of the partnerships' wells located in Ohio. RECENT MERGER OF MANAGING GENERAL PARTNER'S PARENT COMPANY, ATLAS GROUP On September 29, 1998, Atlas Group, the former parent company of the managing general partner, merged into Atlas America, Inc., a newly formed wholly-owned subsidiary of Resource America, Inc. The merger was completed under an agreement and plan of merger dated July 13, 1998, and amended on September 29, 1998, by and among Resource America, Atlas America, Atlas Group and certain shareholders of Atlas Group. Resource America is a publicly-traded company principally engaged in real estate finance, equipment leasing and energy and energy finance. Atlas America is continuing the existing business of Atlas Group and is headquartered in the Pittsburgh offices. As of October 1, 1999, the Board of Directors for Atlas America includes the following:
NAME AGE POSITION OR OFFICE - ------------------ --- ------------------------------- Edward E. Cohen 60 Chairman of the Board James R. O'Mara 56 Vice Chairman Tony C. Banks 45 President, Chief Executive Officer, and a Director Michael L. Staines 50 Secretary and a Director Jonathan Cohen 29 Director John S. White 57 Director JoAnn Bagnell 70 Director Charles T. Koval 65 Director
See " - Officers, Directors and Key Personnel," below, for biographical information on certain of these individuals who are also officers and/or directors of the managing general partner. Biographic information on the other directors will be provided by the managing general partner upon request. Also, there may be changes in the future in the directors and executive officers of the managing general partner. Additionally, it is anticipated that current Resource America, Atlas America or Resource Energy staff and directors of Resource America will assume a variety of new operating responsibilities in Atlas America. Although Resource Energy will maintain its separate corporate existence, Atlas America will manage the employees and assets of Resource Energy including sharing common employees. The managing general partner and its affiliates under Atlas America employ a total of approximately ninety-nine persons, consisting of three geologists, five landmen, five engineers, thirty-three operations staff, eight accounting, one legal, eight gas marketing, and eighteen administrative personnel. The balance of the personnel are engineering, pipeline and field supervisors. Atlas America has been a leading participant in the energy finance industry for more than 26 years, providing drilling, operating and supervisory services for more than $380 million of independent investment now under Atlas America's management. 26 Atlas America and its affiliates manage more than 85 partnerships and joint ventures, operates and holds interests in more than 2,500 wells with proved, developed and producing reserves of more than 53 billion cubic feet of natural gas equivalent to the company's interest, and holds mineral rights underlying more than 406,000 acres of land. ORGANIZATIONAL DIAGRAM (1)(2) This organizational diagram does not include all of the subsidiaries of Resource America. Resource America, Inc. Atlas America, Inc. AIC, Inc.
Atlas Mercer Gas Pennsylvania Atlas Energy Transatco, Atlas Anthem Atlas Energy Resources, Gathering, Industrial Corporation Inc., which Information Securities Group, Inc. Inc., managing Inc., gas Energy, managing owns 50% of Management, Inc. driller and general gathering Inc., general Topico, L.L.C., registered operator in partner, company "PIE", partner of operates markets broker-dealer Ohio driller and sells gas exploratory pipeline in information and operator in to drilling Ohio and dealer-manager Pennsylvania Pennsylvania partnerships technology industry and driller services and operator ARD AED Investments, Investments, Inc. Inc.
(1) Resource Energy, a subsidiary of Resource America, Inc., is also engaged in the oil and gas business. (2) Atlas Pipeline Partners LP is a limited partnership formed to acquire gathering lines owned by Resource America and Atlas America. It is anticipated that this entity will gather and deliver natural gas produced by the partnership. OFFICERS, DIRECTORS AND KEY PERSONNEL The officers and directors of the managing general partner will serve until their successors are elected. The officers, directors and key personnel of the managing general partner are as follows:
NAME AGE POSITION OR OFFICE - ---- --- ------------------ Charles T. Koval 65 Chairman of the Board and a Director James R. O'Mara 56 President, Chief Executive Officer and a Director Tony C. Banks 45 Senior Vice President of Finance, Chief Financial Officer, and a Director Frank P. Carolas 40 Vice President of Land and Geology Jeffrey C. Simmons 41 Vice President of Production William R. Seiler 44 Vice President and Controller Barbara J. Krasnicki 54 Secretary Eric D. Koval 34 President of Anthem Securities, Inc.
CHARLES T. KOVAL. Chairman of the Board and a Director. Mr. Koval is also a director of Atlas America. From 1955 to 1963, Mr. Koval served as a pilot in the U.S. Marine Corps and the Pennsylvania National Guard, attaining the rank of captain. He co-founded Atlas Energy. Before the formation of Atlas Energy, he was involved in the securities business initially with a national firm, Federated Investors, and then with his own firm, Allegheny Planned Income, both headquartered in Pittsburgh, Pennsylvania. Mr. Koval is serving and has served as a director of Imperial Harbors since 1980. Mr. Koval received a Bachelor of Science Degree from Pennsylvania State University in 1955. JAMES R. O'MARA. President, Chief Executive Officer and a Director. Effective October 1, 1999, Mr. O'Mara will serve as vice chairman of the managing general partner and Atlas America and resign as president and chief executive officer. Mr. O'Mara served with the United States Army Security Agency (ASA) and is a Vietnam veteran. Mr. O'Mara is a Certified Public 27 Accountant and had been associated with Coopers and Lybrand, a national accounting firm, and Teledyne, Inc., a large conglomerate, before joining Atlas Energy in 1975. He is a member of the Pennsylvania Institute of Certified Public Accountants, and received a Bachelor of Science Degree in Accounting from Gannon University in 1968. TONY C. BANKS. Senior Vice President, Chief Financial Officer, and a Director. Effective October 1, 1999, Mr. Banks will serve as President and Chief Executive Officer of the managing general partner and Atlas America and resign as Senior Vice President of Finance and Chief Financial Officer. Mr. Banks has over 20 years of finance, accounting and administrative experience in the oil and gas industry, all with various subsidiaries of Consolidated Natural Gas Company. He started as an accounting clerk with CNG's parent company in 1974 and progressed through various positions with CNG's Appalachian producer, northeast gas marketer and southwest producer to his last position as treasurer of CNG's national energy marketing subsidiary. Mr. Banks served on CNG's corporate-wide financial accounting and planning, energy price risk and information services steering committees and has chaired the financial advisory and accounting research committees. In 1989, Mr. Banks was a seminar instructor for the University of Tulsa, and over the years has given presentations to industry groups on topics including energy derivatives, accounting for Appalachian gas imbalances and post regulation credit review and evaluation. He received a Bachelor of Science Degree in Accounting/Computers from Point Park College in Pittsburgh and passed the Pennsylvania Certified Public Accountant examination in 1988. Mr. Banks joined Atlas Group in 1995 and is Vice President of AIC,Inc, ARD Investments, Inc. and AED Investments, Inc. FRANK P. CAROLAS. Vice President of Land and Geology. Mr. Carolas is a certified petroleum geologist and has been with Atlas Energy since 1981. He received a Bachelor of Science Degree in Geology from Pennsylvania State University in 1981 and is an active member of the American Association of Petroleum Geologists. JEFFREY C. SIMMONS. Vice President of Production. Mr. Simmons is also Vice President-Production of Atlas America. Mr. Simmons joined Resource America in 1986 as senior petroleum engineer. From 1988 through 1994 he served as director of production and as president of Resource Well Services, Inc., a subsidiary of Resource America. He was then promoted to vice president of Resource Energy, the energy subsidiary of Resource America formed in 1993. In 1997 he was promoted to executive vice president, chief operating officer and director of Resource Energy, a position he currently holds. Before Mr. Simmons' career with Resource America, he had worked with Core Laboratories, Inc., of Dallas, Texas, and PNC Bank of Pittsburgh. Mr. Simmons received his Petroleum Engineering degree from Marietta College and his Masters Degree in Business Administration from Ashland University. WILLIAM R. SEILER. Vice President and Controller. Effective October 1, 1999, Mr. Seiler will serve as chief financial officer of the managing general partner and Atlas America. Mr. Seiler has over 25 years of accounting, financial reporting, financial analysis, and mergers and acquisitions experience in the oil and gas industry with Consolidated Natural Gas Company before joining Atlas America and the managing general partner in July of 1999. Mr. Seiler joined CNG's corporate headquarters in 1974 as an accounting clerk and progressed to the final position as an officer of CNG as corporate assistant controller. Additional assignments with CNG's included corporate strategic financial planning department, manager of strategic financial planning, corporate-wide financial and accounting planning committee, and chaired the accounting research and financial forecasting committees. Mr. Seiler also served on the American Gas Association's statistics and load forecasting committee and was a member of the Bradford School Accounting Advisory Board. Mr. Seiler earned a Bachelor of Science degree in Accounting from Point Park College in Pittsburgh and holds a Masters Degree in Business Administration from Duquesne University. He is also member of the Beta Gamma Sigma Honor Society. BARBARA J. KRASNICKI. Secretary. Ms. Krasnicki has been with Atlas America and its predecessors since their inception in 1971. She was the office and personnel manager. She was elected secretary of the managing general partner in August, 1999. Ms. Krasnicki has an Associate in Science Degree from Point Park College, Pittsburgh, Pennsylvania. ERIC D. KOVAL. President of Anthem Securities, Inc. Mr. Koval graduated from Pennsylvania State University with a degree in Petroleum and Natural Gas Engineering in 1987. While attending Penn State, he was employed by Mobil Oil Company in Oklahoma, and Union Oil of California, offshore Santa Barbara, California. His experience also includes working five years for Marathon Oil Company, USX-Marathon, in various production and reservoir engineering assignments in four different basins throughout the United States. He has graduate credits from Ball State University, Indiana, and Bowling Green State University, Ohio, in their Masters of Business Degree programs. Mr. Koval joined Atlas in 1993 as a production engineer specializing in acquisitions and dispositions. He subsequently moved into the investor relations department in 1994. Mr. Koval is a registered Broker/Dealer Principal, member of the Society of Petroleum Engineers, and lifetime member of Penn State Alumni Association. Mr. Koval is the son of Charles Koval. 28 The officers and directors of AIC, Inc., which owns 100% of the common stock of the managing general partner, are Tony C. Banks and Norman J. Shuman. The biography of Mr. Banks is set forth above. REMUNERATION No officer or director of the managing general partner will receive any direct remuneration or other compensation from the partnership. These persons will receive compensation solely from the managing general partner and its affiliated companies. The aggregate remuneration paid during the year ended September 30, 1998, to the five most highly compensated persons who are executive officers of the managing general partner and whose aggregate remuneration exceeded $100,000 and to all executive officers of the managing general partner as a group, for services in all capacities while acting as executive officers of the managing general partner and its affiliates, was as follows:
(A) (B) (C) (D) (E) NAME OF INDIVIDUAL OR CAPACITIES IN WHICH CASH COMPENSATION AGGREGATE OF NUMBER OF PERSONS IN SERVED (4) COMPENSATION (1) PURSUANT TO CONTINGENT FORMS OF GROUP (3) PLANS (2) REMUNERATION - --------------------------------------------------------------------------------------------------------------------------------- James R. O'Mara President, Chief Executive $ 322,226 $ 5,000 -- Officer and a Director Charles T. Koval Chairman of the Board and $ 306,468 $ 5,000 -- a Director Tony C. Banks Senior Vice President, $ 144,280 $26,041 -- Chief Financial Officer, and a Director Frank P. Carolas Vice President of Land and $ 101,752 $22,521 -- Geology Jeffrey C. Simmons Vice President of $ 92,442 $ 7,285 -- Operations Executive Officers as a Group $1,032,172 $81,915 -- (6 persons) - ---------------------------------------------------------------------------------------------------------------------------------
(1) The amounts indicated were composed of salaries and all cash bonuses for services rendered to the managing general partner and its affiliates, including compensation that would have been paid in cash but was deferred. (2) Atlas Group and its affiliates had an Employee Stock Ownership Plan for the benefit of its employees, other than Messrs. Koval and Joseph R. Sadowski, a retired founder, to which it contributed annually approximately 6% of annual compensation in the form of shares of Atlas Group, and a 401(K) plan which allowed employees to contribute the lesser of 15% of their compensation or $10,000 for the calendar year 1998 or $10,000 for the calendar year 1997. Atlas Energy contributed an amount equal to 50% of each employee's contribution for the calendar years 1998 and 1997. (3) In addition, to the compensation set forth in (C) and (D) in connection with the merger, Mr. O'Mara exercised Atlas Group stock options resulting in $1,503,508 and Mr. Bruce Wolf, a retired director, exercised Atlas Group stock options resulting in $994,916. Also, under the terms of the merger, the following stock options in Resource America were issued at an option price of $0.1069 per share:
NAME STOCK OPTION ---------------- -------------- Tony C. Banks 13,106
(4) Each director was paid a director's fee of $9,000 for the year. There were no other arrangements for remuneration of directors. 29 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Resource America owns 100% of the common stock of Atlas America, which owns 100% of the common stock of AIC, Inc., which owns 100% of the common stock of the managing general partner. TRANSACTIONS WITH MANAGEMENT AND AFFILIATES Pursuant to the merger of Atlas Group into Atlas America, the merger consideration paid to the shareholders of Atlas Group was 2,063,486 shares of Resource America's common stock and in addition options of 120,213, which were valued at $29,534,000 as of the date the definitive merger agreement was entered into, cash of $7,814,000 and the assumption of Atlas Group debt of $45,968,000. The exchange value of Resource America stock was based on a trading index using prices before the merger and did not reflect the trading price of the stock on the merger date. Atlas Group shareholders received certain "piggy-back" registration rights, effective during the period from September 30, 1999 through September 29, 2000, with respect to the shares of Resource America's common stock received by them. Atlas Group shareholders are also eligible to receive incentive compensation should Atlas Group's post-acquisition earnings exceed a specified amount during the four years following the merger. The incentive compensation is equal to 10% of Atlas Group's aggregate earnings in excess of that amount equal to an annual, but uncompounded, return of 15% on $63 million which is increased to include any amount paid by Resource America for any post-merger energy acquisitions. Incentive compensation is payable, at Resource America's option, in cash or in shares of Resource America's common stock, valued at the average closing price of Resource America's common stock for the 10 trading days before September 30, 2003. In addition, in November, 1990, Atlas Group and its shareholders had entered into agreements with Messrs. Sadowski and Koval to gradually liquidate a majority of their stock ownership in Atlas Group. The stock redemptions required Atlas Group to execute promissory notes, from time to time, in favor of Messrs. Koval and Sadowski. The first promissory notes had a principal amount of $4,974,340 each, plus interest at 13.5%. Under the merger, Atlas Group accelerated the promissory notes issued in the redemption, together with notes issued in a prior redemption of shares owned by Messrs. Koval and Sadowski, and these notes were paid in full at the time of closing of the merger. Also, the managing general partner and its officers, directors and affiliates have in the past invested, and may in the future invest, as investors in partnerships sponsored by the managing general partner on the same terms as unrelated investors. The managing general partner, its officers, directors, and affiliates may also subscribe for units in the partnership. PROPOSED ACTIVITIES INTENDED AREAS OF OPERATIONS The subscription proceeds will be used to drill development wells which are located primarily in the Mercer County area of Pennsylvania. A development well means a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. The managing general partner may also use up to 20% of the subscription proceeds to drill development wells in other areas of the United States primarily in the Appalachian Basin. The managing general partner anticipates that all the partnership's wells will be classified as gas wells which may produce a small amount of oil. The number of development wells drilled by the partnership will depend on the amount of subscription proceeds received and the partnership's aggregate percentage of the interest in the wells. Assuming the partnership acquires 100% of the interest in the wells and all wells are situated in the Mercer County area, the partnership would participate in drilling approximately : - 4.96 wells if the minimum partnership subscription of $1,000,000 is received; and - 89.35 wells if the maximum partnership subscription of $18,000,000 is received. The actual amount of the interest in each well drilled by the partnership and the number of wells drilled by the partnership may vary from these estimates. The development wells drilled by the partnership will primarily test the Clinton/Medina geological formation in Pennsylvania and Ohio. It is anticipated that the Clinton/Medina formation to be tested by the partnership will normally be found between 5,900 to 6,800 feet in depth. 30 Wells located in Pennsylvania and drilled to the Clinton/Medina geological formation: - will consist of approximately 50 acres, subject to adjustment to take into account lease boundaries, and - will not be drilled closer than approximately 1,650 feet to each other, which is greater than the 660 feet minimum area permitted by state law or local practice to protect against drainage from adjacent wells. Wells located in Ohio and drilled to the Clinton/Medina geological formation: - will consist of approximately 40 acres, subject to adjustment to take into account lease boundaries, and - will not be drilled closer than approximately 1,100 feet to each other. The lease assignments to the partnership will be limited to a depth of from the surface to the top of the Queenston geological formation, and the managing general partner will retain the drilling rights below the Clinton/Medina geological feature. The partnership will not acquire the deeper drilling rights because its objective is to conduct development drilling which would not be the case with formations deeper than the Clinton/Medina geological feature. The managing general partner, however, believes that the partnership's drilling to the Clinton/Medina geological formation will not provide any geological information that would assist in evaluating drilling to formations deeper than the Clinton/Medina geological formation. Also, the amount of the credit the managing general partner receives for the partnership leases does not include any value allocable to the deeper drilling rights retained by it. If in the future geophysical activity is undertaken by the managing general partner on the formations below the Clinton/Medina geological feature and provides a basis for the managing general partner drilling an exploratory well, the partnership would not share in the profits, if any, from these activities. The Clinton/Medina geological formation is a blanket sandstone found throughout most of the northwestern edge of the Appalachian Basin. The Clinton/Medina is described in petroleum industry terms as a "tight" sandstone with porosity ranging from 6% to 12% and with very low permeability. Porosity is the percentage of void space between sand grains that is available for occupancy by either liquids or gases. Permeability is the property of porous rock that allows fluids or gas to flow through it. Geological features such as structure and faulting are not generally factors in finding productive Clinton/Medina deposits. Instead, sand quality in terms of net pay zone thickness, porosity, and the effectiveness of fracture stimulation appear to be the governing factors in generating commercial production. A well drilled in the Clinton/Medina usually requires hydraulic fracturing of the formation to stimulate productive capacity. Based on the managing general partner's experience, it is anticipated that all the partnership's wells will be completed and fraced in two different zones of the Clinton/Medina geological feature. Generally, gas from Clinton/Medina wells is produced at rates which decline rapidly during the first few years of operation. Although Clinton/Medina wells can produce for many years, a proportionately larger amount of the production can be expected within the first several years according to the model decline curve included in the geologic evaluation prepared by United Energy Development Consultants, Inc., an independent geological and engineering firm. The geologic evaluation discusses the development of the Clinton/Medina geological formation in the primary area where the partnership will conduct its activity. Before selecting a well to be drilled by the partnership, the managing general partner will review all available geologic data for wells located in the vicinity of the proposed well including: - logs, - completion reports, and - plugging reports. 31 It has been the managing general partner's experience that oil and gas production from wells drilled to the Clinton/Medina geologic formation is reasonably consistent within close proximity, although from time to time great disparity in well performance can occur in wells located in close proximity. ACQUISITION OF LEASES The managing general partner will have the right, in its sole discretion, to select the wells which the partnership will drill. Currently, the Managing General Partner has proposed approximately 66% of the wells to be drilled if all the units are sold. The leases covering the acreage on which each well will be drilled will be acquired from the managing general partner or its affiliates and credited to the managing general partner as a part of its required capital contribution. It is anticipated that the leases will be transferred to the partnership, but not immediately recorded, when the minimum subscriptions are released from escrow subject to the managing general partner's right of substitution of the wells depending upon various considerations. It is anticipated that any additional and/or substituted wells will be selected by the managing general partner primarily from leases included in its and its affiliates existing leasehold inventory. To a lesser extent, the managing general partner would select well locations from leases hereafter acquired by it or its affiliates or from leases owned by independent third parties. Most of the partnership's wells will be located in areas where the managing general partner or its affiliates have previously conducted drilling operations and will meet the same general criteria for drilling potential as the currently proposed wells. As of the date of this prospectus, the managing general partner and its affiliates owned approximately: - 70,241 net and gross acres of undeveloped leasehold acreage in Pennsylvania and Ohio; - 18,000 net acres and 20,000 gross acres of undeveloped lease acreage in western West Virginia; and - 14,300 net acres and 16,100 gross acres of undeveloped lease acreage in eastern Kentucky. The managing general partner and its affiliates are continually engaged in acquiring additional leasehold acreage in Pennsylvania and other areas of the United States. The managing general partner believes that its and its affiliates' leasehold inventory will be sufficient to provide all the wells to be drilled by the partnership. Because the managing general partner will assign to the partnership only the number of wells which it believes are necessary for the drilling operations of the partnership, the partnership will not farmout any drilled acreage. Generally, a farmout is an agreement where owner of the leasehold interest agrees to assign his interest in certain specific acreage to the assignees, retaining some interest such as an overriding royalty interest, subject to the drilling of one or more specific wells as a condition of the assignment. INTERESTS OF PARTIES Generally, production and revenues from a well drilled in the Mercer County area will be net of the applicable landowner's royalty interest which is typically 1/8th (12.5%) of gross production, and any third-party overriding royalty interests. Landowner's royalty interest generally means an interest in oil and gas production free and clear of all costs of development, operation, or maintenance of the well, by the landowner when an oil and gas lease is created. Overriding royalty interest generally means an interest of someone other than the landowner in the oil and gas production pursuant to a lease free and clear of all costs of development, operation, or maintenance of the well. It is anticipated that the partnership will have an 87.5% net revenue interest in each lease, although the partnership could have a lesser net revenue interest, typically 84.375%, if there were third-party overriding royalty interests. Net revenue interest generally means the percentage of revenues the owner of an interest in a well is entitled to receive under the lease. Neither the managing general partner nor its affiliates will receive any royalty or overriding royalty interest on any well. 32 The managing general partner, unaffiliated third parties, including landowners, and you and the other investors will share the production revenues from the partnership's wells. The following chart expresses the interests in gross revenues derived from the wells based on all currently proposed wells in the Mercer County area. If the partnership acquires less than a 100% interest in a well, then the percentages available to the partnership will decrease proportionately.
PARTNERSHIP THIRD PARTY 87.5% PARTNERSHIP ENTITY INTEREST ROYALTY INTEREST NET REVENUE INTEREST(1) - ------- -------------- ---------------- ----------------------- Managing General Partner.................29% partnership interest 25.375% Investors................................71% partnership interest 62.125% Third Party..........................................................12.500% Landowner Royalty Interest 12.500% -------- 100.000% -------- --------
- ------------------------------ (1) It is possible that substituted or additional wells in the Mercer County area could have a net revenue interest to the partnership as low as 84.375% which would reduce the investors' interest to 59.906%. The leases in other areas of the United States may be subject to greater royalty or overriding royalty interests or other arrangements in which the partnership bears a greater share of the costs of the well than its share of the revenues from the well. There is no minimum net revenue interest which the partnership is required to own in wells outside of the Mercer County area. TITLE TO PROPERTIES Title to all leases acquired by the partnership will be held in the name of the partnership. However, title to the leases may initially be held in the name of the managing general partner, its affiliates, or any nominee designated by the managing general partner, to facilitate the acquisition of the leases. Title to the leases will be transferred to the partnership from time to time after the minimum subscriptions are received and released from escrow. Title to the lease will be filed for record following drilling. It is not the practice in the oil and gas industry to obtain title insurance on leases and the managing general partner will not obtain title insurance with respect to its interests in the leases to be assigned to the partnership. Also, in the oil and gas industry leasehold assignments generally do not contain a warranty as to the title to the leasehold. However, a favorable formal title opinion with respect to the interest in each lease composing the acreage on which the well is situated will be obtained before each well is drilled. However, if the title to the interest in a lease is defective, then the partnership will not have the right to recover against the transferor, the managing general partner or its affiliates, on a title warranty theory. There is no assurance that the partnership will not experience losses from title defects excluded from or not disclosed by the formal title opinion. The managing general partner will take the steps it deems necessary to assure that the partnership has acceptable title for its purposes. The managing general partner, however, may use its own judgment in waiving title requirements and will not be liable for any failure of title of leases transferred to the partnership. DRILLING AND COMPLETION ACTIVITIES; OPERATION OF PRODUCING WELLS Under the drilling and operating agreements the responsibility for drilling and completing, or plugging, partnership wells will be on the managing general partner as the general drilling contractor on wells located in Pennsylvania, and the managing general partner or an affiliate on any wells located in other areas of the United States. The partnership will pay the drilling and completion costs to the managing general partner or an affiliate as incurred, except that the partnership is permitted to make advance payments to the managing general partner or an affiliate if necessary to secure tax benefits of prepaid intangible drilling costs and there is a valid business reason. Wells will be drilled at competitive industry rates to a depth sufficient to test thoroughly the objective geological formation. The partnership will bear its proportionate share of the cost of drilling and completing or drilling and abandoning the partnership's wells. The managing general partner, as operator, will determine whether or not to complete each well. A well, however, may be completed only if the managing general partner determines in good faith that there is a reasonable probability of obtaining commercial quantities of gas. Based upon its past experience, the managing general partner anticipates that all of the partnership's wells drilled to the Clinton/Medina geological formation will be required to be completed before a determination can be made as 33 to the well's productivity. If the managing general partner determines that a well should not be completed, then the well will be plugged and abandoned and the footage price will be adjusted. The managing general partner's duties as operator will include: - making necessary arrangements for the drilling and completing of partnership wells and related facilities for which it has responsibility under the drilling and operating agreement; - managing and conducting all field operations in connection with the drilling, testing, equipping, operating and producing of the wells; - making technical decisions required in drilling, completing and operating the wells; - maintaining the wells, equipment and facilities in good working order during the useful life thereof; and - performing necessary accounting and administrative functions. During producing operations the managing general partner will be reimbursed for its direct expenses and will receive well supervision at competitive rates for operating and maintaining the wells. The drilling and operating agreement contains a number of other material provisions which should be carefully reviewed and understood by you and the other prospective investors. In the unlikely event that the managing general partner or an affiliate is not the actual operator of the well during producing operations, then the managing general partner without receiving well supervision fees will review the performance of the third party operator. This includes reviewing the costs and expenses charged by the third party operator and monitoring the accounting and production records for the partnership. The actual operator will perform services for each well which are customarily performed to operate a well in the same general area as where the well is located. The third party operator will be reimbursed for its direct costs and will receive either reimbursement of its administrative overhead or well supervision fees pursuant to an operating agreement. These fees will be subject to an annual adjustment for inflation and will be proportionately reduced to the extent the partnership does not acquire 100% of the interest in the well. It is anticipated that the partnership generally will own 100% of the interest in each well, but it may own as little as 25% of the interest in one or more wells. Thus, the partnership may engage in drilling some of the wells with third parties. This will decrease the partnership's interest in the well but increase the diversification of the partnership's drilling activities. Any other interest owner in a well may have a separate agreement with the managing general partner with respect to the drilling and operating of the well with differing terms and conditions from those contained in the partnership's drilling and operating agreement. However, the managing general partner will be the operator or have the right to replace the operator of most, if not all, of the partnership's wells and will control all drilling and producing operations on these wells. SALE OF OIL AND GAS PRODUCTION IN GENERAL. The managing general partner is responsible for selling the partnership's gas and oil production. The managing general partner's policy is to treat all wells in a given geographic area equally. This reduces certain potential conflicts of interest among the owners of the various wells, including the partnership, concerning to whom and at what price the gas will be sold. The managing general partner calculates a weighted average selling price for all of the gas sold in the geographic area, such as the Mercer County area. To arrive at the average weighted selling price the money received from the sale of all of the gas sold to customers is divided by the volume of all gas sold from the wells in the area. For gas sold in the Mercer County area the managing general partner received an average selling price after deducting all expenses, including transportation expenses, of $2.29 per MCF in 1996, $2.39 per MCF in 1997, and $2.22 per MCF in 1998. On occasion, the managing general partner has reduced the amount of production it normally sells on the spot market until the spot market price increased. The managing general partner, however, has not voluntarily restricted its gas production in the past four years because of a lack of a profitable market price. If the managing general partner determines curtailment of production would 34 be in the best interests of its partnerships, then production will be curtailed to the same degree in all the wells in the same geographic area. On the other hand, if the managing general partner has not decided to curtail production, but all the gas produced cannot be sold because of limited demand for the gas, which increases pipeline pressure, then the production that is sold will be from those wells which are best able to feed into the pipeline, regardless of which partnerships own the wells. In this regard, the partnership will have the benefit of the agreement with Northeast Ohio Gas Marketing, Inc. to buy all of the gas produced by the managing general partner and its affiliates, including the partnership, other than gas being supplied directly to industrial end-users. Northeast Ohio Gas Marketing, Inc. is an affiliate of First Energy Corporation, a company listed on the New York Stock Exchange. With respect to the gathering of the partnership's gas in Mercer County, it is anticipated that the managing general partner or an affiliate, which may include a limited partnership sponsored by an affiliate of Atlas America, will gather, transport and compress the natural gas produced by the partnership either directly to an industrial end-user or into the various pipeline delivery points as discussed below. The partnership will pay a gathering charge for these services at a competitive rate, which is currently 29 cents per MCF. The managing general partner and its affiliates are currently delivering an average 27,000 MCF of natural gas per day from the Mercer County area and have the capacity of delivering 33,000 MCF per day from the Mercer County area. The managing general partner anticipates that approximately 10% to 15% of the gas produced by the partnership and the managing general partner's previous partnerships in the Mercer County area will be sold to Wheatland Tube, an industrial end-user in the area where the wells will be drilled. The remainder of the partnership's gas, with certain exceptions, will be sold to Northeast Ohio Gas Marketing, Inc. as discussed below. Northeast Ohio Gas Marketing has an agreement with the managing general partner and its affiliates to buy all of the gas produced by the managing general partner and its affiliates, including the partnership and its affiliated partnerships, other than gas being sold to Wheatland Tube, CSC and Warren Consolidated. The contracts with Wheatland Tube, CSC and Warren Consolidated will continue to be serviced by the managing general partner and its affiliates including the partnership and its affiliated partnerships, and currently provide for a higher price to be paid than under the agreement with Northeast Ohio Gas Marketing. However, the managing general partner does not anticipate that the partnership will benefit from the higher prices under the contracts with CSC and Warren Consolidated because they primarily buy gas in east Ohio. Wheatland Tube, however, does buy gas from the Mercer County area where most, if not all, of the partnership's wells will be drilled. The agreement with Northeast Ohio Gas Marketing is for a 10-year term, beginning on April 1, 1999, and provides that Northeast Ohio Gas Marketing must take all of the gas produced by the managing general partner and its affiliates. The agreement may be suspended for force majeure which means generally such things as an act of God, strike, war, public riot, lightning, fire, storm, flood, and explosion. One act of force majeure is if Carbide Graphite and/or Duferco Farrell Corporation, which the managing general partner anticipates will purchase between 20% and 40% of the gas from the Mercer County area from Northeast Ohio Gas Marketing, permanently close their plants. If this happens, then Northeast Ohio Gas Marketing is not required to continue to purchase the gas that would otherwise have been sold to Carbide Graphite and/or Duferco Farrell Corporation. The agreement also sets the price to be paid for the gas at the delivery points set forth below for either the first one or two years of the agreement depending upon the delivery point. If, at the end of the applicable period, the managing general partner and its affiliates and Northeast Ohio Gas Marketing cannot agree to a new price for the gas, then the managing general partner and its affiliates may arrange to sell their gas to third parties. The managing general partner, however, must first give Northeast Ohio Gas Marketing notice and an opportunity to match the price. Thereafter, Northeast Ohio Gas Marketing and the managing general partner and its affiliates will set the prices annually each November 30 subject to the same terms. However, if there is no price agreement then the partnership can sell to third parties. The initial gas price for each delivery point under the agreement is determined by a formula tied to the spot market price based on the location of the delivery point. Each delivery point will have a different formula for calculating the price to be paid by Northeast Ohio Gas Marketing for the gas. The delivery points are East Ohio Gas, National Fuel Gas Distribution, National Fuel Gas Supply, Peoples Natural Gas, Columbia Gas Transmission, and Tennessee Gas Pipeline - Zone 4. 35 The marketing of natural gas production has been influenced by the availability of certain financial instruments, such as gas futures contracts, options and swaps which, when properly utilized as hedge instruments, provide producers or consumers of gas with the ability to lock in the price which will ultimately be paid for the future deliveries of gas. The managing general partner is utilizing financial instruments to hedge the price risk of a portion of its partnerships' gas production, which would include the partnership. To assure that the financial instruments will be used solely for hedging price risks and not for speculative purposes, the managing general partner has established a committee to assure that all financial trading is done in compliance with hedging policies and procedures. The managing general partner does not intend to contract for positions that it cannot offset with actual production. MARKETING OF GAS PRODUCTION FROM WELLS IN OTHER AREAS OF THE UNITED STATES. For wells drilled in areas of the United States other than the Mercer County area, the managing general partner expects that gas produced from these wells will be supplied to industrial end-users, local distribution companies and/or interstate pipelines. CRUDE OIL. Any crude oil produced from the wells will flow directly into storage tanks where it will be picked up by the oil company, a common carrier or pipeline companies acting for the oil company which is purchasing the crude oil. Thus, crude oil does not present any transportation problem. The managing general partner anticipates selling any oil produced by the wells in the Mercer County area to Ergon and other purchasers in spot sales. Previously, the managing general partner was receiving approximately $21.50 per barrel in December, 1996, approximately $15.20 per barrel in December, 1997, and approximately $13.00 per barrel in December, 1998, for oil produced in the Mercer County area. Over the past eight years, the price of oil has ranged from approximately $38 to as low as $8 per barrel. There can be no assurance as to the price of oil during the term of the partnership. INSURANCE Since 1972, the managing general partner and its affiliates have been involved in the drilling of more than 1,600 wells in Ohio, Pennsylvania and other areas of the Appalachian Basin. They have not incurred a blow-out, fire or similar hazard with any of these wells, and thus have not made any insurance claims. The managing general partner will obtain and maintain insurance coverage in amounts and for purposes which would be carried by a reasonable, prudent general contractor and operator in accordance with industry standards. The partnership will be named as an additional insured under these policies. In addition, the managing general partner requires all of its subcontractors to certify that they have acceptable insurance coverage for worker's compensation and general, auto and excess liability coverage. Major subcontractors are required to carry general and auto liability insurance with a minimum of $1,000,000 combined single limit for bodily injury and property damage in any one occurrence or accident. The managing general partner's current insurance coverage satisfies the following specifications: - worker's compensation insurance in full compliance with the laws of the Commonwealth of Pennsylvania and any other applicable state laws; - liability insurance, including automobile, which has a $1,000,000 combined single limit for bodily injury and property damage in any one occurrence or accident and in the aggregate; and - excess liability insurance as to bodily injury and property damage with combined limits of $50,000,000 plus $11,000,000 during drilling operations, per occurrence or accident and in the aggregate. This includes $250,000 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 interest in the well, alleging seepage, pollution or contamination damage resulting from an accident. The excess liability insurance will be in place and effective no later than the date subscription proceeds are first released from escrow. 36 The excess liability insurance will insure the partnership and the managing general partner's other partnerships until the investor general partners are converted to limited partners. After conversion the partnership will have the benefit of the managing general partner's $11,000,000 liability insurance on the same basis as the managing general partner and its affiliates, including the managing general partner's other partnerships. Because the managing general partner is driller and operator of other partnerships there is a risk that the insurance available to the partnership could be substantially less if there are claims with respect to the other partnerships. These policies will have terms, including exclusions and deductibles, standard for the oil and gas industry. Upon request the managing general partner will provide you or your representative a copy of its insurance policies. The managing general partner will use its best efforts to maintain insurance coverage which meets or exceeds its current coverage, but may ultimately be unsuccessful because the coverage becomes unavailable or too expensive. If you are an investor general partner and there is going to be an adverse material change in the partnership's insurance coverage, then the managing general partner will notify you at least 30 days before the effective date. If the insurance coverage will be materially reduced, which is not anticipated, then you will have the right to convert your units into limited partner interests before the reduction by giving written notice to the managing general partner. USE OF CONSULTANTS AND SUBCONTRACTORS The partnership agreement authorizes the managing general partner to use the services of independent outside consultants and subcontractors, although this is not anticipated by the managing general partner for producing operations in the Mercer County area. These persons will normally be paid on a per diem or other cash fee basis. The services will be charged to the partnership as either a direct cost or as a direct expense pursuant to the drilling and operating agreement. These charges will be in addition to the unaccountable, fixed payment reimbursement paid to the managing general partner for administrative costs, and well supervision fees paid to the managing general partner as operator. INFORMATION REGARDING CURRENTLY PROPOSED WELLS Set forth below is information relating to wells which have been currently proposed to be drilled by the partnership when subscription proceeds are released from escrow and from time to time thereafter subject to the managing general partner's right to withdraw the wells and to substitute other wells. The specified wells represent the necessary wells if approximately $12,000,000 is raised and the partnership takes 100% of the interest in the wells. It is not anticipated that the well locations will be selected in the order in which they are set forth. The managing general partner has not proposed any other wells: - if more than this amount is raised, - if the partnership takes a lesser interest in the wells, - if the wells are substituted, or - if wells will be drilled in other areas of the United States. The managing general partner has not authorized any person to make any representations concerning the possible inclusion of any other wells in the partnership and you and the other prospective investors should rely only on the information in this prospectus. The currently proposed wells will be assigned unless circumstances occur which, in the managing general partner's opinion, lessen the relative suitability of the wells. These considerations include: - the amount of the subscription proceeds, - the latest geological data available, - potential title problems, 37 - approvals by federal and state departments or agencies, - agreements with other interest owners in the wells, - continuing review of other properties which may be available, and - if no other circumstances occur which in the managing general partner's opinion diminish the relative attractiveness of the proposed wells. Any substituted and/or additional wells will meet the same general criteria for development potential as the currently proposed wells. Also, most of the substituted and/or additional wells will have the Clinton/Medina geological formation as their objective, which is discussed in the geologic evaluation, and will be located in areas where the managing general partner or its affiliates have previously conducted drilling operations. Nevertheless, you will not have the opportunity to evaluate for yourself the relevant geophysical, geological, economic or other information regarding the substituted and/or additional wells. The purpose of the information regarding the currently proposed wells is to assist you in analyzing and evaluating the currently proposed wells, including production information for wells in the general area. The managing general partner believes that production information for wells in the general area is an important indicator in evaluating the economic potential of any well to be drilled. There, however, can be no assurance that a well drilled by the partnership will experience production comparable to the production experienced by wells in the surrounding area since the geological conditions in the Clinton/Medina geological formation can change in a short distance. The managing general partner believes that the production information is reliable, although as to certain of the wells the production information is incomplete because there was a third party operator and production information is not available. Also, some of the wells which have been drilled by the managing general partner's other partnership's have only been producing for a short period of time or are not yet completed or on-line. You are cautioned and urged to analyze carefully all production information for each well offsetting or in the general area of a well proposed to be drilled by the partnership and, in the process of doing so, to take the factors set forth below into consideration: - The length of time which the well has been on line and the period of time for which production information is shown. - The impact of "flush" production of a well which usually occurs in the early period of well operations. This period can vary depending on the location of the well and the manner in which the well is operated. - Production declines at various rates throughout the life of a well and decline curves vary depending on the geological location of the well and the manner in which the well is operated. - The production information with respect to some wells is incomplete and with other wells very limited. The designation "N/A" means the production was not available to the managing general partner or if the managing general partner was the operator, then the well was not completed or on line as of the date of the report. - Production information for wells located in close proximity to a proposed well tends to be more relevant than production information for wells located at a great distance from a proposed well, although from time to time great disparity in well performance can occur in wells located in close proximity. - Consistency in production among wells tends to confirm the reliability and predictability of the production. 38 To assist you in becoming familiar with the proposed wells the information set forth below is included: - A map of western Pennsylvania and eastern Ohio showing their counties. - Lease information. - A Location and Production Map showing the proposed wells and the wells in the area. - Production data. - United Energy Development Consultants, Inc.'s geologic evaluation. 39 MAP OF WESTERN PENNSYLVANIA AND EASTERN OHIO 40 [MAP] 41 LEASE INFORMATION 42 EXHIBIT A ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD.
OVERRIDING ROYALTY INTEREST TO EFFECTIVE EXPIRATION LANDOWNER THE MANAGING WELL NAME COUNTY DATE* DATE* ROYALTY GENERAL PARTNER - ---------------------------------------------------------------------------------------------------------------- 1. Allen #3 Lawrence 10/13/97 10/13/02 12.50% 0% 2. Artman #3 Lawrence 10/13/97 10/13/02 12.50% 0% 3. Balog #1 Lawrence 4/6/98 4/6/01 12.50% 0% 4. Best #3 Lawrence 3/12/99 3/12/02 12.50% 0% 5. Booher #1 Lawrence 10/1/98 10/1/01 12.50% 0% 6. Booher #2 Lawrence 10/1/98 10/1/01 12.50% 0% 7. Booher #3 Lawrence 10/1/98 10/1/01 12.50% 0% 8. Borzackilo #1 Lawrence 9/17/98 9/17/01 12.50% 0% 9. Braatz #2 Lawrence 10/30/98 10/30/01 12.50% 0% 10. Byler #72 Lawrence 8/13/98 8/13/01 12.50% 0% 11. Clark #7 Lawrence 9/29/98 9/29/01 12.50% 0% 12. Daytner #1 Lawrence 8/24/98 8/24/01 12.50% 0% 13. Daytner #2 Lawrence 8/24/98 8/24/01 12.50% 0% 14. Elder #2 Lawrence 3/8/99 3/8/02 12.50% 0% 15. Grell Unit #1 Lawrence 1/27/99 1/27/02 12.50% 0% 16. Hasely #1 Lawrence 7/20/98 7/20/01 12.50% 0% 17. Hogue #1 Lawrence 10/18/97 10/18/02 12.50% 0% 18. Kauffman #1 Lawrence 4/27/98 4/27/01 12.50% 0% 19. Kendall #1 Lawrence 8/28/98 8/28/01 12.50% 0% 20. Kendall #2 Lawrence 8/28/98 8/28/01 12.50% 0% 21. Litwinovich #1 Lawrence 10/10/97 10/10/02 12.50% 0% 22. Litwinovich #2 Lawrence 10/2/97 10/2/02 12.50% 0% 23. Miller #10 Lawrence 2/25/99 2/25/02 12.50% 0% 24. Miller #12 Lawrence 10/15/97 10/15/02 12.50% 0% 25. Miller #14 Lawrence 11/12/98 11/12/01 12.50% 0% 26. Mitcheltree #1 Lawrence 10/9/98 10/9/01 12.50% 0% 27. Shaffer #5 Lawrence 10/26/98 10/26/01 12.50% 0% 28. Slick #2 Lawrence 10/22/97 10/22/02 12.50% 0% 29. Slick #3 Lawrence 4/16/99 4/16/02 12.50% 0% 30. Stickle #1 Lawrence 8/14/98 8/14/01 12.50% 0% 31. Telesz #1 Lawrence 4/26/99 4/26/02 12.50% 0% 32. Wengerd #6 Lawrence 1/26/99 1/26/02 12.50% 0% 33. Wengerd #7 Lawrence 2/26/98 2/26/02 12.50% 0% 34. Whiting #6 Lawrence 10/23/97 10/23/02 12.50% 0% 35. Wilson #6 Lawrence 2/10/98 2/10/02 12.50% 0% 36. Bobish #1 Mercer 7/16/98 7/16/01 12.50% 0% 37. Byler #74 Mercer 10/9/97 10/9/00 12.50% 0% 38. Combine #1 Mercer 7/24/98 7/24/01 12.50% 0% 39. Czubek #1 Mercer 2/19/98 2/19/01 12.50% 0% 40. Gathers #1 Mercer 8/4/98 8/4/01 12.50% 0% 41. Gearhart #1 Mercer 6/3/98 6/3/01 12.50% 0% 42. Hardisky #1 Mercer 9/19/97 9/19/00 12.50% 0% 43. Hostetler #14 Mercer 10/9/97 10/9/00 12.50% 0% 44. Hostetler #15 Mercer 8/21/97 8/21/00 12.50% 0% 45. Knierman #1 Mercer 8/3/98 8/3/01 12.50% 0%
OVERRIDING ROYALTY ACRES TO BE INTEREST TO 3RD NET REVENUE NET ASSIGNED TO WELL NAME PARTIES INTEREST ACRES PARTNERSHIP - ---------------------------------------------------------------------------------------- 1. Allen #3 0% 87.5% 107 50 2. Artman #3 0% 87.5% 126 50 3. Balog #1 0% 87.5% 99 50 4. Best #3 0% 87.5% 50 50 5. Booher #1 0% 87.5% 215 50 6. Booher #2 0% 87.5% 215 50 7. Booher #3 0% 87.5% 215 50 8. Borzackilo #1 0% 87.5% 88 50 9. Braatz #2 0% 87.5% 83 50 10. Byler #72 0% 87.5% 72 50 11. Clark #7 0% 87.5% 45 45 12. Daytner #1 0% 87.5% 105 50 13. Daytner #2 0% 87.5% 105 50 14. Elder #2 0% 87.5% 148 50 15. Grell Unit #1 0% 87.5% 55 50 16. Hasely #1 0% 87.5% 108 50 17. Hogue #1 0% 87.5% 38 38 18. Kauffman #1 0% 87.5% 92 50 19. Kendall #1 0% 87.5% 123 50 20. Kendall #2 0% 87.5% 123 50 21. Litwinovich #1 0% 87.5% 86 50 22. Litwinovich #2 0% 87.5% 108 50 23. Miller #10 0% 87.5% 60 50 24. Miller #12 0% 87.5% 88 50 25. Miller #14 0% 87.5% 85 50 26. Mitcheltree #1 0% 87.5% 103 50 27. Shaffer #5 0% 87.5% 52 50 28. Slick #2 0% 87.5% 113 50 29. Slick #3 0% 87.5% 56 50 30. Stickle #1 0% 87.5% 58 50 31. Telesz #1 0% 87.5% 95 50 32. Wengerd #6 0% 87.5% 54 50 33. Wengerd #7 0% 87.5% 95 50 34. Whiting #6 0% 87.5% 140 50 35. Wilson #6 0% 87.5% 50 50 36. Bobish #1 0% 87.5% 90 50 37. Byler #74 0% 87.5% 60 50 38. Combine #1 0% 87.5% 80 50 39. Czubek #1 0% 87.5% 50 50 40. Gathers #1 0% 87.5% 62 50 41. Gearhart #1 0% 87.5% 60 50 42. Hardisky #1 0% 87.5% 47 47 43. Hostetler #14 0% 87.5% 60 50 44. Hostetler #15 0% 87.5% 100 50 45. Knierman #1 0% 87.5% 155 50
43
OVERRIDING ROYALTY INTEREST TO EFFECTIVE EXPIRATION LANDOWNER THE MANAGING WELL NAME COUNTY DATE* DATE* ROYALTY GENERAL PARTNER - -------------------------------------------------------------------------------------------------------------------- 46. Leali #5 Mercer 1/30/98 1/30/01 12.50% 0% 47. Leali #6 Mercer 1/30/98 1/30/01 12.50% 0% 48. Lehto #1 Mercer 9/18/97 9/18/00 12.50% 0% 49. McFarland #14 Mercer 4/2/98 4/2/01 12.50% 0% 50. McFarland #15 Mercer 10/8/97 10/8/00 12.50% 0% 51. Minner #4 Mercer 5/7/98 5/7/01 12.50% 0% 52. Picirilli #1 Mercer 11/20/98 11/20/01 12.50% 0% 53. Sacewicz #1 Mercer 8/28/97 8/28/00 12.50% 0% 54. Scott #1 Mercer 4/29/98 4/29/01 12.50% 0% 55. Turner #3 Mercer 5/9/96 5/9/01 12.50% 0% 56. Wallace #2 Mercer 5/7/96 5/7/01 12.50% 0% 57. Yasnowski #1 Mercer 8/4/98 8/4/01 12.50% 0% 58. Yoder #8 Mercer 10/9/97 10/9/00 12.50% 0% 59. Yoder #9 Mercer 5/29/96 5/29/01 12.50% 0%
OVERRIDING ROYALTY ACRES TO BE INTEREST TO 3RD NET REVENUE NET ASSIGNED TO WELL NAME PARTIES INTEREST ACRES PARTNERSHIP - ---------------------------------------------------------------------------------------- 46. Leali #5 0% 87.5% 225 50 47. Leali #6 0% 87.5% 225 50 48. Lehto #1 0% 87.5% 155 50 49. McFarland #14 0% 87.5% 78 50 50. McFarland #15 0% 87.5% 79 50 51. Minner #4 0% 87.5% 205 50 52. Picirilli #1 0% 87.5% 58 50 53. Sacewicz #1 0% 87.5% 25 25 54. Scott #1 0% 87.5% 89 50 55. Turner #3 0% 87.5% 145 50 56. Wallace #2 0% 87.5% 168 50 57. Yasnowski #1 0% 87.5% 180 50 58. Yoder #8 0% 87.5% 80 50 59. Yoder #9 0% 87.5% 70 50
*HBP - Held by Production 44 LOCATION AND PRODUCTION MAP 45 [MAP] 46 [MAP] 47 [MAP] 48 [MAP] 49 [MAP] 50 [MAP] 51 [MAP] 52 PRODUCTION DATA 53 THE PRODUCTION DATA PROVIDED IN THE TABLE BELOW IS NOT INTENDED TO IMPLY THAT THE WELLS TO BE DRILLED BY THE PARTNERSHIP WILL HAVE THE SAME RESULTS, ALTHOUGH IT IS AN IMPORTANT INDICATOR IN EVALUATING THE ECONOMIC POTENTIAL OF ANY WELL TO BE DRILLED BY THE PARTNERSHIP.
ID DATE MOS TOTAL TOTAL LATEST NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF LOGGERS 30 DAY DEPTH PROD. - ---------------------------------------------------------------------------------------------------------------------------------- 20022 The Peoples Natural Gas Co. Sokevitz #1 12/14/79 Plugged & Abandoned 4202' N/A 20185 Atlas Resources, Inc. Reed #4 08/03/98 7 13697 6144' 1902 20187 Atlas Resources, Inc. Wengerd Unit #2A 03/22/98 11 16430 6075' 1057 20191 Atlas Resources, Inc. Troyer #1 08/02/98 7 10687 6052' 1366 20195 Atlas Resources, Inc. Byler #33 01/11/99 3 8062 6098' 3159 20201 Atlas Resources, Inc. Byler #42 07/29/98 7 20302 6154' 2057 20203 Atlas Resources, Inc. Teh #1 09/18/98 7 12878 5999' 1254 20215 Atlas Resources, Inc. Mikloz #1 10/27/98 6 17567 6148' 3919 20216 Atlas Resources, Inc. Kempf #3 02/03/99 3 4774 6087' 2160 20217 Atlas Resources, Inc. Byler #43 01/09/99 3 8282 6080' 3982 20218 Atlas Resources, Inc. Buchowski #1 02/08/99 3 4006 6111' 2814 20220 Atlas Resources, Inc. Kempf #2 01/20/99 3 3544 6114' 1687 20225 Atlas Resources, Inc. Byler #60 03/03/99 2 2303 6102' 2029 20229 Atlas Resources, Inc. Johnston #4 03/14/99 1 906 6133' N/A 20234 Atlas Resources, Inc. Muscarella Unit #2 03/26/99 N/A N/A 5575' N/A 20551 Stlas Resources, Inc. Bartholomew, P. #1 05/18/84 136 48327 5795' 230 20604 Atlas Resources, Inc. Nych Unit #1 05/05/84 136 30447 5652' 119 20624 Atlas Resources, Inc. Buchanan-Oris Unit #1 08/02/84 136 33279 5791' N/A 20626 Atlas Resources, Inc. Plymire #1 11/03/84 Plugged & Abandoned 5784' N/A 21174 Atlas Resources, Inc. Pesek #1 11/26/90 101 120556 5692' 151 21260 Atlas Resources, Inc. McAnallen #1 03/19/91 97 50455 5719' 314 21307 Atlas Resources, Inc. Marsh #3 09/04/91 92 92487 5700' 366 21315 Atlas Resources, Inc. Kelso Unit #2 08/11/91 92 92679 5786' 202 21327 Atlas Resources, Inc. Cresswell #1 08/28/91 92 87272 5688' 197 21337 Atlas Resources, Inc. Monske #1 08/19/91 92 63490 5620' 178 21340 Atlas Resources, Inc. Kelso #1 11/11/91 89 55123 5827' 348 21394 Atlas Resources, Inc. Marsh Unit #4 11/06/91 90 79467 5811' 461 21569 Tipka Oil & Gas Byler, J. & K. #1 09/19/92 N/A N/A 6036' N/A 21582 Tipka Oil & Gas Janosky Unit #1 10/02/92 N/A N/A 5882' N/A 21590 Tipka Oil & Gas McFarland Unit #1 10/20/92 N/A N/A 5864' N/A 22234 Atlas Resources, Inc. Wasser #2 09/09/96 31 34174 5754' 652 22303 Atlas Resources, Inc. Fairlamb Unit #1 11/10/96 29 45418 5432' 1315
54
ID DATE MOS TOTAL TOTAL LATEST NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF LOGGERS 30 DAY DEPTH PROD. - ---------------------------------------------------------------------------------------------------------------------------------- 22312 Vista Resources McQuiston #2-C 02/23/97 N/A N/A 5390' N/A 22315 Vista Resources McQuiston #1-C 01/09/97 N/A N/A 5300' N/A 22325 Vista Resources Miller Unit #1 02/05/97 N/A N/A 5375' N/A 22326 Vista Resources Miller Unit #2 03/05/97 N/A N/A 5367' N/A 22373 Vista Resources McQuiston, E. #3-C 07/31/97 N/A N/A 5359' N/A 22374 Atlas Resources, Inc. Jones #2 08/29/97 20 39986 5739' 1358 22399 Atlas Resources, Inc. Klein #1 09/07/97 18 29551 5473' 1738 22419 Vista Resources/Atlas Resources, Inc. Arbuckle Unit #2 11/25/97 17 12037 5359' 483 22420 Vista Resources Arbuckle, R. #1 11/24/97 N/A N/A N/A N/A 22436 Atlas Resources, Inc. Stallsmith #1 02/05/98 14 26629 5495' 1427 22463 Atlas Resources, Inc. Kennedy #2 03/12/98 13 34845 5750' 1907 22465 Atlas Resources, Inc. Byler #29 03/03/98 11 30861 6071' 1629 22466 Atlas Resources, Inc. Byler #31 03/12/98 12 36144 6034' 1865 22471 Atlas Resources, Inc. Winder #3 03/14/98 13 18859 5800' 1292 22487 Atlas Resources, Inc. Kurtz #7 07/14/98 7 24655 6020' 3423 22488 Atlas Resources, Inc. Jordan #4 03/10/98 13 26521 5770' 2006 22492 Atlas Resources, Inc. Byler #25 03/25/98 11 17198 5848' 1344 22494 Atlas Resources, Inc. Vandervort #1 03/29/98 12 22945 5292' 2101 22496 Atlas Resources, Inc. Byers #2 03/19/98 11 13330 5893' 787 22535 Atlas Resources, Inc. McFarland #4 08/15/98 7 11417 5914' 1210 22539 Atlas Resources, Inc. Wengerd #3 01/12/99 3 8372 6048' 3077 22546 Vista Resources Temple, L. #1 10/08/98 N/A N/A N/A N/A 22554 Atlas Resources, Inc. Byler #32 08/23/98 7 21577 5941' 2314 22559 Atlas Resources, Inc. Borowicz #1 09/22/98 7 11956 5955' 1431 22560 Atlas Resources, Inc. Thompson #9 10/22/98 5 4652 5781' 1209 22570 Atlas Resources, Inc. Donner #1 10/05/98 6 11632 5902' 2476 22572 Atlas Resources, Inc. Byler #57 10/09/98 6 15809 5760' 3024 22574 Atlas Resources, Inc. McQueen #1 10/17/98 6 10354 5938' 1373 22575 Atlas Resources, Inc. Hostetler Unit #10 01/11/99 4 4628 6003' 1455 22579 Atlas Resources, Inc. Hostetler Unit #9 01/14/99 4 7060 6091' 1814 22585 Atlas Resources, Inc. Minner #1 03/10/99 1 34 5795' N/A 22586 Atlas Resources, Inc. Dick #2 03/02/99 2 1879 5868' 1879
55
ID DATE MOS TOTAL TOTAL LATEST NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF LOGGERS 30 DAY DEPTH PROD. - ---------------------------------------------------------------------------------------------------------------------------------- 22587 Vista Resources Temple, L. #2 01/12/99 N/A N/A 5242' N/A 22610 Atlas Resources, Inc. Jovenall #1 03/02/99 1 1756 5889' N/A 22617 Atlas Resources, Inc. Cameron #2 03/10/99 1 1193 5843' N/A 22623 Atlas Resources, Inc. Hostetler #11 03/22/99 N/A N/A 5934' N/A 22628 Atlas Resources, Inc. Gall #1 02/24/99 N/A N/A 5310' N/A 22629 Atlas Resources, Inc. Dixon #4 03/16/99 1 39 5964' N/A 22630 Atlas Resources, Inc. Mast #6 03/28/99 N/A N/A 5976' N/A 22632 Atlas Resources, Inc. Winner Unit #1 03/22/99 1 213 5981' N/A 22638 Atlas Resources, Inc. Cypher Unit #1 03/17/99 N/A N/A 5972' N/A
Note: Accurate through -------- Period Ending 4/99 56 GEOLOGIC EVALUATION FOR THE CURRENTLY PROPOSED WELLS 57 GEOLOGIC EVALUATION OF ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. DRILLING PROGRAM SOUTHWESTERN MERCER PROSPECT AREA, PENNSYLVANIA PROGRAM PROPOSED BY: ATLAS RESOURCES, INC. 311 ROUSER ROAD PO BOX 611 MOON TOWNSHIP PA 15108 REPORT SUBMITTED BY: UEDC UNITED ENERGY DEVELOPMENT CONSULTANTS, INC. 1715 CRAFTON BLVD. PITTSBURGH, PA 15205-3101 FOR: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. DRILLING PROGRAM BY: ATLAS RESOURCES, INC. 311 ROUSER RD. P.O. BOX 611 MOON TOWNSHIP, PA 15108 58 LOCATION MAP - AREA OF INTEREST [MAP] TABLE OF CONTENTS INVESTIGATION SUMMARY .............................................3 OBJECTIVE ....................................................3 AREA OF INVESTIGATION.........................................3 METHODOLOGY...................................................3 SOUTHWESTERN MERCER PROSPECT AREA .................................4 DRILLING ACTIVITY ............................................4 GEOLOGY ......................................................4 STRATIGRAPHY, LITHOLOGY & DEPOSITION ....................4 RESERVIOR CHARACTERISTICS ...............................6 PRODUCTION CURVE .............................................8 POTENTIAL MARKETS AND PIPELINES ..............................8 STATEMENTS ........................................................9 CONCLUSION ...................................................9 DISCLAIMER ...................................................9 NON-INTEREST .................................................9
- ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 2 59 INVESTIGATION SUMMARY OBJECTIVE The purpose of the following investigation is to evaluate the geologic feasibility and further development of the Southwestern Mercer Prospect Area (consisting of Lawrence and Mercer Counties) as proposed by Atlas Resources, Inc. AREA OF INVESTIGATION A portion of this prospect area, herein identified as the Atlas-Energy for the Nineties-Public #8 Ltd. Drilling Program, contains acreage in the following townships in Mercer and Lawrence Counties, located in Pennsylvania:
Mercer County Lawrence County --------------- ---------------- Shenango Pulaski Lackawannock Wilmington Coolspring Hickory Deer Creek Mahoning Sandy Creek Neshannock Wilmington Washington Jackson Delaware Jefferson
Fifty-nine (59) drilling prospects designated for this program will be targeted to produce natural gas from Clinton-Medina Group reserviors, found at depths ranging from approximately 5,800 to 6,200 feet beneath the earth's surface. METHODOLOGY Atlas Resources, Inc. and the in-house archives of UEDC, Inc. provided the data incorporated into this report. Geological mapping and the interpretations by Atlas geologists were also examined. Available "electric" log, completion, and production data on wells offsetting prospect locations and other "key" wells within and adjacent to the defined prospect area were used to determine productive and depositional trends. - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 3 60 SOUTHWESTERN MERCER PROSPECT AREA DRILLING ACTIVITY The proposed drilling area lies within a region of northwestern Pennsylvania which has been very active for the past decade in terms of exploration for, and exploitation of natural gas reserves. Development within and adjacent to the Southwestern Mercer Prospect Area has escalated since 1986, with Atlas Resources, Inc. and it's affiliates drilling over nine hundred (900) wells during this period. Atlas Resources, Inc. has encountered favorable drilling and production results while solidifying a strong acreage position, as Atlas Resources, Inc. continues to identify and extend productive trends. Drilling is ongoing as of the date of this report with recent wells displaying favorable initial drilling and completion results. Competitive activity has begun both south and east of the prospect area, confirming the Clinton-Medina Group of Lower Silurian age as a viable target for the further development of economic quantities of natural gas. GEOLOGY STRATIGRAPHY, LITHOLOGY & DEPOSITION Regionally, the Clinton-Medina Group was deposited in tide-dominated shoreline, deltaic, and shelf environments and is lithologically comprised of alternating sandstones, siltstones and shales. Productive sandstones are composed of siliceous to dolomitic subarkoses, sublitharenites, and quartz arenites. Reservoir quality sands occur throughout the delta-complex from eastern Ohio through northwestern Pennsylvania and western New York. The Clinton-Medina Group, deposited during the Lower Silurian, overlies the Upper Ordovician age Queenston shale and is capped by the Middle Silurian Reynales Formation. This dolomitic limestone "cap" is known locally to drillers as the "Packer Shell". Stratigraphically, in descending order, the potentially productive units of the Clinton-Medina Group consist of the: 1) Thorold, 2) Grimsby, 3) Cabot Head, and 4) Whirlpool members. These stratigraphic relationships are illustrated in the following diagram: ================================================================================ 61 STRATIGRAPHIC NAMES-NW PENNSYLVANIA [DIAGRAM] The Whirlpool is a light gray quartzose sandstone to siltstone ranging in thickness from five (5) to twenty (20) feet. Average porosity values for this sand member range from five (5) to ten (10) percent regionally. Within the area of investigation, porosities in excess of twelve (12) percent occur within localized trends targeted for further development. The Cabot Head is a dark green to black shale, most likely of marine origin. Within the investigated area a Cabot Head sandstone has been encountered in numerous wells. This formation has been found to contribute natural gas when reservoir characteristics, including evidence of enhanced permeability, warrant completion. This sand member is considered a secondary target. The Grimsby is the thickest sandstone member of the Clinton-Medina Group. Sand development ranges from ten (10) to forty-five (45) feet within an interval comprised of fine to very ================================================================================ 62 fine, light gray to red sandstones and siltstones broken up by thin dark gray silty shale layers. Average porosity values for the Grimsby are approximately six (6) to ten (10) percent over the pay interval regionally. Permeability may be enhanced locally by the presence of naturally occurring micro-fractures. Future development focuses on established production trends. The Thorold sandstone is the uppermost producing interval of the Clinton-Medina sequence. This interbedded ferric sand, silt and shale interval averages forty (40) feet. Where pay sand development occurs, porosities are in the typical Clinton-Medina group range of six (6) to ten (10) percent. Permeability may be enhanced locally by the presence of naturally occurring micro-fractures. RESERVOIR CHARACTERISTICS Petroleum reservoirs are formed by the presence of an impermeable barrier trapping natural gas of commercial quantities in a more permeable medium. In the Clinton-Medina, this occurs either stratigraphically when a permeable sand containing hydrocarbons encounters impermeable shale or when permeable sand changes gradually into non-permeable sand by a cementation process known as "diagenesis". Thus, this type of trap represents cemented-in hydrocarbon accumulations. Electric well logs can be used in conjunction with production to interpret reservoir parameters. When sandstones in the Thorold, Grimsby, Cabot Head or Whirlpool develop porosity in excess of 6%, or a bulk density of 2.55 or less, the permeability of the reservoir (which ranges from < 0.1 to > 0.2 mD) can become great enough to allow commercial production of natural gas. Small, naturally occurring cracks in the formation, referred to as micro-fractures, can also enhance permeability. A gamma, bulk density, density porosity and neutron log suite showing sand development in the Grimsby, Cabot Head and Whirlpool is illustrated on the following page. ================================================================================ 63 [ILLUSTRATION] Two other phenomena detected by well logs can occur which are indicators of enhanced permeability. These indicators used to detect productive intervals are: - - MUDCAKE BUILDUP ACROSS THE ZONE OF INTEREST - after loading the wellbore with brine fluid and circulating, an interval with enhanced permeability will accept fluid, filtering out the solids and leaving behind a buildup (or mudcake) on the formation wall. This is detectable with a caliper log. - - INVASION PROFILE - during circulation, brine that has a high conductivity (or low resistivity) that is accepted into the formation (as described above) will change the electrical conductivity of the reservoir rock near and around the wellbore. The resistivity will be low nearest to the wellbore and will increase away from the wellbore. A dual laterolog can be used to detect this profile created by a permeable zone - it records resistivity near the wellbore as well as deeper into the formation. A zone with enhanced permeability will show a separation between the shallow and deep laterologs, while a zone with little or no permeability would cause the two resistivity measurements to read exactly the same. An example follows: ================================================================================ 64 GAMMA RAY LOG RESISTIVITY LOG NO SEPARATION -- > SEPARATION -- > NO SEPARATION -- > PRODUCTION CURVE A model decline curve for the Southwestern Mercer Prospect Area was created, based on production histories from over 200 wells in the mature portion of the field. The diagram below illustrates the percentage of gas recovery per year: CHART POTENTIAL MARKETS AND PIPELINES In the area of this drilling program, there are a number of potential purchasers and transporters of natural gas. These include Wheatland Tube Company, Tenneco, National Fuel Supply, National Fuel Distribution and the People's Natural Gas Company. 65 STATEMENTS CONCLUSION UEDC has conducted a geologic feasibility study of the Atlas-Energy for the Nineties-Public #8 Ltd. Drilling Program, which will consist of developmental drilling of the Clinton-Medina Group sands in Mercer and Lawrence Counties, Pennsylvania. It is the professional opinion of UEDC that the drilling of wells within this program is supported by sufficient geologic and engineering data. DISCLAIMER For the purpose of this evaluation, UEDC did not visit any leaseholds or inspect any of the associated production equipment. Likewise, UEDC has no knowledge as to the validity of title, liabilities, or corporate matters affecting these properties. UEDC does not warrant individual well performance. NON-INTEREST We hereby confirm that UEDC is an independent consulting firm and that neither this firm or any of it's employees, contract consultants, or officers has, or is committed to acquire any interest, directly or indirectly, in Atlas Resources, Inc.; nor is this firm, or any employee, contract consultant, or officer thereof, otherwise affiliated with Atlas Resources, Inc. We also confirm that neither the employment of, nor payment of compensation received by UEDC in connection with this report, is on a contingent basis. Respectfully submitted, /s/ UEDC, Inc. UEDC, Inc. 66 COMPETITION, MARKETS AND REGULATION COMPETITION AND MARKETS There are many companies engaged in natural gas drilling operations in the areas where the partnership is expected to conduct its activities. The industry is highly competitive in all phases, including acquiring suitable properties for drilling and the marketing of natural gas. The partnership will compete with entities having financial resources and staffs larger than those available to the partnership. Current economic conditions indicate that the costs of exploration and development are increasing gradually. However, the oil and gas industry historically has experienced periods of rapid cost increases from time to time. There is a risk that over the term of the partnership there will be fluctuating or increasing costs in doing business. This would directly affect the managing general partner's ability to operate the partnership's wells at acceptable price levels. Natural gas and oil, if any, produced by the partnership's wells must be marketed in order for you to realize revenues. In recent years natural gas and oil prices have been volatile. Reduced gas demand and/or excess gas supplies will result in lower prices. The marketing of natural gas and oil production, if any, will be affected by numerous factors beyond the control of the partnership and which cannot be accurately predicted. These factors include, but are not limited to, the following: - the availability and proximity of adequate pipeline or other transportation facilities; - the amount of domestic production and foreign imports of oil and gas; - competition from other energy sources such as coal and nuclear energy; - local, state and federal regulations regarding production and the cost of complying with applicable environmental regulations; and - fluctuating seasonal supply and demand. For example, increased imports of oil and natural gas have occurred and are expected to continue. The free trade agreement between Canada and the United States has eased restrictions on imports of Canadian gas to the United States. Additionally, the passage in 1993 of the North American Free Trade Agreement ("NAFTA") will have some impact on the American gas industry by eliminating trade and investment barriers in the United States, Canada and Mexico. Additionally, new pipeline projects have been proposed to the Federal Energy Regulatory Commission (the "FERC") which could substantially increase the availability of Canadian gas to certain U.S. markets. These imports could have an adverse effect on both the price and volume of gas sales from the partnership's wells. Members of the Organization of Petroleum Exporting Countries ("OPEC") establish production quotas for petroleum products from time to time with the intent of reducing the current global oversupply and maintaining or increasing price levels. The managing general partner is unable to predict what, if any, effect these actions will have on prices for the gas sold from the partnership's wells. The accelerating deregulation of natural gas and electricity transmission has caused, and will continue to cause, a coming together of the gas and electric industries. Demand for natural gas by the electric power sector is expected to increase modestly through the next decade. Increased competition in the electric industry, coupled with the enforcement of stringent environmental regulations, may lead to an increased reliance on natural gas by the electric industry. Also, FERC has sought to promote greater competition in natural gas markets. Traditionally, natural gas has been sold by gas producers to pipeline companies, which then would resell the gas to end-users. FERC changed this market structure by requiring interstate pipeline companies that transport gas for others to provide transportation service to producers, distributors and all other shippers of natural gas on a "first-come, first-served" basis. This permits producers and other shippers to sell natural gas directly to end-users and local distribution companies. 67 FERC Order 636 requires pipeline companies to, among other things, separate their sales services from their transportation services and provide an open access transportation service that is comparable in quality for all gas suppliers or producers. The premise behind FERC Order 636 was that the pipeline companies had an unfair advantage over other gas suppliers or producers because they could bundle their sales and transportation services together. FERC Order 636 is designed to ensure that no gas seller has a competitive advantage over another gas seller because it also provides transportation services. The effect of FERC Order No. 636 has been to restructure the natural gas industry and increase its competitiveness. Although not anticipated by the managing general partner, it is possible that in the future the partnership's gas may be sold to local distribution companies if Northeast East Ohio Gas Marketing and the managing general partner cannot agree upon a price for the partnership's gas. While in the past these purchases were generally made on the spot market, as a result of FERC Order No. 636 long-term market-based gas supply arrangements have become more important than they were previously. Although the spot market is still used, it is less important as a market-based supply source. Many local distribution companies are buying gas directly from gas marketers and are buying their own reserves. They have attempted to minimize their risks by foregoing spot market purchases and instead are entering into longer-term gas supply contracts and attempting to diversify their supplies. FERC has also required pipeline companies to develop electronic bulletin boards to ensure that the gas industry is more competitive. Through electronic bulletin boards, pipeline companies provide standardized access to information concerning capacity and prices. Local distribution companies and marketers are also working to develop companies which can access and integrate all of the information available on all pipelines' electronic bulletin boards and arrange gas supplies and transportation on behalf of purchasers from large regions of the country in order to create a national market. These systems, and the development of information service companies, will allow rapid consummation of natural gas transactions. Gas purchased in Kansas could, for example, be used in Seattle. Although this system may initially lower prices because of increased competition, it is anticipated to increase natural gas markets and the reliability of the markets. CRUDE OIL REGULATION Oil prices are not regulated. The price of oil is subject to supply, demand, competitive factors, the gravity of the crude oil, sulfur content differentials and other factors. Certain federal reporting requirements are still in effect under U. S. Department of Energy regulations. FEDERAL GAS REGULATION The sale of natural gas is subject to regulation of production and transportation by governmental regulatory agencies. Generally, the regulatory agency in the state where a producing natural gas well is located supervises production activities and the transportation of natural gas sold into intrastate markets. FERC regulates the interstate transportation of natural gas, but no longer regulates the price of gas. Gas production may be sold at market prices determined by supply, demand, BTU content, pressure, location of the wells, and other factors. The managing general partner anticipates that all the partnership's gas production will be price decontrolled gas and sold at fair market value. The Clean Air Act Amendments of 1990 contain incentives for the future development of "clean alternative fuel," which includes natural gas and liquefied petroleum gas for "clean-fuel vehicles." The managing general partner believes the amendments ultimately will have a beneficial effect on natural gas markets and prices. STATE REGULATIONS Oil and gas operations are regulated in Pennsylvania by the Department of Environmental Resources. Pennsylvania and any other states where the partnership's wells may be situated impose a comprehensive statutory and regulatory scheme for oil and gas operations. Among other things, these regulations involve: - new well permit and well registration requirements, procedures and fees; - minimum well spacing requirements; - restrictions on well locations and underground gas storage; 68 - certain well site restoration, groundwater protection and safety measures; - landowner notification requirements; - certain bonding or other security measures; - various reporting requirements; - well plugging standards and procedures; and - broad enforcement powers. These state regulatory agencies have been granted broad regulatory and enforcement powers which may create additional financial and operational burdens on oil and gas operations like those of the partnership. Pennsylvania and the other states also have pollution and environmental control laws which have become increasingly burdensome in recent years. Enforcement efforts with respect to oil and gas operations have increased. It can be anticipated that this regulation will expand and have a greater impact on future oil and gas operations. ENVIRONMENTAL REGULATION Various federal, state, and local laws covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the partnership's drilling and producing operations. The partnership may generally be liable for cleanup costs to the United States Government under the Federal Clean Water Act for oil or hazardous substance pollution and under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund, for hazardous substance contamination. The liability is unlimited in cases of willful negligence or misconduct, and there is no limit on liability for environmental cleanup costs or damages for claims by the state or private persons or entities. Although the managing general partner will not transfer any lease to the partnership if it has actual knowledge that there is an existing potential environmental liability on the lease, there will not be an independent environmental audit of the leases before they are transferred to the partnership. Thus, there is a risk that the leases will have potential environmental liability even before drilling begins. The Environmental Protection Agency will require the partnership to prepare and implement spill prevention control and countermeasure plans relating to the possible discharge of oil into navigable waters. It will also require permits to authorize the discharge of pollutants into navigable waters. State and local permits or approvals will also be needed with respect to wastewater discharges and air pollutant emissions. Violations of environment-related lease conditions or environmental permits can result in substantial civil and criminal penalties as well as potential court injunctions curtailing operations. The enforcement liabilities can result from either governmental or citizen prosecution. Compliance with these statutes and regulations may cause delays or increase the cost of producing the natural gas and oil. Because these laws and regulations are constantly being revised and changed the managing general partner is unable to predict the ultimate costs of complying with present and future environmental laws and regulations. The managing general partner is unable to obtain insurance to protect against most environmental claims. PROPOSED REGULATION From time to time there are a number of proposals considered in Congress and in the legislatures and agencies of various states that if enacted would significantly and adversely affect the oil and natural gas industry. The proposals involve, among other things, limiting the disposal of waste water from wells and changes in the tax laws. It is impossible to accurately predict what proposals, if any, will be enacted by Congress or the legislatures and agencies of various states and what effect any proposals which are enacted will have on the activities of the partnership. 69 PARTICIPATION IN COSTS AND REVENUES IN GENERAL The partnership agreement provides for the sharing of costs and revenues among the managing general partner and you and the other investors. A tabular summary of the following discussion appears below. COSTS 1. ORGANIZATION AND OFFERING COSTS. Organization and offering costs will be charged 100% to the managing general partner. However, organization and offering costs in excess of 15% of investor subscriptions will be paid by the managing general partner, without recourse to the partnership, and the managing general partner will not be credited with this amount towards its required capital contribution. Organization and offering costs generally means all costs of organizing and selling the offering, and includes sales commissions and other compensation to the dealer-manager and the broker-dealers. 2. LEASE COSTS. The leases will be contributed to the partnership by the managing general partner. The managing general partner will be credited with a capital contribution for each lease valued at its cost, unless the managing general partner has reason to believe that cost is materially more than fair market value. In this case the credit for the contribution will be made at a price not in excess of fair market value. 3. INTANGIBLE DRILLING COSTS AND EQUIPMENT COSTS. Intangible drilling costs will be allocated and charged 100% to you and the other investors. Equipment costs will be allocated and charged 43.75% to the managing general partner and 56.25% to you and the other investors. Although subscription proceeds will be used to pay the costs of drilling different wells depending on when the subscriptions are received, the revenues from all partnership wells will be commingled. Accordingly, regardless of when you subscribe you will share in the revenues from all wells on the same basis as the other investors in proportion to your subscription. 4. OPERATING COSTS, DIRECT COSTS, ADMINISTRATIVE COSTS AND ALL OTHER COSTS. Operating costs, direct costs, administrative costs, and all other partnership costs not specifically allocated will be allocated and charged to the parties in the same ratio as the related production revenues are being credited. These costs generally include all costs of partnership administration and the costs of producing and maintaining the partnership's wells. 5. THE MANAGING GENERAL PARTNER'S REQUIRED CAPITAL CONTRIBUTION. The managing general partner's aggregate capital contributions to the partnership, including its credit for the cost of the leases contributed, must not be less than 22.15% of all capital contributions to the partnership. The managing general partner's capital contributions must be paid at the time the costs are required to be paid by the partnership, but not later than December 31, 2000. REVENUES 1. PROCEEDS FROM THE SALE OF LEASES. If a partnership well is sold, a portion of the sales proceeds will be allocated to the partners in the same proportion as their share of the adjusted tax basis of the property. In addition, proceeds will be allocated to the managing general partner to the extent of the pre-contribution appreciation in value of the property, if any. Any excess will be credited to the parties in the ratio in which oil and gas production revenues of the partnership are credited as provided in 4, below. 2. INTEREST PROCEEDS. Interest earned on your subscription before the offering closes will be credited to your account and paid approximately eight weeks after the offering closes. If a subscription is refunded, then any interest allocated thereto will also be refunded. After the offering closes and until proceeds from the offering are invested in the partnership's oil and gas operations any interest income from temporary investments will be allocated pro rata to the investors providing the subscriptions. All other interest income, including interest earned on the deposit of production revenues, will be credited as provided in 4, below. 70 3. EQUIPMENT PROCEEDS. Proceeds from the sale or other disposition of equipment will be credited to the parties charged with the costs of the equipment in the ratio in which the costs were charged. 4. PRODUCTION REVENUES. All other revenues of the partnership, including production revenues, will be credited 71% to you and the other investors and 29% to the managing general partner subject to the managing general partner's subordination of a portion of its share of partnership net production revenues, as described below. SUBORDINATION OF PORTION OF MANAGING GENERAL PARTNER'S NET REVENUE SHARE Under the partnership agreement the partnership is structured to provide you with preferred cash distributions equal to a minimum of 10% of your subscription in each of the first five 12-month periods of partnership operations. To help achieve this investment feature, the managing general partner will subordinate up to 40% of its 29% share of partnership net production revenues, which is up to 11.6% of the partnership net production revenues, to your receipt of partnership cash distributions equal to 10% of your subscription in each of the first five 12-month periods of partnership operations. 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. The subordination will be determined beginning with the first distribution of partnership revenues by debiting or crediting current period partnership revenues to the managing general partner as may be necessary to provide the distributions to you and the other investors. The specific formula is set forth in Section 5.01(b)(4)(a) of the partnership agreement. The managing general partner anticipates you will benefit from the subordination if the price of gas received by the partnership and the results of the partnership's drilling activities are unable to provide the required return. However, if the wells produce small gas volumes or gas prices decrease, then even with subordination your cash flow may be very small and you may not receive a return of your entire investment. As of January 15, 1999, all but five of the managing general partner's previous limited partnerships which have the subordination feature are achieving or exceeding the 10% preferred 12-month cash distributions. The managing general partner has subordinated from time to time its partnership revenues in all of its other partnerships which have this subordination feature. TABLE OF PARTICIPATION IN COSTS AND REVENUES The following table sets forth the participation in partnership costs and revenues between the managing general partner and you and the other investors after deducting from the partnership's gross revenues the landowner royalties and any other lease burdens.
MANAGING GENERAL PARTNER INVESTORS ------- --------- PARTNERSHIP COSTS Organization and offering costs ................................... 100% 0% Lease costs ....................................................... 100% 0% Intangible drilling costs ......................................... 0% 100% Equipment costs ................................................... 43.75% 56.25% Operating costs, administrative costs, direct costs and all other costs .................................................. (1) (1) PARTNERSHIP REVENUES Interest income ................................................... (2) (2) Equipment proceeds ................................................ 43.75% 56.25% All other revenues including production revenues (3) .............. 29% 71% PARTICIPATION IN DEDUCTIONS Intangible drilling costs ......................................... 0% 100% Depreciation ...................................................... 43.75% 56.25% Percentage depletion allowance .................................... 29% 71%
71 - -------------------- (1) These costs will be charged to the parties in the same ratio as the related production revenues are being credited. (2) Interest earned on your subscription before the offering closes will be credited to your account and paid approximately eight weeks after the offering closes. After the offering closes and until proceeds from the offering are invested in the partnership's oil and gas operations any interest income from temporary investments will be allocated pro rata to the investors providing the subscriptions. All other interest income, including interest earned on the deposit of operating revenues, will be credited as oil and gas production revenues are credited. (3) These percentages may vary if a portion of the managing general partner's partnership net production revenues is subordinated. ALLOCATION AND ADJUSTMENT AMONG INVESTORS The partnership's revenues, gains, income, costs, expenses, losses and other charges and liabilities will be charged and credited, among you and the other investors, pro rata in accordance with your respective subscriptions. These charges and credits will take into account any investor general partner's status as a defaulting investor general partner. DISTRIBUTIONS The managing general partner will review the partnership accounts at least quarterly to determine whether cash distributions are appropriate and the amount to be distributed, if any. The partnership will distribute funds which the managing general partner does not believe are necessary to be retained by the partnership. Also, funds will not be advanced or borrowed for purposes of distributions if the amount of the distributions would exceed the partnership's accrued and received revenues for the previous four quarters, less paid and accrued operating costs with respect to the revenues. Any cash distributions from the partnership to the managing general partner will only be made in conjunction with investor distributions and only out of funds properly allocated to the managing general partner's account. LIQUIDATION The partnership will continue in existence for 50 years unless it is terminated earlier. An election to terminate the partnership may be made by either: - the managing general partner; or - the affirmative vote of investors whose subscriptions equal a majority of the total subscriptions. Although the partnership may terminate on the occurrence of other events which cause the dissolution of a limited partnership under state law, a successor limited partnership will automatically be formed under those circumstances. Thus, only upon a final terminating event, which is in the election of the managing general partner or investors as described above, the termination of the partnership under Section 708(b)(1)(A) of the Internal Revenue Code or the partnership ceases to be a going concern, will the partnership be liquidated. Upon liquidation of the partnership you will receive your interest in the partnership. Generally, this means an undivided interest in the assets of the partnership after payments to creditors of the partnership in the ratio of the partners' capital accounts. However, after capital accounts of all of the partners have been reduced to zero, the interest in the remaining assets of the partnership will equal a partner's interest in the related revenues of the partnership. Any in kind property distributions to you must be made to a liquidating trust or similar entity, unless at the time of the distribution: - the managing general partner offers you the election of receiving in kind property distributions and you accept the offer after being advised of the risks associated with the direct ownership; or - there are alternative arrangements in place which assure that you will not, at any time, be responsible for the operation or disposition of the partnership properties. 72 If the managing general partner has not received your written consent within 30 days after it is mailed, then it will be presumed that you have not consented. The managing general partner may then sell the asset at the best price reasonably obtainable from an independent third party. Also, if the partnership is liquidated, the managing general partner will be repaid for any debts owed it by the partnership before there are any payments to you and the other investors. CONFLICTS OF INTEREST IN GENERAL Conflicts of interest are inherent in oil and gas partnerships involving non-industry investors because the transactions are entered into without arms' length negotiation. Your interests and those of the managing general partner and its affiliates may be inconsistent in some respects or in certain instances, and the managing general partner's actions may not be the most advantageous to you. The following discussion describes certain possible conflicts of interest that may arise for the managing general partner and its affiliates in the course of the partnership, and certain limitations which are designed to reduce, but which will not eliminate, the conflicts. The following discussion, however, is not intended to be inclusive and other transactions or dealings may arise in the future that could result in conflicts of interest for the managing general partner and its affiliates. CONFLICTS REGARDING TRANSACTIONS WITH THE MANAGING GENERAL PARTNER AND ITS AFFILIATES Although the managing general partner believes that the compensation and reimbursement that it and its affiliates will receive in connection with the partnership are reasonable, the compensation has been determined solely by the managing general partner and is not the result of any negotiation with any unaffiliated third party dealing at arms' length. The managing general partner will be entitled to receive compensation and reimbursement from the partnership even if the partnership's activities result in little or no profit, or a loss to you and the other investors. The managing general partner or its affiliates providing the services or equipment can be expected to profit from the transactions, and it may be in the managing general partner's best interest to enter into contracts with itself and its affiliates rather than unaffiliated parties even if the contract terms, or skill and experience, offered by the unaffiliated third parties is comparable. The partnership agreement provides that if the managing general partner and any affiliate provide services or equipment to the partnership, then the fees charged must be competitive with the fees charged by unaffiliated persons in the same geographic area engaged in similar businesses. Also, before the managing general partner and any affiliate may provide services or equipment to the partnership they must be engaged, independently of the partnership and as an ordinary and ongoing business, in rendering the services or selling or leasing the equipment and supplies to a substantial extent to other persons in the oil and gas industry. If the managing general partner and any affiliate is not engaged in such a business, then the compensation must be the lesser of its cost or the competitive rate which could be obtained in the area. Any services not otherwise described in this prospectus for which the managing general partner or an affiliate is to be compensated must be: - set forth in a written contract which describes the services to be rendered and the compensation to be paid, and - cancelable without penalty upon 60 days written notice by investors whose subscriptions equal a majority of the total subscriptions. The compensation, if any, will be reported to you in the partnership's annual and semiannual reports and a copy of the contract will be provided to you upon request. CONFLICT REGARDING THE DRILLING AND OPERATING AGREEMENT It is anticipated that all the wells developed by the partnership will be drilled and operated pursuant to the drilling and operating agreement. The managing general partner will be required to monitor and enforce, on behalf of the partnership, its own compliance with the provisions of the drilling and operating agreement, which creates a continuing conflict of interest. 73 CONFLICTS REGARDING SHARING OF COSTS AND REVENUES The managing general partner will receive a percentage of revenues greater than the percentage of costs that it pays. This may create a conflict of interest between the managing general partner and you and the other investors regarding the determination of which wells will be drilled by the partnership and the profit potential associated with the wells. In addition, the allocation of all the intangible drilling costs to you and the other investors and a portion of the equipment costs to the managing general partner creates conflicts of interest between the managing general partner and you and the other investors. For example, the completion of a marginally productive well might prove beneficial to you and the other investors but not to the managing general partner. When a completion decision is made you and the other investors will have already paid the majority of your costs so you will want to complete the well if there is any opportunity to recoup any of the costs. On the other hand, the managing general partner will not have paid any money before this time and it will only want to pay the costs if it is reasonably certain of recouping its money and making a profit. Based upon its past experience, however, the managing general partner anticipates that all partnership wells in the Clinton/Medina geological formation will be required to be completed before a determination can be made as to the well's productivity. In any event, the managing general partner will not cause any partnership well to be plugged and abandoned without a completion attempt unless it makes the decision in accordance with generally accepted oil and gas field practices in the geographic area of the well location. CONFLICTS REGARDING TAX MATTERS PARTNER The managing general partner will serve as the partnership's tax matters partner and will represent the partnership before the IRS. The managing general partner will have broad authority to act on behalf of you and the other investors in any administrative or judicial proceeding involving the IRS, and this authority may involve conflicts of interest. These potential conflicts include: - whether or not to expend partnership funds to contest a proposed adjustment by the IRS, if any, to the amount of the partnership's deduction for intangible drilling costs, which is allocated 100% to you and the other investors, - whether or not to contest a proposed adjustment by the IRS, if any, to the amount of the managing general partner's credit to its capital account for contributing the leases to the partnership which would decrease the managing general partner's distribution interest in the partnership, or - the managing general partner's reimbursement from the partnership of expenses incurred by it in its role as the partnership's tax matters partner. CONFLICTS REGARDING OTHER ACTIVITIES OF THE MANAGING GENERAL PARTNER, THE OPERATOR AND THEIR AFFILIATES The managing general partner will be required to devote to the partnership the time and attention which it considers necessary for the proper management of the partnership's activities. The managing general partner will determine the allocation of its management time, services and other functions on an as-needed basis consistent with its fiduciary duties among the partnership and its other partnerships. The managing general partner, however, has sponsored and continues to manage other partnerships, which may be concurrent. Additionally, the managing general partner and its affiliates will engage in other oil and gas activities and other unrelated business activities, either for their own account or on behalf of other partnerships, joint ventures, corporations or other entities in which they have an interest. Thus, they will have conflicts of interest in allocating management time, services and other activities. Subject to its fiduciary duties, the managing general partner will not be restricted in any manner from participating in other businesses or activities, even if these other businesses or activities are competitive with the partnership's activities and operate in the same areas as the partnership. However, the managing general partner and its affiliates may pursue business opportunities that are consistent with the partnership's investment objectives for their own account only after they have determined that the opportunity either: - cannot be pursued by the partnership because of insufficient funds, or - because it is not appropriate for the partnership under the existing circumstances. 74 CONFLICTS INVOLVING THE ACQUISITION OF LEASES The managing general partner will select, in its sole discretion, the wells to be drilled by the partnership. Conflicts of interest may arise concerning which wells will be drilled by the partnership, and which will be drilled by the managing general partner's other partnerships to be organized by it or in which it serves as driller/operator. It may be in the managing general partner's or its affiliates' advantage to have the partnership bear the costs and risks of drilling a particular well rather than another partnership. These potential conflicts of interest will be increased if the managing general partner organizes and allocates wells to more than one partnership at a time including a year-end partnership in which affiliates of the managing general partner invest. To lessen this conflict of interest the managing general partner generally takes a similar interest in other partnerships when it serves as managing general partner and/or driller/operator. No procedures, other than the guidelines set forth below and in " - Procedures to Reduce Conflicts of Interest," have been established by the managing general partner to resolve any conflicts which may arise. The partnership agreement provides that the managing general partner and its affiliates will abide by the guidelines set forth below. However, with respect to (2), (3), (4) and (5) there is an exception in the partnership agreement for another program in which the interest of the managing general partner is substantially similar to or less than its interest in the partnership. (1) TRANSFERS AT COST. All leases will be acquired from the managing general partner and credited towards its required capital contribution at the cost of the lease, unless the managing general partner has a reason to believe that cost is materially more than the fair market value of the property. If the managing general partner believes cost is materially more than fair market value, then the managing general partner's credit for the contribution must be at a price not in excess of the fair market value. A determination of fair market value must be supported by an appraisal from an independent expert. This opinion and any associated supporting information must be maintained in the partnership's records for at least six years. (2) EQUAL PROPORTIONATE INTEREST. When the managing general partner sells or transfers an oil and gas interest to the partnership, it must, at the same time, sell or transfer to the partnership an equal proportionate interest in all its other property in the same prospect. The term "prospect" generally means an area which is believed to contain commercially productive quantities of gas or oil. However, a prospect will be limited to the drilling or spacing unit on which one well will be drilled if the following two conditions are met: - the well is being drilled to a geological feature which contains proved reserves; and - the drilling or spacing unit protects against drainage. The managing general partner believes that for an oil and gas prospect located in Ohio and Pennsylvania on which a well will be drilled to test the Clinton/Medina geologic formation, a prospect will consist of the drilling and spacing unit because it will meet the test in the preceding sentence. Proved reserves, generally, are the estimated quantities of natural gas which have been demonstrated to be recoverable in future years with reasonable certainty under existing economic and operating conditions, I.E., prices and costs as of the date the estimate is made. Proved reserves do not include proved undeveloped reserves which generally are reserves expected to be recovered from existing wells where a relatively major expenditure is required for recompletion or from new wells on undrilled acreage. It is anticipated that most of the wells drilled by the partnership will develop the Clinton/Medina geologic formation. The drilling of wells on the acreage may provide the managing general partner with offset sites by allowing it to determine at the partnership's expense the value of adjacent acreage in which the partnership would not have any interest. The managing general partner owns acreage in the area surrounding the currently proposed wells. To lessen this conflict of interest, for five years the managing general partner may not drill any well within 1,650 feet of an existing partnership well in the Clinton/Medina formation in Pennsylvania, or within 1,100 feet of an existing partnership well in Ohio. If the partnership abandons its interest in a well, then this restriction will continue for one year following the abandonment. (3) SUBSEQUENTLY ENLARGING PROSPECT. In areas where the wells are not being drilled to the Clinton/Medina geological formation, if the area constituting the partnership's prospect is subsequently enlarged based on subsequent geological 75 information then there are special provisions. If the prospect is enlarged to cover any area where the managing general partner owns a separate property interest and the partnership activities were material in establishing the existence of proved undeveloped reserves which are attributable to the separate property interest, then the separate property interest or a portion thereof must be sold to the partnership in accordance with (1), (2) and (4). (4) TRANSFER OF LESS THAN THE MANAGING GENERAL PARTNER'S AND ITS AFFILIATE'S ENTIRE INTEREST. If the managing general partner sells or transfers to the partnership less than all of its ownership in any prospect then it must comply with the following conditions: - the interest retained by the managing general partner must be a proportionate interest; - the managing general partner's obligations and the partnership's obligations must be substantially the same after the sale of the interest by the managing general partner or its affiliates; and - the managing general partner's interest in revenues must not exceed the amount proportionate to its retained interest. For example, if the managing general partner transfers 50% of its interest in a prospect to the partnership and retains a 50% interest, then the partnership will not pay any of the costs associated with the managing general partner's retained interest as a part of the transfer. This limitation does not prevent the managing general partner or its affiliates from subsequently dealing with their retained interest as they may choose with unaffiliated parties or affiliated partnerships. For example, the managing general partner may sell its retained interest to a third party for a profit. (5) LIMITATIONS ON ACTIVITIES OF THE MANAGING GENERAL PARTNER AND ITS AFFILIATES ON LEASES ACQUIRED BY THE PARTNERSHIP. For a five year period after the closing, if the managing general partner proposes to acquire an interest from an unaffiliated person in a prospect in which the partnership owns an interest or in a prospect in which the partnership's interest has been terminated without compensation within one year before the proposed acquisition, then the following conditions apply: - if the managing general partner does not currently own property in the prospect separately from the partnership, then the managing general partner may not buy an interest in the prospect; and - if the managing general partner currently owns a proportionate interest in the prospect separately from the partnership, then the interest to be acquired must be divided in the same proportion between the managing general partner and the partnership as the other property in the prospect. However, if the partnership does not have the cash or financing to buy the additional interest, then the managing general partner cannot buy an additional interest in the prospect either. (6) NO SALE OF LEASES TO THE MANAGING GENERAL PARTNER. The managing general partner and its affiliates will not purchase any producing or non-producing oil and gas properties from the partnership. (7) NO TRANSFER OF LEASES BETWEEN AFFILIATED LIMITED PARTNERSHIPS. The partnership will not purchase properties from or sell properties to any other affiliated partnership. This prohibition, however, does not apply to joint ventures among affiliated partnerships, provided that: - the respective obligations and revenue sharing of all parties to the transaction are substantially the same and 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. (8) LEASES WILL BE ACQUIRED ONLY FOR STATED PURPOSE OF THE PARTNERSHIP. The partnership will acquire only leases that are reasonably expected to meet the stated purposes of the partnership. No leases will be acquired for the purpose of a 76 subsequent sale unless the acquisition is made after a well has been drilled to a depth sufficient to indicate that such an acquisition would be in the partnership's best interest. CONFLICTS BETWEEN INVESTORS AND THE MANAGING GENERAL PARTNER AS AN INVESTOR Any subscription by the managing general partner, its officers, directors, or affiliates will dilute the voting rights of you and the other investors and there may be a conflict with respect to certain matters. The managing general partner and its officers, directors and affiliates, however, are prohibited from voting with respect to certain matters. LACK OF INDEPENDENT UNDERWRITER AND DUE DILIGENCE INVESTIGATION The terms of this offering, the partnership agreement and the drilling and operating agreement were determined by the managing general partner without arms' length negotiations. You and the other investors have not been separately represented by legal counsel, who might have negotiated more favorable terms for you and the other investors in the offering and the agreements. Also, there was not an extensive in-depth "due diligence" investigation of the existing and proposed business activities of the partnership and the managing general partner which would be provided by independent underwriters. Although Anthem Securities, which is affiliated with the managing general partner, serves as dealer-manager and will receive reimbursement of accountable due diligence expenses for certain due diligence investigations conducted by the selling agents which will be reallowed to the selling agents, its due diligence examination concerning this offering cannot be considered to be independent. However, Anthem Securities has contracted with Nationwide Financial Network, a due diligence entity, to prepare and maintain an independent due diligence report for their network of independent broker-dealers which may request it. CONFLICTS CONCERNING LEGAL COUNSEL It is anticipated that legal counsel to the managing general partner will also serve as legal counsel to the partnership and that this dual representation will continue in the future. If a future dispute arises between the managing general partner and you and the other investors, then the managing general partner will cause you and the other investors to retain separate counsel. Also, if counsel advises the managing general partner that counsel reasonably believes its representation of the partnership will be adversely affected by its responsibilities to the managing general partner, then the managing general partner will cause you and the other investors to retain separate counsel. CONFLICTS REGARDING PRESENTMENT FEATURE You and the other investors have the right to present your units to the managing general partner for repurchase beginning in 2004. This creates the following conflicts of interest between you and the managing general partner: - - If the managing general partner does not have the necessary cash flow or it cannot borrow the funds on terms which it deems reasonable, then the managing general partner may suspend the presentment feature. Both of these determinations are subjective and will be made in the managing general partner's sole discretion. - - The managing general partner will also determine the repurchase price based upon a reserve report that it prepares and is reviewed by an independent expert. The independent expert, however, will be chosen by the managing general partner. Also, the formula for arriving at the repurchase price has subjective determinations that are within the discretion of the managing general partner. CONFLICTS REGARDING MANAGING GENERAL PARTNER WITHDRAWING AN INTEREST With respect to the managing general partner's subordination obligation a conflict of interest is created with you and the other investors by the managing general partner's right to hypothecate its interest or withdraw an interest in the partnership's wells. CONFLICTS REGARDING ORDER OF PIPELINE CONSTRUCTION A conflict of interest is created by the right of the managing general partner's affiliates to determine the order of priority and the construction of pipelines which may be required to connect certain wells into the gathering system of the managing general partner's affiliates. Also, as a part of the sale of the gathering system to an affiliated partnership the managing general partner's parent company has committed to the drilling of at least 225 wells by December 31, 2002, which includes the partnership's wells, within 2500 feet of the gathering system. PROCEDURES TO REDUCE CONFLICTS OF INTEREST In addition to the procedures set forth in " - Conflicts Involving the Acquisition of Leases," the managing general partner and its affiliates will comply with the following procedures in the partnership agreement to reduce some of the conflicts of 77 interest with you and the other investors. The managing general partner does not have any other conflict of interest resolution procedures. Thus, conflicts of interest between the managing general partner and you and the other investors may not necessarily be resolved in your best interests. However, the managing general partner believes that its significant capital contribution to the partnership will reduce the conflicts of interest. (1) FAIR AND REASONABLE. The managing general partner will not sell, transfer, or convey any property to, or purchase any property from, the partnership except pursuant to transactions that are fair and reasonable, nor take any action with respect to the assets or property of the partnership which does not primarily benefit the partnership. (2) NO COMPENSATING BALANCES. The managing general partner may not use the partnership's funds as a compensating balance for its own benefit. (3) FUTURE PRODUCTION. The managing general partner may not commit the future production of a partnership well exclusively for its own benefit. (4) DISCLOSURE. If an agreement or arrangement binds the partnership, then it must be fully disclosed in the prospectus. (5) NO LOANS FROM THE PARTNERSHIP. The partnership will not loan money to the managing general partner. (6) NO REBATES. The managing general partner may not participate in any business arrangements which would circumvent these guidelines including receiving rebates or give-ups. (7) SALE OF ASSETS. The sale of all or substantially all of the assets of the partnership may only be made with the consent of investors whose subscriptions equal a majority of the total subscriptions. (8) PARTICIPATION IN OTHER PARTNERSHIPS. If the partnership participates in other partnerships or joint ventures then the terms of the arrangements must not circumvent any of the requirements contained in the partnership agreement, including the following: - there will be no duplication or increase in organization and offering expenses, the managing general partner's compensation, partnership expenses or other fees and costs; - there will be no substantive change in the fiduciary and contractual relationship between the managing general partner and you and the other investors; and - there will be no diminishment in your voting rights. (9) INVESTMENTS. Partnership funds may not be invested in the securities of another person except in the following instances: - investments in interests made in the ordinary course of the partnership's business; - temporary investments in income producing short-term highly liquid investments, in which there is appropriate safety of principal, such as U.S. Treasury Bills; - multi-tier arrangements meeting the requirements of (8) above; - investments involving less than 5% of the total subscriptions which are a necessary and incidental part of a property acquisition transaction; and - 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 are prohibited. POLICY REGARDING ROLL-UPS It is possible at some indeterminate time in the future that the partnership will become involved in a roll-up. In general, a roll-up means a transaction involving the acquisition, merger, conversion, or consolidation of the partnership with or into another partnership, corporation or other entity, and the issuance of securities by the roll-up entity to you and the other investors. A roll-up will also include any change in the rights, preferences, and privileges of you and the other investors in the partnership. These changes could include the following: 78 - increasing the compensation of the managing general partner; - amending your voting rights; - listing the units on a national securities exchange or on NASDAQ; - changing the fundamental investment objectives of the partnership; or - materially altering the duration of the partnership. The partnership agreement provides various policies if a roll-up should occur in the future. These policies include: - an appraisal of all partnership assets must be acquired from an independent expert, and a summary of the appraisal must be included in a report to you and the other investors in connection with a proposed roll-up; - if you vote "no" on the roll-up proposal, then you will be offered a choice of: - accepting the securities of the roll-up entity; - remaining a partner in the partnership and preserving your interests in the partnership on the same terms and conditions as existed previously; or - receiving cash in an amount equal to your pro-rata share of the appraised value of the partnership's net assets; and - the partnership will not participate in a proposed roll-up: - which is not approved by investors whose subscriptions equal 75% of the total subscriptions; - which would result in the diminishment of your voting rights under the roll-up entity's chartering agreement; - in which your right of access to the records of the roll-up entity would be less than those provided by the partnership agreement; or - in which any of the costs of the transaction would be borne by the partnership if the proposed roll-up is not approved by investors whose subscriptions equal 75% of the total subscriptions. 79 CERTAIN TRANSACTIONS As of January 15, 1999, previous limited partnerships sponsored by the managing general partner and its affiliates had made payments to the managing general partner and its affiliates as set forth below.
Cumulative Leasehold, Reimbursement of Drilling and Cumulative General and Investor Non-recurring Completion Operator's Administrative Partnership Subscriptions Management Fee Costs (1) Charges Overhead - ----------- ------------- -------------- --------- ------- -------- Atlas L.P. #1-1985 $ 600,000 0 $ 600,000 $172,076 $ 38,000 A.E. Partners 1986 631,250 0 631,250 130,440 54,244 A.E. Partners 1987 721,000 0 721,000 138,563 54,863 A.E. Partners 1988 617,050 0 617,050 111,867 51,120 A.E. Partners 1989 550,000 0 550,000 95,551 49,354 A.E. Partners 1990 887,500 0 887,500 150,717 54,066 A.E. Nineties-10 2,200,000 0 2,200,000 333,165 53,711 A.E. Nineties-11 750,000 0 761,802 (2) 129,842 82,041 A.E. Partners 1991 868,750 0 867,500 121,977 68,050 A.E. Nineties-12 2,212,500 0 2,272,017 (2) 368,849 79,368 A.E. Nineties-JV 92 4,004,813 0 4,157,700 (2) 559,501 121,415 A.E. Partners 1992 600,000 0 600,000 70,358 32,175 A.E. Nineties-Public #1 2,988,960 0 3,026,348 (2) 275,996 67,204 A.E. Nineties-1993 Ltd. 3,753,937 0 3,480,656 (2) 406,896 79,243 A.E. Partners 1993 700,000 0 689,940 77,993 24,338 A.E. Nineties-Public #2 3,323,920 0 3,324,668 (2) 279,209 54,133 A.E. Nineties-14 9,940,045 0 9,512,015 (2) 926,407 180,127 A.E. Partners 1994 892,500 0 892,500 55,015 23,811 A.E. Nineties-Public #3 5,799,750 0 5,799,750 376,743 76,249 A.E. Nineties-15 10,954,715 0 9,859,244 (2) 686,256 139,355 A.E. Partners 1995 600,000 0 600,000 34,104 6,638 A.E. Nineties-Public #4 6,991,350 0 6,991,350 388,460 72,791 A.E. Nineties-16 10,955,465 0 10,955,465 428,689 71,309 A.E. Partners 1996 800,000 0 800,000 35,060 6,264 A.E. Nineties-Public #5 7,992,240 0 7,992,240 270,858 47,854 A.E. Nineties-17 8,813,488 0 8,813,488 193,163 34,596 A.E. Partners 1997 506,250 0 506,250 7,588 1,200 A.E. Nineties-Public #6 9,901,025 0 9,901,025 154,050 21,615 A.E. Nineties-18 11,391,673 0 11,391,673 12,010 2,925 A.E. Nineties-1998 1,740,000 0 1,740,000 0 0 A.E. Nineties-Public #7 11,988,350 0 11,988,350 0 0
- ------------------------------------ (1) Excluding the managing general partner's capital contributions. (2) Includes additional drilling costs paid with production revenues. FIDUCIARY RESPONSIBILITY OF THE MANAGING GENERAL PARTNER IN GENERAL The managing general partner will manage the partnership and its assets. It is accountable to you as a fiduciary and it must exercise good faith and deal fairly with you and the other investors in conducting the affairs of the partnership. If the managing general partner breaches its fiduciary responsibilities, then you are entitled to an accounting and the recovery of any economic loss caused by the breach. The managing general partner has a fiduciary responsibility for the safekeeping and use of all funds and assets of the partnership whether or not in the managing general partner's possession or control. Also, the managing general partner may not employ, or permit another to employ, the funds or assets in any manner except for the exclusive benefit of the partnership. Neither the partnership agreement nor any other agreement between the managing general partner and the partnership may contractually limit any fiduciary duty owed to you and the other investors by the managing general partner under applicable law except as set forth in Sections 4.01, 4.02, 4.04, 4.05 and 4.06 of the partnership agreement. This is a rapidly expanding and changing area of the law and if you have questions concerning the duties of the managing general partner you should consult your own counsel. 80 LIMITATIONS ON MANAGING GENERAL PARTNER LIABILITY AS FIDUCIARY Under the terms of the partnership agreement, the managing general partner, the operator, and their affiliates have limited their liability to the partnership and to you and the other investors for any loss suffered by the partnership or you and the other investors which arises out of any action or inaction on their part if: - they determined in good faith that the course of conduct was in the best interest of the partnership; - they were acting on behalf of, or performing services for, the partnership; and - their course of conduct did not constitute negligence or misconduct. Thus, you and the other investors may have a more limited right of action than you would have had without these limitations in the partnership agreement. In addition, the partnership agreement provides for indemnification of the managing general partner, the operator, and their affiliates by the partnership against any losses, judgements, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with the partnership provided that they meet the standards set forth above. However, there is a more restrictive limitation for indemnification for losses arising from or out of an alleged violation of federal or state securities laws. Also, to the extent that any indemnification provision in the partnership agreement purports to include indemnification for liabilities arising under the Securities Act of 1933, as amended, you should be aware that, in the SEC's opinion, this indemnification is contrary to public policy and therefore unenforceable. Payments arising from the indemnification or agreement to hold harmless are recoverable only out of the tangible net assets of the partnership including insurance proceeds. Still, use of partnership funds or assets for indemnification would reduce amounts available for partnership operations or for distribution to you and the other investors. Also, the partnership will not pay the cost of the portion of any insurance which insures the managing general partner, the operator, or an affiliate against any liability for which they cannot be indemnified. In addition, partnership funds can be advanced to them for legal expenses and other costs incurred in any legal action for which indemnification is being sought only if the partnership has adequate funds available and certain conditions in the partnership agreement are met. TAX ASPECTS SUMMARY OF TAX OPINION The managing general partner has received the tax opinion of special counsel, Kunzman & Bollinger, Inc., Oklahoma City, Oklahoma, which is included as Exhibit (8) to the registration statement. This section of the prospectus is a summary of the tax opinion and all the material federal income tax consequences of the purchase, ownership and disposition of the general and limited partner interests and is not complete. You are strongly urged to read the entire tax opinion. The tax opinion represents only special counsel's best legal judgment, and has no binding effect or official status. It is only special counsel's prediction as to the outcome of the issues addressed and the results are not certain. As required by IRS regulations, special counsel's opinions state whether it is "more likely than not" that the predicted outcome will occur. There is no assurance that the present laws or regulations will not be changed and adversely affect you. Also, the IRS may challenge the deductions claimed by the partnership or you, or the taxable year in which such deductions are claimed, and no guaranty can be given that any such challenge would not be upheld if litigated. No advance ruling on any tax consequence of an investment in the partnership will be requested from the IRS. Different tax considerations than these addressed in this discussion may apply to foreign persons, corporations, partnerships, trusts and other prospective investors which are not treated as individuals for federal income tax purposes. Also, the treatment of the tax attributes of the partnership may vary among investors. Accordingly, you are urged to seek qualified, professional assistance in the preparation of your federal, state and local tax returns with specific reference to your own tax situation. In special counsel's opinion it is more likely than not that the following tax treatment will be upheld if challenged by the IRS and litigated. 81 - - PARTNERSHIP CLASSIFICATION. The partnership will be classified as a partnership for federal income tax purposes, and not as a corporation. The partnership, as such, will not pay any federal income taxes, and all items of income, gain, loss, and deduction of the partnership will be reportable by the partners in the partnership. - - PASSIVE ACTIVITY CLASSIFICATION. The partnership's oil and gas production income, together with gain, if any, from the disposition of its oil and gas properties, which is allocable to limited partners who are individuals, estates, trusts, closely held corporations or personal service corporations more likely than not will be characterized as income from a passive activity which may be offset by passive activity losses. Income or gain attributable to investments of working capital of the partnership will be characterized as portfolio income, which cannot be offset by passive activity losses. Also, the passive activity limitations on losses under Section 469, more likely than not, will not be applicable to investor general partners before the conversion of investor general partner units to limited partner interests. - - NOT A PUBLICLY TRADED PARTNERSHIP. Assuming that no more than 10% of the units are transferred in any taxable year of the partnership, other than in private transfers described in Treas. Reg. Section 1.7704-1(e), it is more likely than not that the partnership will not be treated as a "publicly traded partnership" under the Internal Revenue Code. - - AVAILABILITY OF CERTAIN DEDUCTIONS. Business expenses, including payments for personal services actually rendered in the taxable year in which accrued, which are reasonable, ordinary and necessary and do not include amounts for items such as lease acquisition costs, organization and syndication fees and other items which are required to be capitalized, are currently deductible. - - INTANGIBLE DRILLING COSTS. Intangible drilling costs paid by the partnership under the terms of bona fide drilling contracts for the partnership's wells will be deductible in the taxable year in which the payments are made and the drilling services are rendered, assuming such amounts are fair and reasonable consideration and subject to certain restrictions summarized below, including basis and "at risk" limitations and the passive activity loss limitation with respect to limited partners. - - PREPAYMENTS OF INTANGIBLE DRILLING COSTS. Depending primarily on when the partnership subscriptions are received, the partnership will prepay in 1999 most, if not all, of the intangible drilling costs related to partnership wells the drilling of which will begin in 2000. Assuming that the amounts are fair and reasonable, and based in part on the factual assumptions set forth below, in our opinion the prepayments of intangible drilling costs will be deductible for the 1999 taxable year even though all owners in the well may not be required to prepay such amounts, subject to certain restrictions summarized below, including basis and "at risk" limitations, and the passive activity loss limitation with respect to the limited partners. The foregoing opinion is based in part on the assumptions that: - the intangible drilling costs will be required to be prepaid in 1999 for specified wells pursuant to the drilling and operating agreement; - pursuant to the drilling and operating agreement the drilling of the wells is required to be, and actually is, begun on or before March 30, 2000, and the wells are continuously drilled thereafter until completed, if warranted, or abandoned; and - the required prepayments are not refundable to the partnership and any excess prepayments are applied to intangible drilling costs of substitute wells. - - DEPLETION ALLOWANCE. The greater of cost depletion or percentage depletion will be available to qualified investors as a current deduction against the partnership's oil and gas production income, subject to certain restrictions summarized below. - - MACRS. The partnership's reasonable equipment costs for depreciable property placed in the wells which cannot be deducted immediately will be eligible for cost recovery deductions under the Modified Accelerated Cost Recovery System ("MACRS"), generally over a seven year "cost recovery period," subject to certain restrictions summarized below, including basis and "at risk" limitations, and the passive activity loss limitation in the case of limited partners. 82 - - TAX BASIS OF INVESTOR'S INTEREST. Each investor's adjusted tax basis in his partnership interest will be increased by his total subscription. - - AT RISK LIMITATION ON LOSSES. Each investor initially will be "at risk" to the full extent of his subscription. - - ALLOCATIONS. Assuming the effect of the allocations of income, gain, loss and deduction (or items thereof) set forth in the partnership agreement, including the allocations of basis and amount realized with respect to oil and gas properties, is substantial in light of an investor's tax attributes that are unrelated to the partnership, it is more likely than not that such allocations will have "substantial economic effect" and will govern each investor's distributive share of such items to the extent such allocations do not cause or increase deficit balances in the investors' capital accounts. - - SUBSCRIPTION. No gain or loss will be recognized by the investors on payment of their subscriptions. - - PROFIT MOTIVE AND NO TAX SHELTER REGISTRATION. Based on the managing general partner's representation that the partnership will be conducted as described in the prospectus, it is more likely than not that the partnership will possess the requisite profit motive under Section 183 of the Internal Revenue Code and is not required to register with the IRS as a tax shelter. - - IRS ANTI-ABUSE RULE. Based on the managing general partner's representation that the partnership will be conducted as described in the prospectus, it is more likely than not that the partnership will not be subject to the anti-abuse rule set forth in Treas. Reg. Section 1.701-2. - - OVERALL EVALUATION OF TAX BENEFITS. Based on special counsel's conclusion that substantially more than half of the material tax benefits of the partnership, in terms of their financial impact on a typical investor, more likely than not will be realized if challenged by the IRS, it is the special counsel's opinion that the tax benefits of the partnership, in the aggregate, which are a significant feature of an investment in the partnership by a typical original investor more likely than not will be realized as contemplated by the prospectus. PARTNERSHIP CLASSIFICATION For federal income tax purposes, a partnership is not a taxable entity. The partners, rather than the partnership, receive any deductions and credits, as well as the income, from the operations engaged in by the partnership. A business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership. Because the partnership was formed under the Pennsylvania Revised Uniform Limited Partnership Act which describes the partnership as a "partnership," it will automatically be classified as a partnership unless it elects to be classified as a corporation. In this regard, the managing general partner has represented that no election for the partnership to be classified as a corporation will be filed with the IRS. LIMITATIONS ON PASSIVE ACTIVITIES Under the passive activity rules, all income of a taxpayer who is subject to the rules is categorized as: - income from passive activities such as limited partners' interests in a business; - active income such as salary, bonuses, etc.; or - portfolio income such as gain, interest, dividends and royalties unless earned in the ordinary course of a trade or business. Losses generated by "passive activities" can offset only passive income and cannot be applied against active income or portfolio income. Suspended losses and credits may be carried forward, but not back, and used to offset future years' passive activity income. Passive activities include any trade or business in which the taxpayer does not materially participate on a regular, continuous, and substantial basis. Under the partnership agreement, limited partners will not have material participation in the partnership and generally will be subject to the passive activity limitations. Investor general partners also do not materially participate in the partnership. However, because investor general partners do not have limited liability under the Revised Uniform Limited Partnership Act of Pennsylvania until they are converted to limited partners, their deductions generally will not be treated as passive deductions before the conversion. However, if an 83 investor general partner invests in the partnership through an entity which limits his liability, for example, a limited partnership or S corporation, he will be treated the same as a limited partner and generally will be subject to the passive activity limitations. Contractual limitations on the liability of investor general partners under the partnership agreement such as insurance, limited indemnification, etc. will not cause investor general partners to be subject to the passive activity limitations. PUBLICLY TRADED PARTNERSHIP RULES. Net losses and credits of a partner from each publicly traded partnership are suspended and carried forward to be netted against income from that publicly traded partnership only. In addition, net losses from other passive activities may not be used to offset net income from a publicly traded partnership. However, in the opinion of special counsel it is more likely than not that the partnership will not be characterized as a publicly traded partnership under the Internal Revenue Code so long as no more than 10% of the Units are transferred in any taxable year of the partnership other than in private transfers described in Treas. Reg. Section 1.7704-1(e). CONVERSION FROM INVESTOR GENERAL PARTNER TO LIMITED PARTNER. Investor general partner units will be converted to limited partner interests after substantially all of the partnership wells have been drilled and completed, which the managing general partner anticipates will be in the late summer of 2000. Thereafter, each investor general partner will have limited liability as a limited partner under the Revised Uniform Limited Partnership Act of Pennsylvania with respect to his interest in the partnership. Concurrently, the investor general partner will become subject to the passive activity limitations. However, his net income from the partnership's wells following the conversion will continue to be characterized as non-passive income which cannot be offset with passive losses. An investor general partner's conversion of his partnership interest into a limited partner interest should not have any other adverse tax consequences unless the investor general partner's share of any partnership liabilities is reduced as a result of the conversion. A reduction in a partner's share of liabilities is treated as a constructive distribution of cash to such partner, which reduces the basis of the partner's interest in the partnership and is taxable to the extent it exceeds his basis. TAXABLE YEAR The partnership intends to adopt a calendar year taxable year. 1999 EXPENDITURES The managing general partner anticipates that all of the partnership's subscription proceeds will be expended in 1999 and that your share of the income and deductions generated pursuant thereto will be reflected on your federal income tax return for that period. Depending primarily on when the partnership subscriptions are received, the managing general partner anticipates that the partnership will prepay in 1999 most, if not all, of its intangible drilling costs for wells the drilling of which will begin in 2000. The deductibility in 1999 of such advance payments cannot be guaranteed. AVAILABILITY OF CERTAIN DEDUCTIONS Ordinary and necessary business expenses, including reasonable compensation for personal services actually rendered, are deductible in the year incurred. The managing general partner has represented to special counsel that the amounts payable to the managing general partner and its affiliates, including the amounts paid to the managing general partner or its affiliates as general drilling contractor, are the amounts which would ordinarily be paid for similar services in similar transactions. The fees paid to the managing general partner and its affiliates will not be currently deductible if they are in excess of reasonable compensation, are properly characterized as organization or syndication fees, other capital costs such as the acquisition cost of the leases, or not "ordinary and necessary" business expenses, or the services were rendered in tax years other than the tax year in which such fees were deducted by the partnership. In the event of an audit, payments to the managing general partner and its affiliates by the partnership will be scrutinized by the IRS to a greater extent than payments to an unrelated party. INTANGIBLE DRILLING COSTS Assuming a proper election and subject to the passive activity loss rules in the case of limited partners, you will be entitled to deduct your share of intangible drilling costs which include items which do not have salvage value, such as labor, fuel, repairs, supplies and hauling necessary to the drilling of a well. Such costs generally will be treated as ordinary income if a property is sold at a gain. Also, productive-well intangible drilling costs may subject you to an alternative minimum tax in excess of regular tax unless an election is made to deduct them on a straight line basis over a 60 month period. The managing general partner has allocated approximately 76.12% of the footage price to be paid by the partnership for a completed well in the Appalachian Basin to intangible drilling costs which are charged 100% to you and the other investors 84 under the partnership agreement. The IRS could challenge the characterization of costs claimed by you and the partnership to be deductible intangible drilling costs and recharacterize such costs as some other item which may be non-deductible; however, this would have no effect on the allocation and payment of such costs under the partnership agreement. The amount of the deduction for intangible drilling costs is limited for integrated oil companies. Integrated oil companies are those taxpayers who directly or through a related person engage in the retail sale of oil or gas and whose gross receipts for the calendar year from such activities exceed $5,000,000, or those taxpayers and related persons who have refinery production in excess of 50,000 barrels on any day during the taxable year. DRILLING CONTRACTS The partnership will enter into the drilling and operating agreement with the managing general partner or its affiliates, as a third-party general drilling contractor, to drill and complete the partnership's development wells on a footage basis of $37.81 per foot for each well that is drilled and completed in the Appalachian Basin, and at a competitive rate for wells, if any, drilled in other areas of the United States. Under the footage drilling contracts for wells situated in the Mercer County area of the Appalachian Basin, the managing general partner anticipates that it will have reimbursement of general and administrative overhead of $3,600 per well and a profit of approximately 15% per well assuming the well is drilled to 5,950 feet. However, the actual cost of the drilling of the wells may be more or less than the estimated amount, due primarily to the uncertain nature of drilling operations. The managing general partner believes the drilling and operating agreement is at competitive rates in the proposed areas of operation. Nevertheless, the amount of the profit realized by the managing general partner under the drilling contract, if any, could be challenged by the IRS as unreasonable and disallowed as a deductible intangible drilling cost. Depending primarily on when the partnership subscriptions are received, the managing general partner anticipates that the partnership will prepay in 1999 most, if not all, of the intangible drilling costs for drilling activities that will begin in 2000. In Keller v. Commissioner, 79 T.C. 7 (1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court applied a two-part test for the current deductibility of prepaid intangible drilling costs. First, the expenditure must be a payment rather than a refundable deposit. Second, the deduction must not result in a material distortion of income taking into substantial consideration the business purpose aspects of the transaction. The partnership will attempt to comply with the guidelines set forth in Keller with respect to prepaid intangible drilling costs. The drilling and operating agreement will require the partnership to prepay in 1999 intangible drilling costs for specified wells the drilling of which will begin in 2000. Although the partnership is not required to prepay completion costs of a well prior to the time a decision has been made to complete the well, the managing general partner anticipates that all of the partnership's wells will be required to be completed before an evaluation can be made as to their potential productivity. Prepayments should not result in a loss of current deductibility where there is a legitimate business purpose for the required prepayment, the contract is not merely a sham to control the timing of the deduction and there is an enforceable contract of economic substance. The drilling and operating agreement will require the partnership to prepay the intangible drilling costs of the wells in order to enable the operator to commence site preparation for the wells, obtain suitable subcontractors at the then current prices and insure the availability of equipment and materials. Under the drilling and operating agreement excess prepaid amounts, if any, will not be refundable to the partnership but will be applied to intangible drilling costs to be incurred in drilling substitute wells. Under Keller, such a provision for substitute wells should not result in the prepayments being characterized as refundable deposits. The likelihood that prepayments will be challenged by the IRS on the grounds that there is no business purpose for the prepayment is increased in the event prepayments are not required with respect to the entire well. It is possible that less than 100% of the interest will be acquired by the partnership in one or more wells and prepayments may not be required of all owners of interests in the wells. However, in the view of special counsel, a legitimate business purpose for the required prepayments may exist under the guidelines set forth in Keller, even though prepayment is not required, or actually received, by the drilling contractor with respect to a portion of the interest in the wells. In addition to the foregoing, a current deduction for prepaid intangible drilling costs is available only if the drilling of the wells begins before the close of the 90th day after the close of the taxable year. The managing general partner will attempt to cause the drilling of all prepaid partnership wells to begin on or before March 30, 2000. However, the drilling of any partnership well may be delayed due to circumstances beyond the control of the partnership or the drilling contractor. Such circumstances include the unavailability of drilling rigs, weather conditions, inability to obtain drilling permits or access right to the drilling 85 site, or title problems. Due to the foregoing factors no guaranty can be given that the drilling of all prepaid partnership wells required by the drilling and operating agreement to begin on or before March 30, 2000, will actually begin by that date. In that event, deductions claimed in 1999 for prepaid intangible drilling costs would be disallowed and deferred to the 2000 taxable year. No assurance can be given that on audit the IRS would not disallow the current deductibility of a portion or all of any prepayments of intangible drilling costs under the partnership's drilling contracts, thereby decreasing the amount of deductions allocable to the investors for the current taxable year, or that such a challenge would not ultimately be sustained. In the event of disallowance, the deduction would be available in the year the work is actually performed. DEPLETION ALLOWANCE Proceeds from the sale of the partnership's oil and gas production will constitute ordinary income. A certain portion of such income will not be taxable by virtue of the depletion allowance which permits the deduction from gross income for federal income tax purposes of either the percentage depletion allowance or the cost depletion allowance, whichever is greater. Depletion deductions generally will be treated as ordinary income if a property is sold at a gain. Cost depletion for any year is determined by dividing the adjusted tax basis for the property by the total units of gas or oil expected to be recoverable therefrom and then multiplying the resultant quotient by the number of units actually sold during the year. Cost depletion cannot exceed the adjusted tax basis of the property to which it relates. Percentage depletion generally is available to taxpayers other than integrated oil companies. Percentage depletion is based on your share of the partnership's gross production income from its oil and gas properties. The rate of percentage depletion is 15%. However, percentage depletion for marginal production increases 1%, up to a maximum increase of 10%, for each whole dollar that the domestic wellhead price of crude oil for the immediately preceding year is less than $20 per barrel without adjustment for inflation. The term "marginal production" includes oil and gas produced from a domestic stripper well property, which is defined as any property which produces a daily average of 15 or less equivalent barrels of oil, which is 90 MCF of natural gas, per producing well on the property in the calendar year. The rate of percentage depletion for marginal production in 1999 is 24%. Also, percentage depletion may not exceed 100% of the net income from each oil and gas property before the deduction for depletion and is limited to 65% of the taxpayer's taxable income for a year computed without regard to deductions for percentage depletion, net operating loss carry-backs and capital loss carry-backs. With respect to marginal properties, however, the 100% of net income property limitation is suspended for 1999. AVAILABILITY OF PERCENTAGE DEPLETION MUST BE COMPUTED SEPARATELY BY YOU, AND NOT BY THE PARTNERSHIP OR FOR INVESTORS AS A WHOLE. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO THE AVAILABILITY OF PERCENTAGE DEPLETION TO YOU. DEPRECIATION - MODIFIED ACCELERATED COST RECOVERY SYSTEM ("MACRS") Equipment costs and the related depreciation deductions are allocated and charged under the partnership agreement 43.75% to the managing general partner and 56.25% to you and the other investors. These deductions are subject to recapture as ordinary income rather than capital gain upon the disposition of the property or an investor's interest in the partnership. The cost of most equipment placed in service by the partnership will be recovered through depreciation deductions over a seven year cost recovery period, using the 200% declining balance method, with a switch to straight-line to maximize the deduction. Smaller depreciation deductions are used for purposes of the alternative minimum tax. Only a half-year of depreciation is allowed for the year recovery property is placed in service or disposed of, and in the case of a short tax year the MACRS deduction is prorated on a 12-month basis. No distinction is made between new and used property and salvage value is disregarded. LEASEHOLD COSTS AND ABANDONMENT The costs of acquiring oil and gas lease interests, together with the related cost depletion deduction and any abandonment loss, are allocated under the partnership agreement 100% to the managing general partner, which will contribute the leases to the partnership as a part of its capital contribution. TAX BASIS OF INVESTORS' INTERESTS Your distributive share of partnership loss is allowable only to the extent of the adjusted basis of your interest in the partnership at the end of the partnership's taxable year. The adjusted basis for federal income tax purposes of your interest in the 86 partnership will be adjusted, but not below zero, for any gain or loss to you from a disposition by the partnership of an oil or gas property, and will be increased by your cash subscription payment, your share of partnership income and your share, if any, of partnership debt. The adjusted basis of your interest in the partnership will be reduced by your share of partnership losses, your depletion deduction, but not below zero, and cash distributions from the partnership to you. The reduction in your share of partnership liabilities, if any, is considered a cash distribution. Should cash distributions exceed the tax basis of your interest in the partnership, taxable gain would result to the extent of the excess. "AT RISK" LIMITATION FOR LOSSES Subject to the limitations on "passive losses" generated by the partnership in the case of limited partners and your basis in the partnership, you may use your share of the partnership's losses to offset income from other sources. However, you may deduct the loss only to the extent of the amount you have "at risk" in the partnership at the end of a taxable year. The amount "at risk" is limited to the amount of money you have contributed to the partnership. In addition, the amount you have "at risk" may not include the amount of any loss that you are protected against through nonrecourse loans, guarantees, stop loss agreements, or other similar arrangements. DISTRIBUTIONS FROM A PARTNERSHIP Generally, a cash distribution from a partnership to a partner in excess of the adjusted basis of the partner's interest in the partnership immediately before the distribution is treated as gain from the sale or exchange of his interest in the partnership to the extent of the excess. No loss is recognized by the partners on these types of distributions. Other distributions of cash, disproportionate distributions of property, and liquidating distributions may result in taxable gain or loss. SALE OF THE PROPERTIES Generally, net long-term capital gains of a noncorporate taxpayer on the sale of assets held more than a year are taxed at a maximum rate of 20%, or 10% if they would be subject to tax at a rate of 15% if they were not eligible for long-term capital gains treatment. These rates also apply for purposes of the alternative minimum tax. The annual capital loss limitation for noncorporate taxpayers is the amount of capital gains plus the lesser of $3,000, which is reduced to $1,500 for married persons filing separate returns, or the excess of capital losses over capital gains. Gains or losses from sales of oil and gas properties held for more than twelve months generally will be treated as a long-term capital gain, while a net loss will be an ordinary deduction. However, on disposition of an oil and gas property gain is treated as ordinary income to the extent of the lesser of: - the amounts that were deducted as intangible drilling costs rather than added to basis, plus depletion deductions that reduced the basis of the property, depreciation deductions and certain losses, if any, on previous sales of partnership assets; or - the amount realized in the case of a sale, exchange or involuntary conversion or fair market value in all other cases, minus the property's adjusted basis. Other gains and losses on sales of oil and gas properties will generally result in ordinary gains or losses. DISPOSITION OF PARTNERSHIP INTERESTS The sale or exchange, including a repurchase by the managing general partner, of all or part of your interest in the partnership held by you for more than twelve months will generally result in a recognition of long-term capital gain or loss. However, the recapturable portions of depreciation, depletion and intangible drilling costs will constitute ordinary income. In the event the interest is held for twelve months or less, the gain or loss will generally be short-term gain or loss. Also, your pro rata share of the partnership's liabilities, if any, as of the date of the sale or exchange must be included in the amount realized. Therefore, the gain recognized may result in a tax liability greater than the cash proceeds, if any, from such disposition. In addition to gain from a passive activity, a portion of any gain recognized by a limited partner on the sale or other disposition of his interest in the partnership may be characterized as portfolio income. A gift of your interest in the partnership may result in federal and/or state income tax and gift tax liability to you, and interests in different partnerships do not qualify for tax-free like-kind exchanges. Other dispositions of your interest, may or may not result in recognition of taxable gain. However, no gain should be recognized by an investor general partner whose interest in the partnership is converted to a limited partner interest so long as there is no change in his share of the partnership's liabilities or certain partnership assets as a result of the conversion. In addition, if you sell or exchange all or part of your interest in the 87 partnership you are required by the Internal Revenue Code to notify the partnership within 30 days or by January 15 of the following year, if earlier. NO DISPOSITION OF YOUR INTEREST IN THE PARTNERSHIP, INCLUDING REPURCHASE OF THE INTEREST BY THE MANAGING GENERAL PARTNER, SHOULD BE MADE BY YOU PRIOR TO CONSULTATION WITH YOUR TAX ADVISOR. MINIMUM TAX - TAX PREFERENCES With limited exceptions, all taxpayers are subject to the alternative minimum tax. If your alternative minimum tax exceeds the regular tax, the excess is payable in addition to the regular tax. The alternative minimum tax is intended to insure that no one with substantial income can avoid tax liability by using deductions and credits. The alternative minimum tax accomplishes this objective by not treating favorably certain items that are treated favorably for purposes of the regular tax, including the deductions for intangible drilling costs and accelerated depreciation. Generally, the alternative minimum tax rate for individuals is 26% on alternative minimum taxable income up to $175,000, $87,500 for married individuals filing separate returns, and 28% thereafter. The regular tax rates on capital gains also apply for purposes of the alternative minimum tax. Regular tax personal exemptions are not available for purposes of the alternative minimum tax, however, alternative minimum taxable income may be reduced by certain itemized deductions, exemption amounts and net operating losses. For taxpayers other than integrated oil companies, the 1992 National Energy Bill repealed the preference for excess intangible drilling costs and the excess percentage depletion preference for oil and gas. The repeal of the excess intangible drilling costs preference, however, may not result in more than a 40% reduction in the amount of the taxpayer's alternative minimum taxable income computed as if the excess intangible drilling costs preference had not been repealed. Under the prior rules, the amount of intangible drilling costs which is not deductible for alternative minimum tax purposes is the excess of the "excess intangible drilling costs" over 65% of net income from oil and gas properties. Excess intangible drilling costs is the regular intangible drilling costs deduction minus the amount that would have been deducted under 120-month straight-line amortization, or, at the taxpayer's election, under the cost depletion method. There is no preference item for costs of nonproductive wells. THE LIKELIHOOD OF YOU INCURRING, OR INCREASING, ANY MINIMUM TAX LIABILITY BY VIRTUE OF AN INVESTMENT IN THE PARTNERSHIP MUST BE DETERMINED ON AN INDIVIDUAL BASIS, AND REQUIRES YOU TO CONSULT WITH YOUR PERSONAL TAX ADVISOR. LIMITATIONS ON DEDUCTION OF INVESTMENT INTEREST Investment interest is deductible by a noncorporate taxpayer only to the extent of net investment income each year, with an indefinite carryforward of disallowed investment interest. An investor general partner's share of any interest expense incurred by the partnership will be subject to the investment interest limitation. In addition, an investor general partner's income and losses, including intangible drilling costs, from the partnership will be considered investment income and losses. Losses allocable to an investor general partner will reduce his net investment income and may affect the deductibility of his investment interest expense, if any. These rules do not apply to partnership income or expense subject to the passive activity loss limitations for limited partners. ALLOCATIONS The partnership agreement allocates to you your share of the partnership's income, gains, and deductions, including the deductions for intangible drilling costs and depreciation. Your capital account will be adjusted to reflect these allocations and your capital account, as adjusted, will be given effect in distributions made to you upon liquidation of the partnership or your interest in the partnership. Generally, your capital account will be increased by the amount of money you contribute to the partnership and allocations to you of income and gain, and decreased by the value of property or cash distributed to you and allocations to you of loss and deductions. It should be noted that your share of partnership items of income, gain, loss, and deduction must be taken into account whether or not there is any distributable cash. Your share of partnership revenues applied to the repayment of loans or the reserve for plugging wells, for example, will be included in your gross income in a manner analogous to an actual distribution of the income to you. Thus, you may have tax liability from the partnership for a particular year in excess of any cash distributions from the partnership to you with respect to that year. To the extent the partnership has cash available for distribution, however, it is the managing general partner's policy that partnership distributions will not be less than the managing general partner's estimate of the investors' income tax liability with respect to partnership income. If any allocation under the partnership agreement is not recognized for federal income tax purposes, your distributive share of the items subject to that allocation generally will be determined in accordance with your interest in the partnership, determined 88 by considering relevant facts and circumstances. To the extent the deductions, as allocated by the partnership agreement, exceed deductions which would be allowed pursuant to such a reallocation you may incur a greater tax burden. PARTNERSHIP BORROWINGS Under the partnership agreement, the managing general partner and its affiliates may make loans to the partnership. The use of partnership revenues taxable to you to repay partnership borrowings could create income tax liability for you in excess of your cash distributions from the partnership, since repayments of principal are not deductible for federal income tax purposes. In addition, interest on the loans will not be deductible unless the loans are bona fide loans that will not be treated as capital contributions in light of all the surrounding facts and circumstances. PARTNERSHIP ORGANIZATION AND SYNDICATION FEES Expenses connected with the sale of interests in a partnership are not deductible. Although certain organization expenses of the partnership may be amortized over a period of not less than 60 months, these expenses are paid by the managing general partner as part of the partnership's organization and offering costs and any related deductions, which the managing general partner does not expect will be material in amount, will be allocated to the managing general partner. TAX ELECTIONS The partnership may elect to adjust the basis of partnership property on the transfer of an interest in a partnership by sale or exchange or on the death of a partner, and on the distribution of property by the partnership to a partner. The general effect of this election is that transferees of the partnership interests are treated, for purposes of depreciation and gain, as though they had acquired a direct interest in the partnership assets and the partnership is treated for these purposes, upon certain distributions to partners, as though it had newly acquired an interest in the partnership assets and therefore acquired a new cost basis for the assets. Also, certain "start-up expenditures" must be capitalized and can only be amortized over a 60-month period. If it is ultimately determined that any of the partnership's expenses constituted start-up expenditures and not deductible business expenses, the partnership's deductions would be deferred. DISALLOWANCE OF DEDUCTIONS UNDER SECTION 183 OF THE INTERNAL REVENUE CODE Your ability to deduct your share of the partnership's losses could be lost if the partnership lacks the appropriate profit motive. There is a presumption that an activity is engaged in for profit, if, in any three of five consecutive taxable years, the gross income derived from such activity exceeds the deductions attributable to such activity. Thus, if the partnership fails to show a profit in at least three of five consecutive years, this presumption will not be available and the possibility that the IRS could successfully challenge the partnership deductions claimed by you would be substantially increased. The fact that the possibility of ultimately obtaining profits is uncertain, standing alone, does not appear to be sufficient grounds for the denial of losses. Based on the managing general partner's representation that the partnership will be conducted as described in this prospectus, in the opinion of special counsel it is more likely than not that the partnership will possess the requisite profit motive. TERMINATION OF A PARTNERSHIP The partnership will be considered as terminated for federal income tax purposes if within a twelve month period there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. In that event, you would realize taxable gain on a termination of the partnership to the extent that money regarded as distributed to you exceeds the adjusted basis of your partnership interest. The conversion of investor general partner units to limited partner interests, however, will not result in a termination of the partnership. LACK OF REGISTRATION AS A TAX SHELTER An organizer of a "tax shelter" must obtain an identification number which must be included on the tax returns of investors in the tax shelter. For this purpose, a "tax shelter" includes investments with respect to which any person could reasonably infer that the ratio that the aggregate amount of the potentially allowable deductions and 350% of the potentially allowable credits with respect to the investment during the first five years of the investment bears to the amount of money and the adjusted basis of property contributed to the investment exceeds 2 to 1, determined without reduction for gross income derived from the investment. The managing general partner does not believe that the partnership will have a tax shelter ratio greater than 2 to 1. Also, because the purpose of the partnership is to locate, produce and market natural gas on an economic basis, the managing general partner 89 does not believe that the partnership will be a "potentially abusive tax shelter." Accordingly, the managing general partner does not intend to cause the partnership to register with the IRS as a tax shelter. If it is subsequently determined by the IRS or the courts that the partnership was required to be registered with the IRS as a tax shelter, the managing general partner would be subject to certain penalties and you would be liable for a $250 penalty for failure to include the tax shelter registration number on your tax return, unless the failure was due to reasonable cause. You also would be liable for a penalty of $100 for failing to furnish the tax shelter registration number to any transferee of your interest in the partnership. However, based on the representations of the managing general partner, special counsel has expressed the opinion that the partnership, more likely than not, is not required to register with the IRS as a tax shelter. Issuance of a registration number does not indicate that an investment or the claimed tax benefits have been reviewed, examined, or approved by the IRS. INVESTOR LISTS. Any person who organizes a tax shelter required to be registered with the IRS must maintain a list of each investor in the tax shelter. For the reasons described above, the managing general partner does not believe the partnership is a tax shelter for this purpose. If this determination is wrong there is a penalty of $50 for each person, unless the failure is due to reasonable cause. TAX RETURNS AND AUDITS IN GENERAL. The tax treatment of all partnership items is generally determined at the partnership, rather than the partner, level; and the partners are generally required to treat partnership items on their individual returns in a manner which is consistent with the treatment of the partnership items on the partnership return. Generally, the IRS must conduct an administrative determination as to partnership items at the partnership level before conducting deficiency proceedings against a partner, and the partners must file a request for an administrative determination before filing suit for any credit or refund. The period for assessing tax against a partner attributable to a partnership item may be extended as to all partners by agreement between the IRS and the managing general partner, which will serve as the partnership's representative in all administrative and judicial proceedings conducted at the partnership level. The managing general partner generally may enter into a settlement on behalf of, and binding upon, partners owning less than a 1% profits interest in partnerships having more than 100 partners. In addition, a partnership with at least 100 partners may elect to be governed under simplified tax reporting and audit rules as an "electing large partnership." These rules also facilitate the matching of partnership items with individual partner tax returns by the IRS. The managing general partner does not anticipate that the partnership will make this election. By executing the partnership agreement, you agree that you will not form or exercise any right as a member of a notice group and will not file a statement notifying the IRS that the managing general partner does not have binding settlement authority. TAX RETURNS. Your income tax returns are your responsibility. The partnership will provide you with the tax information applicable to your investment in the partnership necessary to prepare your returns. PENALTIES AND INTEREST IN GENERAL. Interest is charged on underpayments of tax and various civil and criminal penalties are included in the Internal Revenue Code. PENALTY FOR NEGLIGENCE OR DISREGARD OF RULES OR REGULATIONS. If any portion of an underpayment of tax is attributable to negligence or disregard of rules or regulations, 20% of such portion is added to the tax. Negligence is strongly indicated if a partner fails to treat partnership items on his tax return in a manner that is consistent with the treatment of such items on the partnership's return or to notify the IRS of the inconsistency. VALUATION MISSTATEMENT PENALTY. There is an addition to tax of 20% of the amount of any underpayment of tax of $5,000 or more which is attributable to a substantial valuation misstatement. There is a substantial valuation misstatement if the value or adjusted basis of any property claimed on a return is 200% or more of the correct amount; or if the price for any property or services, or for the use of property, claimed on a return is 200% or more, or 50% or less, of the correct price. If there is a gross valuation misstatement, which is 400% or more of the correct value or adjusted basis or the undervaluation is 25% or less of the correct amount, the penalty is 40%. SUBSTANTIAL UNDERSTATEMENT PENALTY. There is also an addition to tax of 20% of any underpayment if the difference between the tax required to be shown on the return over the tax actually shown on the return, exceeds the greater of 10% of the tax required to be shown on the return, or $5,000. The amount of any understatement generally will be reduced to the extent it is 90 attributable to the tax treatment of an item supported by substantial authority, or adequately disclosed on the taxpayer's return and there is a reasonable basis for the tax treatment of such item by the taxpayer. However, in the case of "tax shelters," the understatement may be reduced only if the tax treatment of an item attributable to a tax shelter was supported by substantial authority and the taxpayer established that he reasonably believed that the tax treatment claimed was more likely than not the proper treatment. A "tax shelter" for this purpose is any entity which has as a significant purpose the avoidance or evasion of federal income tax. IRS ANTI-ABUSE RULE. If a principal purpose of a partnership is to reduce substantially the partners' federal income tax liability in a manner that is inconsistent with the intent of the partnership rules of the Internal Revenue Code, based on all the facts and circumstances, the IRS is authorized to remedy the abuse. Based on the managing general partner's representation that the partnership will be conducted as described in this prospectus, in the opinion of special counsel it is more likely than not that the partnership will not be subject to this rule. STATE AND LOCAL TAXES Under Pennsylvania law, the partnership is required to withhold state income tax at the rate of 2.8% of partnership income allocable to investors who are not residents of Pennsylvania. Also, the partnership will operate in states and localities which impose a tax on its assets or its income, or on you. Deductions which are available to you for federal income tax purposes may not be available for state or local income tax purposes. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS CONCERNING THE POSSIBLE EFFECT OF VARIOUS STATE AND LOCAL TAXES ON YOUR PERSONAL TAX SITUATION. SEVERANCE AND AD VALOREM (REAL ESTATE) TAXES The partnership may incur various ad valorem or severance taxes imposed by state or local taxing authorities. Currently, there is no such tax liability in Mercer County, Pennsylvania. SOCIAL SECURITY BENEFITS AND SELF-EMPLOYMENT TAX A limited partner's share of income or loss from the partnership is excluded from the definition of "net earnings from self-employment." No increased benefits under the Social Security Act will be earned by limited partners, and if any limited partners are currently receiving Social Security benefits their shares of partnership taxable income will not be taken into account in determining any reduction in benefits because of "excess earnings." An investor general partner's share of income or loss from the partnership will constitute "net earnings from self-employment" for these purposes. For 1999 the ceiling for social security tax of 12.4% is $72,600 and there is no ceiling for medicare tax of 2.9%. Self-employed individuals can deduct one-half of their self-employment tax. FOREIGN PARTNERS The partnership will be required to withhold and pay to the IRS tax at the highest rate under the Internal Revenue Code applicable to partnership income allocable to foreign partners, even if no cash distributions are made to such partners. In the event of overwithholding, a foreign partner must file a United States tax return to obtain a refund. ESTATE AND GIFT TAXATION There is no federal tax on lifetime or testamentary transfers of property between spouses. The gift tax annual exclusion is $10,000 per donee, which will be adjusted for inflation. Estates of $650,000, which increases in stages to $1,000,000 by 2006, or less generally are not subject to federal estate tax. SUMMARY OF PARTNERSHIP AGREEMENT NOTE: THE RIGHTS AND OBLIGATIONS OF THE MANAGING GENERAL PARTNER AND YOU AND THE OTHER INVESTORS ARE GOVERNED BY THE PARTNERSHIP AGREEMENT, A COPY OF WHICH IS ATTACHED AS EXHIBIT (A) TO THIS PROSPECTUS. YOU SHOULD NOT INVEST IN THE PARTNERSHIP WITHOUT FIRST THOROUGHLY REVIEWING THE PARTNERSHIP AGREEMENT. THE FOLLOWING IS A SUMMARY OF CERTAIN MATERIAL PROVISIONS IN THE PARTNERSHIP AGREEMENT WHICH ARE NOT COVERED ELSEWHERE IN THIS PROSPECTUS. 91 LIABILITY OF LIMITED PARTNERS The partnership will be governed by the Pennsylvania Revised Uniform Limited Partnership Act. If you invest as a limited partner, then generally you will not be liable to third parties for the obligations of the partnership. However, there are the following exceptions: - if you also invest as an investor general partner; - if you take part in the control of the business of the partnership in addition to the exercise of your rights and powers as a limited partner; - if you fail to make a required capital contribution to the extent of the required capital contribution; or - for a period of two years, any capital contributions "wrongfully" returned to you in violation of the partnership agreement or Pennsylvania law to the extent of the capital contribution wrongfully returned to you, with interest thereon. This includes, but is not limited to, any distribution to you and the other limited tartners to the extent that, after giving effect to the distribution, all liabilities of the partnership exceed partnership assets. AMENDMENTS Amendments to the partnership agreement may be: - proposed in writing by the managing general partner, and adopted with the consent of investors whose subscriptions equal a majority of the total subscriptions; or - proposed in writing by investors whose subscriptions equal 10% or more of the total subscriptions and adopted by an affirmative vote of investors whose subscriptions equal a majority of the total subscriptions. The partnership agreement may also be amended by the managing general partner for certain purposes. However, no amendment materially and adversely affecting the investors can be made without the consent of the affected investors. NOTICE Any notice given to you by the managing general partner begins from the date of mailing the notice. Also, the notice is binding on you even if you do not receive the notice. The notice periods are frequently quite short, a minimum of 15 business days, and apply to matters which may seriously affect your rights. If you fail to respond in the specified time to the managing general partner's request for approval of or concurrence in a proposed action, then you will conclusively be deemed to have approved the action unless the partnership agreement expressly requires your affirmative approval. VOTING RIGHTS Generally, you will be entitled to vote with respect to all partnership matters at any time a meeting is called by either: - the managing general partner, or - investors owning 10% or more of the total subscriptions. For each unit you own you are entitled to one vote on the matters being voted upon. If you own a fractional unit, then you are entitled to vote that fraction of one vote equal to the fractional interest in the unit. At any time upon the request of investors whose subscriptions equal 10% or more of the total subscriptions, you and the other investors may vote without a meeting and without the concurrence of the managing general partner or its affiliates on the matters set forth below. Investors whose subscriptions equal a majority of the total subscriptions may vote to: - amend the partnership agreement; provided however, any amendment may not increase the duties or liabilities of you or the managing general partner or increase or decrease the profit or loss sharing or required capital 92 contribution of you or the managing general partner without the approval of you or the managing general partner. Also, any amendment may not affect the classification of partnership income and loss for federal income tax purposes without the unanimous approval of all investors; - dissolve the partnership; - remove the managing general partner and elect a new managing general partner; - elect a new managing general partner if the managing general partner elects to withdraw from the partnership; - remove the operator and elect a new operator; - approve or disapprove the sale of all or substantially all of the assets of the partnership; and - cancel any contract for services with the managing general partner, the operator or their affiliates without penalty upon 60 days notice. The managing general partner, its officers, directors, and affiliates may also subscribe for units in the partnership on the same basis as you and the other investors, and they may vote on all matters other than: - the issues set forth in removing the managing general partner and operator above; and - any other transaction between the managing general partner or its affiliates and the partnership. Any units owned by the managing general partner and its affiliates will not be included in determining the requisite percentage in interest of units necessary to approve any partnership matter on which the managing general partner and its affiliates may not vote or consent. ACCESS TO RECORDS Generally, you will have access to all records of the partnership after notice, and at a reasonable time. However, logs, well reports and other drilling and operating data may be kept confidential for reasonable periods of time. Your ability to obtain the list of investors is subject to additional requirements set forth in the partnership agreement. WITHDRAWAL OF MANAGING GENERAL PARTNER After 10 years, the managing general partner may voluntarily withdraw as managing general partner for whatever reason by giving 120 days' written notice to you and the other investors. Although the withdrawing managing general partner is not required to provide a substitute managing general partner, a new managing general partner may be substituted by the affirmative vote of investors whose subscriptions equal a majority of the total subscriptions. If the managing general partner would withdraw and the investors failed to elect to continue the partnership and to designate a substitute managing general partner, then the partnership would terminate and dissolve. This could result in adverse tax and other consequences. Also, subject to a required participation of not less than 1% of the partnership revenues, the managing general partner may partially withdraw a property interest in the partnership's wells equal to or less than its revenue interest if the withdrawal is: - to satisfy the bona fide request of its creditors, or - approved by investors whose subscriptions equal a majority of the total subscriptions. SUMMARY OF DRILLING AND OPERATING AGREEMENT The managing general partner will serve as the operator pursuant to the drilling and operating agreement, Exhibit (II) to the partnership agreement, for wells situated in Pennsylvania, and the managing general partner or an affiliate will serve as the operator for any wells situated in other areas of the United States. The operator may be replaced at any time upon 60 days 93 advance written notice by the managing general partner acting on behalf of the partnership upon the affirmative vote of investors whose subscriptions equal a majority of the total subscriptions. The drilling and operating agreement provides a number of material provisions, including, without limitation, those set forth below: - The operator's right to resign after five years. - The operator's right beginning three years after a partnership well begins producing to retain $200 per month to cover future plugging and abandonment costs of the well, although the managing general partner historically has never done this after only three years. - The grant of a first lien and security interest in the wells and related production to secure payment of amounts due to the operator by the partnership. - The prescribed insurance coverage to be maintained by the operator. - Limitations on the operator's authority to incur extraordinary costs with respect to producing wells in excess of $5,000 per well. - Restrictions on the partnership's ability to transfer its interest in fewer than all wells, unless the transfer is of an equal undivided interest in all wells. - The limitation of the operator's liability except for: - violations of law; - negligence or misconduct by it, its employees, agents or subcontractors; and - breach of the drilling and operating agreement. - The excuse for nonperformance by the operator due to force majeure. Force majeure generally means acts of God, catastrophes and other causes which preclude the operator's performance and are beyond its control. THE FOREGOING IS ONLY A SUMMARY OF SOME OF THE MATERIAL PROVISIONS OF THE PROPOSED FORM OF DRILLING AND OPERATING AGREEMENT. IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM ATTACHED TO THE PARTNERSHIP AGREEMENT AS EXHIBIT (II). YOU SHOULD NOT SUBSCRIBE TO THE PARTNERSHIP WITHOUT FIRST THOROUGHLY REVIEWING THE DRILLING AND OPERATING AGREEMENT. REPORTS TO INVESTORS Under the partnership agreement the partnership will provide you and the other investors the reports set forth below. The cost of all the reports will be paid by the partnership as direct costs. - Beginning with the 1999 calendar year, the partnership will provide you an annual report within 120 days after the close of the calendar year, and beginning with the 2000 calendar year, a report within 75 days after the end of the first six months of its calendar year, containing, except as otherwise indicated, at least the following information. - Audited financial statements of the partnership prepared in accordance with generally accepted accounting principles. Semiannual reports need not be audited. 94 - A summary of the total fees and compensation paid by the partnership to the managing general partner, the operator and their affiliates, including the percentage that the annual unaccountable, fixed payment reimbursements for administrative costs bears to annual partnership revenues. - A description of each well location owned by the partnership, including the cost, location, number of acres and the interest. - A list of the wells drilled or abandoned by the partnership, indicating whether each of the wells has or has not been completed, and a statement of the cost of each well completed or abandoned. - A description of all farmins and joint ventures. - A schedule reflecting: - the total partnership costs; - the costs paid by the managing general partner and the costs paid by the investors; - the total partnership revenues; and - the revenues received or credited to the managing general partner and the revenues received or credited to the investors. - The partnership will, by March 15 of each year, send you the information needed for you to file your federal and state income tax returns. - Beginning January 1, 2001, and every year thereafter, the managing general partner will provide you a computation of the total oil and gas proved reserves of the partnership and its dollar value. The reserve computations will be based upon engineering reports prepared by the managing general partner and reviewed by an independent expert. PRESENTMENT FEATURE Under the partnership agreement you and the other investors may present your units for repurchase by the managing general partner beginning in 2004. However, you and the other investors are not required to present your units for repurchase and you may receive a greater return if you retain your units. The managing general partner may immediately suspend its repurchase obligation by notice to you if it determines, in its sole discretion, that: - it does not have the necessary cash flow, or - cannot borrow funds for this purpose on terms it deems reasonable. The managing general partner will not purchase less than one unit unless the lesser amount represents your entire interest. If less than all interests presented at any time are to be purchased, then the interests to be purchased will be selected by lot. In any calendar year the managing general partner will not purchase more than 5% of the units. The managing general partner may waive these limits, other than the limit on its purchasing more than 5% of the units in any calendar year. The managing general partner's obligation to purchase the interests presented may be discharged for its benefit by a third party or an affiliate. If you sell your interest it will be transferred to the party who pays for it. Also, you will be required to deliver an executed assignment of your interest along with any other document that the managing general partner requests. You may present your units in writing to the managing general partner beginning in 2004. The presentment must be: 95 - within 120 days of the partnership reserve report discussed below, and - in accordance with Treas. Reg. Section 1.7704-1(f), no repurchase will be made until at least 60 calendar days after you notify the partnership in writing of your intention to exercise your repurchase right. The repurchase will not be considered effective until a cash payment has been made to you. The amount attributable to partnership reserves will be determined based upon the last reserve report prepared by the managing general partner and reviewed by an independent expert. Beginning in 2001 the managing general partner will estimate the present worth of future net revenues attributable to the partnership's interest in proved reserves. In making this estimate, the managing general partner will use: - a 10% discount rate, - a constant oil price, and - base gas prices upon the existing gas contracts at the time of the repurchase. Your presentment price will be based upon your share of the net assets and liabilities of the partnership. The presentment price will include the sum of the following items: - an amount based on 70% of the present worth of future net revenues from the partnership's proved reserves, determined as described above; - partnership cash on hand; - prepaid expenses and accounts receivable of the partnership, less a reasonable amount for doubtful accounts; and - the estimated market value of all assets of the partnership not separately specified above, determined in accordance with standard industry valuation procedures. There will be deducted from the foregoing sum the following items: - an amount equal to all partnership debts, obligations and other liabilities, including accrued expenses; and - any distributions made to you 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 oil, gas or of a producing property, for purposes of determining the reduction of the presentment price, the distributions will 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. The amount may be further adjusted by the managing general partner for estimated changes from the date of the reserve report to the date of payment of the presentment price to you: - because of 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 presentment request; and - because of any of the following occurring before payment of the presentment price to you: - changes in well performance, - increases or decreases in the market price of oil, gas or other minerals, - revision of regulations relating to the importing of hydrocarbons, and 96 - changes in income, ad valorem and other tax laws such as material variations in the provisions for depletion and similar matters. As of April 1, 1999, fewer than 10 units have been presented to the managing general partner for repurchase in its previous seven public limited partnerships. TRANSFERABILITY OF UNITS RESTRICTIONS ON TRANSFER IMPOSED BY THE SECURITIES AND TAX LAW Your transferability of the units is restricted. Other than transfers under the partnership's presentment feature and transfers by operation of law, both the securities laws and tax laws impose restrictions on the transfer of your unit. Under the securities laws you will not be able to sell, assign, pledge, hypothecate or transfer your unit unless there is: - an effective registration of the unit under the Securities Act 1933 and qualification under applicable state securities law; or - an opinion of counsel acceptable to the managing general partner that the registration and qualification are not required. Also, the managing general partner and the partnership are not obligated to, and do not intend to, register the units for resale. Under the tax laws, you will not be able to sell, assign, exchange or transfer your unit if it would, in the opinion of counsel for the partnership: - result in the termination of the partnership for tax purposes, or - result in the partnership being treated as a "publicly-traded" partnership for tax purposes. TRANSFER PROVISIONS The managing general partner must consent to the transfer of your unit. The partnership will recognize the assignment of one or more whole units unless you own less than a whole unit, in which case your entire fractional interest must be assigned. Any transfer that is consented to by the managing general partner when the assignee of the unit does not become a substituted partner as described below will be effective as of: - midnight of the last day of the calendar month in which it is made, or - 7:00 A.M. of the following day at the managing general partner's election. Under the partnership agreement an assignee of a unit may become a substituted partner only upon meeting certain further conditions. A substitute partner is entitled to all of the rights of full ownership of the assigned units including the right to vote. The conditions to become a substitute partner are as follows: - the assignor of the unit gives the assignee the right; - the managing general partner consents to the substitution; - the assignee of the unit pays to the partnership all costs and expenses incurred in connection with the substitution; and - the assignee of the unit executes and delivers the instruments to effect the substitution and to confirm his agreement to be bound by all terms and provisions of the partnership agreement. The partnership will amend its records at least once each calendar quarter to effect the substitution of substituted partners. 97 PLAN OF DISTRIBUTION COMMISSIONS The units will be offered on a "best efforts" basis by Anthem Securities, which is an affiliate of the managing general partner, acting as dealer-manager in all states other than Minnesota and New Hampshire, and by other selected registered broker-dealers, which are members of the NASD, acting as selling agents. Anthem Securities was formed for the purpose of serving as dealer-manager of partnerships sponsored by the managing general partner and became an NASD member firm in April, 1997. Anthem Securities has participated as dealer-manager in five partnerships sponsored by the managing general partner. Bryan Funding, Inc., a member of the NASD, will serve as dealer-manager for the offering in the states of Minnesota and New Hampshire, and will receive the same compensation as Anthem Securities for sales in those states. Best efforts means that the dealer-manager and selling agents will not guarantee the sale of a certain amount of units. The dealer-manager will manage and oversee the offering of the units as described above and will receive on each unit sold: - a 2.5% dealer-manager fee; - a 7% sales commission; - a .5% reimbursement of marketing expenses; and - a .5% reimbursement of the selling agent's bona fide accountable due diligence expenses. All or a portion of the 7% sales commissions, the .5% reimbursement of marketing expenses, and the .5% reimbursement of the selling agents' bona fide accountable due diligence expenses will be reallowed to the selling agents. The managing general partner is also using the services of three wholesalers, Mr. Eric Koval, Mr. Bruce Bundy and Mr. Robert Gourlay who are employed by it and associated with Anthem Securities. The 2.5% dealer-manager fee will be reallowed to the affiliated wholesalers for subscriptions obtained through their efforts. The dealer-manager will retain any sales commissions, reimbursement of marketing expenses, and reimbursement of the selling agents' bona fide accountable due diligence expenses not reallowed to the selling agents. The offering will be made in compliance with Rule 2810 of the NASD Conduct Rules and all compensation to broker-dealers and wholesalers, regardless of the source, will be limited to 10% of the gross proceeds of the offering, plus the reimbursement for bona fide accountable due diligence expenses of .5% on each subscription. The managing general partner, its officers, directors and affiliates and the selling agents may subscribe for units on the same basis as other investors but without paying the dealer-manager fee, sales commissions, reimbursement of marketing expenses, and due diligence reimbursements. Also registered investment advisors and their clients may subscribe for units on the same basis as other investors by paying the dealer-manager fee, but without paying sales commissions, reimbursement of marketing expenses, and due diligence reimbursements. After the minimum subscriptions are received and the checks have cleared the banking system, the dealer-manager fee, the sales commissions, reimbursement of marketing expenses, and due diligence reimbursements will be paid to the dealer-manager and broker-dealers approximately every two weeks until the offering closes. INDEMNIFICATION The dealer-managers may be deemed underwriters as that term is defined in the Securities Act of 1933 and the sales commissions and dealer-manager fees may be deemed underwriting compensation. The managing general partner and the dealer-managers have agreed to indemnify each other, and it is anticipated that the dealer-managers and each selling agent will agree to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933. 98 SALES MATERIAL In addition to the prospectus the managing general partner will use the following sales material with the offering of the units: - a brochure entitled "Atlas-Energy for the Nineties-Public #8 Ltd.", and - Atlas America, Inc.'s corporate profile. The managing general partner has not authorized the use of other sales material and the offering of units is made only by means of this prospectus. The sales material must be preceded or accompanied by this prospectus. Although the information contained in the sales material does not conflict with any of the information set forth herein, this material does not purport to be complete. Sales material should not be considered a part of or incorporated into this prospectus or the registration statement of which this prospectus is a part. In addition, supplementary materials, including prepared presentations for group meetings, must be submitted to the state administrators before they are used and their use must either be preceded by or accompanied by a prospectus. Also, all advertisements of, and oral or written invitations to, "seminars" or other group meetings at which units are to be described, offered or sold will clearly indicate the following: - that the purpose of the meeting is to offer the units for sale, - the minimum purchase price of the units, - the suitability standards to be employed, and - the name of the person selling the units. No cash, merchandise or other items of value may be offered as an inducement to you or any prospective investor to attend the meeting. All written or prepared audiovisual presentations including scripts prepared in advance for oral presentations to be made at the meetings must be submitted to the state administrators within a prescribed review period. These provisions, however, will not apply to meetings consisting only of representatives of broker-dealers. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS IN MAKING YOUR INVESTMENT DECISION. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. LEGAL OPINIONS Kunzman & Bollinger, Inc., has issued its opinion to the managing general partner regarding the validity and due issuance of the units in this prospectus and its opinion on material tax consequences to individual investors in the partnership. However, the factual statements herein are those of the managing general partner, and counsel has not given any opinions with respect to any of the tax or other legal aspects of this offering except as expressly set forth above. EXPERTS The financial statements included in this prospectus for the managing general partner and the partnership have been audited by Grant Thornton, L.L.P., as of the date indicated in their reports which appear elsewhere in this prospectus. The financial statements have been included in reliance on their reports given on their authority as experts in auditing and accounting. The geologic evaluation of United Energy Development Consultants, Inc., which is not affiliated with the managing general partner and its affiliates, appearing in this prospectus has been included in this prospectus upon the authority of United Energy Development Consultants, Inc. as an expert with respect to the matters covered by the report and in the giving of the report. 99 LITIGATION The managing general partner knows of no litigation pending or threatened to which the managing general partner or the partnership is subject or may be a party, which it believes would have a material adverse effect upon the partnership or its business, and no such proceedings are known to be contemplated by governmental authorities or other parties. However, on November 22, 1995, Winston Management Services Corporation ("Winston") and Professional Planning & Technologies, Inc. ("PPT") filed a complaint in the United States District Court for the District of Rhode Island against Atlas Resources, Inc., Atlas Energy Group, Inc., and others. The gist of the complaint is for the alleged breach of contract relating to the interpretation of broker-dealer agreements entered into between Winston and PPT and Atlas and Atlas Energy for the marketing of interests in limited partnerships in 1987, 1988, 1989 and 1990. The complaint seeks compensatory damages in an unspecified amount in excess of $50,000 plus an unspecified amount of punitive damages together with interest and costs of the lawsuit. The managing general partner intends to fight the lawsuit vigorously. FINANCIAL INFORMATION CONCERNING THE MANAGING GENERAL PARTNER AND THE PARTNERSHIP Financial information concerning the partnership and the managing general partner is reflected in the following financial statements. THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SECURITIES OF, NOR ARE YOU ACQUIRING AN INTEREST IN THE MANAGING GENERAL PARTNER, ITS AFFILIATES, OR ANY OTHER ENTITY OTHER THAN THE PARTNERSHIP. 100 FINANCIAL STATEMENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD. A PENNSYLVANIA LIMITED PARTNERSHIP JUNE 11, 1999 101 [LETTERHEAD] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD. A PENNSYLVANIA LIMITED PARTNERSHIP We have audited the accompanying balance sheet of Atlas-Energy for The Nineties - Public #8 Ltd., A Pennsylvania Limited Partnership, as of June 11, 1999. This financial statement is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Atlas-Energy for The Nineties - Public #8 Ltd. as of June 11, 1999, in conformity with generally accepted accounting principles. /s/ GRANT THORNTON LLP Cleveland, Ohio June 30, 1999 102 Atlas-Energy for the Nineties - Public #8 Ltd. (A Pennsylvania Limited Partnership) BALANCE SHEET June 11, 1999
ASSETS Cash $100 ---------- ---------- PARTNERS' CAPITAL Partners' capital $100 ---------- ----------
The accompanying notes are an integral part of this financial statement. 103 Atlas-Energy for the Nineties - Public #8 Ltd. (A Pennsylvania Limited Partnership) NOTES TO FINANCIAL STATEMENT June 11, 1999 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Atlas-Energy for the Nineties - Public #8 Ltd. (the "Partnership") is a Pennsylvania Limited Partnership in which Atlas Resources, Inc. ("Atlas"), of Pittsburgh, Pennsylvania, (a wholly-owned subsidiary of Atlas America, Inc.) will be Managing General Partner and Operator, and subscribers to Units will be either Limited Partners or Investor General Partners depending upon their election. The Partnership will be funded to drill development wells which are proposed to be located primarily in Mercer County, Pennsylvania, although the Managing General Partner has reserved the right to use up to 20% of the Partnership Subscription to drill wells in other areas of the United States. Subscriptions at a cost of $10,000 per unit will be sold through wholesalers and broker-dealers including Anthem Securities, Inc., an affiliated company, which will be compensated in an amount equal to 10% of the subscription cost plus a .5% accountable due diligence fee. Commencement of Partnership operations is subject to the receipt of minimum Partnership subscriptions of $1,000,000 (to a maximum of $18,000,000) by December 31, 1999. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with generally accepted accounting principles. The Partnership will use the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties and to drill and equip wells will be capitalized. Depreciation and depletion will be computed on a field-by-field basis by the unit-of-production method based on periodic estimates of oil and gas reserves. Undeveloped leaseholds and proved properties will be assessed periodically or whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. Proved properties will be assessed based on estimates of future cash flows. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 104 Atlas-Energy for the Nineties - Public #8 Ltd. (A Pennsylvania Limited Partnership) NOTES TO FINANCIAL STATEMENT - CONTINUED JUNE 11, 1999 3. FEDERAL INCOME TAXES The Partnership is not treated as a taxable entity for federal income tax purposes. Any item of income, gain, loss, deduction or credit flows through to the partners as though each partner had incurred such item directly. As a result, each partner must take into account his pro rata share of all items of partnership income and deductions in computing his federal income tax liability. 4. PARTICIPATION IN REVENUES AND COSTS Atlas and the other partners will participate in revenues and costs in the following manner:
OTHER ATLAS PARTNERS --------- ---------- Organization and offering costs 100% 0% Lease costs 100% 0% Revenues 29% 71% Operating costs, administrative costs, direct costs and all other costs 29% 71% Intangible drilling costs 0% 100% Tangible costs 43.75% 56.25% Tax deductions: Intangible drilling and development costs 0% 100% Depreciation 43.75% 56.25% Depletion allowances 29% 71%
105 Atlas-Energy for the Nineties - Public #8 Ltd. (A Pennsylvania Limited Partnership) NOTES TO FINANCIAL STATEMENT - CONTINUED June 11, 1999 5. TRANSACTIONS WITH ATLAS AND ITS AFFILIATES The Partnership intends to enter into the following significant transactions with Atlas and its affiliates as provided under the Partnership agreement: Drilling contracts to drill and complete Partnership wells at an anticipated cost of $37.81 per foot on completed wells. Administrative costs at $75 per well per month. Well supervision fees initially of $275 per well per month plus the cost of third party materials and services. Reimbursement of gas transportation and marketing charges at competitive rates. 6. PURCHASE COMMITMENT Subject to certain conditions, investor partners may present their interests beginning in 2004 for purchase by Atlas. Atlas is not obligated to purchase more than 5% of the units in any calendar year. 7. SUBORDINATION OF MANAGING GENERAL PARTNER'S REVENUE SHARE Atlas will subordinate a part of its partnership revenues in an amount up to 11.6% of production revenues of the Partnership, net of related operating costs, administrative costs and well supervision fees to the receipt by participants of cash distributions from the Partnership equal to at least 10% of their agreed subscriptions, determined on a cumulative basis, in each of the first five years of Partnership operations, commencing with the first distribution of revenues to the participants. 8. INDEMNIFICATION In order to limit the potential liability of the investor general partners, Atlas has agreed to indemnify each investor general partner from any liability incurred which exceeds such partner's share of Partnership assets. 106 CONSOLIDATED BALANCE SHEET AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ATLAS RESOURCES, INC. September 30, 1998 107 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors ATLAS AMERICA, INC. We have audited the accompanying consolidated balance sheet of Atlas Resources, Inc. (a Pennsylvania corporation) and Subsidiary as of September 30, 1998. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated balance sheet referred to above presents fairly, in all material respects, the consolidated financial position of Atlas Resources, Inc. and Subsidiary as of September 30, 1998, in conformity with generally accepted accounting principles. As discussed in Note B to the consolidated Balance Sheet, the Company's former parent, The Atlas Group, Inc., merged into Atlas America, Inc. on September 29, 1998. Accordingly, the assets acquired and liabilities assumed were adjusted to their estimated fair values. As a result, the consolidated balance sheet for periods subsequent to the merger are not comparable to the consolidated balance sheets presented for prior periods. /s/ GRANT THORNTON LLP Cleveland, Ohio March 22, 1999 108 Atlas Resources, Inc. and Subsidiary CONSOLIDATED BALANCE SHEET September 30, 1998 ASSETS
Current Assets Cash $ 62,724 Accounts receivable 1,619,811 Inventories 160,890 Prepaid expenses and other current assets 1,346,161 ------------------- Total current assets 3,189,586 Oil and Gas Properties (Successful Efforts) 13,290,245 Property, Plant and Equipment Land 361,000 Buildings 2,469,000 Equipment 209,964 ------------------- 3,039,964 Contract rights and other intangibles 12,095,708 Goodwill 17,717,000 ------------------- $ 49,332,503 =================== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts payable and accrued liabilities 801,488 Working interests and royalties payable 4,723,751 Accounts payable to affiliates 1,414,897 Billings in excess of costs on uncompleted contracts 5,290,633 Current maturities of long-term debt 185,714 ------------------- Total current liabilities 12,416,483 Deferred Taxes 2,300,000 Long-Term Debt, net of current maturities 526,191 Stockholder's Equity Capital stock - stated value $10 per share; authorized - 500 shares, issued and outstanding - 200 shares 2,000 Additional paid-in capital 34,087,829 ------------------- 34,089,829 ------------------- $ 49,332,503 =================== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
109 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT September 30, 1998 NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of significant accounting policies consistently applied in the preparation of the accompanying consolidated balance sheet follows. 1. NATURE OF OPERATIONS Atlas Resources, Inc. and its subsidiary, ARD Investments, are engaged in the exploration for development, production and marketing of natural gas and oil primarily in the Appalachian Basin Area. In addition, the company performs contract drilling and well operation services. 2. PRINCIPLES OF CONSOLIDATION The consolidated balance sheet includes the accounts of Atlas Resources, Inc., its wholly-owned subsidiary ARD Investments and its pro rata share of the assets and liabilities of the partnerships in which it has an interest. All significant intercompany transactions and balances have been eliminated. 3. AFFILIATED COMPANIES Atlas Resources, Inc. (the Company) is a wholly-owned subsidiary of AIC, Inc. which is a wholly-owned subsidiary of Atlas America, Inc. (formerly The Atlas Group, Inc.). Atlas America, Inc. is a wholly-owned subsidiary of Resource America, Inc. which is the parent company. The Company is affiliated to other companies which are subsidiaries of AIC, Inc. The Company's operations are dependent upon the resources and services provided by AIC, Inc. The company is also the managing general partner of several oil and gas partnerships. Accounts payable to affiliates represents the net balance due to other subsidiaries of AIC, Inc. for reimbursement of Company expenses paid by an affiliate and marketing fees paid to an affiliate for marketing the Company's oil and gas production. 4. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 110 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED) 5. INVENTORIES Inventories, consisting of oil and gas field materials and supplies, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. 6. OIL AND GAS PROPERTIES The Company follows the successful efforts method of accounting for its oil and gas activities. In accordance with this method, the acquisition costs of undeveloped leaseholds are capitalized. Exploration costs, including delay rentals, are expensed. Development costs related to drilling and equipping development wells are capitalized. Costs of drilling and equipping exploratory oil and gas wells are capitalized pending determination of quantities of proved reserves. If proved reserves are not found, such costs are charged to expense. Costs of surrendered, expired and abandoned leases are charged to expense. Depreciation and depletion of proved properties is computed on a field-by-field basis by the unit-of-production method based on periodic estimates of oil and gas reserves. The Company charges maintenance and repairs directly to expense while betterments and renewals are capitalized in the property accounts. Undeveloped leaseholds and proved properties are assessed whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. Proved properties are assessed based on estimates of future cash flows. When property is retired or otherwise disposed of, the cost and applicable accumulated depreciation, depletion and valuation allowances are removed from the respective accounts and the resulting gain or loss is recorded in operations. On an annual basis, the Company estimates the costs of future dismantlement, restoration, reclamation, and abandonment of its gas and oil producing properties. Additionally, the Company evaluates the estimated salvage value of equipment recoverable upon abandonment. At September 30, 1998 the Company's evaluation of equipment salvage values was greater than or equal to the estimated costs of future dismantlement, restoration, reclamation and abandonment. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, other than oil and gas properties, is stated at their estimated fair value at the date of acquisition. Depreciation is provided using the straight-line method over the following estimated useful lives once the asset is put into productive use. Equipment 7 years Building 39 years
111 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED) 8. LONG-LIVED ASSETS Contract rights and other intangibles consist of contracts purchased to operate wells and manage limited partnerships and the ongoing partnership syndication business. Operating and management contracts are being amortized on a straight-line basis over the lives of the respective partnerships (up to 13 years) while the syndication rights are being amortized on a straight-line basis over 30 years. Goodwill is the excess of cost over the fair value of net assets acquired and is being amortized by the straight-line method over 30 years. The Company evaluates both contract rights and goodwill periodically to determine potential impairment by comparing the carrying value to the undiscounted estimated future cash flows of the related assets. 9. BILLINGS IN EXCESS OF COSTS Amounts billed that are in excess of costs incurred are classified as a current liability under billings in excess of costs on uncompleted contracts. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, repairs and depreciation costs. Contract retentions are included in accounts receivable. NOTE B - RELATED PARTY TRANSACTIONS On September 29, 1998, Atlas America, Inc., a newly formed wholly-owned subsidiary of Resource America, Inc., acquired all the common stock of The Atlas Group, Inc., the former parent company of AIC, Inc., in exchange for 2,063,496 shares of Resource America, Inc. common stock worth approximately $29,534,000 and the assumption of debt. The acquisition was recorded under the purchase method of accounting and accordingly the purchase price was allocated to assets acquired and liabilities assumed based on their fair market values, at the date of acquisition, as summarized below: Fair value of assets acquired $ 74,635,000 Liabilities assumed (45,968,000) Amounts due seller (9,191,000) Common stock issued (29,534,000) -------------- NET CASH ACQUIRED $ (10,058,000) ==============
112 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE B - RELATED PARTY TRANSACTIONS (CONTINUED) The fair value of assets acquired includes goodwill and other intangibles of approximately $41,491,000. The major changes to the historical carrying value of assets acquired as a result of the application of purchase accounting in accordance with APB Opinion 16 is as follows:
ASSET INCREASE (DECREASE) LIABILITIES (INCREASE) DECREASE ------------------------------- (IN THOUSANDS) Contract rights and other intangibles $12,095 Goodwill 17,717 Oil and gas properties (8,855) Deferred tax liability (2,172) Other (85) ------------------------------- NET CHANGE IN STOCKHOLDER'S EQUITY $18,700 ===============================
NOTE C - INCOME TAXES The Company is included in the consolidated U.S. Federal income tax return filed by Resource America, Inc., the parent company. Allocation of income tax provision or benefit is based on actual tax calculations of the individual companies. The Company records deferred tax assets and liabilities based on the temporary differences between the financial statement and tax bases of assets and liabilities. The net deferred tax liability at September 30, 1998 was primarily related to differences between book and tax bases of oil and gas properties. 113 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE D - LONG-TERM DEBT Long-term debt consists of a note payable to a bank in the amount of $711,905 which is payable in monthly installments of $15,476 plus interest at or below the prime rate plus 1/2% (8.25% at September 30, 1998) and is due in August of 2002. The note is secured by a building and certain equipment. Maturities of the note payable for the years following September 30, 1998 are as follows:
FISCAL YEAR ENDING SEPTEMBER 30, ---------------------------------------- 1999 $185,714 2000 185,714 2001 185,714 2002 154,763 -------------- 711,905 Less current maturities 185,714 -------------- $526,191 ==============
NOTE E - REVOLVING CREDIT AND TERM LOAN AGREEMENT Atlas America, Inc. (Atlas) maintains a $40.0 million credit facility (with $27.0 million of permitted draws) at PNC Bank ("PNC"). The credit facility is divided into two principal parts: a revolving credit facility and a term loan facility. The revolving credit facility has $20.0 million of permitted draws, with a term ending in 2001 and the draws bearing interest at one of two rates (elected at borrower's option) which increase as the amount outstanding under the facility increases: (i) PNC prime rate plus between 0 to 50 basis points, or (ii) LIBOR plus between 137.5 to 212.5 basis points. The term loan facility has $7.0 million of permitted draws, with a term ending in 2003, and with draws bearing interest at one of two rates (elected at borrower's option), which increase as the amount outstanding under the facility increases: (i) PNC prime rate plus between 12.5 to 62.5 basis points, or (ii) LIBOR plus between 150 to 225 basis points. The credit facility contains certain financial covenants of Atlas and imposes the following limits: (a) Atlas' exploration expense can be no more than 20% of capital expenditures plus exploration expense, without PNC's consent; (b) sales, leases or transfers of property by Atlas are limited to $1.0 million without PNC's consent; and (c) Atlas cannot incur debt in excess of $2.0 million to lenders other than PNC without PNC's consent. As of September 30, 1998, Atlas had $20.0 million outstanding under the revolving credit facility and $7.0 million outstanding under the term loan facility which are recorded on Atlas' books. Borrowings under the credit facility are collateralized by substantially all the oil and gas properties of the Company and Atlas. 114 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE F - COMMITMENTS The Company is the managing general partner in several oil and gas limited partnerships, and Atlas America, Inc. has agreed to indemnify each investor general partner from any liability which exceeds such partner's share of partnership assets. Management believes that any such liabilities that may occur will be covered by insurance and, if not covered by insurance, will not result in a significant loss to Atlas America, Inc. and its subsidiaries. Subject to certain conditions, investor general partners in certain oil and gas limited partnerships have the right to present their interests for purchase by the Company, as managing general partner. The Company is not obligated to purchase more than 5% or 10% of the units in any calendar year. The Company subordinates a part of its net partnership revenues to the receipt by investor general partners of cash distributions from the Partnership equal to at least 10% of their agreed subscriptions determined on a cumulative basis, in accordance with the terms of the partnership agreement. NOTE G - FUTURES CONTRACTS The Company enters into natural gas futures contracts to hedge its exposure to changes in natural gas prices. At any point in time, such contracts may include regulated NYMEX futures contracts and non-regulated over-the-counter futures contracts with qualified counterparties. The futures contracts employed by the Company are commitments to purchase or sell natural gas at future date and generally cover one month periods for up to 18 months in the future. Gains and losses on such contracts are deferred and recognized in the month the gas is sold. The Company had no significant futures contracts at September 30, 1998. NOTE H - OIL AND GAS INFORMATION (UNAUDITED) The estimates of the Company's proved and unproved gas reserves are based upon evaluations verified by Wright & Company Inc., an independent petroleum engineering firm, as of September 30, 1998. All reserves are located in Pennsylvania. Reserves are estimated in accordance with guidelines established by the Securities and Exchange Commission and the Financial Accounting Standards Board which require that reserve estimates be prepared under existing economic and operating conditions with no provision for price and cost escalation except by contractual arrangements. Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs. Proved developed reserves are those which are expected to be recovered through existing wells with existing equipment and operating methods. 115 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE H - OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED) The components of capitalized costs related to the Company's oil and gas producing activities are as follows: Proved oil and gas properties $13,279,245 Unproved oil and gas properties 11,000 ----------------- NET CAPITALIZED COSTS AT SEPTEMBER 30, 1998 $13,290,245 =================
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future net revenues and the timing of development expenditures. The reserve data presented represents estimates only and should not be construed as being exact. In addition, the standarized measures of discounted future net cash flows may not represent the fair market value of the Company's oil and gas reserves or the present value of future cash flows of equivalent reserves, due to anticipated future changes in oil and gas prices and in production and development costs and other factors for which effects have not been provided. The standardized measure of discounted future net cash flows is information provided for the financial statement user as a common base for comparing oil and gas reserves of enterprises in the industry. The following schedule presents the standardized measure of estimated discounted future net cash flows from the Company's proved reserves. Estimated future cash flows are determined by using the weighted average price received for the month of September 1998 adjusted only for fixed and determinable increases in natural gas prices provided by contractual agreements. The standardized measure of future net cash flows was prepared using the prevailing economic conditions existing at September 30, 1998 and such conditions continually change. Accordingly, such information should not serve as a basis in making any judgement on the potential value of recoverable reserves or in estimating future results of operations.
GAS OIL PROVED RESERVES AT SEPTEMBER 30, 1998 (MCF) (BBLS) ---------------------------------------------------- -------------------- ----------------- Proved developed reserves 25,360,750 4,574 Proved undeveloped reserves 40,015,460 - -------------------- ----------------- 65,376,210 4,574 ==================== =================
116 Atlas Resources, Inc. and Subsidiary NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED September 30, 1998 NOTE H - OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED RESERVES (UNAUDITED)
Future cash inflows $152,909,040 Future production and development costs (73,423,000) ------------ Future net cash flows before income taxes 79,486,040 Future income taxes 3,853,561 ------------ Future net cash flows 75,632,479 10% annual discount for estimated timing of cash flows 56,231,521 ------------ STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS $ 19,400,968 ============
117 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ATLAS RESOURCES, INC. JUNE 30, 1999 118 ATLAS RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS 6/30/1999 9/30/1998 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 10,151,710 $ 62,724 Trade accounts receivable 2,954,114 1,619,811 Accounts receivable from affiliates - - Other receivables - - Costs in excess of billings on uncompleted contracts - - Inventories 270,083 160,890 Other current assets 2,303,108 1,346,161 ------------ ------------ TOTAL CURRENT ASSETS 15,679,015 3,189,586 ------------ ------------ OIL AND GAS PROPERTIES Oil and gas wells and leases 19,613,980 13,290,245 Less accumulated depreciation, depletion and amortization 1,048,474 - NET OIL & GAS PROPERTIES 18,565,506 13,290,245 ------------ ------------ OTHER ASSETS - - ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Land 361,000 361,000 Buildings 2,469,000 2,469,000 Equipment 217,702 209,964 ------------ ------------ Gathering Lines - - ------------ ------------ Sub-total 3,047,702 3,039,964 Less accumulated depreciation 78,259 - ------------ ------------ NET PROPERTY, PLANT & EQUIPMENT 2,969,443 3,039,964 ------------ ------------ Contract right and other intangibles (Net of accumulated amortization) 11,695,363 12,095,708 Goodwill (Net of accumulated amortization) 17,274,075 17,717,000 ------------ ------------ TOTAL ASSETS $ 66,123,402 $ 49,332,503 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 481,470 801,488 Working interests and royalties payable 4,349,246 4,723,751 Billings in excess of costs on uncompleted contracts 4,204,530 5,290,633 Accounts payable to affiliates 8,994,657 1,414,897 Current maturities on long-term debt 185,714 185,714 Income taxes payable 2,294,779 - ------------ ------------ TOTAL CURRENT LIABILITIES 20,510,396 12,416,483 ------------ ------------ LONG-TERM DEBT, net of current maturities 5,811,905 526,191 ------------ ------------ DEFERRED TAXES 2,300,000 2,300,000 ------------ ------------ ADVANCES FROM PARENT COMPANY - - ------------ ------------ STOCKHOLDERS' EQUITY Capital stock, stated value $10.00: Authorized - 500 shs: Issued - 200 sh 2,000 2,000 Additional Paid In Capital 34,087,829 34,087,829 Retained earnings - - ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 34,089,829 34,089,829 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,712,130 $ 49,332,503 ------------ ------------ ------------ ------------
119 ATLAS RESOURCES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED JUNE 30 ---------------------------- 1999 1998 ------------ ------------ INCOME Sales-gas wells $ 24,669,120 $ 18,737,489 Purchased gas revenues - - Well operating fees 1,980,255 1,741,710 Working interest and royalties 3,413,813 3,524,945 Interest income 27,580 13,996 Other 314,422 219,792 ------------ ------------ TOTAL INCOME 30,405,190 24,237,932 ------------ ------------ COST OF SALES AND OTHER EXPENSES Costs of sales-gas wells 20,133,912 16,557,510 Cost of purchased gas - - Well operating expense 737,791 815,828 Exploration expense 129,304 368,088 General and administrative 1,240,567 2,925,043 Interest expense 261,176 235,209 Depreciation, depletion and amortization 2,030,003 1,709,157 Other 126,944 23,802 ------------ ------------ TOTAL COST OF SALES AND OTHER EXPENSES 24,659,697 22,634,637 ------------ ------------ INCOME BEFORE INCOME TAXES 5,745,493 1,603,295 INCOME TAXES 2,534,221 651,371 ------------ ------------ NET INCOME $ 3,411,272 $ 951,924 ------------ ------------ ------------ ------------
ATLAS RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30 ---------------------------- 1999 1998 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,411,272 $ 951,924 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 2,030,003 1,709,157 (Increase) Decrease in Current Assets (2,400,443) (118,669) Increase (Decrease) in Current Liabilities 8,093,913 3,135,247 Other assets and liabilities, net - 35,610 ------------ ------------ Net cash provided by operating activities 11,134,745 5,713,269 ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES: Investment in oil and gas wells and leases (6,323,735) (2,917,294) Investment in other property, plant & equipment - (78,350) ------------ ------------ Net cash used in investing activities (6,323,735) (2,995,644) ------------ ------------ CASH FLOWS USED IN FINANCING ACTIVITIES: Repayment of bank notes (139,286) (139,286) Borrowings under revolving credit 5,425,000 - ------------ ------------ Dividends to parent company - - ------------ ------------ Net cash provided by (used in) financing activities 5,285,714 (139,286) ------------ ------------ Net increase in cash and cash equivalents 10,096,724 2,578,339 Cash and cash equivalents at beginning of year 62,724 1,525,975 ------------ ------------ Cash and cash equivalents at end of period $ 10,159,448 $ 4,104,314 ------------ ------------ ------------ ------------
120 ATLAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1999 1. INTERIM FINANCIAL STATEMENTS The consolidated financial statements as of June 30, 1999 and for the nine months then ended have been prepared by the management of the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the audited September 30, 1998 consolidated financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for presentation have been included. 2. CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental disclosure of cash flow information:
Nine Months Ended June 30, 1999 1998 Cash paid during the period for: Interest $ 39,719 $ 53,803 Income taxes 266,000 401,000
3. LONG-TERM DEBT Long-term debt consists of a note payable to a bank in the amount of $572,619 which is payable in monthly installments of $15,476 plus interest at or below the prime rate plus 1/2% (8.25% at June 30, 1999) and is due August of 2002. The note is secured by a building and certain equipment. Maturities of the note payable for the years following June 30, 1999 are as follows:
Period Ending June 30, 2000 $185,714 2001 185,714 2002 185,714 Final Maturity August, 2002 15,477 -------- 572,619 Less current maturities 185,714 -------- $386,905 -------- --------
As reported in the Notes to Consolidated Financial Statements for September 30, 1998, Atlas America, Inc., the parent company of Atlas Resources, Inc., maintains a $40.0 million credit facility (with $27.0 million of permitted draws) at PNC Bank. As of June 30, 1999, Atlas Resources, Inc. had $5,425,000 outstanding under the revolving credit facility. 4. IMPACT ON ATLAS RESOURCES OF RESOURCE AMERICA ACQUISITION As reported in the Notes to Consolidated Financial Statements for September 30, 1998, on September 29, 1998, Atlas America, Inc., a newly formed wholly-owned subsidiary of Resource America, Inc., acquired all the common stock of The Atlas Group, Inc., the former parent company of AIC, Inc., in exchange for 2,063,496 shares of Resource America, Inc. common stock worth approximately $29,534,000 and the assumption of debt. The acquisition was recorded under the purchase method of accounting and accordingly the purchase price was allocated to assets acquired and liabilities assumed based on their fair market values at the date of acquisition. The 121 impact of the acquisition on the September 30, 1998 balance sheet of Atlas Resources reflecting push-down accounting was as follows:
Debit (Credit) (Thousands of Dollars) Trade accounts receivable $ 500 Net oil and gas properties (8,855) Net property, plant and equipment 60 Contract rights and other intangibles 12,095 Goodwill 17,717 Accounts payable and accrued liabilities (645) Deferred taxes (2,172) Additional paid-in capital (34,087) Retained earnings 15,387
122 EXHIBIT (A) AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. TABLE OF CONTENTS
SECTION NO. DESCRIPTION PAGE I. FORMATION 1.01 Formation............................................................1 1.02 Certificate of Limited Partnership...................................1 1.03 Name, Principal Office and Residence.................................1 1.04 Purpose..............................................................1 II. DEFINITION OF TERMS 2.01 Definitions..........................................................2 III. SUBSCRIPTIONS AND FURTHER CAPITAL CONTRIBUTIONS 3.01 Designation of Managing General Partner and Participants.............8 3.02 Participants.........................................................8 3.03 Subscriptions to the Partnership.....................................9 3.04 Capital Contributions...............................................10 3.05 Payment of Subscriptions............................................11 3.06 Partnership Funds...................................................12 IV. CONDUCT OF OPERATIONS 4.01 Acquisition of Leases...............................................12 4.02 Conduct of Operations...............................................13 4.03 General Rights and Obligations of the Participants and Restricted and Prohibited Transactions.........................................17 4.04 Designation, Compensation and Removal of Managing General Partner and Removal of Operator.........................................25 4.05 Indemnification and Exoneration.....................................27 4.06 Other Activities....................................................29 V. PARTICIPATION IN COSTS AND REVENUES, CAPITAL ACCOUNTS, ELECTIONS AND DISTRIBUTIONS 5.01 Participation in Costs and Revenues.................................30 5.02 Capital Accounts and Allocations Thereto............................32 5.03 Allocation of Income, Deductions and Credits........................33 5.04 Elections...........................................................35 5.05 Distributions.......................................................35 VI. TRANSFER OF INTERESTS 6.01 Transferability.....................................................36 6.02 Special Restrictions on Transfers...................................37 6.03 Right of Managing General Partner to Hypothecate and/or Withdraw Its Interests..............................................38 6.04 Presentment.........................................................38 VII. DURATION, DISSOLUTION, AND WINDING UP 7.01 Duration............................................................40 7.02 Dissolution and Winding Up..........................................40 VIII. MISCELLANEOUS PROVISIONS 8.01 Notices.............................................................41 8.02 Time................................................................41 8.03 Applicable Law......................................................41 8.04 Agreement in Counterparts...........................................42 8.05 Amendment...........................................................42 8.06 Additional Partners.................................................42 8.07 Legal Effect........................................................42 EXHIBITS EXHIBIT (I-A) - Managing General Partner Signature Page EXHIBIT (I-B) - Subscription Agreement EXHIBIT (II) - Drilling and Operating Agreement
i AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. THIS AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP ("AGREEMENT"), amending and restating the original Certificate of Limited Partnership, is made and entered into as of _____________________, 1999, by and among Atlas Resources, Inc., hereinafter referred to as "Atlas" or the "Managing General Partner," and the remaining parties from time to time signing a Subscription Agreement for Limited Partner Units, these parties hereinafter sometimes referred to as "Limited Partners," or for Investor General Partner Units, these parties hereinafter sometimes referred to as "Investor General Partners." ARTICLE I FORMATION 1.01. FORMATION. The parties hereto form a limited partnership pursuant to the Pennsylvania Revised Uniform Limited Partnership Act, upon the terms and conditions set forth herein. 1.02. CERTIFICATE OF LIMITED PARTNERSHIP. This document shall constitute not only the agreement among the parties hereto, but also shall constitute the Amended and Restated Certificate and Agreement of Limited Partnership of the Partnership. This document shall be filed or recorded in the public offices required under applicable law or deemed advisable in the discretion of the Managing General Partner. Amendments to the certificate of limited partnership shall be filed or recorded in the public offices required under applicable law or deemed advisable in the discretion of the Managing General Partner. 1.03. NAME, PRINCIPAL OFFICE AND RESIDENCE. 1.03(a). NAME. The name of the Partnership is Atlas-Energy for the Nineties-Public #8 Ltd. 1.03(b). RESIDENCE. The residence of the Managing General Partner shall be its principal place of business at 311 Rouser Road, Moon Township, Pennsylvania 15108, which shall also serve as the principal place of business of the Partnership. The residence of each Participant shall be as set forth on the Subscription Agreement executed by each party. All addresses shall be subject to change upon notice to the parties. 1.03(c). AGENT FOR SERVICE OF PROCESS. The name and address of the agent for service of process shall be Mr. Tony C. Banks at Atlas Resources, Inc., 311 Rouser Road, Moon Township, Pennsylvania 15108. 1.04. PURPOSE. The Partnership shall engage in all phases of the oil and gas business. This includes, without limitation, exploration for, development and production of oil and gas upon the terms and conditions hereinafter set forth and any other proper purpose under the Pennsylvania Revised Uniform Limited Partnership Act. The Managing General Partner may not, without the affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription, change the investment and business purpose of the Partnership or cause the Partnership to engage in activities outside the stated business purposes of the Partnership through joint ventures with other entities. 1 ARTICLE II DEFINITION OF TERMS 2.01. DEFINITIONS. As used in this Agreement, the following terms shall have the meanings hereinafter set forth: 1. "Administrative Costs" shall mean all customary and routine expenses incurred by the Sponsor for the conduct of Partnership administration, including: legal, finance, accounting, secretarial, travel, office rent, telephone, data processing and other items of a similar nature. No Administrative Costs charged shall be duplicated under any other category of expense or cost. 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 five percent 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. 2. "Administrator" shall mean the official or agency administering the securities laws of a state. 3. "Affiliate" shall mean with respect to a specific person: (i) any person directly or indirectly owning, controlling, or holding with power to vote ten percent or more of the outstanding voting securities of such specified person; (ii) any person ten percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such specified person; (iii) any person directly or indirectly controlling, controlled by, or under common control with such specified person; (iv) any officer, director, trustee or partner of such specified person; and (v) if such specified person is an officer, director, trustee or partner, any person for which such person acts in any such capacity. 4. "Agreed Subscription" shall mean that amount so designated on the Subscription Agreement executed by the Participant, or, in the case of the Managing General Partner, its subscription under Section 3.03(b) and its subsections. 5. "Agreement" shall mean this Amended and Restated Certificate and Agreement of Limited Partnership, including all exhibits hereto. 6. "Anthem Securities" shall mean Anthem Securities, Inc., whose principal executive offices are located at 311 Rouser Road, P.O. Box 926, Coraopolis, Pennsylvania 15108-0926. 7. "Assessments" shall mean additional amounts of capital which may be mandatorily required of or paid voluntarily by a Participant beyond his subscription commitment. 8. "Atlas" shall mean 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" shall mean the account established for each party hereto, maintained as provided in Section 5.02 and its subsections. 10. "Capital Contribution" shall mean the amount agreed to be contributed to the Partnership by a party pursuant to Sections 3.04 and 3.05 and their subsections. 11. "Carried Interest" shall mean 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. 2 12. "Code" shall mean the Internal Revenue Code of 1986, as amended. 13. "Cost," when used with respect to the sale of property to the Partnership, shall mean: (i) the sum of the prices paid by the seller to an unaffiliated person for such 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 such property; (iii) a pro rata portion of the seller's actual necessary and reasonable expenses for seismic and geophysical services; and (iv) rentals and ad valorem taxes paid by the seller with respect to such property to the date of its transfer to the buyer, interest and points actually incurred on funds used to acquire or maintain such property, and such portion of the seller'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 prior to the purchase by the Partnership. "Cost," when used with respect to services, shall mean the reasonable, necessary and actual expense incurred by the seller on behalf of the Partnership in providing such services, determined in accordance with generally accepted accounting principles. As used elsewhere, "Cost" shall mean the price paid by the seller in an arm's-length transaction. 14. "Dealer-Manager" shall mean Anthem Securities, Inc., an Affiliate of the Managing General Partner and the broker-dealer which will manage the offering and sale of the Units in all states other than Minnesota and New Hampshire, and Bryan Funding, Inc., the broker-dealer which will manage the offering and sale of Units in Minnesota and New Hampshire. 15. "Development Well" shall mean a well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic Horizon known to be productive. 16. "Direct Costs" shall mean 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 shall 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. Direct Costs 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 Section 4.03(d)(7). 17. "Distribution Interest" shall mean an undivided interest in the assets of the Partnership after payments to creditors of the Partnership 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, such interest in the remaining assets of the Partnership shall equal a party's interest in the related revenues of the Partnership as set forth in Section 5.01 and its subsections of this Agreement. 18. "Drilling and Operating Agreement" shall mean 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 hereto as Exhibit (II). 3 19. "Exploratory Well" shall mean a well drilled: (i) to find commercially productive hydrocarbons in an unproved area; (ii) to find a new commercially productive Horizon in a field previously found to be productive of hydrocarbons at another Horizon; or (iii) to significantly extend a known prospect. 20. "Farmout" shall mean an agreement whereby the owner of the leasehold or Working Interest agrees to assign his interest in certain specific acreage 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" shall mean any one of the following: (i) the expiration of the fixed term of the Partnership; (ii) the giving of notice to the Participants by the Managing General Partner of its election to terminate the affairs of the Partnership; (iii) the giving of notice by the Participants to the Managing General Partner of their similar election through the affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription; or (iv) the termination of the Partnership under Section 708(b)(1)(A) of the Code or the Partnership ceases to be a going concern. 22. "Horizon" shall mean a zone of a particular formation; that part of a formation of sufficient porosity and permeability to form a petroleum reservoir. 23. "Independent Expert" shall mean a person with no material relationship to the Sponsor or its Affiliates who is qualified and who is in the business of rendering opinions regarding the value of oil and gas properties based upon the evaluation of all pertinent economic, financial, geologic and engineering information available to the Sponsor or its Affiliates. 24. "Initial Closing Date" shall mean the date, on or before the Offering Termination Date, but after the minimum Partnership Subscription has been received, that the Managing General Partner, in its sole discretion, elects for the Partnership to begin business activities, including the drilling of wells. It is anticipated that this date will be November 1, 1999. 25. "Intangible Drilling Costs" or "Non-Capital Expenditures" shall mean those expenditures associated with property acquisition and the drilling and completion of oil and gas wells that under present law are generally accepted as fully deductible currently for federal income tax purposes; and includes all expenditures made with respect to any well prior to the establishment of production in commercial quantities for wages, fuel, repairs, hauling, supplies and other costs and expenses incident to and necessary for the drilling of such well and the preparation thereof for the production of oil or gas, that are currently deductible pursuant to Section 263(c) of the Code and Treasury Reg. Section 1.612-4, which are generally termed "intangible drilling and development costs," including the expense of plugging and abandoning any well prior to a completion attempt. 26. "Interim Closing Date" shall mean those date(s) after the Initial Closing Date of the Partnership, but before the Offering Termination Date, that the Managing General Partner, in its sole discretion, applies additional Agreed Subscriptions to additional Partnership activities, including drilling activities. 4 27. "Investor General Partners" shall mean the persons signing the Subscription Agreement as Investor General Partners and the Managing General Partner to the extent of any optional subscription under Section 3.03(b)(2). All Investor General Partners shall be of the same class and have the same rights. 28. "Landowner's Royalty Interest" shall mean an interest in production, or the proceeds therefrom, to be received free and clear of all costs of development, operation, or maintenance, reserved by a landowner upon the creation of an oil and gas Lease. 29. "Leases" shall mean full or partial interests in oil and gas leases, oil and gas mineral rights, fee rights, licenses, concessions, or other rights under which the holder is entitled to explore for and produce oil and/or gas, and further includes any contractual rights to acquire any such interest. 30. "Limited Partners" shall mean the persons signing the Subscription Agreement as Limited Partners, the Managing General Partner to the extent of any optional subscription under Section 3.03(b)(2), the Investor General Partners upon the conversion of their Investor General Partner Units to Limited Partner interests pursuant to Section 6.01(b), and any other persons who are admitted to the Partnership as additional or substituted Limited Partners. Except as provided in Section 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" shall mean Atlas Resources, Inc. or any Person admitted to the Partnership as a general partner other than as an Investor General Partner pursuant to this Agreement who is designated to exclusively supervise and manage the operations of the Partnership. 32. "Managing General Partner Signature Page" shall mean an execution and subscription instrument in the form attached as Exhibit (I-A) to this Agreement, which is incorporated herein by reference. 33. "Offering Termination Date" shall mean the date after the minimum Partnership Subscription 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, which shall not be later than December 31, 1999. 34. "Operating Costs" shall mean expenditures made and costs incurred in producing and marketing oil or gas from completed wells, including, in addition to labor, fuel, repairs, hauling, materials, supplies, utility charges and other costs incident to or therefrom, ad valorem and severance taxes, insurance and casualty loss expense, and compensation to well operators or others for services rendered in conducting such operations. Subject to the foregoing, Operating Costs also include reworking, workover, subsequent equipping and similar expenses relating to any well. 35. "Operator" shall mean 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" shall mean all costs of organizing and selling the offering including, but not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters' attorneys), 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, expenses of qualification of the sale of the securities under federal and state law, including taxes and fees, accountants' and attorneys' fees and other front-end fees. 37. "Overriding Royalty Interest" shall mean an interest in the oil and gas produced pursuant to a specified oil and gas lease or leases, 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. 38. "Participants" shall mean the Managing General Partner to the extent of its optional subscription under Section 3.03(b)(2), the Limited Partners, and the Investor General Partners. 39. "Partners" shall mean the Managing General Partner, the Investor General Partners, and the Limited Partners. 5 40. "Partnership" shall mean Atlas-Energy for the Nineties-Public #8 Ltd., the Pennsylvania limited partnership formed pursuant to this Agreement. 41. "Partnership Net Production Revenues" shall mean gross revenues after deduction of the related Operating Costs, Direct Costs, Administrative Costs and all other Partnership costs not specifically allocated. 42. "Partnership Subscription" shall mean the aggregate Agreed Subscriptions of the parties to this Agreement; provided, however, with respect to Participant voting rights under this Agreement, the term "Partnership Subscription" shall be deemed not to include the Managing General Partner's required subscription under Section 3.03(b)(1). 43. "Partnership Well" shall mean a well, some portion of the revenues from which is received by the Partnership. 44. "Person" shall mean a natural person, partnership, corporation, association, trust or other legal entity. 45. "Program" shall mean one or more limited or general partnerships or other investment vehicles formed, or to be formed, for the primary purpose of exploring for oil, gas and other hydrocarbon substances or investing in or holding any property interests which permit the exploration for or production of hydrocarbons or the receipt of such production or the proceeds thereof. 46. "Prospect" shall mean an area covering lands which are believed by the Managing General Partner to contain subsurface structural or stratigraphic conditions making it susceptible to the accumulations of hydrocarbons in commercially productive quantities at one or more Horizons. The area, which may be different for different Horizons, shall be designated by the Managing General Partner in writing prior to the conduct of Partnership operations and shall be enlarged or contracted from time to time on the basis of subsequently acquired information to define the anticipated limits of the associated hydrocarbon reserves and to include all acreage encompassed therein. A "Prospect" with respect to a particular Horizon may be limited to the minimum area permitted by state law or local practice, whichever is applicable, to protect against drainage from adjacent wells if the well to be drilled by the Partnership is to a Horizon containing Proved Reserves. Subject to the foregoing sentence, with respect to the Clinton/Medina geological formation in Ohio and Pennsylvania "Prospect" shall be deemed the drilling or spacing unit. 47. "Proved Developed Oil and Gas Reserves" shall mean 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. 48. "Proved Reserves" shall mean 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. 6 (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. 49. "Proved Undeveloped Reserves" shall mean reserves that are expected to be recovered from new wells on undrilled acreage, or 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. 50. "Roll-Up" shall mean 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. Such term does not include: (i) a transaction involving securities of the Partnership that have been listed for at least twelve 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: voting rights; the term of existence of the Partnership; the Managing General Partner's compensation; and the Partnership's investment objectives. 51. "Roll-Up Entity" shall mean a partnership, trust, corporation or other entity that would be created or survive after the successful completion of a proposed roll-up transaction. 52. "Sales Commissions" shall mean all underwriting and brokerage discounts and commissions incurred in the sale of Units in the Partnership payable to registered broker-dealers, but excluding the Dealer-Manager fee, a .5% reimbursement of marketing expenses, and a .5% reimbursement for bona fide accountable due diligence expenses. 53. "Selling Agents" shall mean those broker-dealers selected by the Dealer-Manager which will participate in the offer and sale of the Units. 54. "Sponsor" shall mean 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. "Sponsor" includes 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. "Sponsor" does not include wholly independent third parties such as attorneys, 7 accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of units. Whenever the context so requires, the term "sponsor" shall be deemed to include its affiliates. 55. "Subscription Agreement" shall mean an execution and subscription instrument in the form attached as Exhibit (I-B) to this Agreement, which is incorporated herein by reference. 56. "Tangible Costs" or "Capital Expenditures" shall mean those costs associated with the drilling and completion of oil and gas wells which are generally accepted as capital expenditures pursuant to the provisions of the Internal Revenue Code; and includes all costs of equipment, parts and items of hardware used in drilling and completing a well, and those items necessary to deliver acceptable oil and gas production to purchasers to the extent installed downstream from the wellhead of any well and which are required to be capitalized pursuant to applicable provisions of the Code and regulations promulgated thereunder. 57. "Tax Matters Partner" shall mean the Managing General Partner. 58. "Units" or "Units of Participation" shall mean the Limited Partner interests and the Investor General Partner interests purchased by Participants in the Partnership under the provisions of Section 3.03 and its subsections. 59. "Working Interest" shall mean an interest in an oil and gas leasehold which is subject to some portion of the cost of development, operation, or maintenance. ARTICLE III SUBSCRIPTIONS AND FURTHER CAPITAL CONTRIBUTIONS 3.01. DESIGNATION OF MANAGING GENERAL PARTNER AND PARTICIPANTS. Atlas shall serve as Managing General Partner of the Partnership. Atlas shall further serve as a Participant to the extent of any subscription made by it pursuant to Section 3.03(b)(2). Limited Partners and Investor General Partners, including Affiliates of the Managing General Partner, shall serve as Participants. The Limited Partners shall not be bound by the obligations of the Partnership other than as provided under the Pennsylvania Revised Uniform Limited Partnership Act. 3.02. PARTICIPANTS. 3.02(a). LIMITED PARTNER AT FORMATION. Atlas Energy Group, Inc., as Original Limited Partner, has acquired one Unit and has made a Capital Contribution of $100. Upon the admission of one or more Limited Partners pursuant to Section 3.02(c) below, the Partnership shall return to the Original Limited Partner its Capital Contribution and shall reacquire its Unit. The Original Limited Partner shall then cease to be a Limited Partner in the Partnership with respect to the Unit. 3.02(b). OFFERING OF INTERESTS. The Partnership is authorized to admit to the Partnership at the Initial Closing Date, any Interim Closing Date(s), and the Offering Termination Date additional Participants whose Agreed Subscriptions for Units are accepted by the Managing General Partner if, after the admission of the additional Participants, the Agreed Subscriptions of all Participants do not exceed the number of Units set forth in Section 3.03(c)(1). 3.02(c). ADMISSION OF PARTICIPANTS. No action or consent by the Participants shall be required for the admission of additional Participants pursuant to this Agreement. All subscribers' funds shall be held by an independent interest bearing escrow holder and shall not be released to the Partnership until the receipt of the minimum Partnership Subscription in Section 3.03(c)(2). Thereafter, subscriptions may be paid directly to the Partnership account. 8 3.02(d). DURATION OF THE OFFERING AND MINIMUM CAPITALIZATION. 3.02(d)(1). DURATION OF OFFERING. The offering of Units shall be terminated not later than the earlier of: (i) December 31, 1999; or (ii) at such time as Agreed Subscriptions for the maximum Partnership Subscription set forth in Section 3.03(c)(1) shall have been received and accepted by the Managing General Partner. The offering may be terminated earlier at the option of the Managing General Partner. 3.02(d)(2). MINIMUM CAPITALIZATION. If at the time of termination Agreed Subscriptions for fewer than 100 Units have been received and accepted, then all monies deposited by subscribers shall be promptly returned to them. They shall receive interest earned thereon from the date the monies were deposited in escrow through the date of refund. 3.03. SUBSCRIPTIONS TO THE PARTNERSHIP. 3.03(a). SUBSCRIPTIONS BY PARTICIPANTS. 3.03(a)(1). AGREED SUBSCRIPTION. A Participant's Agreed Subscription to the Partnership shall be the amount so designated on his Subscription Agreement. 3.03(a)(2). SUBSCRIPTION PRICE AND MINIMUM AGREED SUBSCRIPTION. The subscription price of a Unit in the Partnership shall be $10,000, payable as set forth herein. The minimum Agreed Subscription per Participant shall be one Unit ($10,000); however, the Managing General Partner, in its discretion, may accept one-half Unit ($5,000) subscriptions. Larger Agreed Subscriptions shall be accepted in $1,000 increments. 3.03(a)(3). 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 Section 4.01(a)(4); and (ii) pay the costs charged to it pursuant to Section 5.01(a). These amounts shall be paid as set forth in Section 3.05(a). 3.03(b)(2). MANAGING GENERAL PARTNER'S OPTIONAL ADDITIONAL SUBSCRIPTION. In addition to the Managing General Partner's required subscription under Section 3.03(b)(1), the Managing General Partner may subscribe to up to 10% of the Units on the same basis as a Participant may subscribe to Units under the provisions of Section 3.03(a) and its subsections, and, subject to the limitations on voting rights set forth in Section 4.03(c)(3), to that extent shall be deemed a Participant in the Partnership for all purposes under this Agreement. Notwithstanding the foregoing, Selling Agents, and the Managing General Partner, its officers, directors, and Affiliates shall not be required to pay the Dealer-Manager fee, Sales Commissions, the .5% reimbursement of marketing expenses, and the .5% reimbursement of the Selling Agent's bona fide accountable due diligence expenses. Also, Registered Investment Advisors and their clients may subscribe by paying only the Dealer-Manager fee and not the Sales Commissions, the .5% reimbursement of marketing expenses, and the .5% reimbursement of the Selling Agents' bona fide accountable due diligence expenses. 3.03(b)(3). EFFECT OF AND EVIDENCING SUBSCRIPTION. The Managing General Partner has executed a Managing General Partner Signature Page which evidences the Managing General Partner's required subscription under Section 3.03(b)(1) and which may be 9 amended to reflect the amount of any optional subscription under Section 3.03 (b)(2). Execution of the Managing General Partner Signature Page serves as an agreement by the Managing General Partner to be bound by each and every term of this Agreement. 3.03(c). MAXIMUM AND MINIMUM PARTNERSHIP SUBSCRIPTION. 3.03(c)(1). MAXIMUM PARTNERSHIP SUBSCRIPTION. The maximum Partnership Subscription excluding the Managing General Partner's required subscription under Section 3.03(b)(1) may not exceed $18,000,000 (1,800 Units). 3.03(c)(2). MINIMUM PARTNERSHIP SUBSCRIPTION. The minimum Partnership Subscription shall equal at least $1,000,000 (100 Units). The Managing General Partner, its officers, directors, and Affiliates may purchase up to 10% of the Partnership Subscription, none of which will be applied to satisfy the $1,000,000 minimum. The Partnership shall begin drilling operations after the receipt of the minimum Partnership Subscription and the Initial Closing Date. 3.03(d). ACCEPTANCE OF SUBSCRIPTIONS. 3.03(d)(1). DISCRETION BY THE MANAGING GENERAL PARTNER. Acceptance of subscriptions shall be discretionary with the Managing General Partner. The Managing General Partner may reject any subscription for any reason it deems appropriate. 3.03(d)(2). TIME PERIOD IN WHICH TO ACCEPT SUBSCRIPTIONS. A Participant's subscription to the Partnership and the Managing General Partner's acceptance thereof shall be evidenced by the execution of a Subscription Agreement by the Participant and by the Managing General Partner. Agreed Subscriptions shall be accepted or rejected by the Partnership within 30 days of their receipt; if rejected, all funds shall be returned to the subscriber immediately. 3.03(d)(3). ADMISSION TO THE PARTNERSHIP. Upon the original sale of Units, the Participants shall be admitted as Participants not later than 15 days after the release from escrow of Participants' funds to the Partnership. Thereafter, Participants shall be admitted into the Partnership not later than the last day of the calendar month in which their Agreed Subscriptions were accepted by the Partnership. 3.04. CAPITAL CONTRIBUTIONS. 3.04(a). PARTICIPANT CAPITAL CONTRIBUTIONS. Each Participant shall make a Capital Contribution to the Partnership equal to the sum of: (i) the Agreed Subscription of the Participant; and (ii) in the case of Investor General Partners, but not the Limited Partners, the additional Capital Contributions required in Section 3.05(b)(2). Participants shall not be required to restore any deficit balances in their Capital Accounts except as set forth in Section 5.03(h). 3.04(b). ADDITIONAL MANAGING GENERAL PARTNER CAPITAL CONTRIBUTIONS. 3.04(b)(1). ADDITIONAL CAPITAL CONTRIBUTIONS OF THE MANAGING GENERAL PARTNER. In addition to any Capital Contribution required of the Managing General Partner as provided in Section 3.03(b)(1) and any optional Capital Contribution as a Participant as provided in Section 3.03(b)(2), the Managing General Partner shall further contribute cash sufficient to pay all costs charged to it under this Agreement to the extent the costs exceed: (i) its Capital Contribution pursuant to Section 3.03(b); and (ii) its share of undistributed revenues. 10 These Capital Contributions shall be paid by the Managing General Partner at the time the costs are required to be paid by the Partnership, but, in no event, later than December 31, 2000. 3.04(b)(2). MINIMUM AMOUNT OF MANAGING GENERAL PARTNER'S REQUIRED CONTRIBUTION. The Managing General Partner's aggregate Capital Contributions to the Partnership (including Leases contributed pursuant to Section 3.03(b)(1)) shall not be less than 22.15% of all Capital Contributions to the Partnership. The Managing General Partner shall maintain a minimum Capital Account balance equal to 1% of total positive Capital Account balances for the Partnership. 3.04(b)(3). UPON LIQUIDATION THE MANAGING GENERAL PARTNER MUST CONTRIBUTE DEFICIT BALANCE IN ITS CAPITAL ACCOUNT. Upon liquidation of the Partnership or its interest in the Partnership, the Managing General Partner shall contribute to the Partnership any deficit balance in its Capital Account. This shall be determined after taking into account all adjustments for the Partnership's taxable year during which the liquidation occurs (other than adjustments made pursuant to this requirement), by the end of the taxable year in which its interest in the Partnership is liquidated or, if later, within 90 days after the date of such liquidation. 3.04(b)(4). INTEREST FOR CONTRIBUTIONS. The interest of the Managing General Partner in the capital and revenues of the Partnership is in consideration for, and is the only consideration for, its Capital Contribution to the Partnership. 3.04(c). LIMITATION ON AMOUNT OF REQUIRED CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS. In no event shall a Limited Partner be required to make contributions to the Partnership greater than his required Capital Contribution under Section 3.04(a). 3.05. PAYMENT OF SUBSCRIPTIONS. 3.05(a). MANAGING GENERAL PARTNER'S SUBSCRIPTIONS. The Managing General Partner shall contribute to the Partnership the Leases pursuant to Section 3.03(b)(1) and pay the costs charged to it when incurred by the Partnership, subject to Section 3.04(b)(1). Any optional subscription under Section 3.03(b)(2) shall be paid by the Managing General Partner in the same manner as provided for the payment of Participant subscriptions under Section 3.05(b). 3.05(b). PARTICIPANT SUBSCRIPTIONS AND ADDITIONAL CAPITAL CONTRIBUTIONS OF THE INVESTOR GENERAL PARTNERS. 3.05(b)(1). PAYMENT OF AGREED SUBSCRIPTIONS. A Participant shall pay his Agreed Subscription 100% in cash at the time of subscribing. A Participant shall receive interest on his Agreed Subscription up until the Offering Termination Date. 3.05(b)(2). ADDITIONAL REQUIRED CAPITAL CONTRIBUTIONS OF THE INVESTOR GENERAL PARTNERS. Investor General Partners are obligated to make Capital Contributions to the Partnership when called by the Managing General Partner (in addition to their Agreed Subscriptions) for their pro rata share of any Partnership obligations and liabilities which are recourse to the Investor General Partners and are represented by their ownership of Units before the conversion of Investor General Units to Limited Partner interests pursuant to Section 6.01(b). 3.05(b)(3). DEFAULT PROVISIONS. The failure of an Investor General Partner to timely make a required additional Capital Contribution pursuant to this section results in his personal liability to the other Investor General Partners for the amount in default. The remaining Investor General Partners, pro rata, must pay the defaulting Investor General Partner's share of Partnership liabilities and obligations. In that event, the remaining 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 directly from the Partnership 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. 11 3.06. PARTNERSHIP FUNDS. 3.06(a). FIDUCIARY DUTY. The Managing General Partner shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Partnership, whether or not in the Managing General Partner's possession or control. The Managing General Partner shall not employ, or permit another to employ, the funds and assets in any manner except for the exclusive benefit of the Partnership. Neither this Agreement nor any other agreement between the Managing General Partner and the Partnership shall contractually limit any fiduciary duty owed to the Participants by the Managing General Partner under applicable law, except as provided in Sections 4.01, 4.02, 4.04, 4.05 and 4.06 of this Agreement. 3.06(b). SPECIAL ACCOUNT AFTER THE RECEIPT OF THE MINIMUM PARTNERSHIP SUBSCRIPTION. Following the receipt of the minimum Partnership Subscription, the funds of the Partnership shall be held in a separate interest-bearing account maintained for the Partnership and shall not be commingled with funds of any other entity. 3.06(c). INVESTMENT. 3.06(c)(1). INVESTMENTS IN OTHER ENTITIES. Partnership funds may not be invested in 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 Section 3.06(c)(2); (iii) multi-tier arrangements meeting the requirements of Section 4.03(d)(15); (iv) investments involving less than 5% of the Partnership Subscription 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, in such instances duplicative fees and expenses shall be prohibited. 3.06(c)(2). PERMISSIBLE INVESTMENTS PRIOR TO INVESTMENT IN PARTNERSHIP ACTIVITIES. After the Offering Termination Date and until proceeds from the offering are invested in the Partnership's operations, the proceeds may be temporarily invested in income producing short-term, highly liquid investments, in which there is appropriate safety of principal, such as U.S. Treasury Bills. ARTICLE IV CONDUCT OF OPERATIONS 4.01. ACQUISITION OF LEASES. 4.01(a). ASSIGNMENT TO PARTNERSHIP. 4.01(a)(1). IN GENERAL. The Managing General Partner shall select, acquire and assign or cause to have assigned to the Partnership full or partial interests in Leases, by any method customary in the oil and gas industry, subject to the terms and conditions set forth below. The Partnership shall acquire only Leases reasonably expected to meet the stated purposes of the Partnership. No Leases shall be acquired for the purpose of a subsequent sale unless the acquisition is made after a well has been drilled to a depth sufficient to indicate that such an acquisition would be in the Partnership's best interest. 4.01(a)(2). FEDERAL AND STATE LEASES. The Partnership is authorized to acquire Leases on federal and state lands. 4.01(a)(3). MANAGING GENERAL PARTNER'S DISCRETION AS TO TERMS AND BURDENS OF ACQUISITION. Subject to the provisions of Section 4.03(d) and its subsections, the acquisitions of Leases or other property may be made under any terms and obligations, including any limitations as to the Horizons to be assigned to the Partnership, and subject to any burdens, as the Managing General Partner deems necessary in its sole discretion. 12 4.01(a)(4). COST OF LEASES. All Leases shall be acquired from the Managing General Partner or its Affiliates and shall be credited towards the Managing General Partner's required Capital Contribution set forth in Section 3.03(b)(1) at the Cost of the Lease, unless the Managing General Partner shall have cause to believe that Cost is materially more than the fair market value of the property, in which case the credit for the contribution will be made at a price not in excess of the fair market value. A determination of fair market value must be supported by an appraisal from an Independent Expert. This opinion and any associated supporting information must be maintained in the Partnership's records for six years. 4.01(a)(5). THE MANAGING GENERAL PARTNER, OPERATOR OR THEIR AFFILIATES' RIGHTS IN THE REMAINDER INTERESTS. To the extent the Partnership does not acquire a full interest in a Lease from the Managing General Partner or its Affiliates, the remainder of the interest in the Lease may be held by the Managing General Partner or its Affiliates which may either retain and exploit it for its own account or sell or otherwise dispose of all or a part of the remaining interest. Profits from the exploitation and/or disposition of their retained interests in the Leases shall be for the benefit of the Managing General Partner or its Affiliates to the exclusion of the Partnership. 4.01(a)(6). NO BREACH OF DUTY. Subject to the provisions of Section 4.03 and its subsections, acquisition of Leases from the Managing General Partner, the Operator or their Affiliates shall not be considered a breach of any obligation owed by the Managing General Partner, the Operator or their Affiliates 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 on the Lease interests 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 Partnership shall be held on a permanent basis in the name of the Partnership. However, Partnership properties may be held temporarily in the name of the Managing General Partner, the Operator, their Affiliates, or 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 Partner shall take the steps which are necessary in its best judgment to render title to the Leases to be acquired by the Partnership acceptable for the purposes of the Partnership. The Managing General Partner shall be free, however, to use its own best judgment in waiving title requirements. The Managing General Partner shall not be liable to the Partnership or to the other parties for any mistakes of judgment; nor shall the Managing General Partner be deemed to be making any warranties or representations, express or implied, as to the validity or merchantability of the title to the Leases assigned to the Partnership or the extent of the interest covered thereby except as otherwise provided in the Drilling and Operating Agreement. 4.01(c)(3). COMMENCEMENT OF OPERATIONS. No operation shall be commenced on the Leases acquired by the Partnership unless the Managing General Partner is satisfied that necessary title requirements have been satisfied. 4.02. CONDUCT OF OPERATIONS. 4.02(a). IN GENERAL. The Managing General Partner shall establish a program of operations for the Partnership. Subject to the limitations contained in Article III of this Agreement concerning the maximum Capital Contribution which can be required of a Limited Partner, the Managing General Partner, the Limited Partners, and the Investor General Partners agree to participate in the program so 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 of the Partnership. 13 4.02(c). GENERAL POWERS OF THE MANAGING GENERAL PARTNER. 4.02(c)(1). IN GENERAL. Subject to the provisions of Section 4.03 and its subsections, and to any authority which may be granted the Operator under Section 4.02(c)(3)(b), the Managing General Partner shall have full authority to do all things deemed necessary or desirable by it in the conduct of the business of the Partnership. Without limiting the generality of the foregoing, the Managing General 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 Leases are developed and which Leases are abandoned, or at its sole discretion, 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, the making of agreements for the conduct of operations or the furnishing of equipment, facilities, supplies and material, services, and personnel and the exercise of any options, elections, or decisions under any such agreements; (iii) the exercise, on behalf of the Partnership or the parties, in such manner 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 such 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 (c) such excess liability insurance as to bodily injury and property damage with combined limits of $50,000,000, during drilling operations and $10,000,000 thereafter, per occurrence or accident and in the aggregate, which includes $250,000 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 an accident. The excess liability insurance shall be in place and effective no later than the Initial Closing Date and shall continue until the Investor General Partners are converted to Limited Partners, at which time the Partnership shall continue to enjoy the benefit of the Managing General Partner's $11,000,000 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 the conduct or financing, in whole or in part, of the drilling and other activities of the Partnership or the conduct of additional operations, and the repayment of any such borrowings or loans used initially to finance such 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) 14 provided that the sale of all or substantially all of the assets of the Partnership shall only be made as provided in Section 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 the employment of attorneys to advise and otherwise represent the Partnership, the conduct of litigation and other incurring of legal expense, and the settlement of claims and litigation; (xi) the operation of producing wells drilled on the Leases owned by the Partnership, 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 pursuant to 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 extend to any operation participated in by the Partnership or affecting its Leases, or other property or assets, irrespective of whether or not the Managing General Partner is designated operator of the operation by any outside persons participating therein. 4.02(c)(3). DELEGATION OF AUTHORITY. 4.02(c)(3)(a). IN GENERAL. The Managing General Partner may subcontract and delegate all or any part of its duties hereunder to any entity chosen by it, including an entity related to it. The party shall have the same powers in the conduct of the duties as would the Managing General Partner. The delegation, however, shall not relieve the Managing General Partner of its responsibilities hereunder. 4.02(c)(3)(b). DELEGATION TO OPERATOR. The Managing General Partner is specifically authorized to delegate any or all of its duties to the Operator by executing the Drilling and Operating Agreement. This delegation shall not relieve the Managing General Partner of its responsibilities hereunder. In no event shall any consideration received for operator services be in excess of the competitive rates or duplicative of any consideration or reimbursements received pursuant to this Agreement. The Managing General Partner may not benefit by interpositioning itself between the Partnership and the actual provider of operator services. 4.02(c)(4). RELATED PARTY TRANSACTIONS. Subject to the provisions of Section 4.03 and its subsections, any transaction which the Managing General Partner is authorized to enter into on behalf of the Partnership under the authority granted in this section and its subsections, may be entered into by the Managing General Partner with itself or with any other general partner, the Operator or any of their Affiliates. 4.02(d). ADDITIONAL POWERS. In addition to the powers granted the Managing General Partner under Section 4.02(c) and its subsections or elsewhere in this Agreement, the Managing General Partner, when specified, shall have the following additional express powers. 4.02(d)(1). DRILLING CONTRACTS. Partnership Wells drilled in Pennsylvania and other areas of the Appalachian Basin may be drilled pursuant to the Drilling and Operating Agreement on a per-foot basis with the Managing General Partner or its Affiliates based on $37.81 per foot or, with respect to a well which the Partnership elects not to complete, $20.60 per foot. Partnership Wells in other areas of the United States shall be drilled at competitive rates and in no event shall the Managing General Partner or its Affiliates, as drilling contractor, receive a per foot rate which is not competitive with the rates charged by unaffiliated contractors in the same geographic region. No turnkey drilling contracts shall be made between the Managing General Partner or its Affiliates and the Partnership. 15 Neither the Managing General Partner nor its Affiliates shall profit by drilling in contravention of its fiduciary obligations to the Partnership. The Managing General Partner may not benefit by interpositioning itself between the Partnership and the actual provider of drilling contractor services. 4.02(d)(2). POWER OF ATTORNEY. 4.02(d)(2)(a). IN GENERAL. Each party hereto hereby makes, constitutes and appoints the Managing General Partner his true and lawful attorney-in-fact for him and in his name, place and stead 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 or other instruments required or 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 party hereto hereby authorizes such attorney-in-fact to take any further action which such attorney-in-fact shall consider necessary or advisable in connection with any of the foregoing. Each party acknowledges that the power of attorney granted under this section is a special power of attorney coupled with an interest and is irrevocable and shall survive the assignment by a party of the whole or a portion of his interest in the Partnership; except when the assignment is of such party's entire interest in the Partnership and the purchaser, transferee or assignee thereof, with the consent of the Managing General Partner, is admitted as a successor Participant, the power of attorney shall survive the delivery of the assignment for the sole purpose of enabling such 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 is hereby authorized to grant a Power of Attorney to the Operator on behalf of the Partnership. 4.02(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' Capital Contributions are needed for Partnership operations, then the Managing General Partner 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 pursuant to Section 4.03(d)(8)(b). 4.02(e)(1)(b). LIMITATION ON BORROWING. The borrowings (other than credit transactions on open account customary in the industry to obtain goods and services) shall be without recourse to the Investor General Partners and the Limited Partners except as otherwise provided herein. The amount that may be borrowed at any one time (other than credit transactions on open account customary in the industry to obtain goods and services) shall not exceed an amount equal to 5% of the Partnership Subscription. Notwithstanding, the Managing General Partner and it Affiliates shall not be obligated to advance the funds to the Partnership. 4.02(f). TAX MATTERS PARTNER. 4.02(f)(1). DESIGNATION OF TAX MATTERS PARTNER. The Managing General Partner is hereby designated the Tax Matters Partner of the Partnership pursuant to Section 6231(a)(7) of the Code. The Managing General Partner is authorized to act in this capacity on 16 behalf of the Partnership and the Participants and to take any action, including settlement or litigation, which it in its sole discretion deems to be in the best interest of the Partnership. 4.02(f)(2). COSTS INCURRED BY TAX MATTERS PARTNER. Costs incurred by the Tax Matters Partner shall be considered a Direct Cost of the Partnership. 4.02(f)(3). NOTICE TO PARTICIPANTS OF IRS PROCEEDINGS. The Tax Matters Partner shall notify all Participants of any partnership administrative proceedings commenced by the Internal Revenue Service, and thereafter shall furnish all Participants periodic 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 such 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 hereof) with the Internal Revenue Service pursuant to Section 6224(b) of the Code if necessary to perfect the waiver of rights under this subsection 4.02(f)(4). 4.03. GENERAL RIGHTS AND OBLIGATIONS OF THE PARTICIPANTS AND RESTRICTED AND PROHIBITED TRANSACTIONS. 4.03(a)(1). LIMITED LIABILITY OF LIMITED PARTNERS. Limited Partners shall not be bound by the obligations of the Partnership. Limited Partners shall not be personally liable for any debts of the Partnership or any of the obligations or losses thereof beyond the amount of their agreed Capital Contributions unless they also subscribe to the Partnership as Investor General Partners, or, in the case of the Managing General Partner if it purchases Limited Partner Units. 4.03(a)(2). NO MANAGEMENT AUTHORITY OF PARTICIPANTS. Participants, other than the Managing General Partner if it buys Units, shall have no power over the conduct of the affairs of the Partnership. No Participant, other than the Managing General Partner if it buys Units, shall take part in the management of the business of the Partnership, or have the power to sign for or to bind the Partnership. 4.03(b). REPORTS AND DISCLOSURES. 4.03(b)(1). ANNUAL REPORTS AND FINANCIAL STATEMENTS. Commencing with the 1999 calendar year, the Partnership shall provide each Participant an annual report within 120 days after the close of the calendar year, and commencing with the 2000 calendar year, a report within 75 days after the end of the first six months of its calendar year, containing except as otherwise indicated, at least the information set forth below: (i) Audited financial statements of the Partnership, including a balance sheet and statements of income, cash flow and Partners' equity, which shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor's report containing an opinion of an independent public accountant selected by the Managing General Partner stating that his audit was made in accordance with generally accepted auditing standards and that in his opinion the financial statements present fairly the financial position, results of operations, partners' equity and cash flows in accordance with generally accepted accounting principles. Semiannual reports need not be audited. (ii) A summary itemization, by type and/or classification of the total fees and compensation including any unaccountable, fixed payment reimbursements for Administrative Costs and Operating Costs, paid by the Partnership, or indirectly on behalf of the Partnership, to the Managing General Partner, the Operator and their Affiliates. In addition, Participants shall be provided the percentage that the annual unaccountable, fixed fee reimbursement for Administrative Costs bears to annual Partnership revenues. 17 (iii) A description of each Prospect in which the Partnership owns an interest, including the cost, location, number of acres under lease and the Working Interest owned therein by the Partnership, except succeeding reports need contain only material changes, if any, regarding the Prospects. (iv) A list of the wells drilled or abandoned by the Partnership during the period of the report (indicating whether each of the wells has or has not been completed), and a statement of the cost of each well completed or abandoned. Justification shall be included for wells abandoned after production has commenced. (v) A description of all farmins and joint ventures, made during the period of the report, including the Managing General Partner's justification for the arrangement and a description of the material terms. (vi) A schedule reflecting: (a) the total Partnership costs; (b) the costs paid by the Managing General Partner and the costs paid by the Participants; (c) the total Partnership revenues; (d) the revenues received or credited to the Managing General Partner and the revenues received and credited to the Participants; and (e) a reconciliation of the expenses and revenues in accordance with the provisions of Article V. 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 the information needed for the Participant to file his federal income tax return, any required state income tax return, and any other reporting or filing requirements imposed by any governmental agency or authority. 4.03(b)(3). RESERVE REPORT. Annually, beginning January 1, 2001, a computation of the total oil and gas Proved Reserves of the Partnership and the present worth of the reserves determined using a discount rate of 10%, a constant price for the oil and basing the price of gas upon the existing gas contracts shall be provided to each Participant along with each Participant's interest therein. The reserve computations shall be based upon engineering reports prepared by the Managing General Partner and reviewed by an Independent Expert. There shall also be included an estimate of the time required for the extraction of the reserves and a statement that because of the time period required to extract the reserves the present value of revenues to be obtained in the future is less than if immediately receivable. In addition to the foregoing computation and required estimate, as soon as possible, and in no event more than 90 days after the occurrence of an event leading to reduction of the reserves of the Partnership of 10% or more, excluding reduction as a result of normal production, sales of reserves or product price changes, a computation and estimate shall be sent to each Participant. 4.03(b)(4). COST OF REPORTS. The cost of all reports described herein shall be paid by the Partnership as Direct Costs. 4.03(b)(5). PARTICIPANT ACCESS TO RECORDS. The Participants and/or their representatives shall be permitted access to all records of the Partnership. The Participant may inspect and copy any of the records after giving adequate notice at any reasonable time. Notwithstanding the foregoing, the Managing General Partner may keep logs, well reports and other drilling and operating data confidential for reasonable periods of time. The Managing General Partner may release information concerning the operations of the Partnership to the sources that are customary in the industry or required by rule, regulation, or order of any regulatory body. 4.03(b)(6). REQUIRED LENGTH OF TIME TO HOLD RECORDS. The Managing General Partner shall maintain and preserve during the term of the Partnership and for six years thereafter all accounts, books and other relevant documents. This includes a record that a Participant meets the suitability standards established in connection with an investment in the Partnership and of fair market value as set forth in Section 4.01(a)(4). 18 4.03(b)(7). PARTICIPANT LISTS. The following provisions apply regarding access to the list of Participants: (i) an 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") shall be maintained as a part of the books and records of the Partnership and shall be available for inspection by any Participant or its designated agent at the home office of the Partnership upon the request of the Participant; (ii) the Participant List shall be updated at least quarterly to reflect changes in the information contained therein; (iii) a copy of the Participant List shall be mailed to any Participant requesting the Participant List within 10 days of the written request. The copy of the Participant List shall be printed in alphabetical order, on white paper, and in a readily readable type size (in no event smaller than 10-point type). A reasonable charge for copy work shall be charged by the Partnership; (iv) the purposes for which a Participant may request a copy of the Participant List include, without limitation, matters relating to Participant's voting rights under this Agreement and the exercise of Participant's rights under the federal proxy laws; and (v) if the Managing General Partner neglects or refuses to exhibit, produce, or mail a copy of the Participant List as requested, the Managing General Partner shall be liable to any Participant requesting the list for the costs, including attorneys fees, incurred by that Participant for compelling the production of the Participant List, and for actual damages suffered by any Participant by reason of such refusal or neglect. It shall be a defense that the actual purpose and reason for the requests 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 such list or information or copies thereof, 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. 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. The remedies provided hereunder to Participants requesting copies of the Participant List are in addition to, and shall not in any way limit, other remedies available to Participants under federal law, or the laws of any state. 4.03(b)(8). STATE FILINGS. Concurrently with their transmittal to Participants, and as required, the Managing General Partner shall file a copy of each report provided for in this Section 4.03(b) with the California Commissioner of Corporations and with the securities commissions of other states which request the report. 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 OR PARTICIPANTS. Meetings of the Participants may be called by the Managing General Partner. Also, meetings of the Participants may be called by Participants whose Agreed Subscriptions equal 10% or more of the Partnership Subscription for any matters for which Participants may vote. The call for a meeting by Participants shall be deemed to have been made upon receipt by the Managing General Partner of a written request from holders of the requisite percentage of Agreed Subscriptions stating the purpose(s) of the meeting. 4.03(c)(1)(b). NOTICE REQUIREMENT. The Managing General Partner shall deposit in the United States mail within 15 days after the receipt of the request, written notice to all Participants of the meeting and the purpose of the meeting. The meeting shall be held on a date not less than 30 days nor more than 60 days after 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 be extended for a period of up to 60 days, if in the opinion of the Managing General Partner the additional time is necessary to permit preparation of proxy or information statements or other documents required to be delivered in connection with the meeting by the Securities and Exchange Commission or other regulatory authorities. 19 4.03(c)(1)(c). MAY VOTE BY PROXY. Participants shall have the right to vote at any Participant meeting either: (i) in person; or (ii) by proxy. 4.03(c)(2). SPECIAL VOTING RIGHTS. At the request of Participants whose Agreed Subscriptions equal 10% or more of the Partnership Subscription, the Managing General Partner shall call for 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 the fractional interest in the Unit. Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription may, without the concurrence of the Managing General Partner or its Affiliates, vote to: (i) amend this Agreement; provided however, 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. Furthermore, any amendment may not affect the classification of Partnership income and loss for federal income tax purposes without the unanimous approval of all Participants; (ii) dissolve the Partnership; (iii) remove the Managing General Partner and elect a new Managing General Partner; (iv) elect a new Managing General Partner if the Managing General Partner elects to withdraw from the Partnership; (v) remove the Operator and elect a new Operator; (vi) approve or disapprove the sale of all or substantially all of the assets of the Partnership; and (vii) cancel any contract for services with the Managing General Partner, the Operator, or their Affiliates without penalty upon 60 days notice. 4.03(c)(3). RESTRICTIONS ON MANAGING GENERAL PARTNER'S VOTING RIGHTS. With respect to Units owned by the Managing General Partner or its Affiliates, the Managing General Partner and its Affiliates may vote or consent on all matters other than those matters set forth in Section 4.03(c)(2)(iii) and (v) above, or regarding any transaction between the Partnership and the Managing General Partner or its Affiliates. In determining the requisite percentage in interest of Units necessary to approve any Partnership matter on which the Managing General Partner and its Affiliates may not vote or consent, any Units owned by the Managing General Partner and its Affiliates shall not be included. 4.03(c)(4). RESTRICTIONS ON LIMITED PARTNER VOTING RIGHTS. The exercise by the Limited Partners of the rights granted Participants under Section 4.03(c), except for the special voting rights granted Participants under Section 4.03(c)(2), shall be subject to the prior legal determination that the grant or exercise of the powers will not adversely affect the limited liability of Limited Partners. Notwithstanding the foregoing, if in the opinion of counsel to the Partnership, the legal determination is not necessary under Pennsylvania law to maintain the limited liability of the Limited Partners, then it shall not be required. A legal determination under this paragraph may be made either pursuant to: (i) an opinion of counsel, the counsel being independent of the Partnership and selected upon the vote of Limited Partners whose Agreed Subscriptions equal a majority of the Agreed Subscriptions 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 the Participants whether or not the Limited Partners can participate in the vote if the Investor General Partners represent the requisite percentage of the Participants necessary to take the action. 20 4.03(d). TRANSACTIONS WITH THE MANAGING GENERAL PARTNER. 4.03(d)(1). TRANSFER OF EQUAL PROPORTIONATE INTEREST. When the Managing General Partner or an Affiliate (excluding another Program in which the interest of the Managing General Partner or its Affiliates is substantially similar to or less than their interest in the Partnership) sells, transfers or conveys any oil, gas or other mineral interests or property to the Partnership, it must, at the same time, sell, transfer or convey to the Partnership an equal proportionate interest in all its other property in the same Prospect. Notwithstanding, a Prospect shall be deemed to consist of the drilling or spacing unit on which the well will be drilled by the Partnership: (i) if the geological feature to which the well will be drilled contains Proved Reserves; and (ii) the drilling or spacing unit protects against drainage. With respect to an oil and gas Prospect located in Ohio and Pennsylvania on which a well will be drilled by the Partnership to test the Clinton/Medina geologic formation, a Prospect shall be deemed to consist of the drilling and spacing unit if it meets the test in the preceding sentence. Neither the Managing General Partner nor its Affiliates may drill any well within 1,650 feet of an existing Partnership Well in the Clinton/Medina formation in Pennsylvania, or within 1,100 feet of an existing Partnership Well in Ohio, within five years of the drilling of the Partnership Well. If the Partnership abandons its interest in a well, then this restriction will continue for one year following the abandonment. If the area constituting the Partnership's Prospect is subsequently enlarged to encompass any area wherein the Managing General Partner or an Affiliate (excluding another Program in which the interest of the Managing General Partner or its Affiliates is substantially similar to or less than their interest in the Partnership) owns a separate property interest and the activities of the Partnership were material in establishing the existence of Proved Undeveloped Reserves which are attributable to the separate property interest, then the separate property interest or a portion thereof shall be sold, transferred or conveyed to the Partnership as set forth in Sections 4.01(a)(4), 4.03(d)(1) and 4.03(d)(2). Notwithstanding the foregoing, Prospects in the Clinton/Medina geological formation shall not be enlarged or contracted if the Prospect was limited to the drilling or spacing unit because the well was being drilled to Proved Reserves in the Clinton/Medina geological formation and the drilling or spacing unit protected against drainage. 4.03(d)(2). TRANSFER OF LESS THAN THE MANAGING GENERAL PARTNER'S AND ITS AFFILIATES' ENTIRE INTEREST. A sale, transfer or a conveyance to the Partnership of less than all of the ownership of the Managing General Partner or an Affiliate (excluding another Program in which the interest of the Managing General Partner or its Affiliates is substantially similar to or less than their interest 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. Neither the Managing General Partner nor any Affiliate shall retain any Overriding Royalty Interests or other burdens on an interest sold or transferred by it to the Partnership. With respect to its retained interest the Managing General Partner shall not Farmout a Lease for the primary purpose of avoiding payment of its costs relating to drilling the Lease. This section does not prevent the Managing General Partner or its Affiliates from subsequently dealing with their retained interest as they may choose with unaffiliated parties or Affiliated partnerships. 4.03(d)(3). NO SALE OF LEASES TO THE MANAGING GENERAL PARTNER. The Managing General Partner and its Affiliates shall not purchase any producing or non-producing oil and gas properties from the Partnership. 21 4.03(d)(4). LIMITATIONS ON ACTIVITIES OF THE MANAGING GENERAL PARTNER AND ITS AFFILIATES ON LEASES ACQUIRED BY THE PARTNERSHIP. During a period of five years from the Offering Termination Date of the Partnership, if the Managing General Partner or any of its Affiliates (excluding another Program in which the interest of the Managing General Partner or its Affiliates is substantially similar to or less than their interest in the Partnership) proposes to acquire an interest from an unaffiliated person in a Prospect in which the Partnership possesses an interest or in a Prospect in which the Partnership's interest has been terminated without compensation within one year preceding such proposed acquisition, the following conditions shall apply: (i) if the Managing General Partner or the Affiliate (excluding another Program in which the interest of the Managing General Partner or its Affiliates is substantially similar to or less than their interest in the Partnership) does not currently own property in the Prospect separately from the Partnership, then neither the Managing General Partner nor the Affiliate shall be permitted to purchase an interest in the Prospect; and (ii) if the Managing General Partner or the Affiliate (excluding another Program in which the interest of the Managing General Partner or its Affiliates is substantially similar to or less than their interest in the Partnership) currently owns a proportionate interest in the Prospect separately from the Partnership, then the interest to be acquired shall be divided between the Partnership and the Managing General Partner or the Affiliate in the same proportion as is the other property in the Prospect. Provided, however, if cash or financing is not available to the Partnership to enable it to consummate a purchase of the additional interest to which it is entitled, then neither the Managing General Partner nor the Affiliate shall be permitted to purchase any additional interest in the Prospect. 4.03(d)(5). TRANSFER OF LEASES BETWEEN AFFILIATED LIMITED PARTNERSHIPS. The Partnership shall not purchase properties from or sell properties to any other Affiliated partnership. This prohibition, however, shall not apply to joint ventures among Affiliated partnerships, provided that: (i) the respective obligations and revenue sharing of all parties to the transaction are substantially the same and 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 (ii) 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 the assets of the Partnership (including, without limitation, Leases, wells, equipment and production therefrom) shall be made only with the consent of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription. 4.03(d)(7). SERVICES. 4.03(d)(7)(a). COMPETITIVE RATES. The Managing General Partner and any Affiliate shall not render to the Partnership any oil field, equipage or other services nor sell or lease to the Partnership any equipment or related supplies unless: (i) the person is engaged, independently of the Partnership and as an ordinary and ongoing business, in the business of rendering the services or selling or leasing the equipment and supplies to a substantial extent to other persons in the oil and gas industry in addition to the partnerships in which the Managing General Partner or an Affiliate has an interest; and (ii) the compensation, price or rental therefor is competitive with the compensation, price or rental of other persons in the area engaged in the business of rendering comparable services or selling or leasing comparable equipment and supplies which could reasonably be made available to the Partnership. If the person is not engaged in such a business, then the compensation, price or rental shall be the Cost of the services, equipment or supplies to the person or the competitive rate which could be obtained in the area, whichever is less. 4.03(d)(7)(b). IF NOT DISCLOSED IN THE PROSPECTUS OR THIS AGREEMENT THEN SERVICES BY THE MANAGING GENERAL PARTNER MUST BE DESCRIBED IN A SEPARATE CONTRACT AND CANCELLABLE. Any services for which the Managing General Partner or an Affiliate is to receive compensation other than those described in this Agreement or the Prospectus shall be set forth in a 22 written contract which precisely describes the services to be rendered and all compensation to be paid. These contracts are cancellable without penalty upon 60 days written notice by Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription. 4.03(d)(8). LOANS. 4.03(d)(8)(a). NO LOANS FROM THE PARTNERSHIP. No loans or advances shall be made by the Partnership to the Managing General Partner or any Affiliate. 4.03(d)(8)(b). LOANS TO THE PARTNERSHIP. Neither the Managing General Partner nor any Affiliate shall loan money to the Partnership if the interest to be charged exceeds the Managing General Partner's or the Affiliate's interest cost, or if the interest to be charged exceeds 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 or other financing charges or fees, regardless of the amount, although the actual amount of the charges incurred from third-party lenders may be reimbursed to the Managing General Partner or the Affiliate. 4.03(d)(9). NO FARMOUTS. The Partnership shall not Farmout its Leases. 4.03(d)(10). NO COMPENSATING BALANCES. Neither the Managing General Partner nor any Affiliate shall use the Partnership's funds as compensating balances for its own benefit. 4.03(d)(11). FUTURE PRODUCTION. Neither the Managing General Partner nor any Affiliate shall commit the future production of a well developed by the Partnership exclusively for its own benefit. 4.03(d)(12). MARKETING ARRANGEMENTS. All benefits from marketing arrangements or other relationships affecting the property of the Managing General Partner or its Affiliates and the Partnership shall be fairly and equitably apportioned according to the respective interests of each in the property. The Managing General Partner shall treat all wells in a geographic area equally concerning to whom and at what price the Partnership's gas will be sold and to whom and at what price the gas of other oil and gas Programs which the Managing General Partner has sponsored or will sponsor will be sold. The Managing General Partner calculates a weighted average selling price for all the gas sold in a geographic area by taking all money received from the sale of all the gas sold to its customers in a geographic area and dividing by the volume of all gas sold from the wells in that geographic area. Notwithstanding, the Managing General Partner and its Affiliates are parties to, and contract for, the sale of natural gas with industrial end-users and will continue to enter into such contracts on their own behalf, and the Partnership will not be a party to such contracts. The Managing General Partner and its Affiliates also have a substantial interest in pipeline facilities and compression facilities, which it is anticipated will be used to transport the Partnership's gas production as well as Affiliated partnership and third-party gas production, and the Partnership will not receive any interest in the Managing General Partner's and its Affiliates' pipeline or gathering system or compression facilities. 4.03(d)(13). ADVANCE PAYMENTS. Advance payments by the Partnership to the Managing General Partner and its Affiliates are prohibited except when advance payments are required to secure the tax benefits of prepaid drilling costs and for a business purpose. These advance payments, if any, shall not include nonrefundable payments for completion costs before the time a decision is made that the well or wells warrant a completion attempt. 4.03(d)(14). NO REBATES. No rebates or give-ups may be received by the Managing General Partner or any Affiliate nor may the Managing General Partner or any Affiliate participate in any reciprocal business arrangements which would circumvent these guidelines. 4.03(d)(15). PARTICIPATION IN OTHER PARTNERSHIPS. If the Partnership participates in other partnerships or joint ventures (multi-tier arrangements), then the terms of any such arrangements shall not result in the circumvention of any of the requirements or prohibitions contained in this Agreement, including the following: 23 (i) there shall be no duplication or increase in organization and offering expenses, 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 connection with a proposed Roll-Up, an appraisal of all Partnership assets shall be obtained from a competent Independent Expert. If the appraisal will be included in a prospectus used to offer securities of a Roll-Up Entity, then the appraisal shall be filed with the Securities and Exchange Commission and the Administrator as an exhibit to the registration statement for the offering. Accordingly, an issuer using the appraisal shall be subject to liability for violation of Section 11 of the Securities Act of 1933 and comparable provisions under state law for any material misrepresentations or material omissions in the appraisal. Partnership assets shall be appraised on a consistent basis. The appraisal shall be based on all relevant information, including current reserve estimates prepared by an independent petroleum consultant, and shall indicate the value of the Partnership's assets as of a date immediately before the announcement of the proposed Roll-Up transaction. The appraisal shall assume an orderly liquidation of the Partnership's assets over a 12-month period. The terms of the engagement of the Independent Expert shall clearly state that the engagement is for the benefit of the Partnership and the Participants. A summary of the independent appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to the Participants in connection with a proposed Roll-Up. 4.03(d)(16)(b). RIGHTS OF PARTICIPANTS WHO VOTE AGAINST PROPOSAL. In connection with a proposed Roll-Up, Participants who vote "no" on the proposal shall be offered the choice of: (i) accepting the securities of the Roll-Up Entity offered in the proposed Roll-Up; (ii) remaining as Participants in the Partnership and preserving their interests therein on the same terms and conditions as existed previously; or (iii) receiving cash in an amount equal to the Participants' pro rata share of the appraised value of the net assets of the Partnership. 4.03(d)(16)(c). NO ROLL-UP IF DIMINISHMENT OF VOTING RIGHTS. The Partnership shall not participate in any proposed Roll-Up which, if approved, would result in the diminishment of any Participant's voting rights under the Roll-Up Entity's chartering agreement. In no event shall the democracy rights of Participants in the Roll-Up Entity be less than those provided for under Sections 4.03(c)(1) and 4.03(c)(2) of this Agreement. If the Roll-Up Entity is a corporation, then the democracy rights of Participants shall correspond to the democracy rights provided for in this Agreement to the greatest extent possible. 4.03(d)(16)(d). NO ROLL-UP IF ACCUMULATION OF SHARES WOULD BE IMPEDED. The Partnership shall not participate in any proposed Roll-Up transaction which includes provisions which would operate to materially impede or frustrate the accumulation 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-Up Entity). The Partnership shall not participate in any proposed Roll-Up transaction which would limit the ability of a Participant to exercise the voting rights of its securities of the Roll-Up Entity on the basis of the number of Units held by that Participant. 4.03(d)(16)(e). NO ROLL-UP IF ACCESS TO RECORDS WOULD BE LIMITED. The Partnership shall not participate in a Roll-Up in which Participants' rights of access to the records of the Roll-Up Entity will be less than those provided for under Sections 4.03(b)(5), 4.03(b)(6) and 4.03(b)(7) of this Agreement. 24 4.03(d)(16)(f). COST OF ROLL-UP. The Partnership shall not participate in any proposed Roll-Up transaction in which any of the costs of the transaction would be borne by the Partnership if Participants whose Agreed Subscriptions equal 75% of the Partnership Subscription do not vote to approve the proposed Roll-Up. 4.03(d)(16)(g). ROLL-UP APPROVAL. The Partnership shall not participate in a Roll-Up transaction unless the Roll-Up transaction is approved by Participants whose Agreed Subscriptions equal 75% of the Partnership Subscription. 4.03(d)(17). DISCLOSURE OF BINDING AGREEMENTS. Any agreement or arrangement which binds the Partnership must be disclosed in the Prospectus. 4.03(d)(18). TRANSACTIONS MUST BE FAIR AND REASONABLE. Neither the Managing General Partner nor any Affiliate will sell, transfer, or convey any property to or purchase any property from the Partnership, directly or indirectly, except pursuant to transactions that are fair and reasonable, nor take any action with respect to the assets or property of the Partnership which does not primarily benefit the Partnership. 4.04. DESIGNATION, COMPENSATION AND REMOVAL OF MANAGING GENERAL PARTNER AND REMOVAL OF OPERATOR. 4.04(a). MANAGING GENERAL PARTNER. 4.04(a)(1). TERM OF SERVICE. Atlas shall serve as the Managing General Partner of the Partnership until it is removed pursuant to Section 4.04(a)(3) or withdraws pursuant to Section 4.04(a)(3)(f). 4.04(a)(2). COMPENSATION OF MANAGING GENERAL PARTNER. In addition to the compensation set forth in Sections 4.01(a)(4) and 4.02(d)(1), the Managing General Partner shall receive the compensation set forth in Sections 4.04(a)(2)(b) through 4.04(a)(2)(g). 4.04(a)(2)(a). CHARGES MUST BE NECESSARY AND REASONABLE. Charges by the Managing General Partner for goods and services must be fully supportable as to (i) the necessity thereof; and (ii) the reasonableness of the amount charged. All actual and necessary expenses incurred by the Partnership may be paid out of the Partnership Subscription and out of Partnership revenues. 4.04(a)(2)(b). DIRECT COSTS. The Managing General Partner shall be reimbursed for all Direct Costs. Direct Costs, however, shall be billed directly to and paid by the Partnership to the extent practicable. 4.04(a)(2)(c). ADMINISTRATIVE COSTS. The Managing General Partner shall receive an unaccountable, fixed payment reimbursement for its Administrative Costs of $75 per well per month, which shall be proportionately reduced to the extent the Partnership acquires less than 100% of the Working Interest in the well. The unaccountable, fixed payment reimbursement of $75 per well per month shall not be increased in amount during the term of the Partnership. Further, the Managing General Partner shall not be reimbursed for any additional Partnership Administrative Costs and the unaccountable, fixed payment reimbursement of $75 per well per month shall be the entire payment to reimburse the Managing General Partner for the Partnership's Administrative Costs. Finally, the Managing General Partner shall not receive the unaccountable, fixed payment reimbursement of $75 per well per month for plugged or abandoned wells. 4.04(a)(2)(d). GAS GATHERING. The Managing General Partner and its Affiliates (which may include a limited partnership sponsored by an Affiliate of AAI) shall receive a gathering fee at a competitive rate for gathering and transporting the Partnership's gas. 4.04(a)(2)(e). DEALER-MANAGER FEE. Subject to Section 3.03(b)(2), the Dealer-Manager shall receive on each Unit sold to investors: (i) a 2.5% Dealer-Manager fee; (ii) a 7% Sales Commission; (iii) a .5% reimbursement of marketing expenses; and (iv) a .5% reimbursement of the Selling Agent's bona fide accountable due diligence expenses. 25 4.04(a)(2)(f). DRILLING AND OPERATING AGREEMENT. The Managing General Partner and its Affiliates shall receive compensation as set forth in the Drilling and Operating Agreement. 4.04(a)(2)(g). OTHER TRANSACTIONS. The Managing General Partner and its Affiliates may enter into transactions pursuant to Section 4.03(d)(7) with the Partnership and shall be entitled to compensation pursuant to such 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 upon 60 days advance written notice to the outgoing Managing General Partner, by the affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription. If Participants vote to remove the Managing General Partner from the Partnership, then Participants must elect by an affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription either: (i) to terminate, dissolve and wind up the Partnership; or (ii) to continue as a successor limited partnership under all the terms of this Partnership Agreement, as provided in Section 7.01(c). If the Participants elect to continue as a successor limited partnership, then the Managing General Partner shall not be removed until a substituted Managing General Partner has been selected by an affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription and installed as such. 4.04(a)(3)(b). VALUATION OF MANAGING GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP. If the Managing General Partner is removed, then the Managing General Partner's interest in the Partnership shall be determined by appraisal by a qualified Independent Expert. The Independent Expert shall be selected by mutual agreement between the removed Managing General Partner and the incoming Managing General Partner. The appraisal shall take into account an appropriate discount, to reflect the risk of recovery of oil and gas reserves, but not less than that utilized in the most recent presentment offer, if any. The cost of the appraisal shall be borne equally by the removed Managing General Partner and the Partnership. 4.04(a)(3)(c). INCOMING MANAGING GENERAL PARTNER'S OPTION TO PURCHASE. The incoming Managing General Partner shall have the option to purchase 20% of the removed Managing General Partner's interest for the value determined by the Independent Expert. 4.04(a)(3)(d). METHOD OF PAYMENT. The method of payment for the removed Managing General Partner's interest must be fair and must protect the solvency and liquidity of 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. The removed Managing General Partner, at the time of its removal shall cause, to the extent it is legally possible, its successor to be transferred or assigned all its rights, obligations and interests as Managing General Partner of the Partnership in contracts entered into by it on behalf of the Partnership. In any event, the removed Managing General Partner shall cause its rights, obligations and interests as Managing General Partner of the Partnership in any such contract to terminate at the time of its removal. Notwithstanding any other provision in this Agreement, the Partnership or the successor Managing General Partner shall not be a party to any gas purchase agreement that the Managing General Partner or its Affiliates enters into with a third party and shall not have any rights pursuant to such gas purchase agreement. Further, the Partnership or the successor Managing General 26 Partner shall not 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. At any time beginning 10 years after the Offering Termination Date of the Partnership and the Partnership's primary drilling activities, the Managing General Partner may voluntarily withdraw as Managing General Partner upon giving 120 days' written notice of withdrawal to the Participants. If the Managing General Partner withdraws, then the following conditions shall apply: (i) the Managing General Partner's interest in the Partnership shall be determined as described in Section 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 Section 4.04(a)(3)(d)(i) above. Any successor Managing General Partner shall have the option to purchase 20% of the withdrawing Managing General Partner's interest in the Partnership at the value determined as described above with respect to removal. 4.04(a)(3)(g). THE MANAGING GENERAL PARTNER'S RIGHT TO WITHDRAW PROPERTY INTEREST. The Managing General Partner has the right at any time to withdraw a property interest held by the Partnership in the form of a Working Interest in the Partnership Wells equal to or less than its respective interest in the revenues of the Partnership pursuant to the conditions set forth in Section 6.03. The Managing General Partner shall fully indemnify the Partnership against any additional expenses which may result from a partial withdrawal of its interests and the withdrawal may not result in a greater amount of Direct Costs or Administrative Costs being allocated to the Participants. The expenses of withdrawing shall be borne by the withdrawing Managing General Partner. 4.04(a)(4). REMOVAL OF OPERATOR. The Operator may be removed and a new Operator may be substituted at any time upon 60 days advance written notice to the outgoing Operator by the Managing General Partner acting on behalf of the Partnership upon the affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription. The Operator shall not be removed until a substituted Operator has been selected by an affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription and installed as such. 4.05. INDEMNIFICATION AND EXONERATION. 4.05(a)(1). STANDARDS FOR THE MANAGING GENERAL PARTNER NOT INCURRING LIABILITY TO 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 Participants which arises out of any action or inaction of the Managing General Partner, the Operator, 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 (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 Managing General Partner, the Operator, and their Affiliates shall be indemnified by the Partnership against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with the Partnership, 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 27 (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 to hold harmless are recoverable only out of the tangible net assets of the Partnership, including any insurance proceeds. 4.05(a)(3). STANDARDS FOR SECURITIES LAW INDEMNIFICATION. Notwithstanding anything to the contrary contained in the above, the Managing General Partner, the Operator, and their Affiliates and any person acting as a broker-dealer shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless: (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 Securities and Exchange Commission, the Massachusetts Securities Division, and the position of any state securities regulatory authority in which plaintiffs claim they were offered or sold Partnership Units, 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 PARTNER AND INSURANCE. The advancement of Partnership funds to the Managing General Partner, the Operator, or their Affiliates for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if the Partnership has adequate funds available and the 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. The Partnership shall not bear the cost of that portion of insurance which insures the Managing General Partner, the Operator, or their Affiliates for any liability for which the Managing General Partner, the Operator, or their Affiliates could not be indemnified pursuant to Sections 4.05(a)(1) and 4.05(a)(2). 4.05(b). LIABILITY OF PARTNERS. Pursuant to the Pennsylvania Revised Uniform Limited Partnership Act the Investor General Partners are liable jointly and severally for all liabilities and obligations of the Partnership. Notwithstanding the foregoing, as among themselves, the Investor General Partners hereby agree that each shall be solely and individually responsible only for his pro rata share of the liabilities and obligations of the Partnership. In addition, the Managing General Partner agrees to use its corporate assets and not the assets of the Partnership to indemnify each of the Investor General Partners against all Partnership related liabilities which exceed the Investor General Partner's interest in the undistributed net assets of the Partnership and insurance proceeds, if any. Further, the Managing General Partner agrees to indemnify each Investor General Partner against any personal liability as a result of the unauthorized acts of another Investor General Partner. 28 If the Managing General Partner provides indemnification, then each Investor General Partner who has been indemnified shall and does hereby transfer and subrogate his rights for contribution from or against any other Investor General Partner to the Managing 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 the assets and revenues of the Partnership; and (iii) last by the Managing General Partner as provided in Sections 3.05(b)(2) and (3) and 4.05(b). No Limited Partner shall be required to reimburse the Managing General Partner, the Operator, or their Affiliates or the Investor General Partners for any liability 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 transaction entered into or action taken by the Partnership or the Managing General Partner, the Operator, or their Affiliates, which is authorized by this Agreement to be entered into or taken with such party shall be deemed a breach of any obligation owed by the Managing General Partner, the Operator, or their Affiliates to the Partnership or the Participants. 4.06. OTHER ACTIVITIES. 4.06(a). THE MANAGING GENERAL PARTNER MAY PURSUE OTHER OIL AND GAS ACTIVITIES FOR ITS OWN ACCOUNT. The Managing General Partner, the Operator, and their Affiliates are now engaged, and will engage in the future, for their own account and for the account of others, including other investors, in all aspects of the oil and gas business. This includes without limitation, the evaluation, acquisition and sale of producing and nonproducing Leases, and the exploration for and production of oil, gas, and other minerals. The Managing General Partner is required to devote only so much of its time as is necessary to manage the affairs of the Partnership. Except as expressly provided to the contrary in this Agreement, and subject to fiduciary duties, the Managing General Partner, the Operator, and their Affiliates may do the following: (i) may continue its 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; (ii) may reserve partial interests in Leases being assigned to the Partnership or any other interests not expressly prohibited by this Agreement; (iii) may deal with the Partnership as independent parties or through any other entity in which they may be interested; (iv) may conduct business with the Partnership as set forth herein; and (v) may participate in such other investor operations, as investors or otherwise. The Managing General Partner and its Affiliates shall not be required to permit the Partnership or the Participants to participate in any such operations in which they may be interested or share in any profits or other benefits therefrom. However, except as otherwise provided herein, the Managing General Partner and any of its Affiliates may pursue business opportunities that are consistent with the Partnership's investment objectives for their own account only after they have determined that such opportunity either cannot be pursued by the Partnership because of insufficient funds or because it is not appropriate for the Partnership under the existing circumstances. 29 4.06(b). MANAGING GENERAL PARTNER MAY MANAGE MULTIPLE PARTNERSHIPS. The Managing General Partner or its Affiliates may manage multiple Programs simultaneously. 4.06(c). PARTNERSHIP HAS NO INTEREST IN GAS CONTRACTS OR PIPELINES AND GATHERING SYSTEMS. Notwithstanding any other provision in this Agreement, the Partnership shall not be a party to any gas supply agreement that the Managing General Partner, the Operator, or their Affiliates enter into with a third party and shall not have any rights pursuant to such gas supply agreement. Further, the Partnership shall not 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 DISTRIBUTIONS 5.01. PARTICIPATION IN COSTS AND REVENUES. Except as otherwise provided in this Agreement, costs and revenues shall be charged and credited to the Managing General Partner and the Participants as set forth in this Section 5.01 and its subsections. 5.01(a). COSTS. Costs shall be charged as set forth below. 5.01(a)(1). ORGANIZATION AND OFFERING COSTS. Organization and Offering Costs shall be charged 100% to the Managing General Partner. For purposes of sharing in revenues, pursuant to Section 5.01(b)(4), the Managing General Partner shall be credited with Organization and Offering Costs up to and including 15% of the Partnership Subscription which were paid by the Managing General Partner. Any Organization and Offering Costs in excess of 15% of the Partnership Subscription shall be charged 100% to the Managing General Partner without recourse to the Partnership and the Managing General Partner shall not be credited with these amounts towards its required Capital Contribution. 5.01(a)(2). INTANGIBLE DRILLING COSTS. Intangible Drilling Costs shall be charged 100% to the Participants. 5.01(a)(3). TANGIBLE COSTS. Tangible Costs shall be charged 43.75% to the Managing General Partner and 56.25% to the Participants. 5.01(a)(4). OPERATING COSTS, DIRECT COSTS, ADMINISTRATIVE COSTS AND ALL OTHER COSTS. Operating Costs, Direct Costs, Administrative Costs, and all other Partnership costs not specifically allocated shall be charged to the parties in the same ratio as the related production revenues are being credited. 5.01(a)(5). ALLOCATION OF INTANGIBLE DRILLING COSTS AND TANGIBLE COSTS AT PARTNERSHIP CLOSINGS. Intangible Drilling Costs and the Participants' share of Tangible Costs of a well or wells to be drilled and completed with the proceeds of a Partnership closing shall be charged 100% to the Participants who are admitted to the Partnership in that closing and shall not be reallocated to take into account other Partnership closings. Although the proceeds of each Partnership closing will be used to pay the costs of drilling different wells, each Participant will pay the same amount of the costs regardless of when he subscribes. 5.01(a)(6). LEASE COSTS. The Leases shall be contributed to the Partnership as set forth in Section 4.01(a)(4). 5.01(b). REVENUES. Revenues of the Partnership from all sources and wells shall be commingled and credited as set forth below. 5.01(b)(1). ALLOCATION OF REVENUES UPON DISPOSITION OF PROPERTY. If the Partners' Capital Accounts are adjusted to reflect the simulated depletion of an oil or gas property of the Partnership, then the portion of the total amount realized by the Partnership upon the taxable disposition of such property that represents recovery of its simulated tax basis therein shall be allocated to the Partners in the same proportion as the aggregate adjusted tax basis of such property was allocated to such Partners (or their predecessors in interest). If the Partners' Capital Accounts are adjusted to reflect the actual depletion of an oil or gas property of the Partnership, then the portion of the total amount realized by the Partnership upon the taxable disposition of such property that equals the Partners' aggregate remaining adjusted tax basis therein shall be allocated to the Partners in proportion to their respective remaining adjusted tax bases in such property. Thereafter, any excess shall be allocated to the Managing General Partner in an amount equal to the difference between the fair market value of the Lease at the time it was contributed to the Partnership and its simulated or actual adjusted tax basis at such time. Finally, any excess shall be credited to the parties in accordance with the sharing ratios provided in Section 5.01(b)(4), below. 30 In the event of a sale of developed oil and gas properties with equipment thereon, the Managing General Partner may make any reasonable allocation of proceeds between the equipment and the Leases. 5.01(b)(2). INTEREST. Interest earned on Agreed Subscriptions before the Offering Termination Date pursuant to Section 3.05(b)(1) shall be credited to the accounts of the respective subscribers who paid the subscriptions to the Partnership and paid approximately eight weeks after the Offering Termination Date. After the Offering Termination Date and until proceeds from the offering are invested in the Partnership's oil and gas operations, any interest income from temporary investments shall be allocated pro rata to the Participants providing such Agreed Subscriptions. All other interest income, including interest earned on the deposit of production revenues, shall be credited as provided in Section 5.01(b)(4), below. 5.01(b)(3). SALE OR DISPOSITION OF EQUIPMENT. Proceeds from the sale or disposition of equipment shall be credited to the parties charged with the costs of such equipment in the ratio in which such costs were charged. 5.01(b)(4). OTHER REVENUES. All other revenues of the Partnership shall be credited 71% to the Participants and 29% to the Managing General Partner subject to Sections 5.01(b)(4)(a). 5.01(b)(4)(a). SUBORDINATION. The Managing General Partner shall subordinate up to 40% of its 29% share of Partnership Net Production Revenues (i.e. up to 11.6% of the Partnership Net Production Revenues), to the receipt by Participants of cash distributions from the Partnership equal to 10% of their Agreed Subscriptions in each of the first five 12-month periods of Partnership operations. The subordination shall begin with the first distribution of revenues to the Participants. The Managing General Partner, however, shall not subordinate an amount greater than 40% of its 29% share of Partnership Net Production Revenues (I.E., net of the related costs as provided in Section 5.01(a)(4)) in any such distribution 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) 10% of Participants' Agreed Subscriptions in the first 12-month period; (b) 20% of Participants' Agreed Subscriptions in the second 12-month period; (c) 30% of Participants' Agreed Subscriptions in the third 12-month period; or (d) 40% of Participants' Agreed Subscriptions in the fourth 12-month period (no carry forward is required if such distributions are less than 50% of Participants' Agreed Subscriptions in the fifth 12-month period because the Managing General Partner's subordination obligation terminates upon 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) 10% of Participants' Agreed Subscriptions in the first 12-month period; (b) 20% of Participants' Agreed Subscriptions in the second 12-month period; (c) 30% of Participants' Agreed Subscriptions in the third 12-month period; (d) 40% of Participants' Agreed Subscriptions in the fourth 12-month period; or (e) 50% of Participants' Agreed Subscriptions in the fifth 12-month period. 31 The Managing General Partner's subordination obligation shall be determined and paid at the time of each Partnership distribution during the subordination period, and may be prorated in the Managing General Partner's discretion (e.g. in the case of a quarterly distribution, the Managing General Partner will not have any subordination obligation if the distributions to Participants equal 2.5% or more of their Agreed Subscriptions assuming there is no subordination owed for any preceding periods). 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. Also, no subordination payments to Participants or reimbursements to the Managing General Partner shall be made after the expiration of the fifth 12-month subordination period. Subject to the foregoing provisions of this Section 5.01(b)(4)(a), 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, such distributions to the Participants and reimbursements to the Managing General Partner. 5.01(b)(5). COMMINGLING OF REVENUES FROM ALL PARTNERSHIP WELLS. The revenues from all Partnership wells will be commingled, so regardless of when a Participant subscribes he will share in the revenues from all wells on the same basis as the other Participants. 5.01(c). ALLOCATIONS. 5.01(c)(1). ALLOCATIONS AMONG PARTICIPANTS. Except as provided otherwise in this Agreement, costs and revenues charged or credited to the Participants as a group shall be allocated among the Participants (including the Managing General Partner to the extent of any optional subscription pursuant to Section 3.03(b)(2)) in the ratio of their respective Agreed Subscriptions. 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 or additional operation shall be allocated among the Partnership Wells or additional operations in any manner the Managing General Partner in its reasonable discretion, shall select, and shall then be charged or credited in the same manner as costs or revenues directly applicable to such Partnership Well or additional operation are being charged or credited. 5.01(c)(3). MANAGING GENERAL PARTNER'S DISCRETION IN MAKING ALLOCATIONS FOR FEDERAL INCOME TAX PURPOSES. In determining the proper method of allocating charges or credits among the parties, or in making any other allocations hereunder, the Managing General Partner may adopt any method of allocation which it, in its reasonable discretion, selects, if, in its sole discretion based on advice from its legal counsel or accountants, a revision to such allocations is required for such allocations to be recognized for federal income tax purposes either because of the promulgation of Treasury Regulations or other developments in the tax law. Any new allocation provisions shall be provided by an amendment to this Agreement and shall be made in a manner that would result in the most favorable aggregate consequences to the Participants as nearly as possible consistent with the original allocations described herein. 5.02. CAPITAL ACCOUNTS AND ALLOCATIONS THERETO. 5.02(a). CAPITAL ACCOUNTS FOR EACH PARTY TO THE AGREEMENT. A single, separate Capital Account shall be established for each party to this Agreement, regardless of the number of interests owned by such party, the class of the interests and the time or manner in which such 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 in accordance with Treas. Reg. Section 1.704-l(b)(2)(iv) and shall be increased by: (i) the amount of money contributed by him to the Partnership; 32 (ii) the fair market value of property contributed by him (without regard to Section 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 Section 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. Section 1.704-l(b)(2)(iv)(g), but excluding income and gain described in Treas. Reg. Section 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 Section 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 Section 752 of the Code); (vi) allocations to him of Partnership expenditures described in Section 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. Section 1.704-l(b)(2)(iv)(g), but excluding items described in (vi) above, and loss or deduction described in Treas. Reg. Section 1.704-l(b)(4)(i) or (iii). 5.02(b)(2). EXCEPTION. If Treas. Reg. Section 1.704-l(b)(2)(iv) fails to provide guidance, Capital Account adjustments shall be made in a manner that: (i) maintains equality between the aggregate governing Capital Accounts of the Partners 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 Partners; and (iii) is based, wherever practicable, on federal tax accounting principles. 5.02(c). PAYMENTS TO THE MANAGING GENERAL PARTNER. The Capital Account of the Managing General Partner shall be reduced by payments to it pursuant to Section 4.04(a)(2) only to the extent of the Managing General Partner's distributive share of any Partnership deduction, loss, or other downward Capital Account adjustment resulting from such payments. 5.02(d). DISCRETION OF MANAGING GENERAL PARTNER IN THE METHOD OF MAINTAINING CAPITAL ACCOUNTS. Notwithstanding any other provisions of this Agreement, the method of maintaining Capital Accounts may be changed from time to time, in the discretion of the Managing General Partner, to take into consideration Section 704 and other provisions of the Code and such rules, regulations and interpretations relating thereto as may exist from time to time. 5.02(e). REVALUATIONS OF PROPERTY. In the discretion of the Managing General Partner the Capital Accounts of the Partners may be increased or decreased to reflect a revaluation of Partnership property, including intangible assets such as goodwill, (on a property-by-property basis except as otherwise permitted under Section 704(c) of the Code and the regulations thereunder) on the Partnership's books, in accordance with Treas. Reg. Section 1.704-l(b)(2)(iv)(f). 5.02(f). AMOUNT OF BOOK ITEMS. In cases where Section 704(c) of the Code or Section 5.02(e) applies, Capital Accounts shall be adjusted in accordance with Treas. Reg. Section 1.704-l(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain and loss, as computed for book purposes, with respect to such 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 the extent permitted by law and except as otherwise provided in this Agreement, all deductions and credits, including, but not limited to, intangible drilling and development costs and depreciation, shall be allocated to the party who has been charged with the expenditure giving rise to 33 the deductions and credits; and to the extent permitted by law, these parties shall be entitled to the deductions and credits in computing taxable income or tax liabilities to the exclusion of any other party. Also, any Partnership deductions that would be nonrecourse deductions if they were not attributable to a loan made or guaranteed by the Managing General Partner or its Affiliates shall be allocated to the Managing General Partner to the extent required by law. 5.03(a)(2). INCOME AND GAIN ALLOCATED IN ACCORDANCE WITH REVENUES. Except as otherwise provided in this Agreement, all items of income and gain, including gain on disposition of assets, shall be allocated in accordance with the related revenue allocations set forth in Section 5.01(b) and its subsections. 5.03(b). TAX BASIS OF EACH PROPERTY. Subject to Section 704(c) of the Code, the tax basis of each oil and gas property for computation of cost depletion and gain or loss on disposition shall be allocated and reallocated when necessary based upon the capital interest in the Partnership as to the property and the capital interest in the Partnership for this purpose as to each property shall be considered to be owned by the parties hereto in the ratio in which the expenditure giving rise to the tax basis of the property has been charged as of the end of the year. 5.03(c). GAIN OR LOSS ON OIL AND GAS PROPERTIES. Each party shall separately compute its gain or loss on the disposition of each oil and gas property in accordance with the provisions of Section 613A(c)(7)D) of the Code, and the calculation of the gain or loss shall consider the party's adjusted basis in his property interest computed as provided in Section 5.03(b) and the party's allocable share of the amount realized from the disposition of the property. 5.03(d). GAIN ON DEPRECIABLE PROPERTY. Gain from each sale or other disposition of depreciable property shall be allocated to each party whose share of the proceeds from the sale or other disposition exceeds its contribution to the adjusted basis of the property in the ratio that the excess bears to the sum of the excesses of all parties having an excess. 5.03(e). LOSS ON DEPRECIABLE PROPERTY. Loss from each sale, abandonment or other disposition of depreciable property shall be allocated to each party whose contribution to the adjusted basis of the property exceeds its share of the proceeds from the sale, abandonment or other disposition in the proportion that the 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 recapture treated as an increase in ordinary income by reason of Sections 1245, 1250, or 1254 of the Code shall be allocated to the parties in the amounts in which the recaptured items were previously allocated to them; provided that to the extent recapture allocated to any party is in excess of the party's gain from the disposition of the property, the excess shall be allocated to the other parties but only to the extent of the other parties' gain from the disposition of the property. 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 to valid allocations of Partnership loss or deduction (or other downward Capital Account adjustments) for the year, then the Partners' interests in the Partnership with respect to the credit (or the cost giving rise thereto) shall be in the same proportion as the Partners' respective distributive shares of the loss or deduction (and adjustments). Identical principles shall apply in determining the Partners' interests in the Partnership with respect to tax credits that arise from receipts of the Partnership (whether or not taxable). 5.03(h). DEFICIT CAPITAL ACCOUNTS AND QUALIFIED INCOME OFFSET. Notwithstanding any provisions of this Agreement to the contrary, an allocation of loss or deduction which would result in a Participant having a deficit Capital Account balance as of the end of the taxable year to which the allocation relates, if charged to the Participant, (to the extent the Participant is not required to restore the deficit to the Partnership), taking into account: (i) adjustments that, as of the end of the year, reasonably are expected to be made to the Participant's Capital Account for depletion allowances with respect to the Partnership's oil and gas properties; (ii) allocations of loss and deduction that, as of the end of such year, reasonably are expected to be made to the Participant pursuant to Sections 704(e)(2) and 706(d) of the Code and Treas. Reg. Section 1.751-1(b)(2)(ii); and (iii) distributions that, as of the end of such year, reasonably are expected to be made to the Participant to the extent they exceed offsetting increases to the Participant's Capital Account (assuming for this purpose that the fair 34 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 General Partner shall be credited with an additional amount of Partnership income or gain equal to the amount of such loss or deduction as quickly as possible (to the extent such chargeback does not cause or increase deficit balances in the Participants' Capital Accounts which are not required to be restored to the Partnership). Notwithstanding any provisions of this Agreement to the contrary, if a Participant unexpectedly receives an adjustment, allocation, or distribution described in (i), (ii), or (iii) above, or any other distribution, which causes or increases a deficit balance in the Participant's Capital Account which is not required to be restored to the Partnership, the Participant shall be allocated items of income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income, and gain for such year) in an amount and manner sufficient to eliminate such deficit balance as quickly as possible. 5.03(i). MINIMUM GAIN CHARGEBACK. To the extent there is a net decrease during a Partnership taxable year in the minimum gain attributable to a Partner nonrecourse debt, then any Partner with a share of the minimum gain attributable to such debt at the beginning of such year shall be allocated items of Partnership income and gain in accordance with Treas. Reg. Section 1.704-2(i). 5.03(j). PARTNERS' ALLOCABLE SHARES. Except as otherwise provided in this Agreement, each Partner's allocable share of Partnership income, gain, loss, deductions and credits shall be determined by the use of any method prescribed or permitted by the Secretary of the Treasury by regulations or other guidelines and selected by the Managing General Partner which takes into account the varying interests of the Partners in the Partnership during the taxable year. In the absence of such regulations or guidelines, except as otherwise provided in this Agreement, such allocable share shall be based on actual income, gain, loss, deductions and credits economically accrued each day during the taxable year in proportion to each Partner's varying interest in the Partnership on each day during the taxable year. 5.04. ELECTIONS. 5.04(a). ELECTION TO DEDUCT INTANGIBLE COSTS. The Partnership's federal income tax return shall be made in accordance with an election under the option granted by the Code to deduct intangible drilling and development costs. 5.04(b). NO ELECTION OUT OF SUBCHAPTER K. No election shall be made by the Partnership, any Partner, or the Operator for the Partnership to be excluded from the application of the provisions of Subchapter K of the Code. 5.04(c). CONTINGENT INCOME. If it is determined that any taxable income results to any party by reason of its entitlement to a share of profits or revenues of the Partnership before such profit or revenue has been realized by the Partnership, the resulting deduction as well as any resulting gain, shall not enter into Partnership net income or loss but shall be separately allocated to such party. 5.04(d). SECTION 754 ELECTION. In the event of the transfer of an interest in the Partnership, or upon the death of an individual party hereto, or in the event of the distribution of property to any party hereto, the Managing General Partner may choose for the Partnership to file an election in accordance with the applicable Treasury Regulations to cause the basis of the Partnership's assets to be adjusted for federal income tax purposes as provided by Sections 734 and 743 of the Code. 5.05. DISTRIBUTIONS. 5.05(a). IN GENERAL. 5.05(a)(1). QUARTERLY REVIEW OF ACCOUNTS. The Managing General Partner shall review the accounts of the Partnership at least quarterly to determine whether cash distributions are appropriate and the amount to be distributed, if any. 5.05(a)(2). DISTRIBUTIONS. The Partnership shall distribute funds to the Managing General Partner and the Participants allocated to their accounts which the Managing General Partner deems unnecessary to retain by the Partnership. 35 5.05(a)(3). NO BORROWINGS. In no event, however, shall funds be advanced or borrowed for purposes of distributions, if the amount of such distributions would exceed the Partnership's accrued and received revenues for the previous four quarters, less paid and accrued Operating Costs with respect to such revenues. The determination of revenues and costs shall be made in accordance with generally accepted accounting principles, consistently applied. 5.05(a)(4). DISTRIBUTIONS TO THE MANAGING GENERAL PARTNER. Cash distributions from the Partnership to the Managing General Partner shall only be made in conjunction with distributions to Participants and only out of funds properly allocated to the Managing General Partner's account. 5.05(a)(5). RESERVE. At any time after three years from the date each Partnership Well is placed into production, the Managing General Partner shall have the right to deduct each month from the Partnership's proceeds of the sale of the production from the well up to $200 for the purpose of establishing a fund to cover the estimated costs of plugging and abandoning the well. All such funds shall be deposited in a separate interest bearing account for the benefit of the Partnership, and the total amount so retained and deposited shall not exceed the Managing General Partner's reasonable estimate of such costs. 5.05(b). DISTRIBUTION OF UNCOMMITTED SUBSCRIPTION PROCEEDS. Any net subscription proceeds not expended or committed for expenditure, as evidenced by a written agreement, by the Partnership within 12 months of the Offering Termination Date of the Partnership, except necessary operating capital, shall be distributed pro rata to the Participants in the ratio of their Agreed Subscriptions to the Partnership, as a return of capital. The Managing General Partner shall reimburse the Participants for the selling or other offering expenses allocable to the return of capital. For purposes of this subsection, "committed for expenditure" shall mean contracted for, actually earmarked for or allocated by the Managing General Partner to the Partnership's drilling operations, and "necessary operating capital" shall mean those funds which, in the opinion of the Managing General Partner, should remain on hand to assure continuing operation of the Partnership. 5.05(c). DISTRIBUTIONS ON WINDING UP. Upon the winding up of the Partnership distributions shall be made as provided in Section 7.02. 5.05(d). INTEREST AND RETURN OF CAPITAL. It is agreed among the parties hereto that no party shall under any circumstances be entitled to any interest on amounts retained by the Partnership. Each Participant shall look only to his share of distributions, if any, from the Partnership for a return of his Capital Contribution. ARTICLE VI TRANSFER OF INTERESTS 6.01. TRANSFERABILITY. 6.01(a). IN GENERAL. 6.01(a)(1). CONSENT REQUIRED. In addition to other restrictions on transferability provided in this Agreement, Units in the Partnership (and any rights to income or other attributes of Units in the Partnership) shall be nontransferable except transfers to or with the written consent of the Managing General Partner. 6.01(a)(2). RIGHTS OF ASSIGNEE. Unless an assignee becomes a substituted Participant in accordance with the provisions set forth below, he shall not be entitled to any of the rights granted to a Participant hereunder, other than the right to receive all or part of the share of the profits, losses, income, gain, credits and cash distributions or returns of capital to which his assignor would otherwise be entitled. 6.01(b). CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER INTERESTS. 6.01(b)(1). AUTOMATIC CONVERSION. After substantially all of the Partnership Wells have been drilled and completed the Managing General Partner shall file an amended certificate of limited partnership with the Secretary of State of the Commonwealth of Pennsylvania for the purpose of converting the Investor General Partner Units to Limited Partner interests. 36 6.01(b)(2). INVESTOR GENERAL PARTNERS SHALL HAVE CONTINGENT LIABILITY. Upon conversion the Investor General Partners shall be Limited Partners entitled to limited liability; however, they shall remain liable to the Partnership for any additional Capital Contribution required for their proportionate share of any Partnership obligation or liability arising before the conversion of their Units as provided in Section 3.05(b)(2). 6.01(b)(3). CONVERSION SHALL NOT AFFECT ALLOCATIONS. The conversion shall not affect the allocation to any Participant of any item of Partnership income, gain, loss, deduction or credit or other item of special tax significance (other than Partnership liabilities, if any). Further, the conversion shall not affect any Participant's interest in the Partnership's oil and gas properties and unrealized receivables. 6.01(b)(4). RIGHT TO CONVERT IF REDUCTION OF INSURANCE. Notwithstanding the foregoing, the Managing General Partner shall notify all Participants at least 30 days before the effective date of any adverse material change in the Partnership's insurance coverage. If the insurance coverage is to be materially reduced, then the Investor General Partners shall have the right to convert their Units into Limited Partner interests before the reduction by giving written notice to the Managing General Partner. 6.02. SPECIAL RESTRICTIONS ON TRANSFERS. 6.02(a). IN GENERAL. 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. The costs and expenses associated with the assignment must be paid by the assignor Participant and the assignment must be in a form satisfactory to the Managing General Partner. The terms of the assignment must not contravene those of this Agreement. Transfers of interest in the Partnership are subject to the following additional restrictions set forth in Sections 6.02(a)(1) and 6.02(a)(2). 6.02(a)(1). SECURITIES LAWS RESTRICTION. Subject to transfers permitted by Section 6.04 and transfers by operation of law, no interest in the Partnership shall be sold, assigned, pledged, hypothecated or transferred in the absence of an effective registration of the Units under the Securities Act of 1933, as amended and qualification under applicable state securities laws or an opinion of counsel acceptable to the Managing General Partner that such registration and qualification are not required. Transfers are also subject to any conditions contained in the Subscription Agreement and Exhibit (B) to the Prospectus. 6.02(a)(2). TAX LAW RESTRICTIONS. Subject to transfers permitted by Section 6.04 and transfers by operation of law, no sale, exchange, transfer or assignment shall be made which, in the opinion of counsel to the Partnership, would result in: (i) the Partnership being considered to have been terminated for purposes of Section 708 of the Code; or (ii) the Partnership being treated as a "publicly-traded" partnership for purposes of Section 469(k) of the Code. 6.02(a)(3). SUBSTITUTE PARTICIPANT. 6.02(a)(3)(a). PROCEDURE TO BECOME SUBSTITUTE PARTICIPANT. An assignee of a Participant's interest in the Partnership shall become a substituted Participant entitled to all the rights of a Participant if, and only if: (i) the assignor of the Unit gives the assignee the right; (ii) the Managing General Partner consents to the substitution, which consent shall be in the Managing General Partner's absolute discretion; (iii) the assignee of the Unit pays to the Partnership all costs and expenses incurred in connection with the substitution; and (iv) the assignee of the Unit executes and delivers the instruments (in form and substance satisfactory to the Managing General Partner) necessary or desirable to effect the substitution and to confirm the agreement of the assignee to be bound by all of the terms and provisions of this Agreement. 37 6.02(a)(3)(b). RIGHTS OF SUBSTITUTE PARTICIPANT. A substitute Participant is entitled to all of the rights attributable to full ownership of the assigned Units including the right to vote. 6.02(b). EFFECT OF TRANSFER. 6.02(b)(1). AMENDMENT OF RECORDS. The Partnership shall amend its records at least once each calendar quarter to effect the substitution of substituted Participants. Any transfer permitted hereunder when the assignee does not become a substituted Participant shall be effective as of midnight of the last day of the calendar month in which it is made, or, 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 party's rights hereunder or the transfer of rights hereunder to more than one party) shall relieve the transferor of its responsibility for its proportionate part of any expenses, obligations and liabilities hereunder related to the interest so transferred, whether arising before or after the transfer. 6.02(b)(3). TRANSFER DOES NOT REQUIRE AN ACCOUNTING. No transfer of a Unit shall require an accounting by the Managing General Partner. Also, no transfer shall grant rights hereunder (including the exercise of any elections) as between the transferring parties and the remaining parties hereto to more than one party unanimously designated by the transferees and, if he should have retained an interest hereunder, the transferor. 6.02(b)(4). NOTICE. Until the Managing General Partner receives a proper designation acceptable to it, the Managing General Partner shall continue to account only to the person to whom it was furnishing notices before the time pursuant to Section 8.01 and its subsections. That party shall continue to exercise all rights applicable to the entire interest previously owned by the transferor. 6.03. RIGHT OF MANAGING GENERAL PARTNER TO HYPOTHECATE AND/OR WITHDRAW ITS INTERESTS. The Managing General Partner shall have the authority (without the consent of the Participants and without affecting the allocation of costs and revenues received or incurred hereunder), to hypothecate, pledge, or otherwise encumber, on any terms it sees fit, its Partnership interest (or an undivided interest in the assets of the Partnership equal to or less than its respective interest in the revenues of the Partnership) to obtain funds for use by it for its own general purposes. All repayments of such borrowings and costs and interest or other charges related thereto shall be borne and paid separately by the Managing General Partner. In no event shall the repayments, costs, interest, or other charges related to the borrowing be charged to the account of the Participants. In addition, subject to a required participation of not less than 1% of the Partnership Subscription, the Managing General Partner may withdraw a property interest held by the Partnership in the form of a Working Interest in the Partnership Wells equal to or less than its respective interest in the revenues of the Partnership if: (i) the withdrawal is necessary to satisfy the bona fide request of its creditors; or (ii) the withdrawal is approved by Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription. 6.04. PRESENTMENT. 6.04(a). IN GENERAL. Participants shall have the right to present their interests to the Managing General Partner subject to the conditions and limitations set forth in this section. A Participant, however, is not obligated to present his Units for repurchase. The Managing General Partner shall not be obligated to purchase more than 5% of the Units in any calendar year and shall not purchase less than one Unit of a Participant's interests in the Partnership unless such lesser amount represents the entire amount of the Participant's interest. The Managing General Partner may waive these limitations in its sole discretion other than the limitation that it shall not purchase more than 5% of the Units in any calendar year. 38 A Participant may present his Units in writing to the Managing General Partner every year beginning in 2004. The presentment must be made within 120 days of the reserve report set forth in Section 4.03(b)(3). No repurchase shall be considered effective until the payment has been made to the Participant in cash. In addition, in accordance with Treas. Reg. Section 1.7704-1(f), no repurchase shall occur until at least 60 calendar days after the Participant notifies the Partnership in writing of the Participant's intention to exercise the repurchase right. 6.04(b). REQUIREMENT FOR INDEPENDENT PETROLEUM CONSULTANT EVERY OTHER YEAR. The amount attributable to Partnership reserves shall be determined based upon the last reserve report of the Partnership prepared by the Managing General Partner and reviewed by an Independent Expert. The Managing General Partner shall estimate the present worth of future net revenues attributable to the Partnership's interest in the Proved Reserves. In making this estimate, the Managing General Partner shall use a discount rate equal to 10% and a constant price for the oil; and base the price of gas upon the existing gas contracts at the time of the repurchase. The calculation of the repurchase price shall be as set forth in Section 6.04(c). 6.04(c). CALCULATION OF PRESENTMENT PRICE. The presentment price shall be based upon the Participant's share of the net assets and liabilities of the Partnership and allocated pro rata to each Participant based upon his Agreed Subscription. The presentment price shall include the sum of the following items: (i) an amount based on 70% of the present worth of future net revenues from the Partnership's Proved Reserves determined as described in Section 6.04(b); (ii) Partnership cash on hand; (iii) prepaid expenses and accounts receivable of the Partnership, less a reasonable amount for doubtful accounts; and (iv) the estimated market value of all assets of the Partnership, not separately specified above, determined in accordance with standard industry valuation procedures. There shall be deducted from the foregoing sum the following items: (i) an amount equal to all Partnership 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, subsequent to the request, of oil, gas 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 further adjusted by the Managing General Partner for estimated changes therein from the date of such report to the date of payment of the presentment price to the Participants: (i) by reason of 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 repurchase; and (ii) by reason of any of the following occurring before payment of the presentment price to the selling Participants: changes in well performance, increases or decreases in the market price of oil, gas, or other minerals, revision of regulations relating to the importing of hydrocarbons, changes in income, ad valorem, and other tax laws (e.g. material variations in the provisions for depletion) and similar matters. 6.04(e). SELECTION BY LOT. If less than all interests presented at any time are to be purchased, then the Participants whose interests are to be purchased will be selected by lot. 39 The Managing General Partner's obligation to purchase interests presented may be discharged for its benefit by a third party or an Affiliate. The interests of the selling Participant will be transferred to the party who pays for it. A selling Participant will be required to deliver an executed assignment of his interest, together with such other documentation as the Managing General Partner may reasonably 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 reserve to satisfy the presentment obligations under this section. 6.04(g). SUSPENSION OF PRESENTMENT FEATURE. The Managing General Partner may suspend this presentment feature by so notifying Participants at any time if: (i) it does not have sufficient cash flow; or (ii) it is unable to borrow funds for such purpose on terms it deems reasonable. In addition, the presentment feature may be conditioned, in the Managing General Partner's sole discretion, on the Managing General Partner's receipt of an opinion of counsel that such transfers will not cause the Partnership to be treated as a "publicly traded partnership" under the Code. The Managing General Partner shall hold such repurchased Units for its own account and not for resale. ARTICLE VII DURATION, DISSOLUTION, AND WINDING UP 7.01. DURATION. 7.01(a). FIFTY YEAR TERM. The Partnership shall continue in existence for a term of 50 years from the effective date of this Agreement unless sooner terminated as hereinafter set forth. 7.01(b). TERMINATION. The Partnership shall terminate following: (i) the occurrence of a Final Terminating Event; or (ii) upon the occurrence of any event which under the Pennsylvania Revised Uniform Limited Partnership Act causes the dissolution of a limited partnership. 7.01(c). CONTINUANCE OF PARTNERSHIP EXCEPT UPON FINAL TERMINATING EVENT. Except upon the occurrence of a Final Terminating Event, the Partnership or any successor limited partnership shall not be wound up, but shall be continued by the parties and their respective successors as a successor limited partnership under all the terms of this Agreement. Such successor limited partnership shall succeed to all of the assets of the Partnership. As used throughout this Agreement, the term "Partnership" shall include such successor limited partnerships and the parties thereto. 7.02. DISSOLUTION AND WINDING UP. 7.02(a). FINAL TERMINATING EVENT. Upon the occurrence of a Final Terminating Event, the affairs of the Partnership shall be wound up and there shall be distributed to each of the parties its Distribution Interest in the remaining assets of the Partnership. 7.02(b). TIME OF LIQUIDATING DISTRIBUTION. To the extent practicable and in accordance with sound business practices in the judgment of the Managing General Partner, liquidating distributions shall be made by the end of the taxable year in which liquidation occurs (determined without regard to Section 706(c)(2)(A) of the Code) or, if later, within 90 days after the date of such liquidation. Notwithstanding, the following amounts need not be distributed within the foregoing time periods so long as such withheld amounts are distributed as soon as practical: (i) amounts withheld for reserves reasonably required for liabilities of the Partnership; and 40 (ii) installment obligations owed to the Partnership. 7.02(c). IN-KIND DISTRIBUTIONS. Any in kind property distributions to the Participants shall be made to a liquidating trust or similar entity for the benefit of the Participants, unless at the time of the distribution: (i) the Managing General Partner shall offer 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 such 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. It shall be presumed that a Participant has refused his consent if the Managing General Partner has not received the consent within 30 days after the Managing General Partner mailed the request for consent. 7.02(d). SALE IF NO CONSENT. Any Partnership asset which would otherwise be distributed in kind to a Participant, except for the failure or refusal of the Participant to give his written consent to the distribution, may instead be sold by the Managing General Partner at the best price reasonably obtainable from an independent third party who is not an Affiliate of the Managing General Partner. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.01. NOTICES. 8.01(a). METHOD. Any notice required hereunder shall be in writing, and given by mail or wire addressed to the party to receive the notice at the address designated in Section 1.03. In the event of a transfer of rights hereunder, no notice to any such transferee shall be required, nor shall such transferee have any rights hereunder, until notice thereof shall have been given to the Managing General Partner. Any transfer of rights hereunder shall not increase the duty to give notice. If there is a transfer of rights hereunder to more than one party, then notice to any owner of any interest in such rights shall be notice to all owners thereof. 8.01(b). CHANGE IN ADDRESS. The address of any party hereto may be changed by: (i) written notice to the Participants in the event of a change of address by the Managing General Partner; or (ii) to the Managing General Partner in the event of a change of address by a Participant. 8.01(c). TIME NOTICE DEEMED GIVEN. If the notice is given by the Managing General Partner, then the notice shall be considered given, and any applicable time shall run, from the date the notice is place in the mails or delivered to the telegraph company. If the notice is given by any Participant, then the notice shall be considered given 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 Managing General Partner, including a notice requiring concurrence or nonconcurrence, shall be effective, and any failure to respond binding, irrespective of whether or not the notice is actually received, and irrespective of 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 when this Agreement expressly requires affirmative approval of a Participant, any Participant who fails to respond in writing within the time specified to a request by the Managing General Partner for approval of or concurrence in a proposed action shall be conclusively deemed to have approved the action. The time period shall be not less than 15 business days from the date of mailing of the request. 8.02. TIME. Time is of the essence of each part of this Agreement. 8.03. APPLICABLE LAW. The terms and provisions hereof shall be construed under the laws of the Commonwealth of Pennsylvania, provided, however, this Section 8.03 shall not be deemed to limit causes of action for violations of federal or state securities law to the laws of the Commonwealth of Pennsylvania. Neither this Agreement nor the Subscription Agreement shall require mandatory venue or mandatory arbitration of any or all claims by Participants against the Sponsor. 41 8.04. AGREEMENT IN COUNTERPARTS. This Agreement may be executed in counterpart and shall be binding upon all parties executing this or similar agreements from and after the date of execution by each party. 8.05. AMENDMENT. 8.05(a). PROCEDURE FOR AMENDMENT. No changes herein shall be binding unless: (i) proposed in writing by the Managing General Partner, and adopted with the consent of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription; or (ii) proposed in writing by Participants whose Agreed Subscriptions equal 10% or more of the Partnership Subscription and approved by an affirmative vote of Participants whose Agreed Subscriptions equal a majority of the Partnership Subscription. 8.05(b). CIRCUMSTANCES UNDER WHICH THE MANAGING GENERAL PARTNER ALONE MAY AMEND. The Managing General Partner is authorized to amend this Agreement and its exhibits without the consent of Participants in any way deemed necessary or desirable by it: (i) to add or substitute (in the case of an assigning party) additional Participants; (ii) to enhance the tax benefits of the Partnership to the parties; and (iii) to satisfy any requirements, conditions, guidelines, options, or elections contained in any opinion, directive, order, ruling, or regulation of the Securities and Exchange Commission, the Internal Revenue Service, 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. Notwithstanding the foregoing, no amendment materially and adversely affecting the interests or rights of Participants shall be made without the consent of the Participants whose interests will be so affected. 8.06. ADDITIONAL PARTNERS. Each Participant hereby consents to the admission to the Partnership of additional Participants as the Managing General Partner, in its discretion, chooses to admit. 8.07. LEGAL EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties, their heirs, devisees, personal representatives, successors and assigns, and shall run with the interests subject hereto. The terms "Partnership," "Limited Partner," "Investor General Partner," "Participant," "Partner," "Managing General Partner," "Operator," or "parties" shall equally apply to any successor limited partnership, and any heir, devisee, personal representative, successor or assign of a party. IN WITNESS WHEREOF, the parties hereto set their hands and seal as of the day and year hereinabove shown. ATLAS: ATLAS RESOURCES, INC. Managing General Partner By: --------------------------- Attest: - ------------------------------------------- (SEAL) Secretary 42 EXHIBIT (I-A) MANAGING GENERAL PARTNER SIGNATURE PAGE EXHIBIT (I-A) MANAGING GENERAL PARTNER SIGNATURE PAGE Attached to and made a part of the AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. The undersigned agrees: 1. to serve as the Managing General Partner of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. (the "Partnership"), and hereby executes, swears to and agrees to all the terms of the Partnership Agreement; 2. to pay the required subscription of the Managing General Partner under Section3.03(b)(1) of the Partnership Agreement; and 3. to subscribe to the Partnership as follows: (a) $___________________ [________] Unit(s)] under Section 3.03(b)(2) of the Partnership Agreement as a Limited Partner; or (b) $___________________ [________] Unit(s)] under Section 3.03(b)(2) of the Partnership Agreement as an Investor General Partner. MANAGING GENERAL PARTNER: Atlas Resources, Inc. Address: By: ______________________________________ 311 Rouser Road Moon Township, Pennsylvania 15108 ACCEPTED this ________ day of __________________ , 1999. ATLAS RESOURCES, INC. MANAGING GENERAL PARTNER By: __________________________ Attest - ---------------------------------------------- (SEAL) Secretary EXHIBIT (I-B) SUBSCRIPTION AGREEMENT ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. SUBSCRIPTION AGREEMENT The undersigned hereby offers to purchase Units of Atlas-Energy for the Nineties-Public #8 Ltd. in the amount set forth on the Signature Page of this Subscription Agreement and on the terms described in the current Prospectus for Atlas-Energy for the Nineties-Public #8 Ltd. (as supplemented or amended from time to time). The undersigned acknowledges and agrees that his execution of this Subscription Agreement also constitutes his execution of the Amended and Restated Certificate and Agreement of Limited Partnership (the "Partnership Agreement") the form of which is attached as Exhibit (A) to the Prospectus and the undersigned agrees to be bound by all of the terms and conditions of the Partnership Agreement if his Agreed Subscription is accepted by the Managing General Partner. The undersigned understands and agrees that this offer may not be assigned, nor may it be withdrawn by the undersigned after it has been accepted by the Managing General Partner. The undersigned hereby irrevocably constitutes and appoints Atlas Resources, Inc. (and its duly authorized agents) the undersigned's agent and attorney-in-fact, in the undersigned's name, place and stead, to make, execute, acknowledge, swear to, file, record and deliver the Amended and Restated Certificate and Agreement of Limited Partnership and any certificates related thereto. In order to induce the Managing General Partner to accept this subscription, the undersigned hereby represents, warrants, covenants and agrees as follows: INVESTOR'S INITIALS _____ The undersigned has received the Prospectus. _____ The undersigned (other than Minnesota residents) recognizes that before this offering there has been no public market for the Units and it is unlikely that after the offering there will be any such market. In addition, the undersigned understands that the transferability of the Units is restricted and that he cannot expect to be able to readily liquidate his investment in the Units in case of emergency or other change in circumstances. _____ The undersigned is purchasing the Units for his own account, for investment purposes and not for the account of others and he is not purchasing the Units with the present intention of reselling them. _____ The undersigned, if he is an individual, is a citizen of the United States of America and is at least twenty-one years of age, or, if a partnership, corporation or trust, the members, stockholders or beneficiaries thereof are citizens of the United States and each is at least twenty-one years of age. _____ The undersigned, if he is not an individual, is empowered and duly authorized under a governing document, trust instrument, pension plan, charter, certificate of incorporation, by-law provision or the like to enter into this Subscription Agreement and to perform the transactions contemplated by the Prospectus, including the exhibits thereto. _____ (a) The undersigned has: - a net worth of at least $225,000 (exclusive of home, furnishings and automobiles); or - a net worth (exclusive of home, furnishings and automobiles) of at least $60,000 and had during the last tax year, or estimates that he will have during the current tax year, "taxable income" as defined in Section 63 of the Code of at least $60,000, without regard to an investment in the Partnership. (b) IN ADDITION, IF A RESIDENT OF ALABAMA, ARIZONA, CALIFORNIA, INDIANA, IOWA, KANSAS, KENTUCKY, MAINE, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI, MISSOURI, NEW HAMPSHIRE, NEW MEXICO, NORTH CAROLINA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, SOUTH DAKOTA, TENNESSEE, TEXAS, VERMONT OR WASHINGTON, THEN THE UNDERSIGNED REPRESENTS THAT HE IS AWARE OF AND MEETS THAT STATE'S QUALIFICATIONS AND SUITABILITY STANDARDS SET FORTH IN EXHIBIT (B) TO THE PROSPECTUS. (c) If the undersigned is a fiduciary, then he is purchasing for a person or entity having the appropriate income and/or net worth specified in (a) or (b) above. INVESTOR'S INITIALS _____ An Investor General Partner will have unlimited joint and several liability for Partnership obligations and liabilities including amounts in excess of his Agreed Subscription to the extent the obligations and liabilities exceed the Partnership's insurance proceeds, the Partnership's assets and indemnification by the Managing General Partner. Insurance may be inadequate to cover these liabilities and there is no insurance coverage for certain claims. _____ Partnership losses allocable to a Limited Partner generally may be used only to the extent of his net passive income from passive activities in such year, with any excess losses being deferred. THE ABOVE REPRESENTATIONS DO NOT CONSTITUTE A WAIVER OF ANY RIGHTS THAT THE UNDERSIGNED MAY HAVE UNDER THE ACTS ADMINISTERED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE REGULATORY AGENCY ADMINISTERING STATUTES BEARING ON THE SALE OF SECURITIES. No state or federal governmental authority has made any finding or determination relating to the fairness for public investment of the Units and no state or federal governmental authority has recommended or endorsed or will recommend or endorse the Units. The Selling Agent or registered representative is required to inform potential investors of all pertinent facts relating to the Units, including the following: - the risks involved in the offering, including the speculative nature of the investment and the speculative nature of drilling for oil and gas; - the financial hazards involved in the offering, including the risk of losing the entire investment; - the lack of liquidity of this investment; - the restrictions on transferability of the Units; - the background of the Managing General Partner and the Operator; - the tax consequences of the investment; and - the unlimited joint and several liability of the Investor General Partners. You are required to execute your own Subscription Agreement. The Managing General Partner will not accept any Subscription Agreement that has been executed by someone other than you unless the person has been given the legal power of attorney to sign on your behalf and you meet all of the conditions herein. In the case of sales to fiduciary accounts, the minimum standards set forth herein must be met by the beneficiary, the fiduciary account, or by the donor or grantor who directly or indirectly supplies the funds to purchase the Partnership interests if the donor or grantor is the fiduciary. Your execution of the Subscription Agreement constitutes your binding offer to buy Units in the Partnership. Once you subscribe you may withdraw your subscription only by providing the Managing General Partner with written notice of your withdrawal before your subscription is accepted by the Managing General Partner. The Managing General Partner has the discretion to refuse to accept your Agreed Subscription without liability to you. Agreed Subscriptions will be accepted or rejected by the Partnership within 30 days of their receipt. If your Agreed Subscription is rejected, then all of your funds will be returned to you immediately. If your Agreed Subscription is accepted before the first closing, then you will be admitted as a Participant not later than 15 days after the release from escrow of the investors' funds to the Partnership. If your Agreed Subscription is accepted after the first closing, then you will be admitted into the Partnership not later than the last day of the calendar month in which your Agreed Subscription was accepted by the Partnership. The Managing General Partner may not complete a sale of Units to you until at least five business days after the date you receive a final Prospectus. In addition, the Managing General Partner will send you a confirmation of purchase. NOTICE TO CALIFORNIA RESIDENTS: This offering deviates in certain respects from various requirements of Title 10 of the California Administrative Code. These deviations include, but are not limited to the following: the definition of Prospect in the Prospectus, unlike Rule 260.140.127.2(b) and Rule 260.140.121(1) does not require enlarging or contracting of the size of the area on the basis of geological data in all cases. If a resident of California the undersigned acknowledges the receipt of California Rule 260.141.11 set forth in Exhibit (B) to the Prospectus. 2 SIGNATURE PAGE OF SUBSCRIPTION AGREEMENT The undersigned agrees to purchase ________ Units of Participation at $10,000 per Unit in ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. (the "Partnership") as (check one):
/ / INVESTOR GENERAL PARTNER AGREED SUBSCRIPTION / / LIMITED PARTNER $ ___________________________ (______________________# Units)
Make check payable to: "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA" Minimum Subscription: one Unit ($10,000), however, the Managing General Partner, in its discretion, may accept one-half Unit ($5,000) subscriptions; and Additional Subscriptions in $1,000 increments.
Subscriber (All individual investors must personally Address sign this Signature Page.) - ------------------------------------------------- --------------------------------------------------- Print Name - ------------------------------------------------- --------------------------------------------------- Signature - ------------------------------------------------- --------------------------------------------------- Print Name - ------------------------------------------------- Signature - ------------------------------------------------- Name of Entity if a Trust, Corporation or Partnership is Subscribing Address for Distributions if Different from Above --------------------------------------------------- ---------------------------------------------------
Date: ______ Telephone No.: Business ________________ Home _________________ Tax I.D. No. (Social Security No.): __________________________________________ (CHECK ONE): Calendar Year Taxpayer _________ Fiscal Year Taxpayer ________
(CHECK ONE): OWNERSHIP - Tenants-in-Common Partnership ---------- ---------- Joint Tenancy C Corporation ---------- ---------- Individual S Corporation ---------- ---------- Trust Community Property ---------- ---------- Other ----------
3 TO BE COMPLETED BY REGISTERED REPRESENTATIVE (FOR COMMISSION AND OTHER PURPOSES) I hereby represent that I have discharged my affirmative obligations under Rule 2810(b)(2)(B) and (b)(3)(D) of the NASD's Conduct Rules and specifically have obtained information from the above-named subscriber concerning his/her age, net worth, annual income, federal income tax bracket, investment objectives, investment portfolio and other financial information and have determined that an investment in the Partnership is suitable for such subscriber, that such subscriber is or will be in a financial position to realize the benefits of this investment, and that such subscriber has a fair market net worth sufficient to sustain the risks for this investment. I have also informed the subscriber of all pertinent facts relating to the liquidity and marketability of an investment in the Partnership, of the risks of unlimited liability regarding an investment as an Investor General Partner, and of the passive loss limitations for tax purposes of an investment as a Limited Partner.
_________________________________________________ ________________________________________ Registered Representative Name and Number Name of Broker-Dealer Registered Representative Office Address: _________________________________________________ _________________________________________ Company Name (if other than Broker-Dealer Name) _________________________________________________ _________________________________________________ Phone Number; Facsimile Number
NOTICE TO BROKER-DEALER: Send complete and signed DOCUMENTS and THE CHECK to: Mr. Eric D. Koval Anthem Securities, Inc. P.O. Box 911 Coraopolis, Pennsylvania 15108-0911 (412) 262-1680 FACSIMILE: (412) 262-7430 TO BE COMPLETED BY THE MANAGING GENERAL PARTNER ACCEPTED THIS ______ day ATLAS RESOURCES, INC., of _________________ , 1999 MANAGING GENERAL PARTNER Attest By:______________________________ ________________________________________ (SEAL) Secretary 4 EXHIBIT (II) DRILLING AND OPERATING AGREEMENT ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. (THIS DRILLING AND OPERATING AGREEMENT WILL BE APPROPRIATELY MODIFIED FOR OTHER AREAS OF THE UNITED STATES.)
INDEX SECTION PAGE 1. Assignment of Well Locations; Representations; Designation of Additional Well Locations; Outside Activities........................................................................................1 2. Drilling of Wells; Interest of Developer; Right of Substitution............................................2 3. Operator - Responsibilities in General; Term................................................................3 4. Operator's Charges for Drilling and Completing Wells; Completion Determination..............................4 5. Title Examination of Well Locations; Liability for Title Defects............................................5 6. Operations Subsequent to Completion of the Wells; Price Determinations; Plugging and Abandonment............5 7. Billing and Payment Procedure with Respect to Operation of Wells; Records, Reports and Information..........7 8. Operator's Lien.............................................................................................8 9. Successors and Assigns; Transfers; Appointment of Agent.....................................................8 10. Insurance; Operator's Liability.............................................................................9 11. Internal Revenue Code Election, Relationship of Parties; Right to Take Production in Kind...................9 12. Force Majeure..............................................................................................10 13. Term.......................................................................................................10 14. Governing Law and Invalidity...............................................................................11 15. Integration................................................................................................11 16. Waiver of Default or Breach................................................................................11 17. Notices....................................................................................................11 18. Interpretation.............................................................................................11 19. Counterparts...............................................................................................12 Signature Page.............................................................................................12 Exhibit A Description of Leases and Initial Well Locations Exhibits A-l through A-___ Maps of Initial Well Locations Exhibit B Form of Assignment Exhibit C Form of Addendum
DRILLING AND OPERATING AGREEMENT THIS AGREEMENT made this ______ day of _______________, 1999, by and between ATLAS RESOURCES, INC., a Pennsylvania corporation (hereinafter referred to as "Atlas" or "Operator"), and ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., a Pennsylvania limited partnership, (hereinafter referred to as the "Developer"). WITNESSETH THAT: WHEREAS, the Operator, by virtue of the Oil and Gas Leases (the "Leases") described on Exhibit A attached hereto and made a part hereof, has certain rights to develop the ____________ (______) initial well locations identified on the maps attached hereto as Exhibits A-l through A-______ (the "Initial Well Locations"); WHEREAS, the Developer, subject to the terms and conditions hereof, desires to acquire certain of the Operator's rights to develop the aforesaid ____________ (______) Initial Well Locations and to provide for the development upon the terms and conditions herein set forth of additional well locations ("Additional Well Locations") which the parties may from time to time designate; and WHEREAS, the Operator is in the oil and gas exploration and development business, and the Developer desires that Operator, as its independent contractor, perform certain services in connection with its efforts to develop the aforesaid Initial and Additional Well Locations (hereinafter collectively referred to as the "Well Locations") and to operate the wells completed thereon, on the terms and conditions herein set forth; NOW THEREFORE, in consideration of the mutual covenants herein contained and subject to the terms and conditions hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. ASSIGNMENT OF WELL LOCATIONS; REPRESENTATIONS; DESIGNATION OF ADDITIONAL WELL LOCATIONS; OUTSIDE ACTIVITIES. (a) The Operator shall execute an assignment of an undivided percentage of Working Interest in the Well Location acreage for each well to the Developer as shown on Exhibit A attached hereto, which assignment shall be limited to a depth from the surface to the top of the Queenston formation in Pennsylvania and Ohio. The assignment shall be substantially in the form of Exhibit B attached hereto and made a part hereof. The amount of acreage included in each Initial Well Location and the configuration thereof are indicated on the maps attached hereto as Exhibits A-l through A-______. The amount of acreage included in each Additional Well Location and the configuration thereof shall be indicated on the maps to be attached as exhibits to the applicable addendum as provided in sub-section (c) below. (b) As of the date hereof, the Operator represents and warrants to the Developer that the Operator is the lawful owner of said Lease and rights and interest thereunder and of the personal property thereon or used in connection therewith; that the Operator has good right and authority to sell and convey the same, and that said rights, interest and property are free and clear from all liens and encumbrances, and that all rentals and royalties due and payable thereunder have been duly paid. The foregoing representations and warranties shall also be made by the Operator at the time of each recorded assignment of the acreage included in each Initial Well Location and at the time of each recorded assignment of the acreage included in each Additional Well Location designated pursuant to sub-section (c) below, such representations and warranties to be included in each recorded assignment substantially in the manner set forth in the form of assignment attached hereto and made a part hereof as Exhibit B. The Operator agrees to indemnify, protect and hold the Developer and its successors and assigns harmless from and against all costs (including but not limited to reasonable attorneys' fees), liabilities, claims, penalties, losses, suits, actions, causes of action, judgments or decrees resulting from the breach of any of the aforesaid representations and warranties. It is understood and agreed that, except as specifically set forth above, the Operator makes no warranty or representation, express or implied, as to its title or the title of the lessors in and to the lands or oil and gas interests covered by said Leases. (c) In the event that the parties hereto desire to designate Additional Well Locations to be developed in accordance with the terms and conditions of this Agreement, each of said parties shall execute an addendum substantially in the form of Exhibit C attached hereto and made a part hereof specifying the undivided percentage of Working Interest and the Oil and Gas 1 Leases to be included as Leases hereunder, specifying the amount and configuration of acreage included in each such Additional Well Location on maps attached as exhibits to such addendum and setting forth their agreement that such Additional Well Locations shall be developed in accordance with the terms and conditions of this Agreement. (d) It is understood and agreed that the assignment of rights under the Leases and the oil and gas development activities contemplated by this Agreement relate only to the Initial Well Locations described herein and to the Additional Well Locations designated pursuant to sub-section (c) above. Nothing contained in this Agreement shall be interpreted to restrict in any manner the right of each of the parties hereto to conduct without the participation of any other party hereto any additional activities relating to exploration, development, drilling, production or delivery of oil and gas on lands adjacent to or in the immediate vicinity of the aforesaid Initial and Additional Well Locations or elsewhere. 2. DRILLING OF WELLS; INTEREST OF DEVELOPER; RIGHT OF SUBSTITUTION. (a) Operator, as Developer's independent contractor, agrees to drill, complete (or plug) and operate ____________ (_____) natural gas wells on the ____________ (______) Initial Well Locations in accordance with the terms and conditions of this Agreement. Developer, as a minimum commitment, agrees to participate in and pay the Operator's charges for drilling and completing the wells and any extra costs pursuant to Section 4 hereof in proportion to the share of the Working Interest owned by the Developer in the wells with respect to all ___________ (______) initial wells, it being expressly understood and agreed that, subject to sub-section (e) below, Developer does not reserve the right to decline participation in the drilling of any of the ____________ (______) initial wells to be drilled hereunder. (b) Operator will use its best efforts to commence drilling the first well within thirty (30) days after the date of this Agreement and to commence the drilling of each of said ______________ (_____) initial wells for which payment is made pursuant to Section 4(b) of this Agreement, on or before March 30, 2000. Subject to the foregoing time limits, Operator shall determine the timing of and the order of the drilling of said ____________ (______) Initial Well Locations. (c) The ____________ (______) initial wells to be drilled on the Initial Well Locations designated pursuant to this Agreement and any additional wells drilled hereunder on any Additional Well Locations designated pursuant to Section l(c) above shall be drilled and completed (or plugged) in accordance with the generally accepted and customary oil and gas field practices and techniques then prevailing in the geographical area of the Well Locations and shall be drilled to a depth sufficient to test thoroughly the objective formation or the deepest assigned depth, whichever is less. (d) Except as otherwise provided herein, all costs, expenses and liabilities incurred in connection with the drilling and other operations and activities contemplated by this Agreement shall be borne and paid, and all wells, gathering lines of up to approximately 1,500 feet on the Prospect, equipment, materials, and facilities acquired, constructed or installed hereunder shall be owned, by the Developer in proportion to the share of the Working Interest owned by the Developer in the wells. Subject to the payment of lessor's royalties and other royalties and overriding royalties, if any, production of oil and gas from the wells to be drilled hereunder shall be owned by the Developer in proportion to the share of the Working Interest owned by the Developer in the wells. (e) Notwithstanding the provisions of sub-section (a) above, in the event the Operator or Developer determines in good faith, with respect to any Well Location, before operations commence hereunder with respect to such Well Location, based upon the production (or failure of production) of any other wells which may have been recently drilled in the immediate area of such Well Location, or upon newly discovered title defects, or upon such other evidence with respect to the Well Location as may be obtained, that it would not be in the best interest of the parties hereto to drill a well on such Well Location, then the party making the determination shall notify the other party hereto of such determination and the basis therefor and, unless otherwise instructed by Developer, such well shall not be drilled. If such well is not drilled, Operator shall promptly propose a new well location (including such information with respect thereto as Developer may reasonably request) within Pennsylvania, Ohio, or other areas of the Appalachian Basin to be substituted for such original Well Location. Developer shall thereafter have the option for a period of seven (7) business days to either reject or accept the proposed new well location. If the new well location is rejected, Operator shall promptly propose another substitute well location pursuant to the provisions hereof. Once the Developer accepts a substitute well location or does not reject it within said seven (7) day period, this Agreement shall terminate as to the original Well Location and the substitute well location shall become subject to the terms and conditions hereof. 2 3. OPERATOR - RESPONSIBILITIES IN GENERAL; TERM. (a) Atlas shall be the Operator of the wells and Well Locations subject to this Agreement and, as the Developer's independent contractor, shall, in addition to its other obligations hereunder: (i) make the necessary arrangements for the drilling and completion of wells and the installation of the necessary gas gathering line systems and connection facilities; (ii) make the technical decisions required in drilling, testing, completing and operating such wells; (iii) manage and conduct all field operations in connection with the drilling, testing, completing, equipping, operating and producing of the wells; (iv) maintain all wells, equipment, gathering lines and facilities in good working order during the useful life thereof; and (v) perform the necessary administrative and accounting functions. In the performance of work contemplated by this Agreement, Operator is an independent contractor with authority to control and direct the performance of the details of the work. (b) Operator covenants and agrees that: (i) it shall perform and carry on (or cause to be performed and carried on) its duties and obligations hereunder in a good, prudent, diligent and workmanlike manner using technically sound, acceptable oil and gas field practices then prevailing in the geographical area of the aforesaid Well Locations; (ii) all drilling and other operations conducted by, for and under the control of Operator hereunder shall conform in all respects to federal, state and local laws, statutes, ordinances, regulations, and requirements; (iii) unless otherwise agreed in writing by the Developer, all work performed hereunder pursuant to a written estimate shall conform to the technical specifications set forth in such written estimate and all equipment and materials installed or incorporated in the wells and facilities hereunder shall be new or used and of good quality; (iv) in the course of conducting operations hereunder, it shall comply with all terms and conditions of the Leases (and any related assignments, amendments, subleases, modifications and supplements) other than any minimum drilling commitments contained therein; (v) it shall keep the Well Locations subject to this Agreement and all wells, equipment and facilities located thereon, free and clear of all labor, materials and other liens or encumbrances arising out of operations hereunder; (vi) it shall file all reports and obtain all permits and bonds required to be filed with or obtained from any governmental authority or agency in connection with the drilling or other operations and activities which are the subject of this Agreement; and (vii) it will provide competent and experienced personnel to supervise the drilling, completing (or plugging), and operating of the wells and use the services of competent and experienced service companies to provide any third party services necessary or appropriate in order to perform its duties hereunder. (c) Atlas shall serve as Operator hereunder until the earliest of: (i) the termination of this Agreement pursuant to Section 13 hereof; (ii) the termination of Atlas as Operator by the Developer which may be effected by the Developer at any time in its discretion, with or without cause; upon sixty (60) days advance written notice to the Operator; or 3 (iii) the resignation of Atlas as Operator hereunder which may occur upon ninety (90) days' written notice to the Developer at any time after five (5) years from the date hereof, it being expressly understood and agreed that Atlas shall have no right to resign as Operator hereunder prior to the expiration of the aforesaid five-year period. Any successor Operator hereunder shall be selected by the Developer. Nothing contained in this sub-section (c) shall relieve or release Atlas or the Developer from any liability or obligation hereunder which accrued or occurred prior to Atlas' removal or resignation as Operator hereunder. Upon any change in Operator pursuant to this provision, the then present Operator shall deliver to the successor Operator possession of all records, equipment, materials and appurtenances used or obtained for use in connection with operations hereunder and owned by the Developer. 4. OPERATOR'S CHARGES FOR DRILLING AND COMPLETING WELLS; COMPLETION DETERMINATION. (a) All natural gas wells which are drilled and completed hereunder shall be drilled and completed on a footage basis for a price of $37.81 per foot to the depth of the well at its deepest penetration as recorded by Operator. The aforesaid footage price for each of said natural gas wells shall be set forth in an AFE which shall be attached to this Agreement as an Exhibit, and shall cover all ordinary costs which may be incurred in drilling and completing each such well for production of natural gas, including without limitation, site preparation, permits and bonds, roadways, surface damages, power at the site, water, Operator's overhead and profit, rights-of-way, drilling rigs, equipment and materials, costs of title examination, logging, cementing, fracturing, casing, meters (other than utility purchase meters), connection facilities, salt water collection tanks, separators, siphon string, rabbit, tubing, an average of 1,500 feet of gathering line per well, geological and engineering services and completing two (2) zones. Such footage price shall not include the cost of: (i) completing more than two (2) zones; (ii) completion procedures, equipment, or any facilities necessary or appropriate for the production and sale of oil and/or natural gas liquids; and (iii) equipment or materials necessary or appropriate to collect, lift or dispose of liquids for efficient gas production, except that the cost of saltwater collection tanks, separators, siphon string and tubing shall be included in the aforesaid footage price. Any such extra costs shall be billed to Developer in proportion to the share of the Working Interest owned by the Developer in the wells on a direct cost basis equal to the sum of: (i) Operator's invoice costs of third party services performed and materials and equipment purchased plus ten percent (10%) to cover supervisory services and overhead; and (ii) Operator's standard charges for services performed directly by it. (b) In order to enable Operator to commence site preparation for ________________ (______) initial wells, to obtain suitable subcontractors for the drilling and completion of such wells at currently prevailing prices, and to insure the availability of equipment and materials, the Developer shall pay to Operator, in proportion to the share of the Working Interest owned by the Developer in the wells, one hundred percent (100%) of the estimated price for all initial wells upon execution of this Agreement. The payment to be nonrefundable in all events, except that Atlas' share of such payments as the Managing General Partner of the Developer shall be paid within five (5) business days of notice from Operator that such costs have been incurred. With respect to each additional well drilled on the Additional Well Locations, if any, in order to enable Operator to commence site preparation, to obtain suitable subcontractors for the drilling and completion of such wells at currently prevailing prices, and to insure the availability of equipment and materials, Developer shall pay Operator, in proportion to the share of the Working Interest owned by the Developer in the wells, one hundred percent (100%) of the estimated price for such well upon execution of the applicable addendum pursuant to Section l(c) above. The payment shall be nonrefundable in all events, except that Atlas' share of such payments as the Managing General Partner of the Developer shall be paid within five (5) business days of notice from Operator that such costs have been incurred. Subject to the above, with respect to each well and each additional well, Developer shall pay to Operator, in proportion to the share of the Working Interest owned by the Developer in the wells, the designated completion costs for such well within 4 five (5) business days of receipt of notice from Operator that such well has been drilled to the objective depth and logged and is to be completed. Developer shall pay, in proportion to the share of the Working Interest owned by the Developer in the wells, any extra costs incurred with respect to each well pursuant to sub-section (a) above within ten (10) business days of its receipt of Operator's statement therefor. (c) Operator shall determine whether or not to run the production casing for an attempted completion or to plug and abandon any well drilled hereunder; provided, however, that a well shall be completed only if Operator has made a good faith determination that there is a reasonable possibility of obtaining commercial quantities of oil and/or gas. (d) If Operator determines at any time during the drilling or attempted completion of any well hereunder, in accordance with the generally accepted and customary oil and gas field practices and techniques then prevailing in the geographic area of the well location, that such well should not be completed, it shall promptly and properly plug and abandon the same. In such event, such well shall be deemed a dry hole and the dry hole footage price for each well drilled hereunder shall be $20.60 per foot multiplied by the depth of the well, as specified in sub-section (a) above, and shall be charged to the Developer in proportion to the share of the Working Interest owned by the Developer in the well. Any amounts paid by the Developer with respect to such dry hole which exceed the aforesaid dry hole footage price shall be retained by Operator and shall be applied to the costs for an additional well or wells to be drilled on the Additional Well Locations. 5. TITLE EXAMINATION OF WELL LOCATIONS; LIABILITY FOR TITLE DEFECTS. (a) The Developer hereby acknowledges that Operator has furnished Developer with the title opinions identified on Exhibit A, and other documents and information which Developer or its counsel has requested in order to determine the adequacy of the title to the Initial Well Locations and leased premises subject to this Agreement. The Developer hereby accepts the title to said Initial Well Locations and leased premises and acknowledges and agrees that, except for any loss, expense, cost or liability caused by the breach of any of the warranties and representations made by the Operator in Section l(b) hereof, any loss, expense, cost or liability whatsoever caused by or related to any defect or failure of such title shall be the sole responsibility of and shall be borne entirely by the Developer. (b) Prior to commencing the drilling of any well on any Additional Well Location designated pursuant to this Agreement, Operator shall conduct, or cause to be conducted, a title examination of such Additional Well Location, in order to obtain appropriate abstracts, opinions and certificates and other information necessary to determine the adequacy of title to both the applicable Lease and the fee title of the lessor to the premises covered by such Lease. The results of such title examination and such other information as is necessary to determine the adequacy of title for drilling purposes shall be submitted to the Developer for its review and acceptance, and no drilling shall be commenced until such title has been accepted in writing by the Developer. After any title has been accepted by the Developer, any loss, expense, cost or liability whatsoever, caused by or related to any defect or failure of such title shall be the sole responsibility of and shall be borne entirely by the Developer, unless such loss, expense, cost or liability was caused by the breach of any of the warranties and representations made by the Operator in Section l(b) of this Agreement. 6. OPERATIONS SUBSEQUENT TO COMPLETION OF THE WELLS; PRICE DETERMINATIONS; PLUGGING AND ABANDONMENT. (a) Commencing with the month in which a well drilled hereunder begins to produce, Operator shall be entitled to an operating fee of $275 per month for each well being operated under this Agreement, proportionately reduced to the extent the Developer owns less than 100% of the Working Interest in the wells. This fee shall be in lieu of any direct charges by Operator for its services or the provision by Operator of its equipment for normal superintendence and maintenance of such wells and related pipelines and facilities. Such operating fees shall cover all normal, regularly recurring operating expenses for the production, delivery and sale of natural gas, including without limitation well tending, routine maintenance and adjustment, reading meters, recording production, pumping, maintaining appropriate books and records, preparing reports to the Developer and government agencies, and collecting and disbursing revenues. The operating fees shall not cover costs and expenses related to the: (i) production and sale of oil; (ii) collection and disposal of salt water or other liquids produced by the wells; (iii) rebuilding of access roads; and 5 (iv) purchase of equipment, materials or third party services, which, subject to the provisions of sub-section (c) of this Section 6, shall be paid by the Developer in proportion to the share of the Working Interest owned by the Developer in the wells. Any well which is temporarily abandoned or shut-in continuously for the entire month shall not be considered a producing well for purposes of determining the number of wells in such month subject to the aforesaid operating fee. (b) The monthly operating fee set forth in sub-section (a) above may in the following manner be adjusted annually as of the first day of January (the "Adjustment Date") each year beginning January l, 2001. Such adjustment, if any, shall not exceed the percentage increase in the average weekly earnings of "Crude Petroleum, Natural Gas, and Natural Gas Liquids" workers, as published by the U.S. Department of Labor, Bureau of Labor Statistics, and shown in Employment and Earnings Publication, Monthly Establishment Data, Hours and Earning Statistical Table C-2, Index Average Weekly Earnings of "Crude Petroleum, Natural Gas, and Natural Gas Liquids" workers, SIC Code #131-2, or any successor index thereto, since January l, 1997, in the case of the first adjustment, and since the previous Adjustment Date, in the case of each subsequent adjustment. (c) Without the prior written consent of the Developer, pursuant to a written estimate submitted by Operator, Operator shall not undertake any single project or incur any extraordinary cost with respect to any well being produced hereunder reasonably estimated to result in an expenditure of more than $5,000, unless such project or extraordinary cost is necessary to safeguard persons or property or to protect the well or related facilities in the event of a sudden emergency. In no event, however, shall the Developer be required to pay for any project or extraordinary cost arising from the negligence or misconduct of Operator, its agents, servants, employees, contractors, licensees or invitees. All extraordinary costs incurred and the cost of projects undertaken with respect to a well being produced hereunder shall be billed at the invoice cost of third party services performed or materials purchased together with a reasonable charge by Operator for services performed directly by it, in proportion to the share of the Working Interest owned by the Developer in the wells. Operator shall have the right to require the Developer to pay in advance of undertaking any such project all or a portion of the estimated costs thereof in proportion to the share of the Working Interest owned by the Developer in the wells. (d) Developer shall have no interest in the pipeline gathering system, which gathering system shall remain the sole property of Operator and shall be maintained at Operator's sole cost and expense. (e) Notwithstanding anything herein to the contrary, the Developer shall have full responsibility for and bear all costs in proportion to the share of the Working Interest owned by the Developer in the wells with respect to obtaining price determinations under and otherwise complying with the Natural Gas Policy Act of 1978 and the implementing state regulations. Such responsibility shall include, without limitation, preparing, filing, and executing all applications, affidavits, interim collection notices, reports and other documents necessary or appropriate to obtain price certification, to effect sales of natural gas, or otherwise to comply with said Act and the implementing state regulations. Operator agrees to furnish such information and render such assistance as the Developer may reasonably request in order to comply with said Act and the implementing state regulations without charge for services performed by its employees. (f) The Developer shall have the right to direct Operator to plug and abandon any well which has been completed hereunder as a producer. In addition, Operator shall not plug and abandon any such well prior to obtaining the written consent of the Developer. However, if the Operator in accordance with the generally accepted and customary oil and gas field practices and techniques then prevailing in the geographic area of the well location, determines that any such well should be plugged and abandoned and makes a written request to the Developer for authority to plug and abandon any such well and the Developer fails to respond in writing to such request within forty-five (45) days following the date of such request, then the Developer shall be deemed to have consented to the plugging and abandonment of such well(s). All costs and expenses related to plugging and abandoning the wells which have been drilled and completed as producing wells hereunder shall be borne and paid by the Developer in proportion to the share of the Working Interest owned by the Developer in the wells. At any time after three (3) years from the date each well drilled and completed hereunder is placed into production, Operator shall have the right to deduct each month from the proceeds of the sale of the production from the well operated hereunder up to $200, in proportion to the share of the Working Interest owned by the Developer in the wells, for the purpose of establishing a fund to cover the estimated costs of plugging and abandoning said well. All such funds shall be deposited in a separate interest bearing escrow account for the account of the Developer, and the total amount so retained and deposited shall not exceed Operator's reasonable estimate of such costs. 6 7. BILLING AND PAYMENT PROCEDURE WITH RESPECT TO OPERATION OF WELLS; RECORDS, REPORTS AND INFORMATION. (a) Operator shall promptly and timely pay and discharge on behalf of the Developer, in proportion to the share of the Working Interest owned by the Developer in the wells, all severance taxes, royalties, overriding royalties, operating fees, pipeline gathering charges and other expenses and liabilities payable and incurred by reason of its operation of the wells in accordance with this Agreement. Operator shall also pay, in proportion to the share of the Working Interest owned by the Developer in the wells, on or before the due date any third party invoices rendered to Operator with respect to such costs and expenses. Operator, however, shall not be required to pay and discharge as aforesaid any such costs and expenses which are being contested in good faith by Operator. Operator shall deduct the foregoing costs and expenses from the Developer's share of the proceeds of the oil and/or gas sold from the wells operated hereunder and shall keep an accurate record of the Developer's account hereunder, showing expenses incurred and charges and credits made and received with respect to each well. In the event that such proceeds are insufficient to pay said costs and expenses, Operator shall promptly and timely pay and discharge the same, in proportion to the share of the Working Interest owned by the Developer in the wells, and prepare and submit an invoice to the Developer each month for said costs and expenses. The invoice shall be accompanied by the form of statement specified in sub-section (b) below. Any such invoice shall be paid by the Developer within ten (10) business days of its receipt. (b) Operator shall disburse to the Developer, on a monthly basis, the Developer's share of the proceeds received from the sale of oil and/or gas sold from the wells operated hereunder, less: (i) the amounts charged to the Developer under sub-section (a) hereof; and (ii) such amount, if any, withheld by Operator for future plugging costs pursuant to sub-section (f) of Section 6. Each such disbursement made and/or invoice submitted pursuant to sub-section (a) above shall be accompanied by a statement itemizing with respect to each well: (i) the total production of oil and/or gas since the date of the last disbursement or invoice billing period, as the case may be, and the Developer's share thereof; (ii) the total proceeds received from any sale thereof, and the Developer's share thereof; (iii) the costs and expenses deducted from said proceeds and/or being billed to the Developer pursuant to sub-section (a) above; (iv) the amount withheld for future plugging costs; and (v) such other information as Developer may reasonably request, including without limitation copies of all third party invoices listed thereon for such period. Operator agrees to deposit all proceeds from the sale of oil and/or gas sold from the wells operated hereunder in a separate checking account maintained by Operator. This account shall be used solely for the purpose of collecting and disbursing funds constituting proceeds from the sale of production hereunder. (c) In addition to the statements required under sub-section (b) above, Operator, within seventy-five (75) days after the completion of each well drilled hereunder, shall furnish the Developer with a detailed statement itemizing with respect to such well the total costs and charges under Section 4(a) hereof and the Developer's share thereof, and such information as is necessary to enable the Developer: (i) to allocate any extra costs incurred with respect to such well between tangible and intangible; and (ii) to determine the amount of investment tax credit, if applicable. (d) Upon request, Operator shall promptly furnish the Developer with such additional information as it may reasonably request, including without limitation geological, technical and financial information, in such form as may reasonably be requested, pertaining to any phase of the operations and activities governed by this Agreement. The Developer and its authorized employees, agents and consultants, including independent accountants shall, at Developer's sole cost and expense: 7 (i) upon at least ten (10) days' written notice have access during normal business hours to all of Operator's records pertaining to operations hereunder, including without limitation, the right to audit the books of account of Operator relating to all receipts, costs, charges and expenses under this Agreement; and (ii) have access, at its sole risk, to any wells drilled by Operator hereunder at all times to inspect and observe any machinery, equipment and operations. 8. OPERATOR'S LIEN. (a) The Developer hereby grants Operator a first and preferred lien on and security interest in the interest of the Developer covered by this Agreement, and in the Developer's interest in oil and gas produced and the proceeds thereof, and upon the Developer's interest in materials and equipment, to secure the payment of all sums due from Developer to Operator under the provisions of this Agreement. (b) In the event that the Developer fails to pay any amount owing hereunder by it to the Operator within the time limit for payment thereof, Operator, without prejudice to other existing remedies, is authorized at its election to collect from any purchaser or purchasers of oil or gas and retain the proceeds from the sale of the Developer's share thereof until the amount owed by the Developer, plus twelve percent (12%) interest on a per annum basis and any additional costs (including without limitation actual attorneys' fees and costs) resulting from such delinquency, has been paid. Each purchaser of oil or gas shall be entitled to rely upon Operator's written statement concerning the amount of any default. 9. SUCCESSORS AND ASSIGNS; TRANSFERS; APPOINTMENT OF AGENT. (a) This Agreement shall be binding upon and shall inure to the benefit of the undersigned parties and their respective successors and permitted assigns; provided, however, that Operator may not assign, transfer, pledge, mortgage, hypothecate, sell or otherwise dispose of any of its interest in this Agreement, or any of the rights or obligations hereunder, without the prior written consent of the Developer, except that such consent shall not be required in connection with: (i) the assignment of work to be performed for Operator by subcontractors, it being understood and agreed, however, that any such assignment to Operator's subcontractors shall not in any manner relieve or release Operator from any of its obligations and responsibilities under this Agreement; (ii) any lien, assignment, security interest, pledge or mortgage arising under or pursuant to Operator's present or future financing arrangements, or (iii) the liquidation, merger, consolidation or sale of substantially all of the assets of Operator or other corporate reorganization. Further, in order to maintain uniformity of ownership in the wells, production, equipment, and leasehold interests covered by this Agreement, and notwithstanding any other provisions to the contrary, the Developer shall not, without the prior written consent of Operator, sell, assign, transfer, encumber, mortgage or otherwise dispose of any of its interest in the wells, production, equipment or leasehold interests covered hereby unless such disposition encompasses either: (i) the entire interest of the Developer in all wells, production, equipment and leasehold interests subject hereto; or (ii) an equal undivided interest in all such wells, production, equipment, and leasehold interests. (b) Subject to the provisions of sub-section (a) above, any sale, encumbrance, transfer or other disposition made by the Developer of its interests in the wells, production, equipment, and/or leasehold interests covered hereby shall be made: (i) expressly subject to this Agreement; (ii) without prejudice to the rights of the other party; and (iii) in accordance with and subject to the provisions of the Lease. 8 (c) If at any time the interest of the Developer is divided among or owned by co-owners, Operator may, at its discretion, require such co-owners to appoint a single trustee or agent with full authority to receive notices, reports and distributions of the proceeds from production, to approve expenditures, to receive billings for and approve and pay all costs, expenses and liabilities incurred hereunder, to exercise any rights granted to such co-owners under this Agreement, to grant any approvals or authorizations required or contemplated by this Agreement, to sign, execute, certify, acknowledge, file and/or record any agreements, contracts, instruments, reports, or documents whatsoever in connection with this Agreement or the activities contemplated hereby, and to deal generally with, and with power to bind, such co-owners with respect to all activities and operations contemplated by this Agreement; provided, however, that all such co-owners shall continue to have the right to enter into and execute all contracts or agreements for their respective shares of the oil and gas produced from the wells drilled hereunder in accordance with sub-section (c) of Section 11 hereof. 10. INSURANCE; OPERATOR'S LIABILITY. (a) Operator shall obtain and maintain at its own expense so long as it is Operator hereunder all required Workmen's Compensation Insurance and comprehensive general public liability insurance in amounts and coverage not less than $1,000,000 per person per occurrence for personal injury or death and $1,000,000 for property damage per occurrence, which insurance shall include coverage for blow-outs and total liability coverage of not less than $10,000,000. Subject to the aforesaid limits, the Operator's general public liability insurance shall be in all respects comparable to that generally maintained in the industry with respect to services of the type to be rendered and activities of the type to be conducted under this Agreement; Operator's general public liability insurance shall, if permitted by Operator's insurance carrier: (i) name the Developer as an additional insured party; and (ii) provide that at least thirty (30) days' prior notice of cancellation and any other adverse material change in the policy shall be given to the Developer. Provided, that the Developer shall reimburse Operator for the additional cost, if any, of including it as an additional insured party under the Operator's insurance. Current copies of all policies or certificates thereof shall be delivered to the Developer upon request. It is understood and agreed that Operator's insurance coverage may not adequately protect the interests of the Developer hereunder and that the Developer shall carry at its expense such excess or additional general public liability, property damage, and other insurance, if any, as the Developer deems appropriate. (b) Operator shall require all of its subcontractors to carry all required Workmen's Compensation Insurance and to maintain such other insurance, if any, as Operator in its discretion may require. (c) Operator's liability to the Developer as Operator hereunder shall be limited to, and Operator shall indemnify the Developer and hold it harmless from, claims, penalties, liabilities, obligations, charges, losses, costs, damages or expenses (including but not limited to reasonable attorneys' fees) relating to, caused by or arising out of: (i) the noncompliance with or violation by Operator, its employees, agents, or subcontractors of any local, state or federal law, statute, regulation, or ordinance; (ii) the negligence or misconduct of Operator, its employees, agents or subcontractors; or (iii) the breach of or failure to comply with any provisions of this Agreement. 11. INTERNAL REVENUE CODE ELECTION; RELATIONSHIP OF PARTIES; RIGHT TO TAKE PRODUCTION IN KIND. (a) With respect to this Agreement, each of the parties hereto elects, under the authority of Section 761(a) of the Internal Revenue Code of 1986, as amended, to be excluded from the application of all of the provisions of Subchapter K of Chapter 1 of Sub Title A of the Internal Revenue Code of 1986, as amended. If the income tax laws of the state or states in which the property covered hereby is located contain, or may hereafter contain, provisions similar to those contained in the Subchapter of the Internal Revenue Code of 1986, as amended, referred to under which a similar election is permitted, each of 9 the parties agrees that such election shall be exercised. Beginning with the first taxable year of operations hereunder, each party agrees that the deemed election provided by Section 1.761-2(b)(2)(ii) of the Regulations under the Internal Revenue Code of 1986, as amended, will apply; and no party will file an application under Section 1.761-2 (b)(3)(i) and (ii) of said Regulations to revoke such election. Each party hereby agrees to execute such documents and make such filings with the appropriate governmental authorities as may be necessary to effect such election. (b) It is not the intention of the parties hereto to create, nor shall this Agreement be construed as creating, a mining or other partnership or association or to render the parties liable as partners or joint venturers for any purpose. Operator shall be deemed to be an independent contractor and shall perform its obligations as set forth herein or as otherwise directed by the Developer. (c) Subject to the provisions of Section 8 hereof, the Developer shall have the exclusive right to sell or dispose of its proportionate share of all oil and gas produced from the wells to be drilled hereunder, exclusive of production which may be used in development and producing operations, production unavoidably lost, and production used to fulfill any free gas obligations under the terms of the applicable Lease or Leases; and Operator shall not have any right to sell or otherwise dispose of such oil and gas. The Developer shall have the exclusive right to execute all contracts relating to the sale or disposition of its proportionate share of the production from the wells drilled hereunder. Developer shall have no interest in any gas purchase agreements of Operator, except the right to receive Developer's share of the proceeds received from the sale of any gas or oil from wells developed hereunder. The Developer agrees to designate Operator or Operator's designated bank agent as the Developer's collection agent in any such contract. Upon request, Operator shall render assistance in arranging such sale or disposition and shall promptly provide the Developer with all relevant information which comes to Operator's attention regarding opportunities for sale of production. In the event Developer shall fail to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the oil and gas produced hereunder, Operator shall have the right, subject to the revocation at will by the Developer, but not the obligation, to purchase such oil and gas or sell it to others at any time and from time to time, for the account of the Developer at the best price obtainable in the area for such production, however, Operator shall have no liability to Developer should Operator fail to market such production. Any such purchase or sale by Operator shall be subject always to the right of the Developer to exercise at any time its right to take in kind, or separately dispose of, its share of oil and gas not previously delivered to a purchaser. Any purchase or sale by Operator of any other party's share of oil and gas shall be only for such reasonable periods of time as are consistent with the minimum needs of the Industry under the particular circumstance, but in no event for a period in excess of one (1) year. 12. FORCE MAJEURE. (a) If Operator is rendered unable, wholly or in part, by force majeure (as hereinafter defined) to carry out its obligations under this Agreement, the Operator shall give to the Developer prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the Operator, so far as it is affected by the force majeure, shall be suspended during but no longer than, the continuance of the force majeure. Operator shall use all reasonable diligence to remove the force majeure as quickly as possible to the extent the same is within reasonable control. (b) The term "force majeure" shall mean an act of God, strike, lockout, or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental restraint, unavailability of equipment or materials, plant shut-downs, curtailments by purchasers and any other causes whether of the kind specifically enumerated above or otherwise, which directly precludes Operator's performance hereunder and is not reasonably within the control of the Operator. (c) The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty affecting the Operator, contrary to its wishes. The method of handling all such difficulties shall be entirely within the discretion of the Operator. 13. TERM. This Agreement shall become effective when executed by Operator and the Developer. Except as provided in sub-section (c) of Section 3, the Agreement shall continue and remain in full force and effect for the productive lives of the wells being operated hereunder. 10 14. GOVERNING LAW AND INVALIDITY. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the Commonwealth of Pennsylvania. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 15. INTEGRATION. This Agreement, including the Exhibits hereto, constitutes and represents the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior negotiations, understandings, agreements, and representations relating to the subject matter hereof. No change, waiver, modification, or amendment of this Agreement shall be binding or of any effect unless in writing duly signed by the party against which such change, waiver, modification, or amendment is sought to be enforced. 16. WAIVER OF DEFAULT OR BREACH. No waiver by any party hereto to any default of or breach by any other party under this Agreement shall operate as a waiver of any future default or breach, whether of like or different character or nature. 17. NOTICES. Unless otherwise provided herein, all notices, statements, requests, or demands which are required or contemplated by this Agreement shall be in writing and shall be hand-delivered or sent by registered or certified mail, postage prepaid, to the following addresses until changed by certified or registered letter so addressed to the other party: (i) If to the Operator, to: Atlas Resources, Inc. 311 Rouser Road Moon Township, Pennsylvania 15108 Attention: President (ii) If to Developer, to: Atlas-Energy for the Nineties-Public #8 Ltd. c/o Atlas Resources, Inc. 311 Rouser Road Moon Township, Pennsylvania 15108 Notices which are served by registered or certified mail upon the parties hereto in the manner provided in this Section shall be deemed sufficiently served or given for all purposes under this Agreement at the time such notice shall be mailed as provided herein in any post office or branch post office regularly maintained by the United States Postal Service or any successor to the functions thereof. All payments hereunder shall be hand-delivered or sent by United States mail, postage prepaid to the addresses set forth above until changed by certified or registered letter so addressed to the other party. 18. INTERPRETATION. Whenever this Agreement makes reference to "this Agreement" or to any provision "hereof," or words to similar effect, the reference shall be construed to refer to the within instrument unless the context clearly requires otherwise. The titles of the Sections herein have been inserted as a matter of convenience of reference only and shall not control or affect the meaning or construction of any of the terms and provisions hereof. As used in this Agreement, the plural shall include the singular and the singular shall include the plural whenever appropriate. 11 19. COUNTERPARTS. The parties hereto may execute this Agreement in any number of separate counterparts, each of which, when executed and delivered by the parties hereto, shall have the force and effect of an original; but all such counterparts shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under their respective seals as of the day and year first above written. Attest ATLAS RESOURCES, INC. _____________________________________ By:____________________________________ Secretary [Corporate Seal] ATLAS-ENERGY FOR NINETIES-PUBLIC #8 LTD. Attest By its Managing General Partner: _____________________________________ ATLAS RESOURCES, INC. Secretary [Corporate Seal] By:____________________________________ 12 DESCRIPTION OF LEASES AND INITIAL WELL LOCATIONS [To be completed as information becomes available] 1. WELL LOCATION (a) Oil and Gas Lease from ______________________________________ dated _____________________ and recorded in Deed Book Volume __________, Page __________ in the Recorder's Office of County, ____________, covering approximately _________ acres in ________________ Township, ___________________ County, __________________________. (b) The portion of the leasehold estate constituting the ____________________________________________ No. __________ Well Location is described on the map attached hereto as Exhibit A-l. (c) Title Opinion of ________________________, _________________________, __________________________________, ______________________________, dated ___________________, 19_____. (d) The Developer's interest in the leasehold estate constituting this Well Location is an undivided ___% Working Interest to those oil and gas rights from the surface to the bottom of the Medina/Whirlpool Formation, subject to the landowner's royalty interest and Overriding Royalty Interests. Exhibit A (Page 1) WELL NAME, TWP. COUNTY, STATE ASSIGNMENT OF OIL AND GAS LEASE STATE OF _____________________ COUNTY OF ____________________ KNOW ALL MEN BY THESE PRESENTS: THAT the undersigned ____________________________ (hereinafter called Assignor), for and in consideration of One Dollar and other valuable consideration ($1.00 ovc), the receipt whereof is hereby acknowledged, does hereby sell, assign, transfer and set over unto __________________________ ______________________________________________ (hereinafter called Assignee), an undivided __________________________ in, and to, the oil and gas lease described as follows: together with the rights incident thereto and the personal property thereto, appurtenant thereto, or used, or obtained, in connection therewith. And for the same consideration, the assignor covenants with the said assignee his or its heirs, successors, or assigns that assignor is the lawful owner of said lease and rights and interest thereunder and of the personal property thereon or used in connection therewith; that the undersigned has good right and authority to sell and convey the same, and that said rights, interest and property are free and clear from all liens and encumbrances, and that all rentals and royalties due and payable thereunder have been duly paid. In Witness Whereof, The undersigned owner _____ and assignor _____ ha_____ signed and sealed this instrument the _____ day of _______________, 19___. Signed and acknowledged in presence of ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ EXHIBIT "B" ACKNOWLEDGEMENT BY INDIVIDUAL STATE OF _____________________ BEFORE ME, A NOTARY PUBLIC, IN AND FOR SAID COUNTY OF ____________________ County and State, on this day personally appeared ________________________ who acknowledged to me that _____ he _____ did sign the foregoing instrument and that the same is __________ free act and deed. In testimony whereof, I have hereunto set my hand and official seal, at _______________________, this _____ day of _____________, A.D., 19___. ____________________________ Notary Public CORPORATION ACKNOWLEDGEMENT STATE OF _____________________ BEFORE ME, A NOTARY PUBLIC, IN AND FOR SAID COUNTY OF ____________________ County and State, on this day personally appeared ________________________ known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged that the same was the act of the said _____________________________________________, a corporation, and that he executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. In testimony whereof, I have herewith set my hand and official seal at _______________________, this _____ day of _____________, A.D., 19___. ____________________________ Notary Public This instrument prepared by: Atlas Resources, Inc. 311 Rouser Road P.O. Box 611 Moon Township, PA 15108 EXHIBIT "B" ADDENDUM NO. __________ TO DRILLING AND OPERATING AGREEMENT DATED ___________________ , 1999 THIS ADDENDUM NO. __________ made and entered into this ______ day of ________________, 1999, by and between ATLAS RESOURCES, INC., a Pennsylvania corporation (hereinafter referred to as "Operator"), and ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., a Pennsylvania limited partnership, (hereinafter referred to as the Developer). WITNESSETH THAT: WHEREAS, Operator and the Developer have entered into a Drilling and Operating Agreement dated ___________________, 1999, (the "Agreement"), which Agreement relates to the drilling and operating of ________________ (______) natural gas wells on the ________________ (______) Initial Well Locations in Mercer County, Pennsylvania, identified on the maps attached as Exhibits A-l through A-______ to said Agreement, and provides for the development upon the terms and conditions therein set forth of such Additional Well Locations as the parties may from time to time designate; and WHEREAS, pursuant to Section l(c) of said Agreement, Operator and Developer presently desire to designate ________________ Additional Well Locations hereinafter described to be developed in accordance with the terms and conditions of said Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows: 1. Pursuant to Section l(c) of the aforesaid Agreement, the Developer hereby authorizes Operator to drill, complete (or plug) and operate, upon the terms and conditions set forth in said Agreement and this Addendum No.__________, ________________ additional natural gas wells on the ________________ Additional Well Locations described on Exhibit A hereto and on the maps attached hereto as Exhibits A-______ through A-______. 2. Operator, as Developer's independent contractor, agrees to drill, complete (or plug) and operate said additional natural gas wells on said Additional Well Locations in accordance with the terms and conditions of said Agreement and further agrees to use its best efforts to commence drilling the first such additional well within thirty (30) days after the date hereof and to commence drilling all said ________________ additional wells on or before March 30, 2000. 3. Developer hereby acknowledges that Operator has furnished Developer with the title opinions identified on Exhibit A hereto, and such other documents and information which Developer or its counsel has requested in order to determine the adequacy of the title to the aforesaid Additional Well Locations. The Developer hereby accepts the title to the aforesaid Additional Well Locations and leased premises in accordance with the provisions of Section 5 of the Agreement. 4. The drilling and operation of said ________________ additional natural gas wells on the aforesaid ________________ Additional Well Locations shall be in accordance with and subject to the terms and conditions set forth in the aforesaid Agreement as supplemented by this Addendum No. __________ and except as previously supplemented, all terms and conditions of the aforesaid Agreement shall remain in full force and effect as originally written. 5. This Addendum No. __________ shall be legally binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors and assigns. Exhibit C (Page 1) WITNESS the due execution hereof on the day and year first above written. Attest: ATLAS RESOURCES, INC. ___________________________ By___________________________ Secretary [Corporate Seal] ATLAS ENERGY FOR THE NINETIES-PUBLIC #8 LTD. By its Managing General Partner: ATLAS RESOURCES, INC. Attest: ___________________________ By___________________________ Secretary [Corporate Seal] Exhibit C (Page 2) EXHIBIT (B) SPECIAL SUITABILITY REQUIREMENTS AND DISCLOSURES TO INVESTORS SPECIAL SUITABILITY REQUIREMENTS AND DISCLOSURES TO INVESTORS If you are a resident of one of the following states, then you must meet that state's qualification and suitability standards as follows: SUBSCRIBERS TO LIMITED PARTNER UNITS. If you are a resident of Michigan or North Carolina and you purchase limited partner units, then you must: - have a net worth of not less than $225,000, exclusive of home, furnishings and automobiles; or - have a net worth of not less than $60,000, exclusive of home, furnishings and automobiles, and estimated current year taxable income as defined in Section 63 of the Internal Revenue Code of 1986 of $60,000 or more without regard to an investment in the partnership. In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you must not make an investment in the partnership in excess of 10% of your net worth, exclusive of home, furnishings and automobiles. If you are a resident of California and you purchase limited partners units, then you must:: - have a net worth of not less than $250,000, exclusive of home, furnishings and automobiles, and expect to have gross income in the current year of $65,000 or more; or - have a net worth of not less than $500,000, exclusive of home, furnishings and automobiles; or - have a net worth of not less than $1,000,000, or - expect to have gross income in the current tax year of not less than $200,000. PENNSYLVANIA INVESTORS: Because the minimum closing amount is less than $1,800,000 you are cautioned to carefully evaluate the partnership's ability to fully accomplish its stated objectives and inquire as to the current dollar volume of partnership subscriptions. SUBSCRIBERS TO INVESTOR GENERAL PARTNER UNITS. If you are a resident of California and you purchase investor general partner units, then you must: - have a net worth of not less than $250,000, exclusive of home, furnishings and automobiles, and expect to have annual gross income in the current year of $120,000 or more; or - have a net worth of not less than $500,000, exclusive of home, furnishings and automobiles; or - have a net worth of not less than $1,000,000; or - expect to have gross income in the current year of not less than $200,000. If you are a resident of Alabama, Maine, Massachusetts, Minnesota, North Carolina, Ohio, Pennsylvania, Tennessee, or Texas and you purchase investor general partner units, then you must: - have an individual or joint net worth with your spouse of $225,000 or more, without regard to the investment in the partnership, exclusive of home, home furnishings and automobiles, and a combined gross income of $100,000 or more for the current year and for the two previous years; or - have an individual or joint net worth with your spouse in excess of $1,000,000, inclusive of home, home furnishings and automobiles; or - have an individual or joint net worth with your spouse in excess of $500,000, exclusive of home, home furnishings and automobiles; or 1 - have a combined "gross income" as defined in Section 61 of the Internal Revenue Code of 1986, as amended, in excess of $200,000 in the current year and the two previous years. If you are a resident of Arizona, Indiana, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, New Hampshire, New Mexico, Oklahoma, Oregon, South Dakota, Vermont, or Washington and you purchase investor general partner units, then you must: - have an individual or joint net worth with your spouse of $225,000 or more, without regard to the investment in the partnership, exclusive of home, home furnishings and automobiles, and a combined "taxable income" of $60,000 or more for the previous year and expect to have a combined "taxable income" of $60,000 or more for the current year and for the succeeding year; or - have an individual or joint net worth with your spouse in excess of $1,000,000, inclusive of home, home furnishings and automobiles; or - have an individual or joint net worth with your spouse in excess of $500,000, exclusive of home, home furnishings and automobiles; or - have a combined "gross income" as defined in Section 61 of the Internal Revenue Code of 1986, as amended, in excess of $200,000 in the current year and the two previous years. In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you must not make an investment in the partnership in excess of 10% of your net worth, exclusive of home, furnishings and automobiles. If a resident of Missouri, I am aware that: THESE SECURITIES ARE NOT ELIGIBLE FOR ANY TRANSACTIONAL EXEMPTION UNDER THE MISSOURI UNIFORM SECURITIES ACT (SECTION 409.402(B), R.S.MO.(1978). UNLESS THESE SECURITIES ARE AGAIN REGISTERED UNDER THE ACT, THEY MAY NOT BE REOFFERED FOR SALE OR RESOLD IN THE STATE OF MISSOURI (SECTION 409.301, R.S.MO.(1978)). If a resident of California, I am aware that: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. As a condition of qualification of the units for sale in the State of California, the following rule is hereby delivered to each California purchaser. CALIFORNIA ADMINISTRATIVE CODE, TITLE 10, CH. 3, RULE 260.141.11. RESTRICTION ON TRANSFER. (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 and 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (i) to the issuer; (ii) pursuant to the order or process of any court; (iii) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules; 2 (iv) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor's ancestors, descendants or spouse, or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (v) to holders of securities of the same class of the same issuer; (vi) by way of gift or donation inter vivos or on death; (vii) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (viii) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (ix) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (x) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (xi) by a corporation or wholly-owned subsidiary of such corporation, or by a wholly-owned subsidiary of a corporation to such corporation; (xii) by way of an exchange qualified under Sections 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or Subdivision (a) of Section 25143 is in effect with respect to such qualification; (xiii) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (xiv) to the State Controller pursuant to the Unclaimed Property Law or to the administrator of the unclaimed property law of another state; (xv) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (xvi) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (xvii) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirement of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES." 3 IF A RESIDENT OF NORTH CAROLINA, I AM AWARE THAT: IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PENNSYLVANIA INVESTORS: Because the minimum closing amount is less than $1,800,000 you are cautioned to carefully evaluate the partnership's ability to fully accomplish its stated objectives and inquire as to the current dollar volume of partnership subscriptions. 4 TABLE OF CONTENTS ================================================================================
PAGE Summary of the Offering.......................................................1 Risk Factors..................................................................2 Additional Information........................................................7 Forward Looking Statements and Associated Risks......................................................................7 Investment Objectives.........................................................8 Actions to be Taken by Managing General Partner to Reduce Risks of Additional Payments by Investor General Partners......................................9 Capitalization and Source of Funds and Use of Proceeds..................................................................10 Compensation.................................................................12 Terms of the Offering........................................................15 Prior Activities.............................................................19 Management...................................................................26 Proposed Activities..........................................................30 Competition, Markets and Regulation..........................................67 Participation in Costs and Revenues..........................................70 Conflicts of Interest........................................................73 Fiduciary Responsibility of the Managing General Partner...........................................................80 Tax Aspects..................................................................81 Summary of Partnership Agreement.............................................91 Summary of Drilling and Operating Agreement..................................93 Reports to Investors.........................................................94 Presentment Feature..........................................................95 Transferability of Units.....................................................97 Plan of Distribution.........................................................98 Sales Material...............................................................99 Legal Opinions...............................................................99 Experts......................................................................99 Litigation..................................................................100 Financial Information Concerning the Managing General Partner and the Partnership......................................100
EXHIBIT (A) - Amended and Restated Certificate and Agreement of Limited Partnership EXHIBIT (I-A) - Managing General Partner Signature Page EXHIBIT (I-B) - Subscription Agreement EXHIBIT (II) - Drilling and Operating Agreement EXHIBIT (B) - Special Suitability Requirements and Disclosures to Investors No one has been authorized to give any information or make any representations other than those contained in this prospectus in connection with this offering. If given or made, you should not rely on such information or representations as having been authorized by the managing general partner. The delivery of this prospectus does not imply that its information is correct as of any time after its date. This prospectus is not an offer to sell these securities in any state to any person where the offer and sale is not permitted. ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD. -------------- PROSPECTUS -------------- ______________, 1999 Until December 31, 1999, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 1741 et seq. of the Pennsylvania Business Corporation Law provides for indemnification of officers, directors, employees and agents by a corporation subject to certain limitations. Under Section 4.05 of the Amended and Restated Certificate and Agreement of Limited Partnership, the Participants, within the limits of their Capital Contributions, and the Partnership, generally agree to indemnify and exonerate the Managing General Partner, the Operator and their Affiliates from claims of liability to any third party arising out of operations of the Partnership provided that they determined in good faith that the course of conduct which caused the loss or liability was in the best interest of the Partnership, they were acting on behalf of or performing services for the Partnership, and the course of conduct was not the result of their negligence or misconduct. Paragraph 11 of the Dealer-Manager Agreement provides for the indemnification of the Managing General Partner, the Partnership and control persons under specified conditions by the Dealer-Manager and/or Selling Agent. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses to be incurred in connection with the issuance and distribution of the securities to be registered, other than underwriting discounts, commissions and expense allowances, are estimated to be as follows: Accounting $ 15,000.00* Legal Fees (including Blue Sky) 75,000.00* Printing 155,000.00* SEC Registration Fee 5,310.00 Blue Sky Filing Fees (excluding legal fees) 26,000.00* NASD Filing Fee 2,300.00 Miscellaneous 531,390.00* ----------- Total $810,000.00* ===========
- ------------------------------ *Estimated ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. None by the Registrant. Atlas Resources, Inc. ("Atlas"), an Affiliate of the Registrant, has made sales of unregistered and registered securities within the last three years. See the section of the Prospectus captioned "Prior Activities" regarding the sale of limited and general partner interests. In the opinion of Atlas, the foregoing unregistered securities in each case have been and/or are being offered and sold in compliance with exemptions from registration provided by the Securities Act of 1933, as amended, including the exemptions provided by Section 4(2) of that Act and certain rules and regulations promulgated thereunder. The securities in each case have been and/or are being offered and sold to a limited number of persons who had the sophistication to understand the merits and risks of the investment and who had the financial ability to bear such risks. The units of limited and general partner interests were sold to persons who were Accredited Investors, as that term is defined in Regulation D (17 CFR 230.501(a)), or who had, at the time of purchase, a net worth of at least $225,000 (exclusive of home, furnishings and automobiles) or a net worth (exclusive of home, furnishings and automobiles) of at least $125,000 and gross income of at least $75,000, or otherwise satisfied Atlas that the investment was suitable. ITEM 27. EXHIBITS. 1(a) Proposed form of Dealer-Manager Agreement with Anthem Securities, Inc. 1(b) Proposed form of Dealer-Manager Agreement with Bryan Funding, Inc. 3(a) Articles of Incorporation of Atlas Resources, Inc. 3(b) Bylaws of Atlas Resources, Inc. 4(a) Certificate of Limited Partnership for Atlas-Energy for the Nineties-Public #8 Ltd. 4(b) Amended and Restated Certificate and Agreement of Limited Partnership for Atlas-Energy for the Nineties-Public #8 Ltd. (See Exhibit (A) to Prospectus) 5 Opinion of Kunzman & Bollinger, Inc. as to the legality of the Units registered hereby 8 Opinion of Kunzman & Bollinger, Inc. as to tax matters 10(a) Proposed Form of Escrow Agreement 10(b) Drilling and Operating Agreement (See Exhibit (II) to the Amended and Restated Certificate and Agreement of Limited Partnership, Exhibit (A) to Prospectus) 24(a) Consent of Grant Thornton, L.L.P. 24(b) Consent of United Energy Development Consultants, Inc. 24(c) Consent of Kunzman & Bollinger, Inc. (See Exhibits 5 and 8) 25 Power of Attorney
ITEM 28. UNDERTAKINGS. (a) As required by Item 512(a) of Regulation S-B and Rule 415, the undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a Post-Effective Amendment to this Registration Statement to: (i) include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or of the most recent Post-Effective Amendment thereof) which, individually or together, represent a fundamental change in the information set forth in the Registration Statement; and (iii) include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such Post-Effective Amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a Post-Effective Amendment any of the securities being registered which remain unsold at the termination of the offering. (e) The undersigned Registrant undertakes: (1) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to Atlas and its directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, Atlas and the Registrant have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by Atlas and its directors, officers and controlling persons in the successful defense of any action, suit or proceeding) is asserted by such party in connection with the securities being registered, Registrant will unless in the opinion of its counsel the matter has been settled by controlling precedent submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act, and will be governed by final adjudication of such issue. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has authorized this Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in Moon Township, Pennsylvania, on the 31st day of August, 1999. ATLAS-ENERGY FOR THE NINETIES- PUBLIC #8 LTD. (Registrant) By: Atlas Resources, Inc., Managing General Partner James R. O'Mara and Tony C. Banks, By: /s/ James R. O'Mara pursuant to the Registration Statement, ------------------------------------------------ have been granted Power of Attorney and are James R. O'Mara, President, Chief Executive signing on behalf of the names shown below, Officer and Director in the capacities indicated. By: /s/ Tony C. Banks ------------------------------------------------ Tony C. Banks, Senior Vice President of Finance, Principal Financial Officer and Director
In accordance with the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- Charles T. Koval Chairman of the Board and a Director August 31, 1999 James R. O'Mara President, Chief Executive Officer and a Director August 31, 1999 Tony C. Banks Senior Vice President of Finance, Principal Financial Officer, and a Director August 31, 1999 Frank P. Carolas Vice President of Land and Geology August 31, 1999 Jeffrey C. Simmons Vice President - Operations August 31, 1999 William R. Seiler Vice President and Controller August 31, 1999
As filed with the Securities and Exchange Commission on September 3, 1999 Registration No. 333-82389 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- EXHIBITS TO PRE-EFFECTIVE AMENDMENT NO. 1 TO FORM SB-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ---------------------------------- ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. (Exact name of Registrant as Specified in its Charter) --------------------------------------------------------- JAMES R. O'MARA, PRESIDENT ATLAS RESOURCES, INC. 311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108 (412) 262-2830 --------------------------------------------------------- (Name, Address and Telephone Number of Agent for Service) Copies to: WALLACE W. KUNZMAN, JR., ESQ. JAMES R. O'MARA KUNZMAN & BOLLINGER, INC. ATLAS RESOURCES, INC. 5100 N. BROOKLINE, SUITE 600 311 ROUSER ROAD OKLAHOMA CITY, OKLAHOMA 73112 MOON TOWNSHIP, PENNSYLVANIA 15108 ================================================================================ EXHIBIT INDEX
Exhibit No. Description Page ----------- ----------- ---- 1(a) Proposed form of Dealer-Manager Agreement for Anthem Securities, Inc. 1(b) Proposed form of Dealer-Manager Agreement for Bryan Funding, Inc. 3(a) Articles of Incorporation of Atlas Resources, Inc.* 3(b) Bylaws of Atlas Resources, Inc.* 4(a) Certificate of Limited Partnership for Atlas-Energy for the Nineties- Public #8 Ltd.* 4(b) Amended and Restated Certificate and Agreement of Limited Partnership for Atlas-Energy for the Nineties-Public #8 Ltd. (See Exhibit (A) to Prospectus) 5 Opinion of Kunzman & Bollinger, Inc. as to the legality of the Units registered hereby 8 Opinion of Kunzman & Bollinger, Inc. as to tax matters 10(a) Escrow Agreement 10(b) Proposed form of Drilling and Operating Agreement (See Exhibit (II) to the Amended and Restated Certificate and Agreement of Limited Partnership, Exhibit (A) to Prospectus) 24(a) Consent of Grant Thornton, L.L.P. 24(b) Consent of United Energy Development Consultants, Inc.* 24(c) Consent of Kunzman & Bollinger, Inc. (See Exhibits 5 and 8) 25 Power of Attorney
- --------------- *Previously submitted EX-1.A 2 EXHIBIT 1A PROPOSED FORM OF DEALER-MANAGER AGREEMENT FOR ANTHEM SECURITIES, INC. EXHIBIT 1(a) ANTHEM SECURITIES, INC. DEALER-MANAGER AGREEMENT (Best Efforts) RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. Anthem Securities, Inc. P.O. Box 926 Coraopolis, Pennsylvania 15108-0926 Gentlemen: The undersigned, Atlas Resources, Inc. ( the "Managing General Partner"), on behalf of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., hereby confirms its agreement with you as Dealer-Manager as follows: 1. DESCRIPTION OF UNITS. The Managing General Partner has formed a limited partnership known as Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"), which will issue and sell Units of Participation in the Partnership (the "Units") at a price of $10,000 per Unit. Subject to the receipt and acceptance by the Managing General Partner of the minimum Partnership Subscription of 100 Units ($1,000,000), there will be two closings, which are tentatively set for November 1, 1999 (the "Initial Closing Date"), and December 31, 1999. No subscriptions to the Partnership will be accepted after receipt of the maximum Partnership Subscription of $18,000,000 or December 31, 1999, whichever event occurs first (the "Offering Termination Date"). 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE MANAGING GENERAL PARTNER. The Managing General Partner represents and warrants to and agrees with you that: (a) The Units have been or will be registered with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act of 1933, as amended (the "Act"). (b) The Managing General Partner shall provide to you for delivery to all offerees and purchasers and their representatives such information and documents as the Managing General Partner deems appropriate to comply with the Act and applicable state securities ("blue sky") laws. (c) The Units when issued will be duly authorized and validly issued as set forth in the Amended and Restated Certificate and Agreement of Limited Partnership of the Partnership ("Partnership Agreement") set forth as Exhibit (A) to the offering circular (the "Prospectus") and subject only to the rights and obligations set forth in the Partnership Agreement or imposed by the laws of the state of formation of the Partnership or of any jurisdiction to the laws of which the Partnership is subject. (d) The Partnership was duly formed pursuant to the laws of the Commonwealth of Pennsylvania and is validly existing as a limited partnership in good standing under the laws of Pennsylvania with full power and authority to own its properties and conduct its business as described in the Prospectus. The Partnership will be qualified to do business as a limited partnership or similar entity offering limited liability in those jurisdictions where the Managing General Partner deems such qualification necessary to assure limited liability of the limited partners. (e) The Prospectus, as heretofore or hereafter supplemented or amended, does not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 1 3. GRANT OF AUTHORITY TO THE DEALER-MANAGER. On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Managing General Partner hereby appoints you as the Dealer-Manager for the Partnership and gives you the exclusive right to solicit subscriptions for the Units in all states other than Minnesota and New Hampshire, on a "best efforts" basis, subject to the terms and conditions set forth herein. In all states other than Minnesota and New Hampshire you agree to use your best efforts to effect such sales and to form and manage a selling group composed of soliciting broker-dealers ("Selling Agents"), each of which shall be a member of the National Association of Securities Dealers, Inc. ("NASD"), pursuant to "Selling Agent Agreements" in substantially the form attached hereto as Exhibit "B." The Managing General Partner shall have three business days after the receipt of an Executed Selling Agent Agreement to refuse that Selling Agent's Participation. 4. COMPENSATION AND FEES. (a) As Dealer-Manager you will receive from the Partnership the following fees based on the amount of the Agreed Subscription on each Unit sold to investors who are situated and/or residents in states other than Minnesota and New Hampshire: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% Sales Commission; (iii) a .5% reimbursement of marketing expenses; and (iv) a .5% reimbursement of the Selling Agents' bona fide accountable due diligence expenses. The 7.0% Sales Commission, the .5% reimbursement of marketing expenses and the .5% reimbursement of bona fide accountable due diligence expenses will be reallowed to the Selling Agents. The 2.5% Dealer-Manager fee will be reallowed to the wholesalers for Agreed Subscriptions obtained through the wholesalers' effort. (b) Pending receipt and acceptance by the Managing General Partner of the minimum Partnership Subscription ($1,000,000 excluding any optional subscription by the Managing General Partner and its Affiliates), all proceeds received by you from the sale of Units will be held in a separate interest bearing escrow account as provided in Section 15. Unless at least the minimum Partnership Subscription of $1,000,000 is received on or before December 31, 1999, the offering shall be terminated, in which event no fee shall be payable to you and all funds advanced by purchasers shall be returned to them with interest earned. In addition, you shall deliver a termination letter in the form provided to you by the Managing General Partner to each such subscriber and to each of the offerees previously solicited by you and the Selling Agents in connection with the offering of the Units. (c) The fees set forth in Section 4(a), which shall be reallowed by you to the Selling Agents which made the sale and the wholesalers, will be paid to you within five business days after at least the minimum Partnership Subscription ($1,000,000) has been received and accepted by the Managing General Partner and the subscription proceeds have been released to the Managing General Partner from the escrow account. Thereafter, such fees will be paid to you and reallowed to the Selling Agents and wholesalers as described in the previous sentence approximately every two weeks until the Offering Termination Date and all your remaining fees shall be paid by the Managing General Partner no later than 14 business days after the Offering Termination Date. (d) Notwithstanding the foregoing, Registered Investment Advisors and their clients may subscribe to Units without paying the Sales Commissions and the reimbursement of marketing expenses and bona fide accountable due diligence expenses, and their Agreed Subscriptions will be subject only to the 2.5% Dealer-Manager fee. 2 Also, the Managing General Partner, its officers and directors and Affiliates, and the Selling Agents may subscribe to Units without paying the Dealer-Manager fee, Sales Commissions and the reimbursement of marketing expenses and the Selling Agents' bona fide accountable due diligence expenses. 5. COVENANTS OF THE MANAGING GENERAL PARTNER. The Managing General Partner covenants and agrees that: (a) The Managing General Partner will deliver to you ample copies of the Prospectus and of all amendments or supplements thereto, heretofore or hereafter made, including all exhibits and other documents included therein. (b) If any event affecting the Partnership or the Managing General Partner shall occur which in the opinion of the Managing General Partner should be set forth in a supplement to or an amendment of the Prospectus, the Managing General Partner will forthwith at its own expense prepare and furnish to you a sufficient number of copies of a supplement or amendment to the Prospectus so that it, as so supplemented or amended, will not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 6. REPRESENTATIONS AND WARRANTIES OF DEALER-MANAGER. You, as the Dealer-Manager, represent and warrant to the Managing General Partner that: (a) You are a corporation duly organized, validly existing and in good standing under the laws of the state of your formation or of any jurisdiction to the laws of which you are subject, with all requisite power and authority to enter into this Agreement and to carry out your obligations hereunder. (b) This Agreement when accepted and approved will be duly authorized, executed and delivered by you and will be a valid and binding agreement on your part in accordance with its terms. (c) The consummation of the transactions contemplated by this Agreement and the Prospectus will not result in any breach of any of the terms or conditions of, or constitute a default under your Articles of Incorporation, Bylaws, any indenture, agreement or other instrument to which you are a party, or violate any order applicable to you of any court or any federal or state regulatory body or administrative agency having jurisdiction over you or over your affiliates. (d) You are duly registered pursuant to the provisions of the Securities Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a member in good standing of the NASD. You are duly registered as a broker-dealer in the states in which you are required to be registered in order to carry out your obligations as contemplated by this Agreement and the Prospectus. You agree to maintain all the foregoing registrations in good standing throughout the term of the offer and sale of the Units and you agree to comply with all statutes and other requirements applicable to you as a broker-dealer pursuant to those registrations. (e) Pursuant to your appointment as Dealer-Manager, you shall use your best efforts to exercise the supervision and control that you deem necessary and appropriate to the activities of you and the Selling Agents to comply with all the provisions of the Act, insofar as the Act applies to your and their activities hereunder. Further, you and the Selling Agents shall not engage in any activity which would cause the offer and/or sale of Units not to comply with the Act, the Act of 1934 and the applicable rules and regulations of the Commission, the applicable state securities laws and regulations, this Agreement and the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and Rules 2810(b)(2) and (b)(3), which provide as follows: 3 Sec. (b)(2) SUITABILITY (A) A member or person associated with a member shall not underwrite or participate in a public offering of a direct participation program unless standards of suitability have been established by the program for participants therein and such standards are fully disclosed in the prospectus and are consistent with the provisions of subparagraph (B) of this section. (B) In recommending to a participant the purchase, sale or exchange of an interest in a direct participation program, a member or person associated with a member shall: (i) have reasonable grounds to believe, on the basis of information obtained from the participant concerning his investment objectives, other investments, financial situation and needs, and any other information known by the member or associated person, that: (a) the participant is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the prospectus, including the tax benefits where they are a significant aspect of the program; (b) the participant has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and (c) the program is otherwise suitable for the participant; and (ii) maintain in the files of the member documents disclosing the basis upon which the determination of suitability was reached as to each participant. (C) Notwithstanding the provisions of subparagraphs (A) and (B) hereof, no member shall execute any transaction in a direct participation program in a discretionary account without prior written approval of the transaction by the customer. Sec. (b)(3) DISCLOSURE (A) Prior to participating in a public offering of a direct participation program, a member or person associated with a member shall have reasonable grounds to believe, based on information made available to him by the sponsor through a prospectus or other materials, that all material facts are adequately and accurately disclosed and provide a basis for evaluating the program. (B) In determining the adequacy of disclosed facts pursuant to subparagraph (A) hereof, a member or person associated with a member shall obtain information on material facts relating at a minimum to the following, if relevant in view of the nature of the program: (i) items of compensation; (ii) physical properties; (iii) tax aspects; (iv) financial stability and experience of the sponsor; (v) the program's conflicts and risk factors; and 4 (vi) appraisals and other pertinent reports. (C) For purposes of subparagraphs (A) and (B) hereof, a member or person associated with a member may rely upon the results of an inquiry conducted by another member or members, provided that: (i) the member or person associated with a member has reasonable grounds to believe that such inquiry was conducted with due care; (ii) the results of the inquiry were provided to the member or person associated with a member with the consent of the member or members conducting or directing the inquiry; and (iii) no member that participated in the inquiry is a sponsor of the program or an affiliate of such sponsor. (D) Prior to executing a purchase transaction in a direct participation program, a member or person associated with a member shall inform the prospective participant of all pertinent facts relating to the liquidity and marketability of the program during the term of investment. (f) You and the Selling Agents have received copies of the Prospectus relating to the Units and you and the Selling Agents have relied only on the statements contained in the Prospectus and not on any other statements whatsoever, either written or oral, with respect to the details of the offering of Units. (g) You and the Selling Agents agree that you and the Selling Agents shall not place any advertisement or other solicitation with respect to the Units (including without limitation any material for use in any newspaper, magazine, radio or television commercial, telephone recording, motion picture, or other public media) without the prior written approval of the Managing General Partner, and without the prior written approval of the form and content thereof by the Commission, the NASD and the securities authorities of the states where such advertisement or solicitation is to be circulated. Any such advertisements or solicitations shall be at your expense. (h) If a supplement or amendment to the Prospectus is prepared and delivered to you by the Managing General Partner, you agree and shall require any Selling Agent to agree to distribute each such supplement or amendment to the Prospectus to every person who has previously received a copy of the Prospectus from you and/or the Selling Agent and you further agree and shall require any Selling Agent to further agree to include such supplement or amendment in all future deliveries of any Prospectus. (i) You agree to advise the Managing General Partner in writing of each state in which you and the Selling Agents propose to offer or sell the Units and you shall not nor shall you permit any Selling Agent to offer or sell Units in any state until such time as you shall have been advised in writing by the Managing General Partner, or the Managing General Partner's special counsel, that such offer or sale has been qualified in such state or is exempt from the qualification requirements imposed by such state or such qualification is otherwise not required. (j) In connection with any offer or sale of the Units, you agree and shall require any Selling Agent to agree to comply in all respects with statements set forth in the Prospectus and the Partnership Agreement and you agree and shall require any Selling Agent to agree not to make any statement inconsistent with the statements in the Prospectus or the Partnership Agreement. You further agree and shall require any Selling Agent to further agree that you shall not provide and shall require any Selling Agent not to provide any written information, statements or sales literature other than the Prospectus, the Managing General Partner's corporate profile and a brochure entitled "Atlas-Energy for the Nineties-Public #8 Ltd." (the corporate profile and the brochure collectively referred to herein as the "Brochure"), and any supplements or amendments thereto unless approved in 5 writing by the Managing General Partner. Further, you agree and shall require any Selling Agent to agree not to make any untrue or misleading statements of a material fact in connection with the Units. (k) You agree to use your best efforts in the solicitation and sale of said Units and to coordinate and supervise the efforts of the Selling Agents and you shall require any Selling Agent to agree to use its best efforts in the solicitation and sale of said Units, including insuring that the prospective purchasers meet the suitability requirements set forth in the Prospectus and the Subscription Agreement and properly execute the Subscription Agreement, which has been provided as Exhibit (I-B) to the Partnership Agreement, Exhibit (A) of the Prospectus, together with any additional forms provided in any supplement or amendment to the Prospectus, or otherwise provided to you by the Managing General Partner to be completed by prospective purchasers. Executed Subscription Agreements shall be delivered or mailed immediately to the Managing General Partner and must be received by the Managing General Partner at or prior to the Offering Termination Date. The Managing General Partner shall have the right to reject any subscription at any time for any reason without liability to it. Investor funds shall be transmitted as set forth in Section 16. (l) Although not anticipated, in the event you assist in any transfers of the Units, you shall comply, and you shall require any Selling Agent to comply, with the requirements of Rule 2810(b)(2)(B) and (b)(3)(D) of the NASD Conduct Rules. 7. STATE SECURITIES REGISTRATION. Incident to the offer and sale of the Units, the Managing General Partner will either use its best efforts in taking all necessary action and filing all necessary forms and documents deemed reasonable by it in order to qualify or register Units for sale under the securities laws of the states requested by you pursuant to Section 6 (i) hereof or use its best efforts in taking any necessary action and filing any necessary forms deemed reasonable by it which are required to obtain an exemption from qualification or registration in such states. Notwithstanding, the Managing General Partner may elect not to qualify or register Units in any state in which it deems such qualification or registration is not warranted for any reason in its sole discretion. The Managing General Partner and its counsel will inform you as to the jurisdictions in which the Partnership Units have been qualified for sale or are exempt under the respective securities or blue sky laws of such jurisdictions; but the Managing General Partner has not assumed and will not assume any obligation or responsibility as to your right or any Selling Agent's right to act as a broker-dealer with respect to the Units in any such jurisdiction. The Managing General Partner will provide to you and the Selling Agents for delivery to all offerees and purchasers and their representatives, any additional information, documents and instruments which the Managing General Partner deems necessary to comply with the rules, regulations and judicial and administrative interpretations in those states and jurisdictions for the offer and sale of the Units in such states. The Managing General Partner will file all post-offering forms, documents or materials and take all other actions required by the states in which the offer and sale of Units have been qualified or are exempt or in which the Units have been registered. However, the Managing General Partner shall not be required to take any actions, make any filings or prepare any documents necessary or required in connection with your status or any Selling Agent's status as a broker-dealer under the laws of such states. The Managing General Partner shall promptly provide you with copies of all applications, filings, correspondence, orders or other documents or instruments relating to any application for qualification, registration or other approval under applicable state or Federal securities laws for the offering. 8. EXPENSE OF SALE. The expenses in connection with the offer and sale of the Units shall be payable as set forth below. 6 (a) The Managing General Partner shall pay all expenses incident to the performance of its obligations hereunder, including the fees and expenses of the Managing General Partner's attorneys and accountants and all fees and expenses of registering or qualifying the Units for offer and sale in the states as set forth in Section 7 hereof, or obtaining exemptions therefrom, even if this offering is not successfully completed. (b) You shall pay all expenses incident to the performance of your obligations hereunder, including the formation and management of the selling group and the fees and expenses of your own counsel and accountants, even if this offering is not successfully completed. 9. CONDITIONS OF YOUR DUTIES. Your obligations provided herein shall be subject to the accuracy, as of the date hereof and at the applicable closing date (as if made at the applicable closing date), of the representations and warranties of the Managing General Partner herein and to the performance by the Managing General Partner of its obligations hereunder. 10. CONDITION OF THE MANAGING GENERAL PARTNER'S DUTIES. The Managing General Partner's obligations provided herein, including the duty to pay compensation as set forth in Section 4 hereof, shall be subject to the accuracy, as of the date hereof and at the applicable closing date (as if made at the applicable closing date) of your representations and warranties made herein, and to the performance by you of your obligations hereunder, and to the additional condition that the Managing General Partner shall have received, at or prior to the applicable closing date, the following documents: (a) a fully executed Subscription Agreement for each prospective purchaser; (b) certification to the Managing General Partner that you and each Selling Agent are registered as required by Section 6(d) and that such registrations were, during the term of the offering and through the applicable closing date, in full force and effect; and (c) a certificate from you, dated at the applicable closing date, to the effect that your representations and warranties made herein are true and correct as if made at the applicable closing date and that you have fulfilled all your obligations hereunder. 11. INDEMNIFICATION. (a) You and the Selling Agents shall indemnify and hold harmless the Managing General Partner, the Partnership and its attorneys, against any losses, claims, damages or liabilities, joint or several, to which such parties may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon your agreements with the Selling Agents or your breach of any of your duties and obligations, representations, or warranties under the terms or provisions of this Agreement and you and the Selling Agents shall reimburse such parties for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, claim, damage, liability or action. (b) The Managing General Partner shall indemnify and hold you and the Selling Agents harmless against any losses, claims, damages or liabilities, joint or several, to which you and the Selling Agents may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the Managing General Partner's breach of any of its duties and obligations, representations, or warranties under the terms or provisions of this Agreement and the Managing General Partner shall reimburse you and the Selling Agents for any legal or other expenses reasonably incurred in connection with investigating or defending such loss, claim, damage, liability or action. (c) The foregoing indemnity agreements shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls each indemnified party within the meaning of the Act. 7 (d) Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party. If any such action shall be brought against such indemnified party, it shall notify the indemnifying party of the commencement thereof, and the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified and indemnifying parties. After the indemnified party shall have received notice from the agreed upon counsel that the defense under this paragraph has been so assumed, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than with respect to the agreed upon counsel who assumed the defense thereof. 12. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements of the Managing General Partner and you herein or in certificates delivered pursuant hereto, and the indemnity agreements contained in Section 11 hereof, shall survive the delivery, execution and closing hereof, and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any person who controls you within the meaning of the Act, or by the Managing General Partner, or any of its officers, directors or any person who controls the Managing General Partner within the meaning of the Act, or any other indemnified party, and shall survive delivery of the Units hereunder. 13. TERMINATION. You shall have the right to terminate this agreement other than the indemnification provisions of Section 11 by giving notice as hereinafter specified any time at or prior to a closing date: (a) if the Managing General Partner shall have failed, refused, or been unable at or prior to the closing date, to perform any of its obligations hereunder; or (b) there has occurred an event materially and adversely affecting the value of the Units. If you elect to terminate this Agreement other than the indemnification provisions of Section 11, the Managing General Partner shall be promptly notified by you by telephone, telecopier or telegram, confirmed by letter. The Managing General Partner may terminate this Agreement other than the indemnification provisions of Section 11 for any reason by promptly giving notice to you by telephone, telecopier or telegram, confirmed by letter as hereinafter specified at or prior to a closing date. 14. NOTICES. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing, and if sent to you shall be mailed, delivered or telegraphed and confirmed to you at P.O. Box 926, 311 Rouser Road, Coraopolis, Pennsylvania 15108 or if sent to the Managing General Partner or on behalf of the Partnership, at 311 Rouser Road, Moon Township, Pennsylvania 15108. 15. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership Subscription, the Managing General Partner and you and the Selling Agents agree that all subscribers shall be instructed to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA" as agent for the Partnership. If you receive a check, draft, or money order not conforming to the foregoing instructions you shall return such check, draft, or money order to the Selling Agent not later than the end of the next business day following its receipt by you. The Selling Agent shall then return such check, draft, or money order directly to the subscriber not later than the end of the next business day following its receipt from you. Checks, drafts, or money orders received by you or a Selling Agent which conform to the foregoing instructions shall be transmitted by you pursuant to Section 16 "Transmittal Procedures," below. 8 You represent that you have executed the Escrow Agreement and agree that you are bound by the terms of the Escrow Agreement executed by you, the Partnership and the Managing General Partner, a copy of which is attached hereto as Exhibit "A". 16. TRANSMITTAL PROCEDURES. You and each Selling Agent shall transmit received investor funds in accordance with the following procedures. For purposes of the following, the term Selling Agent shall also include you as Dealer-Manager where you receive subscriptions from investors. (a) Pending receipt of the minimum subscription of $1,000,000, the Selling Agents shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original executed Subscription Agreement to you, as Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by the Selling Agent. By the end of the next business day following receipt of the check, draft, or money order and Subscription Agreement by you as Dealer-Manager, you as Dealer- Manager shall transmit the check, draft or money order and a copy of the executed Subscription Agreement to the Escrow Agent, and the original Subscription Agreement and a copy of the check, draft or money order to the Managing General Partner. (b) Upon receipt by you as Dealer-Manager of notice from the Managing General Partner that the minimum Partnership Subscription has been received, the Managing General Partner, you and the Selling Agent agree that all subscribers thereafter may be instructed, in the Managing General Partner's sole discretion, to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd.". Thereafter, Selling Agents shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original Subscription Agreement to you as Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by the Selling Agent. By the end of the next business day following receipt of the check, draft, or money order and Subscription Agreement by you as Dealer-Manager, you as Dealer- Manager shall transmit the check, draft or money order and the original Subscription Agreement to the Managing General Partner. 17. PARTIES. This Agreement shall inure to the benefit of and be binding upon you, the Managing General Partner, and any respective successors and assigns. This Agreement shall also inure to the benefit of the indemnified parties, their successors and assigns. This Agreement is intended to be and is for the sole and exclusive benefit of the parties hereto, including the Partnership, and their respective successors and assigns, and the indemnified parties and their successors and assigns, and for the benefit of no other person, and no other person shall have any legal or equitable right, remedy or claim under or in respect of this Agreement. No purchaser of any of the Units from you shall be construed a successor or assign merely by reason of such purchase 18. RELATIONSHIP. This Agreement shall not constitute you a partner of the Managing General Partner or the Partnership or any general partner thereof, nor render the Managing General Partner or the Partnership liable for any of your obligations except as otherwise provided herein. 19. EFFECTIVE DATE. This Agreement is made effective between the parties as of the date accepted by you as indicated by your signature hereto. 20. ENTIRE AGREEMENT WAIVER. This Agreement constitutes the entire agreement between the parties hereto and shall not be amended or modified in any way except by subsequent agreement executed in writing, and no party shall be liable or bound to the other by any agreement, except as specifically set forth herein. Any party hereto may waive, but only in writing, any term, condition, or requirement under this Agreement which is intended for its own benefit, and written waiver of any term or condition of this Agreement shall not operate as a waiver of any other breach of such term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or any other provision hereof. 9 If the foregoing correctly sets forth our understanding please so indicate in the space provided below for the purpose whereupon this letter shall constitute a binding agreement between us. Very truly yours, ATLAS RESOURCES, INC., a Pennsylvania corporation ___________________, 1999 By: _______________________________________ Date Tony C. Banks, Senior Vice President and Chief Financial Officer ATTEST: _______________________ (SEAL) Secretary PARTNERSHIP ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. By: Atlas Resources, Inc., Managing General Partner ___________________, 1999 By: _______________________________________ Date Tony C. Banks, Senior Vice President and Chief Financial Officer ATTEST: _______________________ (SEAL) Secretary DEALER-MANAGER ANTHEM SECURITIES, INC., a Pennsylvania corporation ___________________, 1999 By: _______________________________________ Date Eric D. Koval, President ATTEST: _______________________ (SEAL) Secretary 10 EXHIBIT "A" ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. ESCROW AGREEMENT THIS AGREEMENT, made to be effective as of the _____ day of _________, 1999, by and between Atlas Resources, Inc., a Pennsylvania corporation (the "Managing General Partner"), Anthem Securities, Inc., a Pennsylvania corporation ("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation ("Bryan Funding"), collectively Anthem and Bryan Funding are referred to as the "Dealer-Manager", Atlas-Energy for the Nineties-Public #8 Ltd., a Pennsylvania limited partnership (the "Partnership") and National City Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent (the "Escrow Agent"). WITNESSETH: WHEREAS, the Partnership intends to offer publicly for sale to qualified investors (the "Investors") up to 1,800 limited partnership interests in the Partnership (the "Units"); and WHEREAS, each Investor will be required to pay his subscription in full upon subscribing ($10,000 per Unit, however, the Managing General Partner, in its discretion, may accept one-half Unit [$5,000] subscriptions, with larger subscriptions permitted in $1,000 increments), by check, draft or money order except that the broker-dealers and the Managing General Partner, its officers and directors and Affiliates, may purchase Units net of the Dealer-Manager fee, the commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses set forth below, and registered investment advisors and their clients may purchase Units subject to the Dealer-Manager fee but net of the commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses set forth below (the "Subscription Proceeds"); and WHEREAS, the Managing General Partner and Anthem have executed an agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem will solicit subscriptions for Units in all states other than Minnesota and New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts" basis for the remaining Units on behalf of the Managing General Partner and the Partnership and pursuant to which Anthem has been authorized to select certain members in good standing of the National Association of Securities Dealers, Inc. ("NASD") to participate in the offering of the Units ("Selling Agents"); and WHEREAS, the Managing General Partner and Bryan Funding have executed an agreement ("Bryan Funding Dealer-Manager Agreement") pursuant to which Bryan Funding will solicit subscriptions for Units in the states of Minnesota and New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts" basis for the remaining Units on behalf of the Managing General Partner and the Partnership and pursuant to which Bryan Funding has been authorized to select certain members in good standing of the NASD to participate in the offering of the Units ("Selling Agents"); and WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding Dealer-Manager Agreement, collectively referred to as the "Dealer-Manager Agreement", provide for compensation to the Dealer-Manager which includes, but is not limited to: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% sales commission; (iii) a .5% reimbursement of marketing expenses; and (iv) reimbursement of the Selling Agents' bona fide accountable due diligence expenses of .5% per Unit to participate in the offering of the Units, all or a portion of which compensation will be reallowed to the Selling Agents and wholesalers; and 1 WHEREAS, under the terms of the Dealer-Manager Agreement the Subscription Proceeds are required to be held in escrow subject to the receipt and acceptance by the Managing General Partner of the minimum Subscription Proceeds of $1,000,000, excluding any optional subscription by the Managing General Partner, its officers, directors and Affiliates; and WHEREAS, no subscriptions to the Partnership will be accepted after receipt of the maximum Subscription Proceeds of $18,000,000 or December 31, 1999, whichever event occurs first (the "Offering Termination Date"); and WHEREAS, to facilitate compliance with the terms of the Dealer-Manager Agreement, the Managing General Partner and the Dealer-Manager desire to have the Subscription Proceeds deposited with the Escrow Agent and the Escrow Agent desires to hold the Subscription Proceeds pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: 1. APPOINTMENT OF ESCROW AGENT. The Managing General Partner, the Partnership and the Dealer-Manager hereby appoint Escrow Agent as the escrow agent to receive and to hold the Subscription Proceeds deposited with Escrow Agent by the Dealer-Manager and the Selling Agents pursuant hereto and Escrow Agent hereby agrees to serve in such capacity during the term and based upon the provisions hereof. 2. DEPOSIT OF SUBSCRIPTION PROCEEDS. Pending receipt of the minimum Subscription Proceeds of $1,000,000, the Dealer-Manager shall deposit the Subscription Proceeds of each Investor with the Escrow Agent and shall deliver to the Escrow Agent a copy of the Subscription Agreement of such Investor. Payment for each subscription for Units shall be in the form of a check made payable to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA". The Escrow Agent shall deliver a receipt to Anthem and the Managing General Partner for each deposit of Subscription Proceeds made pursuant hereto by Anthem, and to Bryan Funding and the Managing General Partner for each deposit of subscription proceeds made pursuant hereto by Bryan Funding. 3. INVESTMENT OF SUBSCRIPTION PROCEEDS. The Subscription Proceeds shall be deposited in an interest bearing account maintained by the Escrow Agent entitled "Armada Government Fund." Subscription Proceeds may be temporarily invested by the Escrow Agent only in income producing short-term, highly liquid investments secured by the United States government where there is appropriate safety of principal, such as U.S. Treasury Bills. The interest earned shall be added to the Subscription Proceeds and disbursed in accordance with the provisions of paragraph 4 or 5, as the case may be. 4. DISTRIBUTION OF SUBSCRIPTION PROCEEDS. If the Escrow Agent: (a) receives written notice from an authorized officer of the Managing General Partner that at least the minimum aggregate subscriptions of $1,000,000 have been received and accepted by the Managing General Partner; and (b) determines that Subscription Proceeds for at least $1,000,000 as determined by the Managing General Partner have cleared the banking system and are good; 2 the Escrow Agent shall promptly release and distribute to the Managing General Partner such escrowed Subscription Proceeds which have cleared the banking system and are good plus any interest paid and investment income earned on such Subscription Proceeds while held by the Escrow Agent in an escrow account. Any remaining Subscription Proceeds, plus any interest paid and investment income earned on such Subscription Proceeds while held by the Escrow Agent in an escrow account shall be promptly released and distributed to the Managing General Partner by the Escrow Agent as such Subscription Proceeds clear the banking system and become good. 5. SEPARATE PARTNERSHIP ACCOUNT. During the continuation of the offering after the Partnership is funded with cleared Subscription Proceeds of at least $1,000,000 and the Escrow Agent receives the notice described in Paragraph 4 of this Agreement, and prior to the Offering Termination Date, any additional Subscription Proceeds may be deposited by the Dealer-Manager directly in a separate Partnership account which shall not be subject to the terms of this Agreement. 6. DISTRIBUTIONS TO SUBSCRIBERS. (a) In the event that the Partnership will not be funded as contemplated because less than the minimum aggregate subscriptions of $1,000,000 have been received and accepted by the Managing General Partner by twelve p.m. (noon), local time, on December 31, 1999, or for any other reason, the Managing General Partner shall so notify the Escrow Agent, whereupon the Escrow Agent promptly shall distribute to each Investor a refund check made payable to such Investor in an amount equal to the Subscription Proceeds of such Investor, plus any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account as calculated by the Managing General Partner. (b) In the event that a subscription for Units submitted by an Investor is rejected by the Managing General Partner for any reason after the Subscription Proceeds relating to such subscription have been deposited with the Escrow Agent, then the Managing General Partner promptly shall notify the Escrow Agent of such rejection, and the Escrow Agent shall promptly distribute to such Investor a refund check made payable to such Investor in an amount equal to the Subscription Proceeds of such Investor, plus any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account as calculated by the Managing General Partner. 7. COMPENSATION AND EXPENSES OF ESCROW AGENT. The Managing General Partner shall be solely responsible for and shall pay the compensation of the Escrow Agent for its services hereunder, as provided in Appendix 1 to this Agreement and made a part hereof, and the charges, expenses (including any reasonable attorneys' fees), and other out-of-pocket expenses incurred by the Escrow Agent in connection with the administration of the provisions of this Agreement. The Escrow Agent shall have no lien on the Subscription Proceeds deposited in an escrow account unless and until the Partnership is funded with cleared Subscription Proceeds of at least $1,000,000 and the Escrow Agent receives the notice described in Paragraph 4 of this Agreement, at which time the Escrow Agent shall have, and is hereby granted, a prior lien upon any property, cash, or assets held hereunder, with respect to its unpaid compensation and nonreimbursed expenses, superior to the interests of any other persons or entities. 8. DUTIES OF ESCROW AGENT. The Escrow Agent shall not be obligated to accept any notice, make any delivery, or take any other action under this Escrow Agreement unless the notice or request or demand for delivery or other action is in writing and given or made by the party given the right or charged with 3 the obligation under this Escrow Agreement to give the notice or to make the request or demand. In no event shall the Escrow Agent be obligated to accept any notice, request, or demand from anyone other than the Managing General Partner or the Dealer-Manager. 9. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any damages, or have any obligations other than the duties prescribed herein in carrying out or executing the purposes and intent of this Escrow Agreement; provided, however, that nothing herein contained shall relieve the Escrow Agent from liability arising out of its own willful misconduct or gross negligence. Escrow Agent's duties and obligations under this Agreement shall be entirely administrative and not discretionary. Escrow Agent shall not be liable to any party hereto or to any third party as a result of any action or omission taken or made by Escrow Agent in good faith. The parties to this Agreement will indemnify Escrow Agent, hold Escrow Agent harmless, and reimburse Escrow Agent from, against and for, any and all liabilities, costs, fees and expenses (including reasonable attorney's fees) Escrow Agent may suffer or incur by reason of its execution and performance of this Agreement. In the event any legal questions arise concerning Escrow Agent's duties and obligations hereunder, Escrow Agent may consult with its counsel and rely without liability upon written opinions given to it by such counsel. The Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, authorization, or other paper or document which the Escrow Agent, in good faith, believes to be genuine and what it purports to be. In the event that there shall be any disagreement between any of the parties to this Agreement, or between them or any of them and any other person, resulting in adverse claims or demands being made in connection with this Agreement, or in the event that Escrow Agent, in good faith, shall be in doubt as to what action it should take hereunder, Escrow Agent may, at its option, refuse to comply with any claims or demands on it or refuse to take any other action hereunder, so long as such disagreement continues or such doubt exists. In any such event, Escrow Agent shall not be or become liable in any way or to any person for its failure or refusal to act and Escrow Agent shall be entitled to continue to so refrain from acting until the dispute is resolved by the parties involved. National City Bank of Pennsylvania is acting solely as Escrow Agent and is not a party to, nor has it reviewed or approved any agreement or matter of background related to this Agreement, other than this Agreement itself, and has assumed, without investigation, the authority of the individuals executing this Agreement to be so authorized on behalf of the party or parties involved. 10. RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow Agent may resign as such following the giving of thirty days' prior written notice to the other parties hereto. Similarly, the Escrow Agent may be removed and replaced following the giving of thirty days' prior written notice to the Escrow Agent by the other parties hereto. In either event, the duties of the Escrow Agent shall terminate thirty days after the date of such notice (or as of such earlier date as may be mutually agreeable); and the Escrow Agent shall then deliver the balance of the Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account) in its possession to a successor escrow agent as shall be appointed by the other parties hereto as evidenced by a written notice filed with the Escrow Agent. If the other parties hereto are unable to agree upon a successor or shall have failed to appoint a successor prior to the expiration of thirty days following the date of the notice of resignation or removal, the then acting Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor escrow agent or other appropriate relief; and any such resulting appointment shall be binding upon all of the parties hereto. Upon acknowledgment by any successor escrow agent of the receipt of the then remaining balance of the Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account), the then acting Escrow Agent shall be fully released and relieved of all duties, responsibilities, and obligations under this Agreement. 4 11. TERMINATION. This Agreement shall terminate and the Escrow Agent shall have no further obligation with respect hereto upon the occurrence of the distribution of all Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account) as contemplated hereby or upon the written consent of all the parties hereto. 12. NOTICE. Any notices or instructions, or both, to be given hereunder shall be validly given if set forth in writing and mailed by certified mail, return receipt requested, as follows: IF TO THE ESCROW AGENT: National City Bank of Pennsylvania Attention: Mr. Robert Mialki, Vice President Corporate Trust Department 300 Fourth Avenue Pittsburgh, Pennsylvania 15278-2331 Phone: (412) 644-8401 Facsimile: (412) 644-7971 IF TO THE MANAGING GENERAL PARTNER: Atlas Resources, Inc. 311 Rouser Road P.O. Box 611 Moon Township, Pennsylvania 15108 Attention: Tony C. Banks Phone: (412) 262-2830 Facsimile: (412) 262-2820 IF TO ANTHEM: Anthem Securities, Inc. 311 Rouser Road P.O. Box 926 Coraopolis, Pennsylvania 15108 Attention: Eric D. Koval Phone: (412) 262-1680 Facsimile: (412) 262-7430 IF TO BRYAN FUNDING: Bryan Funding, Inc. 393 Vanadium Road Pittsburgh, Pennsylvania 15243 Attention: Richard G. Bryan, Jr. Phone: (412) 276-9393 Facsimile: (412) 276-9396 5 Any party may designate any other address to which notices and instructions shall be sent by notice duly given in accordance herewith. 13. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement is binding upon and shall inure to the benefit of the undersigned and their respective heirs, successors and assigns. (c) This Agreement may be executed in multiple copies, each executed copy to serve as an original. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the day and year first above written. NATIONAL CITY BANK OF PENNSYLVANIA ATTEST: As Escrow Agent By:___________________________ By:_____________________________ (Authorized Officer) (Authorized Officer) ATLAS RESOURCES, INC. ATTEST: A Pennsylvania corporation By:___________________________ By:_____________________________ Secretary Tony C. Banks, Senior Vice President and Chief Financial Officer ANTHEM SECURITIES, INC. ATTEST: A Pennsylvania corporation By:___________________________ By:_____________________________ Secretary Eric D. Koval, President BRYAN FUNDING, INC. ATTEST: A Pennsylvania corporation By:___________________________ By:_____________________________ Secretary Richard G. Bryan, Jr., President ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. By: ATLAS RESOURCES, INC. ATTEST: Managing General Partner By:___________________________ By:_____________________________ Secretary Tony C. Banks, Senior Vice President and Chief Financial Officer 6 APPENDIX I TO ESCROW AGREEMENT COMPENSATION FOR SERVICES OF ESCROW AGENT Escrow Agent annual fee per year or any part thereof $3,000.00 7 EXHIBIT "B" SELLING AGENT AGREEMENT WITH ANTHEM SECURITIES, INC. TO: _____________________________________ RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. Gentlemen: Atlas Resources, Inc. ("Atlas"), is the Managing General Partner in a Pennsylvania limited partnership named Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"). The Units of Participation (the "Units") and the offering are described in the enclosed Prospectus dated _________, 1999 (the "Prospectus"). Prospectuses relating to the Units have been furnished to you with this Agreement. Our firm, Anthem Securities, Inc. (the "Dealer-Manager"), has entered into a Dealer-Manager Agreement for sales in all states other than Minnesota and New Hampshire, a copy of which has been furnished to you and is incorporated herein by reference, with the Managing General Partner and the Partnership under which the Dealer-Manager has agreed to form a group of National Association of Securities Dealers, Inc. (the "NASD") member firms (the "Selling Agents"), who will obtain subscriptions to the Partnership in all states other than Minnesota and New Hampshire on a "best efforts" basis pursuant to the Securities Act of 1933, as amended (the "Act"), and the provisions of the Prospectus. You are invited to become one of the Selling Agents, on a non-exclusive basis. By your acceptance below you will have agreed to act in that capacity and to use your best efforts, in accordance with the following terms and conditions, to solicit such subscriptions in all states other than Minnesota and New Hampshire. This Agreement, however, shall not be construed to prohibit your participation as a selling agent in Minnesota and New Hampshire pursuant to a duly executed selling agent agreement entered into by you and any other authorized "Dealer-Manager" for the Partnership. 1. REPRESENTATIONS AND WARRANTIES OF SELLING AGENT. You, as a Selling Agent, represent and warrant to the Dealer-Manager that: (a) You are a corporation duly organized, validly existing and in good standing under the laws of the state of your formation or of any jurisdiction to the laws of which you are subject, with all requisite power and authority to enter into this Agreement and to carry out your obligations hereunder. (b) This Agreement when accepted and approved will be duly authorized, executed and delivered by you and will be a valid and binding agreement on your part in accordance with its terms. (c) The consummation of the transactions contemplated by this Agreement and the Prospectus will not result in any breach of any of the terms or conditions of, or constitute a default under your Articles of Incorporation, Bylaws, any indenture, agreement or other instrument to which you are a party, or violate any order applicable to you of any court or any federal or state regulatory body or administrative agency having jurisdiction over you or over your affiliates. (d) You are duly registered pursuant to the provisions of the Securities Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a member in good standing of the NASD. You are duly registered as a broker-dealer in the states in which you are required to be registered in order to 1 carry out your obligations as contemplated by this Agreement and the Prospectus. You agree to maintain all the foregoing registrations in good standing throughout the term of the offer and sale of the Units and you agree to comply with all statutes and other requirements applicable to you as a broker-dealer pursuant to those registrations. (e) Pursuant to your appointment as a Selling Agent, you shall comply with all the provisions of the Act, insofar as the Act applies to your activities hereunder. Further, you shall not engage in any activity which would cause the offer and/or sale of Units not to comply with the Act, the Act of 1934 and the applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), the applicable state securities laws and regulations, this Agreement and the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and Rules 2810(b)(2) and (b)(3), which provide as follows: Sec. (b)(2) SUITABILITY (A) A member or person associated with a member shall not underwrite or participate in a public offering of a direct participation program unless standards of suitability have been established by the program for participants therein and such standards are fully disclosed in the prospectus and are consistent with the provisions of subparagraph (B) of this section. (B) In recommending to a participant the purchase, sale or exchange of an interest in a direct participation program, a member or person associated with a member shall: (i) have reasonable grounds to believe, on the basis of information obtained from the participant concerning his investment objectives, other investments, financial situation and needs, and any other information known by the member or associated person, that: (a) the participant is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the prospectus, including the tax benefits where they are a significant aspect of the program; (b) the participant has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and (c) the program is otherwise suitable for the participant; and (ii) maintain in the files of the member documents disclosing the basis upon which the determination of suitability was reached as to each participant. (C) Notwithstanding the provisions of subparagraphs (A) and (B) hereof, no member shall execute any transaction in a direct participation program in a discretionary account without prior written approval of the transaction by the customer. Sec. (b)(3) DISCLOSURE (A) Prior to participating in a public offering of a direct participation program, a member or person associated with a member shall have reasonable grounds to believe, based on information made available to him by the sponsor through a 2 prospectus or other materials, that all material facts are adequately and accurately disclosed and provide a basis for evaluating the program. (B) In determining the adequacy of disclosed facts pursuant to subparagraph (A) hereof, a member or person associated with a member shall obtain information on material facts relating at a minimum to the following, if relevant in view of the nature of the program: (i) items of compensation; (ii) physical properties; (iii) tax aspects; (iv) financial stability and experience of the sponsor; (v) the program's conflicts and risk factors; and (vi) appraisals and other pertinent reports. (C) For purposes of subparagraphs (A) and (B) hereof, a member or person associated with a member may rely upon the results of an inquiry conducted by another member or members, provided that: (i) the member or person associated with a member has reasonable grounds to believe that such inquiry was conducted with due care; (ii) the results of the inquiry were provided to the member or person associated with a member with the consent of the member or members conducting or directing the inquiry; and (iii) no member that participated in the inquiry is a sponsor of the program or an affiliate of such sponsor. (D) Prior to executing a purchase transaction in a direct participation program, a member or person associated with a member shall inform the prospective participant of all pertinent facts relating to the liquidity and marketability of the program during the term of investment. (f) You have received copies of the Prospectus relating to the Units and you have relied only on the statements contained in the Prospectus and not on any other statements whatsoever, either written or oral, with respect to the details of the offering of Units. (g) You agree that you shall not place any advertisement or other solicitation with respect to the Units (including without limitation any material for use in any newspaper, magazine, radio or television commercial, telephone recording, motion picture, or other public media) without the prior written approval of the Managing General Partner, and without the prior written approval of the form and content thereof by the Commission, the NASD and the securities authorities of the states where such advertisement or solicitation is to be circulated. Any such advertisements or solicitations shall be at your expense. (h) If a supplement or amendment to the Prospectus is prepared and delivered to you by the Managing General Partner or the Dealer-Manager, you agree to distribute each such supplement or amendment to the Prospectus to every person who has previously received a copy of the Prospectus from you and you further agree to include such supplement or amendment in all future deliveries of any Prospectus. 3 (i) In connection with any offer or sale of the Units, you agree to comply in all respects with statements set forth in the Prospectus and the Partnership Agreement and you agree not to make any statement inconsistent with the statements in the Prospectus or the Partnership Agreement and you further agree that you shall not provide any written information, statements or sales literature other than the Prospectus, the Managing General Partner's corporate profile and a brochure entitled "Atlas-Energy for the Nineties-Public #8 Ltd." (the corporate profile and the brochure collectively referred to herein as the "Brochure"), and any supplements or amendments thereto unless approved in writing by the Managing General Partner. Further, you agree not to make any untrue or misleading statements of a material fact in connection with the Units. (j) You agree to use your best efforts in the solicitation and sale of said Units, including insuring that the prospective purchasers meet the suitability requirements set forth in the Prospectus and the Subscription Agreement and properly execute the Subscription Agreement, which has been provided as Exhibit (I-B) to the Partnership Agreement, Exhibit (A) to the Prospectus, together with any additional forms provided in any supplement or amendment to the Prospectus, or otherwise provided to you by the Managing General Partner or the Dealer-Manager to be completed by prospective purchasers. The Managing General Partner shall have the right to reject any subscription at any time for any reason without liability to it. Investor funds and executed Subscription Agreements shall be transmitted as set forth in Section 11. (k) You shall comply with the requirements of Rules 2810(b)(2)(B) and (b)(3)(D) of the NASD Conduct Rules. 2. COMMISSIONS. (a) Subject to the receipt of the minimum required Partnership Subscription of $1,000,000, the Dealer-Manager is entitled to receive from the Partnership a 7.0% Sales Commission, a .5% reimbursement of marketing expenses and a .5% reimbursement of the Selling Agents' bona fide accountable due diligence expenses based on the aggregate amount of all Unit subscriptions to the Partnership secured by the Dealer-Manager or the selling group formed by the Dealer-Manager and accepted by the Managing General Partner. Subject to the terms and conditions herein set forth, including the Dealer-Manager's receipt from you of the documentation required of you in Section 1 of this Agreement, the Dealer-Manager agrees to pay you a 7.0% cash commission, a .5% reimbursement of marketing expenses and a .5% reimbursement of your bona fide accountable due diligence expenses, of subscriptions sold by you and accepted by the Managing General Partner, within seven business days after the Dealer-Manager has received the commissions and reimbursements on such subscriptions. The Dealer-Manager is entitled to receive its commissions and reimbursements within five business days after at least the minimum Partnership Subscription ($1,000,000) has been received and accepted by the Managing General Partner and the subscription proceeds have been released to the Managing General Partner from the escrow account, and approximately every two weeks thereafter until the Offering Termination Date, which is December 31, 1999, or when the maximum Partnership Subscription of $18,000,000 is received if earlier. The balance will be paid to the Dealer-Manager within 14 business days after the Offering Termination Date. (b) Notwithstanding anything herein to the contrary, you agree to waive payment of your commissions and reimbursements as set forth above in (a) until the Dealer-Manager is in receipt of the related amounts owed to it pursuant to the Dealer-Manager Agreement, and the Dealer-Manager's liability for such amounts hereunder is limited solely to the proceeds of the related amounts owed to it pursuant to the Dealer-Manager Agreement. 4 (c) The Partnership will not commence operations unless subscriptions for at least $1,000,000 have been secured by December 31, 1999. If this amount is not secured, nothing will be payable to you and all funds advanced by purchasers will be returned to them with interest earned, if any. (d) Notwithstanding the foregoing, Registered Investment Advisors and their clients may subscribe to Units without paying the Sales Commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses, and their Agreed Subscriptions will be subject only to the 2.5% Dealer-Manager fee. Also, the Managing General Partner, its officers and directors and Affiliates, and the Selling Agents may subscribe to Units without paying the Dealer-Manager fee, Sales Commissions and the reimbursement of marketing expenses and the Selling Agents' bona fide accountable due diligence expenses. 3. STATE SECURITIES REGISTRATION. The Managing General Partner may elect not to qualify or register Units in any state in which it deems such qualification or registration is not warranted for any reason in its sole discretion. Upon application to the Dealer-Manager you will be informed as to the jurisdictions in which the Units have been qualified for sale or are exempt under the respective securities or "Blue Sky" laws of such jurisdictions. Notwithstanding, the Dealer-Manager, the Partnership and the Managing General Partner have not assumed and will not assume any obligation or responsibility as to your right to act as a broker-dealer with respect to the Units in any such jurisdiction. 4. EXPENSE OF SALE. The expenses in connection with the offer and sale of the Units shall be payable as set forth below. (a) The Dealer-Manager shall pay all expenses incident to the performance of its obligations hereunder, including the fees and expenses of its attorneys and accountants, even if this offering is not successfully completed. (b) You shall pay all expenses incident to the performance of your obligations hereunder, including the fees and expenses of your own counsel and accountants, even if this offering is not successfully completed. 5. CONDITIONS OF YOUR DUTIES. Your obligations provided herein, as of the date hereof and at the applicable closing date, shall be subject to the performance by the Dealer-Manager of its obligations hereunder and to the performance by the Managing General Partner of its obligations under the Dealer-Manager Agreement. 6. CONDITIONS OF DEALER-MANAGER'S DUTIES. The Dealer-Manager's obligations provided herein, including the duty to pay compensation as set forth in Section 2 hereof, shall be subject to the accuracy, as of the date hereof and at the applicable closing date (as if made at the applicable closing date) of your representations and warranties made herein, and to the performance by you of your obligations hereunder, and to the additional condition that the Dealer-Manager shall have received, at or prior to the applicable closing date, the following documents: (a) a fully executed Subscription Agreement for each prospective purchaser; (b) certification to the Dealer-Manager that you are registered as required by Section 1(d) and that such registrations were, during the term of the offering and through the applicable closing date, in full force and effect; and (c) a certificate from you, dated at the applicable closing date, to the effect that your representations and warranties made herein are true and correct as if made at the applicable closing date and that you have fulfilled all your obligations hereunder. 5 7. INDEMNIFICATION. (a) You shall indemnify and hold harmless the Dealer-Manager, the Managing General Partner, the Partnership and its attorneys, against any losses, claims, damages or liabilities, joint or several, to which such parties may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon your breach of any of your duties and obligations, representations, or warranties under the terms or provisions of this Agreement and you shall reimburse such parties for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, claim, damage, liability or action. (b) The Dealer-Manager shall indemnify and hold you harmless against any losses, claims, damages or liabilities, joint or several, to which you may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the Dealer-Manager's breach of any of its duties and obligations, representations, or warranties under the terms or provisions of this Agreement and the Dealer-Manager shall reimburse you for any legal or other expenses reasonably incurred in connection with investigating or defending such loss, claim, damage, liability or action. (c) The foregoing indemnity agreements shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls each indemnified party within the meaning of the Act. (d) Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party. If any such action shall be brought against such indemnified party, it shall notify the indemnifying party of the commencement thereof, and the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified and indemnifying parties. After the indemnified party shall have received notice from the agreed upon counsel that the defense under this paragraph has been so assumed, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than with respect to the agreed upon counsel who assumed the defense thereof. 8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements of the Dealer-Manager and you herein or in certificates delivered pursuant hereto, and the indemnity agreements contained in Section 7 hereof, shall survive the delivery, execution and closing hereof, and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any person who controls you within the meaning of the Act, or by the Dealer-Manager, or any of its officers, directors or any person who controls the Dealer-Manager within the meaning of the Act, or any other indemnified party, and shall survive delivery of the Units hereunder. 9. TERMINATION. You shall have the right to terminate this Agreement, other than the indemnification provisions of Section 7, by giving notice as hereinafter specified any time at or prior to a closing date: (a) if the Dealer-Manager shall have failed, refused, or been unable at or prior to the closing date, to perform any of its obligations hereunder; or (b) there has occurred an event materially and adversely affecting the value of the Units. 6 If you elect to terminate this Agreement, other than the indemnification provisions of Section 7, the Dealer-Manager shall be promptly notified by you by telephone, telecopier, facsimile, or telegram, confirmed by letter. The Dealer-Manager may terminate this Agreement, other than the indemnification provisions of Section 7, for any reason and at any time by promptly giving notice to you by telephone, telecopier or telegram, confirmed by letter. 10. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership Subscription of $1,000,000 (100 Units), the Dealer-Manager and you agree that all subscribers shall be instructed to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA" as agent for the Partnership. If you receive a check, draft, or money order not conforming to the foregoing instructions you shall return such check, draft, or money order directly to the subscriber not later than the end of the next business day following its receipt from the subscriber. If the Dealer-Manager receives a check, draft, or money order not conforming to the foregoing instructions the Dealer-Manager shall return such check, draft, or money order to you not later than the end of the next business day following its receipt by the Dealer-Manager and you shall then return such check, draft, or money order directly to the subscriber not later than the end of the next business day following its receipt from the Dealer-Manager. Checks, drafts, or money orders received by you which conform to the foregoing instructions shall be transmitted by you pursuant to Section 11 "Transmittal Procedures," below. You agree that you are bound by the terms of the Escrow Agreement, a copy of which is attached to the Dealer-Manager Agreement as Exhibit "A." 11. TRANSMITTAL PROCEDURES. You shall transmit received investor funds in accordance with the following procedures. (a) Pending receipt of the minimum Partnership Subscription of $1,000,000, you shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original executed Subscription Agreement to the Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by you. By the end of the next business day following receipt of the check, draft, or money order and Subscription Agreement by the Dealer-Manager, the Dealer-Manager shall transmit the check, draft, or money order and a copy of the executed Subscription Agreement to the Escrow Agent, and the original Subscription Agreement and a copy of the check, draft, or money order to the Managing General Partner. (b) Upon receipt by you of notice from the Managing General Partner or the Dealer-Manager that the minimum Partnership Subscription has been received, you agree that all subscribers thereafter may be instructed, in the Managing General Partner's sole discretion, to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd.". Thereafter, you shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original Subscription Agreement to the Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by you. By the end of the next business day following receipt of the check, draft, or money order and subscription documents by the Dealer-Manager, the Dealer-Manager shall transmit the check, draft, or money order and the original Subscription Agreement to the Managing General Partner. 12. PARTIES. This Agreement shall inure to the benefit of and be binding upon you, the Dealer-Manager, and any respective successors and assigns. This Agreement shall also inure to the benefit of the indemnified parties, their successors and assigns. This Agreement is intended to be and is for the sole and exclusive benefit of the parties hereto, and their respective successors and assigns, and the indemnified parties and their successors and assigns, and for the benefit of no other person. No other person shall have any legal 7 or equitable right, remedy or claim under or in respect of this Agreement. No purchaser of any of the Units from you shall be construed a successor or assign merely by reason of such purchase. 13. RELATIONSHIP. You are not authorized to hold yourself out as agent of the Dealer-Manager, the Managing General Partner, the Partnership or of any other Selling Agent, nor shall this Agreement constitute you a partner of the Managing General Partner, the Dealer-Manager, the Partnership or of any other Selling Agent, or render the Managing General Partner, the Dealer-Manager, the Partnership or any general partner thereof, or any other Selling Agent liable for any of your obligations. 14. EFFECTIVE DATE. This Agreement is made effective between the parties as of the date accepted by you as indicated by your signature hereto. 15. ENTIRE AGREEMENT, WAIVER. This Agreement constitutes the entire agreement between the parties hereto and shall not be amended or modified in any way except by subsequent agreement executed in writing, and no party shall be liable or bound to the other by any agreement, except as specifically set forth herein. Any party hereto may waive, but only in writing, any term, condition, or requirement under this Agreement which is intended for its own benefit, and written waiver of any term or condition of this Agreement shall not operate as a waiver of any other breach of such term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or any other provision hereof. 16. NOTICES. Any communications from you shall be in writing addressed to the Dealer-Manager at P.O. Box 926, Coraopolis, Pennsylvania 15108-0926. Any notice from the Dealer-Manager to you shall be deemed to have been duly given if mailed, faxed or telegraphed to you at your address shown below. 17. ACCEPTANCE. Please confirm your agreement to become a Selling Agent under the terms and conditions set forth above by signing and returning the enclosed duplicate copy of this Agreement to us at the address set forth above. Sincerely, _______________________ , 1999 ANTHEM SECURITIES, INC. ATTEST: _______________________________ By: ____________________________________ (SEAL) Secretary Eric D. Koval, President 8 ACCEPTANCE: We accept your invitation to become a Selling Agent under all the terms and conditions stated in the above Agreement and confirm that all the statements set forth in the above Agreement are true and correct. We hereby acknowledge receipt of the Prospectuses and Brochures and a copy of the Dealer-Manager Agreement referred to above. _______________________ , 1999 _______________________________________, a(n) ______________________ corporation, ATTEST: ______________________________ By: ____________________________________ (SEAL) Secretary ______________________, President ________________________________________ (Address) ________________________________________ ________________________________________ 9 EX-1.B 3 EXHIBIT 1B PROPOSED FORM OF DEALER-MANAGER AGREEMENT FOR BRYAN FUNDING, INC. EXHIBIT 1(b) BRYAN FUNDING, INC. DEALER-MANAGER AGREEMENT (Best Efforts) RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. Bryan Funding, Inc. 393 Vanadium Road Pittsburgh, Pennsylvania 15243 Gentlemen: The undersigned, Atlas Resources, Inc. (the "Managing General Partner"), on behalf of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., hereby confirms its agreement with you as Dealer-Manager as follows: 1. DESCRIPTION OF UNITS. The Managing General Partner has formed a limited partnership known as Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"), which will issue and sell Units of Participation in the Partnership (the "Units") at a price of $10,000 per Unit. Subject to the receipt and acceptance by the Managing General Partner of the minimum Partnership Subscription of 100 Units ($1,000,000), there will be two closings, which are tentatively set for November 1, 1999 (the "Initial Closing Date"), and December 31, 1999. No subscriptions to the Partnership will be accepted after receipt of the maximum Partnership Subscription of $18,000,000 or December 31, 1999, whichever event occurs first (the "Offering Termination Date"). 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE MANAGING GENERAL PARTNER. The Managing General Partner represents and warrants to and agrees with you that: (a) The Units have been or will be registered with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Act of 1933, as amended (the "Act"). (b) The Managing General Partner shall provide to you for delivery to all offerees and purchasers and their representatives such information and documents as the Managing General Partner deems appropriate to comply with the Act and applicable state securities ("blue sky") laws. (c) The Units when issued will be duly authorized and validly issued as set forth in the Amended and Restated Certificate and Agreement of Limited Partnership of the Partnership ("Partnership Agreement") set forth as Exhibit (A) to the offering circular (the "Prospectus") and subject only to the rights and obligations set forth in the Partnership Agreement or imposed by the laws of the state of formation of the Partnership or of any jurisdiction to the laws of which the Partnership is subject. (d) The Partnership was duly formed pursuant to the laws of the Commonwealth of Pennsylvania and is validly existing as a limited partnership in good standing under the laws of Pennsylvania with full power and authority to own its properties and conduct its business as described in the Prospectus. The Partnership will be qualified to do business as a limited partnership or similar entity offering limited liability in those jurisdictions where the Managing General Partner deems such qualification necessary to assure limited liability of the limited partners. (e) The Prospectus, as heretofore or hereafter supplemented or amended, does not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 1 3. GRANT OF AUTHORITY TO THE DEALER-MANAGER. On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, the Managing General Partner hereby appoints you as the Dealer-Manager for the Partnership and gives you the exclusive right to solicit subscriptions for the Units in the states of Minnesota and New Hampshire only, on a "best efforts" basis, subject to the terms and conditions set forth herein. In the states of Minnesota and New Hampshire only you agree to use your best efforts to effect such sales and to form and manage a selling group composed of soliciting broker-dealers ("Selling Agents"), each of which shall be a member of the National Association of Securities Dealers, Inc. ("NASD"), pursuant to "Selling Agent Agreements" in substantially the form attached hereto as Exhibit "B." The Managing General Partner shall have three business days after the receipt of an executed Selling Agent Agreement to refuse that Selling Agent's participation. 4. COMPENSATION AND FEES. (a) As Dealer-Manager you will receive from the Partnership the following fees based on the amount of the Agreed Subscription on each Unit sold to investors who are situated and/or residents in the states of Minnesota and New Hampshire: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% Sales Commission; (iii) a .5% reimbursement of marketing expenses; and (iv) a .5% reimbursement of the Selling Agents' bona fide accountable due diligence expenses. The 7.0% Sales Commission, the .5% reimbursement of marketing expenses and the .5% reimbursement of bona fide accountable due diligence expenses will be reallowed to the Selling Agents. The 2.5% Dealer-Manager fee will be reallowed to the wholesalers for Agreed Subscriptions obtained through the wholesalers' effort. (b) Pending receipt and acceptance by the Managing General Partner of the minimum Partnership Subscription ($1,000,000 excluding any optional subscription by the Managing General Partner and its Affiliates), all proceeds received by you from the sale of Units will be held in a separate interest bearing escrow account as provided in Section 15. Unless at least the minimum Partnership Subscription of $1,000,000 is received on or before December 31, 1999, the offering shall be terminated, in which event no fee shall be payable to you and all funds advanced by purchasers shall be returned to them with interest earned. In addition, you shall deliver a termination letter in the form provided to you by the Managing General Partner to each such subscriber and to each of the offerees previously solicited by you and the Selling Agents in connection with the offering of the Units. (c) The fees set forth in Section 4(a), which shall be reallowed by you to the Selling Agents which made the sale and the wholesalers, will be paid to you within five business days after at least the minimum Partnership Subscription ($1,000,000) has been received and accepted by the Managing General Partner and the subscription proceeds have been released to the Managing General Partner from the escrow account. Thereafter, such fees will be paid to you and reallowed to the Selling Agents and wholesalers as described in the previous sentence approximately every two weeks until the Offering Termination Date and all your remaining fees shall be paid by the Managing General Partner no later than 14 business days after the Offering Termination Date. (d) Notwithstanding the foregoing, Registered Investment Advisors and their clients may subscribe to Units without paying the Sales Commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses, and their Agreed Subscriptions will be subject only to the 2.5% Dealer-Manager fee. 2 Also, the Managing General Partner, its officers and directors and Affiliates, and the Selling Agents may subscribe to Units without paying the Dealer-Manager fee, Sales Commissions and the reimbursement of marketing expenses and the Selling Agents' bona fide accountable due diligence expenses. 5. COVENANTS OF THE MANAGING GENERAL PARTNER. The Managing General Partner covenants and agrees that: (a) The Managing General Partner will deliver to you ample copies of the Prospectus and of all amendments or supplements thereto, heretofore or hereafter made, including all exhibits and other documents included therein. (b) If any event affecting the Partnership or the Managing General Partner shall occur which in the opinion of the Managing General Partner should be set forth in a supplement to or an amendment of the Prospectus, the Managing General Partner will forthwith at its own expense prepare and furnish to you a sufficient number of copies of a supplement or amendment to the Prospectus so that it, as so supplemented or amended, will not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. 6. REPRESENTATIONS AND WARRANTIES OF DEALER-MANAGER. You, as the Dealer- Manager, represent and warrant to the Managing General Partner that: (a) You are a corporation duly organized, validly existing and in good standing under the laws of the state of your formation or of any jurisdiction to the laws of which you are subject, with all requisite power and authority to enter into this Agreement and to carry out your obligations hereunder. (b) This Agreement when accepted and approved will be duly authorized, executed and delivered by you and will be a valid and binding agreement on your part in accordance with its terms. (c) The consummation of the transactions contemplated by this Agreement and the Prospectus will not result in any breach of any of the terms or conditions of, or constitute a default under your Articles of Incorporation, Bylaws, any indenture, agreement or other instrument to which you are a party, or violate any order applicable to you of any court or any federal or state regulatory body or administrative agency having jurisdiction over you or over your affiliates. (d) You are duly registered pursuant to the provisions of the Securities Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a member in good standing of the NASD. You are duly registered as a broker-dealer in the states in which you are required to be registered in order to carry out your obligations as contemplated by this Agreement and the Prospectus. You agree to maintain all the foregoing registrations in good standing throughout the term of the offer and sale of the Units and you agree to comply with all statutes and other requirements applicable to you as a broker-dealer pursuant to those registrations. (e) Pursuant to your appointment as Dealer-Manager, you shall use your best efforts to exercise the supervision and control that you deem necessary and appropriate to the activities of you and the Selling Agents to comply with all the provisions of the Act, insofar as the Act applies to your and their activities hereunder. Further, you and the Selling Agents shall not engage in any activity which would cause the offer and/or sale of Units not to comply with the Act, the Act of 1934 and the applicable rules and regulations of the Commission, the applicable state securities laws and regulations, this Agreement and the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and Rules 2810(b)(2) and (b)(3), which provide as follows: 3 Sec. (b)(2) SUITABILITY (A) A member or person associated with a member shall not underwrite or participate in a public offering of a direct participation program unless standards of suitability have been established by the program for participants therein and such standards are fully disclosed in the prospectus and are consistent with the provisions of subparagraph (B) of this section. (B) In recommending to a participant the purchase, sale or exchange of an interest in a direct participation program, a member or person associated with a member shall: (i) have reasonable grounds to believe, on the basis of information obtained from the participant concerning his investment objectives, other investments, financial situation and needs, and any other information known by the member or associated person, that: (a) the participant is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the prospectus, including the tax benefits where they are a significant aspect of the program; (b) the participant has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and (c) the program is otherwise suitable for the participant; and (ii) maintain in the files of the member documents disclosing the basis upon which the determination of suitability was reached as to each participant. (C) Notwithstanding the provisions of subparagraphs (A) and (B) hereof, no member shall execute any transaction in a direct participation program in a discretionary account without prior written approval of the transaction by the customer. Sec. (b)(3) DISCLOSURE (A) Prior to participating in a public offering of a direct participation program, a member or person associated with a member shall have reasonable grounds to believe, based on information made available to him by the sponsor through a prospectus or other materials, that all material facts are adequately and accurately disclosed and provide a basis for evaluating the program. (B) In determining the adequacy of disclosed facts pursuant to subparagraph (A) hereof, a member or person associated with a member shall obtain information on material facts relating at a minimum to the following, if relevant in view of the nature of the program: (i) items of compensation; (ii) physical properties; (iii) tax aspects; (iv) financial stability and experience of the sponsor; (v) the program's conflicts and risk factors; and 4 (vi) appraisals and other pertinent reports. (C) For purposes of subparagraphs (A) and (B) hereof, a member or person associated with a member may rely upon the results of an inquiry conducted by another member or members, provided that: (i) the member or person associated with a member has reasonable grounds to believe that such inquiry was conducted with due care; (ii) the results of the inquiry were provided to the member or person associated with a member with the consent of the member or members conducting or directing the inquiry; and (iii) no member that participated in the inquiry is a sponsor of the program or an affiliate of such sponsor. (D) Prior to executing a purchase transaction in a direct participation program, a member or person associated with a member shall inform the prospective participant of all pertinent facts relating to the liquidity and marketability of the program during the term of investment. (f) You and the Selling Agents have received copies of the Prospectus relating to the Units and you and the Selling Agents have relied only on the statements contained in the Prospectus and not on any other statements whatsoever, either written or oral, with respect to the details of the offering of Units. (g) You and the Selling Agents agree that you and the Selling Agents shall not place any advertisement or other solicitation with respect to the Units (including without limitation any material for use in any newspaper, magazine, radio or television commercial, telephone recording, motion picture, or other public media) without the prior written approval of the Managing General Partner, and without the prior written approval of the form and content thereof by the Commission, the NASD and the securities authorities of the states where such advertisement or solicitation is to be circulated. Any such advertisements or solicitations shall be at your expense. (h) If a supplement or amendment to the Prospectus is prepared and delivered to you by the Managing General Partner, you agree and shall require any Selling Agent to agree to distribute each such supplement or amendment to the Prospectus to every person who has previously received a copy of the Prospectus from you and/or the Selling Agent and you further agree and shall require any Selling Agent to further agree to include such supplement or amendment in all future deliveries of any Prospectus. (i) You agree to advise the Managing General Partner in writing of each state in which you and the Selling Agents propose to offer or sell the Units and you shall not nor shall you permit any Selling Agent to offer or sell Units in any state until such time as you shall have been advised in writing by the Managing General Partner, or the Managing General Partner's special counsel, that such offer or sale has been qualified in such state or is exempt from the qualification requirements imposed by such state or such qualification is otherwise not required. (j) In connection with any offer or sale of the Units, you agree and shall require any Selling Agent to agree to comply in all respects with statements set forth in the Prospectus and the Partnership Agreement and you agree and shall require any Selling Agent to agree not to make any statement inconsistent with the statements in the Prospectus or the Partnership Agreement. You further agree and shall require any Selling Agent to further agree that you shall not provide and shall require any Selling Agent not to provide any written information, statements or sales literature other than the Prospectus, the Managing General Partner's corporate profile and a brochure entitled "Atlas-Energy for the Nineties-Public #8 Ltd." (the corporate profile and the brochure collectively referred 5 to herein as the "Brochure"), and any supplements or amendments thereto unless approved in writing by the Managing General Partner. Further, you agree and shall require any Selling Agent to agree not to make any untrue or misleading statements of a material fact in connection with the Units. (k) You agree to use your best efforts in the solicitation and sale of said Units and to coordinate and supervise the efforts of the Selling Agents and you shall require any Selling Agent to agree to use its best efforts in the solicitation and sale of said Units, including insuring that the prospective purchasers meet the suitability requirements set forth in the Prospectus and the Subscription Agreement and properly execute the Subscription Agreement, which has been provided as Exhibit (I-B) to the Partnership Agreement, Exhibit (A) of the Prospectus, together with any additional forms provided in any supplement or amendment to the Prospectus, or otherwise provided to you by the Managing General Partner to be completed by prospective purchasers. Executed Subscription Agreements shall be delivered or mailed immediately to the Managing General Partner and must be received by the Managing General Partner at or prior to the Offering Termination Date. The Managing General Partner shall have the right to reject any subscription at any time for any reason without liability to it. Investor funds shall be transmitted as set forth in Section 16. (l) Although not anticipated, in the event you assist in any transfers of the Units, you shall comply, and you shall require any Selling Agent to comply, with the requirements of Rule 2810(b)(2)(B) and (b)(3)(D) of the NASD Conduct Rules. 7. STATE SECURITIES REGISTRATION. Incident to the offer and sale of the Units, the Managing General Partner will either use its best efforts in taking all necessary action and filing all necessary forms and documents deemed reasonable by it in order to qualify or register Units for sale under the securities laws of the states requested by you pursuant to Section 6 (i) hereof or use its best efforts in taking any necessary action and filing any necessary forms deemed reasonable by it which are required to obtain an exemption from qualification or registration in such states. Notwithstanding, the Managing General Partner may elect not to qualify or register Units in any state in which it deems such qualification or registration is not warranted for any reason in its sole discretion. The Managing General Partner and its counsel will inform you as to the jurisdictions in which the Partnership Units have been qualified for sale or are exempt under the respective securities or blue sky laws of such jurisdictions; but the Managing General Partner has not assumed and will not assume any obligation or responsibility as to your right or any Selling Agent's right to act as a broker-dealer with respect to the Units in any such jurisdiction. The Managing General Partner will provide to you and the Selling Agents for delivery to all offerees and purchasers and their representatives, any additional information, documents and instruments which the Managing General Partner deems necessary to comply with the rules, regulations and judicial and administrative interpretations in those states and jurisdictions for the offer and sale of the Units in such states. The Managing General Partner will file all post-offering forms, documents or materials and take all other actions required by the states in which the offer and sale of Units have been qualified or are exempt or in which the Units have been registered. However, the Managing General Partner shall not be required to take any actions, make any filings or prepare any documents necessary or required in connection with your status or any Selling Agent's status as a broker-dealer under the laws of such states. The Managing General Partner shall promptly provide you with copies of all applications, filings, correspondence, orders or other documents or instruments relating to any application for qualification, registration or other approval under applicable state or Federal securities laws for the offering. 8. EXPENSE OF SALE. The expenses in connection with the offer and sale of the Units shall be payable as set forth below. 6 (a) The Managing General Partner shall pay all expenses incident to the performance of its obligations hereunder, including the fees and expenses of the Managing General Partner's attorneys and accountants and all fees and expenses of registering or qualifying the Units for offer and sale in the states as set forth in Section 7 hereof, or obtaining exemptions therefrom, even if this offering is not successfully completed. (b) You shall pay all expenses incident to the performance of your obligations hereunder, including the formation and management of the selling group and the fees and expenses of your own counsel and accountants, even if this offering is not successfully completed. 9. CONDITIONS OF YOUR DUTIES. Your obligations provided herein shall be subject to the accuracy, as of the date hereof and at the applicable closing date (as if made at the applicable closing date), of the representations and warranties of the Managing General Partner herein and to the performance by the Managing General Partner of its obligations hereunder. 10. CONDITION OF THE MANAGING GENERAL PARTNER'S DUTIES. The Managing General Partner's obligations provided herein, including the duty to pay compensation as set forth in Section 4 hereof, shall be subject to the accuracy, as of the date hereof and at the applicable closing date (as if made at the applicable closing date) of your representations and warranties made herein, and to the performance by you of your obligations hereunder, and to the additional condition that the Managing General Partner shall have received, at or prior to the applicable closing date, the following documents: (a) a fully executed Subscription Agreement for each prospective purchaser; (b) certification to the Managing General Partner that you and each Selling Agent are registered as required by Section 6(d) and that such registrations were, during the term of the offering and through the applicable closing date, in full force and effect; and (c) a certificate from you, dated at the applicable closing date, to the effect that your representations and warranties made herein are true and correct as if made at the applicable closing date and that you have fulfilled all your obligations hereunder. 11. INDEMNIFICATION. (a) You and the Selling Agents shall indemnify and hold harmless the Managing General Partner, the Partnership and its attorneys, against any losses, claims, damages or liabilities, joint or several, to which such parties may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon your agreements with the Selling Agents or your breach of any of your duties and obligations, representations, or warranties under the terms or provisions of this Agreement and you and the Selling Agents shall reimburse such parties for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, claim, damage, liability or action. (b) The Managing General Partner shall indemnify and hold you and the Selling Agents harmless against any losses, claims, damages or liabilities, joint or several, to which you and the Selling Agents may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the Managing General Partner's breach of any of its duties and obligations, representations, or warranties under the terms or provisions of this Agreement and the Managing General Partner shall reimburse you and the Selling Agents for any legal or other expenses reasonably incurred in connection with investigating or defending such loss, claim, damage, liability or action. (c) The foregoing indemnity agreements shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls each indemnified party within the meaning of the Act. 7 (d) Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party. If any such action shall be brought against such indemnified party, it shall notify the indemnifying party of the commencement thereof, and the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified and indemnifying parties. After the indemnified party shall have received notice from the agreed upon counsel that the defense under this paragraph has been so assumed, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than with respect to the agreed upon counsel who assumed the defense thereof. 12. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements of the Managing General Partner and you herein or in certificates delivered pursuant hereto, and the indemnity agreements contained in Section 11 hereof, shall survive the delivery, execution and closing hereof, and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any person who controls you within the meaning of the Act, or by the Managing General Partner, or any of its officers, directors or any person who controls the Managing General Partner within the meaning of the Act, or any other indemnified party, and shall survive delivery of the Units hereunder. 13. TERMINATION. You shall have the right to terminate this agreement other than the indemnification provisions of Section 11 by giving notice as hereinafter specified any time at or prior to a closing date: (a) if the Managing General Partner shall have failed, refused, or been unable at or prior to the closing date, to perform any of its obligations hereunder; or (b) there has occurred an event materially and adversely affecting the value of the Units. If you elect to terminate this Agreement other than the indemnification provisions of Section 11, the Managing General Partner shall be promptly notified by you by telephone, telecopier or telegram, confirmed by letter. The Managing General Partner may terminate this Agreement other than the indemnification provisions of Section 11 for any reason by promptly giving notice to you by telephone, telecopier or telegram, confirmed by letter as hereinafter specified at or prior to a closing date. 14. NOTICES. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing, and if sent to you shall be mailed, delivered or telegraphed and confirmed to you at 393 Vanadium Road, Pittsburgh, Pennsylvania 15243 or if sent to the Managing General Partner or on behalf of the Partnership, at 311 Rouser Road, Moon Township, Pennsylvania 15108. 15. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership Subscription, the Managing General Partner and you and the Selling Agents agree that all subscribers shall be instructed to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA" as agent for the Partnership. If you receive a check, draft, or money order not conforming to the foregoing instructions you shall return such check, draft, or money order to the Selling Agent not later than the end of the next business day following its receipt by you. The Selling Agent shall then return such check, draft, or money order directly to the subscriber not later than the end of the next business day following its receipt from you. Checks, drafts, or money orders received by you or a Selling Agent which conform to the foregoing instructions shall be transmitted by you pursuant to Section 16 "Transmittal Procedures," below. 8 You represent that you have executed the Escrow Agreement and agree that you are bound by the terms of the Escrow Agreement executed by you, the Partnership and the Managing General Partner, a copy of which is attached hereto as Exhibit "A." 16. TRANSMITTAL PROCEDURES. You and each Selling Agent shall transmit received investor funds in accordance with the following procedures. For purposes of the following, the term Selling Agent shall also include you as Dealer-Manager where you receive subscriptions from investors. (a) Pending receipt of the minimum subscription of $1,000,000, the Selling Agents shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original executed Subscription Agreement to you, as Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by the Selling Agent. By the end of the next business day following receipt of the check, draft, or money order and Subscription Agreement by you as Dealer-Manager, you as Dealer- Manager shall transmit the check, draft or money order and a copy of the executed Subscription Agreement to the Escrow Agent, and the original Subscription Agreement and a copy of the check, draft or money order to the Managing General Partner. (b) Upon receipt by you as Dealer-Manager of notice from the Managing General Partner that the minimum Partnership Subscription has been received, the Managing General Partner, you and the Selling Agent agree that all subscribers thereafter may be instructed, in the Managing General Partner's sole discretion, to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd.". Thereafter, Selling Agents shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original Subscription Agreement to you as Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by the Selling Agent. By the end of the next business day following receipt of the check, draft, or money order and Subscription Agreement by you as Dealer-Manager, you as Dealer- Manager shall transmit the check, draft or money order and the original Subscription Agreement to the Managing General Partner. 17. PARTIES. This Agreement shall inure to the benefit of and be binding upon you, the Managing General Partner, and any respective successors and assigns. This Agreement shall also inure to the benefit of the indemnified parties, their successors and assigns. This Agreement is intended to be and is for the sole and exclusive benefit of the parties hereto, including the Partnership, and their respective successors and assigns, and the indemnified parties and their successors and assigns, and for the benefit of no other person, and no other person shall have any legal or equitable right, remedy or claim under or in respect of this Agreement. No purchaser of any of the Units from you shall be construed a successor or assign merely by reason of such purchase. 18. RELATIONSHIP. This Agreement shall not constitute you a partner of the Managing General Partner or the Partnership or any general partner thereof, nor render the Managing General Partner or the Partnership liable for any of your obligations except as otherwise provided herein. 19. EFFECTIVE DATE. This Agreement is made effective between the parties as of the date accepted by you as indicated by your signature hereto. 20. ENTIRE AGREEMENT WAIVER. This Agreement constitutes the entire agreement between the parties hereto and shall not be amended or modified in any way except by subsequent agreement executed in writing, and no party shall be liable or bound to the other by any agreement, except as specifically set forth herein. Any party hereto may waive, but only in writing, any term, condition, or requirement under this Agreement which is intended for its own benefit, and written waiver of any term or condition of this Agreement shall not operate as a waiver of any other breach of such term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or any other provision hereof. 9 If the foregoing correctly sets forth our understanding please so indicate in the space provided below for the purpose whereupon this letter shall constitute a binding agreement between us. Very truly yours, ATLAS RESOURCES, INC., a Pennsylvania corporation , 1999 By: - ----------------------------- ------------------------------------ Date Tony C. Banks, Senior Vice President and Chief Financial Officer ATTEST: - -------------------------------------- (SEAL) Secretary PARTNERSHIP ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. By: Atlas Resources, Inc., Managing General Partner , 1999 By: - ----------------------------- ------------------------------------ Date Tony C. Banks, Senior Vice President and Chief Financial Officer ATTEST: - -------------------------------------- (SEAL) Secretary DEALER-MANAGER BRYAN FUNDING, INC., a Pennsylvania corporation , 1999 By: - ----------------------------- ------------------------------------ Date Richard G. Bryan, Jr., President ATTEST: - -------------------------------------- (SEAL) Secretary 10 EXHIBIT "A" ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. ESCROW AGREEMENT THIS AGREEMENT, made to be effective as of the _____ day of _________, 1999, by and between Atlas Resources, Inc., a Pennsylvania corporation (the "Managing General Partner"), Anthem Securities, Inc., a Pennsylvania corporation ("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation ("Bryan Funding"), collectively Anthem and Bryan Funding are referred to as the "Dealer-Manager", Atlas-Energy for the Nineties-Public #8 Ltd., a Pennsylvania limited partnership (the "Partnership") and National City Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent (the "Escrow Agent"). WITNESSETH: WHEREAS, the Partnership intends to offer publicly for sale to qualified investors (the "Investors") up to 1,800 limited partnership interests in the Partnership (the "Units"); and WHEREAS, each Investor will be required to pay his subscription in full upon subscribing ($10,000 per Unit, however, the Managing General Partner, in its discretion, may accept one-half Unit [$5,000] subscriptions, with larger subscriptions permitted in $1,000 increments), by check, draft or money order except that the broker-dealers and the Managing General Partner, its officers and directors and Affiliates, may purchase Units net of the Dealer-Manager fee, the commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses set forth below, and registered investment advisors and their clients may purchase Units subject to the Dealer-Manager fee but net of the commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses set forth below (the "Subscription Proceeds"); and WHEREAS, the Managing General Partner and Anthem have executed an agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem will solicit subscriptions for Units in all states other than Minnesota and New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts" basis for the remaining Units on behalf of the Managing General Partner and the Partnership and pursuant to which Anthem has been authorized to select certain members in good standing of the National Association of Securities Dealers, Inc. ("NASD") to participate in the offering of the Units ("Selling Agents"); and WHEREAS, the Managing General Partner and Bryan Funding have executed an agreement ("Bryan Funding Dealer-Manager Agreement") pursuant to which Bryan Funding will solicit subscriptions for Units in the states of Minnesota and New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts" basis for the remaining Units on behalf of the Managing General Partner and the Partnership and pursuant to which Bryan Funding has been authorized to select certain members in good standing of the NASD to participate in the offering of the Units ("Selling Agents"); and WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding Dealer-Manager Agreement, collectively referred to as the "Dealer-Manager Agreement", provide for compensation to the Dealer-Manager which includes, but is not limited to: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% sales commission; (iii) a .5% reimbursement of marketing expenses; and (iv) reimbursement of the Selling Agents' bona fide accountable due diligence expenses of .5% per Unit to participate in the offering of the Units, all or a portion of which compensation will be reallowed to the Selling Agents and wholesalers; and 1 WHEREAS, under the terms of the Dealer-Manager Agreement the Subscription Proceeds are required to be held in escrow subject to the receipt and acceptance by the Managing General Partner of the minimum Subscription Proceeds of $1,000,000, excluding any optional subscription by the Managing General Partner, its officers, directors and Affiliates; and WHEREAS, no subscriptions to the Partnership will be accepted after receipt of the maximum Subscription Proceeds of $18,000,000 or December 31, 1999, whichever event occurs first (the "Offering Termination Date"); and WHEREAS, to facilitate compliance with the terms of the Dealer-Manager Agreement, the Managing General Partner and the Dealer-Manager desire to have the Subscription Proceeds deposited with the Escrow Agent and the Escrow Agent desires to hold the Subscription Proceeds pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: 1. APPOINTMENT OF ESCROW AGENT. The Managing General Partner, the Partnership and the Dealer-Manager hereby appoint Escrow Agent as the escrow agent to receive and to hold the Subscription Proceeds deposited with Escrow Agent by the Dealer-Manager and the Selling Agents pursuant hereto and Escrow Agent hereby agrees to serve in such capacity during the term and based upon the provisions hereof. 2. DEPOSIT OF SUBSCRIPTION PROCEEDS. Pending receipt of the minimum Subscription Proceeds of $1,000,000, the Dealer-Manager shall deposit the Subscription Proceeds of each Investor with the Escrow Agent and shall deliver to the Escrow Agent a copy of the Subscription Agreement of such Investor. Payment for each subscription for Units shall be in the form of a check made payable to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA". The Escrow Agent shall deliver a receipt to Anthem and the Managing General Partner for each deposit of Subscription Proceeds made pursuant hereto by Anthem, and to Bryan Funding and the Managing General Partner for each deposit of subscription proceeds made pursuant hereto by Bryan Funding. 3. INVESTMENT OF SUBSCRIPTION PROCEEDS. The Subscription Proceeds shall be deposited in an interest bearing account maintained by the Escrow Agent entitled "Armada Government Fund." Subscription Proceeds may be temporarily invested by the Escrow Agent only in income producing short-term, highly liquid investments secured by the United States government where there is appropriate safety of principal, such as U.S. Treasury Bills. The interest earned shall be added to the Subscription Proceeds and disbursed in accordance with the provisions of paragraph 4 or 5, as the case may be. 4. DISTRIBUTION OF SUBSCRIPTION PROCEEDS. If the Escrow Agent: (a) receives written notice from an authorized officer of the Managing General Partner that at least the minimum aggregate subscriptions of $1,000,000 have been received and accepted by the Managing General Partner; and (b) determines that Subscription Proceeds for at least $1,000,000 as determined by the Managing General Partner have cleared the banking system and are good; 2 the Escrow Agent shall promptly release and distribute to the Managing General Partner such escrowed Subscription Proceeds which have cleared the banking system and are good plus any interest paid and investment income earned on such Subscription Proceeds while held by the Escrow Agent in an escrow account. Any remaining Subscription Proceeds, plus any interest paid and investment income earned on such Subscription Proceeds while held by the Escrow Agent in an escrow account shall be promptly released and distributed to the Managing General Partner by the Escrow Agent as such Subscription Proceeds clear the banking system and become good. 5. SEPARATE PARTNERSHIP ACCOUNT. During the continuation of the offering after the Partnership is funded with cleared Subscription Proceeds of at least $1,000,000 and the Escrow Agent receives the notice described in Paragraph 4 of this Agreement, and prior to the Offering Termination Date, any additional Subscription Proceeds may be deposited by the Dealer-Manager directly in a separate Partnership account which shall not be subject to the terms of this Agreement. 6. DISTRIBUTIONS TO SUBSCRIBERS. (a) In the event that the Partnership will not be funded as contemplated because less than the minimum aggregate subscriptions of $1,000,000 have been received and accepted by the Managing General Partner by twelve p.m. (noon), local time, on December 31, 1999, or for any other reason, the Managing General Partner shall so notify the Escrow Agent, whereupon the Escrow Agent promptly shall distribute to each Investor a refund check made payable to such Investor in an amount equal to the Subscription Proceeds of such Investor, plus any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account as calculated by the Managing General Partner. (b) In the event that a subscription for Units submitted by an Investor is rejected by the Managing General Partner for any reason after the Subscription Proceeds relating to such subscription have been deposited with the Escrow Agent, then the Managing General Partner promptly shall notify the Escrow Agent of such rejection, and the Escrow Agent shall promptly distribute to such Investor a refund check made payable to such Investor in an amount equal to the Subscription Proceeds of such Investor, plus any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account as calculated by the Managing General Partner. 7. COMPENSATION AND EXPENSES OF ESCROW AGENT. The Managing General Partner shall be solely responsible for and shall pay the compensation of the Escrow Agent for its services hereunder, as provided in Appendix 1 to this Agreement and made a part hereof, and the charges, expenses (including any reasonable attorneys' fees), and other out-of-pocket expenses incurred by the Escrow Agent in connection with the administration of the provisions of this Agreement. The Escrow Agent shall have no lien on the Subscription Proceeds deposited in an escrow account unless and until the Partnership is funded with cleared Subscription Proceeds of at least $1,000,000 and the Escrow Agent receives the notice described in Paragraph 4 of this Agreement, at which time the Escrow Agent shall have, and is hereby granted, a prior lien upon any property, cash, or assets held hereunder, with respect to its unpaid compensation and nonreimbursed expenses, superior to the interests of any other persons or entities. 8. DUTIES OF ESCROW AGENT. The Escrow Agent shall not be obligated to accept any notice, make any delivery, or take any other action under this Escrow Agreement unless the notice or request or demand for delivery or other action is in writing and given or made by the party given the right or charged with 3 the obligation under this Escrow Agreement to give the notice or to make the request or demand. In no event shall the Escrow Agent be obligated to accept any notice, request, or demand from anyone other than the Managing General Partner or the Dealer-Manager. 9. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any damages, or have any obligations other than the duties prescribed herein in carrying out or executing the purposes and intent of this Escrow Agreement; provided, however, that nothing herein contained shall relieve the Escrow Agent from liability arising out of its own willful misconduct or gross negligence. Escrow Agent's duties and obligations under this Agreement shall be entirely administrative and not discretionary. Escrow Agent shall not be liable to any party hereto or to any third party as a result of any action or omission taken or made by Escrow Agent in good faith. The parties to this Agreement will indemnify Escrow Agent, hold Escrow Agent harmless, and reimburse Escrow Agent from, against and for, any and all liabilities, costs, fees and expenses (including reasonable attorney's fees) Escrow Agent may suffer or incur by reason of its execution and performance of this Agreement. In the event any legal questions arise concerning Escrow Agent's duties and obligations hereunder, Escrow Agent may consult with its counsel and rely without liability upon written opinions given to it by such counsel. The Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, authorization, or other paper or document which the Escrow Agent, in good faith, believes to be genuine and what it purports to be. In the event that there shall be any disagreement between any of the parties to this Agreement, or between them or any of them and any other person, resulting in adverse claims or demands being made in connection with this Agreement, or in the event that Escrow Agent, in good faith, shall be in doubt as to what action it should take hereunder, Escrow Agent may, at its option, refuse to comply with any claims or demands on it or refuse to take any other action hereunder, so long as such disagreement continues or such doubt exists. In any such event, Escrow Agent shall not be or become liable in any way or to any person for its failure or refusal to act and Escrow Agent shall be entitled to continue to so refrain from acting until the dispute is resolved by the parties involved. National City Bank of Pennsylvania is acting solely as Escrow Agent and is not a party to, nor has it reviewed or approved any agreement or matter of background related to this Agreement, other than this Agreement itself, and has assumed, without investigation, the authority of the individuals executing this Agreement to be so authorized on behalf of the party or parties involved. 10. RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow Agent may resign as such following the giving of thirty days' prior written notice to the other parties hereto. Similarly, the Escrow Agent may be removed and replaced following the giving of thirty days' prior written notice to the Escrow Agent by the other parties hereto. In either event, the duties of the Escrow Agent shall terminate thirty days after the date of such notice (or as of such earlier date as may be mutually agreeable); and the Escrow Agent shall then deliver the balance of the Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account) in its possession to a successor escrow agent as shall be appointed by the other parties hereto as evidenced by a written notice filed with the Escrow Agent. If the other parties hereto are unable to agree upon a successor or shall have failed to appoint a successor prior to the expiration of thirty days following the date of the notice of resignation or removal, the then acting Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor escrow agent or other appropriate relief; and any such resulting appointment shall be binding upon all of the parties hereto. Upon acknowledgment by any successor escrow agent of the receipt of the then remaining balance of the Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account), the then acting Escrow Agent shall be fully released and relieved of all duties, responsibilities, and obligations under this Agreement. 4 11. TERMINATION. This Agreement shall terminate and the Escrow Agent shall have no further obligation with respect hereto upon the occurrence of the distribution of all Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account) as contemplated hereby or upon the written consent of all the parties hereto. 12. NOTICE. Any notices or instructions, or both, to be given hereunder shall be validly given if set forth in writing and mailed by certified mail, return receipt requested, as follows: IF TO THE ESCROW AGENT: National City Bank of Pennsylvania Attention: Mr. Robert Mialki, Vice President Corporate Trust Department 300 Fourth Avenue Pittsburgh, Pennsylvania 15278-2331 Phone: (412) 644-8401 Facsimile: (412) 644-7971 IF TO THE MANAGING GENERAL PARTNER: Atlas Resources, Inc. 311 Rouser Road P.O. Box 611 Moon Township, Pennsylvania 15108 Attention: Tony C. Banks Phone: (412) 262-2830 Facsimile: (412) 262-2820 IF TO ANTHEM: Anthem Securities, Inc. 311 Rouser Road P.O. Box 926 Coraopolis, Pennsylvania 15108 Attention: Eric D. Koval Phone: (412) 262-1680 Facsimile: (412) 262-7430 IF TO BRYAN FUNDING: Bryan Funding, Inc. 393 Vanadium Road Pittsburgh, Pennsylvania 15243 Attention: Richard G. Bryan, Jr. Phone: (412) 276-9393 Facsimile: (412) 276-9396 5 Any party may designate any other address to which notices and instructions shall be sent by notice duly given in accordance herewith. 13. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement is binding upon and shall inure to the benefit of the undersigned and their respective heirs, successors and assigns. (c) This Agreement may be executed in multiple copies, each executed copy to serve as an original. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the day and year first above written. NATIONAL CITY BANK OF PENNSYLVANIA ATTEST: As Escrow Agent By: By: ----------------------------------- ------------------------------------ (Authorized Officer) (Authorized Officer) ATLAS RESOURCES, INC. ATTEST: A Pennsylvania corporation By: By: ----------------------------------- ------------------------------------ Secretary Tony C. Banks, Senior Vice President and Chief Financial Officer ANTHEM SECURITIES, INC. ATTEST: A Pennsylvania corporation By: By: ---------------------------------- ---------------------------------- Secretary Eric D. Koval, President BRYAN FUNDING, INC. ATTEST: A Pennsylvania corporation By: By: ---------------------------------- ---------------------------------- Secretary Richard G. Bryan, Jr., President ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. By: ATLAS RESOURCES, INC. ATTEST: Managing General Partner By: By: ----------------------------------- ------------------------------------ Secretary Tony C. Banks, Senior Vice President and Chief Financial Officer 6 APPENDIX I TO ESCROW AGREEMENT COMPENSATION FOR SERVICES OF ESCROW AGENT Escrow Agent annual fee per year or any part thereof $3,000.00 7 EXHIBIT "B" SELLING AGENT AGREEMENT WITH BRYAN FUNDING, INC. TO: ________________________________ RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. Gentlemen: Atlas Resources, Inc. ("Atlas"), is the Managing General Partner in a Pennsylvania limited partnership named Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"). The Units of Participation (the "Units") and the offering are described in the enclosed Prospectus dated __________, 1999 (the "Prospectus"). Prospectuses relating to the Units have been furnished to you with this Agreement. Our firm, Bryan Funding, Inc. (the "Dealer-Manager"), has entered into a Dealer-Manager Agreement for sales in the states of Minnesota and New Hampshire, a copy of which has been furnished to you and is incorporated herein by reference, with the Managing General Partner and the Partnership under which the Dealer-Manager has agreed to form a group of National Association of Securities Dealers, Inc. (the "NASD") member firms (the "Selling Agents"), who will obtain subscriptions to the Partnership in the states of Minnesota and New Hampshire on a "best efforts" basis pursuant to the Securities Act of 1933, as amended (the "Act"), and the provisions of the Prospectus. You are invited to become one of the Selling Agents, on a non-exclusive basis. By your acceptance below you will have agreed to act in that capacity and to use your best efforts, in accordance with the following terms and conditions, to solicit such subscriptions in the states of Minnesota and New Hampshire. This Agreement, however, shall not be construed to prohibit your participation as a selling agent in other states in addition to Minnesota and New Hampshire pursuant to a duly executed selling agent agreement entered into by you and any other authorized "Dealer-Manager" for the Partnership. 1. REPRESENTATIONS AND WARRANTIES OF SELLING AGENT. You, as a Selling Agent, represent and warrant to the Dealer-Manager that: (a) You are a corporation duly organized, validly existing and in good standing under the laws of the state of your formation or of any jurisdiction to the laws of which you are subject, with all requisite power and authority to enter into this Agreement and to carry out your obligations hereunder. (b) This Agreement when accepted and approved will be duly authorized, executed and delivered by you and will be a valid and binding agreement on your part in accordance with its terms. (c) The consummation of the transactions contemplated by this Agreement and the Prospectus will not result in any breach of any of the terms or conditions of, or constitute a default under your Articles of Incorporation, Bylaws, any indenture, agreement or other instrument to which you are a party, or violate any order applicable to you of any court or any federal or state regulatory body or administrative agency having jurisdiction over you or over your affiliates. (d) You are duly registered pursuant to the provisions of the Securities Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a member in good standing of the NASD. You are duly registered as a broker-dealer in the states in which you are required to be registered in order to 1 carry out your obligations as contemplated by this Agreement and the Prospectus. You agree to maintain all the foregoing registrations in good standing throughout the term of the offer and sale of the Units and you agree to comply with all statutes and other requirements applicable to you as a broker-dealer pursuant to those registrations. (e) Pursuant to your appointment as a Selling Agent, you shall comply with all the provisions of the Act, insofar as the Act applies to your activities hereunder. Further, you shall not engage in any activity which would cause the offer and/or sale of Units not to comply with the Act, the Act of 1934 and the applicable rules and regulations of the Securities and Exchange Commission (the "Commission"), the applicable state securities laws and regulations, this Agreement and the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and Rules 2810(b)(2) and (b)(3), which provide as follows: Sec. (b)(2) SUITABILITY (A) A member or person associated with a member shall not underwrite or participate in a public offering of a direct participation program unless standards of suitability have been established by the program for participants therein and such standards are fully disclosed in the prospectus and are consistent with the provisions of subparagraph (B) of this section. (B) In recommending to a participant the purchase, sale or exchange of an interest in a direct participation program, a member or person associated with a member shall: (i) have reasonable grounds to believe, on the basis of information obtained from the participant concerning his investment objectives, other investments, financial situation and needs, and any other information known by the member or associated person, that: (a) the participant is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the prospectus, including the tax benefits where they are a significant aspect of the program; (b) the participant has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and (c) the program is otherwise suitable for the participant; and (ii) maintain in the files of the member documents disclosing the basis upon which the determination of suitability was reached as to each participant. (C) Notwithstanding the provisions of subparagraphs (A) and (B) hereof, no member shall execute any transaction in a direct participation program in a discretionary account without prior written approval of the transaction by the customer. Sec. (b)(3) DISCLOSURE (A) Prior to participating in a public offering of a direct participation program, a member or person associated with a member shall have reasonable grounds to believe, based on information made available to him by the sponsor through a prospectus or other materials, that all material facts are adequately and accurately disclosed and provide a basis for evaluating the program. 2 (B) In determining the adequacy of disclosed facts pursuant to subparagraph (A) hereof, a member or person associated with a member shall obtain information on material facts relating at a minimum to the following, if relevant in view of the nature of the program: (i) items of compensation; (ii) physical properties; (iii) tax aspects; (iv) financial stability and experience of the sponsor; (v) the program's conflicts and risk factors; and (vi) appraisals and other pertinent reports. (C) For purposes of subparagraphs (A) and (B) hereof, a member or person associated with a member may rely upon the results of an inquiry conducted by another member or members, provided that: (i) the member or person associated with a member has reasonable grounds to believe that such inquiry was conducted with due care; (ii) the results of the inquiry were provided to the member or person associated with a member with the consent of the member or members conducting or directing the inquiry; and (iii) no member that participated in the inquiry is a sponsor of the program or an affiliate of such sponsor. (D) Prior to executing a purchase transaction in a direct participation program, a member or person associated with a member shall inform the prospective participant of all pertinent facts relating to the liquidity and marketability of the program during the term of investment. (f) You have received copies of the Prospectus relating to the Units and you have relied only on the statements contained in the Prospectus and not on any other statements whatsoever, either written or oral, with respect to the details of the offering of Units. (g) You agree that you shall not place any advertisement or other solicitation with respect to the Units (including without limitation any material for use in any newspaper, magazine, radio or television commercial, telephone recording, motion picture, or other public media) without the prior written approval of the Managing General Partner, and without the prior written approval of the form and content thereof by the Commission, the NASD and the securities authorities of the states where such advertisement or solicitation is to be circulated. Any such advertisements or solicitations shall be at your expense. (h) If a supplement or amendment to the Prospectus is prepared and delivered to you by the Managing General Partner or the Dealer- Manager, you agree to distribute each such supplement or amendment to the Prospectus to every person who has previously received a copy of the Prospectus from you and you further agree to include such supplement or amendment in all future deliveries of any Prospectus. (i) In connection with any offer or sale of the Units, you agree to comply in all respects with statements set forth in the Prospectus and the Partnership Agreement and you agree not to make any statement inconsistent with the statements in the Prospectus or the Partnership Agreement and you further agree that you shall not provide any written information, statements or sales literature 3 other than the Prospectus, the Managing General Partner's corporate profile and a brochure entitled "Atlas-Energy for the Nineties-Public #8 Ltd." (the corporate profile and the brochure collectively referred to herein as the "Brochure"), and any supplements or amendments thereto unless approved in writing by the Managing General Partner. Further, you agree not to make any untrue or misleading statements of a material fact in connection with the Units. (j) You agree to use your best efforts in the solicitation and sale of said Units, including insuring that the prospective purchasers meet the suitability requirements set forth in the Prospectus and the Subscription Agreement and properly execute the Subscription Agreement, which has been provided as Exhibit (I-B) to the Partnership Agreement, Exhibit (A) to the Prospectus, together with any additional forms provided in any supplement or amendment to the Prospectus, or otherwise provided to you by the Managing General Partner or the Dealer-Manager to be completed by prospective purchasers. The Managing General Partner shall have the right to reject any subscription at any time for any reason without liability to it. Investor funds and executed Subscription Agreements shall be transmitted as set forth in Section 11. (k) You shall comply with the requirements of Rules 2810(b)(2)(B) and (b)(3)(D) of the NASD Conduct Rules. 2. COMMISSIONS. (a) Subject to the receipt of the minimum required Partnership Subscription of $1,000,000, the Dealer-Manager is entitled to receive from the Partnership a 7.0% Sales Commission, a .5% reimbursement of marketing expenses and a .5% reimbursement of the Selling Agents' bona fide accountable due diligence expenses based on the aggregate amount of all Unit subscriptions to the Partnership secured by the Dealer-Manager or the selling group formed by the Dealer-Manager and accepted by the Managing General Partner. Subject to the terms and conditions herein set forth, including the Dealer-Manager's receipt from you of the documentation required of you in Section 1 of this Agreement, the Dealer-Manager agrees to pay you a 7.0% cash commission, a .5% reimbursement of marketing expenses and a .5% reimbursement of your bona fide accountable due diligence expenses, of subscriptions sold by you and accepted by the Managing General Partner, within seven business days after the Dealer-Manager has received the commissions and reimbursements on such subscriptions. The Dealer-Manager is entitled to receive its commissions and reimbursements within five business days after at least the minimum Partnership Subscription ($1,000,000) has been received and accepted by the Managing General Partner and the subscription proceeds have been released to the Managing General Partner from the escrow account, and approximately every two weeks thereafter until the Offering Termination Date, which is December 31, 1999, or when the maximum Partnership Subscription of $18,000,000 is received if earlier. The balance will be paid to the Dealer- Manager within 14 business days after the Offering Termination Date. (b) Notwithstanding anything herein to the contrary, you agree to waive payment of your commissions and reimbursements as set forth above in (a) until the Dealer-Manager is in receipt of the related amounts owed to it pursuant to the Dealer-Manager Agreement, and the Dealer-Manager's liability for such amounts hereunder is limited solely to the proceeds of the related amounts owed to it pursuant to the Dealer-Manager Agreement. (c) The Partnership will not commence operations unless subscriptions for at least $1,000,000 have been secured by December 31, 1999. If this amount is not secured, nothing will be payable to you and all funds advanced by purchasers will be returned to them with interest earned, if any. 4 (d) Notwithstanding the foregoing, Registered Investment Advisors and their clients may subscribe to Units without paying the Sales Commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses, and their Agreed Subscriptions will be subject only to the 2.5% Dealer-Manager fee. Also, the Managing General Partner, its officers and directors and Affiliates, and the Selling Agents may subscribe to Units without paying the Dealer-Manager fee, Sales Commissions and the reimbursement of marketing expenses and the Selling Agents' bona fide accountable due diligence expenses. 3. STATE SECURITIES REGISTRATION. The Managing General Partner may elect not to qualify or register Units in any state in which it deems such qualification or registration is not warranted for any reason in its sole discretion. Upon application to the Dealer-Manager you will be informed as to the jurisdictions in which the Units have been qualified for sale or are exempt under the respective securities or "Blue Sky" laws of such jurisdictions. Notwithstanding, the Dealer-Manager, the Partnership and the Managing General Partner have not assumed and will not assume any obligation or responsibility as to your right to act as a broker-dealer with respect to the Units in any such jurisdiction. 4. EXPENSE OF SALE. The expenses in connection with the offer and sale of the Units shall be payable as set forth below. (a) The Dealer-Manager shall pay all expenses incident to the performance of its obligations hereunder, including the fees and expenses of its attorneys and accountants, even if this offering is not successfully completed. (b) You shall pay all expenses incident to the performance of your obligations hereunder, including the fees and expenses of your own counsel and accountants, even if this offering is not successfully completed. 5. CONDITIONS OF YOUR DUTIES. Your obligations provided herein, as of the date hereof and at the applicable closing date, shall be subject to the performance by the Dealer-Manager of its obligations hereunder and to the performance by the Managing General Partner of its obligations under the Dealer-Manager Agreement. 6. CONDITIONS OF DEALER-MANAGER'S DUTIES. The Dealer-Manager's obligations provided herein, including the duty to pay compensation as set forth in Section 2 hereof, shall be subject to the accuracy, as of the date hereof and at the applicable closing date (as if made at the applicable closing date) of your representations and warranties made herein, and to the performance by you of your obligations hereunder, and to the additional condition that the Dealer-Manager shall have received, at or prior to the applicable closing date, the following documents: (a) a fully executed Subscription Agreement for each prospective purchaser; (b) certification to the Dealer-Manager that you are registered as required by Section 1(d) and that such registrations were, during the term of the offering and through the applicable closing date, in full force and effect; and (c) a certificate from you, dated at the applicable closing date, to the effect that your representations and warranties made herein are true and correct as if made at the applicable closing date and that you have fulfilled all your obligations hereunder. 5 7. INDEMNIFICATION. (a) You shall indemnify and hold harmless the Dealer-Manager, the Managing General Partner, the Partnership and its attorneys, against any losses, claims, damages or liabilities, joint or several, to which such parties may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon your breach of any of your duties and obligations, representations, or warranties under the terms or provisions of this Agreement and you shall reimburse such parties for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, claim, damage, liability or action. (b) The Dealer-Manager shall indemnify and hold you harmless against any losses, claims, damages or liabilities, joint or several, to which you may become subject, under the Act, the Act of 1934 or otherwise insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the Dealer-Manager's breach of any of its duties and obligations, representations, or warranties under the terms or provisions of this Agreement and the Dealer-Manager shall reimburse you for any legal or other expenses reasonably incurred in connection with investigating or defending such loss, claim, damage, liability or action. (c) The foregoing indemnity agreements shall extend upon the same terms and conditions to, and shall inure to the benefit of, each person, if any, who controls each indemnified party within the meaning of the Act. (d) Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party. If any such action shall be brought against such indemnified party, it shall notify the indemnifying party of the commencement thereof, and the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified and indemnifying parties. After the indemnified party shall have received notice from the agreed upon counsel that the defense under this paragraph has been so assumed, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than with respect to the agreed upon counsel who assumed the defense thereof. 8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements of the Dealer-Manager and you herein or in certificates delivered pursuant hereto, and the indemnity agreements contained in Section 7 hereof, shall survive the delivery, execution and closing hereof, and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of you or any person who controls you within the meaning of the Act, or by the Dealer-Manager, or any of its officers, directors or any person who controls the Dealer- Manager within the meaning of the Act, or any other indemnified party, and shall survive delivery of the Units hereunder. 9. TERMINATION. You shall have the right to terminate this Agreement, other than the indemnification provisions of Section 7, by giving notice as hereinafter specified any time at or prior to a closing date: (a) if the Dealer-Manager shall have failed, refused, or been unable at or prior to the closing date, to perform any of its obligations hereunder; or (b) there has occurred an event materially and adversely affecting the value of the Units. 6 If you elect to terminate this Agreement, other than the indemnification provisions of Section 7, the Dealer-Manager shall be promptly notified by you by telephone, telecopier, facsimile or telegram, confirmed by letter. The Dealer-Manager may terminate this Agreement, other than the indemnification provisions of Section 7, for any reason and at any time by promptly giving notice to you by telephone, telecopier or telegram, confirmed by letter. 10. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership Subscription of $1,000,000 (100 Units), the Dealer-Manager and you agree that all subscribers shall be instructed to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA" as agent for the Partnership. If you receive a check, draft, or money order not conforming to the foregoing instructions you shall return such check, draft, or money order directly to the subscriber not later than the end of the next business day following its receipt from the subscriber. If the Dealer-Manager receives a check, draft, or money order not conforming to the foregoing instructions the Dealer-Manager shall return such check, draft, or money order to you not later than the end of the next business day following its receipt by the Dealer-Manager and you shall then return such check, draft, or money order directly to the subscriber not later than the end of the next business day following its receipt from the Dealer-Manager. Checks, drafts, or money orders received by you which conform to the foregoing instructions shall be transmitted by you pursuant to Section 11 "Transmittal Procedures," below. You agree that you are bound by the terms of the Escrow Agreement, a copy of which is attached to the Dealer-Manager Agreement as Exhibit "A". 11. TRANSMITTAL PROCEDURES. You shall transmit received investor funds in accordance with the following procedures. (a) Pending receipt of the minimum Partnership Subscription of $1,000,000, you shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original executed Subscription Agreement to the Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by you. By the end of the next business day following receipt of the check, draft, or money order and Subscription Agreement by the Dealer-Manager, the Dealer-Manager shall transmit the check, draft, or money order and a copy of the executed Subscription Agreement to the Escrow Agent, and the original Subscription Agreement and a copy of the check, draft, or money order to the Managing General Partner. (b) Upon receipt by you of notice from the Managing General Partner or the Dealer-Manager that the minimum Partnership Subscription has been received, you agree that all subscribers thereafter may be instructed, in the Managing General Partner's sole discretion, to make their checks, drafts, or money orders payable solely to "Atlas Public #8 Ltd.". Thereafter, you shall promptly, upon receipt of any and all checks, drafts, and money orders received from prospective purchasers of Units, transmit same together with the original Subscription Agreement to the Dealer-Manager by the end of the next business day following receipt of the check, draft, or money order by you. By the end of the next business day following receipt of the check, draft, or money order and subscription documents by the Dealer-Manager, the Dealer-Manager shall transmit the check, draft, or money order and the original Subscription Agreement to the Managing General Partner. 12. PARTIES. This Agreement shall inure to the benefit of and be binding upon you, the Dealer-Manager, and any respective successors and assigns. This Agreement shall also inure to the benefit of the indemnified parties, their successors and assigns. This Agreement is intended to be and is for the sole and exclusive benefit of the parties hereto, and their respective successors and assigns, and the indemnified parties and their successors and assigns, and for the benefit of no other person. No other person shall have any legal 7 or equitable right, remedy or claim under or in respect of this Agreement. No purchaser of any of the Units from you shall be construed a successor or assign merely by reason of such purchase. 13. RELATIONSHIP. You are not authorized to hold yourself out as agent of the Dealer-Manager, the Managing General Partner, the Partnership or of any other Selling Agent, nor shall this Agreement constitute you a partner of the Managing General Partner, the Dealer-Manager, the Partnership or of any other Selling Agent, or render the Managing General Partner, the Dealer-Manager, the Partnership or any general partner thereof, or any other Selling Agent liable for any of your obligations. 14. EFFECTIVE DATE. This Agreement is made effective between the parties as of the date accepted by you as indicated by your signature hereto. 15. ENTIRE AGREEMENT, WAIVER. This Agreement constitutes the entire agreement between the parties hereto and shall not be amended or modified in any way except by subsequent agreement executed in writing, and no party shall be liable or bound to the other by any agreement, except as specifically set forth herein. Any party hereto may waive, but only in writing, any term, condition, or requirement under this Agreement which is intended for its own benefit, and written waiver of any term or condition of this Agreement shall not operate as a waiver of any other breach of such term or condition, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or any other provision hereof. 16. NOTICES. Any communications from you shall be in writing addressed to the Dealer-Manager at 393 Vanadium Road, Pittsburgh, Pennsylvania 15243. Any notice from the Dealer-Manager to you shall be deemed to have been duly given if mailed, faxed or telegraphed to you at your address shown below. 17. ACCEPTANCE. Please confirm your agreement to become a Selling Agent under the terms and conditions set forth above by signing and returning the enclosed duplicate copy of this Agreement to us at the address set forth above. Sincerely, , 1999 BRYAN FUNDING, INC. - --------------------------- ATTEST: By: - ------------------------------------- ------------------------------------- (SEAL) Secretary Richard G. Bryan, Jr., President ACCEPTANCE: We accept your invitation to become a Selling Agent under all the terms and conditions stated in the above Agreement and confirm that all the statements set forth in the above Agreement are true and correct. We hereby acknowledge receipt of the Prospectuses and Brochures and a copy of the Dealer-Manager Agreement referred to above. , 1999 - --------------------------------- -------------------------------------- a(n) corporation, ---------------------- ATTEST: By: - ------------------------------------- ------------------------------------- (SEAL) Secretary , President -------------------------- ------------------------------------- (Address) ------------------------------------- ------------------------------------- 8 EX-5 4 EXHIBIT 5 OPINION OF KUNZMAN & BOLLINGER, INC. AS TO THE LEGALITY OF THE UNITS REGISTERED HEREBY KUNZMAN & BOLLINGER, INC. ATTORNEYS-AT-LAW 5100 N. BROOKLINE, SUITE 600 OKLAHOMA CITY, OKLAHOMA 73112 Telephone (405) 942-3501 Fax (405) 942-3527 Exhibit 5 August 31, 1999 Atlas Resources, Inc. 311 Rouser Road Moon Township, Pennsylvania 15108 RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. Gentlemen: You have requested our opinion on certain issues pertaining to Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership") formed under the Limited Partnership Laws of Pennsylvania. Atlas Resources, Inc., a Pennsylvania corporation, is the Managing General Partner of the Partnership. BASIS OF OPINION Our opinion is based on our review of a certain Registration Statement on Form SB-2 and any amendments thereto, including any post-effective amendments, for the Partnership (the "Registration Statement") as filed with the Securities and Exchange Commission (the "Commission"), including the Certificate of Limited Partnership for the Partnership, the Prospectus and the Amended and Restated Certificate and Agreement of Limited Partnership for the Partnership (the "Partnership Agreement"), the Subscription Agreement and the Drilling and Operating Agreement contained therein, and on our review of such other documents and records as we have deemed necessary to review for purposes of rendering our opinion. As to various questions of fact material to our opinion which we have not independently verified, we have relied on certain representations made to us by officers and directors of the Managing General Partner. In rendering the opinion herein provided, we have assumed the due authorization, execution and delivery of all relevant documents by all parties thereto. OPINION Based upon the foregoing, we are of the opinion that: The Units, when sold in accordance with the Registration Statement as amended at the time it becomes effective with the Commission, will be legally issued pursuant to Pennsylvania partnership law, fully paid and nonassessable except as described in the Registration Statement with respect to the Investor General Partner Units. We hereby consent to the use of this opinion as an Exhibit to the Registration Statement and to the reference to this firm in the Prospectus included in the Registration Statement. Yours very truly, /s/ KUNZMAN & BOLLINGER, INC. KUNZMAN & BOLLINGER, INC. EX-8 5 EXHIBIT 8 OPINION OF KUNZMAN & BOLLINGER, INC. AS TO TAX MATTERS KUNZMAN & BOLLINGER, INC. ATTORNEYS-AT-LAW 5100 N. BROOKLINE, SUITE 600 OKLAHOMA CITY, OKLAHOMA 73112 Telephone (405) 942-3501 Fax (405) 942-3527 Exhibit 8 August 31, 1999 Atlas Resources, Inc. 311 Rouser Road Moon Township, Pennsylvania 15108 RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. Gentlemen: You have requested our opinions on the material federal income tax issues pertaining to Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"), a limited partnership formed under the Revised Uniform Limited Partnership Act of Pennsylvania. We have acted as Special Counsel to the Partnership with respect to the offering of interests in the Partnership. Atlas Resources, Inc. will be the Managing General Partner of the Partnership. Terms used and not otherwise defined herein have the respective meanings assigned to them in the Amended and Restated Certificate and Agreement of Limited Partnership for the Partnership (the "Partnership Agreement"). BASIS OF OPINION Our opinions are based upon our review of: (1) a certain Registration Statement on Form SB-2 for Atlas-Energy for the Nineties-Public #8 Ltd., as originally filed with the United States Securities and Exchange Commission, and amendments thereto, including the Prospectus, the Drilling and Operating Agreement and the Partnership Agreement included as exhibits to the Prospectus; and (2) such corporate records, certificates, agreements, instruments and other documents as we have deemed relevant and necessary to review as a basis for the opinions herein provided. Our opinions also are based upon our interpretation of existing statutes, rulings and regulations, as presently interpreted by judicial and administrative bodies. Such statutes, rulings, regulations and interpretations are subject to change; and such changes could result in different tax consequences than those set forth herein and could render our opinions inapplicable. In rendering our opinions, we have obtained from you certain representations with respect to the Partnership. Any material inaccuracy in such representations may render our opinions inapplicable. Included among such representations are the following: (1) The Partnership Agreement will be executed by the Managing General Partner and the Participants and recorded in all places required under the Revised Uniform Limited Partnership Act of Pennsylvania and any other applicable limited partnership act. Also, the Partnership will be operated in accordance with the terms of the Partnership Agreement, the Prospectus, and the Revised Uniform Limited Partnership Act of Pennsylvania and any other applicable limited partnership act. (2) No election will be made by the Partnership to be excluded from the application of the partnership provisions of the Code or classified as a corporation for tax purposes. (3) The Partnership will own legal title to the Working Interest in all of its Prospects. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 2 (4) The respective amounts that will be paid to the Managing General Partner or its Affiliates pursuant to the Partnership Agreement and the Drilling and Operating Agreement are amounts that would ordinarily be paid for similar services in similar transactions between Persons having no affiliation and dealing with each other "at arms' length." (5) The Partnership will elect to deduct currently all intangible drilling and development costs. (6) The Partnership will have a calendar year taxable year. (7) The Drilling and Operating Agreement and any amendments thereto entered into between the Managing General Partner and the Partnership will be duly executed and will govern the drilling and, if warranted, the completion and operation of the wells in accordance with its terms. (8) Based upon the Managing General Partner's experience and the intended operations of the Partnership, the Managing General Partner reasonably believes that the aggregate deductions, including depletion deductions, and 350% of the aggregate credits, if any, which will be claimed by the Managing General Partner and the Participants, will not during the first five tax years following the funding of the Partnership exceed twice the amounts invested by the Managing General Partner and the Participants, respectively. (9) The Investor General Partner Units will not be converted to Limited Partner interests before substantially all of the Partnership Wells have been drilled and completed. (10) The Units will not be traded on an established securities market. In rendering our opinions we have further assumed that: (1) each of the Participants has an objective to carry on the business of the Partnership for profit; (2) any amount borrowed by a Participant and contributed to the Partnership will not be borrowed from a Person who has an interest in the Partnership (other than as a creditor) or a related person, as defined in Section 465 of the Code, to a Person (other than the Participant) having such interest and the Participant will be severally, primarily, and personally liable for such amount; and (3) no Participant will have protected himself from loss for amounts contributed to the Partnership through nonrecourse financing, guarantees, stop loss agreements or other similar arrangements. We have considered the provisions of the American Bar Association's Revised Formal Opinion 346 and 31 CFR, Part 10, Section 10.33 (Treasury Department Circular No. 230) on tax law opinions and we believe that this opinion letter addresses all material federal income tax issues associated with an investment in the Units by an individual Participant who is a resident citizen of the United States. We consider material those issues which would affect significantly a Participant's deductions, credits or losses arising from his investment in the Units and with respect to which, under present law, there is a reasonable possibility of challenge by the IRS, or those issues which are expected to be of fundamental importance to a Participant but as to which a challenge by the IRS is unlikely. The issues which involve a reasonable possibility of challenge by the IRS have not been definitely resolved by statutes, rulings or regulations, as interpreted by judicial or administrative bodies. Our opinions are only predictions of the outcome of the particular tax issues being addressed. The results are not certain and depend on the Partnership's operations in the future. Also, as required by Circular 230 our opinions state whether it is "more likely than not" that the predicted outcome will occur. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 3 Accordingly, in our opinion it is more likely than not that the following tax treatment will be upheld if challenged by the IRS and litigated: (1) PARTNERSHIP CLASSIFICATION. The Partnership will be classified as a partnership for federal income tax purposes, and not as a corporation. The Partnership, as such, will not pay any federal income taxes, and all items of income, gain, loss and deduction of the Partnership will be reportable by the Partners in the Partnership. (See "- Partnership Classification.") (2) PASSIVE ACTIVITY CLASSIFICATION. The Partnership's oil and gas production income, together with gain, if any, from the disposition of its oil and gas properties, which is allocable to Limited Partners who are individuals, estates, trusts, closely held corporations or personal service corporations more likely than not will be characterized as income from a passive activity which may be offset by passive activity losses (as defined in Section 469(d) of the Code). Income or gain attributable to investments of working capital of the Partnership will be characterized as portfolio income, which cannot be offset by passive activity losses. Also, the passive activity limitations on losses under Section 469, more likely than not, will not be applicable to Investor General Partners prior to the conversion of Investor General Partner Units to Limited Partner interests. (See "- Limitations on Passive Activities.") (3) NOT A PUBLICLY TRADED PARTNERSHIP. Assuming that no more than 10% of the Units are transferred in any taxable year of the Partnership (other than in private transfers described in Treas. Reg. Section 1.7704-1(e)), it is more likely than not that the Partnership will not be treated as a "publicly traded partnership" under the Code. (See "- Limitations on Passive Activities.") (4) AVAILABILITY OF CERTAIN DEDUCTIONS. Business expenses, including payments for personal services actually rendered in the taxable year in which accrued, which are reasonable, ordinary and necessary and do not include amounts for items such as Lease acquisition costs, organization and syndication fees and other items which are required to be capitalized, are currently deductible. (See "-1999 Expenditures," "- Availability of Certain Deductions" and "- Partnership Organization and Syndication Fees.") (5) INTANGIBLE DRILLING AND DEVELOPMENT COSTS. Intangible drilling and development costs ("Intangible Drilling Costs") paid by the Partnership under the terms of bona fide drilling contracts for the Partnership's wells will be deductible in the taxable year in which the payments are made and the drilling services are rendered, assuming such amounts are fair and reasonable consideration and subject to certain restrictions summarized below (including basis and "at risk" limitations, and the passive activity loss limitation with respect to the Limited Partners). (See "- Intangible Drilling and Development Costs" and "- Drilling Contracts.") (6) PREPAYMENTS OF INTANGIBLE DRILLING AND DEVELOPMENT COSTS. Depending primarily on when the Partnership Subscription is received, the Managing General Partner anticipates that the Partnership will prepay in 1999 most, if not all, of the intangible drilling and development costs related to Partnership Wells the drilling of which will begin in 2000. Assuming that such amounts are fair and reasonable, and based in part on the factual assumptions set forth below, in our opinion such prepayments of intangible drilling and development costs will be deductible for the 1999 taxable year even though all Working Interest owners in the well may not be required to prepay such amounts, subject to certain restrictions summarized below (including basis and "at risk" limitations, and the passive activity loss limitation with respect to the Limited Partners). (See "- Drilling Contracts," below.) KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 4 The foregoing opinion is based in part on the assumptions that: (1) such costs will be required to be prepaid in 1999 for specified wells pursuant to the Drilling and Operating Agreement; (2) pursuant to the Drilling and Operating Agreement the drilling of the wells is required to be, and actually is, begun on or before March 30, 2000, and the wells are continuously drilled thereafter until completed, if warranted, or abandoned; and (3) the required prepayments are not refundable to the Partnership and any excess prepayments are applied to intangible drilling and development costs of substitute wells. (7) DEPLETION ALLOWANCE. The greater of cost depletion or percentage depletion will be available to qualified Participants as a current deduction against the Partnership's oil and gas production income, subject to certain restrictions summarized below. (See "- Depletion Allowance.") (8) MACRS. The Partnership's reasonable equipment costs for depreciable property placed in the wells which cannot be deducted immediately ("Tangible Costs") will be eligible for cost recovery deductions under the Modified Accelerated Cost Recovery System ("MACRS"), generally over a seven year "cost recovery period," subject to certain restrictions summarized below (including basis and "at risk" limitations, and the passive activity loss limitation in the case of Limited Partners). (See "- Depreciation - Modified Accelerated Cost Recovery System ("MACRS").") (9) TAX BASIS OF PARTICIPANT'S INTEREST. Each Participant's adjusted tax basis in his Partnership interest will be increased by his total Agreed Subscription. (See "- Tax Basis of Participants' Interests.") (10) AT RISK LIMITATION ON LOSSES. Each Participant initially will be "at risk" to the full extent of his Agreed Subscription. (See "- 'At Risk' Limitation For Losses.") (11) ALLOCATIONS. Assuming the effect of the allocations of income, gain, loss and deduction (or items thereof) set forth in the Partnership Agreement, including the allocations of basis and amount realized with respect to oil and gas properties, is substantial in light of a Participant's tax attributes that are unrelated to the Partnership, it is more likely than not that such allocations will have "substantial economic effect" and will govern each Participant's distributive share of such items to the extent such allocations do not cause or increase deficit balances in the Participants' Capital Accounts. (See "- Allocations.") (12) AGREED SUBSCRIPTION. No gain or loss will be recognized by the Participants on payment of their Agreed Subscriptions. (13) PROFIT MOTIVE AND NO TAX SHELTER REGISTRATION. Based on the Managing General Partner's representation that the Partnership will be conducted as described in the Prospectus, it is more likely than not that the Partnership will possess the requisite profit motive under Section 183 of the Code and is not required to register with the IRS as a tax shelter. (See "- Disallowance of Deductions Under Section 183 of the Code" and "- Lack of Registration as a Tax Shelter.") (14) IRS ANTI-ABUSE RULE. Based on the Managing General Partner's representation that the Partnership will be conducted as described in the Prospectus, it is more likely than not that the Partnership will not be subject to the anti-abuse rule set forth in Treas. Reg. Section 1.701-2. (See "-Penalties and Interest - IRS Anti-Abuse Rule.") (15) OVERALL EVALUATION OF TAX BENEFITS. Based on our conclusion that substantially more than half of the material tax benefits of the Partnership, in terms of their financial impact on a typical Participant, more likely than not will be realized if challenged by the IRS, it is our opinion that the tax benefits of the Partnership, in the aggregate, which are a significant feature of an investment in the Partnership by a typical original Participant more likely than not will be realized as contemplated by the Prospectus. The discussion in the Prospectus under the caption "TAX ASPECTS," insofar as it contains statements of federal income tax law, is correct in all material respects. (See "Tax Aspects" in the Prospectus.) KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 5 * * * * * * * * * * * * * Our opinion is limited to the opinions expressed above. With respect to some of the matters discussed in this opinion, existing law provides little guidance. Although our opinions express what we believe a court would probably conclude if presented with the applicable issues, there is no assurance that the IRS will not challenge our interpretations or that such a challenge would not be sustained in the courts and cause adverse tax consequences to the Participants. It should be noted that taxpayers bear the burden of proof to support claimed deductions and opinions of counsel are not binding on the IRS or the courts. IN GENERAL The following is a summary of all of the material federal income tax consequences of the purchase, ownership and disposition of Investor General Partners Units and Limited Partner Units which will apply to typical Participants. However, there is no assurance that the present laws or regulations will not be changed and adversely affect a Participant. The IRS may challenge the deductions claimed by the Partnership or a Participant, or the taxable year in which such deductions are claimed, and no guaranty can be given that any such challenge would not be upheld if litigated. The practical utility of the tax aspects of any investment depends largely on each Participant's particular income tax position in the year in which items of income, gain, loss, deduction or credit are properly taken into account in computing his federal income tax liability. In addition, except as otherwise noted, different tax considerations may apply to foreign persons, corporations partnerships, trusts and other prospective Participants which are not treated as individuals for federal income tax purposes. Also, the treatment of the tax attributes of the Partnership may vary among Participants. ACCORDINGLY, EACH PARTICIPANT IS URGED TO SEEK QUALIFIED, PROFESSIONAL ASSISTANCE IN THE PREPARATION OF HIS FEDERAL, STATE AND LOCAL TAX RETURNS WITH SPECIFIC REFERENCE TO HIS OWN TAX SITUATION. PARTNERSHIP CLASSIFICATION For federal income tax purposes, a partnership is not a taxable entity but rather a conduit through which all items of income, gain, loss, deduction, credit and tax preference are passed through to the partners. Thus, the partners, rather than the partnership, receive any tax deductions and credits, as well as the income, from the operations engaged in by the partnership. Under the regulations, a business entity with two or more members is classified for federal tax purposes as either a corporation or a partnership. Treas. Reg. Section 301.7701-2(a). The term corporation includes a business entity organized under a State statute which describes the entity as a corporation, body corporate, body politic, joint-stock company or joint-stock association. Treas. Reg. Section 301.7701-2(b). The Partnership was formed under the Pennsylvania Revised Uniform Limited Partnership Act which describes the Partnership as a "partnership." Consequently, the Partnership will automatically be classified as a partnership unless it elects to be classified as a corporation. In this regard, the Managing General Partner has represented that no election for the Partnership to be classified as a corporation will be filed with the IRS. LIMITATIONS ON PASSIVE ACTIVITIES Under the passive activity rules, all income of a taxpayer who is subject to the rules is categorized as: (i) income from passive activities such as limited partners' interests in a business; (ii) active income (e.g., salary, bonuses, etc.); or (iii) portfolio income. "Portfolio income" consists of (i) interest, dividends and royalties (unless earned in the ordinary course of a trade or business); and (ii) gain or loss not derived in the ordinary course of a trade or business on the sale of property that generates portfolio income or is held for investment. Losses generated by "passive activities" can offset only passive income and cannot be applied against active income or portfolio income. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 6 The passive activity rules apply to individuals, estates, trusts, closely held C corporations (generally, if five or fewer individuals own directly or indirectly more than 50% of the stock) and personal service corporations (other than corporations where the owner-employees together own less than 10% of the stock). However, a closely held C corporation (other than a personal service corporation) may use passive losses and credits to offset taxable income of the company figured without regard to passive income or loss or portfolio income. Passive activities include any trade or business in which the taxpayer does not materially participate on a regular, continuous, and substantial basis. Under the Partnership Agreement, Limited Partners will not have material participation in the Partnership and generally will be subject to the passive activity rules. Investor General Partners also do not materially participate in the Partnership. However, because Investor General Partners do not have limited liability under the Revised Uniform Limited Partnership Act of Pennsylvania until they are converted to Limited Partners, their deductions generally will not be treated as passive deductions prior to the conversion. (See " - -Conversion from Investor General Partner to Limited Partner", below.) However, if an Investor General Partner invests in the Partnership through an entity which limits his liability (e.g., a limited partnership or S corporation), he will be treated the same as a Limited Partner and generally will be subject to the passive activity limitations. Contractual limitations on the liability of Investor General Partners under the Partnership Agreement (e.g., insurance, limited indemnification, etc.) will not cause Investor General Partners to be subject to the passive activity limitations. Deductions disallowed by the at-risk limitation on losses under Section 465 of the Code become subject to the passive loss limitation only if the taxpayer's at-risk amount increases in future years. A taxpayer's at-risk amount is reduced by losses allowed under Section 465 even if the losses are suspended by the passive loss limitation. (See "- 'At Risk' Limitation For Losses," below.) Similarly, a taxpayer's basis is reduced by deductions even if the deductions are disallowed under the passive loss limitation. (See "- Tax Basis of Participants' Interests," below.) Suspended losses and credits may be carried forward (but not back) and used to offset future years' passive activity income. A suspended loss (but not a credit) is allowed in full when the entire interest is sold to an unrelated third party in a taxable transaction and in part upon the disposition of substantially all of the passive activity if the suspended loss as well as current gross income and deductions can be allocated to the part disposed of with reasonable certainty. In an installment sale, passive losses become available in the same ratio that gain recognized each year bears to the total gain on the sale. Any suspended losses remaining at a taxpayer's death are allowed as deductions on his final return, subject to a reduction to the extent the basis of the property in the hands of the transferee exceeds the property's adjusted basis immediately prior to the decedent's death. If a taxpayer makes a gift of his entire interest in a passive activity, the donee's basis is increased by any suspended losses and no deductions are allowed. If the interest is later sold at a loss, the donee's basis is limited to the fair market value on the date the gift was made. PUBLICLY TRADED PARTNERSHIP RULES. Net losses and credits of a partner from each publicly traded partnership are suspended and carried forward to be netted against income from that publicly traded partnership only. In addition, net losses from other passive activities may not be used to offset net income from a publicly traded partnership. I.R.C. Sections 469(k)(2) and 7704. However, in the opinion of Special Counsel it is more likely than not that the Partnership will not be characterized as a publicly traded partnership under the Code, so long as no more than 10% of the Units are transferred in any taxable year of the Partnership (other than in private transactions described in Treas. Reg. Section 1.7704-1(e)). CONVERSION FROM INVESTOR GENERAL PARTNER TO LIMITED PARTNER. Investor General Partner Units will be converted to Limited Partner interests after substantially all of the Partnership Wells have been drilled and completed, which the Managing General Partner anticipates will be in the late summer of 2000. Thereafter, each Investor General Partner will KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 7 have limited liability as a limited partner under the Revised Uniform Limited Partnership Act of Pennsylvania with respect to his interest in the Partnership. Concurrently, the Investor General Partner will become subject to the passive activity limitations. However, because an Investor General Partner will have a non-passive loss in 1999 as a result of the Partnership's deduction for Intangible Drilling Costs, his net income from Partnership Wells following the conversion will continue to be characterized as non-passive income which cannot be offset with passive losses. An Investor General Partner's conversion of his Partnership interest into a Limited Partner interest should not have any other adverse tax consequences unless the Investor General Partner's share of any Partnership liabilities is reduced as a result of the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157 and Prop. Reg. Section 1.1254-2. A reduction in a partner's share of liabilities is treated as a constructive distribution of cash to the partner, which reduces the basis of the partner's interest in the partnership and is taxable to the extent it exceeds such basis. TAXABLE YEAR The Partnership intends to adopt a calendar year taxable year. I.R.C. Section 706(b). The taxable year of the Partnership is important to a prospective Participant because the Partnership's deductions, income and other items of tax significance must be taken into account in computing the Participant's taxable income for his taxable year within or with which the Partnership's taxable year ends. The tax year of a partnership generally must be the tax year of one or more of its partners who have an aggregate interest in partnership profits and capital of greater than 50%. 1999 EXPENDITURES The Managing General Partner anticipates that all of the Partnership's subscription proceeds will be expended in 1999 and that the income and deductions generated pursuant thereto will be reflected on the Participants' federal income tax returns for that period. (See "Capitalization and Source of Funds and Use of Proceeds" and "Participation in Costs and Revenues" in the Prospectus.) Depending primarily on when the Partnership Subscription is received, the Managing General Partner anticipates that the Partnership will prepay in 1999 most, if not all, of its intangible drilling and development costs for wells the drilling of which will begin in 2000. The deductibility in 1999 of such advance payments cannot be guaranteed. (See "- Drilling Contracts," below.) AVAILABILITY OF CERTAIN DEDUCTIONS Ordinary and necessary business expenses, including reasonable compensation for personal services actually rendered, are deductible in the year incurred. Treasury Regulation Section 1.162-7(b)(3) provides that reasonable compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. The Managing General Partner has represented to Special Counsel that the amounts payable to the Managing General Partner and its Affiliates, including the amounts paid to the Managing General Partner or its Affiliates as general drilling contractor, are the amounts which would ordinarily be paid for similar services in similar transactions. (See "-Drilling Contracts," below.) The fees paid to the Managing General Partner and its Affiliates will not be currently deductible to the extent it is determined that they are in excess of reasonable compensation, are properly characterized as organization or syndication fees, other capital costs such as the acquisition cost of the Leases, or not "ordinary and necessary" business expenses, or the services were rendered in tax years other than the tax year in which such fees were deducted by the Partnership. (See "- Partnership Organization and Syndication Fees," below.) In the event of an audit, payments to the Managing General Partner and its Affiliates by the Partnership will be scrutinized by the IRS to a greater extent than payments to an unrelated party. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 8 INTANGIBLE DRILLING AND DEVELOPMENT COSTS Assuming a proper election and subject to the passive activity loss rules in the case of Limited Partners, each Participant will be entitled to deduct his share of intangible drilling and development costs which include items which do not have salvage value, such as labor, fuel, repairs, supplies and hauling necessary to the drilling of a well. Treas. Reg. Section 1.612-4(a). (See "Participation in Costs and Revenues" in the Prospectus and "- Limitations on Passive Activities," above.) These deductions are subject to recapture as ordinary income rather than capital gain upon the disposition of the property or a Participant's interest in the Partnership. (See "- Sale of the Properties" and "- Disposition of Partnership Interests," below.) Also, productive-well intangible drilling and development costs may subject a Participant to an alternative minimum tax in excess of regular tax unless an election is made to deduct them on a straight-line basis over a 60 month period. (See "- Minimum Tax - Tax Preferences," below.) In preparing the Partnership's informational tax returns, the Managing General Partner will allocate Partnership costs among Intangible Drilling Costs, Tangible Costs, Direct Costs, Administrative Costs, Organization and Offering Costs and Operating Costs based upon guidance from advisors to the Managing General Partner. The Managing General Partner has allocated approximately 76.12% of the footage price paid by the Partnership for a completed well in the Appalachian Basin to intangible drilling and development costs ("Intangible Drilling Costs") which are charged 100% to the Participants under the Partnership Agreement. The IRS could challenge the characterization of costs claimed by the Managing General Partner to be deductible intangible drilling and development costs and recharacterize such costs as some other item which may be non-deductible however, this would have no effect on the allocation and payment of such costs under the Partnership Agreement. In the case of corporations, other than S corporations, which are "integrated oil companies," the amount allowable as a deduction for intangible drilling and development costs in any taxable year under Section 263(c) of the Code is reduced by 30%. I.R.C. Section 291(b)(1). Integrated oil companies are (i) those taxpayers who directly or through a related person engage in the retail sale of oil or gas and whose gross receipts for the calendar year from such activities exceed $5,000,000, or (ii) those taxpayers and related persons who have refinery production in excess of 50,000 barrels on any day during the taxable year. Amounts disallowed as a current deduction are allowable as a deduction ratably over the 60-month period beginning with the month in which the costs are paid or incurred. DRILLING CONTRACTS The Partnership will enter into the Drilling and Operating Agreement with the Managing General Partner or its Affiliates, as a third-party general drilling contractor, to drill and complete the Partnership's Development Wells on a footage basis of $37.81 per foot for each well that is drilled and completed in the Appalachian Basin, and at a competitive rate for wells, if any, drilled in other areas of the United States. Under the footage drilling contracts for wells situated in the Mercer County area of the Appalachian Basin, the Managing General Partner anticipates that it will have reimbursement of general and administrative overhead of $3,600 per well and a profit of approximately 15% per well assuming the well is drilled to 5,950 feet. However, the actual cost of the drilling of the wells may be more or less than the estimated amount, due primarily to the uncertain nature of drilling operations. The Managing General Partner believes the Drilling and Operating Agreement is at competitive rates in the proposed areas of operation. Nevertheless, the amount of the profit realized by the Managing General Partner under the drilling contract, if any, could be challenged by the IRS as unreasonable and disallowed as a deductible intangible drilling and development cost. (See "- Intangible Drilling and Development Costs," above, and "Proposed Activities" and "Compensation" in the Prospectus.) Depending primarily on when the Partnership Subscription is received, the Managing General Partner anticipates that the Partnership will prepay in 1999 most, if not all, of the intangible drilling and development costs for drilling activities that will begin in 2000. In KELLER V. COMMISSIONER, 79 T.C. 7 (1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court applied a two-part test for the current deductibility of prepaid intangible drilling and development KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 9 costs: (1) the expenditure must be a payment rather than a refundable deposit; and (2) the deduction must not result in a material distortion of income taking into substantial consideration the business purpose aspects of the transaction. The drilling partnership in KELLER entered into footage and daywork drilling contracts which permitted it to terminate the contracts at any time without default by the driller, and receive a return of the prepaid amounts less amounts earned by the driller. The Tax Court found that the right to receive, by unilateral action, a refund of the prepayments on such footage and daywork drilling contracts rendered such prepayments deposits instead of payments. Therefore, the prepayments were held to be nondeductible in the year they were paid to the extent they had not been earned by the driller. The Tax Court further found that the drilling partnership failed to show a convincing business purpose for prepayments under the footage and daywork drilling contracts. The drilling partnership in KELLER also entered into turnkey drilling contracts which permitted it to stop work under the contract at any time and apply the unearned balance of the prepaid amounts to another well to be drilled on a turnkey basis. The Tax Court found that such prepayments constituted "payments" and not nondeductible deposits, despite the right of substitution. Further, the Tax Court noted that the turnkey drilling contracts obligated "the driller to drill to the contract depth for a stated price regardless of the time, materials or expenses required to drill the well," thereby locking in prices and shifting the risks of drilling from the drilling partnership to the driller. Since the drilling partnership, a cash basis taxpayer, received the benefit of the turnkey obligation in the year of prepayment, the Tax Court found that the amounts prepaid on turnkey drilling contracts clearly reflected income and were deductible in the year of prepayment. In LEONARD T. RUTH, TC Memo 1983-586, a drilling program entered into nine separate turnkey contracts with a general contractor (the parent corporation of the drilling program's corporate general partner), to drill nine program wells. Each contract identified the prospect to be drilled, stated the turnkey price, and required the full price to be paid in 1974. The program paid the full turnkey price to the general contractor on December 31, 1974; the receipt of which was found by the court to be significant in the general contractor's financial planning. The program had no right to receive a refund of any of the payments. The actual drilling of the nine wells was subcontracted by the general contractor to independent contractors who were paid by the general contractor in accordance with their individual contracts. The drilling of all wells commenced in 1975 and all wells were completed that year. The amount paid by the general contractor to the independent driller for its work on the nine wells was approximately $365,000 less than the amount prepaid by the program to the general contractor. The program claimed a deduction for intangible drilling and development costs in 1974. The IRS challenged the timing of the deduction, contending that there was no business purpose for the payments in 1974, that the turnkey arrangements were merely "contracts of convenience" designed to create a tax deduction in 1974, and that the turnkey contracts constituted assets having a life beyond the taxable year and that to allow a deduction for their entire costs in 1974 distorted income. The Tax Court, relying on KELLER, held that the program could deduct the full amount of the payments in 1974. The court found that the program entered into turnkey contracts, paid a premium to secure the turnkey obligations, and thereby locked in the drilling price and shifted the risks of drilling to the general contractor. Further, the court found that by signing and paying the turnkey obligation, the program got its bargained-for benefit in 1974, therefore the deduction of the payments in 1974 clearly reflected income. The Partnership will attempt to comply with the guidelines set forth in KELLER with respect to prepaid intangible drilling and development costs. The Drilling and Operating Agreement will require the Partnership to prepay in 1999 intangible drilling and development costs for specified wells the drilling of which will begin in 2000. Although the Partnership is not required to prepay completion costs of a well prior to the time a decision has been made to complete the well, the Managing General Partner anticipates that all Partnership Wells will be required to be completed before an evaluation can be made as to their potential productivity. Prepayments should not result in a loss of current deductibility where there is a legitimate business purpose for the required prepayment, the contract is not merely a sham to control the timing of the deduction and there is an enforceable contract of economic substance. The Drilling and Operating Agreement will require the Partnership to prepay the intangible drilling and development costs of the wells in order to enable the Operator to commence site preparation for the wells, obtain suitable subcontractors at the then current prices and insure the availability of equipment and materials. Under the Drilling and Operating KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 10 Agreement excess prepaid amounts, if any, will not be refundable to the Partnership but will be applied to intangible drilling and development costs to be incurred in drilling substitute wells. Under KELLER, such a provision for substitute wells should not result in the prepayments being characterized as refundable deposits. The likelihood that prepayments will be challenged by the IRS on the grounds that there is no business purpose for the prepayment is increased in the event prepayments are not required with respect to 100% of the Working Interest. It is possible that less than 100% of the Working Interest will be acquired by the Partnership in one or more wells and prepayments may not be required of all holders of the Working Interest. However, in the view of Special Counsel, a legitimate business purpose for the required prepayments may exist under the guidelines set forth in KELLER, even though prepayment is not required, or actually received, by the drilling contractor with respect to a portion of the Working Interest. In addition to the foregoing, a current deduction for prepaid intangible drilling and development costs is available only if the drilling of the wells begins before the close of the 90th day after the close of the taxable year. The Managing General Partner will attempt to cause the drilling of all prepaid Partnership Wells to begin on or before March 30, 2000. However, the drilling of any Partnership Well may be delayed due to circumstances beyond the control of the Partnership or the drilling contractor. Such circumstances include the unavailability of drilling rigs, weather conditions, inability to obtain drilling permits or access right to the drilling site, or title problems. Due to the foregoing factors no guaranty can be given that the drilling of all prepaid Partnership Wells required by the Drilling and Operating Agreement to begin on or before March 30, 2000, will actually begin by that date. In that event, deductions claimed in 1999 for prepaid intangible drilling and development costs would be disallowed and deferred to the 2000 taxable year. No assurance can be given that on audit the IRS would not disallow the current deductibility of a portion or all of any prepayments of intangible drilling and development costs under the Partnership's drilling contracts, thereby decreasing the amount of deductions allocable to the Participants for the current taxable year, or that such a challenge would not ultimately be sustained. In the event of disallowance, the deduction would be available in the year the work is actually performed. DEPLETION ALLOWANCE Proceeds from the sale of the Partnership's oil and gas production will constitute ordinary income. A certain portion of such income will not be taxable by virtue of the depletion allowance which permits the deduction from gross income for federal income tax purposes of either the percentage depletion allowance or the cost depletion allowance, whichever is greater. These deductions are subject to recapture as ordinary income rather than capital gain upon the disposition of the property or a Participant's interest in the Partnership. (See "- Sale of the Properties" and "- Disposition of Partnership Interests," below.) Cost depletion for any year is determined by dividing the adjusted tax basis for the property by the total units of gas or oil expected to be recoverable therefrom and then multiplying the resultant quotient by the number of units actually sold during the year. Cost depletion cannot exceed the adjusted tax basis of the property to which it relates. Percentage depletion generally is available to taxpayers other than integrated oil companies. (See "- Intangible Drilling and Development Costs.") Percentage depletion is based on the Participant's share of the Partnership's gross income from its oil and gas properties. Generally, percentage depletion is available with respect to 6 million cubic feet of average daily production of natural gas or 1,000 barrels of average daily production of domestic crude oil. Taxpayers who have both oil and gas production may allocate the production limitation between such production. The rate of percentage depletion is 15%. However, percentage depletion for marginal production increases 1% (up to a maximum increase of 10%) for each whole dollar that the domestic wellhead price of crude oil for the immediately preceding year is less than $20 per barrel (without adjustment for inflation). The term "marginal production" includes oil and gas produced from a domestic stripper well property, which is defined as any property which produces a daily average of 15 or less equivalent barrels of oil (90 MCF of natural gas) per producing well on the property in the calendar year. The KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 11 rate of percentage depletion for marginal production in 1999 is 24%. (See the model decline curve included in the United Energy Development Consultants, Inc. Geologic Evaluation in "Proposed Activities - Information Regarding Currently Proposed Wells" in the Prospectus.) Also, percentage depletion may not exceed 100% of the net income from each oil and gas property before the deduction for depletion and is limited to 65% of the taxpayer's taxable income for a year computed without regard to percentage depletion, net operating loss carry-backs and capital loss carry-backs. With respect to marginal properties, however, the 100% of net income property limitation is suspended for 1999. AVAILABILITY OF THE PERCENTAGE DEPLETION ALLOWANCE AND LIMITATIONS THEREON MUST BE COMPUTED SEPARATELY FOR EACH PARTICIPANT AND NOT BY THE PARTNERSHIP, OR FOR PARTICIPANTS AS A WHOLE. POTENTIAL PARTICIPANTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE AVAILABILITY OF THE PERCENTAGE DEPLETION ALLOWANCE TO THEM. DEPRECIATION - MODIFIED ACCELERATED COST RECOVERY SYSTEM ("MACRS") Tangible Costs and the related depreciation deductions are allocated and charged under the Partnership Agreement 43.75% to the Managing General Partner and 56.25% to the Participants. These deductions are subject to recapture as ordinary income rather than capital gain upon the disposition of the property or a Participant's interest in the Partnership. (See "- Sale of the Properties" and "- Disposition of Partnership Interests," below.) The cost of most equipment placed in service by the Partnership will be recovered through depreciation deductions over a seven year cost recovery period using the 200% declining balance method, with a switch to straight-line to maximize the deduction. I.R.C. Section 168(c). An alternative depreciation system is used to compute the depreciation preference subject to the alternative minimum tax (using the 150% declining balance method, switching to straight-line, for most personal property). (See "- Minimum Tax - Tax Preferences," below.) All property assigned to the 7-year class is treated as placed in service (or disposed of) in the middle of the year and in the case of a short tax year the MACRS deduction is prorated on a 12-month basis. The half-year convention effectively adds another year onto the cost recovery period. No distinction is made between new and used property and salvage value is disregarded. LEASEHOLD COSTS AND ABANDONMENT The costs of acquiring oil and gas Lease interests, together with the related cost depletion deduction and any abandonment loss, are allocated under the Partnership Agreement 100% to the Managing General Partner, which will contribute the Leases to the Partnership as a part of its Capital Contribution. TAX BASIS OF PARTICIPANTS' INTERESTS A Participant's distributive share of Partnership loss is allowable only to the extent of the adjusted basis of the Participant's interest in the Partnership at the end of the Partnership's taxable year. The adjusted basis for federal income tax purposes of a Participant's interest in the Partnership will be adjusted (but not below zero) for any gain or loss to the Participant from a disposition by the Partnership of an oil or gas property, and will be increased by: (i) his cash subscription payment; (ii) his share, if any, of Partnership debt; and (iii) his share of Partnership income. (See "-Partnership Borrowings," below.) The adjusted basis of a Participant's interest in the Partnership will be reduced by: (i) his share of Partnership losses; (ii) his share of Partnership expenditures that are not deductible in computing its taxable income and are not properly chargeable to capital account; (iii) his deduction for depletion for any partnership oil and gas property (but not below zero); and (iv) cash distributions from the Partnership to him. The reduction in a Participant's share of Partnership liabilities, if any, is considered a cash distribution. Participants will not be personally liable on any Partnership loans; however, Investor General Partners will be liable for other obligations of the Partnership. (See "Risk Factors - Special Risks of the Partnership - If You Choose to Invest as a General Partner for the Tax Benefits, Then You Have a Greater Risk Than a Limited Partner" in the Prospectus.) KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 12 Should cash distributions exceed the tax basis of the Participant's interest in the Partnership, taxable gain would result to the extent of the excess. (See "-Distributions From a Partnership," below.) "AT RISK" LIMITATION FOR LOSSES Subject to the limitations on "passive losses" generated by the Partnership in the case of Limited Partners and a Participant's basis in the Partnership, each Participant may use his share of the Partnership's losses to offset income from other sources. (See "- Limitations on Passive Activities" and "- Tax Basis of Participants' Interests," above.) However, any taxpayer (other than a corporation which is neither an S corporation nor a corporation in which five or fewer individuals own more than 50% of the stock) who sustains a loss in connection with his oil and gas activities may deduct the loss only to the extent of the amount he has "at risk" in such activities at the end of a taxable year. The "at risk" limitation applies to each activity engaged in and not on an aggregate basis for all activities. The amount "at risk" is limited to the amount of money and the adjusted basis of other property the taxpayer has contributed to the activity, and any amount he has borrowed with respect thereto for which he is personally liable or with respect to which he has pledged property other than property used in the activity; limited, however, to the net fair market value of his interest in the pledged property. I.R.C. Section 465(b)(1) and (2). However, amounts borrowed will not be considered "at risk" if the amounts are borrowed from any person who has an interest (other than as a creditor) in the activity or from a related person to a person, other than the taxpayer, having such an interest. "Loss" is defined as being the excess of allowable deductions for a taxable year from an activity over the amount of income actually received or accrued by the taxpayer during the year from the activity. The amount the taxpayer has "at risk" may not include the amount of any loss that the taxpayer is protected against through nonrecourse loans, guarantees, stop loss agreements, or other similar arrangements. The amount of any loss that is disallowed in any taxable year will be carried over to the first succeeding taxable year, to the extent a Participant is "at risk." Further, a taxpayer's "at risk" amount in subsequent taxable years with respect to the activity involved will be reduced by that portion of the loss which is allowable as a deduction. Participants' Agreed Subscriptions are funded by a payment of cash (usually "at risk"). Since income, gains, losses, and distributions of the Partnership affect the amount considered to be "at risk," the extent to which a Participant is "at risk" must be determined annually. Previously allowed losses must be recaptured, I.E., included in gross income, if the "at risk" amount is reduced below zero. The amount included in income under this recapture provision may be deducted in the first succeeding taxable year to the extent of any increase in the amount which the Participant has "at risk." DISTRIBUTIONS FROM A PARTNERSHIP Generally, a cash distribution from a partnership to a partner in excess of the adjusted basis of the partner's interest in the partnership immediately before the distribution is treated as gain from the sale or exchange of his interest in the partnership to the extent of the excess. I.R.C. Section 731(a)(1). No loss is recognized by the partners on these types of distributions. I.R.C. Section 731(a)(2). No gain or loss is recognized by the Partnership on these types of distributions. I.R.C. Section 731(b). If property is distributed by the Partnership to the Managing General Partner and the Participants, certain basis adjustments may be made by the Partnership, the Managing General Partner and the Participants. [Partnership Agreement, Section 5.04(d).] I.R.C. Sections 732, 733, 734, and 754. Other distributions of cash, disproportionate distributions of property, and liquidating distributions may result in taxable gain or loss. (See "- Disposition of Partnership Interests" and "- Termination of a Partnership," below.) SALE OF THE PROPERTIES Generally, net long-term capital gains of a noncorporate taxpayer on the sale of assets held more than a year are taxed at a maximum rate of 20% or 10% if they would be subject to tax at a rate of 15% if they were not KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 13 eligible for long-term capital gains treatment. These rates also apply for purposes of the alternative minimum tax. (See "- Minimum Tax - Tax Preferences," below.) The annual capital loss limitation for noncorporate taxpayers is the amount of capital gains plus the lesser of $3,000, which is reduced to $1,500 for married persons filing separate returns, or the excess of capital losses over capital gains. Gains and losses from sales of oil and gas properties held for more than twelve months generally will be treated as a long-term capital gain, while a net loss will be an ordinary deduction, except to the extent of depreciation recapture on equipment and recapture of any intangible drilling and development costs, depletion deductions and certain losses on previous sales, if any, of the Partnership's assets as discussed below. Other gains and losses on sales of oil and gas properties will generally result in ordinary gains or losses. Intangible drilling and development costs that are incurred in connection with an oil and gas property may be recaptured as ordinary income when the property is disposed of by the Partnership. Generally, the amount recaptured is the lesser of: (1) the aggregate amount of expenditures which have been deducted as intangible drilling and development costs with respect to the property and which (but for being deducted) would be reflected in the adjusted basis of the property; or (2) the excess of (i) the amount realized (in the case of a sale, exchange or involuntary conversion); or (ii) the fair market value of the interest (in the case of any other disposition) over the adjusted basis of the property. I.R.C. Section 1254(a). (See "- Intangible Drilling and Development Costs," above.) In addition, the deductions for depletion which reduced the adjusted basis of the property are subject to recapture as ordinary income, and all income to the extent of MACRS deductions claimed by the Partnership. (See "- Depletion Allowance" and "- Depreciation - Modified Accelerated Cost Recovery System ("MACRS")," above.) DISPOSITION OF PARTNERSHIP INTERESTS The sale or exchange, including a repurchase by the Managing General Partner, of all or part of a Participant's interest in the Partnership held by him for more than twelve months will generally result in a recognition of long-term capital gain or loss. However, previous deductions for depreciation, depletion and intangible drilling and development costs may be recaptured as ordinary income rather than capital gain. (See "- Sale of the Properties," above.) In the event the interest is held for twelve months or less, such gain or loss will generally be short-term gain or loss. Also, a Participant's pro rata share of the Partnership's liabilities, if any, as of the date of the sale or exchange must be included in the amount realized. Therefore, the gain recognized may result in a tax liability greater than the cash proceeds, if any, from such disposition. In addition to gain from a passive activity, a portion of any gain recognized by a Limited Partner on the sale or other disposition of his interest in the Partnership will be characterized as portfolio income under Section 469 to the extent the gain is itself attributable to portfolio income, e.g. interest on investment of working capital. Treas. Reg. Section 1.469-2T(e)(3). (See "- Limitations on Passive Activities," above.) A gift of an interest in the Partnership may result in federal and/or state income tax and gift tax liability of the Participant, and interests in different partnerships do not qualify for tax-free like-kind exchanges. I.R.C. Section 1031(a)(2)(D). Other dispositions of a Participant's interest, including a repurchase of the interest by the Managing General Partner, may or may not result in recognition of taxable gain. However, no gain should be recognized by an Investor General Partner whose interest in the Partnership is converted to a Limited Partner interest so long as there is no change in his share of the Partnership's liabilities or certain Partnership assets as a result of the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 14 A Participant who sells or exchanges all or part of his interest in the Partnership is required by the Code to notify the Partnership within 30 days or by January 15 of the following year, if earlier. I.R.C. Section 6050K. After receiving the notice, the Partnership is required to make a return with the IRS stating the name and address of the transferor and the transferee and such other information as may be required by the IRS. The Partnership must also provide each person whose name is set forth in the return a written statement showing the information set forth on the return. If a partner sells or exchanges his entire interest in a partnership, the taxable year of the partnership will close with respect to that partner, but not the remaining partners, on the date of sale or exchange, with a proration of partnership items for the partnership's taxable year. If a partner sells less than his entire interest in a partnership, the partnership year will not terminate with respect to the selling partner, but his proportionate share of items of income, gain, loss, deduction and credit will be determined by taking into account his varying interests in the partnership during the taxable year. Deductions or credits generally may not be allocated to a partner acquiring an interest from a selling partner for a period prior to the purchaser's admission to the partnership. I.R.C. Section 706(d). NO DISPOSITION OF AN INTEREST IN THE PARTNERSHIP (INCLUDING REPURCHASE OF THE INTEREST BY THE MANAGING GENERAL PARTNER) SHOULD BE MADE BY ANY PARTICIPANT PRIOR TO CONSULTATION WITH HIS TAX ADVISOR. MINIMUM TAX - TAX PREFERENCES With limited exceptions, all taxpayers are subject to the alternative minimum tax. If the alternative minimum tax exceeds the regular tax, the excess is payable in addition to the regular tax. The alternative minimum tax is intended to insure that no one with substantial income can avoid tax liability by using deductions and credits. The alternative minimum tax accomplishes this objective by not treating favorably certain items that are treated favorably for purposes of the regular tax, including the deductions for intangible drilling and development costs and accelerated depreciation. Generally, the alternative minimum tax rate for individuals is 26% on alternative minimum taxable income up to $175,000, $87,500 for married individuals filing separate returns, and 28% thereafter. See "- Sale of the Properties," above, for the tax rates on capital gains. Individual tax preferences may include, but are not limited to: accelerated depreciation, intangible drilling and development costs, incentive stock options and passive activity losses. The exemption amount is $45,000 for married couples filing jointly and surviving spouses, $33,750 for single filers, and $22,500 for married persons filing separately, estates and trusts. These exemption amounts are reduced by 25% of the alternative minimum taxable income in excess of (1) $150,000 for joint returns and surviving spouses; (2) $75,000 for estates, trusts and married persons filing separately, and (3) $112,500 for single taxpayers. Married individuals filing separately must increase alternative minimum taxable income by the lesser of: (i) 25% of the excess of alternative minimum taxable income over $165,000; or (ii) $22,500. Regular tax personal exemptions are not available for purposes of the alternative minimum tax. The only itemized deductions allowed for minimum tax purposes are those for casualty and theft losses, gambling losses to the extent of gambling gains, charitable deductions, medical deductions (to the extent in excess of 10% of adjusted gross income), interest expenses (restricted to qualified housing interest as defined in Section 56(e) of the Code and investment interest expense not exceeding net investment income), and certain estate taxes. The net operating loss for alternative minimum tax purposes generally is the same as for regular tax purposes, except: (i) current year tax preference items are added back to taxable income, and (ii) individuals may use only those itemized deductions as modified under Section 172(d) allowable in computing alternative minimum taxable income. Code sections suspending losses, such as Sections 465 and 704(d), are recomputed for minimum tax purposes and the amount of the deductions suspended or recaptured may differ for regular and minimum tax purposes. For taxpayers other than integrated oil companies (see "- Intangible Drilling and Development Costs"), the 1992 National Energy Bill repealed: (1) the preference for excess intangible drilling and development costs; and (2) the excess percentage depletion preference for oil and gas. The repeal of the excess intangible drilling and development KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 15 costs preference, however, may not result in more than a 40% reduction in the amount of the taxpayer's alternative minimum taxable income computed as if the excess intangible drilling and development costs preference had not been repealed. Under the prior rules, the amount of intangible drilling and development costs which is not deductible for alternative minimum tax purposes is the excess of the "excess intangible drilling costs" over 65% of net income from oil and gas properties. Net oil and gas income is determined for this purpose without subtracting excess intangible drilling and development costs. Excess intangible drilling and development costs is the regular intangible drilling and development costs deduction minus the amount that would have been deducted under 120-month straight-line amortization, or, at the taxpayer's election, under the cost depletion method. There is no preference item for costs of nonproductive wells. THE LIKELIHOOD OF A PARTICIPANT INCURRING, OR INCREASING, ANY MINIMUM TAX LIABILITY BY VIRTUE OF AN INVESTMENT IN THE PARTNERSHIP, AND THE IMPACT OF SUCH LIABILITY ON HIS PERSONAL TAX SITUATION, MUST BE DETERMINED ON AN INDIVIDUAL BASIS, AND REQUIRES CONSULTATION BY A PROSPECTIVE PARTICIPANT WITH HIS PERSONAL TAX ADVISOR. LIMITATIONS ON DEDUCTION OF INVESTMENT INTEREST Investment interest is deductible by a noncorporate taxpayer only to the extent of net investment income each year, with an indefinite carryforward of disallowed investment interest. I.R.C. Section 163. Interest subject to the limitation generally includes all interest, except consumer interest and qualified residence interest, on debt not incurred in a person's active trade or business, provided the activity is not a "passive activity" under the passive loss rule. Accordingly, an Investor General Partner's share of any interest expense incurred by the Partnership will be subject to the investment interest limitation. In addition, an Investor General Partner's income and losses, including intangible drilling and development costs, from the Partnership will be considered investment income and losses for purposes of this limitation. Losses allocable to an Investor General Partner will reduce his net investment income and may affect the deductibility of his investment interest expense, if any. Net investment income is the excess of investment income over investment expenses. Investment income includes: gross income from interest, dividends, rents, and royalties; portfolio income under the passive activity rules, which includes working capital investment income; and income from a trade or business in which the taxpayer does not materially participate if the activity is not a "passive activity." In the case of Investor General Partners, this includes the Partnership prior to the conversion of Investor General Partner Units to Limited Partner interests. Investment expenses include deductions, other than interest, that are directly connected with the production of net investment income, including actual depreciation or depletion deductions allowable. No item of income or expense subject to the passive activity loss rules of Section 469 of the Code is treated as investment income or investment expense. In determining deductible investment expenses, investment expenses are subject to a rule limiting deductions for miscellaneous expenses to those exceeding 2% of adjusted gross income, however, expenses that are not investment expenses are intended to be disallowed before any investment expenses are disallowed. ALLOCATIONS The Partnership Agreement allocates to each Partner his share of the Partnership's income, gains, credits and deductions, including the deductions for intangible drilling and development costs and depreciation. Allocations of certain items are made in ratios that are different than allocations of other items. (See "Participation in Costs and Revenues" in the Prospectus.) The Capital Accounts of the Partners are adjusted to reflect these allocations and the Capital Accounts, as adjusted, will be given effect in distributions made to the Partners upon liquidation of the Partnership or any Partner's interest in the Partnership. Generally, the basis of oil and gas properties owned by the Partnership for computation of cost depletion and gain or loss on disposition will be allocated and reallocated when necessary in the ratio in which the expenditure giving rise to the tax basis of each property was charged as of the end of the year. [Partnership Agreement, Section 5.03(b).] KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 16 Allocations made in a manner that is disproportionate to the respective interests of the partners in a partnership of any item of partnership income, gain, loss, deduction or credit will not be given effect unless the allocation has "substantial economic effect." I.R.C. Section 704(b). An allocation generally will have economic effect if throughout the term of the partnership: (1) the partners' capital accounts are maintained in accordance with rules set forth in the regulations (generally, tax accounting principles); (2) liquidation proceeds are distributed in accordance with the partners' capital accounts; and (3) any partner with a deficit balance in his capital account following the liquidation of his interest in the partnership is required to restore the amount of the deficit to the partnership. Generally, a Participant's Capital Account is increased by the amount of money he contributes to the Partnership and allocations to him of income and gain, and decreased by the value of property or cash distributed to him and allocations to him of loss and deductions. The regulations also require that there must be a reasonable possibility that the allocation will affect substantially the dollar amounts to be received by the partners from the partnership, independent of tax consequences. Although Participants are not required to restore deficit balances in their Capital Accounts beyond the amount of their agreed Capital Contributions, an allocation which is not attributable to nonrecourse debt will be considered to have economic effect to the extent it does not cause or increase a deficit balance in a Participant's Capital Account, if requirements (1) and (2) described above are met and the partnership agreement provides that a partner who unexpectedly incurs a deficit balance in his Capital Account because of certain adjustments, allocations, or distributions will be allocated income and gain sufficient to eliminate such deficit balance as quickly as possible. Treas. Reg. Section 1.704-l(b)(2)(ii)(d). (See Section 5.03(h) of the Partnership Agreement.) Special provisions apply to deductions related to nonrecourse debt. If the Managing General Partner or an Affiliate makes a nonrecourse loan to the Partnership ("partner nonrecourse liability"), Partnership losses, deductions, or Section 705(a)(2)(B) expenditures attributable to the loan must be allocated to the Managing General Partner, and if there is a net decrease in partner nonrecourse liability minimum gain with respect to the loan, the Managing General Partner must be allocated income and gain equal to the net decrease. (See Section 5.03(i) of the Partnership Agreement.) In the event of a sale or transfer of a Partnership Unit or the admission of an additional Participant, Partnership income, gain, loss, deductions and credits generally will be allocated among the Partners on a daily basis according to their varying interests in the Partnership during the taxable year. In addition, in the discretion of the Managing General Partner Partnership property may be revalued upon the admission of additional Participants, or if certain distributions are made to the Partners, to reflect unrealized income, gain, loss or deduction inherent in the Partnership's property for purposes of adjusting the Partners' Capital Accounts. It should also be noted that each Partner's share of Partnership items of income, gain, loss, deduction and credit must be taken into account whether or not there is any distributable cash. A Participant's share of Partnership revenues applied to the repayment of loans or the reserve for plugging wells, for example, will be included in his gross income in a manner analogous to an actual distribution of the income to him. Thus, a Participant may have tax liability on taxable income from the Partnership for a particular year in excess of any cash distributions from the Partnership to him with respect to that year. To the extent the Partnership has cash available for distribution, however, it is the Managing General Partner's policy that Partnership distributions will not be less than the Managing General Partner's estimate of the Participants' income tax liability with respect to Partnership income. If any allocation under the Partnership Agreement is not recognized for federal income tax purposes, each Participant's distributive share of the items subject to such allocation generally will be determined in accordance with KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 17 his interest in the Partnership, determined by considering relevant facts and circumstances. To the extent such deductions as allocated by the Partnership Agreement, exceed deductions which would be allowed pursuant to such a reallocation, Participants may incur a greater tax burden. However, assuming the effect of the special allocations set forth in the Partnership Agreement is substantial in light of a Participant's tax attributes that are unrelated to the Partnership, in the opinion of Special Counsel it is more likely than not that such allocations will have "substantial economic effect" and will govern each Participant's distributive share of such items to the extent such allocations do not cause or increase deficit balances in the Participants' Capital Accounts. PARTNERSHIP BORROWINGS Under the Partnership Agreement, the Managing General Partner and its Affiliates may make loans to the Partnership. The use of Partnership revenues taxable to Participants to repay Partnership borrowings could create income tax liability for the Participants in excess of cash distributions to them, since repayments of principal are not deductible for federal income tax purposes. In addition, interest on the loans will not be deductible unless the loans are bona fide loans that will not be treated as Capital Contributions. In Revenue Ruling 72-135, 1972-1 C.B. 200, the IRS ruled that a nonrecourse loan from a general partner to a partnership engaged in oil and gas exploration represented a capital contribution by the general partner rather than a loan. Whether a "loan" to the Partnership represents in substance, debt or equity is a question of fact to be determined from all the surrounding facts and circumstances. PARTNERSHIP ORGANIZATION AND SYNDICATION FEES Expenses connected with the issuance and sale of interests in a partnership, such as promotional expense, selling expense, commissions, professional fees and printing costs, are not deductible. However, expenses incident to the creation of a partnership may be amortized over a period of not less than 60 months. Such amortizable organization expenses will be paid by the Managing General Partner as part of the Partnership's Organization and Offering Costs and any related deductions, which the Managing General Partner does not anticipate will be material in amount, will be allocated to the Managing General Partner. I.R.C. Section 709; Treas. Reg. Sections 1.709-1 and 2. TAX ELECTIONS The Partnership may elect to adjust the basis of Partnership property on the transfer of an interest in the Partnership by sale or exchange or on the death of a Partner, and on the distribution of property by the Partnership to a Partner (the Section 754 election). The general effect of such an election is that transferees of the Partnership interests are treated, for purposes of depreciation and gain, as though they had acquired a direct interest in the Partnership assets and the Partnership is treated for such purposes, upon certain distributions to Partners, as though it had newly acquired an interest in the Partnership assets and therefore acquired a new cost basis for such assets. Any such election, once made, may not be revoked without the consent of the IRS. The Partnership may also make various elections for federal tax reporting purposes which could result in various items of income, gain, loss, deduction and credit being treated differently for tax purposes than for accounting purposes. Code Section 195 permits taxpayers to elect to capitalize and amortize "start-up expenditures" over a 60-month period. Such items include amounts: (1) paid or incurred in connection with: (i) investigating the creation or acquisition of an active trade or business, (ii) creating an active trade or business, or (iii) any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business; and (2) which would be allowed as a deduction if paid or incurred in connection with the expansion of an existing business. Start-up expenditures do not include amounts paid or incurred in connection with the sale of partnership interests. If it is ultimately determined that any of the Partnership's expenses constituted start-up expenditures and not deductible expenses under Section 162 of the Code, the Partnership's deductions would be reduced. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 18 DISALLOWANCE OF DEDUCTIONS UNDER SECTION 183 OF THE CODE Under Section 183 of the Code, a Participant's ability to deduct his share of the Partnership's losses on his federal income tax return could be lost if the Partnership lacks the appropriate profit motive as determined from an examination of all facts and circumstances at the time. Section 183 creates a presumption that an activity is engaged in for profit, if, in any three of five consecutive taxable years, the gross income derived from the activity exceeds the deductions attributable to the activity. Thus, if the Partnership fails to show a profit in at least three out of five consecutive years, this presumption will not be available and the possibility that the IRS could successfully challenge the Partnership deductions claimed by a Participant would be substantially increased. The fact that the possibility of ultimately obtaining profits is uncertain, standing alone, does not appear to be sufficient grounds for the denial of losses under Section 183. (See Treas. Reg. Section 1.183-2(c), Example (5).) Based on the Managing General Partner's representation that the Partnership will be conducted as described in the Prospectus, in the opinion of Special Counsel it is more likely than not that the Partnership will possess the requisite profit motive. TERMINATION OF A PARTNERSHIP Pursuant to Section 708(b) of the Code, the Partnership will be considered as terminated for federal income tax purposes if within a twelve month period there is a sale or exchange of 50% or more of the total interest in Partnership capital and profits. The closing of the Partnership year may result in more than twelve months' income or loss of the Partnership being allocated to certain Partners for the year of termination, for example, in the case of Partners using fiscal years other than the calendar year. Under Section 731 of the Code, a Partner will realize taxable gain on a termination of the Partnership to the extent that money regarded as distributed to him exceeds the adjusted basis of his Partnership interest. The conversion of Investor General Partner Units to Limited Partner interests, however, will not result in a termination of the Partnership. Rev. Rul. 84-52, 1984-1 C.B. 157. LACK OF REGISTRATION AS A TAX SHELTER Section 6111 of the Code generally requires an organizer of a "tax shelter" to register the tax shelter with the Secretary of the Treasury, and to obtain an identification number which must be included on the tax returns of investors in the tax shelter. For purposes of these provisions, a "tax shelter" is generally defined to include investments with respect to which any person could reasonably infer that the ratio that: (1) the aggregate amount of the potentially allowable deductions and 350% of the potentially allowable credits with respect to the investment during the first five years of the investment bears to; (2) the amount of money and the adjusted basis of property contributed to the investment; exceeds 2 to 1. Temporary Regulations promulgated by the IRS provide that the aggregate amount of gross deductions must be determined without reduction for gross income to be derived from the investment. The Managing General Partner does not believe that the Partnership will have a tax shelter ratio greater than 2 to 1. Also, because the purpose of the Partnership is to locate, produce and market natural gas on an economic basis, the Managing General Partner does not believe that the Partnership will be a "potentially abusive tax shelter." Accordingly, the Managing General Partner does not intend to cause the Partnership to register with the IRS as a tax shelter. If it is subsequently determined by the IRS or the courts that the Partnership was required to be registered with the IRS as a tax shelter, the Managing General Partner would be subject to certain penalties, including a penalty of 1% of the aggregate amount invested in the Units of the Partnership for failing to register and $100 for each failure to furnish a Participant a tax shelter registration number, and each Participant would be liable for a $250 penalty for failure to include the tax shelter registration number on his tax return, unless such failure was due to reasonable cause. A Participant also would be liable for a penalty of $100 for failing to furnish the tax shelter registration number to any KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 19 transferee of his interest in the Partnership. However, based on the representations of the Managing General Partner, Special Counsel has expressed the opinion that the Partnership, more likely than not, is not required to register with the IRS as a tax shelter. Issuance of a registration number does not indicate that an investment or the claimed tax benefits have been reviewed, examined, or approved by the IRS. INVESTOR LISTS Section 6112 of the Code requires that any person who organizes a tax shelter required to be registered with the IRS or who sells any interest in such a shelter must maintain a list identifying each person who was sold an interest in the shelter and setting forth other required information. For the reasons described above, the Managing General Partner does not believe the Partnership is subject to the requirements of Section 6112. If this determination is wrong, Section 6708 of the Code provides for a penalty of $50 for each person with respect to whom there is a failure to meet any requirements of Section 6112, unless the failure is due to reasonable cause. TAX RETURNS AND AUDITS IN GENERAL. The tax treatment of all partnership items is generally determined at the partnership, rather than the partner, level; and the partners are generally required to treat partnership items on their individual returns in a manner which is consistent with the treatment of the partnership items on the partnership return. I.R.C. Sections 6221 and 6222. Regulations define "partnership items" for this purpose as including distributive share items that must be allocated among the partners, such as partnership liabilities, data pertaining to the computation of the depletion allowance, and guaranteed payments. Treas. Reg. Section 301.6231(a)(3)-1. Generally, the IRS must conduct an administrative determination as to partnership items at the partnership level before conducting deficiency proceedings against a partner, and the partners must file a request for an administrative determination before filing suit for any credit or refund. The period for assessing tax against a Partner attributable to a partnership item may be extended as to all partners by agreement between the IRS and the Managing General Partner, which will serve as the Partnership's representative ("Tax Matters Partner") in all administrative and judicial proceedings conducted at the partnership level. The Tax Matters Partner generally may enter into a settlement on behalf of, and binding upon, partners owning less than a 1% profits interest in partnerships having more than 100 partners. In addition, a partnership with at least 100 partners may elect to be governed under simplified tax reporting and audit rules as an "electing large partnership." These rules also facilitate the matching of partnership items with individual partner tax returns by the IRS. The Managing General Partner does not anticipate that the Partnership will make this election. By executing the Partnership Agreement, each Participant agrees that he will not form or exercise any right as a member of a notice group and will not file a statement notifying the IRS that the Tax Matters Partner does not have binding settlement authority. In the event of an audit of the return of the Partnership, the Tax Matters Partner, pursuant to advice of counsel, will take all actions necessary, in its discretion, to preserve the rights of the Participants. All expenses of any proceedings undertaken by the Tax Matters Partner, which might be substantial, will be paid for by the Partnership. The Tax Matters Partner is not obligated to contest adjustments made by the IRS. TAX RETURNS. A Participant's income tax returns are the responsibility of the Participant. The Partnership will provide each Participant with the tax information applicable to his investment in the Partnership necessary to prepare such returns. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 20 PENALTIES AND INTEREST IN GENERAL. Interest is charged on underpayments of tax and various civil and criminal penalties are included in the Code. PENALTY FOR NEGLIGENCE OR DISREGARD OF RULES OR REGULATIONS. If any portion of an underpayment of tax is attributable to negligence or disregard of rules or regulations, 20% of such portion is added to the tax. Negligence is strongly indicated if a partner fails to treat partnership items on his tax return in a manner that is consistent with the treatment of those items on the partnership's return or to notify the IRS of the inconsistency. The term "disregard" includes any careless, reckless or intentional disregard of rules or regulations. There is no penalty, however, if the position is adequately disclosed, or the position is taken with reasonable cause and in good faith, or the position has a realistic possibility of being sustained on its merits. Treas. Reg. Section 1.6662-3. VALUATION MISSTATEMENT PENALTY. There is an addition to tax of 20% of the amount of any underpayment of tax of $5,000 or more ($10,000 in the case of corporations other than S corporations or personal holding companies) which is attributable to a substantial valuation misstatement. There is a substantial valuation misstatement if the value or adjusted basis of any property claimed on a return is 200% or more of the correct amount; or if the price for any property or services (or for the use of property) claimed on a return is 200% or more (or 50% or less) of the correct price. If there is a gross valuation misstatement (400% or more of the correct value or adjusted basis or the undervaluation is 25% or less of the correct amount) the penalty is 40%. I.R.C. Section 6662(e) and (h). SUBSTANTIAL UNDERSTATEMENT PENALTY. There is also an addition to tax of 20% of any underpayment if the difference between the tax required to be shown on the return over the tax actually shown on the return, exceeds the greater of 10% of the tax required to be shown on the return, or $5,000 ($10,000 in the case of corporations other than S corporations or personal holding companies). I.R.C. Section 6662(d). The amount of any understatement generally will be reduced to the extent it is attributable to the tax treatment of an item supported by substantial authority, or adequately disclosed on the taxpayer's return. However, in the case of "tax shelters," the understatement may be reduced only if the tax treatment of an item attributable to a tax shelter was supported by substantial authority and the taxpayer establishes that he reasonably believed that the tax treatment claimed was more likely than not the proper treatment. Disclosure of partnership items should be made on the Partnership's return; however, a taxpayer partner also may make adequate disclosure on his individual return with respect to pass-through items. Section 6662(d)(2)(C) provides that a "tax shelter" is any entity which has as a significant purpose the avoidance or evasion of federal income tax. IRS ANTI-ABUSE RULE. Under Treas. Reg. Section 1.701-2, if a principal purpose of a partnership is to reduce substantially the partners' federal income tax liability in a manner that is inconsistent with the intent of the partnership rules of the Code, based on all the facts and circumstances, the IRS is authorized to remedy the abuse. For illustration purposes, the following factors may indicate that a partnership is being used in a prohibited manner: (i) the partners' aggregate federal income tax liability is substantially less than had the partners owned the partnership's assets and conducted its activities directly; (ii) the partners' aggregate federal income tax liability is substantially less than if purportedly separate transactions are treated as steps in a single transaction; (iii) one or more partners are needed to achieve the claimed tax results and have a nominal interest in the partnership or are substantially protected against risk; (iv) substantially all of the partners are related to each other; (v) income or gain are allocated to partners who are not expected to have any federal income tax liability; (vi) the benefits and burdens of ownership of property nominally contributed to the partnership are retained in substantial part by the contributing party; and (vii) the benefits and burdens of ownership of partnership property are in substantial part shifted to the distributee partners before or after the property is actually distributed to the distributee partners. Based on the Managing General Partner's representation that the Partnership will be conducted as described in the Prospectus, in the opinion of Special Counsel it is more likely than not that the Partnership will not be subject to the anti-abuse rule set forth in Treas. Reg. Section 1.701-2. KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 21 STATE AND LOCAL TAXES Under Pennsylvania law, the Partnership is required to withhold state income tax at the rate of 2.8% of Partnership income allocable to Participants who are not residents of Pennsylvania. This requirement does not obviate Pennsylvania tax return filing requirements for Participants who are not residents of Pennsylvania. In the event of overwithholding, a Pennsylvania income tax return must be filed by Participants who are not residents of Pennsylvania in order to obtain a refund. The Partnership will operate in states and localities which impose a tax on its assets or its income, or on each Participant. Deductions which are available to Participants for federal income tax purposes may not be available for state or local income tax purposes. A Participant's distributive share of the net income or net loss of the Partnership generally will be required to be included in determining his reportable income for state or local tax purposes in the jurisdiction in which he is a resident. To the extent that a non-resident Participant pays tax to a state by virtue of Partnership operations within that state, he may be entitled to a deduction or credit against tax owed to his state of residence with respect to the same income. To the extent that the Partnership operates in certain jurisdictions, state or local estate or inheritance taxes may be payable upon the death of a Participant in addition to taxes imposed by his own domicile. PROSPECTIVE PARTICIPANTS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS CONCERNING THE POSSIBLE EFFECT OF VARIOUS STATE AND LOCAL TAXES ON THEIR PERSONAL TAX SITUATIONS. SEVERANCE AND AD VALOREM (REAL ESTATE) TAXES The Partnership may incur various ad valorem or severance taxes imposed by state or local taxing authorities. Currently, there is no such tax liability in Mercer County, Pennsylvania. SOCIAL SECURITY BENEFITS AND SELF-EMPLOYMENT TAX A Limited Partner's share of income or loss from the Partnership is excluded from the definition of "net earnings from self-employment." No increased benefits under the Social Security Act will be earned by Limited Partners and if any Limited Partners are currently receiving Social Security benefits, their shares of Partnership taxable income will not be taken into account in determining any reduction in benefits because of "excess earnings." An Investor General Partner's share of income or loss from the Partnership will constitute "net earnings from self-employment" for these purposes. I.R.C. Section 1402(a). For 1999 the ceiling for social security tax of 12.4% is $72,600 and there is no ceiling for medicare tax of 2.9%. Self-employed individuals can deduct one-half of their self-employment tax. FOREIGN PARTNERS The Partnership will be required to withhold and pay to the IRS tax at the highest rate under the Code applicable to Partnership income allocable to foreign partners, even if no cash distributions are made to such partners. A purchaser of a foreign Partner's Units may be required to withhold a portion of the purchase price and the Managing General Partner may be required to withhold with respect to taxable distributions of real property to a foreign Partner. The withholding requirements described above do not obviate United States tax return filing requirements for foreign Partners. In the event of overwithholding, a foreign Partner must file a United States tax return to obtain a refund. ESTATE AND GIFT TAXATION There is no federal tax on lifetime or testamentary transfers of property between spouses. The gift tax annual exclusion is $10,000 per donee, which will be adjusted for inflation. The maximum estate and gift tax rate is 55% (subject to a 5% surtax on amounts in excess of $10,000,000); and estates of $650,000 (which increases in stages to KUNTZMAN & BOLLINGER, INC. Atlas Resources, Inc. August 31, 1999 Page 22 $1,000,000 by 2006) or less generally are not subject to federal estate tax. In the event of the death of a Participant, the fair market value of his interest as of the date of death (or as of the alternate valuation date) will be included in his estate for federal estate tax purposes. The decedent's heirs will, for federal income tax purposes, take as their basis for the interest the value as so determined for federal estate tax purposes. We consent to the use of this opinion letter as an exhibit to the Registration Statement, and all amendments thereto, and to all references to this firm in the Prospectus. Very truly yours, /s/ KUNZMAN & BOLLINGER, INC. KUNZMAN & BOLLINGER, INC. EX-10.A 6 EXHIBIT 10A PROPOSED FORM OF ESCROW AGREEMENT EXHIBIT 10(a) ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. ESCROW AGREEMENT THIS AGREEMENT, made to be effective as of the _____ day of _________, 1999, by and between Atlas Resources, Inc., a Pennsylvania corporation (the "Managing General Partner"), Anthem Securities, Inc., a Pennsylvania corporation ("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation ("Bryan Funding"), collectively Anthem and Bryan Funding are referred to as the "Dealer-Manager", Atlas-Energy for the Nineties-Public #8 Ltd., a Pennsylvania limited partnership (the "Partnership") and National City Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent (the "Escrow Agent"). WITNESSETH: WHEREAS, the Partnership intends to offer publicly for sale to qualified investors (the "Investors") up to 1,800 limited partnership interests in the Partnership (the "Units"); and WHEREAS, each Investor will be required to pay his subscription in full upon subscribing ($10,000 per Unit, however, the Managing General Partner, in its discretion, may accept one-half Unit [$5,000] subscriptions, with larger subscriptions permitted in $1,000 increments), by check, draft or money order except that the broker-dealers and the Managing General Partner, its officers and directors and Affiliates, may purchase Units net of the Dealer-Manager fee, the commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses set forth below, and registered investment advisors and their clients may purchase Units subject to the Dealer-Manager fee but net of the commissions and reimbursement of marketing expenses and bona fide accountable due diligence expenses set forth below (the "Subscription Proceeds"); and WHEREAS, the Managing General Partner and Anthem have executed an agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem will solicit subscriptions for Units in all states other than Minnesota and New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts" basis for the remaining Units on behalf of the Managing General Partner and the Partnership and pursuant to which Anthem has been authorized to select certain members in good standing of the National Association of Securities Dealers, Inc. ("NASD") to participate in the offering of the Units ("Selling Agents"); and WHEREAS, the Managing General Partner and Bryan Funding have executed an agreement ("Bryan Funding Dealer-Manager Agreement") pursuant to which Bryan Funding will solicit subscriptions for Units in the states of Minnesota and New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts" basis for the remaining Units on behalf of the Managing General Partner and the Partnership and pursuant to which Bryan Funding has been authorized to select certain members in good standing of the NASD to participate in the offering of the Units ("Selling Agents"); and WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding Dealer-Manager Agreement, collectively referred to as the "Dealer-Manager Agreement", provide for compensation to the Dealer-Manager which includes, but is not limited to: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% sales commission; (iii) a .5% reimbursement of marketing expenses; and (iv) reimbursement of the Selling Agents' bona fide accountable due diligence expenses of .5% per Unit to participate in the offering of the Units, all or a portion of which compensation will be reallowed to the Selling Agents and wholesalers; and 1 WHEREAS, under the terms of the Dealer-Manager Agreement the Subscription Proceeds are required to be held in escrow subject to the receipt and acceptance by the Managing General Partner of the minimum Subscription Proceeds of $1,000,000, excluding any optional subscription by the Managing General Partner, its officers, directors and Affiliates; and WHEREAS, no subscriptions to the Partnership will be accepted after receipt of the maximum Subscription Proceeds of $18,000,000 or December 31, 1999, whichever event occurs first (the "Offering Termination Date"); and WHEREAS, to facilitate compliance with the terms of the Dealer-Manager Agreement, the Managing General Partner and the Dealer-Manager desire to have the Subscription Proceeds deposited with the Escrow Agent and the Escrow Agent desires to hold the Subscription Proceeds pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained, the parties hereto, intending to be legally bound, hereby agree as follows: 1. APPOINTMENT OF ESCROW AGENT. The Managing General Partner, the Partnership and the Dealer-Manager hereby appoint Escrow Agent as the escrow agent to receive and to hold the Subscription Proceeds deposited with Escrow Agent by the Dealer-Manager and the Selling Agents pursuant hereto and Escrow Agent hereby agrees to serve in such capacity during the term and based upon the provisions hereof. 2. DEPOSIT OF SUBSCRIPTION PROCEEDS. Pending receipt of the minimum Subscription Proceeds of $1,000,000, the Dealer-Manager shall deposit the Subscription Proceeds of each Investor with the Escrow Agent and shall deliver to the Escrow Agent a copy of the Subscription Agreement of such Investor. Payment for each subscription for Units shall be in the form of a check made payable to "Atlas Public #8 Ltd., Escrow Agent, National City Bank of PA". The Escrow Agent shall deliver a receipt to Anthem and the Managing General Partner for each deposit of Subscription Proceeds made pursuant hereto by Anthem, and to Bryan Funding and the Managing General Partner for each deposit of subscription proceeds made pursuant hereto by Bryan Funding. 3. INVESTMENT OF SUBSCRIPTION PROCEEDS. The Subscription Proceeds shall be deposited in an interest bearing account maintained by the Escrow Agent entitled "Armada Government Fund." Subscription Proceeds may be temporarily invested by the Escrow Agent only in income producing short-term, highly liquid investments secured by the United States government where there is appropriate safety of principal, such as U.S. Treasury Bills. The interest earned shall be added to the Subscription Proceeds and disbursed in accordance with the provisions of paragraph 4 or 5, as the case may be. 4. DISTRIBUTION OF SUBSCRIPTION PROCEEDS. If the Escrow Agent: (a) receives written notice from an authorized officer of the Managing General Partner that at least the minimum aggregate subscriptions of $1,000,000 have been received and accepted by the Managing General Partner; and (b) determines that Subscription Proceeds for at least $1,000,000 as determined by the Managing General Partner have cleared the banking system and are good; 2 the Escrow Agent shall promptly release and distribute to the Managing General Partner such escrowed Subscription Proceeds which have cleared the banking system and are good plus any interest paid and investment income earned on such Subscription Proceeds while held by the Escrow Agent in an escrow account. Any remaining Subscription Proceeds, plus any interest paid and investment income earned on such Subscription Proceeds while held by the Escrow Agent in an escrow account shall be promptly released and distributed to the Managing General Partner by the Escrow Agent as such Subscription Proceeds clear the banking system and become good. 5. SEPARATE PARTNERSHIP ACCOUNT. During the continuation of the offering after the Partnership is funded with cleared Subscription Proceeds of at least $1,000,000 and the Escrow Agent receives the notice described in Paragraph 4 of this Agreement, and prior to the Offering Termination Date, any additional Subscription Proceeds may be deposited by the Dealer-Manager directly in a separate Partnership account which shall not be subject to the terms of this Agreement. 6. DISTRIBUTIONS TO SUBSCRIBERS. (a) In the event that the Partnership will not be funded as contemplated because less than the minimum aggregate subscriptions of $1,000,000 have been received and accepted by the Managing General Partner by twelve p.m. (noon), local time, on December 31, 1999, or for any other reason, the Managing General Partner shall so notify the Escrow Agent, whereupon the Escrow Agent promptly shall distribute to each Investor a refund check made payable to such Investor in an amount equal to the Subscription Proceeds of such Investor, plus any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account as calculated by the Managing General Partner. (b) In the event that a subscription for Units submitted by an Investor is rejected by the Managing General Partner for any reason after the Subscription Proceeds relating to such subscription have been deposited with the Escrow Agent, then the Managing General Partner promptly shall notify the Escrow Agent of such rejection, and the Escrow Agent shall promptly distribute to such Investor a refund check made payable to such Investor in an amount equal to the Subscription Proceeds of such Investor, plus any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account as calculated by the Managing General Partner. 7. COMPENSATION AND EXPENSES OF ESCROW AGENT. The Managing General Partner shall be solely responsible for and shall pay the compensation of the Escrow Agent for its services hereunder, as provided in Appendix 1 to this Agreement and made a part hereof, and the charges, expenses (including any reasonable attorneys' fees), and other out-of-pocket expenses incurred by the Escrow Agent in connection with the administration of the provisions of this Agreement. The Escrow Agent shall have no lien on the Subscription Proceeds deposited in an escrow account unless and until the Partnership is funded with cleared Subscription Proceeds of at least $1,000,000 and the Escrow Agent receives the notice described in Paragraph 4 of this Agreement, at which time the Escrow Agent shall have, and is hereby granted, a prior lien upon any property, cash, or assets held hereunder, with respect to its unpaid compensation and nonreimbursed expenses, superior to the interests of any other persons or entities. 8. DUTIES OF ESCROW AGENT. The Escrow Agent shall not be obligated to accept any notice, make any delivery, or take any other action under this Escrow Agreement unless the notice or request or demand for delivery or other action is in writing and given or made by the party given the right or charged 3 with the obligation under this Escrow Agreement to give the notice or to make the request or demand. In no event shall the Escrow Agent be obligated to accept any notice, request, or demand from anyone other than the Managing General Partner or the Dealer-Manager. 9. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any damages, or have any obligations other than the duties prescribed herein in carrying out or executing the purposes and intent of this Escrow Agreement; provided, however, that nothing herein contained shall relieve the Escrow Agent from liability arising out of its own willful misconduct or gross negligence. Escrow Agent's duties and obligations under this Agreement shall be entirely administrative and not discretionary. Escrow Agent shall not be liable to any party hereto or to any third party as a result of any action or omission taken or made by Escrow Agent in good faith. The parties to this Agreement will indemnify Escrow Agent, hold Escrow Agent harmless, and reimburse Escrow Agent from, against and for, any and all liabilities, costs, fees and expenses (including reasonable attorney's fees) Escrow Agent may suffer or incur by reason of its execution and performance of this Agreement. In the event any legal questions arise concerning Escrow Agent's duties and obligations hereunder, Escrow Agent may consult with its counsel and rely without liability upon written opinions given to it by such counsel. The Escrow Agent shall be protected in acting upon any written notice, request, waiver, consent, authorization, or other paper or document which the Escrow Agent, in good faith, believes to be genuine and what it purports to be. In the event that there shall be any disagreement between any of the parties to this Agreement, or between them or any of them and any other person, resulting in adverse claims or demands being made in connection with this Agreement, or in the event that Escrow Agent, in good faith, shall be in doubt as to what action it should take hereunder, Escrow Agent may, at its option, refuse to comply with any claims or demands on it or refuse to take any other action hereunder, so long as such disagreement continues or such doubt exists. In any such event, Escrow Agent shall not be or become liable in any way or to any person for its failure or refusal to act and Escrow Agent shall be entitled to continue to so refrain from acting until the dispute is resolved by the parties involved. National City Bank of Pennsylvania is acting solely as Escrow Agent and is not a party to, nor has it reviewed or approved any agreement or matter of background related to this Agreement, other than this Agreement itself, and has assumed, without investigation, the authority of the individuals executing this Agreement to be so authorized on behalf of the party or parties involved. 10. RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow Agent may resign as such following the giving of thirty days' prior written notice to the other parties hereto. Similarly, the Escrow Agent may be removed and replaced following the giving of thirty days' prior written notice to the Escrow Agent by the other parties hereto. In either event, the duties of the Escrow Agent shall terminate thirty days after the date of such notice (or as of such earlier date as may be mutually agreeable); and the Escrow Agent shall then deliver the balance of the Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account) in its possession to a successor escrow agent as shall be appointed by the other parties hereto as evidenced by a written notice filed with the Escrow Agent. If the other parties hereto are unable to agree upon a successor or shall have failed to appoint a successor prior to the expiration of thirty days following the date of the notice of resignation or removal, the then acting Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor escrow agent or other appropriate relief; and any such resulting appointment shall be binding upon all of the parties hereto. Upon acknowledgment by any successor escrow agent of the receipt of the then remaining balance of the Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account), the then acting Escrow Agent shall be fully released and relieved of all duties, responsibilities, and obligations under this Agreement. 4 11. TERMINATION. This Agreement shall terminate and the Escrow Agent shall have no further obligation with respect hereto upon the occurrence of the distribution of all Subscription Proceeds (and any interest paid or investment income earned thereon while held by the Escrow Agent in an escrow account) as contemplated hereby or upon the written consent of all the parties hereto. 12. NOTICE. Any notices or instructions, or both, to be given hereunder shall be validly given if set forth in writing and mailed by certified mail, return receipt requested, as follows: IF TO THE ESCROW AGENT: National City Bank of Pennsylvania Attention: Mr. Robert Mialki, Vice President Corporate Trust Department 300 Fourth Avenue Pittsburgh, Pennsylvania 15278-2331 Phone: (412) 644-8401 Facsimile: (412) 644-7971 IF TO THE MANAGING GENERAL PARTNER: Atlas Resources, Inc. 311 Rouser Road P.O. Box 611 Moon Township, Pennsylvania 15108 Attention: Tony C. Banks Phone: (412) 262-2830 Facsimile: (412) 262-2820 IF TO ANTHEM: Anthem Securities, Inc. 311 Rouser Road P.O. Box 926 Coraopolis, Pennsylvania 15108 Attention: Eric D. Koval Phone: (412) 262-1680 Facsimile: (412) 262-7430 IF TO BRYAN FUNDING: Bryan Funding, Inc. 393 Vanadium Road Pittsburgh, Pennsylvania 15243 Attention: Richard G. Bryan, Jr. Phone: (412) 276-9393 Facsimile: (412) 276-9396 5 Any party may designate any other address to which notices and instructions shall be sent by notice duly given in accordance herewith. 13. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. (b) This Agreement is binding upon and shall inure to the benefit of the undersigned and their respective heirs, successors and assigns. (c) This Agreement may be executed in multiple copies, each executed copy to serve as an original. IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of the day and year first above written. NATIONAL CITY BANK OF PENNSYLVANIA ATTEST: As Escrow Agent By: _________________________ By: ________________________________ (Authorized Officer) (Authorized Officer) ATLAS RESOURCES, INC. ATTEST: A Pennsylvania corporation By:__________________________ By:__________________________________ Secretary Tony C. Banks, Senior Vice President and Chief Financial Officer ANTHEM SECURITIES, INC. ATTEST: A Pennsylvania corporation By:___________________________ By:___________________________________ Secretary Eric D. Koval, President BRYAN FUNDING, INC. ATTEST: A Pennsylvania corporation By:___________________________ By:____________________________________ Secretary Richard G. Bryan, Jr., President ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. By: ATLAS RESOURCES, INC. ATTEST: Managing General Partner By:___________________________ By: ___________________________________ Secretary Tony C. Banks, Senior Vice President Chief Financial Officer 6 APPENDIX I TO ESCROW AGREEMENT COMPENSATION FOR SERVICES OF ESCROW AGENT Escrow Agent annual fee per year or any part thereof $3,000.00 7 EX-24.A 7 EXHIBIT 24A CONSENT OF GRANT THORNTON, L.L.P. CONSENT OF GRANT THORNTON LLP We have issued our report dated June 30, 1999 on the balance sheet of Atlas-Energy for the Nineties - Public #8 Ltd. as of June 11, 1999 and our report dated March 22, 1999 on the consolidated balance sheet of Atlas Resources, Inc. as of September 30, 1998 contained in the Registration Statement and Prospectus for Atlas-Energy for the Nineties Public #8 Ltd. We consent to use of the aforementioned reports in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". /s/ GRANT THORNTON LLP Cleveland, Ohio September 3, 1999 EX-25 8 EXHIBIT 25 POWER OF ATTORNEY Exhibit 25 ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and/or directors of Atlas Resources, Inc., a Pennsylvania corporation which has filed with the Securities and Exchange Commission, under the provisions of the Securities Act of 1933, as amended, a Registration Statement on Form SB-2 relating to certain securities of Atlas-Energy for the Nineties-Public #8 Ltd., constitutes and appoints James R. O'Mara and Tony C. Banks, his/her true and lawful attorney-in-fact, with full power of substitution and resubstitution and with full power to act without another, for him/her and in his/her name, place and stead, in any and all capacities, to sign such Registration Statement, and any and all amendments, including pre-effective amendments and post-effective amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and all states and other jurisdictions wherein such Registration Statement and amendments thereto may be filed for securities compliance measures, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 31, 1999 /s/ Charles T. Koval -------------------------------------------------------------------- Charles T. Koval, Chairman of the Board and a Director Dated: August 31, 1999 /s/ James R. O'Mara -------------------------------------------------------------------- James R. O'Mara, President, Chief Executive Officer and a Director Dated: August 31, 1999 /s/ Tony C. Banks -------------------------------------------------------------------- Tony C. Banks, Senior Vice President of Finance, Principal Financial Officer, and a Director Dated: August 31, 1999 /s/ Frank P. Carolas -------------------------------------------------------------------- Frank P. Carolas, Vice President of Land and Geology Dated: August 31, 1999 /s/ Jeffrey C. Simmons -------------------------------------------------------------------- Jeffrey C. Simmons, Vice President - Operations Dated: August 31, 1999 /s/ William R. Seiler -------------------------------------------------------------------- William R. Seiler, Vice President and Controller
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