Document:

ex10_6.htm

    
      

    

    
      Exhibit 10.6

      

      CONSULTING SERVICES AGREEMENT

      

      

      This
Consulting Services Agreement (the ÒAgreementÓ) is entered into this 1st day of
December,
2008 by and between Ann W. Collins (AN INDIVIDUAL), located at 2205A Thornton
Road, Austin, Texas 78704 (hereinafter referred to as ÒConsultantÓ), and
eDOORWAYS Corporation, a Delaware corporation, and its successors, affiliates
and assigns, (hereinafter referred to as ÒClientÓ), (collectively referred to as
theÓ PartiesÓ) with reference to the following:

      

      Preliminary
Statement

      

      The
Client desires to be assured of the association and services of the Consultant
in order to avail itself of the Consultant’s experience, skills, abilities,
knowledge, and background to facilitate its operations, and to advise the Client
in business and/or financial and merger/acquisition matters and is therefore
willing to engage Consultant upon the terms and conditions set forth herein.
Consultant desires to be assured, and Client desires to assure Consultant, that,
if Consultant associates with Client and allocates its resources necessary to
provide Client with its business advisory and consulting services, Consultant
will be paid the consideration described herein and said consideration will be
nonrefundable, regardless of the circumstances.

      

      Consultant
agrees to be engaged and retained by Client and upon the terms and conditions
set forth herein.

      

      NOW,
THEREFORE, in consideration of the foregoing, of the mutual promises hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

      

      1.         
   Engagement,
Client hereby engages Consultant on a non-exclusive basis, and Consultant hereby
accepts the engagement to become a business Consultant to Client and to render
advice, consultation, information, and services to the Directors and/or Officers
of Client regarding general business matters including, but not limited to the
following:

      

      
        	
                 
      

              	
                1.1

              	
                Operations
      Consultant, eDOORWAYS Brand Rollout.
      Consultant agrees to assist management with managing and
      coordinating the launch activities of the eDOORWAYS
      brand.  Consultant shall play an active role in the
      conceptualization and implementation of the eDOORWAYS sub-brands
      ("doorways") as well as the integration of relevant technologies and
      personnel.

              

      

      

      
        	
                 
      

              	
                1.2

              	
                eDOORWAYS
      Brand Implementation.   Consultant agrees to assist
      in the development, implementation and launch of the eDOORWAYS brand as
      required by Client including but not limited to the creation of functional
      specifications for the several Doorways. From time to time, executive
      management of Client may ask for the assistance of Client as the company
      launches the eDOORWAYS brand.  Consultant shall, to the best
      extent of her abilities, render such assistance as
    required.

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                1.3

              	
                Standard
      of Performance.
      Consultant shall devote such time and efforts to the affairs of the Client
      as is reasonably necessary to render the services contemplated by this
      Agreement. The time frame for completion of any work or task of Consultant
      provided for herein which requires Client to provide certain information
      to assist Consultant in completion of the work shall be extended (without
      effect upon any obligation of Client) until such time as Client has fully
      provided all information and cooperation necessary for Consultant to
      complete the work. The services of Consultant shall not include the
      rendering of any legal opinions or the performance of any work that is in
      the ordinary purview of a certified public accountant, or other licensed
      professional. Consultant cannot guarantee results on behalf of Client, but
      shall use commercially reasonable efforts in providing the services listed
      above.

              

      

      

      
        	
                 
      

              	
                1.4

              	
                Acknowledging
      that the eDOORWAYS brand is rapidly changing over time, and that the
      requirements of the work to be performed may need to be modified,
      Consultant and Client agree that this will reviewed on an as-needed basis,
      and subject to more or less on-the-fly
revision.

              

      

      

      
        	
                2.

              	
                Compensation
      to Consultant

              

      

      

      a.             Retainer
Fee.  Client
shall pay Consultant a monthly retainer fee of four thousand nine hundred forty
dollars ($4,940.00), the first of which payments shall be due and payable upon
execution of this Agreement.  Subsequent payments shall be due and
payable on the first of each month following execution of this Agreement for the
entire term of this Agreement.  Payment of the monthly retainer fee of
$4,940.00 will be made by Client according to the terms of Paragraph
2.b  below.

      

      b.           
 Form of
Retainer Fee Payment.  For each monthly retainer fee payment,
Consultant shall receive payment in the form of common stock of eDOORWAYS
Corporation or its successor(s) rather than in a cash payment. The number of
shares to be received by Consultant shall be calculated by dividing the amount
of the monthly retainer fee payment by the eDOORWAYS stock trading price on the
first day of the month that the payment is due.

      

      c.         
   Reimbursement
for Expenses, Consultant shall submit to Client a monthly invoice for all
expenses incurred on Client’s behalf, as specified in Par. 2.1 below, Client
agrees to reimburse Consultant for such expenses within ten (10) days from
receipt of the statement.

      

      
        	
                2.1

              	
                Expenses.
      Client shall reimburse Consultant for reasonable expenses incurred in
      performing its duties pursuant to this Agreement (including, but not
      limited to printing, postage, express mail, photo reproduction, travel,
      lodging, and long distance telephone cell phone, entertainment, software
      and facsimile charges), pursuant to the terms of Par. 2.0(c)
      above.

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                2.2

              	
                Additional
      Fees. Client and Consultant shall mutually agree upon any
      additional fees that Client may pay in the future for services rendered by
      Consultant under this Agreement. Such additional agreement(s) may,
      although there is no requirement to do so, be attached hereto and made a
      part hereof as Exhibits beginning with “A.”

              

      

      

      
        	
                3.

              	
                INDEMNIFICATION.

              

      

      

      
        	
                3.1.

              	
                The
      Client agrees to indemnify and hold harmless Consultant against any and
      all liability, loss and costs, expenses or damages, including but not
      limited to, any and all expenses whatsoever reasonably incurred in
      investigating, preparing or defending against any litigation, commenced or
      threatened, or any claim whatsoever or howsoever caused by Consultant in
      the performance of her duties under this Agreement, or by reason of any
      injury (whether to body, property, personal or business character or
      reputation) sustained by any person or to any person or property, arising
      out of any act, failure to act, neglect, any untrue or alleged untrue
      statement of a material fact or failure to state a material fact which
      thereby makes a statement false or misleading, or any breach of any
      material representation, warranty or covenant by Client or any of its
      agents, employees, or other representatives.  All remedies
      provided by law, or in equity shall be cumulative and not in the
      alternative.

              

      

      

      
        	
                4

              	
                CONFIDENTIALITY

              

      

      

      
        	
                4.
      1

              	
                Consultant
      and Client each agree to keep confidential and provide reasonable security
      measures to keep confidential information where release may be detrimental
      to their respective business interests. Consultant and Client shall each
      require their employees, agents, affiliates, other licensees, and others
      who will have access to the information through Consultant and Client
      respectively, to first enter appropriate non-disclosure Agreements
      requiring the confidentiality contemplated by this Agreement in
      perpetuity.

              

      

      

      
        	
                4.2

              	
                Consultant
      will not, either during her engagement by the Client pursuant to this
      Agreement or at any time thereafter, disclose, use or make known for its
      or another’s benefit any confidential information, knowledge, or data of
      the Client or any of its affiliates in any way acquired or used by
      Consultant during its engagement by the Client, Confidential information,
      knowledge or data of the Client and its affiliates shall not include any
      information that is, or becomes generally available to the public other
      than as a result of a disclosure by Consultant or her
      representatives.

              

      

      

      
        	
                5

              	
                INDEPENDENT
      CONTRACTOR

              

      

      

      
        	
                5.1

              	
                In
      her performance hereunder, Consultant and his agents shall be independent
      contractors. Consultant shall complete the services required hereunder
      according to her own means and methods of work, shall be in the exclusive
      charge and control of Consultant, and shall not be subject to the control
      or supervision of Client, except as to the results of the work. Client
      acknowledges that nothing in this Agreement shall be construed to require
      Consultant to provide services to Client at any specific time, or in any
      specific place or manner. Payments to Consultant hereunder shall not be
      subject to withholding taxes or other employment taxes as required with
      respect to compensation paid to an employee. It is further understood and
      agreed that Consultant’s compensation under this Agreement is not for any
      capital raising or stock promotion or
support.

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                6.

              	
                MISCELLANEOUS
      PROVISIONS

              

      

      

      
        	
                6.1

              	
                Amendments
      and Modification. This
      Agreement may be amended, modified and supplemented only by written
      agreement of Consultant and Client,

              

      

      

      
        	
                6.2

              	
                Assignment.
      This Agreement and all of the provisions hereof shall be binding upon and
      inure to the benefit of the parties hereto and their respective successors
      and permitted assigns. The obligations of either party hereunder cannot be
      assigned without the express written consent of the other
      party.

              

      

      

      
        	
                6.3

              	
                Binding Effect.
      All obligations of Client under this Agreement shall be binding upon, and
      fully enforceable against, Client, its agents, officers, directors,
      successors, assigns, affiliates and
purchasers.

              

      

      

      
        	
                6.3

              	
                Governing
      Law; Venue. This Agreement and the legal relations among the
      parties hereto shall be governed by and construed in accordance with the
      laws of the State of Texas, without regard to its conflict of law
      doctrine. Client and Consultant agree that if any action is instituted to
      enforce or interpret any provision of this Agreement, the jurisdiction and
      venue shall be Austin, Texas.

              

      

      

      
        	
                6.4

              	
                Attorneys’
      Fees and Costs. If any action is necessary to enforce and collect
      upon the terms of this Agreement, the prevailing party shall be entitled
      to reasonable attorneys’ fees and costs, in addition to any other relief
      to which that party may be entitled. This provision shall be construed as
      applicable to the entire Agreement.

              

      

      

      
        	
                6.5

              	
                Survivability.
      If any part of this Agreement is found, or deemed by a court of competent
      jurisdiction, to be invalid or unenforceable, that part shall be severable
      from the remainder of the
Agreement.

              

      

      

      
        	
                6.6

              	
                Facsimile
      Signatures.
      The Parties hereto agree
      that this Agreement may be executed by facsimile signatures and such
      signature shall be deemed originals. The Parties further agree that within
      ten (10) days following the execution of this Agreement, they shall
      exchange original signature pages.

              

      

      

      

      
        	
                 
      

              	
                7.

              	
                TERM/TERMINATION.

              

      

      

      
        	
                 
      

              	
                7.1

              	
                The
      Term of this Agreement (the ÒTermÓ)
      shall commence on December 1, 2008 and shall continue until April 1, 2009.
      The parties to this Agreement agree that prior to 30 days before the end
      of the Term they will notify each other of their intent to extend this
      Agreement.  If an extension is not agreed upon, the Agreement
      will terminate at the end of the Term.  In the event that there
      is an extension and either party wishes to terminate the agreement, the
      terminating party will notify the other party of such intent at least 30
      days prior to the date of
termination.

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                 
      

              	
                a.

              	
                Early
      Termination With or Without Cause.  Either
      party may terminate this Agreement with or without cause with 10 days
      advance written notice.

              

      

      

      
        	
                 
      

              	
                b.

              	
                Early
      Termination for Material Breach or Bankruptcy.

                Notwithstanding the provisions of Section 7 above, either
      party may terminate this Agreement for the
following:

              

      

       

      
        	
                 
      

              	
                i.

              	
                On
      or after the tenth (10th) day after such party gives the other party
      written notice of a material breach by such other party of any obligation
      hereunder unless such breach is cured within ten (10) days following the
      breaching party’s receipt of such written notice. Neither party will be
      liable to the other party for damages of any kind resulting from any
      rightful termination of this Agreement as provided by this Section
      7

              

      

      

      
        	
                 
      

              	
                ii.

              	
                Either
      party may terminate this Agreement upon written notice to the
      other if such other party: (i) shall make an assignment for the benefit of
      creditors, (ii)  shall be adjudicated bankrupt or insolvent,
      (iii) shall seek the appointment of, or be the subject of an order
      appointing, a trustee, liquidator or receiver as to all or part of its
      assets, (iv) shall commence, approve or consent to, any case or proceeding
      under any bankruptcy, reorganization or similar law and, in the case of an
      involuntary case or proceeding, such case or proceeding is not dismissed
      within forty-five (45) days following the commencement thereof, or (v)
      shall be the subject of an order for relief in an involuntary case under
      federal bankruptcy law. 

              

      

      

      
        	
                8.

              	
                CLIENT
      REPRESENTATIONS, WARRANTS AND
COVENANTS.

              

      

      

      
        	
                8.1

              	
                Client
      represents, warrants and covenants to the Consultant as
      follows:

              

      

      

      Client
has the full authority, right, power and legal capacity to enter into this
Agreement and to consummate the transactions that are provided for herein. The
execution of this Agreement by the Client and its delivery to the Consultant,
and the consummation by it of the transactions which are contemplated herein
have been duly approved and authorized by all necessary action by the Client’s
Board of Directors and no further authorization shall be necessary on the part
of the Client for the performance and consummation by the Client of the
transactions which are contemplated by this Agreement.

      

      The
business and operations of the Client have been and are being conducted in all
material respects in accordance with all applicable laws, rules and regulations
of all authorities that affect the Client or its properties, assets, businesses
or prospects. The performance of this Agreement shall not result in any breach
of, or constitute a default under, or result in the imposition of any lien or
encumbrance upon any property of the Client or cause acceleration under any
arrangement, agreement or other instrument to which the Client is a party or by
which any of its assets are bound. The Client has performed in all respects all
of its obligations which are, as of the date of this Agreement, required to be
performed by it pursuant to the terms of any such agreement, contract or
commitment.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Consultant
makes no representations or warranties other than those contained within this
Agreement.

      

      
        	
                9.

              	
                NOTICES.

              

      

      

      
        	
                9.1

              	
                Any
      notice or other communication required or permitted hereunder must be in
      writing and sent by either (i) certified mail, postage prepaid, return
      receipt requested and First Class mail; or (ii) overnight delivery with
      confirmation of delivery; or (iii) facsimile transmission with an original
      mailed by first class mail, postage prepaid, addressed as
      follows:

              

      

      

      
        	
                 
      

              	
                If
      to the Client:

              	
                Gary
      F. Kimmons

              

      

      
        	
                 
      

              	
                eDOORWAYS
      Corporation

              

      

      
        	
                 
      

              	
                820
      West 3rd Street Suite 1103

              

      

      
        	
                 
      

              	
                Austin,
      TX 78701

              

      

      
        	
                 
      

              	
                Facsimile
      No: 512-852-8746

              

      

      
 

      
        	
                 
      

              	
                If
      to Consultant:

              	
                Ann
      W. Collins

              

      

      
        	
                 
      

              	
                2205A
      Thornton Road

              

      

      
        	
                 
      

              	
                Austin,
      TX 78704

              

      

      
        	
                 
      

              	
                Facsimile
      No:

              

      

      
        	
                 
      

              	
                Email:
      annwcollins@gmail.com

              

      

      

      or in
each case to such other address and facsimile number as shall have last been
furnished by like notice. If mailing is impossible due to an absence of postal
service and other methods of sending notice are not otherwise available, notice
shall be hand-delivered to the aforesaid addresses. Each notice or communication
shall be deemed to have been given as of the date so mailed or delivered, as the
case may be; provided, however, that any notice sent by facsimile shall be
deemed to have been given as of the date sent by facsimile if a copy of such
notice is also mailed by first class mail on the date sent by facsimile; if the
date of mailing is not the same as the date of sending by facsimile, then the
date of mailing by first class mail shall be deemed to be the date upon which
notice given.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      
        	
                10.

              	
                COUNTERPARTS

              

      

      

      
        	
                10.1

              	
                This
      Agreement may be executed simultaneously in one or more counterparts, each
      of which shall be deemed an original, but all of which together shall
      constitute one and the same
instrument.

              

      

      

      
        	
                11.

              	
                PRELIMINARY
      STATEMENT

              

      

      

      
        	
                11.1

              	
                The
      Preliminary Statement is incorporated herein by this reference and made a
      material part of this Agreement

              

      

      

      

      IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.

      

      

      
        CLIENT:

      

      

      
        	
                eDOORWAYS
      Corporation

              	 
      
	 
      	 
      	 
      
	 
      	 
      
	
                Gary
      F. Kimmons

              	 
      
	 
      	 
      	 
      
	
                Title:

              	
                CEO

              	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                Date:

              	
                December
      1st, 2008

              	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                CONSULTANT:

              	 
      
	 
      	 
      	 
      
	
                Ann
      W. Collins, Individual

              	 
      
	 
      	 
      	 
      
	 
      	 
      
	
                Ann
      W. Collins

              	 
      
	 
      	 
      	 
      
	
                Title:

              	
                Corporate
      Consultant

              	 
      
	 
      	 
      	 
      
	
                Date:

              	
                December
      1st, 2008Unassociated Document

    SECOND

    

    AMENDED
AND RESTATED

    

    AGREEMENT
OF LIMITED PARTNERSHIP

    

    OF

    

    REEF
OIL & GAS INCOME AND DEVELOPMENT FUND III

     

    A
Texas Limited Partnership

    

    The
Partnership Units represented by this document have not been registered under
any securities laws and the transferability of such Units is restricted. Such
Units may not be sold, assigned or transferred, nor will any assignee, vendee,
transferee or endorsee thereof be recognized as having acquired any such Units
by the issuer for any purposes, unless (i) a registration statement under the
Securities Act of 1933, as amended, with respect to the transfer of such Units
shall then be in effect and such transfer has been qualified under all
applicable state securities laws, or (ii) the availability of an exemption from
such registration and qualification shall be established to the satisfaction of
counsel to the Partnership.

    

    The
Partnership Units represented by this document are subject to further
restriction as to their sale, transfer, hypothecation or assignment as set forth
in the Agreement of Limited Partnership and agreed to by each Partner. Said
restriction provides, among other things, that no vendee, transferee, assignee
or endorsee shall have the right to become a substituted Investor Partner
without the consent of the Managing General Partner.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    	
                                                                                            SECTION
      1. THE PARTNERSHIP

                                                                                          	 
      	
                                                                                            1

                                                                                          
	 	 	 
	
                                                                                            1.1.
      Organization

                                                                                          	 
      	
                                                                                            1

                                                                                          
	 	 	 
	
                                                                                            1.2.
      Name

                                                                                          	 
      	
                                                                                            1

                                                                                          
	 	 	 
	
                                                                                            1.3.
      Principal Business

                                                                                          	 
      	
                                                                                            1

                                                                                          
	 	 	 
	
                                                                                            1.4.
      Principal Place of Business

                                                                                          	 
      	
                                                                                            1

                                                                                          
	 	 	 
	
                                                                                            1.5.
      Term

                                                                                          	 
      	
                                                                                            1

                                                                                          
	 	 	 
	
                                                                                            1.6.
      Filings; Agent for Service of Process

                                                                                          	 
      	
                                                                                            2

                                                                                          
	 	 	 
	
                                                                                            1.7.
      Independent Activities

                                                                                          	 
      	
                                                                                            2

                                                                                          
	 	 	 
	
                                                                                            1.8.
      Definitions

                                                                                          	 
      	
                                                                                            2

                                                                                          
	 	 	 
	
                                                                                            SECTION
      2. PARTNERS’ CAPITAL CONTRIBUTIONS

                                                                                          	 
      	
                                                                                            2

                                                                                          
	 	 	 
	
                                                                                            2.1.
      Managing General Partner

                                                                                          	 
      	
                                                                                            2

                                                                                          
	 	 	 
	
                                                                                            2.2.
      Investor Partners

                                                                                          	 
      	
                                                                                            3

                                                                                          
	 	 	 
	
                                                                                            2.3.
      Extent of Liability

                                                                                          	 
      	
                                                                                            3

                                                                                          
	 	 	 
	
                                                                                            2.4.
      Other Matters

                                                                                          	 
      	
                                                                                            3

                                                                                          
	 	 	 
	
                                                                                            SECTION
      3. ALLOCATIONS

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            SECTION
      4. DISTRIBUTIONS

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            4.1.
      Reserved

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            4.2.
      Operating Distributions to Partners and Unit Holders

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            4.3.
      Amounts Withheld

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            4.4.
      Limitation Upon Distributions

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            4.5.
      Distributions on Liquidation and Capital Events

                                                                                          	 
      	
                                                                                            4

                                                                                          
	 	 	 
	
                                                                                            4.6.
      Distributions to Pay Tax

                                                                                          	 
      	
                                                                                            5

                                                                                          
	 	 	 
	
                                                                                            SECTION
      5. MANAGEMENT

                                                                                          	 
      	
                                                                                            5

                                                                                          
	 	 	 
	
                                                                                            5.1.
      Authority of the Managing General Partner

                                                                                          	 
      	
                                                                                            5

                                                                                          
	 	 	 
	
                                                                                            5.2.
      Right to Rely on the Managing General Partner

                                                                                          	 
      	
                                                                                            6

                                                                                          
	 	 	 
	
                                                                                            5.3.
      Duties and Obligations of the Managing General Partner

                                                                                          	 
      	
                                                                                            7

                                                                                          
	 	 	 
	
                                                                                            5.4.
      Indemnification of the Managing General Parmer

                                                                                          	 
      	
                                                                                            7

                                                                                          
	 	 	 
	
                                                                                            5.5.
      Reimbursement and Compensation to the Managing General
    Partner

                                                                                          	 
      	
                                                                                            7

                                                                                          
	 	 	 
	
                                                                                            5.6.
      Interpretation

                                                                                          	 
      	
                                                                                            9

                                                                                          
	 	 	 
	
                                                                                            5.7.
      Reliance Upon Experts

                                                                                          	 
      	
                                                                                            9

                                                                                          
	 	 	 
	
                                                                                            5.8.
      Limitations on Partners’ Acts

                                                                                          	 
      	
                                                                                            9

                                                                                          
	 	 	 
	
                                                                                            5.9.
      Other Permissible Activities

                                                                                          	 
      	
                                                                                            9

                                                                                          
	 	 	 
	
                                                                                            SECTION
      6. ROLE OF INVESTOR PARTNERS

                                                                                          	 
      	
                                                                                            10

                                                                                          
	 	 	 
	
                                                                                            6.1.
      Rights or Powers

                                                                                          	 
      	
                                                                                            10

                                                                                          
	 	 	 
	
                                                                                            6.2.
      Voting Rights

                                                                                          	 
      	
                                                                                            10

                                                                                          
	 	 	 
	
                                                                                            6.3.
      Indemnification of Additional General Partners

                                                                                          	 
      	
                                                                                            11

                                                                                          
	 	 	 

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    	
                                                                                            SECTION
      7. BOOKS AND RECORDS

                                                                                          	 
      	
                                                                                            11

                                                                                          
	 	 	 
	
                                                                                            7.1.
      Books and Records

                                                                                          	 
      	
                                                                                            11

                                                                                          
	 	 	 
	
                                                                                            7.2.
      Fiscal Year

                                                                                          	 
      	
                                                                                            11

                                                                                          
	 	 	 
	
                                                                                            7.3.
      Financial Statements and Tax Returns

                                                                                          	 
      	
                                                                                            11

                                                                                          
	 	 	 
	
                                                                                            7.4.
      Reports

                                                                                          	 
      	
                                                                                            11

                                                                                          
	 	 	 
	
                                                                                            7.5.
      Confidentiality

                                                                                          	 
      	
                                                                                            12

                                                                                          
	 	 	 
	
                                                                                            SECTION
      8. AMENDMENTS; MEETINGS

                                                                                          	 
      	
                                                                                            12

                                                                                          
	 	 	 
	
                                                                                            8.1.
      Amendments

                                                                                          	 
      	
                                                                                            12

                                                                                          
	 	 	 
	
                                                                                            8.2.
      Meetings of the Partners

                                                                                          	 
      	
                                                                                            12

                                                                                          
	 	 	 
	
                                                                                            SECTION
      9. TRANSFERS OF UNITS; DISTRIBUTIONS

                                                                                          	 
      	
                                                                                            13

                                                                                          
	 	 	 
	
                                                                                            9.1.
      Restriction on Transfers

                                                                                          	 
      	
                                                                                            13

                                                                                          
	 	 	 
	
                                                                                            9.2.
      Permitted Transfers

                                                                                          	 
      	
                                                                                            13

                                                                                          
	 	 	 
	
                                                                                            9.3.
      Prohibited Transfers

                                                                                          	 
      	
                                                                                            14

                                                                                          
	 	 	 
	
                                                                                            9.4.
      Rights of Unadmitted Assignees

                                                                                          	 
      	
                                                                                            14

                                                                                          
	 	 	 
	
                                                                                            9.5.
      Admission of Unit Holders as Partners

                                                                                          	 
      	
                                                                                            14

                                                                                          
	 	 	 
	
                                                                                            9.6.
      Representations; Legend

                                                                                          	 
      	
                                                                                            15

                                                                                          
	 	 	 
	
                                                                                            9.7.
      Distributions and Allocations in Respect to Transferred
    Units

                                                                                          	 
      	
                                                                                            15

                                                                                          
	 	 	 
	
                                                                                            SECTION
      10. MANAGING GENERAL PARTNER

                                                                                          	 
      	
                                                                                            15

                                                                                          
	 	 	 
	
                                                                                            10.1.
      Covenant Not to Withdraw, Transfer or Dissolve

                                                                                          	 
      	
                                                                                            15

                                                                                          
	 	 	 
	
                                                                                            10.2.
      Permitted Transfers

                                                                                          	 
      	
                                                                                            16

                                                                                          
	 	 	 
	
                                                                                            10.3.
      Prohibited Transfers

                                                                                          	 
      	
                                                                                            16

                                                                                          
	 	 	 
	
                                                                                            10.4.
      Termination of Status as Managing General Partner

                                                                                          	 
      	
                                                                                            16

                                                                                          
	 	 	 
	
                                                                                            10.5.
      Conversion of Additional General Partner Interests into Limited Partner
      Interests

                                                                                          	 
      	
                                                                                            17

                                                                                          
	 	 	 
	
                                                                                            10.6.
      Liability of Partners

                                                                                          	 
      	
                                                                                            17

                                                                                          
	 	 	 
	
                                                                                            SECTION
      11. DISSOLUTION AND WINDING UP

                                                                                          	 
      	
                                                                                            17

                                                                                          
	 	 	 
	
                                                                                            11.1.
      Liquidating Events

                                                                                          	 
      	
                                                                                            17

                                                                                          
	 	 	 
	
                                                                                            11.2.
      Winding Up

                                                                                          	 
      	
                                                                                            18

                                                                                          
	 	 	 
	
                                                                                            11.3.
      Compliance With Timing Requirements of Regulations

                                                                                          	 
      	
                                                                                            18

                                                                                          
	 	 	 
	
                                                                                            11.4.
      Deemed Distribution and Recontribution

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            11.5.
      Rights of Partners and Unit Holders

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            11.6.
      Notice of Dissolution

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            11.7.
      Certificate of Termination

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            SECTION
      12. POWER OF ATTORNEY

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            12.1.
      The Managing General Partner as Attorney-in-Fact

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            12.2.
      Nature as Special Power

                                                                                          	 
      	
                                                                                            19

                                                                                          
	 	 	 
	
                                                                                            SECTION
      13. MISCELLANEOUS

                                                                                          	 
      	
                                                                                            20

                                                                                          
	 	 	 
	
                                                                                            13.1.
      Notices

                                                                                          	 
      	
                                                                                            20

                                                                                          

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        - 2
-

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                	
                                                        13.2.
      Binding Effect

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.3.
      Construction

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.4.
      Time

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.5.
      Headings

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.6.
      Severability

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.7.
      Incorporation by Reference

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.8.
      Further Action

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.9.
      Variation of Pronouns

                                                      	 
      	
                                                        20

                                                      
	 	 	 
	
                                                        13.10.
      Governing Law

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.11.
      Waiver of Action for Partition

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.12.
      Counterpart Execution

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.13.
      Sole and Absolute Discretion

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.14.
      Entire Agreement

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.15.
      Attorneys’ Fees

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.16.
      Third Parties

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        13.17.
      Venue

                                                      	 
      	
                                                        21

                                                      
	 	 	 
	
                                                        EXHIBIT
      A - INVESTOR PARTNERS

                                                      	 
      	
                                                        A-1

                                                      
	 	 	 
	
                                                        EXHIBIT
      B - DEFINITIONS

                                                      	 
      	
                                                        B-1

                                                      
	 	 	 
	
                                                        EXHIBIT
      C - ALLOCATIONS OF PROFITS AND LOSSES

                                                      	 
      	
                                                        C-1

                                                      

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        - 3
-

        
          

        

      

      
        
        

      

    

     

    
      SECOND
AMENDED AND RESTATED

      AGREEMENT
OF LIMITED PARTNERSHIP

      OF

      REEF
OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.

      A
Texas Limited Partnership

      

      This SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP is entered into and shall be effective
as of the 4th day of June, 2008 (the “Effective Date”), by
and among Reef Oil & Gas Partners, L.P., a Nevada limited partnership, as
the Managing General Partner, and the Persons whose names are set forth on
attached Exhibit
A-1, as the Additional General Partners or as Limited Partners (the
Limited Partners, together with the Additional General Partners, the “Investor Partners”),
pursuant to the provisions of the Texas Business Organizations Code (the “Texas Code”) on the
following terms and conditions. This Agreement amends and restates in its
entirety the Amended and Restated Agreement of Limited Partnership effective as
of MARCH 25, 
2008, as amended.

      

      
        
          	
                  SECTION
      1. 

                	
                  THE
      PARTNERSHIP

                

        

      

      

      1.1.         Organization.  The
Partnership was formed on November 27, 2007 by the filing of the certificate of
formation described in Section 3.005 of the Texas Code (the “Certificate”) with
the Texas Secretary of State. The Investor Partners hereby agree to continue the
Partnership as a limited partnership pursuant to the provisions of the Texas
Code and upon the terms and conditions set forth in this Agreement.

      

      1.2.        
Name.  The name of
the Partnership shall be REEF OIL & GAS INCOME AND DEVELOPMENT FUND III,
L.P. and all business of the Partnership shall be conducted in such name. The
Managing General Partner may change the name of the Partnership upon ten (10)
days notice to the Investor Partners. The Partnership shall hold all of its
Property in the name of the Partnership and not in the name of any
Partner.

      

      1.3.         Principal Business.  The
purposes for which the Partnership is organized are:

      

      a.          To
acquire interests in oil and gas properties (hereinafter, the “Prospect Wells” or
“Prospects”);

      

      b.          To
conduct operations on the Prospects, if appropriate;

      

      c.          To
purchase, acquire, sell, dispose, operate, drill and produce oil, gas, minerals
and properties and all things incident to the Prospect Wells including, and with
respect to the business of the Partnership, the construction and operation,
alone or with others, of any project or operation incident to the Prospect Wells
for the treatment or refining of oil, gas and minerals and for the construction
of systems for the production, collection, storage, treatment or delivery of the
same or the products thereof;

      

      d.          To
perform any acts as the Managing General Partner in its sole discretion
determines to be necessary, desirable or convenient in accomplishing the
foregoing purposes; and

      

      e.          To
engage in any other lawful activity permitted under the Texas Code.

      

      1.4.         Principal Place of Business. 
The principal place of business of the Partnership shall be at 1901 N.
Central Expressway, Suite 300, Richardson, Texas 75080. The General Partner may
change the principal place of business of the Partnership to any other place
upon ten (10) days notice to the Investor Partners.

      

      1.5.         Term.  The term of the
Partnership commenced on the Effective Date and shall continue until December
31, 2016, unless sooner terminated with the consent of the Managing General
Partner, by an affirmative vote of a Majority in Interest of the Partners or
until, if earlier, the winding up and liquidation of the Partnership and its
business is completed following a Liquidating Event, as provided in Section
11.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      1.6.         Filings;
Agent for Service of Process.

      

      a.          The
Managing General Partner has caused the Certificate to be filed in the office of
the Secretary of State of Texas in accordance with the provisions of the Texas
Code. The Managing General Partner shall take any and all other actions
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership under the laws of the State of Texas. The Managing General
Partner shall cause amendments to the Certificate to be filed whenever required
by the Texas Code.

      

      b.          The
Managing General Partner shall execute and cause to be filed original or amended
certificates of limited partnership and shall take any and all other actions as
may be reasonably necessary to perfect and maintain the status of the
Partnership as a limited partnership or similar type of entity under the laws of
any other states or jurisdictions in which the Partnership engages in
business.

      

      c.          The
agent for service of process of the Partnership shall be Michael J. Mauceli or
any successor as appointed by the Managing General Partner. The agent for
service of process shall be entitled to resign at any time by delivering written
notice to the General Partner.

      

      d.          Upon
the dissolution of the Partnership, the Managing General Partner (or, in the
event there is no General Partner, any Person elected pursuant to Section 11
hereof) shall promptly execute and cause to be filed certificates of dissolution
in accordance with the Texas Code and the laws of any other states or
jurisdictions in which the Partnership has filed certificates.

      

      1.7.         Independent Activities. 
Each Partner, including the Managing General Partner, may,
notwithstanding this Agreement, engage in whatever activities they choose,
whether the same are competitive with the Partnership or otherwise, without
having or incurring any obligation to offer any interest in such activities to
the Partnership or any Partner. Neither this Agreement nor any activity
undertaken pursuant to it shall prevent the Managing General Partner from
engaging in such activities, or require the Managing General Partner to permit
the Partnership or any Partner to participate in any such activities, and as a
material part of the consideration for the execution of this Agreement by the
Managing General Partner and the admission of each Partner, each Partner hereby
waives, relinquishes, and renounces any such right or claim of participation.
Notwithstanding the foregoing, the Managing General Partner still has an
overriding fiduciary obligation to the Partners.

      

      1.8.         Definitions.  Capitalized
words and phrases used in this Agreement have the meanings set forth in attached
Exhibit B or
elsewhere in this Agreement.

      

      1.9.         Authorized Units.  The
limited and general partnership interests of the Investor Partners in the
Partnership shall be represented by Units, and there are hereby authorized a
total of 900 Units.

      

      
        	
                SECTION
      2.

              	
                PARTNERS’
      CAPITAL CONTRIBUTIONS

              

      

      

      
        2.1.        
Managing
General Partner.

      

      

      a.            The
name and address of the Managing General Partner are set forth in Exhibit
A.

      

      b.            On
or before the Offering Termination Date, the Managing General Partner shall
purchase at least 1% of the total Units issued by the Partnership. The Managing
General Partner shall contribute to the capital of the Partnership the sum of
$100,000 in cash for each Unit purchased, net of the Management Fee. The Capital
Contribution to be made by the Managing General Partner and the number of Units
to be received by the Managing General Partner in exchange for such Capital
Contribution pursuant to this Section 2.1(b) are set forth in Exhibit
A.

       

      
        
          
          

        

        
          - 2
-

          
            

          

        

        
          
          

        

      

       

      c.    
        The Managing General Partner
shall also perform certain services for or on behalf of the Partnership in
exchange for Units (the “GP Units”). The
number of GP Units to be received by the Managing General Partner pursuant to
this Section 2.1(c) is set forth in Exhibit A. The
Partnership, the Partners and Unit Holders hereby acknowledge and agree that the
GP Units, and the rights and privileges associated with such GP Units,
collectively are intended to constitute a “profits interest” in the Partnership
within the meaning of Revenue Procedure 93-27, 1993-2 C.B. 343, or any successor
Internal Revenue Service or Regulation or other pronouncement applicable at the
date of issuance of such GP Units. The Partners agree that, in the event the
Safe Harbor Regulation is finalized, the Partnership is authorized and directed
to elect the Safe Harbor Election and the Partnership and each Partner and Unit
Holder (including any Person to whom an interest in the Partnership is
Transferred in connection with the performance of services) agrees to comply
with all requirements of the Safe Harbor with respect to all interests in the
Partnership if Transferred in connection with the performance of services while
the Safe Harbor Election remains effective. The Tax Matters Partner shall be
authorized to (and shall) prepare, execute, and file the Safe Harbor Election.
Any transferee of an interest shall agree to be bound by this Section
2.1(c).

      

      In
consideration of making the Capital Contribution in Section 2.1(a) and
performing services for or on behalf of the Partnership pursuant to Section
2.1(b), subjecting its assets to the liabilities of the Partnership, and
undertaking other obligations as herein set forth, the General Partner shall
receive the Managing General Partner’s interest in the Partnership described in
Section 3.

      

      2.2.          Investor Partners.  The
names, addresses, Capital Contributions and Units of partnership interest of the
Investor Partners shall be set forth on attached Exhibit A-1, which
shall be amended by the Managing General Partner from time to time. The Managing
General Partner shall have the sole and absolute right to admit to the
Partnership, as Investor Partners, such qualified Persons as the Managing
General Partner deems advisable. Each Person purchasing Units in the Partnership
pursuant to the offering described in that certain Confidential Private
Placement Memorandum of REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.
dated July 23, 2007 as amended and restated on February 6, 2008 (the “Private Placement
Memorandum”) shall deliver to the Partnership a subscription agreement
executed by him, together with payment to the Partnership of $100,000 in cash
per Unit. The minimum subscription per subscriber in such offering is $25,000
(one-fourth Unit). Subscriptions for fewer Units, or for fractional Units above
the minimum subscription, may be accepted at the discretion of the General
Partner.

      

      2.3.         Extent
of Liability.

      

      a.        Limited
Partners.  Except as otherwise provided by applicable
law:

      

      i.          No
Limited Partner shall have any personal liability whatsoever, whether to the
Partnership, the Managing General Partner or any creditor of the Partnership,
for the debts, expenses, liabilities, contracts or any other obligation of the
Partnership unless that Limited Partner otherwise agrees to that liability;
and

      

      ii.         A
Limited Parmer shall be liable only to make his Capital Contributions and shall
not be required to lend any funds to the Partnership or, after his Capital
Contributions have been paid, to make any additional Capital Contributions to
the Partnership.

      

      b.        General
Partners.  General Partners are liable, in addition to their Capital
Contributions, for Partnership obligations and liabilities represented by their
ownership of interests as general partners, in accordance with Texas law. Any
General Partner who converts his interest into that of a Limited Parmer retains
liability as a General Parmer for the time period during which he was a General
Partner.

      

      c.        Managing General
Partners.  No Managing General Partner shall have any personal
liability for the repayment of any Capital Contributions of any Investor
Partner. The Managing General Partner shall be liable for all debts and
obligations of the Partnership. Subject to Section 10.4, a Managing Genera]
Partner shall not be liable as a Managing General Partner for Partnership debts
and obligations arising after such Person ceases to be a Managing General
Partner.

      

      2.4.         Other
Matters.

      

      a.       
Except as otherwise provided in this Agreement, no Partner shall demand
or receive a return of his Capital Contributions or withdraw from the
Partnership without the consent of the Managing General Partner. Under
circumstances requiring a return of any Capital Contributions, no Partner shall
have the right to receive property other than cash except as may be specifically
provided herein.

       

      
        
          
          

        

        
          - 3
-

          
            

          

        

        
          
          

        

      

       

      b.       
No Partner shall receive any interest, salary or draw with respect to his
Capital Contributions or his Capital Account or for services rendered on behalf
of the Partnership or otherwise in his capacity as a Partner, except as
otherwise provided in this Agreement.

      

      
        	
                SECTION
      3.

              	
                ALLOCATIONS

              

      

      

      Profits,
Losses and other items of the Partnership shall be allocated among the Partners
and Unit Holders as set forth in Exhibit
C.

      

      
        	
                SECTION
      4.

              	
                DISTRIBUTIONS

              

      

      

      4.1.         Reserved.

      

      4.2.         Operating Distributions to Partners
and Unit Holders.  Except as otherwise provided in Sections 4.5 and 11 hereof, positive
Net Cash, if any, shall be distributed, at such times as the Managing General
Partner may determine, but in no event less frequently than monthly, as
follows:

      

      a.        Eighty-nine
percent (89%) to the Investor Partners and Unit Holders (and ratably among them
based upon the number of Units held by such Investor Partners and Unit Holders);
and

      

      b.        Eleven
percent (11%) to the Managing General Partner.

      

      4.3.         Amounts Withheld.  If
required by applicable law, the Managing General Partner shall cause the
Partnership to withhold such amounts as may be required from any payment or
distribution from the Partnership to a Partner or Unit Holder, and the Managing
General Partner shall remit such amount on a timely basis to the tax authority
or other entity entitled to it. Any (a) amounts so withheld or (b) estimated or
other payments to tax authorities with respect to any Profits or other items
allocable to the Partners or Unit Holders, shall be treated as amounts
distributed to the Partners and Unit Holders pursuant to this Section 4 for all purposes. The Managing
General Partner shall allocate any such amounts among the Partners and Unit
Holders in accordance with applicable law.

      

      4.4.         Limitation
Upon Distributions.

      

      a.        The
Partnership may not make a distribution to the Partners and Unit Holders to the
extent that, immediately after giving effect to the distribution, all
liabilities of the Partnership, other than liabilities to Partners and Unit
Holders with respect to their interests and liabilities for which the recourse
of creditors is limited to specified property of the Partnership, exceed the
fair value of the Partnership’s assets, except that the fair value of property
that is subject to a liability for which recourse of creditors is limited shall
be included in the Partnership’s assets only to the extent that the fair value
of that property exceeds that liability.

      

      b.        A
Partner or Unit Holder who receives a distribution that is not permitted
under this Agreement has no liability under the Texas Code to return the
distribution unless the Partner or Unit Holder knew that the distribution
violated the prohibition of the Texas Code. This does not affect any obligation
of the Partners or Unit Holders under this Agreement or other applicable law to
return the distribution.

      

      c.        Except
as otherwise provided by this Agreement, a Partner or Unit Holder has no right
to receive any distribution from the Partnership in any form other than
cash.

      

      4.5.         Distributions on Liquidation and
Capital Events.  In the event of a sale of all or substantially all
of the Partnership’s assets, a refinancing, or liquidation of the Partnership,
it is the intent of the Partners that distributions be made in the following
order of priority, provided that in all events distributions in the event of a
liquidation will be made pursuant to Section 11.2:

      

      a.        Eighty-nine
percent (89%) to the Investor Partners and Unit Holders (and ratably among them
based upon the number of Units held by such Investor Partners and Unit Holders);
and

       

      
        
          
          

        

        
          - 4
-

          
            

          

        

        
          
          

        

      

       

      b.        Eleven
percent (11%) to the Managing General Partner.

      

      4.6.       
Distributions to Pay Tax.  Notwithstanding any provision contained
herein, the Managing General Partner may, in its sole discretion, authorize
periodic distributions of Net Cash to any Partner or Unit Holder in amounts
necessary for the payment by the Partner or Unit Holder of any taxes owed by
such Partner or Unit Holder as a result of Profits allocated to such Partner or
Unit Holder pursuant to Section 3.1 of Exhibit C, when such
Partner or Unit Holder does not otherwise receive a distribution of Net Cash
relating to such allocation pursuant to Section 4.2. Any such distributions will
reduce the Capital Account of any Partner or Unit Holder receiving such
distribution and will be deducted from future distributions made to any Partner
or Unit Holder pursuant to Sections 4.2 and 4.5.

      

      
        	
                SECTION
      5.

              	
                MANAGEMENT

              

      

      

      5.1.       
Authority of the Managing General Partner.  Except to the extent
otherwise provided herein, the Managing General Partner shall have the exclusive
right to manage the business of the Partnership and shall have all of the rights
and powers which may be possessed by general partners under the Texas Code
including, without limitation, the right and power to:

      

      a.        acquire
by purchase, lease or otherwise any real or personal property which may be
necessary, convenient or incidental to the accomplishment of the purposes of the
Partnership;

      

      b.        operate,
maintain, improve, own, or grant options with respect to, sell, convey, assign,
lease and cause to have constructed any real and personal property necessary,
convenient or incidental to the accomplishment of the purposes of the
Partnership;

      

      c.        execute
any and all agreements, contracts, documents, certifications, licenses and
instruments necessary or convenient in connection with the purposes of the
Partnership and the management, maintenance and operation of the Property and
employ such Persons, including Affiliates of the Managing General Partner, as
are necessary to perform the duties required thereby;

      

      d.        execute,
in furtherance of any or all of the purposes of the Partnership, any bill of
sale, contract or other instrument purporting to convey any or all of the
Property;

      

      e.        undertake,
prepay in whole or in part, recast, increase, modify or extend any liabilities
affecting the Partnership as necessary, convenient or incidental to the purposes
of the Partnership; provided, however, that in the event the Managing General
Partner enters into an agreement to borrow funds to acquire a Property on behalf
of the Partnership, such borrowings shall be limited to no more than 50% of the
purchase price of such Property; provided further, that if the Managing General
Partner enters into an agreement to borrow funds for Partnership operations
(other than for acquiring a Property), such borrowing shall be limited to 30% of
the total Capital Contributions received by the Partnership as of the Offering
Termination Date; and provided further, that the Managing General Partner must
receive the affirmative vote of a majority-in-interest of the Partners prior to
exercising its rights and powers under this subsection 5.1(e);

      

      f.         care
for and distribute funds to the Partners and Unit Holders by way of cash,
income, return of capital or otherwise, all in accordance with the provisions of
this Agreement, and perform all matters in furtherance of the objectives of the
Partnership and this Agreement;

      

      g.        contract
on behalf of the Partnership for the employment and services of employees and/or
independent contractors, including Affiliates of the Managing General Partner,
such as lawyers and accountants, and delegate to such Persons the duty to manage
or supervise any of the assets or operations of the Partnership;

      

      h.        engage
in any kind of activity and perform and carry out contracts of any kind
(including contracts of insurance covering risks to the Property and General
Partner liability) necessary or incidental to, or in connection with, the
accomplishment of the purposes of the Partnership, as may be lawfully carried on
or performed by a partnership under the laws of each state in which the
Partnership is then formed or qualified;

       

      
        
          
          

        

        
          - 5
-

          
            

          

        

        
          
          

        

      

       

      i.         make
any and all elections for federal, state and local tax purposes including,
without limitation, any election, if permitted by applicable law: (i) to adjust
the basis of Property pursuant to Code Sections 754, 734(b) and 743(b), or
comparable provisions of state or local law, in connection with transfers of
Partnership interests and Partnership distributions; (ii) to extend the statute
of limitations for assessment of tax deficiencies against the Partners and Unit
Holders with respect to adjustments to the Partnership’s federal, state or local
tax returns; and (iii) to represent the Partnership, the Partners and the Unit
Holders before taxing authorities or courts of competent jurisdiction in tax
matters affecting the Partnership, the Partners and the Unit Holders in their
capacities as Partners or Unit Holders, and to execute any agreements or other
documents relating to or affecting such tax matters, including agreements or
other documents that bind the Partners and Unit Holders with respect to such tax
matters or otherwise affect the rights of the Partnership, the Partners and Unit
Holders. The Managing General Partner is specifically authorized to act as the
“Tax Matters Partner” under the Code and in any similar capacity under state or
local law;

      

      j.         execute
powers of attorney, consents, waivers and other documents that may be necessary
before
any court, administrative board or agency of any governmental authority,
affecting the properties owned by the Partnership;

      

      k.        take
and hold title to property, execute evidences of indebtedness or other
obligations or instruments in its name or the name of a nominee all on behalf of
the Partnership and with or without disclosing the true owner or party in
interest thereto. The Partnership shall be solely entitled to all rights, titles
and interests held by the Managing General Partner or nominee on behalf of the
Partnership and solely liable for all expenses, costs and other obligations
incurred in connection therewith. All such instruments so executed may be
transferred into the name of the Partnership by assignment or otherwise or held
in the name of the Managing General Partner or nominee as the Managing General
Partner may determine; provided, always, that the Managing General Partner shall
keep as part of the books and records of the Partnership and properly account on
its books for each such contract, deed, note or other instrument indicating the
nominal parties thereto, date, thereof and general description of such
document;

      

      l.         institute,
prosecute, defend, settle, compromise and dismiss lawsuits or other judicial or
administrative proceedings brought on or in behalf of, or against, the
Partnership or the Partners in connection with activities arising out of,
connected with or incidental to this Agreement, and to engage counsel or others
in connection therewith; and

      

      m.       take
all actions not expressly proscribed or limited by this Agreement, or refrain
from taking all actions not expressly required by this Agreement, as may be
necessary or appropriate to accomplish the purposes of the
Partnership.

      

      5.2.        Right to Rely on the Managing General
Partner.  Any Person dealing with the Partnership may rely (without
duty of further inquiry) upon a certificate signed by the Managing General
Partner as to:

      

      a.        the
identity of any Partner;

      

      b.        the
existence or nonexistence of any fact or facts which constitute a condition
precedent to acts by the Managing General Partner or which are in any other
manner germane to the affairs of the Partnership;

      

      c.        the
Persons who are authorized to execute and deliver any instrument or document of
the Partnership; or

      

      d.        any
act or failure to act by the Partnership or any other matter whatsoever
involving the Partnership or any Partner.

       

      
        
          
          

        

        
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      5.3.        Duties
and Obligations of the Managing General Partner.

      

      a.     
   The Managing General Partner shall take all actions which may
be necessary or appropriate (i) for the continuation of the Partnership’s valid
existence as a limited partnership under the laws of the State of Texas (and of
each other jurisdiction in which such existence is necessary to protect the
limited liability of the Limited Partners or to enable the Partnership to
conduct the business in which it is engaged), and (ii) for the accomplishment of
the Partnership’s purposes.

      

      b.         The
Managing General Partner shall devote to the Partnership such time as may be
necessary for the proper performance of all duties hereunder, but the General
Partner shall not be required to devote full time to the performance of such
duties.

      

      c.         The
Managing General Partner shall be under a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Partnership and of the Investor
Partners, including the safekeeping and use of all of the Property and the use
thereof for the exclusive benefit of the Partnership.

      

      d.         In
order to protect Partnership assets, the Managing General Partner may procure or
cause to be procured and maintain or cause to be maintained in force, or
contract with others to obtain and maintain in force, such insurance as in its
best judgment it deems prudent to serve as protection against liability for loss
and damage that may be occasioned by the activities of the Partnership. The cost
of obtaining such insurance shall be charged to and borne by the Partnership.
The Managing General Partner shall not be liable to any Investor Partner for any
loss that may be sustained by the Partnership because the Managing General
Partner did not acquire or cause to be acquired any particular type of
insurance.

      

      5.4.        Indemnification
of the Managing General Partner.

      

      a.         To
the furthest extent permitted by the Texas Code, the Partnership, its receiver
or its trustee shall indemnify, save harmless and pay all judgments and claims
against the Managing General Partner relating to any liability or damage
incurred by reason of any act performed or omitted to be performed by the
Managing General Partner in connection with the business of the Partnership,
including attorneys’ fees incurred by the Managing General Partner in connection
with the defense of any action based on any such act or omission, which
attorneys’ fees and expenses may be paid as statements for such fees and
expenses are presented, including all such liabilities under federal and state
securities laws (including the Securities Act of 1933, as amended) as permitted
by law.

      

      b.      
  In the event of any action by a Unit Holder against the Managing
General Partner, including a Partnership derivative suit, the Partnership shall
indemnify, save harmless and pay all expenses of the Managing General Partner,
including attorneys’ fees, incurred in the defense of such action, if the
Managing General Partner is successful in such action.

      

      c.        
The Partnership shall indemnify, save harmless and pay all expenses, costs or
liabilities of the Managing General Partner who for the benefit of the
Partnership makes any deposit, acquires any option or makes any other similar
payment or assumes any obligation in connection with any property proposed to be
acquired by the Partnership and who suffers any financial loss as the result of
such action.

      

      5.5.        Reimbursement
and Compensation to the Managing General Partner.

      

      a.        
The General Partner shall receive as compensation for its services as
Managing General Partner the following amounts:

      

      i.         Direct Costs
Reimbursement.  The Managing General Partner shall be reimbursed for
all Direct Costs of the Partnership for which it pays. The Managing General
Partner may charge to the Partnership and be reimbursed or pay out of
Partnership funds, as and when available, all Direct Costs incurred by the
Managing General Partner in the operation of the Partnership including but not
limited to expenses, charges and fees relating to:

      

      a)         accounting
fees,

       

      
        
          
          

        

        
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      b)         reserve
evaluations prepared by independent petroleum engineers,

      

      c)         consulting
fees, professional fees, attorneys’ fees and court costs,

      

      d)         preparing
and distributing periodic reports to the Partnership,

      

      e)         insurance
for the benefit of the Partnership,

      

      f)         preparing
tax returns and reports, and

      

      g)        employing
the services of engineers, geologists and geophysicists.

      

      ii.        Management
Fees.  The Managing General Partner shall receive a one time
management fee equal to the excess, if any, of 15% of Capital Contributions over
all organization and offering costs, sales commissions, selling expense fees,
and fees paid to consulting engineers (the “Management Fee”). The
Management Fee shall be payable to the Managing General Partner at the time of
formation of the Partnership and as Capital Contributions are received
thereafter.

      

      iii.       Profits
Interest.  The Managing General Partner shall receive the GP Units
constituting a “profits interest” pursuant to Section 2.1(c)
hereof.

      

      iv.        Administrative
Fee.  The Managing General Partner shall receive a monthly
administrative fee in an amount equal to 1/12th of 1% of all Capital
Contributions, payable monthly until the Partnership is dissolved.

      

      v.         Drilling
Compensation.  When the Managing General Partner or an Affiliate of
the General Partner serves as operator of a Prospect Well, then the Managing
General Partner or such Affiliate of the Managing General Partner, as the case
may be, shall receive drilling compensation in an amount equal to 15% of the
total well costs paid from the Capital Contributions. If neither the Managing
General Partner nor an Affiliate of the Managing General Partner serves as
operator of a Partnership well, then the Managing General Partner shall receive
drilling compensation equal to 5% of the total well costs. Total well costs
include all drilling and equipment costs, including intangible well costs,
tangible costs of drilling and completing the Prospect Well, costs of storage
and other surface facilities, and the tangible costs of gathering pipelines
necessary to connect the Prospect Well to the nearest appropriate sales point or
delivery point. In addition, total well costs also include the costs of all
developmental activities on a well, such as reworking, working over, deepening,
sidetracking, fracturing a producing well, installing pipeline for a well or any
other activity incident to the operations of a well, excluding ordinary well
operating costs after completion. Total well costs do not include costs relating
to lease acquisitions for purposes of calculating drilling
compensation.

      

      vi.        Other
Compensation.  The Managing General Partner and its Affiliates may
transfer properties to the Partnership. The Managing General Partner and its
Affiliates may enter into other transactions with the Partnership, such as
providing operating services, supplies and equipment, and shall be entitled to
well supervision fees and other compensation at rates and terms competitive with
those in the geographic area of the properties.

      

      vii.     
 Acquisition Costs and
Development Costs.  The Managing General Partner and its Affiliates
shall be reimbursed for Acquisition Costs and Development Costs.

      

      b.         The
Managing General Partner shall not be deemed to have received commissions, fees
or other compensation paid to any firm, proprietorship, partnership or
corporation that is an Affiliate, or in which the Managing General Partner, or
any partner, officer, director or employee thereof or any member of any such
person’s respective immediate family, owns a beneficial interest. Nothing
contained in this Agreement shall be deemed to:

       

      
        
          
          

        

        
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      i.         Restrict
the right of the Managing General Partner or any Affiliate to be reimbursed for
sums actually expended in conducting the business of the
Partnership;

      

      ii.        Restrict
the right of the Managing General Partner or any other person to receive the
income or distributions to which they would otherwise be entitled as the
Managing General Partner or a Partner under the terms of this Agreement;
or

      

      iii.       Prevent
or restrict the Managing General Partner, or any related person or entity from
obtaining or sharing in all or any part of any commissions or other sums payable
in connection with any property purchased or sold by the
Partnership.

      

      5.6.         Interpretation.  If any
provision of this Agreement is unclear or ambiguous in the opinion of the
Managing General Partner, the Managing General Partner, in its sole and absolute
discretion, shall have the right and power to interpret such provision in
accordance with the purposes, and in the best interests of the Partnership and
all the Partners; provided that the Managing General Partner may not interpret
the provisions hereof so as to increase its compensation as set forth
herein.

      

      5.7.         Reliance Upon Experts. 
The Managing General Partner may employ or retain such counsel,
accountants, engineers, geologists, landmen, appraisers or other experts or
advisors as it may reasonably deem appropriate for the purpose of discharging
its duties hereunder, and shall be entitled to pay the fees of any such persons
from the funds of the Partnership. The Managing General Partner may act and
shall be protected in acting in good faith on the opinion or advice of, or
information obtained from any such counsel, accountant, engineer, geologist,
appraiser or other expert or advisor, whether retained or employed by the
Partnership, the Managing General Partner, or otherwise, in relation to any
matter connected with the administration or operation of the business and
affairs of the Partnership.

      

      5.8.         Limitations
on Partners’ Acts.

      

      a.        Prohibited Acts. The
Partners, including the Managing General Partner, are expressly prohibited from
entering into any contract or other transaction that would:

      

      i.         Result
in possession of Partnership property or assignment of any rights in specific
Partnership property, other than for a Partnership purpose; or

      

      ii.        Authorize
the lending of Partnership funds to any partnership or joint venture in which
the Managing General Partner or an Affiliate is a general partner or Managing
General Partner.

      

      b.        Acts Requiring Unanimous
Approval. Except by the unanimous consent of all of the Partners,
including the Managing General Partner, no Partner has authority
to:

      

      i.         Assign
the Partnership property in trust for creditors or on the assignee’s promise to
pay the debts of the Partnership;

      

      ii.        Dispose
of the goodwill of the business; or

      

      iii.       Do
any other act, which would make it impossible to carry on the ordinary business
of the Partnership.

      

      5.9.         Other Permissible Activities. 
No Partner is prevented hereby from engaging in other activities for
profit, whether in the oil and gas business or otherwise. The Partners,
including the Managing General Partner and its Affiliates, have and in the
future may engage in other businesses including the organization and management
of additional partnerships, limited partnerships, joint ventures, or
corporations for the exploration of oil and gas and must necessarily divide
their time between the business of the Partnership and their other activities.
The Partners, including the Managing General Partner and its Affiliates, are
hereby authorized, during the life of the Partnership, to acquire oil or gas
interests or properties and not offer the same to the Partnership. Further,
nothing herein shall prevent another partnership organized by the Managing
General Partner or any Affiliate from acquiring a prospect that is in the same
geographical reservoir as any Prospect owned by this Partnership.

       

      
        
          
          

        

        
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                SECTION
      6. 

              	
                ROLE
      OF INVESTOR PARTNERS

              

      

      

      6.1.         Rights or Powers. No Investor
Partner (whether a Limited Partner or a General Partner) shall take part in the
control or management of the business or transact any business for the
Partnership, and no Investor Partner shall have the power to sign for or bind
the Partnership. Any action or conduct of Investor Partners on behalf of the
Partnership is hereby expressly prohibited. Any Investor Partner who violates
this Section 6.1 shall be liable to the remaining Investor Partners, the
Managing General Partner, and the Partnership for any damages, costs, or
expenses any of them may incur as a result of such violation. The Investor
Partners hereby grant to the Managing General Partner or its successors or
assignees the exclusive authority to manage and control the Partnership business
in its sole discretion and to thereby bind the Partnership and all Partners in
its conduct of the Partnership business. Investor Partners shall have the right
to vote only with respect to those matters specifically provided for in these
Articles. No Investor Partner shall have the authority to:

      

      a.        Assign
the Partnership property in trust for creditors or on the assignee’s promise to
pay the debts of the Partnership;

      

      b.        Dispose
of the goodwill of the business;

      

      c.        Do
any other act that would make it impossible to carry on the ordinary business of
the Partnership;

      

      d.        Confess
a judgment;

      

      e.        Submit
a Partnership claim or liability to arbitration or reference;

      

      f.         Make
a contract or bind the Partnership to any agreement or document;

      

      g.        Use
the Partnership’s name, credit, or property for any purpose;

      

      h.        Do
any act which is harmful to the Partnership’s assets or business or by which the
interests of the Partnership shall be imperiled or prejudiced; or

      

      i.         Perform
any act in violation of any applicable law or regulations thereunder, or perform
any act that is inconsistent with the terms of this Agreement.

      

      6.2.         Voting Rights. The Investor
Partners, voting together with the Managing General Partner, shall have the
right to vote on all Partnership decisions expressly requiring the vote of such
Investor Partners under the Texas Code and on matters expressly requiring their
vote or consent under the provisions of this Agreement. Unless otherwise
required under the Texas Code or this Agreement, the affirmative vote of
Partners representing a Majority in Interest of the Partners shall be required
on any matter requiring the vote or consent of Investor Partners. Unless
otherwise required under the Texas Code or this Agreement, for each matter
requiring a vote of the Investor Partners hereunder, each Partner shall vote pro
rata in accordance with the percentage that such Partner’s share of allocations
of Profits, Losses and other items bears to all allocations of Profits, Losses
and other items as set forth in Exhibit C. Such vote
may be obtained in accordance with the procedures described in Section 8. In
addition to any matters otherwise set forth in this Agreement, the affirmative
vote of the Investor Partners will be required to approve the following: (a) the
sale of all or substantially all of the Partnership’s assets; (b) the removal of
the Managing General Partner and election of a new Managing General Partner
pursuant to Section 10 (which removal shall require seventy percent (70%) vote
as set forth in Section 10 hereof); (c) the dissolution and winding up of the
Partnership and, if necessary, appointment of an entity to oversee the winding
up of the Partnership’s affairs, pursuant to Section 11; (d) the voluntary
withdrawal of the Managing General Partner and the election of a new Managing
General Partner if the Managing General Partner elects to withdraw pursuant to
Section 10; and (e) any amendment to the provisions of this Agreement which
would alter, in any material way, the rights of the Investor Partners, or their
obligations, or the obligations of the Partnership under this Agreement,
including amendments to the voting rights or to provisions governing the
interests of the Investor Partners in Profits, Losses, other allocation items,
or Partnership distributions (except where required and permitted under Exhibit C).
Notwithstanding any other provisions of this Agreement, no amendment to this
Agreement shall have the effect of modifying the limited liability of any
Investor Partner without the specific consent of such Investor Partner. Any
amendment to this Agreement to the provisions of this paragraph or Section 10
hereof requiring a vote of 70% of the Units held by the Investor Partners to
remove the Managing General Partner, shall require a vote of 70% of the Units
held by the Investor Partners.

       

      
        
          
          

        

        
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      6.3.         Indemnification of Additional General
Partners. The Managing General Partner agrees to indemnify each of the
Additional General Partners for the amounts of obligations, risks, losses, or
judgments of the Partnership or the Managing General Partner that exceed the
amount of applicable insurance coverage and amounts that would become available
from the sale of all Partnership assets. Such indemnification applies to
casualty losses and to business losses, such as losses incurred in connection
with the drilling of an unproductive well, to the extent such losses exceed the
Additional General Partners’ interest in the undistributed net assets of the
Partnership. If, on the other hand, such excess obligations are the result of
the negligence or misconduct of an Additional General Partner, or the
contravention of the terms of the Partnership Agreement by the Additional
General Partner, then the foregoing indemnification by the Managing General
Partner shall be unenforceable as to such Additional General Partner and such
Additional General Partner shall be liable to all other Partners for damages and
obligations resulting therefrom.

      

      
        	
                SECTION
      7. 

              	
                BOOKS
      AND RECORDS

              

      

      

      7.1.         Books and Records. The
Partnership shall keep all books and records required by the Texas Code in the
manner described in Section 153.551 (or any successor provision) of the Texas
Code and shall make such records and books available to its Partners (or their
representatives) in the manner set forth in the Texas Code, upon notice as
described in the Texas Code.

      

      7.2.         Fiscal Year. The fiscal year
of the Partnership shall be the calendar year.

      

      7.3.         Financial Statements and Tax Returns.
At the expense of the Partnership, the Managing General Partner shall
engage a certified public accountant to prepare the Partnership’s annual income
tax return, the return required by Code section 6050K relating to sales and
exchanges of interests in the Partnership, and annual financial statements,
which shall include:

      

      a.        a
balance sheet as of the last day of the accounting year;

      

      b.        a
statement of income or loss for the full year;

      

      c.        a
statement of changes in financial position;

      

      d.        a
statement of cash flow and distributions for the full year;

      

      e.        a
detailed statement of distributions to and changes in the Capital Accounts of
all Partners; and

      

      f.        a
detailed statement of assessments and borrowings, if any.

      

      Such
financial statements may at the election of the Managing General Partner be
unaudited. Within a reasonable time after the close of each accounting year, the
Managing General Partner shall transmit to each person who was a Partner (or
assignee) during such accounting year, a copy of such financial statements and a
report (which may be in the form of Schedule K-l to IRS Form 1065) containing
necessary tax information.

      

      7.4.         Reports.  In addition to
the financial information set forth in this Article VII, the Managing General
Partner shall furnish to the Partners annually a detailed statement of any
transactions by the Partnership with the Managing General Partner or its
Affiliates, and of fees, commissions, compensation and other benefits paid or
accrued to the Managing General Partner or its Affiliates.

       

      
        
          
          

        

        
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      7.5.        
Confidentiality. 
All information relating to the Partnership and the Partners is intended
by all Partners to be confidential and a trade secret of the Partnership. Any
disclosure of such information to anyone other than a Partner or their duly
designated representative, or the use of any information regarding the
Partnership, its business or its Partners is prohibited; provided, however, that
nothing herein shall prevent or restrict the disclosure of any such information
for a proper Partnership business purpose or as otherwise may be required by
law. The Partnership and the Partners acknowledge that any breach of the
confidentiality provision herein contained may not provide the non-breaching
party with an adequate remedy at law and thus, the Partners, Partnership and the
General Partner acknowledge and agree to injunctive relief with respect to any
such breach.

      

      
        	
                SECTION
      8. 

              	
                AMENDMENTS;
      MEETINGS

              

      

      

      8.1.         Amendments.  Amendments
to this Agreement required to be approved by the Investor Partners may be
proposed by the Managing General Partner or by a Majority in Interest of the
Partners. Following such proposal, the Managing General Partner shall submit to
the Investor Partners a verbatim statement of any proposed amendment, providing
that counsel for the Partnership shall have approved of the same in writing as
to form, and the Managing General Partner shall include in any such submission a
recommendation as to the proposed amendment. The Managing General Partner shall
seek the written vote of the Partners on the proposed amendment or shall call a
meeting to vote thereon, in accordance with Section 8.2, and to transact any
other business that it may deem appropriate. For purposes of obtaining a written
vote, the Managing General Partner may require response within a reasonable
specified time, but not less than seven (7) days, and failure to respond in such
time period shall be deemed to constitute a vote against the proposal. A
proposed amendment shall be adopted and be effective as an amendment hereto if
it receives the vote of Partners representing a Majority in Interest of the
Partners, except for any amendment to the provisions regarding removal of the
Managing General Partner set forth in Sections 6 and 10 hereof, which shall only
be amended by a vote of 70% of the Units held by the Investor Partners. In the
event that a meeting is duly noticed and called, the affirmative vote of the
Units held by Investor Partners attending or represented by proxy at such
meeting shall be sufficient to approve any amendment (even if less than the
foregoing specified percentage) except for any amendment to the provisions
regarding removal of the Managing General Partner set forth in Sections 6 and 10
hereof, which shall only be amended by a vote of 70% of the Units held by the
Investor Partners.

      

      8.2.         Meetings
of the Partners.

      

      a.        Meetings
of the Partners may be called by the Managing General Partner and shall be
called upon the written request of Investor Partners holding a majority of the
Units held by Investor Partners. The call shall state the nature of the business
to be transacted. Notice of any such meeting shall be given to all Investor
Partners not less than ten (10) days nor more than sixty (60) days prior to the
date of such meeting. Investor Partners may vote in person or by proxy at such
meeting. Whenever the vote or consent of Investor Partners is permitted or
required under this Agreement, such vote or consent may be given at a meeting of
Partners or may be given in accordance with the procedure for soliciting a
written vote described in Section 8.1. In the event the Managing General Partner
elects to solicit a written vote, the Managing General Partner shall submit to
the Investor Partners materials describing in detail the proposed action upon
which a vote is being sought together with the Managing General Partners
recommended action as to such proposed action. For purposes of obtaining a
written vote, the Managing General Partner may require response within a
reasonable specified time, but not less than seven (7) days, and failure to
respond in such time period shall be deemed to constitute a vote against the
proposal. Except as otherwise expressly provided in this Agreement (or the Texas
Code), the vote (including any vote for or against a proposal by virtue of a
failure to respond) of the Partners representing a Majority in Interest of the
Partners shall be effective.

      

      b.        For
the purpose of determining the Partners entitled to vote on, or to vote at, any
meeting of the Partners or any adjournment thereof, the Managing General Partner
or the Investor Partners requesting such meeting may fix, in advance, a date as
the record date for any such determination. Such date shall not be more than
thirty (30) days nor less than ten (10) days before any such
meeting.

       

      
        
          
          

        

        
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      c.        Each
Investor Partner may authorize any Person or Persons (including the Managing
General Partner) to act for it by proxy on all matters on which an Investor
Partner is entitled to participate, including waiving notice of any meeting, or
voting or participating at a meeting. Every proxy must be signed by the Investor
Partner or his attorney-in-fact. No proxy shall be valid after the expiration of
eleven (11) months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Investor Partner executing
it. Such revocation may be effected by a writing delivered to the Partnership
stating that the proxy is revoked or by a subsequent proxy executed by the
Person executing the prior proxy and presented to the meeting, or as to any
meeting by attendance at such meeting and voting in person by the Person
executing the proxy. A proxy is not revoked by the death or incapacity of the
maker unless, before the vote is counted, written notice of such death or
incapacity is received by the Partnership.

      

      d.        Each
meeting of Partners shall be conducted by such Person as the Managing General
Partner may appoint pursuant to such rules for the conduct of the meeting as the
Managing General Partner or such other Person deems appropriate.

      

      
        	
                SECTION
      9. 

              	
                TRANSFERS
      OF UNITS; DISTRIBUTIONS

              

      

      

      9.1.         Restriction on Transfers. 
Except as otherwise permitted by this Agreement, no Unit Holder shall
Transfer all or any portion of his Units.

      

      9.2.         Permitted Transfers. 
Subject to the conditions and restrictions set forth in Section 9.3, a
Unit Holder may at any time Transfer all or any portion of his or her Units
subject to the following conditions precedent (any such Transfer being referred
to in this Agreement as a “Permitted
Transfer”):

      

      a.        Except
in the case of a Transfer of Units at death or involuntarily by operation of
law, the transferor and transferee shall execute and deliver to the Partnership
such documents and instruments of conveyance as may be necessary or appropriate
in the opinion of counsel to the Partnership to effect such Transfer and to
confirm the agreement of the transferee to be bound by the provisions of this
Section 9. In any case not described in the preceding sentence, the Transfer
shall be confirmed by presentation to the Partnership of legal evidence of such
Transfer, in form and substance satisfactory to counsel to the Partnership. In
all cases, the Partnership shall be reimbursed by the transferor and/or
transferee for all costs and expenses that it reasonably incurs in connection
with such Transfer.

      

      b.        Except
in the case of a Transfer at death or involuntarily by operation of law, the
transferor shall furnish to the Partnership an opinion of counsel, which counsel
and opinion shall be satisfactory to the Partnership, that the Transfer will not
cause the Partnership to terminate for federal income tax purposes;

      

      c.        The
transferor and transferee shall furnish the Partnership with the transferee’s
taxpayer identification number, sufficient information to determine the
transferee’s initial tax basis in the Units transferred, and any other
information reasonably necessary to permit the Partnership to file all required
federal and state tax returns and other legally required information statements
or returns. Without limiting the generality of the foregoing, the Partnership
shall not be required to make any distribution otherwise provided for in this
Agreement with respect to any transferred Units until it has received such
information.

      

      d.        Except
in the case of a Transfer at death or involuntarily by operation of law, either
(i) such Transfer shall be registered under the Securities Act of 1933, as
amended, and any applicable state securities laws, or (ii) the transferor shall
provide an opinion of counsel, which opinion and counsel shall be satisfactory
to the Partnership, to the effect that such Transfer is exempt from all
applicable registration requirements and that such Transfer will not violate any
applicable laws regulating the Transfer of securities.

      

      e.        In
the case of a transfer of Units to the Managing General Partner, including any
such transfer following an exercise of the Managing General Partner’s rights
pursuant to Section 4.5 hereof, the Managing General Partner on behalf of the
Partnership may waive any of the terms or conditions set forth in this Section
9.

       

      
        
          
          

        

        
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      9.3.         Prohibited Transfers. 
Any purported Transfer of Units that is not a Permitted Transfer shall be
null and void and of no effect whatever; provided that, if the Partnership is
required by proper authority to recognize a Transfer that is not a Permitted
Transfer (or if the Partnership, in its sole discretion, elects to recognize a
Transfer that is not a Permitted Transfer), the interest Transferred shall be
strictly limited to the transferor’s rights to allocations and distributions as
provided by this Agreement with respect to the transferred Units, which
allocations and distributions may be applied (without limiting any other legal
or equitable rights of the Partnership) to satisfy any debts, obligations, or
liabilities for damages that the transferor or transferee of such Units may have
to the Partnership.

      

      In the
case of a Transfer or attempted Transfer of Units that is not a Permitted
Transfer, the parties engaging or attempting to engage in such Transfer shall be
liable to indemnify and hold harmless the Partnership and all Partners from all
cost, liability and damage that any of such indemnified Persons may incur
(including, without limitation, incremental tax liability and lawyers fees and
expenses) as a result of such Transfer or attempted Transfer and efforts to
enforce the indemnity granted hereby.

      

      9.4.         Rights of Unadmitted Assignees. 
A Person who acquires one or more Units but who is not admitted as a
substituted Investor Partner pursuant to Section 9.5 shall be entitled only to
allocations and distributions with respect to such Units in accordance with this
Agreement, but shall have no right to any information or accounting of the
affairs of the Partnership, shall not be entitled to inspect the books or
records of the Partnership, and shall not have any of the rights of a General
Partner or a Limited Partner under the Texas Code or the Agreement.

      

      9.5.         Admission of Unit Holders as
Partners.  Subject to the other provisions of this Section 9, a
transferee of Units of Partnership interest may be admitted to the Partnership
as a substituted Investor Partner only upon satisfaction of the conditions set
forth below in this Section 9.5:

      

      a.        The
Managing General Partner consents to such admission;

      

      b.         The
Units with respect to which the transferee is being admitted were acquired by
means of a Permitted Transfer;

      

      c.         The
transferee becomes a party to this Agreement as an Investor Partner and executes
such documents and instruments as the Managing General Partner may reasonably
request as may be necessary or appropriate to confirm such transferee as an
Investor Partner in the Partnership and such transferee’s agreement to be bound
by the terms and conditions hereof;

      

      d.        
The transferee pays or reimburses the Partnership for all reasonable
legal, filing and publication costs that the Partnership incurs in connection
with the admission of the transferee as an Investor Partner with respect to the
Transferred Units; and

      

      e.         If
the transferee is a minor, the transferee provides the Partnership with evidence
satisfactory to counsel for the Partnership of the authority of the transferee
to become a Partner and to be bound by the terms and conditions of this
Agreement.

      

      f.         The
Managing General Partner determines that the total amount of Units owned after
such transfer by persons who are a “benefit plan investor” does not equal or
exceed the amount that would cause the Partnership’s assets to be considered
“plan assets” (successor concept) within the meaning of ERISA or similar laws
(whether now enacted or enacted in the future, and whether applicable to private
or public plans).

       

      
        
          
          

        

        
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      9.6.        Representations;
Legend.

      

      a.         Each
Unit Holder hereby covenants and agrees with the Partnership for the benefit of
the Partnership and all Unit Holders, that (i) he is not currently making a
market in Units and will not in the future make a market in Units, (ii) he will
not Transfer his Units on an established securities market, a secondary market
(or the substantial equivalent thereof) within the meaning of Code Section
7704(b) (and any regulations, proposed regulations, revenue rulings or other
official pronouncements of the Internal Revenue Service or Treasury Department
that may be promulgated or published thereunder), and (iii) in the event such
regulations, revenue rulings or other pronouncements treat any or all
arrangements which facilitate the selling of partnership interests and which are
commonly referred to as “matching services” as being a secondary market or
substantial equivalent thereof, he will not Transfer any Unit through a matching
service that is not approved in advance by the Partnership. Each Unit Holder
further agrees that he will not voluntarily Transfer any Unit to any Person
unless such Person agrees to be bound by this Section 9.6(a) and to voluntarily
Transfer such Units only to Persons who agree to be similarly bound. The
Partnership shall, from time to time, at the request of a Unit Holder consider
whether to approve a matching service and shall notify all Unit Holders of any
matching service that is so approved.

      

      b.        Each
Unit Holder hereby represents and warrants to the Partnership and the Managing
General Partner that such Unit Holder’s acquisition of Units hereunder is made
as principal for such Unit Holder’s own account and not for resale or
distribution of such Units. Each Unit Holder further hereby agrees that the
following legend may be placed upon any counterpart of this Agreement, or any
other document or instrument evidencing ownership of Units:

      

      “The
Partnership Units represented by this document have not been registered under
any securities laws and the transferability of such Units is restricted. Such
Units may not be sold, assigned or transferred, nor will any assignee, vendee,
transferee or endorsee thereof be recognized as having acquired any such Units
by the issuer for any purposes, unless (i) a registration statement under the
Securities Act of 1933, as amended, with respect to the transfer of such Units
shall then be in effect and such transfer has been qualified under all
applicable state securities laws, or (ii) the availability of an exemption from
such registration and qualification shall be established to the satisfaction of
counsel to the Partnership.

      

      The
Partnership Units represented by this document are subject to further
restriction as to their sale, transfer, hypothecation or assignment as set forth
in the Agreement of Limited Partnership and agreed to by each Partner. Said
restriction provides, among other things, that no vendee, transferee, assignee
or endorsee shall have the right to become a substituted Investor Partner
without the consent of the Managing General Partner.”

      

      9.7.        
Distributions and Allocations
in Respect to Transferred Units. If any Partnership interest is
Transferred during any accounting period in compliance with the provisions of
this Section 9, Profits, Losses, each item thereof and all other items
attributable to the Transferred interest for such period shall be divided and
allocated between the transferor and the transferee by taking into account their
varying interests during the period in accordance with Code Section 706(d),
using any conventions permitted by law and selected by the Managing General
Partner. All distributions on or before the date of such Transfer shall be made
to the transferor, and all distributions thereafter shall be made to the
transferee. Solely for purposes of making such allocations and distributions,
the Partnership shall recognize such Transfer not later than the end of the
calendar month during which it is given notice of such Transfer, provided that
if the Partnership does not receive a notice stating the date such interest was
Transferred and such other information as the Managing General Partner may
reasonably require within thirty (30) days after the end of the accounting
period during which the Transfer occurs, then all of such items shall be
allocated, and all distributions shall be made, to the Person who, according to
the books and records of the Partnership, on the last day of the accounting
period during which the Transfer occurs, was the owner of the interest. Neither
the Partnership nor the Managing General Partner shall incur any liability for
making allocations and distributions in accordance with the provisions of this
Section 9.7, whether or not the Managing General Partner or the Partnership has
knowledge of any Transfer of ownership of any interest.

      

      
        	
                SECTION
      10. 

              	
                MANAGING
      GENERAL PARTNER

              

      

      

      10.1.       Covenant Not to Withdraw, Transfer or
Dissolve.  Except as otherwise permitted by this Agreement, the
Managing General Partner hereby covenants and agrees not to (a) withdraw or
attempt to withdraw from the Partnership, (b) exercise any power under the Texas
Code to dissolve the Partnership, or (c) voluntarily Transfer all or any portion
of its interest in the Partnership as a Managing General Partner. Further, the
Managing General Partner hereby covenants and agrees to continue to carry out
the duties of the Managing General Partner hereunder until the Partnership is
dissolved and liquidated pursuant to Section 11.

       

      
        
           

        

        
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      10.2.      Permitted
Transfers.

       

      a.         The
Managing General Partner may Transfer all or any portion of its interest in the
Partnership as the Managing General Partner (i) at any time to any Person who is
such Managing General Partner’s Affiliate on both the day such Managing General
Partner became the Managing General Partner and the day of such Transfer, (ii)
at any time involuntarily by operation of law or (iii) following one hundred
twenty (120) days prior written notice of its intention to withdraw and retire
as Managing General Partner with the consent of the holders of a Majority in
Interest of the Partners; provided that no such Transfer shall be permitted
unless and until all of the conditions set forth in Section 9.2 are satisfied as
if the Partnership interest being Transferred was a Unit of Partnership
interest.

       

      b.         A
transferee of a Partnership interest from the Managing General Partner hereunder
shall be admitted as the Managing General Partner with respect to such interest
if, but only if, the admission of such transferee as the Managing General
Partner is approved by a Majority in Interest of the Investor
Partners.

       

      c.         Notwithstanding
any other provision of the Agreement, the Managing General Partner shall have
the right to pledge to any Person its rights to receive distributions or
payments under this Agreement.

       

      10.3.       Prohibited Transfers. Any
purported Transfer of any Partnership interest held by the Managing General
Partner that is not permitted by Section 10.2 above shall be null and void and
of no effect whatever; provided that, if the Partnership is required to
recognize a Transfer that is not so permitted (or if the Partnership, in its
sole discretion, elects to recognize a Transfer that is not so permitted), the
interest transferred shall be strictly limited to the transferor’s rights to
allocations and distributions as provided by this Agreement with respect to the
transferred interest, which allocations and distributions may be applied
(without limiting any other legal or equitable rights of the Partnership) to
satisfy any debts, obligations, or liabilities for damages that the transferor
or transferee of such interest may have to the Partnership.

       

      In the
case of a Transfer or attempted Transfer of a Partnership interest that is not
permitted by Section 10.2 above, the parties engaging or attempting to engage in
such Transfer shall be liable to indemnify and hold harmless the Partnership and
the Limited Partners from all cost, liability and damage that any of such
indemnified Persons may incur (including, without limitation, incremental tax
liability and lawyers fees and expenses) as a result of such Transfer or
attempted Transfer and efforts to enforce the indemnity granted
hereby.

       

      10.4.      Termination
of Status as Managing General Partner.

       

      a.         The
Managing General Partner shall cease to be the Managing General Partner upon the
first to occur of (i) the filing of a certificate of termination, or its
equivalent, by a corporate Managing General Partner, (ii) the involuntary
Transfer by operation of law of such Managing General Partner’s interest in the
Partnership, (iii) the vote of a Majority in Interest of the Partners to approve
a request by such Managing General Partner to retire, or (iv) upon ninety (90)
days prior written notice, following the vote of Investor Partners holding 70%
of the Units held by Investor Partners to remove such Managing General Partner.
In the event a Person ceases to be the Managing General Partner without having
Transferred his entire interest as the Managing General Partner, such Person
shall be treated as an unadmitted transferee of a Partnership interest as a
result of an unpermitted Transfer of an interest pursuant to Section
10.3.

       

      b.         If
the Managing General Partner ceases to be a General Partner for any reason
hereunder, such Person shall continue to be liable as a Partner for all debts
and obligations of the Partnership existing at the time such Person ceases to be
a Managing General Partner, regardless of whether, at such time, such debts or
liabilities were known or unknown, actual or contingent. A Person shall not be
liable as a Managing General Partner for Partnership debts and obligations
arising after such Person ceases to be a Managing General Partner. Any debts,
obligations or liabilities in damages to the Partnership of any Person who
ceases to be a Managing General Partner shall be collectible by any legal means
and the Partnership is authorized, in addition to any other remedies at law or
in equity, to apply any amounts otherwise distributable or payable by the
Partnership to such Person to satisfy such debts, obligations or
liabilities.

      
        
           

        

        
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      c.         If
at the time a Person ceases to be a Managing General Partner such Person is also
an Investor Partner or a Unit Holder with respect to Units other than his
interest as a Managing General Partner, such cessation shall not affect such
Person’s rights and obligations with respect to such Units. The Managing General
Partner, if it is involuntarily removed by the Investor Partners, may elect to
retain its interest in the Partnership as an Investor Partner in any successor
Investor Partnership, assuming the Investor Partners determine to continue the
Partnership and elect a successor Managing General Partner. Further, the
Managing General Partner, if it is involuntarily removed by the Investor
Partners or ceases to be Managing General Partner by operation of law, may
select an independent engineering firm to value its interest in the Partnership
at its then present fair market value. In determining the fair market value of
the Managing General Partner’s interest, the independent engineer will take into
account appropriate discount factors in light of the risk of recovery of oil and
gas reserves. The Partnership may purchase for cash all or a portion of the
interest of the removed Managing General Partner for the value determined by the
independent engineering appraisal.

       

      10.5.      Conversion
of Additional General Partner Interests into Limited Partner
Interests.

       

      a.         The
Managing General Partner shall notify all Additional General Partners at least
30 days prior to any material change in the amount of the Partnership’s
insurance coverage. Within this 30-day period, and notwithstanding Section
10.5(a), Additional General Partners shall have the right to immediately convert
their Units into Units of limited partnership interest by giving written notice
to the Managing General Partner.

       

      b.         The
Managing General Partner shall convert the interests of all Additional General
Partners in a particular Partnership to interests of Limited Partners in that
Partnership during the year following completion of drilling for the
Partnership.

       

      c.         The
Managing General Partner shall cause the conversion to be effected as promptly
as possible as prudent business judgment dictates. Conversion of an Additional
General Partnership interest to a Limited Partnership interest in a particular
Partnership shall be conditioned upon a finding by the Managing General Partner
that such conversion will not cause a termination of the Partnership for federal
income tax purposes, and will be effective upon the Managing General Partner’s
filing an amendment to its Certificate of Formation. The Managing General
Partner is obligated to file an amendment to its Certificate at any time during
the full calendar month after receipt of the required notice of the Additional
General Partner exercising its rights pursuant to Section 10.5(a) and a
determination of the Managing General Partner that the conversion will not
constitute a termination of the Partnership for tax purposes. Effecting
conversion is subject to the satisfaction of the condition that the electing
Additional General Partner provide written notice to the Managing General
Partner of such intent to convert. Upon such transfer and exchange, such
Additional General Partners shall be Limited Partners; however, they will remain
liable to the Partnership for any additional Capital Contribution(s) required
for their proportionate share of any Partnership obligation or liability arising
prior to the conversion.

       

      10.6.      Liability of Partners. Except
as otherwise provided in this Agreement or as otherwise provided by the Act,
each General Partner shall be jointly and severally liable for the debts and
obligations of the Partnership. In addition, each Additional General Partner
shall be jointly and severally liable for any wrongful acts or omissions of the
Managing General Partner and/or the misapplication of money or property of a
third party by the Managing General Partner acting within the scope of its
apparent authority to the extent such acts or omissions are chargeable to the
Partnership.

       

      SECTION
11.   DISSOLUTION AND WINDING UP

       

      11.1.      Liquidating Events. The
Partnership shall dissolve and commence winding up and liquidating upon the
first to occur of any of the following (“Liquidating
Events”):

       

      a.         The
sale of all or substantially all of the assets of the
Partnership;

      
        
           

        

        
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      b.         With
the consent of the Managing General Partner, upon the vote by a Majority in
Interest of the Partners to dissolve, wind up and liquidate the
Partnership;

       

      c.         The
happening of any other event that makes it unlawful or impossible to carry on
the business of the Partnership; or

       

      d.         Any
event set forth in Section 10.4 or any other event that causes a Managing
General Partner to cease to be a general partner under the Texas Code, provided
that the Investor Partners have not selected a successor managing general
partner pursuant to Section 6.2, and provided further that any such event shall
not constitute a Liquidating Event if the Partnership is continued pursuant to
this Section 11.1.

       

      The
Partners hereby agree that, notwithstanding any provision of the Texas Code, the
Partnership shall not dissolve prior to the occurrence of a Liquidating Event.
Upon the occurrence of any event set forth in Section 11.1(d) hereof, the
Partnership shall not be dissolved or required to be wound up if (x) at the time
of such event there is at least one remaining Managing General Partner and one
remaining Limited Partner and that Managing General Partner carries on the
business of the Partnership (any such remaining General Partner being hereby
authorized to carry on the business of the Partnership), or (y) within ninety
(90) days after such event a Majority in Interest of the Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of the date of such event, of one or more additional Managing
General Partners.

       

      11.2.     Winding Up. Upon the
occurrence of a Liquidating Event, the Partnership shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its assets,
and satisfying the claims of its creditors and Partners. No Partner shall take
any action that is inconsistent with, or not necessary to or appropriate for,
the winding up of the Partnership’s business and affairs. The Managing General
Partner (or, in the event there is no remaining Managing General Partner, any
Person elected to be the liquidator by a Majority in Interest of the Partners)
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership’s liabilities and
Property and the Property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom, to the extent
sufficient therefor, shall be applied and distributed in the following
order:

       

      a.         First,
to the payment and discharge of all of the Partnership’s debts and liabilities
to creditors other than the Managing General Partner;

       

      b.         Second,
to the payment and discharge of all of the Partnership’s debts and liabilities
to the Managing General Partner;

       

      c.         Third,
the balance, if any, to the Partners and Unit Holders in accordance with their
positive Capital Account balances, after giving effect to all contributions,
distributions and allocations for all periods.

       

      11.3.      Compliance With Timing Requirements
of Regulations. In the event the Partnership is “liquidated” within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), (i) distributions shall be
made pursuant to this Section 11 to the Partners and Unit Holders who have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit balance in his Capital
Account (after giving effect to all contributions, distributions, and
allocations for all taxable years, including the year during which such
liquidation occurs), such Unit Holder shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or any other
Person for any purpose whatsoever. In the discretion of the Managing General
Partner or liquidator, a pro rata portion of the distributions that would
otherwise be made to the Partners and Unit Holders pursuant to this Section 11
may be:

       

      a.         distributed
to a trust established for the benefit of the Partners and Unit Holders for the
purposes of liquidating Partnership assets, collecting amounts owed to the
Partnership, and paying any contingent or unforeseen liabilities or obligations
of the Partnership or of the Managing General Partners arising out of or in
connection with the Partnership. The assets of any such trust shall be
distributed to the Partners or Unit Holders from time to time, in the reasonable
discretion of the Managing General Partner, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise have been
distributed to the Partners and Unit Holders pursuant to this Agreement;
or

      
        
           

        

        
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      b.         withheld
to provide a reasonable reserve for Partnership liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld amounts shall be
distributed to the Partners and Unit Holders as soon as
practicable.

       

      11.4.      Deemed Distribution and
Recontribution. Notwithstanding any other provision of this Section 11,
in the event the Partnership is liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Property
shall not be liquidated, the Partnership’s liabilities shall not be paid or
discharged, and the Partnership’s affairs shall not be wound up. Instead, the
Partnership shall be deemed to have distributed the Property in kind to the
Partners and Unit Holders, who shall be deemed to have assumed and taken subject
to all Partnership liabilities, all in accordance with their respective Capital
Accounts. Immediately thereafter, the Partners and Unit Holders shall be deemed
to have recontributed the Property in kind to the Partnership, which shall be
deemed to have assumed and taken subject to all such liabilities.

       

      11.5.      Rights of Partners and Unit Holders.
Except as otherwise provided in this Agreement, (a) each Partner and Unit
Holder shall look solely to the assets of the Partnership for the return of his
Capital Contribution and shall have no right or power to demand or receive
property other than cash from the Partnership, and (b) no Partner or Unit Holder
shall have priority over any other Partner or Unit Holder as to the return of
his Capital Contributions, distributions or allocations.

       

      11.6.      Notice of Dissolution. In the
event a Liquidating Event occurs or an event occurs that would, but for
provisions of Section 11.1, result in a dissolution of the Partnership, the
Managing General Partner shall, within thirty (30) days thereafter, provide
written notice thereof to each of the Partners and to all other parties with
whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the Managing
General Partner).

       

      11.7.      Certificate of Termination.
Upon the completion of the winding up of the Partnership pursuant to this
Section 11, the Managing General Partner shall file or cause to be filed a
certificate of termination with the Texas Secretary of State pursuant to the
Section 11.101 of the Texas Code and shall take all actions and make all filings
necessary for such termination to comply with the Texas Code.

       

      SECTION
12.   POWER OF ATTORNEY

       

      12.1.      The Managing General Partner as
Attorney-in-Fact. Each Unit Holder hereby makes, constitutes and appoints
the Managing General Partner and each successor Managing General Partner, with
full power of substitution and resubstitution, his true and lawful
attorney-in-fact for him and in his name, place and stead and for his use and
benefit, to sign, execute, certify, acknowledge, swear to, file and record (a)
this Agreement and all agreements, certificates, instruments and other documents
amending or changing this Agreement as now or hereafter amended which the
Managing General Partner may deem necessary, desirable or appropriate including,
without limitation, amendments or changes to reflect (i) the exercise by the
Managing General Partner of any power granted to it under this Agreement; (ii)
any amendments adopted by the Partners in accordance with the terms of this
Agreement; (iii) the admission of any substituted Partner; and (iv) the
disposition by any Partner or Unit Holder of his interest in the Partnership;
and (b) any certificates, instruments and documents as may be required by, or
may be appropriate under, the laws of the State of Texas or any other state or
jurisdiction in which the Partnership is doing or intends to do business. Each
Unit Holder authorizes each 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, hereby giving each such attorney-in-fact full power
and authority to do and perform each and every act or thing whatsoever requisite
or advisable to be done in connection with the foregoing as fully as such Unit
Holder might or could do personally, and hereby ratifying and confirming all
that any such attorney-in-fact shall lawfully do or cause to be done by virtue
thereof or hereof.

       

      12.2.      Nature as Special Power. The
power of attorney granted pursuant to this Section 12:

      
        
           

        

        
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      a.         is
a special power of attorney coupled with an interest and is
irrevocable;

       

      b.         may
be exercised by any such attorney-in-fact by listing the Unit Holders executing
any agreement, certificate, instrument or other document with the single
signature of any such attorney-in-fact acting as attorney-in-fact for such Unit
Holders; and

       

      c.         shall
survive the death, disability, legal incapacity, bankruptcy, insolvency,
dissolution, or cessation of existence of a Unit Holder and shall survive the
delivery of an assignment by a Partner or Unit Holder of the whole or a portion
of his interest in the Partnership, except that where the assignment is of such
Unit Holder’s entire interest in the Partnership and the assignee, with the
consent of the Managing General Partner, is admitted as a substituted Partner,
the power of attorney shall survive the delivery of such assignment for the sole
purpose of enabling any such attorney-in-fact to effect such
substitution.

       

      SECTION
13.   MISCELLANEOUS

       

      13.1.      Notices. Any notice, payment,
demand, or communication required or permitted to be given by any provision of
this Agreement shall be in writing and shall be delivered personally to the
Person or to an officer of the Person to whom the same is directed, or sent by
first class mail, registered or certified, addressed as follows, or to such
other address as such Person may from time to time specify by notice to the
Partners:

       

      a.         If
to the Partnership, to the Partnership at the address set forth in Section
1.4
hereof;

       

      b.         If
to the Managing General Partner, to the address set forth in Section 2.1
hereof;

       

      c.         If
to a Investor Partner, to the address set forth opposite his name on attached
Exhibit
A-1.

       

      Any such
notice shall be deemed to be delivered, given and received for all purposes as
of the date so delivered, if delivered personally, or 72 hours after being
deposited in the United States mail, if sent by registered or certified mail,
postage and charges prepaid. Any Person may from time to time specify a
different address by notice to the Partnership and the Partners.

       

      13.2.      Binding Effect. Except as otherwise provided in
this Agreement, every covenant, term and provision of this Agreement shall be
binding upon and inure to the benefit of the Partners and Unit Holders and their
respective heirs, legatees, legal representatives, successors, transferees and
assigns.

       

      13.3.      Construction. Every covenant,
term and provision of this Agreement shall be construed simply according to its
fair meaning and not strictly for or against any Partner or Unit
Holder.

       

      13.4.      Time. Time is of the essence
with respect to this Agreement.

       

      13.5.      Headings. Section and other
headings contained in this Agreement are for reference purposes only and are not
intended to describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision hereof.

       

      13.6.      Severability. Every provision
of this Agreement is intended to be severable. If any term or provision hereof
is illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the validity or legality of the remainder of this
Agreement.

       

      13.7.      Incorporation by Reference.
Every exhibit, schedule and other appendix attached to this Agreement and
referred to herein is hereby incorporated in this Agreement by
reference.

       

      13.8.      Further Action. Each Partner
and Unit Holder, upon the request of the Managing General Partner, agrees to
perform all further acts and execute, acknowledge and deliver any documents
which may be reasonably necessary, appropriate or desirable to carry out the
provisions of this Agreement.

       

      13.9.      Variation of Pronouns. All
pronouns and any variations thereof shall be deemed to refer to masculine,
feminine or neuter, singular or plural, as the identity of the Person or Persons
may require.

      
        
           

        

        
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      13.10.    Governing Law. The laws of the
State of Texas shall govern the validity of this Agreement, the construction of
its terms, and the interpretation of the rights and duties of the Partners and
Unit Holders.

       

      13.11.    Waiver of Action for Partition.
Each Investor Partner and Unit Holder irrevocably waives any right that
he may have to maintain any action for partition with respect to any of the
Property.

       

      13.12.    Counterpart Execution. This
Agreement may be executed in any number of counterparts with the same effect as
if all of the Partners had signed the same document. All counterparts shall be
construed together and shall constitute one agreement.

       

      13.13.    Sole and Absolute Discretion.
Except as otherwise provided in this Agreement, all actions which the
Managing General Partner may take and all determinations which the Managing
General Partner may make pursuant to this Agreement may be taken and made at the
sole and absolute discretion of such Managing General Partner.

       

      13.14.    Entire Agreement. This
Agreement and the exhibits hereto, which are incorporated herein by reference,
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations, and discussions, whether oral or written.

       

      13.15.    Attorneys’ Fees. In the event
any party takes legal action to enforce any of the terms of this Agreement, any
unsuccessful party to such action shall pay the successful party’s reasonable
expenses, including attorneys’ fees, incurred in such action.

       

      13.16.    Third Parties. Nothing in this
Agreement, expressed or implied, is intended to confer upon any person other
than the parties hereto any rights or remedies under or by reason of this
Agreement.

       

      13.17.    Venue.
Each party hereby irrevocably submits to the non-exclusive jurisdiction of any
Texas State or United States Federal court sitting in the City and County of
Dallas over any action, suit or proceeding arising out of or relating to this
Agreement. Each party irrevocably waives, to the fullest extent permitted by
law, any objection which it may have to the laying of the venue of any such
action, suit or proceeding brought in such a court and any claim that any
action, suit or proceeding brought in such a court has been brought in an
inconvenient forum. Each party agrees that final judgment in any such action,
suit or proceeding is binding; provided, however, that the service of process is
effected upon such party in the manner permitted by law.

       

      [Signature
page follows]

      
        
           

        

        
          - 21
-

          
            

          

        

        
           

        

      

       

      IN WITNESS WHEREOF, the
parties have entered into this Amended and Restated Agreement of Limited
Partnership as of the day first above set forth.

       

      
        
          
            
              
                
                  
                    
                      
                        
                          	 
      	MANAGING
      GENERAL PARTNER:
	 
      	 	 
      
	 
      	REEF
      OIL & GAS PARTNERS, L.P.
	 
      	 	 
      
	 
      	By:	
                                   

                                
	 
      	Name:	
                                  MICHAEL J
      MAUCELI

                                
	 
      	Title:	
                                  MANAGER OF THE GENERAL
      PARTNER

                                
	 
      	 	 
      
	 
      	
                                  INVESTOR PARTNERS:
      [Investor Partners to sign counterpart signature pages attached to
      the Subscription
Agreement]

                                

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
           

        

        
          - 22
-

          
            

          

        

        
           

        

      

       

      EXHIBIT
B

      TO

      AGREEMENT
OF LIMITED PARTNERSHIP

      OF

      REEF OIL & GAS INCOME
AND DEVELOPMENT FUND. L.P.

       

      1.8.         Definitions.
Capitalized words and phrases used in this Agreement have the meanings set forth
in this Section 1.8 or elsewhere in this Agreement:

       

      (a)       Reserved.

       

      (b)       “Acquisition Costs”
shall mean all reasonable and necessary costs and expenses incurred in
connection with the acquisition of a property or arising out of or relating to
the acquisition of properties, including but not limited to all reasonable and
necessary costs and expenses incurred in connection with searching for,
screening and negotiating the possible acquisition of properties for the
Partnership, the conduct of reserve and other technical studies of properties
for purposes of acquisition of a property, the actual purchase price of a
property and any other assets acquired with such property, the types of costs
and expenses enumerated in the definition of Cost which are incurred in
connection with the acquisition activities, and all reasonable and necessary
borrowings and costs and expenses related thereto related to acquisition of
properties.

       

      (c)        “Additional General
Partner” means any Person who has been admitted as a General Partner,
excluding the Managing General Partner, pursuant to the terms of this
Agreement.

       

      (d)       “Adjusted Capital Account
Deficit” means, with respect to any Partner or Unit Holder, the deficit
balance, if any, in such Partner’s or Unit Holder’s Capital Account as of the
end of the taxable year, after giving effect to the following adjustments: (i)
credit to such Capital Account that amount which such Partner or Unit Holder is
obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Regulations, as
well as any addition thereto pursuant to the next to last sentence of Sections
1.704-2(g)(l) and (i)(5) of the Regulations, after taking into account
thereunder any changes during such year in Partnership Minimum Gain and in the
Partner Nonrecourse Debt Minimum Gain attributable to any Partner or Unit Holder
for nonrecourse debt; and (ii) debit to such Capital Account items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.

       

      This
definition of Adjusted Capital Account Deficit is intended to comply with the
provisions of Regulation Sections 1.704-l(b)(2)(ii)(d) and 1.704-2, and will be
interpreted consistently with those provisions.

       

      (e)       “Affiliate” means,
with respect to any Person, (i) any Person directly or indirectly controlling,
controlled by or under common control with such Person, (ii) any Person owning
or controlling ten percent or more of the outstanding voting interests of such
Person, (iii) any officer, director or general partner of such Person, or (iv)
any Person who is an officer, director, general partner, trustee or holder of
ten percent or more of the voting interests of any Person described in clauses
(i) through (iii) of this sentence.

       

      (f)        “Agreement” or “Partnership
Agreement” means this Amended and Restated Agreement of Limited
Partnership, as amended from time to time. Words such as “herein,”
“hereinafter,” “hereof,” “hereto” and “hereunder,” refer to this Agreement as a
whole, unless the context otherwise requires.

       

      (g)       “Capital Account”
means with respect to any Partner or Unit Holder, the capital account maintained
for such Partner or Unit Holder pursuant to Section 3.1 hereof.

       

      (h)       “Capital Contribution”
means, with respect to any Partner or Unit Holder, the amount of cash or
property contributed to the Partnership with respect to the interest in the
Partnership held by such Partner or Unit Holder. “Capital Contributions” refers
to the aggregate of the foregoing contributions.

       

      (i)        Reserved.

      
        
           

        

        
          B-1

          
            

          

        

        
           

        

      

       

      (j)        “Code” means the
Internal Revenue Code of 1986, as amended from time to time (or any
corresponding provisions of succeeding law).

       

      (k)       “Costs” (i) when used
in connection with the sale by the Managing General Partner or its Affiliates of
properties to the Partnership shall mean the amount actually paid by the
Managing General Partner or its Affiliates for such assets which amount shall
not exceed the sum of:

       

      (1)       the
amounts paid to unaffiliated third parties for the property, including
bonuses;

       

      (2)       title
insurance or title examination costs, brokers’ commissions, filing fees,
recording costs, transfer taxes, if any, and like charges in connection with the
acquisition of the property, insurance or title;

       

      (3)       a
pro rata portion of the actual, necessary and reasonable expenses for seismic
and geophysical services; and

       

      (4)       rentals
and ad valorem taxes paid by the seller with respect to such property to the
date of its transfer to the Partnership, 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 in
accordance 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 (4) shall have been incurred not more than 36 months prior to the
purchase by the Partnership from the Managing General Partner or its
Affiliates.

       

      (i)         when
used in connection with services, “Costs” means the reasonable, necessary and
actual expense incurred by the Managing General Partner or its Affiliates on
behalf of the Partnership in providing such services, determined in accordance
with generally accepted accounting principles;

       

      (ii)        when
used elsewhere, “Cost” means the price paid by the General Partner or its
Affiliates in an arms-length transaction.

       

      (1)       “Depreciation” means,
for each fiscal year or other period, an amount equal to the depreciation,
amortization or other cost recovery deduction allowable with respect to an asset
for such year or other period, except that if the Gross Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year or other period, Depreciation shall be an amount which bears the
same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deduction for such year or
other period bears to such beginning adjusted tax basis; provided, however, that
if the federal income tax depreciation, amortization, or other cost recovery
deduction for such year is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.

       

      (m)      “Development Costs”
shall mean all Costs of drilling, testing, completing, equipping, plugging,
abandoning, deepening, plugging back, reworking, waterflood, and similar
activities on Partnership Prospects which are not defined as Operating
Costs.

       

      (n)       “Direct Costs” shall
mean all Costs directly incurred by the Partnership or the Managing General
Partner on behalf of the Partnership for goods and services, including but not
limited to, annual accounting fees, expenses of preparing tax returns and
reports, the cost of reserve evaluations prepared by independent petroleum
engineers, consulting fees, legal fees, costs of preparing and distributing
periodic reports to the Partners, postage, printing and insurance. Direct costs
shall also include the cost of employing geologists, engineers, and
geophysicists and all other such actual costs directly incurred by or for the
benefit of the Partnership and the Partners. Direct Costs shall not include
organization and offering costs, General and Administrative Expenses, Operating
Costs, Acquisition Costs or Development Costs.

      
        
           

        

        
          B-2

          
            

          

        

        
           

        

      

       

      (o)       “General and Administrative
Expenses” mean all customary and routine expenses, including accounting,
office rent, telephone, secretarial, salaries and other incidental expenses
incurred by the Managing General Partner or an Affiliate, which are necessary to
the conduct of the Partnership’s business, whether generated by the Managing
General Partner, an Affiliate or by third parties, but excluding Direct Costs
and Operating Costs. No General and Administrative Expenses charged will be
duplicated under any other category of expense or cost.

       

      (p)       “General Partner”
means any Person who (i) is the Managing General Partner or (ii) an Additional
General Partner pursuant to the terms of this Agreement. “General Partners”
means all such Persons. As of the Effective Date, Reef Oil & Gas Partners,
L.P., a Nevada limited partnership, is the Managing General Partner of the
Partnership.

       

      (q)       “Gross Asset Value”
means, with respect to any asset, the asset’s adjusted basis for federal income
tax purposes, except as follows:

       

      (i)         The
initial Gross Asset Value of any asset contributed by a Partner to the
Partnership shall be the gross fair market value of such asset, as determined by
the contributing Partner and the Partnership;

       

      (ii)        The
Gross Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as determined by the Managing General
Partner, as of the following times: (A) the acquisition of an additional
interest in the Partnership (other than pursuant to Section 2 hereof) by any new
or existing Partner in exchange for more than a de minimis Capital
Contribution; (B) the distribution by the Partnership to a Partner or Unit
Holder of more than a de minimis amount of
Property as consideration for an interest in the Partnership; (C) the grant of
an interest in the Partnership as consideration for the provision of services to
the Partnership by an existing Partner or a new Partner acting in a “partner
capacity” or in anticipation of becoming a Partner (in each case within the
meaning of Regulation Section 1.704-l(b)(2)((iv)(d)); and (D) the liquidation of
the Partnership within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g);
provided, however that the adjustments pursuant to clauses (A), (B) and (C)
above shall be made only if the Managing General Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners and Unit Holders in the
Partnership;

       

      (iii)       The
Gross Asset Value of any Partnership asset distributed to any Partner or Unit
Holder shall be adjusted to equal the gross fair market value of such asset on
the date of distribution;

       

      (iv)       The
Gross Asset Values of Partnership assets shall be increased (or decreased) to
reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulation Section 1.704-l(b)(2)(iv)(m); provided, however, that Gross
Asset Values shall not be adjusted pursuant to this Section 1.8(a)(iv) to the
extent the Managing General Partner determines that an adjustment pursuant to
Section 1.8(a)(ii) hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
Section 1.8(a)(iv); and

       

      (v)        If
the Gross Asset Value of a Partnership asset has been determined or adjusted
pursuant to (ii) or (iii) above, such Gross Asset Value will then be adjusted by
the Depreciation taken into account with respect to the asset for purposes of
computing Profits and Losses.

       

      (r)        “Limited Partner”
means any Person who has been admitted as a Limited Partner pursuant to the
terms of this Agreement, “Limited Partners” means all such Persons.

       

      (s)       “Liquidating Event”
has the meaning set forth in Section 11.

      
        
           

        

        
          B-3

          
            

          

        

        
           

        

      

       

      (t)        “Majority in Interest”
shall mean Partners whose total share of allocations of Profits, Losses and
other items as set forth in Exhibit C represents
more than 50% of all allocations of the Profits, Losses and other items as set
forth in Exhibit
C. Unless otherwise required under the Texas Code or this Agreement, for
each matter requiring a vote of the Partners or Investor Partners hereunder,
each Partner shall vote pro rata in accordance with the percentage that such
Partner’s share of allocations of Profits, Losses and other items bears to all
allocations of Profits, Losses and other items as set forth in Exhibit
C.

       

      (u)       “Managing General
Partner” means any Person who (i) is the Managing General Partner, and
(ii) has not ceased to be a Managing General Partner pursuant to the terms of
this Agreement. “Managing General Partners” means all such Persons. As of the
Effective Date, Reef Oil & Gas Partners, L.P., a Nevada limited partnership,
is the Managing General Partner of the Partnership.

       

      (v)       “Net Cash” means the
gross cash proceeds of the Partnership from all sources, reduced by (i) Capital
Contributions, and (ii) amounts used to pay or establish reserves for all
Partnership expenses, debt payments (except as provided herein), capital
improvements, replacements and contingencies, all as determined by the Managing
General Partner. “Net Cash” shall not be reduced by depreciation, amortization,
cost recovery deductions or similar allowances, but shall be increased by any
reductions of reserves previously established.

       

      (w)      “Offering Termination
Date” shall mean June 30, 2008 or such earlier date as the Managing
General Partner, in its sole and absolute discretion, shall elect, unless
extended by the Managing General Partner, in its sole discretion, to such date
determined by the Managing General Partner.

       

      (x)        “Operating Costs”
means all expenses incurred in connection with the production and marketing of
the oil and gas produced from properties in which the Partnership has an
interest, including, in addition to labor, fuel, repairs, hauling, materials,
supplies, utility charges and other costs incident thereto, ad valorem and
severance taxes, insurance and casualty loss expense, and compensation to well
operators or others for services rendered in conducting such
operations.

       

      (y)       Reserved.

       

      (z)        “Nonrecourse
Deductions” has the meaning set forth in Section 1.704-2(b)(l) of the
Regulations.

       

      (aa)     
“Nonrecourse
Liability” has the meaning set forth in Section 1.704-2(b)(3) of the
Regulations.

       

      (bb)     “Partner Nonrecourse
Debt” has the meaning set forth in Section 1.704-2(b)(4) of the
Regulations.

       

      (cc)     “Partner Nonrecourse Debt
Minimum Gain” means an amount, with respect to each Partner Nonrecourse
Debt, equal to the Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability, determined in
accordance with Section 1.704-2(i)(3) of the Regulations.

       

      (dd)     “Partner Nonrecourse
Deductions” has the meaning set forth in Sections 1.704-2(i)(l) and
1.704-2(i)(2) of the Regulations.

       

      (ee)      “Partners” means the
Managing General Partner and all Investor Partners, where no distinction is
required by the context in which the term is used herein. “Partner” means any
one of the Partners.

       

      (ff)       “Partnership” means
the partnership formed pursuant to this Agreement and the partnership continuing
the business of this Partnership in the event of dissolution as herein
provided.

       

      (gg)     “Partnership Minimum
Gain” has the meaning set forth in Regulations Sections 1.704-2(b)(2) and
1.704-2(d).

       

      
        
           

        

        
          B-4

          
            

          

        

        
           

        

      

       

      (hh)     Reserved.

       

      (ii)       “Person” means any
individual, partnership, corporation, limited liability company, trust or other
entity.

       

      (jj)       “Private Placement
Memorandum” means that certain Confidential Private Placement Memorandum
of Reef Oil & Gas Income and Development Fund III, L.P., dated July 23,
2007, as amended and restated on February 6, 2008.

       

      (kk)     “Profits” and “Losses” mean the
Partnership’s taxable income or loss determined in accordance with Code Section
703(a) and Regulation section 1.703-1 for each of its fiscal years (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) will be included in taxable income
or loss) with the following adjustments:

       

      (i)         Such
Profits and Losses will be computed as if items of tax-exempt income and
nondeductible, noncapital expenditures (under Code Section 705(a)(1)(B) and
705(a)(2)(B)) were included in the computation of taxable income or
loss;

       

      (ii)        Any
items specially allocated pursuant to this Agreement shall not be taken into
account in computing Profits or Losses;

       

      (iii)       In
the event the Gross Asset Value of any Partnership property is adjusted pursuant
to subparagraph (ii) or subparagraph (iii) of the definition of Gross Asset
Value hereof, the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Profits or
Losses;

       

      (iv)       Credits
or debits to Capital Accounts due to a revaluation of Partnership assets in
accordance with Regulation section 1.704-l(b)(2)(iv)(f), or due to a
distribution of noncash assets, will be taken into account as gain or loss from
the disposition of such assets for purposes of computing Profits and
Losses;

       

      (v)        Any
expenditures of the Partnership described in Code Section 705(a)(2)(B) for a
fiscal year or treated as being so described in Regulation section
1.704-l(b)(2)(iv)(i) and not otherwise taken into account in this subsection
will be subtracted from the taxable income or loss;

       

      (vi)       To
the extent an adjustment to the adjusted tax basis of any Partnership property
pursuant to Code Section 734(b) is required, pursuant to Regulation section
1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts
as a result of a distribution other than in liquidation of a Partner’s or Unit
Holder’s interest in the Partnership, the amount of such adjustment shall be
treated as an item of gain (if the adjustment increases the basis of the
property) or loss (if the adjustment decreases such basis) from the disposition
of such property and shall be taken into account for purposes of computing
Profits or Losses; and

       

      (vii)      In
lieu of the depreciation, amortization, and other cost recovery deductions taken
into account in computing such taxable income or loss, there shall be taken into
account Depreciation for such fiscal year, computed in accordance with the
definition of “Depreciation.”

       

      (ll)     “Property” means all
real and personal property acquired by the Partnership and any improvements
thereto, and shall include both tangible and intangible property.

       

      (mm)   “Prospect(s)” or
“Prospect
Wells” has the meaning set forth in Section 1.3 hereof.

       

      (nn)     “Regulation” means all
proposed, temporary, and final regulations promulgated under the Code, as such
regulations may be amended from time to time.

      
        
           

        

        
          B-5

          
            

          

        

        
           

        

      

       

      (oo)     “Safe Harbor” means
the election described in the Safe Harbor Regulation, pursuant to which the
Partnership and all of its Partners may elect to treat the fair market value of
any Partnership interest that is Transferred in connection with the performance
of services as being equal to the liquidation value of that Partnership
interest.

       

      (pp)     “Safe Harbor Election”
means the election by the Partnership and its Partners to apply the Safe Harbor,
as described in the Safe Harbor Regulation and Internal Revenue Service Notice
2005-43 or any successor authority.

       

      (qq)     “Safe Harbor
Regulations” means Regulation Section 1.83-3(1) or any successor
authority.

       

      (rr)       “Texas Code” means the
Texas Business Organizations Code, as amended from time to time (or any
corresponding provisions of succeeding law).

       

      (ss)     “Transfer” means, as a
noun, any voluntary or involuntary transfer, sale or other disposition and, as a
verb, voluntarily or involuntarily to transfer, sell or otherwise dispose
of.

       

      (tt)       “Unit” means an
undivided interest of the Partners in the aggregate interest in the capital and
profits of the Partnership. Each Unit represents Capital Contributions of
$100,000 to the Partnership.

       

      (uu)     “Unit Holders” means
all Persons who hold Units, regardless of whether they are Partners. “Unit
Holder” means any one of the Unit Holders.

       

      (vv)     “Unit Purchase Closing
Date” has the meaning set forth in Section 4.5 hereof.

      
        
           

        

        
          B-6

          
            

          

        

        
           

        

      

       

      EXHIBIT
C

      TO

      AGREEMENT
OF LIMITED PARTNERSHIP

      OF

      REEF OIL & GAS INCOME
AND DEVELOPMENT FUND, L.P.

       

      3.1.        Capital
Accounts.

       

      (a)        General.
A separate Capital Account shall be established and maintained for each Partner
and Unit Holder on the books and records of the Partnership. Capital Accounts
shall be maintained in accordance with Regulation section 1.704-1(b)(2)(iv)
(taking into account any future amendments to such Regulation and any
corresponding provisions of any succeeding Regulations) and any inconsistency
between the provisions of this Section 3.1 and such Regulation shall be resolved
in favor of the Regulation. In the event the Managing General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities that are secured by contributed or distributed
property or that are assumed by the Partnership of the Partners or Unit
Holders), are computed in order to comply with such Regulations, the Managing
General Partner may make such modification, provided that it is not likely to
have a material effect on the amounts distributable to any Investor Partner or
Unit Holder pursuant to Section 11.2 hereof upon the dissolution of the
Partnership. The Managing General Partner also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and Unit Holders and the amount of Partnership capital
reflected on the Partnership’s balance sheet, as computed for book purposes, in
accordance with Regulation section 1.704-l(b)(2)(iv)(q) and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulation section
1.704-l(b).

       

      (b)       Increases
to Capital Accounts. Each Partner’s and Unit Holder’s Capital Account shall be
credited with (i) the amount of money contributed by it to the Partnership; (ii)
the amount of any Partnership liabilities that are assumed by it (within the
meaning of Regulation section 1.704-l(b)(2)(iv)(c)), but not by increases in his
share of Partnership liabilities within the meaning of Code section 752(a);
(iii) the Gross Asset Value of property contributed by it to the Partnership
(net of liabilities securing such contributed property that the Partnership is
considered to assume or take subject to under Code section 752); and (iv)
allocations to it of Partnership Profits (or items thereof), including income
and gain exempt from tax and income and gain described in Regulation section
1.704-l(b)(2)(iv)(g) (relating to adjustments to reflect book value), and (v)
allocation of any other items required by Regulation section
1.704-1(b).

       

      (c)       Decreases
to Capital Accounts. Each Partner’s and Unit Holder’s Capital Account shall be
debited with (i) the amount of money distributed to it by the Partnership; (ii)
the amount of his individual liabilities that are assumed by the Partnership
(other than liabilities described in Regulation section 1.704-l(b)(2)(iv)(b)(2)
that are assumed by the Partnership and other than decreases in his share of
Partnership liabilities within the meaning of Code section 752(b)); (iii) the
Gross Asset Value of property distributed to it by the Partnership (net of
liabilities securing such distributed property that he is considered to assume
or take subject to under Code section 752); (iv) allocations to it of
expenditures of the Partnership not deductible in computing Partnership taxable
income and not properly chargeable to Capital Account (as described in Code
section 705(a)(2)(B)); and (v) allocation to it of Partnership Losses (or item
thereof), including loss and deduction described in Regulation section
1.704-1(b)(2)(iv)(g) (relating to adjustments to reflect book value), but
excluding items described in (iv) above and excluding loss or deduction
described in Regulation section 1.704-l(b)(4)(iii) (relating to excess
percentage depletion), and (vi) allocation of any other items required by
Regulation section 1.704-l(b).

       

      (d)       Adjustments
to Capital Accounts Related to Depletion.

       

      (i)         Solely
for purposes of maintaining Capital Accounts, each year the Partnership shall
compute (in accordance with Regulation section 1.704-l(b)(2)(iv)(k)) simulated
depreciation allowance for each oil and gas property using that method, as
between cost depletion method and the percentage depletion method (without
regard to the limitations of Code section 613A(c)(3) which theoretically could
apply to any Partner or Unit Holder), which results in the greatest simulated
depletion allowance. The simulated depletion allowance with respect to each oil
and gas property shall reduce the Partners’ or Unit Holders’ Capital Accounts in
the same proportion as the Partners or Unit Holders were allocated adjusted
basis with respect to such oil and gas property. In no event shall the
Partnership’s aggregate simulated depletion allowance with respect to an oil and
gas property exceed the Partnership’s adjusted basis in the oil and gas property
(maintained solely for Capital Account purposes).

      
        
           

        

        
          C-1

          
            

          

        

        
           

        

      

       

      (ii)        Upon
the taxable disposition of an oil and gas property by the Partnership, the
Partnership shall determine the simulated (hypothetical) gain or loss with
respect to such oil and gas property (solely for Capital Account purposes) by
subtracting the Partnership’s simulated adjusted basis for the oil and gas
property (maintained solely for Capital Account purposes) from the amount
realized by the Partnership upon disposition. Simulated adjusted basis shall be
determined by reducing the adjusted basis by the aggregate simulated depletion
charged to the Capital Accounts of all Partners or Unit Holders in accordance
with Section 3.1(d)(i) hereof. The Capital Accounts of the Partners or Unit
Holders shall be adjusted upward by the amount of any simulated gain on such
disposition in proportion to such Partners’ or Unit Holders’ allocable share of
the portion of total amount realized from the disposition of such property that
exceeds the Partnership’s simulated adjusted basis in such property. The Capital
Accounts of the Partners or Unit Holders shall be adjusted downward by the
amount of any simulated loss in proportion to such Partners’ or Unit Holders’
allocable shares of the total amount realized from the disposition of such
property that represents recovery of the Partnership’s simulated adjusted basis
in such property.

       

      (e)       The
initial Capital Accounts of the Managing General Partner and the Investor
Partners are set forth in Exhibit A and Exhibit A-1.
respectively.

       

      3.2.        Allocation
of Profits and Losses.

       

      (a)       Profits.
After giving effect to the special allocations set forth in Section 3.3 below,
all Profits for each fiscal year shall be allocated among the Partners and Unit
Holders as follows:

       

      (i)         First,
to the Partners and Unit Holders to the extent of, in proportion to and in the
reverse order in which Losses were allocated to them pursuant to Section 3.2(b),
until the cumulative amount allocated to each Partner or Unit Holder pursuant to
this Section 3.2(a)(i) is equal to cumulative Losses so allocated to such
Partner or Unit Holder pursuant to Section 3.2(b); and

       

      (ii)        Thereafter,
eighty-nine percent (89%) to the Investor Partners and Unit Holders (and ratably
among them based upon the number of Units held), eleven percent (11%) to the
Managing General Partner.

       

      (b)       Losses.
After giving effect to the special allocations set forth in Section 3.3 below,
all Losses for each fiscal year shall be allocated among the Partners and Unit
Holders as follows:

       

      (i)         First,
to the Partners and Unit Holders to the extent of, in proportion to and in the
reverse order in which Profits were allocated to them pursuant to Section
3.2(a), until the cumulative amount allocated to each Partner or Unit Holder
pursuant to this Section 3.2(b)(i) is equal to cumulative Profits so allocated
to such Partner or Unit Holder; provided, however, that to the extent that any
Profits allocated to a Partner or Unit Holder under Section 3.2(a) are
distributed pursuant to Section 4.2, no Losses shall be allocated under this
Section 3.2(b)(i) to offset such Profits;

       

      (ii)        Second,
to the Partners and Unit Holders with positive capital account balances in
proportion to their respective positive capital accounts until the positive
balance in their capital accounts is reduced to zero; and

      
        
           

        

        
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      (iii)       Third,
pro rata to the Managing General Partner and Additional General Partners.

       

      3.3.         Special Allocations.
Notwithstanding Section 3.2,

       

      (a)       Allocation
of Intangible Drilling and Development and Tangible Well Costs. The
Partnership’s “intangible drilling and development costs” (as defined in
Regulation Section 1.612-4(a)), leasehold costs and costs for tangible property
incident or necessary to drill, develop and/or complete the Prospect Wells shall
be allocated as follows:

       

      (i)         99%
to the Investor Partners and Unit Holders (and ratably among them based upon the
number of Units held); and

       

      (ii)        1%
to the Managing General Partner.

       

      (b)       Temporary
Investment Income. Any income earned from the temporary investment of the
Partners’ subscription fees between the date of the Partnership’s formation as
set forth in Section 1.1 and the Offering Termination Date shall be allocated
99% to the Investor Partners and Unit Holders (and ratably among them based upon
the number of Units held) and 1% to the Managing General Partner.

       

      (c)       Minimum
Gain Chargeback. In the event there is a net decrease in Partnership Minimum
Gain during any fiscal year, the “minimum gain chargeback” described in
Regulation section 1.704-2(f) and Regulation section 1.704-2(g) shall
apply.

       

      (d)       Partner
Nonrecourse Debt Minimum Gain Chargeback. In the event there is a net decrease
in Partner Nonrecourse Debt Minimum Gain during any fiscal year, the “partner
minimum gain chargeback” described in Regulation section 1.704-2(i)(4) shall
apply.

       

      (e)       Qualified
Income Offset. This Section 3.3(d) incorporates the “qualified income offset”
set forth in Regulation section 1.704-l(b)(2)(ii)(d) as if those provisions were
fully set forth in this Section 3.3(d).

       

      (f)        Nonrecourse
Deductions. Nonrecourse Deductions for any fiscal year shall be allocated
eighty-nine percent (89%) to the Investor Partners and Unit Holders (and ratably
among them based upon the number of Units held) and eleven percent (11%) to the
Managing General Partner.

       

      (g)       In
accordance with Code section 704(c), if a Partner or Unit Holder contributes
property with a fair market value that differs from its adjusted basis at the
time of contribution, income, gain, loss and deductions with respect to the
property shall, solely for federal income tax purposes, be allocated among the
Partners or Unit Holders so as to take account of any variation between the
adjusted basis of such property to the Partnership and its fair market value at
the time of contribution. The Managing General Partner shall determine the
method used by the Partnership to make allocations pursuant to Code Section
704(c).

       

      (h)       The
Losses allocated to the Limited Partners or Unit Holders of limited partnership
interests pursuant to this Section 3.3 shall not exceed the maximum amount of
Losses that can be so allocated without causing any Limited Partner or Unit
Holder of limited partnership interest to have an Adjusted Capital Account
Deficit at the end of any fiscal year. In the event some but not all of the
Limited Partners or Unit Holders of limited partnership interests would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to this Section 3.3, the limitation set forth in this Section 3.3 shall
be applied on an Limited Partner by Limited Partner or Unit Holder by Unit
Holder basis so as to allocate the maximum permissible Losses to each Limited
Partner or Unit Holder of limited partnership interest under Regulation section
1.704-l(b)(2)(ii)(d). All Losses in excess of the limitation set forth in this
Section 3.3 shall be allocated pro rata to the Managing General Partner and
Additional General Partners.

      
        
           

        

        
          C-3

          
            

          

        

        
           

        

      

       

      (i)        Partner
Nonrecourse Deductions. The Partner Nonrecourse Deductions of the Partnership
(as determined under Regulation section 1.704-2(i)(2)) shall be allocated each
year to the Partner or Unit Holder that bears the economic risk of loss (within
the meaning of Regulation section 1.752-2) with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable.

       

      (j)        Code
Section 754 Adjustment. To the extent an adjustment to the adjusted tax basis of
any Partnership asset, pursuant to Code Sections 734(b) or 743(b) is required,
pursuant to Regulation sections 1.704-l(b)(2)(iv)(m)(2) or
1.704-l(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution to a Partner or Unit Holder in complete
liquidation of its partnership interest, the amount of such adjustment to
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss shall be specifically allocated to the Partners and
Unit Holders in accordance with their Units (in the event Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies) or to the Partner or Unit Holder to whom such
distribution was made (in the event Regulations Section 1.704-l(b)(2)(iv)(m)(4)
applies).

       

      3.4.        Other
Allocation Rules.

       

      (a)       For
purposes of determining the Profits, Losses or other items allocable to any
period, Profits, Losses and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the Managing General Partner using any
permissible method under Code section 706 and the Regulations
thereunder.

       

      (b)       The
Managing General Partner is authorized to amend this Agreement if, in its sole
discretion, based upon advice from its legal counsel or accountants, an
amendment to the allocations set forth in this Section 3 is required for such
allocations to be recognized for federal income tax purposes, either because of
the promulgation of Regulations or other developments in applicable law. The
Managing General Partner shall use its best effort to make any such required
amended allocation provisions conform as nearly as possible with the original
allocations described herein. The Partners and Unit Holders are aware of the
income tax consequences of the allocations made by this Section 3 and hereby
agree to be bound by the provisions of this Section 3 in reporting their shares
of Partnership income and loss for income tax purposes.

       

      (c)       For
any fiscal year, “excess nonrecourse liabilities” of the Partnership within the
meaning of Regulation section 1.752-3(a)(3) shall be allocated eighty-nine
percent (89%) to the Investor Partners and Unit Holders (and ratably among them
based upon the number of Units held) and eleven percent (11%) to the Managing
General Partner.

       

      (d)       To
the extent permitted by Regulation section 1.704-2(h)(3), the Managing General
Partner shall endeavor to treat distributions of Net Cash as having been made
from the proceeds of Nonrecourse Liability or a Partner or Unit Holder
Nonrecourse Debt only to the extent that such distributions would not cause or
increase an Adjusted Capital Account Deficit for any Investor Partner or Unit
Holder who is not also an Additional General Partner.

       

      3.5          Target Final
Balances

       

      The
allocation provisions of this Agreement are intended to produce final Capital
Account balances that are at levels (“Target Final Balances”) that permit
liquidating distributions that are made in accordance with such final Capital
Account balances to be equal to the distributions that would occur under Section
4.5 of the Agreement if such liquidating proceeds were distributed pursuant to
Section 4.5. To the extent that the allocation provisions of this Agreement
would not produce the Target Final Balances, the Managing General Partner is
permitted to take such actions as are necessary or advisable to amend such
allocation provisions to produce such Target Final Balances. In furtherance of
the foregoing, the Managing General Partner is expressly authorized and directed
to make such allocations of income, gain, loss and deduction (including items of
gross income, gain, loss and deduction) in the year of liquidation of the
Partnership so as to cause the Capital Accounts of the Partners that determine
the amounts that are distributed to the Partners under Section 11.2 to be equal
to the Target Final Balances.

      
        
           

        

        
          C-4

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