Document:

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                                                                   EXHIBIT 10.13
                                                                   -------------

                        DRILLING AND OPERATING AGREEMENT

                            DATED SEPTEMBER 15, 2004

                                 BY AND BETWEEN

                               ATLAS AMERICA, INC.

                                       AND

                                KNOX ENERGY, LLC

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                                                  TABLE OF CONTENTS
                                                  -----------------

                                                                                                           PAGE
                                                                                                           ----
<S>  <C>                                                                                                    <C>
1.   Definitions..............................................................................................1
2.   Minimum Well Drilling Schedule; Initial and Subsequent Drilling; Election to Participate; Gathering......3
3.   Title; Lease Status; Assignment by Non-Operator; AMI Election............................................8
4.   Drilling and Certain Related Procedures; Abandonment....................................................11
5.   Other Operating Responsibilities of the Operator........................................................13
6.   Marketing of Natural Gas and Oil........................................................................14
7.   Superintendence and Maintenance of the Wells; Operator's Fee and Other Charges..........................16
8.   Costs and Expenses; Plugging Reserve Account............................................................17
9.   Additional Operations...................................................................................19
10.  Non-Operator's Access; Audit............................................................................20
11.  Term and Termination....................................................................................20
12.  Contract Not Assignable.................................................................................22
13.  Relationship; Internal Revenue Code Election............................................................22
14.  Force Majeure...........................................................................................22
15.  Notices.................................................................................................23
16.  Governing Law...........................................................................................24
17.  Successors in Interest..................................................................................24
18.  Integration; Amendment; Interpretation..................................................................24
19.  Severability............................................................................................24
20.  Waivers.................................................................................................24
21.  Further Assurances......................................................................................25
22.  Attorneys' Fees.........................................................................................25
23.  Public Statements.......................................................................................25
24.  Counterpart; Fax........................................................................................25

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                                   DEFINITIONS

TERM                                                     DEFINED AT:
----                                                     ----------

Additional Potential Lease(s)                      ss. 3.4
AFE                                                ss. 2.5
Affiliate                                          ss. 4.3
Agreement                                          Page 1
AMI                                                Second Whereas clause, page 1
Assignment                                         ss. 1.1(a)
Casing Point                                       ss. 1.1(b)
Completion                                         ss. 1.1(c)
COPAS                                              ss. 7.3
Drilling Acreage                                   ss. 1.1(d)
Drilling Costs                                     ss. 2.5
Dry Hole                                           ss. 1.1(e)
force majuere                                      ss. 14.1
Gas Purchaser                                      ss. 1.1(f)
Initial Period                                     ss. 2.8
Leases/Lease                                       Second Whereas clause, page 1
Net Revenue                                        ss. 1.1(h)
Net Well                                           ss. 2.8
Non-Operator                                       Page 1
Operating Expenses                                 ss. 1.1(i)
Operating Reserve Account                          ss. 8.1
Operator                                           Page 1
Operator's Fee                                     ss. 7.3
Option Period                                      ss. 2.8
Plugging Funds                                     ss. 8.4
Plugging Reserve Account                           ss. 8.4
Proportionate Share                                ss. 1.1(j)
Well Acreage                                       ss. 1.1(l)
Wells/Well                                         ss. 1.1(k)

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                                             LIST OF EXHIBITS
                                             ----------------

                                                                       PRINCIPAL REFERENCE:
                                                                       -------------------
<S>                                                                    <C>
Exhibit A - AMI Map                                                    Second Whereas clause, page 1

Exhibit B - Leases and Additional Potential Leases,
            Minimum Wells and Excluded Acreage                         First Whereas clause, page 1

Exhibit C - AFE's                                                      ss. 2.3

Exhibit D - Assignment                                                 ss. 1.1(a)

Exhibit E - Gas Balancing Agreement                                    ss. 6.4

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                                     - iii -

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                        DRILLING AND OPERATING AGREEMENT
                        --------------------------------

         This Drilling and Operating Agreement (this "Agreement") is made and
entered into, effective as of the 15th day of September, 2004, by and between
ATLAS AMERICA, INC., a Pennsylvania corporation (and not any other entity having
the name Atlas America, Inc. or any derivative thereof), whose address is 311
Rouser Road, Moon Township, Coraopolis, PA 15108 (hereinafter referred to as
"Operator") and KNOX ENERGY, LLC, a Tennessee limited liability company, whose
address is 132 Mitchell Road, Oak Ridge, TN 37830 (hereinafter referred to as
"Non-Operator").

         WHEREAS, by the agreements described in Exhibit B which is attached
hereto and made a part hereof, Non-Operator is vested with the right to drill
one or more wells for the purpose of exploring for and producing natural gas
and/or oil from the tracts or parcels covered thereby situate in Anderson,
Campbell, Morgan, Roane and Scott Counties, Tennessee; and

         WHEREAS, Operator and Non-Operator desire to drill wells on the
property covered by the agreements described in Exhibit B (as well as any other
agreements granting Non-Operator, either of the members of Non-Operator and/or
any affiliate of any of them the right to drill one or more wells on the
property within the area of mutual interest (the "AMI") outlined on the map
attached hereto as Exhibit A and made a part hereof) for the production of
natural gas and/or oil therefrom, and the processing, transportation and
marketing of such natural gas and/or oil, on the terms and conditions
hereinafter set forth; the agreements described in Exhibit B, as well as any
other agreements described in this WHEREAS clause which are deemed Leases as set
forth in Section 3.4 hereof, are referred to herein collectively as the "Leases"
and individually as a "Lease".

         NOW, THEREFORE, WITNESSETH, that for and in consideration of the
foregoing premises, and the mutual covenants herein contained, the parties
hereto mutually covenant and agree as follows:

         1.   Definitions
              -----------

              1.1   The following terms used in this Agreement shall have the
meanings set forth below:

                    (a) The term "Assignment" shall mean, with respect to Wells
(as defined below), the separate agreement in the form attached hereto and made
a part hereof as Exhibit D, whereby Non-Operator will grant, assign and convey,
as set forth herein, unto the Operator and/or its successor and assigns, their
Proportionate Share (as defined below) of the right, title and interest of
Non-Operator in and to a part or portion of the property described in and
covered by the Leases.

                    (b) The term "Casing Point" means the time when a Well has
been drilled to the depth or the formation or formations hereinafter designated
and such tests have been conducted so that a determination can be made as to
whether the Well can be further developed to completion.

                    (c) The term "Completion" means in the case of a natural gas
Well or an oil Well the time when all Well equipment has been installed and the

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Well is capable of producing natural gas and/or oil without regard to whether
all facilities necessary to permit the delivery of natural gas or oil production
from the Well to a purchaser have been installed.

                    (d) The term "Drilling Acreage" shall mean those tracts or
parcels of land, or the parts or portions thereof other than the 1.628 acre,
more or less, parcel referred to in Section 2.8 hereof, covered by the Leases.

                    (e) The term "Dry Hole" means a Well that has been drilled
to the Casing Point but which is not completed pursuant to the provisions of
this Agreement.

                    (f) The term "Gas Purchaser" shall mean that party, whether
one or more, designated by the Operator and/or the Non-Operator to purchase gas
produced from one or more Wells.

                    (g) The term "Net Revenue" shall mean the gross receipts of
the Wells less all royalties, overriding royalties, the Operator's Fee (as
defined in Section 7.3 hereof) and Operating Expenses (as defined below) and any
other item of expense not expressly chargeable to the Operator.

                    (h) The term "Operating Expenses" shall mean the customary
expense of operation and maintenance of a Well, if it is producing, the
production and marketing of natural gas and/or oil therefrom, and of plugging
and abandoning a Well, if unproductive. Such term includes business and
occupation, gross receipts, ad valorem and severance taxes and all other taxes
payable with respect to the production from the Wells, and all legal fees, all
transportation charges (including compression charges), all materials utilized
in production, such as, but not limited to, alcohol, soap, solvents, cleaners,
electric drops, electricity and other similar items and any other item commonly
or ordinarily used in connection with producing a natural gas and/or oil well or
designated as an Operating Expense in this Agreement, but shall not include any
cost or expense incurred by the Operator in discharging its obligation to
superintend and maintain a Well, if producing (for which the Operator is to
receive monthly payments as set forth in Section 7.3 hereof) or any other such
costs and expenses which the Operator is required by the terms of this Agreement
to bear itself. Such term shall also include any amounts payable as damages
subsequent to reclamation of all well roads and drill sites in accordance with
applicable law to any owner of the surface estate where a Well is drilled or any
right of way or easement appurtenant thereto and costs of defending or
arbitrating any action or claims asserted with respect thereto.

                    (i) The term "Proportionate Share" shall mean the percentage
share of Operator or its successors or assigns and of Non-Operator in the
drilling and completion costs, Operating Expenses, Operator's Fee, working
interest, production revenues and ownership of each Well to be drilled pursuant
to this Agreement.

                    (j) The term "Well" shall mean a well, and the term "Wells"
shall mean all wells, drilled in accordance with the terms of this Agreement.

                    (k) The term "Well Acreage" shall mean that part or portion
of the Drilling Acreage covered by one or more Leases included in a square area
of forty (40) acres having as its center the borehole of a Well to the extent
such part or portion shall fall within the boundaries of such square area,
provided, however, that if a Lease, or any governmental or other regulatory

                                     - 2 -

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authority or agency, provides or requires for a larger area or a different
configuration, the Well Acreage shall mean such larger area and/or different
configuration.

         2.  Minimum Well Drilling Schedule; Initial and Subsequent Drilling;
             Election to Participate; Gathering
             ----------------------------------------------------------------

             2.1 The Leases identified in Exhibit B provide that a minimum
number of wells are to be drilled before certain dates as set forth on Exhibit B
as a condition to the drilling of additional wells on the property subject to
such Leases.

             2.2 It is understood and agreed by the parties that Operator is
presently unable to perform the duties and obligations of Operator hereunder
with respect to (i) permitting and titling of Wells, (ii) drilling and
completing Wells, (iii) accounting for the costs of drilling and completing
Wells, (iv) tending Wells, (v) marketing production from the Wells or (vi)
accounting for, and distributing, Net Revenues and royalties and overriding
royalties relating to production from the Wells. The parties agree that
Non-Operator will initially perform such duties and obligations and shall be
entitled to receive payment from Operator of Operator's Proportionate Share of
the Drilling Costs, Operating Expenses and Operator's Fee relating thereto. The
parties will fully cooperate with each other and use all reasonable efforts to
have Operator perform such duties and obligations relating to each of the
foregoing numbered activities as soon as reasonably practicable (giving due
consideration to effecting a smooth transition as to each of the foregoing
numbered activities when Operator has adequate personnel in place to perform
such duties and obligations with respect to such activities), provided, however,
that Operator shall perform all such duties and obligations no later than when
fifty (50) Wells have been drilled hereunder.

             For example and without limiting the foregoing, until such time as
Operator obtains any and all required governmental and other approvals and
permissions to drill, complete and operate Wells on the property subject to a
Lease identified in Exhibit B and has adequate personnel in place to conduct
such activities, Non-Operator shall perform such activities, and shall have all
of the rights, of Operator hereunder with respect to such activities. Operator
shall promptly and diligently pursue all reasonable actions to obtain such
approvals and permissions and have such adequate personnel in place. Upon
obtaining such approvals and permissions and having such personnel in place,
Operator shall thereafter perform all such activities, and shall have all of the
rights, of Operator hereunder with respect to such activities and Non-Operator
shall promptly transfer to Operator all permits and other authorizations to
drill, complete and operate Wells on the property subject to the Leases
identified in Exhibit B.

             2.3 Non-Operator has obtained all governmental and other approvals
and permits to drill, complete and operate wells on the property subject to the
Leases identified in Exhibit B as set forth on Exhibit B under the heading
Presently Permitted Minimum Wells. Until Operator obtains any and all required
governmental and other approvals and permissions to drill, complete and operate
Wells on the property subject to a Lease identified in Exhibit B, Non-Operator
shall promptly and diligently pursue all reasonable action to obtain such
approvals and permissions to drill, complete and operate, and shall drill, the
minimum number of Wells set forth on Exhibit B with respect to such Lease. After
obtaining any and all required approvals and permissions to drill, complete and
operate Wells on the property subject to a Lease identified in Exhibit B,
Operator shall promptly and diligently drill the minimum number of wells set
forth on Exhibit B with respect to such Lease (less the number previously
drilled) during the periods Operator has the right to drill wells under this
Agreement.

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             With respect to each of the first ten (10) Wells identified in
Exhibit B under the heading Presently Permitted Minimum Wells, Operator shall
pay to Non-Operator, upon execution of this Agreement, Operator's Proportionate
Share of the Drilling Costs (as defined in Section 2.5 hereof) as estimated in
the AFE (as defined in Section 2.5 hereof) for such Well attached hereto as
Exhibit C and made a part hereof, and after Non-Operator determines the final
third-party costs of drilling and completing such Well, Operator shall pay to
Non-Operator, as set forth in Section 2.5 hereof, Operator's Proportionate Share
of such final costs in excess of the amounts set forth in the AFE for such Well,
subject to the refund or credit set forth in such Section. With respect to any
other Well which is drilled and completed by Non-Operator, not later than five
(5) days prior to such drilling, Operator shall pay to Non-Operator the
Operator's Proportionate Share of the Drilling Costs as estimated in the AFE for
such Well, and after Non-Operator determines the final third-party costs of
drilling and completing such Well, Operator shall pay to Non-Operator, as set
forth in Section 2.5 hereof, Operator's Proportionate Share of such final costs
in excess of the amounts set forth in the AFE for such Well, subject to the
refund or credit set forth in such Section.

             Operator and Non-Operator agree that no other well will be drilled
on the property subject to the Leases closer than one thousand three hundred
twenty (1,320) feet to any Well drilled pursuant hereto unless Operator and
Non-Operator otherwise agree in writing; provided, however, that after the
expiration of the Initial Period or, if applicable, the Option Period, or the
termination of this Agreement if such termination occurs prior to the expiration
of the Initial Period or the Option Period, Non-Operator shall have the right to
drill wells on the property subject to the Leases which are closer than one
thousand three hundred twenty (1,320) feet to any Well drilled pursuant hereto
so long as no such well produces natural gas or oil from any formation (other
than methane gas from coal beds or coal mines) from the surface to one hundred
(100) feet below the deepest formation from which natural gas and/or oil is
produced from any such Well and so long as the drilling, completion and
operation (including the production, compression and transportation of natural
gas and/or oil) of all such wells do not unduly interfere with the operation
(including the production, compression and transportation of natural gas and/or
oil) of any Well and provided, further, that if a Well is plugged and abandoned,
the limitations as to formations and interference in the foregoing proviso as to
such Well shall not apply. If Non-Operator drills a well which is closer than
one thousand three hundred twenty (1,320) feet to any Well which has not been
plugged and abandoned, it shall promptly furnish to Operator copies of all
drilling reports, logs, completion reports and other data reasonably requested
by Operator for the purpose of verifying that such well is not producing, and
will not produce, any natural gas or oil from any formation (other than methane
gas from coal beds or coal mines) from the surface to one hundred (100) feet
below the deepest formation from which natural gas and/or oil is produced from
such Well. The agreements set forth above in this paragraph shall be covenants
running with the land and shall be set forth by reference to this Agreement in
the Assignment in the form attached hereto as Exhibit D and made a part hereof.

             2.4 Non-Operator shall have the right to participate, on a
well-by-well basis, for up to fifty percent (50%) of the working interests in
each Well drilled hereunder.

             Except as set forth in Exhibit B under the heading Wells To Be
Drilled On Or Before March 31, 2005, Operator shall propose the number and
location of the Wells to be drilled pursuant hereto and shall give written
notice thereof to Non-Operator. Non-Operator may elect to participate by giving
written notice to Operator of such election within thirty (30) days after
receipt of Operator's proposal. Failure of Non-Operator to give notice to

                                      - 4 -

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Operator of its election to participate within the period set forth above shall
be deemed, and shall constitute, an election by Non-Operator not to participate.

             Non-Operator has elected not to participate in the first ten (10)
proposed Wells identified in Exhibit B under the heading Presently Permitted
Minimum Wells for any working interest and Operator shall own one hundred
percent (100%) of the working interests in such Wells.

             2.5 Operator and Non-Operator shall each pay its Proportionate
Share of the actual third-party costs of drilling and completing each Well plus
an amount to cover general and administrative, and technical supervision,
expenses allocated to the drilling and completion of each Well (the "Drilling
Costs"). For each Well for which the drilling is commenced prior to March 31,
2005, the amount allocated for general and administrative, and technical
supervision, expenses for the drilling and completion of each such Well shall be
Fourteen Thousand Dollars ($14,000). Thereafter, for each annual period
beginning April 1 and ending March 31 of the following year, Operator shall
determine the amount to be allocated for general and administrative, and
technical supervision, expenses allocated to the drilling and completion of a
Well for which the drilling is commenced during such period, such amount to be
equal to the amount Operator allocates to Wells drilled for any limited
partnership or other entity from which Operator receives funds to drill such
Wells.

             Operator shall give Non-Operator thirty (30) days' prior written
notice of the anticipated drilling date for a Well in which Non-Operator has
elected to participate. No later than five (5) days prior to the drilling by
Operator of a Well in which Non-Operator has elected to participate,
Non-Operator shall pay to Operator its Proportionate Share of the Drilling Costs
of the Well as estimated in an Authority for Expenditure ("AFE") to be furnished
to Non-Operator by Operator along with the written notice to be provided by
Operator to Non-Operator pursuant to Section 2.4 hereof. Within thirty (30) days
after Operator determines the final third-party costs of drilling and completing
a Well, Operator shall either (i) invoice Non-Operator for its Proportionate
Share of the final costs in excess of the amount prepaid by Non-Operator and
Non-Operator shall pay such invoice within thirty (30) days after receipt or
(ii) at the election of Non-Operator, Operator shall refund to Non-Operator, or
credit against Non-Operator's Proportionate Share of the Drilling Costs for one
or more other Wells in which it has elected to participate, the amount prepaid
by Non-Operator in excess of the final Drilling Costs for the Well. It is
expressly understood and agreed that if the final Drilling Costs for a Well
exceed one hundred ten percent (110%) of the Drilling Costs as estimated in the
AFE for the Well, Non-Operator shall have no obligation to pay more than its
Proportionate Share (based upon its election to participate in the Well pursuant
to Section 2.4 hereof) of such excess, provided, however, that if Non-Operator
does not pay such Proportionate Share of the excess, its Proportionate Share of
the Well shall be reduced to a share equal to the share of the final Drilling
Costs of the Well paid by it.

             2.6 If Non-Operator elects to participate in a Well for a
fifty-percent (50%) working interest, the Well will be burdened with an
overriding royalty payable to Non-Operator equal to 1/64th (1.5625%); if
Non-Operator does not elect to participate in a Well for any working interest,
the Well will be burdened with an overriding royalty payable to Non-Operator
equal to 1/32nd (3.125%). To the extent that Non-Operator participates in a Well
for less than a fifty-percent (50%) working interest, the overriding royalty to
Non-Operator shall be determined by subtracting from an overriding royalty of
1/32nd (3.125%) an amount determined by multiplying 1/64th (1. 5625%) by a
fraction, the numerator of which is the Non-Operator's working interest and the
denominator of which is fifty percent (50%). For example, if Non-Operator elects

                                     - 5 -

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to participate for a thirty-percent (30%) working interest in a Well, the
overriding royalty to Non-Operator shall be:

                      3.125% less (1.5625% x (30% / 50%)) =
                      3.125% less .9375% = 2.1875%

             2.7 With respect to each of the first ten (10) Wells identified in
Exhibit B under the heading Presently Permitted Minimum Wells, Operator shall
pay to Non-Operator, upon execution of this Agreement, Operator's Proportionate
Share of a site fee of Four Thousand Dollars ($4,000) and a completion fee of
Two Thousand Dollars ($2,000) for each such Well. With respect to each other
Well drilled and completed during the Initial Period (as defined in Section 2.8
hereof), Operator shall pay to Non-Operator, not later than five (5) days prior
to drilling such Well, Operator's Proportionate Share of a site fee of Four
Thousand Dollars ($4,000) and Operator shall pay to Non-Operator, not later than
thirty (30) days after completion of such Well, Operator's Proportionate Share
of a completion fee of Two Thousand Dollars ($2,000). During the Option Period
(as defined in Section 2.8 hereof), if applicable, the site fee shall be Five
Thousand Dollars ($5,000) and the completion fee shall be Two Thousand Five
Hundred Dollars ($2,500).

             2.8 During the period ending June 30, 2007 (the "Initial Period"),
Operator shall have the exclusive right to propose and drill three hundred (300)
Net Wells (as defined in this Section 2.8) under this Agreement inclusive of
Wells identified in Exhibit B under the heading Presently Permitted Minimum
Wells and other Wells drilled by Non-Operator under Section 2.3 hereof. If
agreed to by Non-Operator in writing no later than December 31, 2006, Operator
shall have the exclusive right to propose and drill two hundred (200) additional
Net Wells under this Agreement during the period commencing July 1, 2007 and
ending June 30, 2009 (the "Option Period"). For purposes of this Agreement, a
Net Well shall mean one or more Wells in which Operator's (and its successors'
and assigns') total initial participation equals one hundred percent (100%) of
the working interests; for example, if Operator has a working interest of one
hundred percent (100%) in each of four (4) Wells, seventy-five percent (75%) in
each of four (4) Wells and fifty percent (50%) in each of four (4) Wells, the
number of Net Wells shall be four (4), three (3) and two (2), respectively, or a
total of nine (9) Net Wells.

             Subject to the performance by Non-Operator of its obligations, and
the accuracy of its representations and warranties, herein contained (including
but not limited to those set forth in Section 2.3 hereof, this Section 2.8 and
Section 3.2 hereof) and subject to the provisions of Section 14 hereof, Operator
shall drill the minimum number of Wells set forth in the Leases to keep each
such Lease in full force and effect during the Initial Period and, if
applicable, during the Option Period and, except with respect to the minimum
number of Wells to be drilled prior to March 31, 2005 and one (1) Well to be
drilled under the Brimstone Lease on or before June 1, 2005 as set forth in
Exhibit B, Operator shall commence the drilling of such minimum number of Wells
no later than ninety (90) days prior to the dates set forth in each of the
Leases to keep each of the Leases in full force and effect during the Initial
Period and, if applicable, during the Option Period. Notwithstanding the
provisions of the foregoing sentence, (i) if Non-Operator substitutes a new
Operator under Section 11.2 hereof, Operator shall have no obligation, nor
right, to drill any additional Wells and (ii) if the expiration of the Initial
Period or, if applicable, the Option Period, occurs during a period when a Lease
provides a minimum number of Wells is to be drilled to keep such Lease in full
force and effect, the obligation of Operator to drill the minimum number of
Wells to keep such Lease in full force and effect shall be prorated based upon
the time of such period prior to, and after, the expiration of the Initial
Period and, if applicable, the Option Period; for example, if the period in the

                                     - 6 -
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Lease during which a minimum number of Wells to be drilled is from January 1 of
a year to December 31 of such year and the minimum number of Wells to be drilled
in such period is ten (10), then in the calendar year 2007, Operator shall have
an obligation to drill only five (5) Wells if the Option Period is not
applicable.

             Failure of the Operator to drill the minimum number of Wells as set
forth above in the preceding paragraph shall result in the immediate termination
of Operator's right to thereafter drill any Well and, except as set forth below,
Operator's right or obligation to participate in any Well thereafter drilled,
provided, however, that if after such termination, Non-Operator drills, or
causes to be drilled, any Wells during the Initial Period or if applicable, the
Option Period, to satisfy the minimum number of Wells as set forth in the
preceding paragraph to be drilled in such period, Operator shall participate in
each such Well drilled no deeper than one hundred (100) feet below the
Chattanooga Shale formation (or such deeper formation to which such Well is
required to be drilled by a Lease) for such working interests, if any, as
Non-Operator shall notify Operator in writing prior to the drilling of such Well
and Operator shall be responsible for, and shall pay, its Proportionate Share of
the Drilling Costs, Operating Expenses and Operator's Fee for such Well; the
termination of the rights of Operator set forth above and the right of
Non-Operator to require Operator to participate in the minimum number of Wells
drilled no deeper than one hundred (100) feet below the Chattanooga Shale
formation (or such deeper formation to which such Well is required to be drilled
by a Lease) shall be the sole and exclusive remedy of Non-Operator with respect
to Operator's failure to drill the minimum number of Wells as set forth above in
the preceding paragraph.

             Non-Operator represents and warrants, to the best of its knowledge,
to and for the benefit of Operator and its successors and assigns that no
person, corporation or other entity, other than Non-Operator, has the right to
explore for or produce natural gas or oil (including the right to drill,
complete and operate Wells for the production, compression, transportation,
marketing and sale of natural gas and oil produced therefrom) from the property
subject to the Leases identified in Exhibit B other than the 1.628 acre, more or
less, portion of the tract covered by the Coal Creek Lease described in Exhibit
B under the heading Excluded Acreage. Non-Operator agrees that during the
Initial Period, and if applicable, during the Option Period, Non-Operator shall
not grant, assign or otherwise transfer to any person, corporation or other
entity, except to Operator as set forth herein, the right to explore for and
produce natural gas or oil from the property subject to the Leases not including
methane gas from coal beds and coal mines.

             Notwithstanding anything to the contrary contained in this
Agreement, upon the expiration of the Initial Period and, if applicable, the
Option Period, Operator shall have no obligation or right to drill any well, and
shall have no right to participate in any well drilled thereafter, on the
property subject to any Lease.

             2.9 Notwithstanding anything to the contrary contained in this
Agreement, without the written consent of Non-Operator, no Well drilled under
this Agreement shall be drilled or completed to produce any methane gas from
coal beds or coal mines, and after the initial drilling and completion of a
Well, such Well shall not be deepened without the consent of both Operator and
Non-Operator. It is expressly understood and agreed that Operator has no rights
of ownership or otherwise in, nor liabilities with respect to, any well (whether
producing, plugged or abandoned) drilled on the property subject to any Lease
identified in Exhibit B by Non-Operator or any other person, corporation or
other entity prior to the date of this Agreement or, unless otherwise agreed to
in writing by Non-Operator and Operator, in any well (whether producing, plugged
or abandoned) drilled on the property subject to any other Lease prior to the

                                     - 7 -

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time it is deemed a Lease pursuant to Section 3.4 hereof; and to the extent it
has the right to do so, Non-Operator may produce, rework, deepen and perform
other operations on such wells for its sole account.

             2.10 Operator and Non-Operator shall each have the right to
transfer or otherwise assign working interests in any Well to any affiliate and
to any limited partnership or other entity from which Operator or Non-Operator
receives funds to drill the Well, provided, however, that each party must retain
at least twenty percent (20%) of the working interests for which it participated
hereunder in each Well (such retention may be by the direct ownership of such
minimum working interest or indirectly by such party's ownership of an affiliate
or such limited partnership or other entity which owns working interests in the
Well) unless otherwise consented to by the other party, such consent not to be
unreasonably withheld.

         3.  Title; Lease Status; Assignment by Non-Operator; AMI Election
             -------------------------------------------------------------

             3.1 Promptly after the execution of this Agreement, Non-Operator
shall provide to Operator all information in its possession or subject to its
control as to the title to the natural gas and oil underlying the property
subject to the Leases identified in Exhibit B and the rights to explore for,
develop, operate, produce and market such natural gas and oil including but not
limited to the names and addresses of all owners of royalties and overriding
royalties and the amounts of such royalties and overriding royalties.
Additionally, at the time a copy of an agreement described in Section 3.4 hereof
is sent to Operator, and thereafter, promptly after being requested to do so,
Non-Operator shall provide to Operator all information in its possession or
subject to its control as to the title to the natural gas and oil underlying the
property subject to such agreement and the rights to explore for, develop,
operate, produce and market such natural gas and oil. As to the title to the
natural gas and oil underlying the property subject to the Leases and the right
to explore for, develop, operate, produce and market such natural gas and oil,
Non-Operator represents and warrants to and for the benefit of Operator and its
successors and assigns that it will defend such title against every person,
corporation or other entity claiming or to claim an interest therein by, through
or under Non-Operator, or any member of Non-Operator, or any affiliate of any of
them, but not otherwise.

             Prior to the drilling of a Well, the Operator shall obtain a
report, prepared by an attorney or title insurance company licensed to practice
or do business in Tennessee, as to whether the lessor(s) of the Lease, and each
assignee of such lessor(s) including Non-Operator, are vested with good and
marketable title to the rights to explore for, develop, operate, produce and
market natural gas and oil on Well Acreage covered by the Lease on which the
Well is to be drilled. Without limiting the foregoing, the report will cover,
with respect to the Well Acreage covered by the Lease on which the Well is to be
drilled, the ownership of the (i) oil and natural gas, (ii) working interests,
(iii) royalties, (iv) overriding royalties and (v) other production payments, if
any. Promptly after receipt of a report, Operator shall furnish a copy thereof
to Non-Operator. If a report reveals defects in title, Operator may, in the
exercise of its reasonable judgment, caused to be performed such curative work
as Operator deems prudent (including obtaining pooling amendments or agreements)
or may decide not to drill a Well on the Well Acreage subject to the report.
Operator and Non-Operator shall each be responsible for, and pay, its
Proportionate Share of the costs incurred to obtain such reports, and to perform
curative work, including costs of abstracts, attorney's fees, title company
charges, land broker charges and other related direct charges, provided,
however, that Non-Operator shall not be responsible for, and shall not pay, any
amount for services rendered by in-house counsel or other personnel of Operator
with respect to title to any Well Acreage or any curative work relating thereto.

                                     - 8 -

<PAGE>

Except as to the warranty of title set forth in the preceding paragraph, neither
Operator nor Non-Operator shall have any liability to the other for failure of
title or any matter relating thereto.

             3.2 Non-Operator hereby represents and warrants, as of the date
hereof and continuing until March 31, 2005, to and for the benefit of Operator
and its successors and assigns, that the Leases identified in Exhibit B are in
full force and effect in accordance with their terms and that there are no
defaults by lessee thereunder and that the lessee has no obligation under any
such Lease to drill any well for the production of any methane or other gas from
coal beds or coal mines and that all amendments to each such Lease are
identified in Exhibit B and that all consents required under such Leases to
permit Operator to perform its obligations, and exercise its rights,
contemplated hereby have been obtained including consents to the assignment of
such Leases and interests in the Wells and Well Acreage to Operator and to any
affiliate of Operator or Non-Operator and to any limited partnerships and other
entities from which Operator or Non-Operator receives funds to drill Wells, true
and correct copies of such consents having been furnished by Non-Operator to
Operator on or prior to the execution of this Agreement. Non-Operator shall not
agree to any amendment or other modification of any Lease identified in Exhibit
B without the prior written consent of Operator. Non-Operator shall be solely
responsible for the payment of, and shall pay, all delay rentals, minimum
royalties and other amounts required to be paid under the Leases to keep the
Leases in full force and effect and upon request of Operator, Non-Operator shall
provide evidence of such payment in such detail as Operator may reasonably
request; Non-Operator shall be entitled to recoup such delay rentals, minimum
royalties and/or other amounts as may be provided in the Lease and to the extent
Operator receives funds from the sale or other disposition of natural gas and
oil produced from the Wells which may be applied to such recoupment, it will pay
such funds to Non-Operator. Operator and Non-Operator shall each pay its
Proportionate Share of any shut-in royalties required to be paid under the
Leases with respect to a Well. Additionally, Non-Operator shall comply with all
other provisions of the Leases (except, subject to Section 2.3 hereof, the
provisions to drill a minimum number of wells), and take all other actions to
otherwise keep the Leases in full force and effect, with respect to the property
subject thereto exclusive of Well Acreage. Promptly after receipt of any notice,
or any document or other writing, from any lessor of a Lease, any governmental
or regulatory authority or agency or any other person, corporation or authority
relating to any Lease or Well or any activities conducted on the property
subject to the Leases or relating to any other matter concerning the drilling,
completion or operation of one or more Wells, or the transportation,
compression, processing, marketing or sale of natural gas and/or oil produced
therefrom, Non-Operator and Operator, as the case may be, shall provide the
other with such notice, or document or other writing.

             3.3 Upon payment by Operator of its Proportionate Share of the site
fee for a Well pursuant to Section 2.7 hereof, the Non-Operator shall promptly
execute and deliver to the Operator or its successors and assigns an Assignment
in substantially the form attached hereto and made a part hereof as Exhibit D
with respect to the Well Acreage on which the Well is to be drilled and the
non-exclusive right to construct, maintain, repair and operate one or more
lines, compressors, processing facilities and meters on the property subject to
the Leases to transport, compress, process, measure, market and sell natural gas
and oil produced from the Wells, which natural gas and oil shall be transported
through the Coalfield Pipeline pursuant to a Gas Gathering Agreement between
Operator and Coalfield Pipeline Company being executed contemporaneously with
this Agreement. Unless otherwise agreed to by the Non-Operator, the Assignment
shall except and reserve to the Non-Operator all interests and estates with
respect to methane gas in coal beds and coal mines, together with the right to
conduct operations on and drill through Well Acreage for the development,

                                     - 9 -

<PAGE>

extraction and processing of such methane gas so long as such operations and
drilling do not adversely affect the operation of, or production from, any Well.
In the Assignment and subject to the non-exclusive right described in the first
sentence of this Section 3.3, Non-Operator shall further except and reserve unto
itself all interests and estates in the Lease on which the Well is drilled,
except as to the Well Acreage and as to all oil and gas formations from the
surface to one hundred (100) feet below the deepest producing formation in the
Well.

             3.4 If the Non-Operator, either member of the Non-Operator or any
affiliate of any of them acquires the right to drill one or more wells on the
AMI pursuant to an agreement not identified in Exhibit B, the Non-Operator shall
provide a copy of the agreement to the Operator promptly after the execution of
such agreement. The Operator shall have the right, within thirty (30) days after
receipt of the executed agreement, to notify the Non-Operator in writing that
such agreement shall be deemed a Lease, subject to such conditions as may be set
forth in the notice (including consents to assignment), for all purposes of this
Agreement and Non-Operator shall not agree to any amendment or other
modification of such Lease without the prior written consent of Operator. If
such written notice is not given by the Operator within the thirty (30) day
period, such agreement shall not be deemed a Lease and the Operator shall have
no rights, or obligations, in regard to such agreement. Notwithstanding the
foregoing, Operator shall have no right to have any acreage described in Exhibit
B under the heading Excluded Acreage deemed subject to a Lease.

             With respect to the leases and other agreements ("Additional
Potential Leases") described in Exhibit B under the heading Additional Potential
Leases, on or before March 1, 2005, Non-Operator shall provide to Operator a
copy of each such Additional Potential Lease. If Non-Operator desires to drill a
natural gas and/or oil well on the property subject to an Additional Potential
Lease, at least ninety (90) days prior to drilling such well, Non-Operator shall
give written notice to Operator of such desire along with the proposed location,
target formation and anticipated drilling date of the well (as well as copies of
any amendment or other modification of such lease and of any consent to
assignment required by such lease) and the Operator shall have the right to
participate in such well for up to fifty percent (50%) of the working interests,
if Operator elects, as provided below, to have the Additional Potential Lease
and well deemed a Lease and Well hereunder. If Operator notifies Non-Operator in
writing within thirty (30) days after receipt of the written notice from
Non-Operator that Operator desires to participate in the well and sets forth, in
such notice, its working interest participation, such well and Additional
Potential Lease shall be deemed a Lease and a Well hereunder and Operator shall
commence the drilling of the Well before the drilling date set forth in the
notice from Non-Operator, it being understood and agreed that after Non-Operator
gives the written notice to Operator set forth above, Non Operator shall not
agree to any amendment or other modification of such Lease without the prior
written consent of Operator.

             3.5 The Operator agrees that for a period of seven (7) years after
the execution of this Agreement, it will not acquire, other than as provided in
this Agreement, the right to drill any wells or to mine any coal, or any
interests in oil and gas or coal, on the AMI without the written consent of the
Non-Operator. The provisions of this Section 3.5 shall survive the termination
of this Agreement prior to the end of such seven (7) year period.

             3.6 Notwithstanding anything to the contrary herein contained, all
rights and obligations of Operator and Non-Operator hereunder relating to the
Leases are subject to the terms and provisions of the Leases including, but not
limited to, any rights of lessor or others to take over any Well to be plugged
and abandoned.

                                     - 10 -

<PAGE>

         4.  Drilling and Certain Related Procedures; Abandonment
             ----------------------------------------------------

             4.1 Other than the minimum number of Wells to test the Knox
Formation, the Monteagle formation or any other formation set forth in the
Leases, the Operator shall drill each Well to such formation as it shall
designate, unless natural gas or oil is discovered in commercial quantities at a
lesser depth which, in the opinion of the Operator, in its reasonable
discretion, makes further drilling inadvisable to such target formations. If the
Well is found to be commercially productive in the reasonable discretion and
judgment of the Operator, the Operator shall complete the Well and if the Well
produces natural gas, connect it to the Coalfield Pipeline, and if the Well
produces oil, make appropriate arrangements for the prompt removal and sale of
the oil produced from the Well.

             4.2 The Operator shall provide or cause to be provided all
materials, supplies, tools, labor and services required to drill and complete
the Wells to be drilled pursuant to this Agreement through the wellhead,
including, but not limited to, drilling rigs, casings, bits, drill pipe, and all
water, power, fuel and lubricants required at the Well sites. In connection with
the foregoing obligations, the Operator shall perform, or cause to be performed,
with respect to the Wells, the following procedures, in accordance with industry
custom and standard in the locality:

                  (a) Grade and prepare the well location, including furnishing
a suitable roadway thereto, if required, and following completion, backfill,
grade and reseed the well location, all in accordance with the requirements of
applicable law;

                  (b) Install and cement the well casing in accordance with the
specifications of the Operator and as required by state and federal law;

                  (c) Electronically log and test the well in accordance with
the specifications of the Operator to determine its productive capacity;

                  (d) Perforate such casing opposite such formations as Operator
may select in accordance with the specifications of the Operator;

                  (e) Unless the Operator reasonably determines it is not
necessary, stimulate one or more of the productive formations by means of
nitrogen fracturing, hydrofracturing, acidizing, shooting, or other means in
accordance with the specifications of the Operator, such stimulation and the
extent and scope thereof to be designed by the Operator in accordance with
generally accepted industry practices in the locality;

                  (f) If necessary, install an oil and gas separator to separate
any recoverable liquids from the natural gas, if such liquids are contained by
the natural gas in commercial amounts, before such natural gas is delivered to
the designated pipeline or compressing equipment, together with a tank to store
any liquids so separated from the natural gas as required;

                  (g) Use commercially reasonable efforts to obtain all rights
of way and related surface rights and easements required, provide pipe for, and
construct and place in operation, an appropriate gathering or other pipeline
system to connect the Wells to the Coalfield Pipeline, provided, however, that
to the extent Non-Operator or any of its members or any affiliate of any of them
has such rights-of-way and related surface rights and easements, it shall grant
Operator the non-exclusive right to use the same for such purpose;

                                     - 11 -
<PAGE>

                  (h) Install all drips and other devices in the gathering or
other lines as shall be needed to ensure that all natural gas entering the lines
shall have a moisture content no greater than the maximum allowable under
current industry standards; and

                  (i) In the event that Operator shall at any time determine
that a Well is capable of producing oil in paying quantities, as either a
Drilling Cost or an Operating Expense (i) install well pumping equipment
following its completion in order to produce oil from the Well in an amount
equal to its allowable or capacity production and (ii) provide pipe for, and
construct and place in operation, an appropriate, if necessary, line to connect
the Well to an oil transmission line (or, in the event that any oil produced is
to be removed by tanker, construct a pipeline to an adequate tank battery at the
designated pickup point).

             4.3 Notwithstanding anything to the contrary contained in this
Agreement, the Operator shall have the right to subcontract any part of the
drilling, completion and operation of a Well, and any other work to be performed
by Operator hereunder, to an affiliate of the Operator or any other party
without the prior consent of the Non-Operator, provided, however, that no such
subcontracting shall relieve the Operator of its obligations and
responsibilities hereunder and any such subcontract must be made on commercially
reasonable terms. The term "affiliate" as used in this Agreement shall mean any
business entity which directly or indirectly through one or more intermediaries
controls or is under the common control of the Operator or Non-Operator.

             4.4 The Operator shall conduct all operations hereunder in a good
and workmanlike manner. All materials and supplies to be provided shall be of
good quality and suitable to the use to which they may be put and all equipment,
appliances and tools shall be in operating order. Operator shall not be
responsible for loss resulting from any latent defect in any material supplied
by any third party or the negligence of any third party of any service.

             4.5 In the event a Well is determined by the Operator, in its
reasonable discretion, to be commercially unproductive following drilling to
total depth and electronic logging thereof, and is thereby deemed a "Dry Hole,"
the Operator may notify the Non-Operator of such fact and of Operator's
intention to plug and abandon, and the reasons for plugging and abandoning, the
Well in accordance with the laws and regulations of the State of Tennessee.
After sixty (60) days have expired from the date of mailing such notice,
Operator may plug and abandon the Well and Operator and Non-Operator shall each
pay its Proportionate Share of the costs of plugging and abandoning the Well.
Notwithstanding the foregoing, in the event the Non-Operator desires that the
Well not be plugged and abandoned, it shall, within said sixty (60) day period,
serve upon Operator a written notice requesting the resignation of the Operator
as to the Well. Such notice shall designate a new operator for the Well, and
shall be accompanied by evidence of an operator's bond with respect to the Well.
Such notice shall also be accompanied by a written agreement, signed by the
Non-Operator, agreeing to assume the operation of the Well through the newly
designated operator and relieving and discharging Operator of all further
responsibility in connection with the operation or plugging and abandonment of
the Well except for acts or activities occurring prior to the effective date of
such notice. After the Well is placed under the bond of the new operator,
Operator shall promptly transfer to Non-Operator, free or charge, all rights,
titles and interests of Operator in and to the Well and the Well Acreage on
which the Well is drilled.

                                     - 12 -

<PAGE>

         5.  Other Operating Responsibilities of the Operator
             ------------------------------------------------

             5.1 In connection with the performance of its duties and
responsibilities pursuant to the terms of this Agreement, Operator shall:

                  (a) Keep the Leases free and clear of all labor, materials and
other liens or encumbrances arising out of its operations;

                  (b) Obtain and maintain at its own expense all worker's
compensation coverage required by law with respect to its employees and employee
liability insurance with a limit of $1,000,000 per occurrence, and require all
of its subcontractors to obtain and maintain such coverage with respect to their
employees;

                  (c) Maintain in force at its own expense, with an insurance
company or companies licensed to do business in Tennessee and rated A-, VII or
better by A.M. Best, the following basic liability coverages (including
independent contractor and completed operations and premises operations):
comprehensive (including written contractual liability) general liability
insurance and bodily injury insurance - $1,000,000 each occurrence and
$1,000,000 aggregate; property damage liability (with deletion of underground
property damage exclusion provisions ) - $1,000,000 each occurrence and
$1,000,000 aggregate; and comprehensive auto liability and property damage in
the same limits. The Operator shall also maintain an "umbrella" policy
increasing the liability coverage hereinbefore set forth by the additional
amount of $10,000,000. Upon receipt of a request of Non-Operator for a
certificate of insurance, Operator shall request such a certificate and shall,
upon receipt of the certificate, furnish the same to the Non-Operator.
Non-Operator and its members, CNX Gas Company, LLC (and its members) and New
River Energy, LLC (and its members), and CONSOL Energy, Inc., and their
directors, officers and employees, shall be named as additional insureds under
the policies and the policies shall provide that they may not be cancelled as to
any coverage with respect to any of them, except after thirty (30) days' written
notice to Non-Operator and CONSOL Energy, Inc. and the policies shall also
provide a waiver of subrogation rights in favor of Non-Operator and its members,
CNX Gas Company, LLC (and its members) and New River Energy, LLC (and its
members) and CONSOL Energy, Inc., and their directors, officers and employees.

                  In the event Operator is unable, or fails, to obtain or
maintain any of the insurance coverage described above, Operator shall give
Non-Operator notice thereof as soon as reasonably possible and in such event,
Operator shall immediately cease conducting any activities on the property
subject to the Leases until such time as Operator obtains such coverage unless
such inability, or failure, results from insurance companies licensed to do
business in Tennessee not generally offering such coverage. If Operator is
unable, or fails, to obtain or maintain any of the insurance coverage described
above for a period of thirty (30) days, Non-Operator shall have the right to
immediately terminate the right of Operator to thereafter drill any Well and,
except as set forth in the third paragraph of Section 2.8 hereof, the right or
obligation of Operator to participate in any Well drilled thereafter, upon
sending written notice to Operator unless such inability, or failure, results
from insurance companies licensed to do business in Tennessee not generally
offering such coverage or unless one or more subcontractors of Operator who have
such coverage conduct, to the exclusion of Operator, all activities on the
property subject to the Leases to fulfill all obligations of Operator hereunder
to be performed on such property and Operator provides to Non-Operator within
such thirty (30) day period a certificate of such insurance coverage of such
subcontractor(s);

                                     - 13 -
<PAGE>

                  (d) Comply with all requirements of applicable federal, state
and local laws, and all regulations pursuant thereto, including, but not limited
to, (i) obtaining all permits and approvals required from any governmental or
regulatory authority or agency for the drilling and other activities which are
the subject hereof, (ii) duly complying with all environmental and other similar
laws and regulations relating to well drilling operations and associated
earthmoving activities and with the terms of any orders issued by any
governmental or regulatory authority or agency having jurisdiction with respect
thereto, and (iii) filing all reports required to be filed with any governmental
or regulatory authority or agency in connection with the drilling and other
activities which are the subject hereof. If Operator and/or any of its
subcontractors repeatedly violate the material provisions of applicable federal,
state or local law, or of regulations pursuant thereto, and fail to cure such
violations in a timely manner, Non-Operator shall have the right to immediately
terminate the right of Operator to thereafter drill any Well and, except as set
forth in the third paragraph of Section 2.8 hereof, the right or obligation of
Operator to participate in any Well drilled thereafter, upon sending to Operator
written notice setting forth such violations. Fines imposed as a result of
Operator and/or its subcontractors violating applicable federal, state or local
law, or of regulations pursuant thereto, shall be payable solely by Operator
unless such violations do not result from a breach by Operator of its
obligations under paragraph (f) below, in which event Operator and Non-Operator
shall each pay its Proportionate Share of such fines;

                  (e) Comply with all of the provisions of the Leases, and take
all actions required to keep the Leases in full force and effect, with respect
to its operations hereunder; and

                  (f) Perform its duties under this Agreement as a reasonable
prudent operator, in a good and workmanlike manner, with due diligence and
dispatch, in accordance with good oil field practice. Operator agrees to
indemnify and hold Non-Operator, its employees, directors and affiliates
harmless from any third-party suits, claims, damages or actions related to the
performance of its duties hereunder except to the extent that such suits,
claims, damages or actions arise from the negligence of Non-Operator. Except for
the indemnification provided in this paragraph (f), no party shall be
responsible to the other party for any special, indirect, consequential, lost
profit or punitive damages regardless of the type of breach (financially related
or non-financially related).

         6.  Marketing of Natural Gas and Oil
             --------------------------------

             6.1 The Operator shall use commercially reasonable efforts to sell,
upon such terms and conditions as it shall in its reasonable discretion deem
advisable, all natural gas and oil produced from the Wells, exclusive of any
production which may be used in development and producing operations and any
production lost due to loss or shrinkage or used in compression of natural gas
or in preparing and treating oil for marketing. At least ten (10) days prior to
entering into any agreement with respect to the sale of natural gas and/or oil
produced from the Wells, Operator shall furnish a copy of such agreement to
Non-Operator. Unless Non-Operator notifies Operator in writing, within ten (10)
days after receipt by Non-Operator of such agreement, that Non-Operator elects,
pursuant to Section 6.2 hereof, to receive in kind its Proportionate Share of
the production from the Wells, as well as the overriding royalty of Non-Operator
set forth in Section 2.6 hereof, Operator shall be authorized to sell
Non-Operator's Proportionate Share of the production from the Wells, as well as
such overriding royalty, pursuant to the terms and provisions of such agreement.
Any such agreement shall be executed by Operator as agent for the Non-Operator,
and the Non-Operator hereby appoints Operator as its agent and attorney-in-fact
for such purpose and shall designate Operator as the payee of the gross proceeds

                                     - 14 -

<PAGE>

from the sale of natural gas and oil under such agreement so long as the
Operator shall act as Operator hereunder. Notwithstanding anything to the
contrary contained in this Agreement, unless agreed to otherwise by Non-Operator
in writing, Operator shall have no authority to sell, and shall not sell,
Non-Operator's Proportionate Share of the natural gas produced from the Wells
except for a floating price determined daily or monthly based upon the commodity
price of natural gas as reflected in the future prices on the New York
Mercantile Exchange or a nationally recognized commodities index; Operator will
use reasonable efforts to notify Non-Operator if it intends to sell Operator's
Proportionate Share of the natural gas produced from the Wells at a price other
than set forth above, the parties recognizing, however, that such notice may be
given immediately before such sale because of market and other factors. Any
authority delegated to the Operator to sell Non-Operator's Proportionate Share
of the production from the Wells shall be limited to a period of time not in
excess of the minimum needs of the industry and in no event for more than one
year unless agreed to in writing by Non-Operator.

             Operator shall be solely responsible for the payment of any and all
charges imposed by a pipeline or other transporter of natural gas which is to
receive natural gas produced from the Wells at its connection with the Coalfield
Pipeline and which arise from an imbalance between (i) quantities of natural gas
produced from the Wells and nominated by Operator for delivery to such pipeline
or other transporter and (ii) quantities of such natural gas actually delivered;
provided, however, that Operator shall have no such responsibility, and
Non-Operator shall bear its Proportionate Share of any and all such charges, if
the imbalance results from "force majeure" (as such term is defined in Section
14.1 hereof) or any other cause except the negligence of Operator.

             6.2 Notwithstanding anything to the contrary contained in this
Agreement, the Non-Operator shall own its Proportionate Share of the Wells and
the natural gas and oil which is produced therefrom, and shall have, and may
exercise, at any time and from time to time, its right and privilege to receive
in kind its Proportionate Share of the production from the Wells, as well as the
overriding royalty of Non-Operator set forth in Section 2.6 hereof, and make a
sale thereof for its own account, provided, however, that if Non-Operator
exercises its right and privilege to take in kind, such exercise shall be for
one hundred percent (100%) of its Proportionate Share of the natural gas
production from the Wells, as well as the natural gas overriding royalty of
Non-Operator set forth in Section 2.6 hereof and Non-Operator shall use its best
efforts to actually take in kind one hundred percent (100%) of such natural gas
production and overriding royalty and provided further, that Non-Operator shall
be responsible for the payment of all costs and expenses incurred by
Non-Operator, Operator or otherwise in connection with Non-Operator's receipt in
kind and failure, if any, to take in kind one hundred percent (100%) of such
natural gas production and overriding royalty. Additionally, if Non-Operator
exercises its right and privilege to receive in kind its Proportionate Share of
the natural gas production from the Wells, as well as the natural gas overriding
royalty of Non-Operator set forth in Section 2.6 hereof, to the extent Operator
has the right, whether exclusive or otherwise, to have natural gas produced from
the Wells compressed and transported through the Coalfield Pipeline, such
natural gas production and overriding royalty of Non-Operator shall be delivered
by Operator into the Coalfield Pipeline on the same basis as all other natural
gas production from the Wells.

             6.3 Operator shall distribute to Non-Operator on a monthly basis
Non-Operator's Proportionate Share of the Net Revenues from the Wells received
by Operator and the overriding royalties payable to Non-Operator pursuant to
Section 2.6 hereof unless Non-Operator receives in kind, as set forth in Section
6.2 hereof, its Proportionate Share of the production from the Wells and/or the
overriding royalty of Non-Operator set forth in Section 2.6 hereof.

                  6.4 The balancing of the Proportionate Shares of Operator and
Non-Operator of natural gas produced from the Wells, as well as the Overriding
Royalty of Non-Operator taken in kind, shall be governed by the terms and
provisions of the Gas Balancing Agreement attached hereto as Exhibit E and made
a part hereof.

                                     - 15 -

<PAGE>

         7.  Superintendence and Maintenance of the Wells; Operator's Fee and
             Other Charges
             ----------------------------------------------------------------

             7.1 In addition to its other obligations hereunder, the Operator,
shall be responsible for superintendence and maintenance of the Wells, if
productive. In particular, and without limiting the generality of the foregoing,
the Operator shall take the following actions with respect to each Well:

                  (a) The Well shall remain connected to its transmission,
gathering or other pipeline system, as appropriate, at all times, except to the
extent disconnection is required:

                      (i) For repairs to the Well or associated facilities;

                      (ii) To accommodate surface or other coal mining
operations where the surface or other coal mining rights have priority over the
oil and gas exploration and production rights; and

                      (iii) To accommodate timbering operations where the timber
rights have priority over the oil and gas exploration and production rights.

                  (b) In the event the Well is disconnected for repairs,
reconnection shall be made promptly following the completion of such repairs
(after authorization from the Gas Purchaser, if required);

                  (c) Appropriate shut-in pressure tests are conducted with
respect to the Well;

                  (d) All metering, valves and other wellhead equipment are
checked regularly and maintained in good condition; and

                  (e) The Well is kept in good condition for the production of
natural gas and oil.

             7.2 The number of employees required for the discharge of the
Operator's superintendence and maintenance responsibilities hereunder and their
selection and hours of labor shall be determined by the Operator, in its sole
and absolute discretion.

             7.3 In lieu of any direct charges by the Operator for the services
of the Operator or any of its employees or subcontractors required for
superintendence and maintenance of the Wells under this Agreement, if
productive, and in lieu of any accounting, bookkeeping and distribution
expenses, the Operator shall be entitled to receive payment from Non-Operator of
its Proportionate Share of the rate of Two Hundred Twenty-Five Dollars ($225)

                                     - 16 -

<PAGE>

per month per Well (the "Operator's Fee"), commencing with the first month or
part thereof that the Well is in production and continuing for each month
thereafter whether or not the Well shall be in production, provided, however,
that no Operator's Fee shall be charged for any month during which the Well is
shut-in for the entire month for reasons other than repair or maintenance. Such
amount is intended to compensate the Operator for the services supplied by
Operator, its personnel and the personnel of any subcontractors engaged by
Operator but excluding any allowance for materials, supplies, or the use of
Operator's equipment. Notwithstanding the foregoing, in the event that it shall
be necessary for Operator to incur unusual or extraordinary expenses in the
operation of the Wells, such as in the case of a Well whose productivity of oil
is such as to require intensive supervision, such additional expenses shall be
deemed to be an Operating Expense.

             The Operator's Fee at the rate of Two Hundred Twenty-Five Dollars
($225) per month per Well shall be fixed at such amount until December 31, 2007.
The Operator's Fee may be adjusted as of January 1, 2008 for the period
beginning on such date and ending on December 31, 2008 and thereafter may be
adjusted annually for the periods beginning January 1 of a year and ending
December 31 of the same year. The adjustment shall be computed by multiplying
the Operator's Fee currently in effect by the percentage increase or decrease,
if any, recommended by the Council of Petroleum Accountants Societies ("COPAS")
each year and the adjusted Operator's Fee shall be the Operator's Fee currently
in use plus or minus the adjustment, provided, however, that the adjusted
Operator's Fee shall never be less than Two Hundred Twenty-Five Dollars ($225)
per month per Well.

         8.  Costs and Expenses; Plugging Reserve Account
             --------------------------------------------

             8.1 The Operator shall cause all Operating Expenses to be promptly
paid and discharged and Non-Operator shall be responsible for payment of its
Proportionate Share of all Operating Expenses. In the event the Operator shall
have paid any Operating Expenses with respect to the Wells out of its own funds,
Non-Operator's Proportionate Share of the amounts thereof shall be reimbursed by
the Non-Operator to the Operator within thirty (30) days after receipt of a
statement therefor to the extent Non-Operator's Proportionate Share of such
Operating Expenses exceeds its Proportionate Share of the Net Revenues from the
Wells received by Operator. Additionally, Non-Operator's Proportionate Share of
the Operating Fee for the Wells shall be paid by the Non-Operator to the
Operator within thirty (30) days after receipt of a statement therefore to the
extent Non-Operator's Proportionate Share of the Operator's Fee for the Wells
exceeds its Proportionate Share of the Net Revenues from the Wells received by
Operator. Operator is authorized hereby to establish a reasonable reserve from
the revenues of the Wells in order to defray the Operator's Fee and reasonably
anticipated Operating Expenses associated with the Wells and to deposit the
funds reserved in a separate and segregated interest-bearing reserve account
(the "Operating Reserve Account"), provided, that the funds in the Operating
Reserve Account (including accrued interest) shall not exceed Two Thousand
Dollars ($2,000) for any Well or Fifty Thousand Dollars ($50,000) in the
aggregate for all Wells. Non-Operator hereby grants unto Operator a security
interest or lien and right to off-set in the revenues of the Wells to secure
Operator in the payment of Operating Expenses and the Operator's Fee.

             8.2 The Operator shall further pay promptly all charges for labor
and materials which it incurs in performing its duties under this Agreement,
whether or not the same are chargeable to the Non-Operator, and shall not,
providing that all amounts due to Operator hereunder shall have been timely paid
and shall not be in default in any respect, permit any liens for such labor

                                     -17 -
<PAGE>

and/or materials to be filed by any person against the Non-Operator's interests
in the Wells or, if filed, shall take prompt action to have the same removed.

             8.3 Notwithstanding anything to the contrary contained in this
Agreement, if after a Well has been placed into production for natural gas
and/or oil, the Operator shall reasonably determine that the Well has become
incapable of producing natural gas and/or oil in commercial quantities, the
Operator may notify the Non-Operator of the fact of such non-productivity and of
Operator's intention to plug and abandon, and the reasons for plugging and
abandoning, the Well in accordance with the laws and regulations of the State of
Tennessee. After sixty (60) days have expired from the date of mailing such
notice, Operator may plug and abandon the Well. Operator shall first utilize the
funds in the Plugging Reserve Account (as defined in Section 8.4 hereof) to pay
the costs of plugging and abandoning the Well. In the event the amounts in the
Plugging Reserve Account are insufficient to pay all of the costs of plugging
and abandoning the Well, then Operator shall invoice the Non-Operator for
Non-Operator's Proportionate Share of the additional amounts (which shall be an
Operating Expense) needed to pay such costs in full and the Non-Operator shall
remit to Operator the Non-Operator's Proportionate Share of such additional
amounts within thirty (30) days after receipt of an invoice from Operator
therefor, it being understood and agreed that in no event will Non-Operator be
responsible or liable for any costs to plug and abandon a Well beyond its
Proportionate Share of such Well. Notwithstanding the foregoing, in the event
the Non-Operator desires that the Well not be plugged and abandoned, it shall,
within said sixty (60) day period, serve upon Operator a written notice
requesting the resignation of the Operator as to the Well. Such notice shall
designate a new operator for the Well, and shall be accompanied by evidence of
an operator's bond with respect to the Well. Such notice shall also be
accompanied by (i) a written agreement, signed by the Non-Operator, agreeing to
assume the operation of the Well through the newly designated operator and
relieving and discharging Operator of all further responsibility in connection
with the operation or plugging and abandonment of the Well except for acts or
activities occurring prior to the effective date of such notice and (ii) payment
to Operator and other working interest owners of their Proportionate Share of
the then fair market value of the salvageable casing, tubing and fixtures of the
Well. After the Well is placed under the bond of the new operator, Operator and
the other working interest owners shall promptly transfer to Non-Operator all of
their rights, titles and interests in and to the Well and the Well Acreage on
which the Well is drilled and shall promptly transfer to the new operator the
Non-Operator's Proportionate Share of the funds in the Plugging Reserve Account
attributable to the Well.

             8.4 (a) Operator shall have the right to retain as an Operating
Expense, on a monthly basis, a portion of the Net Revenues (the "Plugging
Funds") for the payment of the anticipated future costs of plugging and
abandoning Wells when the plugging and abandonment of one or more Wells becomes
necessary in the opinion of the Operator, in its reasonable discretion. The
Plugging Funds shall be placed in a separate and segregated interest-bearing
reserve account for the Wells (the "Plugging Reserve Account"). The Operator
shall maintain an accounting system that will allow identification of the
Plugging Funds which have been paid in for each Well, provided, however, that
Non-Operator's Proportionate Share of the Plugging Funds for any Well may be
used to pay Non-Operator's Proportionate Share of the costs of plugging and
abandoning any other Well. The amount of the Plugging Funds to be
retained.monthly shall be determined by the Operator, acting in good faith,
taking into account the following factors:

                  (i) The anticipated life of the Well;

                                     - 18 -
<PAGE>

                  (ii) The anticipated costs of plugging and abandoning the Well
in accordance with all applicable statutes, codes and regulations at the end of
the useful life of the Well;

                  (iii) The effect of compounded interest upon amounts deposited
into the Plugging Reserve Account for the Well; and

                  (iv) Any other factors which Operator reasonably deems
relevant.

             (b) As of the date of this Agreement:

                  (i) Operator has determined that after the first year of
production from a Well four percent (4%) of the monthly Net Revenues from such
Well, not to exceed Two Hundred Dollars ($200) for any month, will be placed in
the Plugging Reserve Account; and

                  (ii) Operator has determined that such amount will be placed
into the Plugging Reserve Account until the principal sum (including accrued
interest) is equal to Ten Thousand Dollars ($10,000) for each Well.

         The Operator reserves the right to revise the monthly withholding
amounts and/or the total amounts set forth above when, acting in good faith, the
Operator determines, taking into account the factors set forth in Section 8.4(a)
above, that such amounts must be adjusted upward or downward in order to provide
for the payment in full of the future plugging and abandonment costs of the
Wells.

             (c) Should the Operator determine, in its reasonable discretion,
that at the time it becomes necessary to plug and abandon Wells, insufficient
funds for such abandonment and plugging are on deposit in the Plugging Reserve
Account, the Operator shall invoice the Non-Operator for its Proportionate Share
of the additional sums needed to plug and abandon the Wells, and such additional
sums shall be considered Operating Expenses under the terms of this Agreement,
and Non-Operator shall pay such invoice within thirty (30) days after receipt.

             Should the Operator determine, in its reasonable discretion, that
funds, including accrued interest, in the Plugging Reserve Account exceed the
amount necessary to plug and abandon the Wells, the Operator shall, upon such
determination, refund to the Non-Operator and other working interest owners
their Proportionate Shares of such excess funds, provided, however, that no
refund will be made to the extent it would reduce the funds, including accrued
interest, in the Plugging Reserve Account below Ten Thousand Dollars ($10,000)
for any Well.

             (d) Non-Operator's Proportionate Share of the interest accrued on
the Plugging Reserve Account shall be allocated as income to the Non-Operator.

         9.  Additional Operations
             ---------------------

             9.1 Without the prior consent of the Non-Operator, no expenditure
in excess of Ten Thousand Dollars ($10,000) shall be made relating to any Well
in which Non-Operator has a working interest except the initial drilling and
completion of such Well.

                                     - 19 -
<PAGE>

             9.2 Notwithstanding the foregoing, the Operator shall be
authorized, without being required to obtain the consent of the Non-Operator, in
the case of explosion, fire, flood, or discharge or release of any hydrocarbon
or other hazardous substance which requires immediate remediation, or other
sudden emergency whether of the same or different nature, to take such steps and
incur such expenses as in its opinion are required to deal with the emergency
and to safeguard life and property. In such event, the Operator shall promptly
notify the Non-Operator of the matter which gave rise to the expenditures made
by the Operator and account to the Non-Operator for all such expenditures and
such expenditures, once accounted for, shall be deemed to be an Operating
Expense unless the matter which gave rise to the expenditure resulted from the
negligence of the Operator.

             9.3 Notwithstanding the foregoing, in the event that Operator shall
propose to make an expenditure with respect to a Well in excess of the amount
specified in Section 9.1 hereof and in the event that Non-Operator owns less
than a fifty percent (50%) working interest in the Well, such proposed
expenditure may nevertheless be made and any party advancing any funds
attributable to the interest of Non-Operator may recoup an amount equal to two
hundred percent (200%) of such funds from the Net Revenues of the Well
attributable to the interest of Non-Operator before any further distributions
shall be made from the Net Revenues of the Well to Non-Operator.

         10. Non-Operator's Access; Audit
             ----------------------------

             10.1 The Non-Operator shall have access to the Wells and to any
information in the possession of the Operator pertaining to the Wells, and shall
be entitled to inspect and observe operations of every kind and character upon
the property covered by the Lease.

             10.2 Upon reasonable notice to the Operator and at times mutually
convenient to the parties hereto, the Non-Operator shall also have access to,
and is entitled to receive copies of, the records and other documents on file at
the Operator's office relating to the drilling, completion and operation of the
Wells, including all Well logs and production records. In addition, during the
drilling and completion of a Well, such number (as the Non-Operator or its
designated agent may reasonably request) of copies of drilling reports, logs,
completion reports and other data produced in connection with such activities
shall be made available and provided to the Non-Operator or such agent, as they
are produced or promptly thereafter.

             10.3 The Non-Operator shall have the right, at its own cost and
expense and not more frequently than once in each calendar year, to have an
independent audit made of the books and records of Operator to verify, for the
preceding two (2) calendar years, all Drilling Costs and Operating Expenses
charged to Non-Operator, the production of natural gas and oil from the Wells
and the proceeds of the sale or other disposition of such natural gas and oil
production, the royalties and overriding royalties paid with respect to such
production and the recoupment of delay rentals, minimum royalties and other
amounts as set forth in Section 3.2 hereof and the funds (including accrued
interest) in the Operating Reserve Account and the Plugging Reserve Account.

         11. Term and Termination
             --------------------

             11.1 This Agreement shall commence upon the effective date hereof
and shall remain in full force and effect with respect to each Well until such
time as such Well is abandoned and plugged in accordance with the laws and
regulations of the State of Tennessee.

                                     - 20 -
<PAGE>

             11.2 In the event that the Non-Operator shall, in good faith,
determine that Operator is in substantial or material breach of the duties and
obligations imposed upon Operator by this Agreement, then the Non-Operator shall
give Operator written notice thereof specifying the event or events of default
to be cured by Operator. In the event that Operator has substantially or
materially breached the duties and obligations imposed upon the Operator by this
Agreement, Operator shall then have a period of ninety (90) days after receipt
of said written notice of default to cure such breach or default, or in which to
implement a plan of action which, if taken to its natural conclusion and
continuously prosecuted, would cure such breach or default. In the event that
Operator cures such breach or default or implements a plan of action which, if
taken to its natural conclusion and continuously prosecuted, would cure such
breach or default, the Non-Operator shall not have the right to substitute a new
operator. In the event that Operator upon the expiration of the aforesaid ninety
(90) day cure period has not cured such breach or default, and/or has not
implemented a plan of action which, if taken to its natural conclusion and
continuously prosecuted, would cure such breach or default or if Operator has
failed to continuously prosecute such plan of action, the Non-Operator may
substitute a new operator.

             11.3 After the Initial Period and, if applicable, after the Option
Period, Operator shall have the right to resign as Operator hereunder on ninety
(90) days' written notice to the Non-Operator, in which event the Non-Operator
shall appoint a new operator, provided, however, that if Non-Operator is unable,
after having made reasonable efforts, to appoint a new operator within such
ninety (90) day period, such period shall be extended for such additional time
as Non-Operator continuously and diligently seeks the appointment of a new
operator. Upon the effective date of such resignation, Operator shall have no
further responsibility hereunder and shall, except for acts or activities
occurring prior to such effective date, have no liability for any loss to the
Non-Operator as a result of Operator's resignation.

             11.4 In the event that Operator shall, for any reason, cease to be
the Operator hereunder, the Non-Operator shall promptly furnish a bond in form
and substance satisfactory for the operation of natural gas and oil wells and
shall cause the Wells to be transferred and placed under Non-Operator's bond, or
the Non-Operator may designate a properly bonded new operator. Promptly after
all Wells are placed under the bond of Non-Operator or the new operator,
Operator shall transfer to the Non-Operator or the new operator, as the case may
be, all funds in the Operating Reserve Account and the Plugging Reserve Account.
Thereafter, Operator shall be deemed a non-operator hereunder with respect to
the interests in the Wells owned by it, or by any affiliate or by any limited
partnership or other entity from which Operator received funds to drill Wells,
with all the rights and liabilities of a non-operator hereunder relating to such
interests, provided, however, that neither Operator nor any such affiliate,
limited partnership or other entity shall have any right to participate in any
Wells drilled thereafter, although Operator may have the obligation under
Section 2.8 hereof to participate in one or more such Wells.

             Additionally, if Operator is no longer the operator hereunder,
Non-Operator or the new operator, as the case may be, shall have no obligation
or other liability to account for any matter relating to the Wells to any
affiliate of Operator or to any limited partnership or other entity from which
Operator received funds to drill Wells, or to distribute to any such affiliate,
limited partnership or other entity, any Net Revenues from such Wells
attributable to the interests in such Wells of any such affiliate, limited
partnership or other entity. Non-Operator or the new operator, as the case may
be, shall account for matters relating to the Wells only to Operator and shall

                                     - 21 -
<PAGE>

make distributions of such Net Revenues only to Operator, who in turn shall
account, and make distributions of such Net Revenues, to such affiliates,
limited partnerships and other entities.

         12. Contract Not Assignable
             -----------------------

             12.1 Except as set forth in Section 2.10 hereof, neither the
Operator nor the Non-Operator shall assign its obligations or rights hereunder
but Operator shall have the right to subcontract for the performance of all or
any portion of the work to be performed by Operator hereunder.

         13. Relationship; Internal Revenue Code Election
             --------------------------------------------

             13.1 None of the rights, duties, or obligations of the parties
hereto or terms hereof shall be construed as creating a joint venture, a
partnership, nor any other legal entity whereby one party is responsible
individually for all debts, liabilities or charges incurred in connection with
the drilling, completion, operation or abandonment of the Wells or any other
activities contemplated hereby; each of the parties hereto shall be responsible
only for its Proportionate Share of such debts, liabilities or charges.

             13.2 The parties by their execution of this Agreement hereby assert
that this Agreement and the activities contemplated hereby shall not constitute
a partnership under the Internal Revenue Code of 1986, as amended (the "Code");
nevertheless, the parties elect, under the authority of Section 761 of the Code,
to be excluded from the application of all of the provisions of Subchapter K of
Chapter I of Subtitle A of the Code ("Subchapter K"). If future income tax laws
of the United States, or the present or future income tax laws of Tennessee,
contain provisions similar to those contained in Subchapter K under which a
similar election is permitted, the parties agree that such election shall be
exercised. The Non-Operator authorizes and directs the Operator to execute on
behalf of Non-Operator such evidence of this election as may be required by the
United States Treasury Department or the Internal Revenue Service, including
specifically, but not by way of limitation, all of the returns, statements and
data required by Treasury Regulations Section 1.761. Should there be any
requirement that any party affected hereby give further evidence of this
election, such party shall execute such documents and furnish such other
evidence as may be required by the Internal Revenue Service as may be necessary
to evidence this election. No party shall give any notices or take any other
action inconsistent with the election made hereby. Should a gas imbalance arise
where a party does not take its Proportionate Share of production from a Well
and another person, corporation or other entity takes more than its
Proportionate Share of such production, then the party which does not take its
Proportionate Share shall use the "cumulative gas balancing method" as described
in Treasury Regulation Section 1.761-2(d) for purposes of accounting for such
imbalance. The parties agree to report their shares of the items of income,
deductions and credits associated with the Wells in a manner consistent with
exclusion from the application of the provisions of Subchapter K.

         14. Force Majeure
             -------------

             14.1 If any party is rendered unable, wholly or in part, by force
majeure to carry out its obligations under this Agreement, other than the
obligation to make money payments or furnish security, that party shall give to
the other party prompt written notice of the force majeure with reasonably full
particulars concerning it; thereupon, the obligations of the party giving the
notice, so far as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force majeure. The term
"force majeure", as here employed, shall mean an act of God, strike, lockout, or

                                     - 22 -

<PAGE>

other industrial disturbance, act of the public enemy, war, blockade, public
riot, lightning, fire, storm, flood or other act of nature, explosion,
governmental action, governmental delay, restraint or inaction, unavailability
of equipment, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonably within the control of the party
claiming suspension; provided, however, that unavailability of equipment shall
not constitute "force majeure" for purposes of this Agreement with respect to
the drilling, as set forth in Section 2.8 hereof, of the minimum number of Wells
set forth in the Leases to keep such Leases in full force and effect during the
Initial Period and, if applicable, during the Option Period.

             The affected party shall use all reasonable diligence to remove the
force majeure situation as quickly as practicable. The requirement that any
force majeure shall be remedied with all reasonable dispatch shall not require
the settlement of strikes, lockouts, or other labor difficulty by the party
involved, contrary to its wishes; how all such difficulties shall be handled
shall be entirely within the discretion of the party concerned.

         15. Notices
             -------

             15.1 All notices or other correspondence required or made necessary
by the terms of this Agreement shall be in writing and shall be considered as
having been given to a party (i) if given by telecopy, at the time the telecopy
is transmitted to the following telecopier numbers and the appropriate answer
back is received or receipt is otherwise confirmed, (ii) if given by mail, two
(2) business days after being mailed by registered or certified mail, postage
prepaid, to the following addresses, or (iii) if given by any other means
(including but not limited to overnight delivery), when delivered at the
following addresses:

              (a) Operator:

                                Atlas America, Inc.
                                311 Rouser Road
                                Moon Township
                                Coraopolis, PA 15108
                                Attention:  Frank Carolas
                                Telecopier No.: (412) 262-3927

              (b) Non-Operator:

                                Knox Energy, LLC
                                P.O. Box 947
                                Bluefield, VA 24605
                                Attention:  Claude Morgan
                                Telecopier: (276) 988-1076

                                with a copy to:

                                Knox Energy, LLC
                                132 Mitchell Road
                                Oak Ridge, TN 37830
                                Telecopier No.: (865) 481-3896

                                     - 23 -

<PAGE>

Each party shall have the right to change its address at any time, and from time
to time, by giving written notice thereof to the other party.

         16. Governing Law
             -------------

             16.1 This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflicts of laws of the Commonwealth of
Pennsylvania, provided, however, that as to real property issues, this Agreement
shall be governed by and construed in accordance with the laws of the State of
Tennessee, without giving effect to the principles of conflicts of laws of the
State of Tennessee.

         17. Successors in Interest
             ----------------------

             17.1 Each and all of the covenants, agreements, terms and
provisions of this Agreement shall be binding on and inure to the benefit of the
parties hereto and their successors and assigns.

         18. Integration; Amendment; Interpretation
             --------------------------------------

             18.1 This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supercedes all prior and
contemporaneous agreements and understandings of the parties in connection
herewith. Any amendment or supplement made hereto shall be in writing and signed
by all parties. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Terms such as "herein", "hereby", "hereto", "hereunder", and
"hereof" refer to this Agreement as a whole.

         19. Severability
             ------------

             19.1 If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon any
binding determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable and legally enforceable manner, to the end
that the transactions contemplated hereby may be completed to the fullest extent
possible.

         20. Waivers
             -------

             20.1 No waiver by any party of any default hereunder by any other
party shall operate as a waiver of any other default or of the same default on a
subsequent occasion. No failure to exercise, and no delay in exercising, by any
party of any power, remedy or right shall operate as a waiver thereof, nor shall
any single or partial exercise of any power, remedy or right preclude other or
further exercise thereof or the exercise of any other power, remedy or right.
All powers, rights and remedies may be asserted concurrently, cumulatively,
successively or independently from time to time.

                                     - 24 -

<PAGE>

         21. Further Assurances
             ------------------

             21.1 The parties agree to promptly execute and deliver, or cause to
be executed and delivered, at such times as shall be reasonably requested, any
additional instrument or take any further action as may be reasonably necessary
or appropriate that any party may reasonably request for the purpose of carrying
out the transactions contemplated by, and the purposes and intents of, this
Agreement.

         22. Attorneys' Fees
             ---------------

             22.1 In any dispute among the parties hereto arising under this
Agreement, the prevailing party shall be entitled to recover from the other
party its reasonable attorney fees and other reasonable costs of litigation in
addition to all other remedies.

         23. Public Statements
             -----------------

             23.1 Neither party shall make any statements or releases to the
general public relating to this Agreement or the activities conducted pursuant
hereto without the permission of the other party, not to be unreasonably
withheld, except (i) in filings required of either Operator or its parent,
Resource America, Inc., or any affiliate of either of them, under federal
securities laws, rules and regulations, or under the laws, rules, regulations or
ordinances of the United States or any other jurisdiction, or by any federal,
state or local governmental or regulatory authority or agency, (ii) disclosure
required by the rules, regulations or policies of any stock exchange or
automated interdealer quotation system on which any securities of Operator or
the parent of Operator, or any affiliate of either of them, may be listed, or
(iii) if compelled to do so in any legal proceeding or otherwise.

         24. Counterpart; Fax
             ----------------

             24.1 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute but one and the same agreement. It is agreed by the parties that
facsimile signature pages signed by the parties shall be binding to the same
extent as original signature pages.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 25 -

<PAGE>

         IN WITNESS WHEREOF, the parties have caused their names to be signed
hereto by their proper officers duly authorized all as of the day and year first
hereinabove written.

                                           OPERATOR:

WITNESS:                                   ATLAS AMERICA, INC., a Pennsylvania
                                           corporation

___________________________                By:__________________________________
                                           Name:________________________________
                                           Title:_______________________________

                                           NON-OPERATOR:

                                           KNOX ENERGY, LLC

                                              By its members:

WITNESS:                                      CNX Gas Company, LLC, a Virginia
                                              limited liability company

___________________________                By:__________________________________
                                           Name:________________________________
                                           Title:_______________________________

WITNESS:                                   New River Energy, LLC, a Tennessee
                                           limited liability company

___________________________                By:__________________________________
                                           Name:________________________________
                                           Title:_______________________________

                                     - 26 -EX-10.1

 

Exhibit 10.1

APPENDIX

AIR PRODUCTS AND CHEMICALS, INC.

LONG-TERM INCENTIVE PLAN

As Amended and Restated

Effective January 26, 2006

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page	 
	1.
	 	Purposes of the Plan 	 	 	1	 
	2.
	 	Administration of the Plan 	 	 	1	 
	3.
	 	Eligibility for Participation 	 	 	2	 
	4.
	 	Shares of Stock Subject to the Plan 	 	 	3	 
	5.
	 	Awards 	 	 	3	 
	6.
	 	Stock Options 	 	 	4	 
	7.
	 	Stock Appreciation Rights 	 	 	7	 
	8.
	 	Restricted Shares 	 	 	8	 
	9.
	 	Deferred Stock Units 	 	 	9	 
	10.
	 	Other Stock Awards 	 	 	11	 
	11.
	 	Change in Control 	 	 	11	 
	12.
	 	Dilution and Other Adjustments 	 	 	13	 
	13.
	 	Miscellaneous Provisions 	 	 	13	 
	14.
	 	Definitions	 	 	16	 
	15.
	 	Amendments and Termination; Requisite Shareholder Approval 	 	 	18	 
	16.
	 	Effective Date, Amendment and Restatement, and Term of the Plan 	 	 	19	 

 

 

1. Purposes of the Plan

     The purposes of this Plan are: (i) to provide long-term incentives and rewards to nonemployee
directors (“Eligible Directors”) and to those executives or other key employees who are either in a
position to contribute to the long-term success and growth of Air Products and Chemicals, Inc. (the
“Company”) and Participating Subsidiaries, or who have high potential for assuming greater levels
of responsibility or who have demonstrated their critical importance to the operation of their
organizational unit; (ii) to assist the Company and Participating Subsidiaries in attracting and
retaining directors, executives and other key employees with experience and ability; and (iii) to
associate more closely the interests of such directors, executives and other key employees with
those of the Company’s shareholders.

2. Administration of the Plan

     (a) Employee Awards. With regard to Plan Awards granted to employees (“Employee Awards”),
the Plan shall be administered by the Management Development and Compensation Committee of the
Company’s Board of Directors (the “Board”) or such other committee thereof consisting of such
members (not less than three) of the Board as are appointed from time to time by the Board (the
“Committee”), each of the members of which, at the time of any action under the Plan, shall be (i)
a “non-employee director” as then defined under Rule 16b-3 under the Act (or meeting comparable
requirements of any successor rule relating to exemption from Section 16(b) of the Act), (ii) an
“outside director” as then defined under Code Section 162(m) and (iii) an “independent director” as
then defined under the rules of the New York Stock Exchange (or meeting comparable requirements of
any stock exchange on which the Company’s Common Stock may then be listed).

     (b) Director Awards. With regard to Plan Awards granted to Eligible Directors (“Director
Awards”), the Plan shall be administered by the Board.

     (c) Powers of the Committee and Board. As used herein, the term “Administrator” shall mean
the Committee with respect to Employee Awards and the Board with respect to Director Awards. The
Administrator shall have all necessary powers to administer and interpret the Plan, including
authority to adopt such rules, regulations, agreements, and instruments for the administration of
the Plan as the Administrator deems necessary or advisable. The Administrator’s interpretations
of the Plan and all action taken and determinations made by the Administrator pursuant to the
powers vested in it hereunder shall be conclusive and binding on all parties concerned, including
the Company, its shareholders and any director or employee of the Company or any Subsidiary.

     (i) Powers of the Committee include exclusive authority (within the limitations
described and except as otherwise provided in the Plan) to select the employees or determine
classes of employees to be granted Awards under the Plan, to determine the aggregate amount,
type, size, and terms of the Awards to be made to eligible employees, and to determine the
time when Awards will be granted. The Committee may take into consideration recommendations
from the appropriate officers of the Company and of each

- 1 -

 

Participating Subsidiary with
respect to making the foregoing determinations as to Plan awards, administration, and
interpretation. Notwithstanding any other provision of the Plan to the contrary, the
Committee may delegate to appropriate Company officers its authority to take all final
action with respect to granting and administering Plan Awards granted to Participants who
are at the time of such action not members of the Board or “officers” within the meaning of
Rule 16a-1(f) of the Act, including without limitation selecting executives and key
employees to whom such Awards will be granted; determining the amount of any such Awards to
be made to such executives and key employees; and taking all action on behalf of the Company
with respect to administering, vesting of, and paying such Awards; provided, however, that
(i) all such Awards shall be granted within the limitations and subject to the terms and
conditions required by the Plan and established by the Committee and subject to the
Committee’s interpretations of the Plan (ii) the aggregate of such Awards granted under the
Plan for or with respect to a given Fiscal Year shall not, when added to the Awards approved
by the Committee for granting to individuals who are “officers” within the meaning of Rule
16a-1(f) of the Act for or with respect to the same Fiscal Year, exceed the total amount of
Awards approved by the Committee for or with respect to such Fiscal Year; (iii) only the
Committee may grant Awards of restricted or unrestricted shares; and (iv) any action with
respect to such Awards taken because of or in connection with a Change in Control of the
Company or as contemplated by Section 12 shall be taken by the Committee. With respect to
matters so delegated, the term “Committee” as used herein shall mean the delegate.

     (ii) The Board has exclusive authority to determine the awards amount, type, size, and
terms of to be provided to Eligible Directors under the Plan by resolution, including by
adoption of programs specifying timing, amounts, terms, and conditions of Plan awards to be
made annually or otherwise regularly without further action by it. The Corporate Governance
and Nominating Committee shall recommend to the Board the type, size, timing, and terms of
grants to Eligible Directors. Notwithstanding any provision of the Plan to the contrary,
the Board may delegate to appropriate Company officers or to a Committee of the Board by its
resolution, adoption of a Committee charter, or adoption of a written compensation program,
authority to take all final action with respect to granting and administering Plan awards to
Eligible Directors, including administering and taking all action on behalf of the Company
with respect to vesting and payment of Awards. With respect to matters so delegated, the
term “Board,” as used herein, shall mean the delegate.

3. Eligibility for Participation

     Participation in the Plan shall be limited to (i) Eligible Directors and (ii) executives or
other key employees (including officers and directors who are also employees) of the Company and
its Participating Subsidiaries selected on the basis of such criteria as the Committee may
determine. As used herein, the term “employee” shall mean any person employed full time or part
time by the Company or a Participating Subsidiary on a salaried basis, and the term “employment”
shall mean full-time or part-time salaried employment by the Company or a Subsidiary.

- 2 -

 

4. Shares of Stock Subject to the Plan

     The shares that may be subject to Awards granted under the Plan on or after January 26, 2006,
(including Incentive Stock Options) shall not exceed in the aggregate 7,000,000 shares of common
stock of the Company (“Common Stock”), plus the sum of (i) the number of shares previously
authorized under the Plan but not then issued or subject to an outstanding Award, and (ii) the
number of shares subject to Awards granted under the Plan prior to January 26, 2006 and then
outstanding which are not delivered because the Award expires, is forfeited, or terminates
unexercised or because payment under the Award is made in other than in shares. No more than 20%
of the cumulative shares of Common Stock subject to Awards granted on or after October 1, 2001 may
be used for restricted shares, deferred stock units or other Awards providing for the acquisition
of the shares for a consideration less than the Fair Market Value of the shares as of the date of
grant. Any share subject to a Plan Award which is not delivered because the Award expires, is
forfeited, or terminates unexercised, or because payment under the Award is made in a form other
than in Common Stock, shall not be considered as having been issued or delivered for purposes of
the limitations under the preceding sentences and may again be subject to an award subsequently
granted under the Plan; provided that, any stock appreciation right Award delivered in Common Stock
shall be counted as use of a number of shares equal to the number of stock appreciation rights
exercised, rather than the net shares delivered.

5. Awards

     Awards granted to employee Participants or Eligible Directors under the Plan may be of the
following types: (i) stock options, (ii) restricted shares, (iii) deferred stock units, and/or
(iv) other stock awards. Employee Participants may also be granted stock appreciation rights.
Stock options are rights to purchase Common Stock from the Company at a price designated at the
time of grant (“Stock Options”). Stock Options granted to employees may be either Nonstatutory
Stock Options or Incentive Stock Options, both as described below. The Committee shall designate
each Stock Option grant to an employee as being either a Nonstatutory Stock Option or an Incentive
Stock Option. If the same employee receives both Nonstatutory Stock Options and Incentive Stock
Options, each type shall be clearly identified and separately granted. Stock appreciation rights
(“Stock Appreciation Rights”) are rights to receive cash and/or Common Stock equivalent in value to
the “spread” between (a) the Fair Market Value of a share of Common Stock on the date the Stock
Appreciation Right is exercised and (b) the Fair Market Value of a share of Common Stock on the
date the Stock Appreciation Right was granted. Restricted shares are shares of Common Stock
awarded subject to restrictions and to possible forfeiture upon the occurrence of specified events
(“Restricted Shares”). Deferred stock units are rights to receive at the end of a deferral period
cash and/or Common Stock equivalent in value to one share of Common Stock for each unit (”Deferred
Stock Units”). Other stock awards are awards in such form as the Board or Committee may determine
that are denominated or payable in, valued in whole or in part by reference to, or otherwise based
on or related to shares of Common Stock (“Other Stock Awards”).

     Nonstatutory Stock Options, Restricted Shares, Deferred Stock Units and Other Stock Awards,
and, in the case of employee Participants, Incentive Stock Options and Stock

- 3 -

 

Appreciation Rights, may be granted to the same Participant as separate Awards at or for the same period of time under
terms whereby the issuance of shares or payment under one Award has no effect on any other Award.
Stock Appreciation Rights may be granted to an employee Participant in relation to (i.e., in
“tandem” with) a previously or concurrently granted Stock Option under terms whereby the issuance
of shares or payment under one Award reduces directly the number of shares, units, and/or rights
remaining available under the related Award(s). Nonstatutory Stock Options may also be granted in
tandem with other Plan Awards.

6. Stock Options

     (a) Director Stock Options

     All Stock Options granted to Eligible Directors under the Plan shall be Nonstatutory Stock
Options. The purchase price per share of Common Stock covered by each such Stock Option shall be
determined by the Board but shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date of grant of such Stock Option.

     (b) Employee Stock Options

     Stock Options granted to eligible employees under the Plan may be either Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Committee at the time of grant. The
Committee may grant Stock Options to eligible employees either alone or in conjunction with and
related to Stock Appreciation Rights and may also grant Nonstatutory Stock Options in conjunction
with and related to other Plan Awards. No Incentive Stock Option shall be granted under this Plan
more than 10 years after the most recent date this Plan is adopted or approved by the shareholders
of the Company.

     The purchase price per share of Common Stock covered by each Stock Option shall be determined
by the Committee but shall not be less than 100% of the Fair Market Value of a share of Common
Stock on the date of grant of such Stock Option. If an Incentive Stock Option is granted to an
employee who, on the date of grant, owns stock possessing more than 10% of the total combined
voting power of all outstanding classes of stock of the Company or any affiliate, the purchase
price per share under such Incentive Stock Option shall be at least 110% of the Fair Market Value
of a share of Common Stock on the date of grant of such Incentive Stock Option, and such Incentive
Stock Option shall not be exercisable after the expiration of five years from its date of grant.

     The Committee will determine, absolutely or by formula related to the Fair Market Value of a
share of Common Stock, the number of shares of Common Stock to be subject to each Stock Option. In
no event shall the number of shares subject to Stock Options (and any related Stock Appreciation
Rights) granted to any Participant in any Fiscal Year exceed 1,000,000, subject to adjustment as
provided in Section 12.

     The aggregate Fair Market Value, determined on the date of grant, of Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by a Participant

- 4 -

 

during any calendar year (under this Plan and all other plans of the Company and any predecessor, parent,
subsidiary or affiliate) shall not exceed $100,000 (as such figure may be adjusted under Code
Section 422(d)). If the aggregate Fair Market Value, determined on the date of grant, of Common
Stock with respect to which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under this Plan and all other plans of the Company and any
predecessor, parent, subsidiary, or affiliate) exceeds the limitation described in the preceding
sentence, that portion of the Incentive Stock Option that does not exceed the applicable dollar
limit shall be an Incentive Stock Option and the remainder shall be a Nonqualified Stock Option,
and in all other respects the terms of the original Award agreement shall remain in full force and
effect. If the limitation of this paragraph is exceeded, the determination of which Stock Options
shall be Incentive Stock Options and which Stock Options shall be Nonqualified Stock Options shall
be made in accordance with the ordering rules prescribed in the Code. For the avoidance of doubt,
the exercise date of Incentive Stock Options may be accelerated as provided for in Section 11, in
which case the provisions regarding the $100,000 limitation and the resulting treatment if that
limit is exceeded, as described above, shall apply.

     (c) Terms Applicable to all Stock Options.

     Except as otherwise determined by the Administrator and reflected in the applicable Award
agreement or an amendment thereto, Stock Options shall be granted on the following additional terms
and conditions (and such other terms and conditions that the Administrator may establish which are
consistent with the Plan and applicable law):

     (i) Term and Exercise Dates. The Administrator shall fix the term during which each
Stock Option may be exercised, but no Stock Option shall be exercisable after the tenth
anniversary of its date of grant plus one day. No employee Stock Option shall be
exercisable prior to one year from its date of grant, except as otherwise provided in
Section 11. Except as otherwise provided in Section 11, each employee Stock Option shall
become exercisable in installments: one-third of the shares subject to such Stock Option
may be purchased commencing on the first, second and third one year anniversaries of the
date of grant. Each Eligible Director Stock Option shall be exercisable commencing six
months from the date of grant.

Notwithstanding any other provision of the Plan, the Committee may determine with respect to
an Employee Award that the date on which any outstanding Stock Option or any portion thereof
is exercisable shall be advanced to an earlier date or dates designated by the Committee in
accordance with such terms and subject to such conditions, if any, as the Committee shall
specify; provided, however, that any such earlier date shall not be prior to one year from
the date of grant of such Stock Option, except as otherwise provided in Section 11.

     (ii) Exercise. A Participant wishing to exercise his or her Stock Option in whole or
in part shall give written notice of such exercise to the Company, accompanied by full
payment of the purchase price. The date of receipt of such notice (including by facsimile

- 5 -

 

transmission) and payment shall be the “Exercise Date” for such Stock Option or portion
thereof; provided, however, that if the Participant engages in a simultaneous Stock Option
exercise and sale of shares of Common Stock, the Exercise Date shall be the date of sale of
the shares purchased by exercising such Stock Option. No partial exercise of a Stock Option
may be for less than 100 shares of Common Stock.

     (iii) Payment. The purchase price of shares purchased upon exercise of any Option
shall be paid in full in cash at the time of exercise of the Stock Option, except that the
Administrator, in its sole discretion, and on such terms and conditions as it may specify,
may approve payment by the exchange of shares of Common Stock having a Fair Market Value on
the Exercise Date equal to the purchase price of such shares or by a combination of cash and
Common Stock having a Fair Market Value on the Exercise Date equal to the portion of such
purchase price not paid in cash; provided, however, that except as the Administrator shall
otherwise determine, any such shares submitted in the exchange must have been beneficially
owned by the Participant for a certain period prior to the Exercise Date, the duration of
such period to be determined by the Administrator but in no event to be less than six
months. Subject to any administrative rules from time to time adopted by the Administrator
for administering Stock Option exercises, payment of the exercise price of the Stock Option
will be permitted through the delivery (including by facsimile transmission) of an
irrevocable exercise notice coupled with irrevocable instructions to a designated broker to
simultaneously sell the underlying shares of Common Stock and deliver to the Company on the
settlement date the portion of the proceeds representing the exercise price (and any taxes
to be withheld).

     (iv) Termination of Employment or Death.

       (A) Except as otherwise provided by the Committee in the applicable Stock
Option agreement or amendment thereto, in the event an employee Participant ceases
to be employed due to Retirement, Disability, or death, his or her Stock Options
shall continue to be or become exercisable following such cessation of employment as
if the Participant had continued to be an active employee and such Stock Options may
be exercised by the Participant or, in the event of death, his or her Designated
Beneficiary on the same terms and conditions as would have applied to such
Participant had such Participant continued to be an active employee; provided that,
Stock Options whose date of grant is less than one year from the date of such
cessation of employment shall be forfeited.

       (B) Except as provided in clause (A) of this Section 6(c)(iv), if, prior to
the expiration or cancellation of any Stock Option, an employee Participant ceases
to be employed by the Company or a Subsidiary, any unexercised portion of his or her
outstanding Stock Option shall automatically terminate unless the Committee, in its
sole discretion, shall determine otherwise, and except that when the Participant’s
employment has ceased due to a leave of absence or involuntary termination due to
position elimination, such Participant’s Stock Option shall be

- 6 -

 

treated in accordance with guidelines for such situations established by the Committee.

       (C) In the event an Eligible Director ceases to be a director due to
Retirement, Disability, or death, his or her Stock Options shall continue to be or
become exercisable as if the Eligible Director had continued to be a director and
such stock options may be exercised by the director or, in the event of death, his
or her Designated Beneficiary on the same terms and conditions as would have applied
to such director had such eligible director continued to serve on the Board. Except
as otherwise provided by the Board in the applicable Award agreement or amendment
thereto, in the event an Eligible Director ceases to be a director other than due to
Retirement, Disability, or death, his or her Stock Options shall become exercisable
in accordance with their terms and be exercisable until two years following the
Director’s last day of service.

       (D) No provision of this Section 6(c)(iv) shall be deemed to permit the
exercise of any Stock Option after the expiration of the normal stated term of such
Stock Option.

7. Stock Appreciation Rights

     The Committee may grant Stock Appreciation Rights to employees either alone or in conjunction
with and related to previously or concurrently granted Stock Options and/or other Plan Awards.
Except as otherwise determined by the Committee and reflected in the applicable Stock Appreciation
Rights agreement or an amendment thereto, all Stock Appreciation Rights shall be granted on the
following terms and conditions (and such other terms and conditions that the Committee may
establish which are consistent with the Plan and applicable law):

     (a) Number of Rights. The Committee shall determine, absolutely or by formula related to the
Fair Market Value of a share of Common Stock, the number of Stock Appreciation Rights which shall
be granted. As to any Stock Appreciation Rights granted in tandem with a Stock Option, such number
shall not be greater than the number of shares which are then subject to the related Stock Option,
and the number of such Stock Appreciation Rights will be reduced on a one-for-one basis to the
extent that shares under the related Stock Option are purchased. In no event shall the number of
Stock Appreciation Rights granted to any Participant in any Fiscal Year (excluding Stock
Appreciation Rights granted in tandem with a Stock Option, which shall be subject to the limitation
in Section 6(b)), exceed 1,000,000, subject to adjustment as provided in Section 12.

     (b) Exercise. Stock Appreciation Rights shall entitle the Participant to receive upon
exercise, without any payment to the Company, an amount of cash and/or a number of shares
determined and payable as provided in Section 7(c). Except as otherwise determined by the
Committee and reflected in the applicable Award agreement or amendment thereto, Stock Appreciation
Rights shall be exercisable to the extent and upon the same conditions that Stock Options are
exercisable under Section 6(c). A Participant wishing to exercise Stock Appreciation

- 7 -

 

Rights shall give written notice of such exercise to the Company. The date of receipt of such notice shall be
the “Exercise Date” for such Stock Appreciation Rights. Promptly after the Exercise Date the
Company shall pay and/or deliver to the Participant the cash and/or shares to which he or she is
entitled.

     (c) Amount of Cash and/or Number of Shares. Except as otherwise provided in Section 11, the
amount of the payment to be made upon exercise of Stock Appreciation Rights shall be determined by
multiplying (i) that portion of the total number of shares as to which the Participant exercises
the Stock Appreciation Rights award as of the Stock Appreciation Right Exercise Date, by (ii) 100%
of the amount by which the Fair Market Value of a share of Common Stock on the Exercise Date
exceeds the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Rights
were granted. The Committee may make payment in cash or partly in cash and partly in Common Stock,
all as determined by the Committee in its sole discretion. To the extent that payment is made in
Common Stock, the number of shares to be paid shall be determined by dividing the amount of such
payment by the Fair Market Value of a share of Common Stock on the Exercise Date. No fractional
shares shall be issued, but instead the Participant shall be entitled to receive a cash adjustment
equal to the same fraction of the Fair Market Value on the Exercise Date.

     (d) Termination of Employment or Death. Except as otherwise provided by the Committee in the
applicable Award agreement or amendment thereto, in the event that a recipient of Stock
Appreciation Rights ceases to be employed by the Company or a Subsidiary by reason of Retirement,
Disability or death, his or her Stock Appreciation Rights shall continue to be or become
exercisable following such termination of employment to the extent and upon the same conditions
that a Stock Option is exercisable under Section 6(c)(iv). In the event a recipient of Stock
Appreciation Rights ceases to be employed by the Company or a Subsidiary for a reason other than
Retirement, Disability or death, his or her Stock Appreciation Rights shall automatically terminate
unless and to the extent the Committee, in its sole discretion, shall determine otherwise.

8. Restricted Shares

     The Administrator may grant Restricted Share awards to Participants on the following terms and
conditions (and/or such other conditions as are consistent with the Plan and applicable law):

     (a) Restrictions. Restricted Shares shall be granted subject to such restrictions on the
full enjoyment of the Shares as the Administrator shall specify; which restrictions may be based on
the passage of time, satisfaction of performance criteria, or the occurrence of one or more events;
and shall lapse separately or in combination upon such conditions and at such time or times, in
installments or otherwise, as the Administrator shall specify. Except for limited circumstances
determined by the Administrator, including but not limited to special recruitment or retention
awards, death, Disability, or Retirement, Restricted Shares shall have a restriction period of not
less than three years; provided that, Restricted Shares shall have a minimum restriction period of
one year if lapse of the restriction is based on performance criteria. In no event shall the
number

- 8 -

 

of Restricted Shares granted to any Participant in any Fiscal Year exceed 100,000, subject
to adjustment as provided in Section 12.

     (b) Dividends; Voting. While any restriction applies to any Participant’s Restricted Shares,
(i) unless the Administrator provides otherwise, the Participant shall receive the dividends paid
on the Restricted Shares and shall not be required to return those dividends to the Company in the
event of the forfeiture of the Restricted Shares, (ii) the Participant shall receive the proceeds
of the Restricted Shares in any stock split, reverse stock split, recapitalization, or other change
in the capital structure of the Company, which proceeds shall automatically and without need for
any other action become Restricted Shares and be subject to all restrictions then existing as to
the Participant’s Restricted Shares, and (iii) the Participant shall be entitled to vote the
Restricted Shares.

     (c) Transfer of Restricted Shares. While any restriction applies to the Restricted Shares,
the Participant shall not have the right to sell, transfer, assign, convey, pledge, hypothecate,
grant any security interest in or mortgage on, or otherwise dispose of or encumber any shares of
Restricted Shares or any interest therein.

     (d) Evidence of Share Ownership. The Restricted Shares will be book-entry shares only unless
the Administrator decides to issue certificates to evidence shares of the Restricted Shares. Any
stock certificate(s) representing the Restricted Shares that is so issued to a Participant shall
bear an appropriate legend describing the restrictions to which the shares are subject.

9. Deferred Stock Units

     The Administrator, may grant Deferred Stock Units to Participants on the following terms and
conditions (and/or such other terms and conditions that the Administrator may establish which are
consistent with the Plan and applicable law):

     (a) Number, Value, and Manner of Payment of Deferred Stock Units. Each Deferred Stock Unit
shall be equivalent in value to one share of Common Stock and, subject to satisfaction of any
applicable performance conditions, shall entitle the Participant to receive from the Company at the
end of the deferral period (the “Deferral Period”) applicable to such Unit the value at such time
of each Unit. Except as otherwise determined by the Administrator, Deferred Stock Units shall be
granted without payment of cash or other consideration to the Company but in consideration of
services performed for or for the benefit of the Company or a Participating Subsidiary by such
Participant. Deferred stock units may be conditioned on the satisfaction of performance
conditions. Payment of the value of Deferred Stock Units may be made by the Company in shares of
Common Stock, cash or both as determined by the Administrator. If paid in Common Stock, the
Participant shall receive a number of shares of Common Stock equal to the number of matured or
earned Deferred Stock Units, and if paid in cash, the Participant shall receive for each matured
Deferred Stock Unit an amount equal to the Fair Market Value of a share of Common Stock on the last
day of the applicable Deferral Period (except as otherwise provided in Section 11). Upon payment
in respect of a Deferred Stock Unit, such Unit shall be

- 9 -

 

canceled. In no event shall the number of Deferred Stock Units granted to any Participant in any Fiscal Year exceed 100,000, subject to
adjustment as provided in Section 12.

     (b) Deferral Period. Except as otherwise provided in Section 9(c), payments in respect of
Deferred Stock Units shall be made only at the end of the Deferral Period applicable to such Units,
the duration of which Deferral Period shall be fixed by the Administrator at the time of grant of
such Deferred Stock Units. Except for limited circumstances determined by the Committee, including
but not limited to, special recruitment or retention awards, death, Disability or Retirement,
Deferral Periods for employee Participants shall not be less than three years; provided that,
Deferral Periods may be less than three years but not less than one year if payment is conditioned
on satisfaction of performance criteria. Except as determined by the Board, Deferral Periods for
director participants shall end upon cessation of service as a director.

     (c) Termination of Service or Death. Unless otherwise determined by the Administrator:

     (i) in the case of Deferred Stock Units granted to employee Participants:

     (A) If during a Deferral Period a Participant’s employment with the Company or
a Subsidiary is terminated for any reason other than Retirement, Disability or
death, such Participant shall forfeit his or her Deferred Stock Units which would
have matured or been earned at the end of such Deferral Period, unless the Committee
determines in its discretion that such Deferred Stock Units should be paid at the
end of such Deferral Period or, notwithstanding any other provision of the Plan, on
some accelerated basis; and

     (B) Unless otherwise specified by the Committee in the applicable Deferred
Stock Units agreement, in the event a Participant’s employment with the Company or a
Subsidiary terminates during a Deferral Period due to Retirement, Disability, or
death, such Participant, or his or her Designated Beneficiary in the event of death,
shall receive payment in respect of such Participant’s Deferred Stock Units which
would have matured or been earned at the end of such Deferral Period, at such time
and in such manner as if the Participant were still employed at the end of the
Deferral Period or, notwithstanding any other provision of the Plan, on such
accelerated basis as the Committee may determine.

     (ii) Deferred Stock Units granted to Eligible Directors shall not be forfeited upon
termination of service as a director.

     (d) Time of Payment of Deferred Stock Units. Payment of Deferred Stock Units shall be made
as soon as administratively feasible after such Awards become payable, but in no event shall
payment be after the later of (1) the date that is 2 1/2 months after the close of the Participant’s
first taxable year in which the Deferred Stock Units become payable, or (2) the date that is 2 1/2
months after the close of the Company’s fiscal year in which the Deferred Stock Units become
payable.

- 10 -

 

     (e) Dividends. No cash dividends or equivalent amounts shall be paid on outstanding Deferred
Stock Units. However, the Administrator may specify that an Award will earn “Dividend
Equivalents,” i.e., an additional amount equal to the cash dividends, if any, which would have been
paid during the period since the Award was granted with respect to issued and outstanding shares of
Common Stock equal in number to the number of Deferred Stock Units being paid. The Administrator
may also specify that any Dividend Equivalents will be paid in cash or shares of Common Stock at
the time payment in respect of the Deferred Stock Units is made and/or that Dividend Equivalents
shall be deemed to be reinvested in Common Stock. Dividend Equivalents which are deemed
reinvested shall be converted into additional Deferred Stock Units and payment of the value of the
Award shall include the value of such additional Units. No interest shall be paid on a Dividend
Equivalent or any part thereof.

     (f) Director’s Elective Deferral of Fees. Eligible Directors may, under such terms as may be
determined by the Board, elect to defer compensation otherwise payable to them and to receive such
deferred compensation in the form of Deferred Stock Units.

10. Other Stock Awards

     The Administrator shall have the authority in its discretion to grant to eligible Participants
such other Awards that are denominated or payable in, valued in whole or in part by reference to,
or otherwise based on or related to, shares of Common Stock as deemed by the Administrator to be
consistent with the purposes of the Plan, including, without limitation, purchase rights, shares
awarded without restrictions or conditions, or securities or other rights convertible or
exchangeable into shares of Common Stock. The Administrator shall determine the terms and
conditions, if any, of any Other Stock Awards made under the Plan. In no event shall Other Stock
Awards be granted to any Participant in any Fiscal Year with respect to more than 100,000 shares of
Common Stock (i.e., have a value greater than the value of 100,000 shares of Common Stock), subject
to adjustment as provided in Section 12.

11. Change in Control

     Following or in connection with the occurrence of a Change in Control, the following shall or
may occur as specified below, notwithstanding any other provisions of this Plan to the contrary:

     (a) Acceleration and Exercisability of Stock Options and Stock Appreciation Rights; Amount of
Cash and/or Number of Shares for Stock Appreciation Rights. All Stock Options and Stock
Appreciation Rights shall become immediately exercisable in full for the period of their remaining
terms automatically and without any action by the Administrator; provided, however, that the
acceleration of the exercisability of any Stock Option or Stock Appreciation Right that has not
been outstanding for a period of at least six months from its respective date of grant shall occur
on the first day following the end of such six-month period. The amount of the payment to be made
upon the exercise of a Stock Appreciation Right following a Change in Control shall be determined
by multiplying (i) the number of Stock Appreciation Rights which the Participant exercises, by (ii)
100% of the amount by which

- 11 -

 

     (A) the greater of (1) the highest tender or exchange offer price paid or to be paid
for Common Stock pursuant to the offer associated with the Change in Control (such price to
be determined by the Administrator from such source or sources of information as it shall
determine including, without limitation, the Schedule 13D or an amendment thereto filed by
the offeror pursuant to Rule 13d-1 under the Act), or the price paid or to be paid for
Common Stock under an agreement associated with the Change in Control, as the case may be,
and (2) the highest Fair Market Value of a share of Common Stock on any day during the
sixty-day period immediately preceding the Exercise Date of the Stock Appreciation Rights,
exceeds

     (B) the Fair Market Value of a share of Common Stock on the date of grant of the Stock
Appreciation Rights.

     For purposes of determining the price paid or to be paid for Common Stock under clause (1) of
paragraph (A) of the preceding formula, consideration other than cash forming part or all of the
consideration for Common Stock paid or to be paid pursuant to the exchange offer or agreement
associated with the Change in Control shall be valued at the higher of the valuation placed thereon
by the Board of Directors or by the person making the offer or entering into the agreement with the
Company.

     (b) Cash Surrender of Stock Options. All or certain outstanding Stock Options may, at the
discretion of the Board or Committee, be required to be surrendered by the holder thereof for
cancellation in exchange for a cash payment for each such Stock Option. In the absence of
Administrator action requiring the surrender of Stock Options, each holder of Stock Options may
elect to surrender all or certain of his or her outstanding Options which are then exercisable for
cancellation in exchange for a cash payment for each such Stock Option. In any case, the cash
payment received for each share subject to the Stock Option shall be 100% of the amount, if any, by
which the amount described in paragraph (A) of Section 11(a) exceeds the Fair Market Value of a
share of Common Stock on the date of grant of the Stock Option. Such payments shall be due and
payable immediately upon surrender to the Administrator for cancellation of appropriate Award
agreements or other evidence in writing of the Participant’s relinquishment of his or her rights to
such Award or at such earlier date as the Administrator shall determine (but in no event earlier
than the occurrence of a Change in Control) and shall be valued as if the Exercise Date were the
date of receipt of said materials or such earlier date as the Administrator shall determine.

     (c) Reduction in Accordance with Plan. The number of shares covered by Stock Options and
Stock Appreciation Rights will be reduced on a one-for-one basis to the extent related Stock
Options or Stock Appreciation Rights are exercised, or surrendered for cancellation in exchange for
a cash payment, as the case may be, under this Section 11.

     (d) Lapse of Restrictions on Restricted Shares. Unless the applicable Award agreement or an
amendment thereto shall otherwise provide, all restrictions applicable to an outstanding award of
Restricted Shares shall lapse immediately upon the occurrence of such Change in Control regardless
of the scheduled lapse of such restrictions.

- 12 -

 

     (e) Accelerated Payment of Deferred Stock Units. Unless otherwise provided in the applicable
Award agreement or an amendment thereto, all outstanding Deferred Stock Units, together with any
Dividend Equivalents for the period for which such Units have been outstanding, shall be paid in
full notwithstanding that the Deferral Periods as to such Deferred Stock Units have not been
completed. Such payment shall be in cash and shall be due and payable to Participants immediately
upon the occurrence of a Change in Control in an amount in respect of each Deferred Stock Unit
equal to the greater of (i) the highest tender or exchange offer price paid or to be paid for
Common Stock pursuant to the offer associated with the Change in Control (such price to be
determined by the Administrator from such source or sources of information as the Administrator
shall determine including, without limitation, the Schedule 13D or an amendment thereto filed by
the offeror pursuant to Rule 13d-l under the Act) or the price paid or to be paid for Common Stock
under an agreement associated with the Change in Control, as the case may be, and (ii) the highest
Fair Market Value of a share of Common Stock on any day during the sixty-day period immediately
preceding the Change in Control. For purposes of determining the price paid or to be paid for
Common Stock under clause (i) of the preceding sentence, consideration other than cash forming part
or all of the consideration for Common Stock paid or to be paid pursuant to the exchange offer or
agreement associated with the Change in Control shall be valued at the higher of the valuation
placed thereon by the Board of Directors or by the person making the offer or entering into the
agreement with the Company.

12. Dilution and Other Adjustments

     Notwithstanding any other provision of the Plan, in the event of any change in the outstanding
shares of Common Stock by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares, a rights offering to purchase Common Stock at a
price substantially below fair market value, or other similar corporate change, an equitable
adjustment shall be made so as to preserve, without increasing or decreasing, the value of Plan
Awards and authorizations, in (i) the maximum number or kind of shares issuable or awards which may
be granted under the Plan, (ii) the amount payable upon exercise of Stock Appreciation Rights,
(iii) the number or kind of shares or purchase price per share subject to outstanding Stock
Options, (iv) the number or value, or kind of shares which may be issued in payment of outstanding
Stock Appreciation Rights, (v) the value and attributes of Deferred Stock Units, (vi) the number or
kind of shares subject to Restricted Share Awards, (vii) the maximum number, kind or value of any
Plan awards which may be awarded or paid in general or to any one employee, (viii) the
performance-based events or objectives applicable to any Plan awards, (ix) any other aspect or
aspects of the Plan or outstanding Awards made thereunder as specified by the Administrator, or
(x) any combination of the foregoing. Such adjustments shall be made as determined by the
Administrator and shall be conclusive and binding for all purposes of the Plan.

13. Miscellaneous Provisions

     (a) No Shareholder Rights. Except as otherwise provided here, the holder of a Plan Award
shall have no rights as a Company shareholder with respect thereto unless, and until the

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date as of which, shares of Common Stock are issued upon exercise or payment in respect of such award.

     (b) Transferability. Except as the Administrator shall otherwise determine in connection
with determining the terms of Awards to be granted or shall thereafter permit, no Award or any
rights or interests therein of the recipient thereof shall be assignable or transferable by such
recipient except upon death to his or her Designated Beneficiary or by will or the laws of descent
and distribution, and, except as aforesaid, during the lifetime of the recipient, an Award shall be
exercisable only by, or payable only to such recipient or his or her guardian or legal
representative. In no event shall an Award be transferable for consideration.

     (c) Award Agreements. All Stock Options, Stock Appreciation Rights, Restricted Shares,
Deferred Stock Units, and Other Stock Awards granted under the Plan shall be evidenced by
agreements in such form and containing and/or incorporating such terms and conditions (not
inconsistent with the Plan and applicable domestic and foreign law), in addition to those provided
for herein, as the Administrator shall approve. More than one type of Award may be covered by the
same agreement.

     (d) Securities Restrictions. No shares of Common Stock shall be issued, delivered or
transferred upon exercise or in payment of any Award granted hereunder unless and until all legal
requirements applicable to the issuance, delivery or transfer of such shares have been complied
with to the satisfaction of the Administrator, and the Company, including, without limitation,
compliance with the provisions of the Securities Act of 1933, the Act and the applicable
requirements of the exchanges on which the Company’s Common Stock may, at the time, be listed. The
Administrator and the Company shall have the right to condition any issuance of shares of Common
Stock made to any Participant hereunder on such Participant’s undertaking in writing to comply with
such restrictions on his or her subsequent disposition of such shares as the Administrator and/or
the Company shall deem necessary or advisable as a result of any applicable law, regulation or
official interpretation thereof, and certificates representing such shares may be legended to
reflect any such restrictions.

     (e) Taxes. The Company shall have the right to deduct from all Awards hereunder paid in cash
any federal, state, local or foreign taxes required by law to be withheld with respect to such cash
awards. In the case of Awards to be distributed in Common Stock, the Company shall have the right
to require, as a condition of such distribution, that the Participant or other person receiving
such Common Stock either (i) pay to the Company at the time of distribution thereof the amount of
any such taxes which the Company is required to withhold with respect to such Common Stock or (ii)
make such other arrangements as the Company may authorize from time to time to provide for such
withholding including without limitation having the number of the units of the award cancelled or
the number of the shares of Common Stock to be distributed reduced by an amount with a value equal
to the value of such taxes required to be withheld.

     (f) No Employment Right. No employee or director of the Company or a Subsidiary or other
person shall have any claim or right to be granted an Award under this Plan. Neither this Plan nor
any action taken hereunder shall be construed as giving any employee any right to be

- 14 -

 

retained in the employ of the Company or a Subsidiary or any director any right to continue as a director of
the Company. All Company and Subsidiary employees who have or may receive Awards under this Plan
are employed, except to the extent provided by law, at the will of the Company or such Subsidiary
and in accord with all statutory provisions.

     (g) Stock to be Used. Distributions of shares of Common Stock upon exercise, in payment or
in respect of Awards made under this Plan may be made either from shares of authorized but unissued
Common Stock reserved for such purpose by the Board or from shares of authorized and issued Common
Stock reacquired by the Company and held in its treasury, as from time to time determined by the
Committee, the Board, or pursuant to delegations of authority from either. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to currency or other
restrictions imposed by any government.

     (h) Expenses of the Plan. The costs and expenses of administering this Plan shall be borne
by the Company and not charged to any award or to any employee, director or Participant receiving
an Award. However, the Company may charge the cost of any Awards that are made to employees of
Participating Subsidiaries, including administrative costs and expenses related thereto, to the
respective Participating Subsidiaries by which such persons are employed.

     (i) Plan Unfunded. This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of assets to assure the
payment of any Award under this Plan and payment of awards shall be subordinate to the claims of
the Company’s general creditors.

     (j) Section 409A of the Code.

       (i) If any provision of the Plan or an Award contravenes any regulations or Treasury
guidance promulgated under Code Section 409A agreement or could cause an Award to be subject
to the interest and penalties under Code Section 409A, such provision of the Plan or Award
shall be modified to maintain, to the maximum extent practicable, the original intent of the
applicable provision without violating the provisions of Code Section 409A. Moreover, any
discretionary authority that the Administrator may have pursuant to the Plan shall not be
applicable to an Award that is subject to Code Section 409A to the extent such discretionary
authority will contravene Section 409A or the regulations or guidance promulgated
thereunder.

       (ii) Notwithstanding any provisions of this Plan or any Award agreement granted
hereunder to the contrary, no acceleration shall occur with respect to any Award (including
awards granted prior to January 26, 2006) to the extent such acceleration would cause the
Plan or an Award granted hereunder to fail to comply with Code Section 409A.

       (iii) Notwithstanding any provisions of this Plan or any applicable Award agreement to
the contrary, no payment shall be made with respect to any Award granted under this Plan
(including Awards granted prior to January 26, 2006) to a “specified

- 15 -

 

employee” (as such term is defined for purposes of Code Section 409A) prior to the six-month anniversary of the
employee’s separation of service to the extent such six-month delay in payment is required
to comply with Code Section 409A.

     (k) Governing Law. This Plan shall be governed by the laws of the Commonwealth of
Pennsylvania and shall be construed for all purposes in accordance with the laws of said
Commonwealth except as may be required by the General Corporation Law of Delaware or by applicable
federal law.

14. Definitions

     In addition to the terms defined elsewhere herein, the following terms as used in this Plan
shall have the following meanings:

     “Act” shall mean the Securities Exchange Act of 1934 as amended from time to time.

     “Award” shall mean a grant of incentive compensation under the Plan in the form of Stock
Options, Restricted Shares, Deferred Stock Units, Stock Appreciation Rights or Other Stock Awards.

     “Change in Control” shall mean the first to occur of any one of the events described below:

       (i) Stock Acquisition. Any “person” (as such term is used in Sections 13(d) and
14(d)(2) of the Act), other than the Company or a corporation, a majority of whose
outstanding stock entitled to vote is owned, directly or indirectly, by the Company, or a
trustee of an employee benefit plan or trust sponsored solely by the Company and/or such a
corporation, is or becomes, other than by purchase from the Company or such a corporation,
the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 20% or more of the combined voting
power of the Company’s then outstanding voting securities. Such a Change in Control shall
be deemed to have occurred on the first to occur of the date securities are first purchased
by a tender or exchange offeror, the date on which the Company first learns of acquisition
of 20% of such securities, or the later of the effective date of an agreement for the
merger, consolidation or other reorganization of the Company or the date of approval thereof
by a majority of the Company shareholders, as the case may be.

       (ii) Change in Board. During any period of two consecutive years, individuals who at
the beginning of such period were members of the Board of Directors cease for any reason to
constitute at least a majority of the Board of Directors, unless the election or nomination
for election by the Company’s shareholders of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at the beginning
of the period. Such a Change in Control shall be deemed to

- 16 -

 

have occurred on the date upon
which the requisite majority of directors fails to be elected by the shareholders of the
Company.

       (iii) Other Events. Any other event or series of events which, notwithstanding any
other provision of this definition, is determined, by a majority of the outside members of
the Board serving in office at the time such event or events occur, to constitute a change
in control of the Company for purposes of this Plan. Such a Change in Control shall be
deemed to have occurred on the date of such determination or on such other date as such
majority of outside members of the Board shall specify.

       (iv) Code Section 409A Limitation. Notwithstanding the foregoing or anything in the
Plan to the contrary, with respect to an Award that is subject to Code Section 409A, no
event shall constitute a Change in Control for purposes of the Plan unless such event also
constitutes a “change in ownership”, “change in effective control”, or “change in the
ownership of a substantial portion of the Company’s assets” as defined under Section 409A.

     “Code” shall mean the Internal Revenue Code of 1986, and regulations thereunder, as amended
from time to time, or any successor thereto. References to particular Code sections shall include
successor provisions.

     “Designated Beneficiary” shall mean the person or persons, if any, last designated as such by
the Participant on a form filed by him or her with the Company in accordance with such procedures
as the Administrator shall approve, or, if none, his or her estate.

     “Disability” shall mean permanent and total disability of an employee or director
participating in the Plan as determined by the Administrator in accordance with uniform principles
consistently applied, upon the basis of such evidence as the Administrator deems necessary and
desirable. Notwithstanding the foregoing, with respect to an Award that is subject to Code Section
409A, no condition shall constitute a “Disability” for purposes of the Plan unless such condition
also constitutes a disability as defined under Section 409A.

     “Fair Market Value” of a share of Common Stock of the Company on any date shall mean an amount
equal to the mean of the high and low sale prices for such date on the New York Stock Exchange, as
reported on the composite transaction tape, or on such other exchange as the Administrator may
determine. If there are no such sale price quotations for the date as of which Fair Market Value
is to be determined, the previous trading date prior to such date for which there are reported
sales prices on the composite transaction tape. If there are no such sale price quotations on or
within a reasonable period both before and after the date as of which Fair Market Value is to be
determined, then the Administrator shall in good faith determine the Fair Market Value of the
Common Stock on such date. Notwithstanding the foregoing, Fair Market Value may be determined as
of a date not more than two trading days prior to the date of grant or exercise in order to
facilitate compliance with the reporting requirements under Section 16 of the Act.

- 17 -

 

     “Fiscal Year” shall mean the twelve-month period used as the annual accounting period by the
Company and shall be designated according to the calendar year in which such period ends.

     “Incentive Stock Option” shall mean a Stock Option designated by the Committee as an Incentive
Stock Option which is intended to comply with the requirements in Subsection (b) of Code Section
422 so as to be eligible for preferential income tax treatment.

     “Nonstatutory Stock Option” shall mean a Stock Option which is not eligible for preferential
tax treatment under Code Section 421(a).

     “Participant” shall mean, as to any Award granted under this Plan and for so long as such
Award is outstanding, the employee or director to whom such Award has been granted.

     “Participating Subsidiary” shall mean any Subsidiary designated by the Administrator to
participate in this Plan which Subsidiary requests or accepts, by action of its board of directors
or other appropriate authority, such designation.

“Retirement” shall mean

       (a) in the case of an employee Participant, separating from service with the Company
or a Subsidiary, on or after a customary retirement age for the Participant’s location, with
the right to begin receiving immediate pension benefits under the Company’s Pension Plan for
Salaried Employees or under another pension plan sponsored or otherwise maintained by the
Company or a Subsidiary for its employees, in either case as then in effect or, in the
absence of such pension plan being applicable to any Participant, as determined by the
Committee in its sole discretion; and

       (b) in the case of an Eligible Director, (i) resigning from serving as a director,
failing to stand for re-election as a director or failing to be re-elected as a director
after at least six (6) full years of service as a director of the Company. More than six
(6) months’ service during any twelve (12) month period after a director’s first election by
the shareholders to the Board shall be considered as a full year’s service for this purpose.

     “Subsidiary” shall mean any domestic or foreign corporation, partnership, association, joint
stock company, trust or unincorporated organization “affiliated” with the Company, that is,
directly or indirectly, through one or more intermediaries, “controlling”, “controlled by” or
“under common control with”, the Company. “Control” for this purpose means the possession, direct
or indirect, of the power to direct or cause the direction of the management and policies of such
person, whether through the ownership of voting securities, contract or otherwise.

15. Amendments and Termination; Requisite Shareholder Approval

     The Board may at any time terminate or from time to time amend or suspend the Plan in whole or
in part in such respects as the Board may deem advisable in order that Awards granted

- 18 -

 

thereunder shall conform to any change in the law, or in any other respect which the Board may deem to be in
the best interests of the Company; provided, however, that no amendment of the Plan shall be made
without shareholder approval if shareholder approval of the amendment is at the time required by
applicable law, or by the rules of the New York Stock Exchange or any stock exchange on which
Common Stock may be listed.

     The Board shall have the power to amend the Plan in any manner contemplated by Section 12 or
deemed necessary or advisable for Awards granted under the Plan to qualify for the exemption
provided by Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of the Act),
to qualify as “performance-based” compensation under Code Section 162(m), or to comply with
applicable law including Code Section 409A, and any such amendment shall, to the extent deemed
necessary or advisable by the Board, be applicable to any outstanding Awards theretofore granted
under the Plan notwithstanding any contrary provisions contained in any Award agreement. In the
event of any such amendment to the Plan, the holder of any Award outstanding under the Plan shall,
upon request of the Board and as a condition to the exercisability thereof, execute a conforming
amendment in the form prescribed by the Board to any Award agreement relating thereto within such
reasonable time as the Board shall specify in such request.

     With the consent of the Participant affected, the Board may amend outstanding agreements
evidencing Plan Awards in a manner not inconsistent with the terms of the Plan; provided that, no
outstanding Stock Option (or Stock Appreciation Right) will have its exercise price reduced, or
will be cancelled and replaced with a new Stock Option (or Stock Appreciation Right) with a lower
exercise price where the economic effect would be the same as reducing the exercise price of the
cancelled Stock Option (or Stock Appreciation Right) without shareholder approval. Notwithstanding
anything contained in this Section 15 or in any other provision of the Plan, unless required by
law, no action contemplated or permitted by this Section 15 shall adversely affect any rights of
Participants or obligations of the Company to Participants with respect to any award theretofore
made under the Plan without the consent of the affected Participant.

16. Effective Date, Amendment and Restatement, and Term of the Plan

     (a) This Plan, previously denominated the “Air Products and Chemicals, Inc. 1990 Long-Term
Incentive Plan,” became effective for the Fiscal Year commencing October 1, 1989 for awards to be
made for the Fiscal Year commencing October 1, 1989 and for Fiscal Years thereafter and was
continued in effect indefinitely until terminated, amended, or suspended as permitted by its terms,
following approval by a majority of those present at the January 26, 1989 annual meeting of
shareholders of the Company and entitled to vote thereon. Following approval by the holders of a
majority of the shares of Common Stock of the Company present at the January 25, 1996 annual
meeting of shareholders of the Company and entitled to vote thereon, the Plan was amended,
restated, denominated the “Air Products and Chemicals, Inc. 1997 Long-Term Incentive Plan”, and
continued in effect indefinitely for awards made for the Fiscal Year commencing October 1, 1996 and
for Fiscal Years thereafter, until terminated, amended, or suspended as permitted by its terms.
Following approval by the holders of a majority of the

- 19 -

 

shares of Common Stock of the Company
present at the January 25, 2001 annual meeting of shareholders of the Company and entitled to vote
thereon, the Plan was amended, restated, denominated the “Air Products and Chemicals, Inc.
Long-Term Incentive Plan”, and continued in effect indefinitely for awards made for the Fiscal Year
commencing October 1, 2001 and for Fiscal Years thereafter, until terminated, amended, or suspended
as permitted by its terms. Following approval by the holders of a majority of the shares of Common
Stock of the Company present at the January 23, 2003 Annual Meeting of Shareholders of the Company
and entitled to vote thereon, the Plan was amended, restated, and continued in effect for awards
made on or after January 23, 2003, until terminated, amended, or suspended as permitted under
Section 15.

     (b) The Plan, as amended and restated herein, was adopted by the Board of Directors on
November 17, 2005 subject to the approval by a majority of the shareholders present and entitled to
vote thereon at the January 26, 2006 Annual Meeting of Shareholders of the Company and is continued
in effect for Awards made on or after January 26, 2006, until terminated, amended, or suspended as
permitted under Section 15; provided, however, that no Award shall be granted under the Plan on or
after January 26, 2016.

- 20 -

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