Exhibit 10.1


 


VANGUARD NATURAL RESOURCES, LLC

LONG-TERM INCENTIVE PLAN


 


SECTION 1.                                Purpose
of the Plan.


 


The Vanguard Natural Resources, LLC Long-Term
Incentive Plan (the “Plan”) has been adopted by Vanguard Natural Resources, LLC, a Delaware limited
liability company (the “Company”). The Plan is intended to promote the
interests of the Company by providing to Employees, Consultants and Directors
incentive compensation awards based on Units to encourage superior performance.
The Plan is also contemplated to enhance the ability of the Company and its
Affiliates to attract and retain the services of individuals who are essential
for the growth and profitability of the Company and its Affiliates and to
encourage them to devote their best efforts to advancing the business of the
Company and its Affiliates.


 


SECTION 2.                                Definitions.


 


As used in the Plan, the following terms shall have
the meanings set forth below:


 


“Affiliate” means, with respect to any Person, any
other Person that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with, the Person in
question. As used herein, the term “control” means the possession, direct or
indirect, of the power to direct or cause the direction of the management and policies
of a Person, whether through ownership of voting securities, by contract or
otherwise.


 


“Award” means an Option, Unit Appreciation Right,
Restricted Unit, Phantom Unit or a Unit Award granted under the Plan, and
includes any tandem DERs granted with respect to a Phantom Unit.


 


“Award Agreement” means the written or electronic
agreement by which an Award shall be evidenced.


 


“Board” means the Board of Directors or Managers, as
the case may be, of the Company.


 


“Change of Control” means, and
shall be deemed to have occurred upon one or more of the following events:


 


(i)                                     any “person” or “group” within the meaning of those
terms as used in Sections 13(d) and 14(d)(2) of the Exchange Act, other than an
Affiliate of the Company, shall become the beneficial owner, by way of merger,
consolidation, recapitalization, reorganization or otherwise, of 50% or more of
the combined voting power of the equity interests in the Company;


 


(ii)                                  the members of the Company approve, in one or a
series of transactions, a plan of complete liquidation of the Company; or


 

















 


(iii)                               the sale or other disposition by the Company of all
or substantially all of its assets in one or more transactions to any Person
other than the Company or an Affiliate of the Company.


 


Notwithstanding the foregoing,
with respect to an Award that is subject to Section 409A of the Internal
Revenue Code of 1986, as amended, “Change of Control” shall mean a “change of
control event” as defined in the regulations and guidance issued under Section
409A.


 


“Committee” means the Board, the Compensation
Committee of the Board or such other committee as may be appointed by the Board
to administer the Plan.


 


“Consultant” means an individual who renders
consulting services to the Company or an Affiliate of either.


 


“DER” means a contingent right, granted in tandem with
a specific Phantom Unit, to receive with respect to each Phantom Unit subject
to the Award an amount in cash, Units and/or Phantom Units equal in value to
the distributions made by the Company with respect to a Unit during the period
such Award is outstanding.


 


“Director” means a member of the board of directors of
the Company or an Affiliate who is not an Employee or a Consultant (other than
in that individual’s capacity as a Director).


 


“Employee” means an employee of the Company or an
Affiliate of the Company.


 


“Exchange Act” means the Securities Exchange Act of
1934, as amended.


 


“Fair Market Value” means the closing sales price of a
Unit on the principal national securities exchange or other market in which
trading in Units occurs on the applicable date (or, if there is no trading in
the Units on such date, on the next preceding date on which there was trading)
as reported in The Wall Street Journal
(or other reporting service approved by the Committee). If Units are not traded
on a national securities exchange or other market at the time a determination
of fair market value is required to be made hereunder, the determination of
fair market value shall be made in good faith by the Committee. However, with
respect to an Award granted effective on the day of the initial public offering
of Units, Fair Market Value shall mean the initial offering price of a Unit as
stated on the Form S-1 for such offer.


 


“Option” means an option to purchase Units granted under
the Plan.


 


“Participant” means an Employee, Consultant or
Director granted an Award under the Plan.


 


“Person” means an individual or a corporation, limited
liability company, partnership, joint venture, trust, unincorporated
organization, association, governmental agency or political subdivision thereof
or other entity.


 


“Phantom Unit” means a notional unit granted under the
Plan that upon vesting entitles the Participant to receive a Unit or an amount
of cash equal to the Fair Market Value of a Unit, as determined by the
Committee in its discretion.


 


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“Restricted Period” means the period established by
the Committee with respect to an Award during which the Award remains subject
to forfeiture and is either not exercisable by or payable to the Participant,
as the case may be.


 


“Restricted Unit” means a Unit granted under the Plan
that is subject to a Restricted Period.


 


“Rule 16b-3” means Rule 16b-3 promulgated by the SEC
under the Exchange Act or any successor rule or regulation thereto as in effect
from time to time.


 


“SEC” means the Securities and Exchange Commission, or
any successor thereto.


 


“UDR” means a distribution made by the Company with
respect to a Restricted Unit.


 


“Unit” means a Common Unit of the Company.


 


“Unit Appreciation Right” or UAR” means a contingent
right that entitles the holder to receive all or part of the excess of the Fair
Market Value of a Unit on the exercise date of the UAR over the exercise price
of the UAR. Such excess shall be paid in Units, cash or any combination
thereof, in the discretion of the Committee.


 


“Unit Award” means a grant of a Unit that is not
subject to a Restricted Period.


 


SECTION 3.                                Administration.


 


The Plan shall be administered by the Committee. A majority
of the Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the following and applicable law, the
Committee, in it sole discretion, may delegate any or all of its powers and
duties under the Plan, including the power to grant Awards under the Plan, to
the Chief Executive Officer of the Company, subject to such limitations on such
delegated powers and duties as the Committee may impose, if any. Upon any such
delegation, all references in the Plan to the “Committee”, other than in
Section 7, shall be deemed to include the Chief Executive Officer; provided,
however, that such delegation shall not limit the Chief Executive Officer’s
right to receive Awards under the Plan. Notwithstanding the foregoing, the
Chief Executive Officer may not grant Awards to, or take any action with
respect to any Award previously granted to, a person who is an officer subject
to Rule 16b-3 or a member of the Board. Subject to the terms of the Plan and
applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to a Participant; (iii) determine the number of Units to
be covered by Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled, exercised, canceled, or forfeited; (vi) interpret and administer the
Plan and any instrument or agreement relating to an Award made under the Plan;
(vii) establish, amend, suspend, or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper administration
of the Plan; and (viii) make any other determination and take any other action
that the Committee deems necessary or desirable for the 


 


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administration of the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or an Award Agreement in such manner and to such
extent as the Committee deems necessary or appropriate. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, and any beneficiary of any Award.


 


SECTION 4.                                Units.


 


(a)                                  Limits
on Units Deliverable. Subject to adjustment as provided in Section 4(c),
the number of Units that may be delivered with respect to Awards under the Plan
is 1,000,000; provided, however, no more than 500,000 Units (as adjusted by
Section 4(c)) may be delivered with respect to Restricted Units; provided,
further, that Units withheld from an Award to either satisfy the Company’s or
an Affiliate’s tax withholding obligations with respect to the Award or pay the
exercise price of an Award shall not be considered to be Units delivered under
the Plan for this purpose. If any Award is forfeited, cancelled, exercised,
paid, or otherwise terminates or expires without the actual delivery of Units
pursuant to such Award (the grant of Restricted Units is not a delivery of
Units for this purpose), the Units subject to such Award shall again be
available for Awards under the Plan. There shall not be any limitation on the
number of Awards that may be paid in cash.


 


(b)                                 Sources
of Units Deliverable Under Awards. Any Units delivered pursuant to an Award
shall consist, in whole or in part, of Units acquired in the open market, from
any Affiliate or any other Person, or any combination of the foregoing, as
determined by the Committee in its discretion.


 


(c)                                  Anti-dilution
Adjustments. With respect to any “equity restructuring” event that could
result in an additional compensation expense to the Company pursuant to the
provisions of FAS 123R if adjustments to Awards with respect to such event were
discretionary, the Committee shall equitably adjust the number and type of
Units covered by each outstanding Award and the terms and conditions, including
the exercise price and performance criteria (if any), of such Award to
equitably reflect such restructuring event and shall adjust the number and type
of Units (or other securities or property) with respect to which Awards may be
granted after such event. With respect to any other similar event that would
not result in a FAS 123R accounting charge if the adjustment to Awards with
respect to such event were subject to discretionary action, the Committee shall
have complete discretion to adjust Awards in such manner as it deems
appropriate with respect to such other event.


 


SECTION 5.                                Eligibility.


 


Any Employee, Consultant or Director shall be eligible
to be designated a Participant by the Committee and receive an Award under the
Plan.


 


SECTION 6.                                Awards.


 


(a)                                  Options
and UARs. The Committee shall have the authority to determine the
Employees, Consultants and Directors to whom Options and/or UARs shall be
granted, the 


 


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number of Units to be
covered by each Option or UAR, the exercise price therefor, the Restricted
Period and other conditions and limitations applicable to the exercise of the
Option or UAR, including the following terms and conditions and such additional
terms and conditions, as the Committee shall determine, that are not
inconsistent with the provisions of the Plan.


 


(i)                                     Exercise
Price. The exercise price per Unit purchasable under an Option or subject
to a UAR shall be determined by the Committee at the time the Option or UAR is
granted but may not be less than the Fair Market Value of a Unit as of the date
of grant of the Option or UAR.


 


(ii)                                  Time
and Method of Exercise. The Committee shall determine the exercise terms
and the Restricted Period with respect to an Option or UAR grant, which may
include, without limitation, a provision for accelerated vesting upon the
achievement of specified performance goals or other events, and the method or
methods by which payment of the exercise price with respect to an Option may be
made or deemed to have been made, which may include, without limitation, cash,
check acceptable to the Company, withholding Units from the Award, a “cashless-broker”
exercise through procedures approved by the Company, or any combination of the
above methods, having a Fair Market Value on the exercise date equal to the
relevant exercise price.


 


(iii)                               Forfeitures.
Except as otherwise provided in the terms of the Option or UAR grant, upon
termination of a Participant’s employment with or consulting services to the
Company and its Affiliates or membership on the Board, whichever is applicable,
for any reason during the applicable Restricted Period, all unvested Options
and UARs shall be forfeited by the Participant. The Committee may, in its
discretion, waive in whole or in part such forfeiture with respect to a
Participant’s Options or UARs.


 


(b)                                 Restricted
Units and Phantom Units. The Committee shall have the authority to
determine the Employees, Consultants and Directors to whom Restricted Units and
Phantom Units shall be granted, the number of Restricted Units or Phantom Units
to be granted to each such Participant, the Restricted Period, the conditions
under which the Restricted Units or Phantom Units may become vested or
forfeited and such other terms and conditions as the Committee may establish
with respect to such Awards.


 


(i)                                     DERs.
To the extent provided by the Committee, in its discretion, a grant of Phantom
Units may include a tandem DER grant, which may provide that such DERs shall be
paid directly to the Participant, be credited to a bookkeeping account (with or
without interest in the discretion of the Committee), be “reinvested” in
Restricted Units or additional Phantom Units and be subject to the same or
different vesting restrictions as the tandem Phantom Unit Award, or be subject
to such other provisions or restrictions as determined by the Committee in its
discretion. Absent a contrary provision in the Award Agreement, upon a
distribution with respect to a Unit, cash equal in value to such distribution
shall be paid promptly to the Participant without vesting restrictions.


 


(ii)                                  UDRs. To the extent provided by the Committee,
in its discretion, a grant of Restricted Units may provide that the
distributions made by the Company with respect to the Restricted Units shall be
subject to the same forfeiture and other restrictions as the 


 


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Restricted Unit and, if restricted, such distributions shall be held,
without interest, until the Restricted Unit vests or is forfeited with the UDR
being paid or forfeited at the same time, as the case may be. In addition, the
Committee may provide that such distributions be used to acquire additional
Restricted Units for the Participant. Such additional Restricted Units may be
subject to such vesting and other terms as the Committee may proscribe. Absent
such a restriction on the UDRs in the grant agreement, UDRs shall be paid
promptly to the holder of the Restricted Unit without vesting restrictions.


 


(iii)                               Forfeitures.
Except as otherwise provided in the terms of the Restricted Units or Phantom
Units grant agreement, upon termination of a Participant’s employment with or
consulting services to the Company and its Affiliates or membership on the
Board, whichever is applicable, for any reason during the applicable Restricted
Period, all outstanding, unvested Restricted Units and Phantom Units awarded
the Participant shall be automatically forfeited on such termination. The
Committee may, in its discretion, waive in whole or in part such forfeiture
with respect to a Participant’s Restricted Units and/or Phantom Units.


 


(iv)                              Lapse
of Restrictions.


 


(A)                              Phantom Units. Upon or as soon as reasonably
practical following the vesting of each Phantom Unit, subject to the provisions
of Section 8(b), the Participant shall be entitled to receive from the Company
one Unit or cash equal to the Fair Market Value of a Unit, as determined by the
Committee in its discretion.


 


(B)                                Restricted Units. Upon or as soon as reasonably
practical following the vesting of each Restricted Unit, subject to satisfying
the tax withholding obligations of Section 8(b), the Participant shall be
entitled to have the restrictions removed from his or her Unit certificate so
that the Participant then holds an unrestricted Unit.


 


(c)                                  Unit Awards. Unit Awards may be granted under
the Plan to such Employees, Consultants and/or Directors and in such amounts as
the Committee, in its discretion, may select.


 


(d)                                 General.


 


(i)                                     Awards
May Be Granted Separately or Together. Awards may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem with, or in
substitution for any other Award granted under the Plan or any award granted
under any other plan of the Company or any Affiliate. Awards granted in
addition to or in tandem with other Awards or awards granted under any other
plan of the Company or any Affiliate may be granted either at the same time as
or at a different time from the grant of such other Awards or awards.


 


(ii)                                  Limits
on Transfer of Awards.


 


(A)                              Except
as provided in Paragraph (C) below, each Option and Unit Appreciation Right
shall be exercisable only by the Participant during the 


 


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Participant’s lifetime, or by the person to whom the Participant’s
rights shall pass by will or the laws of descent and distribution.


 


(B)                                Except
as provided in Paragraph (C) below, no Award and no right under any such Award
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant and any such purported assignment, alienation,
pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate.


 


(C)                                To
the extent specifically provided by the Committee with respect to an Option or
Unit Appreciation Right, an Option or Unit Appreciation Right may be
transferred by a Participant without consideration to immediate family members
or related family trusts, limited partnerships or similar entities or on such
terms and conditions as the Committee may from time to time establish.


 


(iii)                               Term
of Awards. The term of each Award shall be for such period as may be
determined by the Committee.


 


(iv)                              Unit
Certificates. All certificates for Units or other securities of the Company
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee
may deem advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Units or other
securities are then listed, and any applicable federal or state laws, and the
Committee may cause a legend or legends to be inscribed on any such
certificates to make appropriate reference to such restrictions.


 


(v)                                 Consideration
for Grants. Awards may be granted for such consideration, including
services, as the Committee shall determine.


 


(vi)                              Delivery
of Units or other Securities and Payment by Participant of Consideration. Notwithstanding
anything in the Plan or any grant agreement to the contrary, delivery of Units
pursuant to the exercise or vesting of an Award may be deferred for any period
during which, in the good faith determination of the Committee, the Company is
not reasonably able to obtain Units to deliver pursuant to such Award without
violating applicable law or the applicable rules or regulations of any
governmental agency or authority or securities exchange. No Units or other
securities shall be delivered pursuant to any Award until payment in full of
any amount required to be paid pursuant to the Plan or the applicable Award
grant agreement (including, without limitation, any exercise price or tax
withholding) is received by the Company.


 


SECTION 7.                                Amendment and
Termination.


 


Except to the extent prohibited by applicable law:


 


(a)                                  Amendments
to the Plan. Except as required by the rules of the principal securities
exchange on which the Units are traded and subject to Section 7(b) below, the
Board or the Committee may amend, alter, suspend, discontinue, or terminate the
Plan in any manner, including increasing the number of Units available for
Awards under the 


 


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Plan, without the consent of any Participant, other holder or
beneficiary of an Award, or any other Person.


 


(b)                                 Amendments
to Awards. Subject to Section 7(a), the Committee may waive any conditions
or rights under, amend any terms of, or alter any Award theretofore granted,
provided no change, other than pursuant to Section 7(c), in any Award shall
materially reduce the rights or benefits of a Participant with respect to an
Award without the consent of such Participant.


 


(c)                                  Actions
Upon the Occurrence of Certain Events. Upon the occurrence of a Change of
Control, any change in applicable law or regulation affecting the Plan or
Awards thereunder, or any change in accounting principles affecting the
financial statements of the Company, the Committee, in its sole discretion,
without the consent of any Participant or holder of the Award, and on such
terms and conditions as it deems appropriate, may take any one or more of the
following actions in order to prevent dilution or enlargement of the benefits
or potential benefits intended to be made available under the Plan or an
outstanding Award:


 


(A)                              provide
for either (i) the termination of any Award in exchange for an amount of cash,
if any, equal to the amount that would have been attained upon the exercise of
such Award or realization of the Participant’s rights (and, for the avoidance
of doubt, if as of the date of the occurrence of such transaction or event the
Committee determines in good faith that no amount would have been attained upon
the exercise of such Award or realization of the Participant’s rights, then
such Award may be terminated by the Company without payment) or (ii) the
replacement of such Award with other rights or property selected by the
Committee in its sole discretion;


 


(B)                                provide
that such Award be assumed by the successor or survivor entity, or a parent or
subsidiary thereof, or be exchanged for similar options, rights or awards
covering the equity of the successor or survivor, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of equity
interests and prices;


 


(C)                                make
adjustments in the number and type of Units (or other securities or property)
subject to outstanding Awards, and in the number and kind of outstanding Awards
or in the terms and conditions of (including the exercise price), and the
vesting and performance criteria included in, outstanding Awards, or both;


 


(D)                               provide
that such Award shall be exercisable or payable, notwithstanding anything to
the contrary in the Plan or the applicable Award Agreement; and


 


(E)                                 provide
that the Award cannot be exercised or become payable after such event, i.e., shall terminate upon such event.


 


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Notwithstanding
the foregoing, with respect to an above event that is an “equity restructuring”
event that would be subject to a compensation expense pursuant FAS 123R,
the provisions in Section 4(c) shall control to the extent they are in conflict
with the discretionary provisions of this Section 7.


 


SECTION 8.                                General
Provisions.


 


(a)                                  No
Rights to Award. No Person shall have any claim to be granted any Award
under the Plan, and there is no obligation for uniformity of treatment of
Participants. The terms and conditions of Awards need not be the same with
respect to each recipient.


 


(b)                                 Tax
Withholding. Unless other arrangements have been made that are acceptable
to the Company, the Company or any Affiliate is authorized to withhold from any
Award, from any payment due or transfer made under any Award or from any compensation
or other amount owing to a Participant the amount (in cash, Units, Units that
would otherwise be issued pursuant to such Award or other property) of any
applicable taxes payable in respect of the grant of an Award, its exercise, the
lapse of restrictions thereon, or any payment or transfer under an Award or
under the Plan and to take such other action as may be necessary in the opinion
of the Company to satisfy its withholding obligations for the payment of such
taxes.


 


(c)                                  No
Right to Employment or Services. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, continue consulting services or to remain on the
Board, as applicable. Furthermore, the Company or an Affiliate may at any time
dismiss a Participant from employment or consulting free from any liability or
any claim under the Plan, unless otherwise expressly provided in the Plan, any
Award agreement or other agreement.


 


(d)                                 Governing
Law. The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware without regard to its conflicts of laws
principles.


 


(e)                                  Severability.
If any provision of the Plan or any Award is or becomes or is deemed to be
invalid, illegal, or unenforceable in any jurisdiction or as to any Person or
Award, or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable law or, if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.


 


(f)                                    Other
Laws. The Committee may refuse to issue or transfer any Units or other
consideration under an Award if, in its sole discretion, it determines that the
issuance or transfer of such Units or such other consideration might violate
any applicable law or regulation, the rules of the principal securities
exchange on which the Units are then traded, or entitle the Company or an
Affiliate to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary
in connection 


 


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with the exercise of such
Award shall be promptly refunded to the relevant Participant, holder or
beneficiary.


 


(g)                                 No
Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any participating Affiliate and a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company or any participating Affiliate pursuant to
an Award, such right shall be no greater than the right of any general
unsecured creditor of the Company or any participating Affiliate.


 


(h)                                 No
Fractional Units. No fractional Units shall be issued or delivered pursuant
to the Plan or any Award, and the Committee shall determine whether cash, other
securities, or other property shall be paid or transferred in lieu of any
fractional Units or whether such fractional Units or any rights thereto shall
be canceled, terminated, or otherwise eliminated.


 


(i)                                     Headings.
Headings are given to the Sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.


 


(j)                                     Facility
Payment. Any amounts payable hereunder to any person under legal disability
or who, in the judgment of the Committee, is unable to manage properly his
financial affairs, may be paid to the legal representative of such person, or
may be applied for the benefit of such person in any manner that the Committee
may select, and the Company shall be relieved of any further liability for
payment of such amounts.


 


(k)                                  Gender
and Number. Words in the masculine gender shall include the feminine
gender, the plural shall include the singular and the singular shall include
the plural.


 


(l)                                     Compliance with Section 409A. Nothing in the
Plan or any Award Agreement shall operate or be construed to cause the Plan or
an Award to fail to comply with the requirements of Section 409A of the
Internal Revenue Code. The applicable provisions of Section 409A and the
regulations thereunder are hereby incorporated by reference and shall control
over any Plan or Award Agreement provision in conflict therewith.


 


SECTION 9.                                Term
of the Plan.


 


The Plan shall be effective on the later of the date
of the initial public offering of Units or the date it is approved by the Board
and shall continue until the earliest of (i) the date terminated by the Board,
(ii) all Units available under the Plan have been paid to Participants, or
(iii) the 10th anniversary of the date the Plan is approved by the members of
the Company. However, any Award granted prior to such termination, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any conditions or rights
under such Award, shall extend beyond such termination date.


 


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