exhibit10-1.htm


    Exhibit
10.1

     

    SECOND
AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     

    SCOTT
W. SMITH

     

    This
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT, effective as of January 1, 2010, is by and
between VNR Holdings, LLC, a Delaware limited liability company (“VNRH”),
Vanguard Natural Resources, LLC, a Delaware limited liability company (“Parent”)
and Scott W. Smith (the “Executive”).

     

    WHEREAS, effective on
October 9, 2006, Nami Holding Company, LLC (now Vanguard Natural Gas, LLC)
and Executive entered in an employment agreement (the “Initial
Agreement”);

     

    WHEREAS, the parties
determined to amend the Initial Agreement by that certain Amended Employment
Agreement dated April 18, 2007 (the “Amended
Agreement”), which terminated the Initial Agreement;

     

    WHEREAS, VNRH provided
Executive with notice on September 30, 2009 that, in anticipation of
formalizing the terms and conditions of the Executive’s employment relationship
in newly amended employment agreement, the Amended Agreement would not be
renewed past its then-current term of December 31, 2009;

     

    WHEREAS, VNRH desires to
employ Executive and Executive desires to be employed by VNRH in said
capacity;

     

    WHEREAS, the parties desire to
set forth in writing the terms and conditions of their understandings and
agreements in this Second Amended and Restated Employment Agreement (this “Agreement”);

     

    NOW, THEREFORE, in consideration of
the mutual covenants and obligations contained herein, VNRH hereby agrees to
employ Executive and Executive hereby accepts such employment upon the terms and
conditions set forth in this Agreement:

     

    1. Employment
Period.

     

    (a) Subject
to Section 6, VNRH hereby agrees to employ Executive, and Executive hereby
agrees to be employed by VNRH, in accordance with the terms and provisions of
this Agreement, for the period commencing as of the date hereof (the “Effective
Date”) and ending on January 1, 2013 (the “Employment
Period”); provided, however, that the Employment Period shall
automatically be renewed and extended for an additional period of twelve (12)
months commencing on January 1, 2013 and expiring on January 1, 2014,
and on each successive January 1 thereafter, unless at least ninety (90)
days prior to the ensuing expiration date (but no more than twelve (12) months
prior to such expiration date), VNRH or Executive shall have given ninety (90)
days written notice to the other that it or he, as applicable, does not wish to
extend this Agreement (a “Non-Renewal
Notice”).  The term “Employment
Period,” as utilized in this Agreement, shall refer to the Employment
Period as so automatically extended.

     

    (b) During
the term of Executive’s employment with VNRH, Executive shall serve as the
President and Chief Executive Officer of VNRH and the Parent (together, the
“Company”)
the Company and in so doing, shall report to the Board of Managers or Directors,
as applicable, of the Company (the “Board”).  Executive
shall have supervision and control over, and responsibility for, such management
and operational functions of the Company currently assigned to such positions,
and shall have such other powers and duties (including holding officer positions
with the Company and one or more subsidiaries of the Company) as may from time
to time be prescribed by the Board, so long as such powers and duties are
reasonable and customary for the President and Chief Executive Officer of an
enterprise comparable to the Company.

     

    (c) During
the term of Executive’s employment with VNRH, and excluding any periods of
vacation and sick leave to which Executive is entitled, Executive agrees to
devote substantially all of his business time to the business and affairs of
VNRH and, to the extent necessary to discharge the responsibilities assigned to
Executive hereunder, to use Executive’s reasonable best efforts to perform
faithfully, effectively and efficiently such responsibilities.  During
the term of Executive’s employment with VNRH, it shall not be a violation of
this Agreement for Executive to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures or fulfill speaking engagements
and (iii) manage personal investments, so long as such activities do not
materially interfere with the performance of Executive’s responsibilities as an
employee of the Company in accordance with this Agreement.

     

    (d) The
parties expressly acknowledge that any performance of Executive’s
responsibilities hereunder shall necessitate, and the Company shall provide,
access to or the disclosure of Confidential Information (as defined in
Section 10(a) below) to Executive and that Executive’s responsibilities
shall include the development of the Company’s goodwill through Executive’s
contacts with the Company’s customers and suppliers.

     

    2. Compensation.

     

    (a)  Base Salary.  VNRH
shall pay Executive an annual base salary (“Base Salary”)
at the rate of $295,000 for the period commencing on the Effective Date and
ending on the Date of Termination.  The Board will review Executive’s
Base Salary on an annual basis beginning with the employment year beginning on
April 30, 2011, and may increase the Base Salary in such amounts or
percentages as the Board shall deem appropriate, if any. The Board may not
decrease the Executive’s annual Base Salary without his prior written
approval.  Base Salary shall be payable in accordance with the
ordinary payroll practices of VNRH, but in no event shall the Base Salary be
paid to Executive less frequently than monthly.  The term “Base
Salary” as used in this Agreement shall refer to the Base Salary as it may be so
adjusted from time to time.

     

    (b) Annual
Bonus.  Executive shall be eligible to receive an annual bonus
(the “Annual
Bonus”) based upon VNRH’s unit price performance and/or the achievement
of annual performance targets; such terms and conditions of Executive’s Annual
Bonus for each calendar year within the Employment Period are set forth in Appendix A
hereto..

     

    3. Employee
Benefits.

     

    (a) During
the Employment Period, VNRH shall provide Executive with coverage under all
employee pension and welfare benefit programs, plans and practices, which VNRH
makes available to its senior executives (including, without limitation,
participation in health, dental, group life, disability, retirement and all
other plans and fringe benefits to the extent generally provided to such senior
executives), commensurate with his position in the Company,  to the
extent permitted under the employee benefit plan or program, and in accordance
with the terms of the program and/or plan.

     

    (b) Executive
shall be entitled to vacation time generally available to executive employees of
VNRH (but no less than fifteen (15) business days paid vacation in each calendar
year).  Such vacation time shall accrue at a rate of one and a quarter
(1.25) vacation days for each calendar month worked; provided, however, that
during any given calendar year, Executive shall be able to take vacation days
that will accrue during that calendar year, even if such days have not yet
accrued.  A maximum of five (5) business days of accrued but unused
vacation may be carried over from one calendar year to the next.

     

    (c) Executive
is authorized to incur reasonable expenses in carrying out his duties and
responsibilities under this Agreement and promoting the business of the Company,
including, without limitation, reasonable expenses for travel, lodgings,
entertainment and similar items related to such duties and
responsibilities.  VNRH will promptly reimburse Executive for all such
expenses upon presentation by Executive of appropriately itemized and approved
(consistent with VNRH’s policy) accounts of such expenditures, in accordance
with the Company’s expense reimbursement policy; provided, however, that in no
event shall the expense reimbursement be made after the last day of the taxable
year following the year in which the expense was incurred by Executive, although
in the event that the reimbursement would constitute taxable income to
Executive, such reimbursements will be paid no later than March 15th of the
calendar year following the calendar year in which the expense was
incurred.  No reimbursement or expenses eligible for reimbursement in
any taxable year shall affect the expenses eligible for reimbursement in any
other taxable year, nor may the right to receive a reimbursement of expenses be
subject to liquidation or exchanged for another benefit.

     

    4. Restricted
Units and Phantom Units.

     

    (a) Restricted
Units.  As of the Effective Date, Executive shall receive an
initial grant (the “2010 Restricted
Units”) of 15,000 restricted common units of Parent (the “Restricted
Units”) pursuant to the Vanguard Natural Resources, LLC Long-Term
Incentive Plan (the “LTIP”).  The
terms and conditions of the 2010 Restricted Units are set forth in Appendix B
hereto.  Executive may receive additional restricted common units of
Parent from time to time at the Board’s sole discretion during the Employment
Period, although the Board shall conduct an annual review beginning on
April 30, 2011 to determine the appropriateness of granting additional
restricted units to Executive at that time.

     

    (b) Phantom Units.  As
of the Effective Date, Executive shall receive an initial grant (the “2010 Phantom
Units”) of 15,000 phantom units (“Phantom
Units”) pursuant to the LTIP.  The terms and conditions of the
2010 Phantom Units are set forth in Appendix C
hereto. Executive shall receive an additional grant of 15,000 phantom common
units of Parent on an annual basis in connection with each anniversary of the
Effective Date during the Employment Period, the terms and conditions of such
grant to be substantially the same as those described in Appendix C for
the 2010 Phantom Units.

     

    5. Change of
Control.

     

    (a) Definition of Change of
Control.  For purposes of this Agreement, a “Change of
Control” shall have the same meaning as such term in the Company’s
LTIP.  For the sake of convenience herein, as of the Effective Date,
the LTIP states that a “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 Securities Exchange Act of 1934, as amended, other than an
affiliate of Parent, shall become the beneficial owner, by way of merger,
consolidation, recapitalization, reorganization or otherwise, of fifty percent
(50%) or more of the combined voting power of the equity interests in
Parent;

     

    (ii) The
members of Parent approve, in one or a series of transactions, a plan of
complete liquidation of Parent; 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 Parent or an affiliate of
Parent.

     

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

     

    (b) Change of Control
Payments.  Upon the occurrence of a Change of Control of the
Company, Executive will be entitled to receive the sum of (i) an amount equaling
two (2) times the sum of his Base Salary, Annual Bonus and the cash value of all
Restricted Units which became vested in the calendar year prior to the Change of
Control (the “Change of Control
Payment”), and (ii) any settlement that may be due to Executive pursuant
to the acceleration of all outstanding Restricted Units and Phantom Units held
by the Executive at the time of the Change of Control.  Notwithstanding the previous
sentence, however, the Change of Control Payment will be capped at a
maximum of $2,000,000, even where the value of the individual components of the
payment would have resulted in a greater payment to the
Executive.  Solely for purposes of the Change of Control Payment, the
Executive’s Base Salary and Annual Bonus shall be valued each as in effect at
the time of the Change of Control, and the Restricted Units which vested in the
year prior to the Change of Control shall be valued as of the grant date of such
Restricted Units.  The Restricted Units and Phantom Units, if any,
will be settled in accordance with the terms and conditions of the LTIP and any
individual award agreement (or in the event of the 2010 Restricted Units, in
accordance with the terms and conditions contained in Appendix B
hereto and the LTIP, or in the event of the 2010 Phantom Units, in accordance
with the terms and conditions contained in Appendix C
hereto and the LTIP).

     

    (c) Gross-Up
for Certain Taxes Related to a Change of Control.

     

    (i) In the
event that any payments to Executive pursuant to this Agreement or any payment
received by Executive or paid by the Company on Executive’s behalf is treated as
contingent on a change in the ownership or effective control of the Parent or in
the “ownership of a substantial portion of the assets” of Parent (but only if
such payment or other benefit is in connection with Executive employment
relationship with the Company) shall result in Executive becoming liable for the
payment of any excise taxes pursuant to section 4999 of the Code (the “Section 4999
Excise Tax”), Executive shall be entitled to an additional payment equal
to the amount of any Section 4999 Excise Taxes payable by Executive
pursuant to section 4999 of the Code as a result of such payments, plus all
Federal, state and local taxes applicable solely to the Company’s payment of
such Section 4999 Excise Taxes, including any additional taxes due under
section 4999 of the Code with respect to payments made pursuant to this
provision (the “Section 4999
Gross-Up Payment”).  The Section 4999 Gross-Up Payment
shall not include any Federal, state, or local taxes imposed upon the original
payment that gave rise to such Section 4999 Excise Tax.

     

    (ii) Calculations
for the Section 4999 Gross-Up Payment shall assume the highest marginal
rate applicable at the time of calculation.

     

    (iii) The
intent of this Section 5(c) is to provide that the Company shall pay
Executive the Section 4999 Gross-Up Payment such that the net amount
retained by Executive after deduction of the Section 4999 Excise Tax and
any additional Federal, state or local taxes are imposed on the
Section 4999 Excise Taxes or Section 4999 Gross-Up Payments, shall
equal the aggregate total amount payable to the Executive pursuant to this
Agreement.  In the event that an excise tax is imposed by the Code or
any Federal, state or local legislation following the Effective Date, in
addition to or in place of the Section 4999 Excise Tax, the Company also
intends to provide an appropriate gross-up payment which would provide Executive
with the aggregate total amount of the intended payment before such excise tax
(and any subsequent taxes imposed because of the Company’s payment of such
excise tax on Executive’s behalf) was imposed.

     

    (iv) If
Executive determines that Executive is liable for the Section 4999 Excise
Taxes with respect to a payment or other benefit pursuant to the Agreement,
Executive must promptly so notify the Company in writing.  Upon
receipt of such notice from Executive, the Company must, within twenty (20) days
thereafter, either (A) notify Executive, in writing, that the Company
agrees with Executive’s determination of the Section 4999 Excise Tax
liability, in which case the Company shall become obligated to immediately pay
to Executive the Section 4999 Gross-Up Payment, or (B) submit to
Executive an opinion, prepared by counsel of the Company’s choice which counsel
is reasonably satisfactory to Executive, that Executive is not liable for the
Excise Tax (the “Tax
Opinion”).  If the Tax Opinion is provided to Executive and
Executive nevertheless chooses not to contest the assertion of the
Section 4999 Excise Tax, the Company shall be relieved of its obligation to
make the Section 4999 Gross-Up Payment specified hereunder.  If
Executive chooses to contest the assertion of the Section 4999 Excise Tax
after receipt of the Tax Opinion, Executive may do so with counsel of
Executive’s choice that is reasonably satisfactory to the Company, with the
reasonable legal fees and expenses of such contest to be paid by the Company, on
a monthly basis, subject to the Company’s receipt of proper documentation
therefore.  If the Section 4999 Excise Tax is successfully
contested with the approval of counsel, then the Company shall pay to Executive
the Section 4999 Gross-Up Payment upon the earlier of ten (10) days after
(1) the entry of a final judgment, decree, or other order by a court of
competent jurisdiction that Executive is liable for the Excise Tax, or
(2) a mutual determination of Executive and the Company not to proceed
further with the contest.

     

    (v) If the
Internal Revenue Service (the “IRS”)
notifies Executive in writing that the Section 4999 Excise Tax will or may
be assessed against Executive, if the Company provides Executive with the Tax
Opinion specified herein, and if Executive chooses to contest the assertion of
the Section 4999 Excise Tax, then the Company shall obtain and deliver to
Executive an irrevocable standby letter of credit (the “Letter of
Credit”) issued by a bank acceptable to Executive and the Company in an
amount equal to the amount of the Company’s potential payment obligation herein
including penalties and interest, computed as if the Section 4999 Excise
Tax were paid to the IRS in the year the date the Letter of Credit was obtained.
Immediately upon the earlier of (A) a determination letter (within the
meaning of section 1313 of the Code) that Executive is not liable for the
Section 4999 Excise Tax, or (B) the Company’s payment to Executive of the
full amount of its obligation herein, Executive shall mark the Letter of Credit
“canceled” and return it to the Company. In lieu of such a Letter of Credit, the
Company may choose to secure its obligations hereunder by establishing an
appropriate escrow account with terms reasonably satisfactory to Executive, and
by depositing therein the same amount as would be required for the Letter of
Credit. The obligations contained in this Section 5(c) shall survive the
termination or expiration of Executive employment with the Company and shall be
fully enforceable thereafter.

     

    (vi) In the
event that any payment or any portion thereof made to the Executive or to any
third-party on the Executive’s behalf under this Section 5 is subsequently
determined to not be imposed or not to be required of the Executive, then such
payment shall be promptly returned to the Company.

     

    6. Termination
of Employment.

     

    (a) Termination without Cause or
Resignation by Executive.  Unless otherwise specified in a
separate provision of this Section 6, either Executive or VNRH, by action
of the Board, may terminate this Agreement, and Executive’s employment by VNRH,
for any reason after providing thirty (30) days written notice to the
non-terminating party.  If Executive terminates this Agreement
pursuant to this provision, VNRH will pay Executive on the Date of Termination
(as defined below) (i) all accrued but unpaid Base Salary, (ii) a prorated
amount of Executive’s Base Salary for accrued but unused vacation days, and
(iii) yet unpaid reimbursements for any reasonable and necessary business
expenses incurred by Executive prior to the Date of Termination in connection
with his duties hereunder (such amounts collectively, the “Accrued
Compensation and Reimbursements”).  Upon termination by VNRH of
this Agreement pursuant to this Section 6(a) other than a termination for
Cause, within ten (10) business days after the Date of Termination, VNRH shall
pay (A)  Accrued
Compensation and Reimbursements, plus (B) a payment (a “Severance
Payment”) equal to the greater of Executive’s Base Salary (at the rate in
effect hereunder at the Date of Termination) for (1) thirty-six (36)
months, or (2) the remaining duration of the Employment
Period.  Notwithstanding any other provision of this Agreement, the
non-renewal of the Executive’s employment pursuant to the terms of a Non-Renewal
Notice under Section 1(a) of this Agreement shall not constitute a
termination of this Agreement entitling the Executive to a Severance Payment
under this Section 6(a).

     

    (b) Termination by
Cause.  VNRH, by action of the Board may terminate this
Agreement at any time for Cause.  Upon termination by VNRH for Cause,
Executive shall only be entitled to Accrued Compensation and Reimbursements,
which amount shall be paid within ten (10) business days after the Date of
Termination.  For purposes hereof, “Cause”
means any of the following:

     

    (i) Executive’s
commission of theft, embezzlement, any other act of dishonesty relating to his
employment with VNRH or any willful and material violation of any law, rules or
regulation applicable to the Company, including, but not limited to, those laws,
rules or regulations established by the Securities and Exchange Commission, or
any self-regulatory organization having jurisdiction or authority over Executive
or the Company; or

     

    (ii) Executive’s
conviction of, or Executive’s plea of guilty or nolo contendere to, any
felony or of any other crime involving fraud, dishonesty or moral turpitude;
or

     

    (iii) A
determination by the Board that Executive has materially breached this Agreement
(other than during any period of Disability, as defined below) where such breach
is not remedied within ten (10) days after written demand by the Board for
substantial performance is actually received by Executive which specifically
identifies the manner in which the Board believes Executive has so breached;
or

     

    (iv) Executive’s
willful and continued failure to perform his reasonable and customary duties as
the President and Chief Executive Officer which such failure is not remedied
within ten (10) days after written demand by the Board for substantial
performance is actually received by Executive which specifically identifies the
nature of such failure.

     

    For
purposes of the definition of Cause, no act or failure to act, on the part of
Executive, shall be considered “willful” unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive’s
action or omission was in, or not opposed to, the best interests of the
Company.  Any act, or failure to act, based upon authority given by
the Board or based upon the advice of counsel for VNRH shall be conclusively
presumed to be done, or omitted to be done, by Executive in good faith and in
the best interests of the Company.  VNRH, by action of the Board, may
terminate Executive’s employment for Cause only after: (i) providing
written notice to Executive, which identifies the Cause for Executive’s
termination (which notice must be given within ninety (90) days after the actual
discovery of the act(s) or omission(s) constituting such Cause) and
(ii) Executive has been given an opportunity, together with his counsel, to
be heard by the Board at a time and location reasonably designated by the
Board.

     

    (c) Termination with Good
Reason.  Executive may terminate this Agreement for Good
Reason, and thereby resign his employment, after providing thirty (30) days’
written notice to the Company (which notice must be given within ninety (90)
days after the occurrence of the act(s) or omission(s) constituting Good
Reason).  For purposes hereof, “Good
Reason” means any of the following reasons:

     

    (i) Executive
is assigned duties and responsibilities materially inconsistent with those
normally associated with his position, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by VNRH promptly, but in no event later than the thirty (30) day period
immediately following VNRH’s receipt of notice thereof given by Executive;
or

     

    (ii) A
material reduction in Executive’s Base Salary; or

     

    (iii) Executive’s
removal from his position as President and Chief Executive Officer of the
Company, other than for Cause or by death or Disability, during the Term of this
Agreement, to a position that is not at least equivalent in authority and duties
to President and Chief Executive Officer; or

     

    (iv) Relocation
of Executive’s principal place of business to a location fifty (50) or more
miles from its location as of the Effective Date without Executive’s written
consent; or

     

    (v) A
material breach by VNRH of this Agreement, which materially adversely affects
Executive, if the breach is not cured within twenty (20) days after Executive
provides written notice to VNRH which identifies in reasonable detail the nature
of the breach; or

     

    (vi) VNRH’s
failure to make any material payment to Executive required to be made under the
terms of this Agreement, if the breach is not cured within twenty (20) days
after Executive provides written notice to the VNRH which provides in reasonable
detail the nature of the payment.

     

    In the
event Executive terminates this Agreement for Good Reason, within ten (10)
business days after the Date of Termination VNRH shall pay Executive (i) his
Accrued Compensation and Reimbursements plus (ii) a Severance
Payment.

     

    (d) Termination by
Disability.  VNRH, by action of the Board, may terminate this
Agreement at any time if Executive shall be deemed in the reasonable judgment of
the Board to have sustained a “Disability.”  Executive
shall be deemed to have sustained a Disability if and only if he shall have been
unable to substantially perform his duties as an employee of VNRH as a result of
sickness or injury, and shall have remained unable to perform any such duties
for a period of more than 180 consecutive days in any twelve (12)-month
period.  Upon termination of this Agreement for Disability, VNRH shall
pay Executive (A) his Accrued Compensation and Reimbursements plus (B) a payment
equal to Executive’s Base Salary for twelve (12) months.

     

    (e) Termination by
Death.  This Agreement will terminate automatically upon
Executive’s death.  Upon termination of this Agreement because of
Executive’s death, VNRH shall pay Executive’s estate (i) Executive’s Accrued
Compensation and Reimbursements, plus (ii) a payment equal to Executive’s Base
Salary for twelve (12) months.

     

    (f) Date of
Termination.  As used in this Agreement, “Date of
Termination” means (i) if Executive’s employment is terminated by his
death, the date of his death; (ii) if Executive’s employment is terminated
as a result of a Disability or by VNRH for Cause or without Cause, then the date
specified in a notice delivered to Executive by VNRH of such termination,
(iii) if Executive’s employment is terminated by Executive for Good Reason,
then the date specified in the notice of such termination delivered to VNRH by
Executive, (iv) if Executive’s employment terminates due to the giving of a
Non-Renewal Notice, the last day of the Employment Period, and (v) if
Executive’s employment is terminated for any other reason, the date specified
therefore in the notice of such termination.

     

    7. Employment.

     

    Upon
termination of this Agreement, Executive’s employment shall also terminate and
cease, and Executive shall be deemed to have voluntarily resigned from the
Board, if Executive is a member of the Board.

     

    8. Mitigation.

     

    Upon
termination of this Agreement for any reason, amounts to be paid per the express
terms of this Agreement shall not be reduced whether or not Executive obtains
other employment.

     

    9. Release.

     

    Notwithstanding
any other provision in this Agreement to the contrary, as a condition precedent
to receiving the Severance Payment set forth in this Agreement in connection
with any applicable termination scenario, Executive agrees to execute (and not
revoke) a customary severance and release agreement, including a waiver of all
claims, reasonably acceptable to the Company (the “Release”),
within the forty-five (45) day period immediately following the Date of
Termination. All revocation rights and timing restrictions shall be set forth in
such Release.  If Executive fails to execute and deliver the Release,
or revokes the Release, Executive agrees that he shall not be entitled to
receive the Severance Payment.  For purposes of this Agreement, the
Release shall be considered to have been executed by Executive if it is signed
by his legal representative in the case of legal incompetence or on behalf of
Executive’s estate in the case of his death.

     

    10. Nondisclosure.

     

    (a) Executive
shall, immediately upon executing this Agreement, receive access to some or all
of the Company’s various trade secrets and confidential or proprietary
information, including information he has not received before, consisting of,
but not limited to, information relating to (i) business operations and
methods, (ii) existing and proposed investments and investment strategies,
(iii) financial performance, (iv) compensation arrangements and
amounts (whether relating to the Company or to any of its employees),
(v) contractual relationships, (vi) business partners and relationships,
and (vii) marketing strategies (all of the forgoing, “Confidential
Information”).  Confidential Information shall not include:
(A) information that Executive may furnish to third parties regarding his
obligations under this Section 10 and under Section 11 or
(B) information that (1) is general knowledge of Executive or
information that becomes generally available to the public by means other than
Executive’s breach of this Section 10 (for example, not as a result of
Executive’s unauthorized release of marketing materials), (2) is in
Executive’s possession, or becomes available to Executive, on a non-confidential
basis, from a source other than the Company or (3) Executive is required by
law, regulation, court order or discovery demand to disclose; provided, however,
that in the case of clause (3), Executive gives the Company, to the extent
permitted by law, reasonable notice prior to the disclosure of the Confidential
Information and the reasons and circumstances surrounding such disclosure to
provide the Company an opportunity to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.

     

    (b) Executive
agrees that all Confidential Information, whether prepared by Executive or
otherwise coming into his possession, shall remain the exclusive property of the
Company during Executive’s employment with the Company.  Executive
further agrees that Executive shall not, except for the benefit of the Company
pursuant to the exercise of his duties in accordance with this Agreement or with
the prior written consent of the Company, use or disclose to any third party any
of the Confidential Information described herein, directly or indirectly, either
during Executive’s employment with the Company or at any time following the
termination of Executive’s employment with the Company.

     

    (c) Upon
termination of this Agreement, Executive agrees that all Confidential
Information and other files, documents, materials, records, notebooks, customer
lists, business proposals, contracts, agreements and other repositories
containing information concerning the Company or the business of the Company
(including all copies thereof) in Executive’s possession, custody or control,
whether prepared by Executive or others, shall remain with or be returned to the
Company as soon as practicable after the Date of Termination.

     

    11. Non-Competition
and Non-solicitation.

     

    (a) As part
of the consideration for the compensation and benefits to be paid to Executive
hereunder, to protect Confidential Information of the Company and its customers
and clients that have been and will be entrusted to Executive, the business
goodwill of the Company and its subsidiaries that will be developed in and
through Executive and the business opportunities that will be disclosed or
entrusted to Executive by the Company and its subsidiaries, and as an additional
incentive for the Company to enter into this Agreement, if termination is a
result of Executive’s voluntary termination without Good Reason under
Section 6(a), or by the Company for Cause under Section 6(b), from the
date hereof through the one (1) year anniversary of the Date of Termination (the
“Restricted
Period”), Executive will not (other than for the benefit of the Company
pursuant to this Agreement), directly or indirectly:

     

    (i) engage
in, or carry on or assist, individually or as a principal, owner, officer,
director, employee, shareholder, consultant, contractor, partner, member, joint
venturer, agent, equity owner or in any other capacity whatsoever (in any such
capacity, an “Investor”),
any (A) any business directly competitive with the business in which the
Company is engaged from time to time (“Competing
Business”) or (B) Business Enterprise (as defined below) that is
otherwise directly competitive with the Company within the states in which the
Company conducts business;

     

    (ii) perform
for any corporation, partnership, limited liability company, sole
proprietorship, joint venture or other business association or entity (a “Business
Enterprise”) engaged in any Competing Business any duty Executive has
performed for the Company that involved Executive’s access to, or knowledge or
application of, Confidential Information;

     

    (iii) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company to cease doing business with the Company or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company;

     

    (iv) induce or
attempt to induce any customer, supplier, licensee or other business relation of
the Company with whom Executive had direct business contact in dealings during
the Employment Period in the course of his employment with the Company to cease
doing business with the Company or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company; or

     

    (v) solicit
with the purpose of hiring or hire any person who is or, within 180 days after
such person ceased to be an employee of the Company, was an employee of the
Company.

     

    (b) Notwithstanding
the foregoing restrictions of this Section 11, nothing in this
Section 11 shall prohibit (i) any investment by Executive, directly or
indirectly, in securities which are issued by a Business Enterprise involved in
or conducting a Competing Business, provided that Executive, directly or
indirectly, does not own more than five percent (5%) of the outstanding equity
or voting securities of such Business Enterprise or (ii) Executive,
directly or indirectly, from owning any interest in any Business Enterprise
which conducts a Competing Business if such interest in such Business Enterprise
is owned as of the date of this Agreement and Executive does not have the right,
in the case of (i) or (ii), through the ownership of a voting interest or
otherwise, to direct the activities of or associated with the business of such
Business Enterprise.

     

    (c) Executive
acknowledges that each of the covenants of Section 11(a) are in addition
to, and shall not be construed as a limitation upon, any other covenant provided
in Section 11(a).  Executive agrees that the geographic
boundaries, scope of prohibited activities, and time duration of each of the
covenants set forth in Section 11(a) are reasonable in nature and are no
broader than are necessary to maintain the confidentiality and the goodwill of
the Company’s proprietary and Confidential Information, plans and services and
to protect the other legitimate business interests of the Company, including
without limitation the goodwill developed by Executive with Company’s customers,
suppliers, licensees and business relations.

     

    (d) If,
during any portion of the Restricted Period, Executive is not in compliance with
the terms of Section 11(a), the Company shall be entitled to, among other
remedies, compliance by Executive with the terms of Section 11(a) for an
additional period of time (i.e., in addition to the
Restricted Period) that shall equal the period(s) over which such noncompliance
occurred.

     

    (e) The
parties hereto intend that the covenants contained in Section 11(a) be
construed as a series of separate covenants, one for each defined province in
each geographic area in which Executive on behalf of the Company conducts
business.  Except for geographic coverage, each such separate covenant
shall be deemed identical in terms to the applicable covenant contained in
Section 11(a).  Furthermore, each of the covenants in
Section 10(a) shall be deemed a separate and independent covenant, each
being enforceable irrespective of the enforceability (with or without
reformation) of the other covenants contained in
Section 11(a).

     

    12. Survival
of Covenants.

     

    Sections
10 and 11 shall survive the expiration or termination of this Agreement for any
reason, except that the restrictions of Section 11 shall not apply in the
event Executive’s employment is terminated as a result of a Change of Control,
other than in connection with a Permitted Transfer (as such term is defined in
the LLC Agreement).  Executive further agrees to notify all future
persons, funds or businesses, with which he becomes affiliated with or employed
by during the Restricted Period, of the restrictions set forth in Sections 10
and 11, prior to the commencement of any such affiliation or
employment.

     

    13. Notices.

     

    All
notices and other communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
overnight delivery service to the parties at the following addresses or at such
other addresses as shall be specified by the parties by like notice, in order of
preference of the recipient:

     

    
      	
              To
      VNRH:

              Board
      of Managers

              7700
      San Felipe, Suite 485

              Houston,
      Texas 77063

              Facsimile:  (832)
      327-2260

            	
              To
      the Executive:

              Scott
      W. Smith

              12014
      Pebble Hill

              Houston,
      Texas 77024

               

            


    

     

    Notice so
given shall, in the case of mail, be deemed to be given and received on the
fifth calendar day after posting, and in the case overnight delivery service, on
the date of actual delivery.

     

    14. Severability
and Reformation.

     

    If any
one or more of the terms, provisions, covenants or restrictions of this
Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions shall remain in full force and effect, and the
invalid, void or unenforceable provisions shall be deemed
severable.  Moreover, if any one or more of the provisions contained
in this Agreement shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, it shall be reformed by
limiting and reducing it to the minimum extent necessary, so as to be
enforceable to the extent compatible with the applicable law as it shall then
appear.

     

    15. Assignment.

     

    This
Agreement shall be binding upon and inure to the benefit of the heirs and legal
representatives of Executive and the permitted assigns and successors of VNRH,
but neither this Agreement nor any rights or obligations hereunder shall be
assignable or otherwise subject to hypothecation by Executive (except by will or
by operation of the laws of intestate succession) or by VNRH, except that VNRH
may assign this Agreement to any successor (whether by merger, purchase or
otherwise) to all or substantially all of the stock assets or businesses of
VNRH, if such successor expressly agrees to assume the obligations of VNRH
hereunder.

     

    16. Amendment.

     

    This
Agreement may be amended only by writing signed by both the Executive and by a
duly authorized representative of VNRH (other than Executive).

     

    17. Assistance
in Litigation.

     

    Executive
shall reasonably cooperate with the Company in the defense or prosecution of any
claims or actions now in existence or that may be brought in the future against
or on behalf of the Company that relate to events or occurrences that transpired
while Executive was employed by the Company.  Executive’s cooperation
in connection with such claims or actions shall include, but not be limited to,
being available to meet with counsel to prepare for discovery or trial and to
act as a witness on behalf of the Company at mutually convenient
times.  Executive also shall cooperate fully with the Company in
connection with any investigation or review by any Federal, state, or local
regulatory authority as any such investigation or review relates, to events or
occurrences that transpired while Executive was employed by the
Company.  The Company will pay Executive an agreed upon reasonably
hourly rate for Executive’s cooperation pursuant to this
Section 17.

     

    18. Beneficiaries;
References.

     

    Executive
shall be entitled to select (and change, to the extent permitted under any
applicable law) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following Executive’s death, and may change such
election, in either case by giving the Company written notice
thereof.  In the event of Executive’s death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.  Any reference to the masculine gender in this
Agreement shall include, where appropriate, the feminine.

     

    19. Use of
Name, Likeness and Biography.

     

    The
Company shall have the right (but not the obligation) to use, publish and
broadcast, and to authorize others to do so, the name, approved likeness and
approved biographical material of Executive to advertise, publicize and promote
the business of the Company and its affiliates, but not for the purposes of
direct endorsement without Executive’s consent.  This right shall
terminate upon the termination of this Agreement.  An “approved
likeness” and “approved biographical material” shall be, respectively, any
photograph or other depiction of Executive, or any biographical information or
life story concerning the professional career of Executive.

     

    20. Governing
Law.

     

    THIS
AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND GOVERNED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO RULES RELATING TO CONFLICTS OF
LAW.

     

    21. Entire
Agreement.

     

    This
Agreement and the LLC Agreement contain the entire understanding between the
parties hereto with respect to the subject matter hereof and supersede in all
respects any prior or other agreement or understanding, written or oral, between
the Company or any affiliate of the Company and Executive with respect to such
subject matter.

     

    22. Withholding.

     

    The
Company shall be entitled to withhold from payment to the Executive of any
amount of withholding required by law.

     

    23. Counterparts.

     

    This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original.

     

    24. Remedies.

     

    The
parties recognize and affirm that in the event of a breach of Sections 10 or 11
of this Agreement, money damages would be inadequate and VNRH would not have an
adequate remedy at law.  Accordingly, the parties agree that in the
event of a breach or a threatened breach of Sections 10 or 11, VNRH may, in
addition and supplementary to other rights and remedies existing in its favor,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof (without posting a bond or other
security).  In addition, Executive agrees that in the event a court of
competent jurisdiction or an arbitrator finds that Executive violated
Section 10 or 11, the time periods set forth in those Sections shall be
tolled until such breach or violation has been cured.  Executive
further agrees that VNRH shall have the right to offset the amount of any
damages resulting from a breach by Executive of Section 10 or 11 against
any payments due Executive under this Agreement.  The parties agree
that if one of the parties is found to have breached this Agreement by a court
of competent jurisdiction or arbitrator, the breaching party will be required to
pay the non-breaching party’s attorneys’ fees reasonably incurred in prosecuting
the non-breaching party’s claim of breach.

     

    25. Non-Waiver.

     

    The
failure by either party to insist upon the performance of any one or more terms,
covenants or conditions of this Agreement shall not be construed as a waiver or
relinquishment of any right granted hereunder or of any future performance of
any such term, covenant or condition, and the obligation of either party with
respect hereto shall continue in full force and effect, unless such waiver shall
be in writing signed by VNRH (other than Executive) and Executive.

     

    26. Announcement.

     

    The
Company shall have the right to make public announcements concerning the
execution of this Agreement and the terms contained herein, at the Company’s
discretion.

     

    27. Construction.

     

    The
headings and captions of this Agreement are provided for convenience only and
are intended to have no effect in construing or interpreting this
Agreement.  The language in all parts of this Agreement shall be in
all cases construed in accordance to its fair meaning and not strictly for or
against the Company or Executive.

     

    28. Right to
Insure.

     

    The
Company shall have the right to secure, in its own name or otherwise, and at its
own expense, life, health, accident or other insurance covering Executive, and
Executive shall have no right, title or interest in and to such
insurance.  Executive shall assist the Company in procuring such
insurance by submitting to examinations and by signing such applications and
other instruments as may be required by the insurance carriers to which
application is made for any such insurance.

     

    29. No
Inconsistent Obligations.

     

    Executive
represents and warrants that to his knowledge he has no obligations, legal, in
contract, or otherwise, inconsistent with the terms of this Agreement or with
his undertaking employment with the Company to perform the duties described
herein.  Executive will not disclose to the Company, or use, or induce
the Company to use, any confidential, proprietary, or trade secret information
of others. Executive represents and warrants that to his knowledge he has
returned all property and confidential information belonging to all prior
employers, if he is obligated to do so.

     

    30. Binding
Agreement.

     

    This
Agreement shall inure to the benefit of and be binding upon Executive, his heirs
and personal representatives, and the Company, its successors and
assigns.

     

    31. Voluntary
Agreement.

     

    Each
party to this Agreement has read and fully understands the terms and provisions
hereof, has had an opportunity to review this Agreement with legal counsel, has
executed this Agreement based upon such party’s own judgment and advice of
counsel (if any), and knowingly, voluntarily, and without duress, agrees to all
of the terms set forth in this Agreement.  The parties have
participated jointly in the negotiation and drafting of this
Agreement.  If an ambiguity or question of intent or interpretation
arises, this Agreement will be construed as if drafted jointly by the parties
and no presumption or burden of proof will arise favoring or disfavoring any
party because of authorship of any provision of this
Agreement.  Except as expressly set forth in this Agreement, neither
the parties nor their affiliates, advisors and/or their attorneys have made any
representation or warranty, express or implied, at law or in equity with respect
of the subject matter contained herein.  Without limiting the
generality of the previous sentence, the Companies, their affiliates, advisors,
and/or attorneys have made no representation or warranty to Executive concerning
the state or Federal tax consequences to Executive regarding the transactions
contemplated by this Agreement.

     

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    IN WITNESS WHEREOF, the
parties hereto have executed this Amended Employment Agreement between VNRH and
Scott W. Smith as of the day and year first above written.

     

    


     

    “EXECUTIVE”

    


    


    /s/ Scott W.
Smith                                                                      

    Scott W. Smith

    


    


    VNR HOLDINGS, LLC

     

    “COMPANY”

    


    


    By:  /s/ W. Richard
Anderson                                                                      

    


    Its:  Chairman of the Board
of the parent company

    


    


    


    VANGUARD NATURAL RESOURCES,
LLC

    


    


    By:  /s/ W. Richard
Anderson                                                                      

    


    Its:  Chairman of the
Board

    


    


    


     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    APPENDIX A

     

    


     

    Annual
Bonus

     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    APPENDIX B

     

    


     

    [Restricted Unit
Agreement]

     

     

    


     


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    APPENDIX C

     

    


     

    [Phantom Unit
Agreement]