Document:

Exhibit
10.3

 

 

 

SECOND AMENDMENT TO CREDIT
AGREEMENT

Among

VANGUARD NATURAL GAS, LLC

(f/k/a
NAMI HOLDING COMPANY, LLC),

as Borrower,

CITIBANK, N.A.,

as
Administrative Agent and L/C Issuer,

and

CITIBANK, N.A.,

as
Co-Lead Arranger, Sole Bookrunner

and
Co-Syndication Agent,

and

BNP PARIBAS,

as
Co-Lead Arranger and Co-Syndication Agent

and

THE LENDERS PARTY HERETO

Dated as of April 13, 2007

 

 

 

SECOND AMENDMENT TO CREDIT
AGREEMENT

SECOND AMENDMENT TO CREDIT
AGREEMENT made as of April 13, 2007 (this “Second Amendment”
or “Amendment”), is entered into among VANGUARD NATURAL GAS, LLC, a limited liability company duly
formed and existing under the laws of the Commonwealth of Kentucky (f/k/a Nami
Holding Company, LLC) (the “Borrower”),
the lenders listed on the signature pages hereto as Lenders (the “Lenders”), and CITIBANK,
N.A., as Administrative Agent and L/C Issuer.

R  E
C  I  T  A  L  S

A.             The Borrower, the Lenders, the Administrative Agent and
the L/C Issuer are parties to that certain Credit Agreement dated as of January
3, 2007 (the “Original Credit Agreement”)
as amended by that certain First Amendment to Credit Agreement dated as of
March 2, 2007 (the “Amended Credit Agreement” and
together with the Original Credit Agreement, the “Credit
Agreement”).

B.            The parties desire to amend the Credit Agreement as
hereinafter provided.

NOW, THEREFORE, in
consideration of these premises and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

1.             Same Terms.  All terms used herein which are defined in
the Credit Agreement shall have the same meanings when used herein, unless the
context hereof otherwise requires or provides. 
In addition, all references in the Loan Documents to the “Agreement”  shall mean the
Credit Agreement, as amended by this Amendment, as the same shall hereafter be
amended from time to time.  In addition,
the following terms shall have the meanings set forth below:

“Effective
Date” means April 13, 2007.

“Modification Papers” means this
Amendment, and all of the other documents and agreements executed in connection
with the transactions contemplated by this Amendment.

2.             Conditions Precedent.  The transactions contemplated by this
Amendment shall be deemed to be effective as of the Effective Date, when the
following conditions have been complied with to the satisfaction of the
Administrative Agent, unless waived in writing by the Administrative Agent:

A.            Second Amendment to
Credit Agreement.  This
Amendment to Credit Agreement shall be in full force and effect.

B.            Fees and Expenses.  The Administrative Agent shall have received
payment of all out-of-pocket fees and expenses (including reasonable attorneys’
fees and expenses) incurred by the Administrative Agent in connection with the
preparation, negotiation and execution of the Modification Papers and
previously incurred under the Loan Documents.

C.            Representations and Warranties  All representations and warranties contained
herein or in the documents referred to herein or otherwise made in writing in
connection herewith or therewith shall be true and correct with the same force
and effect as though such representations and warranties have been made on and
as of this date.

3.             Amendments to Credit Agreement.  On the Effective Date, the Credit Agreement
shall be deemed to be amended as follows:

 1
 

(a)           Section 1.02 of the Credit Agreement shall be
amended by removing the definition for “Change of Control” and replacing it
with the following definition:

“‘Change in Control’ means
(a) the acquisition of ownership, directly or indirectly, beneficially or of
record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the SEC thereunder as in effect on the date
hereof) of Equity Interests representing more than 25% of the aggregate
ordinary voting power represented by the issued and outstanding Equity
Interests of the Borrower; provided that
none of  (1) the transfer of Equity
Interests of the Borrower pursuant to the Nami Restructure Plan, or (2) the
issuance of common units representing an approximate 38% interest, in the
aggregate,  in Vanguard Natural
Resources, LLC to certain private investors, which will, directly or
indirectly, own 100% of the Borrower, or (b) occupation of a majority of the
seats (other than vacant seats) on the board of managers of the Borrower by
Persons who were neither (i) nominated by the board of managers of the
Borrower nor (ii) appointed by managers so nominated;”

(b)           Section 1.02 of the Credit Agreement shall be
amended by removing the definition for “Transportation Agreement” and replacing
it with the following definition:

“Gathering
and Compression Agreement” has the meaning assigned to such term
in Section 2.09(c).’”

(c)           Section 2.09(c) of the Credit Agreement shall be
amended to read in its entirety as follows:

“(c)         Collateral Releases Per
Restructuring of Assets Per Nami Restructure Plan.  As used in this subparagraph, the following
terms shall have the following meanings:

“Asher PD Properties” shall
mean all Proved Developed Producing and Proved Non-Producing Oil and Gas
Properties associated with the wells described on Schedule 2.09(c)(3) attached
hereto which are within the Producing Strata and which are within the
Production Unit for each well, together with all subsurface and surface
equipment necessary to produce oil and or gas from the well for delivery into a
gathering or flowline at the well site, including any well, wellhead equipment,
well-meter, pumping units and tank batteries present at a well site.

“Asher PUD Properties” shall
mean all Oil and Gas Properties associated with the Producing Strata on the
leases described on Schedule 2.09(c)(4) together with all subsurface and
surface equipment which may be installed thereon and which may be necessary to
produce oil and or gas from a well for delivery into a gathering or flowline at
the well site, including any well, wellhead equipment, well-meter, pumping unit
and tank batteries present at a well site.

“Gathering and Compression Agreement”
shall mean the forms of agreements attached hereto as Exhibits A-1 and A-2 by
and between Vinland Energy Gathering LLC, Borrower, and TEC or Ariana for the
gathering and compression of oil and gas from the PD Properties and PUD
Properties of Ariana and TEC.

“Management Services Agreement”
shall mean the form of agreement attached as Exhibit B hereto entered into by
Borrower, TEC and Ariana with Vinland Energy 

 2
 

Operations, LLC for the management of the PD Properties and PUD
Properties of TEC and Ariana.

“Midstream Assets” means all
gathering facilities, gathering systems, related pipelines and contracts for
the gathering, transportation or sale of oil and gas production and shall
include all equipment downstream or beyond the wellhead and well meter of each
well, except for that equipment included in the definition of PD Properties,
PUD Properties, Asher PD Properties or Asher PUD Properties.

“Operating Agreements” shall
mean the forms of agreements attached as Exhibits C-1 and C-2 hereto between
TEC or Ariana and Vinland Energy Operations, LLC, as operator, and Vinland
Energy Eastern, LLC, as a nonoperator for the operation of the PDP Properties
and PUD Properties of TEC and Ariana.

“Operating Assets” means all
office equipment, furniture, fixtures, furnishings, vehicles, machinery,
inventory and other personalty or property and not otherwise defined herein as “Asher
PD Properties,” “Asher PUD Properties,” “PD Properties,” “PUD Properties,” “Other
Oil and Gas Leases,” or “Midstream Assets.”

“Other Oil and Gas Leases”
means Oil and Gas Properties of Ariana, NRC and TEC which are not included as
part of the PD Properties, PUD Properties, Asher PD Properties or Asher PUD
Properties.

 “Participation
Agreement” shall mean the form of agreement attached as Exhibit
D hereto between Vinland Energy Eastern, LLC, Borrower, Ariana and TEC.

“Producing Strata” shall mean,
for each field, those geologic formations identified in Schedule 2.09(c)(1)
as the Producing Strata for the field.

“Production Unit” shall mean,
for each well (i) in Kentucky, an area configured in a circle with a diameter
of 1,000 feet (or approximately 18.03 acres) around such well, or such greater
or lesser area as may be, or may have been, established for such well by the
relevant Kentucky regulatory authority and (ii) in Tennessee, an area
configured in a square or rectangle containing 20 acres centered on the well
bore or such greater or lesser area as may be, or may have been, established
for such well by the relevant Tennessee regulatory authority.

“Proved Developed Oil and Gas Properties”
or “PD Properties” shall mean all
Proved Developed Producing in existence as of January 5, 2007, including those
associated with the wells described on Schedule 2.09(c)(1) attached
hereto which are within the Producing Strata and which are within the
Production Unit for each well, together with all subsurface and surface
equipment necessary to produce oil and or gas from the well for delivery into a
gathering or flowline at the well site, including any well, wellhead equipment,
well-meter, pumping units and tank batteries present at a well site; and upon
transfer of the Asher PD Properties by NRC to TEC shall include the Asher PD
Properties unless otherwise provided for herein.

“Proved Undeveloped Oil and Gas Properties”
or “PUD Properties” shall mean all Oil
and Gas Properties associated with the Producing Strata on the leases

 3
 

described on Schedule 2.09(c)(2) together with all subsurface
and surface equipment which may be installed thereon and which may be necessary
to produce oil and or gas from a well for delivery into a gathering or flowline
at the well site, including any well, wellhead equipment, well-meter, pumping
unit and tank batteries present at a well site; and upon transfer of the Asher
PUD Properties by NRC to TEC shall include the Asher PUD Properties unless
otherwise provided for herein.

“PUD Non-Participation Election”
shall mean an election by Ariana or TEC (the “Electing
Party”) not to participate in the drilling of a well or wells on
the PUD Properties proposed by Vinland Energy Operations, LLC under the
Management Services Agreement.  Pursuant
to the terms of the Management Services Agreement, a PUD Non-Participation
Election shall result in a forfeiture by the Electing Party of its interest in
the PUD Properties to the extent (i) of the proposal for which an election was
required to be made, and (ii) insofar as said PUD Properties are included in a
Production Unit (the “Forfeited PUD Properties”).

“Revenue Payment Agreement”
shall mean the form of agreement attached as Exhibit E hereto by and between
TEC and NRC for the payment of certain revenues from the production and
operation of the Asher PD Properties and the Asher PUD Properties until
transfer of the Asher PD Properties and the Asher PUD Properties by NRC to TEC.

“Well Services Agreements”
shall mean the forms of agreements attached as Exhibits F-1 and F-2 hereto
between each of TEC or Ariana and Vinland Energy Operations, LLC, as operator,
and Vinland Energy Eastern, LLC, as a nonoperator for the service of wells on
the PDP Properties and PUD Properties of TEC or Ariana.

Subsequent to the Effective
Date and pursuant to the implementation of the Nami Restructure Plan, the
following shall occur:

1.             NRC will transfer
to TEC, (i) 100% of NRC’s PD Properties; (ii) a 100% interest in NRC’s PUD
Properties; (iii) a 100% interest in NRC’s Other Oil and Gas Leases; and (iv) a
net revenue interest in the Asher PD Properties and Asher PUD Properties
pursuant to the terms of the Revenue Payment Agreement;

2.             TEC will convey to
Vinland Energy Eastern, LLC (i) 100% of its interest in Other Oil and Gas
Leases, inclusive of the interest conveyed to it by NRC referenced in paragraph
1 above, and (ii) a 60% interest in TEC’s PUD Properties;

3.             Ariana will convey
to Vinland Energy Eastern, LLC (i) 100% of its interest in Other Oil and Gas
Leases and (ii) a 60% interest in all of its PUD Properties;

4.             NRC will thereafter
convey to Vinland Energy Gathering, LLC all of NRC’s Midstream Assets;

5.             TEC will thereafter
convey to Vinland Energy Gathering, LLC all of TEC’s Midstream Assets;

6.             Ariana will
thereafter convey to Vinland Energy Gathering, LLC all of Ariana’s Midstream
Assets;

 4
 

7.             NRC will thereafter
convey to Vinland Energy Operations, LLC all of NRC’s Operating Assets;

8.             Ariana will
thereafter convey to Vinland Energy Operations, LLC all of Ariana’s Operating
Assets;

9.             TEC will thereafter
convey to Vinland Energy Operations, LLC all of TEC’s Operating Assets; and

10.           All PD Properties
and PUD Properties of TEC and Ariana shall be made subject to the terms of the
Management Services Agreement, the Participation Agreement, the Operating
Agreements, the Gathering and Compression Agreements and the Well Services
Agreements.  Further, the charges
allocated to TEC and Ariana under such agreements shall be as specified therein
subject to adjustment as provided in said Agreements.

In
connection with such transfers, the Administrative Agent agrees to release its
liens and security interests against (i) the Midstream Assets, retaining,
however, a security interest in any and all gathering, transportation or
marketing agreements, whether now existing or hereafter entered into, affecting
or relating to the production of oil and gas produced from the Oil and Gas
Properties in which Lenders have been granted a lien pursuant to the Security
Documents and not released pursuant to the terms of this subparagraph, (ii)
100% of the Other Oil and Gas Leases, (iii) a 60% interest in the PUD
Properties save and except the Asher PUD Properties and (iv) 100% of the
Operating Assets.  With respect to the
partial release of its lien on PUD Properties, save and except the Asher PUD
Properties, the form of release attached hereto as Exhibit J shall
be used with inclusion of appropriate descriptions of the interests to be
released based on Schedules 2.09(c)(1) and 2.09(c)(2)
attached hereto.  The Administrative
Agent shall execute such releases at the expense of the Borrower and NRC.  The Administrative Agent will release NRC
from its obligations under its Guaranty Agreement when (i) all of NRC’s PD
Properties save and except the Asher PD Properties and Asher PUD Properties
have been transferred to TEC and (ii) TEC has executed such supplemental
Mortgages and other documents as the Administrative Agent may require to
confirm that the Lien granted by NRC continues to secure all of the obligations
of the Borrower hereunder following the transfer of title to such PD
Properties.

In the event a PUD Non-Participation Election
results in Ariana or TEC forfeiting its interest in any PUD Properties and an
assignment of such party’s interest in such PUD Properties is required to be
made by Ariana or TEC to a third party, the Administrative Agent agrees to
release its liens and security interests against the Forfeited PUD Properties.
The Administrative Agent shall execute such release within a reasonable time
after receipt of an assignment of the Forfeited PUD Properties duly executed by
Ariana or TEC.  The release to be
executed by the Administrative Agent shall at the expense of the Borrower.”

11.           Upon receipt of
consent from Asher Land and Mineral, Ltd. and the assignment of the Asher PD
Properties and Asher PUD Properties by NRC to TEC, the Administrative Agent
agrees to release its lien against a 60% interest in the Asher PUD Properties
upon receipt of supplemental Mortgages or other documents executed by TEC as
the Administrative Agent may require to confirm that the Lien granted by NRC
against the Asher PD Properties and the remaining 40% interest in the Asher PUD
Properties 

 5
 

continues to secure all the obligations of Borrower hereunder following
transfer of title to such properties to TEC.

(d)           Schedule 2.09(c)(1) of the Credit agreement shall
be amended to read in its entirety as set forth on the attached Exhibit G
hereto.

(e)           The Credit Agreement shall be amended to include a Schedule
2.09(c)(3), which shall read as set forth on the attached Exhibit H hereto.

(f)            The Credit Agreement shall be amended to include a Schedule
2.09(c)(4), which shall read as set forth on the attached Exhibit I hereto.

(g)           Section 12.01(a)(i) of the Credit Agreement is amended to
change Borrower’s address from:

7500 San Felipe, Suite 440

Houston,
TX 77063

Attention:  Mr. Scott W. Smith

Telecopy:  713-659-1799

Telephone:  713-659-1794

to:

7500 San Felipe, Suite 485

Houston,
TX 77063

Attention:  Mr. Scott W. Smith

Telecopy:  713-659-1799

Telephone:  713-659-1794.

4.             Certain Representations.  The Borrower represents and warrants that, as
of the Effective Date:  (a) the
Borrower has full power and authority to execute the Modification Papers and
the Modification Papers constitute the legal, valid and binding obligation of
the Borrower enforceable in accordance with their terms, except as
enforceability may be limited by general principles of equity and applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
affecting the enforcement of creditors’ rights generally; and (b) no
authorization, approval, consent or other action by, notice to, or filing with,
any governmental authority or other person is required for the execution,
delivery and performance by the Borrower thereof.  In addition, the Borrower represents that all
representations and warranties contained in the Credit Agreement are true and
correct in all material respects on and as of the Effective Date (except
representations and warranties that relate to a specific prior date are based
upon the state of facts as they exist as of such date).

5.             No Further Amendments.  Except as previously amended in writing or as
amended hereby, the Credit Agreement shall remain unchanged and all provisions
shall remain fully effective between the parties.

6.             Limitation on Agreements.  The modifications set forth herein are
limited precisely as written and shall not be deemed (a) to be a consent
under or a waiver of or an amendment to any other term or condition in the
Credit Agreement or any of the Loan Documents, or (b) to prejudice any
right or rights which the Administrative Agent or any Lender now has or may
have in the future under or in connection with the Credit Agreement and the
Loan Documents, each as amended hereby, or any of the 

 6
 

other
documents referred to herein or therein. The Modification Papers shall
constitute Loan Documents for all purposes.

7.             Counterparts.  This Amendment may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed an
original, but all of which constitute one instrument.  In making proof of this Amendment, it shall
not be necessary to produce or account for more than one counterpart thereof
signed by each of the parties hereto.

8.             Incorporation of Certain Provisions by Reference.  The provisions of Section 12.09 of the Credit
Agreement captioned “Governing Law; Jurisdiction; Consent to Service of
Process; Waiver of Jury Trial” are incorporated herein by reference for all
purposes.

9.             Entirety, Etc.  This instrument and all of the other Loan
Documents embody the entire agreement between the parties.  THIS AMENDMENT AND ALL OF THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.  THERE ARE NO UNWRITTEN
ORAL AGREEMENTS BETWEEN THE PARTIES.

[Signatures begin on next page.]

 7

The parties hereto have
caused this Amendment to be duly executed as of the day and year first above
written.

	
  BORROWER:

  	
  VANGUARD NATURAL GAS,
  LLC

  
	
   

  	
  f/k/a Nami Holding
  Company, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott W. Smith

  	
   

  
	
   

  	
   

  	
   

  	
  Scott W. Smith

  
	
   

  	
   

  	
   

  	
  President and Chief Executive Officer

  
					

 

 S-1
 

 

	
  ADMINISTRATIVE AGENT:

  	
  CITIBANK, N.A.

  
	
  as Administrative Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Angela McCracken

  	
   

  
	
   

  	
   

  	
   

  	
  Angela McCracken

  
	
   

  	
   

  	
   

  	
  Vice President

  
					

 

 S-2
 

 

	
  LENDERS:

  	
  CITIBANK, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Angela McCracken

  	
   

  
	
   

  	
   

  	
   

  	
  Angela McCracken

  
	
   

  	
   

  	
   

  	
  Vice President

  
					

 

 S-3
 

 

	
  LENDERS:

  	
  BNP PARIBAS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Betsy Jocher

  	
   

  
	
   

  	
  Name:

  	
  Betsy Jocher

  
	
   

  	
  Title:   Direcotor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert Long

  	
   

  
	
   

  	
  Name:

  	
  Robert Long

  
	
   

  	
  Title:   Vice
  President

  
					

 

 S-4

EXHIBIT A-1

GATHERING AND COMPRESSION
AGREEMENT

TEC

EXHIBIT A-2

GATHERING AND COMPRESSION
AGREEMENT

ARIANA

EXHIBIT B

MANAGEMENT SERVICES AGREEMENT

EXHIBIT C-1

OPERATING AGREEMENT

TEC

EXHIBIT C-2

OPERATING AGREEMENT

ARIANA

EXHIBIT D

PARTICIPATION AGREEMENT

EXHIBIT E

REVENUE PAYMENT AGREEMENT

EXHIBIT F-1

WELL SERVICES AGREEMENT

TEC

EXHIBIT F-2

WELL SERVICES AGREEMENT

ARIANA

EXHIBIT G

AMENDED SCHEDULE 2.09(c)(1)

EXHIBIT H

SCHEDULE 2.09(c)(3)

ASHER PD PROPERTIES

The following is a
listing of Asher PD wells located on oil and gas leases which are part of the
Oil and Gas Properties under the Credit Agreement as of January 3, 2007, as
amended.  The wells (with the number of
the permit for such well issued by the relevant regulatory agency) are listed
by the field in which such wells are located. 
It is agreed that with respect to the wells in the field as set forth
below that the Asher Proved Developed Oil and Gas Properties shall include
those reserves which are within the Producing Strata in the Production Unit for
such wells.

Asher Field

Bell and Knox Counties, Kentucky

Producing Strata: All subsurface formations and depths between the
stratigraphic equivalent of the top of the Big Lime Formation as found in the
Asher #36 well at the subsurface depth of 2,824 feet (the location of which
well is contained in Well Permit Number 95451) and 100 feet below the
stratigraphic equivalent of the base of the Corniferous Formation as found in
the Asher #36 well as at a subsurface depth of 3,681 feet (the location of
which is contained in Well Permit Number 95451). 

	
  Well Name

  	
   

  	
  Permit #

  	
   

  
	
  Asher Land &
  Mineral LTD #1

  	
   

  	
  86953

  	
   

  
	
  Asher Land &
  Mineral LTD #11

  	
   

  	
  87422

  	
   

  
	
  Asher Land &
  Mineral LTD #12

  	
   

  	
  87564

  	
   

  
	
  Asher Land &
  Mineral LTD #15

  	
   

  	
  91895

  	
   

  
	
  Asher Land &
  Mineral #18

  	
   

  	
  91900

  	
   

  
	
  Asher Land &
  Mineral LTD #22

  	
   

  	
  94838

  	
   

  
	
  Asher Land &
  Mineral LTD #25

  	
   

  	
  95468

  	
   

  
	
  Asher Land &
  Mineral LTD #20

  	
   

  	
  95748

  	
   

  
	
  Asher Land &
  Mineral LTD #26

  	
   

  	
  95749

  	
   

  
	
  Asher Land &
  Mineral LTD #27

  	
   

  	
  95750

  	
   

  
	
  Asher Land &
  Mineral LTD #28

  	
   

  	
  95751

  	
   

  
	
  Asher Land &
  Mineral LTD #24

  	
   

  	
  95456

  	
   

  
	
  Asher Land &
  Mineral LTD #29

  	
   

  	
  96050

  	
   

  
	
  Asher Land &
  Mineral LTD #14B

  	
   

  	
  96158

  	
   

  
	
  Asher Land &
  Mineral LTD #30

  	
   

  	
  96316

  	
   

  
	
  Asher Land &
  Mineral LTD #32

  	
   

  	
  96346

  	
   

  
	
  Asher Land &
  Mineral LTD #31

  	
   

  	
  96503

  	
   

  
	
  Asher Land &
  Mineral LTD #33

  	
   

  	
  96400

  	
   

  
	
  Asher Land & Mineral
  LTD #34

  	
   

  	
  96442

  	
   

  
	
  Asher Land &
  Mineral LTD #35

  	
   

  	
  96437

  	
   

  
	
  Asher Land &
  Mineral LTD #36

  	
   

  	
  96451

  	
   

  
	
  Asher Land &
  Mineral LTD #37

  	
   

  	
  97034

  	
   

  
	
  Taylor Heirs Et Al # 3 (only as to Asher lease acreage included in
  the unit for the well. The remaining leases in unit and interest in well are
  part of the Proved Developed Oil and Gas Properties in Amended Schedule
  2.09(c)(1).

  	
   

  	
  96864

  	
   

  

 

EXHIBIT I

SCHEDULE 2.09(c)(4)

ASHER PUD PROPERTIES

Asher
PUD Properties shall mean all of the oil and gas leases in a field upon which are
located the wells listed on Schedule 2.09(c)(3) or which are pooled and
included in a Production Unit for such well, insofar as said leases cover
acreage outside the Production Unit for such wells and insofar as said oil and
gas leases include those reserves which are within the Producing Strata for the
field where such leases are located.Exhibit 10.4

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.

 2
 

 

“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 

 3
 

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 

 4
 

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 

 5
 

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 

 6
 

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 

 7
 

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.

 8
 

 

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 

 9
 

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.

 

 10

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