Document:

Exhibit 10.20

 

GAS SUPPLY AGREEMENT

THIS GAS
SUPPLY AGREEMENT (“Agreement”) is made this 18th day of April
2007, by and between NAMI RESOURCES COMPANY L.L.C.,
a Kentucky limited liability company, herein called “Buyer”, and TRUST ENERGY COMPANY, LLC, a Kentucky limited liability
company, herein called “Supplier”.

WITNESSETH THAT:

WHEREAS,
Buyer is a party to the gas supply contract a true and complete copy of which is
attached hereto as Exhibit A (the “Contract”); and

WHEREAS,
as part of the restructuring of the business of Buyer, Buyer has conveyed to
Supplier the wells and natural gas reserves that the Buyer previously used to
supply the Contracts; and

WHEREAS,
the parties have agreed that Supplier will provide the gas for, and perform certain
other obligations of Buyer under the NRC Contract, pursuant to the terms
hereof.

NOW,
THEREFORE, in consideration of the mutual benefits,
covenants, and agreements herein contained, and other good and valuable
consideration, Buyer and Supplier hereby covenant and agree as follows:

ARTICLE I

PERFORMANCE OF THE NRC CONTRACT

1.1           Supplier will perform all of the gas supply obligations of
Buyer under the NRC Contract, including without limitation, supplying natural
gas as provided thereunder, in such amounts, at such times, and at such delivery
points as may be provided in the NRC

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Contract.  The natural gas to be provided by Supplier
hereunder is sometimes referred to as the “Gas.”

1.2           Supplier shall provide the Gas, to the extent possible, from
its wells in its natural gas fields closest to the delivery point(s).

1.3           Buyer will arrange and pay for the necessary transportation
of the Gas on the gathering transportation system of Vinland Energy Gathering,
LLC.

1.4           On or before the 20th day of the month following any month
in which Supplier provides Gas, Supplier will provide Buyer with a complete and
accurate report of all Gas supplied pursuant to each such Contract.  Supplier will provide Buyer such other
information as may be necessary pursuant to the terms of any Contract to allow
Buyer to invoice the purchaser under each Contract and to satisfy such other
obligations to provide information as the Buyer may have pursuant to such
Contract.

ARTICLE II

PRICE

2.1           Buyer will pay Supplier an amount equal to the amount of Gas
so supplied in the relevant month (stated in mcfs or dekatherms as appropriate)
times Supplier’s floating hedged gas price applicable for the period during
which the Gas was supplied.

ARTICLE III

TERM

3.1           This Agreement shall be in force until the expiration or
other termination of all of the Contracts. 
Provided, however, Buyer may terminate this Agreement upon thirty (30)
days written notice to Supplier.

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ARTICLE
IV

BILLINGS AND PAYMENTS

4.1           On or before the 20th day of the month following the
calendar month in which Supplier provides Gas hereunder, Supplier shall provide
buyer with a statement showing the amount of Gas supplied under each Contract
and Supplier’s floating hedged gas price for such period.

4.2           Payment shall be made by Buyer to Supplier on or before the
20th day after Buyer’s receipt of the statement referenced in Section 4.1,
above.

4.3           If any overcharge or undercharge in any form whatsoever
shall at any time be found after the bill therefore has been paid, Supplier
shall refund the amount of any overcharge received by Supplier, and Buyer shall
pay the amount of any undercharge, within thirty (30) days after final
determination thereof; provided however, no retroactive adjustment will be made
for any overcharge or undercharge beyond a period of twenty-four (24) months
from the date a discrepancy occurred.

4.4           If payment from Buyer to Supplier for gas sold under the
terms herein, is delayed for more than twenty (20) days after it is due, then
such amount due shall accrue interest at the Citibank, N.A. prime interest rate
in effect at the time the amount became due, plus two percent (2%), and Supplier
may at its sole option suspend deliveries of gas until such payment is made.

ARTICLE V

QUALITY AND MEASUREMENT OF GAS

5.1           All natural gas delivered by Supplier hereunder shall substantially
conform to the standard contract quality specifications of the relevant
Contract.  Buyer shall have

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no liability to Supplier, should Supplier
fail to deliver natural gas which substantially satisfies the specifications of
the relevant Contract.

ARTICLE VI

WARRANTY OF TITLE

6.1           Supplier warrants that it will at the time of delivery hereunder
have good title to the Gas, free and clear of all liens, encumbrances and
claims whatsoever.

ARTICLE VII

TAXES

7.1           Supplier shall pay or cause to be paid all taxes (including
without limitation production and severance taxes) lawfully levied on Supplier,
or otherwise to be borne contractually by Supplier, and applicable to the gas
delivered hereunder prior to its delivery to Buyer at the Delivery
Point(s).  Buyer shall pay all taxes
lawfully levied on Buyer applicable to such gas after delivery to or for the
account of Buyer at the Delivery Point(s).

ARTICLE VIII

FORCE MAJEURE

8.1           No failure or delay in performance, whether in whole or in
part, by either Supplier or Buyer shall be deemed to be in breach hereof when:
(a) such failure or delay is occasioned by or due to any act of God, strike,
lockout, act of public enemy, sabotage, war (whether or not an actual
declaration is made thereof), blockade, insurrection, riot, epidemic,
landslide, lightning, earthquake, flood, storm, fire, civil disturbance,
inability of either party to obtain any necessary and material permit and the
act of any court of governmental authority, or other cause beyond the
reasonable control of Buyer or Supplier, as applicable, (each a “Force Majeure
Event); and (b) the affected party gives prompt written notice with reasonably
complete particulars to the other party. 
It is expressly agreed that Supplier’s ability to sell gas dedicated to

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Buyer under this Agreement at a higher price
to any other party, or Buyer’s ability to purchase gas at a lower price from
any party shall not constitute Force Majeure Event.  No Force Majeure Event shall relive any party
from its obligations to make payments of amounts then due under this
Agreement.  In the event of a Force Majeure
Event, the obligations of the party giving notice of same shall be suspended insofar
as such performance is affected by the Force Majeure Event, during the
continuance of such Force Majeure Event, but for no longer period and to no
greater extent, and such cause shall be remedied with all reasonable dispatch.

ARTICLE IX

GOVERNMENTAL RULES, REGULATIONS, AND AUTHORIZATIONS

9.1           This Agreement shall be subject to all valid laws, order,
directives, rules and regulations of any governmental body, agency, or official
having jurisdiction in the premises whether state or federal.

ARTICLE X

ASSIGNMENT

10.1         This Agreement shall extend to and be binding upon the
parties, their heirs, administrators, successors, and assigns, but neither
party shall assign or transfer any of its rights or obligations hereto without
the consent to the other party, which consent shall not be unreasonably
withheld.  No transfer of or succession
to the interest of either party hereunder, wholly or partially, shall affect or
bind the other party until it shall have been furnished with written notice and
a true copy of such assignment or with other proper proof that the claimant is
legally entitled to such interest.  Notwithstanding
the forgoing, nothing herein contained shall in any way prevent either party
hereto from pledging or mortgaging all or any part of such party’s property as
security for any mortgage, deed of trust, or other similar lien or from
pledging this Agreement or any benefits accruing hereunder to the party making
the pledge.

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ARTICLE XI

NOTICE

11.1         Whenever, under the terms of this Agreement, any notice is
required or permitted to be given by one party to the other, such notice shall
be given in writing and shall be deemed to have been sufficiently given for all
purposes if given by telefax (receipt/answer-back acknowledged), delivered by
courier, or if mailed, postage prepaid, to the parties at the address set forth
in paragraphs 11.2 and 11.3 below. 
Notice shall be effective when actually received.

11.2         The address of Buyer for the purpose of all notices, payments
and communications hereunder, unless another address is designated by Supplier
in writing, shall be:

NAMI RESOURCES COMPANY L.L.C.

104 Nami Plaza, Suite 1

London, Kentucky 40741

11.3         The address of Supplier for the purposes of all notices,
payments and communications hereunder, unless another address is designated by
Buyer in writing, shall be:

TRUST ENERGY COMPANY, LLC

7700 San Felipe, Suite 485

Houston, Texas 77063

ARTICLE XII

MISCELLANEOUS

12.1         No waiver by Buyer or Supplier of any default of the other
under this Agreement shall operate as waiver of any future default, whether of
a like or different character.

12.2         This Agreement, and the exhibits hereto, contain the entire
Agreement between the parties and there no oral promises, agreements or
warranties affecting it.  No modification
or amendment of this Agreement shall be binding on either party unless in
writing and executed by the parties.

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12.3         As to all matters of construction and interpretation, this
Agreement shall be interpreted, construed and governed by the laws of the Commonwealth
of Kentucky, without regard to principles or conflicts of law otherwise
applicable to such termination.

12.4         The numbering and titling of particular provisions of this
Agreement is for the purposes of facilitating administration and shall not be
construed as having any substantive effect on the terms of this Agreement.

12.5         The exhibits hereto and the provisions contained therein
shall constitute a part of this Agreement.

IN WITNESS WHEREOF, this
instrument is executed as of the date first above mentioned.

	
  

  	
  TRUST ENERGY
  COMPANY, LLC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Majeed S.
  Nami

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title: Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NAMI RESOURCES
  COMPANY L.L.C.

  
	
   

  
	
   

  	
  By:

  	
  /s/ Majeed S.
  Nami

  	
   

  
	
   

  
	
   

  	
  Title: Manager

  

 

 7Exhibit 10.21

 

AMENDED
EMPLOYMENT AGREEMENT

This AMENDED EMPLOYMENT
AGREEMENT (this “Agreement”), effective as of April
18, 2007, is by and between VNR  Holdings,
LLC, a Delaware limited liability company (“VNR”), 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 (kba Vanguard Natural
Gas, LLC) and Executive entered in an employment agreement (“the Initial
Agreement”);

WHEREAS, the
parties hereby agree that the Initial Agreement shall be terminated as of the
date hereof and replaced with this Amended Employment Agreement;

WHEREAS, VNR
desires to employ Executive and Executive desires to be employed by VNR;

WHEREAS, the parties
desire to set forth in writing the terms and conditions of their understandings
and agreements;

NOW,
THEREFORE, in consideration of the mutual covenants and obligations contained
herein, VNR 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 Sections 8 and 9, VNR hereby agrees to employ Executive, and
Executive hereby agrees to be employed by VNR, 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 December 31, 2009  (the “Employment Period”); provided, however,
that the Employment Period shall automatically be renewed and extended for a period
of 12 months commencing on December 31, 2009  and on each successive calendar year
thereafter  unless at least 90 days
prior to the ensuing expiration date (but no more than 12 months prior to such expiration date), VNR 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 VNR, Executive shall serve as the  President 
and Chief Executive  Officer of VNR
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 VNR, 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 VNR 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 VNR, 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 14(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.

VNR shall pay
Executive a base salary (“Base
Salary”) at the rate of $200,000 per annum for the period
commencing on the Effective Date and ending on the Date of Termination.  Base Salary shall be payable in accordance
with the ordinary payroll practices of VNR. 
Any increase in Base Salary shall be in the discretion of the Board and,
as so increased, shall constitute “Base Salary” hereunder.

3.             Employee Benefits.

(a)           During the Employment
Period, VNR shall provide Executive with coverage under all employee pension
and welfare benefit programs, plans and practices, which VNR 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 VNR
(but no less than 15 business days paid vacation in each calendar year).  Such vacation time shall accrue at a rate of
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  business days of accrued but unused vacation may be carried
over from one calendar year to the next.

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(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.  VNR will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with VNR’s policy) accounts of such
expenditures.

4.             Class B Units and Phantom Unit Grants.

As a matter of
separate inducement and not in lieu of any salary or other compensation for
Executive’s services:

(a)           Effective
as of April       , 2007 Executive shall be
granted 240,000 Class B common units Parent, which equates to 4.0% of the total
outstanding common units. The Class B common units will be entitled to all
distributions and other rights as set forth in the limited liability agreement
for Parent (the “LLC Agreement”). The Class B units are non-transferable until
such time as they have become vested and converted to common units of Parent at
the election of the Executive. Executive’s Class B common units will vest on
the second anniversary date of this Agreement, however in the event of  death, disability or termination other than
for Cause by VNR, any unvested Class B common units will become fully vested.

(b)           In the event the Parent, or its successors or
assigns undertakes a successful IPO, resulting in the establishment of a
publicly traded company  the Executive
will be granted a Phantom Unit (the “Phantom Unit”) on the terms and conditions
as set forth in Appendix A hereto.

(c)           For purposes hereof:

(i)            “IPO” means a qualified public
offering of the Parent’s common units;

(ii)           “IPO Price” means the price of
the Parent’s common units at the offering price in the IPO; and

(iii)          The
rights hereunder to Executive’s Class B common units are not transferable and
may not be assigned, transferred, pledged or hypothecated in any way (whether
by operation of law or otherwise) and shall not be subject to execution,
attachment or similar proceeding.  Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
such rights contrary to the provisions hereof, and the levy of any attachment
or similar proceeding upon such rights, shall be null and void and without
effect.

5.             Acceleration and
Termination of Rights to Class B common units.

(a)           Acceleration and Termination.

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(i)            In addition to the foregoing, Executive’s Class
B common units shall immediately and automatically become fully vested and unrestricted,
upon the earlier of:

(ii)           the time immediately prior to the
consummation of a “Change of Control” (being defined herein as such time as an
offer to purchase the assets or the securities of the Parent (“Offer”) has been
approved by the Board and accepted and approved by unitholders owning not less
than 66 2/3% of the total outstanding common units) of the Parent or its
successors or assigns, that results in net proceeds to each Member equal to or
greater than the greater of (A) the Fair Market Value (as such term is defined
in the  LLC Agreement) of such Member’s
Membership Interests (as such term is defined in the  LLC Agreement) and (B) the aggregate capital
contributions made to the Parent as of such date by the party making the Offer;
or

(iii)          the date Executive’s employment is terminated
by VNR for reasons other than Cause; or

(iv)          the date Executive’s employment is terminated
by Executive for Good Reason; or

(b)           Notwithstanding
anything to the contrary in this Agreement, Executive’s rights hereunder to the
unvested Class B units shall terminate automatically and without notice upon
termination of Executive’s employment by VNR prior to the second anniversary of
this Agreement if such termination is:

(i)            by VNR for Cause pursuant to Section 8(b);
or

(ii)           by Executive for other than Good Reason
pursuant to Section 8(e);  or

6.             Sale of Parent or its Subsidiaries Prior to an IPO.

Notwithstanding
anything herein to the contrary, in the event of a sale of the Parent, or its
subsidiaries, occurs prior to an IPO, then Executive shall be entitled to 2.0%
of the net proceeds of such sale. Said net proceeds shall consist of any cash
or stock consideration paid for the assets of the Parent in excess of any
outstanding debt burdening such assets. In this event, Executive shall be
entitled to all other consideration as set forth herein.

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7.             Sale of Company or its Affiliates Subsequent to the
IPO.

Notwithstanding anything herein to the
contrary, in the event of the consummation of a “Change of Control” of the Parent,
or its successors or assigns, after the IPO, then Executive shall be entitled
to (i) his Accrued Compensation and Reimbursements plus (ii) a Severance
Payment as defined in Section 8(a) to be paid within ten (10) business days
following consummation of the transaction. 
This payment will be due and payable whether or not Executive elects to
continue employment with the successor.

8.             Termination of Employment.

(a)           Either Executive or VNR,
by action of the Board, may terminate this Agreement, and Executive’s employment
by VNR, for any reason after providing thirty (30) days written notice to the
non-terminating party.  If Executive
terminates this Agreement pursuant to this provision, VNR will pay Executive on
the Date of Termination (i) all accrued but unpaid Base Salary, (ii) a prorated
amount of Executive’s Base Salary for accrued but unused vacation days, and
(iii) 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, “Accrued Compensation and Reimbursements”).
 Upon
termination by VNR of this Agreement pursuant to this Section 8(a),
within ten business days after the Date of Termination, VNR shall pay (i) Executive’s
Accrued Compensation and Reimbursements plus (ii) 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 (i) 36 months or (ii) the remaining
duration of the Employment Period plus (iii) Executive’s Phantom Units shall
vest as of the Date of Termination and shall be payable as set forth in
Appendix A hereto.

(b)           VNR, by action of the
Board may terminate this Agreement at any time for Cause.  Upon termination by VNR for Cause, Executive
shall only be entitled to Accrued Compensation and Reimbursements, which amount
shall be paid within 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 VNR 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 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

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(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 10 days after written demand by the
Board for substantial performance is actually received by Executive which
specifically identifies the nature of such failure.

(c)           For purposes of this
provision, 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 VNR 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.

(d)           VNR by action of the
Board may terminate Executive’s employment for Cause after:  (i) providing written notice to
Executive, which identifies the Cause for Executive’s termination (which notice
must be given within 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.

(e)           Executive may terminate
this Agreement for Good Reason, and thereby resign his employment, after
providing 30 days’ written notice to the Company (which notice must be given
within 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)            In the
event an assignment to Executive` 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 VNR promptly after receipt of
notice thereof given by Executive; or

(ii)           A
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, as set forth in Sections
8(d) and 8(e), during the Term of this Agreement; or

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

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

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

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

(g)              VNR, 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 VNR 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 12-month period. 
Upon termination of this Agreement for disability, VNR shall pay
Executive (i) his Accrued Compensation and Reimbursements plus (ii) a
payment equal to Executive’s Base Salary for 12 months.

(h)              This Agreement will
terminate automatically upon Executive’s death. 
Upon termination of this Agreement because of Executive’s death, VNR
shall pay Executive’s estate (i) Executive’s Accrued Compensation and Reimbursements,
plus (ii) a payment equal to Executive’s Base Salary for 12 months plus (iii)
the Phantom Units shall vest and shall be payable as set forth in Appendix A
hereto.

(i)                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 VNRfor Cause or without Cause,
then the date specified in a notice delivered to Executive by VNR 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 VNR 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.

9.             Early Termination
Option.

Notwithstanding
the terms and conditions of Section 8 above, it is hereby agreed and understood
between VNR and the Executive that in the event an IPO of Parent has not
occurred prior to September 1, 2007, VNR can elect to terminate this Agreement
in its entirety provided VNR will make a payment of one (1) year’s base salary
upon said termination.  Should VNR elect
this option, it will provide Executive with written notice by August 1, 2007
and the termination will be effective as of September 1, 2007.

10.           Repurchase and Forfeiture of Securities.

(a)           If this Agreement is terminated pursuant to Sections
8(g) or 8(h), the Company shall have the right, but not the
obligation, for a period 90 days after the date of such termination to redeem
or repurchase, as the case may be, or to assign to any other person the right to
purchase, all or any number of the securities of Parent held by Executive at an
aggregate purchase price equal to the Fair Market Value thereof.  If Executive, or his heirs and assigns, and
the Company cannot agree within 10 business days of the Date of Termination,
the Company

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shall select
an independent investment banking firm to determine the fair market value,
which determination shall be final and binding upon both parties.

(b)           If this Agreement is
terminated by Executive pursuant to Section 8(a) at any time prior to
the second anniversary of the date of this Agreement, then any restricted
securities or rights to acquire securities of Parent will immediately and
automatically and without notice be forfeited or if this Agreement is
terminated by VNR pursuant to Section 8(b), all of Executive’s unvested
rights, title and interest in, under and to the Company, the LLC Agreement and
securities of Parent shall be forfeited.

(c)           The closing of a
purchase and sale under this Section 10 shall take place on the tenth
business day following the determination of fair market value at 10:00 a.m.,
local time, in the offices of the Company, or on such other date and at such
other time and place as may be agreed upon by the Company and Executive (the “Closing Date”).  On the Closing Date (i) Executive shall
take all action necessary to convey the securities, free and clear of all Liens
(as defined in the LLC Agreement) and (ii) the Company shall tender the
purchase price to Executive in cash.

11.           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.

12.           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.

13.           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, 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”).  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.

14.           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

 8
 

 

(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 14 and under Section 15
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 14 (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.

15.           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 (x) as a result of Executive’s voluntary termination under Section
8(a) or (y) by the Company for Cause under Section 8(b), from the
date hereof through the first 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,

 9
 

 

an “Investor”),
any (1) any business directly competitive with the business in which the
Company is engaged from time to time (“Competing
Business”) or (2) Business Enterprise (as defined below) that is
otherwise directly competitive with the Company within the States of Tennessee and
Kentucky;

(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 15, nothing in this Section 15
shall prohibit (A) 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 5% of the outstanding equity or voting securities of such
Business Enterprise or (B) 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 (A) or (B), 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 15(a) are in addition to, and
shall not be construed as a limitation upon, any other covenant provided in Section
15(a).  Executive agrees that the
geographic boundaries, scope of prohibited activities, and time duration of
each of the covenants set forth in Section 15(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.

 10
 

 

(d)           If, during any portion
of the Restricted Period, Executive is not in compliance with the terms of Section
15(a), the Company shall be entitled to, among other remedies, compliance
by Executive with the terms of Section 15(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 15(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 15(a). 
Furthermore, each of the covenants in Section 14(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 15(a).

16.           Survival of Covenants.

Sections
14 and 15 shall survive the expiration or termination
of this Agreement for any reason, except that the restrictions of Section 15
shall not apply in the event Executive’s employment is terminated as a result
of (i) the winding up, dissolution, or liquidation of the Company, (ii) the
merger, consolidation or sale of substantially all of the assets of the
Company, or (iii) the sale, transfer or other disposition of all of the equity
securities of the Company, other than, in the case of clauses (ii) and (iii),
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 14 and 15, prior to the
commencement of any such affiliation or employment.

17.           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 VNR:

  	
   

  	
  To the Executive:

  
	
   

  	
   

  	
   

  
	
  7700 San Felipe,
  Suite 485

  	
   

  	
  Scott W. Smith

  
	
  Houston, Texas
  77062

  	
   

  	
  12014 Pebble Hill

  
	
  Facsimilie: (832)
  327- 2260

  	
   

  	
  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.

 11
 

 

18.           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.

19.           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 VNR,
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 VNR, except that VNR
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 VNR,
if such successor expressly agrees to assume the obligations of VNR hereunder.

20.           Amendment.

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

21.           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 22.

 12
 

 

22.           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.

23.           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.

24.          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.

25.           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.

26.           Withholding.

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

27.           Counterparts.

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

28.           Remedies.

The
parties recognize and affirm that in the event of a breach of Sections 14
or 15 of this Agreement, money damages would be inadequate and VNR would
not have an adequate remedy

 13
 

 

at law.  Accordingly, the parties agree that in the
event of a breach or a threatened breach of Sections 14 or 15, VNR
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 14 or 15, the time periods
set forth in those Sections shall be tolled until such breach or violation has
been cured.  Executive further agrees
that VNR shall have the right to offset the amount of any damages resulting
from a breach by Executive of Section 14 or 15 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.

29..          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 VNR (other than Executive) and
Executive.

30.           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.

31.           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.

32.           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.

33.           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

 14
 

 

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.

34.           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.

35.           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.

IN
WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
between VNR, Vanguard Natural Resources, LLC and Scott W. Smith  as of the day and year first above written.

	
  “EXECUTIVE”

  	
   

  	
  VNR HOLDINGS, LLC

  
	
   

  	
   

  	
   

  
	
  /s/ Scott W.
  Smith

  	
   

  	
   

  	
    /s/ Lasse Wagene

  
	
  Scott W. Smith

  	
   

  	
  By: Lasse Wagene

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  VANGUARD NATURAL RESOURCES, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
           /s
  Majeed S. Nami

  
	
   

  	
   

  	
  Majeed S. Nami

  
					

 

 15

 

APPENDIX A

A.           Post IPO Date

1. Pursuant to Section 4
(c) of the Agreement, the Company shall grant or cause to the grant      of Phantom Units (as defined below) to the
Executive on the following terms and conditions.

2. Effective as of the first (1st) day of each fiscal year of
the Company (currently the calendar year) after the IPO Date during the term of
this Agreement (the “Grant Date”), the Company shall grant or cause the grant
to the Executive of one Phantom Unit, as such term is defined below.

3. A “Phantom Unit” shall mean a hypothetical,
nonexistent unit of the Parent equal to one percent (1%) of the total
outstanding common units (“Units”)of the Parent as of the Grant Date

4.                     Each Phantom
Unit shall represent the right to receive a 
payment (the “Phantom Unit Payment”) equal to the difference
between  (a) the sum of (i) the Value of
the Phantom Unit (as defined below) as of the Determination Date (as defined
below) and (ii) the amount of distributions of cash or property (with respect
to a property distribution, valued by the Board of Directors of the Parent)
made by the Parent to its unit holders during the period beginning on the Grant
Date and ending on the Determination Date that the Executive would have been
entitled to receive during the Option Period if he had actually owned the
Parent units represented by the Phantom Unit during the entire Option Period,
and (b) one hundred and eight percent (108%) of the Value of the Phantom Unit
as of the Grant Date. In no event shall the amount of a Phantom Unit Payment be
a negative number or in any way affect the amount of the Executive’s other compensation
under the Agreement or any subsequent Phantom Unit granted hereunder.

5.                     The “Value of
the Phantom Unit” as of any date shall be equal to the value of the Units underlying
the Phantom Unit as set forth in Paragraph 3 above, based upon the closing
sales price of Units on the Determination Date as reported by such reporting
service as the Board may choose.

6.                     The “Determination
Date” with respect to a Phantom Unit shall be the last day of the Parent’s
fiscal year (currently December 31), except in the event of the termination of
the Executive’s employment with the Company prior to the end of the Parent’s
fiscal year, in which case the Determination Date shall be the Date of
Termination..

 16
 

 

7.                     The Phantom
Unit Payment shall be made in cash; however Executive may elect to receive such
Phantom Unit Payment all in Units, in cash or in any combination thereof. The
Phantom Unit Payment shall be made to the Executive, or to his beneficiaries,
heirs or estate in the event of his death, as soon as practicable but in no
event more than sixty (60) days after the Determination Date.

8.                     Subject to
Section 9 below, the Executive shall acquire a vested and non-forfeitable
interest in the Phantom Unit as of the last day of the Parent’s fiscal year if
the Executive is employed by the Company on such day.

9.                     In the event
of the termination of the Executive’s employment by the Company without Cause,
by the Executive for Good Reason, or by reason of the Executive’s death or
Disability, (a) the Executive shall acquire a vested and non-forfeitable
interest in the Phantom Unit as of the Date of Termination and (b) the Phantom
Unit Payment shall be made as soon as practicable, but in no event more than
sixty (60) days after the Date of Termination. In the event of the termination
of the Executive’s employment with the Company by the Company for Cause or by
the Executive without Good Reason, the Executive shall forfeit the Phantom Unit
as of the Date of Termination and the Company shall have no further obligations
to the Executive with respect to such Phantom Unit.

10.               Upon Payment of the
Phantom Unit Payment with respect to a Phantom Unit, such Phantom Unit shall
automatically terminate and be of no further force or effect.

11.               The Company shall
withhold or shall cause to be withheld all applicable income and employment
taxes from the Phantom Unit Payment as may be required by law.

12.               The Phantom Unit,
or any interest in it, shall not be assignable by the Executive and shall not
be subject to attachment, lien, levy or other creditor’s rights under state or
Federal law. The Phantom Unit Payments shall be payable from the general assets
of the Company or pursuant to such other means as they deem appropriate, and
the Executive shall not be entitled to look to any source for payment of such
benefits other than the general assets of the Company.

 

 17

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