Document:

2015 Stock Option Plan

 EXHIBIT 10.7 

PRIME MERIDIAN HOLDING COMPANY 

2015 STOCK INCENTIVE COMPENSATION PLAN 

1. Purpose. The purpose of the 2015 Stock Incentive Compensation Plan (“Plan”) of Prime Meridian Holding Company
(“Prime Meridian” or “Company”) is to provide a means through which the Company and its subsidiary, Prime Meridian Bank (“Bank”), may attract able persons to enter and remain in the employ or other service of the
Company and the Bank, and to provide a means whereby those persons upon whom the responsibilities of the successful administration and management of Prime Meridian and rest, and whose present and potential contributions to the welfare of the Company
are of importance, can acquire and maintain stock ownership, thereby strengthening their commitment to the welfare of the Company and promoting an identity of interest between Prime Meridian’s shareholders and the Plan participants.
Furthermore, the Plan is to be used to provide Plan participants with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. The Plan provides for the granting of the following forms of stock
compensation: Incentive Stock Options; Non-qualified Stock Options; Stock Appreciation Rights; Restricted Stock Awards; Phantom Stock Unit Awards; and Performance Share Units, or any combination of the foregoing. 

2. Definitions. The following definitions shall be applicable throughout the Plan. 

(a) “Appreciation Date” shall mean the date designated by a Holder of Stock Appreciation Rights for measurement of the
appreciation in the value of rights awarded to him, which date shall be the date notice of such designation is received by the Committee, or its designee. 

(b) “Award” shall mean, individually or collectively, any Incentive Stock Option, Non-qualified Stock Option, Stock
Appreciation Right, Restricted Stock Award, Phantom Stock Unit Award, or Performance Share Unit Award. 
 (c)
“Board” shall mean the Board of Directors of Prime Meridian. 
 (d) “Cause” shall mean the
Company or the Bank having cause to terminate a Participant’s employment under any existing employment agreement between the Participant and the Company or the Bank or, in the absence of such an employment agreement, upon: (i) the
determination by the Committee that the Participant has failed to perform his duties to Prime Meridian or the Bank (other than as a result of his incapacity due to physical or mental illness or injury), which failure amounts to an intentional and
extended neglect of his duties to such party; (ii) the Committee’s determination that the Participant has engaged in or is about to engage in conduct materially injurious to Prime Meridian or the Bank; or (iii) the Participant having
been convicted of a felony. 
 (e) “Change in Control” shall, unless the Committee otherwise directs by resolution
adopted prior thereto, be deemed to occur if: (i) any “person” (as that term is used in Sections 13 and 14(d)(2) of the Securities and Exchange Act of 1934 [“Exchange Act”]) is or becomes the

  
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beneficial owner (as that term is used in Section 13(d) of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the voting stock; or (ii) during any
12-month period, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by Prime Meridian’s shareholders of each
new director was approved by a vote of at least three-quarters of the directors then still in office who were directors at the beginning of the period. Any merger, consolidation or corporate reorganization in which the owners of Prime
Meridian’s capital stock entitled to vote in the election of directors (“Voting Stock”) prior to said combination, own fifty percent (50%) or more of the resulting entity’s voting stock shall not, by itself, be considered a
Change in Control. 
 (f) “Code” shall mean the Internal Revenue Code of 1986, as amended. Reference in the Plan to
any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section. 

(g) “Committee” shall mean the Compensation Committee of the Board; provided, that to the extent required by Rule
16b-3 of the Securities and Exchange Commission under the Exchange Act, such Committee shall be comprised solely of two or more Non-Employee Directors, as defined in Rule 16b-3(b)(3) under the Exchange Act. All references in this Plan to the
“Committee” shall mean the Board if no Compensation Committee has been appointed. 
 (h) “Common Stock”
shall mean the Common Stock of the Company, par value $0.01 per share. 
 (i) “Company” shall mean Prime Meridian
Holding Company, a Florida corporation.  
 (j) “Date of Grant” shall mean the date on which the
granting of an Award is authorized or such other date as may be specified in such authorization. 
 (k) “Director
Fees” shall mean annual retainers, monthly fees or committee meeting fees for serving as directors of Prime Meridian or the Bank. 

(l) “Disability” shall mean the complete and permanent inability by reason of illness or accident to perform the
duties of the occupation at which a Participant was employed when such disability commenced or, if the Participant was retired when such disability commenced, the inability to engage in any substantial gainful activity, as determined by the
Committee based upon medical evidence acceptable to it. 
 (m) “Exchange Act” shall mean the Securities Exchange Act
of 1934, as amended.  
 (n) “Fair Market Value” shall mean the average of: (i) the high and low
prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded for the ten (10) trading days immediately preceding the date of determination, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price of the Common Stock on the NASDAQ National Market for the ten (10) trading days immediately preceding the date of determination, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price last quoted by an established quotation service for over-the-counter securities for the ten (10) trading days immediately preceding the date of determination, if the Common Stock is not
reported on the NASDAQ National Market. However, if the Common Stock is not publicly-traded at the time an Award is granted under the Plan, “Fair Market Value” shall be deemed to be the fair value of the Common Stock as determined by the
Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm’s length. 

  
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 (o) “Holder” shall mean a Participant who has been granted an Award under
the Plan.  
 (p) “Incentive Stock Option” shall mean an Option granted by the Committee to a
Participant under the Plan which is designated by the Committee as an Incentive Stock Option pursuant to Section 422 of the Code. 

(q) “Measurement Period” shall mean a period of time within which performance is measured for the purpose of
determining whether an award of Performance Share Units has been earned. 
 (r) “Non-qualified Stock Option” shall
mean an Option granted by the Committee to a Participant under the Plan which is not designated by the Committee as an Incentive Stock Option, as contemplated by Section 422 of the Code. 

(s) “Normal Termination” shall mean termination: (i) with respect to Prime Meridian or the Bank, at retirement
(excluding early retirement) pursuant to the Company retirement plan then in effect; (ii) on account of Disability; (iii) a resignation by the Participant with the written approval of the Committee; or (iv) by Prime Meridian or the
Bank without cause. 
 (t) “Option” shall mean an Award granted under Section 6 of the Plan.  

(u) “Option Period” shall mean the period described in Section 6(c). 

(v) “Participant” shall mean any person eligible to receive Awards under the Plan who is regularly employed by Prime
Meridian or the Bank or serving as a director of Prime Meridian or the Bank. 
 (w) “Performance Goals” shall mean
the performance objectives of Prime Meridian and the Bank during a Measurement Period or Restricted Period established for the purpose of determining whether, and to what extent, Awards will be earned for a Measurement Period or Restricted Period.

 (x) “Performance Share Unit” shall mean a hypothetical investment equivalent, equal to one share of Common Stock
granted in connection with an Award made under Section 9 of the Plan. 
 (y) “Phantom Stock Unit” shall mean a
hypothetical investment equivalent, equal to one share of Common Stock granted in connection with an Award made under Section 10 of the Plan, or credited with respect to Awards of Performance Share Units which have been deferred under
Section 9. 
 (z) “Plan” shall mean the 2015 Stock Incentive Compensation Plan of Prime Meridian Holding
Company. 
 (aa) “Prime Meridian” shall mean Prime Meridian Holding Company. 

(bb) “Restricted Period” shall mean, with respect to any share of Restricted Stock, the period of time determined by
the Committee during which such share of Restricted Stock is subject to the restrictions set forth in Section 9(b) of the Plan. 

  
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 (cc) “Restricted Stock” shall mean shares of Common Stock issued or
transferred to a Participant subject to the restrictions set forth in Section 10 and any new, additional, or different securities a Participant may become entitled to receive as a result of adjustments made pursuant to Section 12. 

(dd) “Restricted Stock Award” shall mean an Award granted under Section 10 of the Plan. 

(ee) “Securities Act” shall mean the Securities Act of 1933, as amended. 

(ff) “Stock Appreciation Right” or “SAR” shall mean an Award granted under Section 8 of the Plan. 

(gg) “Valuation Date” shall mean the last day of a Measurement Period or the date of death of a Participant, as
applicable. 
 3. Effective Date, Duration, Shareholder Approval, and Termination of 2007 Stock Option Plan. The Board
of Directors of Prime Meridian at a meeting held on April 9, 2015, recommended the Plan for the approval by the Company’s shareholders at its 2015 Annual Meeting of Shareholders to be held on May 20, 2015. The Plan will be effective
following the Company’s receipt of shareholder approval and subsequent final adoption by the Board. The Plan shall continue in effect for a term of ten (10) years thereafter unless sooner terminated under Section 16 of the Plan. Upon
the effective date of the Plan, no further awards shall be granted under the Company’s 2007 Stock Option Plan. Any outstanding stock option granted under the 2007 Stock Option Plan will governed under the terms of the 2007 Stock Options Plan,
but no new stock option grants will be awarded under the 2007 Stock Option Plan. 
 4. Administration. The Committee shall
administer the Plan. A majority of the members of the Committee shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be
deemed the acts of the Committee. Subject to the provisions of the Plan, the Committee shall have exclusive power to: 
 (a) Select the
persons to be Participants in the Plan; 
 (b) Determine the nature and extent of the Awards to be made to each Participant; 

(c) Determine the time or times when Awards will be made; 

(d) Determine the duration of each Measurement Period; 

(e) Determine the conditions to which the payment of Awards may be subject; 

(f) Establish the Performance Goals for each Measurement Period; 

(g) Prescribe the form or forms of agreement evidencing Awards; and 

(h) Cause records to be established in which there shall be entered, from time to time as Awards are made to Participants, the date of
each Award, the number of Incentive Stock Options, Non-qualified Stock Options, SARs, Phantom Stock Units, Performance Share Units and Shares of Restricted Stock awarded by the Committee to each Participant, the expiration date, the Measurement
Period, and the duration of any applicable Restricted Period. 

  
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 The Committee shall also have the authority, subject to the provisions of the Plan, to establish,
adopt, or revise such rules and regulations and to make all such determinations relating to the Plan as it may deem necessary or advisable for the administration of the Plan. The Committee’s interpretation of the Plan or any Awards granted
pursuant thereto and all decisions and determinations by the Committee with respect to the Plan shall be final, binding, and conclusive on all parties unless otherwise determined by the Committee. 

5. Grant of Awards. The Committee may, from time to time, grant awards of Options, Stock Appreciation Rights, Restricted Stock,
Phantom Stock Units and/or Performance Share Units to one or more Participants; provided, however, that: 
 (a) Subject to
Section 12 of the Plan, the aggregate number of shares of Common Stock made subject to Awards under this Plan shall be 500,000 shares of Common Stock, provided however, that the amount awarded may not exceed fifteen percent (15%) of Prime
Meridian’s authorized and outstanding shares, as the authorized and outstanding shares may increase in the future; 
 (b) Such
shares shall be deemed to have been used in payment of Awards whether they are actually delivered or the Fair Market Value equivalent of such shares is paid in cash. In the event any Option, SAR not attached to an Option, Restricted Stock, Phantom
Stock Unit or Performance Share Unit shall be surrendered, terminate, expire, or be forfeited, the number of shares of Common Stock no longer subject thereto shall thereupon be released and shall thereafter be available for new Awards under the Plan
to the fullest extent permitted by the Exchange Act (if applicable at the time); and 
 (c) Common Stock delivered by the Company in
settlement of Awards under the Plan may be authorized and unissued Common Stock or Common Stock held in the treasury of the Company or may be purchased on the open market or by private purchase at prices no higher than the Fair Market Value at the
time of purchase. 
 (d) Participants shall be limited to directors, officers, and employees of Prime Meridian and the Bank who have
received written notification from the Committee that they have been selected to participate in the Plan. 
 6. Stock Options.
One or more Incentive Stock Options or Non-qualified Stock Options can be granted to any Participant; provided, however, that Incentive Stock Options may be granted only to Participants who are officers or employees of the Company or the Bank.
Each Option so granted shall be subject to the following conditions. 
 (a) Option price. In the case of an Incentive Stock Option or
Non-qualified Stock Option, the option price (“Option Price”) per share of Common Stock shall be set by the Committee at the time of grant, but shall not be less than the Fair Market Value of a share of Common Stock at the Date of Grant.

 (b) Manner of exercise and form of payment. Options which have become exercisable may be exercised by delivery of written notice
of exercise to the Committee accompanied by payment of the Option Price. The Option Price shall be payable in cash and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised. 

  
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 (c) Other terms and conditions. The Option shall become exercisable in such manner and
within such period or periods (“Option Period”), not to exceed ten (10) years from its Date of Grant, and as otherwise set forth in the individual Stock Option Agreement to be entered into in connection therewith. 

(d) Expiration. Each Option shall lapse in the following situations: 

(i) Ten (10) years after the Date of Grant; 

(ii) Three (3) months following a Normal Termination or the death of an employee or one (1) year following a
director’s resignation from the Board or death; 
 (iii) Any earlier time set forth in the Stock Option Agreement;

 (iv) If the Holder terminates his relationship as an officer, employee, or director with Prime Meridian or the Bank
otherwise than by Normal Termination, director resignation, or death or the Holder is terminated for Cause, the Option shall lapse at the time of termination. 

(e) Stock Option Agreement. Each Option granted under the Plan shall be evidenced by a “Stock Option Agreement” between Prime
Meridian and the Holder of the Option containing such provisions as may be determined by the Committee, but shall be subject to the following terms and conditions. 

(i) Each Option or portion thereof that is exercisable shall be exercisable for the full amount or for any part thereof, except
as otherwise determined by the terms of the individual Stock Option Agreement. 
 (ii) Each share of Common Stock purchased
through the exercise of an Option shall be paid for in full at the time of the exercise. Each Option shall cease to be exercisable, as to any share of Common Stock, when the Holder purchases the share or exercises a related SAR, or when the Option
lapses. 
 (iii) Options shall not be transferable by the Holder except by will or the laws of descent and distribution and
shall be exercisable during the Holder’s lifetime only by him or her. 
 (iv) Each Option shall become exercisable by
the Holder in accordance with the vesting schedule (if any) established by the Committee for the Award. 
 (v) Each Stock
Option Agreement may contain an agreement that, upon demand by the Committee for such a representation, the Holder shall deliver to the Committee at the time of any exercise of an Option a written representation that the shares to be acquired upon
such exercise are to be acquired for investment and not for resale or with a view to the distribution thereof. Upon such demand, delivery of such representation prior to the delivery of any shares issued upon exercise of an Option shall be a
condition precedent to the right of the Holder or such other person to purchase any shares. In the event certificates for Common Stock are delivered under the Plan with respect to which such investment representation has been obtained, the Committee
may cause a legend or legends to be placed on such certificates to make appropriate reference to such representation and to restrict transfer in the absence of compliance with applicable federal or state securities laws. 

  
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 (f) Grants to 10% Holders of Company Voting Stock. Notwithstanding Section 6(a)
herein, if an Incentive Stock Option is granted to a Holder who owns Company stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or of Prime Meridian and the Bank, the period specified in
the Stock Option Agreement for which the Option thereunder is granted and at the end of which such Option shall expire shall not exceed five (5) years from the Date of Grant of such Option and the Option Price shall be at least one hundred ten
percent (110%) of the Fair Market Value (on the Date of Grant) of the Common Stock subject to the Option. 
 (g) Limitation. To
the extent the aggregate Fair Market Value (as determined as of the Date of Grant) of Stock for which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and the
Bank) exceeds One Hundred Thousand Dollars ($100,000), such excess Incentive Stock Options shall be treated as Non-qualified Stock Options. 

(h) Voluntary Surrender. The Committee may permit the voluntary surrender of all or any portion of any Non-qualified Stock Option and
its corresponding SAR, if any, granted under the Plan to be conditioned upon the granting to the Holder of a new Option for the same or a different number of shares as the Option surrendered or require such voluntary surrender as a condition
precedent to a grant of a new Option to such Participant. Such new Option shall be exercisable at the Option Price, during the exercise period, and in accordance with any other terms or conditions specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan without regard to the Option Price, exercise period, or any other terms and conditions of the Non-qualified Stock Option surrendered. 

(i) Order of Exercise. Options granted under the Plan may be exercised in any order, regardless of the Date of Grant or the existence
of any other outstanding Option. 
 (j) Notice of Disposition. Participants shall give prompt notice to Prime Meridian of any
disposition of Common Stock acquired upon exercise of an Incentive Stock Option if such disposition occurs within either two (2) years after the Date of Grant of such Option and/or one (1) year after the receipt of such Common Stock by the
Holder. 
 7. Stock Appreciation Rights. Any Option granted under the Plan may include a SAR, either at the time of grant or
by amendment except that in the case of an Incentive Stock Option, such SAR shall be granted only at the time of grant of the related Option. The Committee may also award to Participants SARs independent of any Option. A SAR shall be subject to such
terms and conditions not inconsistent with the Plan as the Committee shall impose, including, but not limited to, the following: 

(a) Vesting. A SAR granted in connection with an Option shall become exercisable, be transferable and shall lapse
according to the same vesting schedule, transferability and lapse rules that are established by the Committee for the Option. A SAR granted independent of an Option shall become exercisable, be transferable and shall lapse in accordance with a
vesting schedule, transferability, and lapse rules established by the Committee. 
  

  
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 (b) Failure to Exercise. If on the last day of the Option Period (or in
the case of a SAR independent of an Option, the SAR period established by the Committee), the Fair Market value of the Stock exceeds the Option Price, the Holder has not exercised the Option or SAR, and neither the Option nor the SAR has lapsed,
such SAR shall be deemed to have been exercised by the Holder on such last day and Prime Meridian shall make the appropriate payment therefor. 

(c) Payment. The amount of additional compensation which may be received pursuant to the award of one SAR is the excess,
if any, of the Fair Market Value of one share of Stock on the Appreciation Date over the Option Price, as defined in Section 6(a) herein, in the case of a SAR granted in connection with an Option, or the Fair Market Value of one (1) share
of Stock on the Date of Grant, in the case of a SAR granted independent of an Option. The Company shall pay such excess in cash, in shares of Stock valued at Fair Market Value, or any combination thereof, as determined by the Committee. Fractional
shares shall be settled in cash. 
 (d) Designation of Appreciation Date. A Participant may designate an Appreciation
Date at such time or times as may be determined by the Committee at the time of grant by filing an irrevocable written notice with the Committee or its designee, specifying the number of SARs to which the Appreciation Date relates, and the date on
which such SARs were awarded. Such time or times determined by the Committee may take into account any applicable “window periods” required by Rule 16b-3 under the Exchange Act. 

(e) Expiration. Except as otherwise provided in the case of SARs granted in connection with Options, the SARs shall
expire on a date designated by the Committee which is not later than ten (10) years after the date on which the SAR was awarded. 

8. Performance Shares. 

(a) Award Grants. The Committee is authorized to establish Performance Share programs to be effective over designated
Measurement Periods of not less than one (1) year nor more than three (3) years. At the beginning of each Measurement Period, the Committee will establish in writing Performance Goals based upon financial or other objectives for the
Company for such Measurement Period and a schedule relating the accomplishment of the Performance Goals to the Awards to be earned by Participants. Performance Goals may include absolute or relative growth in earnings per share or rate of return on
shareholders’ equity or other measurement of corporate performance and may be determined on an individual basis or by categories of Participants. The Committee may adjust Performance Goals or performance measurement standards as it deems
equitable in recognition of extraordinary or non-recurring events experienced during a Measurement Period by the Company or the Bank. The Committee shall determine the number of Performance Share Units to be awarded, if any, to each Participant who
is selected to receive an Award. The Committee may add new Participants to a Performance Share program after its commencement by making pro rata grants. 

(b) Determination of Award. At the completion of a Performance Share program, or at other times as specified by the
Committee, the Committee shall calculate the amount earned with respect to each Participant’s award by multiplying the Fair Market Value on the Valuation Date by the number of Performance Share Units granted to the Participant and multiplying
the amount so determined by a performance factor representing the degree of attainment of the Performance Goals. 

  
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 (c) Partial Awards. A Participant for less than a full Measurement Period,
whether by reason of commencement or termination of employment or otherwise, shall receive such portion of an Award, if any, for that Measurement Period as the Committee shall determine. 

(d) Payment of Non-deferred Awards. The amount earned with respect to an Award shall be fully payable in shares of
Common Stock based on the Fair Market Value on the Valuation Date; provided, however, that, at its discretion, the Committee may vary such form of payment as to any Participant upon the specific request of such Participant. Except as provided in
subparagraph 8(e), payments of Awards shall be made as soon as practicable after the completion of a Measurement Period. 

(e) Deferral of Payment. A Participant may file a written election with the Committee to defer the payment of any amount
otherwise payable pursuant to subparagraph 8(d) on account of an Award to a period commencing at such future date as specified in the election. Such election must be filed with the Committee by the last day of the month which is two-thirds of the
way through but in no event later than the last day of the month which is six-months before the end of the Measurement Period during which the Award is earned, unless the Committee specifies an earlier filing date. 

(f) Separate Accounts. At the conclusion of each Measurement Period, the Committee shall cause a separate account to be
maintained in the name of each Participant with respect to whom all or a portion of an Award of Performance Share Units earned under the Plan has been deferred. All amounts credited to such account shall be fully vested at all times. 

(g) Election of Form of Investment. Within sixty (60) days from the end of each Award Period, and at such time or
times, if any, as the Committee may permit, a Participant may file a written election with the Committee of the percentage of the deferred portion of any Award of Performance Share Units which is to be expressed in the form of dollars and credited
with interest, the percentage of such Award which is to be expressed in the form of Phantom Stock Units and the percentage of such Award which is to be deemed invested in any other hypothetical investment equivalent from time to time made available
under the Plan by the Committee. In the event a Participant fails to file an election within the time prescribed, one hundred percent (100%) of the deferred portion of such Participant’s Award shall be expressed in the form of Phantom
Stock Units. 
 (h) Interest Portion. The amount of interest credited with respect to the portion of an Award credited
to the Participant’s account which is deferred and credited with interest (the “Interest Portion”) shall be equal to the amount such portion would have earned had it been credited with interest from the last day of the Measurement
Period with respect to which the Award was made until the seventh (7th) business day preceding the date as of which payment is made, compounded annually, at the Company’s rate of return on shareholders’ equity for each fiscal year
that payment is deferred, or at such other rate as the Committee may from time to time determine. The Committee may, in its 

  
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sole discretion, credit interest on amounts payable prior to the date on which the Company’s rate of return on shareholders’ equity becomes ascertainable at the rate applicable to
deferred amounts during the year immediately preceding the year of payment. 
 (i) Phantom Stock Unit Portion. With
respect to the portion of an Award credited to the Participant’s account which is deferred and expressed in the form of Phantom Stock Units (the “Phantom Stock Unit Portion”), the number of Phantom Stock Units so credited shall be
equal to the result of dividing (i) the Phantom Stock Unit Portion by (ii) the Fair Market Value on the date the Measurement Period ended. 

(j) Dividend Equivalents. Within thirty (30) days from the payment of a dividend by Prime Meridian on its Common
Stock, the Phantom Stock Unit Portion of each Participant’s account shall be credited with additional Phantom Stock Units the number of which shall be determined by (i) multiplying the dividend per share paid on the Company’s Common
Stock by the number of Phantom Stock Units credited to his or her account at the time such dividend was declared, then (ii) dividing such amount by the Fair Market Value on the payment date for such dividend. 

(k) Payment of Deferred Awards. Payment with respect to amounts credited to the account of a Participant shall be made
in a series of annual installments over a period of ten (10) years, or such other period as the Committee may direct, or as the Committee may allow the Participant to elect, in either case at the time of the original deferral election. Except
as otherwise provided by the Committee, each installment shall be withdrawn proportionately from the Interest Portion and from the Phantom Stock Unit Portion of a Participant’s account based on the percentage of the Participant’s account
which he originally elected to be credited with interest and with Phantom Stock Units, or, if a later election has been permitted by the Committee and is then in effect, based on the percentage specified in such later election. Payments shall
commence on the date specified by the Participant in his deferral election, unless the Committee in its sole discretion, at the time of the original deferral election, determines that payment shall be made over a shorter period or in more frequent
installments, or commence on an earlier date, or any or all of the above. If a Participant dies prior to the date on which payment with respect to all amounts credited to his account shall have been completed, payment with respect to such amounts
shall be made to the Participant’s estate in a series of annual installments over a period of five (5) years, unless the Committee in its sole discretion determines that payment shall be made over a shorter period or in more frequent
installments, or both. To the extent practicable, each installment payable hereunder shall approximate that part of the amount then credited to the Participant’s or his estate’s account which, if multiplied by the number of installments
remaining to be paid would be equal to the entire amount then credited to the Participant’s account. 
 (l)
Composition of Payment. The Committee shall cause all payments with respect to deferred Awards to be made in a manner such that not more than one-half of the value of each installment shall consist of Common Stock. To that end, payment with
respect to the Interest Portion and the Phantom Stock Unit Portion of a Participant’s account shall be paid in cash and Common Stock as the Committee shall determine in its sole discretion. The determination of any amount to be paid in cash for
Phantom Stock Units 

  
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shall be made by multiplying (i) the Fair Market Value of one share of Common Stock on the date as of which payment is made, by (ii) the number of Phantom Stock Units for which payment
is being made. The determination of the number of shares of Common Stock, if any, to be distributed with respect to the Interest Portion of a Participant’s account shall be made by dividing (i) one-half of the value of such portion on the
date as of which payment is made, by (ii) the Fair Market Value of one (1) share of Common Stock on such date. Fractional shares shall be paid in cash. 

(m) Alternative Investment Equivalents. If the Committee shall have permitted Participants to elect to have deferred
Awards of Performance Share Units invested in one or more hypothetical investment equivalents other than interest or Phantom Stock Units, such deferred Awards shall be credited with hypothetical investment earnings at such rate, manner and time as
the Committee shall determine. At the end of the deferral period, payment shall be made in respect of such hypothetical investment equivalents in such manner and at such time as the Committee shall determine. 

(n) Adjustment of Performance Goals. The Committee may, during the Measurement Period, make such adjustments to
Performance Goals as it may deem appropriate, to compensate for, or reflect, any significant changes that may have occurred during such Measurement Period in: (i) applicable accounting rules or principles or changes in the Company’s method
of accounting or in that of any other corporation whose performance is relevant to the determination of whether an Award has been earned; or (ii) tax laws or other laws or regulations that alter or affect the computation of the measures of
Performance Goals used for the calculation of Awards. 
 9. Restricted Stock Awards and Phantom Stock Units. 

(a) Award of Restricted Stock and Phantom Stock Units. The Committee shall have the authority: (1) to grant
Restricted Stock and Phantom Stock Unit Awards; (2) to issue or transfer Restricted Stock to Participants; and (3) to establish terms, conditions, and restrictions applicable to such Restricted Stock and Phantom Stock Units, including the
Restricted Period, that may differ with respect to each grantee, the time or times at which Restricted Stock or Phantom Stock Units shall be granted or become vested and the number of shares or units to be covered by each grant. 

The Holder of a Restricted Stock Award shall execute and deliver to the Secretary of Prime Meridian an agreement with respect
to Restricted Stock and escrow agreement satisfactory to the Committee and the appropriate blank stock powers with respect to the Restricted Stock covered by such agreements and shall pay to the Company, as the purchase price of the shares of Common
Stock subject to such Award, the aggregate par value of such shares of Common Stock within sixty (60) days following the making of such Award. If a Participant shall fail to execute the agreement, escrow agreement and stock powers or shall fail
to pay such purchase price within such period, the Award shall be null and void. Subject to the restrictions set forth in Section 9(b), the Holder shall generally have the rights and privileges of a shareholder as to such Restricted Stock,
including the right to vote such Restricted Stock. At the discretion of the Committee, cash and stock dividends with respect to the Restricted Stock may be either currently paid or withheld by the Company for the Holder’s account, and interest
may be paid on the amount of cash dividends withheld at a rate and subject to such terms as determined by the Committee. Cash or stock dividends so withheld by the Committee shall not be subject to forfeiture. 

  
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 In the case of a Restricted Stock Award, the Committee shall then cause stock
certificates registered in the name of the Holder to be issued and deposited together with the stock powers with an escrow agent to be designated by the Committee. The Committee shall cause the escrow agent to issue to the Holder a receipt
evidencing any stock certificate held by it registered in the name of the Holder. 
 In the case of a Phantom Stock Units
Award, no shares of Stock shall be issued at the time the Award is made, and the Company will not be required to set aside a fund for the payment of any such Award. The Committee shall, in its sole discretion, determine whether to credit to the
account of, or to currently pay to, each Holder of an Award of Phantom Stock Units an amount equal to the cash dividends paid by the Company upon one share of Stock for each Phantom Stock Unit then credited to such Holder’s account
(“Dividend Equivalents”). Dividend Equivalents credited to Holder’s account shall be subject to forfeiture and may bear interest at a rate and subject to such terms as determined by the Committee. 

(b) Restrictions. Restricted Stock awarded to a Participant shall be subject to the following restrictions until the
expiration of the Restricted Period: (1) the Holder shall not be entitled to delivery of the stock certificate; (2) the shares shall be subject to the restrictions on transferability set forth in the grant; (3) the shares shall be
subject to forfeiture to the extent provided in subparagraph (d) herein and, to the extent such shares are forfeited, the stock certificates shall be returned to the Company, and all rights of the Holder to such shares and as a shareholder
shall terminate without further obligation on the part of the Company. 
 Phantom Stock Units awarded to any Participant
shall be subject to the following restrictions until the expiration of the Restricted Period: (1) the units shall be subject to forfeiture to the extent provided in subparagraph (d) herein, and to the extent such units are forfeited, all
rights of the Holder to such units shall terminate without further obligation on the part of the Company; and (2) any other restrictions which the Committee may determine in advance are necessary or appropriate. 

The Committee shall have the authority to remove any or all of the restrictions on the Restricted Stock and Phantom Stock Units
whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the date of the Restricted Stock Award or Phantom Stock Award, such action is appropriate. 

(c) Restricted Period. The Restricted Period of Restricted Stock and Phantom Stock Units shall commence on the Date of
Grant and shall expire from time to time as to that part of the Restricted Stock and Phantom Stock Units indicated in a schedule established by the Committee with respect to the Award. 

(d) Forfeiture Provisions. In the event a Holder terminates employment or service as a director during a Restricted
Period, that portion of the Award with respect to which restrictions have not expired (“Non-Vested Portion”) shall be treated as follows. 

(i) For a resignation or discharge the Non-Vested Portion of the Award shall be completely forfeited. 

  
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 (ii) For a Normal Termination the Non-Vested Portion of the Award shall be
prorated for service during the Restricted Period and shall be received as soon as practicable following termination. 

(iii) Upon a Participant’s death the Non-Vested Portion of the Award shall be prorated for service during the Restricted
Period and paid to the Participant’s estate as soon as practicable following the Participant’s death. 
 (e)
Delivery of Restricted Stock and Settlement of Phantom Stock Units. Upon the expiration of the Restricted Period with respect to any shares of Common Stock covered by a Restricted Stock Award, a stock certificate evidencing the shares of
Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full share) shall be delivered without charge to the Holder, or his estate, free of all restrictions under the Plan. 

Upon the expiration of the Restricted Period with respect to any Phantom Stock Units covered by a Phantom Stock Unit Award,
Prime Meridian shall deliver to the Holder or his estate without any charge one share of Common Stock for each Phantom Stock Unit which has not then been forfeited and with respect to which the Restricted Period has expired (“vested unit”)
and cash equal to any Dividend Equivalents credited with respect to each such vested unit and the interest thereon, if any; provided, however, that the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in
lieu of delivering only Common Stock for vested units. If cash payment is made in lieu of delivering Common Stock, the amount of such payment shall be equal to the Fair Market Value for the date on which the Restricted Period lapsed with respect to
such vested unit. 
 (f) Payment for Restricted Stock. Except as provided in subparagraph 9(a) herein, a Holder shall
not be required to make any payment for Common Stock received pursuant to a Restricted Stock Award. 
 10. General. 

(a) Additional Provisions of an Award. The award of any benefit under the Plan may also be subject to such other
provisions (whether or not applicable to the benefit awarded to any other Participant) as the Committee determines appropriate including, without limitation, provisions to assist the Participant in financing the purchase of Common Stock through the
exercise of Options, provisions for the forfeiture of or restrictions on resale or other disposition of shares acquired under any form of benefit, provisions giving the Company the right to repurchase shares acquired under any form of benefit in the
event the Participant elects to dispose of such shares, and provisions to comply with federal and state securities laws and federal and state income tax withholding requirements. 

  
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 (b) Privileges of Stock Ownership. Except as otherwise specifically
provided in the Plan, no person shall be entitled to the privileges of stock ownership in respect of shares of Common Stock which are subject to Options or Restricted Stock Awards, Performance Share Unit Awards or Phantom Stock Unit Awards hereunder
until such shares have been issued to that person upon exercise of an Option according to its terms, or upon sale or grant of those shares in accordance with a Restricted Stock Award, Performance Share Unit Award, or Phantom Stock Unit Award. 

(c) Government and Other Regulations. The obligation of the Company to make payment of Awards in Common Stock or
otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. The Company shall be under no obligation to register under the Securities Act any of the shares of Common
Stock issued under the Plan. If the shares issued under the Plan may in certain circumstances be exempt from registration under the Securities Act, the Company may restrict the transfer of such shares in such manner as it deems advisable to ensure
the availability of any such exemption. 
 (d) Tax Withholding. Notwithstanding any other provision of the Plan, Prime
Meridian or the Bank, as appropriate, shall have the right to deduct from all Awards, to the extent paid in cash, all federal, state, or local taxes as required by law to be withheld with respect to such Awards and, in the case of Awards paid in
Common Stock, the Holder or other person receiving such Common Stock may be required to pay to the Company or the Bank, as appropriate prior to delivery of such Common Stock, the amount of any such taxes that Prime Meridian or the Bank is required
to withhold, if any, with respect to the Award of such Common Stock. Subject in particular cases to the disapproval of the Committee, the Company may accept shares of Common Stock of equivalent Fair Market Value in payment of such withholding tax
obligations if the Holder of the Award elects to make payment in such manner at least six months prior to the date such tax obligation is determined. 

(e) Claim to Awards and Employment Rights. No employee or other person shall have any claim or right to be granted an
Award under the Plan nor, having been selected for the grant of an Award, to be selected for a grant of any other Award. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the
employ or service of Prime Meridian or the Bank. 
 (f) Payments Upon Death of Participant. Upon the death of a
Participant in the Plan, Prime Meridian shall pay the amounts payable with respect to an Award of Performance Share Units, Phantom Share Units, or Restricted Stock, if any, due under the Plan to the Participant’s estate. 

(g) Payments to Persons Other than Participants. If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of
such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor. 

  
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 (h) No Liability of Committee Members. No member of the Committee shall be
personally liable by reason of any contract or other instrument executed by such member or on his behalf in his or her capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold
harmless each member of the Board and each other employee, officer or director of Prime Meridian or the Bank to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person’s own fraud or bad faith; provided, however,
that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons
may be entitled under Prime Meridian’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 

(i) Governing Law. The Plan will be administered in accordance with federal laws, or in the absence thereof, the laws of
the State of Florida. 
 (j) Funding. No provision of the Plan shall require Prime Meridian, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records,
or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Holders shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may
have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law. 

(k) Non-transferability. A person’s rights and interest under the Plan, including amounts payable, may not be sold,
assigned, donated, or transferred or otherwise disposed of, mortgaged, pledged, or encumbered except by will or the laws of descent and distribution. 

(l) Reliance on Reports. Each member of the Committee shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant or attorney of Prime Meridian and the Bank and upon any other information furnished in connection with the Plan
by any person or persons other than himself. 
 (m) Relationship to Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of Prime Meridian or the Bank except as otherwise specifically provided. 

(n) Expenses. The expenses of administering the Plan shall be borne by Prime Meridian and the Bank. 

(o) Pronouns. Masculine pronouns and other words of masculine gender shall refer to both men and women. 

  
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 (p) Titles and Headings. The titles and headings of the sections in the
Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control. 

11. Changes in Capital Structure. Unless the Committee specifically determines otherwise, options, SARs, Restricted Stock
Awards, Phantom Stock Unit Awards, Performance Share Unit Awards, and any agreements evidencing such Awards, and Performance Goals, shall be subject to adjustment or substitution as to the number, price, or kind of a share of Common Stock or other
consideration subject to such Awards or as otherwise determined by the Committee to be equitable: (i) in the event of changes in the outstanding Common Stock or in the capital structure of the Company by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the Date of Grant of any such Award; or (ii) in the event of any change in applicable laws or any
change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, Participants in the Plan, or which otherwise warrants equitable adjustment because it interferes with the
intended operation of the Plan. In addition, unless the Committee specifically determines otherwise, in the event of any such adjustments or substitution, the aggregate number of shares of Common Stock available under the Plan shall be appropriately
adjusted by the Committee, whose determination shall be conclusive. Any adjustment in Incentive Stock Options under this Section 11 shall be made only to the extent not constituting a “modification” within the meaning of
Section 424(h)(3) of the Code, and any adjustments under this Section 11 shall be made in a manner which does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each
Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes. 
 12.
Effect of Change in Control. 
 (a) In the event of a Change in Control, notwithstanding any vesting schedule
provided for hereunder or by the Committee with respect to an Award of Options, SARs, Phantom Stock Units, or Restricted Stock, such Option or SAR shall become immediately exercisable with respect to one hundred percent (100%) of the shares
subject to such Option or SAR, and the Restricted Period shall expire immediately with respect to one hundred percent (100%) of the Phantom Stock Units or shares of Restricted Stock subject to Restrictions; provided, however, that to the extent
that so accelerating the time an Incentive Stock Option may first be exercised would cause the limitation provided in Section 6(g) herein to be exceeded, such Options shall instead first become exercisable in so many of the next following years
as is necessary to comply with such limitation. 
 (b) In the event of a Change in Control, all incomplete Measurement
Periods in effect on the date the Change in Control occurs shall end on the date of such change, and the Committee shall: (i) determine the extent to which Performance Goals with respect to each such Measurement Period have been met based upon
such audited or unaudited financial information then available as it deems relevant; (ii) cause to be paid to each Participant partial or full Awards with respect to Performance Goals for each such Measurement Period based upon the
Committee’s determination of the degree of attainment of Performance Goals; and (iii) cause all previously deferred Awards to be settled in full as soon as possible. 

  
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 (c) The obligations of the Company under the Plan shall be binding upon any
successor corporation or organization resulting from the merger, consolidation, or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company. The
Company agrees that it will make appropriate provisions for the preservation of Participant’s rights under the Plan in any agreement or plan which it may enter into or adopt to effect any such merger, consolidation, reorganization or transfer
of assets. 
 13. Payment to Specified Employee. Notwithstanding anything herein to the contrary, to the extent that the
Participant is determined to be a specified employee as described in Section 409A(2)(B) of the Code, then payments to the Participant may not be made before the date that is six (6) months after the Participant’s separation from
service. 
 14. Non-exclusivity of the Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to
the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options
otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases. 
 15. Amendments
and Termination. 
 (a) The Committee may, without further action by the shareholders and without receiving further
consideration from the Participants, amend this Plan or condition or modify awards under this Plan in response to changes in securities or other laws or rules, regulations or regulatory interpretations thereof applicable to this Plan, or to comply
with applicable self-regulatory organization rules or requirements. 
 (b) The Committee may at any time and from time to
time terminate or modify or amend the Plan in any respect, except that, without shareholder approval, the Committee may not materially amend the Plan, including, but not limited to, the following: 

(i) materially increase the number of shares of Common Stock to be issued under the Plan (other than pursuant to Sections
11 and 15[a] of the Plan); 
 (ii) materially increase benefits to Participants, including any material change that
permits a repricing (or decrease in exercise price) of outstanding Options, or reduces the price at which Options may be offered, or extends the duration of the Plan; 

(iii) materially expand the class of participants eligible to participate in the Plan; and 

(iv) expand the types of Options or other Awards provided under the Plan. 

(c) The termination or any modification or amendment of the Plan, except as provided in subsection (a), shall not without the
consent of a Participant, affect his or her rights under an award previously granted to him or her. 

  
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 This 2015 Stock Incentive Compensation Plan was presented to and approved by the shareholders
holding a majority of the outstanding shares of Prime Meridian’s common stock voted at the Annual Meeting of Shareholders held on May 20, 2015. 

PRIME MERIDIAN HOLDING COMPANY 
  

					
	/s/ Jill Macmillan	 		 	/s/ Richard W. Weidner
	 Jill Macmillan
 Corporate Secretary
	 		 	 Richard A. Weidner
 Chairman of the
Board

  
 Page 18 of
18Exhibit

Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT 
SCOTT W. SMITH 
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective as of January 1, 2016 (the “Effective Date”), 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 (“Executive”).
WHEREAS, VNR, Parent and Executive previously entered into that certain  Amended and Restated Employment Agreement dated January 1, 2013 (the “Prior Agreement”); 
WHEREAS, the parties hereby agree that the Prior Agreement was terminated as of the Effective Date and shall be replaced in its entirety with this Amended and Restated Employment Agreement (this “Agreement”);
WHEREAS, VNR desires to continue to employ Executive, and Executive desires to continue to be employed by VNR in said capacity; and
WHEREAS, the parties desire to set forth in writing the terms and conditions of their understandings and agreements in this Agreement. 
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 Section 5, 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 Effective Date and ending on January 1, 2019 (the “Employment Period”); provided, however, that the Employment Period shall automatically be renewed and extended for an additional period of twelve (12) months commencing on January 1, 2019 and expiring on January 1, 2020, and on each successive January 1 thereafter, unless at least ninety (90) days prior to the ensuing expiration date (but no more than twelve (12) months prior to such expiration date), 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”) and in so doing, shall report to the Board of Managers or Directors, as applicable, of the Company (the “Board”).  In addition, Executive shall serve as a member of the Board of the Company unless removed by a vote of the shareholders or unless the Nominating Committee of the Board fails to nominate Executive.  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 9(a) below) to Executive and that Executive’s responsibilities shall include the development of the Company’s goodwill through Executive’s contacts with the Company’s customers and suppliers.
2.    Compensation. 
(a)    Base Salary.  VNR shall pay Executive an annual base salary (“Base Salary”) at the rate of $600,000 for the period commencing on the Effective Date.  The Base Salary will increase to $650,000 on January 1, 2017 and to $700,000 on January 1, 2018. The Board may at its discretion elect to increase Executive’s Base Salary at any time if they deem an increase is warranted. The Board may not decrease Executive’s annual Base Salary without his prior written approval.  Base Salary shall be payable in accordance with the ordinary payroll practices of VNR, but in no event shall the Base Salary be paid to Executive less frequently than monthly.  The term “Base Salary” as used in this Agreement shall refer to the Base Salary as it may be so adjusted from time to time.
(b)    Annual Bonus.  Executive shall be eligible to receive an annual bonus (the “Annual Bonus”) based upon the terms and conditions of Executive’s Annual Bonus for each calendar year within the Employment Period are set forth in Appendix A hereto.
(c)    LTIP Grants.  Executive shall be eligible to receive an annual grant of restricted units (the “Restricted Units”) and/or phantom units (the “Phantom Units”) pursuant to the Vanguard Natural Resources, LLC Long-Term Incentive Plan, as the same may be amended from time to time (the “LTIP”), with each such annual grant having an aggregate Fair Market Value (as defined in the LTIP) equal to five and a half (5.5) times Executive’s Base Salary (at the rate in effect hereunder at the time of grant), based on the Fair Market Value of VNR’s common units on the applicable date of grant. The Restricted Units and Phantom Units granted hereunder will be subject to the terms and conditions as set forth on Appendix B hereto for the Restricted Units and/

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or Appendix C hereto for the Phantom Units, as applicable. All LTIP Grants shall be made in January following the contract year and shall be effective as of January 1st of such year.
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 in accordance with the Company’s published vacation policy which currently provides the Executive with twenty five (25) business days paid vacation in each calendar year.  Such vacation time shall accrue at a rate of two  (2) 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 ten (10) business days of accrued but unused vacation may be carried over from one calendar year to the next.
(c)    Executive is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement and promoting the business of the Company, including, without limitation, reasonable expenses for travel, lodgings, entertainment and similar items related to such duties and responsibilities.  VNR will promptly reimburse Executive for all such expenses upon presentation by Executive of appropriately itemized and approved (consistent with VNR’s policy) accounts of such expenditures, in accordance with the Company’s expense reimbursement policy; provided, however, that in no event shall the expense reimbursement be made after the last day of the taxable year following the year in which the expense was incurred by Executive, although in the event that the reimbursement would constitute taxable income to Executive, such reimbursements will be paid no later than March 15th of the calendar year following the calendar year in which the expense was incurred.  No reimbursement or expenses eligible for reimbursement in any taxable year shall affect the expenses eligible for reimbursement in any other taxable year, nor may the right to receive a reimbursement of expenses be subject to liquidation or exchanged for another benefit.
4.    Change of Control.  
(a)    Definition of Change of Control.  For purposes of this Agreement, a “Change of Control” shall have the same meaning as such term in the Company’s LTIP.  For the sake of convenience herein, as of the Effective Date, the LTIP states that a “Change of Control” means, and shall be deemed to have occurred upon one or more of the following events: 
(i)    Any “person” or “group” within the meaning of those terms as used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than an affiliate of Parent, shall become the beneficial owner, by way of merger, consolidation, 

3

recapitalization, reorganization or otherwise, of fifty percent (50%) or more of the combined voting power of the equity interests in Parent; 
(ii)    The members of Parent approve, in one or a series of transactions, a plan of complete liquidation of Parent; or 
(iii)    The sale or other disposition by the Company of all or substantially all of its assets in one or more transactions to any person other than Parent or an affiliate of Parent. 
Notwithstanding the foregoing, with respect to a payment that is subject to section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), a “Change of Control” shall mean a “change of control event” as defined in the regulations and guidance issued under section 409A of the Code. 
(b)    Change of Control Payments.  Upon the occurrence of a Change of Control of the Company, Executive will be entitled to receive the following (i) within 30 days following the Change of Control, a lump sum payment of an amount equaling two (2) times the sum of his Base Salary and the Annual Bonus paid or payable with respect to the calendar year preceding the year in which the Change of Control occurs (the “Change of Control Payment”), and (ii) as of the date of the Change of Control, accelerated vesting of any unvested Restricted Units, Phantom Units, and any other awards granted under the LTIP that are held by Executive at the time of such Change of Control (notwithstanding any provisions of such LTIP award agreements to the contrary). Solely for purposes of the Change of Control Payment, Executive’s Base Salary shall be valued as in effect at the time of the Change of Control.  The Restricted Units, Phantom Units, and other awards granted under the LTIP that are held by Executive at the time of the Change of Control, if any, will be settled in accordance with the terms and conditions of the LTIP and the applicable individual award agreement (which, in the case of Restricted Units and Phantom Units granted to Executive pursuant to this Agreement, shall be in accordance with the terms and conditions reflected in Appendix B hereto or Appendix C hereto, respectively).
5.    Termination of Employment.  
(a)    Termination without Cause or Resignation by Executive for Other than Good Reason.  Unless otherwise specified in a separate provision of this Section 5, 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 for a reason other than Good Reason, VNR will pay Executive within ten (10) business days after the Date of Termination (as defined below) (i) all accrued but unpaid Base Salary, (ii) a prorated amount of Executive’s Base Salary for accrued but unused vacation days, and (iii) yet unpaid reimbursements for any reasonable and necessary business expenses incurred by Executive prior to the Date of Termination in connection with his duties hereunder (such amounts collectively, the “Accrued Compensation and Reimbursements”).  Upon termination by VNR of this Agreement pursuant to this Section 5(a) other than a termination for Cause, VNR shall pay or provide to Executive the following: (A)  within ten (10) business days after the Date of Termination, the Accrued Compensation and Reimbursements, (B) on the 60th day following the Date of Termination, a lump sum payment (the 

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“Severance Payment”) equal to the amount of Executive’s Base Salary (at the rate in effect hereunder as of the Date of Termination) for thirty-six (36) months, and (C) as of the Date of Termination, accelerated vesting of any unvested Restricted Units, Phantom Units, and any other awards granted under the LTIP that are held by Executive at the time of such termination (notwithstanding any provisions of such LTIP award agreements to the contrary), with any settlement that may be due to Executive as a result of such accelerated vesting being made in accordance with the terms and conditions of the LTIP and the applicable individual award agreement. Notwithstanding any other provision of this Agreement, the non-renewal of Executive’s employment pursuant to the terms of a Non-Renewal Notice under Section 1(a) of this Agreement shall not constitute a termination of this Agreement entitling Executive to the Severance Payment under this Section 5(a).
(b)    Termination by Cause.  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 ten (10) business days after the Date of Termination.  For purposes hereof, “Cause” means any of the following:
(i)    Executive’s commission of theft, embezzlement, any other act of dishonesty relating to his employment with 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 ten business (10) days after written demand by the Board for substantial performance is actually received by Executive which specifically identifies the manner in which the Board believes Executive has so breached; or
(iv)    Executive’s willful and continued failure to perform his reasonable and customary duties as the President and Chief Executive Officer which such failure is not remedied within ten business (10) days after written demand by the Board for substantial performance is actually received by Executive which specifically identifies the nature of such failure.
For purposes of the definition of Cause, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in, or not opposed to, the best interests of the Company.  Any act, or failure to act, based upon authority given by the Board or based upon the advice of counsel for 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.  VNR, by action of the Board, may terminate Executive’s employment for Cause only after: (i) providing written notice to Executive, which identifies the Cause for Executive’s termination (which notice must be given within ninety (90) days after the actual discovery of the act(s) or omission(s) constituting such 

5

Cause) and (ii) Executive has been given an opportunity, together with his counsel, to be heard by the Board at a time and location reasonably designated by the Board.
(c)    Termination with Good Reason.  Executive may terminate this Agreement for Good Reason, and thereby resign his employment, after providing thirty (30) days’ written notice to the Company of the act(s) or omission(s) constituting Good Reason (which notice must be given within ninety (90) days after the occurrence of such act(s) or omission(s) and describe the act(s) or omission(s) in reasonable detail) if such act(s) or omission(s) is/are not cured by the Company within thirty (30) days after Executive provides such written notice.  For purposes hereof, “Good Reason” means any of the following reasons that occurs without Executive’s written consent:
(i)    A material reduction in Executive’s authority, duties, or responsibilities (for this purpose, any removal of Executive from membership on the Board that is due to a vote of the shareholders or due to the failure of the Nominating Committee of the Board to nominate Executive shall not be treated as satisfying the requirements of this Section 5(c)(i)); or
(ii)    A material reduction in Executive’s Base Salary; or 
(iii)    Executive’s removal from his position as President, Chief Executive Officer and Director of the Company, other than for Cause or by death or Disability, during the Employment Period, to a position that is not at least equivalent in authority and duties to President and Chief Executive Officer; or 
(iv)    Relocation of Executive’s principal place of business to a location fifty (50) or more miles from its location as of the Effective Date; or
(v)    A material breach by VNR of this Agreement, which materially and adversely affects Executive; or 
(vi)    VNR’s failure to make any material payment to Executive required to be made under the terms of this Agreement.
In the event Executive terminates this Agreement for Good Reason, VNR shall pay or provide Executive the following: (i) within ten (10) business days after the Date of Termination, his Accrued Compensation and Reimbursements, (ii) on the 60th day following the Date of Termination, the Severance Payment, and (iii) as of the Date of Termination, accelerated vesting of any unvested Restricted Units, Phantom Units, and any other awards granted under the LTIP that are held by Executive at the time of such termination (notwithstanding any provisions of such LTIP award agreements to the contrary), with any settlement that may be due to Executive as a result of such accelerated vesting being made in accordance with the terms and conditions of the LTIP and the applicable individual award agreement.  
(d)    Termination by Disability.  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 

6

of sickness or injury, and shall have remained unable to perform any such duties for a period of more than 180 consecutive days in any twelve (12) month period.  Upon termination of this Agreement for Disability, VNR shall pay or provide Executive with the following: (i) within ten (10) business days after the Date of Termination, his Accrued Compensation and Reimbursements, (ii) on the 60th day following the Date of Termination, a lump sum payment equal to the amount of Executive’s Base Salary (at the rate in effect hereunder at the Date of Termination) for twelve (12) months, and (iii) as of the Date of Termination, accelerated vesting of any unvested Restricted Units, Phantom Units, and any other awards granted under the LTIP that are held by Executive at the time of such termination (notwithstanding any provisions of such LTIP award agreements to the contrary), with any settlement that may be due to Executive as a result of such accelerated vesting being made in accordance with the terms and conditions of the LTIP and the applicable individual award agreement. 
(e)    Termination by Death.  This Agreement will terminate automatically upon Executive’s death.  Upon termination of this Agreement because of Executive’s death, VNR shall pay or provide Executive’s estate with the following: (i) within ten (10) business days after the Date of Termination, his Accrued Compensation and Reimbursements, (ii) on the 60th day following the Date of Termination, a lump sum payment equal to the amount of Executive’s Base Salary (at the rate in effect hereunder at the Date of Termination) for twelve (12) months, and (iii) as of the Date of Termination, accelerated vesting of any unvested Restricted Units, Phantom Units, and any other awards granted under the LTIP that are held by Executive at the time of such termination (notwithstanding any provisions of such LTIP award agreements to the contrary), with any settlement that may be due to Executive as a result of such accelerated vesting being made in accordance with the terms and conditions of the LTIP and the applicable individual award agreement.
(f)    Date of Termination.  As used in this Agreement, “Date of Termination” means (i) if Executive’s employment is terminated by his death, the date of his death; (ii) if Executive’s employment is terminated as a result of a Disability or by VNR for 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.
6.    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.
7.    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.

7

8.    Release.  
Notwithstanding any other provision in this Agreement to the contrary, as a condition precedent to receiving any severance payments or benefits set forth in Section 5 of this Agreement (other than the Accrued Compensation and Reimbursements) in connection with any applicable termination scenario, Executive agrees to execute (and not revoke) a customary severance and release agreement, including a waiver of all claims, reasonably acceptable to the Company (the “Release”), within the forty-five (45) day period immediately following the Date of Termination. All revocation rights and timing restrictions shall be set forth in such Release.  If Executive fails to execute and deliver the Release, or revokes the Release, Executive agrees that he shall not be entitled to receive any severance payments or benefits set forth in Section 5 of this Agreement (other than the Accrued Compensation and Reimbursements) in connection with any applicable termination scenario.  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.
9.    Nondisclosure.  
(a)    It is understood that Executive during his tenure with the Company has received and will continue to receive access to some or all of the Company’s various trade secrets and confidential or proprietary information, including information he has not received before, consisting of, but not limited to, information relating to (i) business operations and methods, (ii) existing and proposed investments and investment strategies, (iii) financial performance, (iv) compensation arrangements and amounts (whether relating to the Company or to any of its employees), (v) contractual relationships, (vi) business partners and relationships, and (vii) marketing strategies (all of the forgoing, “Confidential Information”).  Confidential Information shall not include: (A) information that Executive may furnish to third parties regarding his obligations under this Section 9 and under Section 10 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 9 (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 

8

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.
10.    Non-Competition and Non-solicitation.  
(a)    As part of the consideration for the compensation and benefits to be paid to Executive hereunder, to protect Confidential Information of the Company and its customers and clients that have been and will be entrusted to Executive, the business goodwill of the Company and its subsidiaries that will be developed in and through Executive and the business opportunities that will be disclosed or entrusted to Executive by the Company and its subsidiaries, and as an additional incentive for the Company to enter into this Agreement, if termination is a result of Executive’s voluntary termination without Good Reason under Section 5(a), or by the Company for Cause under Section 5(b), from the date hereof through the sixty (60) day anniversary of the Date of Termination (the “Restricted Period”), Executive will not (other than for the benefit of the Company pursuant to this Agreement), directly or indirectly:
(i)    engage in, or carry on or assist, individually or as a principal, owner, officer, director, employee, shareholder, consultant, contractor, partner, member, joint venturer, agent, equity owner or in any other capacity whatsoever (in any such capacity, an “Investor”), any (A) any business directly competitive with the business in which the Company is engaged from time to time (“Competing Business”) or (B) Business Enterprise (as defined below) that is otherwise directly competitive with the Company within the states in which the Company conducts business;
(ii)    perform for any corporation, partnership, limited liability company, sole proprietorship, joint venture or other business association or entity (a “Business Enterprise”) engaged in any Competing Business any duty Executive has performed for the Company that involved Executive’s access to, or knowledge or application of, Confidential Information;
(iii)    induce or attempt to induce any customer, supplier, licensee or other business relation of the Company to cease doing business with the Company or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company;
(iv)    induce or attempt to induce any customer, supplier, licensee or other business relation of the Company with whom Executive had direct business contact in dealings during the Employment Period in the course of his employment with the Company to cease doing business with the Company or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company; or

9

(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 10, nothing in this Section 10 shall prohibit (i) any investment by Executive, directly or indirectly, in securities which are issued by a Business Enterprise involved in or conducting a Competing Business, provided that Executive, directly or indirectly, does not own more than five percent (5%) of the outstanding equity or voting securities of such Business Enterprise or (ii) Executive, directly or indirectly, from owning any interest in any Business Enterprise which conducts a Competing Business if such interest in such Business Enterprise is owned as of the date of this Agreement and Executive does not have the right, in the case of (i) or (ii), through the ownership of a voting interest or otherwise, to direct the activities of or associated with the business of such Business Enterprise.
(c)    Executive acknowledges that each of the covenants of Section 10(a) are in addition to, and shall not be construed as a limitation upon, any other covenant provided in Section 10(a).  Executive agrees that the geographic boundaries, scope of prohibited activities, and time duration of each of the covenants set forth in Section 10(a) are reasonable in nature and are no broader than are necessary to maintain the confidentiality and the goodwill of the Company’s proprietary and Confidential Information, plans and services and to protect the other legitimate business interests of the Company, including without limitation the goodwill developed by Executive with Company’s customers, suppliers, licensees and business relations.
(d)    If, during any portion of the Restricted Period, Executive is not in compliance with the terms of Section 10(a), the Company shall be entitled to, among other remedies, compliance by Executive with the terms of Section 10(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 10(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 10(a).  Furthermore, each of the covenants in Section 9(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 10(a).
11.    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:

10

	
		
	To VNR or the Company: 
Board of Directors 
5847 San Felipe, Suite 3000 
Houston, Texas 77057 
Facsimile:  (832) 327-2260
	To Executive: 
Scott W. Smith 
12014 Pebble Hill Road 
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.
12.    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.
13.    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 without the express written consent of VNR (except in the case of death 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.
14.    Amendment.  
This Agreement may be amended only by writing signed by both Executive and by a duly authorized representative of VNR (other than Executive).
15.    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 

11

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 16. 
16.    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.
17.    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.
18.    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.
19.    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 (including the Prior Agreement) or understanding, written or oral, between the Company or any affiliate of the Company and Executive with respect to such subject matter. For the avoidance of doubt, Executive acknowledges and agrees that the Company has satisfied all obligations that it has owed, and that it ever could owe, under the Prior Agreement and that Executive has no further rights thereunder. 
20.    Withholding.  
The Company shall be entitled to withhold from payment to Executive of any amount of withholding required by law.
21.    Counterparts.  

12

This Agreement may be executed in two or more counterparts, each of which will be deemed an original.
22.    Remedies.  
The parties recognize and affirm that in the event of a breach of Sections 9 or 10 of this Agreement, money damages would be inadequate and VNR would not have an adequate remedy at law.  Accordingly, the parties agree that in the event of a breach or a threatened breach of Sections 9 or 10, 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 9 or 10, 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 9 or 10 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.
23.    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.
24.    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.
25.    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.
26.    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 

13

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.
27.    No Inconsistent Obligations.  
Executive represents and warrants that to his knowledge he has no obligations, legal, in contract, or otherwise, inconsistent with the terms of this Agreement or with his undertaking employment with the Company to perform the duties described herein.  Executive will not disclose to the Company, or use, or induce the Company to use, any confidential, proprietary, or trade secret information of others. Executive represents and warrants that to his knowledge he has returned all property and confidential information belonging to all prior employers, if he is obligated to do so.
28.    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.
29.    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.
30.    Section 409A of the Code.  
This Agreement is intended to comply with Section 409A of the Code, and the Treasury regulations and other interpretive guidance issued thereunder (collectively, “Section 409A”), or to be treated as exempt therefrom, and shall be construed and administered in accordance with such intent.  Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service, as a short-term deferral, or as any other compensation that is otherwise exempt from Section 409A shall be excluded from Section 409A to the maximum extent possible. Any payments to be made under this Agreement upon a termination of Executive’s employment that are subject to Section 409A shall only be made if such termination of employment constitutes a “separation from service” under Section 409A. Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Section 409A if Executive’s receipt 

14

of such payment or benefit is not delayed until the earlier of (i) the date of Executive’s death or (ii) the date that is six months after the Date of Termination of Executive’s employment hereunder (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to Executive (or Executive’s estate, if applicable) until the Section 409A Payment Date.  

15

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

EXECUTIVE

/s/ Scott W. Smith
    
Scott W. Smith

VNR HOLDINGS, LLC

By:  /s/ Scott W. Smith    

Its:  President & CEO
Vanguard Natural Resources, LLC
Sole Member    

    

VANGUARD NATURAL RESOURCES, LLC

By:  /s/ Loren B Singletary    

Its:  Director    

APPENDIX A 
 
Annual Bonus
		
	1.
	Executive is eligible to receive an Annual Bonus based upon the Board’s annual bonus system described below.  Executive is eligible to receive a “Maximum” Annual Bonus equal to two (2) times Executive’s Base Salary.  The Annual Bonus for each calendar year during the Employment Period will be based on the following components and percentages:

		
	(a)
	Adjusted EBITDA Results (Actual to Forecast) (“AER”) (25%)

		
	(b)
	Production Results (Actual to Forecast) (“PR”) (25%)

		
	(c)
	Lease Operating Expenses (Actual to Forecast) (“LOE”) (25%)

		
	(d)
	Cash General & Administrative Expenses (Actual to Forecast) (“G&A”) (25%)

		
	2.
	Each of the four categories listed above that comprise the Annual Bonus shall be calculated by multiplying (a) Executive’s Base Salary, by (b) the applicable target percentage achieved in the respective tables listed below.  Payments of the Annual Bonus shall be made in cash, quarterly installments following the Company’s quarterly earnings results, so long as Executive is continuously employed with the Company during the full applicable time to which the Annual Bonus payment relates.     

		
	3.
	AER for each calendar year will be a function of VNR’s actual AER reported in the   respective 10-Q or 10-K versus the forecast. AER for the 2016 calendar year will be measured as follows:     

	
								
	Bonus
	12.5%
	18.75%
	25%
	31.25%

	37.5%
	43.75%
	50%

	AER
	>$332.4 MM
	>$343.0 MM
	>$353.6 MM
	>$364.2 MM
	>$374.8 MM
	>$385.4 MM
	>$396.0 MM

A new table for each subsequent year during the Employment Period will be generated based on the new guidance/forecast. 
		
	4.
	PR for each calendar year will be a function of VNR’s actual PR reported in the   respective 10-Q or 10-K versus the forecast. PR for the 2016 calendar year will be measured as follows:  

	
								
	Bonus
	12.5%
	18.75%
	25%
	31.25%

	37.5%
	43.75%
	50%

	PR
	<419.9 MBoe
	>428.7 MBoe
	>437.4 MBoe
	>446.1 MBoe
	>454.9 MBoe
	>463.62 MBoe
	>472.4 MBoe

A new table for each subsequent year during the Employment Period will be generated based on the new guidance/forecast. 

		
	5.
	Cash G&A will be calculated each year by comparing VNR’s actual Cash G&A expense as reported in the respective 10-Q or 10-K, to the forecast.  Cash G&A for the 2016 calendar year will be measured as follows:  

	
								
	Bonus
	12.5%
	18.75%
	25%
	31.25%

	37.5%
	43.75%
	50%

	G&A
	<$43.1 MM
	<$42.2 MM
	<$41.4 MM
	<$40.6 MM
	<$39.7 MM
	<$38.9 MM
	<$38.1 MM

A new table for each subsequent year during the Employment Period will be generated based on the new guidance/forecast. 
		
	6.
	LOE will be calculated each year by comparing VNR’s actual LOE expense as reported in the respective 10-Q or 10-K, to the forecast.  LOE for the 2016 calendar year will be measured as follows:  

	
								
	Bonus
	12.5%
	18.75%
	25%
	31.25%

	37.5%
	43.75%
	50%

	LOE
	>$172.2 MM
	>$168.9 MM
	<$165.6 MM
	<$162.3 MM
	<$159.0 MM
	<$155.7 MM
	<$152.4 MM

A new table for each subsequent year during the Employment Period will be generated based on the new guidance/forecast. 
		
	7.
	In addition, the Board of Director’s has the ability to apply a discretionary multiplier to the overall bonus targets calculated above, again not to exceed 200% of the Executive’s base salary.  This discretionary component of each Annual Bonus is determined at the sole discretion of the Board, and shall be based upon such targets, performance measures relative to the Company and/or Executive, time frames, and any other item the Board has determined appropriate.

		
	8.
	The Annual Bonus shall be calculated and paid out on a quarterly basis for each of the four components (as described in paragraphs 3., 4., 5., and 6. above) after quarterly earnings have been made public to the investment community for each applicable calendar quarter, measured based on the percentage obtained as a comparison to forecast (as described in paragraphs 3., 4., 5., and 6. above).  Therefore, the Annual Bonus shall be calculated for each quarter with 25% of the total Annual Bonus calculation paid out each quarter in cash with the four quarterly payments not to exceed 200% of the Executive Management’s respective Annual Cash Base Salary.  The quarterly bonus payments shall be calculated on a cumulative basis for each of the four components. 

APPENDIX B 
 
[Restricted Unit Agreement]

APPENDIX C 
 
[Phantom Unit Agreement]

US 1833403v.4

16

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