**Exhibit 10.2**

 

**VENOCO,INC.**

**2000STOCK INCENTIVE PLAN**

**NONQUALIFIEDSTOCK OPTION AGREEMENT**

 

**THISNONQUALIFIED STOCK OPTION AGREEMENT** (this “***Option Agreement***”) by andbetween Venoco, Inc., a Delaware Company (the “***Company***”), and Mark DePuy (the “***Participant***”) evidences the nonqualified stock option(the “***Option***”) grantedby the Company to the Participant as to the number of shares of the Company’scommon stock, $0.01 par value (the “***CommonStock***”) set forth below.

 
| **Award  Date**  | ** ** | **Number of Shares of  Common Stock** | ** ** | **Exercise Price   per Share** | ** ** | **Expiration Date** | ** **       |
|------------------|------------|---------------------------------------|------------|--------------------------------|------------|---------------------|------------------|
|             | ** ** | ** **                            |       |                           |       |                |             |
| August 15,  2005 | ** ** | **12.5**                              |       | $                              | 90,000.00  |                | August 15,  2015 |   |
|             | ** ** | ** **                            |       |                           |       |                |             |
| August 15,  2005 | ** ** | **12.5**                              |       | $                              | 100,000.00 |                | August 15,  2015 |   |

 

**Vesting.**  The Option shall become vested as to 20% ofthe total number of shares of Common Stock subject to the Option, pro rata foreach of the exercise prices, on the Award Date. The Option shall become vested as to the remaining shares of CommonStock in equal amounts, pro rata for each of the exercise prices, on the first,second, third and fourth anniversary of the Award Date, such that the Optionwill be fully vested on the fourth anniversary of the Award Date.

 

**Terms and Conditions. **The Option is granted under the Venoco,Inc. 2000 Stock Incentive Plan (the “***Plan***”).  The Option is subject to the provisions ofthe Plan (except for Appendix A attached thereto) and the Terms and Conditionsof Nonqualified Stock Option (the “***Terms***”)attached to this Option Agreement and incorporated herein by reference.  The Option has been granted to theParticipant in addition to, and not in lieu of, any other form of compensationotherwise payable or to be paid to the Participant.  The Option is not and shall not be deemed tobe an incentive stock option within the meaning of Section 422 of theCode.  Capitalized terms are defined inthe Plan if not defined herein or in the Terms. The parties agree to the terms of the Option set forth herein.  The Participant acknowledges receipt of acopy of the Terms and the Plan, specifically acknowledges and agrees to Section17 of the Terms, and agrees to maintain in confidence all information providedby the Company in connection with the Option.

 
| “**PARTICIPANT**” |   | **VENOCO, INC.,**        |
|-----------------------------|--------|--------------------------|
|                        |   | a Delaware corporation   |
|                        |   |                     |
|                        |   |                     |
| /s/ Mark DePuy              |   | By:                      | /s/ Timothy M. Marquez |   |
|    Mark  DePuy    |   | Timothy M.  Marquez      |
|                        |   | Chief  Executive Officer |

 

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**TERMSAND CONDITIONS OF**

 

**NONQUALIFIEDSTOCK OPTION AGREEMENT**

 

**WITHMARK DEPUY**

 

1.             **V****esting; Limits on Exercise.**

 

1.1           Asset forth on the cover page of this Option Agreement, the Option shall vest andbecome exercisable in percentage installments of the aggregate number of sharesof Common Stock subject to the Option. The Option may be exercised only to the extent the Option is vested andexercisable.

 

1.2           Tothe extent that the Option is vested and exercisable, the Participant has theright to exercise the Option (to the extent not previously exercised), and suchright shall continue, until the expiration or earlier termination of theOption.

 

1.3           Fractionalshare interests shall be disregarded, but may be cumulated. Cash will be paidin lieu of fractional shares at the time of exercise.

 

1.4           Nofewer than 2 shares of Common Stock (subject to adjustment pursuant to Section4.2.1 of the Plan) may be purchased at any one time, unless the number ofshares purchased is the total number at the time exercisable under the Option.

 

2.             **Continuance of Employment/Service Required; NoEmployment/Service Commitment**.

 

2.1           Thevesting schedule requires continued employment or service through eachapplicable vesting date as a condition to the vesting of the applicableinstallment of the Option and the rights and benefits under this OptionAgreement.  Partial employment orservice, even if substantial, during any vesting period will not entitle theParticipant to any proportionate vesting or avoid or mitigate a termination ofrights and benefits upon or following a termination of employment or service asprovided in Section 5 below or under the Plan.

 

2.2           Nothingcontained in this Option Agreement or the Plan constitutes an employmentcommitment by the Company, affects the Participant’s status as an employee whois subject to termination without cause, confers upon the Participant any rightto remain employed by or in service to the Company or any Subsidiary, interferesin any way with the right of the Company or any Subsidiary at any time toterminate such employment or service, or affects the right of the Company orany Subsidiary to increase or decrease the Participant’s other compensation.

 

3.             **Method of Exercise of Option**.

 

3.1           TheOption shall be exercisable by the delivery to the Secretary of the Company of:

 

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(a)           anexecuted Option Exercise Agreement in substantially the form attached hereto asExhibit “A” or such other form as the Committee may require from time to time(the “***Exercise Agreement***”);

 

(b)           paymentfor the Exercise Price as provided pursuant to Section 3.2 below;

 

(c)           satisfactionof the tax withholding provisions of Section 4.4 of the Plan; and

 

(d)           anywritten statements or agreements required by the Committee to be made by theParticipant pursuant to Section 4.3 of the Plan.

 

3.2           Paymentfor the shares of Common Stock to be purchased pursuant to the Option may bemade by any of the following methods:

 

(a)           Participantmay pay by check or electronic funds transfer to the Company, subject to suchspecific procedures or directions as the Committee may establish.

 

(b)           Participantmay elect to receive upon exercise of the Option the net number of shares ofCommon Stock determined according to the following formula (a “***Cashless Exercise***”):

 

Net Number = (Ax B) – (A x C)

B

 

For thepurpose of this formula:

 

A = the total number of shares with respectto which the Option is then being exercised.

B = the Fair Market Value (as defined in thePlan) per share of the Common Stock on the date the Exercise Agreement isexecuted.

C = the exercise price in effect for theshares with respect to which the Option is being exercise.

 

4.             **Change in Control**.

 

4.1           Inaccordance with Section 4.2.2 of the Plan, immediately upon the occurrence of aChange in Control (as defined below), the Option shall become fully vested andexercisable.  Subject to Sections 4.2.3through 4.2.6 of the Plan, the Participant shall have the right to exercise theOption (to the extent not previously exercised) until the Expiration Date orearlier termination of the Option.

 

4.2           Forthe purpose of this Option Agreement, a “***Change inControl***” shall mean the occurrence of one of the followingevents:

 

(a)           TimothyM. Marquez, Bernadette B. Marquez, their respective legal

 

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representatives, devisees, donees and heirs and any Trust for thebenefit of either or both of Timothy M. Marquez and Bernadette B. Marquezand/or the issue of either of them (the “Marquez Family”) individually orcollectively no longer are the “beneficial owners” (as defined in Rule 13d-3under the Securities Exchange Act of 1934), directly or indirectly, ofsecurities of the Company representing more than 50% of the combined votingpower of the Company’s then outstanding securities;

 

(b)           thestockholders of the Company approve and the Company consumates a merger orconsolidation of the Company with any other Company, other than (a) a merger orconsolidation which would result in the voting securities of the Companyoutstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of thesurviving entity) more than 65% of the combined voting power of the votingsecurities of the Company (or such surviving entity) outstanding immediatelyafter such merger or consolidation or (b) a merger or consolidation effected toimplement a recapitalization of the Company (or similar transaction) in whichno “person” (as such term is used in Section 13(d) and 14(d) of the ExchangeAct other than the Marquez Family) acquires more than 50% of the combinedvoting power of the Company’s then outstanding securities; or

 

(c)             thestockholders of the Company approve a plan of complete liquidation of theCompany or an agreement for the sale or disposition by the Company of all orsubstantially all of the Company’s assets. For purposes of this clause (c), the term “the sale or disposition bythe Company of all or substantially all of the Company’s assets” shall mean asale or other disposition transaction or series of related transactions (otherthan transactions related to the creation of a master limited partnership orroyalty trust in which the Company continues its corporate existence) involvingassets of the Company or of any direct or indirect subsidiary of the Company(including the stock of any direct or indirect subsidiary of the Company) inwhich the value of the assets or stock being sold or otherwise disposed of (asmeasured by the purchase price being paid therefor or by such other method asthe Board of Directors of the Company determines is appropriate in a case wherethere is no readily ascertainable purchase price) constitutes more thantwo-thirds of the “fair market value of the Company” (as hereinafterdefined).  For purposes of the precedingsentence, the “fair market value of the Company” shall be the aggregate marketvalue of the Company’s outstanding common stock (on a fully diluted basis) plusthe aggregate market value of the Company’s other outstanding equitysecurities.  The aggregate market valueof the Company’s equity securities shall be determined by multiplying thenumber of shares of the Company’s common stock (on a fully diluted basis)outstanding on the date of the execution and delivery of a definitive agreementwith respect to the transaction or series of related transactions (the“Transaction Date”) by the average closing price of such security for the ten tradingdays immediately preceding the Transaction Date, or if not publicly traded, bysuch other method as the Board of Directors of the Company shall determine isappropriate.

 

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5.             **Termination of Employment or Service**.

 

5.1           Inthe event the Participant’s employment by or service to the Company isterminated by the Company for any reason other than for Misconduct (as definedbelow), the Option shall become fully vested and exercisable.  The Participant shall have the right toexercise the Option (to the extent not previously exercised), and such rightshall continue, until the earlier of the expiration of the Option or two (2)years following the date on which the Participant’s employment or serviceterminated.

 

5.2           Inthe event the Participant’s employment by or service to the Company isterminated by the Company because of the Participant’s Misconduct, the Option(regardless of whether all or a portion of the Option is vested), and all otherrights in respect thereof, shall terminate and become null and void on the dateof such termination.

 

5.3           Inthe event the Participant’s employment by or service to the Company terminatesfor any reason other than as described in Section 5.1 or 5.2, the unvestedportion of the Option, and all other rights in respect thereof, shall terminateand become null and void on the date on which the Participant’s employment orservice terminated.  The Participantshall have the right to exercise the vested portion of the Option (to theextent not previously exercised), and such right shall continue, until theearlier of the expiration of the Option or two (2) years following the date onwhich the Participant’s employment or service terminated.

 

5.4           Forthe purpose of this Option Agreement, “***Misconduct***”shall have the meaning provided in the Employment Agreement by and between theCompany and the Participant dated March 1, 2005, as the same may be amendedfrom time to time.

 

6.             **Non-Transferability of Options**.  The Option and any other rights of theParticipant under this Option Agreement or the Plan are nontransferable andexercisable only by the Participant, except as set forth in Section 1.5 of thePlan.

 

7.             **Securities Law Compliance**.  The Participant acknowledges that the Optionand the shares of Common Stock are not being registered under the SecuritiesAct, based, in part, in reliance upon an exemption from registration underSecurities and Exchange Commission Rule 701 promulgated under the SecuritiesAct of 1933, and a comparable exemption from qualification under the ColoradoSecurities Act, as each may be amended from time to time.  The Participant, by executing this OptionAgreement, hereby makes the following representations to the Company andacknowledges that the Company’s reliance on federal and state securities lawexemptions from registration and qualification is predicated, in substantialpart, upon the accuracy of these representations:

 

7.1           TheParticipant is acquiring the Option and, if and when he exercises the Option, willacquire the shares of Common Stock solely for the Participant’s own account,for investment purposes only, and not with a view to or an intent to sell, orto offer for resale in connection with any unregistered distribution, all orany portion of the shares within the meaning of the Securities Act, theColorado Securities Act, or other applicable state securities laws.

 

7.2           TheParticipant has had an opportunity to ask questions and receive answers fromthe Company regarding the terms and conditions of the Option and therestrictions imposed on

 

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any shares of Common Stock purchased upon exercise of the Option.  The Participant has been furnished with,and/or has access to, such information as he considers necessary or appropriatefor deciding whether to exercise the Option and purchase shares of CommonStock.  However, in evaluating the meritsand risks of an investment in the Common Stock, the Participant has and willrely upon the advice of his/her own legal counsel, tax advisors, and/orinvestment advisors.

 

7.3           TheParticipant is aware that the Option may be of no practical value, that anyvalue it may have depends on its vesting and exercisability as well as anincrease in the value of the underlying shares of Common Stock to an amount inexcess of the Exercise Price, and that any investment in common shares of aclosely held Company such as the Company is non-marketable, non-transferableand could require capital to be invested for an indefinite period of time,possibly without return, and at substantial risk of loss.

 

7.4           TheParticipant understands that any shares of Common Stock acquired on exercise ofthe Option will be characterized as “restricted securities” under the federalsecurities laws, and that, under such laws and applicable regulations, suchsecurities may be resold without registration under the Securities Act only incertain limited circumstances, including in accordance with the conditions ofRule 144 promulgated under the Securities Act, as presently in effect, withwhich the Participant is familiar.

 

7.5           TheParticipant has read and understands the restrictions and limitations set forthin the Plan and this Option Agreement (including these Terms), which areimposed on the Option and any shares of Common Stock which may be acquired uponexercise of the Option.

 

7.6           At no time was an oralrepresentation made to the Participant relating to the Option or the purchaseof shares of Common Stock and the Participant was not presented with or solicitedby any promotional meeting or material relating to the Option or the CommonStock.

 

8.             **Lock-Up**.  Neither the Participant nor any permittedtransferee may, directly or indirectly, offer, sell or transfer or dispose ofany of the shares of Common Stock acquired upon exercise of the Option (the “***Shares***”) or any interesttherein (or agree to do any thereof) (collectively, a “***Transfer***”) during the period commencing as of 14 daysprior to and ending one year, or such lesser period of time as the relevantunderwriters may permit, after the effective date of a registration statementcovering any public offering of the Company’s securities of which theParticipant has notice.  For the purposeof this Section 8 “Participant” includes, where the context so requires, anypermitted direct or indirect transferee of the Participant.  The Participant shall agree and consent tothe entry of stop transfer instructions with the Company’s transfer agentagainst the Transfer of the Company’s securities beneficially owned by theParticipant and shall confirm the limitations hereunder by agreement with andfor the benefit of the relevant underwriters by a lock-up agreement or otheragreement in customary form. Notwithstanding anything else herein to the contrary, this Section 8shall not be construed so as to prohibit the Participant from participating ina registration or a public offering of the Common Stock with respect to anyshares which he may hold at that time; provided, however, that suchparticipation shall be at the sole discretion of the board of directors.

 

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9.             (*intentionallyleft blank*)

 

10.           **Non-Transferability of Shares.**

 

10.1         Exceptas provided in Section 10.2, no Shares may be sold, transferred, assigned, pledged,or encumbered at any time until the first to occur of (i) the Public OfferingDate, (ii) two years after the date the Shares were issued upon exercise of theOption, or (iii) the sale of all or substantially all of the Common Stock orassets of the Company to a person who is not an affiliate of the Company.

 

10.2         Notwithstandingthe restrictions contained in Section 10.1, the Shares may be transferred asprovided in this Section 10.2, provided, however, that suchtransfers remain subject to the right of first refusal in Section 10.3:

 

(a)           Transfersto the Company.

 

(b)           Transferswith the written approval of the Committee.

 

(c)           Transfersby gift to “immediate family” as that term is defined in Rule 16a-1(e) underthe Exchange Act.

 

(d)           Inthe event of the Participant’s death, transfers to the Participant’sbeneficiary, or in the absence of a validly designated beneficiary, transfersby will or the laws of descent and distribution.

 

(e)           Inthe event the Participant suffers a permanent disability, transfers by theParticipant’s duly authorized legal representative on behalf of theParticipant.

 

(f)            Transfersmade pursuant to Sections 13 or 14.

 

10.3         TheCompany shall have a right of first refusal, as set forth below, to purchasethe Shares before the Shares (or any interest in them) can be validlytransferred to any other person or entity.

 

(a)           Beforethere can be a valid sale or transfer of any Shares (or any interest in them)by any holder thereof, the holder shall first give notice in writing to theCompany, mailed or delivered in accordance with the provisions of Section 18.5,of his or her intention to sell or transfer such Shares (the “***Option Notice***”).  The Option Notice shall specify the identityof the proposed transferee, the number of Shares to be sold or transferred tothe transferee, the price per Share and the terms upon which such holderintends to make such sale or transfer. If the payment terms for the Shares described in the Option Noticediffer from delivery of cash or a check at closing, the Company shall have theoption, as set forth herein, of purchasing the Shares for cash (or a cashequivalent) at closing in an amount which the Company determines is a fairvalue equivalent of that payment.  Thedetermination of a fair value equivalent shall be made in the Company’s bestjudgment and such determination shall be mailed or delivered to the selling ortransferring stockholder (the “***Company’sNotice***”) within ten (10) days of its receipt of the OptionNotice.  Should the selling ortransferring stockholder disagree with the Company’s determination of a fairvalue equivalent, he shall have the right (the “***Retraction Right***”) to

 

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retract the proposed sale or transfer to a third party and the offer ofShares to the Company pursuant to the Option Notice (such retraction to be madein writing and mailed or delivered in accordance with the provisions of Section18.5 within fifteen (15) days after receipt of the Company’s Notice).  If the stockholder again proposes to sell ortransfer the Shares, the stockholder shall again offer such Shares to theCompany pursuant to the terms of this Section 10.3 prior to any sale ortransfer.

 

(b)           Subjectto the selling stockholder’s Retraction Right, during the 60-day periodcommencing upon receipt of the Option Notice by the Company (the “***Option Period***”), the Companyshall have an option to purchase any or all of the Shares specified in theOption Notice at the price offered therein (the “***Right of First Refusal***”).

 

(c)           Notmore than thirty (30) days after receipt of the Option Notice, the Companyshall give written notice to the stockholder desiring to sell or transferShares of the number of such Shares to be purchased (or, if no Shares are to bepurchased, stating such fact) by the Company pursuant to the terms of thisSection 10.3 (the “***PurchaseNotice***”).  Purchasespursuant to this Section 10.3 shall be consummated within thirty (30) daysafter delivery of the Purchase Notice to the selling stockholder, but in no eventlater than the expiration of the Option Period. The purchase price shall be paid at the closing in cash, by check, bycancellation of money purchase indebtedness, or, if the payment terms set forthin the Option Notice differ from payment in cash or by check at closing, inaccordance with the payment terms set forth in the Option Notice (or payment ofthe amount set forth in the Company’s Notice in cash, by cancellation of moneypurchase indebtedness, or by check).  Thepurchase price shall be paid against surrender by the selling stockholder ofone or more stock certificates evidencing the number of Shares specified in theOption Notice, free and clear of all security interests and liens, with dulyendorsed stock powers.

 

(d)           Unlessall of the Shares referred to in the Option Notice are to be purchased asindicated in the Purchase Notice, the stockholder desiring to sell or transfermay dispose of any Shares referred to in the Option Notice that are not to bepurchased by the Company to the person or persons specified in the OptionNotice during a period of twenty (20) days commencing upon his or her receiptof the Purchase Notice; provided, however, that he shall not sell ortransfer such Shares (a) at a lower price or on terms more favorable to the Participantor transferee than those specified in the Option Notice, and (b) to a personother than the person or persons specified in the Option Notice; and providedfurther that such transfer is consistent with the other provisions andlimitations of the Plan and this Option Agreement (including these Terms).  If the transfer is not consummated withinsuch twenty (20) day period, the stockholder shall again offer such Shares tothe Company pursuant to the terms of this Section 10.3 prior to any sale ortransfer to the same or any other person.

 

(e)           Notwithstandinganything to the contrary, the Company may assign any or all of its rights underthis Section 10.3 to one or more stockholders of the Company.

 

(f)            TheCompany’s Right of First Refusal pursuant to this Section 10.3 shall terminateto the extent it is not exercised prior to the Public Offering Date or theconsummation of a sale of all or substantially all of the assets or CommonStock of the Company to a person who is not an affiliate of the Company.

 

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11.           **Put Right**.

 

11.1         Followingthe second anniversary of the Award Date, Participant shall have the right (the“***Put Right***”) torequire, upon notice to the Company, that the Company purchase some or all of theShares (the “***Put Shares***”)under the terms provided in this Section 11.

 

11.2         Participantmay exercise the Put Right no more than once per fiscal quarter by providingnotice (“***Put Notice***”)to the Company during the thirty (30) day period immediately following theconclusion of a fiscal quarter (the “***PutNotice Period***”).  The PutNotice shall specify the number of Shares for which the Participant seeks toexercise the Put Right and shall specify a closing date for the purchase whichshall be not less than thirty (30) days after the date of the Put Notice.

 

11.3         Withinfifteen (15) days after receipt of the Put Notice, the Company shall providenotice (“***Price Notice***”)to the Participant of the purchase price of the Put Shares.  The purchase price for the Put Shares shallbe Fair Value (as defined in Section 11.7) of the shares on the date of the PutNotice, provided, however, that if the Fair Value is determinedin accordance with subsection (d) of Section 9.4, the Price Notice must containonly a statement to that effect along with the name of the independent thirdparty selected by the Company to determine Fair Value.

 

11.4         Thenumber of Shares that the Company may be required topurchase during any Put Notice Period shall not exceed the lesser of(i) 0.5% of the number ofSharesof Common Stock then outstanding and (ii) the maximum number of Shares theCompany may lawfully purchase at the closing date of the purchase under Section160 and other applicable provisions of the Delaware General Company Law; provided,however, that in no event shall the Company be required to purchase Sharesunless, until and to the extent such purchase is permitted by the terms of theCompany’s primary credit facility and the Indenture relating to the Company’s8.75% Senior Notes due 2011, as amended and supplemented from time totime.  If (x) the Company grants a PutRight to other employees of or consultants to the Company or its subsidiaries,(y) more than one Put Notice is given during a Put Notice Period and (z) thelimitations imposed by this Section 11.4 (other than subsection (i)) on theability of the Company to purchase Shares allow the Company to purchase some,but not all Shares subject to such Put Notices, the Company shall pay themaximum amount it is permitted to pay hereunder to such persons pro rata inaccordance with the number of Put Shares designated by them in their respectivePut Notices.

 

11.5         Thepurchase price for the Put Shares shall be paid by the Company in the form of acheck or electronic transfer of immediately available funds on the date setforth in the Put Notice which shall be no earlier than sixty (60) days afterthe date of the Put Notice; provided, however, that if Fair Valueis determined by an independent third party pursuant to Section 9.4(d), thepurchase price for the Put Shares shall be net of one-half of the expenses ofthe independent third party and the net purchase price shall be paid withinthirty (30) days after the independent third party provides its determinationof Fair Value to both the Participant and the Company.  The purchase price shall be paid againstsurrender by the Participant of one or more stock certificates evidencing thenumber of Shares specified in the Put Notice, free and clear of all securityinterests and liens, with duly endorsed stock powers.  No adjustments (other than

 

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pursuant to Section 4.2 of the Plan) shall be made to the purchaseprice for fluctuations in the value of the Common Stock after the date of the PutNotice.

 

11.6         Participant’sPut Right shall terminate to the extent that it is not exercised prior to thefirst to occur of (i) the Public Offering Date, (ii) the consummation of a saleof all or substantially all of the assets or Common Stock of the Company to aperson who is not an affiliate of the Company or (iii) March 1, 2015.

 

11.7         Forthe purpose of this Option Agreement, “***FairValue***” shall mean:

 

(a)           ifthe stock is listed or admitted to trade on a national securities exchange, theclosing price of the stock on the Composite Tape, as published in the WesternEdition of The Wall Street Journal, of the principal national securitiesexchange on which the stock is so listed or admitted to trade, on such date,or, if there is no trading of the stock on such date, then the closing price ofthe stock as quoted on such Composite Tape on the next preceding date on whichthere was trading in such shares;

 

(b)           ifthe stock is not listed or admitted to trade on a national securities exchange,the last/closing price for the stock on such date, as furnished by the NationalAssociation of Securities Dealers, Inc. (“***NASD***”) through the NASDAQ National Market ReportingSystem or a similar organization if the NASD is no longer reporting suchinformation;

 

(c)           ifthe stock is not listed or admitted to trade on a national securities exchangeand is not reported on the National Market Reporting System, the mean betweenthe bid and asked price for the stock on such date, as furnished by the NASD ora similar organization; or

 

(d)           ifthe stock is not listed or admitted to trade on a national securities exchange,is not reported on the National Market Reporting System and if bid and askedprices for the stock are not furnished by the NASD or a similar organization,the value, as mutually agreed by the Company and the Participant within thirty(30) days after the date of the Put Notice, as applicable, or, in the absenceof such agreement, as determined by an independent third party selected by theParticipant and the Company, based on the trading values of a comparable groupof public companies with appropriate discounts for the illiquidity and minoritystatus of the Shares, provided, however, that the discounts forall such factors shall not exceed 15% in the aggregate.  If the Company and the Participant are unableto select promptly a mutually agreeable independent third party for thisdetermination, the independent third party shall be selected pursuant to C.R.S.Section 13-22-205.  All fees and expensesof the independent third party shall be borne equally by the Company and theParticipant.

 

12.           **No Stockholder Rights Following Exercise of aRepurchase or Put Right**. If the Participant (or any permitted transferee who is an employee ofthe Company) ceases to be an employee of the Company and holds Shares as towhich the Right of First Refusal or Put Right has been exercised, theParticipant shall be entitled to the value of such Shares in accordance withthe provisions of Section 10 or 11, as applicable, but (unless otherwiserequired by law) shall no longer be entitled to participation in the Company orother rights as a stockholder with

 

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respect to the Shares subject to the repurchase or put.  To the maximum extent permitted by law, theParticipant’s rights following the exercise of the Right of First Refusal orPut Right shall, with respect to the repurchase or put and the Shares coveredthereby, be solely the rights that he has as a general creditor of the Companyto receive payment of the amount specified in Section 10 or 11, as applicable.

 

13.           **Tag Along Right.**  If Timothy M. Marquez or any affiliatethereof (collectively, “***Marquez***”)proposes to sell, to a Third Party Purchaser (as defined below) in onetransaction or in a series of related transactions ( a “***Tag Along Sale***”) either (i) more than 50% of his equityinterest in the Company or (ii) control of the Company, then the Participantshall have the right (the “***Tag AlongRight***”) to participate in such Tag Along Sale on the followingterms:

 

13.1         Marquezshall give the Participant not less than 20 days’ written notice (a “**Sale Notice**”) of his intention, describingthe price offered, all other material terms and conditions of the Tag AlongSale and, if the consideration payable pursuant to the Tag Along Sale consistsin whole or in part of consideration other than cash, such information relatingto such other consideration as the Participant may reasonably request.

 

13.2         Inconnection with any Tag Along Sale, the Participant shall have the right, inhis sole discretion, to sell, at a price equal to the average consideration pershare received by Marquez for all shares of Common Stock sold by Marquez in theTag Along Sale, and otherwise on the same terms and conditions, as Marquez, thelesser of either (i) all of the Shares then held by him or (ii) a portion ofsuch Shares equal to a fraction, the numerator of which is the total number ofshares of Common Stock to be purchased by the Third Party Purchaser, and thedenominator of which is the number of shares of Common Stock owned by personsother than the Participant.  Anyfractional shares will be rounded to the nearest whole share.

 

13.3         TheParticipant must exercise his tag-along right by giving written notice toMarquez within ten (10) days after the delivery of a Sale Notice, specifyingthe number of Shares that the Participant desires to include in the Tag AlongSale.  At the closing for the Tag AlongSale, against payment of the consideration, the Participant will deliver to theThird Party Purchaser the certificate or certificates representing such numberof Shares free and clear of security interests and liens and duly endorsed,together with all other documents necessary to effect such Tag Along Sale.

 

13.4         Thereshall be no liability on the part of Marquez to the Participant if the proposedthird party sale is not consummated for any reason.

 

13.5         Forthe purpose of this Agreement, a “***ThirdParty Purchaser***” means any person that is not a stockholder oran affiliate thereof that purchases or agrees to purchase the shares of CommonStock in connection with a Tag Along Sale or Compelled Sale (as defined inSection 14).

 

13.6         Participant’s Tag Along Right shall terminate to the extent that it is notexercised prior to the Public Offering Date.

 

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14.           **Right to Compel Sale**.

 

14.1         Ifat any time Marquez proposes to sell all, or a majority of his, its or theirshares of Common Stock to a Third Party Purchaser, Marquez shall have the right(the **“*Compelled Sale Right*”**),exercisable as set forth below, to compel the Participant to sell to the ThirdParty Purchaser (a “***CompelledSale***”) all, but not less than all, of the shares of such CommonStock (to the extent acquired upon exercise of the Option), if any, then heldby the Participant.  In connection withany Compelled Sale, the Participant will receive a price equal to the averageconsideration per share received by Marquez for all shares of Common Stock soldby Marquez in the Compelled Sale.

 

14.2         Inthe event Marquez elects to exercise its right to cause a Compelled Sale, itwill deliver written notice (a “**CompelledSale Notice**”) to the Participant and the Company, setting forth theconsideration and describing the other material terms and conditions of theCompelled Sale, including the proposed closing date, which shall be not lessthan 20 days from the date the Compelled Sale Notice is delivered.  At the closing for the Compelled Sale, againstpayment of the consideration, the Participant shall deliver to the Third PartyPurchaser the certificate or certificates representing the number of shares ofCommon Stock held by the Employee, duly endorsed and free and clear of securityinterests and liens, together with all other documents necessary to effect suchCompelled Sale.

 

14.3         Thereshall be no liability on the part of Marquez to the Participant if any proposedCompelled Sale is not consummated for any reason.

 

14.4         TheCompelled Sale Right shall terminate to the extent that it is not exercisedprior to the Public Offering Date.

 

15.           **Bonus Payment**.

 

15.1         Inthe event the Company declares and pays a cash dividend to its commonstockholders, the Participant shall be entitled to receive a cash payment (the“***Dividend Payment***”)from the Company equal to the product of (i) the per share amount of thedividend payable to holders of the Company’s Common Stock, and (ii) the numberof shares of Common Stock issuable upon exercise of Participant’s Options(whether vested or not) as of the record date used by the Company for thepurpose of determining the stockholders that are eligible to receive thedividend.

 

15.2         TheCompany shall pay the Dividend Payment to the Participant within thirty (30)days after the date on which the Company pays the cash dividend on its CommonStock.

 

15.3       Allpayments made pursuant to this Section 15 shall be net of any withholding orother taxes applicable to such payment.

 

16.           **Plan**. The Option and all rights of the Participant under this Option Agreementare subject to, and the Participant agrees to be bound by, all of the terms andconditions of the Plan, incorporated herein by this reference.  In the event of a conflict or inconsistencybetween this Option Agreement and the Plan, this Option Agreement shall govern.  The Participant acknowledges receipt of acopy of the Plan and agrees to be bound by the terms thereof and of

 

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this Option Agreement.  TheParticipant acknowledges reading and understanding the Plan and this OptionAgreement.  Unless otherwise expresslyprovided in other sections of this Option Agreement, provisions of the Planthat confer discretionary authority on the Board or the Committee do not andshall not be deemed to create any rights in the Participant unless such rightsare expressly set forth herein or are otherwise in the sole discretion of theBoard or the Committee so conferred by appropriate action of the Board or theCommittee under the Plan after the date hereof.

 

17.           **Satisfaction of All Rights to Equity**.  The Option is in complete satisfaction of anyand all rights that the Participant may have (under an employment, consulting,or other written or oral agreement with the Company, or otherwise) to receive(1) stock options or a restricted stock award with respect to the Company’ssecurities, and/or (2) any other equity or derivative security in or withrespect to the Company.  This OptionAgreement supersedes the terms of all prior understandings and agreements,written or oral, of the parties with respect to such matters.  The Participant shall have no further rightsor benefits under any prior agreement conveying any right with respect to anysecurity or derivative security in or with respect to the Company.  The foregoing notwithstanding, this Section17 shall not adversely affect the Participant’s rights under any prior optionor restricted stock agreement under the Plan (provided such agreement isexpressly labeled as an option, restricted stock, or award agreement under thePlan and is similar in form to this Option Agreement) which has been signed byan authorized officer of the Company.

 

18.           **Miscellaneous**

 

18.1         EntireAgreement.  This Option Agreement(including these Terms and together with the form of Exercise Agreementattached hereto) and the Plan together constitute the entire agreement andsupersede all prior understandings and agreements, written or oral, of theparties hereto with respect to the subject matter hereof.  The Plan, this Option Agreement and theExercise Agreement may be amended pursuant to Section 4.5 of the Plan.  Such amendment must be in writing and signedby the Company.  The Company may,however, unilaterally waive any provision of the Option Agreement in writing tothe extent such waiver does not adversely affect the interests of theParticipant hereunder, but no such waiver shall operate as or be construed tobe a subsequent waiver of the same provision or a waiver of any other provisionhereof.

 

18.2         DelawareLaw.  This Option Agreement and theExercise Agreement shall be governed by and construed and enforced inaccordance with the laws of the State of Delaware without regard to conflict oflaw principles thereunder.

 

18.3         LimitedRights**.**  The Participant has no rights as astockholder of the Company with respect to the Option as set forth in Section4.6 of the Plan.  The Option does notplace any limit on the corporate authority of the Company as set forth inSection 4.12 of the Plan.

 

18.4         Arbitration.  Any dispute, controversy or claim arising outof or relating to this Option Agreement (including these Terms), the Plan,and/or the Exercise Agreement, their enforcement or interpretation, or becauseof an alleged breach, default, or misrepresentation in connection with any oftheir provisions, will be determined exclusively by confidential, final and

 

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binding arbitration in Denver, Colorado, pursuant to the ColoradoArbitration Act.  The arbitration shallbe before a single neutral arbitrator mutually agreed upon by the parties or,if the parties are unable to agree upon an arbitrator, the arbitrator shall beselected pursuant to C.R.S. Section 13-22-205. Disputes, controversies or claims subject to final and binding arbitrationunder this Agreement include, without limitation, all those that couldotherwise be tried in court to a judge or jury in the absence of this Section18.4.  The Participant and the Companyagree that they each expressly waive any rights to have such matters heard ortried before a judge or jury in another tribunal.  The arbitrator’s award in any JAMS proceedingwill be final, binding, and conclusive upon the parties, subject only tojudicial review provided by statute, and a judgment rendered on the arbitrationaward can be entered in any state or federal court having jurisdictionthereof.  Nothing in this Section 18.4,however, shall limit the right of the parties to stipulate and agree to conductthe arbitration before and pursuant to the then existing rules of any otheragreed-upon arbitration services provider.

 

18.5         Notice**. **Anynotice to be given under the Option Agreement shall be in writing and addressedto the Company at its principal office inthe Denver metropolitan area, Colorado to the attention of the Chief Executive Officer, with a copyaddressed to the Company at its principal office in Carpinteria, California tothe attention of the General Counsel, and to the Participant at theaddress reflected or last reflected on the Company’s payroll records, or tosuch other address as is provided by the Participant in writing.  Any notice shall be delivered in person orshall be enclosed in a properly sealed envelope, addressed as aforesaid,registered or certified, and deposited (postage and registry or certificationfee prepaid) in a post office or branch post office regularly maintained by theUnited States Government.  Any suchnotice shall be given only when received, but if the Participant is no longeran Eligible Person, shall be deemed to have been duly given as of the date mailedin accordance with this provision.

 

 

*(Remainder of PageIntentionally Left Blank)*

 

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EXHIBIT A

** **

**VENOCO,INC.**

**2000STOCK INCENTIVE PLAN**

**OPTIONEXERCISE AGREEMENT**

 

The undersigned (the “***Purchaser***”) hereby irrevocably elects to exercisehis/her right, evidenced by that certain Nonqualified Stock Option Agreementdated as of                                         (the “***Option Agreement***”)under the Venoco, Inc. 2000 Stock Incentive Plan (the “***Plan***”), to purchase                                     shares of Common Stock, par value $0.01 per share (the “***Shares***”), of Venoco, Inc., a Delaware Company (the “***Company***”), at an exerciseprice of                 dollars per share.  Capitalized termsused herein and not otherwise defined shall have the meaning set forth in theOption Agreement, or if not contained therein, in the Plan.

 

**1.****             Form of Warrant Exercise Price.**  The Purchaser intends that payment of theExercise Price shall be made as (check applicable line):

 

                              a cash exercise with respect to                   shares of Common Stock; and/or

 

                              a Cashless Exercise with respect to                   shares of Common Stock.

 

**2.****             PurchasePrice**.  In the event the Purchaserhas elected a cash exercise with respect to some or all of the Shares to beissued pursuant hereto, the Purchaser shall pay the exercise price of $                        per share, for an aggregate exercise amount of $                    to the Company in accordance with the terms of the Option Agreement.

 

**3.****             Delivery.**  The Company shall deliver a certificaterepresenting the Shares and registered in the name of the Purchaser to:

 

 

**4.****             InvestmentRepresentations**.  The Purchaseracknowledges that the sale of the Shares by the Purchaser is restricted by SECRule 701.  The Purchaser hereby affirmsas made as of the date hereof the representations in Section 7 of the “Termsand Conditions of Nonqualified Stock Option” (which are attached to and a partof the Option Agreement, the “***Terms***”)and such representations are incorporated herein by this reference.  The Purchaser represents that he has no needfor liquidity in this investment, has the ability to bear the economic risk ofthis investment, and can afford a complete loss of the purchase price for theShares.  The Purchaser acknowledgesreceipt of the Company’s condensed consolidated financial information.  The Purchaser also understands andacknowledges (i) that the certificates representing the Shares will be legendedas provided for in Section 4.3.3 of the Plan, and (ii) that the Company has noobligation to register the Shares or file any registration statement underfederal or state securities laws.

 

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**5.****             Restrictionson the Shares.**  The Purchaserrepresents that he has read the Plan and the Option Agreement and acknowledgesthat the Shares are and shall remain subject to various restrictions, includingbut not limited to, restrictions on transfer, a right of first refusal in favorof the Company, a compelled sale right in favor of the Company, restrictions ontransfer under state and federal securities laws and a lock-up provision, ineach case as set forth in the Plan or the Option Agreement.  As a condition to any permitted transfer ofthe Shares, the Company may require the transferee to execute a writtenagreement, in a form acceptable to the Committee, that the transfereeacknowledges and agrees to the foregoing terms and restrictions imposed on theShares.

** **

**6.****            ****Plan and Option Agreement**.  The Purchaser acknowledges that all ofhis/her rights are subject to, and the Purchaser agrees to be bound by, all ofthe terms and conditions of the Plan and the Option Agreement (including theTerms), both of which are incorporated herein by this reference.  If a conflict or inconsistency between theterms and conditions of this Exercise Agreement and of the Plan and OptionAgreement shall arise, the terms of the Plan and/or Option Agreement shallgovern.  The Purchaser acknowledgesreceipt of a copy of all documents referenced herein (including the Terms and adisclosure statement) and acknowledges reading and understanding thesedocuments and having an opportunity to ask any questions that he may have hadabout them.  Any controversy or claim arisingout of or relating to this Exercise Agreement shall be submitted to arbitrationin accordance with Section 18.4 of the Terms, and Delaware law shall apply asprovided in Section 18.2 of the Terms.

** **

**7.****             EntireAgreement**.  This Exercise Agreement,the Option Agreement (including the Terms), and the Plan together constitutethe entire agreement and supersede all prior understandings and agreements,written or oral, of the parties hereto with respect to the subject matterhereof.  The Plan, the Option Agreementand this Exercise Agreement may be amended pursuant to Section 4.5 of thePlan.  Such amendment must be in writingand signed by the Company.  The Companymay, however, unilaterally waive any provision hereof or of the OptionAgreement in writing to the extent such waiver does not adversely affect theinterests of the Participant hereunder, but no such waiver shall operate as orbe construed to be a subsequent waiver of the same provision or a wavier of anyother provision hereof.

 
| ** **“**PURCHASER**” |       | **ACCEPTED BY:  VENOCO, INC.**                        |
|-------------------------------------|------------|-------------------------------------------------------|
| ** **                          | ** ** | ** **                                            |
| *Signature*                         | ** ** |  By:                                             | ** ** | ** ** |
|                                | ** ** |                                                  |
| ** **                          | ** ** |  Its:                                            | ** ** | ** ** |
| *Print Name*                        | ** ** |                                                  |
| * *                            | ** ** |                                                  |
|                                | ** ** | *(To be completed by the Company after the price*     |
| *Date*                              | ** ** | *(including applicable withholding taxes), value (if* |
| * *                            | ** ** | *applicable) and receipt of funds is verified.)*      |

 

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