**Exhibit10.1**

 

*Execution Copy*

 

**EMPLOYMENT AGREEMENT**

 

This Employment Agreement(“Agreement”) is entered into effective as of the 15th day of August2005 by and between Venoco, Inc., a Delaware corporation (“Company”), and MarkDePuy (“Employee”).

 

WHEREAS, the Companydesires to employ Employee as a Vice President, and Employee desires to acceptsuch employment;

 

NOW, THEREFORE, inconsideration of the mutual covenants, representations, warranties, andagreements contained herein, and for other valuable consideration, the receiptand adequacy of which are hereby acknowledged, the parties agree as follows:

 

1.             Employment.  The Company hereby employs Employee, andEmployee hereby accepts employment by the Company, as Vice President on theterms and conditions set forth in this Agreement.

 

2.             Termof Employment.  Subject to theprovisions for earlier termination provided in the Agreement, the term of thisAgreement (the “Term”) shall commence on the effective date of this Agreementas stated above and shall terminate on December 31, 2006; *provided,however,* commencing on January 1, 2006 and on each January 1thereafter, the term of this Agreement shall automatically be extended oneadditional year unless, not later than September 30 of the preceding year, theBoard of Directors of the Company (the “Board”) shall give written notice toEmployee that the Term of the Agreement shall cease to be so extended; *provided, further,* that if a Change in Control, as definedin Section 8, shall have occurred during the original or extended Term of thisAgreement, the Term shall continue in effect for a period of not less than 36months beyond the date of such Change in Control.  In no event, however, shall the Term of thisAgreement extend beyond the end of the calendar month in which Employee’s 65thbirthday occurs.  Notwithstanding anyprovision of this Agreement to the contrary, termination of this Agreementshall not alter or impair any rights or benefits of Employee (or Employee’sestate or beneficiaries) that have arisen under this Agreement on or prior tosuch termination, including, without limitation, the provisions of Sections9(c), 15 and 18.

 

3.             Employee’sDuties.  During the Term of thisAgreement, Employee shall serve as the Vice President of the Company, based inCarpinteria California, and with such customary duties and responsibilities asmay from time to time be assigned to him by the Chief Executive Officer and theBoard, provided that such duties are at all times consistent

 

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with the duties of suchposition.

 

Employee agrees to devotereasonable attention and time during normal business hours to the business andaffairs of the Company and, to the extent necessary to discharge the duties andresponsibilities assigned to Employee hereunder, to use reasonable best effortsto perform faithfully and efficiently such duties and responsibilities.

 

4.             BaseCompensation.  For services renderedby Employee under this Agreement, the Company shall pay to Employee a basesalary (“Base Compensation”) of $165,000.00 per annum, payable in accordancewith the Company’s customary payroll practice for its executive officers.  The amount of Base Compensation shall bereviewed periodically and may be increased to reflect inflation or such otheradjustments as the Board may deem appropriate but Base Compensation, asincreased, may not be decreased thereafter.

 

5.             Signingand Annual Bonuses. Upon Employee’s execution of this Agreement, theCompany shall pay to Employee a signing bonus of $50,000.00 (which bonus shallbe returned to the Company in full if Employee terminates his employment withinsix (6) months of the execution of this Agreement).   Employee shall be eligible to participate inthe Company’s incentive compensation plan; under which cash bonuses are paid toemployees based upon the performance of both the Company and the employee.  The target annual bonus for the position ofVice President shall be $50,000. The annual bonus award will be determined bythe Compensation Committee each year for performance during the prior year andpaid on May 31 of the year in which it is determined. The amount of the bonusshall be based on performance of the Employee and the Company as measuredagainst goals established by the Compensation Committee.

 

6.             StockOptions.  Employee shall be grantedoptions to purchase shares of Company stock as set forth herein.  Stock options will at a minimum includeprovisions similar to those in Attachment I, Stock Option Description.  The number of option shares and the strikeprice of the shares shall be:  12.5shares at $90,000 per share which the parties hereto agree represents theapproximate current fair market value of the Company stock and 12.5 shares at$100,000 per share. The strike price will be adjusted for any stocksplits, stock dividends, recapitalization, or similar events subsequent tosigning of this agreement. Pro rata for the various strike prices, twentypercent (20%) of such options shall vest immediately upon being granted, andthe remainder shall vest in equal lots on the first, second, third, and fourthanniversaries of the date that Employee commences employment. In the event of aChange in Control as defined in Section 8 hereof or discharge other than forMisconduct (as defined herein) all options shall become immediately vested.Vested options shall remain exercisable for a period of two (2) years followingtermination of employment. Unvested options shall expire upon termination ofemployment. Should the Company not adopt a Stock Incentive Plan that affordsEmployee such options, then the Company shall provide Employee with alternatecompensation that is at least as valuable to

 

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Employee as the optionscontemplated herein.

 

7.             AdditionalBenefits.  In addition to the othercompensation and benefits provided for in this Agreement, Employee shall beentitled to receive all fringe benefits and perquisites offered by the Companyto its executive officers.  Such benefitsshall include, without limitation, reimbursement of relocation expenses,including temporary housing for Employee and his family for up to 60 days,  4 weeks paid vacation per year; participationin the Company’s 401(k) Plan; participation in other incentive and benefitplans offered generally to key employees; participation in various employeebenefit plans or programs provided to the employees of the Company in general,subject to the regular eligibility requirements with respect to each of suchbenefit plans or programs; and such other benefits or prerequisites as may beapproved by the Board during the Term of this Agreement.  In addition, Employee shall be entitled to receive mortgage assistance in the amountof $2500.00 per month during the Term of this Agreement.  Nothing in this paragraph shall be deemed toprohibit the Company from making any changes in any plans, programs or benefitsdescribed in this Section 7, provided the change similarly affects allexecutives of the Company similarly situated.

 

8.             Changein Control.

 

For purposes of thisAgreement, a “Change in Control” shall mean the occurrence of one of thefollowing events:

 

(i)            TimothyM. Marquez, Bernadette B. Marquez, their respective legal representatives,devisees, donees and heirs and any Trust for the benefit of either or both ofTimothy M. Marquez and Bernadette B. Marquez and/or the issue of either of them(the “Marquez Family”) individually or collectively no longer are the“beneficial owners” (as defined in Rule 13d-3 under the Securities Exchange Actof 1934), directly or indirectly, of securities of the Company representingmore than 50% of the combined voting power of the Company’s then outstandingsecurities;

 

(ii)           thestockholders of the Company approve, and the Company consummates,  a merger or consolidation of the Company withany other corporation, other than (a) a merger or consolidation which wouldresult in the voting securities of the Company outstanding immediately priorthereto continuing to represent (either by remaining outstanding or by beingconverted into voting securities of the surviving entity) more than 65% of thecombined voting power of the voting securities of the Company (or suchsurviving entity) outstanding immediately after such merger or consolidation or(b) a merger or consolidation effected to implement a recapitalization of theCompany (or similar transaction) in which no “person” (as such term is used inSection 13(d) and 14(d) of the Exchange Act other than the Marquez Family)acquires more than 50% of the combined voting power of the Company’s thenoutstanding securities; or

 

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(iii)          the stockholders of the Company approve aplan of complete liquidation of the Company or an agreement for the sale ordisposition by the Company of all or substantially all of the Company’sassets.  For purposes of this clause(iii), the term “the sale or disposition by the Company of all or substantiallyall of the Company’s assets” shall mean a sale or other disposition transactionor series of related transactions (other than transactions related to thecreation of a master limited partnership or royalty trust in which the Companycontinues its corporate existence), involving assets of the Company or of anydirect or indirect subsidiary of the Company (including the stock of any director indirect subsidiary of the Company) in which the value of the assets orstock being sold or otherwise disposed of (as measured by the purchase pricebeing paid therefor or by such other method as the Board determines isappropriate in a case where there is no readily ascertainable purchase price)constitutes more than two-thirds of the “fair market value of the Company” (ashereinafter defined).  For purposes ofthe preceding sentence, the “fair market value of the Company” shall be theaggregate market value of the Company’s outstanding common stock (on a fullydiluted basis) plus the aggregate market value of the Company’s otheroutstanding equity securities.  Theaggregate market value of the Company’s equity securities shall be determinedby multiplying the number of shares of the Company’s common stock (on a fullydiluted basis) outstanding on the date of the execution and delivery of adefinitive agreement with respect to the transaction or series of relatedtransactions (the “Transaction Date”) by the average closing price of suchsecurity for the ten trading days immediately preceding the Transaction Date,or if not publicly traded, by such other method as the Board shall determine isappropriate.

 

9.             Termination.  This Agreement may be terminated prior to theend of its Term as set forth below.

 

(a)           Resignation.  Employee may resign, including by reason ofretirement, his position at any time.  Inthe event of such resignation, except in the case of resignation on orfollowing a Change in Control either (i) for Good Reason (as defined below) or(ii) by Employee, with or without Good Reason, during the 30-day periodfollowing the six-month anniversary of the date of the Change in Control (the“Window Period”), Employee shall not be entitled to further compensationpursuant to this Agreement.  Aresignation by Employee during the Window Period shall be treated for allpurposes the same as a resignation by Employee for Good Reason.

 

(b)           Death.  If Employee’s employment is terminated due tohis death, the Company shall pay Employee’s beneficiaries or legalrepresentatives (i) within 15 days, any Base Compensation and vacation paywhich had accrued hereunder at the date of Employee’s death; and (ii) within 30days, the same benefits that

 

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Employee would receive inthe event of Discharge following a Change in Control as described in Section9(c)(i), below.

 

(c)           Discharge.

 

(i)            The Company may terminate this Agreementand Employee’s employment for any reason deemed sufficient by the Company uponnotice as provided in Section 12. However, in the event that Employee’s employment is terminated duringthe Term by the Company on or following a Change in Control and for any reasonother than his Misconduct (as defined in Section 9(c)(ii) below) then: (A) theCompany shall pay in a lump sum, in cash, to Employee, within 15 days of theDate of Termination, an amount equal to three times the sum of (1) Employee’sBase Compensation, (2) an amount equal to the highest incentive award paid orpayable, as the case may be, to Employee under the Company’s IncentiveCompensation Plan during the current year and the three years prior totermination, (3) an amount equal to the amount of contributions that theCompany would have made on behalf of Employee under the Company’s 401(k) Planduring the prior year disregarding any limitations on benefits or coveredcompensation imposed by I.R.C. Sections 401(a)(17), 401(k), 401(m) or 415; (B) forthe 36-month period after such Date of Termination, the Company shall provideor arrange to provide Employee (and Employee’s dependents) with life,disability, accident and group health insurance benefits substantially similarto those which Employee (and Employee’s dependents) were receiving immediatelyprior to the Notice of Termination, with the Employee charged a monthlypremium(s) for such coverage(s) that does not exceed the premium(s) charged toan active employee for comparable coverage(s); benefits otherwise receivable byEmployee pursuant to this clause (B) shall be reduced to the extent comparablebenefits are actually received by Employee (and Employee’s dependents) duringthe 36-month period following Employee’s termination, and any such benefitsactually received by Employee shall be reported to the Company (to the extentcoverage and/or benefits received under a self-insured health plan of theCompany (any successor or affiliate) are taxable to Employee, the Company shallmake Employee “whole” on a net after tax basis); (C) within 30 days of the Dateof Termination or, if later, the first date on which such payment would notsubject Employee to suit under Section 16(b) of the Securities ExchangeAct of 1934, if applicable, the Company shall offer to pay to Employee forcancellation of all outstanding stock-based awards then held by Employee on theDate of Termination (collectively, “Awards”), a lump sum amount in cash equalto the sum of the value (with respect to an option or stock appreciation right,the “spread”; and with respect to restricted stock or phantom stock, the valueof an

 

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unrestrictedshare) of all such Awards, calculated, where applicable, as if all corporateperformance goals had been achieved (thus warranting full value of the Award)and in the case where the Company’s stock is not publicly traded, using a fairmarket value on the Date of Termination as determined by an independent thirdparty agreeable to the Company and Employee. The fair market value shall be determined based on the trading values ofa comparable group of public companies as determined by the independent thirdparty and the aggregate value discount applied for various factors includingilliquidity, being private and minority ownership shall not exceed 15%.

 

(ii)           Notwithstandingthe foregoing provisions of this Section 9, in the event Employee is terminatedbecause of Misconduct, the Company shall have no compensation obligationspursuant to this Agreement after the Date of Termination.  As used herein, “Misconduct” means (a) thewillful and continued failure by Employee to substantially perform his dutieswith the Company (other than any such failure resulting from Employee’sincapacity due to physical or mental illness or any such actual or anticipatedfailure after the issuance of a Notice of Termination by Employee for GoodReason), after a written demand for substantial performance is delivered toEmployee by the Board, which demand specifically identifies the manner in whichthe Board believes that Employee has not substantially performed his duties, or(b) the willful engaging by Employee in conduct which is demonstrably andmaterially injurious to the Company, monetarily or otherwise.  For purposes hereof, no act, or failure toact, on Employee’s part shall be deemed “willful” unless done, or omitted to bedone, by Employee not in good faith and without reasonable belief thatEmployee’s action or omission was in the best interest of the Company.  Notwithstanding the foregoing, Employee shallnot be deemed to have been terminated for Misconduct unless and until thereshall have been delivered to Employee a copy of a resolution duly adopted bythe affirmative vote of not less than three-quarters of the entire membershipof the Board at a meeting of the Board called and held for such purpose (afterreasonable notice to Employee and an opportunity for Employee, together withEmployee’s counsel, to be heard before the Board), finding that in the goodfaith opinion of the Board Employee was guilty of conduct set forth above andspecifying the particulars thereof in detail.

 

(iii)  If the Company terminates this Agreement andEmployee’s employment before the expiration of the Term, other than following aChange in Control and other than for Misconduct, the Company shall pay in alump sum, in cash, to Employee within 15 days of the Date of Termination, anamount equal to two times the sum of (1) Employee’s Base Compensation and (2)an amount equal the greater of $50,000 or the highest

 

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incentive award paid orpayable, as the case may be, during the three years prior to termination.

 

(d)           Disability.

 

(i)            IfEmployee shall have been absent from the full-time performance of Employee’sduties with the Company for six consecutive months as a result of Employee’sincapacity due to physical or mental illness, as determined by Employee’sphysician, and within 30 days after written Notice of Termination is given bythe Company Employee shall not have returned to the full-time performance ofEmployee’s duties, Employee’s employment may be terminated by the Company for“Disability” and Employee shall upon such termination be entitled to receivethe payments described in Section 9(c)(i) as though Employee has been terminated following a Change in Control.

 

(ii)           IfEmployee fails during any period during the Term to perform Employee’sfull-time duties with the Company as a result of incapacity due to physical ormental illness, as determined by Employee’s physician, Employee shall continueto receive his Base Compensation, together with all compensation payable toEmployee under the Company’s Long Term Disability Plan or other similar planduring such period until this Agreement is terminated.

 

(e)           Resignationfor Good Reason.  In the event of aChange in Control, Employee shall be entitled to terminate his employment forGood Reason as defined herein.  IfEmployee terminates his employment for Good Reason, Employee shall be entitledto the compensation and benefits provided in Paragraph 9(c)(i) hereof.  “Good Reason” shall mean (1) the breach ofany of the Company’s obligations under this Agreement without Employee’sexpress written consent or (2) the occurrence of any of the following circumstanceswithout Employee’s express written consent unless such breach or circumstancesare fully corrected prior to the Date of Termination specified in the Notice ofTermination pursuant to Subsection 9(f) given in respect thereof:

 

(i)            theassignment to Employee of any duties that, in the good faith opinion ofEmployee, are inconsistent with the position in the Company that Employee heldimmediately prior thereto, or an adverse alteration (as determined in goodfaith by Employee) in the nature or status of Employee’s office, title,responsibilities, including reporting responsibilities, or the conditions ofEmployee’s employment from those in effect immediately prior thereto or afailure to maintain Employee as Vice President;

 

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(ii)           areduction in Employee’s Base Compensation;

 

(iii)          thefailure by the Company to pay to Employee any portion of Employee’s currentcompensation or to pay to Employee any portion of an installment of deferredcompensation under any deferred compensation program of the Company withinseven days of the date such compensation is due;

 

(iv)          thefailure by the Company to continue in effect any compensation plan in whichEmployee participates that is material to Employee’s total compensation unlessan equitable arrangement (embodied in an ongoing substitute or alternativeplan) has been made with respect to such plan, or the failure by the Company tocontinue Employee’s participation therein (or in such substitute or alternativeplan) on a basis not materially less favorable, both in terms of the amount ofbenefits provided and the level of Employee’s participation relative to otherparticipants, as existed at the time of the Change in Control;

 

(v)           thefailure by the Company to continue to provide Employee with benefitssubstantially similar to those enjoyed by Employee under any of the Company’slife insurance, medical, health and accident, or disability plans in whichEmployee was participating at the time of this Agreement; the taking of anyaction by the Company which would directly or indirectly materially reduce anyof such benefits or deprive Employee of any material fringe benefit enjoyed byEmployee at the time of this Agreement, or the failure by the Company toprovide Employee with the number of paid vacation days to which Employee isentitled on the basis of years of service with the Company (and itspredecessors) in accordance with the Company’s normal vacation policy in effectat the time of the Change in Control;

 

(vi)          thefailure of the Company to obtain a satisfactory agreement from any successor toassume and agree to perform this Agreement, as contemplated in Section 14hereof;

 

(vii)         requiringEmployee to work anywhere other than the location of the Company’s offices inCarpinteria, California except for required travel on the Company’s business toan extent substantially consistent with Employee’s business travel obligationsimmediately prior to the time of the Change in Control;

 

(viii)        theamendment, modification or repeal of any provision of the Certificate ofIncorporation, or the Bylaws of the Company which was

 

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in effect immediatelyprior to time of this Agreement, if such amendment, modification or repeal wouldmaterially adversely effect Employee’s right to indemnification by the Company;or

 

(ix)           anypurported termination of Employee’s employment that is not effected pursuant toa Notice of Termination satisfying the requirements of Subsection (f) hereof,which purported termination shall not be effective for purposes of thisAgreement.

 

Notwithstandinganything in this Agreement to the contrary, if Employee’s employment with theCompany terminates prior to, but within six months of, the date on which aChange in Control occurs and it is reasonably demonstrated by Employee thatsuch termination of employment was (i) by the Company in connection withor anticipation of the Change in Control or (ii) by Employee undercircumstances which would have constituted Good Reason if the circumstancesarose on or after the Change in Control, then, for purposes of this Agreement,Employee shall be deemed to have continued employment with the Company untilthe date of the Change in Control and then terminated his employment on suchdate for Good Reason

 

Employee’sright to terminate employment pursuant to this subsection shall not be affectedby Employee’s incapacity due to physical or mental illness.  In addition, Employee’s continued employmentfollowing any event, act or omission, regardless of the length of suchcontinued employment, shall not constitute Employee’s consent to, or a waiverof Employee’s rights with respect to, such event, act or omission constitutinga Good Reason circumstance hereunder.

 

(f)            Noticeof Termination.  On and after aChange in Control, any purported termination of Employee’s employment by theCompany or by Employee shall be communicated by written Notice of Terminationto the other party hereto in accordance with Section 12 hereof.  For purposes of this Agreement, a “Notice ofTermination” shall mean a notice which shall set forth in reasonable detail thereason for termination of Employee’s employment, or in the case of resignationfor Good Reason, said notice must specify in reasonable detail the basis forsuch resignation.  No purportedtermination which is not effected pursuant to this Section 9(f) shall beeffective.

 

(g)           Dateof Termination.  “Date ofTermination” shall mean the date specified in the Notice of Termination.  Either party may, within 15 days after anyNotice of Termination is given, provide notice to the other party pursuant toSection 12 hereof that a dispute exists concerning the termination.  Notwithstanding the pendency of any such dispute,the Company will continue to pay Employee his full compensation in effect whenthe notice giving rise to the dispute was given

 

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(including, but notlimited to, Base Compensation) and continue Employee as a participant in allcompensation, benefit and insurance plans in which Employee was participatingwhen the notice giving rise to the dispute was given, until the dispute isfinally resolved in accordance with Section 18 hereof, but in no event past theexpiration date of this Agreement.  Anypayments and benefits provided during such period of dispute shall not reduceany other payments or benefits due Employee under this Agreement nor shallEmployee be liable to repay the Company for such payments and benefits if it isfinally determined the Employee is not entitled to payments under the otherprovisions of this Agreement following Employee’s termination of employment.

 

(h)           Mitigation.  Except as otherwise provided in Section9(c)(i) with regard to life, disability, accident, and group health benefits,Employee shall not be required to mitigate the amount of any payment providedfor in this Section 9 by seeking other employment or otherwise, nor shall theamount of any payment or benefit provided for in this Agreement be reduced byany compensation earned by Employee as a result of employment by anotheremployer, self-employment earnings, by retirement benefits, by offset againstany amount claimed to be owing by Employee to the Company, or otherwise.  No amounts payable to Employee under any planor program of the Company shall reduce or offset any amounts payable toEmployee under this Agreement.

 

(i)            Section280G.

 

(1)           Toprovide Employee with adequate protection in connection with his ongoingemployment with the Company, this Agreement provides Employee with variousbenefits in the event of termination of Employee’s employment with theCompany.  If Employee’s employment isterminated following a “change in control” of the Company, within the meaningof Section 280G of the Internal Revenue Code of 1986, as amended (the“Code”), a portion of those benefits could be characterized as “excessparachute payments” within the meaning of Section 280G of the Code.  Agreement are treated as an excess parachute payment.  The parties, therefore, have agreed as setforth herein.

 

(2)           Anythingin this Agreement to the contrary notwithstanding, the payments anddistributions by the Company or any other person to or for the benefit ofEmployee (whether paid or payable or distributed or distributable pursuant tothe terms of this Agreement or otherwise (a “Payment”) shall be reduced asprovided below if the Company shall determine that (A) the Payment would besubject to the excise tax imposed by Section 4999 of the Code or any interestor penalties would be incurred by Employee with respect to such excise tax(such excise tax, together with

 

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any such interest andpenalties, are hereinafter collectively referred to as the “Excise Tax”) and(B) the amount of the Payment that Employee would retain on any after-tax,present value basis would be increased as a result of such reduction by atleast $5,000 or more.  The Employee may by written notice to theCompany designate the order in which such parachute payments will be reduced ormodified so that the Excise Tax is eliminated and the Company is not denied anyfederal income tax deductions for any “parachute payments” because of Section280G.

 

(j)  Section 409A. 

 

(1)  Anything in this Agreement to the contrary notwithstanding,if (1) on the date of termination of Employee’s employment with the Company,any of the Company’s stock is publicly traded on an established securitiesmarket or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of theCode) and (2) as a result of such termination, the Employee would receive anypayment that, absent the application of this paragraph 9(j), would be subjectto interest and additional tax imposed pursuant to Section 409A(a) of the Codeas a result of the application of Section 409A(2)(B)(i) of the Code, then nosuch payment shall be payable prior to the date that is the earliest of (i) 6months after the Employee’s termination date, (ii) the Employee’s death or(iii) such other date as will cause such payment not to be subject to suchinterest and additional tax.

 

(2)  It is the intention of the parties thatpayments or benefits payable under this Agreement not be subject to theadditional tax imposed pursuant to Section 409A of the Code.  To the extent such potential payments orbenefits could become subject to such Section, the parties shall cooperate toamend this Agreement with the goal of giving Employee the economic benefitsdescribed herein in a manner that does not result in such tax being imposed.

 

10.           Non-exclusivityof Rights.  Nothing in this Agreementshall prevent or limit Employee’s continuing or future participation in anybenefit, bonus, incentive or other plan or program provided by the Company orany of its affiliated companies and for which Employee may qualify, nor shallanything herein limit or otherwise adversely affect such rights as Employee mayhave under any stock option or other agreements with the Company or any of itsaffiliated companies.

 

11.           Assignability.  The obligations of Employee hereunder arepersonal and may not be assigned or delegated by him or transferred in anymanner whatsoever, nor are such obligations subject to involuntary alienation,assignment or transfer.  The Companyshall have the right to assign this Agreement and to delegate all rights,duties and obligations hereunder, either in whole or in part, to any parent,affiliate, successor or subsidiary organization or company of the Company, solong as the obligations of the Company under

 

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this Agreement remain theobligations of the Company.

 

12.           Notice.  For the purpose of this Agreement, noticesand all other communications provided for in the Agreement shall be in writingand shall be deemed to have been duly given when delivered or mailed by UnitedStates registered mail, return receipt requested, postage prepaid, addressed tothe Company at its principal office address, directed to the attention of theBoard with a copy to the Secretary of the Company, and to Employee at Employee’sresidence address on the records of the Company or to such other address aseither party may have furnished to the other in writing in accordance herewithexcept that notice of change of address shall be effective only upon receipt.

 

13.           Validity. The invalidity or unenforceability ofany provision of this Agreement shall not affect the validity or enforceabilityof any other provision of this Agreement, which shall remain in full force andeffect.

 

 

14.           Successors;Binding Agreement.

 

(a)           TheCompany will require any successor (whether direct or indirect, by purchase,merger, consolidation or otherwise) to all or substantially all of the businessand/or assets of the Company to expressly assume and agree to perform thisAgreement in the same manner and to the same extent that the Company would berequired to perform it if no such succession had taken place.  Failure of the Company to obtain suchagreement prior to the effectiveness of any such succession shall be a breachof this Agreement and shall entitle Employee to compensation from the Companyin the same amount and on the same terms as he would be entitled to hereunderif he terminated his employment for Good Reason, except that for purposes ofimplementing the foregoing, the date on which any such succession becomeseffective shall be deemed the Date of Termination.  As used herein, the term “Company” shallinclude any successor to its business and/or assets as aforesaid which executesand delivers the Agreement provided for in this Section 14 or which otherwisebecomes bound by all terms and provisions of this Agreement by operation oflaw.

 

(b)           ThisAgreement and all rights of Employee hereunder shall inure to the benefit ofand be enforceable by Employee’s personal or legal representatives, executors,administrators, successors, heirs, distributees, devisees and legatees.  If Employee should die while any amountswould be payable to him hereunder if he had continued to live, all suchamounts, unless otherwise provided herein, shall be paid in accordance with theterms of this Agreement to Employee’s devisee, legatee, or other designee or,if there be no such designee, to Employee’s estate.

 

15.           Indemnification.  In consideration of the premises and of themutual agreements set forth in this Agreement, the parties hereto further agreeas follows:

 

(a)           TheCompany shall pay on behalf of Employee and Employee’s

 

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executors, administratorsor assigns, any amount which Employee is or becomes legally obligated to pay asa result of any claim or claims made against Employee by reason of the factthat Employee served as an employee, director and/or officer of the Company orbecause of any actual or alleged breach of duty, neglect, error, misstatement, misleadingstatement, omission or other act done, or suffered or wrongfully attempted byEmployee in Employee’s capacity as an employee, Director and/or Officer of theCompany.  The payments that the Companywill be obligated to make hereunder shall include (without limitation) damages,judgments, settlements, costs and expenses of investigation, costs and expensesof defense of legal actions, claims and proceedings and appeals therefrom, andcosts of attachments and similar bonds; *provided, however,*that the Company shall not be obligated to pay fines or other obligations orfees imposed by law or otherwise that it is prohibited by applicable law frompaying as indemnity or for any other reason.

 

(b)           Costsand expenses (including, without limitation, attorneys’ fees) incurred byEmployee in defending or investigating any action, suit, proceeding or claimshall be paid by the Company in advance of the final disposition of such matterupon receipt of a written undertaking by or on behalf of Employee to repay anysuch amounts if it is ultimately determined that Employee is not entitled toindemnification under the terms of this Agreement.

 

(c)           Ifa claim under this Agreement is not paid by or on behalf of the Company withinninety days after a written claim has been received by the Company, Employeemay at any time thereafter bring suit against the Company to recover the unpaidamount of the claim and, if successful in whole or in part, Employee shall alsobe entitled to be paid the expense of prosecuting such claim.

 

(d)           Inthe event of payment under this Agreement, the Company shall be subrogated tothe extent of such payment to all of the rights of recovery of Employee, whoshall execute all papers required and shall do everything that may be necessaryto secure such rights, including the execution of such documents necessary toenable the Company effectively to bring suit to enforce such rights.

 

(e)           TheCompany shall not be liable under this Agreement to make any payment inconnection with any claim made against Employee:

 

(1)           forwhich payment is actually made to Employee under an insurance policy maintainedby the Company, except in respect of any excess beyond the amount of paymentunder such insurance;

 

(2)           forwhich Employee is indemnified by the Company otherwise than pursuant to thisAgreement;

 

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(3)           basedupon or attributable to Employee gaining in fact any personal profit oradvantage to which Employee was not legally entitled;

 

(4)           foran accounting of profits made from the purchase or sale by Employee ofsecurities of the Company within the meaning of Section 16(b) of the SecuritiesExchange Act of 1934 and amendments thereto; or

 

(5)           broughtabout or contributed to by the dishonesty of Employee; *provided,however,*that notwithstanding the foregoing, Employee shall beprotected under this Agreement as to any claims upon which suit may be broughtalleging dishonesty on the part of Employee, unless a judgment or other finaladjudication thereof adverse to Employee shall establish that Employeecommitted acts of active and deliberate dishonesty with actual dishonestpurpose and intent, which acts were material to the cause of action soadjudicated.

 

(f)            Employee,as a condition precedent to his right to be indemnified under this Agreement,shall give to the Company notice in writing as soon as practicable of any claimmade against him for which indemnity will or could be sought under thisAgreement.  Notice to the Company shallbe directed to the Company, Attention: Secretary (or such other address as theCompany shall designate in writing to Employee).  Notice shall be deemed received if sent byprepaid mail properly addressed, the date of such notice being the date postmarked.  In addition, Employee shall give the Companysuch information and cooperation as it may reasonably require and as shall bewithin Employee’s power.

 

(g)           Nothingherein shall be deemed to diminish or otherwise restrict Employee’s right toindemnification under any provision of the Certificate of Incorporation orBylaws of the Company or under Delaware law.

 

(h)           Duringthe Term and for a period of six years thereafter, the Company shall causeEmployee to be covered by and named as an insured under a policy or contract ofinsurance obtained by it to insure its directors and officers against personalliability for acts or omissions in connection with service as an officer ordirector of the Company or service in other capacities at the request of theCompany.  The coverage provided toEmployee pursuant to this Section shall be of a scope and on terms andconditions at least as favorable as the coverage provided to Employee prior tothe Change in Control.

 

16.           Miscellaneous.  No provision of this Agreement may bemodified, waived or discharged unless such waiver, modification or discharge isagreed to in writing and signed by Employee and such officer as may bespecifically authorized by the Board.  Nowaiver by either party hereto at any time of any breach by the other partyhereto of, or in

 

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compliance with, anycondition or provision of this Agreement to be performed by such other partyshall be deemed a waiver of similar or dissimilar provisions or conditions atthe same or at any prior or subsequent time. This Agreement is an integration of the parties agreement; no agreementor representations, oral or otherwise, express or implied, with respect to thesubject matter hereof have been made by either party which are not set forthexpressly in this Agreement.  Thevalidity, interpretation, construction and performance of this Agreement shallbe governed by the laws of the State of Delaware.

 

17.           Counterparts.  This Agreement may be executed in one or morecounterparts, each of which shall be deemed to be an original but all of whichtogether will constitute one and the same instrument.

 

18.           Arbitration.  Employee shall be permitted (but notrequired) to elect that any dispute or controversy arising under or inconnection with this Agreement be settled by arbitration in Los Angeles,California or in the city in which Employee then resides in accordance with therules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’saward in any court having jurisdiction. Reasonable legal fees and costs incurred by Employee in connection withthe resolution of any dispute or controversy under or in connection with thisAgreement shall be paid by the Company as bills for such services are presentedby Employee to the Company.

 

19.           PriorAgreements.  This agreementsupersedes and replaces in full any previously existing employment agreement(written or oral) between the parties.

 

20.           Knowledge of Terms and Conditions. Employee has received a copy of this Agreement in advance of hisexecution hereof and has consulted with his own attorney with respect to theterms and conditions hereof and the transactions contemplated under thisAgreement.  Employee has executed thisAgreement with full knowledge of the terms and conditions contained herein andacknowledges that he has had the opportunity to obtain information regardingthe Company and concerning the terms and conditions of this Agreement.  In making his decision to enter into thisAgreement, Employee has relied solely upon independent investigations he madeand acknowledges that he is not relying on the Company, any affiliate of theCompany or any officer, director or employee of the Company for advice withrespect to any tax or other economic considerations involved in thetransactions contemplated under this Agreement, including those arising underSection 409A of the Internal Revenue Code of 1986, as amended.

 

IN WITNESS WHEREOF, theparties have executed this Agreement effective for all purposes as of August15, 2005.

 

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|   | Venoco, Inc. |
|--------|--------------|
|   |         |
|   |         |
|   | By:          | /s/ Timothy M. Marquez |   |
|   |         |  Timothy M. Marquez |
|   |         |  Chief Executive Officer |
|   |         |
|   |         |
|   | Employee     |
|   |         |
|   |         |
|   | By:          | /s/ Mark DePuy |   |
|   |         |      Mark DePuy |

 

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**AttachmentI**

**StockOption Description**

 
| Term                           |   | Options  shall have a term equal to 10 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Liquidity  Event               |   | “Liquidity  Event(s)” means an IPO of the Company such that shares trade on a public  exchange, or the sale of all or substantially all assets or common stock of  the Company to an unaffiliated third party.                                                                                                                                                                                                                                                                                                                           |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Dividends                      |   | Option  Holder shall receive dividends (if declared and paid) as if he held the  number of shares issuable upon exercise of the Options.                                                                                                                                                                                                                                                                                                                                                                                                           |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Rights  of Holder              |   | Option  Holder will receive (as to shares acquired through exercise of options)  tag-along rights related to any sale of shares by the Company’s Primary  Shareholder.                                                                                                                                                                                                                                                                                                                                                                        |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Rights  of Primary Shareholder |   | Option  Holder shall give drag-along rights to the Primary Shareholder as to shares  acquired through exercise of options.                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Alternate  Liquidity Mechanism |   | The  intent of the Company and the Option Holder is to allow the Option Holder to  gain liquidity for all Option shares.                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                           |   | Absent  a Liquidity Event, the Company will provide Option Holder with an alternate  mechanism for gaining liquidity. In general, such Alternate Liquidity  Mechanism (“ALM”) will allow holder to liquidate his holdings at Fair Value,  over a three to five year period, and will be available beginning in 2007. In  general, the Option Holder may determine the timing of sales under the ALM,  but the Company will be able to reasonably alter the timing of payments to  manage liquidity and maintain good business practices. |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                           |   | “Fair  Value” of the Company’s shares shall be determined based on the trading  values of a comparable group of public companies as determined by an  independent third party selected by the Option Holder and the Company or as  agreed by the Option Holder and the Company. The aggregate value discount for  various factors including illiquidity, private company status and minority  ownership shall not exceed 15%.                                                                                                       |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Cashless  Exercise             |   | Options  may be exercised on a cashless basis with the holder receiving the  appropriate “net value” in either cash or shares. If the holder receives  shares, they will be governed by the provisions set out in the Option  Agreement.                                                                                                                                                                                                                                                                                                 |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Other                          |   | Standard  provisions limiting transfer of shares (but permitting certain transfers to  family members), allowing Company to repurchase shares at Fair Value,  anti-dilution protection and granting lock-up related to public offering of  securities.                                                                                                                                                                                                                                                                                             |

 

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