Exhibit 10.3


 


VENOCO, INC.

2000 STOCK INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT


 


THIS NONQUALIFIED STOCK OPTION AGREEMENT (this “Option Agreement”) by and
between Venoco, Inc., a Delaware Company (the “Company”), and                  (the
“Participant”)
evidences the nonqualified stock option (the “Option”) granted by the Company to the Participant as to
the number of shares of the Company’s common stock, $0.01 par value (the “Common Stock”) set forth
below.


 


	
  Award Date

  	
   

  	
  Number of Shares

  of Common Stock

  	
   

  	
  Exercise Price

  per Share

  	
   

  	
  Expiration

  Date

  
	
  August 26, 2005

  	
   

  	
  6

  	
   

  	
  $

  	
  80,000.00

  	
   

  	
  August 25,
  2015

  
								



 


Vesting.  The
Option shall become vested as to 20% of the total number of shares of Common
Stock subject to the Option on the Award Date. 
The Option shall become vested as to the remaining shares of Common
Stock in equal amounts, on the first, second, third and fourth anniversary of
the Award Date, such that the Option will 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 of
the Plan (except for Appendix A attached thereto) and the Terms and Conditions
of Nonqualified Stock Option (the “Terms”)
attached to this Option Agreement and incorporated herein by reference.  The Option has been granted to the
Participant in addition to, and not in lieu of, any other form of compensation
otherwise payable or to be paid to the Participant.  The Option is not and shall not be deemed to
be an incentive stock option within the meaning of Section 422 of the
Code.  Capitalized terms are defined in
the 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 a
copy of the Terms and the Plan, specifically acknowledges and agrees to Section 17
of the Terms, and agrees to maintain in confidence all information provided by
the Company in connection with the Option.


 


 


	
  “PARTICIPANT”

  	
   

  	
  VENOCO, INC., a
  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Timothy M. Marquez

  
	
   

  	
   

  	
   

  	
  Chief Executive Officer

  
						



 





















 


TERMS AND CONDITIONS OF

NONQUALIFIED STOCK OPTION AGREEMENT

WITH                   


 


1.             Vesting; Limits on Exercise.


 


1.1           As
set forth on the cover page of this Option Agreement, the Option shall
vest and become exercisable in percentage installments of the aggregate number
of shares of Common Stock subject to the Option.  The Option may be exercised only to the extent
the Option is vested and exercisable.


 


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


 


1.3           Fractional
share interests shall be disregarded, but may be cumulated. Cash will be paid
in lieu of fractional shares at the time of exercise.


 


1.4           No
less than 1 share of Common Stock (subject to adjustment pursuant to Section 4.2.1
of the Plan) may be purchased at any one time, unless the number of shares
purchased is the total number at the time exercisable under the Option.


 


2.             Continuance of Service Required;
No Service Commitment.


 


2.1           The
vesting schedule requires continued service as a director of the Company
through each applicable vesting date as a condition to the vesting of the
applicable installment of the Option and the rights and benefits under this
Option Agreement.  Partial service, even
if substantial, during any vesting period will not entitle the Participant to
any proportionate vesting or avoid or mitigate a termination of rights and
benefits upon or following a termination of service as provided in Section 5
below or under the Plan.


 


2.2           Nothing
contained in this Option Agreement or the Plan constitutes commitment by the
Company to continued nomination or election as a director of the Company,
confers upon the Participant any right to remain a director or otherwise in
service to the Company or any Subsidiary, interferes in any way with the right
of the stockholders of the Company at any time to terminate such service as a
director of the Company, or affects the right of the Company to increase or
decrease the Participant’s other compensation.


 


3.             Method of Exercise of Option.


 


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


 


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


 


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


 


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


 


(d)           any
written statements or agreements required by the Committee to be made by the
Participant pursuant to Section 4.3 of the Plan.


 


3.2           Payment
for the shares of Common Stock to be purchased pursuant to the Option may be
made by any of the following methods:


 


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


 


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


 


	
  Net Number

  	
  =

  	
  (A x B) - (A x C)

  
	
   

  	
   

  	
  B

  



 


For
the purpose of this formula:


 


	
  A

  	
   

  	
  =

  	
   

  	
  the total number of shares with
  respect to which the Option is then being exercised.

  
	
  B

  	
   

  	
  =

  	
   

  	
  the Fair Market Value (as defined
  in the Plan) per share of the Common Stock on the date the Exercise Agreement
  is executed.

  
	
  C

  	
   

  	
  =

  	
   

  	
  the exercise price in effect for
  the shares with respect to which the Option is being exercised.

  



 


4.             Change in Control.


 


4.1           In
accordance with Section 4.2.2 of the Plan, immediately upon the occurrence
of a Change in Control (as defined below), the Option shall become fully vested
and exercisable.  Subject to
Sections 4.2.3 through 4.2.6 of the Plan, the Participant shall have the
right to exercise the Option (to the extent not previously exercised) until the
Expiration Date or earlier termination of the Option.


 


4.2           For
the purpose of this Option Agreement, a “Change in Control” shall mean the
occurrence of one of the following events:


 


(a)           any
“person” or “group” of related persons (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than the
Marquez Family or any constituent thereof, is or becomes the Beneficial Owner,
directly or indirectly, of voting securities of the Company representing 50% of
the total voting power of the Company’s then outstanding securities.  The term “Marquez Family” shall mean Timothy M. Marquez,


 


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Bernadette B.
Marquez, his, her and their respective legal representatives, devises, donees
and heirs, any trust for the benefit of either or both of Timothy M.
Marquez and Bernadette B. Marquez and/or the issue of either of them and
any entity 80% or more of the voting shares or other interests of which is
directly or indirectly owned by any of the foregoing;


 


(b)           the
stockholders of the Company approve and the Company consummates a merger or
consolidation of the Company with any other entity, other than (a) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) more than 65%
of the combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger or consolidation or
(b) a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no “person” (as such term is used
in Section (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 then outstanding securities; or


 


(c)           the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets. 
For purposes of this clause (c), the term “the sale or disposition
by the Company of all or substantially all of the Company’s assets” shall mean
a sale or other disposition transaction or series of related transactions
(other than transactions related to the creation of a master limited
partnership or royalty trust in which the Company continues its corporate
existence) involving assets 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) in which the value of the assets or stock being sold
or otherwise disposed of (as measured by the purchase price being paid therefor
or by such other method as the Board of Directors of the Company determines is
appropriate in a case where there is no readily ascertainable purchase price)
constitutes more than two-thirds of the “fair market value of the Company” (as
hereinafter defined).  For purposes of
the preceding sentence, the “fair market value of the Company” shall be the
aggregate market value of the Company’s outstanding Common Stock (on a fully
diluted basis) plus the aggregate market value of the Company’s other
outstanding equity securities.  The
aggregate market value of the Company’s equity securities shall be determined
by multiplying the number 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 agreement with respect to the transaction or series of related
transactions (the “Transaction
Date”) by the average closing price of such security for the ten
trading days immediately preceding the Transaction Date, or if not publicly
traded, by such other method as the Board of Directors of the Company shall
determine is appropriate.


 


5.             Termination of
Service.  In the event the Participant’s service to the
Company as a director ceases for any reason, the unvested portion of the Option
shall automatically expire. The Participant shall have the right to exercise
the vested portion of the Option (to the extent not previously exercised), and
such right shall continue, until the


 


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earlier of the expiration of the
Option or two (2) years following the date on which the Participant’s
service as a director is terminated.


 


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


 


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


 


7.1           The
Participant is acquiring the Option and, if and when he exercises the Option,
will acquire 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, or to offer for resale in connection with any unregistered distribution,
all or any portion of the shares within the meaning of the Securities Act, the
Colorado Securities Act, or other applicable state securities laws.


 


7.2           The
Participant has had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of the Option and the restrictions
imposed on 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 appropriate for deciding whether to exercise the Option and purchase
shares of Common Stock.  However, in
evaluating the merits and risks of an investment in the Common Stock, the
Participant has and will rely upon the advice of his/her own legal counsel, tax
advisors, and/or investment advisors.


 


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


 


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


 


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7.5           The
Participant has read and understands the restrictions and limitations set forth
in the Plan and this Option Agreement (including these Terms), which are
imposed on the Option and any shares of Common Stock which may be acquired upon
exercise of the Option.


 


7.6           At
no time was an oral representation made to the Participant relating to the
Option or the purchase of shares of Common Stock and the Participant was not
presented with or solicited by any promotional meeting or material relating to
the Option or the Common Stock.


 


8.             Lock-Up. 
Neither the Participant nor any permitted transferee may, directly or
indirectly, offer, sell or transfer or dispose of any of the shares of Common
Stock acquired upon exercise of the Option (the “Shares”) or any interest therein (or agree to do any
thereof) during the period commencing as of 14 days prior to and ending
one year, or such lesser period of time as the relevant underwriters may
permit, after the effective date of a registration statement covering any
public offering of the Company’s securities of which the Participant has
notice.  For the purpose of this Section 8
“Participant” includes, where the context so requires, any permitted direct or
indirect transferee of the Participant. 
The Participant shall agree and consent to the entry of stop transfer
instructions with the Company’s transfer agent against the transfer of the
Company’s securities beneficially owned by the Participant and shall confirm
the limitations hereunder by agreement with and for the benefit of the relevant
underwriters by a lock-up agreement or other agreement in customary form.  Notwithstanding anything else herein to the
contrary, this Section 8 shall not be construed so as to prohibit the Participant
from participating in a registration or a public offering of the Common Stock
with respect to any shares which he may hold at that time; provided,
however, that such participation shall be at the sole discretion of
the Board of Directors.


 


9.             (intentionally left blank)


 


10.        Non-Transferability of Shares.


 


10.1         Except
as 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 Offering Date, (ii) two years after the date the Shares were issued
upon exercise of the Option, or (iii) the sale of all or substantially all
of the Common Stock or assets of the Company to a person who is not an
affiliate of the Company.


 


10.2         Notwithstanding
the restrictions contained in Section 10.1, the Shares may be transferred
as provided in this Section 10.2, provided, however,
that such transfers remain subject to Section 8 and to the right of first
refusal in Section 10.3:


 


(a)           Transfers
to the Company.


 


(b)           Transfers
with the written approval of the Committee.


 


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


 


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


 


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


 


(f)            Transfers
made pursuant to Sections 13 or 14.


 


10.3         The
Company shall have a right of first refusal, as set forth below, to purchase
the Shares before the Shares (or any interest in them) can be validly
transferred to any other person or entity.


 


(a)           Before
there 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 the
Company, 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 identity
of the proposed transferee, the number of Shares to be sold or transferred to
the transferee, the price per Share and the terms upon which such holder
intends to make such sale or transfer. 
If the payment terms for the Shares described in the Option Notice
differ from delivery of cash or a check at closing, the Company shall have the
option, as set forth herein, of purchasing the Shares for cash (or a cash
equivalent) at closing in an amount which the Company determines is a fair
value equivalent of that payment.  The
determination of a fair value equivalent shall be made in the Company’s best
judgment and such determination shall be mailed or delivered to the selling or
transferring stockholder (the “Company’s
Notice”) within ten (10) days of its receipt of the Option
Notice.  Should the selling or
transferring stockholder disagree with the Company’s determination of a fair
value equivalent, he shall have the right (the “Retraction Right”) to retract the proposed sale or
transfer to a third party and the offer of Shares to the Company pursuant to
the Option Notice (such retraction to be made in writing and mailed or
delivered in accordance with the provisions of Section 18.5 within fifteen
(15) days after receipt of the Company’s Notice).  If the stockholder again proposes to sell or
transfer the Shares, the stockholder shall again offer such Shares to the
Company pursuant to the terms of this Section 10.3 prior to any sale or
transfer.


 


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


 


(c)           Not
more than thirty (30) days after receipt of the Option Notice, the Company
shall give written notice to the stockholder desiring to sell or transfer
Shares of the number of such Shares to be purchased (or, if no Shares are to be
purchased, stating such fact) by the Company pursuant to the terms of this Section 10.3
(the “Purchase Notice”).  Purchases pursuant to this Section 10.3
shall be consummated within thirty (30) days after delivery of the
Purchase Notice to the selling stockholder, but in no event later than the
expiration of the Option Period.  The
purchase price shall be paid at the


 


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closing in cash,
by check, by cancellation of money purchase indebtedness, or, if the payment
terms set forth in the Option Notice differ from payment in cash or by check at
closing, in accordance with the payment terms set forth in the Option Notice
(or payment of the amount set forth in the Company’s Notice in cash, by
cancellation of money purchase indebtedness, or by check).  The purchase price shall be paid against
surrender by the selling stockholder of one or more stock certificates
evidencing the number of Shares specified in the Option Notice, free and clear
of all security interests and liens, with duly endorsed stock powers.


 


(d)           Unless
all of the Shares referred to in the Option Notice are to be purchased as
indicated in the Purchase Notice, the stockholder desiring to sell or transfer
may dispose of any Shares referred to in the Option Notice that are not to be
purchased by the Company to the person or persons specified in the Option
Notice during a period of twenty (20) days commencing upon his or her
receipt of the Purchase Notice; provided, however,
that he shall not sell or transfer such Shares (a) at a lower price or on
terms more favorable to the Participant or transferee than those specified in
the Option Notice, and (b) to a person other than the person or persons
specified in the Option Notice; and provided further that such transfer is
consistent with the other provisions and limitations of the Plan and this
Option Agreement (including these Terms). 
If the transfer is not consummated within such twenty (20) day
period, the stockholder shall again offer such Shares to the Company pursuant
to the terms of this Section 10.3 prior to any sale or transfer to the
same or any other person.


 


(e)           Notwithstanding
anything to the contrary, the Company may assign any or all of its rights under
this Section 10.3 to one or more stockholders of the Company.


 


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


 


11.        Put Right.


 


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


 


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


 


11.3         Within
fifteen (15) days after receipt of the Put Notice, the Company shall
provide notice (“Price
Notice”) to the Participant of the purchase price of the Put
Shares.


 


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The purchase
price for the Put Shares shall be Fair Value (as defined in Section 11.7)
of the shares on the date of the Put Notice, provided,
however, that if the Fair Value is determined in accordance with subsection (d) of
Section 11.7, the Price Notice must contain only a statement to that
effect along with the name of the independent third party selected by the
Company to determine Fair Value.


 


11.4         The
number of Shares that the Company may be required to purchase during any Put
Notice Period shall not exceed the lesser of (i) 0.5% of the number of
Shares of Common Stock then outstanding and (ii) the maximum number of
Shares the Company may lawfully purchase at the closing date of the purchase
under Section 160 and other applicable provisions of the Delaware General
Company Law; provided, however, that in no
event shall the Company be required to purchase Shares unless, until and to the
extent such purchase is permitted by the terms of the Company’s primary credit
facility and the Indenture relating to the Company’s 8.75% Senior Notes
due 2011, as amended and supplemented from time to time.  If (x) the Company has granted a Put
Right to one or more employees or directors of or consultants to the Company or
its subsidiaries and one or more of such Put Rights remain in effect, (y) more
than one Put Notice is given during a Put Notice Period and (z) the
limitations imposed by this Section 11.4 (other than subsection (i))
on the ability 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 the
maximum amount it is permitted to pay hereunder to such persons pro rata in
accordance with the number of Put Shares designated by them in their respective
Put Notices.


 


11.5         The
purchase price for the Put Shares shall be paid by the Company in the form of a
check or electronic transfer of immediately available funds on the date set
forth in the Put Notice which shall be no earlier than sixty (60) days
after the date of the Put Notice; provided,
however, that if Fair Value is determined by an independent third
party pursuant to Section 11.7(d), the purchase price for the Put Shares
shall be net of one-half of the expenses of the independent third party
and the net purchase price shall be paid within thirty (30) days after the
independent third party provides its determination of Fair Value to both
the Participant and the Company.  The
purchase price shall be paid against surrender by the Participant of one or
more stock certificates evidencing the number of Shares specified in the Put
Notice, free and clear of all security interests and liens, with duly endorsed
stock powers.  No adjustments (other than
pursuant to Section 4.2 of the Plan) shall be made to the purchase price
for fluctuations in the value of the Common Stock after the date of the Put
Notice.


 


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


 


11.7         For
the purpose of this Option Agreement, “Fair
Value” shall mean:


 


(a)           if
the stock is listed or admitted to trade on a national securities exchange, the
closing price of the stock on the Composite Tape, as published in the Western
Edition of The Wall Street Journal, of the principal national securities
exchange


 


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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 of the stock as
quoted on such Composite Tape on the next preceding date on which there was
trading in such shares;


 


(b)           if
the 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 National
Association of Securities Dealers, Inc. (“NASD”) through the NASDAQ National Market Reporting
System or a similar organization if the NASD is no longer reporting such
information;


 


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


 


(d)           if
the 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 asked
prices 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
absence of such agreement, as determined by an independent third party selected
by the Participant and the Company, based on the trading values of a comparable
group of public companies with appropriate discounts for the illiquidity and
minority status of the Shares, provided,
however, that the discounts for all such factors shall not exceed
15% in the aggregate.  If the Company and
the Participant are unable to select promptly a mutually agreeable independent
third party for this determination, the independent third party shall be
selected pursuant to C.R.S. Section 13-22-205.  All fees and expenses of the independent
third party shall be borne equally by the Company and the Participant.


 


12.        No Stockholder
Rights Following Exercise of a Repurchase or Put Right. 
If the Participant ceases to be a director of the Company and holds Shares
as to which the Right of First Refusal or Put Right has been exercised, the
Participant shall be entitled to the value of such Shares in accordance with
the provisions of Section 10 or 11, as applicable, but (unless otherwise
required by law) shall no longer be entitled to participation in the Company or
other rights as a stockholder with respect to the Shares subject to the
repurchase or put.  To the maximum extent
permitted by law, the Participant’s rights following the exercise of the Right
of First Refusal or Put Right shall, with respect to the repurchase or put and
the Shares covered thereby, be solely the rights that he has as a general
creditor of the Company to receive payment of the amount specified in Section 10
or 11, as applicable.


 


13.        Tag Along Right. 
If the Marquez Family or any constituent thereof (the “Selling Party”) proposes to
sell, to a Third Party Purchaser (as defined below) in one transaction or
in a series of related transactions (a “Tag Along
Sale”) either (i) more than 50% of the Marquez Family’s
equity interest in the Company or (ii) control
of the Company, then the Participant shall have the right (the “Tag Along Right”) to
participate in such Tag Along Sale on the following terms:


 


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13.1         The
Selling Party shall give the Participant not less than twenty (20) days’
written notice (a “Sale
Notice”) of his intention, describing the price offered, all
other material terms and conditions of the Tag Along Sale and, if the consideration
payable pursuant to the Tag Along Sale consists in whole or in part of
consideration other than cash, such information relating to such other
consideration as the Participant may reasonably request.


 


13.2         In
connection with any Tag Along Sale, the Participant shall have the right, in
his sole discretion, to sell, at a price equal to the average consideration per
share received by the Selling Party for all shares of Common Stock sold by the
Selling Party in the Tag Along Sale, and otherwise on the same terms and
conditions as the Selling Party, the lesser of either (i) all of the
Shares then held by him or (ii) a portion of such Shares equal to a
fraction, the numerator of which is the total number of shares of Common Stock
to be purchased by the Third Party Purchaser, and the denominator of which
is the number of shares of Common Stock owned by persons other than the
Participant.  Any fractional shares will
be rounded to the nearest whole
share.


 


13.3         The
Participant must exercise his tag-along right by giving written notice to the
Selling Party within ten (10) days after the delivery of a Sale
Notice, specifying the number of Shares that the Participant desires to include
in the Tag Along Sale.  At the closing
for the Tag Along Sale, against payment of the consideration, the Participant
will deliver to the Third Party Purchaser the certificate or certificates
representing such number of 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         There
shall be no liability on the part of the Selling Party to the Participant if
the proposed third party sale is not consummated for any reason.


 


13.5         For
the purpose of this Agreement, a “Third Party
Purchaser” means any person that is not a stockholder or an
affiliate thereof that purchases or agrees to purchase the shares of Common
Stock in connection with a Tag Along Sale or Compelled Sale (as defined in Section 14).


 


13.6         Participant’s
Tag Along Right shall terminate to the extent that it is not exercised prior to
the Public Offering Date.


 


14.        Right to Compel Sale.


 


14.1         If
at any time the Marquez Family proposes to sell all, or a majority of its
shares of Common Stock to a Third Party Purchaser, the Marquez Family shall
have the right (the “Compelled
Sale Right”), exercisable as set forth below, to compel the
Participant to sell to the Third Party Purchaser (a “Compelled Sale”) all, but not less than all, of the
shares of such Common Stock (to the extent acquired upon exercise of the
Option), if any, then held by the Participant. 
In connection with any Compelled Sale, the Participant will receive a
price equal to the average consideration per share received by the Marquez Family
for all shares of Common Stock sold by the Marquez Family in the Compelled
Sale.


 


11





















 


14.2         In
the event the Marquez Family elects to exercise its right to cause a Compelled
Sale, it will deliver written notice (a “Compelled
Sale Notice”) to the Participant and the Company, setting forth
the consideration and describing the other material terms and conditions of the
Compelled Sale, including the proposed closing date, which shall be not less
than twenty (20) days from the date the Compelled Sale Notice is
delivered.  At the closing for the
Compelled Sale, against payment of the consideration, the Participant shall
deliver to the Third Party Purchaser the certificate or certificates
representing the number of shares of Common Stock held by the Participant, duly
endorsed and free and clear of security interests and liens, together with all
other documents necessary to effect such Compelled Sale.


 


14.3         There
shall be no liability on the part of the Marquez Family to the Participant if
any proposed Compelled Sale is not consummated for any reason.


 


14.4         The
Compelled Sale Right shall terminate to the extent that it is not exercised
prior to the Public Offering Date.


 


15.        Bonus Payment.


 


15.1         In
the event the Company declares and pays a cash dividend to its common
stockholders, 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 the dividend
payable to holders of the Company’s Common Stock, and (ii) the number of
shares of Common Stock issuable upon exercise of the Participant’s Options,
whether vested or unvested.


 


15.2         The
Company 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 Common Stock.


 


15.3         All
payments made pursuant to this Section 15 shall be net of any withholding
or other taxes applicable to such payment. 
The Participant’s right to receive the Dividend Payment shall terminate
on the Public Offering Date.


 


16.        Plan. 
The Option and all rights of the Participant under this Option Agreement
are subject to, and the Participant agrees to be bound by, all of the terms and
conditions of the Plan, incorporated herein by this reference.  In the event of a conflict or inconsistency
between this Option Agreement and the Plan, this Option Agreement shall
govern.  The Participant acknowledges
receipt of a copy of the Plan and agrees to be bound by the terms thereof and
of this Option Agreement.  The
Participant acknowledges reading and understanding the Plan and this Option
Agreement.  Unless otherwise expressly
provided in other sections of this Option Agreement, provisions of the Plan
that confer discretionary authority on the Board or the Committee do not and
shall not be deemed to create any rights in the Participant unless such rights
are expressly set forth herein or are otherwise in the sole discretion of the
Board or the Committee so conferred by appropriate action of the Board or the
Committee under the Plan after the date hereof.


 


12





















 


17.        Satisfaction of
All Rights to Equity.  The Option is in complete satisfaction of any
and all rights that the Participant may have (under 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’s securities,
and/or (2) any other equity or derivative security in or with respect to
the Company.  This Option Agreement
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 rights
or benefits under any prior agreement conveying any right with respect to any
security or derivative security in or with respect to the Company.  The foregoing notwithstanding, this Section 17
shall not adversely affect the Participant’s rights under any prior option or
restricted stock agreement under the Plan (provided such agreement is expressly
labeled as an option, restricted stock, or award agreement under the Plan and
is similar in form to this Option Agreement) which has been signed by an
authorized officer of the Company.


 


18.        Miscellaneous.


 


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


 


18.2         Delaware Law.  This Option Agreement and the Exercise
Agreement shall be governed by and construed and enforced in accordance with
the laws of the State of Delaware without regard to conflict of law principles
thereunder.


 


18.3         Limited Rights.  The Participant has no rights as a
stockholder of the Company with respect to the Option as set forth in Section 4.6
of the Plan.  The Option does not place
any limit on the corporate authority of the Company as set forth in Section 4.12
of the Plan.


 


18.4         Arbitration.  Any dispute, controversy or claim arising out
of or relating to this Option Agreement (including these Terms), the Plan,
and/or the Exercise Agreement, their enforcement or interpretation, or because
of an alleged breach, default, or misrepresentation in connection with any of
their provisions, will be determined exclusively by confidential, final and
binding arbitration in Denver, Colorado, pursuant to the Colorado Arbitration
Act.  The arbitration shall be 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 be
selected pursuant to C.R.S. Section 13-22-205.  Disputes, controversies or claims subject to
final and binding arbitration under this Agreement include, without limitation,
all those that could otherwise be tried in court to a judge or jury in the
absence of this Section 18.4.  The
Participant and the Company agree that they


 


13





















 


each expressly
waive any rights to have such matters heard or tried before a judge or jury in
another tribunal.  The arbitrator’s award
in any proceeding will be final, binding, and conclusive upon the parties,
subject only to judicial review provided by statute, and a judgment rendered on
the arbitration award can be entered in any state or federal court having
jurisdiction thereof.  Nothing in this Section 18.4,
however, shall limit the right of the parties to stipulate and agree to conduct
the arbitration before and pursuant to the then existing rules of any
other agreed-upon arbitration services provider.


 


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


 


(Remainder of Page Intentionally Left Blank)


 


14





















 


EXHIBIT A


 


VENOCO, INC.

2000 STOCK INCENTIVE PLAN

OPTION EXERCISE AGREEMENT


 


The
undersigned (the “Purchaser”)
hereby irrevocably elects to exercise his/her right, evidenced by that certain
Nonqualified Stock Option Agreement dated 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 exercise
price of $[              ]
dollars per share.  Capitalized terms
used herein and not otherwise defined shall have the meaning set forth in the
Option Agreement, or if not contained therein, in the Plan.


 


1.             Form of
Warrant Exercise Price.  The Purchaser intends that payment of the
Exercise 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.             Purchase Price. 
In the event the Purchaser has elected a cash exercise with respect to
some or all of the Shares to be issued 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 certificate representing the Shares and
registered in the name of the Purchaser to:


 


4.             Investment
Representations.  The Purchaser acknowledges that the sale of
the Shares by the Purchaser is restricted by SEC Rule 701.  The Purchaser hereby affirms as made as of
the date hereof the representations in Section 7 of the “Terms and
Conditions of Nonqualified Stock Option” (which are attached to and a part of
the Option Agreement, the “Terms”)
and such representations are incorporated herein by this reference.  The Purchaser represents that he has no need
for liquidity in this investment, has the ability to bear the economic risk of
this investment, and can afford a complete loss of the purchase price for the
Shares.  The Purchaser acknowledges
receipt of the Company’s condensed consolidated financial information.  The Purchaser also understands and
acknowledges (i) that the certificates representing the Shares will be
legended as provided for in Section 4.3.3 of the Plan, and (ii) that
the Company has no obligation to register the Shares or file any registration
statement under federal or state securities laws.


 





















 


5.             Restrictions on
the Shares.  The Purchaser represents that he has read the
Plan and the Option Agreement and acknowledges that the Shares are and shall
remain subject to various restrictions, including but not limited to,
restrictions on transfer, a right of first refusal in favor of the Company, a
call right and a compelled sale right in favor of the Company, restrictions on
transfer under state and federal securities laws and a lock-up provision, in
each case as set forth in the Plan or the Option Agreement.  As a condition to any permitted transfer of
the Shares, the Company may require the transferee to execute a written
agreement, in a form acceptable to the Committee, that the transferee
acknowledges and agrees to the foregoing terms and restrictions imposed on the
Shares.


 


6.             Plan and Option
Agreement.  The Purchaser acknowledges that all of
his/her rights are subject to, and the Purchaser agrees to be bound by, all of
the terms and conditions of the Plan and the Option Agreement (including the
Terms), both of which are incorporated herein by this reference.  If a conflict or inconsistency between the
terms and conditions of this Exercise Agreement and of the Plan and Option
Agreement shall arise, the terms of the Plan and/or Option Agreement shall
govern.  The Purchaser acknowledges receipt
of a copy of all documents referenced herein (including the Terms and a
disclosure statement) and acknowledges reading and understanding these
documents and having an opportunity to ask any questions that he may have had
about them.  Any controversy or claim
arising out of or relating to this Exercise Agreement shall be submitted to
arbitration in accordance with Section 18.4 of the Terms, and Delaware law
shall apply as provided in Section 18.2 of the Terms.


 


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


 


	
  “PURCHASER”

  	
   

  	
  ACCEPTED BY: VENOCO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
   

  	
   

  
	
  Print Name

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (To be
  completed by the Company after the

  	
   

  
	
  Date

  	
   

  	
   

  	
  price
  (including applicable withholding

  	
   

  
	
   

  	
   

  	
   

  	
  taxes), value
  (if applicable) and receipt of

  	
   

  
	
   

  	
   

  	
   

  	
  funds is
  verified.)