Exhibit
10.1


 


Execution Copy


 


EMPLOYMENT AGREEMENT


 


This Employment Agreement
(“Agreement”) is entered into effective as of the 15th day of August
2005 by and between Venoco, Inc., a Delaware corporation (“Company”), and Mark
DePuy (“Employee”).


 


WHEREAS, the Company
desires to employ Employee as a Vice President, and Employee desires to accept
such employment;


 


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


 


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


 


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


 


3.             Employee’s
Duties.  During the Term of this
Agreement, Employee shall serve as the Vice President of the Company, based in
Carpinteria California, and with such customary duties and responsibilities as
may from time to time be assigned to him by the Chief Executive Officer and the
Board, provided that such duties are at all times consistent


 


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with the duties of such
position.


 


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


 


4.             Base
Compensation.  For services rendered
by Employee under this Agreement, the Company shall pay to Employee a base
salary (“Base Compensation”) of $165,000.00 per annum, payable in accordance
with the Company’s customary payroll practice for its executive officers.  The amount of Base Compensation shall be
reviewed periodically and may be increased to reflect inflation or such other
adjustments as the Board may deem appropriate but Base Compensation, as
increased, may not be decreased thereafter.


 


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


 


6.             Stock
Options.  Employee shall be granted
options to purchase shares of Company stock as set forth herein.  Stock options will at a minimum include
provisions similar to those in Attachment I, Stock Option Description.  The number of option shares and the strike
price of the shares shall be:  12.5
shares at $90,000 per share which the parties hereto agree represents the
approximate 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 stock
splits, stock dividends, recapitalization, or similar events subsequent to
signing of this agreement. Pro rata for the various strike prices, twenty
percent (20%) of such options shall vest immediately upon being granted, and
the remainder shall vest in equal lots on the first, second, third, and fourth
anniversaries of the date that Employee commences employment. In the event of a
Change in Control as defined in Section 8 hereof or discharge other than for
Misconduct (as defined herein) all options shall become immediately vested.
Vested options shall remain exercisable for a period of two (2) years following
termination of employment. Unvested options shall expire upon termination of
employment. Should the Company not adopt a Stock Incentive Plan that affords
Employee such options, then the Company shall provide Employee with alternate
compensation that is at least as valuable to


 


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Employee as the options
contemplated herein.


 


7.             Additional
Benefits.  In addition to the other
compensation and benefits provided for in this Agreement, Employee shall be
entitled to receive all fringe benefits and perquisites offered by the Company
to its executive officers.  Such benefits
shall 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; participation
in the Company’s 401(k) Plan; participation in other incentive and benefit
plans offered generally to key employees; participation in various employee
benefit plans or programs provided to the employees of the Company in general,
subject to the regular eligibility requirements with respect to each of such
benefit plans or programs; and such other benefits or prerequisites as may be
approved by the Board during the Term of this Agreement.  In addition, 
Employee shall be entitled to receive mortgage assistance in the amount
of $2500.00 per month during the Term of this Agreement.  Nothing in this paragraph shall be deemed to
prohibit the Company from making any changes in any plans, programs or benefits
described in this Section 7, provided the change similarly affects all
executives of the Company similarly situated.


 


8.             Change
in Control.


 


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


 


(i)            Timothy
M. Marquez, Bernadette B. Marquez, their respective legal representatives,
devisees, donees and heirs and 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
(the “Marquez Family”) individually or collectively no longer are the
“beneficial owners” (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934), directly or indirectly, of securities of the Company representing
more than 50% of the combined voting power of the Company’s then outstanding
securities;


 


(ii)           the
stockholders of the Company approve, and the Company consummates,  a merger or consolidation of the Company with
any other corporation, 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 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 then
outstanding securities; or


 


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(iii)          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
(iii), 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 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 shall determine is
appropriate.


 


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


 


(a)           Resignation.  Employee may resign, including by reason of
retirement, his position at any time.  In
the event of such resignation, except in the case of resignation on or
following 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 period
following the six-month anniversary of the date of the Change in Control (the
“Window Period”), Employee shall not be entitled to further compensation
pursuant to this Agreement.  A
resignation by Employee during the Window Period shall be treated for all
purposes the same as a resignation by Employee for Good Reason.


 


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


 


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


 


(c)           Discharge.


 


(i)            The Company may terminate this Agreement
and Employee’s employment for any reason deemed sufficient by the Company upon
notice as provided in Section 12. 
However, in the event that Employee’s employment is terminated during
the Term by the Company on or following a Change in Control and for any reason
other than his Misconduct (as defined in Section 9(c)(ii) below) then: (A) the
Company shall pay in a lump sum, in cash, to Employee, within 15 days of the
Date of Termination, an amount equal to three times the sum of (1) Employee’s
Base Compensation, (2) an amount equal to the highest incentive award paid or
payable, as the case may be, to Employee under the Company’s Incentive
Compensation Plan during the current year and the three years prior to
termination, (3) an amount equal to the amount of contributions that the
Company would have made on behalf of Employee under the Company’s 401(k) Plan
during the prior year disregarding any limitations on benefits or covered
compensation imposed by I.R.C. Sections 401(a)(17), 401(k), 401(m) or 415; (B) for
the 36-month period after such Date of Termination, the Company shall provide
or arrange to provide Employee (and Employee’s dependents) with life,
disability, accident and group health insurance benefits substantially similar
to those which Employee (and Employee’s dependents) were receiving immediately
prior to the Notice of Termination, with the Employee charged a monthly
premium(s) for such coverage(s) that does not exceed the premium(s) charged to
an active employee for comparable coverage(s); benefits otherwise receivable by
Employee pursuant to this clause (B) shall be reduced to the extent comparable
benefits are actually received by Employee (and Employee’s dependents) during
the 36-month period following Employee’s termination, and any such benefits
actually received by Employee shall be reported to the Company (to the extent
coverage and/or benefits received under a self-insured health plan of the
Company (any successor or affiliate) are taxable to Employee, the Company shall
make Employee “whole” on a net after tax basis); (C) within 30 days of the Date
of Termination or, if later, the first date on which such payment would not
subject Employee to suit under Section 16(b) of the Securities Exchange
Act of 1934, if applicable, the Company shall offer to pay to Employee for
cancellation of all outstanding stock-based awards then held by Employee on the
Date of Termination (collectively, “Awards”), a lump sum amount in cash equal
to 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 value
of an


 


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unrestricted
share) of all such Awards, calculated, where applicable, as if all corporate
performance 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 fair
market value on the Date of Termination as determined by an independent third
party agreeable to the Company and Employee. 
The fair market value shall be determined based on the trading values of
a comparable group of public companies as determined by the independent third
party and the aggregate value discount applied for various factors including
illiquidity, being private and minority ownership shall not exceed 15%.


 


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


 


(iii)  If the Company terminates this Agreement and
Employee’s employment before the expiration of the Term, other than following a
Change in Control and other than for Misconduct, the Company shall pay in a
lump sum, in cash, to Employee within 15 days of the Date of Termination, an
amount 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 or
payable, as the case may be, during the three years prior to termination.


 


(d)           Disability.


 


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


 


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


 


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


 


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


 


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(ii)           a
reduction in Employee’s Base Compensation;


 


(iii)          the
failure by the Company to pay to Employee any portion of Employee’s current
compensation or to pay to Employee any portion of an installment of deferred
compensation under any deferred compensation program of the Company within
seven days of the date such compensation is due;


 


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


 


(v)           the
failure by the Company to continue to provide Employee with benefits
substantially similar to those enjoyed by Employee under any of the Company’s
life insurance, medical, health and accident, or disability plans in which
Employee was participating at the time of this Agreement; the taking of any
action by the Company which would directly or indirectly materially reduce any
of such benefits or deprive Employee of any material fringe benefit enjoyed by
Employee at the time of this Agreement, or the failure by the Company to
provide Employee with the number of paid vacation days to which Employee is
entitled on the basis of years of service with the Company (and its
predecessors) in accordance with the Company’s normal vacation policy in effect
at the time of the Change in Control;


 


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


 


(vii)         requiring
Employee to work anywhere other than the location of the Company’s offices in
Carpinteria, California except for required travel on the Company’s business to
an extent substantially consistent with Employee’s business travel obligations
immediately prior to the time of the Change in Control;


 


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


 


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


 


(ix)           any
purported termination of Employee’s employment that is not effected pursuant to
a Notice of Termination satisfying the requirements of Subsection (f) hereof,
which purported termination shall not be effective for purposes of this
Agreement.


 


Notwithstanding
anything in this Agreement to the contrary, if Employee’s employment with the
Company terminates prior to, but within six months of, the date on which a
Change in Control occurs and it is reasonably demonstrated by Employee that
such termination of employment was (i) by the Company in connection with
or anticipation of the Change in Control or (ii) by Employee under
circumstances which would have constituted Good Reason if the circumstances
arose on or after the Change in Control, then, for purposes of this Agreement,
Employee shall be deemed to have continued employment with the Company until
the date of the Change in Control and then terminated his employment on such
date for Good Reason


 


Employee’s
right to terminate employment pursuant to this subsection shall not be affected
by Employee’s incapacity due to physical or mental illness.  In addition, Employee’s continued employment
following any event, act or omission, regardless of the length of such
continued employment, shall not constitute Employee’s consent to, or a waiver
of Employee’s rights with respect to, such event, act or omission constituting
a Good Reason circumstance hereunder.


 


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


 


(g)           Date
of Termination.  “Date of
Termination” shall mean the date specified in the Notice of Termination.  Either party may, within 15 days after any
Notice of Termination is given, provide notice to the other party pursuant to
Section 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 when
the notice giving rise to the dispute was given


 


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(including, but not
limited to, Base Compensation) and continue Employee as a participant in all
compensation, benefit and insurance plans in which Employee was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with Section 18 hereof, but in no event past the
expiration date of this Agreement.  Any
payments and benefits provided during such period of dispute shall not reduce
any other payments or benefits due Employee under this Agreement nor shall
Employee be liable to repay the Company for such payments and benefits if it is
finally determined the Employee is not entitled to payments under the other
provisions of this Agreement following Employee’s termination of employment.


 


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


 


(i)            Section
280G.


 


(1)           To
provide Employee with adequate protection in connection with his ongoing
employment with the Company, this Agreement provides Employee with various
benefits in the event of termination of Employee’s employment with the
Company.  If Employee’s employment is
terminated following a “change in control” of the Company, within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”), a portion of those benefits could be characterized as “excess
parachute payments” within the meaning of Section 280G of the Code.  Agreement are treated as an excess parachute payment.  The parties, therefore, have agreed as set
forth herein.


 


(2)           Anything
in this Agreement to the contrary notwithstanding, the payments and
distributions by the Company or any other person to or for the benefit of
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (a “Payment”) shall be reduced as
provided below if the Company shall determine that (A) the Payment would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties would be incurred by Employee with respect to such excise tax
(such excise tax, together with


 


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any such interest and
penalties, 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 at
least $5,000 or more.  The Employee may by written notice to the
Company designate the order in which such parachute payments will be reduced or
modified so that the Excise Tax is eliminated and the Company is not denied any
federal income tax deductions for any “parachute payments” because of Section
280G.


 


(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 securities
market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the
Code) and (2) as a result of such termination, the Employee would receive any
payment that, absent the application of this paragraph 9(j), would be subject
to interest and additional tax imposed pursuant to Section 409A(a) of the Code
as a result of the application of Section 409A(2)(B)(i) of the Code, then no
such payment shall be payable prior to the date that is the earliest of (i) 6
months 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 such
interest and additional tax.


 


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


 


10.           Non-exclusivity
of Rights.  Nothing in this Agreement
shall prevent or limit Employee’s continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its affiliated companies and for which Employee may qualify, nor shall
anything herein limit or otherwise adversely affect such rights as Employee may
have under any stock option or other agreements with the Company or any of its
affiliated companies.


 


11.           Assignability.  The obligations of Employee hereunder are
personal and may not be assigned or delegated by him or transferred in any
manner whatsoever, nor are such obligations subject to involuntary alienation,
assignment or transfer.  The Company
shall 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, so
long as the obligations of the Company under


 


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this Agreement remain the
obligations of the Company.


 


12.           Notice.  For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the Company at its principal office address, directed to the attention of the
Board with a copy to the Secretary of the Company, and to Employee at Employee’s
residence address on the records of the Company or to such other address as
either party may have furnished to the other in writing in accordance herewith
except that notice of change of address shall be effective only upon receipt.


 


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


 


 


14.           Successors;
Binding Agreement.


 


(a)           The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.  Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement and shall entitle Employee to compensation from the Company
in the same amount and on the same terms as he would be entitled to hereunder
if he terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.  As used herein, the term “Company” shall
include any successor to its business and/or assets as aforesaid which executes
and delivers the Agreement provided for in this Section 14 or which otherwise
becomes bound by all terms and provisions of this Agreement by operation of
law.


 


(b)           This
Agreement and all rights of Employee hereunder shall inure to the benefit of
and be enforceable by Employee’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If Employee should die while any amounts
would be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms 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 the
mutual agreements set forth in this Agreement, the parties hereto further agree
as follows:


 


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


 


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


 


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


 


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


 


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


 


(e)           The
Company shall not be liable under this Agreement to make any payment in
connection with any claim made against Employee:


 


(1)           for
which payment is actually made to Employee under an insurance policy maintained
by the Company, except in respect of any excess beyond the amount of payment
under such insurance;


 


(2)           for
which Employee is indemnified by the Company otherwise than pursuant to this
Agreement;


 


13





















 


(3)           based
upon or attributable to Employee gaining in fact any personal profit or
advantage to which Employee was not legally entitled;


 


(4)           for
an accounting of profits made from the purchase or sale by Employee of
securities of the Company within the meaning of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto; or


 


(5)           brought
about or contributed to by the dishonesty of Employee; provided,
however, that notwithstanding the foregoing, Employee shall be
protected under this Agreement as to any claims upon which suit may be brought
alleging dishonesty on the part of Employee, unless a judgment or other final
adjudication thereof adverse to Employee shall establish that Employee
committed acts of active and deliberate dishonesty with actual dishonest
purpose and intent, which acts were material to the cause of action so
adjudicated.


 


(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 claim
made against him for which indemnity will or could be sought under this
Agreement.  Notice to the Company shall
be directed to the Company, Attention: Secretary (or such other address as the
Company shall designate in writing to Employee).  Notice shall be deemed received if sent by
prepaid mail properly addressed, the date of such notice being the date postmarked.  In addition, Employee shall give the Company
such information and cooperation as it may reasonably require and as shall be
within Employee’s power.


 


(g)           Nothing
herein shall be deemed to diminish or otherwise restrict Employee’s right to
indemnification under any provision of the Certificate of Incorporation or
Bylaws of the Company or under Delaware law.


 


(h)           During
the Term and for a period of six years thereafter, the Company shall cause
Employee to be covered by and named as an insured under a policy or contract of
insurance obtained by it to insure its directors and officers against personal
liability for acts or omissions in connection with service as an officer or
director of the Company or service in other capacities at the request of the
Company.  The coverage provided to
Employee pursuant to this Section shall be of a scope and on terms and
conditions at least as favorable as the coverage provided to Employee prior to
the Change in Control.


 


16.           Miscellaneous.  No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Employee and such officer as may be
specifically authorized by the Board.  No
waiver by either party hereto at any time of any breach by the other party
hereto of, or in


 


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


 


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


 


18.           Arbitration.  Employee shall be permitted (but not
required) to elect that any dispute or controversy arising under or in
connection with this Agreement be settled by arbitration in Los Angeles,
California or in the city in which Employee then resides in accordance with the
rules of the American Arbitration Association then in effect.  Judgment may be entered on the arbitrator’s
award in any court having jurisdiction. 
Reasonable legal fees and costs incurred by Employee in connection with
the resolution of any dispute or controversy under or in connection with this
Agreement shall be paid by the Company as bills for such services are presented
by Employee to the Company.


 


19.           Prior
Agreements.  This agreement
supersedes 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 his
execution hereof and has consulted with his own attorney with respect to the
terms and conditions hereof and the transactions contemplated under this
Agreement.  Employee has executed this
Agreement with full knowledge of the terms and conditions contained herein and
acknowledges that he has had the opportunity to obtain information regarding
the Company and concerning the terms and conditions of this Agreement.  In making his decision to enter into this
Agreement, Employee has relied solely upon independent investigations he made
and acknowledges that he is not relying on the Company, any affiliate of the
Company or any officer, director or employee of the Company for advice with
respect to any tax or other economic considerations involved in the
transactions contemplated under this Agreement, including those arising under
Section 409A of the Internal Revenue Code of 1986, as amended.


 


IN WITNESS WHEREOF, the
parties have executed this Agreement effective for all purposes as of August
15, 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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Attachment
I


Stock
Option 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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