Exhibit 10.4


 


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

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


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
fewer 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 (or
fractions thereof) purchased is the total number at the time exercisable under
the Option.


 


2.             Continuance of
Employment/Service Required; No Employment/Service Commitment.


 


2.1           The
vesting schedule requires continued employment or service 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 employment or
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 employment or service as
provided in Section 5 below or under the Plan.


 


2.2           Nothing
contained in this Option Agreement or the Plan constitutes an employment
commitment by the Company, affects the Participant’s status as an employee who
is subject to termination without cause, confers upon the Participant any right
to remain employed by or in service to the Company or any Subsidiary,
interferes in any way with the right of the Company or any Subsidiary at any
time to terminate such employment or service, or affects the right of the
Company or any Subsidiary 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:


 


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(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”);


 


(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 exercise.

  



 


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)           Timothy M. Marquez, Bernadette B. Marquez,
their respective legal


 


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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;


 


(b)           the stockholders of the Company approve and
the Company consumates a merger or consolidation of the Company with any other
Company, 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


 


(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.


 


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5.             Termination of Employment or
Service.


 


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


 


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


 


5.3           In
the event the Participant’s employment by or service to the Company terminates
for any reason other than as described in Section 5.1 or 5.2, the unvested
portion of the Option, and all other rights in respect thereof, shall terminate
and become null and void on the date on which the Participant’s employment or
service terminated.  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
earlier of the expiration of the Option or two (2) years following the
date on which the Participant’s employment or service terminated.


 


5.4           For
the purpose of this Option Agreement, “Misconduct”
means (a) the willful and continued failure by Participant to
substantially perform his duties with the Company (other than any such failure
resulting from Participant’s incapacity due to physical or mental illness),
after a written demand for substantial performance is delivered to Participant
by the Board, which demand specifically identifies the manner in which the
Board believes that Participant has not substantially performed his duties, or (b) the
willful engaging by Participant in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise.  For purposes hereof, no act, or failure to
act, on Participant’s part shall be deemed “willful” unless done, or omitted to
be done, by Participant not in good faith and without reasonable belief that
Participant’s action or omission was in the best interest of the Company.


 


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:


 


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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.


 


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) (collectively, a “Transfer”)
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


 


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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 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.


 


(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


 


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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 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.


 


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(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.  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 9.4,
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 grants a Put Right to other employees of or consultants to the
Company or its subsidiaries, (y) more than one Put Notice is given during a Put
Notice Period and (z) 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


 


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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 9.4(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 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.


 


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12.           No Stockholder Rights
Following Exercise of a Repurchase or Put Right.  If
the Participant (or any permitted transferee who is an employee of the Company)
ceases to be an employee 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
Timothy M. Marquez or any affiliate thereof (collectively, “Marquez”) 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 his 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:


 


13.1         Marquez shall give the Participant not less
than 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 Marquez for all shares of Common
Stock sold by Marquez in the Tag Along Sale, and otherwise on the same terms
and conditions, as Marquez, 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 Marquez 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
Marquez to the Participant if the proposed third party sale is not consummated
for any reason.


 


10





















 


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 Marquez proposes to sell all,
or a majority of his, its or their shares of Common Stock to a Third Party
Purchaser, Marquez shall have the right (the “Compelled Sale Right”), exercisable as set forth
below, to compel the Participant to sell to the 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 Marquez for all shares of Common Stock sold by Marquez in the
Compelled Sale.


 


14.2         In the event Marquez 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 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 Employee, 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
Marquez 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 that portion of the Participant’s Option which is vested and
exercisable as of the record date used by the Company for the purpose of
determining the stockholders that are eligible to receive the dividend.


 


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.


 


11





















 


15.3         All payments made pursuant to this Section 15
shall be net of any withholding or other taxes applicable to such payment.


 


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.


 


17.           Satisfaction of All Rights
to Equity.  The Option is in complete satisfaction of any
and all rights that the Participant may have (under an employment, consulting,
or other written or oral agreement with the Company, or otherwise) to receive (1) stock
options or a restricted stock award with respect to the Company’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.


 


12





















 


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 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
JAMS 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)


 


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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 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.

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
   

  	
   

  
	
  Print
  Name

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (To be
  completed by the Company after the price

  	
   

  
	
  Date

  	
   

  	
  (including
  applicable withholding taxes), value (if

  
	
   

  	
   

  	
  applicable)
  and receipt of funds is verified.)

  	
   

  
						



 


14