EXHIBIT 10.2
SECOND AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
     This Second Amendment (the “Amendment”) is entered into as of November 1,
2006 (the “Effective Date”) as an amendment to the Amended and Restated
Employment Agreement entered into by and between Tesoro Corporation (the
“Company”) and Bruce A. Smith (the “Executive”) as of December 3, 2003, as
previously amended by the First Amendment thereof (the “Employment Agreement”),
WITNESSETH:
     WHEREAS, the Company and Executive have previously entered into the
Employment Agreement; and
     WHEREAS, the Company and Executive wish to amend the Employment Agreement
by entering into this Amendment;
     NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein, including but not limited to Executive’s employment
and the payments and benefits described herein, the sufficiency of which is
hereby acknowledged, the Company and the Executive hereby agree as follows:
     1. Section 2 of the Agreement is hereby amended by deleting the first
sentence thereof and substituting the following in its stead:
The term of this Agreement shall begin on the Effective Date and end on
December 31, 2010.
     2. Section 4 of the Agreement is hereby amended by substituting the
following for the first sentence of subsection (a) thereof:
During the Employment Period, the Executive shall receive an annual base salary
(the “Annual Base Salary”) at an annual rate of $1,200,000 less applicable
taxes, or such higher rate as may be determined from time to time by the
Compensation Committee (the “Compensation Committee”) of the Board of Directors
of the Company (the “Board”).

 

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     3. Section 4 of the Agreement is hereby amended by deleting subsection
(b) and substituting the following in its place:
ANNUAL BONUS. In addition to the Annual Base Salary, during the Employment
Period, Executive will be entitled to participate in an annual incentive
compensation plan of the Company. The Executive’s target annual bonus will be
equal to 100%, or such higher rate as may be determined from time to time by the
Compensation Committee, of his Base Salary as in effect for such year (the
“Target Bonus”), and his actual annual bonus may range from 0% to 250%, or such
higher maximum percentage of his Base Salary for such year as may be determined
by the Compensation Committee, (the “Maximum Bonus”) and will be determined
based upon achievement of performance goals established by the Compensation
Committee pursuant to such plan.
     4. Section 4 of the Agreement is hereby amended by deleting subsection
(f) thereof and substituting the following in its stead:
SUPPLEMENTAL ANNUAL RETIREMENT BENEFIT. Subject to the following sentence,
Executive shall be entitled to participate in the Company’s Amended and Restated
Executive Security Plan as currently in effect or as amended hereafter, but
excluding any such amendment which would reduce Executive’s benefits thereunder,
and shall receive a benefit upon his termination of employment for any reason in
an amount determined under such plan and payable in the form of a life annuity
with a 50% right of survivorship payable to his current spouse, Gail H. Smith if
she survives Executive; provided, however, that if such termination (i) is a
termination by the Company other than for Cause, (ii) is a termination by
Executive for Good Reason or (iii) occurs after a Change in Control (as defined
in Section 7(c) below), such benefit shall be calculated as if Executive had
20 years of “Service” under such plan. In the event that Executive voluntarily
terminates employment without Good Reason prior to the earlier of December 31,
2010 or the date of a Change in Control, Executive shall not be entitled to a
benefit under the Company’s Amended and Restated Executive Security Plan, but
shall be entitled to the supplemental annual retirement benefit payable by the
Company set forth below (the “Supplemental Annual Retirement Benefit”). The
first applicable Supplemental Annual Retirement Benefit shall become payable
upon the termination of Executive’s employment with the Company, and such
Supplemental Annual Retirement Benefit shall be payable each year to Executive
through the remainder of his life in quarterly calendar installments (with a
prorated initial installment if necessary), with a 50% right of survivorship to
his current spouse, Gail H. Smith if she survives him. The Supplemental Annual
Retirement Benefit shall be (with proration between specified dates based on the
number of three-month periods in which he was employed compared to 4):

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          Date of Employment Termination   Supplemental Annual Retirement
Benefit
On or after December 3, 2008 and before December 31, 2010
  $ 700,000  
On or after December 3, 2007 and before December 3, 2008
  $ 500,000  
On or after December 3, 2006 and before December 3, 2007
  $ 300,000  
Before December 3, 2006
  $ 200,000  

     5. Section 6(e)(vi) of the Agreement is hereby amended by adding the
following sentence after the first sentence thereof:
Notwithstanding the foregoing, Executive shall immediately vest in any
restricted stock award to the extent that such award becomes taxable to
Executive after the termination of his employment under this Section 6(e) and
prior to the date such awards would otherwise vest in accordance with this
Section.
     6. Section 7 of the Agreement is hereby amended by deleting that portion of
subsection (a) preceding clause (i) thereof and substituting the following in
its stead:
(a) PAYMENTS FOLLOWING A CHANGE IN CONTROL. In the event a “Change in Control”
occurs and either (i) the Executive elects, at any time following the one-year
period after such Change in Control, and before the end of the second year after
such Change in Control, to terminate employment for any reason; or
(ii) Executive’s employment is terminated within two years following such Change
in Control by the Company for any reason other than Cause, or by Executive for
Good Reason, the Company shall pay the following amounts to Executive:
     7. Section 7 of the Agreement is hereby amended by deleting paragraph
7(a)(i) thereof and substituting the following in its stead:
(i) An amount equal to three times the sum of (x) Executive’s Base Salary as in
effect immediately prior to his termination of employment (his “Current Salary”)
plus (y) his Current Salary multiplied by the greater of his Target Bonus
percentage for the year in which his employment terminates or the average of the
actual bonus percentages earned for the Bonuses paid or payable for the three
years ending on the last day of the year prior to the year in which his
employment terminates. Such amount shall be payable in a lump sum six (6) months
following termination of employment. If the Executive’s employment with the
company is terminated for any reason other than Cause on or after the date of
the Change in Control, then (A) the amount provided in this Section 7(a)(i)
shall be in lieu of any amounts otherwise due to the Executive under
Section 6(e)(iii), and (B) benefits shall be continued for the period provided
in Section 6(e)(iv), or for three years following the Change in Control,
whichever provides the longer continuation period.
8. Section 7 of the Agreement is hereby amended by deleting subsection
(d) thereof.

9. All references in the Employment Agreement to “Tesoro Petroleum Corporation”
shall be changed to “Tesoro Corporation.”

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.

         
 
  TESORO CORPORATION    
 
       
Date: November 1, 2006
  /s/ STEVEN H. GRAPSTEIN    
 
 
 
By: Steven H. Grapstein    
 
  Title: Lead Director, Chairman Audit Committee    
 
       
 
  /s/ A. MAURICE MYERS     
 
 
 
By: A. Maurice Myers, Chairman    
 
  Compensation Committee    
 
       
 
  /s/ WILLIAM J. JOHNSON     
 
 
 
By: William J. Johnson, Chairman    
 
  Governance Committee    
 
       
Date: November 1, 2006
            /s/ BRUCE A. SMITH     
 
            Bruce A. Smith, Executive