Exhibit 10.2
TESORO CORPORATION AMENDED AND RESTATED
EXECUTIVE SECURITY PLAN
EFFECTIVE JANUARY 1, 2005

 

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TESORO CORPORATION
EXECUTIVE SECURITY PLAN
PREAMBLE
The principal objective of this Amended and Restated Executive Security Plan
(the “Plan”) is to ensure the payment of a competitive level of retirement
income in order to attract, retain and motivate selected executives. The plan is
designed to provide a benefit which, when added to other retirement income of
the executive, will meet the objective described above. This Plan is a complete
amendment and restatement of the Plan originally established as a restatement
and amendment of the Tesoro Executive Post Retirement Benefit Plan and Tesoro
Executive Death Benefit Plan. The Plan, as amended and restated is intended to
conform to the requirements of Section 409A of the Internal Revenue Code with
regard to amounts not earned and vested as of December 31, 2004. With regard to
those amounts earned and vested as of December 31, 2004, there is intended to be
no material modifications to those grandfathered benefits and the terms of the
Plan in effect immediately prior to the Amended and Restated Executive Security
Plan shall govern grandfathered benefits.

 

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SECTION I
DEFINITIONS

1.1   “Affiliate” means any corporation, partnership or other organization
which, during any period of employment of a Participant, was at least 50%
controlled by the Company or an affiliate of the Company.

1.2   “Basic Compensation” means the compensation actually paid to a Participant
by the Company or any wholly owned, direct or indirect subsidiary of the Company
inclusive of incentive compensation, but exclusive of special compensation or
bonuses paid because of service overseas, expense allowances and all other
extraordinary compensation. Also excluded are stock awards granted under the
Three-Year Executive Performance Stock Option Program and payments of Contingent
Awards under the Tesoro Petroleum Corporation 1998 Performance Incentive
Compensation Plan.

1.3   “Beneficiary” means the person or legal entity designated in writing by a
Participant to receive, after his death, any death benefits provided by the
Plan. If no designation is in effect at the time of the Participant’s death, or
if no designated person shall survive the Participant, the Beneficiary shall be
the Participant’s estate.

1.4   “Change of Control” means (i) there shall be consummated (A) any
consolidation or merger of Company in which Company is not the continuing or
surviving corporation or pursuant to which shares of Company’s Common Stock
would be converted into cash, securities or other property, other than a merger
of Company where a majority of the Board of Directors of the surviving
corporation are, and for a one-year period after the merger continue to be,
persons who were directors of Company immediately prior to the merger or were
elected as directors, or nominate for election as director, by a vote of at
least two-thirds of the directors then still in office who were directors of
Company immediately prior to the merger, or (B) any sale, lease, exchange or
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of Company, or (ii) the shareholders of Company
shall approve any plan or proposal for the liquidation or dissolution of
Company, or (iii) (A) any “person” (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Act), other than Company or a subsidiary thereof or
any employee benefit plan sponsored by Company or a subsidiary thereof, shall
become the beneficiary owner (within the meaning of Rule 13c-3 under the
Securities Act) of securities of Company representing 35 percent or more of the
combined voting power of Company’s then outstanding securities ordinarily (and
apart from rights accruing in special circumstances) having the right to vote in
the election of directors, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases or otherwise, and (B) at any
time during a period of one-year thereafter, individuals who immediately prior
to the beginning of such period constituted the Board of Directors of Company
shall cease for any reason to constitute at least a majority thereof, unless
election or the nomination by the Board of Directors for election by Company’s
shareholders of each new director during such

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    period was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period.   1.5  
“Committee” means the Tesoro Corporation Employee Benefits Committee appointed
by the Board of Directors of the company.

1.6   “Company” means Tesoro Corporation.

1.7   “Earnings” means the Participant’s average monthly rate of Basic
Compensation for the 36 consecutive calendar months which produces the highest
average monthly rate of Basic Compensation for the Participant. In the event the
Participant was employed for less than thirty-six successive calendar months,
the considered period shall be the number of months for which he received Basic
Compensation from the Company.

1.8   “Grandfathered Participant” means a Participant who had attained age 60
and completed 5 years of Service on or before December 31, 2004, whose benefits
were then earned and vested as of that date and grandfathered under Section 409A
of the Internal Revenue Code.

1.9   “Other Retirement Income” means the monthly retirement income payable to a
Participant from the following sources:       Non-qualified retirement plan of
the Company or any Affiliate if the Participant was included in the Plan as of
December 31, 2005.       Non-qualified retirement and defined contribution
restoration plans of the Company, or any Affiliate if the employee becomes a
Participant after December 31, 2005.       Qualified and non-qualified
retirement benefits from a predecessor employer of the Participant if said
predecessor employer or employer facility was acquired by or merged into the
Company or any Affiliate at any time and benefit service with the predecessor
employer is recognized by the Company for any retirement plan, qualified or
non-qualified, per the acquisition agreement.       Social Security Benefit—as
defined in Section 1.15.

1.10   “Participant” means a senior vice president or above of the Company, or
any wholly owned, direct or indirect subsidiary of the Company recommended for
participation by the Chief Executive Officer of the Company, and approved by the
Board of Directors of the Company as eligible to participate.

1.11   “Plan” means the Company’s Amended and Restated Executive Security Plan.

1.12   “Retirement” means the termination of a Participant’s employment with the
Company on one of the retirement dates specified in Section 2.1.

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1.13   “Retirement Plan” means the Company’s Retirement Plan.

1.14   “Retirement Plan Benefit” means the amount of monthly benefit payable
from the Retirement Plan to a Participant in the form of a straight life
annuity.

1.15   “Service” means a Participant’s benefit service defined in the Retirement
Plan.

1.16   “Social Security Benefit” means the monthly primary insurance amount
estimated by the Committee to be payable to the Participant at age 65 under the
federal Social Security Act, provided, however, that:

  (a)   the Social Security Benefit for a Participant who terminates employment
prior to age 65 will be calculated assuming.

  (i)   the Participant will not receive any future wages which would be treated
as wages for purposes of the federal Social Security Act, and     (ii)   the
Participant will elect to begin receiving his Social Security Benefit as of the
earliest age then allowable under said Social Security Act, or if later, at
actual date of Retirement.

  (b)   the Social Security Benefit, once calculated, will be frozen as of the
date the Participant terminates employment.

1.17   The masculine gender, where appearing in the Plan, will be deemed to
include the feminine gender, and the singular may include the plural, unless the
context clearly indicates the contrary.

SECTION II
Eligibility for Benefits

2.1   Each Participant is eligible to retire and receive a benefit under this
Plan beginning on one of the following dates:

  (a)   “Normal Retirement Date”, which is the first day of the month following
the month in which the Participant reaches age 65 and has 5 years of Service.  
  (b)   “Early Retirement Date”, which is the first day of any month following
the month in which the Participant reaches age 55 and has 5 years of Service.

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  (c)   “Postponed Retirement Date”, which is the first day of the month
following the Participant’s Normal Retirement Date in which the Participant
terminates employment with the Company.     (d)   “Change of Control Date”,
which is the date upon which a Change of Control occurs at which time all
Participants shall be fully vested and entitled to a benefit commencing on the
later of the date of termination or Early Retirement Date for each Participant
based upon the Service and Earnings through the Change of Control.

2.2   In the event the Participant becomes totally and permanently disabled
within the meaning of the Social Security Act, while in the active employment of
the Company and eligible to participate hereunder, he or she shall be entitled
to the monthly retirement benefit determined under Section 3.1 payable at his or
her Normal Retirement Date, but based upon the Service the Participant would
have accrued had he remained in active employment until his Normal Retirement
Date and continued at the same rate of Earnings until that date.

2.3   Notwithstanding anything herein to the contrary, if a Participant who is
receiving, or may be entitled to receive, a benefit hereunder, engages in
competition with the Company (without prior authorization given by the Committee
in writing) or is discharged for cause, or performs acts of willful malfeasance
or gross negligence in a matter of material importance to the Company, payments
thereafter payable hereunder to such Participant or such Participant’s
Beneficiary will, at the discretion of the Committee, be forfeited and the
Company will have no further obligation hereunder to such Participant or
Beneficiary.

SECTION III
Amount and Form of Retirement Benefit

3.1   The monthly retirement benefit payable at Normal and Early Retirement Date
under this Plan will equal 4% of Earnings times the first 10 years of Service,
plus 2% of Earnings times the next 10 years of Service, plus 1% of Earnings
times the next 10 years of Service; less any Retirement Plan Benefit, federal
Social Security Benefit, and any Other Retirement Income. Provided, however, any
Participant who has not attained his or her Early Retirement Date with 10 years
of service by December 31, 2005 and retires prior to age 60 shall have his or
her monthly retirement benefit actuarially reduced by 7% per year from age 60.
The forms of payment will be adjusted consistent with the actuarial equivalency
set forth in Section 3.3 of the Plan. The amount payable under this Plan shall
also be reduced by the amount of the vested Basic Pension paid or payable under
the Company’s Funded Executive Security Plan (without regard to whether a
smaller, adjusted amount is in fact paid from such Funded

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    Plan after retirement because of prior distributions made from such Funded
Plan to enable the Participant to pay taxes resulting from his participation in
such Funded Plan) as of the actual retirement from the Amended Plan. No credit
will be included under this Plan formula for service in excess of 30 years.  
3.2   The monthly benefit payable at a Postponed Retirement Date will be equal
to the benefit determined in accordance with Section 3.1 based on Service and
Earnings as of the Participant’s Retirement Date.

3.3   The benefit determined under this Plan will be payable in any form
approved by the Committee and elected by the Participant. With respect to those
Participants in the Plan prior to January 1, 2007, the form of payment must be
elected by the Participant on or before January 1, 2007. With respect to
Participants entering the Plan on or after January 1, 2007, an initial deferral
election as to form of payment must be made within 30 days of the Participant’s
designation as eligible to participate in the Plan. Provided, however, in all
cases the Participants shall be limited to those forms of distribution available
under the Tesoro Corporation Retirement Plan (other than lump sum distributions
which shall not be available hereunder). If the form elected is other than a
straight life annuity, the amount of benefit shall be the actuarial equivalent
of such straight life annuity. For purposes of the Plan, the term “actuarial
equivalent” shall have the meaning set forth in the Retirement Plan as it may be
amended from time to time.

SECTION IV
Payment of Retirement Benefits

4.1   Benefits payable in accordance with Section III will be effective as of
the first of the month coincident with or next following the month of
Retirement, as the Participant may elect. Benefits will continue to be paid on
the first day of each succeeding month. The last payment will be on the first
day of the month in which the retired Participant dies unless otherwise elected
in accordance with Section 3.3. Provided, however, that notwithstanding the
preceding provisions of this Section 4.1, if the Participant is a key employee
(as defined in Section 416(i) of the Code without regard to Section 416(i)(5))
at any time during the twelve month period ending on December 31 of the Plan
Year preceding his or her actual Retirement Date, distributions under this Plan
shall not commence before the date which is six months after the date of
separation from service of the Participant. The first payment will include all
monthly amounts due for the wait period.

4.2   If a Participant terminates his employment, for any reason, without
qualifying under Section II of this Plan or under the terms of the prior Plan,
then only those contributions made by the Participant to the prior Plan, plus
interest, will be refunded

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    as soon as administratively practicable following the Participant’s
termination of employment.   4.3   The Company shall be liable for all benefits
due the Participants under the Plan.

4.4   Under all circumstances, the rights of the Participants to the assets held
in any rabbi trust created with respect to the Plan shall be no greater than the
rights expressed in this Plan. Nothing contained in the trust agreement which
creates any such rabbi trust shall constitute a guarantee by any Company that
the amounts transferred by it to the trust shall be sufficient to pay any
benefits under the Plan or would place the Participant in a secured position
ahead of judgment and/or general creditors should the Company become insolvent
or bankrupt. Any trust agreement established with respect to a Plan must
specifically set out these principles so it is clear in the trust agreement that
the Participants are only unsecured general creditors of the Company with
respect to their benefits under the Plan.

4.5   The Plan is only a general corporate commitment and each Participant must
rely upon the general credit of the Company for the fulfillment of its
obligations under the Plan. Under all circumstances the rights of Participants
to any asset held by the Company shall be no greater than the rights expressed
in this Plan. Nothing contained in this Plan shall constitute a guarantee by the
Company that the assets of the Company will be sufficient to pay any benefits
under the Plan or would place the Participant in a secured position ahead of
general creditors and judgment creditors of the Company. Though the Company may
establish or become a signatory to a rabbi trust to accumulate assets to help
fulfill its obligations, the Plan and any trust created, shall not create any
lien, claim, encumbrance, right, title or other interest of any kind in any
Participant in any asset held by the Company, contributed to any trust created,
or otherwise be designated to be used for payment of any of its obligations
created in this agreement. No specific assets of the Company have been or will
be set aside, or will be transferred to a trust or will be pledged for the
performance of the Company’s obligations under the Plan which would remove those
assets from being subject to the general creditors and judgment creditors of the
Company. Notwithstanding the preceding provisions of this Section 4.5 to the
contrary, upon a Change of Control, the Company shall, as soon as possible
following the Change of Control, make an irrevocable contribution to the rabbi
trust previously established, or if not so established, to a newly created rabbi
trust, in an amount that is sufficient to pay each Plan Participant or
Beneficiary the benefits to which each Plan Participant or their Beneficiaries
would be entitled pursuant to the terms of the Plan as of the date on which the
Change of Control occurred.

4.6   Upon a Change of Control, the Participant will be eligible to commence
payment of the vested benefits at the later of the Participant’s termination
from the Company or its successor or the earliest possible retirement date,
subject to the early retirement provisions as noted in 3.1 above and the six
month wait period for a key employee as noted in 4.1 above.

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4.7   It is intended that this Plan shall be unfunded for tax purposes and for
purposes of Title I of ERISA.

SECTION V
Death Benefits Payable

5.1   If a Participant should die before retirement and was not a Grandfathered
Participant, the Beneficiary will receive the greater of, based on the
actuarially equivalent value, 1) the accrued benefit payable for the life of the
beneficiary as a single life annuity or an actuarially equivalent single life
annuity with 10 year certain, or 2) a total benefit, payable over eight years,
equal to 400% of the amount of the Participant’s rate of annual base pay as of
December 1, just prior to the date of death. If a Grandfathered Participant
should die before retirement, the Beneficiary will receive a total benefit,
payable over eight years, equal to 400% of the amount of the Participant’s rate
of annual base pay as of December 1, just prior to date of death. If a
Participant is not a Grandfathered Participant, pre-retirement death benefits
are payable to the Beneficiary only if the Participant has completed three
(3) years or more of benefit service.

5.2   A Beneficiary’s benefits will be payable monthly, and will commence on the
first day of the month following the month in which the Participant dies.

5.3   Amounts otherwise payable under this Section will be reduced by any amount
previously funded through any trust designated for retirement and death benefits
from this Plan, and by the amount of any death benefit payable under the
Company’s Funded Executive Security Plan.

SECTION VI
Miscellaneous

6.1   The Board of Directors of the Company may, in its sole discretion,
terminate, suspend or amend this Plan at any time, in whole or in part. However,
the termination, amendment or suspension of this Plan will not affect the rights
of (i) a retired Participant, (ii) an eligible Participant (a Participant who
has qualified for a benefit), or (iii) a Beneficiary, to receive or continue to
receive a benefit in accordance with this Plan which is in effect on the date
this Plan is terminated, suspended or amended.

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    Notwithstanding the preceding provisions of this Section 6.1 to the
contrary, distribution to Participants made in accordance with the first
sentence hereof will only be made if (1) all arrangements sponsored by the
Company required to be aggregated with the Plan under proposed regulations
§1.409A-1(c) are terminated; (2) no payments other than payments that would be
payable under the Plan if the termination had not occurred are made within
twelve months of the termination of the Plan; (3) all payments are made within
twenty-four (24) months of the termination of the Plan; and (4) the Company does
not adopt a new arrangement that would be aggregated with the terminated Plan
under §1.409A-1(c) if the same Participant participated in both arrangements at
any time within five (5) years following the date of termination of the Plan In
all other circumstances, distributions will be only be made to Participants when
a distribution is otherwise permitted under Section IV hereof.   6.2   Nothing
contained herein will confer upon any Participant the right to be retained in
the service of the Company, nor will it interfere with the right of the Company
to discharge or otherwise deal with Participant without regard to the existence
of this Plan.

6.3   No benefit under this Plan shall be assignable or subject to any manner of
alienation, sale, transfer, claims of creditors, pledge, attachment or
encumbrances of any kind.

6.4   The Committee may adopt rules and regulations to assist it in the
administration of the Plan.   6.5   Each Participant shall receive a copy of
this Plan.   6.6   This Plan is established under and will be construed
according to the laws of the State of Texas.

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