EXHIBIT 10.7
THIRD AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
     This Third Amendment (the “Amendment”) is entered into as of December 12,
2008 (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
subsequently amended (the “Agreement”).
     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 4 of the Agreement is hereby amended by deleting the first
paragraph of subsection (f) thereof to read as follows:
     (f) SUPPLEMENTAL ANNUAL RETIREMENT BENEFIT. 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 Separation from Service for any reason, other than for Cause, in an
amount calculated under such plan using the greater of (i) his actual “Service”
or (ii) 20 years of “Service” and payable in the form of a lump sum payable
first day of the seventh (7th) calendar month following Executive’s Separation
from Service, determined using the actuarial equivalent of an unreduced single
life annuity with a 50% right of survivorship to his current spouse, Gail H.
Smith if she survives Executive.
     2. Section 19 of the Agreement is hereby amended by inserting the following
subsection (f) to read as follows:
     (f) DEFERRED COMPENSATION. This Agreement is, to the extent applicable,
intended to meet the requirements of Section 409A of the Code and shall be
administered, construed and interpreted in a manner that is intended to meet
those requirements. Notwithstanding any provision of this Agreement to the
contrary, for purposes of determining the timing of any payment under this
Agreement that is subject to Code Section 409A and is required to be made upon
the Executive’s termination of

 

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employment, the Executive’s employment shall not be considered terminated until
he has experienced a separation from service. For purposes of this Agreement, a
“separation from service” occurs when the Company and the Executive reasonably
anticipate a permanent reduction in the level of bona fide services performed by
the Executive for the Company and its affiliates to 20% or less of the average
level of bona fide services performed by the Executive for the Company and its
affiliates (whether as an employee or an independent contractor) in the
immediately preceding thirty-six (36) months. The determination of whether a
separation from service has occurred shall be made by the Compensation Committee
in accordance with the provisions of Section 409A.
     IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the day and year first above written.

             
 
           
 
      TESORO CORPORATION    
 
           
 
      /s/ Charles S. Parrish     
Date: December 12, 2008
     
 
By: Charles S. Parrish    
 
      Title: Senior Vice President, General Counsel & Secretary    
 
           
Date: December 15, 2008
      /s/ Bruce A. Smith     
Address: 400 Elizabeth
               San Antonio, Texas 78209
     
 
Bruce A. Smith, Executive    

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