Tesoro Petroleum Corporation



 



MANAGEMENT STABILITY AGREEMENT


     This Management Stability Agreement is dated June 20, 2002, between Tesoro
Petroleum Corporation, a Delaware corporation (the “Company”), and Joseph M.
Monroe (“Employee”).


Recitals:


     WHEREAS, the Board of Directors of the Company has determined that it is
in the best interest of the Company to reduce uncertainty to certain key
employees of the Company in the event of certain fundamental events involving
the control or existence of the Company;


     WHEREAS, the Board of Directors of the Company has determined that an
agreement protecting certain interests of key employees of the Company in the
event of certain fundamental events involving the control or existence of the
Company is in the best interest of the Company because it will assist the
Company in attracting and retaining key employees such as this Employee; and


     WHEREAS, the Employee is relying on this Agreement and the obligations of
the Company hereunder in continuing to work for the Company.


     NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:


     1.     Termination Following Change of Control.


     Should Employee at any time within two years of a change of control cease
to be an employee of the Company (or its successor), by reason of (i)
involuntary termination by the Company (or its successor) other than for
“cause” (following a change of control), “cause” shall be limited to the
conviction of or a plea of nolo contendere to the charge of a felony (which,
through lapse of time or otherwise, is not subject to appeal), a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for “good reason
upon change of control” (as defined below), the Company (or its successor)
shall pay to Employee within ten days of such termination the following
severance payments and benefits:



		
	 	(a) A lump-sum payment equal to two times the base salary
of the Employee at the then current rate; and
	 
	 	(b) A lump-sum payment equal to (i) two times the sum of
the target bonuses under all of the Company’s incentive
bonus plans applicable to the Employee for the year in which
the termination occurs or the year in which the change of
control occurred, whichever is greater, and (ii) if
termination occurs in the fourth quarter of a calendar year,
the sum of the target bonuses under all of the Company’s
incentive bonus plans applicable to Employee for the year in
which the termination occurs prorated daily based on the
number of days




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	 	from the beginning of the calendar year in which the
termination occurs to and including the date of termination.



The Company (or its successor) shall also provide continuing coverage and
benefits comparable to all life, health and disability plans of the Company for
a period of 24 months from the date of termination, and Employee shall receive
two years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.



		
	 	     For purposes of this Agreement, a “change of
control” shall be deemed to have occurred if (i) there
shall be consummated (A) any consolidation or merger
of the Company in which the Company is not the
continuing or surviving corporation or pursuant to
which shares of the Company’s Common Stock would be
converted into cash, securities or other property,
other than a merger of the Company where a majority of
the Board of Directors of the surviving corporation
are, and for a two year period after the merger
continue to be, persons who were directors of the
Company immediately prior to the merger or were
elected as directors, or nominated for election as
directors, by a vote of at least two-thirds of the
directors then still in office who were directors of
the 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 the Company,
or (ii) the shareholders of the Company shall approve
any plan or proposal for the liquidation or
dissolution of the Company, or (iii) (A) any “person”
(as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), other than the Company or a
subsidiary thereof or any employee benefit plan
sponsored by the Company or a subsidiary thereof,
shall become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act) of securities of
the Company representing 20 percent or more of the
combined voting power of the 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 the Company shall cease for any reason to
constitute at least a majority thereof, unless the
election or the nomination by the Board of Directors
for election by the Company’s shareholders of each new
director during such 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.




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	 	For purposes of this Section 1, “good reason upon
change of control” shall exist if any of the following
occurs:




		
	 	(i) without Employee’s express written consent, the
assignment to Employee of any duties inconsistent with
the employment of Employee immediately prior to the
change of control, or a significant diminution of
Employee’s positions, duties, responsibilities and
status with the Company from those immediately prior
to a change of control or a diminution in Employee’s
titles or offices as in effect immediately prior to a
change of control, or any removal of Employee from, or
any failure to reelect Employee to, any of such
positions;




		
	 	(ii) a reduction by the Company in Employee’s base
salary in effect immediately prior to a change of
control;




		
	 	(iii) the failure by the Company to continue in effect
any thrift, stock ownership, pension, life insurance,
health, dental and accident or disability plan in
which Employee is participating or is eligible to
participate at the time of the change of control (or
plans providing Employee with substantially similar
benefits), except as otherwise required by the terms
of such plans as in effect at the time of any change
of control or the taking of any action by the Company
which would adversely affect Employee’s participation
in or materially reduce Employee’s benefits under any
of such plans or deprive Employee of any material
fringe benefits enjoyed by Employee at the time of the
change of control or the failure by the Company to
provide the Employee with the number of paid vacation
days to which Employee is entitled in accordance with
the vacation policies of the Company in effect at the
time of a change of control;




		
	 	(iv) the failure by the Company to continue in effect
any incentive plan or arrangement (including without
limitation, the Company’s Incentive Compensation Plan
and similar incentive compensation benefits) in which
Employee is participating at the time of a change of
control (or to substitute and continue other plans or
arrangements providing the Employee with substantially
similar benefits), except as otherwise required by the
terms of such plans as in effect at the time of any
change of control;




		
	 	(v) the failure by the Company to continue in effect
any plan or arrangement with respect to securities of
the Company (including, without limitation, any plan
or arrangement to receive and exercise stock options,
stock appreciation rights, restricted stock or grants
thereof or to acquire stock or other securities of the
Company) in which Employee is participating at the
time of a change of control (or




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	 	to substitute and continue plans or arrangements
providing the Employee with substantially similar
benefits), except as otherwise required by the terms
of such plans as in effect at the time of any change
of control or the taking of any action by the Company
which would adversely affect Employee’s participation
in or materially reduce Employee’s benefits under any
such plan;




		
	 	(vi) the relocation of the Company’s principal
executive offices to a location outside the San
Antonio, Texas, area, or the Company’s requiring
Employee to be based anywhere other than at the
location of the Company’s principal executive offices,
except for required travel on the Company’s business
to an extent substantially consistent with Employee’s
present business travel obligations, or, in the event
Employee consents to any such relocation of the
Company’s principal executive or divisional offices,
the failure by the Company to pay (or reimburse
Employee for) all reasonable moving expenses incurred
by Employee relating to a change of Employee’s
principal residence in connection with such relocation
and to indemnify Employee against any loss (defined as
the difference between the actual sale price of such
residence and the higher of (a) Employee’s aggregate
investment in such residence or (b) the fair market
value thereof as determined by a real estate appraiser
reasonably satisfactory to both Employee and the
Company at the time the Employee’s principal residence
is offered for sale in connection with any such change
of residence;




		
	 	(vii) any failure by the Company to obtain the
assumption of this Agreement by any successor or
assign of the Company;



     In the event of a change of control as “change of control” is defined in
any stock option plan or stock option agreement pursuant to which the Employee
holds options to purchase common stock of the Company, Employee shall retain
the rights to all accelerated vesting and other benefits under the terms
thereof.


     The Company shall pay any attorney fees incurred by Employee in reasonably
seeking to enforce the terms of this Paragraph 1.


     2.     Complete Agreement.


     This Agreement constitutes the entire agreement between the parties and
cancels and supersedes all other agreements between the parties which may have
related to the subject matter contained in this Agreement.



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     3.     Modification; Amendment; Waiver.


     No modification, amendment or waiver of any provisions of this Agreement
shall be effective unless approved in writing by both parties. The failure at
any time to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of
either party thereafter to enforce each and every provision hereof in
accordance with its terms.


     4.     Governing Law; Jurisdiction.


     This Agreement and performance under it, and all proceedings that may
ensue from its breach, shall be construed in accordance with and under the laws
of the State of Texas.


     5.     Severability.


     Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.


     6.     Assignment.


     The rights and obligations of the parties under this Agreement shall be
binding upon and inure to the benefit of their respective successors, assigns,
executors, administrators and heirs, provided, however, that the Company may
not assign any duties under this Agreement without the prior written consent of
the Employee.


     7.     Limitation.


     This Agreement shall not confer any right or impose any obligation on the
Company to continue the employment of Employee in any capacity, or limit the
right of the Company or Employee to terminate Employee’s employment.


     8.     Notices.


     All notices and other communications under this Agreement shall be in
writing and shall be given in person or by telegraph, facsimile or first class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given when delivered personally or three days after
mailing or one day after transmission of a telegram or facsimile, as the case
may be, to the representative persons named below:



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If to the Company:
	 	Corporate Secretary

Tesoro Petroleum Corporation

300 Concord Plaza Drive

San Antonio, Texas 78216-6999
	 	 	 	 	 
	 	 	
If to the Employee:
	 	Joseph M. Monroe

153 Sendero Verde

San Antonio, Texas 78261



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



	 	 	 	 	 	 
	 	COMPANY:	 	
TESORO PETROLEUM CORPORATION
	 	 	 	 	 	 
	 	 	 	
By
	 	/s/ BRUCE A. SMITH
	 	 	 	 	 	

	 	 	 	
Bruce A. Smith

Chairman of the Board of Directors,

President and Chief Executive Officer
	 	 	 	 	 	 
	 	EMPLOYEE:	 	
/s/ JOSEPH M. MONROE
	 	 	 	


	 	 	 	
Joseph M. Monroe




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