exv10w1






Exhibit 10.1




EMPLOYMENT AGREEMENT




     This Employment Agreement (the “Agreement”) is entered into as of May 7, 2009 (the “Effective
Date”) by and between Tesoro Corporation (the “Company”), and Charles S. Parrish (the “Executive”);



WITNESSETH THAT:




     WHEREAS, the Executive is currently employed by the Company as Senior Vice President, General
Counsel and Secretary;



     WHEREAS, effective April 21, 2009, the Executive received a promotion from the Company to
Executive Vice President, General Counsel and Secretary, and the Executive wishes to continue his
employment with the Company in that capacity; and



     WHEREAS, the Company and the Executive wish to formalize the continuation of the employment
relationship in accordance with the terms and conditions set forth below in this Agreement, which
terms and conditions shall supersede those of that certain Management Stability Agreement, dated
December 31, 2008, by and between the Company and the Executive;



     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 Executive hereby agree as
follows:



     1. EMPLOYMENT. The Company shall employ Executive, and Executive shall be employed by the
Company upon the terms and subject to the conditions set forth in this Agreement.



     2. TERM OF EMPLOYMENT. The term of this Agreement shall be a three (3) year period beginning
on the Effective Date and ending on the third anniversary thereof; provided that the term of this
Agreement shall be automatically extended for additional successive one year periods until either
the Company or the Executive terminates it by written notice delivered at least 30 days prior to an
anniversary of the Effective Date. The period during which Executive is employed hereunder shall
be referred to as the “Employment Period”. Either the Company or the Executive shall have the
right to terminate the Employment Period at any time during the term hereof, in accordance with
Section 5 below.



     3. DUTIES AND RESPONSIBILITIES.



          (a) Executive shall serve as Executive Vice President, General Counsel and Secretary of the
Company. In such capacities, Executive shall perform such duties and have the power, authority and
functions commensurate with such positions in similarly sized public companies and such other
authority and functions consistent with such positions as may be assigned to Executive from time to
time by the Chief Executive Officer.














 








          (b) Executive shall devote substantially all of his working time, attention and energies to
the business of the Company and affiliated entities. Executive may make and manage his personal
investments and engage in other personal activities (provided such investments and other activities
do not violate, in any material respect, the provisions of Section 8 of this Agreement), be
involved in charitable and professional activities and, with the consent of the Board of Directors
of the Company (the “Board”) (which shall not unreasonably be withheld or delayed) serve on boards
of other for profit entities, provided such activities do not materially interfere with the
performance of his duties hereunder. Service on the for profit boards that Executive is currently
serving on are hereby approved.




     4. COMPENSATION AND BENEFITS.




     (a) ANNUAL BASE SALARY. During the Employment Period, the Executive shall receive an
annual base salary (the “Annual Base Salary”) at an annual rate of $500,000 less applicable
taxes, or such higher rate as may be determined from time to time by the Board. The annual
Base Salary shall be paid at such intervals as the Company pays executive salaries
generally. During the Employment Period, the Annual Base Salary shall be reviewed at least
annually, beginning no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date. Any increase in the Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this Agreement. The
Annual Base Salary shall not be reduced after any such increase and the term “Annual Base
Salary” shall refer to the Annual Base Salary as so increased.




     (b) 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 70% of his Base Salary as in effect
for such year (the “Target Bonus”), and will be determined based upon achievement of
performance goals established by the Company pursuant to such plan. The Target Bonus will
be paid at the time and in the manner specified under the annual incentive compensation plan
of the Company.




     (c) OTHER COMPENSATION. Executive shall be entitled to participate in any incentive or
supplemental compensation plan or arrangement maintained or instituted by the Company, and
covering its principal executive officers, at a level commensurate with his positions and to
receive additional compensation from the Company in such form, and to such extent, if any,
as the Compensation Committee may in its sole discretion from time to time specify.




     (d) WELFARE BENEFIT PLANS. Executive and/or the Executive’s family, as the case may
be, shall be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company (including, without
limitation, medical, prescription drugs, dental, vision, disability, employee life, group
life, accidental death and travel accident insurance plans and programs, pensions, profit
sharing programs, incentive compensation and savings plans and all other similar plans and
benefits which the Company from time to time



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makes available to executives) to the extent applicable generally to other peer
executives of the Company.




     (e) FEE REIMBURSEMENTS. During the Employment Period, the Company will reimburse the
Executive in accordance with the Company’s policies and procedures for an initiation fee or
fees and dues for a country, luncheon or social club or clubs. In addition, the Company
will reimburse the Executive for additional initiation fees to the extent the Board or a
duly authorized committee thereof determines such fees are reasonable and in the best
interest of the Company. The Executive shall be reimbursed no later than two and a half
months after the end of the calendar year in which the expenses are incurred; provided,
however, the Company’s obligation to reimburse reasonable expenses pursuant to this
subsection will terminate in the event Executive does not request reimbursement in a timely
manner to allow the expense to be paid prior to the expiration of such period.




     (f) EXPENSE REIMBURSEMENT. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and procedures of the
Company in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company. In addition,
the Executive shall be reimbursed for all reasonable expenses incurred in connection with
professional activities, including but not limited to, bar association activities, dues and
membership fees; continuing legal education expenses, including but not limited to, tuition,
course materials, travel, meals and related expenses; and any other reasonable expenses
incurred in the course of such professional activities. The Executive shall be reimbursed no
later than two and a half months after the end of the calendar year in which the expenses
are incurred; provided, however, the Company’s obligation to reimburse reasonable expenses
pursuant to this subsection will terminate in the event Executive does not request
reimbursement in a timely manner to allow the expense to be paid prior to the expiration of
such period.




     (g) SECURITY BENEFIT. The Company will provide Executive with personal safety and
security protection as appropriate and reasonable under the circumstances.




     (h) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive shall be
entitled to an appropriate office at the Company’s principal place of business.




     (i) VACATION. During the Employment Period, Executive shall be entitled to vacation
each year in accordance with the Company’s policies in effect from time to time, but in no
event less than four (4) weeks paid vacation per calendar year and an additional one (1)
week for five years of service; and an additional second week for ten years of service. The
Executive shall be entitled to such periods of sick leave as is customarily provided by the
Company for its senior executive employees.



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     5. TERMINATION OF EMPLOYMENT. Executive’s employment hereunder may be terminated under the
following circumstances:




     (a) DEATH. Executive’s employment hereunder shall terminate upon Executive’s death.




     (b) TOTAL DISABILITY. The Company may terminate Executive’s employment hereunder upon
Executive becoming ‘‘Totally Disabled”. For purposes of this Agreement, Executive shall be
“Totally Disabled” if Executive has been physically or mentally incapacitated so as to
render Executive incapable of performing Executive’s essential functions, with or without
reasonable accommodation as required by law, under this Agreement for six (6) consecutive
months (such consecutive absence not being deemed interrupted by Executive’s return to
service for less than 10 consecutive business days if absent thereafter for the same illness
or disability). Any such termination shall be upon thirty (30) days written notice given at
any time thereafter while Executive remains Totally Disabled, provided that a termination
for Total Disability hereunder shall not be effective if Executive returns to full
performance of his duties within such thirty (30) day period.




     (c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive’s
employment hereunder for “Cause” at any time. If the Company elects to terminate
Executive’s employment for Cause, the Company shall provide ten (10) days written notice of
the Company’s intent to terminate Executive’s employment for “Cause.”




     (i) For purposes of this Agreement, the term “Cause” shall be limited to (1)
willful misconduct by Executive with regard to the Company which has a material
adverse effect on the Company; (2) the willful refusal of Executive to attempt to
follow the proper written direction of the Chief Executive Officer, provided that
the foregoing refusal shall not be “Cause” if Executive in good faith believes that
such direction is illegal, unethical or immoral and promptly so notifies the Board;
(3) substantial and continuing willful refusal by the Executive to attempt to
perform the duties required of him hereunder (other than any such failure resulting
from incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to the Executive by the Chief Executive Officer
which specifically identifies the manner in which it is believed that the Executive
has substantially and continually refused to attempt to perform his duties
hereunder; (4) material breach of a fiduciary duty to the Company through
misappropriation of Company funds or property; or (5) the Executive being convicted
of or a plea or nolo contendere to the charge of a felony (other than a felony
involving a traffic violation or as a result of vicarious liability). For purposes
of this paragraph, no act, or failure to act, on Executive’s part shall be
considered “willful” unless done or omitted to be done, by him not in good faith and
without reasonable belief that his action or omission was in the best interests of
the Company.



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     (ii) The ten (10) day notice of intent to terminate for Cause shall mean a
notice that shall indicate the specific termination provision in Section 5(c)(i)
relied upon and shall set forth in reasonable detail the facts and circumstances
which provide for a basis for termination for Cause. Further, the ten (10) day
notice of intent to terminate for Cause shall set the date at least ten (10) days
after the date of the notice. Any purported termination for Cause which is held by a
court or arbitrator not to have been based on the grounds set forth in this
Agreement or not to have followed the procedures set forth in this Agreement shall
be deemed a termination by the Company without Cause.




          (d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment hereunder
with or without Good Reason at any time upon thirty (30) days written notice to the Company.




     (i) A Termination for Good Reason means a termination by Executive by written
notice given within thirty (30) days after the occurrence of the Good Reason event,
unless such circumstances are fully corrected prior to the date of termination
specified in the Notice of Termination for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive’s express written consent, of any
of the following circumstances: (1) any material diminution of Executive’s
positions, duties or responsibilities hereunder (except in each case in connection
with the termination of Executive’s employment for Cause or Total Disability or as a
result of Executive’s death, or temporarily as a result of Executive’s illness or
other absence), or, the assignment to Executive of duties or responsibilities that
are inconsistent with Executive’s then position; (2) removal of the Executive from
officer positions with the Company specified herein or removal of the Executive from
any of his then officer positions; (3) requiring Executive’s principal place of
business to be located other than in the San Antonio, Texas greater Metropolitan
region; (4) a failure by the Company (I) to continue any bonus plan, program or
arrangement in which Executive is entitled to participate (the “Bonus Plans”),
provided that any such Bonus Plans may be modified at the Company’s discretion from
time to time but shall be deemed terminated if any such plan does not remain
substantially in the form in effect prior to such modification and if plans
providing Executive with substantially similar benefits are not substituted therefor
(“Substitute Plans”), or (II) to continue Executive as a participant in the Bonus
Plans and Substitute Plans on at least the same basis as to the potential amount of
the bonus Executive participated in prior to any change in such plans or awards, in
accordance with the Bonus Plans and the Substitute Plans, (5) any material breach by
the Company of any provision of this Agreement, including without limitation Section
10 hereof; (6) failure of any successor to the Company (whether direct or indirect
and whether by merger, acquisition, consolidation or otherwise) to assume in a
writing delivered to Executive upon the assignee becoming such, the obligations of
the Company hereunder.



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     (ii) A Notice of Termination for Good Reason shall mean a notice that shall
indicate the specific termination provision relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice of
Termination for Good Reason any facts or circumstances which contribute to the
showing of Good Reason shall not waive any right of Executive hereunder or preclude
Executive from asserting such fact or circumstance in enforcing his rights
hereunder. The Notice of Termination for Good Reason shall provide for a date of
termination not less than ten (10) nor more than sixty (60) days after the date such
Notice of Termination for Good Reason is given, provided that in the case of the
events set forth in Sections 5(d)(i)(1) or (2) the date may be five (5) days after
the giving of such notice.




     (e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate Executive’s
employment hereunder without Cause at any time upon 30 days written notice to Executive.




     (f) EFFECT OF TERMINATION. Upon any termination of employment, Executive shall
immediately resign from all positions with the Company or any of its subsidiaries held by
him at such time.



     6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT. In the event that Executive’s employment
hereunder is terminated, Executive shall be entitled to the following compensation and benefits
upon such termination:




     (a) TERMINATION IN THE EVENT OF DEATH. In the event that Executive’s employment is
terminated by reason of Executive’s death, the Company shall pay the following amounts to
Executive’s beneficiary or estate:




     (i) Any accrued but unpaid Base Salary for services rendered to the date of
death, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, any earned but unpaid
bonuses for any prior period, and a pro-rata bonus or incentive compensation payment
for the period in which such termination occurred to the extent payments are awarded
senior executives. Such bonuses or incentive compensation payment shall be paid
pursuant to the terms of the applicable bonus or annual incentive compensation plan;




     (ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements (including those referred to in Section 4(d) hereof), as
determined and paid in accordance with the terms of such plans, policies and
arrangements;




     (iii) An amount equal to the Base Salary (at the rate in effect as of the date
of Executive’s death) which would have been payable to Executive if Executive had
continued in employment for one additional year. Said payments will be paid to
Executive’s estate or beneficiary at the same time and in the same



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manner as such compensation would have been paid if Executive had remained in
active employment;




     (iv) As of the date of termination by reason of Executive’s death, stock
options and restricted stock grants awarded to the Executive shall be fully vested
and Executive’s estate or beneficiary shall have up to one (1) year from the date of
death to exercise all such options; and




     (v) As otherwise specifically provided herein.




     (b) TERMINATION IN THE EVENT OF TOTAL DISABILITY. In the event that Executive’s
employment is terminated by reason of Executive’s Total Disability as determined in
accordance with Section 5(b), the Company shall pay the following amounts to Executive:




     (i) Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, any earned but unpaid
bonuses for any prior period. Executive shall also be eligible for a pro-rata bonus
or incentive compensation payment for the period in which such termination occurred
to the extent payments are awarded senior executives. Such bonuses or incentive
compensation payment shall be paid pursuant to the terms of the applicable bonus or
annual incentive compensation plan;




     (ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements (including those referred to in Section 4(d) hereof) shall
be determined and paid in accordance with the terms of such plans, policies and
arrangements;




     (iii) An amount equal to the Base Salary (at the rate in effect as of the date
of Executive’s Total Disability) which would have been payable to Executive if
Executive had continued in active employment for two (2) years following termination
of employment, less any payments under any long-term disability plan or arrangement
paid for by the Company. Payment shall be made at the same time and in the same
manner as such compensation would have been paid if Executive had remained in active
employment until the end of such period, but shall not commence until six (6) months
have elapsed from Executive’s termination of employment, at which time the Executive
shall receive a lump sum payment equal to the payments that would have been paid
during such 6-month period;




     (iv) As of the date of termination by reason of Executive’s Total Disability,
Executive shall be fully vested in all stock option awards and restricted stock
grants and the Executive shall have up to one (1) year from the date of termination
by reason of total disability to exercise all such options; and




     (v) As otherwise specifically provided herein.



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     (c) TERMINATION FOR CAUSE. In the event that Executive’s employment is terminated by
the Company for Cause, the Company shall pay the following amounts to Executive:




     (i) Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination and any earned but unpaid
bonuses for any prior period. Such bonuses shall be paid pursuant to the terms of
the applicable bonus plan;




     (ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements shall be determined and paid in accordance with the terms
of such plans, policies and arrangements; and




     (iii) As otherwise specifically provided herein.




     (iv) Any stock options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled and any stock
options held by Executive shall be cancelled, whether or not then vested.




     (d) VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive voluntarily
terminates employment other than for Good Reason, the Company shall pay the following
amounts to Executive:




     (i) Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination and any earned but unpaid
bonuses for any prior period. Such bonuses shall be paid pursuant to the terms of
the applicable bonus plan;




     (ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements shall be determined and paid in accordance with the terms
of such plans, policies and arrangements; and




     (iii) As otherwise specifically provided herein.




     (iv) The treatment of any options, restricted stock or other awards shall be
governed in accordance with the terms of such plan(s) under which the options,
restricted stock or other awards were granted.




     (e) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION BY EXECUTIVE FOR GOOD REASON.
In the event that Executive’s employment is terminated by the Company for reasons other than
death, Total Disability or Cause, or Executive terminates his employment for Good Reason,
the Company shall pay the following amounts to Executive:



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     (i) Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, and any earned but
unpaid bonuses for any prior period. Executive shall also be eligible for a bonus
or incentive compensation payment, at the same time, on the same basis, and to the
same extent payments are made to senior executives, pro-rated for the fiscal year in
which the Executive is terminated. Such bonuses or incentive compensation payment
shall be paid pursuant to the terms of the applicable bonus or annual incentive
compensation plan;




     (ii) Any benefits to which Executive may be entitled pursuant to the plans,
policies and arrangements referred to in Section 4(d) hereof shall be determined and
paid in accordance with the terms of such plans, policies and arrangements;




     (iii) An amount equal to two times the sum of Executive’s Base Salary plus his
Target Annual Bonus (in each case as then in effect), of which one-half shall be
paid in a lump sum six (6) months after such termination and one-half shall be paid
in substantially equal amounts at the same time and in the same manner as Base
Salary would have been paid during the two-year period following such termination if
Executive had remained in active employment until the end of such period; provided,
however, such payments shall not commence until six (6) months after Executive’s
termination of employment, at which time the Executive shall receive a lump sum
payment equal to the payments that would have been made during such 6-month period;




     (iv) If such termination occurs prior to Executive’s 55th birthday,
the Company, at its expense, will provide coverage for Executive and Executive’s
spouse and dependents no less favorable than the coverage provided under all health
benefit plans, programs or arrangements, whether group or individual, in which
Executive would be entitled to participate as a retiree of the Company, and in a
manner that such benefits are excluded from the Executive’s income for federal
income tax purposes, until the earliest to occur (A) Executive’s death (provided
that benefits payable to Executive’s beneficiaries shall not terminate upon
Executive’s death); or (B) with respect to any particular plan, program or
arrangement, the date Executive becomes covered for a comparable benefit by a
subsequent employer. If such termination occurs at age 55 or older, the Executive
shall be entitled to participate in the Company’s post-retirement benefit programs
on the same basis as other retirement eligible employees of the Company. Payments
made by the Company for coverage under the health benefit plans, programs or
arrangements during a taxable year shall not affect the payments made by the Company
for coverage on behalf of the Executive under such plans, programs or arrangements
in another taxable year. The Executive’s right to the Company’s payment of the cost
of coverage hereunder shall not be subject to liquidation or exchange for another
benefit.



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     (v) Except to the extent prohibited by law, and except as otherwise provided
herein, Executive will be 100% vested in all benefits, awards, and grants accrued
but unpaid as of the date of termination under any supplemental and/or incentive
compensation plans in which Executive was a participant as of the date of
termination. Executive shall receive additional years of service credit and age
credit under the Tesoro Corporation Amended and Restated Executive Security Plan to
the extent necessary to determine his benefit thereunder as if he had attained age
fifty-five (55) and had completed twenty (20) years of service;




     (vi) Executive shall continue to vest in all stock options or restricted stock
grants over the two (2) year period commencing on the date of such termination of
employment. Executive shall have two (2) years after the date of termination of
employment to exercise all options, unless by virtue of the particular stock option
award, the option grant expires on an earlier date; and




     (vii) As otherwise specifically provided herein.




     (f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this Agreement,
under the Indemnity Agreement or under the terms of any incentive compensation, employee
benefit, or fringe benefit plan applicable to Executive at the time of Executive’s
termination or resignation of employment, Executive shall have no right to receive any other
compensation, or to participate in any other plan, arrangement or benefit, with respect to
future periods after such termination or resignation.




     (g) NO MITIGATION; NO SET-OFF. In the event of any termination of employment
hereunder, Executive shall be under no obligation to seek other employment and there shall
be no offset against any amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that Executive may obtain. The
amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense
or other right, which the Company may have against the Executive or others, except upon
obtaining by the Company of a final unappealable judgment against Executive.



     7. COMPENSATION PAYABLE FOLLOWING CHANGE IN CONTROL.




     (a) PAYMENTS FOLLOWING A CHANGE IN CONTROL. Notwithstanding anything to the contrary
contained herein, should Executive at any time within two (2) years of a “Change in 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”, or (ii) voluntary
termination by Executive for “Good Reason”, the Company (or its successor) shall pay to
Executive except as otherwise expressly set forth herein, the following severance payments
and benefits:




     (i) An amount equal to three (3) times the sum of Executive’s Base Salary plus
his Target Annual Bonus (in each case as then in effect) payable in a lump sum six
(6) months following Executive’s termination of employment;




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     (ii) Executive will receive three (3) years additional service credit under the
current non-qualified supplemental pension plans, or successors thereto, of the
Company applicable to the Executive; and




     (iii) If such termination occurs prior to Executive’s 55th birthday,
the Company, at its expense, will provide coverage for Executive and Executive’s
spouse and dependents no less favorable than the coverage provided under all health
benefit plans, programs or arrangements, whether group or individual, in which
Executive would be entitled to participate as a retiree of the Company, and in a
manner that such benefits are excluded from the Executive’s income for federal
income tax purposes, until the earliest to occur (A) Executive’s death (provided
that benefits payable to Executive’s beneficiaries shall not terminate upon
Executive’s death); or (B) with respect to any particular plan, program or
arrangement, the date Executive becomes covered for a comparable benefit by a
subsequent employer. If such termination occurs at age 55 or older, the Executive
shall be entitled to participate in the Company’s post-retirement benefit programs
on the same basis as other retirement eligible employees of the Company.




(iv) Payments made by the Company for coverage under the health benefit plans,
programs or arrangements during a taxable year shall not affect the payments made by
the Company for coverage on behalf of the Executive under such plans, programs or
arrangements in another taxable year. The Executive’s right to the Company’s
payment of the cost of coverage hereunder shall not be subject to liquidation or
exchange for another benefit.




(v) Executive will be 100% vested in all benefits, awards, and grants (including
stock option grants and stock awards), and all amounts accrued but unpaid as of the
Change in Control under any non-qualified pension plan, supplemental and/or
incentive compensation or bonus plans in which Executive was a participant as of the
date of the Change in Control. All stock options shall remain exercisable for a
period of three (3) years following the Change in Control, but in no event later
than the date on which the particular option would expire by its terms or the tenth
(10th) anniversary of the date on which such award was granted. Executive shall
also receive a bonus or incentive compensation payment (the “Bonus Payment”) equal
to his Base Salary, multiplied by his annual incentive Target Bonus percentage, each
as then in effect, pro-rated as of the effective date of the termination. The Bonus
Payment shall be paid in a lump sum six (6) months following the Executive’s
termination of employment.




For purposes of this Agreement, following a Change in Control, the term “Company”
shall include the entity surviving such Change in Control.




     (b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.




     (i) In the event that the Executive shall become entitled to payments and/or
benefits provided by this Agreement or any other amounts in the “nature of



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compensation” (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company, any person whose actions result in
a change of ownership or effective control covered by Section 280G(b)(2) of the Code
or any person affiliated with the Company or such person) as a result of such change
in ownership or effective control (collectively the “Company Payments”), and such
Company Payments will be subject to the tax (the “Excise Tax”) imposed by Section
4999 of the Code (and any similar tax that may hereafter be imposed by any taxing
authority) the Company shall pay to the Executive at the time specified in
subsection (iv) below an additional amount (the “Gross-up Payment”) such that the
net amount retained by the Executive, after deduction of any Excise Tax on the
Company Payments and any U.S. federal, state, and for local income or payroll tax
upon the Gross-up Payment provided for by this Section 7(b), but before deduction
for any U.S. federal, state, and local income or payroll tax on the Company
Payments, shall be equal to the Company Payments.




     (ii) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the “Total Payments”) will be subject to the Excise
Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as
“parachute payments” within the meaning of Section 280G(b)(2) of the Code, and all
“parachute payments” in excess of the “base amount” (as defined under Code Section
280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and
except to the extent that, in the opinion of the Company’s independent certified
public accountants appointed prior to any change in ownership (as defined under Code
Section 280G(b)(2)) or tax counsel selected by such accountants (the “Accountants”)
such Total Payments (in whole or in part) either do not constitute “parachute
payments,” represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the “base amount” or are
otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.




     (iii) For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed to pay U.S. federal income taxes at the highest marginal
rate of U.S. federal income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the highest marginal rate
of taxation in the state and locality of the Executive’s residence for the calendar
year in which the Company Payment is to be made, net of the maximum reduction in
U.S. federal income taxes which could be obtained from deduction of such state and
local taxes if paid in such year. In the event that the Excise Tax is subsequently
determined by the Accountants to be less than the amount taken into account
hereunder at the time the Gross-up Payment is made, the Executive shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the prior Gross-up Payment attributable to such reduction
(plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S.
federal, state and local income tax



12









 







imposed on the portion of the Gross-up Payment being repaid by the Executive if
such repayment results in a reduction In Excise Tax or a U.S. federal, state and
local income tax deduction), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing,
in the event any portion of the Gross-up Payment to be refunded to the Company has
been paid to any U.S. federal, state and local tax authority, repayment thereof (and
related amounts) shall not be required until actual refund or credit of such portion
has been made to the Executive, and interest payable to the Company shall not exceed
the interest received or credited to the Executive by such tax authority for the
period it held such portion. The Executive and the Company shall mutually agree
upon the course of action to be pursued (and the method of allocating the expense
thereof) if the Executive’s claim for refund or credit is denied.




     In the event that the Excise Tax is later determined by the Accountant or the
Internal Revenue Service to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-up Payment), the
Company shall make an additional Gross-up Payment in respect of such excess (plus
any interest or penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.




     (iv) The Gross-up Payment or portion thereof provided for in subsection (iii)
above shall be paid not later than the thirtieth (30th) day following an event
occurring which subjects the Executive to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Accountant, of the minimum amount of
such payments and shall pay the remainder of such payments (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further
payments pursuant to subsection (iii) hereof, as soon as the amount thereof can
reasonably be determined, but in no event later than the ninetieth day after the
occurrence of the event subjecting the Executive to the Excise Tax. In the event
that the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall be payable by the Executive on the fifth day
after demand by the Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).




     (v) In the event of any controversy with the Internal Revenue Service (or other
taxing authority) with regard to the Excise Tax, the Executive shall permit the
Company to control issues related to the Excise Tax (at its expense), provided that
such issues do not potentially materially adversely affect the Executive, but the
Executive shall control any other issues. In the event the issues are interrelated,
the Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree the Executive shall make
the final determination with regard to the issues. In the



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event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, the Executive shall permit the representative of the
Company to accompany the Executive, and the Executive and the Executive’s
representative shall cooperate with the Company and its representative.




     (vi) The Company shall be responsible for all charges of the Accountant.




     (vii) The Company and the Executive shall promptly deliver to each other copies
of any written communications, and summaries of any verbal communications, with any
taxing authority regarding the Excise Tax covered by this Section 7(b).




     (c) CHANGE IN 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 nominated 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 Exchange Act of 1934, as amended (the “Exchange 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 13d-3
under the Exchange 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 shall cease for any reason to constitute at least a majority thereof, unless
election or the nomination by the Board for election by 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.



     8. RESTRICTIVE COVENANTS.




     (a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times during
Executive’s period of employment with the Company, and for one (1) year thereafter,
Executive will not engage in, assist, or have any active interest or involvement, whether as
an employee, agent, consultant, creditor, advisor, officer, director, stockholder (excluding
holding of less than 3% of the stock of a public



14









 







company), partner, proprietor or any type of principal whatsoever in any person, firm,
or business entity which, directly or indirectly, is engaged in the business competitive
with that conducted and carried on by the Company, without the Company’s specific written
consent to do so. Notwithstanding the foregoing, Executive may be employed by or provide
services to, an investment banking firm or consulting firm that provides services to
entities described in the previous sentence, provided that Executive does not personally
represent or provide services to such entities.




     (b) NON SOLICITATION. Executive covenants and agrees that at all times during
Executive’s period of employment with the Company, and for a period of two (2) years after
the termination thereof, whether such termination is voluntary or involuntary by wrongful
discharge, or otherwise, Executive will not directly and personally knowingly (i) induce any
customers of the Company or corporations affiliated with the Company to patronize any
similar business which competes with any material business of the Company; (ii) after his
termination of employment, request or advise any customers of the Company or corporations
affiliated with the Company to withdraw, curtail or cancel such customer’s business with the
Company; or (iii) after his termination of employment, individually or through any person,
firm, association or corporation with which he is now, or may hereafter become associated,
solicit, entice or induce any then employee of the Company, or any subsidiary of the
Company, to leave the employ of the Company, or such other corporation, to accept employment
with, or compensation from the Executive, or any person, firm, association or corporation
with which Executive is affiliated without prior written consent of the Company. The
foregoing shall not prevent Executive from serving as a reference for employees.




     (c) PROTECTED INFORMATION. Executive recognizes and acknowledges that Executive has
had and will continue to have access to various confidential or proprietary information
concerning the Company, corporations affiliated with the Company, and its clients and third
parties doing business with the Company of a special and unique value which may include,
without limitation, (i) books and records relating to operation, finance, accounting, sales,
personnel and management, (ii) policies and matters relating particularly to operations such
as customer service requirements, costs of providing service and equipment, operating costs
and pricing matters, and (iii) various trade or business secrets, including customer lists,
route sheets, business opportunities, marketing or business diversification plans, business
development and bidding techniques, methods and processes, financial data and the like, to
the extent not generally known in the industry (collectively, the “Protected Information”).
Executive therefore covenants and agrees that Executive will not at any time, either while
employed by the Company or afterwards, knowingly make any independent use of, or knowingly
disclose to any other person or organization (except as authorized by the Company) any of
the Protected Information, provided that (I) while employed by the Company, Executive may in
good faith make disclosures he believes desirable, and (II) Executive may comply with legal
process. Furthermore, Executive acknowledges and agrees that to the extent he has provided
or been privy to others providing legal advice to the Company, such advice is protected by
the attorney-client privilege, and such privilege belongs to the Company and cannot be
waived by the Executive. Such advice cannot be disclosed by Executive without the Company’s
written permission.



15









 






     (d) RIGHT TO PRACTICE LAW. Notwithstanding the language in Section 8(a), (b) and (c)
above, nothing in this Agreement is intended nor shall be interpreted to preclude Executive
from practicing law subsequent to his separation from the Company’s employ for any reason.



     9. ENFORCEMENT OF COVENANTS.




     (a) RIGHT TO INJUNCTION. Executive acknowledges that a breach of the covenants set
forth in Section 8 hereof will cause irreparable damage to the Company with respect to which
the Company’s remedy at law for damages may be inadequate. Therefore, in the event of
breach or threatened breach of the covenants set forth in Section 8 by Executive, Executive
and the Company agree that the Company shall be entitled to the following particular forms
of relief, in addition to remedies otherwise available to it at law or equity; injunctions,
both preliminary and permanent, enjoining or restraining such breach or threatened breach
and Executive hereby consents to the issuance thereof forthwith and without bond by any
court of competent jurisdiction.




     (b) SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof constitute
a series of separate covenants, one for each applicable State in the United States and the
District of Columbia, and one for each applicable foreign country. If in any judicial
proceeding, a court shall hold that any of the covenants set forth in Section 8 exceed the
time, geographic, or occupational limitations permitted by applicable laws, Executive and
the Company agree that such provisions shall and are hereby reformed to the maximum time,
geographic, or occupational limitations permitted by such laws. Further, in the event a
court shall hold unenforceable any of the separate covenants deemed included herein, then
such unenforceable covenant or covenants shall be deemed eliminated from the provisions of
this Agreement for the purpose of such proceeding to the extent necessary to permit the
remaining separate covenants to be enforced in such proceeding. Executive and the Company
further agree that the covenants in Section 8 shall each be construed as a separate
agreement independent of any other provisions of this Agreement, and the existence of any
claim or cause of action by Executive against the Company whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of
any of the covenants of Section 8.



     10. INDEMNIFICATION. The Company shall indemnify and hold harmless Executive to the fullest
extent permitted by law and in accordance with the existing Indemnification Agreement dated
September 15, 2008 between Company and the Executive (the “Indemnification Agreement”) for any
action or inaction of Executive while serving as an officer and director of the Company or, at the
Company’s request, as an officer or director of any other, entity or as a fiduciary of any benefit
plan. The Company shall cover the Executive under directors and officers liability insurance both
during and, while potential liability exists, after the Employment Term in the same amount and to
the same extent as the Company covers its other officers and directors.



     11. DISPUTES AND PAYMENT OF ATTORNEY’S FEES. If at any time during the term of this Agreement
or afterwards there should arise any dispute as to the validity,



16









 







interpretation or application of any term or condition of this Agreement, the Company agrees,
upon written demand by Executive (and Executive shall be entitled upon application to any court of
competent jurisdiction, to the entry of a mandatory injunction, without the necessity of posting
any bond with respect thereto, compelling the Company) to promptly provide sums sufficient to pay
on a current basis (either directly or by reimbursing Executive) Executive’s costs and reasonable
attorney’s fees (including expenses of investigation and disbursements for the fees and expenses of
experts, etc.) incurred by Executive in connection with reasonably seeking to enforce the terms of
this Agreement. The provisions of this Section 11, without implication as to any other section
hereof, shall survive the expiration or termination of this Agreement and of Executive’s employment
hereunder.



     12. WITHHOLDING OF TAXES. The Company may withhold from any compensation and benefits payable
under this Agreement all applicable federal, state, local, or other taxes.



     13. SOURCE OF PAYMENTS. All payments provided under this Agreement, other than payments made
pursuant to a plan which provides otherwise, shall be paid from the general funds of the Company,
and no special or separate fund shall be established, and no other segregation of assets made, to
assure payment. Executive shall have no right, title or interest whatever in or to any investments
which the Company may make to aid the Company in meeting its obligations hereunder. To the extent
that any person acquires a right to receive payments from the Company hereunder, such right shall
be no greater than the right of an unsecured creditor of the Company.



     14. ASSIGNMENT. Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective heirs, representatives,
successors and assigns. This Agreement shall not be assignable by Executive (but any payments due
hereunder which would be payable at a time after Executive’s death shall be paid to Executive’s
designated beneficiary or, if none, his estate) and shall be assignable by the Company only to any
financially solvent corporation or other entity resulting from the reorganization, merger or
consolidation of the company with any other corporation or entity or any corporation or entity to
or with which. the Company’s business or substantially all of its business or assets may be sold,
exchanged or transferred, and it must be so assigned by the Company to, and accepted as binding
upon it by, such other corporation or entity in connection with any such reorganization, merger,
consolidation, sale, exchange or transfer in a writing delivered to Executive in a form reasonably
acceptable to Executive (the provisions of this sentence also being applicable to any successive
such transaction).



     15. ENTIRE AGREEMENT; AMENDMENT. This Agreement shall supersede any and all existing oral or
written agreements, representations, or warranties between Executive and the Company or any of its
subsidiaries or affiliated entities relating to the terms of Executive’s employment by the Company.
It may not be amended except by a written agreement signed by both parties.



     16. GOVERNING LAW. This Agreement shall be governed by and construed to accordance with the
laws of the State of Texas applicable to agreements made and to be performed in that State, without
regard to its conflict of laws provisions.



17









 





     17. REQUIREMENT OF TIMELY PAYMENTS. If any amounts which are required, or determined to be
paid or payable, or reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid promptly at the times
provided herein or therein, such amounts shall accrue interest, compounded daily, at an 8% annual
percentage rate, from the date such amounts were required or determined to have been paid or
payable, reimbursed or reimbursable to Executive, until such amounts and any interest accrued
thereon are finally and fully paid, provided, however, that in no event shall the amount of
interest contracted for, charged or received hereunder, exceed the maximum non-usurious amount of
interest allowed by applicable law.



     18. NOTICES. Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly given when delivered
or mailed by registered or certified mail, return receipt requested, or by facsimile or by hand
delivery, to those listed below at their following respective addresses or at such other address as
each may specify by notice to the others:




			
	To the Company:	 	Tesoro Corporation

300 Concord Plaza Drive

San Antonio, Texas 78216

Attention: Bruce A. Smith






			
	To Executive:	 	      At the address for Executive set forth below.





     19. MISCELLANEOUS.




     (a) WAIVER. The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver thereof or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other term of this
Agreement.




     (b) SEPARABILITY. Subject to Section 9 hereof, if any term or provision of this
Agreement is declared illegal or unenforceable by any court of competent jurisdiction and
cannot be modified to be enforceable, such term or provision shall immediately become null
and void, leaving the remainder of this Agreement in full force and effect.




     (c) HEADINGS. Section headings are used herein for convenience of reference only and
shall not affect the meaning of any provision of this Agreement.




     (d) RULES OF CONSTRUCTION. Whenever the context so requires, the use of the singular
shall be deemed to include the plural and vice versa.




     (e) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, and such counterparts will together
constitute but one Agreement.




     (f) DEFERRED COMPENSATION. This Agreement is, to the extent applicable, intended to
meet the requirements of Section 409A of the Code and shall be



18









 







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 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 of the Board in
accordance with the provisions of Section 409A.



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



	 	 	 	 	 	 	 	 	 	 	 
	TESORO CORPORATION	 	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/ BRUCE A. SMITH	 	 	 	 	 	/s/ CHARLES S. PARRISH	 	 
	 	 	 	 	 	 	 	 	 
	Bruce A. Smith

Chairman of the Board of Directors,

President and Chief Executive Officer	 	 	 	Charles S. Parrish	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Date: May 7, 2009	 	 	 	Date: May 7, 2009	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Address: 315 Nottingham

                San Antonio, Texas 78209	 	 







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