exv10w4






EXHIBIT 10.4




TESORO CORPORATION




2006 LONG-TERM INCENTIVE PLAN




ARTICLE I

ESTABLISHMENT, PURPOSE AND DURATION




     1.1 Amendment and Restatement. The Company hereby amends and restates the Tesoro
Corporation 2006 Long-Term Incentive Plan, as set forth in this document, for compliance with
Section 409A of the Code, effective as of January 1, 2009.



     1.2 Purpose of the Plan. The purpose of the Plan is to reward corporate officers and
other employees of the Company and its Affiliates by enabling them to acquire shares of common
stock of the Company and to receive other compensation based on the increase in value of the common
stock of the Company or certain other performance measures. The Plan is intended to advance the
best interests of the Company, its Affiliates and its stockholders by providing those persons who
have substantial responsibility for the management and growth of the Company and its Affiliates
with additional performance incentives and an opportunity to obtain or increase their proprietary
interest in the Company, thereby encouraging them to continue in their employment with the Company
and its Affiliates.



     1.3 Duration of Authority to Make Grants Under the Plan. No Awards may be granted
under the Plan on or after the tenth anniversary of the Effective Date. The applicable provisions
of the Plan will continue in effect with respect to an Award granted under the Plan for as long as
such Award remains outstanding.



ARTICLE II

DEFINITIONS




     The words and phrases defined in this Article shall have the meaning set out below throughout
the Plan, unless the context in which any such word or phrase appears reasonably requires a
broader, narrower or different meaning.



     2.1 Affiliate. Any corporation, partnership, limited liability company or association,
trust or other entity or organization which, directly or indirectly, controls, is controlled by, or
is under common control with, the Company. For purposes of the preceding sentence, “control”
(including, with correlative meanings, the terms “controlled by” and “under common control with”),
as used with respect to any entity or organization, shall mean the possession, directly or
indirectly, of the power (a) to vote more than 50 percent (50%) of the securities having ordinary
voting power for the election of directors of the controlled entity or organization, or (ii) to
direct or cause the direction of the management and policies of the controlled entity or
organization, whether through the ownership of voting securities or by contract or otherwise.



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     2.2 Aggregated Plan. Any agreement, method, program or other arrangement sponsored by
the Company that would be aggregated with this Plan pursuant to Section 1.409A-1(c) of the Treasury
Regulations.



     2.3 Award. Individually or collectively, a grant under the Plan of Options,
Restricted Stock Awards, Deferred Stock Unit Awards, Performance Stock Awards, Performance Unit
Awards, Cash-Based Awards, and Other Stock-Based Awards, in each case subject to the terms and
provisions of the Plan.



     2.4 Award Agreement. A written agreement or agreements that set forth the terms and
conditions applicable to an Award granted under the Plan. Such agreement or agreements may be
contained in one or more documents and may include, but are not limited to being contained in an
employment agreement between the Company and the Holder that affects the Holder’s rights to an
Award granted under the Plan.



     2.5 Board. The board of directors of the Company.



     2.6 Cash-Based Award. An Award granted to a Holder pursuant to Article IX.



     2.7 Change in Control. 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 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 one-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 director, 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 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 35 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 shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination by the Board 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.



     2.8 Code. The United States Internal Revenue Code of 1986, as amended from time to
time.



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     2.9 Committee. A committee of at least two persons, who are members of the
Compensation Committee of the Board and are appointed by the Compensation Committee of the Board,
or, to the extent it chooses to operate as the Committee, the Compensation Committee of the Board.
Each member of the Committee in respect of his or her participation in any decision with respect to
an Award intended to satisfy the requirements of section 162(m) of the Code must satisfy the
requirements of “outside director” status within the meaning of section 162(m) of the Code;
provided, however, that the failure to satisfy such requirement shall not affect the validity of
the action of any committee otherwise duly authorized and acting in the matter. As to Awards,
grants or other transactions that are authorized by the Committee and that are intended to be
exempt under Rule 16b-3 under the Exchange Act, the requirements of Rule 16b-3(d)(1) under the
Exchange Act with respect to committee action must also be satisfied. For all purposes under the
Plan, the Chief Executive Officer of the Company shall be deemed to be the “Committee” with respect
to Options granted by him pursuant to Section 4.1.



     2.10 Company. Tesoro Corporation, a Delaware corporation, or any successor (by
reincorporation, merger or otherwise).



     2.11 Corporate Change. Corporate Change shall have the meaning ascribed to that term
in Section 4.5(c).



     2.12 Deferred Stock Unit. A unit credited to a Holder’s ledger account maintained by
the Company pursuant to Article VII.



     2.13 Deferred Stock Unit Award. An Award granted pursuant to Article VII.



     2.14 Disability. As determined by the Committee in its discretion exercised in good
faith, a physical or mental condition of the Holder that would entitle him to payment of disability
income payments under the Company’s long-term disability insurance policy or plan for employees as
then in effect; or in the event that the Holder is not covered, for whatever reason under the
Company’s long-term disability insurance policy or plan for employees or in the event the Company
does not maintain such a long-term disability insurance policy, “Disability” means a permanent and
total disability as defined in section 22(e)(3) of the Code. A determination of Disability may be
made by a physician selected or approved by the Committee and, in this respect, the Holder shall
submit to an examination by such physician upon request by the Committee.



     2.15 Effective Date. Effective Date shall mean the date on which the Plan was
originally approved by the Board, or, if later, the date on which the Plan was originally approved
by the stockholders of the Company.



     2.16 Employee. A person employed by the Company or any Affiliate as a common law
employee. The determination of whether a person is a common law employee shall be made by the
Committee in its sole discretion.



     2.17 Exchange Act. Exchange Act means the United States Securities Exchange Act of
1934, as amended from time to time.



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     2.18 Fair Market Value. Fair Market Value of the Stock as of any particular date means
(1) if the Stock is traded on a stock exchange, the closing sale price of the Stock on that date as
reported on the principal securities exchange on which the Stock is traded, or (2) if the Stock is
traded in the over-the-counter market, the average between the high bid and low asked price on that
date as reported in such over-the-counter market; provided that (a) if the Stock is not so traded,
(b) if no closing price or bid and asked prices for the stock was so reported on that date or (c)
if, in the discretion of the Committee, another means of determining the fair market value of a
share of Stock at such date shall be necessary or advisable, the Committee may provide for another
means for determining such fair market value.



     2.19 Fiscal Year. Fiscal Year means the Company’s fiscal year.



     2.20 Full Value Awards. Individually or collectively, a grant under the Plan of
Restricted Stock Awards, Deferred Stock Unit Awards, Performance Stock Awards, Performance Unit
Awards, and Other Stock-Based Awards in each case subject to the terms and provisions of the Plan.



     2.21 Holder. A person who has been granted an Award or any person who is entitled to
receive shares of Stock under an Award.



     2.22 Mature Shares. Shares of Stock that the Holder has held for at least six months.



     2.23 Minimum Statutory Tax Withholding Obligation. The amount the Company or an
Affiliate is required to withhold for federal, state and local taxes based upon the applicable
minimum statutory withholding rates required by the relevant tax authorities.



     2.24 Option. An option to purchase Stock granted pursuant to Article V.



     2.25 Option Price. Option Prices shall have the meaning ascribed to that term in
Section 5.4.



     2.26 Optionee. A person who is granted an Option under the Plan.



     2.27 Option Agreement. A written contract setting forth the terms and conditions of an
Option. The term Option Agreement may include any employment agreement or any other agreement
between the Optionee and the Company that affects the Optionee’s rights under any Award issued
under the Plan.



     2.28 Other Stock-Based Award. An equity-based or equity-related Award not otherwise
described by the terms and provisions of the Plan that is granted pursuant to Article X.



     2.29 Performance Goals. One or more of the criteria described in Article VIII on
which the performance goals applicable to an Award are based.



     2.30 Performance Stock Award. An Award granted to a Holder pursuant to Article VIII.



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     2.31 Performance Unit Award. An Award granted to a Holder pursuant to Article VIII.



     2.32 Period of Restriction. The period during which Restricted Stock is subject to a
substantial risk of forfeiture (based on the passage of time, the achievement of performance goals,
or upon the occurrence of other events as determined by the Committee, in its discretion), as
provided in Article VI.



     2.33 Plan. Tesoro Corporation 2006 Long-Term Incentive Plan, as set forth in this
document and as it may be amended from time to time.



     2.34 Restricted Stock. Shares of restricted Stock issued or granted under the Plan
pursuant to Article VI.



     2.35 Restricted Stock Award. An authorization by the Committee to issue or transfer
Restricted Stock to a Holder.



     2.36 Retirement. Retirement in accordance with the terms of a retirement plan that is
qualified under Section 401(a) of the Code and maintained by the Company or an Affiliate in which
the Holder is a participant.



     2.37 Section 409A. Section 409A of the Code and Department of Treasury rules and
regulations issued thereunder.



     2.38 Section 409A Change in Control. A Section 409A Change in Control means (i) any
one person, or more than one person acting as a group, acquires ownership of stock of the Company
that, together with stock held by such person or group, constitutes more than 50% of the total fair
market value or total voting power of the stock of the Company; (ii) any one person, or more than
one person acting as a group, acquires (or has acquired during the twelve (12) month period ending
on the date of the most recent acquisition by such person or persons) ownership of stock of the
Company possessing 30% or more of the total voting power of the stock of the Company; (iii) a
majority of the members of the Board is replaced during any twelve (12) month period by directors
whose appointment or election is not endorsed by a majority of the members of the Board before the
date of the appointment or election; or (iv) any one person, or more than one person acting as a
group, acquires (or has acquired during the twelve (12) month period ending on the date of the most
recent acquisition by such person or persons) assets from the Company that have a total gross fair
market value equal to or more than 40% of the total gross fair market value of all of the assets of
the Company immediately before such acquisition or acquisitions.



     The determination of whether a Section 409A Change of Control has occurred shall be made by
the Committee in accordance with the provisions of Section 409A.



     2.39 Section 409A Disability. As determined by the Committee, either (i) the Holder’s
inability to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve months or (ii) to the extent set forth in an Award
Agreement, the Holder’s receipt of income replacement benefits for a period of not less than



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three months under an accident and health plan of the Company by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than twelve months.



     2.40 Separation from Service. A reasonably anticipated permanent reduction in the
level of bona fide services performed by a Holder for the Company and its Affiliates to 20% or less
of the average level of bona fide services performed by the Holder for the Company and its
Affiliates (whether as an employee or an independent contractor) in the immediately preceding
thirty-six (36) months (or the full period of service to the Company and its Affiliates if the
Holder has been providing services to the Company and its Affiliates for fewer than thirty-six (36)
months). The determination of whether a Separation from Service has occurred shall be made by the
Committee in accordance with the provisions of Section 409A.



     2.41 Specified Employee. A key employee of the Company as defined in Section 416(i)
of the Code without regard to paragraph (5) thereof. The determination of whether a Holder is a
Specified Employee shall be made by the Committee as of the specified employee identification date
adopted by the Company in accordance with the provisions of Section 409A.



     2.42 Stock. The common stock of the Company, $0.161/2 par value per share (or such other
par value as may be designated by act of the Company’s stockholders).



     2.43 Substantial Risk of Forfeiture. An Award is subject to a Substantial Risk of
Forfeiture if entitlement to the Award is conditioned on the performance of substantial future
services of the Holder or the occurrence of a condition related to a purpose of the Award, and the
possibility of forfeiture is substantial, as provided in Section 409A.



     2.44 Termination of Employment. The termination of the Holder’s employment
relationship with the Company and all Affiliates.



ARTICLE III

ELIGIBILITY AND PARTICIPATION




     3.1 Eligibility. The persons who are eligible to receive Awards under the Plan are
Employees.



     3.2 Participation. Subject to the terms and provisions of the Plan, the Committee
may, from time to time, select the Employees to whom Awards shall be granted and shall determine
the nature and amount of each Award.



ARTICLE IV

GENERAL PROVISIONS RELATING TO AWARDS




     4.1 Authority to Grant Awards. The Committee may grant Awards to those Employees as
the Committee shall from time to time determine, under the terms and conditions of the Plan.
Subject only to any applicable limitations set out in the Plan, the number of shares of Stock or
other value to be covered by any Award to be granted under the Plan shall be as determined by the
Committee in its sole discretion. However, the Chief Executive Officer of the Company is
authorized to grant Options, with respect to no more than 10,000 shares of Stock per



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Fiscal Year, as inducements to hire prospective Employees who will not be officers of the
Company subject to the provisions of Section 16 of the Exchange Act.



     4.2 Dedicated Shares; Maximum Awards. The aggregate maximum number of shares of Stock
reserved for issuance under the Plan is 6,000,000 shares of Stock. The aggregate number of shares
of Stock with respect to which Full Value Awards may be granted under the Plan is 2,750,000. The
aggregate number of shares of Stock with respect to which Options may be granted under the Plan is
5,250,000. The maximum number of shares of Stock with respect to which Options may be granted to
an Employee during a Fiscal Year is 562,500. The maximum number of shares of Stock with respect to
which any Full Value Award may be granted to an Employee during a Fiscal Year may not exceed
187,500. Each of the foregoing numerical limits stated in this Section 4.2 shall be subject to
adjustment in accordance with the provisions of Section 4.5. The number of shares of Stock stated
in this Section 4.2 shall also be increased by such number of shares of Stock as become subject to
substitute Awards granted pursuant to Article X; provided, however, that such increase shall be
conditioned upon the approval of the stockholders of the Company to the extent stockholder approval
is required by law or applicable stock exchange rules. If shares of Stock are withheld from
payment of an Award to satisfy tax obligations with respect to the Award, such shares of Stock will
count against the aggregate number of shares of Stock with respect to which Awards may be granted
under the Plan. If Shares are tendered in payment of an Option Price of an Option, such shares of
Stock will not be added to the aggregate number of shares of Stock with respect to which Awards may
be granted under the Plan. To the extent that any outstanding Award is forfeited or cancelled for
any reason, the shares of Stock allocable to such portion of the Award may again be subject to an
Award granted under the Plan.



     4.3 Non-Transferability. Except as specified in the applicable Award Agreements,
Awards shall not be transferable by the Holder other than by will or under the laws of descent and
distribution, and shall be exercisable, during the Holder’s lifetime, only by him or her. In the
discretion of the Committee, any attempt to transfer an Award other than under the terms of the
Plan and the applicable Award Agreement may terminate the Award.



     4.4 Requirements of Law. The Company shall not be required to sell or issue any
shares of Stock under any Award if issuing those shares of Stock would constitute or result in a
violation by the Holder or the Company of any provision of any law, statute or regulation of any
governmental authority. Specifically, in connection with any applicable statute or regulation
relating to the registration of securities, upon exercise of any Option or pursuant to any other
Award, the Company shall not be required to issue any shares of Stock unless the Committee has
received evidence satisfactory to it to the effect that the Holder will not transfer the shares of
Stock except in accordance with applicable law, including receipt of an opinion of counsel
satisfactory to the Company to the effect that any proposed transfer complies with applicable law.
The determination by the Committee on this matter shall be final, binding and conclusive. The
Company may, but shall in no event be obligated to, register any shares of Stock covered by the
Plan pursuant to applicable securities laws of any country or any political subdivision. In the
event the shares of Stock issuable on exercise of an Option or pursuant to any other Award are not
registered, the Company may imprint on the certificate evidencing the shares of Stock any legend
that counsel for the Company considers necessary or advisable to comply with applicable law, or,
should the shares of Stock be represented by book or electronic entry rather than a



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certificate, the Company may take such steps to restrict transfer of the shares of Stock as
counsel for the Company considers necessary or advisable to comply with applicable law. The
Company shall not be obligated to take any other affirmative action in order to cause or enable the
exercise of an Option or any other Award, or the issuance of shares of Stock pursuant thereto, to
comply with any law or regulation of any governmental authority.



     4.5 Changes in the Company’s Capital Structure. The existence of outstanding Awards
shall not affect in any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other changes in the
Company’s capital structure or its business, any merger or consolidation of the Company, any issue
of bonds, debentures, preferred or prior preference shares ahead of or affecting the Stock or Stock
rights, the dissolution or liquidation of the Company, any sale or transfer of all or any part of
its assets or business or any other corporate act or proceeding, whether of a similar character or
otherwise.




     (a) If the Company shall effect a subdivision or consolidation of Stock or other
capital readjustment, the payment of a Stock dividend, or other increase or reduction of the
number of shares of Stock outstanding, without receiving compensation therefor in money,
services or property, then (1) the number, class or series and per share price of Stock
subject to outstanding Options or other Awards under the Plan shall be appropriately
adjusted in such a manner as to entitle a Holder to receive upon exercise of an Option or
other Award, for the same aggregate cash consideration, the equivalent total number and
class or series of Stock the Holder would have received had the Holder exercised his or her
Option or other Award in full immediately prior to the event requiring the adjustment, and
(2) the number and class or series of Stock then reserved to be issued under the Plan shall
be adjusted by substituting for the total number and class or series of Stock then reserved,
that number and class or series of Stock that would have been received by the owner of an
equal number of outstanding shares of Stock of each class or series of Stock as the result
of the event requiring the adjustment.




     (b) If while unexercised Options or other Awards remain outstanding under the Plan (1)
the Company shall not be the surviving entity in any merger, consolidation or other
reorganization (or survives only as a subsidiary of an entity other than an entity that was
wholly-owned by the Company immediately prior to such merger, consolidation or other
reorganization), (2) the Company sells, leases or exchanges or agrees to sell, lease or
exchange all or substantially all of its assets to any other person or entity (other than an
entity wholly-owned by the Company), (3) the Company is to be dissolved or (4) the Company
is a party to any other corporate transaction (as defined under section 424(a) of the Code
and applicable Department of Treasury regulations) that is not described in clauses (1), (2)
or (3) of this sentence (each such event is referred to herein as a “Corporate Change”),
then, except as otherwise provided in an Award Agreement (provided that such exceptions
shall not apply in the case of a reincorporation merger), or as a result of the Committee’s
effectuation of one or more of the alternatives described below, there shall be no
acceleration of the time at which any Award then outstanding may be exercised, and no later
than ten days after the approval by the stockholders of the Company of such Corporate
Change, the Committee, acting in its sole and absolute discretion without the consent or
approval of any Holder, shall act to effect one or more



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of the following alternatives, which may vary among individual Holders and which may
vary among Awards held by any individual Holder (provided that, with respect to a
reincorporation merger in which Holders of the Company’s ordinary shares will receive one
ordinary share of the successor corporation for each ordinary share of the Company, none of
such alternatives shall apply and, without Committee action, each Award shall automatically
convert into a similar award of the successor corporation exercisable for the same number of
ordinary shares of the successor as the Award was exercisable for ordinary shares of Stock
of the Company):




     (i) accelerate the time at which some or all of the Awards then outstanding may
be exercised so that such Awards may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change) fixed by
the Committee, after which specified date all such Awards that remain unexercised
and all rights of Holders thereunder shall terminate;




     (ii) with respect to all or selected Holders, have some or all of their then
outstanding Awards (whether vested or unvested) assumed or have a new award of a
similar nature substituted for some or all of their then outstanding Awards under
the Plan (whether vested or unvested) by an entity which is a party to the
transaction resulting in such Corporate Change and which is then employing such
Holder or which is affiliated or associated with such Holder in the same or a
substantially similar manner as the Company prior to the Corporate Change, or a
parent or subsidiary of such entity, provided that (A) such assumption or
substitution is on a basis where the excess of the aggregate fair market value of
the Stock subject to the Award immediately after the assumption or substitution over
the aggregate exercise price of such Stock is equal to the excess of the aggregate
fair market value of all Stock subject to the Award immediately before such
assumption or substitution over the aggregate exercise price of such Stock, and (B)
the assumed rights under such existing Award or the substituted rights under such
new Award as the case may be will have the same terms and conditions as the rights
under the existing Award assumed or substituted for, as the case may be;




     (iii) provide that the number and class or series of Stock covered by an Award
(whether vested or unvested) theretofore granted shall be adjusted so that such
Award when exercised shall thereafter cover the number and class or series of Stock
or other securities or property (including, without limitation, cash) to which the
Holder would have been entitled pursuant to the terms of the agreement or plan
relating to such Corporate Change if, immediately prior to such Corporate Change,
the Holder had been the holder of record of the number of shares of Stock then
covered by such Award; or




     (iv) make such adjustments to Awards then outstanding as the Committee deems
appropriate to reflect such Corporate Change (provided, however, that the Committee
may determine in its sole and absolute discretion that no such adjustment is
necessary).



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     In effecting one or more of alternatives in paragraphs (3), (4) or (5) immediately
above, and except as otherwise may be provided in an Award Agreement, the Committee, in its
sole and absolute discretion and without the consent or approval of any Holder, may
accelerate the time at which some or all Awards then outstanding may be exercised.




     (c) In the event of changes in the outstanding Stock by reason of recapitalizations,
reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes
in capitalization occurring after the date of the grant of any Award and not otherwise
provided for by this Section 4.5, any outstanding Award and any Award Agreements evidencing
such Award shall be subject to adjustment by the Committee in its sole and absolute
discretion as to the number and price of Stock or other consideration subject to such Award.
In the event of any such change in the outstanding Stock, the aggregate number of shares of
Stock available under the Plan may be appropriately adjusted by the Committee, whose
determination shall be conclusive.




     (d) After a merger of one or more corporations into the Company or after a
consolidation of the Company and one or more corporations in which the Company shall be the
surviving corporation, each Holder shall be entitled to have his Restricted Stock
appropriately adjusted based on the manner in which the shares of Stock were adjusted under
the terms of the agreement of merger or consolidation.




     (e) The issuance by the Company of stock of any class or series, or securities
convertible into, or exchangeable for, stock of any class or series, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights or warrants
to subscribe for them, or upon conversion or exchange of stock or obligations of the Company
convertible into, or exchangeable for, stock or other securities, shall not affect, and no
adjustment by reason of such issuance shall be made with respect to, the number, class or
series, or price of shares of Stock then subject to outstanding Options or other Awards.




     (f) In the event of a Change in Control of the Company, all Awards previously granted
to Employees that are not already fully vested and exercisable, shall become immediately
vested and fully exercisable upon such a Change in Control.



     4.6 Election Under Section 83(b) of the Code. No Holder shall exercise the election
permitted under section 83(b) of the Code with respect to any Award without the written approval of
the Chief Financial Officer of the Company. Any Holder who makes an election under section 83(b)
of the Code with respect to any Award without the written approval of the Chief Financial Officer
of the Company may, in the discretion of the Committee, forfeit any or all Awards granted to him or
her under the Plan.



     4.7 Forfeiture for Cause. Notwithstanding any other provision of the Plan or an Award
Agreement, if the Committee finds by a majority vote that a Holder, before or after his Termination
of Employment (a) committed fraud, embezzlement, theft, felony or an act of dishonesty in the
course of his employment by the Company or an Affiliate which conduct damaged the Company or an
Affiliate or (b) disclosed trade secrets of the Company or an Affiliate, then as of the date the
Committee makes its finding, any Awards awarded to the Holder



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that have not been exercised by the Holder (including all Awards that have not yet vested)
will be forfeited to the Company. The findings and decision of the Committee with respect to such
matter, including those regarding the acts of the Holder and the damage done to the Company, will
be final for all purposes. No decision of the Committee, however, will affect the finality of the
discharge of the individual by the Company or an Affiliate.



     4.8 Forfeiture Events. The Committee may specify in an Award Agreement that the
Holder’s rights, payments, and benefits with respect to an Award shall be subject to reduction,
cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in
addition to any otherwise applicable vesting or performance conditions of an Award. Such events
may include, but shall not be limited to, Termination of Employment for cause, termination of the
Holder’s provision of services to the Company or its Affiliates, violation of material policies of
the Company and its Affiliates, breach of noncompetition, confidentiality, or other restrictive
covenants that may apply to the Holder, or other conduct by the Holder that is detrimental to the
business or reputation of the Company and its Affiliates.



     4.9 Compliance with Section 409A. Awards shall be designed and operated in such
manner that they are either exempt from application of, or comply with, the requirements of Section
409A.



ARTICLE V

OPTIONS




     5.1 Authority to Grant Options. Subject to the terms and provisions of the Plan, the
Committee, at any time, and from time to time, may grant Options under the Plan to eligible persons
in such number and upon such terms as the Committee shall determine.



     5.2 Type of Options Available. Except for Substitution Awards permitted under Article
X, all Options granted under the Plan shall be nonqualified stock options that are not intended to
satisfy the requirements of section 422 of the Code.



     5.3 Option Agreement. Each Option grant under the Plan shall be evidenced by an
Option Agreement that shall specify (a) the Option Price, (b) the duration of the Option, (c) the
number of shares of Stock to which the Option pertains, (d) the exercise restrictions, if any,
applicable to the Option, and (e) such other provisions as the Committee shall determine that are
not inconsistent with the terms and provisions of the Plan.



     5.4 Option Price. The price at which shares of Stock may be purchased under an Option
(the “Option Price”) shall not be less than 100 percent (100%) of the Fair Market Value of the
shares of Stock on the date the Option is granted. Subject to the limitation set forth in the
preceding sentence of this Section 5.4, the Committee shall determine the Option Price for each
grant of an Option under the Plan. Except as provided in Section 4.5, the Committee shall not
directly or indirectly lower the Option Price of a previously granted Option.



     5.5 Duration of Options. An Option shall not be exercisable after the earlier of (i)
the general term of the Option specified in Section 5.5(a), or (ii) the period of time specified
herein that follows the Optionee’s death, Disability, Retirement or other Termination of
Employment. Unless the Optionee’s applicable Option Agreement specifies otherwise, an



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Option shall not continue to vest after the Optionee’s Termination of Employment for any
reason other than the death or Disability of the Optionee.




     (a) General Term of Option. Unless the Option Agreement specifies a shorter general
term, an Option shall expire on the tenth anniversary of the date the Option is granted.




     (b) Early Termination of Option Due to Termination of Employment Other Than for Death,
Disability or Retirement. Except as may be otherwise expressly provided by the Committee in
an Option Agreement, an Option shall terminate on the earlier of (1) the date of the
expiration of the general term of the Option or (2) the date that is one day less than three
months after the date of the Optionee’s Termination of Employment, whether with or without
cause, for any reason other than the death, Disability or Retirement of the Optionee, during
which period the Optionee shall be entitled to exercise the Option in respect of the number
of shares of Stock that the Optionee would have been entitled to purchase had the Optionee
exercised the Option on the date of such Termination of Employment. The Committee shall
determine whether an authorized leave of absence, absence on military or government service,
or any other absence from service shall constitute a termination of the employment
relationship between the Optionee and the Company and all Affiliates.




     (c) Early Termination of Option Due to Death. Unless the Committee specifies otherwise
in the applicable Option Agreement, in the event of the Optionee’s Termination of Employment
due to death before the date of expiration of the general term of the Option, the Optionee’s
Option shall terminate on the earlier of the date of expiration of the general term of the
Option or the first anniversary of the date of the Optionee’s death, during which period the
Optionee’s executors or administrators or such persons to whom such Options were transferred
by will or by the laws of descent and distribution, shall be entitled to exercise the Option
in respect of the number of shares of Stock that the Optionee would have been entitled to
purchase had the Optionee exercised the Option on the date of his death.




     (d) Early Termination of Option Due to Disability. Unless the Committee specifies
otherwise in the applicable Option Agreement, in the event of the Termination of Employment
due to Disability before the date of the expiration of the general term of the Option, the
Optionee’s Option shall terminate on the earlier of the expiration of the general term of
the Option or the first anniversary of the date of the Termination of Employment due to
Disability, during which period the Optionee shall be entitled to exercise the Option in
respect of the number of shares of Stock that the Optionee would have been entitled to
purchase had the Optionee exercised the Option on the date of such Termination of
Employment.




     (e) Early Termination of Option Due to Retirement. Unless the Committee specifies
otherwise in the applicable Option Agreement, in the event of the Optionee’s Termination of
Employment due to Retirement before the date of the expiration of the general term of the
Option, the Optionee’s Option shall terminate on the earlier of the expiration of the
general term of the Option or the third anniversary of the date of the



12









 







Termination of Employment due to Retirement, during which period the Optionee shall be
entitled to exercise the Option in respect of the number of shares of Stock that the
Optionee would have been entitled to purchase had the Optionee exercised the Option on the
date of such Termination of Employment.



     After the death of the Optionee, the Optionee’s executors, administrators or any person or
persons to whom the Optionee’s Option may be transferred by will or by the laws of descent and
distribution, shall have the right, at any time prior to the termination of the Option to exercise
the Option, in respect to the number of all of the remaining unexercised and unexpired shares of
Stock subject to the Option.



     5.6 Amount Exercisable. Each Option may be exercised at the time, in the manner and
subject to the conditions the Committee specifies in the Option Agreement in its sole discretion.
Unless the Committee specifies otherwise in an applicable Option Agreement, an Option Agreement
shall set forth the following terms regarding the exercise of the Option covered by the Option
Agreement:




     (a) No Option granted under the Plan may be exercised until an Optionee has completed
one year of continuous employment with the Company or any subsidiary of the Company
following the date of grant;




     (b) Beginning on the day after the first anniversary of the date of grant, an Option
may be exercised up to 1/3 of the shares subject to the Option;




     (c) After the expiration of each succeeding anniversary date of the date of grant, the
Option may be exercised up to an additional 1/3 of the shares initially subject to the
Option, so that after the expiration of the third anniversary of the date of grant, the
Option shall be exercisable in full;




     (d) To the extent not exercised, installments shall be cumulative and may be exercised
in whole or in part until the Option expires on the tenth anniversary of the date of grant.



     However, the Committee in its discretion, may change the terms of exercise so that any Option
may be exercised so long as it is valid and outstanding from time to time in part or as a whole in
such manner and subject to such conditions as the Committee may set. In addition, the Committee,
in its discretion, may accelerate the time in which any outstanding Option may be exercised;
provided, however, that the Committee’s discretion to accelerate the time in which any outstanding
Option may be exercised shall, except as provided in Section 4.5 hereof, be limited to a Holder’s
death, Disability, Retirement or, in the case of a Holder who is not an officer of the Company
subject to the reporting requirements of Section 16 of the Exchange Act, involuntary termination of
employment as the result of a reduction in force program approved by the Board. However, in no
event shall any Option be exercisable on or after the tenth anniversary of the date of the grant of
the Option.



     5.7 Exercise of Options.



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     (a) General Method of Exercise. Subject to the terms and provisions of the Plan and an
Optionee’s Option Agreement, Options may be exercised in whole or in part from time to time
by the delivery of written notice in the manner designated by the Committee stating (1) that
the Optionee wishes to exercise such option on the date such notice is so delivered, (2) the
number of shares of Stock with respect to which the Option is to be exercised and (3) the
address to which the certificate representing such shares of Stock should be mailed. Except
in the case of exercise by a third party broker as provided below, in order for the notice
to be effective the notice must be accompanied by payment of the Option Price by any
combination of the following: (a) cash, certified check, bank draft or postal or express
money order for an amount equal to the Option Price under the Option, (b) Mature Shares with
a Fair Market Value on the date of exercise equal to the Option Price under the Option (if
approved in advance by the Committee or an executive officer of the Company), (c) an
election to make a cashless exercise through a registered broker-dealer (if approved in
advance by the Committee or an executive officer of the Company) or (d) except as specified
below, any other form of payment which is acceptable to the Committee. If Mature Shares are
used for payment by the Optionee, the aggregate Fair Market Value of the shares of Stock
tendered must be equal to or less than the aggregate Option Price of the shares of Stock
being purchased upon exercise of the Option, and any difference must be paid by cash,
certified check, bank draft or postal or express money order payable to the order of the
Company.




     Whenever an Option is exercised by exchanging shares of Stock owned by the Optionee,
the Optionee shall deliver to the Company or its delegate certificates registered in the
name of the Optionee representing a number of shares of Stock legally and beneficially owned
by the Optionee, free of all liens, claims, and encumbrances of every kind, accompanied by
stock powers duly endorsed in blank by the record holder of the shares represented by the
certificates, (with signature guaranteed by a commercial bank or trust company or by a
brokerage firm having a membership on a registered national stock exchange). The delivery
of certificates upon the exercise of Option is subject to the condition that the person
exercising the Option provide the Company with the information the Company might reasonably
request pertaining to exercise, sale or other disposition of an Option.




     (b) Issuance of Shares. Subject to Section 4.4 and Section 5.7(c), as promptly as
practicable after receipt of written notification and payment, in the form permitted under
Section 13.3, of an amount of money necessary to satisfy any withholding tax liability that
may result from the exercise of such Option, the Company shall deliver to the Optionee
certificates for the number of shares with respect to which the Option has been exercised,
issued in the Optionee’s name. Delivery of the shares shall be deemed effected for all
purposes when a stock transfer agent of the Company shall have deposited the certificates in
the United States mail, addressed to the Optionee, at the address specified by the Optionee.




     (c) Limitations on Exercise Alternatives. The Committee shall not permit an Optionee
to pay such Optionee’s Option Price upon the exercise of an Option by having the Company
reduce the number of shares of Stock that will be delivered pursuant to the exercise of the
Option. In addition, the Committee shall not permit an Optionee to pay



14









 







such Optionee’s Option Price upon the exercise of an Option by using shares of Stock
other than Mature Shares. An Option may not be exercised for a fraction of a share of
Stock.



     5.8 Transferability of Options. Except as otherwise provided in an Optionee’s Option
Agreement, no Option granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided in an Optionee’s Option Agreement, all Options granted to an
Optionee under the Plan shall be exercisable during his or her lifetime only by such Optionee. Any
attempted assignment of an Option in violation of this Section 5.8 shall be null and void.



     5.9 No Rights as Stockholder. An Optionee shall not have any rights as a stockholder
with respect to Stock covered by an Option until he exercises the Option; and, except as otherwise
provided in Section 4.5, no adjustment for dividends, or otherwise, shall be made if the record
date therefor is prior to the date of such exercise.



ARTICLE VI

RESTRICTED STOCK AWARDS




     6.1 Restricted Stock Awards. The Committee may make Awards of Restricted Stock to
eligible persons selected by it. The amount of, the vesting and the transferability restrictions
applicable to any Restricted Stock Award shall be determined by the Committee in its sole
discretion. If the Committee imposes vesting or transferability restrictions on a Holder’s rights
with respect to Restricted Stock, the Committee may issue such instructions to the Company’s share
transfer agent in connection therewith as it deems appropriate. The Committee may also cause the
certificate for shares of Stock issued pursuant to a Restricted Stock Award to be imprinted with
any legend which counsel for the Company considers advisable with respect to the restrictions or,
should the shares of Stock be represented by book or electronic entry rather than a certificate,
the Company may take such steps to restrict transfer of the shares of Stock as counsel for the
Company considers necessary or advisable to comply with applicable law.



     6.2 Restricted Stock Award Agreement. Each Restricted Stock Award shall be evidenced
by an Award Agreement that contains any vesting, transferability restrictions and other provisions
not inconsistent with the Plan as the Committee may specify.



     6.3 Award Vesting. Unless otherwise provided by the Committee, Restricted Stock
Awards shall vest ratably over a minimum of three years. The Committee shall have the discretion
to accelerate the vesting of a Restricted Stock Award only in the event of a Holder’s death,
Disability, Retirement or, in the case of a Holder who is not an officer of the Company subject to
the reporting requirements of Section 16 of the Exchange Act, involuntary termination of employment
as the result of a reduction in force program approved by the Board.



     6.4 Holder’s Rights as Stockholder. Subject to the terms and conditions of the Plan,
each recipient of a Restricted Stock Award shall have all the rights of a stockholder with respect
to the shares of Restricted Stock included in the Restricted Stock Award during the Period of
Restriction established for the Restricted Stock Award. Dividends paid with respect to



15









 







Restricted Stock in cash or property other than shares of Stock or rights to acquire shares of
Stock shall be paid to the recipient of the Restricted Stock Award only at such time as the vesting
restrictions on the Restricted Stock Award are satisfied and shall be paid as soon as
administratively practicable following satisfaction of the vesting restrictions on the Restricted
Stock; and in all instances within two and one-half (21/2) months after the end of the Fiscal Year in
which the Substantial Risk of Forfeiture lapses with respect to the Restricted Stock Award.
Forfeiture of the underlying Restricted Stock Award shall result in a forfeiture of any dividends
paid with respect to the Restricted Stock Award. Dividends paid in shares of Stock or rights to
acquire shares of Stock shall be added to and become a part of the Restricted Stock. During the
Period of Restriction, certificates representing the Restricted Stock shall be registered in the
Holder’s name and bear a restrictive legend to the effect that ownership of such Restricted Stock,
and the enjoyment of all rights appurtenant thereto, are subject to the restrictions, terms, and
conditions provided in the Plan and the applicable Restricted Stock Award Agreement. Such
certificates shall be deposited by the recipient with the Secretary of the Company or such other
officer of the Company as may be designated by the Committee, together with all stock powers or
other instruments of assignment, each endorsed in blank, which will permit transfer to the Company
of all or any portion of the Restricted Stock which shall be forfeited in accordance with the Plan
and the applicable Restricted Stock Award Agreement.



ARTICLE VII

DEFERRED STOCK UNIT AWARDS




     7.1 Authority to Grant Deferred Stock Unit Awards. Subject to the terms and
provisions of the Plan, the Committee, at any time, and from time to time, may grant Deferred Stock
Unit Awards under the Plan to eligible persons in such amounts and upon such terms as the Committee
shall determine. The amount of, the vesting and the transferability restrictions applicable to any
Deferred Stock Unit Award shall be determined by the Committee in its sole discretion. The
Committee shall maintain a bookkeeping ledger account which reflects the number of Deferred Stock
Units credited under the Plan for the benefit of a Holder.



     7.2 Deferred Stock Unit Awards. A Deferred Stock Unit Award shall be similar in
nature to Restricted Stock Award except that no shares of Stock are actually transferred to the
Holder until a later date specified in the applicable Award Agreement. Each Deferred Stock Unit
shall have a value equal to the Fair Market Value of a share of Stock.



     7.3 Award Vesting. Unless otherwise provided by the Committee, Deferred Stock Unit
Awards shall vest ratably over a minimum of three years. The Committee shall have the discretion
to accelerate the vesting of a Deferred Stock Unit Award only in the event of a Holder’s death,
Disability, Retirement or, in the case of a Holder who is not an officer of the Company subject to
the reporting requirements of Section 16 of the Exchange Act, involuntary termination of employment
as the result of a reduction in force program approved by the Board.



     7.4 Deferred Stock Unit Award Agreement. Each Deferred Stock Unit Award shall be
evidenced by an Award Agreement that contains any Substantial Risk of Forfeiture, transferability
restrictions, form and time of payment provisions and other provisions not inconsistent with the
Plan as the Committee may specify.



16









 





     7.5 Form of Payment Under Deferred Stock Unit Award. Payment under a Deferred Stock
Unit Award shall be made in either cash or shares of Stock as specified in the Holder’s Award
Agreement.



     7.6 Time of Payment Under Deferred Stock Unit Award. A Holder’s payment under a
Deferred Stock Unit Award shall be made at such time as is specified in the Holder’s Award
Agreement. The Award Agreement shall specify that the payment will be made (1) by a date that is
no later than the date that is two and one-half (2 1/2) months after the end of the Fiscal Year in
which the Deferred Stock Unit Award payment is no longer subject to a Substantial Risk of
Forfeiture or (2) to the extent provided under an Award Agreement, at a time that is permitted
under Article XI hereof.



     7.7 Holder’s Rights as Stockholder. A Holder of a Deferred Stock Unit Award shall
have no rights of a stockholder with respect to the Deferred Stock Unit Award. A Holder shall have
no voting rights with respect to any Deferred Stock Unit Award.



ARTICLE VIII

PERFORMANCE STOCK AWARDS AND PERFORMANCE UNIT AWARDS




     8.1 Authority to Grant Performance Stock Awards and Performance Unit Awards. Subject
to the terms and provisions of the Plan, the Committee, at any time, and from time to time, may
grant Performance Stock Awards and Performance Unit Awards under the Plan to eligible persons in
such amounts and upon such terms as the Committee shall determine. The amount of, the vesting and
the transferability restrictions applicable to any Performance Stock Award or Performance Unit
Award shall be based upon the attainment of such Performance Goals as the Committee may determine.
If the Committee imposes vesting or transferability restrictions on a recipient’s rights with
respect to Performance Stock or Performance Unit Awards, the Committee may issue such instructions
to the Company’s share transfer agent in connection therewith as it deems appropriate. The
Committee may also cause the certificate for shares of Stock issued pursuant to a Performance Stock
or Performance Unit Award to be imprinted with any legend which counsel for the Company considers
advisable with respect to the restrictions or, should the shares of Stock be represented by book or
electronic entry rather than a certificate, the Company may take such steps to restrict transfer of
the shares of Stock as counsel for the Company considers necessary or advisable to comply with
applicable law.



     8.2 Performance Goals. A Performance Goal must be objective such that a third party
having knowledge of the relevant facts could determine whether the goal is met. Such a Performance
Goal may be based on one or more business criteria that apply to the Employee, one or more business
units of the Company, or the Company as a whole, with reference to one or more of the following:
earnings per share, earnings per share growth, total shareholder return, economic value added, cash
return on capitalization, increased revenue, revenue ratios (per employee or per customer), net
income, stock price, market share, return on equity, return on assets, return on capital, return on
capital compared to cost of capital, return on capital employed, return on invested capital,
shareholder value, net cash flow, operating income, earnings before interest and taxes, cash flow,
cash flow from operations, cost reductions, cost ratios (per employee or per customer), proceeds
from dispositions, project completion time and



17









 







budget goals, net cash flow before financing activities, customer growth and total market
value. Goals may also be based on performance relative to a peer group of companies. Unless
otherwise stated, such a Performance Goal need not be based upon an increase or positive result
under a particular business criterion and could include, for example, maintaining the status quo or
limiting economic losses (measured, in each case, by reference to specific business criteria). In
interpreting Plan provisions applicable to Performance Goals and Performance Stock or Performance
Unit Awards, it is intended that the Plan will conform with the standards of section 162(m) of the
Code and Treasury Regulations § 1.162-27(e)(2)(i), and the Committee in establishing such goals and
interpreting the Plan shall be guided by such provisions. Prior to the payment of any compensation
based on the achievement of Performance Goals, the Committee must certify in writing that
applicable Performance Goals and any of the material terms thereof were, in fact, satisfied.
Subject to the foregoing provisions, the terms, conditions and limitations applicable to any
Performance Stock or Performance Unit Awards made pursuant to the Plan shall be determined by the
Committee.



     8.3 Award Vesting. Unless otherwise provided by the Committee, Performance Stock
Awards and Performance Unit Awards shall vest ratably over a minimum of three years. The Committee
shall have the discretion to accelerate the vesting of a Performance Stock Award or a Performance
Unit Award only in the event of a Holder’s death, Disability, Retirement or, in the case of a
Holder who is not an officer of the Company subject to the reporting requirements of Section 16 of
the Exchange Act, involuntary termination of employment as the result of a reduction in force
program approved by the Board.



     8.4 Time of Establishment of Performance Goals. A Performance Goal for a particular
Performance Stock Award or Performance Unit Award must be established by the Committee prior to the
earlier to occur of (a) 90 days after the commencement of the period of service to which the
Performance Goal relates or (b) the lapse of 25 percent of the period of service, and in any event
while the outcome is substantially uncertain.



     8.5 Written Agreements. Each Performance Stock Award or Performance Unit Award shall
be evidenced by an Award Agreement that contains any vesting, transferability restrictions and
other provisions not inconsistent with the Plan as the Committee may specify.



     8.6 Form of Payment Under Performance Unit Award. Payment under a Performance Unit
Award shall be made in either cash or shares of Stock as specified in the Holder’s Award Agreement.



     8.7 Time of Payment Under Performance Unit Award. A Holder’s payment under a
Performance Unit Award shall be made at such time as is specified in the Holder’s Award Agreement.
The Award Agreement shall specify that the payment will be made (1) by a date that is no later than
the date that is two and one-half (2 1/2) months after the end of the Fiscal Year in which the
Performance Unit Award payment is no longer subject to a Substantial Risk of Forfeiture or (2) to
the extent provided under an Award Agreement, at a time that is permitted under Article XI hereof.



     8.8 Holder’s Rights as Stockholder With Respect to a Performance Unit Award. A Holder
of a Performance Unit Award shall have no rights of a stockholder with respect to the



18









 







Performance Unit Award. A Holder shall have no voting rights with respect to any Performance
Unit Award.



     8.9 Holder’s Rights as Stockholder With Respect to a Performance Stock Award. Subject
to the terms and conditions of the Plan, each Holder of a Performance Stock Award shall have all
the rights of a stockholder with respect to the shares of Stock issued to the Holder pursuant to
the Award during any period in which such issued shares of Stock are subject to forfeiture and
restrictions on transfer, including without limitation, the right to vote such shares of Stock, if
unrestricted shares of Stock of the same class have the right to vote. Dividends paid with respect
to Performance Stock Awards in cash or property other than shares of Stock or rights to acquire
shares of Stock shall be paid to the Holder as soon as administratively practicable after such time
as the vesting restrictions on the Performance Stock Awards are satisfied, but in all events within
two and one-half (21/2) months after the end of the Fiscal Year in which the Performance Stock Award
is no longer subject to a Substantial Risk of Forfeiture. Forfeiture of the underlying Performance
Stock Award shall result in a forfeiture of any dividends paid with respect to the Performance
Stock Award. Dividends paid in shares of Stock or rights to acquire shares of Stock shall be added
to and become a part of the Performance Stock Award.



     8.10 Increases Prohibited. None of the Committee or the Board may increase the amount
of compensation payable under a Performance Stock or Performance Unit Award. If the time at which
a Performance Stock or Performance Unit Award will vest is accelerated for any reason, the number
of shares of Stock subject to the Performance Stock or Performance Unit Award shall be reduced
pursuant to Department of Treasury Regulation section 1.162-27(e)(2)(iii) to reasonably reflect the
time value of money.



     8.11 Stockholder Approval. No payments of Stock or cash will be made pursuant to this
Article VIII unless the stockholder approval requirements of Treasury Regulation section
1.162-27(e)(4) are satisfied.



ARTICLE IX

CASH-BASED AWARDS AND OTHER STOCK-BASED AWARDS




     9.1 Authority to Grant Cash-Based Awards. Subject to the terms and provisions of the
Plan, the Committee, at any time, and from time to time, may grant Cash-Based Awards under the Plan
to Employees in such amounts and upon such terms, including the achievement of specific performance
goals, as the Committee shall determine.



     9.2 Authority to Grant Other Stock-Based Awards. The Committee may grant other types
of equity-based or equity-related Awards not otherwise described by the terms and provisions of the
Plan (including the grant or offer for sale of unrestricted shares of Stock) in such amounts and
subject to such terms and conditions, as the Committee shall determine. Such Awards may involve the
transfer of actual shares of Stock to Holders, or payment in cash or otherwise of amounts based on
the value of shares of Stock and may include, without limitation, Awards designed to comply with or
take advantage of the applicable local laws of jurisdictions other than the United States.



19









 





     9.3 Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall
specify a payment amount or payment range as determined by the Committee. Each Other Stock-Based
Award shall be expressed in terms of shares of Stock or units based on shares of Stock, as
determined by the Committee. The Committee may establish performance goals in its discretion for
Cash-Based Awards and Other Stock-Based Awards. If the Committee exercises its discretion to
establish performance goals, the number and/or value of Cash-Based Awards or Other Stock-Based
Awards that will be paid out to the Holder will depend on the extent to which the performance goals
are met.



     9.4 Payment of Cash-Based Awards and Other Stock-Based Awards. A Holder’s payment
under a Cash-Based Award or an Other Stock-Based Award shall be made at such time as is specified
in the Holder’s Award Agreement. The Award Agreement shall specify that the payment will be made
(1) by a date that is no later than the date that is two and one-half (2 1/2) months after the end of
the Fiscal Year in which the Cash-Based Award or Other Stock-Based Award is no longer subject to a
Substantial Risk of Forfeiture or (2) to the extent provided under an Award Agreement, at a time
that is permitted under Article XI hereof.



     9.5 Termination of Employment. The Committee shall determine the extent to which a
grantee’s rights with respect to Cash-Based Awards and Other Stock-Based Awards shall be affected
by the Holder’s Termination of Employment. Such provisions shall be determined in the sole
discretion of the Committee and need not be uniform among all Awards of Cash-Based Awards and Other
Stock-Based Awards issued pursuant to the Plan.



     9.6 Nontransferability. Except as otherwise determined by the Committee, neither
Cash-Based Awards nor Other Stock-Based Awards may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided by the Committee, a Holder’s rights under the Plan, if
exercisable, shall be exercisable during his or her lifetime only by such Holder.



ARTICLE X

SUBSTITUTION AWARDS




     Awards may be granted under the Plan from time to time in substitution for stock options and
other awards held by employees of other entities who are about to become Employees, or whose
employer is about to become an Affiliate as the result of a merger or consolidation of the Company
with another corporation, or the acquisition by the Company of substantially all the assets of
another corporation, or the acquisition by the Company of at least 50 percent (50%) of the issued
and outstanding stock of another corporation as the result of which such other corporation will
become a subsidiary of the Company. The terms and conditions of the substitute Awards so granted
may vary from the terms and conditions set forth in the Plan to such extent as the Board at the
time of grant may deem appropriate to conform, in whole or in part, to the provisions of the Award
in substitution for which they are granted, but with respect to Options that are incentive stock
options, no such variation shall be such as to affect the status of any such substitute Option as
an incentive stock option under section 422 of the Code.



20









 





ARTICLE XI

SECTION 409A COMPLIANCE




     11.1 Payment Events. It is the intention of the Company that no Award shall be
“deferred compensation” subject to Section 409A unless and to the extent that the Committee
specifically determines otherwise, and the Plan and the terms and conditions of all Awards shall be
interpreted accordingly. If the Committee determines that an Award is subject to Section 409A,
then the Award shall be paid or settled only upon the Holder’s death, Section 409A Disability,
Separation from Service, or upon a Section 409A Change of Control, or upon such other date(s) or
pursuant to a schedule designated by the Committee, all of such events only as specified in the
applicable Award Agreement, and subject to the following provisions:




     (a) Delay for Specified Employees. Notwithstanding any provision of this Plan
or the terms of an Award Agreement to the contrary, an Award that is granted to a Specified
Employee and that is to be paid or settled upon such Specified Employee’s Separation from
Service shall not be paid or settled prior to the earlier of (i) the first day of the
seventh (7th) month following the date of such Specified Employee’s Separation from Service
or (ii) the Specified Employee’s death.




     (b) Distribution in the Event of Income Inclusion Under Section 409A. If an
Award fails to meet the requirements of Section 409A, the Holder may receive payment in
connection with the Award before the Award would otherwise be paid, provided, however, that
the amount paid to the Holder shall not exceed the lesser of: (i) the amount payable under
such Award, or (ii) the amount to be reported pursuant to Section 409A on the applicable
Form W-2 (or Form 1099) as taxable income to the Holder.




     (c) Distribution Necessary to Satisfy Applicable Tax Withholding. If the
Company is required to withhold amounts to pay the Holder’s portion of the Federal Insurance
Contributions Act (FICA) tax imposed under Sections 3101, 3121(a) or 3121(v)(2) of the Code
with respect to an amount that is or will be paid to the Holder under the Award before the
amount otherwise would be paid, the Committee may withhold an amount equal to the lesser of:
(i) the amount payable under such Award, or (ii) the aggregate of the FICA taxes imposed and
the income tax withholding related to such amount.




     (d) Delay in Payments Subject to Section 162(m) of the Code. In the event the
Company reasonably anticipates that the payment of benefits under an Award would result in
the loss of the Company’s Federal income tax deduction with respect to such payment due to
the application of Section 162(m) of the Code, the Committee may delay the payment of all
such benefits under the Award until (i) the first taxable year in which the Company
reasonably anticipates, or should reasonably anticipate, that if the payment were made
during such year, the deduction of such payment would not be barred by application of
Section 162(m) of the Code or (ii) during the period beginning with the date of the Holder’s
Separation from Service (or, for Specified Employees, the date that is six (6) months after
the date of the Holder’s Separation from Service) and ending on the later of (A) the last
day of the taxable year of the Company that includes such date or (B) the 15th day of the
third month following the date of the Holder’s Separation from



21









 







Service (or, for Specified Employees, the date that is six (6) months after the date of
the Holder’s Separation from Service).




     (e) Delay for Payments in Violation of Federal Securities Laws or Other Applicable
Law. In the event the Company reasonably anticipates that the payment of benefits under
an Award would violate Federal securities laws or other applicable law, the Committee may
delay the payment until the earliest date at which the Company reasonably anticipates that
making of such payment would not cause such violation.




     (f) Delay for Insolvency or Compelling Business Reasons. In the event the
Company determines that the making of any payment of benefits on the date specified under an
Award would jeopardize the ability of the Company to continue as a going concern, the
Committee may delay the payment of benefits until the first calendar year in which the
Company notifies the Committee that the payment of benefits would not have such effect.




     (g) Administrative Delay in Payment. In the case of administrative necessity,
the payment of benefits under an Award may be delayed up to the later of the last day of the
calendar year in which payment would otherwise be made or the 15th day of the third calendar
month following the date on which payment would otherwise be made. Further, if, as a result
of events beyond the control of the Holder (or following the Holder’s death, the Holder’s
beneficiary), it is not administratively practicable to calculate the amount of benefits due
to the Holder as of the date on which payment would otherwise be made, the payment may be
delayed until the first calendar year in which calculation of the amount is administratively
practicable.



     11.2 No Holder Election. Notwithstanding the foregoing provisions of this Article XI,
if the period during which payment of benefits under an Award will be made occurs, or will occur,
in two calendar years, the Holder shall not be permitted to elect the calendar year in which the
payment shall be made.



ARTICLE XII

ADMINISTRATION




     12.1 Awards. The Plan shall be administered by the Committee or, in the absence of
the Committee, the Plan shall be administered by the Board. The members of the Committee shall
serve at the discretion of the Board. The Committee shall have full and exclusive power and
authority to administer the Plan and to take all actions that the Plan expressly contemplates or
are necessary or appropriate in connection with the administration of the Plan with respect to
Awards granted under the Plan.



     12.2 Authority of the Committee. The Committee shall have full and exclusive power to
interpret and apply the terms and provisions of the Plan and Awards made under the Plan, and to
adopt such rules, regulations and guidelines for implementing the Plan as the Committee may deem
necessary or proper, all of which powers shall be exercised in the best interests of the Company
and in keeping with the objectives of the Plan. A majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the vote



22









 







of a majority of those members present at any meeting shall decide any question brought before
that meeting. Any decision or determination reduced to writing and signed by a majority of the
members shall be as effective as if it had been made by a majority vote at a meeting properly
called and held. All questions of interpretation and application of the Plan, or as to Awards
granted under the Plan, shall be subject to the determination, which shall be final and binding, of
a majority of the whole Committee. No member of the Committee shall be liable for any act or
omission of any other member of the Committee or for any act or omission on his own part, including
but not limited to the exercise of any power or discretion given to him under the Plan, except
those resulting from his own gross negligence or willful misconduct. In carrying out its authority
under the Plan, the Committee shall have full and final authority and discretion, including but not
limited to the following rights, powers and authorities, to:




     (a) determine the persons to whom and the time or times at which Awards will be made;




     (b) determine the number and exercise price of shares of Stock covered in each Award,
subject to the terms and provisions of the Plan;




     (c) determine the terms, provisions and conditions of each Award, which need not be
identical and need not match the default terms set forth in the Plan;




     (d) accelerate the time at which any outstanding Award will vest;




     (e) prescribe, amend and rescind rules and regulations relating to administration of
the Plan; and




     (f) make all other determinations and take all other actions deemed necessary,
appropriate or advisable for the proper administration of the Plan.



     The Committee may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any Award to a Holder in the manner and to the extent the Committee deems necessary
or desirable to further the Plan’s objectives. Further, the Committee shall make all other
determinations that may be necessary or advisable for the administration of the Plan. As permitted
by law and the terms and provisions of the Plan, the Committee may delegate its authority as
identified in Section 12.3.



     The actions of the Committee in exercising all of the rights, powers, and authorities set out
in this Article XII and all other Articles of the Plan, when performed in good faith and in its
sole judgment, shall be final, conclusive and binding on all persons. The Committee may employ
attorneys, consultants, accountants, agents, and other persons, any of whom may be an Employee, and
the Committee, the Company, and its officers and Board shall be entitled to rely upon the advice,
opinions, or valuations of any such persons.



     12.3 Decisions Binding. All determinations and decisions made by the Committee or the
Board, as the case may be, pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee or the Board, as the case may be, shall be final, conclusive and
binding on all persons, including the Company, its stockholders, Employees, Holders and the estates
and beneficiaries of Employees and Holders.



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     12.4 No Liability. Under no circumstances shall the Company, the Board or the
Committee incur liability for any indirect, incidental, consequential or special damages (including
lost profits) of any form incurred by any person, whether or not foreseeable and regardless of the
form of the act in which such a claim may be brought, with respect to the Plan or the Company’s,
the Committee’s or the Board’s roles in connection with the Plan.



ARTICLE XIII

AMENDMENT OR TERMINATION OF PLAN




     13.1 Amendment, Modification, Suspension, and Termination. Subject to Section 13.2
the Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate
the Plan and any Award Agreement in whole or in part; provided, however, that, without the prior
approval of the Company’s stockholders and except as provided in Section 4.5, the Committee shall
not directly or indirectly lower the Option Price of a previously granted Option, and no amendment
of the Plan shall be made without stockholder approval if stockholder approval is required by
applicable law or stock exchange rules.



     13.2 Awards Previously Granted. Notwithstanding any other provision of the Plan to
the contrary, no termination, amendment, suspension, or modification of the Plan or an Award
Agreement shall adversely affect in any material way any Award previously granted under the Plan,
without the written consent of the Holder holding such Award.



     13.3 Payment or Settlement of Award Upon Termination of Plan. Upon termination of the
Plan, the Company may settle any outstanding Award that is not subject to Section 409A as soon as
is practicable following such termination and may settle any outstanding Award that is subject to
Section 409A in accordance with one of the following:




     (a) the termination and liquidation of the Plan within twelve (12) months of a
complete dissolution of the Company taxed under Section 331 of the Code or with the approval
of a bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(A); provided that the amounts
deferred under this Plan are included in the Holders’ gross incomes in the latest of the
following years (or, if earlier, the taxable year in which the amount is actually or
constructively received): (i) the calendar year in which the Plan is terminated; (ii) the
first calendar year in which the amount is no longer subject to a Substantial Risk of
Forfeiture; or (iii) the first calendar year in which the payment is administratively
practicable;




     (b) the termination and liquidation of the Plan pursuant to irrevocable action taken by
the Committee within the thirty (30) days preceding or the twelve (12) months following a
Section 409A Change in Control; provided that all Aggregated Plans are terminated and
liquidated with respect to each Holder who experienced the Section 409A Change in Control,
so that under the terms of the termination and liquidation, all such Holders are required to
receive all amounts of deferred compensation under this Plan and any other Aggregated Plans
within twelve (12) months of the date the Committee irrevocably takes all necessary action
to terminate and liquidate this Plan and the Committee takes all necessary action to
terminate and liquidate such other Aggregated Plans; or



24









 






     (c) the termination and liquidation of the Plan, provided that: (i) the termination and
liquidation does not occur proximate to a downturn in the Company’s financial health; (2)
the Committee terminates and liquidates all Aggregated Plans; (3) no payments in liquidation
of this Plan are made within twelve (12) months of the date the Committee irrevocably takes
all necessary action to terminate and liquidate this Plan, other than payments that would be
payable under the terms of this Plan if the action to terminate and liquidate this Plan had
not occurred; (4) all payments are made within twenty four (24) months of the date on which
the Committee irrevocably takes all action necessary to terminate and liquidate this Plan;
and (5) the Company does not adopt a new Aggregated Plan at any time within three (3) years
following the date on which the Committee irrevocably takes all action necessary to
terminate and liquidate the Plan.



ARTICLE XIV

MISCELLANEOUS




     14.1 Unfunded Plan/No Establishment of a Trust Fund. Holders shall have no right,
title, or interest whatsoever in or to any investments that the Company or any of its Affiliates
may make to aid in meeting obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create a trust of any
kind, or a fiduciary relationship between the Company and any Holder, beneficiary, legal
representative, or any other person. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such right shall be no greater than the right of an
unsecured general creditor of the Company. All payments to be made hereunder shall be paid from
the general funds of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts, except as expressly set
forth in the Plan. No property shall be set aside nor shall a trust fund of any kind be
established to secure the rights of any Holder under the Plan. All Holders shall at all times rely
solely upon the general credit of the Company for the payment of any benefit which becomes payable
under the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security
Act of 1974, as amended.



     14.2 No Employment Obligation. The granting of any Award shall not constitute an
employment contract, express or implied, nor impose upon the Company or any Affiliate any
obligation to employ or continue to employ, or utilize the services of, any Holder. The right of
the Company or any Affiliate to terminate the employment of any person shall not be diminished or
affected by reason of the fact that an Award has been granted to him, and nothing in the Plan or an
Award Agreement shall interfere with or limit in any way the right of the Company or its Affiliates
to terminate any Holder’s employment at any time or for any reason not prohibited by law.



     14.3 Tax Withholding. The Company or any Affiliate shall be entitled to deduct from
other compensation payable to each Holder any sums required by federal, state or local tax law (or
such greater amount as the Holder may elect) to be withheld with respect to the vesting or exercise
of an Award or lapse of restrictions on an Award. In the alternative, the Company may require the
Holder (or other person validly exercising the Award) to pay such sums (or such greater amount as
the Holder may elect) for taxes directly to the Company or any Affiliate in cash or by check within
one day after the date of vesting, exercise or lapse of restrictions. In the



25









 







discretion of the Committee, and with the consent of the Holder, the Company may reduce the
number of shares of Stock issued to the Holder upon such Holder’s exercise of an Option to satisfy
the tax withholding obligations of the Company or an Affiliate; provided that the Fair Market Value
of the shares of Stock held back shall not exceed the Company’s or the Affiliate’s Minimum
Statutory Tax Withholding Obligation. The Committee may, in its discretion, permit a Holder to
satisfy any Minimum Statutory Tax Withholding Obligation arising upon the vesting of an Award by
delivering to the Holder a reduced number of shares of Stock in the manner specified herein. If
permitted by the Committee and acceptable to the Holder, at the time of vesting of shares under the
Award, the Company shall (a) calculate the amount of the Company’s or an Affiliate’s Minimum
Statutory Tax Withholding Obligation on the assumption that all such shares of Stock vested under
the Award are made available for delivery, (b) reduce the number of such shares of Stock made
available for delivery so that the Fair Market Value of the shares of Stock withheld on the vesting
date approximates the Company’s or an Affiliate’s Minimum Statutory Tax Withholding Obligation and
(c) in lieu of the withheld shares of Stock, remit cash to the United States Treasury and other
applicable governmental authorities, on behalf of the Holder, in the amount of the Minimum
Statutory Tax Withholding Obligation. The Company shall withhold only whole shares of Stock to
satisfy its Minimum Statutory Tax Withholding Obligation. Where the Fair Market Value of the
withheld shares of Stock does not equal the amount of the Minimum Statutory Tax Withholding
Obligation, the Company shall withhold shares of Stock with a Fair Market Value slightly less than
the amount of the Minimum Statutory Tax Withholding Obligation and the Holder must satisfy the
remaining minimum withholding obligation in some other manner permitted under this Section 14.3.
The withheld shares of Stock not made available for delivery by the Company shall be retained as
treasury shares or will be cancelled and, in either case, the Holder’s right, title and interest in
such shares of Stock shall terminate. The Company shall have no obligation upon vesting or
exercise of any Award or lapse of restrictions on Restricted Stock until the Company or an
Affiliate has received payment sufficient to cover the Minimum Statutory Tax Withholding Obligation
with respect to that vesting, exercise or lapse of restrictions. Neither the Company nor any
Affiliate shall be obligated to advise a Holder of the existence of the tax or the amount which it
will be required to withhold.



     14.4 Written Agreement. Each Award shall be embodied in a written or electronic
agreement or statement which shall be subject to the terms and conditions of the Plan. The Award
Agreement shall be signed, written or electronically, by a member of the Committee on behalf of the
Committee and the Company or by an executive officer of the Company, other than the Holder, on
behalf of the Company, and may be signed, written or electronically, by the Holder to the extent
required by the Committee. The Award Agreement may specify the effect of a Change in Control on
the Award. The Award Agreement may contain any other provisions that the Committee in its
discretion shall deem advisable which are not inconsistent with the terms and provisions of the
Plan. “Electronic agreement” means an agreement created, generated, sent, communicated, received
or stored by electronic means. An electronic signature shall be accomplished by an electronic
symbol or process attached to or logically associated with an electronic agreement and executed or
adopted by a person with intent to sign the agreement.



     14.5 Indemnification of the Committee. The Company shall indemnify each present and
future member of the Committee against, and each member of the Committee shall be entitled without
further action on his or her part to indemnity from the Company for, all expenses



26









 




(including attorney’s fees, the amount of judgments and the amount of approved settlements
made with a view to the curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by such member in connection with or arising out of any action, suit or
proceeding in which such member may be involved by reason of such member being or having been a
member of the Committee, whether or not he or she continues to be a member of the Committee at the
time of incurring the expenses, including, without limitation, matters as to which such member
shall be finally adjudged in any action, suit or proceeding to have been negligent in the
performance of such member’s duty as a member of the Committee. However, this indemnity shall not
include any expenses incurred by any member of the Committee in respect of matters as to which such
member shall be finally adjudged in any action, suit or proceeding to have been guilty of gross
negligence or willful misconduct in the performance of his duty as a member of the Committee. In
addition, no right of indemnification under the Plan shall be available to or enforceable by any
member of the Committee unless, within 60 days after institution of any action, suit or proceeding,
such member shall have offered the Company, in writing, the opportunity to handle and defend same
at its own expense. This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and shall be in addition to all other
rights to which a member of the Committee may be entitled as a matter of law, contract or
otherwise.




     14.6 Gender and Number. If the context requires, words of one gender when used in the
Plan shall include the other and words used in the singular or plural shall include the other.



     14.7 Severability. In the event any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not
been included.



     14.8 Headings. Headings of Articles and Sections are included for convenience of
reference only and do not constitute part of the Plan and shall not be used in construing the terms
and provisions of the Plan.



     14.9 Other Compensation Plans. The adoption of the Plan shall not affect any other
option, incentive or other compensation or benefit plans in effect for the Company or any
Affiliate, nor shall the Plan preclude the Company from establishing any other forms of incentive
compensation arrangements for Employees.



     14.10 Other Awards. The grant of an Award shall not confer upon the Holder the right
to receive any future or other Awards under the Plan, whether or not Awards may be granted to
similarly situated Holders, or the right to receive future Awards upon the same terms or conditions
as previously granted.



     14.11 Successors. All obligations of the Company under the Plan with respect to
Awards granted hereunder shall be binding on any successor to the Company, whether the existence of
such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise,
of all or substantially all of the business and/or assets of the Company.



27









 





     14.12 Law Limitations/Governmental Approvals. The granting of Awards and the issuance
of shares of Stock under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities exchanges as may be
required.



     14.13 Delivery of Title. The Company shall have no obligation to issue or deliver
evidence of title for shares of Stock issued under the Plan prior to:




     (a) obtaining any approvals from governmental agencies that the Company determines are
necessary or advisable; and




     (b) completion of any registration or other qualification of the Stock under any
applicable national or foreign law or ruling of any governmental body that the Company
determines to be necessary or advisable.



     14.14 Inability to Obtain Authority. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to
be necessary to the lawful issuance and sale of any shares of Stock hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such shares of Stock as to
which such requisite authority shall not have been obtained.



     14.15 Investment Representations. The Committee may require any person receiving
Stock pursuant to an Award under the Plan to represent and warrant in writing that the person is
acquiring the Shares for investment and without any present intention to sell or distribute such
Stock.



     14.16 Persons Residing Outside of the United States. Notwithstanding any provision of
the Plan to the contrary, in order to comply with the laws in other countries in which the Company
or any of its Affiliates operates or has Employees, the Committee, in its sole discretion, shall
have the power and authority to:




     (a) determine which Affiliates shall be covered by the Plan;




     (b) determine which persons employed outside the United States are eligible to
participate in the Plan;




     (c) amend or vary the terms and provisions of the Plan and the terms and conditions of
any Award granted to persons who reside outside the United States;




     (d) establish subplans and modify exercise procedures and other terms and procedures to
the extent such actions may be necessary or advisable — any subplans and modifications to
Plan terms and procedures established under this Section 13.16 by the Committee shall be
attached to the Plan document as Appendices; and




     (e) take any action, before or after an Award is made, that it deems advisable to
obtain or comply with any necessary local government regulatory exemptions or approvals.



28









 





     Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards
shall be granted, that would violate the Exchange Act, the Code, any securities law or governing
statute or any other applicable law.



     14.17 No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine whether cash,
additional Awards, or other property shall be issued or paid in lieu of fractional shares of Stock
or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.



     14.18 Arbitration of Disputes. Any controversy arising out of or relating to the Plan
or an Award Agreement shall be resolved by arbitration conducted pursuant to the arbitration rules
of the American Arbitration Association. The arbitration shall be final and binding on the
parties.



     14.19 Governing Law. The provisions of the Plan and the rights of all persons
claiming thereunder shall be construed, administered and governed under the laws of the State of
Texas.



     IN WITNESS WHEREOF, this Plan has been executed this 12th day of December, 2008, effective
as of January 1, 2009.



	 	 	 	 	 	 	 
	 	 	TESORO CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ SUSAN A. LERETTE	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	SVP, Administration	 	 
	 

	 	 	 	 

	 	 







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