Document:

exv10w2

 

Exhibit 10.2

TESORO CORPORATION AMENDED AND RESTATED

EXECUTIVE SECURITY PLAN

EFFECTIVE JANUARY 1, 2005

 

 

TESORO CORPORATION

EXECUTIVE SECURITY PLAN

PREAMBLE

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

 

 

SECTION I

DEFINITIONS

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

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

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

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

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

	1.6	 	“Company” means Tesoro Corporation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION II

Eligibility for Benefits

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

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

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

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

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

SECTION III

Amount and Form of Retirement Benefit

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

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

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

SECTION IV

Payment of Retirement Benefits

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

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

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

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

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

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

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

SECTION V

Death Benefits Payable

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

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

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

SECTION VI

Miscellaneous

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

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

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

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

8exv10w3

 

Exhibit 10.3

TESORO CORPORATION

AMENDED AND RESTATED

EXECUTIVE LONG-TERM INCENTIVE PLAN

Article 1. Establishment, Purpose, and Duration

	1.1	 	Establishment of the Plan. Tesoro Corporation, a Delaware corporation (hereinafter referred
to as the “Company”), established an incentive compensation plan to be known as the “Tesoro
Corporation Executive Long-Term Incentive Plan” (hereinafter referred to as the “Plan”), as
set forth in this document. The Plan permits the grant of Nonqualified Stock Options,
Incentive Stock Options, SARs, Restricted Stock, Performance Units, and Performance Shares.
	 
	 	 	The Plan became effective as of September 15,1993 (the “Effective Date”), and shall remain
in effect as provided in Section 1.3 herein.

	1.2	 	Purpose of the Plan. The purpose of the Plan is to promote the success. and enhance the
value of the Company by linking the personal interests of Participants to those of Company
shareholders, and by providing Participants with an incentive for outstanding performance.
	 
	 	 	The Plan is further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of Participants upon whose judgment, interest, and
special effort the successful conduct of its operation largely is
dependent.
	 
	1.3	 	Duration of the Plan. The Plan shall commence on the Effective Date, as described in
Section 1.1 herein, and shall remain in effect, subject to the right of the Board of Directors
to terminate the Plan at any time pursuant to Article 14 herein, until all Shares subject to
it shall have been purchased or acquired according to the Plan’s provisions. However, in no
event may an Award be granted under the Plan on or after September 15, 2008; and in no event
may an Incentive Stock Option be granted under the Plan on or after September 15, 2003.
	 
	 	 	Article 2. Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below and, when
the meaning is intended, the initial letter of the word is capitalized:

	(a)	 	“Affiliated SAR” means a SAR that is granted in connection with a related Option, and which
will be deemed to automatically be exercised simultaneous with the exercise of the related
Option.

 

 

	(b)	 	“Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock
Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units, or Performance
Shares.

	(c)	 	“Award Agreement” means an agreement entered into by each Participant and the Company,
setting forth the terms and provisions applicable to Awards granted to Participants under
this Plan.

	(d)	 	“Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act.

	(e)	 	“Board” or “Board of Directors” means the Board of Directors of the Company.

	(f)	 	“Cause” means: (i) willful misconduct on the part of a Participant that is materially
detrimental to the Company; or (ii) the commission by a Participant of one or more acts which
constitute an indictable crime under United States Federal, state, or local law. “Cause”
under either (i) or (ii) shall be determined in good faith by the Committee.

	(g)	 	“Change in Control” of the Company shall be deemed to have occurred if:

	 	(i)	 	Any Person other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock or the Company is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company’s then outstanding voting securities;
	 
	 	(ii)	 	A majority of the Board at any time shall cease to be made up of Qualified
Directors. For purposes hereof a Qualified Director is a director who meets any of the
following criteria: (1) Was a director immediately after the effective date of the
Reclassification (as defined in the Company’s Registration Statement on S-4, relating
to the 1993 Annual Meeting of Stockholders), including the three new directors elected
in connection therewith; (2) Was a director immediately after the Company’s 1994 Annual
Meeting of Stockholders; (3) Any director nominated for election as a director or
elected to the Board by the directors to fill a vacancy by a vote of directors, and at
the time of such nomination or election at least a majority of the directors were
Qualified Directors; or
	 
	 	(iii)	 	The shareholders of the Company approve a merger or consolidation of the
Company, with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least fifty percent (50%) of the combined

 

 

	 	 	 	voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders of
the Company approve a plan of complete liquidation of the Company, or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company’s assets.

	 	 	However, in no event shall a “Change in Control” be deemed to have occurred with respect to
a Participant, if the Participant is part of a purchasing group which consummates the Change
in Control transaction. A Participant shall be deemed “part of a purchasing group” for
purposes of the preceding sentence if the Participant is an equity participant in the
purchasing company or group (except for (i) passive ownership of less than three percent
(3%) of the stock of the purchasing company; or (ii) ownership of equity participation in
the purchasing company or group which is otherwise not significant, as determined prior to
the Change in Control by a majority of the non-employee continuing Directors).

	(h)	 	“Code” means the Internal Revenue Code of 1986, as amended from time to time.

	(i)	 	“Committee” means the committee, as specified in Article 3, appointed by the Board to
administer the Plan with respect to grants of Awards.

	(j)	 	“Company” means Tesoro Corporation, a Delaware corporation, or any successor thereto
as provided in Article 17 herein.

	(k)	 	“Director” means any individual who is a member of the Board of Directors of the Company.

	(l)	 	“Disability” means a permanent and total disability, within the meaning of Code Section
22(e)(3), as determined by the Committee in good faith, upon receipt of sufficient competent
medical advice from one or more individuals, selected by the Committee, who are qualified to
give professional medical advice.

	(m)	 	“Employee” means any full-time, nonunion employee of the Company or of the Company’s
Subsidiaries. Directors who are not otherwise employed by the Company shall not be considered
Employees under this Plan.

	(n)	 	“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or
any successor Act thereto.

	(o)	 	“Fair Market Value” shall mean the average of the highest and lowest quoted selling prices
for Shares on the relevant date, or (if there were no sales on such date) the weighted average
of the means between the highest and lowest quoted selling prices on the nearest day before
and the nearest day after the relevant date, as determined by the Committee.

 

 

	(p)	 	“Freestanding SAR” means a SAR that is granted independently of any Options.

	(q)	 	“Incentive Stock Option” or “ISO” means an option to purchase Shares, granted under Article
6 herein, which is designated as an Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.

	(r)	 	“Insider” shall mean an Employee who is, on the relevant date, an officer,
director, or ten percent (10%) beneficial owner of the Company, as defined under Section 16
of the Exchange Act.

	(s)	 	“Nonqualified Stock Option” or “NQSO” means an option to purchase Shares, granted under
Article 6 herein, which is not intended to be an Incentive Stock Option.

	(t)	 	“Option” means an Incentive Stock Option or a Nonqualified Stock Option.

	(u)	 	“Option Price” means the price at which a Share may be purchased by a Participant pursuant to
an Option, as determined by the Committee.

	(v)	 	“Participant” means an Employee of the Company who has outstanding an Award granted under the
Plan.

	(w)	 	“Performance Unit” means an Award granted to an Employee, as described in Article 9 herein.

	(x)	 	“Performance Share” means an Award granted to an Employee, as described in Article 9 herein.

	(y)	 	“Period of Restriction” means the period during which the transfer of Shares of Restricted
Stock is limited in some way (based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by the Committee, at its
discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in
Article 8 herein.

	(z)	 	“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d).

	(aa)	 	“Restricted Stock” means an Award granted to a Participant pursuant to Article 8 herein.

	(ab)	 	“Retirement” shall have the meaning ascribed to it in the tax-qualified pension plan of
the Company.

 

 

	(ac)	 	“Shares” means the shares of common stock of the Company.

	(ad)	 	“Subsidiary” means any corporation in which the Company owns directly, or indirectly through
subsidiaries, at least fifty percent (50%) of the total combined voting power of all classes
of stock, or any other entity (including, but not limited to, partnerships and joint ventures)
in which the Company owns at least fifty percent (50%) of the combined equity thereof.

	(ae)	 	“Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with a
related Option, designated as a SAR, pursuant to the terms of Article 7 herein.

	(af)	 	“Tandem SAR” means a SAR that is granted in connection with a related Option, the exercise of
which shall require forfeiture of the right to purchase a Share under the related Option (and
when a Share is purchased under the Option, the Tandem SAR shall similarly be canceled).

	(ag)	 	“Window Period” means the period beginning on the third business day following the date of
public release of the Company’s quarterly sales and earnings information, and ending on the
twelfth business day following such date.

Article 3. Administration

	3.1	 	The Committee. The Plan shall be administered by the Compensation Committee of the Board, or
by any other Committee appointed by the Board consisting of all Directors who are not
Employees (the “Committee”). The members of the Committee shall be appointed from time to time
by, and shall serve at the discretion of, the Board of Directors.
	 
	 	 	The Committee shall be comprised solely of Directors who are eligible to administer the Plan
pursuant to Rule 16b-3(c)(2) under the Exchange Act. However, if for any reason the
Committee does not qualify to administer the Plan, as contemplated by Rule 16b-3(c)(2) of
the Exchange Act, the Board of Directors may appoint a new Committee so as to comply with
Rule 16b-3(c)(2).

	3.2	 	Authority of the Committee. The Committee shall have full power except as limited by law or
by the Articles of Incorporation or Bylaws of the Company, and subject to the provisions
herein, to determine the size and types of Awards; to determine the terms and conditions of
such Awards in a manner consistent with the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to establish, amend, or waive rules and
regulations for the Plan’s administration; and (subject to the provisions of Article 14
herein) to amend the terms and conditions of any outstanding Award to the extent such terms
and conditions are within the discretion of the Committee as provided in the Plan. Further,
the Committee shall make all other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.

 

 

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

Article 4. Shares Subject to the Plan

	4.1	 	Number of Shares. Subject to adjustment as provided in Section 4.3 herein, the total number
of Shares available for grant under the Plan may not exceed 9,250,000, subject to the
limitations set forth in Sections 8.1 and 9.1. These Shares may be either authorized but
unissued or reacquired Shares.
	 
	 	 	The following rules will apply for purposes of the determination of the number of Shares
available for grant under the Plan:

	 	(a)	 	While an Award is outstanding, it shall be counted against the authorized pool
of Shares, regardless of its vested status.
	 
	 	(b)	 	The grant of an Option or Restricted Stock shall reduce the Shares available
for grant under the Plan by the number of Shares subject to such Award.
	 
	 	(c)	 	The grant of a Tandem SAR shall reduce the number of Shares available for grant
by the number of Shares subject to the related Option (i.e., there is no double
counting of Options and their related Tandem SARs).
	 
	 	(d)	 	The grant of an Affiliated SAR shall reduce the number of Shares available for
grant by the number of Shares subject to the SAR, in addition to the number of Shares
subject to the related Option.
	 
	 	(e)	 	The grant of a Freestanding SAR shall reduce the number of Shares available for
grant by the number of Freestanding SARs granted.
	 
	 	(f)	 	The Committee shall in each case determine the appropriate number of Shares to
deduct from the authorized pool in connection with the grant of Performance
Units and/or Performance Shares.

	4.2	 	Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires, or
lapses for any reason (with the exception of the termination of a Tandem SAR upon exercise of
the related Option or the termination of a related Option upon exercise of the corresponding
Tandem

 

 

	 	 	SAR), any Shares subject to such Award again shall be available for the grant of an Award
under the Plan. However, in the event that prior to the Award’s cancellation, termination,
expiration, or lapse, the holder of the Award at any time received one or more “benefits of
ownership” pursuant to such Award (as defined by the Securities and Exchange Commission,
pursuant to any rule or interpretation promulgated under Section 16 of the Exchange Act), the
Shares subject to such Award shall not be made available for regrant under the Plan.
	 
	4.3	 	Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or
other change in the corporate structure of the Company affecting the Shares, such adjustment
shall be made in the number and class of Shares which may be delivered under the Plan, and in
the number and class of and/or price of Shares subject to outstanding Awards granted under the
Plan, as may be determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights; and provided that the number of
Shares subject to any Award shall always be a whole number.

Article 5. Eligibility and Participation

	5.1	 	Eligibility. Persons eligible to participate in this Plan include all full-time, active
Employees of the Company and its Subsidiaries, as determined by the Committee, including
Employees who are members of the Board, but excluding Directors who are not Employees.

	5.2	 	Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to
time, select from all eligible Employees, those to whom Awards shall be granted and shall
determine the nature and amount of each Award.

Article 6. Stock Options

	6.1	 	Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to
Employees at any time and from time to time as shall be determined by the Committee. The
Committee shall have discretion in determining the number of Shares subject to Options granted
to each Participant, but in no event shall the Committee be permitted to grant Options to any
Participant in excess of 500,000 Shares during any fiscal year of the Company. The Committee
may grant ISOs, NQSOs, or a combination thereof.

	6.2	 	Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall
specify the Option Price, the duration of the Option, the number of Shares to which the Option
pertains, and such other provisions as the Committee shall determine. The Option Agreement
also shall specify whether the Option is intended to be an ISO within the meaning of Section
422 of the Code, or a NQSO whose grant is intended not to fall under the Code provisions of
Section 422.

	6.3	 	Option Price. The Option Price for each grant of an Option shall be determined by the

 

 

	 	 	Committee; provided that the Option Price shall not be less than the Fair Market Value of a
Share on the date the Option is granted unless such Option is granted in connection with a
deferral election pursuant to Article XI herein.
	 
	6.4	 	Duration of Options. Each Option shall expire at such time as the Committee shall determine
at the time of grant; provided, however,-that no Option shall be exercisable later than the
tenth (10th) anniversary date of its grant.

	6.5	 	Exercise of Options. Options granted under the Plan shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each Participant. However, in no
event may any Option granted under this Plan become exercisable prior to six (6) months
following the date of its grant.

	6.6	 	Payment. Options shall be exercised by the delivery of a written notice of exercise to the
Company, setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.
	 
	 	 	The Option Price upon exercise of any Option shall be payable to the Company in full
either: (a) in cash or its equivalent, or (b) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been held by the Participant
for at least six (6) months prior to their tender to satisfy the Option Price), or (c) by a
combination of (a) and (b).
	 
	 	 	The Committee also may allow cashless exercise as permitted under Federal Reserve Board’s
Regulation T, subject to applicable securities law restrictions, or by any other means
which the Committee determines to be consistent with the Plan’s purpose and applicable law.
	 
	 	 	As soon as practicable after receipt of a written notification of exercise and full
payment, the Company shall deliver to the Participant, in the Participant’s name, Share
certificates in an appropriate amount based upon the number of Shares purchased under the
Option(s).

	6.7	 	Restrictions on Share Transferability. The Committee may impose such restrictions on any
Shares acquired pursuant to the exercise of an Option under the Plan as it may deem
advisable, including, without limitation, restrictions under applicable Federal securities
laws, under the requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable to such
Shares.

6.8 Termination of Employment Due to Death, Disability, or Retirement.

	 	(a)	 	Termination by Death. In the event the employment of a Participant is
terminated by reason of death, all outstanding Options which are exercisable as of the
date of death shall remain

 

 

	 	 	 	exercisable at any time prior to their expiration date, or for one (1) year after the
date of death, whichever period is shorter, by such person or persons as shall have
been named as the Participant’s beneficiary, or by such persons that have acquired the
Participant’s rights under the Option by will or by the laws of descent and
distribution.
	 
	 	 	 	Options which are not exercisable as of the date of death shall be forfeited and
returned to the Company; provided, however, that the Committee may, at its sole
discretion, provide for accelerated vesting of unvested Options upon such terms as the
Committee deems advisable.

	 	(b)	 	Termination by Disability. In the event the employment of a
Participant is terminated by reason of Disability, all outstanding Options which are
exercisable as of the date the Committee determines the definition of Disability to
have been satisfied shall remain exercisable at any time prior to their expiration
date, or for one (1) year after the date that the Committee determines the definition
of Disability to have been satisfied, whichever period is shorter.
	 
	 	 	 	Options which are not exercisable as of the date the Committee determines the
definition of Disability to have been satisfied shall be forfeited and returned to
the Company; provided, however, that the Committee may, at its sole discretion,
provide for accelerated vesting of unvested Options upon such terms as the Committee
deems advisable.
	 
	 	(c)	 	Termination by Retirement. In the event the employment of a Participant is
terminated by reason of Retirement, all outstanding Options which are exercisable as of
the date of Retirement shall remain exercisable at any time prior to their expiration
date, or for three (3) years after the effective date of Retirement, whichever period
is shorter. Options which are not exercisable as of the date of Retirement shall be
forfeited and return to the Company; provided, however, that the Committee may, at its
sole discretion, provide for accelerated vesting of unvested Options upon such terms as
the Committee deems advisable.
	 
	 	(d)	 	Employment Termination Followed by Death. In the event that a Participant’s
employment terminates by reason of Disability or Retirement, and within the exercise
period following such termination the Participant dies, then the remaining exercise
period under outstanding vested Options shall equal the longer of (i) one (1) year
following death; or (ii) the remaining portion of the exercise period which was
triggered by the employment termination. Such Options shall be exercisable by such
person or persons who shall have been named as the Participant’s beneficiary, or by
such persons who have acquired the Participant’s rights under the Option by will or by
the laws of descent and distribution.

 

 

	 	(e)	 	Exercise Limitations on ISOs. In the case of ISOs, the tax treatment prescribed
under Section 422 of the Internal Revenue Code of 1986, as amended, may not be
available if the Options are not exercised within the Section 422 prescribed time
periods after each of the various types of employment termination.

	6.9	 	Termination of Employment for Other Reasons. If the employment of a Participant shall
terminate for any reason other than the reasons set forth in Section 6.8 (and other than for
Cause), all Options held by the Participant which are not vested as of the effective date of
employment termination immediately shall be forfeited to the Company (and shall once again
become available for grant under the Plan). However, the Committee, in its sole discretion,
shall have the right to immediately vest all or any portion of such Options, subject to such
terms as the Committee, in its sole discretion, deems appropriate.
	 
	 	 	Options which are vested as of the effective date of employment termination may be exercised
by the Participant within the period beginning on the effective date of the employment
termination and ending three (3) months after such date unless an extended exercise period
has been established in an agreement entered into between the Participant and the Company
prior to the grant date of the Option.
	 
	 	 	If the employment of a Participant shall be terminated by the Company for Cause, all
outstanding Options held by the Participant immediately shall be forfeited to the Company and
no additional exercise period shall be allowed, regardless of the vested status of the
Options.

	6.10	 	Nontransferability of Options. 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, all Options granted to a Participant under the Plan
shall be exercisable during his or her lifetime only by such Participant.

	6.11	 	Limitation on Repricing of Options. Without the prior approval of the Company’s stockholders
and except as provided in Section 4.3, Options issued under the Plan will not be repriced,
replaced, or regranted through cancellation, or by lowering the Option Price of a previously
granted Option.

Article 7. Stock Appreciation Rights

	7.1	 	Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to an
Employee at any time and from time to time as shall be determined by the Committee. The
Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination of
these forms of SARs.
	 
	 	 	The Committee shall have complete discretion in determining the number of SARs granted to
each Participant (subject to Article 4 herein) and, consistent with the provisions of the
Plan,

 

 

	 	 	in determining the terms and conditions pertaining to such SARs. However, the grant price of
a Freestanding SAR shall be at least equal to the Fair Market Value of a Share on the date
of grant of the SAR. The grant price of Tandem SARs and Affiliated SARs shall equal the
Option Price of the related Option. In no event shall any SAR granted hereunder become
exercisable within the first six (6) months of its grant.
	 
	7.2	 	Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject
to the related Option upon the surrender of the right to exercise the equivalent portion of
the related Option. A Tandem SAR may be exercised only with respect to the Shares for which
its related Option is then exercisable.
	 
	 	 	Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem
SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later
than the expiration of the underlying ISO; (ii) the value of the payout with respect to the
Tandem SAR may be for no more than one hundred percent (100%) of the difference between the
Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the
underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be
exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.

	7.3	 	Exercise of Affiliated SARs. Affiliated SARs shall be deemed to be exercised upon the
exercise of the related Options. The deemed exercise of Affiliated SARs shall not necessitate
a reduction in the number of related options.

	7.4	 	Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon them.

	7.5	 	SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the
grant price, the term of the SAR, and such other provisions as the Committee shall determine.

	7.6	 	Term. of SARs. The term of a SAR granted under the Plan shall be determined by the
Committee, in its sole discretion; provided, however, that such term shall not exceed ten (10)
years.

	7.7	 	Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be entitled to receive
payment from the Company in an amount determined by multiplying:

	 	(a)	 	The difference between the Fair Market Value of a Share on the date of exercise
over the grant price; by
	 
	 	(b)	 	The number of Shares with respect to which the SAR is exercised.

     At the discretion of the Committee, the payment upon SAR exercise may be in cash, in

 

 

	 	 	Shares of equivalent value, or in some combination
thereof.
	 
	7.8	 	Rule 16b-3 Requirements. Notwithstanding any other provision of the Plan, the Committee may
impose such conditions on exercise of a SAR (including, without limitation, the right of the
Committee to limit the time of exercise to specified periods) as may be required to satisfy
the requirements of Section 16 (or any successor rule) of the Exchange Act.
	 
	 	 	For example, if the Participant is an Insider, the ability of the Participant to exercise
SARs for cash will be limited to Window Periods. However, if the Committee determines that
the. Participant is not an Insider, or if the securities laws change to permit greater
freedom of exercise of SARs, then the Committee may permit exercise at any point in time, to
the extent the SARs are otherwise exercisable under the Plan.

	7.9	 	Termination of Employment Due to Death, Disability, or Retirement.

	 	(a)	 	Termination by Death. In the event the employment of a Participant is
terminated by reason of death, all outstanding SARs which are exercisable as of the
date of death shall remain exercisable at any time prior to their expiration date, or
for one (1) year after the date of death, whichever period is shorter, by such person
or persons as shall have been named as the Participant’s beneficiary, or by such
persons that have
acquired the Participant’s rights under the SAR by will or by the laws
of descent and distribution.
	 
	 	 	 	SARs which are not exercisable as of the date of death shall be forfeited and
returned to the Company; provided, however, that the Committee may, at its sole
discretion, provide for accelerated vesting of unvested SARs upon such terms as the
Committee deems advisable.
	 
	 	(b)	 	Termination by Disability. In the event the employment of a Participant is
terminated by reason of Disability, all outstanding SARs which are exercisable as of
the date the Committee determines the definition of Disability to have been satisfied
shall remain exercisable at any time prior to their expiration date, or for one (1)
year after the date that the Committee determines the definition of Disability to have
been satisfied, whichever period is shorter.
	 
	 	 	 	SARs which are not exercisable as of the date the Committee determines the
definition of Disability to have been satisfied shall be forfeited and returned to
the Company; provided, however, that the Committee may, at its sole discretion,
provide for accelerated vesting of unvested SARs upon such terms as the Committee
deems advisable.
	 
	 	(c)	 	Termination by Retirement. In the event the employment of a Participant is

 

 

	 	 	 	terminated by reason of Retirement, all outstanding SARs which are exercisable as of
the date of Retirement shall remain exercisable at any time prior to their
expiration date, or for three (3) years after the effective date of Retirement,
whichever period is shorter.
	 
	 	 	 	SARs which are not exercisable as of the date of Retirement shall be forfeited and
returned to the Company; provided, however, that the Committee may, at its sole
discretion, provide for accelerated vesting of unvested SARs upon such terms as the
Committee deems advisable.

	 	  (d)	 	Employment Termination Followed by Death. In the event that a Participant’s
employment terminates by reason of Disability or Retirement, and within the exercise
period following such termination the Participant dies, then the remaining exercise
period under outstanding vested SARs shall equal the longer of: (i) one (1) year
following death; or (ii) the remaining portion of the exercise period which was
triggered by the employment termination. Such SARs shall be exercisable by such person
or persons who shall have been named as the Participant’s beneficiary, or by such
persons who have acquired the Participant’s rights under the SAR by will or by the laws
of descent and distribution.

	7.10	 	Termination of Employment for Other Reasons. If the employment of a Participant shall
terminate for any reason other than the reasons set forth in Section 7.9 (and other than for
Cause), all SARs held by the Participant which are not vested as of the effective date of
employment termination immediately shall be forfeited to the Company (and shall once again
become available for grant under the Plan). However, the Committee, in its sole discretion,
shall have the right to immediately vest all or any portion of such SARs, subject to such
terms as the Committee, in its sole discretion, deems appropriate.
	 
	 	 	SARs which are vested as of the effective date of employment termination may be
exercised by the Participant within the period beginning on the effective date of employment
termination and ending three (3) months after such date, unless an extended exercise period
has been established in an agreement entered into between the Company and the Participant
prior to the grant of the SAR
	 
	 	 	If the employment of a Participant shall be terminated by the Company for Cause, all
outstanding SARs held by the Participant immediately shall be forfeited to the Company and
no additional exercise period shall be allowed, regardless of the vested status of the SARs.
	 
	7.11	 	Nontransferability of SARs. No SAR 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, all SARs granted to a Participant under the Plan shall be
exercisable during his or her lifetime only by such Participant.

 

 

Article 8. Restricted Stock

	8.1	 	Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at
any time and from time to time, may grant Shares of Restricted Stock to eligible Employees in
such amounts as the Committee shall determine, but in no event shall the total number of
Shares of Restricted Stock available for grant by the Committee, together with the total
number of Performance Units and Performance Shares available for grant by the Committee
pursuant to Section 9.1, exceed 1,500,000 Shares.

	8.2	 	Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted
Stock Agreement that shall specify the Period of Restriction, or Periods, the number of
Restricted Stock Shares granted, and such other provisions as the Committee shall determine.

	8.3	 	Transferability. Except as provided in this Article 8, the Shares of Restricted Stock granted
herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
until the end of the applicable Period of Restriction established by the Committee and
specified in the Restricted Stock Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth in the
Restricted Stock Agreement. However, in no event may any Restricted Stock granted under the
Plan become vested in a Participant prior to six (6) months following the date of its grant.
All rights with respect to the Restricted Stock granted to a Participant under the Plan shall
be available during his or her lifetime only to such Participant.

	8.4	 	Other Restrictions. The Committee shall impose such other conditions and/or restrictions on
any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, a requirement that Participants pay a stipulated purchase price
for each Share of Restricted Stock, restrictions based upon the achievement of specific
performance goals (Companywide, divisional, and/or individual), and/or restrictions under
applicable Federal or state securities laws; and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.

	8.5	 	Certificate Legend. In addition to any legends placed on certificates pursuant to Section 8.4
herein, each certificate representing Shares of Restricted Stock granted pursuant to the Plan
may bear the following legend:

“The sale or other transfer of the Shares of stock represented by
this certificate, whether voluntary, involuntary, or by operation of
law, is subject to certain restrictions on transfer as set forth in
the Tesoro Petroleum Corporation Executive Long-Term Incentive Plan,
and in a Restricted Stock Agreement. A copy of the Plan and such
Restricted Stock Agreement may be obtained from Tesoro Petroleum
Corporation.”

 

 

	 	 	The Company shall have the right to retain the certificates representing Shares of
Restricted Stock in the Company’s possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
	 
	8.6	 	Removal of Restrictions. Except as otherwise provided in this Article 8, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the Period of Restriction. Once the
Shares are released from the restrictions, the Participant shall be entitled to have the
legend required by Section 8.5 removed from his or her share certificate.

	8.7	 	Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted
Stock granted hereunder may exercise full voting rights with respect to those Shares.

	8.8	 	Dividends and Other Distributions. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and
other distributions paid with respect to those Shares while they are so held. If any such
dividends or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted Stock with
respect to which they were paid.
	 
	 	 	In the event that any dividend constitutes a “derivative security” or an “equity
security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a
vesting period equal to the longer of: (i) the remaining vesting period of the Shares of
Restricted Stock with respect to which the dividend is paid; or (ii) six months: The
Committee shall establish procedures for the application of this provision.

	8.9	 	Termination of Employment Due to Death, Disability, or Retirement. In the event the
employment of a Participant is terminated by reason of death, Disability, or Retirement, all
unvested Shares of Restricted Stock shall immediately be forfeited by the Participant;
provided, however, that the Committee, in its sole discretion, shall have the right to
provide for accelerated vesting of some or all unvested Shares of Restricted Stock, upon
such terms as the Committee deems advisable. The holder of the certificates of Restricted
Stock shall be entitled to have any nontransferability legends required under Sections 8.4
and 8.5 of this Plan removed from the Share certificates.

	8.10	 	Termination of Employment for Other Reasons. If the employment of a Participant shall
terminate for any reason other than those specifically set forth in Section 8.9 herein, all
Shares of Restricted Stock held by the Participant which are not vested as of the effective
date of employment termination immediately shall be forfeited (and, subject to Section 4.2
herein, shall once again become available for grant under the Plan).

 

 

	      	 	With the exception of a termination of employment for Cause, the Committee, in its sole
discretion, shall have the right to provide for lapsing of the restrictions on Restricted
Stock following employment termination, upon such terms and provisions as it deems
appropriate.

Article 9. Performance Units and Performance Shares

	9.1	 	Grant of Performance Units/Shares. Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may grant Performance Units and Performance
Shares to eligible Employees in such amounts as the Committee shall determine, but in no
event shall the total number of Performance Units and Performance Shares available for grant
by the Committee, together with the total number of Shares of Restricted Stock available for
grant by the Committee pursuant to Section 8.1, exceed 1,500,000 Shares.

	9.2	 	Value of Performance Units/Shares. Each Performance Unit shall have an initial value that is
established by the Committee at the time of grant. Each Performance Share shall have an
initial value equal to the Fair Market Value of a Share on the date of grant. The Committee
shall set performance goals in its discretion which, depending on the extent to which they
are met, will determine the number and/or value of Performance Units/Shares that will be paid
out to the Participants. The time period during which the performance goals must be met shall
be called a “Performance Period.” Performance Periods shall, in all cases, exceed six (6)
months in length.

	9.3	 	Earning of Performance Units/Shares. After the applicable Performance Period has ended, the
holder of Performance Units/Shares shall be entitled to receive payout on the number of
Performance Units/Shares earned by the Participant over the Performance Period, to be
determined as a function of the extent to which the corresponding performance goals have been
achieved.

	9.4	 	Form and Timing of Payment of Performance Units/Shares. Payment of each Performance
Units/Shares shall be made in a single lump sum, within forty-five (45) calendar days
following the close of the applicable Performance Period. The Committee, in its sole
discretion, may pay earned Performance Units/Shares in the form of cash or in Shares (or in a
combination thereof), which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance Period.
	 
	 	 	Prior to the beginning of each Performance Period, Participants may elect to defer the
receipt of Performance Unit/Share payout upon such terms as the Committee deems
appropriate.

	9.5	 	Termination of Employment Due to Death, Disability, Retirement, or Involuntary Termination
(without Cause). In the event the employment of a Participant is terminated by reason of
death, Disability, Retirement, or involuntary termination without Cause during a Performance
Period, the Participant shall receive a prorated payout of the Performance

 

 

	 	 	Units/Shares. The prorated payout shall be determined by the Committee, in its sole
discretion, and shall be based upon the length of time that the Participant held the
Performance Units/Shares during the Performance Period, and shall further be adjusted based
on the achievement of the preestablished performance goals.
	 
	 	 	Payment of earned Performance Units/Shares shall be made at the same time payments are
made to Participants who did not terminate employment during the applicable Performance
Period. However, the Committee, in its sole discretion, shall have the right to accelerate
the timing of this payout, upon such terms and provisions as it deems appropriate.
	 
	9.6	 	Termination of Employment for Other Reasons. In the event that a Participant’s employment
terminates for any reason other than those reasons set forth in Section 9.5 herein, all
Performance Units/Shares shall be forfeited by the Participant to the Company, and shall once
again be available for grant under the Plan. However, the Committee, in its sole discretion,
may provide a payout on any or all Performance Units/Shares, upon such times and provisions
as it deems appropriate.

	9.7	 	Nontransferability. Performance Units/Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further a Participant’s rights under the Plan shall be exercisable
during the Participant’s lifetime only by the Participant or the Participant’s legal
representative.

Article 10. Beneficiary Designation

Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who
may be named-contingently or successively) to whom any benefit under the Plan is to be paid in
case of his or her death before he or she receives any or all of such benefit. Each such
designation shall revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the Participant in writing
with the Company during the Participant’s lifetime. In the absence of any such designation,
benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

Article 11. [ Reserved]

Article 12. Rights of Employees

	12.1	 	Employment. Nothing in the Plan shall interfere with or limit in any way the right of the
Company to terminate any Participant’s employment at any time, nor confer upon any Participant
any right to continue in the employ of the Company.
	 
	 	 	For purposes of the Plan, transfer of employment of a Participant between the Company and
any one

 

 

	 	 	of its Subsidiaries (or between Subsidiaries) shall not be deemed a termination of
employment.
	 
	12.2	 	Participation. No Employee shall have the right to be selected to receive an Award under this
Plan, or having been so selected, to be selected to receive a future Award.

Article 13. Change In Control

Upon the occurrence of a Change in Control, unless otherwise specifically prohibited by the terms
of Section 18 herein:

	(a)	 	Any and all Options and SARs granted hereunder shall become immediately exercisable;

	(b)	 	Any restriction periods and restrictions imposed on Restricted Shares shall lapse, and within
ten (10) business days after the occurrence of a Change in Control, the stock certificates
representing Shares of Restricted Stock, without any restrictions or legend thereon, shall be
delivered to the applicable Participants;

	(c)	 	The target payout opportunity attainable under all outstanding Performance Units and
Performance Shares shall be deemed to have been earned for the portion of the Performance
Period(s) that passed as of the effective date of the Change in Control. This pro rata value
shall be paid out in cash to Participants within thirty (30) days following the effective date
of the Change in Control. However, regardless of the above, Performance Units or Performance
Shares that were granted less than six (6) months prior to the effective date of the Change in
Control shall be forfeited in their entirety, and receive no accelerated payout.

	(d)	 	Subject to Article 14 herein, the Committee shall have the authority to make any
modifications to the Awards as determined by the Committee to be appropriate before the
effective date of the Change in Control.

Article 14. Amendment, Modification, and Termination

	14.1	 	Amendment, Modification, and Termination. At any time and from time to time, the Board may
terminate, amend, or modify the Plan. However, without the approval of the stockholders of the
Company (as may be required by the Code, by the insider trading rules of Section 16 of the
Exchange Act, by any national securities exchange or system on which the Shares are then
listed or reported, or by a regulatory body having jurisdiction with respect hereto), no such
termination, amendment, or modification may:

	 	(a)	 	Materially increase the total number of Shares which may be issued under this
Plan, except as provided in Section 4.3 herein; or

 

 

	 	(b)	 	Materially modify the eligibility requirements; or
	 
	 	(c)	 	Materially increase the benefits accruing under the Plan.

	14.2	 	Awards Previously Granted. No termination, amendment, or modification of the Plan shall
adversely affect in any material way any Award previously granted under the Plan, without the
written consent of the Participant holding such Award.

Article 15. Withholding

	15.1	 	Tax Withholding. The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state,
and local taxes (including the Participant’s FICA obligation) required by law to be withheld
with respect to any taxable event arising or as a result of this Plan.

	15.2	 	Share Withholding. With respect to withholding required upon the exercise of Options or SARs,
upon the lapse of restrictions on Restricted Stock, or upon any other taxable event hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares having a Fair Market
Value on the date the tax is to be determined equal to the minimum statutory total tax which
could be imposed on the transaction. All elections shall be irrevocable, made in writing,
signed by the Participant, and elections by Insiders shall additionally comply with the
applicable requirement set forth in (a) or (b) of this Section 15.2.

     (a) Awards Having Exercise Timing Within Participants’ Discretion. The Insider must either:

	 	(i)	 	Deliver written notice of the stock withholding election to the Committee at
least six (6) months prior to the date specified by the Insider on which the exercise of
the Award is to occur, or
	 
	 	(ii)	 	Make the stock withholding election in connection with an exercise of an Award
which occurs during a Window Period.

	(b)	 	Awards Having a Fixed Exercise/Payout Schedule Which is Outside Insider’s Control. The
Insider must either:

	(i)	 	Deliver written notice of the stock withholding election to the Committee at least six (6)
months prior to the date on which the taxable event (e.g., exercise or payout) relating to the
Award is scheduled to occur; or

	(ii)	 	Make the stock withholding election during a Window Period which occurs prior to the
scheduled taxable event relating to the Award (for this purpose, an election may be made prior
to such a

 

 

	 	 	Window Period, provided that it becomes effective during a Window Period occurring prior to
the applicable taxable event).

Article 16. Indemnification

Each person who is or shall have been a member of the Committee, or of the Board, shall be
indemnified and held harmless by the Company against and from any loss, cost, liability, or expense
that may be imposed upon or reasonably incurred by him or her in connection with or resulting from
any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by
him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or
her, provided he or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or her own behalf.

The foregoing. right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.

Article 17. 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.

Article 18. Legal Construction

	18.1	 	Gender and Number. Except where otherwise indicated by the context any masculine term used
herein also shall include the feminine; the plural shall include the singular and the singular
shall include the plural.

	18.2	 	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.

	18.3	 	Requirements of Law. The granting of Awards and the issuance of Shares 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.
	 
	 	 	Notwithstanding any other provision set forth in the Plan, if required by the then-current

 

 

	 	 	Section 16 of the Exchange Act, any “derivative security” or “equity security” offered
pursuant to the Plan to any Insider may not be sold or transferred for at least six (6)
months after the date of grant of such Award. The terms “equity security” and “derivative
security” shall have the meanings ascribed to them in the then-current Rule 16(a) under the
Exchange Act.
	 
	18.4	 	Securities Law Compliance. With respect to Insiders, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its successors under the
1934 Act. To the extent any provision of the plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable
by the Committee.

	18.5	 	Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements
hereunder, shall be construed in accordance with and governed by the laws of the State of
Texas.

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