Document:

exv10w3

 

Exhibit 10.3

EMPLOYMENT AGREEMENT

     This Employment Agreement (the “Agreement”) is entered into as of August
3, 2004 (the “Effective Date”) by and between Tesoro Petroleum Corporation (the
“Company”), and Thomas E. Reardon (the “Executive”);

WITNESSETH THAT:

     WHEREAS, the Company wishes to continue to employ the Executive as its
Executive Vice President, Corporate Resources and the Executive wishes to
continue such employment; and

     WHEREAS, the Company and Executive wish to formalize the continuation of
the employment relationship in accordance with the terms and conditions set
forth below in this Agreement.

     NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein, including but not limited to Employee’s employment
and the payments and benefits described herein, the sufficiency of which is
hereby acknowledged, the Company and Executive hereby agree as follows:

1. EMPLOYMENT.

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

2. TERM OF EMPLOYMENT.

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

3. DUTIES AND RESPONSIBILITIES.

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

(b) Executive shall devote substantially all of his working time,
attention and energies to the business of the Company and affiliated
entities. Executive may make and manage his

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personal investments (provided such investments in other activities do
not violate, in any material respect, the provisions of Section 8 of this
Agreement), be involved in charitable and professional activities and,
with the consent of the Board (which shall not unreasonably be withheld
or delayed) serve on boards of other for profit entities, provided such
activities do not materially interfere with the performance of his duties
hereunder. Service on the for profit boards that Executive is currently
serving on are hereby approved.

4. COMPENSATION AND BENEFITS.

(a) ANNUAL BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary (the “Annual Base Salary”) at an
annual rate of $420,000 less applicable taxes, or such higher rate as may
be determined from time to time by the Board of Directors of the Company
(the “Board”). The Annual Base Salary shall be paid at such intervals as
the Company pays executive salaries generally. During the Employment
Period, the Annual Base Salary shall be reviewed at least annually,
beginning no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date. Any increase in the Annual
Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. The Annual Base Salary shall not be
reduced after any such increase and the term “Annual Base Salary” shall
refer to the Annual Base Salary as so increased.

(b) ANNUAL BONUS. In addition to the Annual Base Salary, during the
Employment Period, Executive will be entitled to participate in an annual
incentive compensation plan of the Company. The Executive’s target
annual bonus will be 65% of his Base Salary as in effect for such year
(the “Target Bonus”), and will be determined based upon achievement of
performance goals established by the Company pursuant to such plan.

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

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

(e) FEE REIMBURSEMENTS. The Company will reimburse the Employee as
provided in the Company’s applicable policies and procedures for an
initiation fee or fees

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and dues for a country, luncheon or social club or clubs and will pay
directly to the Employee an amount equal to sixty-five percent (65%) of
the amount so reimbursed to the Employee to offset the applicable income
tax expense to the Employee. In addition, The Company will reimburse the
Employee for additional initiation fees and related tax expenses to the
extent the Board of Directors or a duly authorized committee thereof
determines such fees are reasonable and in the best interest of the
Company.

(f) EXPENSE REIMBURSEMENT. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as the policies,
practices and procedures in effect generally with respect to other peer
executives of the Company at any time thereafter when the Executive
incurs such reimbursable expenses.

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

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

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

5. TERMINATION OF EMPLOYMENT.

Executive’s employment hereunder may be terminated under the following
circumstances:

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

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

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

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

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

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

(i) A Termination for Good Reason means a termination by Executive
by written notice given within thirty (30) days after the
occurrence of the Good Reason event, unless such circumstances are
fully corrected prior to the date of termination specified in the
Notice of Termination for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean the occurrence or failure to
cause the occurrence, as the case may be, without Executive’s
express written

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

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

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

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

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6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.

In the event that Executive’s employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of death, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination, any earned but unpaid bonuses for any prior period,
and a pro-rata “bonus” or incentive compensation payment for the
period in which such termination occurred to the extent payments
are awarded senior executives and paid at the same time as senior
executives are paid;

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

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

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

(v) As otherwise specifically provided herein.

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period. Executive shall also be eligible for a pro-rata bonus or
incentive compensation payment to the extent such awards are made
to senior executives for the year in which Executive is terminated;

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

(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive’s Total Disability) which would have been
payable to Executive if Executive had continued in active
employment for one year following termination of employment, less
any payments under any long-term disability plan or arrangement
paid for by the Company. Payment shall be made at the same time
and in the same manner as such compensation would have been paid if
Executive had remained in active employment until the end of such
period;

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

(v) As otherwise specifically provided herein.

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period;

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

(iii) As otherwise specifically provided herein.

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

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period;

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

(iii) As otherwise specifically provided herein.

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

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period;

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

(iii) An amount equal to two times the sum of Executive’s Base
Salary plus his Target Annual Bonus (in each case as then in
effect), of which one-half shall be paid in a lump sum within ten
(10) days after such termination and one-half shall be paid during
the two (2) year period beginning on the date of Executive’s
termination and shall be paid at the same time and in the same
manner as Base Salary would have been paid if Executive had
remained in active employment until the end of such period;

(iv) The Company at its expense will continue for Executive and
Executive’s spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, and also
including deferred compensation, disability, automobile, and other
benefit plans, in which Executive was entitled to participate at
any time during the twelve-month period prior to the date of
termination, until the earliest to occur of (A) two and one-half
years after the date of termination; (B) Executive’s death
(provided that benefits payable to Executive’s beneficiaries shall
not terminate upon Executive’s death); or (C) with respect to any
particular plan, program or arrangement, the date Executive becomes
covered by a comparable benefit by a subsequent employer. In the
event that Executive’s continued participation in any such plan,
program, or arrangement of the Company is prohibited, the Company
will arrange to provide Executive with benefits substantially
similar to those which Executive would have been entitled

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to receive under such plan, program, or arrangement, for such
period on a basis which provides Executive with no additional after
tax cost;

(v) Except to the extent prohibited by law, and except as otherwise
provided herein, Executive will be 100% vested in all benefits,
awards, and grants accrued but unpaid as of the date of termination
under any pension plan, profit sharing plan, supplemental and/or
incentive compensation plans in which Executive was a participant
as of the date of termination. Executive shall also be eligible
for a bonus or incentive compensation payment, at the same time, on
the same basis, and to the same extent payments are made to senior
executives, pro-rated for the fiscal year in which the Executive is
terminated;

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

(vii) As otherwise specifically provided herein.

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

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

7. COMPENSATION PAYABLE FOLLOWING CHANGE IN CONTROL.

(a) PAYMENTS FOLLOWING A CHANGE IN CONTROL. Notwithstanding anything to
the contrary contained herein, should Employee at any time within two
years of a change of control cease to be an employee of the Company (or
its successor), by reason of (i) involuntary termination by the Company
(or its successor) other than for “Cause”, or (ii) voluntary termination
by Employee for “Good Reason”, the Company (or its successor) shall pay
to Employee within ten days of such termination the following severance
payments and benefits:

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(i) An amount equal to three (3.0) times the sum of Executive’s
Base Salary plus his Target Annual Bonus (65%) (in each case as
then in effect) payable in a lump-sum within 5 days following the
Change in Control or, if later, within five (5) days following the
date the Executive ceases to be Executive Vice President of the
Company. Payment of the amount specified under this Paragraph 7(a)
(i) shall be in lieu of any amount payable under Paragraph
6(b)(iii) or Paragraph 6(e)(iii).

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

(iii) Executive will be 100% vested in all benefits, awards,
and grants (including stock option grants and stock awards, all of
such stock options remaining exercisable for a period of at least
three (3.0) years following the Change in Control) accrued but
unpaid as of the Change in Control under any non-qualified pension
plan, supplemental and/or incentive compensation or bonus plans, in
which Executive was a participant as of the date of the Change in
Control. Executive shall also receive a bonus or incentive
compensation payment (the “bonus payment”) equal to 65% of his then
Base Salary, pro-rated as of the effective date of the termination.
The bonus payment shall be payable within five (5) days after the
Change in Control or, if later, within five (5) days following the
date the Executive ceases to be Executive Vice President of the
Company, and shall be in lieu of any bonus the Employee would
otherwise be entitled to receive under Paragraph 6(b)(i) or
Paragraph 6(e)(v).

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

(b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

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

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

(iii) For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay U.S. federal income
taxes at the highest marginal rate of U.S. federal income taxation
in the calendar year in which the Gross-up Payment is to be made
and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive’s residence for
the calendar year in which the Company Payment is to be made, net
of the maximum reduction in U.S. federal income taxes which could
be obtained from deduction of such state and local taxes if paid in
such year. In the event that the Excise Tax is subsequently
determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the
Executive shall repay to the Company, at the time that the amount
of such reduction in Excise Tax is finally determined, the portion
of the prior Gross-up Payment attributable to such reduction (plus
the portion of the Gross-up Payment attributable to the Excise Tax
and U.S. federal, state and local income tax imposed on the portion
of the Gross-up payment being repaid by the Executive if such
repayment results in a reduction In Excise Tax or a U.S. federal,
state and local income tax deduction), plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. Notwithstanding the foregoing, in the event any portion
of the Gross-up Payment to be refunded to the Company has been paid
to any U.S. federal, state and local tax authority, repayment
thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to the Executive,
and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the
period it held such portion. The Executive and the Company shall
mutually agree upon the course of action to be pursued (and the
method of allocating the expense thereof) if the Executive’s claim
for refund or credit is denied.

In the event that the Excise Tax is later determined by the
Accountant or the Internal Revenue Service to exceed the amount
taken into account hereunder at

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the time the Gross-up Payment is made (including by reason of any
payment the existence or amount of which cannot be determined at
the time of the Gross-up Payment), the Company shall make an
additional Gross-up Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) at the
time that the amount of such excess is finally determined.

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

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

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

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

	(c)	 	CHANGE IN CONTROL. For purposes of this Agreement, “Change in Control”
means the occurrence of any of the following events:

12

 

(i) there shall be consummated (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company’s Common
Stock would be converted into cash, securities or other property,
other than a merger of the Company where a majority of the Board of
Directors of the surviving corporation are, and for a two-year
period after the merger continue to be, persons who were directors
of the Company immediately prior to the merger or were elected as
directors, or nominated for election as 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 Securities Exchange Act of 1934, as amended (the
“Exchange Act”), other than the Company or a subsidiary thereof or
any employee benefit plan sponsored by the Company or a subsidiary
thereof, shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company
representing 20 percent or more of the combined voting power of the
Company’s then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote
in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or
otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning of
such period constituted the Board of Directors of the Company shall
cease for any reason to constitute at least a majority thereof,
unless the election or the nomination by the Board of Directors for
election by the Company’s shareholders of each new director during
such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of such period.

8. RESTRICTIVE COVENANTS.

(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all
times during Executive’s period of employment with the Company, and for
one (1) year thereafter, Executive will not engage in, assist, or have
any active interest or involvement, whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder (excluding
holding of less than 3% of the stock of a public company), partner,
proprietor or any type of principal whatsoever in any person, firm, or
business entity which, directly or indirectly, is engaged in the business
competitive with that conducted and carried on by the Company, without
the Company’s specific written consent to do so. Notwithstanding the
foregoing, Executive may be employed by or provide services to, an
investment banking firm or consulting firm that provides services to
entities described in the previous sentence, provided that Executive does
not personally represent or provide services to such entities.

13

 

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

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

9. ENFORCEMENT OF COVENANTS.

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

14

 

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

10. INDEMNIFICATION.

The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by law and in accordance with the existing Indemnification Agreement
dated May 2, 1996 between Company and the Executive (the “Indemnification
Agreement”) for any action or inaction of Executive while serving as an officer
and director of the Company or, at the Company’s request, as an officer or
director of any other, entity or as a fiduciary of any benefit plan. The
Company shall cover the Executive under directors and officers liability
insurance both during and, while potential liability exists, after the
Employment Term in the same amount and to the same extent as the Company covers
its other officers and directors.

11. DISPUTES AND PAYMENT OF ATTORNEY’S FEES.

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

12. WITHHOLDING OF TAXES.

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

15

 

13. SOURCE OF PAYMENTS.

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

14. ASSIGNMENT.

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

15. ENTIRE AGREEMENT; AMENDMENT.

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

16. GOVERNING LAW.

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

17. REQUIREMENT OF TIMELY PAYMENTS.

If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and

16

 

fully paid, provided, however, that in no event shall the amount of interest
contracted for, charged or received hereunder, exceed the maximum non-usurious
amount of interest allowed by applicable law.

18. NOTICES

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

	 	 	 
	To the Company:

	 	Tesoro Petroleum Corporation

300 Concord Plaza

San Antonio, Texas 78216

Attention: Corporate Secretary
	 
	 	 
	To Executive:

	 	At the address for Executive set forth below.

19. MISCELLANEOUS.

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

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

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

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

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

17

 

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

TESORO PETROLEUM CORPORATION

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:	 	/s/ Bruce A. Smith

Bruce A. Smith

Chairman of the Board of Directors, 

President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	Date:

	 	August 30, 2004	 	 

 

EXECUTIVE

	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	By:	 	/s/ Thomas E. Reardon

Thomas E. Reardon

Executive Vice President, Corporate Resources	 	 
	 
	 	 	 	 	 	 
	Date:

	 	August 30, 2004	 	 

18exv10w4

 

Exhibit 10.4

EMPLOYMENT AGREEMENT

     This Employment Agreement (the “Agreement”) is entered into as of August
3, 2004 (the “Effective Date”) by and between Tesoro Petroleum Corporation (the
“Company”), and Gregory A. Wright (the “Executive”);

WITNESSETH THAT:

     WHEREAS, the Company wishes to continue to employ the Executive as its
Executive Vice President and Chief Financial Officer, and the Executive wishes
to continue such employment; and

     WHEREAS, the Company and Executive wish to formalize the continuation of
the employment relationship in accordance with the terms and conditions set
forth below in this Agreement.

     NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions set forth herein, including but not limited to Employee’s employment
and the payments and benefits described herein, the sufficiency of which is
hereby acknowledged, the Company and Executive hereby agree as follows:

1. EMPLOYMENT.

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

2. TERM OF EMPLOYMENT.

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

3. DUTIES AND RESPONSIBILITIES.

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

(b) Executive shall devote substantially all of his working time,
attention and energies to the business of the Company and affiliated
entities. Executive may make and manage his

1

 

personal investments (provided such investments in other activities do
not violate, in any material respect, the provisions of Section 8 of this
Agreement), be involved in charitable and professional activities and,
with the consent of the Board (which shall not unreasonably be withheld
or delayed) serve on boards of other for profit entities, provided such
activities do not materially interfere with the performance of his duties
hereunder. Service on the for profit boards that Executive is currently
serving on are hereby approved.

4. COMPENSATION AND BENEFITS.

(a) ANNUAL BASE SALARY. During the Employment Period, the Executive
shall receive an annual base salary (the “Annual Base Salary”) at an
annual rate of $ 450,000 less applicable taxes, or such higher rate as
may be determined from time to time by the Board of Directors of the
Company (the “Board”). The Annual Base Salary shall be paid at such
intervals as the Company pays executive salaries generally. During the
Employment Period, the Annual Base Salary shall be reviewed at least
annually, beginning no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date. Any increase in
the Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. The Annual Base Salary
shall not be reduced after any such increase and the term “Annual Base
Salary” shall refer to the Annual Base Salary as so increased.

(b) ANNUAL BONUS. In addition to the Annual Base Salary, during the
Employment Period, Executive will be entitled to participate in an annual
incentive compensation plan of the Company. The Executive’s target
annual bonus will be 65% of his Base Salary as in effect for such year
(the “Target Bonus”), and will be determined based upon achievement of
performance goals established by the Company pursuant to such plan.

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

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

(e) FEE REIMBURSEMENTS. The Company will reimburse the Employee as
provided in the Company’s policies and procedures for an initiation fee
or fees and dues

2

 

for a country, luncheon or social club or clubs and will pay directly to
the Employee an amount equal to sixty-five percent (65%) of the amount so
reimbursed to the Employee to offset the applicable income tax expense to
the Employee. In addition, The Company will reimburse the Employee for
additional initiation fees and related tax expenses to the extent the
Board of Directors or a duly authorized committee thereof determines such
fees are reasonable and in the best interest of the Company.

(f) EXPENSE REIMBURSEMENT. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company in effect for
the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as the
policies, practices and procedures in effect generally with respect to
other peer executives of the Company at any time thereafter when the
Executive incurs such reimbursable expenses.

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

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

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

5. TERMINATION OF EMPLOYMENT.

Executive’s employment hereunder may be terminated under the following
circumstances:

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

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

3

 

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

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

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

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

(i) A Termination for Good Reason means a termination by Executive
by written notice given within thirty (30) days after the
occurrence of the Good Reason event, unless such circumstances are
fully corrected prior to the date of termination specified in the
Notice of Termination for Good Reason. For purposes of this
Agreement, “Good Reason” shall mean the occurrence or failure to
cause the occurrence, as the case may be, without Executive’s
express written

4

 

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

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

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

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

5

 

6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.

In the event that Executive’s employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of death, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination, any earned but unpaid bonuses for any prior period,
and a pro-rata “bonus” or incentive compensation payment for the
period in which such termination occurred to the extent payments
are awarded senior executives and paid at the same time as senior
executives are paid;

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

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

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

(v) As otherwise specifically provided herein.

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period. Executive shall also be eligible for a pro-rata bonus or
incentive compensation payment to the extent such awards are made
to senior executives for the year in which Executive is terminated;

6

 

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

(iii) An amount equal to the Base Salary (at the rate in effect as
of the date of Executive’s Total Disability) which would have been
payable to Executive if Executive had continued in active
employment for one year following termination of employment, less
any payments under any long-term disability plan or arrangement
paid for by the Company. Payment shall be made at the same time
and in the same manner as such compensation would have been paid if
Executive had remained in active employment until the end of such
period;

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

(v) As otherwise specifically provided herein.

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period;

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

(iii) As otherwise specifically provided herein.

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

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period;

7

 

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

(iii) As otherwise specifically provided herein.

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

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

(i) Any accrued but unpaid Base Salary for services rendered to the
date of termination, any accrued but unpaid expenses required to be
reimbursed under this Agreement, any vacation accrued to the date
of termination and any earned but unpaid bonuses for any prior
period;

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

(iii) An amount equal to two times the sum of Executive’s Base
Salary plus his Target Annual Bonus (in each case as then in
effect), of which one-half shall be paid in a lump sum within ten
(10) days after such termination and one-half shall be paid during
the two (2) year period beginning on the date of Executive’s
termination and shall be paid at the same time and in the same
manner as Base Salary would have been paid if Executive had
remained in active employment until the end of such period;

(iv) The Company at its expense will continue for Executive and
Executive’s spouse and dependents, all health benefit plans,
programs or arrangements, whether group or individual, and also
including deferred compensation, disability, automobile, and other
benefit plans, in which Executive was entitled to participate at
any time during the twelve-month period prior to the date of
termination, until the earliest to occur of (A) two and one-half
years after the date of termination; (B) Executive’s death
(provided that benefits payable to Executive’s beneficiaries shall
not terminate upon Executive’s death); or (C) with respect to any
particular plan, program or arrangement, the date Executive becomes
covered by a comparable benefit by a subsequent employer. In the
event that Executive’s continued participation in any such plan,
program, or arrangement of the Company is prohibited, the Company
will arrange to provide Executive with benefits substantially
similar to those which Executive would have been entitled

8

 

to receive under such plan, program, or arrangement, for such
period on a basis which provides Executive with no additional after
tax cost;

(v) Except to the extent prohibited by law, and except as otherwise
provided herein, Executive will be 100% vested in all benefits,
awards, and grants accrued but unpaid as of the date of termination
under any pension plan, profit sharing plan, supplemental and/or
incentive compensation plans in which Executive was a participant
as of the date of termination. Executive shall also be eligible
for a bonus or incentive compensation payment, at the same time, on
the same basis, and to the same extent payments are made to senior
executives, pro-rated for the fiscal year in which the Executive is
terminated;

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

(vii) As otherwise specifically provided herein.

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

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

7. COMPENSATION PAYABLE FOLLOWING CHANGE IN CONTROL.

(a) PAYMENTS FOLLOWING A CHANGE IN CONTROL. Notwithstanding anything to
the contrary contained herein, should Employee at any time within two
years of a change of control cease to be an employee of the Company (or
its successor), by reason of (i) involuntary termination by the Company
(or its successor) other than for “Cause”, or (ii) voluntary termination
by Employee for “Good Reason”, the Company (or its successor) shall pay
to Employee within ten days of such termination the following severance
payments and benefits:

9

 

(i) An amount equal to three (3.0) times the sum of Executive’s
Base Salary plus his Target Annual Bonus (65%) (in each case as
then in effect) payable in a lump-sum within 5 days following the
Change in Control or, if later, within five (5) days following the
date the Executive ceases to be Executive Vice President and Chief
Financial Officer of the Company. Payment of the amount specified
under this Paragraph 7(a) (i) shall be in lieu of any amount
payable under Paragraph 6(b)(iii) or Paragraph 6(e)(iii).

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

(iii) Executive will be 100% vested in all benefits, awards,
and grants (including stock option grants and stock awards, all of
such stock options remaining exercisable for a period of at least
three (3.0) years following the Change in Control) accrued but
unpaid as of the Change in Control under any non-qualified pension
plan, supplemental and/or incentive compensation or bonus plans, in
which Executive was a participant as of the date of the Change in
Control. Executive shall also receive a bonus or incentive
compensation payment (the “bonus payment”) equal to 65% of his then
Base Salary, pro-rated as of the effective date of the termination.
The bonus payment shall be payable within five (5) days after the
Change in Control or, if later, within five (5) days following the
date the Executive ceases to be Executive Vice President of the
Company, and shall be in lieu of any bonus the Employee would
otherwise be entitled to receive under Paragraph 6(b)(i) or
Paragraph 6(e)(v).

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

(b) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.

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

10

 

and local income or payroll tax on the Company Payments, shall be
equal to the Company Payments.

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

(iii) For purposes of determining the amount of the Gross-up
Payment, the Executive shall be deemed to pay U.S. federal income
taxes at the highest marginal rate of U.S. federal income taxation
in the calendar year in which the Gross-up Payment is to be made
and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive’s residence for
the calendar year in which the Company Payment is to be made, net
of the maximum reduction in U.S. federal income taxes which could
be obtained from deduction of such state and local taxes if paid in
such year. In the event that the Excise Tax is subsequently
determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, the
Executive shall repay to the Company, at the time that the amount
of such reduction in Excise Tax is finally determined, the portion
of the prior Gross-up Payment attributable to such reduction (plus
the portion of the Gross-up Payment attributable to the Excise Tax
and U.S. federal, state and local income tax imposed on the portion
of the Gross-up payment being repaid by the Executive if such
repayment results in a reduction In Excise Tax or a U.S. federal,
state and local income tax deduction), plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. Notwithstanding the foregoing, in the event any portion
of the Gross-up Payment to be refunded to the Company has been paid
to any U.S. federal, state and local tax authority, repayment
thereof (and related amounts) shall not be required until actual
refund or credit of such portion has been made to the Executive,
and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the
period it held such portion. The Executive and the Company shall
mutually agree upon the course of action to be pursued (and the
method of allocating the expense thereof) if the Executive’s claim
for refund or credit is denied.

11

 

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

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

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

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

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

(c) CHANGE IN CONTROL. For purposes of this Agreement, “Change in
Control” means the occurrence of any of the following events:

12

 

(i) there shall be consummated (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company’s Common
Stock would be converted into cash, securities or other property,
other than a merger of the Company where a majority of the Board of
Directors of the surviving corporation are, and for a two-year
period after the merger continue to be, persons who were directors
of the Company immediately prior to the merger or were elected as
directors, or nominated for election as 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 Securities Exchange Act of 1934, as amended (the
“Exchange Act”), other than the Company or a subsidiary thereof or
any employee benefit plan sponsored by the Company or a subsidiary
thereof, shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company
representing 20 percent or more of the combined voting power of the
Company’s then outstanding securities ordinarily (and apart from
rights accruing in special circumstances) having the right to vote
in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or
otherwise, and (B) at any time during a period of two years
thereafter, individuals who immediately prior to the beginning of
such period constituted the Board of Directors of the Company shall
cease for any reason to constitute at least a majority thereof,
unless the election or the nomination by the Board of Directors for
election by the Company’s shareholders of each new director during
such period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning
of such period.

8. RESTRICTIVE COVENANTS.

(a) COMPETITIVE ACTIVITY. Executive covenants and agrees that at all
times during Executive’s period of employment with the Company, and for
one (1) year thereafter, Executive will not engage in, assist, or have
any active interest or involvement, whether as an employee, agent,
consultant, creditor, advisor, officer, director, stockholder (excluding
holding of less than 3% of the stock of a public company), partner,
proprietor or any type of principal whatsoever in any person, firm, or
business entity which, directly or indirectly, is engaged in the business
competitive with that conducted and carried on by the Company, without
the Company’s specific written consent to do so. Notwithstanding the
foregoing, Executive may be employed by or provide services to, an
investment banking firm or consulting firm that provides services to
entities described in the previous sentence, provided that Executive does
not personally represent or provide services to such entities.

13

 

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

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

9. ENFORCEMENT OF COVENANTS.

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

14

 

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

10. INDEMNIFICATION.

The Company shall indemnify and hold harmless Executive to the fullest extent
permitted by law and in accordance with the existing Indemnification Agreement
dated May 2, 1996 between Company and the Executive (the “Indemnification
Agreement”) for any action or inaction of Executive while serving as an officer
and director of the Company or, at the Company’s request, as an officer or
director of any other, entity or as a fiduciary of any benefit plan. The
Company shall cover the Executive under directors and officers liability
insurance both during and, while potential liability exists, after the
Employment Term in the same amount and to the same extent as the Company covers
its other officers and directors.

11. DISPUTES AND PAYMENT OF ATTORNEY’S FEES.

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

12. WITHHOLDING OF TAXES.

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

15

 

13. SOURCE OF PAYMENTS.

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

14. ASSIGNMENT.

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

15. ENTIRE AGREEMENT; AMENDMENT.

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

16. GOVERNING LAW.

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

17. REQUIREMENT OF TIMELY PAYMENTS.

If any amounts which are required, or determined to be paid or payable, or
reimbursed or reimbursable, to Executive under this Agreement (or any other
plan, agreement, policy or arrangement with the Company) are not so paid
promptly at the times provided herein or therein, such amounts shall accrue
interest, compounded daily, at an 8% annual percentage rate, from the date such
amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon
are finally and

16

 

fully paid, provided, however, that in no event shall the amount of interest
contracted for, charged or received hereunder, exceed the maximum non-usurious
amount of interest allowed by applicable law.

18. NOTICES

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

	 	 	 
	To the Company:

	 	Tesoro Petroleum Corporation
	

	 	300 Concord Plaza
	

	 	San Antonio, Texas 78216
	

	 	Attention: Corporate Secretary
	 
	 	 
	To Executive:

	 	At the address for Executive set forth below.

19. MISCELLANEOUS.

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

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

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

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

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

17

 

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

TESORO PETROLEUM CORPORATION

	 	 	 
	By:

	 	/s/ Bruce A. Smith

	

	 	Bruce A. Smith
	

	 	Chairman of the Board of Directors, President and Chief Executive Officer
	 
	 	 
	Date:

	 	August 20, 2004

 

EXECUTIVE

	 	 	 
	By:

	 	/s/ Gregory A. Wright

	

	 	Gregory A. Wright
	

	 	Executive Vice President and Chief
Financial Officer
	 
	 	 
	Date:

	 	August 26, 2004

18

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