EXHIBIT 10.14
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") is
entered into as of December 3, 2003 (the "Effective Date") by and between Tesoro
Petroleum Corporation (the "Company"), and Xxxxx X. Xxxxx (the "Executive");
WITNESSETH THAT:
WHEREAS, the Company and Executive have previously entered into an
employment agreement dated November 1, 1997, as subsequently amended from time
to time (the "Prior Employment Agreement"); and
WHEREAS, the Company wishes to continue to employ the Executive as its
President and Chief Executive Officer and the Executive wishes to continue such
employment;
WHEREAS, the Company and Executive wish to formalize the continuation
of the employment relationship by amending and restating the Prior Employment
Agreement in its entirety 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 five (5) year period beginning on
the Effective Date and ending on the fifth anniversary thereof. The period
during which Executive is employed hereunder shall be referred to as the
"Employment Period".
3. DUTIES AND RESPONSIBILITIES.
(a) Executive shall serve as Chief Executive Officer and President of the
Company and shall serve as Chairman of the Board of Directors of the
Company (the "Board"). 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 Board. Executive agrees
that, notwithstanding his service as Chairman of the Board, other than
in connection with a Change in Control, if the Board by formal
resolution, either to comply with applicable regulations or rules or to
comply with generally accepted best corporate governance practices for
similar companies, determines that the Chairman of the Board should be
a non-employee director, such determination by the Board that a
non-employee director should serve as Chairman of the Board will not be
deemed as a basis for Executive to Terminate for Good Reason.
(b) Executive shall devote substantially all of his working time, attention
and energies to the business of the Company, and affiliated entities.
Executive may make and manage his personal investments (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 $1,000,000 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 100% of his Base Salary as in effect for
such year (the "Target Bonus"), and his actual annual bonus may range
from 0% to 250%, and will be determined based upon achievement of
performance goals established by the Compensation Committee of the
Board pursuant to such plan.
(c) ADDITIONAL COMPENSATION. As a further inducement to entering into this
Agreement, Executive shall receive the following:
(i) Restricted Stock Award. Effective as of December 11, 2003
(the "Grant Date"), the Company will grant Executive an award
of 250,000 restricted shares of the Company's common stock
(the "Stock") under the Amended and Restated Executive
Long-Term Incentive Plan (the "Stock Incentive Plan") that
will vest in equal installments 60 days after each of the
first five anniversaries of the Effective Date, subject
(except as otherwise provided herein) to Executive's
continuous employment with the Company through the applicable
vesting date (the
2
"Restricted Stock Grant"). The Restricted Stock Grant shall be
deemed outstanding shares for all purposes and Executive shall
be fully vested in any cash dividends paid therein (and non
cash dividends being subject to the same forfeiture provisions
as the underlying Restricted Stock Grant shares).
(ii) Matching Stock Awards. The Company shall award to the
Executive one share of Restricted Stock for each share of
Stock purchased by the Executive on or after the Effective
Date; provided, however, no more than 250,000 shares of Stock
purchased by the Executive shall be matched under this Section
4(c)(ii). The Matching Stock Award shall vest and become
nonforfeitable on the fifth anniversary of the Effective Date,
subject (except as otherwise provided herein) to Executive's
continuous employment with the Company through the vesting
date.
(iii) Required Stock Ownership. During the period beginning on
the fourth anniversary of the Effective Date and through the
end of the term of this Agreement, the Executive will be
required to own Stock equal to five (5) times the Executive's
Annual Base Salary, based on Annual Base Salary as defined in
Section 4(a) and the average Stock value as of the fourth
anniversary of the Effective Date. For purposes of this
section, Executive's average stock value shall not include
Restricted Stock prior to such Restricted Stock being fully
vested. Effective from the date of this Agreement, Executive
shall be required to retain 50% of all net stock options
exercised in shares until Executive meets the requirement set
forth in this Section 4 (c)(iii) that Executive owns Stock
equal to five (5) times Executive's Annual Base Salary.
(d) 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.
(e) 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) to the extent applicable generally to other peer executives
of the Company.
(f) SUPPLEMENTAL ANNUAL RETIREMENT BENEFIT. Executive (or his current
spouse, Xxxx X. Xxxxx), that survives Executive) shall be entitled to
the supplemental annual retirement benefit payable by the Company set
forth below (the "Supplemental Annual Retirement Benefit"). The first
applicable Supplemental Annual Retirement Benefit shall become payable
upon the termination of Executive's employment with the Company, and
such Supplemental Annual Retirement Benefit shall be payable each year
to Executive through the remainder of his life in quarterly calendar
installments (with a prorated initial installment if necessary), with a
50% right of survivorship.
3
In the event Executive's employment terminates for any reason,
the Supplemental Annual Retirement Benefit shall be (with
proration between specified dates based on the number of
three-month periods in which he was employed compared to 4
and, in any event $700,000 if after, at, or in contemplation
of, a Change in Control):
Date of Employment Termination Supplemental Annual Retirement Benefit
------------------------------ --------------------------------------
On or after the fifth anniversary of the Effective Date $700,000
On or after the fourth anniversary of the Effective Date $500,000
On or after the third anniversary of the Effective Date $300,000
On or after the second anniversary of the Effective Date $200,000
On or after the first anniversary of the Effective Date $100,000
Prior to the first anniversary of the Effective Date None
(g) EXPENSE REIMBURSEMENT. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company in effect
for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company.
(h) SECURITY BENEFIT. The Company will provide Executive with personal
safety and security protection as appropriate and reasonable under the
circumstances.
(i) OFFICE AND SUPPORT STAFF. During the Employment Period, the Executive
shall be entitled to an appropriate office at the principal place of
business and at his personal residence provided by the Company.
(k) 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. 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.
4
(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.
(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
Chairman of the Governance Committee of the Board 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 Board, 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
Board 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; or (4) 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, and include a copy of a notice of a Special Meeting of
the Board called for the purpose of considering such
termination and which Executive and his representative shall
have the right to attend and address the Board. For such
termination for "Cause" to be effective, at least two-thirds
(2/3rds) of the
5
Board (not including the Executive) must find that, in the
good faith of the Board, Executive engaged in conduct set
forth in the definition of Cause herein and specifying the
particulars thereof in reasonable detail. The date of
termination for a termination for Cause shall be the date
indicated in the minutes of the Special Meeting of the Board
called to consider such termination for Cause. Any purported
termination for Cause which is held by a court or arbitrator
not to have been based on the grounds set forth in this
Agreement or not to have followed the procedures set forth in
this Agreement shall be deemed a termination by the Company
without Cause.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate employment
hereunder with or without Good Reason at any time upon thirty (30) days
written notice to the Company.
(i) A Termination for Good Reason means a termination by
Executive by written notice given within thirty (30) days
after the occurrence of the Good Reason event, unless such
circumstances are fully corrected prior to the date of
termination specified in the Notice of Termination for Good
Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence or failure to cause the occurrence, as the
case may be, without Executive's express written consent, of
any of the following circumstances: (1) any material
diminution of Executive's positions, duties or
responsibilities hereunder (except in each case in connection
with the termination of Executive's employment for Cause or
Total Disability or as a result of Executive's death, or
temporarily as a result of Executive's illness or other
absence), or, the assignment to Executive of duties or
responsibilities that are inconsistent with Executive's then
position; provided that if the Company becomes a fifty percent
or more subsidiary of any other entity, Executive shall be
deemed to have a material diminution of his position unless he
is also Chairman and Chief Executive Officer of the ultimate
parent entity; (2) removal of, or the nonreelection 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) Company's failure to
nominate Executive as a member of the Board; or (7) failure of
any successor to the Company (whether direct or indirect and
whether by merger, acquisition, consolidation or otherwise) to
6
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 Board memberships and other positions
with the Company or any of its subsidiaries held by him at such time.
6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT.
In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:
(a) TERMINATION IN THE EVENT OF DEATH. In the event that Executive's
employment is terminated by reason of Executive's death, the Company
shall pay the following amounts to Executive's beneficiary or estate:
(i) Any accrued but unpaid Base Salary for services rendered
to the date of death, any accrued but unpaid expenses required
to be reimbursed under this Agreement, any vacation accrued to
the date of termination, any earned but unpaid bonuses for any
prior period, and a pro-rata "bonus" or incentive compensation
payment for the period in which such termination occurred to
the extent payments are awarded senior executives 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
7
continued in employment for two additional years. 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.
(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,
(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 two years following
termination of employment, less any payments under any
long-term disability plan or arrangement paid for by the
Company. Payment shall be made at the same time and in the
same manner as such compensation would have been paid if
Executive had remained in active employment until the end of
such period,
(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.
(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:
8
(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 (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) As otherwise specifically provided herein.
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.
(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) As otherwise specifically provided herein.
Any options, restricted stock or other awards that have not vested
prior to the date of such termination of employment shall be cancelled
and Executive shall have 90 days following termination of employment to
exercise any previously vested options (or, if earlier, until the
stated expiration thereof).
(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.
9
(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 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 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 and six (6) months 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.
(vii) As otherwise specifically provided herein.
10
(f) NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
Agreement, 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. In the event a "Change in
Control" occurs and either: (i) the Executive elects, at any time
following the one-year period after such Change in Control, and before
the end of the second year after such Change of Control, to cease being
the Chief Executive Officer of the Company; or (ii) Executive's
employment is terminated within two years following such Change of
Control by the Company for any reason other than for Cause, or by
Executive for Good Reason, the Company shall pay the following amounts
to Executive:
A. An amount equal to three times the sum of Executive's Base
Salary plus his Target Annual Bonus (in each case as then in
effect) payable in a lump-sum within 5 days following the
Change in Control or, if later, within five (5) days following
the date the Executive ceases to be Chief Executive Officer of
the Company. If the Executive's employment with the Company is
terminated for any reason other than Cause on or after the
date of the Change in Control, then (A) the amount provided in
this Section 7(a)(i) shall be in lieu of any amounts otherwise
due to the Executive under Section 6(e)(iii), and (B) benefits
shall be continued for the period provided in Section
6(e)(iv), or for three years following the Change in Control,
whichever provides the longer continuation period.
B. 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) 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 and will be fully vested in the
$700,000 retirement benefit provided under Section 4(f)
hereof. Executive shall also receive a bonus or incentive
compensation payment (the "bonus payment") equal to 250% of
his then Base Salary, pro-rated as of the effective date of
the termination. The bonus payment shall be payable within
five
11
(5) days after the Change in Control or, if later, within five
(5) days following the date the Executive ceases to be Chief
Executive Officer of the Company.
Subject to Executive's right to terminate for Good Reason,
which Executive shall fully retain, Executive agrees to
continue to serve as Chief Executive Officer of the Company
for at least a one-year period following a Change in Control
before exercising Executive's right to receive compensation
payable following a Change in Control pursuant to this Section
7 (a).
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.
(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
12
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 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),
13
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) LUMP SUM SETTLEMENT. The Company and the Executive each agree, after
Termination of Executive's employment with the Company and upon written
request of the other, to negotiate in good faith to reach a lump-sum
settlement of all amounts owing to Executive and/or Executive's
beneficiaries under the terms of this Agreement, including all amounts
owing under Sections 4(e) and 4(f) hereof.
(d) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
means the occurrence of any of the following events:
(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
14
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 two
(2) years 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.
(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,
15
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.
(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.
16
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 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.
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.
17
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 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
18
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
000 Xxxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxx 00000
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.
19
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/ Xxxxx X. Xxxx
-------------------------
Xxxxx X. Xxxx, Xx.
Executive Vice President, General Counsel and Secretary
Date: December 8, 2003
-----------------------------------
EXECUTIVE
Xxxxx X. Xxxxx
/s/ Xxxxx X. Xxxxx
-----------------------------------
Date: December 8, 2003
-----------------------------------
Address: 000 Xxxxxxxxx
Xxx Xxxxxxx, Xxxxx 00000
20
