FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
Exhibit 10.7
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
This First Amendment (the “Amendment”) is entered into as of , 2006 (the
“Effective Date”) as an amendment to the Employment Agreement entered into by and between Tesoro
Corporation (the “Company”) and Xxxxxxx X. Xxxxxx (the “Executive”) as of August 3, 2004 (the
“Employment Agreement”),
WITNESSETH:
WHEREAS, the Company and Executive have previously entered into the Employment Agreement; and
WHEREAS, the Company and Executive wish to amend the Employment Agreement by entering into
this Amendment so as to (i) allow for extended exercise rights for stock options granted to the
Executive in certain circumstances; (ii) effectuate certain changes to conform the Employment
Agreement to Section 409A of the Internal Revenue Code (the “Code”); (iii) modify the provision of
certain post-termination benefits; and (iv) provide certain payments in lieu of vesting under the
Company’s qualified retirement plans;
NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions set forth
herein, including but not limited to Executive’s employment and the payments and benefits described
herein, the sufficiency of which is hereby acknowledged, the Company and the Executive hereby agree
as follows:
1. Section 6 of the Agreement is hereby amended by deleting subparagraph (b) thereof and
substituting the following in its stead to read as follows:
(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
of incentive compensation payment to the extent such awards are made to senior
executives for the year in which Executive is terminated; provided that such bonuses
shall not be paid until six (6) months have elapsed from Executive’s termination of
employment;
(ii) Any benefits to which Executive my 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 (1) 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, but shall not commence until six (6) months
have elapsed from Executive’s termination of employment;
(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.
2. Section 6 of the Agreement is hereby further amended by deleting clause (i) of subparagraph
(c) and substituting the following in its stead to read as follows:
(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; provided that such bonuses shall not be paid until six
(6) months have elapsed from Executive’s termination of employment;
3. Section 6 of the Agreement is hereby further amended by deleting clause (i) of subparagraph
(d) thereof and substituting the following in its stead to read as follows:
(i) Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed
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under this Agreement, any vacation accrued to the date of termination and any
earned but unpaid bonuses for any prior period; provided that such bonuses shall not
be paid until six (6) months have elapsed from Executive’s termination of
employment;
4. Section 6 of the Agreement is hereby further amended by deleting subsection (e) thereof in
its entirety and substituting the following in its stead to read as follows:
(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; provided however, that such earned but unpaid
bonuses shall not be paid until six (6) months have elapsed from Executive’s
termination of employment;
(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 as soon as administratively practicable following six (6) months
after such termination and one-half shall be paid during the two (2) year period
beginning as soon as administratively practicable following six (6) months after 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 dependent, all health benefit plans, programs or arrangements, whether
group or individual, in which Executive was entitled to participate at any time
during the twelve-month period prior to the date of termination; but only to the
extent such arrangements are available to the Company’s retirees; and for these
purposes, Executive will for purposes of this paragraph 6(e)(iv) be considered a
retiree regardless of whether he would otherwise qualify as one; and only 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
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date Executive becomes covered by a comparable benefit by a subsequent
employer;
(v) Except to the extent prohibited by law, and except as otherwise provided
herein, Executive will be 100% vested in all benefits, awards, and grants accrued
but unpaid as of the date of termination under any supplemental and/or incentive
compensation plans in which Executive was a participant as of the date of
termination. Executive shall 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 executive, pro-rated for the fiscal year in which the Executive is
terminated; provided, however, that such payment of bonus or incentive compensation
will be made as soon as administratively practicable following six (6) months from
the Executive’s termination from employment with the Company;
(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 of
employment to exercise all options, unless by virtue of the particular stock option
award, the option grant expires on an earlier date; and
(vii) As otherwise specifically provided herein.
5. Section 7 of the Agreement is hereby amended by deleting subparagraph (a) in its entirety
and substituting the following in its stead to read as follows:
(a) PAYMENTS FOLLOWING A CHANGE IN CONTROL. Notwithstanding anything to the contrary
contained herein, should Employee at any time within two (2) years of a change in control
cease to be an employee of the Company (or its successor), by reason of (i) involuntary
termination by the Company (or its successor) other than for “Cause”, or (ii) voluntary
termination by Employee for “Good Reason”, the Company (or its successor shall pay to
Employee except as otherwise expressly set forth herein, as soon as administratively
practicable following six (6) months from such termination of employment the following
severance payments and benefits;
(i) An amount equal to three (3) times the sum of Executive’s Base Salary plus
his Target Annual Bonus (in each case as then in effect) payable in a lump sump
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 (3) years additional service credit under the
current non-qualified supplemental pension plans, or successors thereto, of the
Company applicable to the Executive.
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(iii) Executive will be 100% vested in all benefits, awards, and grants
(including stock option grants and stock awards, all of such stock options granted
after this Amendment 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 shall also receive a bonus or incentive compensation
payment (the “bonus payment”) equal to his Base Salary multiplied by his annual
incentive target bonus percentage, each as then in effect, pro-rated as of the
effective date of the termination. The bonus payment shall be payable 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.
6. Section 7 of the Agreement is hereby further amended by deleting subparagraph (c) thereof
and substituting the following in its stead to read as follows:
(c) CHANGE IN CONTROL means (i) there shall be consummated (A) any consolidation or
merger of Company in which Company is not the continuing or surviving corporation or
pursuant to which shares of Company’s Common Stock would be converted into cash, securities
or other property, other than a merger of Company where a majority of the Board of Directors
of the surviving corporation are, and for a one-year period after the merger continue to be,
persons who were directors of Company immediately prior to the merger or were elected as
directors, or nominate for election as director, by a vote of at least two-thirds of the
directors then still in office who were directors of Company immediately prior to the
merger, or (B) any sale, lease, exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of Company, or (ii) the
shareholders of Company shall approve any plan or proposal for the liquidation or
dissolution of Company, or (iii) (A) any “person” (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Act), other than Company or a subsidiary thereof or any
employee benefit plan sponsored by Company or a subsidiary thereof, shall become the
beneficiary owner (within the meaning of Rule 13c-3 under the Securities Act) of securities
of Company representing 35 percent or more of the combined voting power of Company’s then
outstanding securities ordinarily (and apart from rights accruing in special circumstances)
having the right to vote in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise, and (B) at any
time during a period of one-year thereafter, individuals who immediately prior to the
beginning of such period constituted the Board of Directors of Company shall cease for any
reason to constitute at least a majority thereof, unless election or the nomination by the
Board of Directors for election by Company’s shareholders of each new director during such
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.
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7. Section 19 of the Agreement is hereby amended by inserting the following subsection (f) to
read as follows:
(f) Deferred Compensation. This Agreement is intended to meet the requirements of
Section 409A of the Code and may be administered in a manner that is intended to meet those
requirements and shall be construed and interpreted in accordance with such intent. To the
extent that an award or payment, or the settlement or deferral thereof, is subject to
Section 409A of the Code, except as the Committee otherwise determines in writing, the award
shall be granted, paid, settled or deferred in a manner that will meet the requirements of
Section 409A of the Code, including regulations or other guidance issued with respect
thereto, such that the grant, payment, settlement or deferral shall not be subject to the
excise tax applicable under Section 409A of the Code. Any provision of this Agreement that
would cause the award or the payment, settlement or deferral thereof to fail to satisfy
Section 409A of the Code shall be amended (in a manner that as closely as practicable
achieves the original intent of this Agreement) to comply with Section 409A of the Code on a
timely basis, which may be made on a retroactive basis, in accordance with regulations and
other guidance issued under Section 409A of the Code. In the event additional regulations
or other guidance is issued under Section 409A of the Code or a court of competent
jurisdiction provides additional authority concerning the application of Section 409A with
respect to the payments described in Sections 4 and 6 of the Agreement, then the provisions
of such Sections shall be amended to permit such payments to be made at the earliest time
permitted under such additional regulations, guidance or authority that is practicable and
achieves the original intent of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and
year first above written.
| TESORO CORPORATION | ||||
Date: , 2006
|
Title: Chairman of the Board of Directors, President and Chief Executive Officer | |||
Date: , 2006 |
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Address: 000 Xxxx Xxxxx Xxx Xxxxxxx, Xxxxx 00000 |
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