8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 2, 2006

Tesoro Corporation

(Exact name of registrant as specified in its charter)

Delaware	1-3473	95-0862768
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

300 Concord Plaza Drive
San Antonio, Texas
(Address of principal executive offices) 78216-6999
(Zip Code)

(210) 828-8484
(Registrant’s telephone
number, including area code)

Not Applicable
(Former name or former address, if
changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

2006 Long-Term Stock Appreciation Rights Plan

Amended and Restated Executive Security Plan

Amended and Restated Executive Long-Term Incentive Plan

Form of First Amendment to Amended and Restated Employment Agreement

Form of First Amendment to Employment Agreement - Finnerty

Form of First Amendment to Employment Agreement - Lewis

Form of First Amendment to Employment Agreement - Wright

Press Release

Item 1.01 Entry into a Material Definitive Agreement.

2006 Executive Compensation

On February 2, 2006, the Compensation Committee of the Board of Directors of Tesoro Corporation (“Tesoro” or the “Company”) approved base salary increases effective February 5, 2006 and annual incentive bonus targets effective January 1, 2006 for the Company’s named executive officers (as defined in Item 402 (a) (3) of Regulation S-K) and certain other executive officers. In addition, the Compensation Committee on February 2, 2006 approved long-term incentive awards for the Company’s named executive officers and certain other key employees under the Amended and Restated Executive Long-Term Incentive Plan. The long-term incentive awards included stock options granted at an exercise price of $67.35 per share and restricted shares of our common stock. The awarded stock options and restricted shares vest ratably over a three-year period beginning in 2007. The following table summarizes the approved compensation for each of the Company’s named executive officers.

			Annual
			Incentive					Shares
			Bonus Target			Stock		of
			(% of Base			Option		Restricted
Name/Title	Base Salary		Salary)			Shares		Stock
Bruce A. Smith
Chairman of the Board of Directors, President and Chief Executive Officer	$	1,200,000		100	%		165,000		27,000
William J. Finnerty
Executive Vice President and Chief Operating Officer	$	630,000		85	%		45,800		9,800
Gregory A. Wright
Executive Vice President and Chief Financial Officer	$	585,000		75	%		36,300		7,800
Everett D. Lewis
Executive Vice President, Strategic Planning	$	450,000		70	%		23,200		5,000
J. William Haywood
Senior Vice President, Refining	$	385,000		55	%		16,550		3,500

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2006 Incentive Compensation Program

The Company’s named executive officers, as well as other officers and employees of the Company, are eligible to participate in the 2006 Incentive Compensation Program (the “Program”). The Program’s performance metrics were approved by the Compensation Committee on February 2, 2006. The performance metrics are: (i) cash flows from operations; (ii) total shareholder return relative to Tesoro’s peer group; (iii) business improvement initiatives; (iv) safety and environmental goals; and (v) business unit/team goals. The performance period of the Program is one year through December 31, 2006.

2006 Long-Term Stock Appreciation Rights Plan

The Board of Directors approved the 2006 Long-Term Stock Appreciation Rights Plan (the “SAR Plan”) on February 2, 2006. The SAR Plan permits the grant of stock appreciation rights (“SARs”) to key managers and other employees of the Company. A SAR granted under the SAR Plan entitles an employee to receive cash in an amount equal to the excess of the fair market value of one share of common stock on the date of exercise over the grant price of the SAR. Unless otherwise specified, all SARs under the SAR Plan vest ratably during a three-year period following the date of grant. The term of a SAR granted under the SAR Plan shall be determined by the Compensation Committee provided that no SAR shall be exercisable on or after the tenth anniversary date of its grant. The SAR Plan is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Executive Compensation Plan and Employment Agreement Amendments

On February 2, 2006 the Board of Directors approved amendments to certain of the Company’s executive compensation plans and Employment Agreements between the Company and certain of its executive officers to, among other things, conform to the American Jobs Creation Act of 2004 which changed the income tax treatment of nonqualified deferred compensation and imposed new requirements on both the terms and operations of the plans and agreements under Section 409A of the Internal Revenue Code. The approved amendments also provide consistency between the terms of the Employment Agreements and the Amended and Restated Executive Long-Term Incentive Plan (the “1993 Plan”) and certain other of the Company’s benefit plans. The amendments approved by the Board of Directors include the following:

1993 Plan

• Modify the termination of employment provisions for stock options in recognition that certain participants have extended post-employment exercise rights through separate agreements with the Company, but not beyond ten years from the date of grant, as required by the 1993 Plan.

• Modify the 1993 Plan with respect to grandfathered benefits to preserve the grandfathering of those accrued and vested benefits as of December 31, 2004, as required by Section 409A of the Internal Revenue Code.

• Eliminate the section of the 1993 Plan providing for additional deferral opportunities upon exercise of stock options or SARs or lapse of restrictions on restricted stock, as required by Section 409A of the Internal Revenue Code.

Executive Security Plan

• Conform to the requirements of Section 409A of the Internal Revenue Code with regard to amounts not earned and vested as of December 31, 2004.

• Modify the Executive Security Plan with respect to grandfathered benefits to preserve the grandfathering of those accrued and vested benefits as of December 31, 2004.

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Employment Agreements

• Amend to require six-month delay in severance benefits payable under certain conditions.

• Amend other terms and conditions to comply with the American Jobs Creation Act of 2004, where necessary.

• Modify the language in the agreements regarding post employment benefit continuation to provide consistency with the Company’s statutory benefit plans.

The Amended and Restated Executive Security Plan is effective as of January 1, 2005. The Amended and Restated 1993 Plan and the Employment Agreement Amendments are effective as of February 2, 2006. The Employment Agreements were amended for the following executive officers: (i) Bruce A. Smith, (ii) William J. Finnerty, (iii) Everett D. Lewis and (iv) Gregory A. Wright. The Amended and Restated Executive Security Plan is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference. The Amended and Restated 1993 Plan is filed as Exhibit 10.3 to this Current Report on Form 8-K and is incorporated herein by reference. The form of the Employment Agreement Amendments are filed as Exhibits 10.4 through 10.7 to this Current Report on Form 8-K and are incorporated herein by reference.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

On February 2, 2006 Tesoro issued a press release (the “Press Release”) announcing that its Board of Directors had elected William J. Finnerty as Executive Vice President and Chief Operating Officer. Mr. Finnerty was named Executive Vice President, Operations in January 2005. He joined Tesoro in 2003 as Vice President, Crude Oil and Logistics of Tesoro Refining and Marketing Company. Prior to joining Tesoro, Mr. Finnerty served in several capacities including, Vice President, Trading North America Crude for ChevronTexaco from October 2001 to November 2003, Vice President, Texaco Oil Trading and Transport Company from May 2001 to October 2001 and Senior Vice President, Trading and Operations for Equiva Trading Company from June 2000 to May 2001.

Item 9.01 Financial Statements and Exhibits.

     (c) Exhibits.

10.1	2006 Long-Term Stock Appreciation Rights Plan of Tesoro Corporation.
10.2	Tesoro Corporation Amended and Restated Executive Security Plan.
10.3	Tesoro Corporation Amended and Restated Executive Long-Term Incentive Plan.
10.4	Form of First Amendment to Amended and Restated Employment Agreement between the Company and Bruce A. Smith dated as of February 2, 2006.
10.5	Form of First Amendment to Employment Agreement between the Company and William J. Finnerty dated as of February 2, 2006.
10.6	Form of First Amendment to Employment Agreement between the Company and Everett D. Lewis dated as of February 2, 2006.
10.7	Form of First Amendment to Employment Agreement between the Company and Gregory A. Wright dated as of February 2, 2006.
99.1	Press Release issued on February 2, 2006 by Tesoro Corporation.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: February 8, 2006

TESORO CORPORATION
By:	/s/ OTTO C. SCHWETHELM
	Otto C. Schwethelm
	Vice President and Controller

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Index to Exhibits

Exhibit Number	Description
10.1	2006 Long-Term Stock Appreciation Rights Plan of Tesoro Corporation.
10.2	Tesoro Corporation Amended and Restated Executive Security Plan.
10.3	Tesoro Corporation Amended and Restated Executive Long-Term Incentive Plan.
10.4	Form of First Amendment to Amended and Restated Employment Agreement between the Company and Bruce A. Smith dated as of February 2, 2006.
10.5	Form of First Amendment to Employment Agreement between the Company and William J. Finnerty dated as of February 2, 2006.
10.6	Form of First Amendment to Employment Agreement between the Company and Everett D. Lewis dated as of February 2, 2006.
10.7	Form of First Amendment to Employment Agreement between the Company and Gregory A. Wright dated as of February 2, 2006.
99.1	Press Release issued on February 2, 2006 by Tesoro Corporation.

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EX-10.1

Exhibit 10.1

TESORO CORPORATION

2006 LONG-TERM STOCK APPRECIATION RIGHTS PLAN

TABLE OF CONTENTS

Section

ARTICLE I — ESTABLISHMENT, PURPOSE AND DURATION
Establishment	1.1
Purpose of the Plan	1.2
Duration of Authority to Make Grants Under the Plan	1.3
ARTICLE II — DEFINITIONS
Affiliate	2.1
Award	2.2
Award Agreement	2.3
Board	2.4
Chairman	2.5
Change in Control	2.6
Code	2.7
Committee	2.8
Company	2.9
Corporate Change	2.10
Disability	2.11
Effective Date	2.12
Employee	2.13
Exchange Act	2.14
Fair Market Value	2.15
Fiscal Year	2.16
Holder	2.17
Minimum Statutory Tax Withholding Obligation	2.18
Plan	2.19
Retirement	2.20
SAR	2.21
Section 409A	2.22
Stock	2.23
Termination of Employment	2.24
ARTICLE III — ELIGIBILITY AND PARTICIPATION
Eligibility	3.1
Participation	3.2
ARTICLE IV — GENERAL PROVISIONS RELATING TO AWARDS
Maximum Awards	4.1
Non-Transferability	4.2
Changes in the Company’s Capital Structure	4.3
Forfeiture for Cause	4.4
Forfeiture Events	4.5
Compliance with Section 409A	4.6

TABLE OF CONTENTS
(continued)

Section

ARTICLE V — STOCK APPRECIATION RIGHTS
Authority to Grant SAR Awards	5.1
General Terms	5.2
SAR Agreement	5.3
Term of SAR	5.4
Exercise of SAR	5.5
Payment of SAR Amount	5.6
Termination of Employment	5.7
ARTICLE VI — ADMINISTRATION
Awards	6.1
Authority of the Committee	6.2
Decisions Binding	6.3
No Liability	6.4
ARTICLE VII — AMENDMENT OR TERMINATION OF PLAN
Amendment, Modification, Suspension, and Termination	7.1
Awards Previously Granted	7.2
ARTICLE VIII — MISCELLANEOUS
Unfunded Plan/No Establishment of a Trust Fund	8.1
No Employment Obligation	8.2
Tax Withholding	8.3
Written Agreement	8.4
Indemnification of the Committee	8.5
Gender and Number	8.6
Severability	8.7
Headings	8.8
Other Compensation Plans	8.9
Other Awards	8.10
Successors	8.11
Law Limitations/Governmental Approvals	8.12
Persons Residing Outside of the United States	8.13
Arbitration of Disputes	8.14
Governing Law	8.15

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ARTICLE I

ESTABLISHMENT, PURPOSE AND DURATION

     1.1 Establishment. The Company hereby establishes a stock appreciation incentive compensation plan, to be known as “Tesoro Corporation 2006 Long-Term Stock Appreciation Rights Plan,” as set forth in this document. The Plan permits the grant of Stock Appreciation Rights. The Plan shall become effective on the date the Plan is approved by the Board (the “Effective Date”), and shall remain in effect as provided in Section 1.3.

     1.2 Purpose of the Plan. The purpose of the Plan is to reward key managers and other employees of the Company and its Affiliates by enabling them to receive compensation based on the increase in value of the common stock of the Company. The Plan is intended to advance the best interests of the Company, its Affiliates and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional performance incentives, thereby encouraging them to continue in their employment with the Company and its Affiliates.

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

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ARTICLE II

DEFINITIONS

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

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

     2.2 “Award” means a grant under the Plan of SARs subject to the terms and provisions of the Plan.

     2.3 “Award Agreement” means an agreement that sets forth the terms and conditions applicable to an Award granted under the Plan.

     2.4 “Board” means the board of directors of the Company.

     2.5 “Chairman” means the Chairman, President and Chief Executive Officer of the Company

     2.6 “Change in Control” means (i) there shall be consummated (a) any consolidation or merger of Company in which Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s common Stock would be converted into cash, securities or other property, other than a merger of the Company where a majority of the Board of Directors of the surviving corporation are, and for a one-year period after the merger continue to be, persons who were directors of the Company immediately prior to the merger or were elected as directors, or nominated for election as director, by a vote of at least two-thirds of the directors then still in office who were directors of the Company immediately prior to the merger, or (b) any sale, lease, exchange or transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, or (ii) the shareholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) (a) any “person” (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than the Company or a subsidiary thereof or any employee benefit plan sponsored by the Company or a subsidiary thereof, shall become the beneficial owner (within the meaning of Rule 13c-3 under the Exchange Act) of securities of the Company representing 35 percent or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing in special circumstances)

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having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, and (b) at any time during a period of one-year thereafter, individuals who immediately prior to the beginning of such period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination by the Board for election by the Company’s shareholders of each new director during such period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period.

     2.7 “Code” means the United States Internal Revenue Code of 1986, as amended from time to time.

     2.8 “Committee” means a committee of at least two persons, who are members of the Compensation Committee of the Board and are appointed by the Compensation Committee of the Board, or, to the extent it chooses to operate as the Committee, the Compensation Committee of the Board. Each member of the Committee in respect of his or her participation in any decision with respect to an Award intended to satisfy the requirements of section 162(m) of the Code must satisfy the requirements of “outside director” status within the meaning of section 162(m) of the Code; provided, however, that the failure to satisfy such requirement shall not affect the validity of the action of any committee otherwise duly authorized and acting in the matter.

     2.9 “Company” means Tesoro Corporation, a Delaware corporation, or any successor (by reincorporation, merger or otherwise).

     2.10 “Corporate Change” shall have the meaning ascribed to that term in Section 4.3(b).

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

     2.12 “Effective Date” shall have the meaning ascribed to that term in Section 1.1.

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

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

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

     2.16 “Fiscal Year” means the Company’s fiscal year.

     2.17 “Holder” means a person who has been granted an Award.

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

     2.19 “Plan” means Tesoro Corporation 2006 Long-Term Stock Appreciation Rights Plan, as set forth in this document and as it may be amended from time to time.

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

     2.21 “SAR” means a stock appreciation right granted under the Plan pursuant to Article V.

     2.22 “Section 409A” means section 409A of the Code and Department of Treasury rules and regulations issued thereunder.

     2.23 “Stock” means the common stock of the Company, $0.16²/₃ par value per share (or such other par value as may be designated by act of the Company’s stockholders).

     2.24 “Termination of Employment” means the termination of the Award recipient’s employment relationship with the Company and all Affiliates.

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ARTICLE III

ELIGIBILITY AND PARTICIPATION

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

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

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ARTICLE IV

GENERAL PROVISIONS RELATING TO AWARDS

     4.1 Maximum Awards. The maximum aggregate amount with respect to which SARs may be awarded or credited to an Employee during a Fiscal Year may not exceed in value $1 million determined as of the date of grant. The foregoing numerical limit stated in this Section 4.1 shall be subject to adjustment in accordance with the provisions of Section 4.3.

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

     4.3 Changes in the Company’s Capital Structure.

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

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

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

     (2) require the mandatory surrender to the Company by all or selected Holders of some or all of the then outstanding Awards held by such Holders (irrespective of whether such Awards are then exercisable under the provisions of the Plan or the applicable Award Agreement evidencing such Award) as of a date, before or after such Corporate Change, specified by the Committee, in which event the Committee shall thereupon cancel such Award and the Company shall pay to each such Holder an amount of cash per share equal to the excess, if any, of the per share price offered to stockholders of the Company in connection with such Corporate Change over the exercise prices under such Award;

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

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

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

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

     (c) In the event of changes in the outstanding Stock by reason of recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Section 4.3, any outstanding Award and any Award Agreements evidencing such Award shall be subject to adjustment by the Committee in its sole and absolute discretion as to the number and price of Stock or other consideration subject to such Award.

     4.4 Forfeiture for Cause. Notwithstanding any other provision of the Plan or an Award Agreement, if the Committee finds by a majority vote that a Holder, before or after his Termination of Employment (a) committed a fraud, embezzlement, theft, felony or an act of dishonesty in the course of his employment by the Company or an Affiliate which conduct damaged the Company or an Affiliate or (b) disclosed trade secrets of the Company or an Affiliate, then as of the date the Committee makes its finding, any Awards awarded to the Holder that have not been exercised by the Holder (including all Awards that have not yet vested) will be forfeited to the Company. The findings and decision of the Committee with respect to such matter, including those regarding the acts of the Holder and the damage done to the Company, will be final for all purposes. No decision of the Committee, however, will affect the finality of the discharge of the individual by the Company or an Affiliate.

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

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

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ARTICLE V

STOCK APPRECIATION RIGHTS

     5.1 Authority to Grant SAR Awards. Subject to the terms and provisions of the Plan and the approval the Committee, the Chairman at any time, and from time to time, may grant SARs under the Plan to those Employees in such number and upon such terms as the Chairman shall determine and the Committee shall approve. Subject to the terms and conditions of the Plan, and the approval of the Committee, the Chairman shall have complete discretion in determining the number of SARs granted to each Holder and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.

     5.2 General Terms. Subject to the terms and conditions of the Plan, a SAR granted under the Plan shall confer on the recipient a right to receive, upon exercise thereof, an amount equal to the excess of (a) the Fair Market Value of one share of the Stock on the date of exercise over (b) the grant price of the SAR, which shall not be less than one hundred percent (100%) of the Fair Market Value of one share of the Stock on the date of grant of the SAR. Unless otherwise specified in an individual Award Agreement, all SARs under the Plan shall vest during a three-year period following the grant, with one-third of the SARs granted becoming exercisable on each of the first, second and third anniversary of the date of its grant. The Committee, in its sole discretion, may approve the acceleration of vesting in response to specified events, provided no Award vests earlier than six months after the date of grant.

     5.3 SAR Agreement. Each Award of SARs granted under the Plan shall be evidenced by an Award Agreement that shall specify (a) the grant price of the SAR, (b) the term of the SAR, (c) the vesting and termination provisions of the SAR and (d) such other provisions as the Committee shall determine that are not inconsistent with the terms and provisions of the Plan. The Committee may impose such additional conditions or restrictions on the exercise of any SAR as it may deem appropriate.

     5.4 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided that no SAR shall be exercisable on or after the tenth anniversary date of its grant.

     5.5 Exercise of SAR. A SAR may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes.

     5.6 Payment of SAR Amount. Upon the exercise of a SAR, a Holder shall be entitled to receive payment from the Company in an amount determined by multiplying the excess of the Fair Market Value of a share of Stock on the date of exercise over the grant price of the SAR by the number of shares of Stock with respect to which the SAR is exercised. Unless otherwise specified in an individual Award Agreement, payment upon SAR exercise shall be in cash, and under no circumstances shall a Holder receive payment in Stock, nor shall he or she have the ability to defer any payment from the exercise of SARs to any other qualified or nonqualified deferred compensation plan.

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     5.7 Termination of Employment. Unless the Committee determines otherwise, if a Holder’s employment with the Company terminates for any reason noted in this Section 5.7, any SARs that are either vested but unexercised or unvested at the time of termination shall be subject to the following provisions:

     (a) Retirement. If the Holder terminates employment by reason of Retirement, all vested Awards must be exercised on or before the earlier of the date of expiration or the third anniversary of the date of Retirement. All unvested Awards shall be forfeited unless the Committee, in its sole discretion, approves the acceleration of vesting.

     (b) Death or Disability. If the Holder terminates employment by reason of death or Disability, all vested Awards must be exercised on or before the earlier of the date of expiration or the first anniversary of the date of termination. All unvested Awards shall be forfeited unless the Committee, in its sole discretion, approves the acceleration of vesting.

     (c) Death following termination by Disability or Retirement. The exercise period will be equal to the longer of one year following death or the remaining portion of the exercise period.

     (d) Termination by Company “for cause.” If the Holder is terminated by the Company, all Awards shall be forfeited pursuant to Section 4.4.

     (e) Termination for any other reasons. If the Holder terminates employment for any reason other than those noted above, vested Awards must be exercised on or before the earlier of the date of expiration or three months following the date of termination. All unvested Awards shall be forfeited unless the Committee, in its sole discretion, approves the acceleration of vesting.

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ARTICLE VI

ADMINISTRATION

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

     6.2 Authority of the Committee. The Committee shall have full and exclusive power to interpret and apply the terms and provisions of the Plan and Awards made under the Plan, and to adopt such rules, regulations and guidelines for implementing the Plan as the Committee may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of the Plan. A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the vote of a majority of those members present at any meeting shall decide any question brought before that meeting. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held. All questions of interpretation and application of the Plan, or as to award granted under the Plan, shall be subject to the determination, which shall be final and binding, of a majority of the whole Committee. No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on his own part, including but not limited to the exercise of any power or discretion given to him under the Plan, except those resulting from his own gross negligence or willful misconduct. In carrying out its authority under the Plan, the Committee shall have full and final authority and discretion, including but not limited to the following rights, powers and authorities, to:

     (a) approve the determination of the Chairman of the persons to whom and the time or times at which Awards will be made;

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

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

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

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

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

     The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award to a Holder in the manner and to the extent the

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Committee deems necessary or desirable to further the Plan’s objectives. Further, the Committee shall make all other determinations that may be necessary or advisable for the administration of the Plan. As permitted by law and the terms and provisions of the Plan, the Committee may delegate its authority as identified in Section 6.3.

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

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

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

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ARTICLE VII

AMENDMENT OR TERMINATION OF PLAN

     7.1 Amendment, Modification, Suspension, and Termination. Subject to Section 7.2 the Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Plan and any Award Agreement in whole or in part.

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

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ARTICLE VIII

MISCELLANEOUS

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

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

     8.3 Tax Withholding. The Company or any Affiliate shall be entitled to deduct from other compensation payable to each Holder any sums required by federal, state or local tax law (or such greater amount as the Holder may elect) to be withheld with respect to the vesting or exercise of an Award. In the alternative, the Company may require the Holder (or other person validly exercising the Award) to pay such sums (or such greater amount as the Holder may elect) for taxes directly to the Company or any Affiliate in cash or by check within one day after the date of vesting, exercise. The Company shall have no obligation upon vesting or exercise of any Award until the Company or an Affiliate has received payment sufficient to cover the Minimum Statutory Tax Withholding Obligation with respect to that vesting or exercise. Neither the Company nor any Affiliate shall be obligated to advise a Holder of the existence of the tax or the amount which it will be required to withhold.

     8.4 Written Agreement. Each Award shall be embodied in a written or electronic agreement or statement which shall be subject to the terms and conditions of the Plan. The Award Agreement shall be signed, written or electronically, by a member of the Committee on behalf of the Committee and the Company or by an executive officer of the Company, other than the Holder, on behalf of the Company, and may be signed, written or electronically, by the Holder to the extent required by the Committee. The Award Agreement may specify the effect

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of a Change in Control on the Award. The Award Agreement may contain any other provisions that the Committee in its discretion shall deem advisable which are not inconsistent with the terms and provisions of the Plan. “Electronic agreement” means an agreement created, generated, sent, communicated, received or stored by electronic means. An electronic signature shall be accomplished by an electronic symbol or process attached to or logically associated with an electronic agreement and executed or adopted by a person with intent to sign the agreement.

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

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

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

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

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

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incentive compensation arrangements for Employees. In addition, payments made from the exercise of SARs shall not be included as compensation or earnings used in calculating any benefit from any retirement, life insurance, disability or annual bonus plans in effect for the Company or any Affiliate.

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

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

     8.12 Law Limitations/Governmental Approvals. The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies as may be required.

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

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

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

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

     (d) establish subplans and modify exercise procedures and other terms and procedures to the extent such actions may be necessary or advisable — any subplans and modifications to Plan terms and procedures established under this Section 8.13 by the Committee shall be attached to the Plan document as Appendices; and

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

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

     8.14 Arbitration of Disputes. Any controversy arising out of or relating to the Plan or an Option Agreement shall be resolved by arbitration conducted pursuant to the arbitration

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rules of the American Arbitration Association. The arbitration shall be final and binding on the parties.

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

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     IN WITNESS WHEREOF, this Plan has been executed effective the 2nd day of February, 2006.

TESORO CORPORATION

By: /s/ Bruce A. Smith               
Title: Chairman of the Board of Directors, President and
          Chief Executive Officer

EX-10.2

Exhibit 10.2

TESORO CORPORATION AMENDED AND RESTATED

EXECUTIVE SECURITY PLAN

EFFECTIVE JANUARY 1, 2005

TESORO CORPORATION

EXECUTIVE SECURITY PLAN

PREAMBLE

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

SECTION I

DEFINITIONS

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

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

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

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

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

1.6 “Company” means Tesoro Corporation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION II

Eligibility for Benefits

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

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

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

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

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

SECTION III

Amount and Form of Retirement Benefit

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

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

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

SECTION IV

Payment of Retirement Benefits

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

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

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

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

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

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

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

SECTION V

Death Benefits Payable

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

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

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

SECTION VI

Miscellaneous

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

7

Notwithstanding the preceding provisions of this Section 6.1 to the contrary, distribution to Participants made in accordance with the first sentence hereof will only be made if (1) all arrangements sponsored by the Company required to be aggregated with the Plan under proposed regulations §1.409A-1(c) are terminated; (2) no payments other than payments that would be payable under the Plan if the termination had not occurred are made within twelve months of the termination of the Plan; (3) all payments are made within twenty-four (24) months of the termination of the Plan; and (4) the Company does not adopt a new arrangement that would be aggregated with the terminated Plan under §1.409A-1(c) if the same Participant participated in both arrangements at any time within five (5) years following the date of termination of the Plan In all other circumstances, distributions will be only be made to Participants when a distribution is otherwise permitted under Section IV hereof.

6.2

Nothing contained herein will confer upon any Participant the right to be retained in the service of the Company, nor will it interfere with the right of the Company to discharge or otherwise deal with Participant without regard to the existence of this Plan.

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

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

8

EX-10.3

Exhibit 10.3

TESORO CORPORATION
AMENDED AND RESTATED
EXECUTIVE LONG-TERM INCENTIVE PLAN

Article 1. Establishment, Purpose, and Duration

1.1

Establishment of the Plan. Tesoro Corporation, a Delaware corporation (hereinafter referred to as the “Company”), established an incentive compensation plan to be known as the “Tesoro Corporation Executive Long-Term Incentive Plan” (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Performance Units, and Performance Shares.

The Plan became effective as of September 15,1993 (the “Effective Date”), and shall remain in effect as provided in Section 1.3 herein.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Article 3. Administration

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

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

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

Article 4. Shares Subject to the Plan

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

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

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

SAR), any Shares subject to such Award again shall be available for the grant of an Award under the Plan. However, in the event that prior to the Award’s cancellation, termination, expiration, or lapse, the holder of the Award at any time received one or more “benefits of ownership” pursuant to such Award (as defined by the Securities and Exchange Commission, pursuant to any rule or interpretation promulgated under Section 16 of the Exchange Act), the Shares subject to such Award shall not be made available for regrant under the Plan.

4.3

Adjustments in Authorized Shares. In the event of any merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, such adjustment shall be made in the number and class of Shares which may be delivered under the Plan, and in the number and class of and/or price of Shares subject to outstanding Awards granted under the Plan, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; and provided that the number of Shares subject to any Award shall always be a whole number.

Article 5. Eligibility and Participation

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

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

Article 6. Stock Options

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

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

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

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

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

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

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

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

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

exercisable at any time prior to their expiration date, or for one (1) year after the date of death, whichever period is shorter, by such person or persons as shall have been named as the Participant’s beneficiary, or by such persons that have acquired the Participant’s rights under the Option by will or by the laws of descent and distribution.

Options which are not exercisable as of the date of death shall be forfeited and returned to the Company; provided, however, that the Committee may, at its sole discretion, provide for accelerated vesting of unvested Options upon such terms as the Committee deems advisable.

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

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

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

6.10 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.

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

Article 7. Stock Appreciation Rights

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

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

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

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

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

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

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

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

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

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

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

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

terminated by reason of Retirement, all outstanding SARs which are exercisable as of the date of Retirement shall remain exercisable at any time prior to their expiration date, or for three (3) years after the effective date of Retirement, whichever period is shorter.

SARs which are not exercisable as of the date of Retirement shall be forfeited and returned to the Company; provided, however, that the Committee may, at its sole discretion, provide for accelerated vesting of unvested SARs upon such terms as the Committee deems advisable.

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

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

Article 8. Restricted Stock

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

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

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

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

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

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

The Company shall have the right to retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied.

8.6

Removal of Restrictions. Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan shall become freely transferable by the Participant after the last day of the Period of Restriction. Once the Shares are released from the restrictions, the Participant shall be entitled to have the legend required by Section 8.5 removed from his or her share certificate.

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

8.8

Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder shall be entitled to receive all dividends and other distributions paid with respect to those Shares while they are so held. If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

In the event that any dividend constitutes a “derivative security” or an “equity security” pursuant to Rule 16(a) under the Exchange Act, such dividend shall be subject to a vesting period equal to the longer of: (i) the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid; or (ii) six months: The Committee shall establish procedures for the application of this provision.

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

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

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

Article 9. Performance Units and Performance Shares

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

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

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

9.4

Form and Timing of Payment of Performance Units/Shares. Payment of each Performance Units/Shares shall be made in a single lump sum, within forty-five (45) calendar days following the close of the applicable Performance Period. The Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in Shares (or in a combination thereof), which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period.

Prior to the beginning of each Performance Period, Participants may elect to defer the receipt of Performance Unit/Share payout upon such terms as the Committee deems appropriate.

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

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

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

Article 10. Beneficiary Designation

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

Article 11. [ Reserved]

Article 12. Rights of Employees

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

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

Article 13. Change In Control

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

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

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

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

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

Article 14. Amendment, Modification, and Termination

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

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

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

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

Article 15. Withholding

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

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

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

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

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

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

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

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

Article 16. Indemnification

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

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

Article 17. Successors

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

Article 18. Legal Construction

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

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

18.3	Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
	Notwithstanding any other provision set forth in the Plan, if required by the then-current

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

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

EX-10.4

Exhibit 10.4

FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     This First Amendment (the “Amendment”) is entered into as of                     , 2006 (the “Effective Date”) as an amendment to the Amended and Restated Employment Agreement entered into by and between Tesoro Corporation (the “Company”) and Bruce A. Smith (the “Executive”) as of December 3, 2003 (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 4 of the Agreement is hereby amended by deleting the first paragraph of subsection (f) thereof and substituting the following in its stead to read as follows:

      (f) SUPPLEMENTAL ANNUAL RETIREMENT BENEFIT. Executive (or his current spouse, Gail H. Smith, 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. The initial Supplemental Annual Retirement Benefit shall not be paid until six (6) months have elapsed from Executive’s termination of employment.

     2. 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 two (2) 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, 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

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          (v) As otherwise specifically provided herein.

     3. 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;

     4. 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 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;

     5. 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;

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          (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 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 and six (6) months 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.

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     6. 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. In the event a “Change in Control” occurs and before the end of the second year after such Change in Control, Executive’s employment is terminated within two (2) years following such Change in 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:

          (i) 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 six (6) months following termination of employment. 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.

          (ii) 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 six (6) months following termination of employment.

          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.

     7. 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:

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     (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.

     8. 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

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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
	By: Charles S. Parrish
Date:                                         , 2006	Title: Vice President, General Council and           Secretary
Date:                                         , 2006
Address: 400 Elizabeth                 San Antonio, Texas 78209	Bruce A. Smith, Executive

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EX-10.5

Exhibit 10.5

FIRST AMENDMENT TO
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 William J. Finnerty (the “Executive”) as of February 2, 2005 (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;

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     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 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

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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 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) In the event Executive is not otherwise vested in the Company’s qualified defined benefit or defined contribution retirement plans, Executive will receive a lump sum payment (on an after-tax basis) equivalent to the difference between the value of his accrued benefit under the Company’s qualified defined contribution and defined benefit plans as of the date of his termination of employment and the value of his accrued benefit under those qualified retirement plans had he been vested 100% in those accrued benefits as of the date of his termination of employment. Such payment will be made as soon as administratively practicable following six (6) months from the Executive’s termination of employment with the Company;

          (vii) Subject to the terms and conditions of the applicable executive long-term incentive plans governing the option awards or restricted stock awards, 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. With respect to option awards granted to Executive after the effective date of the Employment Agreement, 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

          (viii) As otherwise specifically provided herein.

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     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, Operations 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.

          (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:

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      (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.

     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

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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
	By: Bruce A. Smith
Date:                                         , 2006	Title: Chairman of the Board of Directors, President and Chief Executive Officer
Date:                                         , 2006
Address: 18914 Las Vistas                 San Antonio, Texas 78258	William J. Finnerty, Executive

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EX-10.6

Exhibit 10.6

FIRST AMENDMENT TO
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 Everett D. Lewis (the “Executive”) as of February 2, 2005 (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) Subject to the terms and conditions of the applicable executive long-term incentive plans governing the option awards or restricted stock awards, 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. With respect to option awards granted to Executive after the effective date of the Employment Agreement, 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, Corporate Strategic Planning 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).

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          (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.

          (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

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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.

     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
	By: Bruce A. Smith
Date:                                         , 2006	Title: Chairman of the Board of Directors, President and Chief Executive Officer
Date:                                         , 2006
Address: 126 Blanschke Road                                         , Texas 78013	Everett D. Lewis, Executive

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EX-10.7

Exhibit 10.7

FIRST AMENDMENT TO
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 Gregory A. Wright (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
	By: Bruce A. Smith
Date:                                         , 2006	Title: Chairman of the Board of Directors, President and Chief Executive Officer
Date:                                         , 2006
Address: 203 Arch Bluff                 San Antonio, Texas 78216	Gregory A. Wright, Executive

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Contact:
	Investors:
	A. Pierre Dubois, Manager, Investor Relations, (210) 283-2164
	Media:
	Sarah Simpson, Vice President, Corporate Communications, (210) 283-2374

Tesoro’s Board of Directors Elects Willliam J. Finnerty
Executive Vice President and Chief Operating Officer

     SAN ANTONIO, TEXAS – February 2, 2006 – Tesoro Corporation (NYSE:TSO) today announced that its Board of Directors has elected William J. Finnerty Executive Vice President and Chief Operating Officer.

     “Bill has been instrumental in our ability to achieve record earnings and throughput levels at our six refineries during the past year,” said Bruce A. Smith, Chairman, President and CEO of Tesoro. “He has brought an increased level of sophistication to our operations and strategy. I am proud of his fine work and pleased to announce his promotion to Chief Operating Officer.”

     Finnerty was named Executive Vice President, Operations in January 2005. He joined Tesoro in 2003 as Vice President, Crude Oil and Logistics of Tesoro Refining and Marketing Company. Prior to joining Tesoro, Finnerty served in senior executive positions for other major oil and gas companies. Finnerty earned his bachelor’s degree from State University Maritime College in New York.

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