TESORO PETROLEUM CORP /NEW/
MANAGEMENT STABILITY AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>d96862ex10-1.txt
<DESCRIPTION>MANAGEMENT STABILITY AGREEMENT
<TEXT>
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                                                                    EXHIBIT 10.1

                         MANAGEMENT STABILITY AGREEMENT


         This Management Stability Agreement is dated January 24, 2002, between
Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and G.
Scott Spendlove ("Employee").

                                    Recitals:

         WHEREAS, the Board of Directors of the Company has determined that it
is in the best interest of the Company to reduce uncertainty to certain key
employees of the Company in the event of certain fundamental events involving
the control or existence of the Company;

         WHEREAS, the Board of Directors of the Company has determined that an
agreement protecting certain interests of key employees of the Company in the
event of certain fundamental events involving the control or existence of the
Company is in the best interest of the Company because it will assist the
Company in attracting and retaining key employees such as this Employee; and

         WHEREAS, the Employee is relying on this Agreement and the obligations
of the Company hereunder in continuing to work for the Company.

         NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1.       Termination Following Change of Control.

         Should Employee at any time within two years of a change of control
cease to be an employee of the Company (or its successor), by reason of (i)
involuntary termination by the Company (or its successor) other than for "cause"
(following a change of control), "cause" shall be limited to the conviction of
or a plea of nolo contendere to the charge of a felony (which, through lapse of
time or otherwise, is not subject to appeal), a material breach of fiduciary
duty to the Company through the misappropriation of Company funds or property)
or (ii) voluntary termination by Employee for "good reason upon change of
control" (as defined below), the Company (or its successor) shall pay to
Employee within ten days of such termination the following severance payments
and benefits:

                  (a) A lump-sum payment equal to two times the base salary of
                  the Employee at the then current rate; and

                  (b) A lump-sum payment equal to (i) two times the sum of the
                  target bonuses under all of the Company's incentive bonus
                  plans applicable to the Employee for the year in which the
                  termination occurs or the year in which the change of control
                  occurred, whichever is greater, and (ii) if termination occurs
                  in the fourth quarter of a calendar year, the sum of the
                  target bonuses under all of the Company's incentive bonus
                  plans applicable to Employee for the year in which the
                  termination



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                  occurs prorated daily based on the number of days from the
                  beginning of the calendar year in which the termination occurs
                  to and including the date of termination.

The Company (or its successor) shall also provide continuing coverage and
benefits comparable to all life, health and disability plans of the Company for
a period of 24 months from the date of termination, and Employee shall receive
two years additional service credit under the current non-qualified supplemental
pension plans, or successors thereto, of the Company applicable to the Employee
on the date of termination.

                           For purposes of this Agreement, a "change of control"
                  shall be deemed to have occurred if (i) there shall be
                  consummated (A) any consolidation or merger of the Company in
                  which the Company is not the continuing or surviving
                  corporation or pursuant to which shares of the Company's
                  Common Stock would be converted into cash, securities or other
                  property, other than a merger of the Company where a majority
                  of the Board of Directors of the surviving corporation are,
                  and for a two year period after the merger continue to be,
                  persons who were directors of the Company immediately prior to
                  the merger or were elected as directors, or nominated for
                  election as directors, by a vote of at least two-thirds of the
                  directors then still in office who were directors of the
                  Company immediately prior to the merger, or (B) any sale,
                  lease, exchange or transfer (in one transaction or a series of
                  related transactions) of all or substantially all of the
                  assets of the Company, or (ii) the shareholders of the Company
                  shall approve any plan or proposal for the liquidation or
                  dissolution of the Company, or (iii) (A) any "person" (as such
                  term is used in Sections 13(d) and 14(d)(2) of the Securities
                  Exchange Act of 1934, as amended (the "Exchange Act"), other
                  than the Company or a subsidiary thereof or any employee
                  benefit plan sponsored by the Company or a subsidiary thereof,
                  shall become the beneficial owner (within the meaning of Rule
                  13d-3 under the Exchange Act) of securities of the Company
                  representing 20 percent or more of the combined voting power
                  of the Company's then outstanding securities ordinarily (and
                  apart from rights accruing in special circumstances) having
                  the right to vote in the election of directors, as a result of
                  a tender or exchange offer, open market purchases, privately
                  negotiated purchases or otherwise, and (B) at any time during
                  a period of one year thereafter, individuals who immediately
                  prior to the beginning of such period constituted the Board of
                  Directors of the Company shall cease for any reason to
                  constitute at least a majority thereof, unless the election or
                  the nomination by the Board of Directors for election by the
                  Company's shareholders of each new director during such

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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.

                  For purposes of this Section 1, "good reason upon change of
                  control" shall exist if any of the following occurs:

                  (i) without Employee's express written consent, the assignment
                  to Employee of any duties inconsistent with the employment of
                  Employee immediately prior to the change of control, or a
                  significant diminution of Employee's positions, duties,
                  responsibilities and status with the Company from those
                  immediately prior to a change of control or a diminution in
                  Employee's titles or offices as in effect immediately prior to
                  a change of control, or any removal of Employee from, or any
                  failure to reelect Employee to, any of such positions;

                  (ii) a reduction by the Company in Employee's base salary in
                  effect immediately prior to a change of control;

                  (iii) the failure by the Company to continue in effect any
                  thrift, stock ownership, pension, life insurance, health,
                  dental and accident or disability plan in which Employee is
                  participating or is eligible to participate at the time of the
                  change of control (or plans providing Employee with
                  substantially similar benefits), except as otherwise required
                  by the terms of such plans as in effect at the time of any
                  change of control or the taking of any action by the Company
                  which would adversely affect Employee's participation in or
                  materially reduce Employee's benefits under any of such plans
                  or deprive Employee of any material fringe benefits enjoyed by
                  Employee at the time of the change of control or the failure
                  by the Company to provide the Employee with the number of paid
                  vacation days to which Employee is entitled in accordance with
                  the vacation policies of the Company in effect at the time of
                  a change of control;

                  (iv) the failure by the Company to continue in effect any
                  incentive plan or arrangement (including without limitation,
                  the Company's Incentive Compensation Plan and similar
                  incentive compensation benefits) in which Employee is
                  participating at the time of a change of control (or to
                  substitute and continue other plans or arrangements providing
                  the Employee with substantially similar benefits), except as
                  otherwise required by the terms of such plans as in effect at
                  the time of any change of control;

                  (v) the failure by the Company to continue in effect any plan
                  or arrangement with respect to securities of the Company
                  (including, without

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                  limitation, any plan or arrangement to receive and exercise
                  stock options, stock appreciation rights, restricted stock or
                  grants thereof or to acquire stock or other securities of the
                  Company) in which Employee is participating at the time of a
                  change of control (or to substitute and continue plans or
                  arrangements providing the Employee with substantially similar
                  benefits), except as otherwise required by the terms of such
                  plans as in effect at the time of any change of control or the
                  taking of any action by the Company which would adversely
                  affect Employee's participation in or materially reduce
                  Employee's benefits under any such plan;

                  (vi) the relocation of the Company's principal executive
                  offices to a location outside the San Antonio, Texas, area, or
                  the Company's requiring Employee to be based anywhere other
                  than at the location of the Company's principal executive
                  offices, except for required travel on the Company's business
                  to an extent substantially consistent with Employee's present
                  business travel obligations, or, in the event Employee
                  consents to any such relocation of the Company's principal
                  executive or divisional offices, the failure by the Company to
                  pay (or reimburse Employee for) all reasonable moving expenses
                  incurred by Employee relating to a change of Employee's
                  principal residence in connection with such relocation and to
                  indemnify Employee against any loss (defined as the difference
                  between the actual sale price of such residence and the higher
                  of (a) Employee's aggregate investment in such residence or
                  (b) the fair market value thereof as determined by a real
                  estate appraiser reasonably satisfactory to both Employee and
                  the Company at the time the Employee's principal residence is
                  offered for sale in connection with any such change of
                  residence;

                  (vii) any failure by the Company to obtain the assumption of
                  this Agreement by any successor or assign of the Company;

         In the event of a change of control as "change of control" is defined
in any stock option plan or stock option agreement pursuant to which the
Employee holds options to purchase common stock of the Company, Employee shall
retain the rights to all accelerated vesting and other benefits under the terms
thereof.

         The Company shall pay any attorney fees incurred by Employee in
reasonably seeking to enforce the terms of this Paragraph 1.

2.       Complete Agreement.

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         This Agreement constitutes the entire agreement between the parties and
cancels and supersedes all other agreements between the parties which may have
related to the subject matter contained in this Agreement.

3.       Modification; Amendment; Waiver.

         No modification, amendment or waiver of any provisions of this
Agreement shall be effective unless approved in writing by both parties. The
failure at any time to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of either party thereafter to enforce each and every provision hereof in
accordance with its terms.

4.       Governing Law; Jurisdiction.

         This Agreement and performance under it, and all proceedings that may
ensue from its breach, shall be construed in accordance with and under the laws
of the State of Texas.

5.       Severability.

         Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

6.       Assignment.

         The rights and obligations of the parties under this Agreement shall be
binding upon and inure to the benefit of their respective successors, assigns,
executors, administrators and heirs, provided, however, that the Company may not
assign any duties under this Agreement without the prior written consent of the
Employee.

7.       Limitation.

         This Agreement shall not confer any right or impose any obligation on
the Company to continue the employment of Employee in any capacity, or limit the
right of the Company or Employee to terminate Employee's employment.

8.       Notices.

         All notices and other communications under this Agreement shall be in
writing and shall be given in person or by telegraph, facsimile or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given when delivered personally or three days after mailing or
one



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day after transmission of a telegram or facsimile, as the case may be, to
the representative persons named below:

         If to the Company:            Corporate Secretary
                                       Tesoro Petroleum Corporation
                                       300 Concord Plaza Drive
                                       San Antonio, Texas  78216-6999

         If to the Employee:           G. Scott Spendlove
                                       29523 Fairway Bluff
                                       Fair Oaks Ranch, Texas 78015

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

                         COMPANY:   TESORO PETROLEUM CORPORATION


                                    By  /s/ BRUCE A. SMITH
                                       ----------------------------------------
                                       Bruce A. Smith
                                       Chairman of the Board of Directors,
                                       President and Chief Executive Officer


                         EMPLOYEE:      /s/ G. SCOTT SPENDLOVE
                                       ----------------------------------------
                                       G. Scott Spendlove


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