UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.   )

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Holly Corporation

(Name of Registrant as Specified In Its Charter)

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HOLLY CORPORATION
100 Crescent Court
Suite 1600
Dallas, Texas 75201-6915

 

March 31, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Holly Corporation (the “Company”) to be held on Thursday, May 12, 2011, at 10:00 a.m., local time, at The Crescent Club, 200 Crescent Court, 17^th Floor, Dallas, Texas 75201. Please find enclosed a notice to stockholders, a Proxy Statement describing the business to be transacted at the meeting, a form of proxy for use in voting at the meeting and an Annual Report for Holly Corporation.

 

At the Annual Meeting, you will be asked (i) to elect seven (7) directors to the Board of Directors of the Company, (ii) to ratify the recommendation of the Company’s Audit Committee, and endorsed by the Board of Directors, of the selection of Ernst & Young, LLP, an independent registered public accounting firm, as the Company’s auditor for the year 2011, (iii) to consider and approve an advisory vote regarding the compensation of the Company’s Named Executive Officers, (iv) to consider and act upon an advisory vote on the frequency at which the Company should include an advisory vote regarding the compensation of the Company’s Named Executive Officers in its proxy statement for stockholder consideration, (v) to approve an amendment to the Holly Corporation Long-Term Incentive Compensation Plan (the “LTIP”) to extend the term of the LTIP, and our ability to grant equity compensation awards thereunder, until December 31, 2020, and (vi) to act upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

 

We hope that you will be able to attend the Annual Meeting, and we urge you to read the enclosed Proxy Statement before you vote. Whether or not you plan to attend, please complete, sign, date and return the enclosed proxy card or grant your proxy by internet or telephone, as described on the enclosed proxy card, as promptly as possible. It is important that your shares be represented at the meeting.

 

Very truly yours,

 

 

MATTHEW P. CLIFTON
Chairman of the Board and Chief Executive Officer

 

 

 

 

HOLLY CORPORATION
100 Crescent Court
Suite 1600
Dallas, Texas 75201-6915

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

 

March 31, 2011

 

PLEASE TAKE NOTICE that the 2011 Annual Meeting of Stockholders (the “Annual Meeting”) of Holly Corporation (the “Company”) will be held on Thursday, May 12, 2011, at 10:00 a.m. local time at The Crescent Club, 200 Crescent Court, 17th Floor, Dallas, Texas, to consider and vote on the following matters:

 

1. Election of seven (7) directors to serve on the Board of Directors (the “Board”) of the Company until the Company’s next annual meeting;

 

2. Ratification of the recommendation of the Company’s Audit Committee, endorsed by the Board, of the selection of Ernst & Young, LLP, an independent registered public accounting firm, as the Company’s auditor for the year 2011;

 

3. Approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers;

 

4. An advisory vote on the frequency at which the Company should include an advisory vote regarding the compensation of the Company’s Named Executive Officers in its proxy statement for stockholder consideration;

 

5. Approval of an amendment to the Holly Corporation Long-Term Incentive Compensation Plan (the “LTIP”) to extend the term of the LTIP, and our ability to grant equity compensation awards thereunder, until December 31, 2020; and

 

6. Such other business as may properly come before the meeting, or any postponement or adjournment thereof.

 

The Company’s Annual Report for the year ended December 31, 2010 is being distributed with this Proxy Statement.

 

The close of business on March 21, 2011 (the “Record Date”) has been fixed as the record date for the determination of stockholders entitled to receive notice of and the right to vote at the Annual Meeting and any adjournment or postponement thereof. Only holders of record of the Company’s common stock (the “Common Stock”) at the close of business on the Record Date are entitled to notice of and the right to vote at the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder for any purpose germane to the Annual Meeting during ordinary business hours for the ten days preceding the Annual Meeting at the Company’s offices at the address on this notice and will also be available at the Annual Meeting.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 12, 2011:

 

As permitted by rules adopted by the Securities and Exchange Commission, we are making this Proxy Statement, the proxy card and the Company’s 2010 annual report (the “proxy materials”) available to stockholders electronically via the internet. We believe that this process should expedite the receipt of proxy materials by our stockholders and lower the costs of our Annual Meeting. Instead of a paper copy of the proxy materials, most of our stockholders are receiving a notice, mailed on March 31, 2011, which includes instructions on how to access the proxy materials via the internet, how to vote your shares and how to request a paper copy of the proxy materials.

 

By Order of the Board of Directors:

 

 

DENISE C. MCWATTERS
Secretary

 

PROXY STATEMENT
OF
HOLLY CORPORATION
100 Crescent Court
Suite 1600
Dallas, Texas 75201-6915

 

SOLICITATION AND REVOCABILITY OF PROXIES

 

The Board requests your proxy for use at the Annual Meeting of Stockholders to be held on Thursday, May 12, 2011, and at any adjournment or postponement thereof. By signing and returning the proxy card, or granting your proxy via the internet or via telephone, you authorize the persons named on the proxy card or in your telephonically or electronically submitted proxy (collectively, the “Proxy”), to represent you and to vote your shares at the Annual Meeting.

 

The Company made the proxy materials available to you over the internet or, upon your request, has delivered paper versions of these materials to you by mail, in connection with the solicitation of proxies by the Board for the 2011 Annual Meeting of Stockholders. Stockholders may request to receive proxy materials in paper form by mail or electronically by e-mail during the voting period. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to the proxy materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it. Choosing to receive your future proxy materials by e-mail will save the Company the cost of printing and mailing documents to you.

 

On or about March 31, 2011, the Company mailed a Notice of Internet Availability of Proxy Materials to stockholders containing instructions on how to access the Proxy Statement and vote online. Each registered stockholder (you own shares in your own name on the books of our transfer agent) received one copy of each such Notice per account even if at the same address, unless the Company has received contrary instructions from one or more of such stockholders, while most banks and brokers delivered only one copy of such Notice to consenting street-name stockholders (you own shares beneficially in the name of a bank, broker or other holder of record on the books of our transfer agent) who share the same address. This procedure reduces our printing and distribution costs. Those who wish to receive separate copies may do so by contacting their bank, broker or other holder of record. Similarly, most street-name stockholders who received multiple copies of the Notice at a single address may request that only a single copy be sent to them in the future by contacting their bank, broker or other nominee. In the alternative, most street-name stockholders may give instructions to receive separate copies or discontinue multiple mailings by contacting the third party that mails annual meeting materials for most banks and brokers by writing to Householding Department, Broadridge, 51 Mercedes Way, Edgewood, New York 11717, or telephoning (800) 542-1061. Your instructions must include the name of your bank or broker and your account number.

 

Officers, directors and employees of the Company may solicit proxies personally or by telephone, electronic mail, telegram or other forms of wire, wireless or facsimile communication. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries forward solicitation material to the beneficial owners of the Company’s Common Stock that those companies hold of record. The costs of the solicitation, including reimbursement of such forwarding expenses, will be paid by the Company.

 

If you attend the Annual Meeting, you may vote in person. If you are not present at the Annual Meeting, your shares can be voted only if you have returned a properly signed proxy card, are represented by another proxy, or have granted your proxy by the internet or by telephone. You may revoke your proxy, whether granted by the internet or by telephone or by returning the enclosed proxy card, at any time before it is exercised at the Annual Meeting by (a) signing and submitting a later-dated proxy to the Secretary of the Company, (b) delivering written notice of revocation of the proxy to the Secretary of the Company, or (c) voting in person at the Annual Meeting. In addition, if you granted your proxy by the internet or by telephone, you may revoke such grant by resubmitting your proxy by the internet or by telephone at any time prior to 11:59 p.m., Eastern Daylight Time, on May 11, 2011. In the absence of any such revocation, shares represented by the persons named in the Proxies will be voted at the Annual Meeting.

 

VOTING AND QUORUM

 

The only outstanding voting securities of the Company are shares of Common Stock. As of the close of business on the Record Date, there were 53,353,449 shares of Common Stock outstanding and entitled to be voted at the Annual Meeting.

 

Each outstanding share of Common Stock is entitled to one vote. The presence, in person or by proxy, of a majority of the shares of Common Stock issued and outstanding and entitled to vote as of the Record Date shall constitute a quorum at the Annual Meeting. The holders of a majority of the Common Stock entitled to vote who are present or represented by proxy at the Annual Meeting have the power to adjourn the Annual Meeting from time to time without notice, other than an announcement at the Annual Meeting of the time and place of the holding of the adjourned meeting, until a quorum is present. At any such adjourned meeting at which a quorum is present, any business may be transacted that could have been transacted at the Annual Meeting had a quorum originally been present. Proxies solicited by this Proxy Statement may be used to vote in favor of any motion to adjourn the Annual Meeting. The persons named in the Proxy intend to vote in favor of any motion to adjourn the Annual Meeting to a subsequent day if, prior to the Annual Meeting, such persons have not received sufficient proxies to approve the proposals described in this Proxy Statement. If such a motion is approved but sufficient proxies are not received by the time set for the resumption of the Annual Meeting, this process will be repeated until sufficient proxies to vote in favor of the proposals described in this Proxy Statement have been received or it appears that sufficient proxies will not be received.

 

If you hold your shares in “street name,” you will receive instructions from your brokers or other nominees describing how to vote your shares. If you do not instruct your brokers or nominees how to vote your shares, they may vote your shares as they decide as to each matter for which they have discretionary authority under the rules of the New York Stock Exchange (“NYSE”). For Proposal 2 (Ratification of the Appointment of Ernst & Young, LLP) to be voted on at the Annual Meeting, brokers and other nominees will have discretionary authority in the absence of timely instructions from you.

 

There are also non-discretionary matters for which brokers and other nominees do not have discretionary authority to vote unless they receive timely instructions from you. For Proposal 1 (Election of Directors), Proposal 3 (Advisory Vote on the Compensation of our Named Executive Officers), Proposal 4 (Advisory Vote on the Frequency of Advisory Votes on the Compensation of our Named Executive Officers) and Proposal 5 (Approval of Amendment to the Holly Corporation Long-Term Incentive Compensation Plan) to be voted on at the Annual Meeting, you must provide timely instructions on how the broker or other nominee should vote your shares. When a broker or other nominee does not have discretion to vote on a particular matter, you have not given timely instructions on how the broker or other nominee should vote your shares and the broker or other nominee indicates it does not have authority to vote such shares on its proxy, a “broker non-vote” results.

 

Abstentions and broker non-votes will count in determining if a quorum is present at the Annual Meeting. Abstentions occur when stockholders are present at the Annual Meeting but fail to vote or voluntarily withhold their vote for any of the matters upon which the stockholders are voting.

 

PROPOSAL ONE — ELECTION OF DIRECTORS

 

The Board has designated Buford P. Berry, Matthew P. Clifton, Leldon E. Echols, R. Kevin Hardage, Robert G. McKenzie, Jack P. Reid, and Tommy A. Valenta as nominees for election as directors of the Company at the Annual Meeting (each, a “Nominee”). All of the Nominees, except for R. Kevin Hardage, currently serve as directors of the Company. Paul T. Stoffel, who currently serves as a director of the Company, is not standing for reelection at the Annual Meeting. If elected, each Nominee will serve until the expiration of his term at the Annual Meeting of Stockholders in 2012 and until his successor is elected and qualified or until his earlier death, resignation or removal from office. For information about each Nominee, see “Directors.”

 

Each of the Nominees has consented to be named as a Nominee. The Board has no reason to believe that any of the Nominees will be unable or unwilling to serve if elected. If a Nominee becomes unable or unwilling to serve prior to the election, your proxy will be voted for the election of a substitute nominee recommended by the current Board, or the number of the Company’s directors will be reduced.

Required Vote and Recommendation

 

The election of directors requires the affirmative vote of a plurality of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting. Accordingly, under Delaware law and the Company’s Restated Certificate of Incorporation (as same may have been amended), and Bylaws, abstentions and broker non-votes will not have any effect on the election of a particular director. Unless otherwise instructed in the Proxy or unless authority to vote is withheld, the Proxy will be voted for the election of each of the Nominees.

 

The Board unanimously recommends a vote “FOR” the election of each of the Nominees.

 

PROPOSAL TWO — RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP

 

In accordance with its charter, the Audit Committee has selected the firm of Ernst & Young, LLP, an independent registered public accounting firm, to be the Company’s auditor for the year 2011 and, with the endorsement of the Board, recommends to the stockholders that they ratify that appointment. Ernst & Young, LLP served in this capacity in 2010. Its representative will be present at the Annual Meeting and will have an opportunity to make a statement and will be available to respond to appropriate questions.

 

The Audit Committee reviews and approves in advance the audit scope, the types of non-audit services, if any, and the estimated fees for each category for the coming year. For each category of proposed services, Ernst & Young, LLP is required to confirm that the provision of such services does not impair its independence. Before selecting Ernst & Young, LLP, the Audit Committee carefully considered the firm’s qualifications as an independent registered public accounting firm for the Company. This included a review of its performance in prior years, as well as its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee has expressed its satisfaction with Ernst & Young, LLP in all of these respects. The Audit Committee’s review included inquiry concerning any litigation involving Ernst & Young, LLP and any proceedings by the Securities and Exchange Commission (the “SEC”) against the firm. In this respect, the Audit Committee has concluded that the ability of Ernst & Young, LLP to perform the services for the Company is in no way adversely affected by any such litigation or other proceedings.

 

Required Vote and Recommendation

 

The ratification of the appointment of Ernst & Young, LLP requires the approval of a majority of the votes cast on the proposal. Abstentions will not have any effect on the vote for this proposal.

 

The Board and the Audit Committee unanimously recommend a vote “FOR” the ratification of the Board’s selection of Ernst & Young, LLP as the Company’s auditor for 2011.

 

PROPOSAL THREE — ADVISORY VOTE ON THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS

 

The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the “Dodd-Frank Act,” enables our stockholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with the SEC’s rules.

 

As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate, and retain our Named Executive Officers, who are critical to our success. Under these programs, compensation for our Named Executive Officers is tied to performance, including our financial results and stockholder value. Please read the “Compensation Discussion and Analysis” beginning on page 28, and review the compensation tables and narratives that follow, for additional details about our executive compensation programs, including information about the fiscal year 2010 compensation of our Named Executive Officers.

Our executive compensation programs are structured to support our business objectives and challenges in creating value for stockholders, as evidenced by the following:

 

 

This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensatory philosophy, policies and practices described in this Proxy Statement in accordance with the compensation disclosure rules of the SEC. Because your vote is advisory, it will not be binding on the Compensation Committee (the “Committee”), the Board, or the Company. However, the Board and the Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation. The Board and the Committee value the opinions of our stockholders and to the extent there is any significant vote against the Named Executive Officer compensation as disclosed in this Proxy Statement, we will consider our stockholders’ concerns and the Committee will evaluate whether any actions are necessary to address those concerns.

 

We ask our stockholders to vote on the following resolution at the Annual Meeting:

 

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers in the Compensation Discussion and Analysis, compensation tables and narrative discussion.”

 

Required Vote and Recommendation

 

The advisory vote on the compensation of named executive officers requires the approval of a majority of the votes cast on the proposal. Abstentions and broker non-votes will not have any effect on the vote for this proposal.

 

The Board unanimously recommends a vote “FOR” the approval of the compensation of our Named Executive Officers as disclosed in the “Compensation Discussion and Analysis” section and the accompanying compensation tables contained in this Proxy Statement.

 

PROPOSAL FOUR — ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTES
ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

 

The Dodd-Frank Act also enables our stockholders to indicate how frequently we should seek an advisory vote on the compensation of our Named Executive Officers, as disclosed pursuant to the SEC’s compensation disclosure rules, such as Proposal 3 included on page 3 of this Proxy Statement. The Company would like to seek your input with regard to whether you would prefer that we conduct future advisory votes on executive compensation once every one, two or three years. Stockholders may, if they wish, abstain from casting a vote on this Proposal.

 

The Board has determined that an advisory vote on executive compensation that occurs once every three years is the most appropriate alternative for the Company, and therefore the Board recommends that you vote for a three-year interval for the advisory vote on executive compensation. In determining to recommend that stockholders vote for a frequency of once every three years, the Board considered how an advisory vote at this frequency will provide our stockholders with sufficient time to evaluate the effectiveness of our overall compensation philosophy, policies and practices in the context of our long-term business results for the corresponding period, while avoiding over-emphasis on short term variations in compensation and business results. An advisory vote occurring once every three years will also permit our stockholders to observe and evaluate the impact of any changes to our executive compensation policies and practices which have occurred since the last advisory vote on executive compensation, including changes made in response to the outcome of a prior advisory vote on executive compensation.

We will continue to engage with our stockholders regarding our executive compensation program during the period between advisory votes on executive compensation. We understand that our stockholders may have different views as to what is the best approach for the Company, and we look forward to hearing from our stockholders on this Proposal.

 

The Board and the Committee will review the voting results and take them into consideration when determining the frequency for the advisory vote on executive compensation. However, because this vote is advisory and not binding on the Board, the Committee or the Company in any way, the Board may decide that it is in the best interests of our stockholders and the Company to hold an advisory vote on executive compensation more or less frequently than the option approved by our stockholders.

 

The proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore, stockholders will not be voting to approve or disapprove the recommendation of the Board.

 

Required Vote and Recommendation

 

Generally, approval of any matter presented to stockholders other than the election of directors requires a majority of the votes cast on the proposal. However, because this vote is advisory and non-binding, if none of the frequency options being voted on by stockholders receives a majority of the votes cast on the proposal, the option receiving the greatest number of votes will be considered the frequency recommended by the Company’s stockholders. Abstentions and broker non-votes will not have any effect on the vote for this proposal.

 

The Board unanimously recommends a vote for the option of once every three years as the frequency with which stockholders are provided an advisory vote on executive compensation, as disclosed pursuant to the compensation disclosure rules of the SEC.

 

PROPOSAL FIVE — APPROVAL OF AMENDMENT TO THE HOLLY CORPORATION LONG-TERM INCENTIVE COMPENSATION PLAN

 

We are seeking stockholder approval of an amendment to the Holly Corporation Long-Term Incentive Compensation Plan, or the “LTIP”. As explained in more detail below, the purpose of the proposed amendment is to extend the term of the LTIP, and our ability to grant new equity awards thereunder, until December 31, 2020. We are not requesting an increase in the number of shares available under the LTIP above the number of remaining shares that existed on December 31, 2010, when the term of the LTIP expired. If the LTIP is not amended to extend the term and our ability to grant new awards, our ability to award equity-based compensation to our executive officers, directors and employees will be severely curtailed and we will be required to reconsider our executive compensation and other compensation programs.

 

General

 

The LTIP has undergone several amendments. Initially, the LTIP was approved by our stockholders at our annual meeting on December 14, 2000 as the Holly Corporation 2000 Stock Option Plan. The LTIP was then amended and restated and approved by our stockholders at our annual meeting on December 12, 2002 as the Holly Corporation Long-Term Incentive Compensation Plan. The LTIP was then subsequently amended, effective May 10, 2005. The LTIP was amended and restated in its current form, and approved by our stockholders effective May 24, 2007. The LTIP was again amended on December 31, 2008, effective January 1, 2005, pursuant to the First Amendment to the Holly Corporation Long-Term Incentive Compensation Plan.

 

At our annual meeting, our stockholders will be asked to approve the Second Amendment to the LTIP (the “Second Amendment”), to be effective as of January 1, 2011. The purpose of this Second Amendment is to extend the term of the LTIP, and our ability to grant new equity awards thereunder, until December 31, 2020. A form of the proposed Second Amendment to the LTIP is attached as Annex A to this Proxy Statement.

 

The LTIP is a broad-based plan under which we may grant awards to employees, directors and consultants. The use of stock-based awards under the LTIP continues to be a key element of our compensation program. Of the 6,000,000 shares currently authorized for issuance under the LTIP, a total of 3,887,172 shares had been issued as of

March 1, 2011, after the lapse of restrictions on grants of restricted stock and performance share units, the exercise of stock options and the settlement of other equity-based awards. As of March 1, 2011, 175,928 shares remained subject to restricted stock still subject to forfeiture, 56,738 shares of common stock remained subject to restricted stock units that have not been settled, and a total of 224,131 performance share units were outstanding, which could result in the issuance of no shares or as many as 448,262 shares depending on the achievement of performance targets and our ability to settle those units in cash.

 

The term of the LTIP, and our ability to grant new equity compensation awards thereunder, expired on December 31, 2010. As our equity based compensation program plays an important role in incentivizing our executive officers, directors and other service providers, we believe that approval of the Second Amendment is necessary to provide us with the flexibility to make stock-based grants over the coming years in amounts determined appropriate by the Committee. The LTIP, as amended, would allow us to use a variety of equity compensation alternatives in structuring compensation arrangements for our personnel and will allow our personnel to continue to acquire and maintain stock ownership in us. While we are aware of the potential dilutive effect of compensatory equity awards, we also recognize the significant motivational and performance benefits that may be achieved from making such awards. The proposed Second Amendment to the LTIP will not be implemented unless approved by our stockholders. However, since the LTIP has expired, if the proposed Second Amendment to the LTIP is not approved our ability to make future equity grants will be severely curtailed.

 

If any shares subject to any award under the LTIP are forfeited or cancelled, or if any such award terminates without the delivery of shares or other consideration, the shares previously used or reserved for such awards will be available for future awards under the LTIP.

 

The following is a summary of the material features of the LTIP, as amended, to reflect the proposed Second Amendment. The summary does not purport to be a complete description of all provisions of the LTIP and is qualified in its entirety by reference to (i) the complete text of the LTIP, which is filed as Exhibit 10.4 to our Form 10-K for fiscal year end December 31, 2008 (filed with the SEC on February 27, 2009), (ii) the First Amendment to the LTIP, which is filed as Exhibit 10.5 to our Form 10-K for fiscal year end December 31, 2008 (filed with the SEC on February 27, 2009), and (iii) the form of the proposed Second Amendment to the LTIP, which is attached as Annex A to this Proxy Statement.

 

Description of the LTIP

 

The purpose of the LTIP is to advance our interests by strengthening our ability and the ability of our subsidiaries to attract, retain and motivate able people of high caliber as employees, directors and consultants through arrangements that relate the compensation for such persons to our long-term performance. The LTIP achieves this purpose by permitting grants of (i) incentive stock options (“Incentive Options”), (ii) options that do not constitute incentive stock options (“Non-Qualified Options,” and together with Incentive Options, “Options”), (iii) restricted stock awards (“Restricted Stock Awards”), (iv) bonus stock awards (“Stock Awards”), (v) stock appreciation rights (“SARs”), (vi) phantom stock awards (“Phantom Stock Awards”), and (vii) performance awards payable upon the satisfaction of performance goals, all of which are collectively referred to as “awards”. See “— Securities To Be Offered.”

 

The LTIP, in part, is intended to qualify under the provisions of Section 422 of the Internal Revenue Code (the “Tax Code”). The LTIP is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

 

Administration of the LTIP

 

The Board and the Committee have full and final authority to administer the LTIP pursuant to its terms and all applicable state, federal, or other rules or laws. The Committee has broad discretion to administer the LTIP, interpret its provisions, and adopt policies for implementing the LTIP. This discretion includes the power to determine when and to whom awards will be granted, determine the amount of such awards (measured in cash, shares of Common Stock or as otherwise designated), prescribe and interpret the terms and provisions of each award agreement (the terms of which may vary), delegate duties under the LTIP, terminate, modify or amend the LTIP, and execute all other responsibilities permitted or required under the LTIP.

Persons Who May Participate in the LTIP

 

Any person who is a current or proposed officer, director or key employee or consultant whose services are deemed to be of potential benefit to us or to any of our subsidiaries may be granted awards under the LTIP by the Committee. An employee on leave of absence may be considered still employed by us for determining eligibility under the LTIP. However, Incentive Options can be granted only to a person who is an employee of the Company or one of our subsidiaries. Additional restrictions would apply in the case of an Incentive Option granted to a person owning more than 10% of the outstanding shares of our Common Stock. Any individual who receives an award under the LTIP will be a “Participant.” At the discretion of the Committee and the Company’s management, approximately 1,150 employees of the Company are eligible to receive awards under the LTIP. For awards to be granted in 2011, six non-employee directors, nineteen officers and approximately 185 other employees were considered for awards.

 

Maximum Number of Shares Subject to Award

 

A Participant under the LTIP will be eligible to receive an award pursuant to the terms of the LTIP and subject to any limitations imposed by appropriate action of the Committee. Awards to employees subject to the limitations of Section 162(m) of the Tax Code may not receive awards denominated in shares in excess of 600,000 shares of Common Stock, or cash awards in excess of 600,000 shares of Common Stock valued at the date of grant of the award. No award may be granted if the number of shares of Common Stock to be delivered in connection with the award exceeds the number of shares which remain available under the LTIP minus the number of shares issuable in settlement of or relating to outstanding awards under the LTIP.

 

No Repricing, Replacements, or Buyouts of Stock Options/SARs

 

The Committee will not, without the approval of our company’s stockholders, reduce the grant price per share of an option or a stock appreciation right after it is granted, cancel an option or stock appreciation right when the grant price per share exceeds the fair market value of one share in exchange for cash or another award (other than in connection with a change in control or a corporate transaction as provided for in the Plan), or take any other action with respect to an option or stock appreciation right that would be treated as a repricing under the NYSE rules and regulations.

 

Securities to be Offered

 

Shares Subject to the LTIP

 

Assuming stockholders approve this proposal, the maximum aggregate number of shares of Common Stock that may be granted for any and all awards under the LTIP, since its inception, shall not exceed 6,000,000 shares (subject to any adjustment due to recapitalization or reorganization permitted under the LTIP), and the total number of shares of Common Stock received and available for delivery in connection with Incentive Options under the LTIP, since its inception, will not exceed 6,000,000 shares. The company is not requesting any additional shares under the LTIP. Rather, the Company desires to extend the LTIP to use the shares remaining after the lapse of the original term of the LTIP. Six million shares represent the shares originally approved by our stockholders in 2000, after adjustment to reflect stock splits. We did not request additional shares during the initial term of the LTIP.

 

If Common Stock subject to any award is not issued or transferred, or ceases to be issuable or transferable for any reason, including (but not exclusively) because an award is forfeited, terminated, expires unexercised, is settled in cash in lieu of Common Stock or is otherwise terminated without a delivery of shares to a Participant, the shares of Common Stock that were subject to that award will again be available for issue, transfer or exercise pursuant to awards under the LTIP to the extent allowable by law. The Common Stock subject to awards pursuant to the LTIP may be authorized but unissued shares, shares held by us in treasury, or shares that have been reacquired by us, including shares that have been bought on the market for the purposes of the LTIP. The fair market value of a share of Common Stock on a given date for purposes of the LTIP will generally be the closing price of a share of Common Stock on the date on which determination of fair market value is being made or if no shares were traded on such date then the last trading date prior thereto, as quoted on the NYSE.

Awards

 

Stock Options.  We may grant Options to eligible persons, including (i) Incentive Options (only to our employees or to employees of our subsidiaries), which comply with Section 422 of the Tax Code and (ii) Non-Qualified Options. The exercise price of each Option granted under the LTIP will be determined at the time the Option is granted and may vary between individuals and between grants; provided, however, that the exercise price per share for an Option that is intended to be performance-based compensation under Section 162(m)(4)(C) of the Code or an Incentive Option under Section 422 of the Code shall not be less than the fair market value of a share as of the effective date of grant of the Option; provided further, however, that in the case of an individual who owns stock possessing more than ten percent of the total combined voting power of all classes of the Company or any subsidiary, the exercise price per share of any Incentive Option under Section 422 of the Code shall not be less than 110% of the fair market value of a share as of the effective date of grant of the Incentive Option. Options may be exercised as the Committee determines except that no Incentive Option will be exercisable at any time after the expiration of ten years from the date of grant. The total fair market value (determined as of the date of grant) of shares with respect to which Incentive Options are first exercisable by a Participant in any one calendar year cannot exceed $100,000. The Incentive Options granted earliest shall be applied first to the $100,000 limit. Any Incentive Option that fails to comply with Section 422 of the Code for any reason will result in the reclassification of the Option as a Non-Qualified Option, which will be exercisable as such. The Committee will determine the methods and form of payment for the exercise price of an Option (including, in the discretion of the Committee, payment in Common Stock, other awards, or other property) and the methods and forms in which Common Stock (including Common Stock issuable pursuant to the Option) will be delivered to a Participant.

 

SARs.  An SAR is the right to receive an amount in cash 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, as determined by the Committee. Our Committee determines at the date of grant or thereafter the time or times at which and the circumstances under which an SAR may be exercised. The Committee also determines the method of exercise and form of payment. SARs may be awarded in connection with or separate from an Option. SARs awarded in connection with an Option will entitle the holder, upon exercise, to surrender the related Option or portion thereof relating to the number of shares for which the SAR is exercised. The surrendered Option or portion thereof will then cease to be exercisable. However, an SAR awarded in connection with an Option is exercisable only to the extent that the related Option is exercisable. SARs granted independently of an Option will be exercisable as the Committee determines.

 

Restricted Stock Awards.  Restricted Stock Awards are shares subject to such restrictions as the Committee may impose. Except to the extent set forth in a particular award, a person granted a Restricted Stock Award will have all of the rights of a stockholder, including the right to vote the restricted shares and the right, subject to possible reinvestment conditions, to receive dividends thereon. However, during any period that restricted shares are subject to restrictions imposed by the Committee, the restricted shares may not be transferred or encumbered by an award holder. Except as determined otherwise by the Committee, upon termination of employment during the restricted period, restricted shares will be forfeited and reacquired by us. Certificates evidencing restricted shares may bear a legend making reference to the restrictions imposed on such shares. The Committee determines the time or times at which and the circumstances under which any restrictions imposed on the restricted shares will lapse.

 

Bonus Stock Awards.  The Committee is authorized to grant shares to eligible persons as a bonus. Such a stock award will be subject to such other terms and conditions as our Committee may determine, including such conditions necessary to prevent any recipient of a stock award from incurring liability under Section 16(b) of the Exchange Act.

 

Phantom Stock Awards.  Phantom Stock Awards are rights to receive in cash an amount equal to the market value of a specified number of shares at the end of a specified period. The Committee determines when imposed restrictions will lapse and whether restrictions will lapse separately, in combination, in installments or otherwise. All Phantom Stock Awards that are subject to restrictions shall be forfeited upon the termination of an award holder’s employment or service with us during a restriction period to which forfeiture conditions apply, unless such conditions are otherwise waived or modified by the Committee. Unless otherwise determined by the Committee, amounts equal to dividends on the specified number of shares covered by a Phantom Stock Award will be either (i) paid with respect to such Phantom Stock Award on the dividend payment date in cash or in unrestricted shares

having a fair market value equal to the amount of such dividends or (ii) automatically deemed reinvested in additional Phantom Stock Awards, other awards or other investment vehicles specified by the Committee.

 

Performance Awards.  The Committee is authorized to grant eligible persons rights to receive cash or shares upon the satisfaction of performance conditions, established by the Committee, measured over a period of not less than six months and not more than ten years. One or more of the following business criteria for the Company, on a consolidated basis, and/or for specified subsidiaries or business or geographical units of the Company (except with respect to the total shareholder return and earnings per share criteria) shall be used by the Committee in establishing performance goals for Performance Awards granted to a “covered employee”: (i) earnings per share; (ii) increase in revenues; (iii) increase in cash flow; (iv) increase in cash flow return; (v) return on net assets; (vi) return on assets; (vii) return on investment; (viii) return on capital; (ix) return on equity; (x) economic value added; (xi) gross margin; (xii) operating income; (xiii) net income; (xiv) pretax earnings; (xv) pretax earnings before interest, depreciation and amortization; (xvi) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (xvii) total stockholder return; (xviii) debt reduction; (xix) net profit margin; and (xx) any of the above goals determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee, including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparable companies. Performance awards granted under the LTIP have been principally “performance share units” payable either in shares or in cash depending on the terms of the particular award. In the case of awards that are intended to qualify as “performance-based compensation” to persons who are “covered persons” under Section 162(m) of the Code, performance goals are established not later than 90 days after the beginning of the performance period applicable to such an award, or at such other date as may be required or permitted under Section 162(m) of the Code. All determinations by the Committee as to the establishment, amount and achievement of performance goals are made in writing and the Committee may not delegate any responsibility relating to such awards granted to covered employees under Section 162(m) of the Code. The Committee specifies the circumstances under which awards will be paid or forfeited if an award holder is terminated before settlement.

 

Other Provisions

 

Tax Withholding.  We (or any of our subsidiaries) are authorized to withhold from any award granted, or any payment relating to an award under the LTIP, including from a distribution of shares, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an award, and to take other action as the Committee may deem advisable to enable us and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any award. This authority includes authority to withhold or receive shares or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either on a mandatory or elective basis in the discretion of the Committee.

 

Right of Company to Terminate Awards in Event of Certain Corporation Transactions.  Unless otherwise specifically provided in particular award agreements, the LTIP authorizes us, in the event of an acquisition of substantially all of the assets of the Company or of a greater than 80% stock interest in the Company by an entity in which we do not have a 50% or greater interest prior to such acquisition or in the event of a merger, consolidation, recapitalization or other similar transaction involving a fundamental change in our capital structure, to terminate some or all outstanding awards under the LTIP, whether or not currently exercisable by or otherwise payable to the holders of the awards, upon payment to each holder of an award so terminated of an amount equal to the value of the award based on the current market value of the shares or, if applicable, the value of the award based upon the extent to which performance criteria associated with the award have been satisfied as of the date of termination of the award. Alternatively, we may elect in such circumstances to cause some or all awards to be assumed by the surviving or acquiring corporation. In all other circumstances, the Committee may amend or terminate any award under the LTIP provided that, and notwithstanding any other provisions described herein, no such Committee action may materially and adversely affect the rights of such award holder under such award unless either the power to take such action is reserved in the agreement granting the award in question or the affected holder of the award consents to the amendment or termination.

 

Amendment and Termination of the LTIP.  The LTIP will continue in effect, unless earlier terminated in accordance with certain provisions of the LTIP; provided, however, that no award shall be granted under the LTIP

after December 31, 2020. The Board may amend or terminate the LTIP without the consent of stockholders or eligible persons, except that any amendment to the LTIP will be subject to the approval of our stockholders no later than the annual meeting next following such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the shares may then be listed or quoted. The Board may, in its discretion, submit other changes to the LTIP to stockholders for approval. However, without the consent of an affected award holder, no Board or stockholder action may materially and adversely affect the rights of such award holder under any previously granted and outstanding award.

 

Termination of Employment.  Under the LTIP, the effect of a Participant’s termination of employment on an award is specified in the award agreement as approved by the Committee.

 

Transferability of Awards.  In accordance with rules prescribed by the Committee, the Committee may permit a person to transfer awards granted under the LTIP (other than Incentive Options) by gift to certain permitted transferees specified in the LTIP as well as transfers pursuant to a domestic relations order. Otherwise, awards are not transferable other than by will or the laws of descent and distribution. Following the transfer of an award, the award will remain subject to the same terms and conditions as were applicable to the award immediately prior to the transfer, provided that the transferee will be substituted for the transferor to the extent appropriate to enable the transferee to exercise the transferred award. When transferred awards are exercised by a transferee, the shares received as a result of the exercise may be subject to the resale restrictions specified above. Any holder of an award desiring to transfer an award must make application for transfer and comply with such other requirements as the Committee may require.

 

Federal Tax Consequences

 

The following discussion is for general information only and is intended to summarize briefly the U.S. federal tax consequences to Participants arising from participation in the LTIP. This description is based on current law, which is subject to change (possibly retroactively). The tax treatment of Participants in the LTIP may vary depending on the particular situation and may, therefore, be subject to special rules not discussed below. No attempt has been made to discuss any potential foreign, state, or local tax consequences.

 

Non-Qualified Options; SARs; Incentive Options.  Participants will not realize taxable income upon the grant of a Non-Qualified Option or an SAR. Upon the exercise of a Non-Qualified Option or SAR, a Participant will recognize ordinary compensation income (subject to withholding by us to the extent the Participant is an employee) in an amount equal to the excess of (i) the amount of cash and the fair market value of the Common Stock received, over (ii) the exercise price (if any) paid therefor. A Participant will generally have a tax basis in any shares of Common Stock received pursuant to the exercise of an SAR, or pursuant to the cash exercise of a Non-Qualified Option, that equals the fair market value of such shares on the date of exercise. Subject to the discussion under “— Tax Code Limitations on Deductibility” below, we (or a subsidiary) will be entitled to a deduction for federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by a Participant under the foregoing rules.

 

Participants eligible to receive an Incentive Option will not recognize taxable income on the grant of an Incentive Option. Upon the exercise of an Incentive Option, a Participant will not recognize taxable income, although the excess of the fair market value of the shares of Common Stock received upon exercise of the Incentive Option (“ISO Stock”) over the exercise price will increase the alternative minimum taxable income of the Participant, which may cause such Participant to incur alternative minimum tax. The payment of any alternative minimum tax attributable to the exercise of an Incentive Option would be allowed as a credit against the Participant’s regular tax liability in a later year to the extent the Participant’s regular tax liability is in excess of the alternative minimum tax for that year.

 

Upon the disposition of ISO Stock that has been held for the requisite holding period (generally, at least two years from the date of grant and one year from the date of exercise of the Incentive Option), a Participant will generally recognize capital gain (or loss) equal to the excess (or shortfall) of the amount received in the disposition over the exercise price paid by the Participant for the ISO Stock. However, if a Participant disposes of ISO Stock that has not been held for the requisite holding period (a “Disqualifying Disposition”), the Participant will recognize ordinary compensation income in the year of the Disqualifying Disposition in an amount equal to the amount by

which the fair market value of the ISO Stock at the time of exercise of the Incentive Option (or, if less, the amount realized in the case of an arm’s length disposition to an unrelated party) exceeds the exercise price paid by the Participant for such ISO Stock. A Participant would also recognize capital gain to the extent the amount realized in the Disqualifying Disposition exceeds the fair market value of the ISO Stock on the exercise date. If the exercise price paid for the ISO Stock exceeds the amount realized (in the case of an arm’s-length disposition to an unrelated party), such excess would ordinarily constitute a capital loss.

 

We and our subsidiaries will generally not be entitled to any federal income tax deduction upon the grant or exercise of an Incentive Option, unless a Participant makes a Disqualifying Disposition of the ISO Stock. If a Participant makes a Disqualifying Disposition, we (or a subsidiary) will then, subject to the discussion below under “— Tax Code Limitations on Deductibility,” be entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by a Participant under the rules described in the preceding paragraph.

 

Under current rulings, if a Participant transfers previously held shares of Common Stock (other than ISO Stock that has not been held for the requisite holding period) in satisfaction of part or all of the exercise price of a Non-Qualified Option or Incentive Option, no additional gain will be recognized on the transfer of such previously held shares in satisfaction of the Non-Qualified Option or Incentive Option exercise price (although a Participant would still recognize ordinary compensation income upon exercise of an Non-Qualified Option in the manner described above). Moreover, that number of shares of Common Stock received upon exercise which equals the number of shares of previously held Common Stock surrendered therefor in satisfaction of the Non-Qualified Option or Incentive Option exercise price will have a tax basis that equals, and a capital gains holding period that includes, the tax basis and capital gains holding period of the previously held shares of Common Stock surrendered in satisfaction of the Non-Qualified Option or Incentive Option exercise price. Any additional shares of Common Stock received upon exercise will have a tax basis that equals the amount of cash (if any) paid by the Participant, plus the amount of compensation income recognized by the Participant under the rules described above.

 

The LTIP allows the Committee to permit the transfer of awards in limited circumstances. See “Description of the LTIP — Other Provisions — Transferability of Awards.” For income and gift tax purposes, certain transfers of Non-Qualified Options and SARs generally should be treated as completed gifts, subject to gift taxation.

 

The Internal Revenue Service (the “IRS”) has not provided formal guidance on the income tax consequences of a transfer of Non-Qualified Options (other than pursuant to a domestic relations order). However, the IRS informally has indicated that after a transfer of stock options (other than pursuant to a domestic relations order), the transferor will recognize income, which will be subject to withholding, and FICA/FUTA taxes will be collectible at the time the transferee exercises the stock options. If Non-Qualified Options are transferred pursuant to a domestic relations order, the transferee will recognize ordinary income upon exercise by the transferee which will be subject to withholding, and FICA/FUTA taxes (attributable to and reported with respect to the transferor) will be collectible from the transferee at such time.

 

In addition, if the Participant transfers a vested Non-Qualified Option to another person and retains no interest in or power over it, the transfer is treated as a completed gift. The amount of the transferor’s gift (or generation-skipping transfer, if the gift is to a grandchild or later generation) equals the value of the Non-Qualified Option at the time of the gift. The value of the Non-Qualified Option may be affected by several factors, including the difference between the exercise price and the fair market value of the stock, the potential for future appreciation or depreciation of the stock, the time period of the Non-Qualified Option and the illiquidity of the Non-Qualified Option. The transferor will be subject to a federal gift tax, which will be limited by (i) the annual exclusion of $13,000 per donee for 2011, (ii) the transferor’s lifetime unified credit, or (iii) the marital or charitable deductions. The gifted Non-Qualified Option will not be included in the Participant’s gross estate for purposes of the federal estate tax or the generation-skipping transfer tax.

 

This favorable tax treatment for vested Non-Qualified Options has not been extended to unvested Non-Qualified Options. Whether such consequences apply to unvested Non-Qualified Options is uncertain and the gift tax implications of such a transfer is a risk the transferor will bear upon such a disposition.

 

The IRS has not specifically addressed the tax consequences of a transfer of SARs.

Restricted Stock Awards; Phantom Stock Awards; Stock Awards.  A Participant will not have taxable income at the time of grant of an award in the form of a Phantom Stock Award, but rather, will generally recognize ordinary compensation income at the time he receives cash in satisfaction of the Phantom Stock Award in an amount equal to the amount of cash received. In general, a Participant will recognize ordinary compensation income as a result of the receipt of Common Stock pursuant to a stock award or a restricted stock award in an amount equal to the fair market value of the Common Stock when such stock is received; provided, however, that if the stock is not transferable and is subject to a substantial risk of forfeiture when received, a Participant will recognize ordinary compensation income in an amount equal to the fair market value of the Common Stock (i) when the Common Stock first becomes transferable or is no longer subject to a substantial risk of forfeiture in cases where a Participant does not make an valid election under Section 83(b) of the Code or (ii) when the Common Stock is received in cases where a Participant makes a valid election under Section 83(b) of the Code.

 

An employee Participant will be subject to withholding for federal, and generally for state and local, income taxes at the time he recognizes income under the rules described above with respect to Common Stock or cash received. Dividends that are received by a Participant prior to the time that the Common Stock is taxed to the Participant under the rules described in the preceding paragraph are taxed as additional compensation, not as dividend income. The tax basis in the Common Stock received by a Participant will equal the amount recognized by him as compensation income under the rules described in the preceding paragraph, and the Participant’s capital gains holding period in those shares will commence on the date of receipt of the shares.

 

Subject to the discussion immediately below, we (or a subsidiary) will be entitled to a deduction for federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by a Participant under the foregoing rules.

 

Tax Code Limitations on Deductibility.  In order for the amounts described above to be deductible by us (or a subsidiary), such amounts must constitute reasonable compensation for services rendered or to be rendered and must be ordinary and necessary business expenses.

 

Our ability (or the ability of a subsidiary) to obtain a deduction for future payments under the LTIP could also be limited by the golden parachute payment rules of Section 280G of the Code, which prevent the deductibility of certain excess parachute payments made in connection with a change in control of an employer-corporation.

 

Finally, our ability (or the ability of a subsidiary) to obtain a deduction for amounts paid under the LTIP could be limited by Section 162(m) of the Code, which limits the deductibility, for federal income tax purposes, of compensation paid to certain executive officers of a publicly traded corporation to $1,000,000 with respect to any such officer during any taxable year of the corporation. However, an exception applies to this limitation in the case of certain “performance-based compensation.” In order to exempt performance-based compensation from the $1,000,000 deductibility limitation, the grant or vesting of the award relating to the compensation must be based on the satisfaction of one or more performance goals as selected by the Committee. Performance-based awards may not be granted in a given period if such awards relate to shares of Common Stock which exceed a specified limitation or, alternatively, the performance-based awards may not result in compensation, for a Participant, in a given period which exceeds a specified limitation. Although the LTIP has been drafted to satisfy the requirements for the performance-based compensation exception, we may determine that it is in its best interests not to satisfy the requirements for the exception.

 

THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME TAXATION WITH RESPECT TO THE GRANT, SETTLEMENT AND EXERCISE OF AWARDS UNDER THE LTIP. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF AN INDIVIDUAL’S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH ANY ELIGIBLE INDIVIDUAL MAY RESIDE.

New Plan Benefits Table

 

The awards, if any, that will be made to eligible Participants under the LTIP are subject to the discretion of the Committee; however, on February 22, 2011, the Committee approved certain 2011 annual equity awards to our executive officers and employees, to be granted subject to, and at the time of, approval by our stockholders of the Second Amendment to the LTIP, as reflected in the table below:

 

 

 

 

Name and Position			Dollar Value					Number of Shares
Matthew P. Clifton, Chairman of the Board and Chief Executive Officer				$1,669,517					29,218
David L. Lamp, President				$926,011					16,206
Bruce R. Shaw, Senior Vice President and Chief Financial Officer				$292,557					5,120
George J. Damiris, Senior Vice President, Supply and Marketing				$390,038					6,826
Denise C. McWatters, Vice President, General Counsel and Secretary				$141,022					2,468
Executive Officer Group (including Named Executive Officers) (19 individuals)				$5,405,558					94,602
Non-Executive Director Group (6 individuals)				$0					0
Non-Executive Officer Employee Group (185 individuals)				$3,056,304					53,488
Total (all executive officers, non-executive directors and non-executive officer employees as a group)				$8,461,862					148,090

 

As of March 1, 2011, there were no stock options outstanding under the LTIP.

Required Vote and Recommendation

 

The approval of the amendment to the LTIP requires the approval of a majority of the votes cast on the proposal, provided that the total votes cast on the proposal represent over 50% of the voting power of the total outstanding shares of Common Stock entitled to vote on the proposal, which is referred to as the “Outstanding Votes.” Votes “For,” votes “Against” and abstentions count as votes cast, while broker non-votes do not count as votes cast but count as Outstanding Votes. Thus, the total sum of votes “For,” plus votes “Against,” plus abstentions, which is referred to as the “NYSE Votes Cast,” must be greater than 50% of the total Outstanding Votes. Further, the number of votes “For” the proposal must be greater than 50% of the NYSE Votes Cast.

 

The Board unanimously recommends a vote “FOR” the proposal to amend the LTIP.

 

OWNERSHIP OF SECURITIES

 

The following table and the notes thereto set forth certain information regarding the beneficial ownership of Common Stock as of the Record Date by (i) each current director of the Company and each Nominee for election as a director of the Company, (ii) the named executive officers of the Company, (iii) all executive officers and directors of the Company as a group and (iv) each other person known to the Company to own beneficially more than five percent of Common Stock outstanding on the Record Date. Unless otherwise indicated, the address for each stockholder listed in the following table is c/o Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, Texas 75201-6915.

 

The Company has determined beneficial ownership in accordance with regulations of the SEC. The number of shares beneficially owned by a person includes unvested shares of restricted stock, which are deemed outstanding for all purposes. Individuals holding these unvested shares of restricted stock have the power to vote such shares but cannot dispose of such shares until the restrictions on the shares lapse. The number of shares beneficially owned by a person also includes restricted stock units that are either currently vested or which vest within 60 days after the Record Date. These restricted stock units are deemed outstanding for the purpose of computing the percentage of outstanding shares owned by such person. These shares are not deemed outstanding, however, for the purpose of computing the percentage ownership of any other person. For a description of restricted stock units, see the section titled “Directors — Compensation of Directors.” Unless otherwise indicated, to the Company’s knowledge, each stockholder has sole voting and dispositive power with respect to the securities beneficially owned by that stockholder. On the Record Date, there were 53,353,449 shares of Common Stock outstanding.

 

 

 

 

 

DIRECTORS

 

The following tables set forth certain information regarding the directors of the Company in 2010 and Nominees for election in 2011. Each director’s term of office expires at the Annual Meeting.

 

 

 

 

The Board believes that it is necessary for each of the Company’s directors to possess many qualities and skills. When searching for new candidates, the Corporate Governance and Public Policy Committee (the “Governance Committee”) considers the evolving needs of the Board and searches for candidates that fill any current or anticipated future needs. The Board also believes that all directors must possess a considerable amount of business management, business leadership and educational experience. When considering director candidates, the Governance Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value. The Governance Committee also focuses on issues of diversity, such as diversity of education, professional experience and differences in viewpoints and skills. The Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Governance Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Governance Committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered.

 

All our directors bring to the Board executive leadership experience derived from their service in the many areas detailed below for each director. The process undertaken by the Governance Committee in recommending qualified director candidates is described below under “Director Nomination Procedures”. Certain individual qualifications and skills of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.

 

The names of the current directors and Nominees, along with their present positions, their principal occupations and directorships held with other public corporations during the past five years, and the year first elected as a Director, are set forth below.

 

Buford P. Berry, a director since May 2004, has served as a director, an advisory committee member (which performs audit committee functions) and compensation committee member of Dorchester Minerals Management GP LLC, the general partner of Dorchester Minerals LP (NASDAQ: DMLP), since February 2003. He is currently of counsel to Thompson & Knight L.L.P., a Texas based law firm. Mr. Berry has been an attorney with Thompson & Knight L.L.P., serving in various capacities since 1963, including as Managing Partner from 1986 to 1998. While in active practice with Thompson & Knight L.L.P., Mr. Berry’s practice focused on federal income taxation with an emphasis on oil and gas taxation and tax litigation. Mr. Berry received his B.B.A. in Accounting from The University of Texas at Austin, and received his L.L.B. from The University of Texas School of Law. The Board selected Mr. Berry to be a director because he brings to the Board an additional perspective in dealing with complex

legal, regulatory and risk matters affecting the Company due to his service as managing partner at a large law firm in Texas. His service on the advisory committee for Dorchester Minerals Management GP LLC and audit committees of other public companies provides additional valuable experience in managing risks.

 

Matthew P. Clifton, a director since 1995, has been with the Company for over thirty years and was elected as the Company’s Chairman of the Board and Chief Executive Officer in April 2007. Mr. Clifton served as Chief Executive Officer from 2006 until April 2007. Mr. Clifton served as President of the Company from 1995 to 2006, and since March 2004, has served as Chairman of the Board and Chief Executive Officer of Holly Logistic Services, L.L.C. (“HLS”), the general partner of HEP Logistics Holdings, L.P., which is the general partner of Holly Energy Partners, L.P. (“HEP”), a Delaware limited partnership. The Company currently owns a 34% interest (including the general partner interest) in Holly Energy Partners, L.P. Mr. Clifton received his B.S. in Accounting and Finance from St. Joseph’s University. Mr. Clifton serves on the Board because he is the Company’s Chief Executive Officer and has been with the Company for over 30 years, having started in 1980. The Board selected Mr. Clifton to be a director because he has extensive knowledge of operations of the Company, the refining industry and macro-economic conditions, as well as valuable industry relationships throughout the country. Mr. Clifton brings a unique and valuable perspective as well as an understanding of the Company’s history, culture, vision and strategy to the Board.

 

Leldon E. Echols, a director since January 2009, is a private investor. From 2000 to 2006, Mr. Echols served as Executive Vice President and Chief Financial Officer of Centex Corporation. Before joining Centex Corporation, Mr. Echols was a managing partner in Arthur Andersen LLP’s audit and business advisory practice from 1997 to 2000, and he held various other positions with the firm between 1978 and 1997. Mr. Echols received a bachelor of science degree in accounting from Arkansas State University and is a certified public accountant. He is currently a member of the boards of directors of three public companies: Trinity Industries, Inc. (NYSE: TRN), where he serves on the audit and human resources (compensation) committees, and Crosstex Energy, L.P. (NASDAQ: XTEX) and a related company, Crosstex Energy, Inc. (NASDAQ: XTXI), where he serves on the audit and finance committees. Mr. Echols also serves on the board of directors of Roofing Supply Group Holdings, Inc., a private company. From 2005 to 2007, Mr. Echols was a member of the board of directors of TXU Corp., where he served on the audit and compensation committees. Mr. Echols serves the community by serving as a board member of the Circle Ten Council of Boy Scouts of America, the Baylor Healthcare Foundation, and the Dallas Chapter of the American Red Cross. The Board selected Mr. Echols to be a director because he brings to the board executive management and directorship experience in public companies, together with extensive financial and management experience. Mr. Echols also brings to the Board financial reporting expertise and a level of financial sophistication that qualifies him as a financial expert in his role as the Chair of the Audit Committee. Mr. Echols’ prior and current service on the audit committees of other publicly traded companies gives him a range of experiences and skills that compliment his current committee assignments with the Company.

 

R. Kevin Hardage, a Nominee for election to the Board, has served as Chief Executive Officer of Turtle Creek Trust Company, a private trust and investment management firm in Dallas, Texas, since 2009. He is a co-founder of Turtle Creek Management, LLC, a Dallas-based registered investment advisory firm, and has served as its President and as a portfolio manager since its inception in 2006. From 2002 to 2006 he served as Vice President and portfolio manager of U.S. Trust Company, N.A., a private banking and investment management firm. From 1998 to 2002 he served as Vice President of Brown Brothers Harriman & Co. and head of the firm’s Dallas office. From 1994 to 1998 he was engaged in the private practice of corporate and securities law at the firm of Locke Liddell Rain Harrell in Dallas, Texas. Mr. Hardage received his B.A. from the University of Texas at Austin, his M.B.A. from the University of Texas at Austin Graduate School of Business, and his J.D. degree from Southern Methodist University School of Law. Mr. Hardage also holds a Chartered Financial Analyst designation from the CFA Institute. The Board selected Mr. Hardage as a Nominee for director because he would bring to the Board executive and general management experience and financial expertise.

 

Marcus R. Hickerson retired from the Board in 2010.  Certain information with respect to Mr. Hickerson is included in this Proxy Statement due to his service as a director from January 1, 2010 to the date of the 2010 Annual Stockholder Meeting.

 

Thomas K. Matthews, II retired from the Board in 2010. Certain information with respect to Mr. Matthews is included in this Proxy Statement due to his service as a director from January 1, 2010 to the date of the 2010 Annual Stockholder Meeting.

Robert G. McKenzie, a director since 1992, has been a financial consultant since 2000. From 1985 to 1990, Mr. McKenzie served as Executive Vice President of Republic Bank Dallas, and he held various other positions with the company between 1965 and 1985. From 1990 to 1999, he was Executive Vice President and Chief Operating Officer of Brown Brothers Harriman Trust Company of Texas. From 1999 to June 2009, Mr. McKenzie was a member of the board of directors of Brown Brothers Harriman Trust Company of Texas. In December 2009, he became a member of the board of directors of Turtle Creek Trust Company. Mr. McKenzie has also served as Chairman of the Trust Counsel committee of the American Bankers Association (and member of its taxation committee), Chairman of the Texas Bankers Association Legislative Committee (and member of its Board of Directors), and Secretary/Treasurer of the Dallas Bar Association Probate and Trust Law Section. Mr. McKenzie was named Outstanding Trust Banker by the Texas Bankers Association in 1986. The Board selected Mr. McKenzie as a director because he brings to the Board financial reporting expertise and financial sophistication based upon his prior experience, including his former role as the Chair of the Audit Committee. Mr. McKenzie’s long history with the Company, combined with his leadership skills and operating experience, makes him particularly well suited to be our Presiding Director. Due to his service on several of the Company’s committees, Mr. McKenzie possesses a broad range of expertise and knowledge of all committee functions, together with an invaluable overview of the Company’s businesses. Mr. McKenzie received his B.A. and M.A. in History and his J.D. from the University of Texas.

 

Jack P. Reid, a director since 1977, was a consultant to the Company from August 1999 through July 2002. Until August 1999, Mr. Reid was Executive Vice President, Refining, of the Company, where his duties included a wide range of operational areas that give him a unique perspective and operational expertise that is valuable and needed by the Board. Mr. Reid serves on the Company’s Corporate Governance and Public Policy Committee, where his operational expertise is valuable in reviewing, formulating and modifying the Company’s policies and procedures on matters of public and governmental concern that significantly affect the Company. Mr. Reid received his B.S. in Chemical Engineering from Kansas University. The Board selected Mr. Reid to be a director because, as one of our longest serving independent outside directors, Mr. Reid brings historical, long-term perspective and leadership to the Board, together with extensive knowledge of the Company’s refining operations and growth strategy.

 

Paul T. Stoffel, a director since 2001, has been Chairman of Triple S Capital Corp. and of Paul Stoffel Investments since 1985, engaged in public and private equity investments. Mr. Stoffel also serves the community as a member of the board of directors of the Dallas Center for Performing Arts, the Dallas Museum of Art, and the Southwestern Medical Foundation. Mr. Stoffel received his MBA from Harvard Business School. Mr. Stoffel is not standing for reelection at the 2011 Annual Stockholders Meeting, so his qualifications for the director election at the 2011 Annual Stockholders Meeting are not presented.

 

Tommy A. Valenta, a director since February 2010, was the President, Chief Executive Officer and Director of Chaparral Steel Company from July 2005 until September 2007, when he retired. Prior to joining Chaparral Steel Company, Mr. Valenta was employed at Texas Industries, Inc. for 37 years, where he was the Executive Vice-President and Chief Operating Officer — Steel from 1998 to 2005, and held various other positions with the company between 1970 and 1988. Throughout Mr. Valenta’s career he has served as a director of various industry associations including the National Ready Mixed Concrete Association, American Institute of Steel Construction, International Iron and Steel Institute and the Steel Manufacturers Association. Mr. Valenta currently serves on the boards of directors of: American Excelsior Company (where he serves on the audit and compensation committees), the Circle Ten Council of the Boy Scouts of America, and Cashiers Community Fund. Mr. Valenta also serves as President of the Corporation for the Episcopal Diocese of Dallas and is a member of the Salesmanship Club of Dallas. Mr. Valenta received his MBA from Southern Methodist University. The Board selected Mr. Valenta as a director because he brings to the Board executive and general management experience and teambuilding leadership in a public company.

 

None of our directors or Nominees reported any litigation for the period from 2001 to 2011 that is required to be reported in this Proxy Statement.

Compensation of Directors

 

For the year ended December 31, 2010, directors who are not employees of the Company or its subsidiaries were compensated as follows:

 

 

Employees of the Company who also serve as directors are not entitled to any additional compensation for their services on the Board.

 

 

In addition to the compensation arrangements described above, the Company previously entered into Supplemental Payment Agreements (the “Supplemental Agreements”) with certain directors to provide compensation for their 2001, 2002 and/or 2003 service as directors. Under the terms of the Supplemental Agreements, directors received an amount of “phantom shares,” which are bookkeeping entries used to compute the value of certain payments to be paid under the Supplemental Agreements (the “Phantom Shares”). The Phantom Shares, as used in computations under the Supplemental Agreements, are considered to be equal in value to shares of our Common Stock, except that the director does not actually have any rights with respect to the shares.

 

Under the Supplemental Agreements, directors are entitled to two types of payment: (i) interim payments and (ii) a final payment. So long as the final payment has not been made, a director is entitled to interim payments, from time to time with respect to Phantom Shares, equal to the amount of the dividends in cash or property (but not shares of our Common Stock) paid to holders of shares of our Common Stock. Each interim payment is paid at the same time as the payment of the dividend to which such interim payment relates. A director is also entitled to a final payment upon the date (the “Valuation Date”) that (i) the director ceases to be a member of the Board for any reason other than resignation or (ii) the date of the Company’s Annual Meeting of Stockholders that first occurs after the director resigns as a member of the Board. The final payment with respect to a Phantom Share is based upon the “Applicable Value” (as defined in the Supplemental Agreement) of a share of Common Stock, which generally is the average daily trading price for a share of Common Stock on the stock exchange on which the Common Stock is listed or the over the counter market over a period of 20 trading days. The final payment is calculated by multiplying the “Applicable Value” by the number of Phantom Shares held by the director and is paid within 40 days of the Valuation Date. Under the Supplemental Agreements, the Company also has a right to terminate the Phantom Shares held by a director by making a final payment if (i) at any time the Board determines, in reasonable judgment, that it is necessary to comply with government regulations or facilitate a transaction that is in the best interest of the Company or (ii) the Common Stock permanently ceases to be traded on a national exchange or over the counter.

 

During the year ended December 31, 2010, compensation was provided to the Company’s outside directors as set forth below:

 

 

 

 

Guidelines for Stock Ownership for Outside Directors

 

Under the terms of the restricted stock unit awards, directors are prohibited from selling shares for two years after vesting, absent the occurrence of an accelerated payment event as described above under “Compensation of Directors.” Pursuant to the stock ownership guidelines approved by the Board in 2009, each director is further expected to own at least 3,000 shares of our Common Stock. To the extent a director does not meet these guidelines he will be expected to retain 25% of the shares of Common Stock received upon settlement of his restricted stock unit award, until such time as the stock ownership requirement is met. Currently all of our directors are in compliance with the stock ownership guidelines.

 

MEETINGS AND COMMITTEES OF DIRECTORS

 

The Board is comprised of a majority of independent directors as defined in Section 303A.02 of the New York Stock Exchange (“NYSE”) listing standards. The directors determined by the Board to be independent under this standard are Buford P. Berry, Leldon E. Echols, Robert G. McKenzie, Jack P. Reid, Paul T. Stoffel and Tommy A. Valenta. Marcus R. Hickerson and Thomas K. Matthews were also determined by the Board to be independent under this standard during their service on the Board in 2010 prior to their retirement from the Board on May 5, 2010. The Board has also determined that R. Kevin Hardage, who is a Nominee for election as a director of the Company, is independent under this standard.

 

Marcus R. Hickerson served as a director from January 1, 2010 until May 5, 2010 (the date of the 2010 Annual Stockholders Meeting at which he did not stand for reelection) when he retired from the Board. In determining that Mr. Hickerson was an independent director during his service to the Board in 2010, the Board considered the fact that Mr. Hickerson’s 58-year-old son, M. Neale Hickerson, is employed as a Vice President of the Company and certain subsidiaries, including Holly Logistic Services, L.L.C. From January 2004 to February 2005, M. Neale Hickerson’s title as an officer of the Company was Vice President, Investor Relations, and his current title is Vice President, Investor Relations. The Board’s determination that the employment of M. Neale Hickerson would not interfere with Marcus R. Hickerson’s ability to act independently from the management of the Company was based particularly on the fact that Marcus R. Hickerson satisfies all of the independence requirements of Section 303A.02(b) of the NYSE’s listing standards. Additionally, the Board based its determination on the role played in the Company by M. Neale Hickerson and the fact that he is not an executive officer of the Company.

 

In determining that Mr. Reid is an independent director, the Board considered the fact that Mr. Reid’s 50-year-old son, Willie D. Reid, is employed as a Manager of Applications Infrastructure Support of the Company. From May 1986 to present, Willie D. Reid has maintained various IT positions, and his current title is Manager, Applications Infrastructure Support of the Company. The Board’s determination that the employment of Willie D. Reid would not interfere with Jack P. Reid’s ability to act independently from the management of the Company was based particularly on the fact that Jack P. Reid satisfies all of the independence requirements of Section 303A.02(b)

of the NYSE’s listing standards. Additionally, the Board based its determination on the role played in the Company by Willie D. Reid and the fact that he is not an executive officer of the Company.

 

In determining that Mr. Hardage is independent, the Board considered the fact that Mr. Hardage’s father-in-law, Gerard Regard, is employed as Assistant to the Chairman of the Company. Over the last 35 years, Gerard Regard has held various positions with the Company, and since 1979, he has been the Assistant to the Chairman of the Board. The Board’s determination that the employment of Gerard Regard would not interfere with Mr. Hardage’s ability to act independently from the management of the Company was based particularly on the fact that Mr. Hardage satisfies all of the independence requirements of Section 303A.02(b) of the NYSE’s listing standards. Additionally, the Board based its determination on the role played in the Company by Gerard Regard and the fact that he is not an executive officer of the Company. In determining that Mr. Hardage is independent, the Board also considered the fact that Mr. Hardage is a non-controlling manager and member of TCTC Holdings, LLC (which may be deemed to beneficially own 14.62% of the Company’s Common Stock) and holds various positions with its subsidiaries.

 

The Board held eleven meetings during 2010. The Board has four principal standing committees: (a) the Executive Committee, (b) the Audit Committee, (c) the Compensation Committee, and (d) the Corporate Governance and Public Policy Committee. Each of the committees is appointed by the Board. During 2010, each director attended at least 75% of the total number of meetings of the Board. During 2010, each director attended at least 75% of the meetings of each of the committees of the Board on which that director served. The Company does not have a policy requiring the Chairman of the Board or other directors to attend the Company’s Annual Meeting. All of the Company’s directors who were elected at the 2010 Annual Meeting of Stockholders attended that meeting.

 

Committee memberships as of the date of this Proxy Statement are set forth below:

 

* Not standing for reelection at the 2011 Annual Stockholders Meeting.

 

A “C” indicates that the director serves as the chair of the committee.

An “X” indicates membership on the committee.

 

The Executive Committee of the Board has the authority of the Board, to the extent permitted by law and subject to any limitations that may be specified from time to time by the Board, for the management of the business and affairs of the Company between meetings of the Board. The Executive committee held no meetings during 2010.

 

The Audit Committee of the Board is responsible for monitoring the Company’s internal accounting controls, selecting and engaging independent auditors, subject to ratification by the stockholders, reviewing quarterly and annual reports filed with the SEC, and reviewing certain activities of the independent auditors and their reports and conclusions. In addition, the committee selects persons to conduct internal audits of certain Company transactions and related financial controls and reviews the reports developed from such internal audits. During 2010, the committee met in person or by telephone six times and also took action by unanimous written consent one time. The Board has adopted a written charter for the Audit Committee, which is available on the Company’s website at

www.hollycorp.com and is available in print to any stockholder without charge upon written request to the Vice President, Investor Relations at: Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, TX, 75201-6915. All members of the Audit Committee have been determined to be independent as independence is defined in Section 303A.02 of the NYSE’s listing standards and of Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”). In accordance with Section 303A.07 of the NYSE’s listing standards, the Board has determined that Mr. Echols’ simultaneous service as a member of the audit committees of Trinity Industries, Inc., Crosstex Energy, L.P. and Crosstex Energy, Inc. will not impair Mr. Echols’ ability to efficiently serve on the Company’s Audit Committee because of the amount of time he has to devote to this responsibility and the expertise that he has in this area. The Board has also determined that Mr. Echols satisfies the requirements of the SEC regulations for an “audit committee financial expert” and has designated Mr. Echols as the Company’s audit committee financial expert.

 

The Compensation Committee of the Board is responsible for the oversight of compensation programs and plans for the executive officers of the Company. The Committee determines the level of compensation paid to the Company’s Chief Executive Officer and all other executive officers. The Committee is also responsible for establishing and overseeing the compensation program for non-employee directors who serve on the Board. The Committee may delegate to its chairperson, any one of its members or any subcommittee it may form, the responsibility and authority for any particular matter, as it deems appropriate from time to time under the circumstances. However, subcommittees do not have the authority to engage independent legal counsel and other experts and advisors unless expressly granted such authority by the Committee. Each subcommittee is required to keep minutes and report them to the Committee. As described above, all members of the Committee have been determined to be independent as independence is defined in Section 303A.02 of the NYSE’s listing standards. During 2010, the Committee met nine times. The Board has adopted a written charter for the Committee, which is available on the Company’s website at www.hollycorp.com and is available in print to any stockholder without charge upon written request to the Vice President, Investor Relations at: Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, TX, 75201-6915.

 

On May 5, 2010, the Nominating/Corporate Governance Committee of the Board and the Public Policy Committee of the Board combined to create the Corporate Governance and Public Policy Committee of the Board. The Corporate Governance and Public Policy Committee is responsible for advising the Board concerning the appropriate composition of the Board and its committees (including identifying individuals qualified to serve on the Board and its committees), the selection of director nominees for each annual meeting of the Company’s stockholders, the selection of executive officers and officers of the Company, and appropriate corporate governance practices. The Corporate Governance and Public Policy Committee is also responsible for reviewing the Company’s policies and procedures on matters of public and governmental concern that significantly affect the Company, including but not limited to environmental, occupational health and safety, and equal employment opportunity matters, and for recommending to management and the Board the formulation or modification of policies and procedures concerning such matters. As described above, all members of the Corporate Governance and Public Policy Committee have been determined to be independent as independence is defined in Section 303A.02 of the NYSE’s listing standards. During 2010, the Corporate Governance and Public Policy Committee met two times and, prior to the combination of the Nominating/Corporate Governance Committee and the Public Policy Committee, the Nominating/Corporate Governance Committee and the Public Policy Committee each met two times. The Corporate Governance and Public Policy Committee continues to be governed by the charter for the Nominating/Corporate Governance Committee, which is available on the Company’s website at www.hollycorp.com and is available in print to any stockholder without charge upon written request to the Vice President, Investor Relations at: Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, TX, 75201-6915.

 

DIRECTOR NOMINATION PROCEDURES

 

All of the Company’s directors are elected each year by its stockholders at the annual meeting of stockholders. The Board has specified the number of directors to be seven (7) as of May 12, 2011. The Board is responsible for filling vacancies on the Board at any time during the year, and for nominating director nominees to stand for election at the annual meeting of stockholders. The Corporate Governance and Public Policy Committee reviews all potential director candidates, and recommends potential director candidates to the full Board. Director candidates may be identified by current directors of the Company, employees of the Company or through other sources, including stockholders as described below under “Nomination of Directors by Stockholders.” The Corporate

Governance and Public Policy Committee occasionally utilizes the services of search firms or consultants to assist in identifying and screening potential candidates. The Corporate Governance and Public Policy Committee has an extensive diligence process for reviewing potential candidates, including an assessment of each candidate’s independence under Section 303A.02 of the NYSE’s listing standards and Rule 10A-3 under the Exchange Act, a candidate’s relevant educational, business and financial experience, ability to read and understand financial statements, and other relevant factors, as described under “Selection of Directors — Criteria” in the Company’s Corporate Governance Guidelines, which can be found on the Company’s website at www.hollycorp.com. A copy of the Corporate Governance Guidelines is available in print to any stockholder without charge upon written request to the Vice President, Investor Relations at: Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, TX, 75201-6915. The full Board reviews and has final approval authority on all potential director candidates being recommended to the stockholders for election.

 

RECOMMENDATION OF DIRECTOR CANDIDATES BY STOCKHOLDERS

 

The Company does not have a formal policy by which its stockholders may recommend director candidates, but the Corporate Governance and Public Policy Committee will consider candidates recommended by stockholders. A stockholder wishing to submit such a recommendation should send a letter to the Secretary of the Company at 100 Crescent Court, Suite 1600, Dallas, Texas 75201-6915. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Director Nominee Recommendation.” The letter must identify the author as a stockholder and provide a brief summary of the candidate’s qualifications based on the criteria described above under “Director Nomination Procedures” and in the Company’s Corporate Governance Guidelines, as well as contact information for both the candidate and the stockholder. Candidates recommended by stockholders will be evaluated by the Corporate Governance and Public Policy Committee in the same manner as other candidates submitted by directors, employees or obtained through other sources, although the members of the Corporate Governance and Public Policy Committee may prefer candidates who are personally known to the existing directors and whose reputations are highly regarded. In evaluating proposed candidates, the Corporate Governance and Public Policy Committee will consider all relevant qualifications as well as the needs of the Company in terms of compliance with the NYSE’s listing standards and SEC rules. The Company’s Bylaws provide additional procedures and requirements for stockholders wishing to nominate a director for election as part of the official business to be conducted at an annual meeting of stockholders, as described further under “Stockholder Proposals.”

 

BOARD LEADERSHIP STRUCTURE

 

The Board believes that the Company’s Chief Executive Officer is best situated to serve as Chairman of the Board because he is the director most familiar with the Company’s business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. The Company’s independent directors bring experience, oversight and expertise from outside the Company and industry, while the Chief Executive Officer brings Company-specific experience and expertise. The Board believes that the combined role of Chairman of the Board and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance of the Company.

 

One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of strategy once it is developed. The Board believes the combined role of Chairman of the Board and Chief Executive Officer, together with a lead independent director (the “Presiding Director”) having the duties described below, is in the best interest of stockholders because it provides the appropriate balance between strategy development and independent oversight of management.

 

PRESIDING DIRECTOR AND COMMUNICATIONS WITH THE BOARD

 

Robert G. McKenzie, an independent director who serves as Chairman of the Corporate Governance and Public Policy Committee, was selected by the Board to serve as the Presiding Director for all meetings of the non-management directors held in executive session. The Presiding Director has the responsibility of presiding at all

executive sessions of the Board, consulting with the Chairman of the Board and Chief Executive Officer on Board and committee meeting agendas, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chairman of the Board and Chief Executive and advising him on the efficiency of the board meetings, and facilitating teamwork and communication between the non-management directors and management.

 

Persons wishing to communicate with the non-management directors are invited to email the Presiding Director at presiding.director@hollycorp.com or write to: Robert G. McKenzie, Presiding Director, c/o Secretary, Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, Texas 75201-6915. Although the Company has not to date developed formal processes by which stockholders may otherwise communicate directly with directors, the Company believes that its process with regard to communicating with non-management directors, and its informal process under which any communication sent to the Board in care of the Chief Executive Officer or Secretary of the Company is forwarded to the Board for consideration, serves the Board’s and the stockholders’ needs. There is no screening process, and all stockholder communications that are received by officers for the Board’s attention are forwarded to the Board.

 

RISK MANAGEMENT

 

The Board has an active role, as a whole and also at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s credit, liquidity and operations, as well as the risks associated with each. The Compensation Committee is responsible for overseeing the management of risks relating to the Company’s executive compensation plans and arrangements. The Audit Committee oversees management of financial risks. The Corporate Governance and Public Policy Committee manages risks associated with the independence of the Board and potential conflicts of interest and also oversees management of risks associated with environmental, health and safety. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks.

 

The Audit Committee and the Board also receive input from the Company’s Risk Management Oversight Committee (the “Risk Committee”), made up of management personnel with a range of different backgrounds, skills and experiences with regard to the operational, financial and strategic risk profile of the Company. The Risk Committee monitors the risk environment for the Company as a whole, and reviews the activities that mitigate to an achievable and acceptable level the risks that may adversely affect the Company’s ability to achieve its goals. The Risk Committee also supports the Audit Committee’s efforts to monitor and evaluate guidelines and policies to govern the process by which risk assessment and management is undertaken.

 

EXECUTIVE OFFICERS

 

The following table sets forth information regarding the Executive Officers of the Company and certain of its subsidiaries for 2010:

 

 

David L. Lamp, was appointed President of the Company in November, 2007. Mr. Lamp joined the Company in January 2004 as Vice President, Refining Operations and was elected Executive Vice President, Refining and Marketing in November 2005. From 2002 to 2004, Mr. Lamp was Vice President of El Paso Energy Corporation (“El Paso”) and General Manager of El Paso’s 250,000 barrels per day Aruba refinery. Prior to his position with El Paso, Mr. Lamp was employed by Koch Industries, where he served as in various positions from 1980 to 2001. In 1998, Mr. Lamp served as Director of Operations for a large international chemical and fiber joint venture owned

partially by Koch (KOSA). Mr. Lamp received a Bachelor of Science degree in Chemical Engineering from Michigan State University.

 

Bruce R. Shaw, was appointed Senior Vice President and Chief Financial Officer of the Company on January 7, 2008. Between January 2007 and June 2007, Mr. Shaw was Vice President, Corporate Development for the Company. Mr. Shaw briefly left the Company in June 2007 and served as President of Standard Supply and Distributing Company, Inc. and Bartos Industries, Ltd., two companies that are affiliated with each other in the heating, ventilation and air conditioning industry. Mr. Shaw also served as Vice President, Special Projects for the Company from September 2007 through December 2007. Prior to that, Mr. Shaw served the Company in various positions including Vice President of Crude Purchasing and Corporate Development from February 2005 to February 2006, Vice President of Corporate Development from March 2004 to February 2005, Vice President of Marketing and Corporate Development from November 2003 to March 2004, Vice President of Corporate Development from October 2001 to November 2003 and Director of Corporate Development from June 1997 to January 2000. Mr. Shaw also served as Vice President, Corporate Development for HLS from August 2004 to January 2007 and as a director from April 2007 through April 2008. Mr. Shaw received his undergraduate degree in Mechanical Engineering from Texas A&M University and his MBA from Dartmouth College.

 

George J. Damiris, was appointed Senior Vice President, Supply and Marketing of the Company in January 2008. Mr. Damiris joined the Company in June 2007 as Vice President, Corporate Development after an 18-year career with Koch Industries, where he was responsible for managing various refining, chemical, trading, and financial businesses most recently with its INVISTA subsidiary as President of its Intermediates business from January 2006 to May 2007 and Vice President of Corporate Development from January 2004 to December 2005. Prior to INVISTA, he served as Managing Director — Capital Markets responsible for capital market transactions, Managing Director — Ventures responsible for venture capital investments, Vice President — Refining responsible for the Corpus Christi refining business, Vice President — Chemicals responsible for the commodity chemical business, Vice President — Supply & Trading responsible for natural gas, chemicals, and gasoline components, and Vice President — Business Development for Refining. Prior to Koch, Mr. Damiris was employed by British Petroleum for 8 years in various engineering, operations, and business development positions. Mr. Damiris received his B.S. in Chemical Engineering from Case Western Reserve University, and his MBA from the Weatherhead School of Management at Case Western Reserve University.

 

Denise C. McWatters, was appointed Vice President, General Counsel and Secretary of the Company effective May 8, 2008. She joined the Company in October 2007 as Deputy General Counsel with more than 20 years of legal experience. Ms. McWatters served as the General Counsel of The Beck Group from 2005 through 2007. From 2002 through 2005, Ms. McWatters practiced law in the Law Offices of Denise McWatters. Prior to such practice, Ms. McWatters was a shareholder in the predecessor firm to Locke Lord Bissell & Liddell LLP, served as Counsel in the legal department at Citigroup, N.A. and was a shareholder in the law firm of Cox Smith Matthews Incorporated. Ms. McWatters received her B.S. and M.A. in Psychology from Southern Methodist University, and her J.D. from The University of Texas School of Law.

 

The Executive Officers named above were elected by the Board to serve in such capacities until their respective successors have been duly elected and qualified, or until their earlier death, resignation or removal from office. Biographical information on Mr. Clifton is set forth previously in this Proxy Statement under “Directors.”

 

None of our executive officers reported any litigation for the period from 2001 to 2011 that is required to be reported in this Proxy Statement.

 

CODE OF BUSINESS CONDUCT AND ETHICS

 

The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to all officers, directors and employees, including the Company’s principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. A copy of the Code of Ethics and a description of all amendments adopted thereto in the last twelve months are posted on the Company’s website at www.hollycorp.com and a copy of the Code of Ethics is available in print to any stockholder without charge upon written request to the Vice President, Investor Relations at: Holly Corporation, 100 Crescent Court, Suite 1600,

Dallas, TX, 75201-6915. If ever applicable, the Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of its Code of Ethics with respect to such officers, directors and employees by posting such information on the Company’s website.

 

CORPORATE GOVERNANCE GUIDELINES

 

The Company has adopted Corporate Governance Guidelines (the “Governance Guidelines”) to promote the functioning of the Board and its committees and to set forth a common set of expectations as to how the Board should perform its functions. A copy of the Governance Guidelines is posted on the Company’s website at www.hollycorp.com and is available in print to any stockholder without charge upon written request to the Vice President, Investor Relations at: Holly Corporation, 100 Crescent Court, Suite 1600, Dallas, TX, 75201-6915.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This compensation discussion and analysis (“CD&A”) provides information about our compensation objectives and policies for our principal executive officer, our principal financial officer and our other three most highly compensated executive officers, and is intended to place in perspective the information contained in the executive compensation tables that follow this discussion. In this CD&A, we provide a general description of our compensation program and specific information about its various components. Immediately following the CD&A is the Committee Report (the “Committee Report”).

 

Our wholly-owned indirect subsidiary, HLS, is the general partner of HEP Logistics Holdings, L.P., which is the general partner of HEP, one of our consolidated subsidiaries in which we indirectly own a 34% interest, including the 2% general partner interest. HLS employs its own executive officers, some of whom are also our officers. The board of directors of HLS, through its compensation committee, makes compensation decisions with respect to the executive officers of HLS for the services they provide as executive officers of HLS. The compensation of the executive officers of HLS is discussed in the Compensation Discussion and Analysis contained in HEP’s Annual Report on Form 10-K for the year ended December 31, 2010. Messrs. Clifton and Shaw and Ms. McWatters also receive compensation from HLS in the form of equity incentive plan compensation for the services these executives perform for HLS; however, the compensation information regarding these executives included within this CD&A relates solely to the services these individuals provide directly to us. The HEP equity awards made to Messrs. Clifton and Shaw and Ms. McWatters are described in HEP’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Throughout this discussion, the following individuals are referred to as the “Named Executive Officers” and are included in the Summary Compensation Table:

 

 

Objectives and Summary of Compensation Program

 

Our compensation program is designed to attract and retain talented and productive executives who are motivated to protect and enhance our long-term value for the benefit of our stockholders. Our objective is to be competitive with our industry and encourage high levels of performance from our executives.

 

The Committee, comprised entirely of independent directors, administers the compensation program. The Committee reviews and approves the compensation to be paid to the Named Executive Officers and reviews the compensation policies and practices for all of our employees to verify that such policies and practices do not create unreasonable risks for us.

The Committee has not adopted any formal policies for allocating compensation among salaries, bonuses and equity compensation. The Committee, with the assistance of management, has sought to designate an appropriate mix of cash and long-term equity incentive compensation with the goal of providing sufficient current compensation to retain the Named Executive Officers, while at the same time providing incentives to the Named Executive Officers to exert their best efforts to maximize long-term value for both us and our stockholders. The Committee considers recommendations by management, its independent compensation consultant and many other factors in deciding on the final compensation factors that are appropriate for both us and for each Named Executive Officer. The Committee generally solicits the recommendations of our Chairman of the Board and Chief Executive Officer (except with respect to his own compensation) and of other members of management when the Committee considers its compensation determinations. See “Role of Named Executive Officers in Determining Compensation” below.

 

In addition to reviewing the recommendations of management and our Chief Executive Officer, prior to making compensation decisions for the 2010 year, the Committee also reviewed the total compensation provided to each of the Named Executive Officers during the 2009 year. The Committee, with the assistance of management, annually reviews each of the Named Executive Officers’ proposed long-term incentive compensation to determine whether the executives are being provided with equity awards that are effective in motivating the Named Executive Officers to create long-term value for us. The Committee’s annual compensation review also includes an analysis of the Named Executive Officers’ non-equity compensation elements to determine if current levels are adequately aligned with our pay philosophy and business strategies. The Committee also takes into consideration the compensation of similarly situated executives in comparable businesses. These equity incentives are designed to retain the executives and align their interests with our stockholders over a longer-term period of time.

 

Compensation Committee Consultant

 

The Committee has engaged Frederic W. Cook & Co. (the “Compensation Consultant”), an outside consulting firm specializing in executive compensation, to advise the Committee on matters related to executive and non-employee director compensation. The Compensation Consultant provides the Committee with relevant market data, updates on related trends and developments, advice on program design, and input on compensation decisions for executive officers and non-employee directors. The Compensation Consultant is independent, retained directly by the Committee, and provides no other services directly to us (but did provide executive and director compensation consulting services directly to the HEP Compensation Committee which are further described in HEP’s Annual Report on Form 10-K for the year ending December 31, 2010), and there are no conflicts of interest that exist between us or the Committee and the Compensation Consultant. While the Committee recognizes the value of being properly informed of market trends and peer company compensation levels when evaluating our own program, the Committee is under no obligation to utilize the Compensation Consultant’s advice or recommendations, and retains the sole discretion to structure our program as the Committee believes to be appropriate for us and our stockholders.

 

Overview of 2010 Executive Compensation Components

 

After reviewing both the internal evaluations of the Named Executive Officers and the market data provided by the Compensation Consultant, the Committee believes that the 2010 compensation for the Named Executive Officers reflects an appropriate allocation of compensation between salary, bonuses and equity compensation.

 

The components of compensation for the Named Executive Officers in 2010 were:

 

 

Base Salary

 

Base salaries for the Named Executive Officers are reviewed annually by the Committee based on each executive’s position, level of responsibility, individual performance, position relative to other executives, market practices and all other elements of the executive’s compensation. The Committee also reviews competitive market data relevant to each position provided by the Compensation Consultant. Following a review of these various factors, the Committee determined that increases in the base salaries for the Named Executive Officers were warranted, as shown in the table below.

 

 

Due to a decline in the economy and its resulting effect on our industry and our company, at the request and recommendation of Mr. Clifton a salary increase for Messrs. Clifton and Lamp for 2010 was not considered, despite the Committee’s and the Board’s positive view of their performance.

 

At its February 22, 2011 meeting, the Committee again reviewed the various considerations explained above and approved the following base salary rates for the Named Executive Officers, to be effective February 21, 2011:

 

 

Annual Incentive Cash Bonus Compensation

 

Under our annual incentive program, Named Executive Officers are eligible for cash bonuses that are intended to attract and retain senior leadership, link bonuses to our performance versus the industry as well as our own absolute results, align executives’ interests with stockholders, and recognize the volatility and unpredictability of the refining industry.

 

Annual cash incentive opportunities for our Named Executive Officers are reviewed annually, increase with level of responsibility, and are split between three performance elements: net income, peer results, and individual performance. More weight is placed on individual performance at lower levels of responsibility, and peer results are weighted more heavily than absolute results due to the economics of the refining industry and inability to forecast results. Bonus opportunities for 2010 of our Named Executive Officers are shown below as a percentage of salary by performance element. Bonuses are capped to avoid encouraging an excessive short-term focus at the expense of long-term soundness.

 

Four performance criteria are used in determining the peer results portion of the annual bonus: earnings per share (“EPS”) growth, net profit margin, return on assets, and return on investment. “EPS growth” means the compound annual growth rate in earnings per share before extraordinary items and discontinued operations, and after the effect of conversion of convertible preferred stock, convertible debentures, and options and warrants that have been identified as Common Stock equivalents. “Net profit margin” means net income before extraordinary items and dividends on common and preferred stock, divided by net sales. “Return on assets” means the net income before extraordinary items, divided by total assets (i.e., the sum of current assets, net plant, and other non-current assets). “Return on investment” means the net income before extraordinary items, divided by the sum of long-term debt, preferred stock and total common equity. Each of these performance measures shall exclude unusual or non-recurring items and the cumulative effect of tax and accounting changes.

 

The measures are equally weighted. To facilitate the timely determination of bonuses, the measurement period covers four consecutive quarters starting the last quarter of the preceding year (2009) and ending the third quarter of the current year (2010). Our performance is compared to that of eight publicly traded refiners: Alon USA Energy, Inc., CVR Energy, Inc., Delek U.S. Holdings, Inc., Frontier Oil Corporation, Sunoco, Inc., Tesoro Corporation, Valero Energy Corp. and Western Refining Company (the “2010 Incentive Award Peer Group”, which was the same for 2010 as 2009). These companies are used in evaluating our financial results as their collective performance reflects external economic conditions we are facing as a company and as an industry as a whole, and they are also companies with which both management and investment analysts compare our financial results.

 

Bonus payouts to our Named Executive Officers vary based on our net income and peer results against established standards which were the same in 2010 as 2009, as summarized below along with actual results for 2010. The use of this consistent and objective approach to bonus determinations is intended to simplify the administration of the program, facilitate transparency and communication, and avoid the need to set performance goals in an uncertain economic environment. The broad range of performance over which bonuses may be paid, coupled with the multiple performance criteria, is intended to avoid excess or unnecessary risk-taking to achieve a specific target with respect to a discrete financial metric.

 

 

 

 

 

Individual performance is also evaluated in determining annual bonuses for the Named Executive Officers other than the Chief Executive Officer, considering various competencies such as interpersonal effectiveness, business conduct, professional and technical, leadership, and results orientation. The evaluation is completely discretionary and based on a wide range of considerations which often change over the course of the year. Further, the Committee may increase, decrease, or eliminate awards for any Named Executive Officer as it deems appropriate in its discretion.

 

The 2010 bonus attributable to objective performance standards and actually paid to each Named Executive Officer is shown in the table below as a percentage of salary by performance element based on the actual financial results shown above. The actual dollar amount of the portion tied to financial results is shown in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column, and the individual discretionary portion is shown in the Bonus column (and not in the “Individual” portion of the Actual Non-Equity Compensation % Salary table below).

 

 

 

For 2011, we have not made any substantive changes to the annual incentive cash bonus program.

 

Long-Term Equity Incentive Compensation

 

Long-term equity compensation is the cornerstone of the total compensation program for our Named Executive Officers, and generally receives the heaviest weighting of all compensation elements, which is in line with our philosophy that an executive’s compensation should create long-term incentives and generate value for our stockholders. The long-term equity incentive compensation we provide is intended to be a key element in driving the creation of value for investors and in attracting and retaining executives capable of effectively executing our business strategies. Equity awards are provided under the Long-Term Incentive Compensation Plan that was adopted by the Board in October 2002 and approved by our stockholders at the December 2002 Annual Meeting and as amended and restated and approved by our stockholders at the May 2007 Annual Meeting. The LTIP was also amended in 2008, retroactively effective to January 1, 2005, to reflect that the operation of the LTIP was in compliance with Section 409A of the Tax Code.

Our long-term equity incentive program currently consists of granting primarily restricted stock and performance share unit awards to our Named Executive Officers as described in more detail below. In 2010, the value of the total long-term incentive award made to each of our Named Executive Officers was equally split 50% in restricted stock and 50% in performance share units.

 

In determining the appropriate amount and type of long-term equity incentive awards to be made, the Committee considers the Named Executive Officer’s position, scope of responsibility, base salary, performance and market compensation information for executives in similar positions in similar companies, prior year awards, and recommendations of the Chief Executive Officer (except in regard to his own award). The awards are granted annually during the first quarter of each year.

 

A portion of the compensation for Messrs. Clifton and Shaw and Ms. McWatters consists of long-term equity incentive compensation from HEP, in which we own a 34% interest (including the general partner interest). Please refer to Item 11 of HEP’s Form 10-K for the fiscal year ended December 31, 2010 for further information concerning the compensation provided by HEP to Messrs. Clifton and Shaw and Ms. McWatters.

 

Restricted Stock Awards

 

A restricted stock award is an award of shares of Common Stock which is subject to forfeiture upon termination of employment prior to the vesting of the award. The Committee may approve grants on the terms that it determines, including the period during which the award will vest. Under the LTIP, the Committee may condition vesting upon the achievement of specified financial objectives and/or upon the satisfaction of a specified service period. The Committee has determined to grant our Named Executive Officers restricted stock subject to performance conditions and restricted stock subject only to time-based vesting conditions (other than Messrs. Clifton and Lamp, who have additional performance standards for their restricted stock), as described in greater detail below.

 

Restricted Stock Subject to Performance Conditions.  In 2010, Messrs. Clifton and Lamp were granted awards of restricted stock that will vest in three equal annual installments, provided certain performance requirements are achieved, one effect of which is to preserve the tax deductibility of the awards, under Section 162(m) of the Tax Code, as described in the “Tax and Accounting Implications” section below.

 

The 2010 restricted stock agreements with Messrs. Clifton and Lamp contain a Company performance standard that must be satisfied for those awards to vest. The performance standards applicable to the 2010 restricted stock with performance conditions were changed from previous awards to more closely align these awards with our other performance-based arrangements. Under the terms of the 2010 restricted stock awards with performance conditions, except in the case of early termination of employment, one-third of these restricted shares will vest in annual installments beginning January 1, 2011 if the applicable performance standard is satisfied. For purposes of these awards, the applicable performance standard requires, for any four consecutive quarters during the period beginning with the quarter that begins January 1, 2010, and ending with the quarter that ends December 31, 2013, either (A) the sum of our net income per diluted share equals or exceeds $0.30, or (B) we rank at or above the median of the applicable peer group with respect to at least two out of four following performance measures: EPS growth, net profit margin, return on assets, and return on investment (as defined above). Our peer group for these purposes is the 2010 Incentive Award Peer Group. Assuming the applicable performance standard is met, these awards will become vested on the date the Committee certifies that we have met the applicable standards, provided the applicable service requirement has also been met. To date, we have achieved the applicable performance standard, which has resulted in vesting with respect to the one-third restricted shares that could potentially vest after December 31, 2010. The remaining unvested shares will vest upon satisfaction of the applicable service requirements, except as otherwise described below in “Potential Payments Upon Termination or Change in Control.”

 

Award recipients are stockholders with respect to all of the shares of restricted stock. Recipients of restricted stock subject to performance conditions granted before 2009 are entitled to receive dividends with respect to the underlying shares of Common Stock. For restricted stock awards with performance conditions granted in 2009 and later years, dividends with respect to the underlying shares will be deferred until the applicable awards vest and such distributions will be forfeited if such awards do not vest.

Restricted Stock Subject to Time-Based Vesting Conditions.  Restricted stock awards granted to Messrs. Shaw and Damiris and Ms. McWatters during 2010 are not subject to performance conditions and vest in three substantially equal annual installments. These restricted stock agreements require that the award recipient be continuously employed with us or a subsidiary through the applicable vesting date, except as described below in “Potential Payments Upon Termination or Change in Control.” The first one-third of the restricted stock awards for Messrs. Shaw and Damiris and Ms. McWatters vested in January 2011, and the remaining two-thirds will vest on January 1, 2012 and January 1, 2013, provided he or she continues employment with us.

 

Award recipients are stockholders with respect to all of the shares of restricted stock. Ms. McWatters and Messrs. Shaw and Damiris have the right to receive all dividends and other distributions paid with respect to such shares of restricted stock.

 

Performance Share Unit Awards

 

The performance share units represent an award for a designated performance and related service period. At the end of the required periods, recipients are entitled to a number of shares of Common Stock equal to a percentage of the awarded units as determined by reference to our performance on four performance measures (weighted equally) compared to the performance of the companies included in our performance comparison group on the same four measures. The terms of an award are determined by the Committee at the time of the award, including the number of units in each grant, the performance targets, the method of determining the amounts payable for different levels of performance, and the nature and timing of payment.

 

In 2010, all of our Named Executive Officers were granted awards of performance share units. The performance period for such awards is from January 1, 2010 through September 30, 2012 and the Named Executive Officer must be employed by us on December 31, 2012 to receive a settlement for the performance share unit awards, except as described below in “Potential Payments Upon Termination or Change in Control.” A performance share unit will be earned depending upon our performance versus that of the 2010 Incentive Award Peer Group rather than the satisfaction of any particular value or level of a performance target. If a member of the 2010 Incentive Award Peer Group ceases to be a public company during the performance period (whether by merger, consolidation, liquidation or otherwise) or it fails to file financial statements with the SEC in a timely manner, it will be treated as if it had not been a peer group member for the entire performance period.

 

For the 2010 performance share unit awards, performance measures will mirror the performance measures described above for our annual incentive bonuses. The four performance measures applicable to the 2010 awards are EPS growth, net profit margin, return on assets, and return on investment.

 

The number of shares of Common Stock payable at the end of the applicable performance period is equal to the result of (a) multiplying (i) the number of performance share units granted by (ii) the average percentile ranking, as determined by adding our percentile ranking on each performance measure over the thirty-three month performance period and dividing the sum by four, then (b) multiplying that product by two. The performance share unit awards do not provide for the payment of dividends with respect to outstanding performance share units nor do they provide for the payment of dividends at the end of the performance period that would have been paid during the performance period.

 

Performance share units are also subject to forfeiture in the event that the executive’s employment or service relationship terminates, unless and to the extent that the Committee provides otherwise. See “Potential Payments Upon Termination or Change in Control” for a discussion of the termination and change in control provisions applicable to the performance share units.

 

Review of Market Data

 

Market pay practices are one of many factors considered by the Committee in setting compensation for the Named Executive Officers. We regularly compare our compensation program with market information regarding salary and annual incentive levels, long-term incentive award levels, and short and long term incentive programs. The purpose of this analysis is to provide a frame of reference in evaluating the reasonableness and competitiveness of compensation with the energy industry and to ensure that our compensation is generally comparable to

companies of similar size and scope of operations. Market pay levels are obtained from various sources including published compensation surveys and information taken from the SEC filings of a number of similarly situated companies as compiled by our Compensation Consultant. The Committee reviews and discusses market data and recommendations provided by the Compensation Consultant, and the Committee retains the final decision making authority on all compensation decisions. The benchmark group that the Committee reviewed in the fall of 2009 in order to set 2010 compensation was comprised of BJ Services Company, Cameron International Corporation, Crosstex Energy, Inc., CVR Energy, Inc., El Paso Corp., Exterran Energy Corp., FMC Technologies, Inc., Frontier Oil Corporation, Murphy Oil Corporation, Spectra Energy Corp., Tesoro Corporation, Western Refining, Inc. and Williams Companies, Inc. This peer group is different than the 2010 Incentive Award Peer Group management and investment analysts use to compare our financial results, as those companies are often too large in size (as with Valero Energy Corp.) or significantly differ in ownership and management composition from us (as with Alon USA Energy, Inc.) for the Committee to include them as suitable comparisons when considering total compensation packages. For purposes of determining overall compensation for our executives, a central objective is to position pay levels at approximately the middle range of market compensation. As noted, however, market pay levels are only one factor considered, with pay decisions ultimately reflecting an evaluation of individual contribution and value to us.

 

For purposes of setting 2011 compensation, the Committee made certain changes to the benchmark group described above. Specifically, BJ Services Company was removed from the benchmark group because it was acquired by Baker-Hughes in 2010. Crosstex Energy, Inc. was also removed from the benchmark group since the Committee determined that the nature of the business in which it is engaged did not make it an appropriate comparator company. Sunoco, Inc. was added to the benchmark group to replace these companies. These changes to the benchmark group had no impact on 2010 compensation.

 

Role of Named Executive Officers in Determining Executive Compensation

 

In making executive compensation decisions, the Committee solicits the recommendations of our Chief Executive Officer (except with respect to his own compensation) and various other members of management, including the remaining Named Executive Officers. Management facilitates the Committee’s consideration of compensation for the Named Executive Officers by providing data for the Committee’s review. This data includes, but is not limited to, our financial performance for the current year compared to our financial performance for the preceding year, our financial performance versus that of our peers, performance evaluations of the Named Executive Officers (other than for the Chief Executive Officer and Chairman of the Board, who is evaluated by the Committee), compensation provided to the Named Executive Officers in previous years, and tax and accounting related considerations. Management provides the Committee with guidance as to how such data impacts pre-determined performance goals set by the Committee. When management considers a discretionary bonus to be appropriate for a Named Executive Officer (other than for the Chief Executive Officer and Chairman of the Board), it will recommend an amount and provide the Committee with management’s rationale for such bonus. Given the day-to-day familiarity that management has with the work performed by the Named Executive Officers, the Committee values management’s recommendations. However, the Committee makes all final decisions as to the compensation of the Named Executive Officers. For 2010, after consideration of management’s recommendations regarding discretionary increases in the bonuses, and discussion regarding such increases, the Committee approved discretionary increases in some bonuses as shown in the column titled “Bonus” in the Summary Compensation Table.

Guidelines for Stock Ownership for Executives

 

Under our stock ownership guidelines approved by the Board in 2009, each Named Executive Officer is expected to retain twenty-five percent (25%) of the shares received from the settlement of restricted share and performance share units awards granted under the LTIP until his or her ownership equals the following levels:

 

 

Shares owned from any source count toward meeting the guidelines, but shares relating to unexercised stock options, if any, and unvested restricted shares and/or performance share units do not count. Currently all of our Named Executive Officers are in compliance with the stock ownership guidelines.

 

Tax and Accounting Implications

 

We account for the equity compensation expense for our employees and executive officers, including our Named Executive Officers, under the rules of FASB ASC Topic 718, which requires us to estimate and record an expense for each award of long-term incentive compensation over the vesting period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.

 

With respect to Section 162(m) of the Tax Code and underlying regulations pertaining to the deductibility of compensation to certain Named Executive Officers in excess of $1,000,000, we have adopted a policy to provide “performance-based compensation” under our LTIP that is exempt from such limitations to the extent practicable. The LTIP has been approved by our stockholders. As a result, certain elements of the LTIP are designed to provide performance-based incentive compensation which would be fully deductible under Section 162(m). Performance vesting restricted stock and performance share unit grants made to Named Executive Officers subject to Section 162(m) in 2010 are intended to be fully deductible under Section 162(m); however, some Named Executive Officers received restricted stock awards that do not contain performance-based incentives and may not be deductible under Section 162(m) if their respective compensation increases. In addition, our annual cash incentive awards, granted under our LTIP, are subject to certain performance conditions, and were designed in 2010 to be compliant with Section 162(m) requirements. However, the Committee has determined that some flexibility is required, notwithstanding the statutory and regulatory provisions, in negotiating and implementing our incentive compensation programs. It has, therefore, retained the discretion to award some bonus payments based on non-quantitative performance measurements and other criteria that it may determine, in its discretion, from time to time. We did not pay any compensation in 2010 that was nondeductible under Section 162(m).

 

In addition, Section 280G of the Tax Code prohibits the deduction of any “excess parachute payment.” Benefits payable under the Change in Control Agreements entered into with certain of our executives as well as accelerated vesting under restricted stock and performance share awards could result in “excess parachute payments” that are not deductible by us. Amounts payable and benefits available upon the occurrence of certain change in control transactions are described below in the section titled “Potential Payments Upon Termination or Change in Control.”

 

Retirement and Benefit Plans

 

The Holly Retirement Plan

 

The Holly Retirement Plan, our tax-qualified defined benefit retirement plan, is described below in the narrative accompanying the Pension Benefits table. As of January 1, 2007, this plan was no longer made available to newly hired employees who were not represented under a collective bargaining agreement. Instead, as of January 1, 2007, new employees who were not represented under a collective bargaining agreement were automatically enrolled in our Thrift Plan to which we make an automatic contribution of 5% of the employee’s eligible compensation on an annual basis, in addition to making matching contributions as described below. Most

employees who are not represented by a collective bargaining agreement and were hired prior to January 1, 2007, were provided with a one-time choice to either continue earning benefits in the Holly Retirement Plan or to freeze benefits in the Holly Retirement Plan and begin receiving the 5% automatic Thrift Plan contribution. Regardless of their choice, these employees are eligible for matching contributions under the Thrift Plan, if they participate therein. As of July 1, 2010, the plan was no longer made available to any newly hired employees, including individuals represented under a collective bargaining agreement. Certain participants in the plan as of July 1, 2010 were permitted to choose to either continue accruing benefits under the plan or freeze their benefits effective December 31, 2010, and receive automatic Thrift Plan contributions.

 

Retirement Restoration Plan

 

We have an unfunded Retirement Restoration Plan that provides for additional payments from us so that total retirement plan benefits for certain executives are not limited to the maximums set forth in the Tax Code and as allowed under the Holly Retirement Plan. The Retirement Restoration Plan and the applicable Tax Code restrictions are more particularly described below in the section titled “Pension Benefits.”

 

Thrift Plan for Employees of Holly Corporation, its Affiliates and Subsidiaries

 

Our Thrift Plan, which is a tax-qualified defined contribution plan, is offered to all our employees. Employees may, at their election, contribute to the Thrift Plan amounts from 0% up to a maximum of 75% of their eligible compensation. In 2010, for employees not covered by a collective bargaining agreement, we provided (a) a 100% match of employee contributions to the Thrift Plan up to 6% of their eligible compensation from January 1, 2010 through May 31, 2010, and (b) a 50% match of employee contributions to the Thrift Plan up to 6% of their eligible compensation from June 1, 2010 through December 31, 2010. Effective January 1, 2011, we reinstated the 100% match of employee contributions to the Thrift Plan up to 6% of their eligible compensation. Eligible employees were also allowed to participate in the automatic Thrift Plan contribution feature, where 5% of eligible compensation, subject to the applicable Tax Code limits, is contributed each year in addition to the employee deferrals and employer matching contributions for that employee. Employee contributions that were made on a tax-deferred basis were generally limited to $16,500 in 2010 (this amount will remain the same for the 2011 year), with employees over 50 years of age able to make additional tax-deferred contributions of $5,500 (this amount will remain the same for the 2011 year). Employees may direct that Company matching contributions be invested in Common Stock. Prior to 2007, our contributions in the Thrift Plan did not vest until the earlier of three years of credited service or termination of employment due to retirement, disability or death. Beginning in 2007, matching contributions to employees not represented by a collective bargaining agreement vest immediately upon contribution to their accounts. The automatic Thrift Plan contribution is subject to a three-year cliff vesting period.

 

In 2010, each of the Named Executive Officers participated in the Thrift Plan and received matching contributions from us. These amounts are further described in the “Summary Compensation Table.”

 

Employee Stock Ownership Plan

 

Many of our employees and eligible affiliates with at least one year of service, other than employees covered by collective bargaining agreements, participated in an Employee Stock Ownership Plan (“ESOP”) established in 1985. For the 1987 through the 1996 fiscal years, shares of Common Stock held by the ESOP were allocated to the accounts of participants for each fiscal year on the basis of payments of principal on the ESOP’s ten-year installment note issued to us in connection with the ESOP’s purchase of Common Stock from us. Shares were allocated to participants based on their eligible compensation. Participants’ shares vested upon the earlier of five years’ credited service or termination of employment due to retirement, disability or death. Effective August 1, 1999, the ESOP was merged into the Thrift Plan and each participant’s ESOP account became a Company Stock ESOP Account in the Thrift Plan. Over the twelve months ending October 2002, shares in our Stock ESOP Account for each participant were gradually shifted to each participant’s regular Thrift Plan account and consequently became subject to the participant’s directions as to holding or selling such shares. Mr. Clifton is the only Named Executive Officer to have had an account under the previous ESOP that is now merged into the Thrift Plan.

Change in Control Agreements

 

We have entered into Change in Control Agreements with our Named Executive Officers to provide for management continuity in the event of a change in control, and to assist in the recruitment and retention of executives. The Committee has determined that it is in the best interest of the stockholders to maintain these agreements in light of the depth of knowledge and experience of the Named Executive Officers and the need to ensure stable management during any potential change in control. The Change in Control Agreements are designed to provide benefits only in the event of a termination of employment following a change in control transaction, and do not provide any benefits without such a termination. The Committee believes that the agreements will permit our Named Executive Officers to focus their attention and energy on our business without any distractions regarding the effects of a change in control. The benefits contemplated by the agreements maximize stockholder value by allowing our Named Executive Officers to participate in an objective review of any proposed transaction. The material terms and a quantification of the potential amount payable under the Change in Control Agreements with the Named Executive Officers are set forth below in the section titled “Potential Payments Upon Termination or Change in Control.”

 

We have not entered into any employment or severance agreements with any of the Named Executive Officers other than these Change in Control Agreements.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee of the Holly Corporation Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Members of the Compensation Committee:

 

Buford P. Berry,
Chairman
Leldon E. Echols
Robert G. McKenzie

SUMMARY COMPENSATION TABLE

 

The table below summarizes the total compensation paid to, awarded to, or earned by each of our Named Executive Officers in 2008, 2009 and 2010.

 

																											Change in
																											Pension
																											Value and
																											Nonqualified
																						Non-Equity					Deferred
																						Incentive Plan					Compensation					All Other
							Salary					Bonus					Stock Awards					Compensation					Earnings					Compensation					Total
Name and 2010 Principal Position		Year					($)					($)(1)					($)(2)					($)(3)					($)(4)					($)(5)					($)
Matthew P. Clifton,			2010					$922,500	(6)				$0					$1,805,681					$2,269,000					$810,349					$14,700					$5,822,230
Chairman of the Board and			2009					$919,233					$0					$1,500,107					$1,760,000					$793,035					$14,700					$4,987,075
Chief Executive Officer			2008					$849,782					$203,000					$1,603,181					$405,000					$618,992					$13,800					$3,693,755
David L. Lamp,			2010					$553,500	(7)				$213,255					$1,001,290					$786,745					$148,596					$14,700					$2,718,086
President			2009					$551,540					$0					$800,039					$661,000					$112,511					$14,700					$2,139,790
			2008					$510,649					$108,000					$912,611					$216,000					$74,257					$13,800					$1,835,317
Bruce R. Shaw,			2010					$378,077	(8)				$101,422					$316,415					$215,578					$19,881					$26,907					$1,058,280
Senior Vice President and			2009					$317,740					$0					$232,630					$220,000					$12,792					$26,950					$810,112
Chief Financial Officer			2008					$256,351					$81,500					$660,619					$82,500					$2,751					$25,300					$1,109,021
George J. Damiris,			2010					$309,416	(9)				$181,722					$421,886					$173,278					$0					$25,400					$1,111,702
Senior Vice President,			2009					$297,945					$100,000					$310,127					$203,000					$0					$26,950					$938,022
Supply and Marketing			2008					$252,053					$79,000					$387,593					$81,000					$0					$148,716					$948,362
Denise C. McWatters,			2010					$261,852	(10)				$107,602					$151,940					$108,478					$0					$23,214					$653,086
Vice President, General			2009					$247,945					$100,000					$150,014					$123,000					$0					$26,950					$647,909
Counsel and Secretary			2008					$202,566					$55,000					$175,164					$55,000					$0					$22,282					$510,012

 

 

		December 31, 2010
Discount Rate		5.65%
Mortality Table		RP2000 White Collar Projected to 2020
Reserving Table		50% Male/50% Female
Retirement Age		the later of current age or age 62

 

 

 

 

 

2010 Grants of Plan-Based Awards

 

The following table sets forth, for each Named Executive Officer, information about awards under our equity and non-equity incentive plans made during the year ending December 31, 2010.

 

 

 

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

 

The 2010 awards of performance share units and shares of restricted stock were issued under our LTIP.

 

Performance Share Unit Agreement Terms

 

Under the terms of the performance share unit agreements, dated March 12, 2010, that each of our Named Executive Officers executed pursuant to the LTIP, recipients of performance share units may earn from 0% to 200% of the number of units awarded. More detailed information regarding the performance share units can be found above under “Compensation Discussion and Analysis — Overview of 2010 Executive Compensation Components — Long-Term Equity Incentive Compensation.” In addition, the termination and change in control provisions of performance share units are described below under “Potential Payments Upon Termination or Change in Control.”