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)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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

 

April 9, 2009

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Holly Corporation (the “Company”) to be held on Thursday, May 14, 2009, at 10:00 a.m., local time, in Salons A & B, Hotel Crescent Court, 400 Crescent Court, Dallas, Texas. 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 eight (8) 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 2009, and (iii) 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

 

 

 

 

April 9, 2009

 

PLEASE TAKE NOTICE that the 2009 Annual Meeting of Stockholders (the “Annual Meeting”) of Holly Corporation (the “Company”) will be held on Thursday, May 14, 2009, at 10:00 a.m. local time in Salons A & B, Hotel Crescent Court, 400 Crescent Court, Dallas, Texas, to consider and vote on the following matters:

 

1. Election of eight (8) 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 2009; and

 

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

 

The Company’s Annual Report for its year ended December 31, 2008 is being distributed with this Proxy Statement.

 

The close of business on March 25, 2009 (the “Record Date”), has been fixed as the record date for the determination of stockholders entitled to receive notice of, and 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 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 14, 2009:

 

 

Whether or not you plan to attend the Annual Meeting, please complete, sign, date and return the enclosed proxy card or grant your proxy by the Internet or telephone, as described on the enclosed proxy card, as promptly as possible. When providing your proxy, please indicate whether you plan to attend the Annual Meeting in person. You may revoke your proxy before the Annual Meeting as described in the Proxy Statement under the heading “Solicitation and Revocability of Proxies.” The prompt return of proxies will save the expense involved in further communications.

 

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 14, 2009, and at any adjournment or postponement thereof. By signing and returning the enclosed proxy card or granting your proxy by the Internet or by 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. This Proxy Statement and the proxy card were first mailed to stockholders of the Company on or about April 9, 2009.

 

This solicitation of proxies is made by the Board and will be conducted primarily by mail. Officers, directors and employees of the Company may solicit proxies personally or by telephone, electronic mail, telegram or other forms of wire or facsimile communication. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to 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 13, 2009. 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 50,158,263 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. Abstentions and broker non-votes will count in determining if a quorum is present at the Annual Meeting. A broker non-vote occurs if a broker or other nominee attending the meeting in person or submitting a

proxy card does not have discretionary authority to vote on a particular item and has not received voting instructions with respect to that item.

 

PROPOSAL ONE — ELECTION OF DIRECTORS

 

The Board has designated Buford P. Berry, Matthew P. Clifton, Leldon E. Echols, Marcus R. Hickerson, Thomas K. Matthews, II, Robert G. McKenzie, Jack P. Reid and Paul T. Stoffel as nominees for election as directors of the Company at the Annual Meeting (each, a “Nominee”). All of the Nominees currently serve as directors of the Company. If elected, each Nominee will serve until the expiration of his term at the Annual Meeting of Stockholders in 2010 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.”

 

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

 

PROPOSAL TWO — AUDITORS

 

In accordance with its charter, the Audit Committee has selected the firm of Ernst & Young LLP, an independent public accounting firm, to be the Company’s auditor for the year 2009 and, with the endorsement of the Board, recommends to the stockholders that they ratify that appointment. Ernst & Young LLP served in this capacity in 2008. 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 reviewed and approved 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 their 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.

 

The Board and the Audit Committee recommend a vote “FOR” the ratification of the Board’s selection of Ernst & Young LLP as the Company’s auditor for 2009.

 

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, (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 shares of Common Stock that are subject to stock options that are either currently exercisable or exercisable within 60 days after the Record Date. These shares are also 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. 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 50,158,263 shares of Common Stock outstanding.

 

 

 

 

DIRECTORS

 

The following tables set forth certain information regarding the directors of the Company in 2008 and Nominees for election in 2009. Each director’s term of office expires at the Annual Meeting.

 

 

Buford P. Berry, a director since May 2004, has served as a manager and an Advisory Committee Member of Dorchester Minerals Management GP LLC 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.

 

Matthew P. Clifton, a director since 1995, has been with the Company for over twenty-five 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 January 1, 2006 until April 2007. Mr. Clifton served as President of the Company from 1995 to January 1, 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 46% interest (including the general partner interest) in Holly Energy Partners, L.P.

 

Leldon E. Echols, a director since January 2009, is a private investor. From June 2000 to June 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 committees, and Crosstex Energy, L.P. (NASDAQ: XTEX) and a related company, Crosstex Energy, Inc. (NASDAQ: XTXI), where he serves on the audit committees. Mr. Echols also serves on the boards of directors of Roofing Supply Group Holdings, Inc. and Colemont Corporation, two private companies.

 

W. John Glancy, a director from 1975 to 1995 and from September 1999 to May 2008, is currently a consultant to the Company. Mr. Glancy served as Senior Vice President and General Counsel of the Company from April 1999 to May 2008. He also held the office of Secretary from April 1999 through February 2005, and from May 2007 through May 2008. From December 1998 to September 1999, he was Senior Vice President, Legal of the Company. From 1997 through March 1999, he practiced law in the Law Offices of W. John Glancy in Dallas.

 

William J. Gray, a director from September 1996 to May 2008, is a private consultant. He has served as a governmental affairs consultant for the Company since January 2003 and also served as a consultant to the Company from October 1999 through September 2001. Until October 1999, Mr. Gray was Senior Vice President, Marketing and Supply of the Company. In November 2006, Mr. Gray was elected to the New Mexico House of Representatives. Mr. Gray has served as a Director of HLS since April 15, 2008.

Marcus R. Hickerson, a director since 1960, was a consultant to Centex Development Company from 1987 to 1999 and has been President of Waxahachie Community Development Corporation since October 1999.

 

Thomas K. Matthews, II, a director since 1978, was President of RepublicBank Houston from 1976 to 1985. Mr. Matthews also served as Executive Director of Republicbank Corporation from 1983 to 1985, and Vice Chairman of First City National Bank of Houston from 1985 to 1989. Mr. Matthews has been a financial consultant since 1989.

 

Robert G. McKenzie, a director since 1992, has been a financial consultant since January 2000. From January 1990 to December 1999, he was Executive Vice President and Chief Operating Officer of Brown Brothers Harriman Trust Company of Texas. He is a member of the board of directors of Brown Brothers Harriman Trust Company 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.

 

Paul T. Stoffel, a director since 2001, is Chairman of Triple S Capital Corp. and of Paul Stoffel Investments, engaged in public and private equity investments.

 

Compensation of Directors

 

For the year ended December 31, 2008, 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.

 

 

During the year ended December 31, 2008, compensation was provided to the Company’s outside directors as set forth below:

 

 

 

 

Guidelines for Stock Ownership for Outside Directors

 

Pursuant to the stock ownership guidelines approved by the Board in 2006, each director is expected to own shares of our Common Stock with a market value of $105,000 from time to time. To the extent a director does not meet these guidelines he will be expected to retain 50% of the shares of Common Stock received upon settlement of his restricted share unit award, until such time as the stock ownership requirement is met. Currently none of our directors have violated 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, Marcus R. Hickerson, Thomas K. Matthews, II, Robert G. McKenzie, Jack P. Reid and Paul T. Stoffel.

 

In determining that Mr. Hickerson is an independent director, the Board considered the fact that Mr. Hickerson’s 55-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, Treasury and 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 48-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.

 

The Board held eight meetings during 2008. The Board has five principal standing committees: the Executive Committee, the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee, and the Public Policy Committee. Each of the committees is appointed by the Board. During 2008, each director attended at least 75% of the total number of meetings of the Board. During 2008, 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 2008 Annual Meeting of Stockholders attended that meeting.

 

The current members of the Executive Committee are Messrs. Clifton (Chairman), Reid and McKenzie. 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. During 2008, the committee met five times.

 

The current members of the Audit Committee are Messrs. McKenzie (Chairman), Berry, Echols (effective January 1, 2009), Matthews, and Stoffel. 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 2008, the committee met nine times. 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. McKenzie satisfies the requirements of the SEC regulations for an “audit committee financial expert” and has designated Mr. McKenzie as the Company’s audit committee financial expert.

 

The current members of the Compensation Committee are Messrs. Berry (Chairman), Matthews and McKenzie. The Compensation Committee of the Board is responsible for the oversight of compensation programs and plans for the executive officers of the Company. The Compensation Committee determines the level of compensation paid to the Company’s Chief Executive Officer and all other executive officers. The Compensation Committee is also responsible for establishing and overseeing the compensation program for non-employee directors who serve on the Board. As described above, all members of the Compensation Committee have been determined to be independent as independence is defined in Section 303A.02 of the NYSE’s listing standards. During 2008, the Compensation Committee met thirteen times. The Board has adopted a written charter for the Compensation 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.

 

The current members of the Nominating/Corporate Governance Committee are Messrs. Matthews (Chairman), Berry, McKenzie and Stoffel. The Nominating/Corporate Governance Committee of the Board 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. As described above, all members of the Nominating/Corporate Governance Committee have been determined to be independent as independence is defined in Section 303A.02 of the NYSE’s listing standards. During 2008, the committee met five times. The Board has adopted a written 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.

 

The current members of the Public Policy Committee are Messrs. Hickerson (Chairman), Echols (effective February 19, 2009), Reid and Stoffel. The Public Policy Committee of the Board is 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. The committee is also responsible for recommending to management and the Board the formulation or modification of policies and procedures concerning such matters. During 2008, the committee met four times. As described above, all members of the Public Policy Committee have been determined to be independent as independence is defined in Section 303A.02 of the NYSE’s listing standards.

 

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 eight as of May 14, 2009. 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 Nominating/Corporate Governance 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 Nominating/Corporate Governance Committee occasionally utilizes the services of search firms or consultants to assist in identifying and screening potential candidates. The Nominating/Corporate Governance 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 and 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.

 

NOMINATION OF DIRECTORS BY STOCKHOLDERS

 

The Company does not have a formal policy by which its stockholders may recommend director candidates, but the Nominating/Corporate Governance 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 Nominating/Corporate Governance Committee in the same manner as other candidates submitted by directors, employees or obtained through other sources, although the members of the Nominating/Corporate Governance Committee may prefer candidates who are personally known to the existing directors and whose reputations are highly regarded. In evaluating proposed candidates, the Nominating/Corporate Governance 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.

 

PRESIDING DIRECTOR AND COMMUNICATIONS WITH THE BOARD

 

Robert G. McKenzie was selected to preside at regularly scheduled meetings of non-management directors. 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.

 

 

EXECUTIVE OFFICERS

 

The following table sets forth information regarding the Executive Officers of the Company and certain of its subsidiaries for 2008:

 

 

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. Prior to joining the Company, 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 Refinery Manager and EVP-Refining and Chemicals Operations. In 1998, Mr. Lamp served as Director of Operations for a large international chemical and fiber joint venture owned partially by Koch (KOSA).

 

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.

 

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.

 

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 May 2005 through October 2007. From 2002 through May 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.

 

Stephen J. McDonnell, was appointed Vice President and Chief Financial Officer of the Company in September 2001 and served the Company in that role until January 2008. From August 2000 to September 2001, he was Vice President, Finance and Corporate Development. Mr. McDonnell also served as Vice President and Chief Financial Officer for HLS from March 2004 to January 2009. Effective January 7, 2008, Mr. McDonnell was replaced by Bruce R. Shaw, who became Senior Vice President and Chief Financial Officer of the Company and of HLS and Mr. McDonnell became the Assistant to the Chairman of the Board of the Company and of HLS. Prior to joining the Company, Mr. McDonnell was employed by Central and South West Corporation as a vice president in the mergers and acquisitions area from 1996 to June 2000. Mr. McDonnell retired on January 1, 2009.

 

P. Dean Ridenour, was appointed Vice President and Chief Accounting Officer of the Company in December 2004. Beginning in October 2002, Mr. Ridenour began providing full-time consulting services to the Company, and in August 2004, Mr. Ridenour became a full-time employee and officer of the Company in the position of Vice President, Special Projects, serving in that position until December 2004. From April 2001 until October 2002, Mr. Ridenour was temporarily retired. From July 1999 through April 2001, Mr. Ridenour served as Chief Financial Officer and director of GeoUtilities, Inc., an internet-based superstore for energy, telecom and other utility services, which was purchased by AES Corporation in March 2000. He was employed for 34 years by Ernst & Young LLP, including 20 years as an audit partner, retiring in 1997. Mr. Ridenour also has served as a director of HLS since August 2004 and as Vice President and Chief Accounting Officer for HLS since January 2005. Effective January 7, 2008, Mr. Ridenour no longer served as an officer of the Company or HLS. Effective April 1, 2008, Mr. Ridenour ceased to be a Company employee but continues as a non-employee consultant to the Company under a two-year consulting agreement.

 

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 Messrs. Clifton and Glancy is set forth previously in this Proxy Statement under “Directors.”

 

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 Internet 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 Internet 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 Internet 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 most highly compensated executive officers, and is intended to place in perspective the information contained in the executive compensation tables that follow this discussion. We provide a general description of our compensation program and specific information about its various components. Immediately following the CD&A is the Compensation 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 and in which we indirectly own a 46% 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, 2008. Messrs. Clifton and Shaw and, beginning in 2009, 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 and discussed within this CD&A relates solely to the services these individuals provide directly to us.

 

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

 

 

A large number of executives are included in the group of our “Named Executive Officers” for the 2008 year due to various circumstances, including a high number of retirements and our alteration of certain job functions in connection with the replacement or new hiring of certain executive positions. The position of Senior Vice President, Supply and Marketing, has not historically been an executive officer position; however, as of March 23, 2009, our Board designated Mr. Damiris as an executive officer. While Mr. Damiris did not serve in this executive position as of December 31, 2008, and is thus not technically required to be included in the executive compensation disclosures within this proxy statement, our Board has determined that because Mr. Damiris was both deemed an executive prior to the filing of this proxy statement, and will most likely be included in the Named Executive Officer group for the 2009 year, disclosure of his compensation for the 2008 year is consistent with the spirit of these disclosures.

Objectives 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 our stockholders. Our objective is to be competitive with our industry and encourage high levels of performance.

 

The Compensation Committee (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.

 

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 and many other factors in deciding on the final compensation factors that are appropriate for both us and for each Named Executive Officer. Except with respect to his own compensation, the Committee generally solicits the recommendations of our Chairman of the Board and Chief Executive Officer when the Committee considers its compensation determinations.

 

In addition to reviewing the recommendations of management and our Chief Executive Officer, prior to making compensation decisions for the 2008 year, the Committee also reviewed the total compensation provided to each of the Named Executive Officers during the 2007 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 also takes into consideration the compensation of similarly situated executives in comparable businesses. These long-term equity incentives are designed to retain the executives during the period of time during which their performance is expected to impact our business and reward them in accordance with the success of those long-term goals and policies. The Committee has engaged Frederic W. Cook & Co., an outside consulting firm specializing in executive compensation, to advise the Committee on matters related to executive and non-employee director compensation. Frederic W. Cook & Co. 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 consultant is independent, retained directly by the Committee, and provides no other services directly to us, however, Frederic W. Cook & Co. also provides independent compensation consulting services to HEP’s compensation committee.

 

After reviewing both the internal evaluations of the Named Executive Officers and the market data provided by Frederic W. Cook & Co., the Committee believes that the 2008 compensation for the Named Executive Officers reflects an appropriate allocation of compensation between salary, bonuses and equity compensation.

 

Overview of 2008 Executive Compensation Components

 

The components of compensation for the Named Executive Officers in 2008 were:

 

 

Base Salary

 

Base salaries for Messrs. Clifton, Lamp, Shaw, Damiris, McDonnell and Glancy for 2008 were approved in February 2008 by the Committee based on each executive’s position, level of responsibility and individual performance, our salary range for individuals at such executive’s level, and market practices. The Committee also

reviewed competitive market data relevant to each position provided by Frederic W. Cook & Co. This market data analysis is discussed in detail below under the paragraph titled “Review of Market Data.” The Committee also reviewed Ms. McWatters’ salary as part of their review of the compensation of all officers. Following a review of these various factors, the Committee determined that increases in base salaries were warranted for two of our executives that were also Named Executive Officers during the 2007 year. Mr. Clifton’s base salary for 2008 was increased by approximately 21% over his 2007 salary so that his base salary more closely reflected the median range for other chief executive officer positions within our industry. The Committee also determined to increase Mr. Lamp’s base salary for 2008 by approximately 20% due to his superior individual performance for us during the 2007 year and so that his base salary more closely reflected the median range for other comparable positions within our industry.

 

The salary amounts for each of the 2008 Named Executive Officers are set forth in the Summary Compensation Table.

 

Annual Incentive Cash Bonus Compensation

 

Payment with respect to any annual cash bonuses to Named Executive Officers is contingent upon the satisfaction of pre-established objective and subjective performance criteria as they apply to each individual Named Executive Officer. The amounts are disclosed in the Summary Compensation Table and described in greater detail in the narrative following the 2008 Grants of Plan-Based Awards table. Generally, payment with respect to any 2008 cash bonus for Named Executive Officers is contingent upon the satisfaction of the following criteria:

 

 

The total bonus pool for all of our executives and non-bargaining unit employees is typically determined by the Committee after the end of each year or designated performance period, calculated pursuant to the achievement of the objective pre-established criteria described above and recommendations from management regarding possible discretionary adjustments. In determining the total bonus pool, the Committee reviews our performance during the previous year and the recommendation of management. Awards for executives for a given year are paid in cash in the first quarter of the following year. See the narrative following the “2008 Grants of Plan-Based Awards” table below for a more detailed description of the actual bonuses awarded to the Named Executive Officers and earned in 2008.

 

Before the end of the first calendar quarter of each year, the Committee approves both the individual awards to be awarded for services provided in the previous year, and performance measures and targets to be used for the upcoming calendar year in determining the cash bonus amounts to be paid to the Named Executive Officers. Performance targets may be based on any factors as the Committee may determine. In setting performance targets, the Committee reviews recommendations from management.

 

In addition to the pre-defined performance criteria, the Committee has discretion to approve a decrease in a Named Executive Officer’s bonus by using the same performance objectives for determining a bonus award, but noting that the objectives were not met or did not reach acceptable levels. In the case where the Committee believes that additional compensation is warranted to reward an executive for outstanding performance in a particular situation, the Committee may award additional bonuses in its discretion. In making the determination as to whether to exercise the discretion to either decrease an award or provide additional discretionary bonuses, the Committee reviews recommendations from management, except in the case of compensation for Mr. Clifton, for whom the Committee makes its determinations without management recommendations. For 2008, as in 2007 and 2006, the Committee approved additional discretionary bonuses as shown in the Summary Compensation Table. A key factor contributing to the decision of the Committee to award additional discretionary bonuses was a review and analysis of our financial results versus the refining industry. All bonuses were paid in March 2009.

 

The Committee also reviewed an analysis of competitive market data prepared by Fredric W. Cook & Co. comparing compensation of our Named Executive Officers, including the bonus payments, to our peers and market practices (see the paragraph below titled “Review of Market Data” for further discussion). As described in greater detail below, this peer group differs from the 2008 Incentive Award Peer Group. The annual incentive targets were assessed on the basis of total cash, including base salary and annual incentive payments. The Committee believes this analysis indicates that total cash compensation to our Named Executive Officers is appropriate for the level of responsibility that each of these officers hold as well as in comparison to compensation levels of comparable executives at our peer organizations.

 

The targets and actual annual incentive cash bonus compensation awarded, and subsequently earned and payable, for each of the Named Executive Officers is described in the narrative following the 2008 Grants of Plan-Based Awards table.

 

For 2009, several changes were made to the annual incentive cash bonus program in general, including increasing the weight on peer performance, tying the financial component to year-over-year net income results, and revising the performance peer group to focus on the refining industry. The peer group companies chosen for purposes of establishing performance targets under the 2009 incentive awards are as follows: Alon USA Energy, Inc., CVR Energy, Inc., Delek US Holdings, Inc., Frontier Oil Corporation, Sunoco, Inc., Tesoro Corporation, Valero Energy Corp. and Western Refining, Inc. (the “2009 Incentive Award Peer Group”). The 2009 Incentive Award Peer Group better reflects the impact of the external economic conditions we are facing as a company and as an industry as a whole, and are also companies with which both management and investment analysts compare our financial results.

Long-Term Incentive Equity 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. It 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 (the “LTIP”) 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 the operation of the LTIP was in compliance with Section 409A of the Tax Code. Section 409A of the Tax Code required us to amend the LTIP’s determination of a participant’s “disability” under the LTIP, and to ensure that both the form and timing of certain payments would be compliant with the Tax Code and the regulations that accompany Section 409A of the Tax Code. Because the amendments necessary to make the LTIP compliant with Section 409A of the Tax Code were a result of a federal law, the LTIP allowed the Board to make these specific LTIP amendments without the approval of our stockholders. The LTIP is administered by the Committee.

 

While the LTIP permits awards of options, restricted stock, bonus stock, stock appreciation rights, phantom stock and performance shares, 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 2008, the total long-term incentive award for our Named Executive Officers was equally split 50% in restricted stock and 50% in performance share units. In addition, in connection with his appointment as Senior Vice President and Chief Financial Officer, on January 14, 2008 Mr. Shaw received an award of 8,200 shares of bonus stock. The shares of Common Stock awarded pursuant to this bonus were fully vested and non-forfeitable as of the date of grant. Mr. Shaw’s was the only grant of bonus stock made in 2008. Although it is generally not the policy of the Committee to grant bonus stock to executive officers, Mr. Shaw’s brief departure in 2007 resulted in the forfeiture of a significant amount of his equity holdings. When Mr. Shaw resumed employment with us, the Committee determined it was appropriate to provide Mr. Shaw with an award of fully-vested bonus stock.

 

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 recommendation of the Chief Executive Officer (except in regard to his own award). The awards are granted annually during the first quarter of the year. Our goal is to reward the creation of value and high performance with variable compensation dependent on that performance, thus the market data we have accumulated for use in determining other areas of compensation is used subjectively (and not as an objective factor) to confirm that our executives are paid appropriately relative to comparable executives of other similar companies. The peer data allows the Committee to verify that the compensation paid to executives is appropriate. The total compensation may be adjusted if the Committee observes a material variation from the market data (no specific formula is used to benchmark this data).

 

Messrs. Clifton and Shaw also receive long-term incentive compensation from HEP, in which we own a 46% interest (including the general partner interest). Please refer to Item 11 of HEP’s Form 10-K for the fiscal year ended December 31, 2008 for further information concerning the compensation provided by HEP to Messrs. Clifton and Shaw.

 

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. The restricted stock will vest upon our change of control, unless provided otherwise by the Committee in the agreement granting the award. Named Executive Officers holding restricted stock have all the rights of a stockholder with respect to such restricted stock, including

the right to receive all dividends paid with respect to such restricted stock and the right to vote with respect to the restricted stock, subject to limitations on transfer and disposition of the restricted stock during the restricted period. Restricted stock is 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.

 

In 2008, Messrs. Clifton and Lamp were granted awards of restricted stock that will vest in three equal annual installments, and the awards also included performance requirements, one effect of which is to preserve the tax deductibility of the awards, as described in the Tax and Accounting Implications section below. Performance requirements were not placed on the restricted stock granted to any other Named Executive Officer largely because of the absence of issues as described in the Tax and Accounting Implications section below. Other specific terms for the restricted stock grants provided to each Named Executive Officer are described in the narrative following the “2008 Grants of Plan-Based Awards” table.

 

While not affecting the 2008 restricted stock grants, the Committee determined that, beginning with the 2009 restricted stock grants, distributions to recipients of restricted stock grants with performance standards will be deferred until the applicable awards vest and such distributions shall be forfeited if such awards do not vest.

 

Performance Share Unit Awards

 

A performance share unit is a notional phantom unit that entitles the executive to receive, as may be provided in the applicable agreement governing the award, Common Stock or a cash amount equal to the value of the stock upon the vesting of the performance share units. A performance share unit will be earned depending upon our performance versus that of the 2008 Incentive Award Peer Group. 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. The specific goals for the awards granted for the 2008 year are specified below in the footnotes to the tables titled “2008 Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year End.” As with restricted stock awards, performance share units will vest upon a change of control (at the 200% threshold), unless provided otherwise by the Committee. 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.

 

In 2008, all of our Named Executive Officers except Mr. Ridenour were granted awards of performance share units. The performance period for such awards will be from January 1, 2008 through September 30, 2010 and the Named Executive Officer must be employed by us on December 31, 2010 to receive a settlement for the performance share unit awards. Other specific terms of the awards, including the performance criteria and goals, are described in the narrative in the section below titled “2008 Grants of Plan-Based Awards.”

 

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 independent consultant. The Committee reviews and discusses market data and recommendations provided by Fredric W. Cook & Co., although the Committee retains the final decision making authority on all compensation decisions. The benchmark group that the Committee reviewed in the fall of 2007 in order to set 2008 compensation was comprised of BJ Services Company, Cameron International Corporation, Crosstex Energy, Inc., El Paso Corp., FMC Technologies, Inc., Frontier Oil Corporation, Murphy Oil Corporation, Spectra Energy Corp., Tesoro Corporation, Western Refining, Inc. and Williams Companies, Inc. Due to the fact that the Committee makes annual decisions as to the suitability of companies for inclusion in our peer group and adjusts this group primarily following mergers and acquisitions within our industry, Exterran Energy Corp. was

added to this peer company group when determining our 2009 compensation decisions, as it is the successor company of Hanover Compressor Company, previously a member of our peer group prior to its merger with Universal Compressor. CVR Energy Inc. was also included in our peer group for purposes of making compensation comparisons for the 2009 year because its executive compensation information became publicly accessible through its annual reports and proxy statement filings in the 2008 year, and the Committee determined that it was an appropriate comparison company in size and composition for use in our total compensation peer group. This peer group is slightly different than the 2008 Incentive Award Peer Group. The peer companies that were chosen for total compensation package comparability differ from the 2008 Incentive Award Peer Group because the performance component utilized for purposes of our annual incentive cash bonuses and performance share unit awards is not properly reflected solely through the companies utilized for total compensation purposes. The additional companies comprising the 2008 Incentive Award Peer Group are companies with which both management and investment analysts compare our financial results; however, 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.

 

Fredric W. Cook & Co. does not have approval authority for the ultimate compensation that is provided to employees. Instead, the consultant provides information and recommendations to the Committee and identifies the areas that do not appear to be consistent with the general practice of our peer group of companies (without setting specific benchmarks and using a discretionary standard). The consultant provided information and recommendations regarding compensation to management and to the Committee prior to the meetings when salaries were approved, bonuses were awarded and equity compensation was established.

 

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. 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 annual budget as approved by the Board, 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 suggest 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 2008, 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 2006, each Named Executive Officer is expected to retain fifty percent of the after-tax shares received from restricted share and performance share units awards made in 2006 and subsequent years until his ownership equals the following levels:

 

Executive		Shares Required
Matthew P. Clifton			120,000 Shares
David L. Lamp			40,000 Shares
Bruce R. Shaw			20,000 Shares
George J. Damiris			20,000 Shares
Denise C. McWatters			10,000 Shares
Stephen J. McDonnell			n/a - retired
W. John Glancy			n/a - retired
P. Dean Ridenour			n/a - retired

 

Shares owned from any source count toward meeting the guideline, but shares relating to unexercised stock options, if any, and unvested restricted shares and/or performance share units do not count. Currently none of our Named Executive Officers have violated 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 SFAS 123(R) 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 named executive officers, we have adopted a policy to comply with 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). Restricted stock and performance share unit grants made to Named Executive Officers in 2008 are intended to be fully deductible under Section 162(m). Some Named Executive Officers received restricted stock awards that do not contain performance-based incentives and may not comply with Section 162(m) if their compensation increases. Annual incentives are also generally intended to be compliant with Section 162(m). 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.

 

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 title “Potential Payments Upon Termination or Change in Control.”

 

Retirement and Benefit Plans

 

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 the 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 a 5% Automatic Thrift Plan Contribution. Regardless of their choice, these employees are eligible for matching contributions under the Thrift Plan.

 

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 in the Tax Code or as allowed under the Qualified Retirement Plan. This 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 50% of their eligible compensation. In 2008, for employees not covered by a collective bargaining agreement with labor unions, we matched employee contributions to the Thrift Plan up to 6% of their compensation (increased on January 1, 2007 from 4%). 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 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 $15,500 per year through the 2008 year (this amount will increase to $16,500 for the 2009 year), with employees over 50 years of age able to make additional tax-deferred contributions of $5,000 (which is increased to $5,500 for the 2009 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 2008, 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.

 

ESOP Restoration Plan

 

We adopted an ESOP restoration plan to provide additional benefits to executives whose allocations of shares of Common Stock from the ESOP for the 1995 and 1996 fiscal years were reduced because of the application of limitations of the Tax Code. The ESOP Restoration Plan provides for the grant to participants after the end of the 1995 and 1996 fiscal years of “phantom shares” equal in number to the number of shares not allocated to participants because of the limitations of the Tax Code. The phantom shares under the plan are unsecured rights to

cash payments based on dividends paid on shares of Common Stock and on the market value of such shares at future dates. Payments based on market value of Common Stock are generally due 40 days after termination of employment or the date of final distribution to the officer under the ESOP unless the officer elects to defer payments to future dates that may not be later than 60 days after the officer’s death or permanent disability.

 

A total of 61,880 phantom shares were granted to participants for the 1995 and 1996 fiscal years. As of December 31, 2008, Mr. Clifton was the only Named Executive Officer to hold phantom shares, and he held 10,720 phantom shares. The ESOP Restoration Plan was terminated effective January 2, 2009 and all outstanding balances were distributed in cash.

 

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.”

 

In addition, in connection with the retirement of Mr. McDonnell, in recognition of his past service to us, we entered into a Retirement Agreement with Mr. McDonnell. The Retirement Agreement provides for certain severance payments and continued medical benefits as described in detail below in the section titled “Potential Payment 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, the Retirement Agreement with Mr. McDonnell, and the Consulting Agreements with Messrs. Ridenour and Glancy described below in footnotes 9 and 11 to the “2008 Outstanding Equity Awards at Fiscal Year End” table.

 

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
Thomas K. Matthews, II
Robert G. McKenzie

 

2008 SUMMARY COMPENSATION TABLE

 

The table below summarizes the total compensation paid to, awarded to, or earned by each of our Named Executive Officers in 2006, 2007 and 2008.

 

																											Change in
																											Pension
																											Value and
																											Nonqualified
																						Non-Equity					Deferred
							Salary															Incentive Plan					Compensation					All Other
							($)					Bonus					Stock Awards					Compensation					Earnings					Compensation					Total
Name and 2008 Principal Position		Year										($)(1)					($)(2)					($)(3)					($)(4)					($)(5)					($)
Matthew P. Clifton,			2008					$849,782	(6)				$203,000					$1,451,336					$405,000					$618,992					$13,800					$3,541,910
Chairman of the Board and			2007					$727,833					$0					$2,991,000					$2,008,000					$375,390					$13,500					$6,115,723
Chief Executive Officer			2006					$647,000					$0					$3,496,000					$1,746,900					$234,820					$8,400					$6,133,120
David L. Lamp,			2008					$510,649	(7)				$108,000					$784,220					$216,000					$74,257					$13,800					$1,706,926
President			2007					$373,644					$0					$639,000					$653,877					$41,546					$13,500					$1,721,567
			2006					$312,000					$0					$360,000					$546,000					$25,107					$8,400					$1,251,507
Bruce R. Shaw,			2008					$256,351	(8)				$81,500					$1,253,806					$82,500					$2,751					$25,300					$1,702,208
Senior Vice President and Chief Financial Officer from January 7, 2008
George J. Damiris,(9)			2008					$252,053	(10)				$79,000					$308,421					$81,000					$0					$148,716	(11)				$869,190
Senior Vice President, Supply and Marketing
Denise C. McWatters,			2008					$202,566	(12)				$55,000					$61,017					$55,000					$0					$22,282					$395,865
Vice President, General Counsel and Secretary from May 8, 2008
Stephen J. McDonnell,			2008					$249,002	(13)				$0					$277,702					$0					$6,144					$13,800					$546,648
Vice President and			2007					$258,240					$300					$282,000					$260,700					$40,680					$13,500					$855,420
Chief Financial Officer until January 7, 2008 and Assistant to the Chairman of the Board from January 7, 2008 to January 1, 2009			2006					$245,136					$0					$169,000					$234,000					$29,901					$8,400					$686,437
W. John Glancy,			2008					$169,724	(14)				$150,000					$(356,069	)				$0					$67,625					$119,681	(15)				$150,961
Senior Vice President,			2007					$306,587					$0					$452,000					$311,000					$79,465					$13,500					$1,162,552
General Counsel and Secretary until May 8, 2008			2006					$283,670					$0					$327,000					$269,000					$37,997					$8,400					$926,067
P. Dean Ridenour,			2008					$76,832	(16)				0					$92,525					$0					$20,736					$161,828	(17)				$351,921
Vice President and			2007					$301,886					$70,488					$215,000					$310,512					$54,799					$13,500					$966,185
Chief Accounting Officer until January 7, 2008			2006					$257,298					$14,000					$108,000					$246,000					$38,139					$8,400					$671,837

 

 

 

		December 31, 2006		December 31, 2007		December 31, 2008
Discount Rate		6.00%		6.40%		6.50%
Mortality Table		RP2000 White Collar Projected to 2020		RP2000 White Collar Projected to 2020		RP2000 White Collar Projected to 2020
Reserving Table		50% Male/50% Female		50% Male/50% Female		50% Male/50% Female
Retirement Age		the later of current age or age 62		the later of current age or age 62		the later of current age or age 62

 

 

Name		Automatic Thrift Plan		Employer Matching
Matthew P. Clifton		n/a			$13,800
David L. Lamp		n/a			$13,800
Bruce R. Shaw		$11,500			$13,800
George J. Damiris		$11,500			$13,800
Denise C. McWatters		$10,128			$12,154
Stephen J. McDonnell		n/a			$13,800
W. John Glancy		n/a			$11,762
P. Dean Ridenour		n/a			$5,828

 

 

 

2008 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, 2008.

 

 

 

 

The 2008 awards of performance share units and shares of restricted stock were issued under our Long-Term Incentive Compensation Plan. The material terms of these awards are described below. Defined terms impacting the accelerated settlement or vesting of these awards can be found below in “Potential Payments Upon Termination or Change in Control.” In addition to performance share units and shares of restricted stock granted to our Named Executive Officers, Mr. Shaw received an award of 8,200 shares of fully vested and non-forfeitable Common Stock on January 14, 2008.

 

Performance Share Unit Agreement Terms

 

Under the terms of the performance share unit agreements, dated March 7, 2008, 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. 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 three performance measures compared to the performance by our defined peer group on the same three measures.

 

The three performance measures are earnings per share (“EPS”) growth, return on assets, and return on investment. Our performance comparison group is the 2008 Incentive Award Peer Group described above in the CD&A. If a member of the 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.

 

“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. “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 number of shares of Common Stock payable is equal to the result of multiplying the number of performance share units granted by the average of the percentile ranking of our performance on the three performance measures over the performance period as compared to the performance comparison group’s performance on such measures over the performance period, multiplied by two (the “Peer Group Performance Percentage”). The average is determined by adding our percentile ranking on each performance measure and dividing the sum by three.

 

The performance period runs from January 1, 2008 until September 30, 2010. If an award recipient’s employment terminates prior to December 31, 2010 due to a voluntary separation (including retirement but not including a resignation in connection with a “Special Involuntary Termination”) or “Cause,” as those terms are defined below, he or she will forfeit his or her award. In the event of an award recipient’s death or total and permanent disability (as determined by the Committee in its sole discretion) the recipient shall forfeit a number of performance share units equal to the percentage that (i) the number of full months in the period beginning on the date of termination due to death or total and permanent disability and ending on December 31, 2010 (ii) bears to 36. Any remaining units that are not vested will become vested, and the amount payable to the recipient shall be equal to

the result of multiplying the number of remaining performance share units by the Peer Group Performance Percentage as of December 31, 2010. In the event of an award upon the recipient’s death or total and permanent disability, the Committee, in its sole discretion, may make a payment assuming a performance percentage of up to 200% instead of the prorated number.

 

If an award recipient’s employment is terminated due to a Special Involuntary Termination, before December 31, 2010, the award recipient shall remain eligible to receive full payment of the performance share units at the normal vesting date (i.e., he or she shall be treated as remaining continuously employed through December 31, 2010). “Special Involuntary Termination” means the occurrence of either of the following within 60 days prior to or at any time after a “change in control”: (i) termination of the award recipient’s employment for any reason other than Cause; and (ii) resignation by the award recipient within 90 days after an “Adverse Change” (as defined below) in the terms of the award recipient’s employment.

 

“Cause” and “Adverse Change” are defined below under “Potential Payments Upon Termination or Change in Control” in the discussion of long-term equity incentive awards.

 

The change in control provisions of performance share units are described below under “Potential Payments Upon Termination or Change in Control.”

 

In 2008, we amended the performance share unit agreements to bring the agreements into compliance with section 409A of the Tax Code.

 

Additional information regarding the performance share units can be found above under “Compensation Discussion and Analysis — Overview of 2008 Executive Compensation Components — Long-Term Incentive Equity Compensation.”

 

Restricted Stock Agreement Terms

 

The 2008 restricted stock agreements contain a Company performance standard that applies only to Messrs. Clifton, Lamp and Glancy. Restricted stock awards granted to Ms. McWatters and Messrs. McDonnell, Shaw and Damiris are not subject to performance conditions and vest in three substantially equal annual installments. The restricted stock agreements require that the award recipient be continuously employed with us or a subsidiary through the applicable vesting date, except as provided below. The first one-third of the restricted stock awards for Ms. McWatters and Messrs. McDonnell, Shaw and Damiris vested in January 2009, and the remaining two-thirds will vest on January 1, 2010 and January 1, 2011, provided he or she continues employment with us. Mr. McDonnell retired from employment with us on January 1, 2009, resulting in the forfeiture of two-thirds of his restricted stock award pursuant to the terms of the restricted stock agreement.

 

Under the terms of the 2008 restricted stock agreements for Messrs. Clifton and Lamp, one third of the restricted shares vested in February, 2009 when the satisfaction of our performance standard was confirmed by the Committee. Except in the case of early termination of employment (i) after December 31, 2009, another one-third of these restricted shares will vest if our average “Quarterly Adjusted Net Income” (defined below) per diluted share is at least $1.00 for the period beginning October 1, 2008 and ending at the end of the quarter being considered (with the earliest possible ending quarter being the fourth quarter of 2009 and the last possible ending quarter being the fourth quarter of 2011), and (ii) after December 31, 2010, the remaining one-third of the restricted stock will vest if our average Quarterly Adjusted Net Income per diluted share is at least $1.00 for the period beginning October 1, 2008 and ending at the end of the quarter being considered (with the earliest possible ending quarter being the fourth quarter of 2010 and the last possible ending quarter being the fourth quarter of 2011). Quarterly Adjusted Net Income means net income for a quarter, as reported by us in our filings with the SEC, adjusted to exclude the effects of recoveries or liabilities resulting from litigation and administrative proceedings involving us and our subsidiaries. Dividends are paid on all restricted stock awards granted in 2008 to the same extent paid to stockholders generally.

 

In the event of an award recipient’s death, total and permanent disability (as determined by the Committee in its sole discretion) or, as to Ms. McWatters and Messrs. McDonnell, Shaw and Damiris only, retirement after attaining age 62 (or retirement after attaining an earlier retirement age approved by the Committee in its sole discretion), the recipient shall forfeit a number of shares of restricted stock equal to (i) the total number of shares of restricted stock initially subject to the award times (ii) the percentage that the period of full months beginning on the

first calendar month following the date of death, disability or retirement and ending on December 31, 2010 bears to 36. Any remaining shares of restricted stock that are not vested will become vested, but any fractional shares will be forfeited. In its sole discretion, the Committee may decide to vest all of the shares of restricted stock in lieu of the prorated number. Award recipients are stockholders with respect to all of the shares of restricted stock and have the right to receive all dividends and other distributions paid with respect to such shares of restricted stock.

 

As to Ms. McWatters and Messrs. McDonnell, Shaw, and Damiris only, pursuant to their respective restricted stock agreements, in the event his or her employment is terminated due to a Special Involuntary Termination before the lapse of all restrictions on the restricted stock award, all restrictions shall lapse and the shares shall become fully vested and delivered to the recipient as soon as practicable thereafter. Under Ms. McWatters’ and Messrs. McDonnell’s, Shaw’s, and Damiris’ restricted stock agreements, Special Involuntary Termination has the same meaning as defined above under “Performance Share Unit Agreement Terms,” except the term “Adverse Change” means (i) a change in the city in which the award recipient is required to work regularly, (ii) a substantial increase in travel requirements of employment, (iii) a substantial reduction in duties of the type previously performed by the recipient, or (iv) a significant reduction in compensation or benefits that does not apply generally to executives.

 

As to Messrs. Clifton, Lamp, and Glancy, pursuant to their respective restricted stock agreements, in the event his employment is terminated due to a Special Involuntary Termination (as defined above under “Performance Share Unit Agreement Terms”) before the lapse of all restrictions on the restricted stock award, the recipient shall remain eligible to vest in all remaining shares of restricted stock (whether or not the continuous employment requirement has been satisfied), provided that such shares of restricted stock shall only become actually vested if we achieve the performance standard during the applicable period. Any shares of restricted stock that remain eligible to vest as of the recipient’s termination of employment, but that have not vested as of December 31, 2011, shall be forfeited. In the event his employment is terminated for any other reason before the lapse of all restrictions on the restricted stock award, the recipient shall remain eligible to vest in any shares of restricted stock with respect to which the continuous employment requirement has been satisfied. In addition, the recipient shall also remain eligible to vest in a number of shares of restricted stock equal to the product of one-third of the shares awarded pursuant to the agreement, times a fraction, the numerator of which is the number of full months the recipient was employed during the year of termination (counting the month of termination as a full month) and the denominator of which is 12, provided the performance standard is met during the applicable period. The shares of restricted stock not eligible to vest shall be forfeited. Mr. Glancy’s retirement on June 30, 2008 resulted in the forfeiture of five-sixths of his restricted share award pursuant to the provisions of his restricted stock grant agreement. The remaining one-sixth of Mr. Glancy’s award (544 shares) vested when the satisfaction of the performance standard was confirmed by the Committee.

 

While not affecting the 2008 restricted stock agreement grants, the Committee determined that, beginning with the 2009 restricted stock agreement grants, distributions for recipients of restricted stock agreement grants with performance standards will be deferred until the applicable awards vest and such distributions shall be forfeited if such awards do not vest. Assuming the Quarterly Adjusted Net Income standard is met as set forth in each case above, the awards that are subject to performance conditions will become vested on the date that the Committee certifies that we have met the applicable standards.

 

The termination and change in control provisions of restricted stock awards are described below under the section titled “Potential Payments Upon Termination or Change in Control.”

 

Additional information regarding the restricted stock awards can be found above under “Compensation Discussion and Analysis — Overview of 2008 Executive Compensation Components — Long-Term Incentive Equity Compensation.”

Annual Incentive Cash Bonus Compensation

 

The bonuses that are available to our Named Executive Officers as annual incentive bonuses are based upon pre-set percentages of salary, achieved by reaching certain target performance levels. Messrs. McDonnell, Glancy and Ridenour are not included in the chart since they were not employed by us on the date bonuses were awarded and were not eligible for Annual Incentive Cash Bonus Compensation. Mr. McDonnell’s retirement agreement (discussed in footnote (6 ) to the table in the section titled “Potential Payments Upon Termination or Change in Control”) provided that he would be eligible for a 2008 bonus, but the Committee determined that a 2008 bonus was not appropriate when considering the total compensation provided to Mr. McDonnell during fiscal year ended 2008 and pursuant to the terms of the retirement agreement. A description of the pre-established performance criteria utilized in 2008 can be found above in the CD&A under the section titled “Annual Incentive Cash Bonus Compensation.” The following chart reflects the target percentages that were set for our Named Executive Officers and the actual percentages awarded to each individual. Potential maximum payments of Annual Incentive Cash Bonus Compensation for each of the following criteria are 200% of the target percentages set forth in the following table:

 

 

 

Additional information regarding cash bonus compensation can be found above under “Compensation Discussion and Analysis — Overview of 2008 Executive Compensation Components — Annual Incentive Cash Bonus Compensation.”

2008 Outstanding Equity Awards at Fiscal Year End

 

The following table reflects outstanding stock options, performance share units and restricted stock held by our Named Executive Officers as of December 31, 2008, including awards that were granted prior to 2008.