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Holly DEF 14A 2007 Table of Contents
UNITED STATES SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities
Holly Corporation (Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box):
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HOLLY
CORPORATION
100 Crescent Court Suite 1600 Dallas, Texas 75201-6915
April 25,
2007
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Holly Corporation to be held on Thursday,
May 24, 2007, at 11:00 a.m., local time, in the Garden
Room, 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
9 directors to the Board of Directors of the Company,
(ii) to approve an amendment to the Company’s Restated
Certificate of Incorporation to increase the total number of
shares of Common Stock, par value $0.01 per share, that the
Corporation has the authority to issue from
100,000,000 shares to 160,000,000 shares,
(iii) to reapprove the performance standards and
eligibility provisions of the Company’s Long-Term Incentive
Compensation Plan (the “Plan”) and to approve an
amendment to the Plan to provide for an additional business
criterion for annual incentive awards in addition to the
business criteria set forth in Section 8(b)(ii) of the
Plan, and (iv) 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
YOUR VOTE IS IMPORTANT
All stockholders are cordially invited to attend the Annual
Meeting in person. However, to ensure your representation at the
meeting, you are urged to complete, sign, date and return, in
the enclosed postage paid envelope, the enclosed proxy card or
to grant your proxy by the Internet or by telephone, as
described on the enclosed proxy card, as promptly as possible.
Returning your proxy card or granting your proxy by the Internet
or by telephone will help the Company assure that a quorum will
be present at the meeting and avoid the additional expense of
duplicate proxy solicitations. Any stockholder attending the
meeting may vote in person even if he or she has returned the
proxy card or has granted his or her proxy by telephone. When
providing your proxy, please indicate whether you plan to attend
the Annual Meeting in person.
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HOLLY
CORPORATION
100 Crescent Court Suite 1600 Dallas, Texas 75201-6915
April 25, 2007
PLEASE TAKE NOTICE that the 2007 Annual Meeting of Stockholders
(the “Annual Meeting”) of Holly Corporation (the
“Company”) will be held on Thursday, May 24,
2007, at 11:00 a.m. local time in the Garden Room, Hotel
Crescent Court, 400 Crescent Court, Dallas, Texas, to consider
and vote on the following matters:
1. Election of 9 directors to serve on the Board of
Directors (the “Board”) of the Company until the
Company’s next annual meeting;
2. Approval of an amendment to the Company’s Restated
Certificate of Incorporation to increase the total number of
shares of Common Stock, par value $0.01 per share, that the
Corporation has the authority to issue from
100,000,000 shares to 160,000,000 shares;
3. Re-approval of the performance standards and eligibility
provisions of the Company’s Long-Term Incentive
Compensation Plan (the “Plan”) and approval of an
amendment to provide for the use of “net profit
margin” as a business criterion for annual incentive awards
in addition to those set forth in Section 8(b)(ii) of the
Plan; and
4. 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, 2006 is being distributed with this Proxy
Statement.
The close of business on March 28, 2007 (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 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 also at the Annual Meeting.
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:
ERIN McKOOL
Secretary
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PROXY
STATEMENT
OF HOLLY CORPORATION 100 Crescent Court Suite 1600 Dallas, Texas 75201-6915
The Board requests your proxy for use at the Annual Meeting of
Stockholders to be held on Thursday, May 24, 2007, 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 25, 2007.
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 (the “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 23, 2007. In
the absence of any such revocation, shares represented by the
persons named in the Proxies will be voted at the Annual Meeting.
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 55,253,541 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
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proxy card does not have discretionary authority to vote on a
particular item and has not received voting instructions with
respect to that item.
The Board has designated Buford P. Berry, Matthew P. Clifton, W.
John Glancy, William J. Gray, 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 2008 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.
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 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.
The Board is seeking stockholder approval to amend the
Company’s Restated Certificate of Incorporation to increase
the Company’s authorized shares of Common Stock to
160,000,000 shares.
The Company is currently authorized to issue
100,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock. As of March 28,
2007, the Company had 55,253,541 outstanding shares of
Common Stock, 17,125,413 shares of Common Stock held in
treasury, and no outstanding shares of Preferred Stock, plus
outstanding options that would allow the holders of these
options to purchase 1,514,800 additional shares of Common Stock.
The Board has determined that it is in the best interest of the
Company and its stockholders to approve an amendment to the
Company’s Restated Certificate of Incorporation to increase
the number of authorized shares of the Company’s Common
Stock from 100,000,000 shares to 160,000,000 shares.
The proposed amendment to the Company’s Restated
Certificate of Incorporation is attached to this Proxy Statement
as Appendix A.
The Board has proposed this amendment to ensure that the Company
has sufficient authorized shares available to provide the
Company with flexibility in the future to issue shares for
general corporate purposes in connection with, by way of example
and without limitation, possible future equity financings,
possible future acquisitions or mergers, providing equity
incentives to employees, payments of stock dividends, and
effecting stock splits or other recapitalizations. The Company
has no current plans, prospects or agreements for any use of any
of the additional authorized shares that would be authorized by
approval of Proposal Two (“Additional Shares”).
The Additional Shares may be issued at such times, for such
purposes, and for such consideration as the Board may determine
to be in the best interests of the Company and its stockholders
and, except as otherwise required by applicable law, without
further authority from the stockholders of the Company.
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As of March 28, 2007, the maximum number of unreserved
shares of Common Stock that may be issued by the Company was
23,272,416 (excluding Treasury Shares, totaling
17,125,413 shares, which also may be used for business
purposes). If stockholders do not approve the increase in the
Company’s authorized Common Stock, the Company may not be
able to effect any of the general corporate purposes described
above, or any combination thereof.
Except in the case of a stock split effectuated through a stock
dividend, issuance of any of the Additional Shares may, among
other things, have a dilutive effect on earnings per share, and
on stockholders’ equity and voting rights. Issuance of
Additional Shares, or the perception that Additional Shares may
be issued, may also adversely affect the market price of the
Company’s Common Stock. Holders of Common Stock do not have
preemptive rights to subscribe for any Additional Shares, if
issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the Common Stock.
In addition, if the Company were to sell or otherwise issue
authorized but unissued Common Stock at a time when a takeover
was pending or threatened, the issuance of the Additional Shares
of Common Stock could discourage the takeover by making it more
expensive for the person who wanted to take the Company over to
obtain control of the Company. The proposal is not being
recommended in response to any specific effort of which the
Company is aware to obtain control of the Company, nor is the
Board currently proposing to stockholders any anti-takeover
measures.
Adoption of Proposal Two requires the affirmative vote of
the holders of a majority of the shares of the Company’s
Common Stock outstanding and entitled to vote at the Annual
Meeting. Accordingly, under Delaware law and the Company’s
Restated Certificate of Incorporation and Bylaws, abstentions
and broker non-votes will have the same effect as a vote against
Proposal Two. Unless otherwise instructed in the Proxy or
unless authority to vote is withheld, the Proxy will be voted
for Proposal Two.
The Board recommends a vote “FOR” amending the
Company’s Restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock to
160,000,000 shares.
The Board is seeking stockholder re-approval of the
Company’s Long-Term Incentive Compensation Plan (the
“Plan”), which was last approved by stockholders in
2002, and approval of an amendment to the Plan to add “net
profit margin” as an additional business criterion to the
Business Criteria already listed as factors that may be used by
the Compensation Committee of the Board in establishing
performance targets under the Plan for Performance Awards.
Approval of the Plan is required every five years to preserve,
to the extent possible, the Company’s tax deductions for
compensation paid pursuant to Performance Awards under the Plan
in accordance with Section 162(m) of the Internal Revenue
Tax Code (the “Tax Code”) and related regulations.
Since 2002, the Plan has been amended twice by the Board, as
permitted under the Plan, to (i) modify the definition of
“Performance Award” under the Plan and
(ii) provide that the performance conditions forming the
basis of a Performance Award granted under the Plan will be
measured over a period of not less than six months nor more than
ten years.
The Plan is designed to advance the interests of the Company by
strengthening the ability of the Company and its subsidiaries to
attract, retain and motivate able people of high caliber through
arrangements that relate the compensation of such persons to the
long-term performance of the Company. The Plan has also been
designed to preserve the tax deductibility of payments made
pursuant to the Plan. Under the Tax Code, publicly traded
corporations cannot deduct, for federal income tax purposes,
compensation paid to its chief executive officer and its
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other 4 most highly-paid executive officers at the end of the
fiscal year (the “Covered Employees”) to the extent
that payments to any such employee for any year exceed
$1 million, unless the payments qualify for an exception to
the deductibility limit. One such exception is performance-based
compensation paid under a plan that meets certain requirements,
including stockholder approval. The Company intends to
administer the Plan so that, if approved as amended, Performance
Awards thereunder will qualify as performance-based compensation
under Section 162(m) of the Tax Code. The Plan is
administered by a committee designated by the Board. From 2002
through February 2006, the Long-Term Incentive Compensation
Committee (named the Long-Term Compensation Committee beginning
in 2005) was the committee designated to administer the
Plan. Since February 2006, the Board has designated the
Compensation Committee to administer the Plan. In the
description of the Plan below, the term “Committee”
refers to the committee designated from time to time by the
Board to administer the Plan and, with respect to periods since
February 2006, to the Compensation Committee.
All officers and key employees of the Company, including our
Covered Employees, are currently eligible for Performance Awards
under the Plan. The actual Performance Award(s) granted to a
participant for any year is determined by the Committee and may
be based on (i) the participant’s target award;
(ii) the extent to which any applicable performance goals
have been achieved; and (iii) the weightings established by
the Committee with respect to any applicable performance
criteria.
Under the current version of the Plan, a participant’s
performance goals may be established with respect to one or more
of the following performance criteria: (1) earnings per
share; (2) increase in revenues; (3) increase in cash
flow; (4) increase in cash flow return; (5) return on
net assets; (6) return on assets; (7) return on
investment; (8) return on capital; (9) return on
equity; (10) economic value added; (11) gross margin;
(12) net income; (13) pretax earnings;
(14) pretax earnings before interest, depreciation and
amortization; (15) pretax operating earnings after interest
expense and before incentives, service fees, and extraordinary
or special items; (16) operating income; (17) total
stockholder return; (18) debt reduction; and (19) any
of the above goals determined on an absolute or relative basis
or as compared to the performance of a published or special
index deemed applicable by the Committee including, but not
limited to, the Standard & Poor’s 500 Stock Index
or a group of comparable companies. The Board has approved,
subject to stockholder approval, that net profit margin should
be added to the foregoing Business Criteria for use by the
Committee in evaluating the Company’s performance for 2007
and subsequent periods.
Description
of the Plan, As Amended
The purpose of the Plan is to advance the interests of the
Company by strengthening the ability of the Company and its
subsidiaries to attract, retain and motivate able people of high
caliber as employees, directors and consultants through
arrangements that relate the compensation for such persons to
the long-term performance of the Company. The defined terms used
in the following description of the Plan shall have the meanings
set forth in the Plan.
The Plan, which was approved as the Holly Corporation 2000 Stock
Option Plan by stockholders of the Company at the Annual Meeting
of Stockholders on December 14, 2000, and amended and
restated as the Holly Corporation Long-Term Incentive
Compensation Plan at the Annual Meeting of Stockholders on
December 12, 2002, authorizes the grant of
(i) incentive stock options qualified as such under
U.S. federal income tax laws (“Incentive
Options”), (ii) stock options that do not qualify as
incentive stock options (“Nonstatutory Options” and,
together with Incentive Options, “Options”),
(iii) restricted stock awards (“Restricted Stock
Awards”), (iv) bonus stock awards (“Stock
Awards”), (v) stock appreciation rights
(“SARs”), (vi) phantom stock awards
(“Phantom Stock Awards”), and performance awards
payable upon the satisfaction of performance goals. So that
grants may qualify for an exemption from the income tax
deduction limitations of Section 162(m) of the Tax Code,
the Plan allows the Company to subject the granting, vesting or
payment of any award to business criteria set forth in the Plan
and limits the number of Shares on which an award is based or
the cash payment under a performance award to amounts specified
in the Plan. The Plan also provides for the Committee (as
defined below) to permit, in its discretion, certain transfers
of awards. The authority to grant awards under the Plan expires
on December 31, 2010. The Plan is not a qualified plan
under Section 401(a) of the Tax Code and is not subject to
the provisions of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”).
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The Plan is administered by the Board or by a committee
designated by the Board to administer the Plan. The Plan
authorizes the Board to appoint a committee composed of two or
more directors who are nonemployee directors within the meaning
of
Rule 16b-3
under the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”) and outside directors within the
meaning of Section 162(m) of the Tax Code, to have
exclusive authority to approve grants under the Plan to the
chief executive officer of the Company and to other highly
compensated executive officers. The Board or a committee
designated by the Board has full and final authority to
construe, interpret and administer the provisions of the Plan
and the specific provisions of the agreements for awards granted
thereunder. The actions and determinations of the Board or
appropriate committee are final, binding and conclusive.
Any person who is a current or proposed officer, director, or
key employee or consultant whose services are deemed to be of
potential benefit to the Company or to any of its subsidiaries
may be granted awards under the Plan by the Committee. An
employee on leave of absence may be considered still employed by
the Company for determining eligibility under the Plan. However,
Incentive Options can be granted only to a person who is an
employee of the Company or an employee of one of its corporate
subsidiaries. Additional restrictions would apply in the case of
an Incentive Option granted to a person owning more than 10% of
the outstanding Shares. The Company currently has seven
non-employee directors, six executive officers and approximately
223 other employees who are eligible to participate in the Plan.
The maximum aggregate number of shares of Common Stock that may
be issued with respect to any and all awards under the Plan,
including shares already transferred pursuant to past awards,
will not exceed 6,000,000 shares of Common Stock.
In the event of certain transactions affecting Shares or in the
event of stock splits, stock dividends or changes in the
Company’s capital structure, the total number of Shares
that may be subject to awards under the Plan and the number of
shares subject to awards that have theretofore been granted
under the Plan may be proportionately adjusted, as determined by
the Board or a designated committee of the Board to be
appropriate to prevent dilution or enlargement of award rights.
Shares subject to an award under the Plan that expires or is
canceled, forfeited, settled in cash or otherwise terminated
without a delivery of Shares to the participant, including
(i) the number of Shares withheld in payment of any
exercise price of an award or taxes relating to awards, and
(ii) the number of Shares surrendered in payment of any
exercise price of an award or taxes relating to any award, will
again be available for awards under the Plan, except that if any
such Shares could not again be available for awards to a
particular participant under any applicable law or regulation,
such Shares shall be available exclusively for awards to
participants who are not subject to such limitation. Other than
the option exercise price in the case of Options, there are no
fees, commissions, or other charges assessed by the Company that
are applicable to an acquisition of Shares under the Plan.
As of March 28, 2007: (i) there were
1,199,906 Shares subject to awards outstanding under the
Plan; (ii) 1,506,800 Shares had been issued upon
exercise of Options awarded under the Plan;
(iii) 425,200 Shares are subject to outstanding
Options under the Plan; and (iv) 2,482,886 Shares were
available for issuance of future awards under the Plan. The
average weighted exercise price of Options outstanding under the
Plan is $3.04 per share.
The following types of awards may be granted under the Plan:
(i) Incentive Options, (ii) Nonstatutory Options,
(iii) Restricted Stock Awards, (iv) Stock Awards,
(v) SARs, (vi) Phantom Stock Awards,
(vii) performance awards, or (viii) any combination of
the foregoing.
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Awards under the Plan may be granted on the terms and conditions
set forth below. In addition, the Committee may impose on any
award or the exercise thereof such additional terms and
conditions as the Committee determines, including certain
performance conditions described below, terms requiring
forfeiture of awards in the event of termination of employment
of an award holder and terms permitting an award holder to make
elections relating to his or her award. The Committee retains
full power and discretion to accelerate or waive, at any time,
any term or condition of an award that is not mandatory under
the Plan; provided, however, that the Committee does not have
any discretion to accelerate or waive any term or condition of
an award that is intended to qualify as “performance-based
compensation” for purposes of Section 162(m) of the
Tax Code if such discretion would cause the award not to so
qualify. Awards granted under the Plan may, in the discretion of
the Committee, be granted either alone, or in addition to, in
tandem with, or in exchange for, other awards or other rights to
receive payment from the Company or certain affiliated entities.
The term of each award will be for such period as may be
determined by the Committee; provided that in no event will the
term of any Option or SAR exceed a period of ten years (or such
shorter term as may be required in respect of an Incentive
Option under Section 422 of the Tax Code). No Incentive
Option may be granted pursuant to the Plan after
December 13, 2010 and no other award may be granted under
the Plan after December 31, 2010.
Unless permitted by the Committee pursuant to the express terms
of an award agreement, awards will generally not be transferable
other than by will or the laws of descent and distribution. The
Committee may allow for the transfer of awards, prior to an
award holder’s death, pursuant to a qualified domestic
relations order and to certain immediate family members or
entities related to an immediate family member even in the
absence of a qualified domestic relations order.
Stock Options. The Plan authorizes grants of
stock options to eligible persons including (i) Incentive
Options and (ii) Nonstatutory Options. The exercise price
of each Option granted under the Plan shall be stated in the
agreement governing such Option and may vary; however, the
exercise price for an Incentive Option must not be less than the
greater of (a) the par value per Share or (b) the fair
market value of the Share as of the date of grant. No Incentive
Option will be exercisable at any time after the expiration of
ten years from the date of grant. The total fair market value
(determined as of the date of grant) of Shares with respect to
which Incentive Options are first exercisable by a participant
in any one calendar year cannot exceed $100,000. The Incentive
Options granted earliest shall be applied first to the $100,000
limit. The exercise price per Share subject to an Option other
than an Incentive Option shall not be less than the par value
per Share (but may be less than the fair market value of a Share
on the date of grant). Any Incentive Option which fails to
comply with Section 422 of the Tax Code for any reason will
result in the reclassification of the Incentive Option as a
Nonstatutory Option which will be exercisable as such. The
Committee determines the methods and form of payment for the
exercise price of an Option, which may include, in the
discretion of the Committee, cash, Shares, other awards, or
other property, and the methods and forms in which Shares will
be delivered to a person exercising a Option.
Restricted Stock Awards. The Committee is
authorized to grant Restricted Stock Awards. Restricted Stock
Awards are Shares subject to such restrictions as the Committee
may impose. Except to the extent set forth in a particular
award, a person granted a Restricted Stock Award will have all
of the rights of a stockholder of the Company, including the
right to vote the restricted Shares and the right, subject to
possible reinvestment conditions, to receive dividends thereon.
However, during any period that restricted Shares are subject to
restrictions imposed by the Committee, the restricted Shares may
not be transferred or encumbered by an award holder. Except as
determined by the Committee, upon termination of employment
during the restricted period, restricted Shares will be
forfeited and reacquired by the Company. Certificates evidencing
restricted Shares may bear a legend making reference to the
restrictions imposed on such Shares. The Committee determines
the time or times at which and the circumstances under which any
restrictions imposed on restricted Shares will lapse.
Bonus Stock Award. The Committee is authorized
to grant Shares to eligible persons as a bonus. A Stock Award
will be subject to such other terms and conditions as the
Committee may determine, including such conditions necessary to
prevent any recipient of a Stock Award from incurring liability
under Section 16(b) of the Exchange Act.
Stock Appreciation Rights. The Committee is
authorized to grant SARs. An SAR is the right to receive in cash
an amount equal to the excess of the fair market value of a
Share on the date of exercise over the grant price of
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the SAR as determined by the Committee. The Committee determines
at the date of grant or thereafter, the time or times at which
and the circumstances under which an SAR may be exercised. The
Committee also determines the method of exercise and form of
payment.
Phantom Stock Awards. Phantom Stock Awards are
rights to receive in cash or in Stock, as determined by the
Committee, an amount equal to the market value of a specified
number of Shares at the end of a specified period. The Committee
determines when imposed restrictions will lapse and whether
restrictions will lapse separately, in combination, in
installments or otherwise. All Phantom Stock Awards that are
subject to restrictions shall be forfeited upon the termination
of an award holder’s employment or service with the Company
during a restriction period to which forfeiture conditions
apply, unless such conditions are otherwise waived or modified
by the Committee. Unless otherwise determined by the Committee,
amounts equal to dividends on the specified number of Shares
covered by a Phantom Stock Award will be either (i) paid
with respect to such Phantom Stock Award on the dividend payment
date in cash or in unrestricted Shares having a fair market
value equal to the amount of such dividends, or
(ii) automatically deemed reinvested in additional Phantom
Stock Awards, other awards, or other investment vehicles
specified by the Committee.
Performance Awards. The Committee is
authorized to grant eligible persons rights to receive cash or
Shares upon the satisfaction of performance conditions,
established by the Committee, measured over a period of not less
than six months and not more than ten years. The performance
conditions associated with a performance award may be any of the
business criteria described in the section entitled
“Federal Income Tax Consequences — Tax Code
Limitations on Deductibility” if the award is intended to
qualify as “performance-based compensation” under
Section 162(m) of the Tax Code or, in the case of any other
award, may be based on the described business criteria or on any
other performance conditions specified by the Committee.
Performance awards granted under the Plan have been principally
“performance share units” payable either in Shares or
in cash depending on the terms of the particular award. In the
case of awards that are intended to qualify as
“performance-based compensation” to persons who are
“covered persons” under Section 162(m) of the Tax
Code, performance goals are established not later than
90 days after the beginning of the performance period
applicable to such an award, or at such other date as may be
required or permitted under Section 162(m) of the Tax Code.
All determinations by the Committee as to the establishment,
amount and achievement of performance goals are made in writing
and the Committee may not delegate any responsibility relating
to such awards granted to covered employees under
Section 162(m) of the Tax Code. The Committee specifies the
circumstances under which awards will be paid or forfeited if an
award holder is terminated before settlement.
Tax Withholding. The Board or a designated
committee of the Board will make such provisions and take such
steps as it may deem necessary or appropriate for the
withholding of any taxes that the Company is required by law or
regulation of any governmental authority to withhold in
connection with any award under the Plan. See “Federal
Income Tax Consequences” for a discussion of federal income
tax consequences to persons who receive Options and other awards
under the Plan.
Right of Company to Terminate Awards in Event of Certain
Corporation Transactions. Unless otherwise
specifically provided in particular award agreements, the Plan
authorizes the Company, in the event of an acquisition of
substantially all of the assets of the Company or of a greater
than 80% stock interest in the Company by an entity in which the
Company does not have a 50% or greater interest prior to such
acquisition or in the event of a merger, consolidation,
recapitalization or other similar transaction involving a
fundamental change in the Company’s capital structure, to
terminate some or all outstanding awards under the Plan, whether
or not currently exercisable by or otherwise payable to the
holders of the awards, upon payment to each holder of an award
so terminated of an amount equal to the value of the award based
on the current market value of the Shares or, if applicable, the
value of the award based upon the extent to which performance
criteria associated with the award have been satisfied as of the
date of termination of the award. Alternatively the Company may
elect in such circumstances to cause some or all awards to be
assumed by the surviving or acquiring corporation. In all other
circumstances, the Committee may amend or terminate any award
under the Plan, provided that, and notwithstanding any other
provisions described herein, no such Committee action may
materially and adversely affect the rights of such award holder
under such award unless either the power to take such action is
reserved in the
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agreement granting the award in question or the affected holder
of the award consents to the amendment or termination.
Amendment and Termination of the Plan. The
Plan was approved as the Holly Corporation 2000 Stock Option
Plan by stockholders of the Company at the Annual Meeting of
Stockholders on December 14, 2000 and amended and restated
as the Holly Corporation Long-Term Incentive Compensation Plan
at the Annual Meeting of Stockholders on December 12, 2002.
The Plan was subsequently amended by the Board effective
May 10, 2005 and January 1, 2006 to modify the
definition of “Performance Award” under the Plan and
to provide that the performance conditions forming the basis of
a Performance Award granted under the Plan will be measured over
a period not less than six months nor more than ten years. The
Plan will continue in effect for a period of ten years from its
original effective date of January 1, 2001, unless earlier
terminated in accordance with certain provisions of the Plan,
provided however that no Incentive Option may be granted under
the Plan after December 13, 2010. The Board may amend or
terminate the Plan without the consent of stockholders or
eligible persons, except that any amendment to the Plan will be
subject to the approval of the Company’s stockholders no
later than the annual meeting next following such Board action
if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or
automated quotation system on which the Shares may then be
listed or quoted. The Board may, in its discretion, submit other
changes to the Plan to stockholders for approval. However,
without the consent of an affected award holder, no Board or
stockholder action may materially and adversely affect the
rights of such award holder under any previously granted and
outstanding award.
Termination of Employment. The effects of a
participant’s termination of employment on an award are
specified in the award agreement as approved by the Board or
applicable committee.
Transferability of Awards. In accordance with
rules prescribed by the Committee, the Committee may permit a
person to transfer awards granted under the Plan (other than
Incentive Stock Options) by gift to certain permitted
transferees specified in the Plan as well as transfers pursuant
to a domestic relations order. Otherwise, awards are not
transferable other than by will or the laws of descent and
distribution. Following the transfer of an award, the award will
remain subject to the same terms and conditions as were
applicable to the award immediately prior to the transfer,
provided that the transferee will be substituted for the
transferor to the extent appropriate to enable the transferee to
exercise the transferred award. When transferred awards are
exercised by a transferee, the shares received as a result of
the exercise may be subject to the resale restrictions specified
above. Any holder of an award desiring to transfer an award must
make application for transfer and comply with such other
requirements as the Committee may require.
The following discussion is for general information only and is
intended to summarize briefly the U.S. federal income tax
consequences to participants arising from participation in the
Plan. This description is based on current law, which is subject
to change (possibly retroactively). The tax treatment of a
participant in the Plan may vary depending on his particular
situation and may, therefore, be subject to special rules not
discussed below. No attempt has been made to discuss any
potential foreign, state, or local tax consequences. In
addition, Options or SARs with an exercise price less than the
fair market value of Common Stock on the date of grant, SARs
payable in cash, Phantom Stock Awards, and certain other awards
that may be granted pursuant to the Plan, could be subject to
additional taxes unless they are designed to comply with certain
restrictions set forth in Section 409A of the Tax Code and
guidance promulgated thereunder. The Company does not currently
intend to grant such awards under the Plan, but if, in the
future, the Company does grant such awards they will be designed
to comply with those restrictions and to avoid the additional
taxes imposed by Section 409A of the Tax Code.
Nonstatutory Options; SARs; Incentive
Options. Participants will not realize taxable
income upon the grant of a Nonstatutory Option or an SAR. Upon
the exercise of a Nonstatutory Option or SAR, a participant will
recognize ordinary compensation income (subject to withholding
by the Company) in an amount equal to the excess of (i) the
amount of cash and the fair market value of the Common Stock
received, over (ii) the exercise price (if any) paid
therefor. A participant will generally have a tax basis in any
shares of Common Stock received pursuant to the exercise of an
SAR, or pursuant to the cash exercise of a Nonstatutory Option,
that equals the fair market value of such shares on the date of
exercise. Subject to the discussion under “Tax Code
Limitations on Deductibility” below,
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the Company (or a subsidiary) will be entitled to a deduction
for federal income tax purposes that corresponds as to timing
and amount with the compensation income recognized by a
participant under the foregoing rules.
Participants eligible to receive an Incentive Option will not
recognize taxable income on the grant of an Incentive Option.
Upon the exercise of an Incentive Option, a participant will not
recognize taxable income, although the excess of the fair market
value of the shares of Common Stock received upon exercise of
the Incentive Option (“ISO Stock”) over the
exercise price will increase the alternative minimum taxable
income of the participant, which may cause such participant to
incur alternative minimum tax. The payment of any alternative
minimum tax attributable to the exercise of an Incentive Option
would be allowed as a credit against the participant’s
regular tax liability in a later year to the extent the
participant’s regular tax liability is in excess of the
alternative minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the
requisite holding period (generally, at least two years from the
date of grant and one year from the date of exercise of the
Incentive Option), a participant will generally recognize
capital gain (or loss) equal to the excess (or shortfall) of the
amount received in the disposition over the exercise price paid
by the participant for the ISO Stock. However, if a participant
disposes of ISO Stock that has not been held for the requisite
holding period (a “Disqualifying Disposition”), the
participant will recognize ordinary compensation income in the
year of the Disqualifying Disposition in an amount equal to the
amount by which the fair market value of the ISO Stock at the
time of exercise of the Incentive Option (or, if less, the
amount realized in the case of an arm’s length disposition
to an unrelated party) exceeds the exercise price paid by the
participant for such ISO Stock. A participant would also
recognize capital gain to the extent the amount realized in the
Disqualifying Disposition exceeds the fair market value of the
ISO Stock on the exercise date. If the exercise price paid for
the ISO Stock exceeds the amount realized (in the case of an
arm’s-length disposition to an unrelated party), such
excess would ordinarily constitute a capital loss.
The Company and its subsidiaries will generally not be entitled
to any federal income tax deduction upon the grant or exercise
of an Incentive Option, unless a participant makes a
Disqualifying Disposition of the ISO Stock. If a participant
makes a Disqualifying Disposition, the Company (or a subsidiary)
will then, subject to the discussion below under
“— Tax Code Limitations on Deductibility,”
be entitled to a tax deduction that corresponds as to timing and
amount with the compensation income recognized by a participant
under the rules described in the preceding paragraph.
Under current rulings, if a participant transfers previously
held shares of Common Stock (other than ISO Stock that has not
been held for the requisite holding period) in satisfaction of
part or all of the exercise price of a Nonstatutory Option or
Incentive Option, no additional gain will be recognized on the
transfer of such previously held shares in satisfaction of the
Nonstatutory Option or Incentive Option exercise price (although
a participant would still recognize ordinary compensation income
upon exercise of an Nonstatutory Option in the manner described
above). Moreover, that number of shares of Common Stock received
upon exercise which equals the number of shares of previously
held Common Stock surrendered therefor in satisfaction of the
Nonstatutory Option or Incentive Option exercise price will have
a tax basis that equals, and a capital gains holding period that
includes, the tax basis and capital gains holding period of the
previously held shares of Common Stock surrendered in
satisfaction of the Nonstatutory Option or Incentive Option
exercise price. Any additional shares of Common Stock received
upon exercise will have a tax basis that equals the amount of
cash (if any) paid by the participant, plus the amount of
compensation income recognized by the participant under the
rules described above. If a reload option is issued in
connection with a participant’s transfer of previously held
Common Stock in full or partial satisfaction of the exercise
price of an Incentive Option or Nonstatutory Option, the tax
consequences of the reload option will be the same as provided
above for an Incentive Option or Nonstatutory Option, depending
on whether the reload option itself is an Incentive Option or
Nonstatutory Option.
Restricted Stock Awards; Phantom Stock Awards; Stock
Awards. A participant will not have taxable
income at the time of grant of an award in the form of a Phantom
Stock Award, but rather, will generally recognize ordinary
compensation income at the time he receives Common Stock or cash
in satisfaction of the Phantom Stock Award in an amount equal to
the fair market value of the Common Stock or amount of cash
received. In general, a participant will recognize ordinary
compensation income as a result of the receipt of Common Stock
pursuant to a Stock Award or a Restricted Stock Award in an
amount equal to the fair market value of the Common Stock when
such stock is
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received; provided, however, that if the stock is not
transferable and is subject to a substantial risk of forfeiture
when received, a participant will recognize ordinary
compensation income in an amount equal to the fair market value
of the Common Stock (i) when the Common Stock first becomes
transferable or is no longer subject to a substantial risk of
forfeiture in cases where a participant does not make an valid
election under Section 83(b) of the Tax Code or
(ii) when the Common Stock is received in cases where a
participant makes a valid election under Section 83(b) of
the Tax Code.
A participant will be subject to withholding for federal, and
generally for state and local, income taxes at the time he
recognizes income under the rules described above with respect
to Common Stock or cash received. Dividends that are received by
a participant prior to the time that the Common Stock is taxed
to the participant under the rules described in the preceding
paragraph are taxed as additional compensation, not as dividend
income. The tax basis in the Common Stock received by a
participant will equal the amount recognized by him as
compensation income under the rules described in the preceding
paragraph, and the participant’s capital gains holding
period in those shares will commence on the date of receipt of
the shares.
Subject to the discussion immediately below, the Company (or a
subsidiary) will be entitled to a deduction for federal income
tax purposes that corresponds as to timing and amount with the
compensation income recognized by a participant under the
foregoing rules.
Tax Code Limitations on Deductibility. In
order for the amounts described above to be deductible by the
Company (or a subsidiary), such amounts must constitute
reasonable compensation for services rendered or to be rendered
and must be ordinary and necessary business expenses.
The ability of the Company (or a subsidiary) to obtain a
deduction for future payments under the Plan could also be
limited by the golden parachute payment rules of
Section 280G of the Tax Code, which prevent the
deductibility of certain excess parachute payments made in
connection with a change in control of an employer-corporation.
Finally, the ability of the Company (or a subsidiary) to obtain
a deduction for amounts paid under the Plan could be limited by
Section 162(m) of the Tax Code, which limits the
deductibility, for federal income tax purposes, of compensation
paid to certain executive officers of a publicly traded
corporation to $1 million with respect to any such officer
during any taxable year of the corporation. However, an
exception applies to this limitation in the case of certain
“performance-based compensation.” In order to exempt
performance-based compensation from the $1 million
deductibility limitation, the grant or vesting of the award
relating to the compensation must be based on the satisfaction
of one or more performance goals as selected by the Committee.
Performance-based awards may not be granted in a given period if
such awards relate to shares of Common Stock which exceed a
specified limitation or, alternatively, the performance-based
awards may not result in compensation, for a participant, in a
given period which exceeds a specified limitation. The Plan, as
proposed to be amended, allows the Committee to utilize any of
the following business criteria for the Company, on a
consolidated basis,
and/or for
specified subsidiaries, divisions or business or geographical
units of the Company (except with respect to the total
stockholder return and earnings per share criteria), in
establishing performance goals to which an award relates:
(i) earnings per share; (ii) increase in revenues;
(iii) increase in cash flow; (iv) increase in cash
flow returns; (v) return on net assets; (vi) return on
assets; (vii) return on investment; (viii) return on
capital; (ix) return on equity; (x) economic value
added; (xi) gross margin; (xii) net income;
(xiii) pretax earnings; (xiv) pretax earnings before
interest, depreciation and amortization (EBITDA);
(xv) pretax earnings after interest expense and before
incentives, service fees, and extraordinary or special items;
(xvi) operating income; (xvii) total stockholder
return; (xviii) debt reduction; (xix) net profit
margin; and (xx) any of the above goals determined on an
absolute or relative basis or as compared to the performance of
a published or special index deemed applicable by the Committee
including, but not limited to, the Standard &
Poor’s 500 Stock Index or a group of comparable companies
selected by the Committee. Although the Plan has been drafted to
satisfy the requirements for the performance-based compensation
exception, the Company may determine that it is in its best
interests not to satisfy the requirements for the exception.
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The awards, if any, that will be made to eligible persons under
the Plan are subject to the discretion of the Committee and,
therefore, are not determinable at this time. The following
table sets forth, for the named executive officers, all current
executive officers as a group, all current directors who are not
executive officers, as a group, and all employees, including all
current officers who are not executive officers, as a group, the
dollar value and number of awards granted under the Plan in
2006. The dollar value is computed at December 31, 2006
applying the closing price of $51.40.
If the Plan, as amended, is not approved, it may be necessary
for the Company to adopt some other form of incentive
compensation plan or arrangement in order for the Company to
continue to attract and retain talented executives. Any
incentive compensation paid under such other plan or arrangement
would not qualify for the exclusion from the $1 million
compensation limit for qualified performance-based compensation
under Section 162(m) of the Tax Code. Accordingly, the
compensation paid pursuant to another plan or arrangement might
not be fully tax deductible.
Adoption of Proposal Three requires the affirmative vote of
the holders of a majority of the shares of the Company’s
Common Stock outstanding and entitled to vote at the Annual
Meeting. Accordingly, under Delaware law and the Company’s
Restated Certificate of Incorporation and Bylaws, abstentions
and broker non-votes will have the same effect as a vote against
Proposal Three. Unless otherwise instructed in the Proxy or
unless authority to vote is withheld, the Proxy will be voted
for Proposal Three.
The Board recommends a vote “FOR” the approval of
the Company’s Long-Term Incentive Compensation Plan and the
proposed amendment thereto to add “net profit margin”
as an additional business criterion.
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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 Securities and Exchange Commission (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 55,253,541 shares of Common Stock outstanding.
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The following table sets forth certain information regarding the
directors of the Company in 2006. 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 served as
Chief Executive Officer since January 1, 2006 and was
elected to the additional office of Chairman of the Board on
April 5, 2007. He has been with the Company for over
twenty-five years and served as President of the Company from
1995 to January 1, 2006. Since March 2004, he has served as
Chairman of the Board and Chief Executive Officer of Holly
Logistic Services, L.L.C., 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 45% interest
(including the general partner interest) in Holly Energy
Partners, L.P.
W. John Glancy, a director from 1975 to 1995 and since
September 1999, has been Senior Vice President and General
Counsel of the Company since April 1999. He also held the office
of Secretary from April 1999 through February 2005. 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.
Mr. Glancy currently also serves as Vice President and
General Counsel of Holly Logistic Services, L.L.C.
* Lamar Norsworthy, a director since 1967,
served as the Company’s chief executive officer from 1971
to 2005, holding the title of President from 1971 to 1977 and
the title of Chairman of the Board and Chief Executive Officer
from 1977 through the end of 2005. From January 2006 until
April 5, 2007, he held the office of Chairman of the Board.
Mr. Norsworthy is also a director of Cameron International
Corporation and has served as a director of Holly Logistic
Services, L.L.C. since March 2004. Effective April 3, 2007,
in accord with normal Company practice,
Mr. Norsworthy’s employment with the Company
terminated based on his long-term disability following an
illness that began in October 2006. By action of the Board,
Mr. Norsworthy ceased to hold the office of Chairman of the
Board on April 5, 2007. Because of his current condition,
Mr. Norsworthy has not been designated by the Board as a
nominee for election as a director at the 2007 Annual Meeting.
Although no advance commitment can be made in such circumstances
and the Board cannot predict the extent and speed of
Mr. Norsworthy’s further recovery, the Board has
expressed its intention that, if Mr. Norsworthy becomes
again able to serve as a director of the Company and wishes to
do so, it will consider taking appropriate steps to name
Mr. Norsworthy as an additional director of the Company to
serve until election at the next annual meeting of stockholders
following such action. The Board has also expressed its
intention to consider electing Mr. Norsworthy as an
executive officer of the Company if Mr. Norsworthy again
becomes able to serve in such capacity and wishes to do so.
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William J. Gray, a director since September 1996, 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.
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, is a
financial consultant.
Robert G. McKenzie, a director since 1992, is a financial
consultant. From January 1990 to August 1999, he was Executive
Vice President and Chief Operating Officer 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.
For the year ended December 31, 2006, directors who are not
employees of the Company or its subsidiaries were compensated
by: (a) a $35,000 annual cash retainer, payable in four
quarterly installments; (b) $1,500 per attended
meeting of the Board and per each attended meeting of a
committee of the Board, except that in the case of special Board
meetings or committee meetings held by conference telephone, no
fee was paid for meetings lasting less than thirty minutes, $750
was paid for meetings lasting between thirty minutes and two
hours, and the full $1,500 was paid only for meetings lasting
more than two hours; and (c) an annual grant of restricted
share units equal in value to $80,000 on the date of grant. With
respect to the restricted share units, the units will have their
restrictions lapse in 25% increments every three months and will
fully vest one year following the date of grant. Under the
current compensation program for 2006, a number of shares of
Holly Corporation common stock equal to vested restricted share
units will be earned and transferred to the director at the
earlier of three years from the date of grant or cessation of
the director’s service on the Board. Until such time, the
director will receive dividend equivalent rights, but not voting
rights. Under the Company’s stock ownership guidelines
approved by the Board in 2006, directors are expected to retain
fifty percent of the restricted share units until a specified
ownership level is achieved. In addition to the foregoing, the
director who serves as the chairperson of the Audit Committee of
the Board receives a $10,000 special annual retainer for his
service as committee chair. Each director who serves as the
chairperson of the Compensation, Nominating/Corporate Governance
or Public Policy committees of the Board receives a $5,000
special annual retainer for his service as committee chair.
Officers of the Company who also serve on the Board do not
receive supplemental compensation for their service as directors.
During the year ended December 31, 2006, compensation was
provided to the Company’s outside directors as set forth
below:
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The Board is comprised of a majority of independent directors as
defined in Section 303A.02 of the New York Stock Exchange
listing standards. The directors determined by the Board to be
independent under this standard are Buford P. Berry, William J.
Gray, Thomas K. Matthews, II, Robert G. McKenzie, Paul T.
Stoffel, Jack P. Reid and Marcus R. Hickerson. In determining
that Mr. Hickerson is an independent director, the Board
considered the fact that Mr. Hickerson’s
53-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 New York Stock Exchange (“NYSE”) rules and of
Rule 10A-3
under the Exchange Act. 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. Gray is an independent
director, the Board considered the fact that William J. Gray was
elected to the New Mexico House of Representatives in November
2006 in light of the Company’s refining operations in New
Mexico and the Company’s contribution of $10,000 to Mr.
Gray’s campaign in 2006. The Board’s determination
that neither the Company’s contribution toward
Mr. Gray’s campaign during 2006 nor his duties as a
member of the New Mexico state legislature would interfere with
his ability to act as an independent fiduciary to the Company
was based particularly on the fact that Mr. Gray satisfies
all of the independence requirements of the NYSE and SEC. The
Board also considered the conflicts of interest provisions of
the Company’s Code of Business Conduct and Ethics,
discussed such provisions with Mr. Gray and determined that
Mr. Gray’s duties as a New Mexico state representative
do not interfere with the interests of the Company as a whole.
The Board held five meetings during 2006. The Board has six
principal standing committees: the Executive Committee, the
Audit Committee, the Compensation Committee, the Long-Term
Compensation Committee, the Nominating/Corporate Governance
Committee, and the Public Policy Committee. Each of the
committees is appointed by the Board. During 2006, each
director, with the exception of Mr. Norsworthy, attended at
least 75% of the aggregate of the total number of meetings of
the Board. As a result of Mr. Norsworthy’s illness
beginning in October 2006, he missed two of the Board meetings
held in 2006. During 2006, each director attended at least 75%
of each of the meetings 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 attended the 2006 Annual Meeting of Stockholders.
The current members of the Executive Committee are
Messrs. Clifton (Chairman), Glancy, Reid and McKenzie.
Mr. Norsworthy ceased to be a member and Chairman of the
Executive Committee in April 2007 at which time the Board
appointed Mr. McKenzie as a member. 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 2006, the committee met 5 times.
The current members of the Audit Committee are
Messrs. McKenzie (Chairman), Berry, Matthews, and Stoffel.
The Audit Committee of the Board is responsible for monitoring
the Company’s internal accounting controls, selecting and
engaging independent auditors, 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
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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 2006,
the committee met 6 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 shareholder who requests it. As described above,
all members of the Audit Committee have been determined to be
independent as independence is defined in Section 303A.02
of the New York Stock Exchange’s listing standards. The
Board has 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 that affect the
executive officers of the Company. The Compensation Committee
determines the level of compensation, including compensation
under the Plan, 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 New York Stock
Exchange’s listing standards. During 2006, the Compensation
Committee met 9 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 shareholder who requests it.
The current members of the Nominating/Corporate Governance
Committee are Messrs. Matthews (Chairman), Hickerson,
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 New York
Stock Exchange’s listing standards. During 2006, the
committee met 4 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 shareholder who requests it.
The current members of the Public Policy Committee are
Messrs. Hickerson (Chairman), Gray, and Reid. 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 2006, the committee
met 4 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 New York
Stock Exchange’s listing standards.
All of the Company’s directors are elected each year by its
stockholders at the annual meeting of stockholders. 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 does not generally utilize the services of search
firms or consultants to assist in identifying and screening
potential candidates, although it retains the flexibility to do
so. 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 New York Stock Exchange’s
listing standards and
Rule 10A-3
under the Exchange Act, a candidate’s relevant educational,
business
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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 web site at www.hollycorp.com. The
full Board reviews and has final approval authority on all
potential director candidates being recommended to the
stockholders for election.
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 New York Stock
Exchange’s listing standards and SEC rules.
William J. Gray has been 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: William J. Gray, Presiding Director,
c/o Secretary, Holly Corporation, 100 Crescent Court,
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.
The following table sets forth information regarding the
Executive Officers of the Company and certain of its
subsidiaries for 2006:
David L. Lamp, joined the Company in January of 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 BPD 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 moved to Director of Operations for a large
international chemical and fiber joint venture owned partially
by Koch (KOSA).
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Stephen J. McDonnell, was appointed Vice President and
Chief Financial Officer of the Company in September 2001. From
August 2000 to September 2001, he was Vice President, Finance
and Corporate Development. 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 also has served
as Vice President and Chief Financial Officer for HEP since
March 2004.
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 HEP since August 2004 and as Vice President and
Chief Accounting Officer for HEP since January 2005.
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, Glancy and Norsworthy is set forth
previously in this Proxy Statement under “Directors.”
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 (the
“Principal Financial Officers”). 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 is available in print to any
shareholder who requests it. The Company intends to satisfy the
disclosure requirement under Item 10 of
Form 8-K
regarding an amendment to, or waiver from, a provision of its
Code of Ethics with respect to its Principal Financial Officers
by posting such information on this Internet website.
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 the
information therein is available in print to any shareholder who
requests it.
This compensation discussion and analysis (“CD&A”)
is intended to provide information about the Company’s
compensation objectives and policies for its principal executive
officer, principal financial officer and other most highly
compensated executive officers to place in perspective the
information contained in the tables that follow this discussion.
The CD&A begins with a general description of the
Company’s compensation program and its various components.
Immediately following the CD&A is the Compensation Committee
Report (the “Committee Report”). Following the
Committee Report are compensation tables describing compensation
paid in 2006 and outstanding equity awards held by executives.
At the end of the CD&A is information concerning pension
benefits and
change-in-control
agreements. Throughout this discussion, the individuals included
in the Summary Compensation Table on page 26, who are Lamar
Norsworthy, Chairman of the Board (until April 5, 2007),
Matthew P. Clifton, Chief Executive Officer since January 2006
(and Chairman of the Board beginning April 5, 2007), W.
John Glancy, Senior Vice President and General Counsel, David L.
Lamp, Executive Vice President, Refining and Marketing, Stephen
J. McDonnell, Vice President and Chief Financial Officer and P.
Dean Ridenour, Vice President and Chief Accounting Officer, are
referred to as the “Named Executive Officers.”
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The Company’s compensation program is designed to attract
and retain talented and productive executives who are motivated
to protect and enhance the long-term value of the Company for
its shareholders. The Company’s objective is to tie
compensation to business and individual performance and to
provide competitive total compensation. The Company’s
compensation levels are reviewed in light of publicly available
information on compensation paid by comparable companies.
The Compensation Committee, comprised entirely of independent
directors, administers the compensation program. The
Compensation Committee determines and approves the compensation
to be paid to the Named Executive Officers.
The Compensation Committee has not adopted any formal policies
for allocating compensation among salaries, bonuses and equity
compensation. However, the Compensation Committee, with the
assistance of management, seeks to designate an appropriate mix
of cash and long-term equity incentive compensation with the
goal of providing compensation to retain the Named Executive
Officers, while providing incentives to the Named Executive
Officers to exert their best efforts to maximize long-term value
for the Company and its shareholders. The Compensation Committee
also takes into consideration the compensation of comparable
executives in similarly situated businesses. The Compensation
Committee also reviewed the total compensation provided to each
of the Named Executive Officers in the previous year in
determining compensation to be paid in 2006. The Compensation
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 to the
Company.
The components of compensation paid to the Named Executive
Officers in 2006 were:
Base salary for the Named Executive Officers for 2006 was
approved in February 2006 by the Compensation Committee based on
each executive’s position, level of responsibility and
individual performance, the Company’s salary range for
individuals at such executive’s level, and market
practices. The Compensation Committee also reviewed competitive
market data relevant to each position provided by Frederic W.
Cook & Co.
Payment with respect to annual cash bonuses to Named Executive
Officers is contingent upon the satisfaction of the
pre-established objective and subjective performance criteria
described in the footnotes to the Summary Compensation Table
below. The total bonus pool for all executives and employees of
the Company is typically determined by the Compensation
Committee after the end of each year or designated performance
period. In determining the total bonus pool, the Compensation
Committee reviews the performance of the Company during the
previous year and the recommendation of management. The
Compensation Committee also approves the
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granting of new awards for the upcoming year or designated
performance period. Awards for a given year are paid in cash in
the first quarter of the following year.
Around the end of each year, the Compensation Committee approves
the performance measures and performance targets to be used for
the upcoming calendar year in determining the cash bonus amounts
to be paid. Performance targets may be based on any factors as
the Compensation Committee may determine. In setting performance
targets, the Compensation Committee reviews recommendations from
management.
In addition to the pre-defined performance criteria, the
Compensation Committee has discretion to approve an increase or
decrease in a Named Executive Officer’s bonus. In making
the determination as to whether to exercise such discretion, the
Compensation Committee reviews recommendations from management,
except in the case of compensation for Mr. Norsworthy and
Mr. Clifton.
The Plan was adopted by the Board in October 2002 and approved
by the Company’s shareholders at the December 2002 Annual
Meeting. The objective of the Plan is to advance the interests
of the Company by strengthening the ability of the Company and
its subsidiaries to attract, retain, and motivate able people of
high caliber as employees, directors and consultants through
arrangements that tie the compensation for such persons to the
long-term performance of the Company. The Plan is administered
by the Compensation Committee.
The Plan permits six potential types of awards: Options,
Restricted Stock Awards, Bonus Stock Awards, Stock Appreciation
Rights, Phantom Stock Awards and Performance Share Unit Awards.
Until 2002, the Company used stock options as its principal form
of long-term incentive compensation. Beginning in the latter
part of 2003, the Compensation Committee (and the then active
Long-Term Compensation Committee) worked with advisors from an
independent executive compensation consulting firm in revising
the Company’s approach to long-term incentives. In 2006,
the Company granted Restricted Stock Awards and Performance
Share Unit Awards to the Company’s Named Executive
Officers. In 2006, 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 determining the amount of long-term incentive awards, the
Compensation Committee considers the Named Executive
Officer’s position, scope of responsibility, base salary,
performance and market information.
Messrs. Clifton, McDonnell and Ridenour also receive
long-term incentive compensation from Holly Energy Partners,
L.P. (“HEP”), in which the Company owns a 45% interest
(including the general partner interest). Please refer to
Item 11 of HEP’s
Form 10-K
for the fiscal year ended December 31, 2006 for further
information concerning the compensation provided by HEP to
Messrs. Clifton, McDonnell and Ridenour.
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 Compensation Committee
may approve grants on the terms that it determines, including
the period during which the award will vest. Under the Plan, the
Compensation Committee may condition vesting upon the
achievement of specified financial objectives. The restricted
stock will vest upon a change of control of the Company, unless
provided otherwise by the Compensation 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 are subject to
forfeiture in the event that the executive’s employment or
service relationship terminates, unless and to the extent that
the Compensation Committee provides otherwise.
A performance share unit is a notional unit that entitles the
grantee to receive, as may be provided in the applicable
agreement between the grantee and the Company, 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 only upon the
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attainment of pre-established performance targets. The terms of
an award are determined by the Compensation 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. As with Restricted Stock Awards, performance
share units will vest upon a change of control of the Company,
unless provided otherwise by the Compensation 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
Compensation Committee provides otherwise.
Market pay practices (among other factors) are considered by the
Compensation Committee in setting compensation for the Named
Executive Officers. To provide a frame of reference in
evaluating the reasonableness and competitiveness of
compensation, 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. The Compensation Committee reviews and discusses
market data and recommendations provided by an established,
independent consulting firm specializing in executive
compensation issues. The benchmark group that the Compensation
Committee reviewed in 2006 with management and its outside
consultant was comprised of Cameron International Corporation,
Crosstex Energy, El Paso Corporation, FMC Technologies,
Frontier Oil Corporation, Giant Industries, Hanover Compressor
Company, Maverick Tube Corporation, Murphy Oil Corporation,
Tesoro Petroleum Corporation, Western Gas Resources and Williams
Companies. The Company’s 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 the Company.
In making executive compensation decisions, the Compensation
Committee solicits the recommendations of the Company’s
Chief Executive Officer (except with respect to his own
compensation and that of the Chairman of the Board) and various
other members of management. Management facilitates the
Compensation Committee’s consideration of compensation for
Named Executive Officers by providing data for the Compensation
Committee’s review. This data include, but are not limited
to the Company’s annual budget as approved by the Board,
the Company’s financial performance over the course of the
year versus that of the Company’s peers, performance
evaluations of the Named Executive Officers (other than for the
Chief Executive Officer and the Chairman of the Board, who are
evaluated by the Compensation Committee), compensation provided
to the Named Executive Officers in previous years, tax- and
accounting-related considerations. Management provides the
Compensation Committee with guidance as to how such data impacts
pre-determined performance goals set by the Compensation
Committee. When management considers a discretionary bonus to be
appropriate for a Named Executive Officer (other than for the
Chief Executive Officer and the Chairman of the Board), it will
suggest an amount and provide the Compensation 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 Compensation Committee values
management’s recommendations. However, the Compensation
Committee makes all final decisions as to the compensation of
the Named Executive Officers.
We account for the equity compensation expense for our employees
and executive officers, including our Named Executive Officers,
under the rules of SFAS 123R, which require the Company to
estimate and record an expense for each award of long-term
incentive compensation over the vesting period of the award.
With respect to Section 162(m) of the Tax Code and
underlying regulations pertaining to the deductibility of
compensation to named executive officers in excess of
$1 million, the Company has adopted a policy to comply with
such limitations to the extent practicable. The Plan has been
approved by the Company’s stockholders (and is being
submitted for re-approval by stockholders under
Proposal Three). As a result, certain elements of the Plan
are designed to provide performance-based incentive compensation
which would be fully deductible under Section 162(m).
Restricted Stock and Performance Share grants made to certain
Named Executive Officers are
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intended to be fully deductible under Section 162(m).
Annual incentives are also generally intended to be compliant
with Section 162(m). However, the Compensation Committee
has determined that some flexibility is required,
notwithstanding the statutory and regulatory provisions, in
negotiating and implementing the Company’s 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.
The Company’s tax-qualified defined benefit retirement plan
is described below in the narrative accompanying the Pension
Benefits Table. As of January 1, 2007, this plan is no
longer made available to newly hired employees who are not
represented under a collective bargaining agreement. Instead,
beginning January 1, 2007, new employees who are not
represented under a collective bargaining agreement are
automatically enrolled in the Thrift Plan to which the Company
makes an automatic contribution of 5% of the employee’s
base 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.
The Company’s Thrift Plan, which is a tax-qualified defined
contribution plan, is offered to all employees of the Company.
In 2006, employees had the option to participate in both the
Company’s Retirement Plan and the Thrift Plan. Employees
were permitted to make contributions to the Thrift Plan of 1% to
50% of their compensation. In 2006, for employees not covered by
a collective bargaining agreement who had at least one year of
service, the Company matched employee contributions to the
Thrift Plan up to 4% of their compensation. Employees of Company
subsidiaries in Artesia, New Mexico, Woods Cross, Utah, and
Spokane, Washington who are represented under collective
bargaining agreements (collectively, “Union Represented
Employees”), were offered matching contributions up to 6%
of their compensation. Employee contributions that were made on
a tax-deferred basis were generally limited to $15,000 per
year with employees over 50 years of age able to make
additional tax-deferred contributions of $5,000. Prior to 2007,
the Company’s 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. Employees may direct Company contributions to be invested
in Common Stock. Beginning in 2007, matching contributions vest
immediately, except with respect to Union Represented Employees,
in which case the Company’s matching contributions become
vested after being credited with three years of service. Also
beginning in 2007, for employees not represented by collective
bargaining agreements, the Company increased its maximum
matching contribution from 4% to 6% of eligible compensation.
Many employees of the Company 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 the Company
in connection with the ESOP’s purchase of Common Stock from
the Company. 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 the Company 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.
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The Company 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 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. Phantom shares held at
December 31, 2006 by the Named Executive Officers are as
follows: 22,640 shares by Mr. Norsworthy, 10,720 by
Mr. Clifton, none by Mr. Glancy, none by
Mr. Lamp, none by Mr. McDonnell, and none by
Mr. Ridenour. In addition, Mr. Norsworthy holds 56,496
phantom shares that were granted for past services and to
compensate for the exclusion of the officer from the ESOP
restoration plan in the
1986-88
fiscal years.
On February 9, 2007, the Board approved Change in Control
Agreements (the “Agreements”) to be entered into with
certain of the Named Executive Officers identified in the table
below. The Agreements will be subject to an initial three year
term, with an automatic one year extension on the second
anniversary of the effective date (and on each anniversary date
thereafter) unless a cancellation notice is given 60 days
prior to the second anniversary of the effective date (or any
anniversary date thereafter, as applicable). The Agreements will
provide that if in connection with or within two years after a
“change in control” the executive is terminated
without “cause,” leaves voluntarily “for good
reason,” or is terminated as a condition of the occurrence
of the transaction constituting the “change in
control,” the executive will receive the following cash
severance amounts: (i) a cash payment equal to his accrued
and unpaid salary, reimbursement of expenses, and accrued
vacation pay, and (ii) a lump sum amount equal to a
multiple specified in the table below for such executive times
(A) his annual base salary as of his date of termination or
the date immediately prior to the “change in control,”
whichever is greater, and (B) his annual bonus amount,
calculated as the average annual bonus paid to him for the prior
three years. In addition, the executive (and his or her
dependents, as applicable) will receive a continuation of their
medical and dental benefits for the number of years indicated in
the table below for such executive. All payments and benefits
due under the Agreement are conditioned on execution and
nonrevocation by the executive of a release for the benefit of
the Company and its related entities and agents. If amounts
payable to an executive under the Agreement (or pursuant to any
other arrangement or agreement with the Company that are payable
as a result of a change in ownership or control) (collectively,
the “Payments”) exceed the amount allowed under
section 280G of Tax Code, for such executive by 10% or
more, the Company will pay the executive a tax gross up (a
“Gross Up”) in an amount necessary to allow the
executive to retain (after all regular income and Tax Code
Section 280G taxes) a net amount equal to the total present
value of the Payments on the date they are to be paid (after all
regular income taxes but without reduction for Tax Code
Section 280G taxes). Conversely, the Payments will be cut
back if they exceed the Tax Code section 280G limit for an
executive by less than 10%. The determination of whether a Gross
Up will be paid will be determined by an independent public
accounting firm selected by the Company and reasonably
acceptable to the executive.
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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
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The table below summarizes the total compensation paid or earned
by each of the Named Executive Officers in 2006. The Company has
not entered into any employment agreements with any of the Named
Executive Officers, other than the
change-in-control
agreements described above.
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2006
Grants of Plan-Based Awards
The following table reflects possible payouts under the
Company’s equity and non-equity incentive plans to the
Named Executive Officers from grants made to them during the
calendar year ending December 31, 2006.
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Outstanding
Equity Awards at Fiscal Year End
The following table reflects outstanding stock options and
performance- and service-based share units and restricted shares
held by the Named Executive Officers as of December 31,
2006.
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The February 2005 performance share units represent an award for
a designated performance period. Under the terms of the award,
at the end of the performance period, all recipients except
Mr. Norsworthy and Mr. Clifton are entitled to a
number of shares of common stock equal to a percentage of the
awarded units as determined by reference to the total
shareholder return (the “TSR”) of the Company compared
to the TSR of a select group of peer companies (the “Peer
Group”). TSR includes both appreciation in share price
during the performance period and the assumed reinvestment of
any dividends declared into additional shares at the time
dividends are paid. The amount of common stock payable (to
recipients other than Mr. Norsworthy and Mr. Clifton)
is an amount equal to the number of performance share units
awarded multiplied by a “Performance Percentage”
(which will be based upon the Company’s TSR ranking as
compared to the ranking of the peer group) multiplied by the
average share price for the final
thirty-day
trading period of the performance period (the “Share
Price”). The “Performance Percentage” is
determined in accordance with the following schedule:
Performance Schedule
Performance Percentage to be multiplied by units based upon the
Company’s TSR versus the peer group
Mr. Norsworthy and Mr. Clifton are entitled to a cash
payment equal to the value of the units as determined by
reference to the TSR of the Company compared to the TSR
(determined as set forth above) of the Peer Group. The amount
payable to the recipient at the end of the period is determined
by multiplying the number of units by a “performance
percentage,” which may be from 0% to 200% depending upon
the Company’s TSR ranking as compared to the Peer Group,
further multiplied by the Share Price. Under the terms of the
February 2005 performance share unit award, except in the case
of early termination, the period for determining what percentage
of the performance share units will be earned ends on
December 31, 2007, with payment to be made as soon as
reasonably practicable thereafter.
Pursuant to the terms of the grant, except in the case of early
termination, after December 31, 2007 (i) one-third of
the restricted shares (the “2008 shares”) will
vest if the Company’s quarterly adjusted net income per
diluted share is at least $0.12 for any quarter between
October 1, 2007 and December 31, 2010,
(ii) one-third (the “2009 shares”) will vest
if the Company’s quarterly adjusted net income per diluted
share is at least $0.12 for any quarter between October 1,
2008 and December 31, 2010, and (iii) one-third (the
“2010 shares”) will vest if the Company’s
quarterly adjusted net income per diluted share is at least
$0.12 for any quarter between October 1, 2009 and
December 31, 2010. Assuming the quarterly adjusted net
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income standard is met as set forth in each case above, the
2008 shares, and/ or the 2009 shares
and/or the
2010 shares as the case may be will become vested on the
date that the Compensation Committee certifies that the Company
has met the applicable standard(s).
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The following table provides information for the Named Executive
Officers on stock option exercises during 2006, including the
number of shares acquired upon exercise and the value realized,
before payment of any applicable withholding or other income
taxes. The exercise prices reported in the notes below are
rounded, since prices can extend to four decimal points. The
market prices reported below reflect the close prices on the
respective exercise and vesting dates.
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In 2006, the Named Executive Officers were eligible to begin
earning benefits under the Holly Retirement Plan (the
“Qualified Retirement Plan”) after one year of
service, with service credited from the executive’s date of
employment. The Qualified Retirement Plan provides a defined
benefit to participants generally following their retirement.
The compensation covered by the Qualified Retirement Plan is the
average combined annual salary (and any quarterly bonuses, as
applicable) compensation during the highest consecutive
36-month
period of employment for each employee (“Plan
Compensation”). No quarterly bonuses were provided to the
Named Executive Officers in 2006.
Under the Qualified Retirement Plan, subject to certain age and
length-of-service
requirements, a participant upon normal retirement is entitled
to a life annuity with yearly pension payments equal to 1.6% of
the participant’s average annual Plan Compensation
multiplied by the participant’s total credited years of
service, less 1.5% of primary Social Security benefits
multiplied by the participant’s credited years of service
(but not to exceed 45% of such Social Security benefits). In
addition, a participant who (i) has attained age 50
and completed at least 10 years of service (“early
retirement”), or (ii) has attained age 55 and
completed at least 5 years of service (“deferred
vested”), may elect to terminate employment and begin
receiving benefits under the Qualified Retirement Plan. If such
a participant begins receiving benefits under the Qualified
Retirement Plan on or after the date the participant attains
age 60 but before he reaches age 62, such benefits
will be reduced by 1/12th of
21/2%
for each full month that such benefits begin before age 62.
If benefits begin before age 60, the participant’s
Qualified Retirement Plan benefits will be reduced by
1/12th of 5% for each full month that such benefits begin
before age 60. Mr. Ridenour is eligible to elect
normal retirement under the Qualified Retirement Plan and
Messrs. Norsworthy and Clifton are eligible to elect early
retirement under the Qualified Retirement Plan. In addition,
Mr.Glancy and Mr. McDonnell are eligible to elect
accelerated payment of their deferred vested benefit under the
Qualified Retirement Plan.
The normal form of benefits under the Qualified Retirement Plan
is a life annuity or, if a participant is married, a qualified
joint and survivor annuity (unless properly waived). The
Qualified Retirement Plan also permits participants to elect to
receive their benefits in the form of a single life annuity for
a 5- or
10-year term
certain, a reduced pension for the joint lives of the
participant and a co-annuitant (with a 100%, 66.66%, or 50%
survivor percentage) or a lump sum. If the participant dies
before his Qualified Retirement Plan benefits have commenced,
his surviving spouse will be entitled to a benefit for life
equal to the amount that would have been paid as a survivor
benefit under the 100% joint and survivor annuity option. If the
participant is not married on the date of his death or waived
the surviving spouse benefit, such benefit will be paid to his
beneficiary in the form of monthly payments for life or a term
certain or in the form of a lump sum, as elected by the
beneficiary.
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Benefits up to limits set by the Tax Code are funded by
Holly’s contributions to the Qualified Retirement Plan,
with the annual contribution amounts determined on an actuarial
basis. In 2006, the Tax Code limited the annual benefit that
could be paid from the Qualified Retirement Plan to
$175,000 per year (subject to increases for future years
based on price level changes) and limited the compensation that
could be taken into account in computing such benefit to
$220,000 per year (subject to certain upward adjustments
for future years).
Effective from the 1995 fiscal year, the Company also had in
place the Holly Corporation Retirement Restoration Plan (the
“Retirement Restoration Plan”) that provides
additional payments from the Company so that total retirement
benefits for specified executives will be maintained at the
levels provided in the Qualified Retirement Plan before the
application of the limitations of the Tax Code. Specifically,
the amount of benefit payable under the Retirement Restoration
Plan is the participant’s benefit payable in the form of a
life annuity calculated under the Qualified Retirement Plan
without regard to the Tax Code limit less the amount of the
Qualified Retirement Plan benefit that can be paid under the
Qualified Retirement Plan after application of the Tax Code
limits. Benefits under the Retirement Restoration Plan are
generally payable at the same time as the participant’s
benefits under the Qualified Retirement Plan.
In the event of a change of control of the Company (as defined
in the Retirement Restoration Plan) each participant’s (or
surviving spouse’s or beneficiary’s) benefit under the
Retirement Restoration Plan will be paid immediately after such
change of control in the form of an annuity contract issued by a
legal reserve life insurance company and a cash payment. The
annuity contract will be for an amount equal to the benefits
otherwise due the recipient under the Retirement Restoration
Plan reduced by the amount of the cash payment, which will equal
the reasonable estimate of the federal income tax liability
resulting from the annuity contract and the payment.
Pension
Benefits Table
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Severance
and
Change-in-Control
Arrangements
Under the terms of the long-term incentive equity awards
described above, if, within 60 days prior to or at any time
after a Change in Control (as defined in the applicable award
agreements), (i) a Named Executive Officer’s
employment is terminated by the Company, other than for cause
(as defined in the applicable award agreement), or (ii) he
resigns within 90 days after an Adverse Change (as defined
in the applicable award agreement) has occurred, then all
restrictions on the award will lapse, the restricted shares or
performance units subject to the award will become vested and
Common Stock or a cash payment in the case of certain
performance share unit awards will be delivered to the Named
Executive Officer as soon as practicable.
In the event of a Named Executive Officer’s (i) death,
(ii) total and permanent disability (as determined by a
committee of the Company (the “Committee”)),
(iii) retirement after attaining age 62 or an earlier
retirement age approved by the Compensation Committee,
and/or
(iv) separation from employment for any reason other than
voluntary termination or cause (as defined in the applicable
award agreement), certain of the restricted share and
performance unit agreements provide that the Named Executive
Officer will forfeit a number of restricted shares or
performance units equal to (A) the number of restricted
shares or performance units awarded, multiplied by (B) the
percentage specified in the applicable award agreement. After
that number of restricted shares or performance units is
forfeited, any shares or performance units that remain unvested
will become immediately vested. The Compensation Committee also
has discretion in the case of death, disability or retirement to
fully vest restricted shares and performance share units.
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The effect of a Named Executive Officer’s
(i) termination in connection with a Change in Control
occurring on December 31, 2006 and (ii) death,
disability, retirement or other separation occurring on
December 31, 2006, on his outstanding equity awards is
reflected as follows:
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The value of an annuity contract purchased and the estimated
cash payment that would be made to each Named Executive Officer
under the Retirement Restoration Plan in the event of a change
change of control of the Company (as defined in the Retirement
Restoration Plan) on December 31, 2006, are set forth
below. As discussed under the section of this proxy statement
entitled “Pension Benefits Table,” each of the Named
Executive Officers would have had purchased on his behalf an
annuity contract that provides for the Retirement Restoration
Plan benefits the participant would have received if he had
terminated employment on December 31, 2006, the amount of
which benefits is disclosed in the Pension Benefits Table
contained in this proxy statement, less a cash payment
representing a reasonable estimate of the federal income tax
liability associated with the annuity contract and the cash
payment.
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The members of the Compensation Committee of the Board during
the year ending December 31, 2006 were Messrs. Berry
(Chairman), Matthews and McKenzie. None of the members of the
Compensation Committee was an officer or employee of the Company
or any of its subsidiaries during the year ending
December 31, 2006. No executive officer of the Company
served as a member of the compensation committee of another
entity that had an executive officer serving as a member of the
Board or the Compensation Committee.
The Audit Committee of the Board has reviewed and discussed with
management the audited financial statements of the Company for
the year ended December 31, 2006 and has discussed with
representatives of Ernst & Young LLP, the
Company’s independent auditors for the year ended
December 31, 2006, the matters required to be discussed by
Statement of Auditing Standards No. 61, as currently in
effect. The Audit Committee has received the written disclosures
and the letter from the independent auditors required by
Independence Standards Board Standard No. 1, as currently
in effect, and has discussed with representatives of
Ernst & Young LLP the independence of Ernst &
Young LLP. The Audit Committee has also considered whether the
independent auditors’ provision of non-audit services to
the Company is compatible with the auditors’ independence.
Based on the review and discussions referred to above, the Audit
Committee has recommended to the Board of Directors that the
audited financial statements for the year ended
December 31, 2006 be included in the Company’s Annual
Report on
Form 10-K
for the year ended December 31, 2006 for filing with the
SEC.
The Audit Committee Report will not be deemed proxy soliciting
material and will not be incorporated by reference in any filing
by the Company under the Securities Act or the Exchange Act
except to the extent that the Company specifically incorporates
such report by reference.
The Audit Committee of the Board of the Company has selected
Ernst & Young LLP, an independent registered public
accounting firm, to audit the books, records and accounts of the
Company and its consolidated subsidiaries for the 2007 calendar
year. Ernst & Young LLP has conducted such audits since
1977. It is expected that a representative of such firm will be
present in person or by conference telephone at the Annual
Meeting, will have an opportunity to make a statement if the
representative so desires, and will be available to respond to
appropriate questions.
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The following table summarizes information about our long-term
incentive compensation plan as of December 31, 2006:
For more information about our Long-Term Incentive Compensation
Plan, see information provided under the heading “Long-Term
Incentive Equity Compensation” in the Compensation
Discussion and Analysis section of this Proxy Statement.
The following table sets forth the fees paid to Ernst &
Young LLP for services provided during 2006 and 2005. 100% of
the fees paid were approved by the Audit Committee:
The Company has adopted a policy whereby the Audit Committee is
required to pre-approve the audit and non-audit services
performed by the independent auditor to assure that performing
such services does not impair the auditor’s independence.
The Audit Committee has approved a policy whereby it may
delegate its pre-approval authority, up to $75,000, to one or
more of the Audit Committee’s members or to the
Company’s Chief Accounting Officer, and any decisions made
under such delegation are required to be reported to the Audit
Committee.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
From the beginning of 2006 until October 2006, Lamar Norsworthy,
who was Chairman of the Board of the Company until April 5,
2007, jointly owned with the Company a Dassault/Sud Fan Jet
Falcon 20E-S (the “Falcon
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20E”), which Mr. Norsworthy operated for personal use
and for Company business travel. From the beginning of 2006
until the time the aircraft was sold in October, the aircraft
was owned 50% by Mr. Norsworthy and 50% by the Company.
Mr. Norsworthy and the Company sold the Falcon 20E for
$4,537,500 and divided the net proceeds in accordance with their
50% ownership percentages in the aircraft. This arrangement had
been pre-reviewed and approved by the Audit Committee. In
February 2006, Mr. Norsworthy and the Company entered into
an agreement to purchase an aircraft to replace the Falcon 20E.
The purchase price of the new aircraft, a Dassault-Breguet
Falcon 50 (the “Falcon 50”), was $7,887,500.
Mr. Norsworthy paid 60% of the purchase price and the
Company paid 40%. Mr. Norsworthy and the Company agreed to
jointly own and operate the Falcon 50 upon terms substantially
similar to the joint ownership of the Falcon 20E. The allocation
of the purchase price for the Falcon 50 was reviewed in advance
of the purchase by the Audit Committee and was considered fair
to the Company in the judgment of the Audit Committee, given the
expected relative use of the aircraft by each of
Mr. Norsworthy and the Company. During 2006,
Mr. Norsworthy and the Company shared all fixed costs and
capital expenses associated with both aircraft according to the
ownership percentage of Mr. Norsworthy and the Company from
time to time. All variable costs incurred were paid directly by
the respective user, depending upon whether the aircraft was
operated for Mr. Norsworthy’s personal use or for
Company business. During 2006, the Falcon 50 was operated for a
total of 173.99 hours of which 52.36 were for
Mr. Norsworthy’s personal use and 121.63 were for
Company business travel. During 2006, the Falcon 20E was
operated for a total of 208.44 hours of which 27.17 were
for Mr. Norsworthy’s personal use and 181.27 were for
Company business travel. During 2006, the jointly-owned aircraft
were operated 21% of the time for Mr. Norsworthy’s
personal use and 79% for Company business travel.
In 1999, Jack P. Reid and William J. Gray retired from service
as officers and full-time employees of the Company. In
consequence of their retirements, Mr. Reid and
Mr. Gray began to receive monthly payments, as computed by
the firm serving as the Company’s actuary at that time,
from the Qualified Retirement Plan and the Retirement
Restoration Plan in amounts believed to be amounts required
under the terms of such Plans. In 2005, the Company became aware
that there appeared to be errors in the calculations used to
compute the payments made to Mr. Reid and Mr. Gray
under these plans. After reviewing the terms of the plans and
consulting with actuaries, the Company determined that, in the
case of Mr. Reid, amounts in excess of the amounts due
under the terms of both the Qualified Retirement Plan and the
Retirement Restoration Plan had been paid and that in the case
of Mr. Gray the total of amounts paid under both plans was
correct but that excess amounts had been paid from the Qualified
Retirement Plan and insufficient amounts had been paid from the
Retirement Restoration Plan. Following analysis of alternative
courses of action with respect to this matter, the Company has
taken the steps described below. The amounts of approximately
$88,000 with respect to excess payments from the Qualified
Retirement Plan from 1999 through April 2007 to Mr. Reid
and approximately $106,000 with respect to excess payments from
the Qualified Retirement Plan to Mr. Gray from 1999 through
April 2007 have been paid by the Company to the Qualified
Retirement Plan and monthly payments in corrected amounts from
the Qualified Retirement Plan to Mr. Reid and Mr. Gray
are scheduled to be made beginning in May 2007. Monthly
correction for payments from the Qualified Retirement Plan in
the form of reductions to the monthly payments will commence in
May 2007. In addition, the Company, authorized by the
Compensation Committee, has entered into an agreement to reduce
the monthly payment to Mr. Reid from the Retirement
Restoration Plan beginning in May 2007. The Compensation
Committee further determined (based on the facts that
Mr. Reid had made good faith elections on the basis of
erroneous advice from the Company and the Company’s
actuaries in 1999 and that the Company and its actuaries had
made computational errors as to the payments due to
Mr. Reid under the Qualified Retirement Plan and the
Retirement Restoration Plan) that the Company should not seek to
require a refund of the excess payments received by
Mr. Reid from 1999 through April 2007. The present value of
the total excess payments under the Qualified Retirement Plan
and the Retirement Restoration Plan received by Mr. Reid
for this period has been computed by the Company’s
actuaries to be approximately $287,000. With respect to payments
to Mr. Gray from the Retirement Restoration Plan, effective
for payments made after April 2007 the Company is increasing the
monthly payment to Mr. Gray in an amount equal to the
amount of the decrease in the monthly payments from the
Qualified Retirement Plan beginning in May 2007. No repayment
from Mr. Gray with respect to past payments to
Mr. Gray has been considered because the aggregate of the
amounts paid from the Qualified Retirement Plan and the
Retirement Restoration Plan for each month from 1999 through
April 2007 was the correct total amount and only the allocation
between the two plans required correction, which has been
accomplished by the Company’s contribution to the Qualified
Retirement Plan as described above.
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At the time Mr. Reid and Mr. Gray retired from
full-time employment with the Company in 1999, the Qualified
Retirement Plan and the Retirement Restoration Plan did not
permit non-bargained participants in the Plans to elect lump-sum
distributions from the Qualified Retirement Plan and the
Retirement Restoration Plan Such election is currently available
to all employees because of a change in the Qualified Retirement
Plan made in 2000. By action of the Board, with Mr. Reid
and Mr. Gray abstaining, the Company has amended the
Retirement Restoration Plan effective January 1, 2007 to
permit all participants in the Retirement Restoration Plan who
were not previously permitted to make a lump-sum election with
respect to the Qualified Retirement Plan that would have
resulted in a lump-sum distribution from the Retirement
Restoration Plan to make an election by the end of June 2007 to
receive a lump-sum distribution from the Retirement Restoration
Plan in lieu of amounts payable under the Retirement Restoration
Plan after 2007. If such election is made in a particular case,
the amount of the lump-sum distribution will be based on
interest rates and actuarial tables in effect as of June 2007
and such lump-sum amount will be paid in January 2008 even if
the participant dies after making the election but before
January 1, 2008. The only persons affected by this
amendment are Mr. Reid, Mr. Gray, and a former spouse
of Lamar Norsworthy. The amounts payable to Mr. Reid and
Mr. Gray if a lump sum election is made would be
approximately $1,020,000 in the case of Mr. Reid and
approximately $325,000 in the case of Mr. Gray.
M. Neale Hickerson, who is employed by the Company as Vice
President, Investor Relations, is the son of Marcus R.
Hickerson, a director of the Company. Neale Hickerson was paid
compensation in the amount of $269,459 for services rendered
during 2006.
Michael P. Clifton, who is employed by the Company as a manager
of supply and business development for the Company’s
asphalt operations, is the son of Matthew P. Clifton, the
Chairman of the Board and Chief Executive Officer and a director
of the Company. Michael Clifton was paid compensation in the
amount of $179,769 for services rendered during Calendar 2006.
The disclosure, review and approval of any transactions between
the Company and related persons is governed by the Code of
Ethics, which provides guidelines for disclosure, review and
approval of any transaction that creates a conflict of interest
between the Company and its employees, officers or directors and
members of their immediate family. Conflict of interest
transactions may be authorized if they are found to be in the
best interest of the Company based on all relevant facts.
Pursuant to the Code of Ethics, conflicts of interest are to be
disclosed to and reviewed by a superior employee to the related
person who does not have a conflict of interest, and
additionally, if more than trivial size, by the superior of the
reviewing person. Conflicts of interest involving directors are
reviewed by the full Board or by a committee of the Board on
which the director does not serve. Related party transactions
required to be disclosed in the Company’s SEC reports are
reported through its disclosure controls and procedures.
There are no transactions disclosed in this Proxy Statement
entered into since January 1, 2006 that were not required
to be reviewed, ratified or approved pursuant to the Code of
Ethics or with respect to which the Company’s policies and
procedures with respect to conflicts of interest were not
followed.
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Section 16(a) of the Exchange Act requires the
Company’s directors, executive officers and holders of more
than 10% of its shares of Common Stock to file with the
Commission and the New York Stock Exchange initial reports of
ownership of shares of Common Stock and reports of changes in
such ownership. The Commission’s rules require such persons
to furnish the Company with copies of all Section 16(a)
reports that they file. Based on a review of these reports,
other information available to the Company, and written
representations from reporting persons that no other reports
were required, all such reports concerning beneficial ownership
were filed in a timely manner by reporting persons.
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ADDITIONAL
INFORMATION
Proposals of stockholders to be considered for presentation at
the Company’s 2008 Annual Meeting should be received by the
Company by December 27, 2007, in order to be considered for
inclusion in the proxy statement for that meeting. Pursuant to
Rule 14a-4(c)(1)
under the Securities Exchange Act of 1934, the Company
management will have discretionary authority to vote on any
matter of which the Company does not receive notice by
March 10, 2008 with respect to proxies submitted for the
Company’s 2008 Annual Meeting.
The Board of the Company does not know of any other matters to
be acted upon at the meeting. However, if any other matter
properly comes before the meeting, the persons voting the
proxies will vote them in accordance with their best judgment.
A copy of the Company’s 2006 Annual Report containing the
audited consolidated balance sheet at December 31, 2006,
and the related consolidated statements of income, cash flows,
stockholders’ equity and comprehensive income for the year
ended December 31, 2006, is being mailed with this Proxy
Statement to stockholders entitled to notice of the Annual
Meeting. The Annual Report does not constitute a part of the
proxy solicitation material.
If you have shares registered directly with the Company’s
transfer agent, you may choose to vote those shares via the
Internet or by telephone. Specific instructions for registered
stockholders interested in voting via the Internet or by
telephone are set forth on the enclosed proxy card. If you hold
shares with a broker or bank, you may also be eligible to vote
via the Internet or by telephone if your broker or bank
participates in the proxy voting program provided by ADP
Investor Communication Services. If your bank or brokerage firm
is participating in ADP’s program, your voting form will
provide instructions.
Votes submitted via the Internet or by telephone must be
received by the transfer agent by 11:59 p.m., Eastern
Daylight Time, on May 23, 2007. Submitting your proxy via
the Internet or by telephone will not affect your right to vote
in person should you decide to attend the Annual Meeting. The
telephone and Internet voting procedures are designed to
authenticate stockholders’ identities, to allow
stockholders to give their voting instructions and to confirm
that stockholders’ instructions have been recorded
properly. Counsel has advised the Company that the Internet
voting procedures that have been made available are consistent
with the requirements of applicable law. A stockholder voting
via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from
Internet access providers and telephone companies, that must be
borne by the stockholder.
ERIN McKOOL
Secretary
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Appendix A
The Board of Directors of the Corporation proposes an amendment
to the Restated Certificate of Incorporation of the Corporation
to amend the first paragraph of ARTICLE FOURTH to read as
follows:
ARTICLE FOURTH: The total number of
shares of stock which the Corporation shall have authority to
issue is One Hundred Sixty One Million (161,000,000) shares, of
which One Million (1,000,000) shares of the par value of One
Dollar ($1.00) each, amounting in the aggregate to One Million
Dollars ($1,000,000), shall be Preferred Stock, and of which One
Hundred Sixty Million (160,000,000) shares of the par value of
One Cent ($.01) each, amounting in the aggregate to One Million
Six Hundred Thousand Dollars ($1,600,000), shall be Common Stock.
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Appendix B
The Board of Directors of the Corporation proposes an amendment
to the Holly Corporation Long-Term Incentive Compensation Plan
to amend Section 8(b)(ii) to read as follows:
Business Criteria. One or more of the
following business criteria for the Company, on a consolidated
basis,
and/or for
specified Subsidiaries, divisions or business or geographical
units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be
used by the Committee in establishing performance goals for
Performance Awards granted to a Covered Employee:
(A) earnings per share; (B) increase in revenues;
(C) increase in cash flow; (D) increase in cash flow
return; (E) return on net assets; (F) return on
assets; (G) return on investment; (H) return on
capital; (I) return on equity; (J) economic value
added; (K) gross margin; (L) net income;
(M) pretax earnings; (N) pretax earnings before
interest, depreciation and amortization; (O) pretax
operating earnings after interest expense and before incentives,
service fees, and extraordinary or special items;
(P) operating income; (Q) total stockholder return;
(R) debt reduction; (S) net profit margin; and
(T) any of the above goals determined on an absolute or
relative basis or as compared to the performance of a published
or special index deemed applicable by the Committee including,
but not limited to, the Standard & Poor’s 500
Stock Index or a group of comparable companies.
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Appendix C
HOLLY
CORPORATION
LONG-TERM
INCENTIVE COMPENSATION PLAN
(As
proposed to be amended in accordance with
Proposal Three)
(Formerly
designated the Holly Corporation 2000 Stock Option
Plan)
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TABLE OF
CONTENTS
The title page and table of contents for the Holly
Corporation Long-Term Incentive Compensation Plan are provided
for convenience only and do not constitute a part of the Holly
Corporation Long-Term Incentive Compensation Plan.
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HOLLY
CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN As Amended and Restated (Formerly designated the Holly Corporation 2000 Stock Option Plan)
1. Purpose. The purpose of the
Holly Corporation Long-Term Incentive Compensation Plan as
amended and restated (formerly designated the Holly Corporation
2000 Stock Option Plan) (the “Plan”) is to advance the
interests of Holly Corporation (the “Company”) by
strengthening the ability of the Company and its subsidiaries to
attract, retain and motivate able people of high caliber as
employees, directors and consultants through arrangements that
relate the compensation for such persons to the long-term
performance of the Company. Accordingly, the Plan provides for
granting Incentive Stock Options, Non-Qualified Stock Options,
Restricted Stock Awards, Bonus Stock Awards, Stock Appreciation
Rights, Phantom Stock Awards, Performance Awards or any
combination of the foregoing, as the Committee shall determine.
2. Definitions. For purposes of the
Plan, the following terms shall be defined as set forth below,
in addition to such terms defined in Section 1 hereof:
(a) “Amendment Effective Date” means
December 12, 2002. The Plan prior to amendment was
effective January 1, 2001.
(b) “Award” means any Option, Restricted
Stock Award, Bonus Stock Award, Stock Appreciation Right,
Phantom Stock Award, or Performance Award, together with any
other right or interest granted to a Participant under the Plan.
(c) “Beneficiary” means one or more
persons, trusts or other entities that have been designated by a
Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant’s death or
to which Awards or other rights are transferred if and to the
extent permitted under Section 10(d) hereof. If, upon a
Participant’s death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary
means the persons, trusts or other entities entitled by will or
the laws of descent and distribution to receive such benefits.
(d) “Board” means the Company’s board
of directors.
(e) “Bonus Stock Award” means Shares
granted to a Participant under Section 6(c) hereof.
(f) “Code” means the Internal Revenue Code
of 1986, as amended from time to time, including regulations
thereunder and successor provisions and regulations thereto.
(g) “Committee” means a committee of two or
more directors designated by the Board to administer the Plan;
provided, however, that, unless otherwise determined by the
Board, the Committee shall consist solely of two or more
directors, each of whom shall be (i) a “nonemployee
director” within the meaning of
Rule 16b-3
under the Exchange Act, and (ii) an “outside
director” as defined under Section 162(m) of the Code,
unless administration of the Plan by “outside
directors” is not then required in order to qualify for tax
deductibility under Section 162(m) of the Code.
(h) “Covered Employee” means an Eligible
Person who is a Covered Employee as specified in
Section 8(b)(vi) of the Plan.
(i) “Disability” means, as determined by
the Board in the sole discretion exercised in good faith of the
Board, a physical or mental impairment of sufficient severity
that either the Participant is unable to continue performing the
duties he performed before such impairment or the
Participant’s condition entitles him to disability benefits
under any insurance or employee benefit plan of the Company or
its Subsidiaries and that impairment or condition is cited by
the Company as the reason for termination of the
Participant’s employment or participation as a member of
the Board.
(j) “Eligible Person” means any current or
proposed officer, director, or key employee or consultant whose
services are deemed to be of potential benefit to the Company or
any of its Subsidiaries. An employee
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on leave of absence may be considered as still in the employ of
the Company or a Subsidiary for purposes of eligibility for
participation in the Plan.
(k) “Exchange Act” means the Securities
Exchange Act of 1934, as amended from time to time, including
rules thereunder and successor provisions and rules relating
thereto.
(l) “Fair Market Value” means the fair
market value as determined by the Committee. Unless otherwise
determined by the Committee, the Fair Market Value of a Share
shall be the closing price of a Share, on the date on which the
determination of Fair Market Value is being made or if no Shares
were traded on such date then the last trading date prior
thereto, as quoted on the composite transactions table for the
American Stock Exchange or, if the Shares are not then subject
to trading on the American Stock Exchange, then as quoted in a
comparable manner on any other national stock exchange or, if
not so quoted, then as reported for the
over-the-counter
market on which the largest volume of trading of Shares has
occurred in the 30 trading days prior to the date for which a
determination is made.
(m) “Incentive Stock Option” means any
Option intended to be and designated as an incentive stock
option within the meaning of Section 422 of the Code or any
successor provision thereto.
(n) “Non-Qualified Stock Option” means any
Option that does not constitute an Incentive Stock Option.
(o) “Option” means a right granted to a
Participant under Section 6(a) hereof to purchase Shares or
other Awards at a specified price during specified time periods.
(p) “Participant” means a person who has
been granted an Award under the Plan which remains outstanding,
including a person who is no longer an Eligible Person.
(q) “Performance Award” means a right
granted to a Participant under Section 8 hereof to receive
cash and/or other consideration other than Shares based on
performance conditions, as provided in Section 8, measured
over a period of not less than six months nor more than ten
years.
(r) “Phantom Stock Award” means a right
granted to a Participant under Section 7(b) hereof.
(s) “Qualified Member” means a member of
the Committee who is a “Non-Employee Director” within
the meaning of
Rule 16b-3(b)(3)
and an “outside director” within the meaning of
regulation 1.162-27
under Section 162(m) of the Code.
(t) “Restricted Stock Award” means Shares
granted to a Participant under Section 6(b) hereof that are
subject to certain restrictions and to a risk of forfeiture.
(u) “Rule 16b-3”
means
Rule 16b-3,
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, as from time to time in
effect and applicable to the Plan and Participants.
(v) “Securities Act” means the Securities
Act of 1933 and the rules and regulations promulgated
thereunder, or any successor law, as it may be amended from time
to time.
(w) “Shares” means shares of the
Company’s common stock, par value $.01 per share, and such
other securities as may be substituted (or resubstituted) for
shares of the Company’s common stock, par value
$.01 per share, pursuant to Section 10 hereof.
(x) “Stock Appreciation Right” means a
right granted to a Participant under Section 7(a) hereof.
(y) “Subsidiary” means with respect to the
Company, any corporation or other entity of which at least 50%
of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by the Company or any
other entity determined by the Committee to constitute a
Subsidiary due to its relationship to the Company.
3. Administration.
(a) Authority of the Committee. The
Plan shall be administered by the Committee except to the extent
the Board elects to administer all or part of the Plan or except
to the extent the Board appoints a separate committee other than
the Committee to administer all or part of the Plan, in which
case references herein to the “Committee”
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shall be deemed to include references to the “Board”
and/or such
additional committee, as applicable. To the extent a portion of
the Plan is administered by the Committee, and another portion
of the Plan is administered by the Board
and/or a
separate committee, references herein to “Committee”
shall be deemed to be references to the “Board” or
such additional committee, as applicable, but only to the extent
the Board or additional committee administers a portion of the
Plan and only with respect to those portions of the Plan that
the Board has elected to administer or over which the separate
committee has been delegated authority. Subject to the express
provisions of the Plan and
Rule 16b-3,
the Committee shall have the authority, in its sole and absolute
discretion, to (i) adopt, amend, and rescind administrative
and interpretive rules and regulations relating to the Plan;
(ii) determine the Eligible Persons to whom, and the time
or times at which, Awards shall be granted; (iii) determine the
amount of cash and the number of Options, Restricted Stock
Awards, Bonus Stock Awards, Stock Appreciation Rights, Phantom
Stock Awards, or Performance Awards, or any combination thereof,
that shall be the subject of each Award; (iv) determine the
terms and provisions of each Award agreement (which need not be
identical), including provisions defining or otherwise relating
to (A) the term and the period or periods and extent of
exercisability of Options, (B) the extent to which the
transferability of Shares and Awards is restricted, (C) the
effect of termination of employment of a Participant on the
Award, and (D) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal
Revenue Service); (v) accelerate the time of exercisability
of any Option that has been granted; (vi) construe the
respective Award agreements and the Plan; (vii) make
determinations of the Fair Market Value of the Shares pursuant
to the Plan; (viii) delegate its duties under the Plan to
such agents as it may appoint from time to time, provided that
the Committee may not delegate its duties with respect to making
Awards to, or otherwise with respect to Awards granted to,
Eligible Persons who are subject to Section 16(b) of the
Exchange Act or Section 162(m) of the Code;
(ix) subject to ratification by the Board, terminate,
modify, or amend the Plan; and (x) make all other
determinations, perform all other acts, and exercise all other
powers and authority necessary or advisable for administering
the Plan, including the delegation of those ministerial acts and
responsibilities as the Committee deems appropriate. Subject to
Rule 16b-3
and Section 162(m) of the Code, the Committee may correct
any defect, supply any omission, or reconcile any inconsistency
in the Plan, in any Award, or in any Award agreement in the
manner and to the extent it deems necessary or desirable to
carry the Plan into effect, and the Committee shall be the sole
and final judge of that necessity or desirability. The
determinations of the Committee on the matters referred to in
this Section 3(a) shall be final and conclusive.
(b) Manner of Exercise of Committee
Authority. At any time that a member of the
Committee is not a Qualified Member, any action of the Committee
relating to an Award granted or to be granted to a Participant
who is then subject to Section 16 of the Exchange Act in
respect of the Company, or relating to an Award intended by the
Committee to qualify as “performance-based
compensation” within the meaning of Section 162(m) of
the Code and regulations thereunder, may be taken either
(i) by a subcommittee, designated by the Committee,
composed solely of two or more Qualified Members, or
(ii) by the Committee but with each such member who is not
a Qualified Member abstaining or recusing himself or herself
from such action; provided, however, that, upon such abstention
or recusal, the Committee remains composed solely of two or more
Qualified Members. Such action, authorized by such a
subcommittee or by the Committee upon the abstention or recusal
of such non-Qualified Member(s), shall be the action of the
Committee for purposes of the Plan. Any action of the Committee
shall be final, conclusive and binding on all persons, including
the Company, its Subsidiaries, stockholders, Participants,
Beneficiaries, and transferees under Section 10(d) hereof
or other persons claiming rights from or through a Participant.
The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee.
The Committee may delegate to officers or managers of the
Company or any Subsidiary, or committees thereof, the authority,
subject to such terms as the Committee shall determine, to
perform such functions, including administrative functions, as
the Committee may determine, to the extent that such delegation
will not result in the loss of an exemption under
Rule 16b-3(d)(1)
for Awards granted to Participants subject to Section 16 of
the Exchange Act in respect of the Company and will not cause
Awards intended to qualify as “performance-based
compensation” under Section 162(m) of the Code to fail
to so qualify. The Committee may appoint agents to assist it in
administering the Plan.
(c) Limitation of Liability. The
Committee and each member thereof shall be entitled to, in good
faith, rely or act upon any report or other information
furnished to him or her by any officer or employee of the
Company or a Subsidiary, the Company’s legal counsel,
independent auditors, consultants or any other agents assisting
in the administration of the Plan. Members of the Committee and
any officer or employee of the Company or a Subsidiary
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acting at the direction or on behalf of the Committee shall not
be personally liable for any action or determination taken or
made in good faith with respect to the Plan, and shall, to the
fullest extent permitted by law, be indemnified and held
harmless by the Company with respect to any such action or
determination.
4. Shares Subject to Plan.
(a) Overall Number of Shares Available for
Delivery. Subject to adjustment in a manner
consistent with any adjustment made pursuant to Section 10
of the Plan, the total number of Shares that may be delivered in
connection with Awards under the Plan shall not exceed
1,500,000, including all Shares delivered with respect to
Options granted under the Plan prior to the Amendment Effective
Date.
(b) Application of Limitation to Grants of
Awards. No Award may be granted if (i) the
number of Shares to be delivered in connection with such Award
exceeds (ii) the number of Shares remaining available under
the Plan minus the number of Shares issuable in settlement of or
relating to then-outstanding Awards. The Committee may adopt
reasonable counting procedures to ensure appropriate counting,
avoid double counting (as, for example, in the case of tandem or
substitute awards) and make adjustments if the number of Shares
actually delivered differs from the number of Shares previously
counted in connection with an Award.
(c) Availability of Shares Not Delivered
under Awards. Shares subject to an Award under
the Plan that expires or is canceled, forfeited, settled in cash
or otherwise terminated without a delivery of Shares to the
Participant, including (i) the number of Shares withheld in
payment of any exercise price of an Award or taxes relating to
Awards, and (ii) the number of Shares surrendered in
payment of any exercise price of an Award or taxes relating to
any Award, will again be available for Awards under the Plan,
except that if any such Shares could not again be available for
Awards to a particular Participant under any applicable law or
regulation, such Shares shall be available exclusively for
Awards to Participants who are not subject to such limitation.
(d) Shares Offered. The Shares
to be delivered under the Plan shall be made available from
(i) authorized but unissued Shares, or (ii) previously
issued Shares reacquired by the Company.
5. Eligibility; Per Person Award
Limitations. Awards may be granted under the Plan
only to Eligible Persons. In each fiscal year or
12-month
period, as applicable, during any part of which the Plan is in
effect, an Eligible Person may not be granted (a) Awards,
provided for in Sections 6 and 7 of the Plan, relating to
more than 150,000 Shares, subject to adjustment in a manner
consistent with any adjustment made pursuant to Section 10
of the Plan, or (b) Awards, provided for in Section 8
of the Plan, with a value at the time of payment which exceeds
the Fair Market Value of 150,000 Shares as of the date of
the grant of the Award.
6. Options, Restricted Stock and Bonus Stock.
(a) Options. The Committee is
authorized to grant Options to Participants on the following
terms and conditions:
(i) Exercise Price. The exercise
price or prices for Shares under each Option shall be determined
by the Committee at the time the Option is granted, and may be
less than, equal to or greater than, the Fair Market Value of
the Shares at the time of the granting of the Option, provided
that the exercise price per Share for any Option that is
intended to be performance-based compensation under
Section 162(m)(4)(C) of the Code or an Incentive Stock
Option under Section 422 of the Code shall not be less than
the Fair Market Value of a Share as of the effective date of
grant of the Option; provided, however, that in the case of an
individual who owns stock possessing more than ten percent of
the total combined voting power of all classes of stock of the
Company or its parent or any Subsidiary, the exercise price per
Share of any Incentive Stock Option under Section 422 of
the Code shall not be less than 110% of the Fair Market Value of
a Share as of the effective date of grant of the Incentive Stock
Option.
(ii) Time and Method of
Exercise. The Committee shall determine the time
or times at which or the circumstances under which an Option may
be exercised in whole or in part (including based on achievement
of performance goals
and/or
future service requirements), the methods by which such exercise
price may be paid or deemed to be paid, the form of such
payment, including, without limitation, cash, Shares, other
Awards or awards granted under other plans of the Company or any
Subsidiary, or other property (including notes, to the extent
permitted under applicable law, or other contractual obligations
of Participants to make payment on a
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deferred basis), and the methods by or forms in which Shares
will be delivered or deemed to be delivered to Participants,
including, but not limited to, the delivery of Restricted Stock
Awards subject to Section 6(b) hereof. In the case of an
exercise whereby the exercise price is paid with Shares, the
value of such Shares for purposes of calculating the exercise
price paid shall be the Fair Market Value. Notwithstanding
anything to the contrary herein, unless otherwise provided in
any agreement evidencing an Option, in the event of the death of
a Participant while in the employ of the Company or one of its
Subsidiaries, an Option theretofore granted to the Participant
shall be exercisable within the year succeeding such death (even
if the Option would otherwise expire prior to one year from the
date of death) but only to the extent that the optionee was
entitled to exercise the Option as of the date of death.
(iii) Incentive Stock Options. The
terms of any Incentive Stock Option granted under the Plan shall
comply in all respects with the provisions of Section 422
of the Code. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock
Options (including any Stock Appreciation Right in tandem
therewith) shall be interpreted, amended or altered, nor shall
any discretion or authority granted under the Plan be exercised,
so as to disqualify either the Plan or any Incentive Stock
Option under Section 422 of the Code, unless the
Participant has first requested the change that will result in
such disqualification. Incentive Stock Options shall not be
granted more than ten years after the earlier of the adoption of
the Plan or the approval of the Plan by the Company’s
stockholders. Notwithstanding the foregoing, the Fair Market
Value of Shares subject to an Incentive Stock Option and the
aggregate Fair Market Value of shares of stock of any parent or
Subsidiary corporation (within the meaning of
Sections 424(e) and (f) of the Code) subject to any
other incentive stock option (within the meaning of
Section 422 of the Code) of the Company or a parent or
Subsidiary corporation (within the meaning of
Sections 424(e) and (f) of the Code) that first
becomes purchasable by a Participant in any calendar year may
not (with respect to that Participant) exceed $100,000, or such
other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As
used in the previous sentence, Fair Market Value shall be
determined as of the date the Incentive Stock Options are
granted. Failure to comply with this provision shall not impair
the enforceability or exercisability of any Option, but shall
cause the excess amount of Shares to be reclassified in
accordance with the Code. No Incentive Stock Option may be
granted after December 13, 2010.
(b) Restricted Stock Awards. The
Committee is authorized to grant Restricted Stock Awards to
Participants on the following terms and conditions:
(i) Grant and
Restrictions. Restricted Stock Awards shall be
subject to such restrictions on transferability, risk of
forfeiture and other restrictions, if any, as the Committee may
impose, which restrictions may lapse separately or in
combination at such times, under such circumstances (including
based on achievement of performance goals
and/or
future service requirements), in such installments or otherwise,
as the Committee may determine at the date of grant or
thereafter. Except to the extent restricted under the terms of
the Plan and any Award agreement relating to the Restricted
Stock Award, a Participant granted a Restricted Stock Award
shall have all of the rights of a stockholder, including the
right to vote the Restricted Stock Award and the right to
receive dividends thereon (subject to any mandatory reinvestment
or other requirement imposed by the Committee). During the
restricted period applicable to the Restricted Stock Award, the
Restricted Stock Award may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the
Participant.
(ii) Forfeiture. Except as
otherwise determined by the Committee, upon termination of
employment during the applicable restriction period, Restricted
Stock Awards that are at that time subject to restrictions shall
be forfeited and reacquired by the Company; provided that the
Committee may provide, by rule or regulation or in any Award
agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted
Stock Awards shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee
may in other cases waive in whole or in part the forfeiture of
Restricted Stock Awards.
(iii) Certificates for
Shares. Restricted Stock Awards granted under the
Plan may be evidenced in such manner as the Committee shall
determine. If certificates for Shares relating to Restricted
Stock Awards are registered in the name of the Participant, the
Committee may require that such certificates bear an appropriate
legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock Awards, that the
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Company retain physical possession of the certificates, and that
the Participant deliver a stock power to the Company, endorsed
in blank, relating to such Shares.
(iv) Dividends and Splits. As a
condition to the grant of a Restricted Stock Award, the
Committee may require or permit a Participant to elect that any
cash dividends paid on a Share related to the Restricted Stock
Award be automatically reinvested in additional Shares related
to the Restricted Stock Award or applied to the purchase of
additional Awards under the Plan. Unless otherwise determined by
the Committee, Shares distributed in connection with a stock
split or stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock Award with
respect to which such Shares or other property has been
distributed.
(c) Bonus Stock Awards. The
Committee is authorized to grant Awards of Shares as bonuses,
provided that, in the case of Participants subject to
Section 16 of the Exchange Act, the amount of such grants
remains within the discretion of the Committee to the extent
necessary to ensure that such Awards are exempt from liability
under Section 16(b) of the Exchange Act. Bonus Stock Awards
shall be subject to such other terms as shall be determined by
the Committee.
(d) Performance Goals. To the
extent the Committee determines that any Award granted pursuant
to this Section 6 shall constitute performance-based
compensation for purposes of Section 162(m) of the Code,
the grant or settlement of the Award shall, in the
Committee’s discretion, be subject to the achievement of
performance goals determined and applied in a manner consistent
with Section 8(b).
7. Stock Appreciation Rights and Phantom Stock.
(a) Stock Appreciation Rights. The
Committee is authorized to grant Stock Appreciation Rights to
Participants on the following terms and conditions:
(i) Right to Payment. A Stock
Appreciation Right shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one Share on the date of
exercise over (B) the grant price of the Stock Appreciation
Right as determined by the Committee.
(ii) Rights Related to Options. A
Stock Appreciation Right granted in connection with an Option
shall entitle a Participant, upon exercise thereof, to surrender
that Option or any portion thereof, to the extent unexercised,
and to receive payment of an amount computed pursuant to
Subsection 7(a)(i) hereof. That Option shall then cease to
be exercisable to the extent surrendered. A Stock Appreciation
Right granted in connection with an Option shall be exercisable
only at such time or times and only to the extent that the
related Option is exercisable and shall not be transferable
except to the extent that the related Option is transferable.
(iii) Right Without Option. A Stock
Appreciation Right granted independent of an Option shall be
exercisable as determined by the Committee and set forth in the
Award agreement governing the Stock Appreciation Right.
(iv) Terms. The Committee shall
determine at the date of grant the time or times at which and
the circumstances under which a Stock Appreciation Right may be
exercised in whole or in part (including based on achievement of
performance goals
and/or
future service requirements), the method of exercise, whether or
not a Stock Appreciation Right shall be in tandem or in
combination with any other Award, and any other terms and
conditions of any Stock Appreciation Right.
(b) Phantom Stock Awards. The
Committee is authorized to grant Phantom Stock Awards to
Participants, which are rights to receive cash at the end of a
specified deferral period, subject to the following terms and
conditions:
(i) Award and
Restrictions. Satisfaction of a Phantom Stock
Award shall occur upon expiration of the deferral period
specified for such Phantom Stock Award by the Committee (or, if
permitted by the Committee, as elected by the Participant). In
addition, Phantom Stock Awards shall be subject to such
restrictions (which may include a risk of forfeiture), if any,
as the Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on achievement of performance
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goals and/or
future service requirements), separately or in combination, in
installments or otherwise, as the Committee may determine.
(ii) Forfeiture. Except as
otherwise determined by the Committee, upon termination of
employment during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in any
Award agreement evidencing the Phantom Stock Awards), all
Phantom Stock Awards that are at that time subject to deferral
(other than a deferral at the election of the Participant) shall
be forfeited; provided that the Committee may provide, by rule
or regulation or in any Award agreement, or may determine in any
individual case, that restrictions or forfeiture conditions
relating to Phantom Stock Awards shall be waived in whole or in
part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or
in part the forfeiture of Phantom Stock Awards.
(c) Performance Goals. To the
extent the Committee determines that any Award granted pursuant
to this Section 7 shall constitute performance-based
compensation for purposes of Section 162(m) of the Code,
the grant or settlement of the Award shall, in the
Committee’s discretion, be subject to the achievement of
performance goals determined and applied in a manner consistent
with Section 8(b).
8. Performance Awards.
(a) Performance Awards. The
Committee may grant Performance Awards based on performance
criteria measured over a period of not less than six months and
not more than ten years. The Committee may use such business
criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may
exercise its discretion to increase the amounts payable under
any Award subject to performance conditions except as limited
under Section 8(b) in the case of a Performance Award
granted to a Covered Employee.
(b) Performance Goals. The grant
and/or
settlement of a Performance Award shall be contingent upon terms
set forth in this Section 8(b).
(i) General. The performance goals
for Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the Committee.
In the case of any Award granted to a Covered Employee,
performance goals shall be designed to be objective and shall
otherwise meet the requirements of Section 162(m) of the
Code and regulations thereunder (including Treasury Regulation
§1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by
the Committee are such that the achievement of performance goals
is “substantially uncertain” at the time of grant. The
Committee may determine that such Performance Awards shall be
granted
and/or
settled upon achievement of any one performance goal or that two
or more of the performance goals must be achieved as a condition
to the grant
and/or
settlement of such Performance Awards. Performance goals may
differ among Performance Awards granted to any one Participant
or for Performance Awards granted to different Participants.
(ii) Business Criteria. One or more
of the following business criteria for the Company, on a
consolidated basis,
and/or for
specified Subsidiaries, divisions or business or geographical
units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be
used by the Committee in establishing performance goals for
Performance Awards granted to a Covered Employee:
(A) earnings per share; (B) increase in revenues;
(C) increase in cash flow; (D) increase in cash flow
return; (E) return on net assets; (F) return on
assets; (G) return on investment; (H) return on
capital; (I) return on equity; (J) economic value
added; (K) gross margin; (L) net income;
(M) pretax earnings; (N) pretax earnings before
interest, depreciation and amortization; (O) pretax
operating earnings after interest expense and before incentives,
service fees, and extraordinary or special items;
(P) operating income; (Q) total stockholder return;
(R) debt reduction; (S) net profit margin; and
(T) any of the above goals determined on an absolute or
relative basis or as compared to the performance of a published
or special index deemed applicable by the Committee including,
but not limited to, the Standard & Poor’s 500
Stock Index or a group of comparable companies.
(iii) Performance Period; Timing for Establishing
Performance Goals. Achievement of performance
goals in respect of Performance Awards shall be measured over a
performance period of not less than one year and not more than
ten years, as specified by the Committee. Performance goals in
the case of any Award granted to a Covered Employee shall be
established not later than 90 days after the beginning of
any
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performance period applicable to such Performance Awards, or at
such other date as may be required or permitted for
“performance-based compensation” under
Section 162(m) of the Code.
(iv) Settlement of Performance Awards; Other
Terms. After the end of each performance period,
the Committee shall determine the amount, if any, of Performance
Awards payable to each Participant based upon achievement of
business criteria over a performance period. The Committee may
not exercise discretion to increase any such amount payable in
respect of a Performance Award designed to comply with
Section 162(m) of the Code. The Committee shall specify the
circumstances in which such Performance Awards shall be paid or
forfeited in the event of termination of employment by the
Participant prior to the end of a performance period or
settlement of Performance Awards.
(v) Written Determinations. All
determinations by the Committee as to the establishment of
performance goals, the amount of any Performance Award, and the
achievement of performance goals relating to Performance Awards
shall be made in writing in the case of any Award granted to a
Covered Employee. The Committee may not delegate any
responsibility relating to such Performance Awards.
(vi) Status of Performance Awards under
Section 162(m) of the Code. It is the intent
of the Company that Performance Awards granted to persons who
are designated by the Committee as likely to be Covered
Employees within the meaning of Section 162(m) of the Code
and regulations thereunder (including Treasury Regulation
§1.162-27 and successor regulations thereto) shall, if so
designated by the Committee, constitute “performance-based
compensation” within the meaning of Section 162(m) of
the Code and regulations thereunder. Accordingly, the terms of
this Section 8(b) shall be interpreted in a manner
consistent with Section 162(m) of the Code and regulations
thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will
be a Covered Employee with respect to a fiscal year that has not
yet been completed, the term Covered Employee as used herein
shall mean only a person designated by the Committee, at the
time of grant of a Performance Award, who is likely to be a
Covered Employee with respect to that fiscal year. If any
provision of the Plan as in effect on the date of adoption or
any agreements relating to Performance Awards that are
designated as intended to comply with Section 162(m) of the
Code does not comply or is inconsistent with the requirements of
Section 162(m) of the Code or regulations thereunder, such
provision shall be construed or deemed amended to the extent
necessary to conform to such requirements.
9. Certain Provisions Applicable to All Awards.
(a) General. Awards may be granted
on the terms and conditions set forth in Sections 6, 7 and
8 hereof and this Section 9. In addition, the Committee may
impose on any Award or the exercise thereof, such additional
terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant
to make elections relating to his or her Award. The Committee
shall retain full power and discretion to accelerate or waive,
at any time, any term or condition of an Award that is not
mandatory under the Plan; provided, however, that the Committee
shall not have any discretion to accelerate or waive any term or
condition of an Award that is intended to qualify as
“performance-based compensation” for purposes of
Section 162(m) of the Code if such discretion would cause
the Award not to so qualify. Except in cases in which the
Committee is authorized to require other forms of consideration
under the Plan, or to the extent other forms of consideration
must be paid to satisfy the requirements of the Delaware General
Corporation Law, no consideration other than services may be
required for the grant of any Award.
(b) Stand-Alone, Additional, Tandem, and
Substitute Awards. Awards granted under the Plan
may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another
plan of the Company, any Subsidiary, or any business entity to
be acquired by the Company or a Subsidiary, or any other right
of a Participant to receive payment from the Company or any
Subsidiary. Such additional, tandem and substitute or exchange
Awards may be granted at any time. If an Award is granted in
substitution or exchange for another Award, the Committee shall
require the surrender of such other Award in consideration for
the grant of the new Award. In addition, Awards may be granted
in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Subsidiary.
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(c) Term of Awards. The term of
each Award shall be for such period as may be determined by the
Committee; provided that in no event shall the term of any
Option or Stock Appreciation Right exceed a period of ten years
(or such shorter term as may be required in respect of an
Incentive Stock Option under Section 422 of the Code).
(d) Form and Timing of Payment under Awards;
Deferrals. Subject to the terms of the Plan and
any applicable Award agreement, payments to be made by the
Company or a Subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in a single payment
or transfer, in installments, or on a deferred basis. The
settlement of any Award may, subject to any limitations set
forth in the Award agreement, be accelerated and cash paid in
lieu of Shares in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more
specified events. In the discretion of the Committee, Awards
granted pursuant to Sections 7 or 8 of the Plan may be
payable in Shares to the extent permitted by the terms of the
applicable Award agreement. Installment or deferred payments may
be required by the Committee (subject to Section 10(f) of
the Plan, including the consent provisions thereof in the case
of any deferral of an outstanding Award not provided for in the
original Award agreement) or permitted at the election of the
Participant on terms and conditions established by the
Committee. Payments may include, without limitation, provisions
for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of
amounts in respect of installment or deferred payments
denominated in Shares. Any deferral shall only be allowed as is
provided in a separate deferred compensation plan adopted by the
Company. The Plan shall not constitute an “employee benefit
plan” for purposes of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(e) Exemptions from Section 16(b)
Liability. It is the intent of the Company that
the grant of any Awards to or other transaction by a Participant
who is subject to Section 16 of the Exchange Act shall be
exempt from Section 16(b) of the Exchange Act pursuant to
an applicable exemption (except for transactions acknowledged by
the Participant in writing to be non-exempt). Accordingly, if
any provision of this Plan or any Award agreement does not
comply with the requirements of
Rule 16b-3
as then applicable to any such transaction, such provision shall
be construed or deemed amended to the extent necessary to
conform to the applicable requirements of
Rule 16b-3
so that such Participant shall avoid liability under
Section 16(b) of the Exchange Act.
10. General Provisions.
(a) Company’s Right to Terminate or Modify
Awards in Certain Circumstances. Except to the
extent that an Award agreement provides otherwise with specific
reference to this Section 10(a), in the event of
(i) an acquisition of substantially all of the assets of
the Company or of a greater than 80% stock interest in the
Company by an entity in which the Company does not have a 50% or
greater interest prior to such acquisition, or (ii) a
merger, consolidation, or recapitalization involving a
fundamental change in the capital structure of the Company, the
Company shall have the right to terminate any Award upon the
payment of an amount equal to the then value of the Award,
without regard to vesting or forfeiture provisions of the Award,
as determined by the Committee, taking into account to the
extent determined by the Committee to be appropriate the Fair
Market Value of Shares at the time of termination and the
performance of the Company up to the time of termination. Upon
tender of payment by the Company to a holder of the amount
determined by the Committee pursuant to this provision, the
Award held by such holder shall automatically terminate.
Alternatively, in such circumstances, the Company, in the
discretion of the Board, may make arrangements for the acquiring
or surviving corporation to assume any or all outstanding Awards
and substitute on equitable terms Awards relating to the stock
or performance of such acquiring or surviving corporation. The
determinations of the Board
and/or the
Committee pursuant to this Section 10(a) shall be final,
binding and conclusive.
(b) No Limitation on Other Company
Transactions. The existence of the Plan and the
Awards granted hereunder shall not affect in any way the right
or power of the Board or the stockholders of the Company to make
or authorize any adjustment, recapitalization, reorganization or
other change in the Company’s capital structure or its
business, any merger or consolidation of the Company, any issue
of debt or equity securities affecting Shares or the rights
thereof, the dissolution or liquidation of the Company or any
sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.
(c) Dilution or Other
Adjustments. In the event that there is any
change in the Shares through merger, consolidation,
reorganization or recapitalization or in the event of any stock
split or dividend to holders of Shares
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payable in Shares or the issuance to such holders of rights to
subscribe to Shares, or in the event of any change in the
capital structure of the Company, the Board shall, subject to
any requirements of applicable law, regulations and rules, make
such adjustments with respect to any provision or provisions of
the Plan, including but not limited to the limitations on Awards
that may be granted under the Plan as set forth in
Sections 4 and 5, and with respect to Awards
theretofore granted under the Plan as the Board deems
appropriate to prevent dilution or enlargement of Award rights.
The determinations of the Board pursuant to this
Section 10(b) shall be final, binding and conclusive.
Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities
convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise
of rights or warrants to subscribe therefor, or upon conversion
of shares or obligations of the Company convertible into such
shares or other securities, and in any case whether or not for
fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Shares
relating to Awards theretofore granted or the exercise price per
Share in the case of Options.
(d) Transferability.
(i) Permitted Transferees. The
Committee may, in its discretion, permit a Participant to
transfer all or any portion of an Award or authorize all or a
portion of an Award to be granted to an Eligible Person on terms
which permit transfer by such Participant; provided that, in
either case a transferee may only be a child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law,
or
sister-in-law,
including adoptive relationships, in each case with respect to
the Participant, a trust in which these persons have more than
fifty percent of the beneficial interest, a foundation in which
these persons (or the Participant) control the management of
assets, and any other entity in which these persons (or the
Participant) own more than fifty percent of the voting interests
(collectively, “Permitted Transferees”); provided
further that, (A) there may be no consideration for any
such transfer and (B) subsequent transfers of Awards
transferred as provided above shall be prohibited except
subsequent transfers back to the original holder of the Award
and transfers to other Permitted Transferees of the original
holder. Agreements evidencing Awards with respect to which such
transferability is authorized at the time of grant must be
approved by the Committee, and must expressly provide for
transferability in a manner consistent with this
Subsection 10(d)(i).
(ii) Qualified Domestic Relations
Orders. An Award may be transferred, to a
Permitted Transferee, pursuant to a domestic relations order
entered or approved by a court of competent jurisdiction upon
delivery to the Company of written notice of such transfer and a
certified copy of such order.
(iii) Other Transfers. Except as
expressly permitted by Subsections 10(d)(i) and 10(d)(ii) above,
Awards shall not be transferable other than by will or the laws
of descent and distribution. Notwithstanding anything to the
contrary in this Section 10, an Incentive Stock Option
shall not be transferable other than by will or the laws of
descent and distribution.
(iv) Effect of Transfer. Following
the transfer of any Award as contemplated by Subsections
10(d)(i), 10(d)(ii) and 10(d)(iii) above, (A) such Award
shall continue to be subject to the same terms and conditions as
were applicable immediately prior to transfer, provided that the
term “Participant” shall be deemed to refer to the
Permitted Transferee, the recipient under a qualified domestic
relations order, the estate or heirs of a deceased Participant,
or other transferee, as applicable, to the extent appropriate to
enable the Permitted Transferee to exercise the transferred
Award in accordance with the terms of the Plan and applicable
law and (B) the provisions of the Award relating to
exercisability thereof shall continue to be applied with respect
to the original Participant and, following the occurrence of any
such events described therein, the Awards shall be exercisable
by the Permitted Transferee, the recipient under a qualified
domestic relations order, the estate or heirs of a deceased
Participant, or other transferee, as applicable, only to the
extent and for the periods that would have been applicable in
the absence of the transfer.
(v) Procedures and
Restrictions. Any Participant desiring to
transfer an Award as permitted under Subsections 10(d)(i),
10(d)(ii) or 10(d)(iii) above shall make application therefor in
the manner and time specified by the Committee and shall comply
with such other requirements as the Committee may require to
assure compliance with all applicable securities laws. The
Committee shall not give permission for such a
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transfer if (A) it would give rise to short-swing liability
under Section 16(b) of the Exchange Act or (B) it may
not be made in compliance with all applicable federal, state and
foreign securities laws.
(vi) Registration. To the extent
the issuance to any Permitted Transferee of any Shares issuable
pursuant to Awards transferred as permitted in this
Section 10(d) is not registered pursuant to the effective
registration statement of the Company generally covering the
Shares to be issued pursuant to the Plan to initial holders of
Awards, the Company shall not have any obligation to register
the issuance of any such Shares to any such transferee.
(e) Taxes. The Company and any
Subsidiary are authorized to withhold from any Award granted, or
any payment relating to an Award under the Plan, including from
a distribution of Shares, amounts of withholding and other taxes
due or potentially payable in connection with any transaction
involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of
withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or
receive Shares or other property and to make cash payments in
respect thereof in satisfaction of a Participant’s tax
obligations, either on a mandatory or elective basis in the
discretion of the Committee.
(f) Changes to the Plan and
Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee’s
authority to grant Awards under the Plan without the consent of
stockholders or Participants, except that any amendment or
alteration to the Plan, including any increase in any Share
limitation, shall be subject to the approval of the
Company’s stockholders not later than the annual meeting
next following such Board action if such stockholder approval is
required by any federal or state law or regulation or the rules
of any stock exchange or automated quotation system on which the
Shares may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such
changes in this Plan to stockholders for approval; provided
that, without the consent of an affected Participant, no such
Board action may materially and adversely affect the rights of
such Participant under any previously granted and outstanding
Award. The Committee may waive any conditions or rights under,
or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award agreement relating thereto,
except as otherwise provided in the Plan; provided that, without
the consent of an affected Participant, no such Committee action
may materially and adversely affect the rights of such
Participant under such Award.
(g) Limitation on Rights Conferred under
Plan. Neither the Plan nor any action taken
hereunder shall be construed as (i) giving any Eligible
Person or Participant the right to continue as an Eligible
Person or Participant or in the employ or service of the Company
or a Subsidiary, (ii) interfering in any way with the right
of the Company or a Subsidiary to terminate any Eligible
Person’s or Participant’s employment or service at any
time, (iii) giving an Eligible Person or Participant any
claim to be granted any Award under the Plan or to be treated
uniformly with other Participants and employees, or
(iv) conferring on a Participant any of the rights of a
stockholder of the Company unless and until the Participant is
duly issued or transferred Shares in accordance with the terms
of an Award.
(h) Nonexclusivity of the
Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the
power of the Board or a committee thereof to adopt such other
incentive arrangements as it may deem desirable, including
incentive arrangements and awards which do not qualify under
Section 162(m) of the Code. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from
taking any corporate action which is deemed by the Company or
such Subsidiary to be appropriate or in its best interest,
whether or not such action would have an adverse effect on the
Plan or any Award made under the Plan. No employee, beneficiary
or other person shall have any claim against the Company or any
Subsidiary as a result of any such action.
(i) Payments in the Event of Forfeitures;
Fractional Shares; Share Allotments. Unless
otherwise determined by the Committee, in the event of a
forfeiture of an Award with respect to which a Participant paid
cash or other consideration to the Company in exchange for such
Award, the Participant shall be repaid the amount of such cash
or other consideration. Unless otherwise determined by the
Committee, no fractional Shares, or Shares in lots of less than
100 Shares, shall be issued or delivered pursuant to the
Plan or any Award. The Committee shall determine whether cash,
other Awards or other property shall be issued or paid in lieu
of such fractional Shares, or
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lots of less than 100 Shares, and whether fractional Shares
or any rights thereto shall be forfeited or otherwise eliminated.
(j) Severability. If any provision
of the Plan is held to be illegal or invalid for any reason, the
illegality or invalidity shall not affect the remaining
provisions hereof, but such provision shall be fully severable
and the Plan shall be construed and enforced as if the illegal
or invalid provision had never been included herein. If any of
the terms or provisions of the Plan or any Award agreement
conflict with the requirements of
Rule 16b-3
(as those terms or provisions are applied to Eligible Persons
who are subject to Section 16(b) of the Exchange Act) or
Section 422 of the Code (with respect to Incentive Stock
Options), then those conflicting terms or provisions shall be
deemed inoperative to the extent they so conflict with the
requirements of
Rule 16b-3
(unless the Board or the Committee, as appropriate, has
expressly determined that the Plan or such Award should not
comply with
Rule 16b-3)
or Section 422 of the Code. With respect to Incentive Stock
Options, if the Plan does not contain any provision required to
be included herein under Section 422 of the Code, that
provision shall be deemed to be incorporated herein with the
same force and effect as if that provision had been set out at
length herein; provided, further, that, to the extent any Option
that is intended to qualify as an Incentive Stock Option cannot
so qualify, such Option (to that extent) shall be deemed a
Non-Qualified Stock Option for all purposes of the Plan.
(k) Governing Law. All questions
arising with respect to the provisions of the Plan and Awards
shall be determined by application of the laws of the State of
Texas, without giving effect to any conflict of law provisions
thereof, except to the extent Texas law is preempted by federal
law or where the law of the state of incorporation of the
Company shall be mandatorily applied. The obligation of the
Company to sell and deliver Shares hereunder is subject to
applicable federal and state laws and to the approval of any
governmental authority required in connection with the
authorization, issuance, sale, or delivery of such Shares.
(l) Conditions to Delivery of
Shares. Nothing herein or in any Award granted
hereunder or any Award agreement shall require the Company to
issue any Shares with respect to any Award if that issuance
would, in the opinion of counsel for the Company, constitute a
violation of the Securities Act or any similar or superseding
statute or statutes, any other applicable statute or regulation,
or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of
an Option or Stock Appreciation Right, or at the time of any
grant of a Restricted Stock Award, Bonus Stock Award or Phantom
Stock Award, the Company may, as a condition precedent to the
exercise of such Option or Stock Appreciation Right, vesting of
any Restricted Stock Award or Phantom Stock Award, or grant of
any Bonus Stock Award, require from the Participant (or in the
event of his death, his legal representatives, heirs, legatees,
or distributees) such written representations, if any,
concerning the holder’s intentions with regard to the
retention or disposition of the Shares being acquired pursuant
to the Award and such written covenants and agreements, if any,
as to the manner of disposal of such Shares as, in the opinion
of counsel to the Company, may be necessary to ensure that any
disposition by that holder (or in the event of the holder’s
death, his legal representatives, heirs, legatees, or
distributees) will not involve a violation of the Securities Act
or any similar or superseding statute or statutes, any other
applicable state or federal statute or regulation, or any rule
of any applicable securities exchange or securities association,
as then in effect.
(m) Plan Effective Date, Stockholder Approval and
Plan Duration. The Plan has been adopted by the
Board originally effective as of January 1, 2001 and as
amended and restated effective as of December 12, 2002
contingent upon the approval of the stockholders of the Company.
If the stockholders of the Company do not approve the Plan as
amended and restated, the Plan shall continue in effect as
originally adopted effective January 1, 2001. No Award,
other than an Incentive Stock Option, shall be granted under the
Plan after December 31, 2010 and no Incentive Stock Option
shall be granted under the Plan after December 13, 2010.
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ANNUAL MEETING OF STOCKHOLDERS OF
HOLLY CORPORATION
May 24, 2007
Please date, sign and mail
your proxy card in the envelope provided as soon as possible. êPlease detach along perforated line and mail in the envelope provided.ê
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NOMINEES, “FOR” APPROVAL OF THE AMENDMENT TO
THE CORPORATION’S RESTATED CERTIFICATE OF INCORPORATION, AND “FOR” APPROVAL OF THE PERFORMANCE
STANDARDS AND ELIGIBILITY PROVISIONS OF THE CORPORATION’S LONG-TERM COMPENSATION PLAN AND AMENDMENT
THERETO. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN
BLUE OR BLACK INK AS SHOWN HERE þ
This proxy when properly executed will be voted as directed. If no
direction is given, it will be voted FOR the election of all
nominees as directors, FOR approval of the amendment to the
Corporation’s Restated Certificate of Incorporation and FOR
approval of the performance standards and eligibility provisions of
the Corporation’s Long-Term Incentive Compensation Plan and
amendment thereto, and in the discretion of those authorized to
vote this proxy on any other business.
Receipt of the Company’s Annual Report for 2006, Notice of Annual
Meeting and related Proxy Statement is hereby acknowledged, and all
former proxies are hereby revoked.
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PROXY
HOLLY CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS — MAY 24, 2007
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Gerard L. Regard, Matthew P. Clifton and W. John Glancy, or any of them or their substitutes, are
hereby appointed proxies to represent and to vote the stock of Holly Corporation standing in the
name(s) of the undersigned at the Annual Meeting of Stockholders to be held in Dallas, Texas on May
24, 2007, and at all adjournments thereof.
TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS YOU DO NOT NEED TO MARK
ANY OF THE BOXES, JUST DATE AND SIGN ON THE REVERSE SIDE.
SEE REVERSE SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
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