NOTE 6: Stock-Based Compensation

In addition to our existing share-based compensation plan, we have retained the legacy Frontier share-based compensation plan (collectively, the "Long-Term Incentive Compensation Plan"). Upon our July 1 merger, outstanding and unvested restricted stock and performance share grants under the legacy Frontier plan were converted into equivalent HollyFrontier units based on the July 1, 2011 common stock conversion ratio of .4811. A portion of the fair value of these awards (based on our July 1, 2011 closing stock price of $35.93) relative to the remaining vesting period of the awards will be expensed over the remaining terms of these grants.

The compensation cost that has been charged against income for these plans was $9.4 million and $2.1 million for the three months ended September 30, 2011 and 2010, respectively, and $13.9 million and $6.2 million for the nine months ended September 30, 2011 and 2010, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $3.6 million and $0.8 million for the three months ended September 30, 2011 and 2010, respectively, and $5.4 million and $2.4 million for the nine months ended September 30, 2011 and 2010, respectively. Our accounting policy for the recognition of compensation expense for awards with pro-rata vesting (substantially all of our awards) is to expense the costs pro-rata over the vesting periods.

Additionally, HEP maintains share-based compensation plans for HEP directors and select Holly Logistic Services, L.L.C. executives and employees. Compensation cost attributable to HEP's share-based compensation plans was $0.6 million and $0.4 million for the three months ended September 30, 2011 and 2010, respectively, and $1.6 million and $1.8 million for the nine months ended September 30, 2011 and 2010, respectively.

Restricted Stock

Under our Long-Term Incentive Compensation Plan, we grant certain officers, other key employees and outside directors restricted stock awards with substantially all awards vesting generally over a period of one to five years. Although ownership of the shares does not transfer to the recipients until after the shares vest, recipients generally have dividend rights on these shares from the date of grant. The vesting for certain key executives is contingent upon certain performance targets being realized. The fair value of each share of restricted stock awarded, including the shares issued to the key executives, was measured based on the market price as of the date of grant and is being amortized over the respective vesting period.

A summary of restricted stock activity and changes during the nine months ended September 30, 2011 is presented below:


Restricted Stock	Grants			Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value ($000)
Outstanding at January 1, 2011 (non-vested)		693,992		$	14.65
Granted ⁽¹⁾		1,034,738			29.54
Vesting and transfer of ownership to recipients		(510,730	)		17.25
Forfeited		(26,934	)		26.08

Outstanding at September 30, 2011 (non-vested)		1,191,066		$	26.22	$	31,226

(1)	Includes 480,876 non-vested performance share grants under the legacy Frontier plan that were outstanding and retained by HollyFrontier at July 1, 2011.

The total fair value of restricted stock vested and transferred to recipients during the nine months ended September 30, 2011 and 2010 was $8.8 million and $4.2 million, respectively. As of September 30, 2011, there was $22.8 million of total unrecognized compensation cost related to non-vested restricted stock grants. That cost is expected to be recognized over a weighted-average period of 1.6 years.

Performance Share Units

Under our Long-Term Incentive Compensation Plan, we grant certain officers and other key employees performance share units, which are payable in stock upon meeting certain criteria over the service period, and generally vest over a period of one to three years. Under the terms of our performance share unit grants, awards are subject to financial performance criteria.

The fair value of each performance share unit award is computed using the grant date closing stock price of each respective award grant and will apply to the number of units ultimately awarded. The number of shares ultimately issued for each award will be based on our financial performance as compared to peer group companies over the performance period and can range from zero to 200%. As of September 30, 2011, estimated share payouts for outstanding non-vested performance share unit awards ranged from 125% to 185%.

For the legacy Frontier performance share units assumed at July 1, 2011, performance is based on market performance criteria. These share unit awards are payable in stock based on share price performance relative to our peer group over a specified period and can range from zero to 125%.

A summary of performance share unit activity and changes during the nine months ended September 30, 2011 is presented below:


Performance Share Units	Grants
Outstanding at January 1, 2011 (non-vested)		556,186
Granted ⁽¹⁾		409,982
Vesting and transfer of ownership to recipients		(178,154	)

Outstanding at September 30, 2011 (non-vested)		788,014

(1)	Includes 280,438 non-vested performance share grants under the legacy Frontier plan that were outstanding and retained by HollyFrontier at July 1, 2011.

For the nine months ended September 30, 2011, we issued 237,802 shares of our common stock having a fair value of $4.8 million related to vested performance share units. Based on the weighted average grant date fair value of $20.90, there was $15.4 million of total unrecognized compensation cost related to non-vested performance share units. That cost is expected to be recognized over a weighted-average period of 1.4 years.