<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FIRST TENNESSEE NATIONAL 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):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
----
(2) Aggregate number of securities to which transactions applies:
------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------
(5) Total fee paid:
----------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount previously paid:
-------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------
(3) Filing party:
-----------------------------------------------------
(4) Dated filed:
------------------------------------------------------
<PAGE> 2
[Logo FIRST TENNESSEE ]
TO THE SHAREHOLDERS OF
FIRST TENNESSEE NATIONAL CORPORATION:
In connection with the annual meeting of shareholders of your Corporation
to be held on April 15, 1997, we enclose a notice of annual shareholders'
meeting, a proxy statement, and a form of proxy.
At the meeting, you will be asked to elect four Class I directors to serve
until the 2000 annual meeting of shareholders and two Class II directors to
serve until the 1998 annual meeting of shareholders, or until their successors
are duly elected and qualified, approve the Corporation's Amended and Restated
Management Incentive Plan, and ratify the appointment of Arthur Andersen LLP as
the Corporation's independent auditors for 1997. Information about these
matters is contained in the attached proxy statement.
Detailed information relating to the Corporation's activities and
operating performance during 1996 is contained in the Annual Report to
Shareholders of the Corporation, which is being mailed to you with this proxy
statement, but is not a part of the proxy soliciting material. If you do not
receive or have access to the 1996 Annual Report, please notify the Treasurer,
First Tennessee National Corporation, P. O. Box 84, Memphis, Tennessee 38101,
(901) 523-5630.
You are cordially invited to attend the annual meeting of shareholders in
person. We would appreciate your completing the enclosed form of proxy so that
your shares can be voted in the event that you are unable to attend the
meeting. If you are present at the meeting and desire to vote your shares
personally, your form of proxy will be withheld from voting upon your request
prior to the balloting. We urge you to return your proxy card in the postage-
paid envelope as soon as possible.
Sincerely yours,
/s/ Ralph Horn
- ----------------
Ralph Horn
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 3
FIRST TENNESSEE NATIONAL CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
April 15, 1997
The annual meeting of shareholders of First Tennessee National Corporation
will be held on April 15, 1997, at 10:00 a.m., local time, in the Auditorium,
First Tennessee Building, 165 Madison Avenue, Memphis, Tennessee. The items of
business are:
1. Election of four Class I directors to serve until the 2000 annual
meeting of shareholders and two Class II directors to serve until
the 1998 annual meeting of shareholders, or until their successors
are duly elected and qualified.
2. Approval of the Corporation's Amended and Restated Management
Incentive Plan.
3. Ratification of appointment of auditors.
These items are described more fully in the following pages, which are
made a part of this notice. The close of business February 21, 1997, is the
record date for the meeting. All shareholders of record at that time are
entitled to vote at the meeting.
Management would appreciate your signing and returning the accompanying
form of proxy promptly, so that if you are unable to attend the meeting your
shares can nevertheless be voted.
/s/ Lenore S. Creson
- --------------------
Lenore S. Creson
Secretary
Memphis, Tennessee
March 12, 1997
IMPORTANT NOTICE
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING,
PLEASE PROMPTLY MARK, DATE, SIGN AND MAIL THE ENCLOSED FORM OF PROXY IN
THE ENCLOSED ENVELOPE.
<PAGE> 4
PROXY STATEMENT
FIRST TENNESSEE NATIONAL CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103
GENERAL
The following statement, first mailed to shareholders on or about
March 12, 1997, is furnished in connection with the solicitation by the Board
of Directors of First Tennessee National Corporation (the "Corporation" or
"FTNC") of proxies to be used at the annual meeting of the shareholders of the
Corporation to be held on April 15, 1997, at 10:00 a.m. local time in the
Auditorium, First Tennessee Building, 165 Madison Avenue, Memphis, Tennessee,
and at any adjournment or adjournments thereof.
The accompanying form of proxy is for use at the meeting if a
shareholder will be unable to attend in person. The proxy may be revoked by
the shareholder at any time before it is exercised. All shares represented by
valid proxies received pursuant to this solicitation, and not revoked before
they are exercised, will be voted in the manner specified therein. If no
specification is made, the proxies will be voted in favor of:
1. Election of four Class I directors to serve until the 2000
annual meeting of shareholders and two Class II directors to
serve until the 1998 annual meeting of shareholders, or until
their successors are duly elected and qualified.
2. Approval of the Corporation's Amended and Restated Management
Incentive Plan.
3. Ratification of appointment of auditors.
The entire cost of soliciting these proxies will be borne by the
Corporation. In following up the original solicitation of the proxies by mail,
the Corporation may request brokers and others to send proxies and proxy
material to the beneficial owners of the shares and may reimburse them for
their expenses in so doing. If necessary, the Corporation may also use several
of its regular employees to solicit proxies from the shareholders, either
personally or by telephone or by special letter, for which they will receive no
compensation in addition to their normal compensation.
The common stock of the Corporation is its only class of voting
securities. There were 64,350,661 shares of common stock outstanding and
entitled to vote as of February 21, 1997, the record date for the annual
shareholders' meeting. Each share is entitled to one vote. A majority of the
votes entitled to be cast at the annual meeting constitutes a quorum for
purposes of the meeting. With respect to the election of directors, a
plurality of the votes cast is required to elect the nominees as directors.
With respect to the Corporation's Amended and Restated Management Incentive
Plan and the ratification of the appointment of auditors, to approve each item
the votes cast in favor of the item must exceed the votes cast in opposition to
it. An "abstention" will be considered present for quorum purposes, but will
not otherwise have any effect on either of the vote items. Broker "non-
<PAGE> 5
votes" will not be considered present for quorum purposes but will not otherwise
have any effect on either of the vote items.
On December 31, 1996, no person was known by management of the
Corporation to own beneficially, as that term is defined by Rule 13d-3 of the
Securities Exchange Act of 1934, more than five percent (5%) of the
Corporation's common stock.
The following table sets forth certain information as of December 31,
1996, concerning beneficial ownership of the Corporation's common stock by each
director and nominee, each executive officer named in the Summary Compensation
Table, and directors and executive officers as a group.
Stock Ownership Table
<TABLE>
<CAPTION>
=========================================================================
Amount and Nature
Name of of Beneficial Ownership Percent
Beneficial Owner (Number of Shares)(1) of Class
-------------------------------------------------------------------------
<S> <C> <C>
Robert C. Blattberg 17,584 (2) (5) 0.03
-------------------------------------------------------------------------
Carlos H. Cantu 6,985 (2) (5) 0.01
-------------------------------------------------------------------------
George E. Cates 10,479 (2) (5) 0.02
-------------------------------------------------------------------------
J. Kenneth Glass 145,655 (3) (4) 0.22
-------------------------------------------------------------------------
James A. Haslam, III 11,548 (2) (5) 0.02
-------------------------------------------------------------------------
Ralph Horn 529,486 (3) (4) 0.79
-------------------------------------------------------------------------
John C. Kelley, Jr. 167,334 (3) (4) 0.25
-------------------------------------------------------------------------
George P. Lewis 210,071 (3) (4) 0.31
-------------------------------------------------------------------------
R. Brad Martin 9,785 (2) (5) 0.01
-------------------------------------------------------------------------
Joseph Orgill, III 136,684 (2) (5) 0.21
-------------------------------------------------------------------------
Vicki G. Roman 17,190 (2) (5) 0.03
-------------------------------------------------------------------------
Michael D. Rose 35,613 (2) (5) 0.05
-------------------------------------------------------------------------
William B. Sansom 21,638 (2) (5) 0.03
-------------------------------------------------------------------------
Gordon P. Street, Jr. 16,166 (2) (5) 0.02
-------------------------------------------------------------------------
Elbert L. Thomas, Jr. 54,456 (3) (4) 0.08
-------------------------------------------------------------------------
Directors and Executive
Officers as a Group (20
persons) 1,861,386 (3) (4) 2.76
=========================================================================
</TABLE>
[Notes to table are on page 3.]
2
<PAGE> 6
(1) The respective directors and officers have sole voting and investment
powers with respect to all of such shares except as specified in note
(2) and note (4). All share amounts have been adjusted to reflect the
2-for-1 stock split that was paid February 16, 1996.
(2) Includes 1,800 shares of restricted stock (3,000 shares as to Messrs.
Cantu, Cates and Haslam and 2,400 shares as to Mr. Martin and Ms.
Roman) with respect to which each nonemployee director possesses sole
voting power, but no investment power.
(3) Includes 64,032; 185,674; 69,477; 24,798; 24,389; and 642,189 shares
as to which Messrs. Glass, Horn, Kelley, Lewis and Thomas and the
directors and executive officers group, respectively, have the right
to acquire beneficial ownership within 60 days through the exercise of
Corporation stock options. Also includes shares held at December 31,
1996, for 401(k) Savings Plan accounts.
(4) Includes 28,636; 75,000; 28,636; 19,206; 17,672 ; and 244,244 shares
of restricted stock with respect to which Messrs. Glass, Horn, Kelley,
Lewis, Thomas and the director and executive officer group,
respectively, have sole voting power but no investment power.
(5) Includes the following shares as to which the named nonemployee
directors have the right to acquire beneficial ownership within 60
days through the exercise of Corporation stock options: Dr. Blattberg
- 14,404; Mr. Cantu - 3,954; Mr. Cates - 5,448; Mr. Haslam - 3,777;
Mr. Martin - 530; Mr. Orgill - 15,606; Ms. Roman - 14,136; Mr. Rose -
12,933; Mr. Sansom - 17,779; and Mr. Street - 12,716.
ITEM NO. 1 - ELECTION OF DIRECTORS
The Board of Directors is divided into three Classes with the term of
office of each Class expiring in successive years. The term of Class I
directors expires at this annual meeting. The terms of Class II and Class III
directors expire as stated below. The Board of Directors proposes the election
of four Class I directors and two Class II directors. The two Class II
directors were elected by the Board of Directors in December of 1996, and
pursuant to state law, they have been nominated for election by the shareholders
at the annual meeting. Each director elected at the meeting will hold office
until the specified annual meeting of shareholders and until his or her
successor shall be elected and qualified.
Should any of the nominees proposed by the Board of Directors be
unable to accept election, which the Board of Directors has no reason to
anticipate, the persons named in the enclosed form of proxy will vote for the
election of such other persons as management may recommend, unless the Board
should determine to reduce the number of directors pursuant to the Bylaws.
Certain information about the nominees and directors (including age,
current principal occupation which has continued for at least five years unless
otherwise indicated, name and principal business of the organization in which
his or her occupation is carried on, directorships in other reporting
companies, and year first elected to the Corporation's Board) is provided
below. All directors of the Corporation are also directors of First Tennessee
Bank National Association (the "Bank" or "FTB"), which is the Corporation's
principal operating subsidiary.
3
<PAGE> 7
NOMINEES FOR DIRECTOR
Class I
For A Three-Year Term Expiring at 2000 Annual Meeting
R. BRAD MARTIN (45) is Chairman of the Board and Chief Executive Officer of
Proffitt's, Inc., Knoxville, Tennessee, a retail merchandising company. Mr.
Martin is a director of two other public companies, Harrah's Entertainment,
Inc. and Sports and Recreation, Inc. He has been a director since 1994 and is
Chairman of the Human Resources Committee.
JOSEPH ORGILL, III (59) is Chairman of the Board of Orgill, Inc., Memphis,
Tennessee, wholesale hardware distributors. Prior to January 1996, Orgill,
Inc., was a subsidiary of West Union Corporation, Memphis, Tennessee, of which
Mr. Orgill remains Chairman of the Board. Mr. Orgill has been a director since
1969.
VICKI G. ROMAN (43) is Corporate Vice President and Treasurer of Coca-Cola
Enterprises Inc., Atlanta, Georgia, bottler of soft drink products. Prior to
February, 1992 she was Assistant Treasurer. Ms. Roman has been a director
since 1993 and is Chairperson of the Audit Committee.
WILLIAM B. SANSOM (55) is Chairman of the Board and Chief Executive Officer of
The H. T. Hackney Co., Knoxville, Tennessee, a diversified wholesale
distribution firm serving the food, gas, oil and industrial markets in the
Southeast. He is a director of one other public company, Martin Marietta
Materials. Mr. Sansom has been a director since 1984 and is a member of the
Human Resources Committee.
Class II
For a One-Year Term Expiring at 1998 Annual Meeting
J. KENNETH GLASS (50) is President-Tennessee Banking Group of the Bank and
Executive Vice President of the Corporation. Mr. Glass has been an Executive
Vice President of the Corporation since 1995. Prior to 1993 he was Executive
Vice President of the Bank and Tennessee Banking Group Manager. Mr. Glass has
been a director since December 17, 1996.
JOHN C. KELLEY, JR. (53) is President-Memphis Banking Group of the Bank and
Executive Vice President of the Corporation. Mr. Kelley has been an Executive
Vice President of the Corporation since 1991. Prior to 1993 he was Executive
Vice President of the Bank and Corporate Services Group Manager. Mr. Kelley
has been a director since December 17, 1996.
CONTINUING DIRECTORS
Class II
Term Expiring at 1998 Annual Meeting
ROBERT C. BLATTBERG (54) is the Polk Brothers Distinguished Professor of
Retailing, J. L. Kellogg Graduate School of Management, Northwestern
University, Evanston, Illinois. Prior to
4
<PAGE> 8
September 1991, he was Professor of Marketing at the University of Chicago. Dr.
Blattberg is a director of one other public company, Factory Card Outlet of
America. Dr. Blattberg has been a director since 1984 and is a member of the
Audit Committee.
MICHAEL D. ROSE (55) is Chairman of the Board of Promus Hotel Corporation,
Memphis, Tennessee, a franchisor and operator of hotel brands. Prior to
January 1997, Mr. Rose was also Chairman of the Board of Harrah's
Entertainment, Inc. Prior to June 30, 1995, Mr. Rose was Chairman of The
Promus Companies Incorporated, and prior to April 1994, its Chief Executive
Officer. Mr. Rose is a director of three other public companies, General
Mills, Inc., Ashland, Inc. and Darden Restaurants, Inc. Mr. Rose has been a
director since 1984 and is a member of the Human Resources Committee.
GORDON P. STREET, JR. (58) is Chairman of the Board, Chief Executive Officer,
and President of North American Royalties, Inc., Chattanooga, Tennessee, a
manufacturer of gray iron castings and producer of oil and natural gas. He has
been a director since 1980 and is a member of the Audit Committee.
Class III
Term Expiring at 1999
Annual Meeting
CARLOS H. CANTU (63) is President and Chief Executive Officer of The
ServiceMaster Company L.P., Downers Grove, Illinois, a company that provides
consumer services and supportive management services. Prior to January 1994,
he was President and CEO of ServiceMaster Consumer Services LP. Mr. Cantu is a
director of one other public company, Haggar Corporation. Mr. Cantu has been a
director since April 16, 1996 and is a member of the Human Resources Committee.
GEORGE E. CATES (59) is Chairman of the Board and Chief Executive Officer of
Mid-America Apartment Communities, Inc., ("Mid-America") Memphis, Tennessee, a
real estate investment trust. Prior to January 1994, Mr. Cates was Chairman
and Chief Executive Officer of the Cates Co., Inc., Mid-America's predecessor.
Mr. Cates has been a director of the Corporation since April 16, 1996.
JAMES A. HASLAM, III (42) is Chief Executive Officer and Chief Operating
Officer of Pilot Corporation, Knoxville, Tennessee, a national retail operator
of convenience stores and travel centers. Mr. Haslam is a director of one
other public company, Plasti-Line, Inc. Mr. Haslam has been a director since
April 16, 1996 and is a member of the Audit Committee.
RALPH HORN (55) is Chairman of the Board, President, and Chief Executive
Officer of the Corporation and the Bank. Mr. Horn was elected President,
Chief Operating Officer, and a Director of the Corporation in August 1991,
Chief Executive Officer in April 1994, and Chairman of the Board, effective
January 1, 1996. Mr. Horn is a director of one other public company, Harrah's
Entertainment, Inc.
5
<PAGE> 9
The Board of Directors and its Committees
During 1996, the Board of Directors of the Corporation held five
meetings. The average attendance at Board and committee meetings exceeded 94%.
No director attended fewer than 75 percent of the meetings of the Board and
the committees of the Board on which he or she served.
The Board has several standing committees, two of which are the Audit
Committee and the Human Resources Committee. The latter committee serves as
both a nominating committee and a compensation committee. The Audit Committee
and the Human Resources Committee are each composed of directors who are not
employees of the Corporation. Directors currently serving on each of these
committees are Messrs. Blattberg, Haslam, and Street and Ms. Roman as to the
Audit Committee and Messrs. Cantu, Martin, Rose and Sansom as to the Human
Resources Committee.
The Audit Committee is responsible for causing audits and examinations
of the Corporation to be made by independent auditors and supervising the
Corporation's internal audit program. The Committee approves, subject to
shareholder ratification, the engagement of the Corporation's independent
auditors and reviews the scope and results of their examination. Other
committee functions include review of the Corporation's internal controls and
the Corporation's annual report to the SEC and proxy materials. During 1996
the Audit Committee held five meetings.
As a nominating committee, the Human Resources Committee primarily
considers recommendations for nominees to the Board of Directors, reviews the
performance of incumbent directors and senior officers in determining whether
to recommend them to the Board of Directors for reelection, reviews succession
plans, and between annual meetings elects persons to offices except the
Chairman, CEO and President. As a compensation committee, the Human Resources
Committee's primary functions include recommending to the Board major policies
concerning compensation, reviewing periodically the Corporation's compensation
and management of its human resources, fixing the compensation of executive
officers, reviewing remuneration structures for non-executive officers, and
making recommendations to the Board concerning compensation arrangements for
directors and adoption or amendment of employee benefit and management
compensation plans. During 1996 the Human Resources Committee held five
meetings.
It is the practice of the Corporation to encourage communication
between management and shareholders. Management in turn communicates
appropriate information to the Board. The Human Resources Committee, as a
committee of the Board, follows this procedure in considering nominations for
directorships and does not receive nominations directly from shareholders.
SHAREHOLDER PROPOSALS
Shareholders' proposals intended to be presented at the 1998 annual
meeting of the Corporation must be received by the Corporate Secretary, First
Tennessee National Corporation, P. O. Box 84, Memphis, Tennessee, 38101, not
later than November 12, 1997, for inclusion in the proxy statement and form of
proxy relating to that meeting.
6
<PAGE> 10
In addition, section 7 of Article III and Section 11 of Article II of
the Corporation's Bylaws provide that a shareholder who wishes to nominate a
person for election to the Board or submit a proposal at a shareholder meeting
must comply with certain procedures, which require written notification to the
Corporation, generally not less than 30 nor more than 60 days prior to the date
of the shareholder meeting; provided that if fewer than 40 days' notice or
public disclosure of the shareholder meeting date has been given to
shareholders, then the shareholder notification must be received by the
Corporation not later than 10 days after the earlier of the date notice of the
shareholder meeting was mailed or publicly disclosed. The shareholder must
disclose certain information about the nominee or item proposed, the
shareholder and any other shareholders known to support the nominee or
proposal.
EXECUTIVE COMPENSATION
The Summary Compensation Table provides information for the years
indicated about the Chief Executive Officer ("CEO") and the other four most
highly compensated executive officers of the Corporation. The amounts include
all compensation earned during each year, including amounts deferred, by the
named officers for all services rendered in all capacities to the Corporation
and its subsidiaries. Information is provided for each entire year in which an
individual served during any portion of the year as an executive officer.
Additional information is provided in tabular form below about option grants
and exercises in 1996, year-end option values, and pension benefits, along with
a report of the Board's Human Resources Committee on executive compensation and
certain other information concerning compensation of executive officers and
directors.
7
<PAGE> 11
Summary Compensation Table
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------
Awards (3)
- ---------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Securities
Name Other Restricted Underlying
and Annual Stock Options/
Principal Salary Bonus Compensation Award(s) SARs
Position Year ($) ($) ($) ($) (1) (#) (2)
-------- ---- --- --- --- ------- -------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ralph Horn 1996 $497,866(4) $224,040 $ 10,560 $ 0 54,013 (4)
Chairman, President & 1995 457,241 222,905 20,874 (5) 0 0
CEO 1994 421,854 210,927 6,646 1,715,625 21,516
FTNC and FTB
- ---------------------------------------------------------------------------------------------------------------
J. Kenneth Glass 1996 316,461 123,040 6,760 536,796 15,538
President-Tennessee 1995 245,692 102,407 14,568 (5) 0 0
Banking Grp.-FTB 1994 221,558 94,716 8,196 0 5,118
- ---------------------------------------------------------------------------------------------------------------
John C. Kelley, Jr. 1996 310,961 120,902 6,720 536,796 15,271
President-Memphis 1995 240,192 104,330 14,568 (5) 0 0
Banking Grp.-FTB 1994 216,154 91,431 (4) 8,196 0 10,830 (4)
- ---------------------------------------------------------------------------------------------------------------
George P. Lewis 1996 205,519 74,912 0 320,046 6,704
Exec. Vice Pres., 1995 195,733 84,418 0 0 0
Manager Money Mgmt. 1994 186,087 71,702 0 0 4,094
Grp.-FTB
- ---------------------------------------------------------------------------------------------------------------
Elbert L. Thomas, Jr. 1996 190,000 (4) 76,950 0 320,046 23,914 (4)
Exec. Vice Pres. & 1995 145,603 60,689 0 170,642 0
CFO 1994 N/A N/A N/A N/A N/A
FTNC & FTB (6)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------
Payouts
----------
- --------------------------------------------------------------
(a) (h) (i)
Name
and LTIP All Other
Principal Payouts Compensation
Position $ ($) (7)
-------- ---------- -------
- --------------------------------------------------------------
<S> <C> <C>
Ralph Horn $0 $ 146,322
Chairman, President & 0 217,291
CEO 0 240,091
FTNC and FTB
- --------------------------------------------------------------
J. Kenneth Glass 0 88,310
President-Tennessee 0 103,520
Banking Grp.-FTB 0 87,375
- --------------------------------------------------------------
John C. Kelley, Jr. 0 105,483
President-Memphis 0 109,897
Banking Grp.-FTB 0 89,661
- --------------------------------------------------------------
George P. Lewis 0 26,735
Exec. Vice Pres., 0 31,366
Manager Money Mgmt. 0 36,139
Grp.-FTB
- --------------------------------------------------------------
Elbert L. Thomas, Jr. 0 10,716
Exec. Vice Pres. & 0 8,573
CFO N/A N/A
FTNC & FTB (6)
- --------------------------------------------------------------
</TABLE>
(1) Restricted stock awards are valued on the basis of the fair market
value of a share of stock on the date of the award: $29.53 (1/16/96),
$20.81 (2/28/95), and $19.06 (1/18/94). On December 31, 1996, the
named officers held the following shares of restricted stock with
market values as indicated: Mr. Horn - 75,000 shares ($2,812,500);
Mr. Glass - 28,636 shares ($1,073,850); Mr. Kelley - 28,636 shares
($1,073,850); Mr. Lewis - 19,206 shares ($720,225); - Mr. Thomas -
17,672 shares ($662,700). Dividends are paid on restricted stock at
the same rate as all other shares of the common stock of the
Corporation. The number of shares of restricted stock awarded to Mr.
Horn on January 18, 1994 was 90,000 shares. Such shares vested in
one-sixth increments on March 1, 1996 and February 28, 1997 and will
vest at the same rate in April of each of the next four years if
corporate performance criteria established by the Human Resources
Committee are met (such criteria were met for the first two
performance periods); otherwise, such shares vest April 21, 2004. Mr.
Thomas was awarded 8,200 shares of restricted stock on February 28,
1995. One-third of such shares vested on February 28, 1997 and
one-third will vest on April 21, 1998 and 1999 if corporate
performance criteria are met (such criteria were met for the first
performance period); otherwise, such shares vest February 1, 2005.
(2) All amounts represent shares subject to option. No stock appreciation
rights (SAR's) were awarded.
(3) All share amounts and share values have been revised to reflect the
two-for-one stock split, paid February 16, 1996 to shareholders of
record February 2, 1996.
8
<PAGE> 12
(4) In 1995 Mr. Horn elected to receive a deferred compensation stock
option in lieu of $100,000 of salary earned for 1996. The amount in
column (c) for 1996 includes this amount, in lieu of which an option
for 21,692 shares was granted. In 1993 Mr. Kelley elected to receive
a deferred compensation stock option in lieu of a portion of his bonus
earned for 1994. Although the option was granted in 1995, it is
included in column (g) on the "1994" line because it represents
compensation earned for 1994. The amount in column (d) for 1994
includes the amount of bonus compensation ($59,431) in lieu of which
an option for 5,712 shares was granted. In 1995 Mr. Thomas elected
to receive a deferred compensation stock option in lieu of $90,000 of
salary earned for 1996. The amount in column (c) for 1996 includes
this amount, in lieu of which options for 9,371 shares and 8,402
shares were granted on 7-1-96 and 1-1-97, respectively.
(5) The amounts in column (e) for all years represent automobile allowance
tax gross-up payments. In late 1995 it was determined that the
payment for 1996, generally paid in January, would be accelerated to
December of 1995. Thus, the 1995 amount reflects the gross-up amount
for two years.
(6) Mr. Thomas was elected Executive Vice President and Chief Financial
Officer as of February 6, 1995. No information is provided for Mr.
Thomas for 1994 because he did not serve as an executive officer of
the Corporation during any portion of that year.
(7) Elements of "All Other Compensation" for 1996 consist of the
following:
<TABLE>
<CAPTION>
============================================================================================
Mr. Horn Mr. Glass Mr. Kelley Mr. Lewis Mr. Thomas
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Above MktRate: $67,816 $51,363 $53,911 $2,311 $ 0
--------------------------------------------------------------------------------------------
SurBen/SERP: 54,289 17,397 32,022 14,524 865
--------------------------------------------------------------------------------------------
Flex $: 5,400 5,400 5,400 5,400 5,351
--------------------------------------------------------------------------------------------
401(k) Match: 4,500 4,500 4,500 4,500 4,500
--------------------------------------------------------------------------------------------
Auto Allowance: 14,317 9,650 9,650 0 0
--------------------------------------------------------------------------------------------
Total: $146,322 $88,310 $105,483 $26,735 $10,716
============================================================================================
</TABLE>
"Above Mkt Rate" represents above-market interest accrued on deferred
compensation.
"Sur Ben/SERP" represents insurance premiums with respect to the
Corporation's supplemental life insurance and excess pension plans.
Under the Survivor Benefits Plan a benefit of 2 1/2 times final annual
base salary is paid upon the participant's death prior to retirement
(or 2 times final salary upon death after retirement).
"Flex $" represents the Corporation's contribution to the Flexible
Benefits Plan, based on salary, service and corporate performance.
"401(k) Match" represents the Corporation's 50% matching contribution
to the 401(k) Savings Plan, which is based on the amount contributed
by the participant, up to 6% of compensation.
The following table provides information about stock options granted
to the officers named in the Summary Compensation Table during 1996. No SAR's
were granted during 1996.
9
<PAGE> 13
Option/SAR Grants in Last Fiscal Year Table
<TABLE>
<CAPTION>
Individual Grants
=============================================================================================================================
(a) Name (b) Number of (c) % of Total (d) Exercise (e) Expiration (h) Alternatives to
---- --------- ---------- -------- ---------- ---------------
Securities Options/SARs or Base Price Date (f) and (g): Grant
---------- ------------ ------------- ---- -------------------
Underlying Granted to ($/sh) (1) Date Value.
---------- ---------- ---------- ------------
Options/SARs Employees in Grant Date Present
------------ ------------ ------------------
Granted (#) (1) Fiscal Year Value ($)
--------------- ----------- ---------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mr. Horn 32,321 1.61 30.94 4-18-06 156,757 (3)
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Horn 21,692 (2) 1.08 26.14 (2) 7-1-16 192,191 (4)
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Glass 15,538 0.77 30.94 4-18-06 75,359 (3)
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Kelley 15,271 0.76 30.94 4-18-06 74,064 (3)
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Lewis 6,704 0.33 30.94 4-18-06 32,514 (3)
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Thomas 6,141 0.31 30.94 4-18-06 29,784 (3)
- ----------------------------------------------------------------------------------------------------------------------------
Mr. Thomas 9,371 (2) 0.47 26.14 (2) 7-1-16 83,027 (4)
=============================================================================================================================
</TABLE>
(1) All share amounts and prices reflect the two-for-one stock split,
paid February 16, 1996 to shareholders of record February 2, 1996.
All options except those marked with footnote (2) were granted April
18, 1996 and vest 50% after four years from the date of grant and 100%
after five years, with accelerated vesting if certain performance
criteria are met. No SAR's were granted. The exercise price per
share equals the fair market value of one share of Corporation common
stock on the date of grant. Under the terms of all options, including
those marked with footnote (2), participants are permitted to pay the
exercise price of the options with Corporation stock; the option plan
provides for tax withholding rights upon approval of the plan
committee; and upon a Change in Control (as defined in the subsection
entitled "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements), all options vest.
(2) Mr. Horn's and Mr. Thomas's options were granted on July 1, 1996
in lieu of $100,000 of Mr. Horn's 1996 salary and $43,200 of Mr.
Thomas's 1996 salary and vest 100% at the time of grant. No SAR's
were granted. The exercise price per share equals 85% of the fair
market value ($30.75) of one share of Corporation common stock on the
grant date.
(3) A variation of the Black-Scholes option pricing model has been
used. The following assumptions were made for purposes of calculating
the Grant Date Value of the options granted 4-18-96: an exercise price
of $30.94; an option term of 10 years; an interest rate of 6.51%;
volatility of 17.46%; a dividend yield of 3.43%; a 24.2% of
reduction to reflect the probability of forfeiture due to termination
prior to vesting; and 12.8% reduction to reflect the probability of a
shortened option term due to termination prior to the option
expiration date. The actual value, if any, realized by a participant
upon the exercise of an option may differ and will depend on the
future market value of the Corporation's common stock.
(4) A variation of the Black-Scholes option pricing model has been
used. The following assumptions were made for purposes of calculating
the Grant Date Value of the options granted 7-1-96: an exercise price
of $26.14; an option term of 20 years; an interest rate of 6.87%;
volatility of 17.66%; a dividend yield of 3.45%; no reduction (due
to immateriality) to reflect the probability of forfeiture due to
termination prior to vesting; and a 9.62% reduction to reflect the
probability of a shortened option term due to termination prior to the
option expiration date. The actual value, if any, realized by a
participant upon the exercise of an option may differ and will depend
on the future market value of the Corporation's common stock.
The following table provides information about stock options and SAR's
held at December 31, 1996, and exercises during 1996 by the officers named in
the Summary Compensation Table. The values in column (e) reflect the spread
between the market value at December 31, 1996 of the shares underlying the
option and the exercise price of the option.
10
<PAGE> 14
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values Table
<TABLE>
<CAPTION>
=====================================================================================================
(a) (b) (c) (d) (e)
---------------------------------------------------------------------------------------------------
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options/SARs at
Options/SARs at FY-End ($)
FY-End (#)
---------------------------------------------------------------------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) (2) Realized ($) Unexercisable(1)(2) Unexercisable (1)
---- ------------------- ------------ ------------------- -----------------
<S> <C> <C> <C> <C>
Mr. Horn 4,706 $102,626 153,353/49,312 $3,618,876/$531,652
-----------------------------------------------------------------------------------------------------
Mr. Glass 5,882 123,493 48,494/25,774 $1,362,211/$360,627
-----------------------------------------------------------------------------------------------------
Mr. Kelley 4,706 99,097 54,206/25,507 $1,158,377/$358,809
-----------------------------------------------------------------------------------------------------
Mr. Lewis 4,000 90,800 18,094/10,092 $480,119/$108,128
-----------------------------------------------------------------------------------------------------
Mr. Thomas N/A N/A 18,248/8,566 $334,838/$86,286
=====================================================================================================
</TABLE>
(1) No SAR's are attached to any of the options in the table. Option
values are based on $37.75 per share, the average of the high and low
sales price on 12/31/96.
(2) All share amounts reflect the two-for-one stock split, paid February
16, 1996 to shareholders of record February 2, 1996.
The following table provides information about estimated combined
benefits under both the Corporation's Pension Plan and Pension Restoration
Plan.
Pension Plan Table
<TABLE>
<CAPTION>
===========================================================================================
Covered
Compensation Years of Service*
-------------------------------------------------------------------------------------------
15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs. 40 Yrs.
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $41,809 $50,757 $59,702 $63,708 $67,718 $71,729
150,000 56,611 70,495 84,375 90,845 97,322 103,800
200,000 71,413 90,233 109,047 117,892 126,926 135,871
250,000 86,215 109,971 133,720 145,119 156,530 167,942
300,000 101,017 129,709 158,392 172,256 186,134 200,013
350,000 115,819 149,447 183,065 199,393 215,738 232,084
400,000 130,621 169,185 207,737 226,530 245,342 264,155
450,000 145,423 188,923 232,410 253,667 274,946 296,226
500,000 160,225 208,661 257,082 280,804 304,550 328,297
550,000 175,027 228,399 281,755 307,941 334,154 360,368
600,000 189,829 248,137 306,427 335,078 363,758 392,439
===========================================================================================
</TABLE>
*Benefit shown is subject to limitations fixed by the Secretary of the
Treasury pursuant to Section 415 of the Internal Revenue Code of 1986,
as amended. The limitation is $120,000 for 1996 or 100% of the
employee's average income in his three highest paid years, whichever
is less. However, a benefit as high as $136,425 could be accrued
prior to 1983 and such higher benefit may be paid to the employee who
attained that level prior to 1983.
11
<PAGE> 15
The Pension Plan is integrated with social security under an "offset"
formula, applicable to all participants. Retirement benefits are based upon a
participant's average base salary for the highest 60 consecutive months of the
last 120 months of service ("Covered Compensation"), service, and social
security benefits. Benefits are normally payable in monthly installments after
age 65. The normal form of benefit payment for a married participant is a
qualified joint and survivor annuity with the surviving spouse receiving for
life 50% of the monthly amount the participant received. The normal form of
benefit payment for an unmarried participant is an annuity payable for life and
10 years certain. For purposes of the plan "compensation" is defined as the
total cash remuneration reportable on the employee's IRS form W-2, plus pre-tax
contributions under the Savings Plan and employee contributions under the
Flexible Benefits Plan, excluding bonuses, commissions, and incentive and
contingent compensation. The Corporation's Pension Restoration Plan is an
unfunded plan covering employees in the highest salary grades, including
Messrs. Horn, Glass, and Kelley, whose benefits under the Pension Plan have
been limited under Tax Code Section 415, as described in the note to the
Pension Table, and Tax Code Section 401(a)(17), which limits compensation to
$150,000 for purposes of certain benefit calculations. The amount of
compensation covered by the plan is computed based on "salary," as reported in
the Summary Compensation Table. Under that plan participants receive the
difference between the monthly pension payable if tax code limitations did not
apply and the actual pension payable. The estimated credited years of service
and the compensation covered by the plans for each of the individuals named in
the Summary Compensation Table are as follows: Mr. Horn, 33 ($416,546); Mr.
Glass, 22 ($234,364); Mr. Kelley, 27 ($229,030); Mr. Lewis, 35 ($185,819); and
Mr. Thomas, 5 ($118,449).
Employment Contracts and Termination of Employment
and Change-in-Control Arrangements
The Corporation has entered into contracts with each of the named
executive officers which may be terminated upon 3 years' prior notice which
provide generally for a payment equal to three times annual base salary plus
annual target bonus in the event of a termination of the officer's employment
by the Corporation other than "for cause" or by the employee for "good reason"
(as such terms are defined in the contracts) within 36 months after a
"Change-in-Control" or the officer's termination of employment for any reason
(other than "cause") during the 30-day period commencing one year after a
Change-in-Control. The contracts provide generally for an excise tax gross-up
with respect to any taxes incurred under Internal Revenue Code Section 4999
following a Change-in-Control and for 3 years continued welfare benefits. The
term "Change-in-Control" is defined to include (1) a merger or other business
combination, unless (i) more than 60% (50% for purposes of the 30-day
termination period and for benefit plans other than the severance contracts) of
the voting power of the corporation resulting from the business combination is
represented by voting securities of the Corporation outstanding immediately
prior thereto, (ii) no person or other entity beneficially owns 20% or more of
the resulting corporation, and (iii) at least two-thirds (a majority for
purposes of the 30-day termination period and for benefit plans other than the
severance contracts) of the members of the board of directors of the resulting
corporation were directors of the Corporation at the time of board approval of
the business combination, (2) the acquisition by a person or other entity of 20
percent or more of the Corporation's outstanding voting stock, (3) a change in
a majority of the Board of Directors, or (4) shareholder approval of a plan of
complete liquidation or a sale of substantially all of the assets of the
Corporation.
12
<PAGE> 16
A Change-in-Control has the following effect on certain benefit plans
in which the named executive officers participate: target annual bonuses are
prorated through the date of the Change-in-Control and paid. Restricted stock,
stock options and accrued benefits under the Corporation's Pension Restoration
Plan vest. Excess funding in the pension plan is allocated, according to a
formula, to participants and retirees. Deferred compensation under individual
deferral agreements which accrue interest based on the 10-year Treasury rate
and certain other benefits are paid over to previously established rabbi
trusts. Funds in such trusts will remain available for the benefit of the
Corporation's general creditors prior to distribution. The Corporation's
Survivor Benefits Plan generally cannot be amended to reduce benefits. Under
the Directors and Executives Deferred Compensation Plan a lump sum payout is
made to participating employees and certain terminated employees of the present
value, using a discount rate of 4.2%, of the participant's scheduled projected
distributions, assuming employment through normal retirement date and continued
interest accruals at above-market rates, described in the "Compensation of
Directors" section below.
Compensation Committee Interlocks
and Insider Participation
Messrs. Blattberg, Cantu, Martin, Rose, and Sansom, all of whom are
non-employee directors, and J. R. Hyde, III, who was non-employee director
prior to his retirement, served as members of the Corporation's Human Resources
Committee ("Committee"), which is its compensation committee, during all or a
portion of 1996. Mr. Horn, Chairman, President and CEO of the Corporation, is
a director of Harrah's Entertainment, Inc ("Harrah's"). Mr. Rose, a Committee
member, is Promus' Chairman of the Board and, prior to 1997, was Harrah's
Chairman of the Board.
Certain Relationships and Related Transactions
The Corporation's banking subsidiaries have had banking transactions
in the ordinary course of business with executive officers and directors of the
Corporation and their associates which are reported in a note to the
Corporation's financial statements, and they expect to have such transactions
in the future. Such transactions, including nominees, which at December 31,
1996, amounted to 10.6 percent of the Corporation's shareholders' equity, have
been on substantially the same terms, including interest rates, except for one
individual as described below, and collateral on loans, as those prevailing at
the same time for comparable transactions with others and have not involved
more than normal risk of collectibility or presented other unfavorable
features. Two loans were made to a person not individually named in the
Summary Compensation Table aggregating an amount less than $40,000 under an
employee program which provided a below market interest rate at a time prior to
that person becoming an executive officer.
13
<PAGE> 17
_____________________________________________________
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings by reference, including this proxy statement, in whole or in part, the
following Board Compensation Committee Report on Executive Compensation and the
Total Shareholder Return Performance Graph shall not be incorporated by
reference into any such filings.
Board Compensation Committee Report on Executive Compensation
The Corporation's Bylaws require the Board of Directors or a Board
committee to determine executive compensation. The Board has designated the
Human Resources Committee ("Committee") to perform this function. The
Committee is composed entirely of "nonemployee directors" as defined for
securities law purposes, who are also "outside directors" for purposes of
Section 162(m) of the Internal Revenue Code. Acting pursuant to SEC rules, the
Committee has set forth below its report on the Corporation's compensation
policies applicable to executive officers and the basis for the compensation of
the Corporation's Chief Executive Officer ("CEO") during 1996.
The Corporation's executive compensation programs are designed to
align the interests of the executive officers with the performance of the
Corporation and interests of the shareholders. Approximately 60 percent of the
executive officers' compensation potential which may be received annually is at
risk based on corporate performance and total shareholder return (defined
below). Compensation programs have been designed to reward executive officers
in both cash and stock of the Corporation based on performance that also
rewards shareholders. When corporate performance does not meet criteria
established by the Committee, incentive compensation is reduced accordingly.
In addition, the executive compensation program has been designed to attract
and retain qualified executive officers. Executive compensation consists
generally of the following components: base salary, annual incentive bonus,
long-term incentive awards, deferral of compensation at above-market rates or
through stock option grants, and customary employee and other benefits
typically offered to similarly situated executives. Base salary and annual
bonus are based on an evaluation of the individual's position and
responsibilities based on independent criteria and external market data and
personal and corporate performance. The Committee does not assign a specific
weight to any of the factors but places greater emphasis on corporate and
personal performance in the overall mix. External market data was provided by
an independent consulting firm and was based on a new peer group of banking
organizations against which the Corporation measures its strategic performance.
The new peer group consisted of the American Banker Top 50, which is based on
market capitalization. The Committee also reviewed data from fifteen of the
high-performing companies in the American Banker Top 50, selected by the
consulting firm based generally on one and five-year return on assets, return
on equity, earnings per share growth, price and total shareholder return
measures, to determine compensation practices of this sub-group. The
Committee previously used a peer group based on asset size ranging from
approximately one-half to twice the Corporation's asset size (46 companies in
1995). The new peer group was selected because it consists of diversified
financial institutions with multiple lines of business, which more accurately
reflects the Corporation's
14
<PAGE> 18
strategic business makeup. The compensation peer group used by the independent
consulting firm did not include all of the banking organizations listed in the
Total Shareholder Return Performance Graph ("TSR graph") for the 1996 peer
group, however, because compensation data on every organization included in the
TSR graph was not available. The median asset size of the compensation peer
group was $34.7 billion. The median asset size of the high-performing subgroup
of the American Banker Top 50 was $20.3 billion. In actual practice the
compensation of executive officers approximates the median of the compensation
peer group; however, the Corporation does not have a specific policy that
mandates how its compensation practices will compare to the peer group.
Long-term incentive awards consist of restricted stock awards containing
provisions for acceleration of vesting upon achievement of corporate
performance criteria and stock options. It is not the practice of the
Corporation to "reprice" stock options or to price them at less than fair
market value on the date of grant. The Corporation has offered deferred
compensation at above-market rates and deferrals through the use of stock
options with deferrals since 1995 limited to stock options or a 10-year
Treasury rate of interest. Except for the Corporation's stock fund within its
401(k) plan, other benefits provided to the executive officers are not tied to
corporate performance.
All compensation paid to executive officers during 1996 is fully
deductible by the Corporation for federal income tax purposes. Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Tax Code"), generally
disallows a tax deduction to public companies such as the Corporation for
compensation exceeding $1 million paid during the tax year to the CEO and the
four other highest paid executive officers at year end. Certain
performance-based compensation is not subject to the deduction limit. The
Corporation has been advised that under Tax Code regulations the salary and
TARSAP (defined below) portions of compensation do not meet the performance
criteria of Section 162(m). While some portion of compensation may not qualify
as wholly-deductible in certain years, any such amount is not expected to be
material to the Corporation. The Committee's practice is to consider ways to
maximize the deductibility of executive compensation while retaining the
discretion deemed necessary to compensate executive officers in a manner
commensurate with performance and the competitive market of executive talent.
(i) The CEO's Compensation
Base Salary: The CEO's base salary is established annually by the
Committee based on the Corporation's performance, achievement of objectives in
his individualized written personal plan, and competitive practices within the
industry. The CEO develops his personal plan and submits it to the Committee
for review and recommendation. The plan is approved by the Board of Directors
and generally contains strategic, quality and financial goals. A salary
increase of 8.0 percent for Mr. Horn was approved in March of 1996 based on
achievement of 1995 corporate return on equity objectives, Bank return on
assets objectives, and personal plan objectives. Although no specific weight
is assigned by the Committee to these factors, greater emphasis is placed on
corporate and personal performance than on competitive practices within the
industry. Base salary is intended to represent approximately 30 percent of the
CEO's total compensation potential.
Annual Bonus: The CEO's annual bonus is based entirely on the
Corporation's performance against financial objectives established by the
Committee at the beginning of each year. The financial
15
<PAGE> 19
objectives for 1996 were based on return on equity (ROE) and earnings per share
(EPS). The Corporation's degree of success in reaching these targets
determines a payout of zero percent to 100 percent of the annual bonus
potential. The CEO may be awarded an annual bonus of a maximum of 50 percent
of his salary dollars earned during the year. During 1996, corporate
performance resulted in a payout of 90% of the maximum.
Long-term Awards: The CEO's long-term incentive plan consists of a
restricted stock program and stock options.
The restricted stock program was amended in 1990 to add performance
criteria as a condition to early vesting of future awards to executive
officers. The objective of this time accelerated restricted stock award plan
("TARSAP") feature was to associate more closely the long-term compensation of
executive officers with shareholder interests. Under the TARSAP feature
restricted stock is granted with accelerated vesting if performance criteria
established by the Committee are met with respect to specified performance
periods. Performance periods are for three years and overlap; e.g. 1994-96,
1995-1997, 1996-1998. Performance criteria since inception have been based,
for all participants, including the CEO, on total shareholder return
(appreciation in the market value of the Corporation's common stock with
dividends reinvested-"TSR") targets established at the beginning of each
performance period. Targets are based on the Corporation's percentile ranking
in a peer group (the "100-bank peer group") of approximately the 100 largest
banking organizations by asset size traded on U.S. exchanges, including the
Nasdaq Stock Market's National Market System, with the condition that TSR must
be a positive number. The 100-bank peer group is different from the peer group
used to compare shareholder returns. The 100-bank peer group was originally
selected in 1990, prior to the adoption of SEC rules requiring disclosure of a
shareholder return performance graph, because the Committee believed that it
was an appropriate index with which to associate more closely long-term
compensation of executives with shareholder interests. The restricted stock
program which contains the 100-bank peer group has produced the desired
results, and thus, the Committee has continued to use it for the restricted
stock program. In January of 1997, the Committee approved vesting the TARSAP
shares for the 1994-1996 performance period. The Committee's decision was
based on a TSR for the period January 1, 1994 through December 31, 1996 of
115.8 percent, which exceeded the target and ranked the Corporation at the 73rd
percentile of the peer group. The restrictions on these shares which were
originally scheduled to vest on April 21, 1997, were accelerated to February
28, 1997, to coincide with the anticipated payment date for executive officer
annual bonuses. At a meeting in January of 1996, the Committee approved a
TARSAP grant for the 1996-1998, 1997-1999, and 1998-2000 performance periods.
In addition to the TSR targets, the Committee adopted alternative criteria for
the accelerated vesting of TARSAP awards made in 1996 and future years based
upon the Corporation's operating EPS growth rate and its percentile ranking
within the 100 bank peer group, based on operating EPS growth and ROE.
In addition to performance-based restricted stock awards, the
Committee generally awards stock options to executive officers, including the
CEO, as a part of a broader option program under which awards are also made to
other officers, senior and junior-level managers and professional employees,
the amount of which is a function of salary and stock price. At a meeting in
April of 1996, the Committee changed its formula for awards to provide for an
annual stock option grant to the CEO.
16
<PAGE> 20
The CEO's option award (which is the first grant disclosed in the "Option/SAR
Grants in Last Fiscal Year Table") was based on an estimated value of the
option which in combination with the restricted stock award provides the basis
for a competitive long-term incentive package. Because the value of the option
to the CEO is a function of the price growth of the Corporation's common stock,
the amount realized by the CEO is tied directly to increases in shareholder
value. In addition, the option grant contained a performance-based,
accelerated vesting feature, which is described in part (ii) of this report.
Other Benefits: The CEO's compensation reported in the Summary
Compensation Table also includes accrual of above-market rates of interest on
compensation deferred prior to 1996 and the cost of insurance to fund a
supplemental retirement plan and life insurance benefit, which are not directly
based on corporate performance. Above-market rates are accrued for deferred
compensation of the CEO and other named executive officers to retain key
officers. Generally, the plan under which this benefit is offered requires
that the amount deferred be automatically recalculated at market rates if
termination occurs prior to retirement.
(ii) Other Executive Officer Compensation
Base Salary: Base salary for executive officers other than the CEO is
recommended by the CEO and approved by the Committee. Recommendations are
generally based on corporate performance (as measured by financial, quality and
strategic objectives), individual overall performance during the prior year and
competitiveness in the market place. Corporate performance objectives for
1995, which were achieved, were the same for executive officers as the CEO-
corporate return on equity and Bank return on assets objectives. It is the
Corporation's policy to maintain a competitive salary commensurate with the
duties and responsibilities of the executive officers. Salary is intended to
represent approximately 40 percent of an executive officer's potential annual
compensation.
Annual Bonus: Executive officers' annual bonus is based on
achievement of corporate financial objectives and performance against personal
objectives for the year, which are recorded in individualized written personal
plans. Individual objectives must include financial, quality and strategic
goals. The degree of completion of goals determines the award. Financial
objectives for 1996 were based on ROE and EPS. Although Mr. Horn has an
individualized personal plan, his annual bonus is based entirely on corporate
financial performance as described above for the CEO, and the Chief Credit
Officer's annual bonus is based solely on his individualized personal plan.
The maximum annual bonus of executive officers is between 40 percent and 50
percent of salary dollars during the year, based on salary grade.
Long-term Awards: The executive officers named in the Summary
Compensation Table and all but one of the other executive officers participate
in the TARSAP program described above with respect to the CEO. The performance
criteria are identical. The number of shares awarded for a three-year
performance period is generally 50 percent of the participant's salary grade
mid-point, based on market value of the shares at the time of the award. No
federal income tax gross-up is provided to executive officers at the vesting of
restricted stock.
17
<PAGE> 21
In addition to performance-based restricted stock awards, the
Committee generally awards stock options on the Corporation's common stock to
executive officers as a part of the option program discussed in part (i) of
this report. Previously, options were awarded biennially in an amount
generally equal to 50% of the salary grade midpoint divided by the market value
of one share of stock. In April of 1996, the Committee changed its formula for
awards to provide for annual stock option grants. The number of shares awarded
to executive officers was equal to a percentage of salary (ranging from 100% to
200% depending on salary grade, with 200% used for the CEO) divided by the
market value of one share of Corporation common stock at the time of grant.
The exercise price is the market value at the time of grant. Options are
awarded based on personal performance and to encourage future performance as
well as for retention purposes (with a ten-year term and vesting at 50% after
four years and 100% after five years). The April 1996, grants also contained a
provision for accelerated vesting if the closing market price per share equals
at least $42.31 for five consecutive days in the three years following the
grant or at the end of the three year period. Options are not granted based on
prior performance of the Corporation.
Other Benefits: The Corporation has adopted certain broad-based
employee benefit plans in which executive officers participate and certain
other retirement, life and health insurance plans and provides customary
personal benefits. Except for the Corporation's stock fund within its 401(k)
plan, the benefits under these plans are not tied to corporate performance.
The executive officers named in the Summary Compensation Table participate in
the other benefits described above with respect to the CEO.
Human Resources Committee
R. Brad Martin, Chairman
Carlos H. Cantu
Michael D. Rose
William B. Sansom
_________________________________________________
The following graph compares the yearly percentage change in the
Corporation's cumulative total shareholder return with returns based on the
Standard and Poor's 500 index and a peer group index, which is described in a
footnote to the graph. It should be noted that the "total shareholder return"
reflected in the graph is not comparable to the "total shareholder return"
described in the Compensation Committee Report because the former has a
different measurement period and it has been adjusted and weighted for the
market capitalization of the companies in the peer group, as required by SEC
regulations. In 1996 the Corporation determined to change its peer group to
the American Banker Top 50 banking organizations as measured by market
capitalization because the diversified financial institutions with multiple
lines of business included in the American Banker Top 50 more accurately
reflects the Corporation's strategic business makeup.
18
<PAGE> 22
Total Shareholder Return Performance Graph
[GRAPH]
<TABLE>
<CAPTION>
===============================================================================
1991 1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Tennessee $100 $138 $150 $165 $254 $326
S&P 500 100 108 118 120 165 203
1996 Peer Group 100 130 139 132 204 288
1995 Peer Group 100 137 142 135 204 268
===============================================================================
</TABLE>
The graph assumes $100 is invested on December 31, 1991, and dividends
are reinvested. Returns are market-capitalization weighted. The 1996 peer
group is composed of the banking organizations described in the paragraph
preceding this table, and the organizations are listed below. The 1995 peer
group is composed of banking organizations whose average assets ranged from $5
to $20 billion during the most recent fiscal year, with the following
exceptions: banks whose operations are principally outside the United States or
are primarily credit card or who are substantially foreign-owned are excluded
from the peer group, and State Street is included although its assets exceeded
$20 billion, and the organizations are listed below.
The 1996 peer group consists of the following: AmSouth Bancorporation,
Banc One Corporation, Bancorp Hawaii, Inc., BankAmerica Corporation, BankBoston
Corporation, Bankers Trust New York Corporation, Bank of New York, Barnett
Banks, Inc., Boatmen's Bancshares, Inc., The Chase Manhattan Corporation,
Citicorp, Comerica Incorporated, CoreStates Financial Corp, Crestar Financial
Corporation, Fifth Third Bancorp, Firstar Corporation, First Bank System, Inc.,
First Chicago NBD Corporation, First Empire State Corporation, First of America
Bank Corporation, First Security Corporation, First Union Corporation, Fleet
Financial Group, Huntington Bancshares Incorporation, J.P. Morgan & Co.,
KeyCorp, Marshall & Ilsley Corporation, Mellon Bank Corporation, Mercantile
Bancorporation, Inc., National City Corporation, NationsBank Corporation,
Northern Trust Corporation, Norwest Corporation, Old Kent Financial
Corporation, PNC Bank Corp, Regions Financial Corporation, Republic National
Bank of New York, Signet Banking Corporation, SouthTrust Corporation, Southern
National Corporation, Star Banc Corporation, State Street Boston Corporation,
Summit Bancorp, SunTrust Banks, Inc., Synovus Financial, U.S. Bancorp, Wachovia
Corporation and Wells Fargo Bank, N.A..
The 1995 peer group consists of the following: AmSouth Bancorporation,
Bancorp Hawaii, Inc., CCB Financial Corp., Central Fidelity Banks, Inc.,
Centura Banks, Commerce Bancshares, Inc., Compass Bancshares Inc., Crestar
Financial
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Corp., Dauphin Deposit Corp., Deposit Guaranty Corp, First American Corp. -
Tennessee, First Citizens Bancshares, Inc., First Commerce Corp., First
Commercial Corp, First Empire State Corp., First Hawaiian, Inc., First Security
Corp - Utah, First Virginia Banks, Inc., Firstar Corp., FirstMerit Bancorp,
Hibernia Corp., Keystone Financial, Magna Group Inc., Marshall & Ilsley, Corp.,
Mercantile Bancorporation, Mercantile Bankshares Corp., Old Kent Financial
Corp., Old National Bancorp, OnBancorp, Provident Bancorp, Regions Financial
Corp., Signet Banking Corp., Star Banc Corp., State Street Boston Corp, Synovus
Financial Corp., Trustmark Corp, UMB Financial Corp, Union Planters Corp.,
Wilmington Trust Corp and Zions Bancorp.
Compensation of Directors
During 1996, each nonemployee director was paid a retainer quarterly
at an annual rate of $20,000, plus a fee of $1,000 for each Board and each
committee meeting attended. The chairmen of the Audit and Human Resources
Committees were paid monthly an additional retainer at an annual rate of $2,400
each. The Corporation's practice is to hold Board and committee meetings
jointly with the Bank's Board and committees. The Corporation's directors are
also directors of the Bank. Directors are not separately compensated for Bank
Board or committee meetings except for those infrequent meetings that do not
occur jointly. Directors who are officers of the Corporation are not
separately compensated for their services as directors. Under the terms of the
Corporation's 1992 Restricted Stock Incentive Plan, which was approved by the
shareholders, all nonemployee directors received an automatic, nondiscretionary
award of 3,000 shares (adjusted for stock splits) of restricted stock on May 1,
1992, and all new nonemployee directors will receive such award upon election
to the Board. Restrictions lapse at the rate of 10 percent annually. Such
shares are forfeited if the director terminates for any reason other than
death, disability, retirement, or the acquisition by a person of 20 percent of
the voting power of the Corporation. Upon termination for any of the four
listed reasons, all shares vest. Directors may elect to defer their retainers
and fees. Under the Non-Employee Directors' Deferred Compensation Stock Option
Plan, all non-employee directors have elected, and new non-employee directors
are permitted to elect, to receive stock options in lieu of fees through 1999.
The exercise price per share is 85% of fair market value of one share of
Corporation common stock on the date of grant, and the number of shares subject
to option granted equals the amount of fees deferred divided by 15% of the fair
market value of one share on the date of grant. Under the Directors and
Executives Deferred Compensation Plan, not offered with respect to compensation
earned since 1995, under which up to six annual deferrals may be elected,
amounts deferred accrue interest at rates ranging from 17-22% annually, based
on age at the time of deferral, with a reduction to a guaranteed rate based on
10-year Treasury obligations if a participant terminates prior to a
change-in-control for a reason other than death, disability or retirement.
Interim distributions in an amount between 85% and 100% of the amount
originally deferred are made in the eighth through the eleventh years following
the year of deferral, with the amount remaining in a participant's account and
accrued interest generally paid monthly over the 15 years following retirement
at age 65. Certain restrictions and limitations apply on payments and
distributions. Under other deferral agreements, nonemployee directors have
deferred and may defer amounts which generally accrue interest at a rate tied
to 10-year Treasury obligations.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act") requires
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the Corporation's directors and officers to file with the SEC initial reports
of ownership and reports of changes in ownership of Corporation common stock
and to furnish the Corporation with copies of all forms filed.
To the Corporation's knowledge, based solely on review of the copies
of such reports furnished to the Corporation and written representations that
no other reports were required, during the past fiscal year all Section 16(a)
filing requirements applicable to its officers and directors were complied with
except that Mr. Rose filed one report covering one transaction late. The
transaction did not result in a change in the number of shares beneficially
owned, and it was not subject to short-swing profit liability under Section
16(b).
ITEM NO. 2 - APPROVAL OF AMENDED AND RESTATED MANAGEMENT INCENTIVE PLAN.
In 1974 the shareholders of the Corporation approved the Management
Incentive Plan to promote the interests of the shareholders of the Corporation
by providing an incentive to key officers and employees of the Corporation and
its subsidiaries who contribute most to the Corporation's growth and
profitability. At its meeting on January 21, 1997, the Board of Directors
determined that certain amendments to the plan would better accomplish the
stated purposes of the plan, and the Board amended and restated the Management
Incentive Plan accordingly (as so amended, the "Plan"), subject to approval by
the shareholders at the annual meeting. In addition, because the Board intends
that incentive awards under the Plan qualify as tax-deductible
"performance-based compensation" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Tax Code"), the Plan is being submitted
for shareholder approval. Section 162(m) of the Tax Code is explained above in
the Board Compensation Committee Report. The following description of the Plan
is qualified in its entirety by reference to the full text of the Plan, which
is attached as Exhibit A hereto.
Subject to approval by the shareholders at the annual meeting, the
Plan will be effective as of January 1, 1997. The Plan will be administered by
the Human Resources Committee of the Board, which is composed entirely of "non-
employee directors" as defined for securities law purposes, who are also
"outside directors" as defined for purposes of the Tax Code. The Committee
will have the authority to interpret the Plan and determine who is eligible to
receive awards, the terms of the awards, the Corporate Financial Criteria and
Performance Goals (as those terms are defined below) that apply to awards, and
the extent to which the Corporation and the participants have achieved the
goals applicable to them.
Key officers and employees of the Corporation or any of its
subsidiaries are eligible for participation in the Plan. The Committee, in its
discretion, selects the actual participants from the key officers and employees
who, in the Committee's judgment, have an identifiable impact upon the growth
and profitability of the Corporation. Ten individuals were selected for
participation in the Plan (as it existed prior to amendment and restatement)
for calendar year 1996, and ten individuals have been selected for
participation in the Plan for calendar year 1997, including nine of the
Corporation's ten executive officers and all of the individuals named in the
Summary Compensation Table.
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<PAGE> 25
Awards will be paid to the participants in cash and/or common stock of
the Corporation in such proportion as the Committee establishes. Common stock
awarded under the Plan, however, may not exceed, in the aggregate, 150,000
shares, subject to adjustment to prevent dilution in the event of certain
changes in capitalization. Such common stock, if awarded, will be provided
from shares purchased in the open market or privately or by the issuance of
authorized but unissued shares and will be issued at 100% of fair market value
as of the date of approval of the award.
For each Plan year the Committee will designate corporate financial
criteria for use in determining awards. The corporate financial criteria will
consist of the following financial measures: book value, earnings per share,
market capitalization, net income, price-earnings ratio, return on assets,
return on equity, and return on revenue (the "Corporate Financial Criteria").
Then, for each of the Corporate Financial Criteria selected by the Committee,
the Committee will establish specific, objective performance goals (the
"Performance Goals") against which actual performance is to be measured. For
the Chairman, Chief Executive Officer and President, an award will be
calculated by multiplying (i) the participant's salary for the Plan year times
(ii) a percentage specified by the Committee times (iii) the percentage
achievement by the Corporation of the Performance Goals. For all other
participants, if the Committee so specifies, the calculation of the award will
involve multiplying the amount described in the prior sentence by the
percentage achievement by the participant of the participant's personal plan
goals. The Committee retains the power to reduce or eliminate awards under the
Plan and to determine whether an award will be paid under one or more of the
Corporate Financial Criteria, but the Committee has no power to increase an
award that has been calculated pursuant to the provisions of the Plan. If any
participant would be subject to Section 162(m) tax code limitations, for
purposes of calculating an award under the Plan, salary will be limited to the
annual rate of salary at the time the Performance Goals are established. Also,
the maximum award that may be made to any participant under the Plan for any
Plan year may not exceed $1.5 million.
In the event of a Change in Change, as that term is defined in the
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements" section of this proxy statement, a participant will be paid in
cash a pro rata percentage of the participant's target bonus under the Plan for
the Plan year.
The Board of Directors retains the power to terminate, suspend or
modify the Plan at any time in whole or in part.
Under the Corporation's Management Incentive Plan (the Plan prior to
its amendment and restatement) a different method for computing bonus amounts
was provided. Under that plan after the Corporation achieved annual net
earnings equal to 10% of shareholders' equity as defined in that plan, an
amount equal to 8% of net earnings in excess thereof was set aside, provided a
dividend was declared on common stock for that plan year. Of the amount so
provided, the Committee determined the portion available for the reserve for
incentive compensation and directed that the balance, if any, be returned to
net earnings with any unused reserve carried forward for use in future years.
Plan regulations then provided for awards to be made from the reserve,
generally based on achievement of Performance Goals established for Corporate
Financial Criteria and personal plan goals. Also, under that plan, the Board,
not the Committee, adopted plan regulations, and there was no limitation
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<PAGE> 26
on the amount of an individual award or on the aggregate number of shares of
common stock which could be awarded, but the proportion of an award made to an
individual participant in common stock could not exceed 25% of the participant's
award. Also, under that plan, in the event of a Change-in-Control, neither the
plan nor the plan regulations could be amended in a manner that would result in
a decrease in an award.
It is not possible to determine the awards that will be received under
the Plan for 1997. The awards that would have been received under the Plan for
1996 for the persons named in the Summary Compensation Table are equal to the
amounts actually disclosed in column (d) for 1996 in the Summary Compensation
Table. The amounts that would have been received for 1996 by all executive
officers of the Corporation as a group and by all employees as a group
(excluding executive officers) would have been $891,150 and $64,696,
respectively. Non-employee directors cannot participant in the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDER'S
VOTE FOR ITEM NO. 2. A vote for Item No. 2 will be deemed to include for
purposes of Section 162(m) of the Tax Code approval by the shareholder of the
material terms of the performance goals under which compensation is to be paid
under the Plan, including the employees eligible for participation, the
Corporate Financial Criteria, the Performance Goals, the formula used to
calculate the amount of the awards and the maximum award that can be paid to a
participant under the Plan for a Plan year.
ITEM NO. 3 - RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed, subject to ratification by the
shareholders at the annual meeting, the firm of Arthur Andersen LLP, independent
accountants, to be the Corporation's auditors for the year 1997. Representatives
of Arthur Andersen LLP are expected to be present at the annual meeting of
shareholders with the opportunity to make a statement and to respond to
appropriate questions.
OTHER MATTERS
The Board of Directors, at the time of the preparation of this proxy
statement, knows of no business to come before the meeting other than that
referred to herein. If any other business should come before the meeting, the
persons named in the enclosed proxy will have discretionary authority to vote
all proxies in accordance with their best judgment.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
A copy of the Corporation's Annual Report on Form 10-K, including the
financial statements and schedules thereto, which is filed with the Securities
and Exchange Commission, is available free of charge to each shareholder of
record upon written request to the Treasurer, First Tennessee National
Corporation, P. O. Box 84, Memphis, Tennessee, 38101. Each such written
request must set forth a good faith representation that as of the record date
specified in the notice of annual shareholders' meeting the person making the
request was a beneficial owner of a security entitled to vote at the annual
meeting of shareholders.
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The exhibits to the Annual Report on Form 10-K will also be supplied
upon written request to the Treasurer and payment to the Corporation of its
cost of furnishing the requested exhibit or exhibits. A document containing a
list of each exhibit to Form 10-K, as well as a brief description and the cost
of furnishing each such exhibit, will accompany the Annual Report on Form 10-K.
BY ORDER OF THE
BOARD OF DIRECTORS
/s/ Lenore S. Creson
- --------------------
Secretary
March 12, 1997
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EXHIBIT A
FIRST TENNESSEE NATIONAL CORPORATION
MANAGEMENT INCENTIVE PLAN
(AMENDED AND RESTATED JANUARY 21, 1997)
________________________________________________________________________________
1. PURPOSE. The purpose of the First Tennessee National Corporation
Management Incentive Plan (the "Plan") is to promote the interests of the
shareholders of First Tennessee National Corporation (the "Company") by
providing an incentive to key officers and employees of the Company and
subsidiaries of the Company who can contribute most to the short-term and
long-term growth and profitability of the Company. It is intended that
incentive awards paid under the Plan fall within the "performance-based
compensation" exception contained in Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Tax Code").
2. EFFECTIVE DATE OF PLAN. The Plan was originally effective January
1, 1974. The Plan, as amended and restated, shall be effective as of January
1, 1997, upon approval of the Plan by the shareholders of the Company.
3. PLAN ADMINISTRATION. The Plan shall be administered by a
committee ("Committee") whose members shall be appointed from time to time by,
and shall serve at the pleasure of, the Board of Directors of the Company. In
addition, all members shall be directors and shall meet the definitional
requirements for both "non-employee director" (with any exceptions therein
permitted) contained in the then current Securities and Exchange Commission
Rule 16b-3 or any successor provision and "outside director" as defined for
purposes of Section 162(m) of the Tax Code or any successor provision. The
Committee shall adopt such rules of procedure as it may deem proper. The
powers of the Committee shall include plenary authority to interpret the Plan,
and subject to the provisions hereof, to determine the persons who are eligible
to receive awards under the Plan, the terms of any awards, the Corporate
Financial Criteria, Performance Goals, and other criteria applicable to such
awards, and the extent to which the Company and the Participants in the Plan
have achieved the performance goals. The Committee shall have the power, in
its sole and complete discretion, to reduce the amount of or eliminate any
award under the Plan, but the Committee shall have no power to increase any
award that has been calculated pursuant to the provisions of this Plan.
4. ELIGIBILITY. All key officers and employees of the Company or any
of its subsidiaries are eligible for participation in the Plan. Actual
participation in the Plan for the Plan Year will be limited to and awards may
be granted under the Plan to those key officers and employees of the Company or
any subsidiary of the Company who, in the judgment of the Committee, have an
identifiable impact upon the growth and profitability of the Company who are
selected for participation in the Plan for the Plan Year by the Committee.
Determination by the Committee of the key officers and employees who will
participate in the Plan for the Plan Year shall be conclusive.
5. AWARDS. Prior to or within 90 days after the commencement of each
calendar year (the "Plan Year"), the Committee shall designate the following:
1. The key officers and employees, if any, who will
participate (the "Participants") in the Plan for the
Plan Year.
2. The Corporate Financial Criteria, as defined herein,
which will apply to awards for the Plan Year and the
weighting of the Corporate Financial Criteria.
3. The Performance Goals, as defined herein, to be met
by the Company for Participants to earn awards for
the Plan Year and a payout matrix or grid or formula
for such Corporate Financial Criteria and Performance
Goals.
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After the period of time specified in the prior sentence, the
Committee may designate additional officers and employees who will participate
in the Plan for the Plan Year (also "Participants" for purposes hereof);
provided, however, that any award earned by such Participant for participation
for such partial Plan Year will be pro-rated based on the number of days during
the Plan Year in which the Participant participated in the Plan.
Awards under the Plan shall be paid to the Participants as provided
for herein in cash and common stock of the Company in such proportion as may be
established by the Committee from time to time. A maximum of 150,000 shares of
the Company's common stock, $1.25 par value (the "common stock"), in the
aggregate may be issued to Participants as awards under the Plan. If common
stock is used in payment of awards, it will be provided from shares purchased
in the open market or privately or by the issuance of previously authorized but
unissued shares and shall be issued at 100% of fair market value as of the date
the award is approved by the Committee. "Fair Market Value" for purposes of
the Plan shall be the mean between the high and low sales prices at which
shares of the Company were sold on the valuation day as quoted by the Nasdaq
Stock Market or, if there were no sales on that day, then on the last day prior
to the valuation day during which there were sales. In the event that this
method of valuation is not practicable, then the Committee, in its discretion,
shall establish the method by which fair market value shall be determined.
A Participant who terminates employment, either voluntarily or
involuntarily, before the payment date for awards for the Plan Year that have
not been deferred is thereby ineligible for an award under the Plan; provided,
however, the Committee may, in its sole and complete discretion, determine to
pay an award in the event termination was the result of death, disability,
retirement, or a reduction in work force.
6. CORPORATE FINANCIAL CRITERIA. For each Plan Year, the Committee
shall designate one or more of the corporate financial criteria (the "Corporate
Financial Criteria") set forth in this Section 6 for use in determining an
award for a Participant for such Plan Year. Corporate financial criteria
designated for any Participant for a Plan Year may be different from those
designated for other Participants in the same year. The Committee may specify
Corporate Financial Criteria in relation to consolidated Company performance or
in relation to performance of identifiable segments, business lines,
departments, or subsidiaries of the Company. Corporate Financial Criteria
shall consist of the following financial measures: book value, earnings per
share, market capitalization, net income, price-earnings ratio, return on
assets, return on equity, and return on revenue; provided, however, that the
Committee retains the discretion to determine whether an award will be paid
under any one or more of such Corporate Financial Criteria.
7. PERFORMANCE GOALS. For each Plan Year, the Committee shall
establish specific, objective performance goals (the "Performance Goals"), for
each of the Corporate Financial Criteria designated by the Committee for the
Plan Year against which actual performance is to be measured to determine the
amount of awards. Performance Goals established by the Committee may be
described by means of a grid or matrix, providing for goals resulting in the
payment of awards in such percentages as the Committee may designate of the
target award payable to the Participant pursuant to the provisions of this
Plan. A Performance Goal may be expressed in any form the Committee
determines, including, but not limited to, the following: percentage growth,
absolute growth, cumulative growth, performance versus an index, performance
versus a peer group, a designated absolute amount, and a per share amount.
8. DETERMINATION AND PAYMENT OF AWARDS.
8.1 As soon as practicable after the end of the Plan Year, the
Committee will determine the amount of the award earned by each Participant,
based on application of the criteria specified in this Section 8 and the
recommendation of the Chief Executive Officer of the Company. Payment will be
made promptly after determination of the awards by the Committee unless payment
of an award has been deferred pursuant to Section 11.6 hereof. Such Committee
determination must include a certification in writing that the Performance
Goals and any other material terms of the award were in fact satisfied;
provided that minutes of the Committee meeting (or any action by written
consent) shall satisfy the written certification requirement.
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8.2 For any Participant holding the office of Chairman of the
Board, Chief Executive Officer or President of the Company, the award will be
the amount obtained by multiplying the following amounts: (1) Salary dollars
earned by the Participant with respect to the Plan Year, (2) a specified
percentage (expressed as a decimal) determined by the Committee to apply to the
Participant for the Plan Year, and (3) the percentage achievement (expressed as
a decimal) by the Company of the Performance Goals for the Corporate Financial
Criteria designated by the Committee for the Plan Year.
8.3 For any Participant who is not covered by Section 8.2, the
award will be the amount obtained by multiplying the following amounts: (1)
Salary dollars earned by the Participant with respect to the Plan Year, (2) a
specified percentage (expressed as a decimal) determined by the Committee to
apply to the Participant for the Plan Year, (3) the percentage achievement
(expressed as a decimal) by the Company of the Performance Goals for the
Corporate Financial Criteria designated by the Committee for the Plan Year, and
(4) if the Committee determines to apply the following percentage to the
Participant for the Plan Year, the Participant's percentage achievement
(expressed as a decimal) of his/her personal plan goals (as recommended by the
Chief Executive Officer of the Company and approved by the Committee).
8.4 Notwithstanding anything herein to the contrary, the
maximum dollar amount that may be awarded for any Plan Year to any Participant
may not exceed $1.5 million.
8.5 Notwithstanding anything herein to the contrary, for each
Participant who is the Chief Executive Officer of the Company or other officer
whose salary is subject to the provisions of Section 162(m) of the Tax Code, in
calculating any award under the Plan "salary" shall be limited to salary at the
annual rate established or in effect for the Participant at the time the
Committee establishes Performance Goals for the Plan Year and for each
Participant specified by a bank regulatory authority of the Company or any of
its subsidiaries, that Participant's award shall be calculated as required by
such bank regulatory authority, subject to the maximum dollar limitation
imposed by Section 8.4 hereof.
9. TERMINATION SUSPENSION OR MODIFICATION OF THE PLAN. The Board of
Directors may at any time, with or without notice, terminate, suspend, or
modify the Plan in whole or in part, except that the Board of Directors shall
not amend the Plan in violation of the law. The Committee is expressly
permitted to make any amendment to the Plan, which is not in violation of law,
that is required to conform the Plan to the requirements of Section 162(m).
10. CHANGE IN CONTROL.
10.1 For purposes of this Plan, a "Change in Control" means
the occurrence of any one of the following events:
(i) individuals who, on January 21, 1997, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to January 21, 1997, whose election or nomination for election was approved by
a vote of at least three-fourths ( 3/4) of the Incumbent Directors then on the
Board (either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director, without
written objection to such nomination) shall be an Incumbent Director; provided,
however, that no individual elected or nominated as a director of the Company
initially as a result of an actual or threatened election contest with respect
to directors or as a result of any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than the Board shall be
deemed to be an Incumbent Director;
(ii) any "Person" (as defined under Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Section 13(d) or Section 14(d) of the Exchange Act) is or becomes a "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company Voting Securities; provided, however, that
the event described in this paragraph (ii) shall not be deemed to be a Change
in Control by virtue of any of the following acquisitions: (A) by the Company
or any Subsidiary, (B) by an employee stock ownership or employee benefit plan
or trust sponsored or maintained by the Company or any Subsidiary, (C) by any
underwriter temporarily holding securities pursuant to an offering of such
securities, or (D) pursuant to a Non- Qualifying Transaction (as defined in
paragraph (iii));
(iii) the consummation of a merger, consolidation, share
exchange or similar form of corporate transaction involving the Company or any
of its Subsidiaries that requires the approval of the Company's stockholders,
whether for such
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<PAGE> 31
transaction or the issuance of securities in the transaction (a "Business
Combination"), unless immediately following such Business Combination: (A)
more than 50% of the total voting power of (x) the corporation resulting from
such Business Combination (the "Surviving Corporation"), or (y) if applicable,
the ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by Company
Voting Securities that were outstanding immediately prior to the consummation
of such Business Combination (or, if applicable, is represented by shares in
which such Company Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the Business
Combination, (B) no person (other than any employee benefit plan sponsored or
maintained by the surviving Corporation or the Parent Corporation), is or
becomes the beneficial owner, directly or indirectly, of 20% or more of the
total voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of the board
of directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation) were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such Business
Combination (any Business Combination which satisfies all of the criteria
specified in (A), (B), and (C) above shall be deemed to be a "Non-Qualifying
Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the
Company shall not be deemed to occur solely because any person acquires
beneficial ownership of more than 20% of the Company Voting Securities as a
result of the acquisition of Company Voting Securities by the Company which
reduces the number of Company Voting Securities outstanding; provided, that if
after such acquisition by the Company such person becomes the beneficial owner
of additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur. For purposes of this
Section 10.1, "Company Voting Securities" means the Company's then outstanding
securities eligible to vote for the election of the Board, and "Subsidiary"
means an entity in which the Company directly or indirectly beneficially owns
more than 50% of the voting securities or interests.
10.2 If a Change in Control occurs, an award under the Plan
shall be paid at the time the specified below to each Participant without
regard to any contrary provisions of the Plan, computed as follows: the award
to be paid will be in the form of a lump sum cash amount equal to the portion
of the Participant's target award for the Plan Year in which a Change in
Control occurs in an amount equal to the product of (i) the Participant's
target bonus under the Plan for such Plan Year, and (ii) a fraction, the
numerator of which is the number of days in the Plan Year in which a Change in
Control occurs through the date of the Change in Control, and the denominator
of which is three hundred sixty-five (365). Payment of an award under this
Section 10.2 of the Plan shall be made immediately upon the occurrence of an
event described in Section 10.1(i), 10.1 (ii) or 10.1 (iv) and, in the event an
agreement to effectuate a Change in Control pursuant to a Business Combination
has been executed, shall be made three business days prior to the date the
Chief Executive Officer of the Company believes in good faith to be the
effective date of the merger or other transaction described in Section 10.1
(iii) hereof. Any payments made as a result of the operation of this Section
10.2 of the Plan shall reduce dollar for dollar any other payments otherwise
due under the Plan.
11. MISCELLANEOUS.
11.1 NO ASSIGNMENTS. No award under this Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary, including any such liability which is for
alimony or other payments for the support of a spouse or former spouse, or for
any other relative of Participant prior to actually being received by
Participant or his/her designated beneficiary, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose
of any right to such award shall be void.
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<PAGE> 32
11.2 NO RIGHT OF EMPLOYMENT. Neither the adoption of the
Plan nor the determination of eligibility to participate in the Plan nor the
granting of an award under the Plan shall confer upon any Participant any right
to continue in the employ of the Company or any of its subsidiaries or
interfere in any way with the right of the Company or the subsidiary to
terminate such employment at any time.
11.3 TAX WITHHOLDING. The Company shall have the right to
withhold the amount of any tax attributable to amounts payable under the Plan,
and the Company may defer making payment or delivery of any benefits under the
Plan if any tax is payable until indemnified to its satisfaction.
11.4 GOVERNING LAW. The Plan and all determinations under
the Plan shall be governed by and construed in accordance with the laws of the
State of Tennessee.
11.5 OTHER PLANS. Nothing in this Plan shall be construed as
limiting the authority of the Committee, the Board of Directors, the Company or
any subsidiary of the Company to establish any other compensation plan or as in
any way limiting its or their authority to pay bonuses or supplemental
compensation to any persons employed by the Company or a subsidiary of the
Company, whether or not such person is a Participant in this Plan and
regardless of how the amount of such compensation or bonus is determined.
11.6 DEFERRALS OF AWARDS. A Participant may elect to defer
payment of his/her cash award under the Plan if deferral of an award under the
Plan is permitted pursuant to the terms of a deferred compensation program of
the Company existing at the time the election to defer is permitted to be made,
and the Participant complies with the terms of such program.
11.7 SECTION 162(M). It is the intention of the Company that
all payments made under the Plan shall fall within the "performance-based
compensation" exception contained in Section 162(m) of the Tax Code. Thus,
unless the Board of Directors expressly determines otherwise and, except for
Section 10.2 of the Plan, if any Plan provision is found not to be in
compliance with such exception, that provision shall be deemed to be amended so
that the provision does comply to the extent permitted by law, and in every
event, the Plan shall be construed in favor of its meeting the
"performance-based compensation" exception contained in Section 162(m).
11.8 ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Any increase
in the number of outstanding shares of common stock of the Company occurring
through stock splits or stock dividends after the adoption of the Plan shall be
reflected proportionately: (i) in an increase in the aggregate number of shares
then available for awards under the Plan and (ii) in the number available for
award to any one person. Any fractional shares resulting from such adjustments
shall be eliminated. If changes in capitalization other than those considered
above shall occur, the Board of Directors shall make such adjustments in the
number and class of shares for which awards may thereafter be granted as the
Board in its discretion may consider appropriate, and all such adjustments
shall be conclusive.
5
<PAGE> 33
APPENDIX
[FRONT]
[LOGO] FIRST
TENNESSEE
FIRST TENNESSEE NATIONAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints James L. Boren, Jr., Lewis R. Donelson, and
George P. Lewis, or any one or more of them with full power of substitution, as
Proxy or Proxies, to represent and vote all shares of stock standing in my name
on the books of the Corporation at the close of business on February 21, 1997,
which I would be entitled to vote if personally present at the Annual Meeting
of Shareholders of First Tennessee National Corporation to be held in the
Auditorium, First Tennessee Building, 165 Madison Avenue, Memphis, Tennessee,
April 15, 1997, at 10 a.m. or any adjournments thereof, upon the matters set
forth in the notice of said meeting as stated on the reverse side. The Proxies
are further authorized to vote in their discretion as to any other matters
which may come before the meeting. The Board of Directors, at the time of
preparation of the Proxy Statement, knows of no business to come before the
meeting other than that referred to in the Proxy Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ON THE REVERSE SIDE AND WHEN NO INSTRUCTIONS ARE GIVEN WILL
BE VOTED FOR THE PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT AND ON THE REVERSE SIDE OF THIS PROXY.
(Continued, and to be signed and dated on reverse side)
<PAGE> 34
[BACK]
The First Tennessee National Corporation [LOGO] FIRST
Annual Meeting TENNESSEE
First Tennessee Building HERE FOR YOU.(R)
M-Level Auditorium
165 Madison Avenue
Memphis, Tennessee 38103
April 15, 1997
10:00 a.m. Central Daylight Time
Please detach here
(Continued from other side)
[x] Please mark votes as in this example.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL ITEMS.
1. Election of four Class I directors to serve until the 2000 Annual
Meeting of Shareholders and two Class II directors to serve until the
1998 Annual Meeting of Shareholders.
Nominees: Class I: R. Brad Martin, Joseph Orgill, III, Vicki
G. Roman and William B. Sansom
Class II: J. Kenneth Glass and John C. Kelley, Jr.
[ ] FOR [ ] WITHHELD
all nominees from all nominees
FOR, except vote withheld from the following nominee(s):
[ ]
----------------------------------------------------------------------------
2. Approval of Amended and Restated Management Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of appointment of Arthur Andersen LLP as auditors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Mark here for address change and note at left [ ]
The undersigned hereby acknowledges receipt of notice of said meeting
and the related proxy statement.
-------------------------------
(Signature) (Date)
-------------------------------
(Signature) (Date)
Shareholder sign here exactly as shown on the imprint on this card. When
signing as Attorney, Executor, Administrator, Trustee or Guardian, please give
full name. If more than one Trustee, all should sign. All Joint Owners should
sign.
