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First Horizon National Corporation DEF 14A 2007
Untitled Document

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 HORIZON 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
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[  ]   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.
     
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    (4) Date Filed:
   
     

 


March 12, 2007

Dear Shareholders:

You are cordially invited to attend First Horizon National Corporation’s 2007 annual meeting of shareholders. We will hold the meeting on April 17, 2007, in the Auditorium, First Tennessee Building, 165 Madison Avenue, Memphis, Tennessee, at 10:00 a.m. local time. We have attached the formal notice of the annual meeting, our 2007 proxy statement, and a form of proxy.

At the meeting, we will ask you to elect three Class II directors and one Class I director, re-approve the 2002 Management Incentive Plan, as amended (“MIP”), for the purpose of extending our ability to deduct for tax purposes the cost of certain awards provided under the MIP, and ratify the appointment of KPMG LLP as our independent auditors for 2007. The attached proxy statement contains information about these matters.

Our annual report to shareholders, which contains detailed financial information relating to our activities and operating performance during 2006, is being delivered to you with our proxy statement but is not deemed to be “soliciting material” under SEC Regulation 14A.

Our registered shareholders that have access to the Internet have the opportunity to receive proxy statements electronically. If you have not already done so for this year, we encourage you to elect this method of receiving the proxy statement next year. Not only will you have access to the document as soon as it is available, but you will be helping us to save expense dollars. If you vote electronically, you will have the opportunity to give your consent at the conclusion of the voting process.

Your vote is important. You may vote by telephone or over the Internet or by mail, or if you attend the meeting and want to vote your shares, then prior to the balloting you should request that your form of proxy be withheld from voting. We request that you vote by telephone or over the Internet or return your proxy card in the postage-paid envelope as soon as possible.

 

 

 

 

 

Sincerely yours,

 

 

 

 

MICHAEL D. ROSE

 

 

Chairman of the Board


FIRST HORIZON NATIONAL CORPORATION
165 Madison Avenue
Memphis, Tennessee 38103


NOTICE OF ANNUAL SHAREHOLDERS’ MEETING
April 17, 2007


The annual meeting of shareholders of First Horizon National Corporation will be held on April 17, 2007, 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 three Class II directors to serve until the 2010 annual meeting of shareholders and one Class I director to serve until the 2009 annual meeting of shareholders, or in both cases until their successors are duly elected and qualified.

 

(2)

 

 

 

Re-approval of the 2002 Management Incentive Plan, as amended (“MIP”), for the purpose of extending our ability to deduct for tax purposes the cost of certain awards provided under the MIP.

 

(3)

 

 

 

Ratification of the 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 on February 23, 2007 is the record date for the meeting. All shareholders of record at that time are entitled to vote at the meeting.

Management requests that you vote by telephone or over the Internet (following the instructions on the enclosed form of proxy) or that you sign and return the form of proxy promptly, so that if you are unable to attend the meeting your shares can nevertheless be voted. You may revoke a proxy at any time before it is exercised at the annual meeting in the manner described on page 1 of the proxy statement.

 

 

 

 

 

 

 

CLYDE A. BILLINGS, JR.

 

 

Senior Vice President,

 

 

Assistant General Counsel

 

 

and Corporate Secretary

Memphis, Tennessee
March 12, 2007

IMPORTANT NOTICE

PLEASE (1) VOTE BY TELEPHONE OR (2) VOTE OVER THE INTERNET OR (3) MARK, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED FORM OF PROXY IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.


PROXY STATEMENT
FIRST HORIZON NATIONAL CORPORATION

TABLE OF CONTENTS

 

 

 

 

 

Page

General Matters

 

 

 

1

 

Corporate Governance and Board Matters

 

 

 

3

 

Introduction

 

 

 

3

 

Independence and Categorical Standards

 

 

 

3

 

Composition of Board Committees

 

 

 

6

 

The Credit Policy & Executive Committee

 

 

 

6

 

The Audit Committee

 

 

 

7

 

In General

 

 

 

7

 

Audit Committee Financial Expert

 

 

 

7

 

Audit Committee Report

 

 

 

8

 

The Nominating and Corporate Governance Committee

 

 

 

9

 

In General

 

 

 

9

 

Nominations of Directors

 

 

 

9

 

Shareholder Recommendations of Director Nominees

 

 

 

9

 

Processes and Procedures Regarding Director Compensation

 

 

 

10

 

The Compensation Committee

 

 

 

10

 

In General

 

 

 

10

 

Processes and Procedures Regarding Executive Compensation

 

 

 

10

 

Compensation Committee Report

 

 

 

12

 

Compensation Committee Interlocks and Insider Participation

 

 

 

12

 

Board and Committee Meeting Attendance

 

 

 

12

 

Executive Sessions

 

 

 

12

 

Communication with Board of Directors

 

 

 

12

 

Procedures for the Approval, Monitoring, and Ratification of Related Party Transactions

 

 

 

13

 

Transactions with Related Persons

 

 

 

13

 

Stock Ownership Information

 

 

 

14

 

Stock Ownership Table

 

 

 

14

 

Vote Item No. 1—Election of Directors

 

 

 

15

 

Nominees for Director

 

 

 

16

 

Continuing Directors

 

 

 

16

 

Vote Item No. 2—Re-approval of Our 2002 Management Incentive Plan, As Amended

 

 

 

17

 

Vote Item No. 3—Ratification of Appointment of Auditors

 

 

 

21

 

Other Matters

 

 

 

22

 

Shareholder Proposal and Nomination Deadlines

 

 

 

22

 

Executive Compensation

 

 

 

23

 

Compensation Discussion and Analysis

 

 

 

23

 

Summary Compensation Table

 

 

 

42

 

Grants of Plan-Based Awards

 

 

 

46

 

Outstanding Equity Awards at Fiscal Year-End

 

 

 

50

 

Option Exercises and Stock Vested

 

 

 

54

 

Pension Benefits

 

 

 

55

 

Nonqualified Defined Contribution and Other Deferred Compensation Plans

 

 

 

57

 

Employment Contracts, Termination of Employment and Change in Control Arrangements, and Benefits under Them

 

 

 

57

 

Director Compensation

 

 

 

65

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

 

72

 

Availability of Annual Report on Form 10-K

 

 

 

73

    


 

 

 

 

 

Page

APPENDICES

 

 

A—2002 Management Incentive Plan, As Amended

 

 

 

A-1

 

B—Corporate Governance Guidelines

 

 

 

B-1

 

C—Categorical Standards

 

 

 

C-1

 

D—Audit Committee Charter and Audit and Non-Audit Services Pre-Approval Policy

 

 

 

D-1

 

E—Nominating and Corporate Governance Committee Charter

 

 

 

E-1

 

F—Compensation Committee Charter

 

 

 

F-1

 


PROXY STATEMENT
FIRST HORIZON NATIONAL CORPORATION

165 Madison Avenue
Memphis, Tennessee 38103


GENERAL MATTERS

The following proxy statement is being mailed to shareholders beginning on or about March 12, 2007. The Board of Directors is soliciting proxies to be used at our annual meeting of shareholders to be held on April 17, 2007, 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. In this proxy statement, First Horizon National Corporation will be referred to by the use of “we,” “us” or similar pronouns, or simply as “First Horizon,” and First Horizon and its consolidated subsidiaries will be referred to collectively as “the Corporation.”

The accompanying form of proxy is for use at the meeting if you will be unable to attend in person. You may revoke your proxy at any time before it is exercised by writing to the Corporate Secretary, by timely delivering a properly executed, later-dated proxy (including a telephone or Internet vote) or by voting by ballot at the meeting. 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 items 1, 2 and 3 below:

 

1.

 

 

 

Election of three Class II directors to serve until the 2010 annual meeting of shareholders and one Class I director to serve until the 2009 annual meeting of shareholders, or in both cases until their successors are duly elected and qualified.

 

2.

 

 

 

Re-approval of our 2002 Management Incentive Plan, as amended (“MIP”), for the purpose of extending our ability to deduct for tax purposes the cost of certain awards provided under the MIP.

 

3.

 

 

 

Ratification of the appointment of auditors.

We will bear the entire cost of soliciting the proxies. In following up the original solicitation of the proxies by mail, we 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, we may also use several of our 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. We have hired Morrow & Co., Inc. to aid us in the solicitation of proxies for a fee of $6,000 plus out-of-pocket expenses. An additional charge of $5.00 per holder will be incurred should we choose to have Morrow & Co. solicit individual holders of record.

Our common stock is the only class of voting securities. There were 125,622,260 shares of common stock outstanding and entitled to vote as of February 23, 2007, the record date for the annual shareholders’ meeting. Each share is entitled to one vote. A quorum of the shares must be represented at the meeting to take action on any matter at the meeting. A majority of the votes entitled to be cast constitutes a quorum for purposes of the annual meeting. A plurality of the votes cast is required to elect the nominees as directors; however, see the section entitled “Corporate Governance and Board Matters—Introduction” beginning on page 3 for information on the consequences of receiving a majority withheld vote in an uncontested election under our director resignation policy. A majority of the votes cast is required to re-approve the MIP and to ratify the appointment of auditors. Both “abstentions” and broker “non-votes” will be considered present for quorum purposes, but will not otherwise have any effect on any of the vote items.

Some of our shareholders own their shares using multiple accounts registered in variations of the same name. If you have multiple accounts, we encourage you to consolidate your accounts by having all your shares registered in exactly the same name and address. You may do this by contacting our Stock Transfer Agent, Wells Fargo Bank, N.A., by phone toll-free at 1-877-536-3558, or by mail to Shareowner Services, P.O. Box 64854, St. Paul, MN 55164-0854.

Also, in some cases multiple members of the same family living in the same household have shares registered in their names. In that case, prior to 2006 each family member received multiple copies of the annual report, proxy statement, and other mailings. Duplicate mailings in most cases are an unnecessary expediture for us and

1


inconvenient for you. We have taken steps to reduce them, and we encourage you to eliminate them whenever you can.

Currently, family members living in the same household generally receive only one copy per household of the annual report, proxy statement, and most other mailings. The only item which is separately mailed for each registered shareholder or account is a proxy card. If your household receives only one copy and if you wish to start receiving separate copies in your name, apart from others in your household, you must request that action by contacting our Stock Transfer Agent, Wells Fargo Bank, N.A., by phone toll-free at 1-877-602-7615 or by writing to it at Shareowner Services, Attn: Householding, P.O. Box 64854, St. Paul, MN 55164-0854. That request must be made by each person in the household who desires a separate copy. Within 30 days after your request is received we will start sending you separate mailings. If for any reason you and members of your household are receiving multiple copies and you want to eliminate the duplications, please request that action by contacting our Stock Transfer Agent using the contact information given in this paragraph above. In either case, in your communications, please refer to your account number and our company number (998). Please be aware that if you hold shares both in your own name and as a beneficial owner through a broker, bank or other nominee, it is not possible to eliminate duplications as between these two types of ownership.

If you and other members of your household are beneficial owners of shares, meaning that you own shares indirectly through a broker, bank, or other nominee, you may eliminate a duplication of mailings by contacting your broker, bank, or other nominee. If you have eliminated duplicate mailings but for any reason would like to resume them, you must contact your broker, bank, or other nominee.

If your household receives only a single copy of this proxy statement and our 2006 annual report and if you desire your own separate copies for the 2007 annual meeting, you may pick up copies in person at the meeting in April or download them from our website, www.fhnc.com (click on “Investor Relations”). If you would like additional copies mailed, we will mail them promptly if you request them from our Investor Relations department at our website, by phone toll-free at 1-800-410-4577, or by mail to Investor Relations, P.O. Box 84, Memphis, TN 38101. However, we cannot guarantee you will receive mailed copies before the 2007 annual meeting.

2


CORPORATE GOVERNANCE AND BOARD MATTERS

Introduction

First Horizon is dedicated to operating in accordance with sound corporate governance principles. We believe that these principles not only form the basis for our reputation of integrity in the marketplace but also are essential to our efficiency and continued overall success. Many of these principles have been committed to writing. Our Corporate Governance Guidelines, which were adopted by our Board of Directors in January 2004 but which incorporate long-standing corporate policies and practices, provide our directors with guidance as to their legal accountabilities, promote the functioning of the Board and its committees, and set forth a common set of expectations as to how the Board should perform its functions. Our Corporate Governance Guidelines (as revised to date) are attached to this proxy statement at Appendix B and are also available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Paper copies are also available to shareholders upon request to the Corporate Secretary.

We have also adopted a Code of Business Conduct and Ethics, which incorporates many of our long-standing policies and practices and sets forth the overarching principles that guide the conduct of every aspect of our business, and a Code of Ethics for Senior Financial Officers, which promotes honest and ethical conduct, proper disclosure of financial information and compliance with applicable governmental laws, rules and regulations by our senior financial officers and other employees who have financial responsibilities. These Codes are available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Paper copies are also available to shareholders upon request to the Corporate Secretary. Any waiver of the Code of Business Conduct and Ethics for an executive officer or director will be promptly disclosed to shareholders in any manner that is acceptable under the NYSE listing standards, including but not limited to distribution of a press release, disclosure on our website, or disclosure on Form 8-K. The Corporation intends to satisfy its disclosure obligations under Item 5.05 of Form 8-K related to amendments or waivers of the Code of Ethics for Senior Financial Officers by posting such information on the Corporation’s website. We have also adopted a policy on First Horizon’s Compliance and Ethics Program that highlights our commitment to having an effective compliance and ethics program by exercising due diligence to prevent and detect criminal conduct and otherwise by promoting an organizational culture that encourages ethical conduct and a commitment to compliance with the law.

The Board of Directors made several enhancements to First Horizon’s corporate governance principles during 2006. Our Corporate Governance Guidelines were revised to include a director resignation policy that requires a director to tender his or her resignation upon receiving a majority withheld vote in an uncontested election. Under the policy, the Board, upon recommendation of the Nominating and Corporate Governance Committee, will consider the resignation offer and a range of possible responses and will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following certification of the shareholder vote. In addition, as part of its overall Board-approved director education program, First Horizon conducted a series of on-site programs for directors on corporate governance topics. The Board also revised the process it uses for the conduct of individual director performance evaluations. Finally, our non-management directors adopted a process to improve the handling of communications to directors from interested parties.

Under our bylaws, First Horizon is managed under the direction of and all corporate powers are exercised by or under the authority of our Board of Directors. Our Board of Directors currently has twelve members. All of our directors are also directors of First Tennessee Bank National Association (the “Bank” or “FTB”). The Bank is our principal operating subsidiary. The Board has four standing committees: the Credit Policy & Executive Committee, the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, which are described in more detail beginning on page 6.

Independence and Categorical Standards

Independence. Our common stock is listed on the NYSE. The NYSE listing standards require a majority of our directors and all of the members of the Compensation Committee, the Nominating and Corporate Governance Committee and the Audit Committee of the Board of Directors to be “independent.” Under these standards, our Board of Directors is required to affirmatively determine that a director has no material relationship with the Corporation for that director to qualify as independent. In order to assist in making independence determinations, the Board, as permitted by the NYSE standards and upon the recommendation of the Nominating and Corporate Governance Committee, has adopted the categorical standards set forth below. In making its independence

3


determinations, each of the Board and the Nominating and Corporate Governance Committee considered all relationships between each director and the Corporation, including those that fall within the categorical standards. Based on its review and the application of the categorical standards, the Board, upon the recommendation of the Nominating and Corporate Governance Committee, determined that eight out of nine of the current non-employee directors (Messrs. Blattberg, Cooper, Haslam, Martin, Reed, and Yancy and Mesdames Palmer and Sammons) are independent under the NYSE listing standards. The Board also determined, upon the recommendation of the Nominating and Corporate Governance Committee, that Jonathan P. Ward, who left the Board in January 2007, was independent under the NYSE standards during the time that he served as a director and that Michael D. Rose, who became our Chairman of the Board and an executive officer in January 2007, was independent prior to becoming Chairman of the Board. Upon the recommendation of the Nominating and Corporate Governance Committee, the Board determined that one current non-employee director, William B. Sansom, is not independent under the NYSE listing standards because interest and fees paid during 2005 in connection with loans made to a family limited partnership that he controls exceeded the $1 million/2% threshold set forth in the NYSE listing standards. These loans were made in the ordinary course of business on non-preferential terms and in compliance with all applicable banking laws and were approved by a unanimous vote of the Board in which Mr. Sansom did not participate. The Nominating and Corporate Governance Committee and the Board considered this matter in connection with their decision to renominate Mr. Sansom for election at the 2006 shareholders’ meeting and determined that, in light of Mr. Sansom’s qualifications and experience, it was in the best interest of the Corporation and the shareholders to renominate him. The categorical standards established by the Board (as revised to date) are set forth below, are attached to this proxy statement at Appendix C and are also available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area.

With respect to each director who is identified above as independent under the NYSE listing standards, the Board considered the following types or categories of transactions, relationships or arrangements in determining the director’s independence under the NYSE standards and our categorical standards.

 

 

 

 

Provision by the Corporation or its subsidiaries, in the ordinary course of business and on substantially the same terms and conditions as those prevailing at the time for comparable transactions with non-affiliated persons, of the following banking and financial services and services incidental thereto to directors, their immediate family members and/or to entities with which directors or their immediate family members are affiliated: deposit accounts; repurchase agreements; cash management services; loans (including mortgage loans), credit cards and other lines of credit; investment management; broker/dealer services; trust services; insurance brokerage; safe deposit boxes; merchant card processing; pay card services; currency exchange; and marketing of products and services via statement inserts.

 

 

 

 

Provision by an entity affiliated with a director or his or her immediate family member, in the ordinary course of business and on substantially the same terms and conditions as those prevailing at the time for comparable transactions with non-affiliated persons, of the following products and services to the Corporation or its subsidiaries: food service; beverages; fuel; hotel lodging for business travel by employees of the Corporation; venues for holding seminars and corporate functions; sponsorship of seminars attended by Corporation employees; cleaning and other property maintenance services.

 

 

 

 

Charitable contributions by the Corporation, its subsidiaries or the First Horizon Foundation to charitable organizations with which a director or immediate family member is affiliated.

 

 

 

 

Employment by the Corporation in a non-executive position of an immediate family member of a director.

Categorical Standards. Each of the following relationships between the Corporation and its subsidiaries, on the one hand, and a director, an immediate family member of a director, or a company or other entity as to which the director or an immediate family member is a director, executive officer, employee or shareholder (or holds a similar position), on the other hand, will be deemed to be immaterial and therefore will not preclude a determination by the Board of Directors that the director is independent for purposes of the NYSE listing standards:

 

1.

 

 

 

Depository and other banking and financial services relationships (excluding extensions of credit which are covered in paragraph 2), including transfer agent, registrar, indenture trustee, other trust and fiduciary services, personal banking, capital markets, investment banking, equity research, asset management, investment management, custodian, securities brokerage, financial planning, cash management, insurance brokerage, broker/dealer, express processing, merchant processing, bill payment processing, check clearing, credit card and other similar services, provided that the relationship is in the ordinary course of

4


 

business and on substantially the same terms and conditions as those prevailing at the time for comparable transactions with non-affiliated persons.

 

2.

 

 

 

An extension of credit, provided that, at the time of the initial approval of the extension of credit as to (1), (2) and (3), (1) such extension of credit was in the ordinary course of business, (2) such extension of credit was made in compliance with applicable law, including Regulation O of the Federal Reserve, Section 23A and 23B of the Federal Reserve Act and Section 13(k) of the Securities and Exchange Act of 1934, (3) such extension of credit was on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated persons, (4) a determination is made annually that if the extension of credit was not made or was terminated in the ordinary course of business, in accordance with its terms, such action would not reasonably be expected to have a material adverse effect on the financial condition, income statement or business of the borrower, and (5) no event of default has occurred.

 

3.

 

 

 

Contributions (other than mandatory matching contributions) made by the Corporation or any of its subsidiaries or First Horizon Foundation to a charitable organization as to which the director is an executive officer, director, or trustee or holds a similar position or as to which an immediate family member of the director is an executive officer; provided that the amount of the contributions to the charitable organization in a fiscal year does not exceed the greater of $500,000 or 2% of the charitable organization’s consolidated gross revenue (based on the charitable organization’s latest available income statement).

 

4.

 

 

 

Vendor or other business relationships (excluding banking and financial services relationships and extensions of credit covered by paragraph 1 or 2 above), provided that the relationship is in the ordinary course of business and on substantially the same terms and conditions as those prevailing at the time for comparable transactions with non-affiliated persons.

 

5.

 

 

 

All compensation and benefits provided to non-employee directors for service as a director.

 

6.

 

 

 

All compensation and benefits provided in the ordinary course of business to an immediate family member of a director for services to the Corporation or any of its subsidiaries as long as such immediate family member is compensated comparably to similarly situated employees and is not an executive officer of the Corporation or based on salary and bonus within the top 1,000 most highly compensated employees of the Corporation.

Excluded from relationships considered by the Board is any relationship (except contributions included in category 3) between the Corporation and its subsidiaries, on the one hand, and a company or other entity as to which the director or an immediate family member is a director or, in the case of an immediate family member, an employee (but not an executive officer or significant shareholder), on the other hand.

The fact that a particular relationship or transaction is not addressed by these standards or exceeds the thresholds in these standards does not create a presumption that the director is or is not independent.

The following definitions apply to the categorical standards listed above:

“Corporation” means First Horizon National Corporation and its consolidated subsidiaries.

“Executive Officer” means an entity’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president of the entity in charge of a principal business unit, division or function, any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the entity.

“Immediate family members” of a director means the director’s spouse, parents, children, siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law, brothers-in-law, sisters-in-law and anyone (other than domestic employees) who shares the director’s home.

“Significant shareholder” means a passive investor [meaning a person who is not in control of the entity] who beneficially owns more than 10% of the outstanding equity, partnership or membership interests of an entity. “Beneficial ownership” will be determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934.

5


Composition of Board Committees

The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are each composed of directors who are independent, as defined in the previous section. The membership of each of the Board’s standing committees is set forth in the table below.

 

 

 

 

 

 

 

 

 

Name of Director

 

Credit
Policy &
Executive
Committee

 

Audit
Committee

 

Compensation
Committee

 

Nominating
and
Corporate
Governance
Committee

 

Gerald L. Baker*

 

X

 

 

 

 

 

 

 

Robert C. Blattberg

 

 

 

 

 

X

 

C

 

Simon F. Cooper

 

 

 

X

 

 

 

 

 

J. Kenneth Glass**

 

(C) (1-29-07)

 

 

 

 

 

 

 

James A. Haslam, III

 

 

 

 

 

X

 

 

 

R. Brad Martin

 

X

 

 

 

C

 

 

 

Vicki R. Palmer

 

 

 

C

 

 

 

 

 

Colin V. Reed

 

 

 

X

 

 

 

X

 

Michael D. Rose

 

C

 

 

 

 

 

(X) (1-29-07)

 

Mary F. Sammons

 

 

 

(X) (1-16-07)

 

X

 

X

 

William B. Sansom

 

X

 

 

 

 

 

 

 

Jonathan P. Ward***

 

 

 

(X) (4-18-06)

 

(X) (1-16-07)

 

(X) (1-16-07)

 

Luke Yancy III

 

 

 

X

 

 

 

 

X = Committee member.
C =
Committee chairperson.

 

 

 

 

 

(C)

 

=

 

Served as the committee chairperson during 2006 but is no longer serving as chairperson or as a member of such committee. Date in parentheses indicates when service as chairperson and a member of such committee ended.

(X)

 

=

 

Served as a committee member during 2006 but is no longer serving on such committee. Date in parentheses indicates when service on such committee ended.

     * Appointed as a director on January 29, 2007.
   **
Scheduled to retire as a director as of the shareholders’ meeting on April 17, 2007.
***
Ceased serving as a director in January 2007.

The Credit Policy & Executive Committee

The Credit Policy & Executive Committee was established by our Board of Directors and operates under a written charter. As a credit policy committee, the Committee monitors the quality, liquidity, and concentrations of credit extended by First Horizon and by its affiliates (with direct oversight responsibility with respect to the validation of credit quality as described below) and approves upon the recommendation of management such credit policy and controls as may be deemed necessary for the preservation of a sound loan portfolio consistent with overall corporate objectives, provided that any changes to credit policy made by the Committee must be reported to the Board of Directors. However, the Committee is not authorized to act in place of the Board with respect to matters specifically required by credit policy to be acted upon by the Board. The Committee’s charter was amended in January 2007 to strengthen the independence of the loan review function by providing that the Committee is to have direct oversight of this function, including direct reporting to the Committee by the officer responsible for the loan review function. As an executive committee, the Committee is authorized and empowered to exercise during the intervals between meetings of the Board all authority of the Board of Directors, except as prohibited by applicable law and provided that it may not approve acquisitions, divestitures or the entry into definitive agreements (not in the ordinary course of business) where the purchase or sale price or transaction amount exceeds $100 million. Also, no authority has been delegated to the Committee in its charter to approve

6


any acquisition involving the issuance of our stock. The charter is currently available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Paper copies are available to shareholders upon request to the Corporate Secretary.

The Audit Committee

In General. The Audit Committee was established by our Board of Directors and operates under a written charter, which is attached to this proxy statement at pages D-1 through D-5 of Appendix D and which was last amended and restated in 2004. The charter is also available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Paper copies are available to shareholders upon request to the Corporate Secretary.

Subject to the limitations and provisions of its charter, the Committee assists our Board in its oversight of our accounting and financial reporting principles and policies, internal audit controls and procedures, the integrity of our financial statements, our compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, and the performance of the independent auditor and our internal audit function. The Committee is directly responsible for the appointment (subject, if applicable, to shareholder ratification), retention, compensation and termination of the independent auditor as well as for overseeing the work of and evaluating the independent auditor and its independence. The members of the Committee are themselves independent, as that term is defined in the NYSE listing standards (described above), and meet the additional independence requirements prescribed by Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules of the SEC promulgated thereunder. In addition, the Board of Directors has determined that all the members of the Committee are financially literate as required by the NYSE listing standards. The Audit Committee’s Report is included below.

Audit Committee Financial Expert. The Board of Directors has determined that Vicki R. Palmer (chairperson of the Audit Committee), is an audit committee financial expert, as that term is defined in Item 401(h) of SEC Regulation S-K. After receiving her B.A. in economics and business administration from Rhodes College and her M.B.A. in finance from The University of Memphis, Ms. Palmer was employed as a commercial loan officer with the Bank, where she was trained in and worked daily in evaluating financial statements of corporate customers in connection with their credit applications. In 1978, she joined Federal Express Corporation as Manager of Corporate Finance, and her major areas of responsibility included debt financing, cash management and pension asset management. Ms. Palmer joined The Coca-Cola Company in 1983 as Manager of Pension Investments, thus becoming responsible for the company’s worldwide pension assets. Upon moving to Coca-Cola Enterprises, Inc. (“CCE”) in 1986, she was involved at the inception of the company with the evaluation of company-wide financial results and the establishment of internal controls. Until January 2004, Ms. Palmer served as Senior Vice President, Treasurer and Special Assistant to the CEO. In this position, she was responsible for management of CCE’s $12 billion multi-currency debt portfolio; its $2.5 billion pension plan and 401(k) plan investments; currency management; global cash management; and commercial and investment banking relationships. Effective in January 2004, she became Executive Vice President, Financial Services and Administration, and is now responsible for overseeing treasury, pension and retirement benefits, asset management, internal audit and risk management. Ms. Palmer also served for over ten years on CCE’s Financial Reporting Committee, which reviews the company’s financial statements and deals periodically with accounting issues, and she currently supervises the treasurer who serves on this committee. She is a member of CCE’s Risk Committee, which is charged with establishing policy and internal controls for hedging and financial and non-financial derivatives. In addition, she serves on CCE’s Senior Executive Committee and has oversight responsibility for CCE’s enterprise-wide risk assessment process. She was a member of our Audit Committee from January 1995 to April 1999 and chaired the Committee from April 1996 to April 1999, and she returned to that Committee as chairperson in April 2003. She is also a member of the audit committee of another public company, Haverty Furniture Companies Inc.

The Board of Directors has also determined that Colin V. Reed, a member of the Audit Committee, is an audit committee financial expert, as that term is defined in Item 401(h) of SEC Regulation S-K. Mr. Reed spent several years early in his career as assistant chief accountant and chief accountant, respectively, at a life insurance and investment banking company and a large hotel in England. He went on to spend eight years with Holiday Inns, initially as U.K. financial controller and ultimately as CFO for the company’s European, Middle East and African operations. He moved to the U.S. in the 1980s to assist with the leveraged recapitalization of that company that ended in the sale of Holiday Inns, the formation of Promus Companies and the subsequent split of Promus from

7


Harrah’s Entertainment, Inc. Mr. Reed then became CFO and a member of the three person executive committee of Harrah’s. He currently serves as CEO of Gaylord Entertainment Company. Mr. Reed is a fellow of the British Association of Hotel Accountants.

Both Ms. Palmer and Mr. Reed meet in all respects the independence requirements of the NYSE and Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, and the rules of the SEC promulgated thereunder.

Notwithstanding anything to the contrary set forth in any of our 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 Audit Committee Report, the Audit Committee Charter attached at pages D-1 through D-5 of Appendix D hereto, and the statements regarding the independence of the members of the Committee shall not be incorporated by reference into any such filings.

Audit Committee Report. The role of the Audit Committee (“Committee”) is (1) to assist First Horizon’s Board of Directors in its oversight of (a) the Corporation’s accounting and financial reporting principles and policies and internal audit controls and procedures, (b) the integrity of its financial statements, (c) its compliance with legal and regulatory requirements, (d) the independent auditor’s qualifications and independence, and (e) the performance of the independent auditor and internal audit function; and (2) to prepare this report to be included in First Horizon’s annual proxy statement pursuant to the proxy rules of the SEC. The Committee operates pursuant to a charter that was last amended and restated by the Board in 2004. As set forth in the Committee’s charter, management of First Horizon is responsible for preparation, presentation and integrity of the Corporation’s financial statements and for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures to provide for compliance with accounting standards and applicable laws and regulations, and the internal auditor is responsible for testing such internal controls and procedures. The independent auditor is responsible for planning and carrying out a proper audit of the Corporation’s annual financial statements, reviews of the Corporation’s quarterly financial statements prior to the filing of each quarterly report on Form 10-Q, and other procedures, including an attestation of management’s report on internal control over financial reporting.

In the performance of its oversight function, the Committee has considered and discussed the audited financial statements with management and the independent auditors. The Committee has also discussed with the Chief Executive Officer and Chief Financial Officer their respective certifications that are to be included in First Horizon’s Annual Report on Form 10-K for the year ended December 31, 2006. The Committee has also discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as currently in effect. Finally, the Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as currently in effect, has adopted an audit and non-audit services pre-approval policy and considered whether the provision of non-audit services by the independent auditors to First Horizon is compatible with maintaining the auditor’s independence and has discussed with the auditors the auditors’ independence.

While the Board of Directors has determined that each member of the Audit Committee has the broad level of general financial experience required to serve on the Committee and that Ms. Palmer and Mr. Reed are audit committee financial experts as that term is defined in Item 401(h) of Regulation S-K, none of the members of the Committee currently devotes specific attention to the narrower fields of auditing or accounting or is professionally engaged in the practice of auditing or accounting, nor are they performing the functions of auditors or accountants, nor are they experts in respect of auditor independence. Members of the Committee rely without independent verification on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Committee’s considerations and discussions referred to above do not assure that the audit of First Horizon’s financial statements has been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles or that First Horizon’s auditors are in fact “independent.”

Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Committee referred to above and in the Committee’s charter, the Committee recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2006, to be filed with the SEC.

8


Submitted by the Audit Committee of our Board of Directors.

 

 

 

 

 

Audit Committee

 

 

 

 

 

Vicki R. Palmer, Chairperson
Simon F. Cooper
Colin V. Reed

 

 

Luke Yancy III

The Nominating and Corporate Governance Committee

In General. The Nominating and Corporate Governance Committee operates under a written charter, which is attached to this proxy statement as Appendix E. The charter is also available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Paper copies are available to shareholders upon request to the Corporate Secretary. The purposes of the Nominating and Corporate Governance Committee are (1) to identify and recommend to the Board individuals for nomination as members of the Board and its committees, (2) to develop and recommend to the Board a set of corporate governance principles applicable to the Corporation, and (3) to oversee the evaluation of the Board and management. The Committee also makes recommendations to the Board of Directors with respect to director compensation; its processes and procedures for doing so are described below.

Nominations of Directors. With respect to the nominating process, the Nominating and Corporate Governance Committee discusses and evaluates possible candidates in detail and suggests individuals to explore in more depth. The Committee recommends new nominees for the position of independent director based on the following criteria:

 

 

 

 

Personal qualities and characteristics, experience, accomplishments and reputation in the business community.

 

 

 

 

Current knowledge and contacts in the communities in which the Corporation does business and in the Corporation’s industry or other industries relevant to the Corporation’s business.

 

 

 

 

Diversity of viewpoints, background, experience and other demographics.

 

 

 

 

Ability and willingness to commit adequate time to Board and committee matters.

 

 

 

 

The fit of the individual’s skills and personality with those of other directors and potential directors in building a Board that is effective and responsive to its duties and responsibilities.

The Nominating and Corporate Governance Committee does not set specific, minimum qualifications that nominees must meet in order for the Committee to recommend them to the Board of Directors, but rather believes that each nominee should be evaluated based on his or her individual merits, taking into account the needs of the Corporation and the composition of the Board of Directors.

Once a candidate is identified whom the Committee wants seriously to consider and move toward nomination, the Chairman of the Board, the Chief Executive Officer and/or other directors as the Committee determines will enter into a discussion with that nominee.

Shareholder Recommendations of Director Nominees. The Nominating and Corporate Governance Committee will consider individuals recommended by shareholders as director nominees, and any such individual is given appropriate consideration in the same manner as individuals recommended by the Committee. Shareholders who wish to submit individuals for consideration by the Nominating and Corporate Governance Committee as director nominees may do so by submitting in writing such individuals’ names in compliance with the procedures and along with the other information required by our Bylaws (as described below), to the Chairperson of the Nominating and Corporate Governance Committee, in care of the Corporate Secretary. Our Bylaws require that to be timely, a shareholder’s nomination must be delivered to or mailed and received at our principal executive offices not less than 90 days nor more than 120 days prior to the date of the meeting. However, if fewer than 100 days’ notice or prior public disclosure of the date of the meeting is given or made to shareholders, a nomination by a shareholder to be timely must be so delivered or received not later than the close of business on the 10th day

9


following the earlier of (i) the day on which such notice of the date of such meeting was mailed or (ii) the day on which such public disclosure was made. A shareholder’s nomination must state:

 

 

 

 

the name of the shareholder’s nominee and the reasons for the nomination;

 

 

 

 

the name and address, as they appear on our books, of the shareholder making the nomination and any other shareholders known by such shareholder to be supporting the nomination;

 

 

 

 

the class and number of shares of our stock which are beneficially owned by such shareholder on the date of shareholder’s nomination and by any other shareholders known by the nominating shareholder to be supporting the nomination on the date of such shareholder’s nomination; and

 

 

 

 

any material interest of the shareholder in the nomination.

Processes and Procedures Regarding Director Compensation. The charter of the Nominating and Corporate Governance Committee gives the Committee the authority to make recommendations to the Board concerning compensation for directors. The Committee may not delegate this authority to any other persons. The Committee generally conducts a review of the Corporation’s director compensation program once every three years. Director compensation is reviewed and considered by management and recommended to the Committee, either as a short list of alternatives or as single-item recommendations. In general, management uses a consultant in formulating many of its recommendations, both for advice in designing director compensation and as a source of peer-company data. Management also prepares various presentations, analyses, tally sheets, and other tools for the Committee to use in considering director compensation decisions. In 2006, management used Mercer Human Resource Consulting in making recommendations for changes to the director compensation program. The material elements of management’s engagement of Mercer are described below under the heading “The Compensation Committee—Processes and Procedures Regarding Executive Compensation.”

The Compensation Committee

In General. The Compensation Committee operates under a written charter that was last amended and restated by the Board of Directors in 2004 and is attached to this proxy statement as Appendix F. The charter is also available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Paper copies are available to shareholders upon request to the Corporate Secretary.

The purposes of the Compensation Committee are (1) to discharge the Board’s responsibilities relating to the compensation of our executive officers, (2) to produce an annual report on executive compensation for inclusion in our proxy statement, in accordance with the rules and regulations of the SEC [the current report is set forth below], (3) to identify and recommend to the Board individuals for appointment as officers, (4) to evaluate our management, and (5) to carry out certain other duties as set forth in the Committee’s charter.

Most of our executive compensation plans specify that they will be administered by a committee. The Committee’s charter provides that the Committee will administer plan-committee functions under our various executive-level compensation plans. Under the charter, at least two members of the Committee must be “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and at least two members of the Committee must be “non-employee directors” for purposes of Section 16 of the Securities Exchange Act of 1934. Many of our plans have similar provisions concerning their respective plan committees. The charter stipulates that if a Committee member is disqualified under one or the other of those tests, then that member must recuse him- or herself from participating in decisions impacted by the relevant test. In that situation, the remaining members would constitute the Committee for that action. On occasion, in connection with a specific action, a Committee member may feel that his or her qualification under one of those tests may be in doubt for some reason; in that case, the member may elect recusal to avoid any risk of possible disqualification.

Processes and Procedures Regarding Executive Compensation. The charter of the Compensation Committee provides that the Committee has the authority to review and approve corporate goals and objectives relevant to the compensation of the CEO, evaluate the performance of the CEO in light of those goals and objectives, and set the CEO’s compensation level based on this evaluation and to fix the compensation, including bonus and other compensation and any severance or similar termination payments, of executive officers. The Committee also has the authority, pursuant to its charter, to make recommendations to the Board concerning the adoption or amendment of employee benefit plans, management compensation plans, incentive compensation plans and equity-based plans, including plans applicable to executive officers. The Committee may not delegate any of the authority described in this paragraph to any other persons.

10


Management uses national compensation consulting firms to provide advice with respect to executive compensation matters. Management also uses a number of other specialist firms to provide data relevant to specific needs such as funding for nonqualified deferred compensation and any special compensation arrangements that are unique to specific business units such as the capital markets and the mortgage industries. In other cases, nationally-recognized law firms are engaged to provide advice on compliance with new laws, administration of stock plans, and design of severance agreements. The consultants provide competitive data/trends, keep management informed of best practices and work with management to develop programs that permit the Corporation to attract and retain the talent needed. Management engaged Mercer Human Resource Consulting in 2006 as its primary advisor for executive compensation matters. Among other things, management directed Mercer to provide objective advice to management, the Committee and the Board on executive and director compensation, to provide expertise in executive and director compensation design, market practices in our industry and data to support recommendations, and to ensure timely reports to management and the Committee on all critical accounting, tax, securities law and market trends relating to executive and director compensation.

In 2006, the Compensation Committee re-engaged Frederic W. Cook & Co., Inc. to provide it with independent analysis and advice on all compensation-related matters. Among other things, the independent consultant from that firm assists the Committee in its reviews of compensation program actions recommended by management, reviewing the chosen peer group and survey data for competitive comparisons and advising the Committee on best practices and ideas for board governance of executive compensation. The Cook firm was specifically directed to undertake no work on behalf of management except at the request of the Committee chairperson on behalf of the Committee, and the firm has no other relationships with the Corporation or management.

The Committee generally determines the CEO’s salary on an annual basis in executive session independent of management. That determination is based on a review of the CEO’s personal plan results for the prior year, along with peer CEO salary data provided by management’s compensation consultant and a summary of the impact that each alternative salary action would cause. The CEO is not involved in the determination of his own salary.

Our CEO recommends to the Committee salary levels for the executive officers other than himself. Other compensation matters (bonus, equity awards, etc.) involving executives are considered and reviewed by management, including the CEO, and recommended to the Committee, either as a short list of alternatives or as single-item recommendations. Management uses a consultant in formulating many of its recommendations, both for advice and as a source of peer-company data. Management also prepares various presentations, analyses, forecasts, tally sheets, and other tools for the Committee to use in considering compensation decisions during the year.

Management monitors and considers new or modified benefit programs used by other companies, or needed within our company, to attract and retain key employees. Recommendations are presented by management to the Committee for review and discussion. The CEO ultimately oversees these management processes. New benefit plans, or significant amendments to existing plans, typically are approved by the full Board based on recommendations from the Committee; however, modifications to our change in control program are generally approved by the full Board based on recommendations from the Committee acting jointly with the Nominating and Corporate Governance Committee. Enrollment and other administrative actions associated with the benefit plans are handled mainly through third party vendors in accordance with the terms in the Board-approved plans. If executive-level exceptions are required for administration of the plans, such as approval of an early retirement, management generally reviews the facts of the situation and provides a recommendation to the Committee for approval.

The Committee conducted a comprehensive review of the Corporation’s executive compensation programs during 2006. During that review, management worked with the Committee and with Mercer. Key goals of that involvement were to ensure that management’s knowledge of the Corporation was understood by the Committee in the context of setting incentive programs and that the Committee had the benefit of management’s views regarding how the incentive and other compensation programs could be enhanced or improved. The Committee used the Cook firm to provide independent analysis and advice in connection with the 2006 review of all executive compensation programs. Both Mercer and the Cook firm provided management and the Committee with advice regarding possible changes needed to reflect current market conditions and incorporate current best practices.

Notwithstanding anything to the contrary set forth in any of our 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

11


reference, including this proxy statement, in whole or in part, the following Compensation Committee Report shall not be incorporated by reference into any such filings.

Compensation Committee Report. The Compensation Committee of our Board of Directors has reviewed and discussed with management, among other things, the section of this proxy statement captioned “Compensation Discussion and Analysis” beginning on page 23. Based on that review and discussion, the Compensation Committee has recommended to our Board that the “Compensation Discussion and Analysis” section be included in this proxy statement.

 

 

 

 

 

Compensation Committee

 

 

 

 

 

R. Brad Martin, Chairperson
Robert. C. Blattberg
James A. Haslam, III
Mary F. Sammons

Compensation Committee Interlocks and Insider Participation

Messrs. Blattberg, Haslam, Martin, and Ward, all non-employee directors, served as members of the Board of Director’s Compensation Committee during 2006, and Ms. Sammons, also a non-employee director, began serving as a Compensation Committee member in January 2007. Refer to the table in “Corporate Governance and Board Matters—Composition of Board Committees” above for additional committee information. No interlocking relationships existed with respect to any of the members of the Committee.

Board and Committee Meeting Attendance

During 2006, the Board of Directors held six meetings and took action by written consent twice. The Compensation Committee held eleven meetings and took action by written consent once. The Nominating and Corporate Governance Committee held six meetings, the Audit Committee held twelve meetings and the Credit Policy & Executive Committee held eight meetings. The average attendance at Board and committee meetings exceeded 96 percent. No director currently on our Board attended fewer than 75 percent of the meetings of the Board and the committees of the Board on which he or she served.

As set forth in our Corporate Governance Guidelines, our directors are expected to make every effort to attend every meeting of First Horizon’s shareholders. For the last 10 years, all of our directors have been in attendance at every annual meeting of shareholders, except for one director in 2004 and one director in 1999.

Executive Sessions

To ensure free and open discussion and communication among the non-management directors of the Board and its committees, our Corporate Governance Guidelines provide that the non-management directors will meet in regularly scheduled executive sessions and as often as the Board shall request, with no members of management present. During 2006, the non-management directors met five times in executive session of the Board. Our Corporate Governance Guidelines also provide that if any non-management directors are not independent under NYSE listing standards, the independent, non- management directors will meet in executive session at least once a year. During 2006, our independent, non-management directors met in executive session twice. The Chairperson of the Nominating and Corporate Governance Committee, currently Dr. Blattberg, presides at the executive sessions of the Board.

Communication with the Board of Directors

Shareholders desiring to communicate with the Board of Directors on matters other than director nominations should submit their communication in writing to the Chairperson of the Nominating and Corporate Governance Committee, c/o Corporate Secretary, First Horizon National Corporation, 165 Madison Avenue, Memphis, Tennessee 38103, and identify themselves as a shareholder. The Corporate Secretary will forward all communications to the

12


Chairperson for a determination as to how to proceed. Other interested parties desiring to communicate with the Board of Directors should submit their communication in the same manner.

Procedures for the Approval, Monitoring, and Ratification of Related Party Transactions

The Audit Committee of the Board has adopted procedures for the approval, monitoring, and ratification of transactions between First Horizon, on the one hand, and our directors, executive officers or 5% shareholders, their immediate family members, their affiliated entities and their immediate family members’ affiliated entities, on the other hand. A copy of our procedures is available on our website at www.fhnc.com under the “Corporate Governance” heading in the “Investor Relations” area. Our procedures require management to submit any proposed “related party transaction” (defined as a transaction that is required to be disclosed in our proxy statement pursuant to the requirements of Item 404(a) of Regulation S-K promulgated by the SEC) or amendment to an existing related party transaction to the Audit Committee for approval or ratification. In some cases, the matter may be determined by the Chair of the Audit Committee. In considering whether to approve a given transaction, the Audit Committee (or Chair) must consider:

 

 

 

 

whether the terms of the related party transaction are fair to First Horizon and on terms at least as favorable as would apply if the other party was not or did not have an affiliation with a director or executive officer of First Horizon;

 

 

 

 

whether First Horizon is currently engaged in other related party transactions with the related party at issue or other related parties of the same director or executive officer;

 

 

 

 

whether there are demonstrable business reasons for First Horizon to enter into the related party transaction;

 

 

 

 

whether the related party transaction would impair the independence of a director; and

 

 

 

 

whether the related party transaction would present an improper conflict of interest for any director or executive officer of First Horizon, taking into account the size of the transaction, the overall financial position of the director or executive officer, the direct or indirect nature of the interest of the director or executive officer in the transaction, the ongoing nature of any proposed relationship, and any other factors the Audit Committee deems relevant.

Transactions with Related Persons

The Bank and its subsidiaries have entered into lending transactions in the ordinary course of business with our executive officers, directors, nominees, and their associates, and they expect to have such transactions in the future. Such transactions have been on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others and have not involved more than the normal risk of collectibility or presented other unfavorable features. From time to time, the Bank and its broker-dealer subsidiaries may sell securities either as agent or as principal to, and the Bank and its subsidiaries have other banking transactions (including but not limited to deposit accounts and loan-related interest rate swaps) with, our executive officers and directors and their associates in the ordinary course of business on terms substantially similar to those available to members of the general public. Our executive officers and directors do not derive any special benefits from such transactions.

During 2006, the Bank made lease payments on one of its branches to Lacey Mosby & Sons, Inc., a business in which an equity investment is owned by Marlin L. Mosby, Jr., the father of Marlin L. Mosby, III, who was designated as an executive officer of First Horizon in October 2002. The lease, which was an arm’s length transaction at market rates, was entered into in 1997, has a 30 year term, provides for monthly payments of $3,000, increasing in increments to $7,000 per month in 2018, and has renewal options. The Bank has leased this location or an adjacent property from this business for over 30 years.

13


STOCK OWNERSHIP INFORMATION

As of December 31, 2006, there were 7,818 shareholders of record of our common stock. To our knowledge, there were two persons who owned beneficially, as that term is defined by Rule 13d-3 of the Securities Exchange Act of 1934, more than five percent (5%) of our common stock as of December 31, 2006. Certain information concerning beneficial ownership of our common stock by those persons‘as of December 31, 2006 is set forth in the following table:

 

 

 

 

 

Name and Address of
Beneficial Owner

 

Amount and Nature
of Beneficial
Ownership

 

Percent of Class

Barclays Global

 

 

 

6,777,000

   

 

 

5.45

%

 

T. Rowe Price Associates, Inc.

 

 

 

7,486,616

   

 

 

6.0

%

 

The information in the table above with respect to Barclays Global is based on information set forth in Schedule 13G, filed with the Securities and Exchange Commission on January 31, 2007 jointly by Barclays Global Investors, NA (“BGINA”), 45 Fremont Street, San Francisco, California 94105, Barclays Global Fund Advisors (“BGFA”), 45 Fremont Street, San Francisco, California 94105, Barclays Global Investors, LTD (“BGLTD”), 1 Royal Mint Court, London, EC3N 4HH, and Barclays Global Investors Japan Trust and Banking Company Limited (“BGIJTBC”), Ebisu Prime Square Tower 8th Floor, 1-1-39 Hiroo Shibuya-Ku, Tokyo 150-0012 Japan. According to this Schedule 13G, BGINA has sole voting power with respect to 2,288,251 shares and sole dispositive power with respect to 2,894,002 shares; BGFA has sole voting power with respect to 3,372,455 shares and sole dispositive power with respect to 3,379,884 shares; BGILTD has sole voting power and sole dispositive power with respect to 374,843 shares; and BGIJTBC has sole voting power and sole dispositive power with respect to 117,387 shares.

The information in the table above with respect to T. Rowe Price Associates, Inc. (“TRP”) is based on information set forth in Schedule 13G, filed with the Securities and Exchange Commission on February 13, 2007 by TRP, 100 E. Pratt Street, Baltimore, Maryland 21202. According to this Schedule 13G, TRP has sole voting power with respect to 1,357,301 shares and sole dispositive power with respect to 7,486,616 shares.

The following table sets forth certain information as of December 31, 2006, concerning beneficial ownership of our 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

 

 

 

 

 

 

 

Name of
Beneficial Owner

 

Shares Beneficially
Owned(1)

 

Stock Units in Deferral
Accounts(2)

 

Total and Percent
Of Class(3)

Gerald L. Baker

 

 

 

134,421(5

)

 

 

 

 

 

 

134,421

 

Robert C. Blattberg

 

 

 

45,272(4

)

 

 

 

 

 

 

45,272

 

Charles G. Burkett

 

 

 

168,112(5

)

 

 

 

 

 

 

168,112

 

Simon F. Cooper

 

 

 

8,100(4

)

 

 

 

 

 

 

8,100

 

J. Kenneth Glass(6)

 

 

 

1,134,847(5

)

 

 

 

 

86,853

   

 

 

1,221,700

 

James A. Haslam, III

 

 

 

65,915(4

)

 

 

 

 

 

 

65,915

 

Jim L. Hughes(6)

 

 

 

512,971(5

)

 

 

 

 

12,945

   

 

 

525,916

 

Peter F. Makowiecki

 

 

 

49,030(5

)

 

 

 

 

 

 

49,030

 

Larry B. Martin(6)

 

 

 

126,703(5

)

 

 

 

 

19,535

   

 

 

146,238

 

R. Brad Martin

 

 

 

372,170(4

)

 

 

 

 

 

 

372,170

 

Marlin L. Mosby, III

 

 

 

33,539(5

)

 

 

 

 

 

 

33,539

 

Vicki R. Palmer

 

 

 

84,450(4

)

 

 

 

 

 

 

84,450

 

Colin V. Reed

 

 

 

13,100(4

)

 

 

 

 

 

 

13,100

 

Michael D. Rose

 

 

 

113,897(4

)

 

 

 

 

 

 

113,897

 

Mary F. Sammons

 

 

 

10,516(4

)

 

 

 

 

 

 

10,516

 

William B. Sansom

 

 

 

108,049(4

)

 

 

 

 

 

 

108,049

 

Jonathan P. Ward(6)

 

 

 

12,241(4

)

 

 

 

 

 

 

12,241

 

Luke Yancy III

 

 

 

20,193(4

)

 

 

 

 

 

 

20,193

 

Directors and Executive Officers as a Group (26 persons)

 

 

 

4,173,322(5

)

 

 

 

 

195,007

   

 

 

4,368,329

 

 

(1)

 

 

 

The respective directors, nominees and officers have sole voting and investment powers with respect to all of such shares except as specified in notes (4) and (5). Amounts in the second column do not include stock units in the third column. No shares shown in this table have been pledged as security by any of our directors or executive officers.

14


 

(2)

 

 

 

Prior to January 2005, our stock option program and our restricted stock incentive plan permitted participants to defer receipt of shares upon the exercise of options and receipt of shares prior to the lapsing of restrictions imposed on restricted stock awards, respectively. Amounts in the third column reflect the number of shares deferred under these two programs that a participant has the right to receive on a future date. These shares are not currently issued and are not considered to be beneficially owned for purposes of Rule 13d-3, but are reflected in a deferral account on our books as phantom stock units or restricted stock units.

 

(3)

 

 

 

No individual director, nominee or executive officer beneficially owns more than one (1%) percent of our common stock that is outstanding. The percentage of common stock outstanding owned by the director and executive officer group (3.4%) includes stock units. The percentage would be 3.3% with stock units excluded.

 

(4)

 

 

 

Includes the following shares of restricted stock with respect to which the non-employee director possesses sole voting power, but no investment power: Dr. Blattberg—3,200; Mr. Cooper—7,200; Mr. Haslam—2,000; Mr. R.B. Martin—5,600; Ms. Palmer—5,600; Mr. Reed—8,000; Mr. Rose—800; Ms. Sammons—5,600; Mr. Sansom—2,400; Mr. Ward—5,600; and Mr. Yancy—4,400. Includes the following shares as to which the named non-employee directors have the right to acquire beneficial ownership through the exercise of stock options granted under our director plans, all of which are 100% vested or will have vested within 60 days of December 31, 2006: Dr. Blattberg—34,512; Mr. Cooper—0; Mr. Haslam—47,253; Mr. R.B. Martin—39,220; Ms. Palmer—73,542; Mr. Reed—0; Mr. Rose—38,150; Ms. Sammons—2,493; Mr. Sansom—88,409; Mr. Ward—3,767; and Mr. Yancy—10,634. Mr. Rose became our Chairman of the Board and an executive officer (thus ceasing to be a non-employee director) on January 29, 2007.

 

(5)

 

 

 

Includes the following shares of restricted stock with respect to which the named person or group has sole voting power but no investment power: Mr. Baker—47,115; Mr. Burkett—37,831; Mr. Glass—133,894; Mr. Hughes—36,131; Mr. Makowiecki—12,451; Mr. L. Martin—0; Mr. Mosby—18,982; and the director and executive officer group—477,657. Includes the following shares as to which the named person or group has the right to acquire beneficial ownership through the exercise of stock options granted under our stock option plans, all of which are 100% vested or will have vested within 60 days of December 31, 2006: Mr. Baker—70,114; Mr. Burkett—68,660; Mr. Glass—712,089; Mr. Hughes—286,392; Mr. Makowiecki—34,908; Mr. L. Martin—88,513; Mr. Mosby—10,056; and the director and executive officer group—2,194,615. Also includes shares held at December 31, 2006 in 401(k) Savings Plan accounts.

 

(6)

 

 

 

Mr. Glass, Mr. Hughes, and Mr. L. Martin ceased to be executive officers as of January 29, 2007, July 18, 2006 and June 30, 2006, respectively, and Mr. Ward ceased to be a director as of January 16, 2007. Mr. Glass will remain an employee of First Horizon until April 17, 2007, when he is scheduled to retire completely.

VOTE ITEM NO. 1—ELECTION OF DIRECTORS

The Board of Directors is divided into three classes. The term of office of each class expires in successive years. The term of the Class II directors expires at this annual meeting. The terms of the Class I and Class III directors expire at the 2009 and 2008 annual meetings, respectively. The Board of Directors proposes the election of three Class II directors and one Class I director, each of whom is an incumbent. The Class I director, Mr. Baker, was elected by the Board of Directors in January 2007, and his term, under Tennessee law, expires at the next annual meeting of shareholders following his election by the Board. Each Class II director elected at the meeting will hold office until the 2010 annual meeting of shareholders or until his or her successor is elected and qualified, and Mr. Baker will hold office until the 2009 annual meeting of shareholders or until his successor is elected and qualified.

If any nominee proposed by the Board of Directors is 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 directed by the Board, unless the Board decides to reduce the number of directors pursuant to the Bylaws.

We have provided below 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 our Board). All of our directors are also directors of the Bank. Director committee appointments are

15


disclosed in a table on page 6 of the “Corporate Governance and Board Matters—Composition of Board Committees” section of this proxy statement above.

NOMINEES FOR DIRECTOR
Class II
For a Three-Year Term Expiring at 2010 Annual Meeting

ROBERT C. BLATTBERG (64) is the Polk Brothers Distinguished Professor of Retailing, J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois. Dr. Blattberg has been a director since 1984.

MICHAEL D. ROSE (65) was elected the Chairman of the Board of First Horizon and the Bank by the Board on January 29, 2007. He served as Chairman of Gaylord Entertainment Company from April 2001 to May 2005. Mr. Rose is a director of four other public companies, Gaylord Entertainment Company, Darden Restaurants, Inc., General Mills, Inc., and Stein Mart, Inc. Mr. Rose has been a director since 1984.

LUKE YANCY III (57) is President and Chief Executive Officer of Mid-South Minority Business Council, Memphis, Tennessee, a nonprofit organization that promotes minority and women business enterprises. Prior to June 2000, Mr. Yancy was President, West Region, of AmSouth Bank and, prior to its acquisition by AmSouth in 1999, First American Bank. Mr. Yancy has been a director since 2001.

Class I
For the Remainder of a Three-Year Term Expiring at the 2009 Annual Meeting

GERALD L. BAKER (64) was elected the President and Chief Executive Officer and a director of First Horizon and the Bank by the Board on January 29, 2007. From November 2005 to January 29, 2007, Mr. Baker was Chief Operating Officer of First Horizon and the Bank. Prior to November 2005, Mr. Baker was Executive Vice President of First Horizon and the Bank and President—First Horizon Financial Services, and prior to January 2006, Mr. Baker was President—Mortgage Banking and President and Chief Executive Officer of First Horizon Home Loan Corporation.

CONTINUING DIRECTORS
Class I
Term Expiring at the 2009 Annual Meeting

R. BRAD MARTIN (55) is the Chairman of the Board of Saks Incorporated, Birmingham, Alabama, a retail merchandising company. Prior to January 2006, Mr. Martin was Chairman of the Board and Chief Executive Officer of Saks Incorporated. Mr. Martin is a director of two other public companies, Saks Incorporated and Harrah’s Entertainment, Inc. He has been a director since 1994.

VICKI R. PALMER (53) is Executive Vice President, Financial Services and Administration, Coca-Cola Enterprises Inc. (“CCE”), Atlanta, Georgia, a bottler of soft drink products. Prior to February 2004, Ms. Palmer served as Corporate Senior Vice President, Treasurer, and Special Assistant to the CEO of CCE. Ms. Palmer is a director of one other public company, Haverty Furniture Companies, Inc. She has been a director since 1993.

WILLIAM B. SANSOM (65) is Chairman of the Board and Chief Executive Officer of The H. T. Hackney Co., Knoxville, Tennessee, a wholesale food distribution firm serving the Southeast and Midwest. He is a director of two other public companies, Astec Industries, Inc. and the Tennessee Valley Authority. Mr. Sansom has been a director since 1984.

Class III
Term Expiring at 2008 Annual Meeting

SIMON F. COOPER (61) has been President and Chief Operating Officer of The Ritz-Carlton Hotel Company, L.L.C. and an executive officer of its parent company, Marriott International, Inc., Bethesda, Maryland, a worldwide operator and franchisor of hotels and related lodging facilities, since February 2001. Mr. Cooper has been a director of First Horizon since 2005.

16


JAMES A. HASLAM, III (53) is Chief Executive Officer of Pilot Travel Centers, LLC, Knoxville, Tennessee, a national operator of travel centers, and he is CEO of Pilot Corporation. Mr. Haslam is a director of one other public company, Ruby Tuesday, Inc. Mr. Haslam has been a director since 1996.

COLIN V. REED (59) is the Chairman of the Board, President and Chief Executive Officer of Gaylord Entertainment Company, Nashville, Tennessee, a diversified hospitality and entertainment company. Mr. Reed was elected Chairman of the Board in May 2005 and Chief Executive Officer in May 2001. Mr. Reed is a director of one other public company, Gaylord Entertainment Company. He has been a director since April 2006.

MARY F. SAMMONS (60) has been President and Chief Executive Officer of Rite Aid Corporation (“Rite Aid”), Camp Hill, Pennsylvania, a retail drug store chain, since June 2003, and she has been a member of the Rite Aid Board of Directors since December 1999. She served as President and Chief Operating Officer of Rite Aid from December 1999 to June 2003. Ms. Sammons has been a director since 2003.

The Board of Directors unanimously recommends that the shareholders vote for Item No. 1.

VOTE ITEM NO. 2—RE-APPROVAL OF OUR 2002 MANAGEMENT INCENTIVE PLAN, AS AMENDED

General

Under this vote item, we are asking our shareholders to re-approve the 2002 Management Incentive Plan, as amended (“MIP”), in its entirety for the purpose of extending and fully optimizing our ability to deduct for tax purposes the cost of the incentive awards provided under the MIP. Under current tax regulations, First Horizon’s shareholders must re-approve the MIP every five years so that incentive awards under the Plan continue to 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 MIP was last approved by our shareholders in 2002, and that approval will cease to be effective at the 2007 annual meeting. Re-approval of the plan in its entirety at the 2007 annual meeting will optimize First Horizon’s ability to deduct for tax purposes the cost of the incentive awards under the MIP. The MIP is attached to this proxy statement as Appendix A.

The following is a summary of the material features of the MIP and is qualified in its entirety by reference to the complete text of the MIP.

The MIP took effect as of January 1, 2002. The purpose of the plan is to provide a financial incentive for key executives to encourage and reward performance that furthers our growth, development and financial success and to enhance our ability to attract and retain key personnel. No new awards may be made under the Plan after December 31, 2012. The plan is administered by a committee designated by the Board, which is composed of at least two directors who are “non-employee directors” as defined for securities law purposes and “outside directors” as defined for purposes of the Tax Code. The Board has designated the Compensation Committee as the MIP Committee. See “The Compensation Committee—In General” beginning on page 10 and the Committee’s charter in Appendix F for additional information concerning the qualifications of Committee members in relation to the Plan. The Committee has full authority to interpret the plan, adopt rules and regulations for administration of the plan, subject to certain exceptions, select participants eligible to receive awards under the plan and the performance measures to be used for purposes of setting performance goals under the plan, establish performance goals and target awards (as those terms are defined below), and determine the extent to which First Horizon and the participants have achieved the goals applicable to them.

Senior officers of First Horizon or any of its subsidiaries are eligible to be selected for participation in the MIP. Fifteen individuals have been selected for participation in the plan for calendar year 2007, including all of our 12 current executive officers (except Mr. Rose) and all of the individuals (except Mr. Glass, Mr. L. Martin and Mr. Hughes) named in the Summary Compensation Table.

Awards will be paid to the participants in cash. If any participant is, or the Committee reasonably expects such a person to be, a “covered employee” for purposes of Section 162(m) of the Tax Code, then the maximum amount of any cash award that may be paid to the participant for any calendar year is $4,000,000.

For each calendar year the Committee will designate performance measures for use in determining awards. The term “performance measures” means one or more, or any combination, of the following First Horizon, subsidiary, operating unit, division, line of business, department, team or business unit financial performance measures: stock price, dividends, total shareholder return, earnings per share, market capitalization, book value,

17


revenues, expenses, loans, deposits, noninterest income, net interest income, fee income, operating income before or after taxes, net income before or after taxes, net income before securities transactions, net or operating income excluding non-recurring charges, return on assets, return on equity, return on capital, cash flow, credit quality, service quality, market share, customer retention, efficiency ratio, strategic business objectives, consisting of one or more objectives based on meeting specified cost targets, business expansion goals, and goals relating to acquisitions or divestitures; and except in the case of a covered employee, any other performance criteria established by the Committee. Then, for each of the performance measures selected for the calendar year, the Committee will establish specific performance goals or targets against which actual performance is to be measured. Also, the Committee will designate for each participant the target award for the calendar year. The term “target award” means the award that the participant would receive for achievement of 100% of the performance goal for the calendar year, expressed as a percentage of a participant’s compensation. If a minimum threshold level of performance is not achieved, no award will be paid. The maximum award that may be paid for superior performance shall not exceed the lesser of 2 1/2 times the target award or $4,000,000 for any calendar year. The Committee retains the power to reduce or eliminate awards under the MIP and to determine whether an award will be paid under one or more of the performance measures, but the Committee has no power to increase an award that has been calculated pursuant to the provisions of the plan.

Unless a separate agreement between us and the participant already provides for the payment of a bonus following a change in control, the MIP provides that in the event of a change in control (as defined in the MIP) during a calendar year, a participant will be paid a pro rata portion of the target award (or a different amount provided for by an agreement under the MIP) for the calendar year. If a change in control takes place after the end of the calendar year, the MIP provides that a participant will be paid the full amount of any award earned under the plan for the calendar year. We have entered into separate agreements governing the definition and effects of a change in control that are described under the heading “Other Post-Employment Benefits—Change in Control Severance Agreements” beginning on page 37 below. In early 2007, the Committee approved the modification of these agreements. The changes are outlined under the heading “2006 Executive Compensation Review” beginning on page 40 of this proxy statement.

The Board of Directors retains the power to terminate, suspend, amend or modify the MIP at any time, in whole or in part, subject to any shareholder approval required under Section 162(m) of the Tax Code. No such amendment, modification, suspension or termination will adversely affect the rights of any participant under any award previously earned but not yet paid without the consent of the participant. In addition, the Committee retains the discretion to pay out awards in the event of a termination of the MIP, in whole or in part; provided, however, payments to a participant who is a covered employee must be discounted to reflect the present value of the payment using the discount rate in effect at the time under our Pension Plan.

It is not possible to determine the awards that will be received under the MIP for calendar year 2007. Non-employee directors cannot participate in the MIP. The following table sets forth the amounts paid to the listed individuals and groups under the MIP for calendar year 2006.

PLAN BENEFITS
2002 Management Incentive Plan, As Amended

 

 

 

Name and Principal Position(1)

 

Amounts Paid
For 2006

J. Kenneth Glass

 

 

 

0

 

Gerald L. Baker

 

 

 

0

 

Charles G. Burkett

 

 

$

 

564,001

 

Jim L. Hughes

 

 

$

 

3,367,788

 

Peter F. Makowiecki

 

 

 

0

 

Larry B. Martin

 

 

 

0

 

Marlin L. Mosby, III

 

 

 

0

 

All Executive Officers as a Group

 

 

$

 

3,931,789

 

All Directors (who are not Executive Officers) as a Group

 

 

 

0

 

All Employees (who are not Executive Officers) as a Group

 

 

$

 

111,189

 

 

(1)

 

 

 

See Summary Compensation Table for principal position.

The Board of Directors unanimously recommends that the shareholders vote for Item No. 2.

18


Equity Compensation Plan Information

The following table provides information as of December 31, 2006 with respect to shares of First Horizon common stock that may be issued under our existing equity compensation plans, including the following plans:

 

 

 

 

1990 Stock Option Plan (the “1990 Plan”)

 

 

 

 

1995 Employee Stock Option Plan (the “1995 Plan”)

 

 

 

 

1997 Employee Stock Option Plan (the “1997 Plan”)

 

 

 

 

2000 Employee Stock Option Plan (the “Executive Plan”)

 

 

 

 

2003 Equity Compensation Plan (the “2003 Plan”)

 

 

 

 

2000 Non-employee Directors’ Deferred Compensation Stock Option Plan (the “Directors’ Plan”)

 

 

 

 

1995 Non-employee Directors’ Deferred Compensation Stock Option Plan (the “1995 Directors’ Plan”)

 

 

 

 

1991, 1997 and 2002 Bank Director and Advisory Board Member Deferral Plans (the “Advisory Board Plans”)

Of the 18,116,986 options outstanding, approximately 38% percent were issued in connection with employee and director cash deferral elections. The Corporation received approximately $44,600,000 in employee cash deferrals and $4,200,000 in non-employee directors and advisory board retainer and meeting fee deferrals. The opportunity to defer portions of their compensation in exchange for options has not been offered to employees, directors or advisory board members with respect to compensation earned at any time since January 1, 2005.

The table includes information with respect to shares subject to outstanding options granted under equity compensation plans that are no longer in effect. Footnotes (4) and (5) to the table set forth the total number of shares of First Horizon common stock issuable upon the exercise of options under the expired plans as of December 31, 2006. No additional options may be granted under those expired plans.

Equity Compensation Plan Information

 

 

 

 

 

 

 

Plan Category

 

A

 

B

 

C

 

Number of Securities
to be Issued upon
Exercise of
Outstanding Options

 

Weighted Average
Exercise Price
of Outstanding
Options

 

Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in
Column A)

Equity Compensation Plans Approved by Shareowners(1)

 

 

 

5,299,350(4

)

 

 

 

$

 

33.30

   

 

 

4,849,829(2

)

 

Equity Compensation Plans Not Approved by Shareowners(3)

 

 

 

12,817,636(5

)

 

 

 

$

 

33.41

   

 

 

 

Total

 

 

 

18,718,588(6

)

 

 

 

$

 

33.38

   

 

 

5,472,446(7

)

 

 

(1)

 

 

 

Consists of the Executive Plan, Directors’ Plan, 1995 Directors’ Plan, 1995 Plan, 1990 Plan, and the 2003 Plan.

 

(2)

 

 

 

As of December 31, 2006, an aggregate of 4,300,098 shares were available for awards other than options under the 2003 Plan.

 

(3)

 

 

 

Consists of the 1997 Plan and the Advisory Board Plans.

 

(4)

 

 

 

Includes 1,100,256 outstanding options issued in connection with employee and non-employee director cash deferrals of approximately $9,000,000. Also includes information for equity compensation plans that have expired. The Directors’ Plan, the 1995 Directors’ Plan, the 1995 Plan and the 1990 Plan were approved by shareholders in 2000, 1995, 1995 and 1990, respectively. The plans expired January 2007, June 1999, April 2005 and April 2000, respectively. As of December 31, 2006, a total of 2,613,408 shares of First Horizon common stock were issuable upon the exercise of outstanding options under these expired plans. No additional options may be granted under these expired plans.

 

(5)

 

 

 

Includes 4,888,860 outstanding options issued in connection with employee and advisory board cash deferrals of approximately $39,800,000. Also includes information for equity compensation plans that have expired or terminated. The 1997 Bank Director and Advisory Board Member Deferral Plan and the 1991 Bank Director

19


 

and Advisory Board Member Deferral Plan expired in January 2002 and January 1997, respectively, and the 2002 Bank Director and Advisory Board Member Deferral Plan was terminated in April 2005. As of December 31, 2006, a total of 76,198 shares of First Horizon common stock were issuable upon the exercise of outstanding options under these expired or terminated plans. No additional options may be granted under these expired or terminated plans.

 

(6)

 

 

 

Includes 601,602 shares of First Horizon common stock to be issued at the end of specified deferral periods set forth in individual deferral agreements in connection with deferral of receipt of shares upon the exercise of options.

 

(7)

 

 

 

Includes 103,701 shares of First Horizon common stock underlying restricted stock units granted under the 1992 Restricted Stock Plan. Includes 518,916 performance share units granted under the 2005 LTIP program.

Description of Equity Compensation Plans Not Approved by Shareholders

The 1997 Plan. The 1997 Plan was adopted by the Board of Directors on April 16, 1996 and will expire in April 2007. The 1997 Plan provides for the granting of nonqualified stock options.

Options granted under the 1997 Plan have been granted to all employees of the Corporation under our FirstShare and management option programs. The FirstShare program was a broad-based employee plan, where all employees of the Corporation (except management level employees) received a stock option award annually. Management level employees receive annual stock option awards under the management option program. The FirstShare options vest 100 percent after three years and have a term of 10 years. The management options vest 50 percent after 3 years and 50 percent after 4 years, unless a specified stock price is achieved within the 3 year period. The management options have a term of 7 years. In addition to the above, prior to 2004 certain employees could elect to defer a portion of their annual compensation into stock options under the 1997 Plan. These options vest after 6 months and have a term of 20 years. The options vest on an accelerated basis in the event of a change in control of First Horizon. All options granted under the 1997 Plan have an exercise price equal to the fair market value on the date of grant. Notwithstanding the above, under our deferred compensation stock option program, the option price per share may be less than 100 percent of the fair market value of the share at the time the option is granted if the employee has entered into an agreement with the Corporation to receive a stock option grant in lieu of compensation and the amount of compensation foregone when added to the cash exercise price of the options equals at least the fair market value of the shares on the date of grant. The deferred compensation stock option program has not been offered to employees since December 2004.

As of December 31, 2006, options covering 12,741,438 shares of First Horizon common stock were outstanding under the 1997 Plan, no shares remained available for future option grants, and options covering 16,064,576 shares had been exercised during the life of the plan. Of the options outstanding, approximately 38 percent were issued in connection with employee cash deferral elections. The Corporation received approximately $38,500,000 in cash deferrals to offset a portion of the exercise price. All shares remaining available for future option grants will have an option term of 10 years or less.

The 1997 Plan is included as Exhibit 10(c) in our Form 10-Q for the quarter ended September 30, 2002, filed with the SEC.

The Advisory Board Plans. The Advisory Board Plans were adopted by the Board of Directors in October 2001, January 1997 and January 1991. The 2002 Advisory Board Plan was terminated in 2005, and the 1997 and 1991 plans expired in 2002 and 1997, respectively.

Options granted under the Advisory Board Plans were granted only to regional and advisory board members who are not employees. The options were granted in lieu of the participants receiving retainers or attendance fees for bank board and advisory board meetings. The number of shares subject to grant equaled the amount of fees/retainers earned divided by one half of the fair market value of one share of common stock on the date of the option grant. The exercise price plus the amount of fees foregone equaled the fair market value of the stock on the date of the grant. The options were vested at the grant date. Those granted on or prior to January 2, 2004 have a term of 20 years, while those granted on or after July 1, 2004 have a term of 10 years.

As of December 31, 2006, options covering 76,198 shares of First Horizon common stock were outstanding under the Advisory Board Plans, 0 shares remained available for future option grants, and options covering 156,092 shares had been exercised during the life of the plan.

20


The Advisory Board Plans are included as Exhibits 10(s), 10(t) and 10(u) to our 2002 Form 10-K.

VOTE ITEM NO. 3—RATIFICATION OF APPOINTMENT OF AUDITORS

Appointment of Auditors for 2007

KPMG LLP audited our annual financial statements for the year 2006. The Audit Committee has appointed KPMG LLP to be our auditors for the year 2007. Although not required by law, regulation or the rules of the New York Stock Exchange, the Board has determined, as a matter of good corporate governance and consistent with past practice, to submit to the shareholders as Vote Item No. 3 the ratification of KPMG LLP’s appointment as our auditors for the year 2007, with the recommendation that the shareholders vote for Item No. 3. Representatives of KPMG 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. The 2006 engagement letter with KPMG LLP is subject to alternative dispute resolution procedures and an exclusion of punitive damages.

Fees Billed to Us by Auditors During 2005 and 2006

The table below and the paragraphs following it provide information regarding the fees billed to us by KPMG LLP during 2005 and 2006 for services rendered in the categories of audit fees, audit- related fees, tax fees and all other fees.

 

 

 

 

 

 

 

2005

 

2006

Audit Fees

 

 

$

 

2,080,000

   

 

$

 

1,901,000

 

Audit-Related Fees

 

 

 

350,000

   

 

 

537,000

 

Tax Fees

 

 

 

15,000

   

 

 

15,000

 

All Other Fees

 

 

 

   

 

 

128,000

 

 

 

 

 

 

Total

 

 

$

 

2,445,000

   

 

$

 

2,581,000

 

 

 

 

 

 

Audit Fees. For the years 2005 and 2006, the aggregate fees billed to us by KPMG LLP for professional services rendered for the audit of our financial statements, including the audit of internal controls over financial reporting, and review of the financial statements in our Form 10-Q’s or for services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements were $2,080,000 and $1,901,000, respectively.

Audit-Related Fees. For the years 2005 and 2006, the aggregate fees billed to us by KPMG LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees” above were $350,000 and $537,000, respectively. The amount for both years consists of fees for ERISA audits, audits of subsidiaries, compliance attestation and other procedures and reports on controls placed in operation and tests of operating effectiveness.

Tax Fees. For the years 2005 and 2006, the aggregate fees billed to us by KPMG LLP for professional services for tax compliance, tax advice, and tax planning were $15,000 and $15,000, respectively. The amount for both years consists primarily of tax compliance fees.

All Other Fees. For 2005, there were no fees billed to us by KPMG LLP for products and services other than those reported under the three preceding paragraphs. For 2006, the aggregate fees billed to us by KPMG LLP for such products and services were $128,000. The amount for 2006 consists of fees for due diligence procedures pertaining to potential business acquisitions.

In July 2003, the Audit Committee adopted a policy providing for pre-approval of all audit and non-audit services to be performed by KPMG LLP, as the registered public accounting firm that performs the audit of our consolidated financial statements that are filed with the SEC. A copy of the policy, as amended, is attached to this proxy statement at pages D-6 through D-9 of Appendix D. None of the services provided to us by KPMG LLP and described in the paragraphs entitled “Audit-Related Fees,” “Tax Fees” and “All Other Fees” above were approved pursuant to the de minimis exception of SEC Rule 2-01(c)(7)(i)(C).

The Board of Directors unanimously recommends that the shareholders vote for Item No. 3.

21


OTHER MATTERS

The Board of Directors, at the time of the preparation and printing of this proxy statement, knew of no other business to be brought before the meeting other than the matters described in this proxy statement. If any other business properly comes before the meeting, the persons named in the enclosed proxy will have discretionary authority to vote all proxies in accordance with their best judgment.

SHAREHOLDER PROPOSAL AND NOMINATION DEADLINES

If you intend to present a shareholder proposal at the 2008 annual meeting, it must be received by the Corporate Secretary, First Horizon National Corporation, P. O. Box 84, Memphis, Tennessee, 38101, not later than November 12, 2007, for inclusion in the proxy statement and form of proxy relating to that meeting.

In addition, Sections 2.8 and 3.6 of our Bylaws provide that a shareholder who wishes to nominate a person for election to the Board or submit a proposal at a shareholders’ meeting must comply with certain procedures whether or not the matter is included in our proxy statement. These procedures require written notification to us, generally not less than 90 nor more than 120 days prior to the date of the shareholders’ meeting. If, however, we give fewer than 100 days’ notice or public disclosure of the shareholders’ meeting date to shareholders, then we must receive the shareholder notification not later than 10 days after the earlier of the date notice of the shareholders’ 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. Section 2.4 of our Bylaws provides that the date and time of the annual meeting will be the third Tuesday in April (or, if that day is a legal holiday, on the next succeeding business day that is not a legal holiday) at 10:00 a.m. Memphis time or such other date and/or such other time as our Board may fix by resolution. The meeting date for 2008, determined according to the Bylaws, is April 15, 2008. Thus, shareholder proposals and nominations submitted outside the process that permits them to be included in our proxy statement must be submitted to the Corporate Secretary between December 17, 2007 and January 16, 2008, or the proposals will be considered untimely. Untimely proposals may be excluded by the Chairman or our proxies may exercise their discretion and vote on these matters in a manner they determine to be appropriate.

22


EXECUTIVE COMPENSATION

Executive compensation for 2006 continued to be largely based on First Horizon’s financial performance. Annual bonuses for the CEO, COO, all corporate executives, and two of the business unit heads for 2006 were $0. Payout from the Long-Term Incentive Plan (LTIP) was $0 for all executive officers, as it was in the previous year. The CEO and COO forfeited performance restricted stock and performance stock options with values of $942,000 for the CEO and $840,000 for the COO.

Compensation Discussion and Analysis

Introduction

Compensation Committee Administration

The Compensation Committee of the Board administers all plans and programs connected with compensation of the named executive officers. That administration is joint with the Nominating and Corporate Governance Committee in connection with change in control severance agreements. Information concerning the Compensation Committee, its current members, and its charter is provided under the caption “The Compensation Committee” beginning on page 10 of this proxy statement, and a copy of the charter is provided in Appendix F.

Compensation Overview for Our Named Executive Officers

The principal components of compensation for Mr. Glass and other named executives are salary, annual cash bonus, and incentive awards. Incentive awards granted in 2006 were equity awards in the form of options, restricted stock, and long-term incentive program (LTIP) awards. In addition, performance-accelerated (PARSAP) restricted shares granted in 2005 were intended to compensate executives primarily for the period 2005-2007. Salary and bonus are inherently short-term tools, while equity-based incentives are inherently long-term.

Sizing and weighting of the individual components of regular target compensation are based on the competitive market for each position. For 2006, the components were sized and weighted as shown in the table below. The table below is not intended to reflect the sizing and weighting of the cash bonus paid to Messrs. Hughes and Martin in 2006 in connection with their retirements or the special one- time incentive grants awarded to Messrs. Baker and Makowiecki in 2006 in connection with their promotions, which are described under the headings “Other Post-Employment Benefits—Special Retirement Agreements” and “Special One-Time Equity Grants” beginning on pages 38 and 34, respectively.

2006 Regular Target Compensation Overview of Named Executive Officers

 

 

 

 

 

 

 

Component

 

Target Sizing

 

Target Weighting
as % of Target
Total

 

NEOs

 

CEO

 

Salary

 

Targeted to be near median of the market.

 

15% to 20%

 

 

 

15

%

 

Annual Cash Bonus

 

Total cash (salary plus bonus) is targeted at median of the competitive market for median competitive performance.

 

 

 

 

 

Annual cash bonus is targeted at 100% to 125% of salary, except for the business unit heads*.

 

15% to 30%

 

 

 

20

%

 

Equity Incentives

 

Equity incentives include both performance-based awards (subject to forfeiture if specific performance results are not achieved), and ordinary equity awards (the value of which depends upon our stock price) as detailed in the next table.

 

50% to 70%

 

 

 

65

%

 

TOTAL

 

 

 

N/A

 

 

 

100

%

 

 

 

*

 

 

 

The bonuses of the business unit heads (Messrs. Burkett, Makowiecki, and Hughes) are unrelated to salary; they are driven by business unit performance based on the competitive market.

23


Details of 2006 Equity Incentive Targets

 

 

 

 

 

 

 

Component

 

Target Sizing

 

Target Weighting
as % of Target
Total

 

NEOs

 

CEO

 

Options and Restricted Stock

 

Mr. Glass: The maximum potential combined option/restricted stock package size could have been 200% of salary; however, the Committee can reduce grant size based on its assessment of prior- year financial performance of First Horizon overall and, in 2006, Mr. Glass’s package was set at 140% of salary. 70% of this grant was performance-based, tied to achievement of 2006 financial goals. As a result, 100% of the 2006 grant was forfeited.

 

 

 

 

 

20

%

 

 

 

Mr. Baker: The maximum potential combined option/restricted stock package size could have been 150% of salary. The Committee elected not to reduce his grant size in part because he was promoted to the Chief Operating Officer position during 2005, making the usual prior-year performance evaluation less useful for this purpose. 80% of this grant was performance-based, tied to achievement of 2006 financial goals. As a result, 100% of the 2006 grant was forfeited.

 

20%

 

 

 

All Other NEOs: Total option/restricted stock package size is 25% of salary (20% for Mr. Mosby). Each component is 50% of the package by value. Options are valued at 20% of Restricted Stock.

 

5%

 

 

LTIPS
(Performance Based)

 

Target (i.e., maximum) value is 225% of target bonus for all named executives except the business unit heads (100% of salary).

 

40% to 45%

 

 

 

40

%

 

PARSAP
Shares
(2005 Grant)

 

Target value is 150% of 2005 salary. Award is intended to compensate primarily for three-year period 2005-2007; accordingly, 2006 portion is 50% of 2005 salary.

 

5% to 10%

 

 

 

5

%

 

Total Equity Incentives

 

N/A

 

 

 

65

%

 

 

Additional information concerning all these matters is set forth in the following sections of this proxy statement.

Compensation Philosophies and Practices

Our executive compensation plans and programs are designed to provide an incentive for our executives to attain specific corporate goals by rewarding them for achievement, align the interests of our executive officers with the interests of our shareholders, and compensate our executives so as to retain their services over the long term and allow us to attract new executive talent when needed.

Salary and Bonus. In general, salaries and bonus are targeted at median-market as described in the “2006 Regular Target Compensation Overview of Named Executive Officers” table on page 23. Some salaries are adjusted up or down from target for individual performance, experience, skills, tenure, and our need for retention. Bonus opportunities are based on salaries, except for business unit heads; those bonus opportunities are a function of business unit results in line with competitive market practices.

Incentives. In 2006 we utilized two types of incentives for the named executive officers: (i) direct performance-based incentives that would result in a payment or positive value only if certain objectives approved by the Committee were achieved; and (ii) incentives which had value increases or decreases if our stock value increased or decreased. Additional information concerning the types, amounts, and weighting of incentives is provided in the “Details of 2006 Equity Incentive Targets” table above.

Benefits. First Horizon provides benefits in line with those offered to other executives in our industry. Many are offered to broader groups of employees. Additional information concerning benefits is provided in “Perquisites and Other Personal Benefits” beginning on page 35 of this proxy statement.

Alignment. A major emphasis in our programs is the alignment of the interests of our executive officers with the interests of our shareholders.

Ties between Executive Compensation and Corporate Performance. Approximately 85% of the CEO’s annual compensation potential is at risk based on corporate performance and total shareholder return (defined below), while a substantial portion of the other executives’ annual compensation is based on achievement of

24


applicable business unit or corporate financial objectives. Additional information on performance practices is set forth under the caption “Incentives” beginning on page 24 of this proxy statement.

Stock Ownership Guidelines. Our stock ownership guidelines require our executives to maintain certain stock ownership levels. Specifically, the CEO is expected to maintain beneficial ownership of at least 150,000 shares, or approximately 6 to 7 times his salary, and each of the other executive officers is expected to maintain beneficial ownership of 25,000 to 50,000 shares, or approximately 3 to 5 times salary. For this purpose, fully-owned shares, restricted stock, and shares held in tax-deferred plans are counted, but employee stock options are not counted. Persons who do not meet the required levels must retain 75% of the net after-tax shares received from our stock option and other plans until the target ownership level is achieved. In 2006, all of the executive officers except four owned sufficient shares to meet the required levels; the 75% retention requirement of the guidelines therefore applies to those four, all of whom have relatively short tenure as executive officers.

We intend for the combination of our emphasis on corporate performance in setting executive compensation and stock ownership to strongly link the interests of our executives with those of our shareholders.

Retention. Our compensation programs are designed to attract and retain excellent people. Our human resources are a significant and valuable asset. We recruit from a broad pool of talent, and our people in turn may be recruited by competitors and others. Our total compensation package at each level must be competitive; if it is not, then over the long term we risk losing our best people while hampering our ability to replace them.

Deductibility of Compensation for Tax Purposes. Section 162(m) of the Internal Revenue Code of 1986, as amended (“Tax Code”), generally disallows a tax deduction to public companies for compensation exceeding $1 million paid during the year to the CEO and the four other highest paid executive officers at year-end. Certain performance-based compensation is not, however, subject to the deduction limit. The Committee’s practice is to continue 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 for executive talent.

Comprehensive Executive Compensation Review. We undertook a comprehensive review of executive compensation programs in 2006. Consultants were engaged to advise and assist the Committee in that review and to recommend changes to reflect current market conditions and incorporate best practices. These changes were approved by the Committee and the Board in January 2007. See “2006 Executive Compensation Review” beginning on page 40 for additional information regarding the outcome of the 2006 comprehensive review.

Compensation Committee Meetings

The Compensation Committee has five regular meetings scheduled for January, February, April, July, and October, and holds special meetings as needed. In 2006 the Committee met eleven times and took action by written consent one time for the principal purposes indicated below. Every meeting but one was concluded with an executive session during which management was not present.

Major actions taken at the various Committee meetings in 2006 included: February, approved the CEO’s 2005 personal plan results and 2006 personal plan goals, approved 2006 salaries and 2005 annual cash bonuses for executive officers, approved the forms of equity compensation awards to be granted to executives in 2006, and approved performance criteria for 2006 executive compensation that was to be performance-based; and April, made grants of equity and other long-term compensation awards to executives for 2006. Actions related to the 2006 comprehensive review of executive compensation began in April and continued for the balance of the year.

The Committee conducted a comprehensive review of executive compensation in 2006, and that fact significantly affected the number and agendas of the meetings last year. In the course of that review the Committee obtained significant input from management, executive compensation consultants, and specialists in areas such as tax and accounting. Information concerning the Committee’s use of management and consultants is set forth in this proxy statement under the headings “Role of Management in Compensation Decisions” immediately below and “Use of Compensation Consultants” beginning on page 26. Information concerning the outcome of the comprehensive review this year is presented under the heading “2006 Executive Compensation Review” beginning on page 40 of this proxy statement.

Additional information concerning director attendance at meetings and other related matters is set forth under the heading “The Compensation Committee” beginning on page 10.

25


Role of Management in Compensation Decisions

The Committee determined the CEO’s 2006 salary in February in executive session independent of management. That determination was based on a review of the CEO’s personal plan results for 2005, along with peer CEO salary data provided by the consultant and a summary of the impact that each alternative salary action would cause. The CEO was not involved in the determination of his salary. The Committee approved a 3% salary increase which was consistent with the average increase awarded to all full-time employees in our company.

Our CEO recommended to the Committee 2006 salary levels for the executive officers other than himself. Other compensation matters (bonus, equity awards, etc.) involving executives were considered and reviewed by management, including the CEO, and recommended to the Committee, either as a short list of alternatives or as single-item recommendations. Management used a consultant in formulating many of its recommendations, both for advice and as a source of peer-company data. Management also prepared various presentations, analyses, forecasts, tally sheets, and other tools for the Committee to use in considering compensation decisions during the year.

Management monitors and considers new or modified benefit programs used by other companies, or needed within our company, to attract and retain key employees. Recommendations are presented by management to the Committee for review and discussion. The CEO ultimately oversees these management processes. New benefit plans, or significant amendments to existing plans, typically are approved by the full Board based on recommendations from the Committee. Enrollment and other administrative actions associated with the benefit plans are handled mainly through third party vendors in accordance with the terms in the Board-approved plans. If executive-level exceptions are required for administration of the plans, such as approval of an early retirement, management generally reviews the facts of the situation and provides a recommendation to the Committee for approval.

During the comprehensive executive compensation review in 2006, management worked with the Committee and its consultant. Key goals of that involvement were to ensure that management’s knowledge of the Corporation and its many facets were understood by the Committee and consultant in the context of setting incentive programs, and that the Committee had the benefit of management’s views regarding how the incentive and other compensation programs could be enhanced or improved.

Use of Compensation Consultants

Management uses Mercer Human Resource Consulting (Mercer), a national compensation consulting firm, as its primary advisor for executive compensation matters, but also uses a number of other specialist firms to provide data relevant to specific needs such as funding for nonqualified deferred compensation and any special compensation arrangements that are unique to specific business units such as the capital markets and the mortgage industries. In other cases, nationally-recognized law firms are engaged to provide advice on compliance with new laws, administration of stock plans, and design of severance agreements. Mercer and the other consultants provide competitive data/trends and keep management informed of best practices. The consultants work with management to develop programs that permit the Corporation to attract and retain the talent we need.

In 2006, the Compensation Committee re-engaged a separate, independent consulting firm, Frederic W. Cook & Co. (the Cook firm), to provide analysis and advice on all compensation-related matters. Among other things, the Cook firm assists the Committee in its reviews of compensation program actions recommended by management. The Cook firm has no other relationships with the Corporation or management.

Consultants were used in 2006 both by management and by the Committee, as indicated above, in connection with the comprehensive review of all executive compensation programs. Those consultants provided management and the Committee with advice regarding possible changes needed to reflect current market conditions and incorporate current best practices.

Use of Peer Group Data

In furtherance of the retention objective, the Committee annually reviews the compensation practices of certain peer groups. Because of the diversity of First Horizon’s business units, we must review several peer groups in order to compare First Horizon’s pay practices with the competitive market for each line of business. The Total Shareholder Return Performance Graph (TSR graph) that appears in our annual report to shareholders uses the top 30 bank holding companies in the U.S. based on asset size as reported in American Banker (Top 30).

26


Management believes that the Top 30 is a good benchmark group with which to compare our total shareholder return, or TSR, which is stock price performance with dividends reinvested. We are one of the top 30 bank holding companies in the U.S. based on asset size as reported in American Banker.

The Committee used data from two peer groups to determine competitive pay for executive officers for 2006. The Committee used the Top 30 to benchmark performance for the Long-Term Incentive Program (LTIP) awards granted in 2006, and for restricted stock with a performance vesting feature (PARSAP) granted in 2005 with a performance period related to 2006. For many other purposes, however, for 2006 we identified a peer group of 27 financial services companies which includes most of the companies in the Top 30. Specifically, to construct our “Peer Banks” group used to make 2006 compensation decisions: we started with the Top 30 banks; we eliminated nine of the Top 30 due to substantial size (Citigroup, Bank of America, JPMorgan, Wells Fargo, Wachovia, and U.S. Bancorp), significantly different business mix (State Street and Bank of New York), or foreign ownership (Northern Trust); and we added five financial services companies that are immediately below the Top 30 based on asset size (Colonial Bancgroup, Associated Banc-Corp, City National, TCF Financial, and Commerce Bancshares). The median asset size of our Peer Banks group for 2006 was approximately $43 billion. For comparison, our asset size at year-end was $37.9 billion. We also used other compensation surveys provided by non-affiliated consulting firms to establish competitive pay for the heads of business units (e.g., competitive data from companies in the home loan industry is used to establish competitive pay opportunities for First Horizon Home Loan executives). While actual compensation varies by individual based on the performance of his or her line of business, overall compensation for the CEO and other members of the executive group has been below median over the past few years.

Components for Named Executive Officers

The principal components of compensation for the named executives are salary, annual cash bonus, and incentive awards. An overview of those components is presented in the “2006 Regular Target Compensation Overview of Named Executive Officers” table on page 23. Additional information concerning all these matters is set forth in the following sections of this proxy statement.

Base Salary and Annual Bonus

Base salary and annual bonus are determined through an evaluation of the individual’s position and responsibilities, external market data related to the Peer Banks group mentioned above, and personal and corporate performance. The Committee does not assign a specific weight to any of the factors other than as mentioned below.

Base Salary

Consistent with our practices and our compensation philosophy, the Committee establishes our CEO’s base salary annually based on achievement of objectives in his or her individualized written personal plan and competitive practices within the industry. The CEO develops a personal plan each year, which contains financial, quality and strategic goals. The CEO submits that plan to the Committee for review and approval. The Board of Directors also reviews the plan.

For executive officers other than our CEO, the Committee approves base salaries each year taking the CEO’s recommendations into account. 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. It is our policy to maintain a competitive salary commensurate with the duties and responsibilities of the executive officers.

Annual Cash Bonus

The final bonus paid to each executive officer for a year under our 2002 Management Incentive Plan, as amended (“MIP”), is based on a formula that is approved by the Committee in February of that year. In general, each final MIP bonus is based on achievement of company or business unit financial targets. The Committee may determine at its sole discretion to exclude certain items such as accounting changes and certain other one-time events not anticipated at the beginning of the year. MIP bonuses can be further reduced based on individual

27


performance. In addition, the Committee may approve executive bonuses outside of the MIP; no such bonus was approved for 2006 for any of the named executive officers.

Mr. Glass has a target annual bonus of 125 percent of his salary. The degree of success in reaching certain 2006 EPS objectives, as assessed by the Committee in early 2007, could have resulted in a payout ranging from zero percent to 150 percent of Mr. Glass’s target annual bonus. Zero percent payout would have been warranted if 2006 EPS fell below $3.00 after considering any one-time events. An EPS growth objective that qualified for 100 percent payout of target annual bonus was 8%, which was projected to be above the median growth rate of the Peer Banks group. A payout of the maximum 150 percent of target annual bonus would have resulted from achieving an EPS growth rate of 10%, equal to the top quartile of the expected growth of the Peer Banks group. Intermediate results would result in intermediate payouts. As indicated above, the Committee also was permitted to consider other factors pertinent to individual performance for the year in exercising negative discretion, which is the discretion to reduce but not to increase the bonus. Mr. Glass’s annual bonus for 2006 was $0, based on the Committee’s determinations in February 2007 and its consideration of the factors indicated above.

Mr. Baker’s 2006 bonus was determined using the same criteria as Mr. Glass’s, except that the size of Mr. Baker’s target bonus was 115% of salary. Mr. Baker’s annual bonus for 2006 was $0.

For executive officers other than Mr. Glass, Mr. Baker, and business unit heads, the annual bonus is based initially on the achievement of the corporate financial objectives and is subject to adjustment based on individual performance against personal objectives for the year, which are recorded in individualized written personal plans. Individual objectives include financial, quality, and strategic goals. The degree of completion of goals in accordance with a pre-established formula determines the final award. For 2006, the corporate executive officers reporting to Mr. Glass or Mr. Baker received bonuses based on corporate and individual results. Mr. Mosby was the only named executive officer in 2006 whose bonus was calculated as described above. Mr. Mosby’s annual bonus for 2006 was $0 due to the failure to achieve corporate financial objectives.

Bonuses are structured under the MIP as described above to provide an incentive to achieve financial and other performance goals each year. In recent years, actual bonuses for the corporate executive officers have been significantly below market median primarily due to performance, a key factor of which was the flat yield curve environment and its resulting impact on EPS growth. The targeted percentages of salary generally result in total cash compensation (salary plus bonus) near the median of the competitive market for median performance.

For business unit heads, bonuses vary based on competitive compensation practices in each business unit. Bonuses generally are derived from a formula which pays the business unit head a percentage of pre-tax earnings, subject to achieving a threshold financial performance and subject to adjustments for personal plan performance and corporate performance. Specifically:

 

 

 

 

Mr. Burkett’s 2006 bonus provided an opportunity to earn up to 0.355% of the 2006 pre-tax earnings of the Tennessee and National Banking unit so long as pre-tax earnings for the year at least equaled $236.9 million. Forty percent of the bonus amount earned under this formula is increased or decreased based on the corporation’s achievement of EPS growth goals. Mr. Burkett’s actual bonus for 2006 was $564,001.

 

 

 

 

Mr. Makowiecki’s 2006 bonus provided an opportunity to earn up to 0.259% of the 2006 pre-tax earnings of the Mortgage Banking unit so long as pre-tax earnings for the year at least equaled $339.9 million. Forty percent of the bonus amount earned under this formula is increased or decreased based on the corporation’s achievement of EPS growth goals. Mr. Makowiecki’s actual bonus for 2006 was $0 due to the failure to achieve the pre-tax earnings goals described above.

The bonuses actually paid for 2006 to our business unit heads were based on the prescribed formulas and were not adjusted for other factors.

The 2006 bonus for Mr. Hughes was based on an employment agreement established in 2004. Mr. Martin did not receive a bonus for 2006 in view of his retirement during the year. See “Other Post- Employment Benefits—Special Retirement Agreements” beginning on page 38 of this proxy statement for additional information concerning those two officers.

Equity-Based Compensation

In 2006, the Compensation Committee undertook a comprehensive review of First Horizon’s executive compensation programs. As a result, in 2007 we expect that our equity-based awards will differ in important

28


respects from our 2006 practices. Additional information concerning our expectations for 2007 is set forth in this proxy statement under the caption “2006 Executive Compensation Review” beginning on page 40 below. The information in this “Equity-Based Compensation” section pertains only to our 2006 awards, unless otherwise specifically stated.

Objectives of 2006 Equity-Based Awards

The primary objectives of all equity-based compensation awarded in 2006 are to:

 

 

 

 

align an important component of management compensation with our stock’s market value and, therefore, to motivate managers to achieve overall corporate results that will positively impact that market value and thus our shareholders’ value;

 

 

 

 

retain valuable managerial talent;

 

 

 

 

attract new managerial talent; and

 

 

 

 

reward management for the collective results of their efforts.

Some of the awards granted during 2006 created specific performance incentives which were expressly intended to motivate senior management to achieve those performance goals, in addition to the more general objectives mentioned above. Details of those performance objectives are described under the captions “Performance Options and Restricted Stock” on page 32 and “LTIP Awards” beginning at page 32 of this proxy statement.

Types of Equity-Based Awards in 2006

In 2006 we granted three basic types of equity-based awards to executives: stock options, restricted stock, and long-term incentive (LTIP) awards. An overview of those components is presented in the “Details of 2006 Equity Incentive Targets” table on page 24. Conventional (also called “management”) options and restricted stock were granted to all executive officers. In 2006, most of the option/restricted stock grants to our two highest officers, Messrs. Glass and Baker, were in the form of performance-based options and restricted stock; performance awards are like conventional awards except that they are subject to forfeiture if certain performance targets are not achieved. LTIP awards in 2006 were made in the form of performance stock units (PSUs), payable in cash at vesting. LTIPs granted in 2006 will vest or forfeit depending on whether certain three-year performance targets are achieved.

In addition, for many years we have granted performance-accelerated (PARSAP) restricted shares to our executives. PARSAP shares vest after ten years but vesting can accelerate if certain performance targets are achieved. PARSAP shares have been granted every three years and, for most of our executives, the most recent PARSAP grant was made in 2005. Details of those grants are presented in the following table:

Grant Size of Regular 2006 Equity Incentives
(Values in Dollars used by Compensation Committee)

 

 

 

 

 

 

 

 

 

 

 

 

 

Options and Restricted Stock ($)

     

2005 PARSAP
(2006 Portion)

 

LTIPs
(Performance)

 

Conventional

 

Performance

 

Total

 

Mr. Glass

 

 

$

 

378,000

   

 

$

 

934,000

   

 

$

 

1,312,000

   

 

$

 

2,655,000

   

 

$

 

472,000

 

Mr. Mosby

 

 

$

 

68,000

   

 

 

- 0 -

   

 

$

 

68,000

   

 

$

 

765,000

   

 

$

 

170,000

 

Mr. Baker*

 

 

$

 

210,000

   

 

$

 

840,000

   

 

$

 

1,050,000

   

 

$

 

1,811,250

   

 

$

 

350,000

 

Mr. Burkett

 

 

$

 

168,800

   

 

 

- 0 -

   

 

$

 

168,800

   

 

$

 

1,518,750

   

 

$

 

337,500

 

Mr. Makowiecki*

 

 

$

 

112,600

   

 

 

- 0 -

   

 

$

 

112,600

   

 

$

 

1,012,500

   

 

$

 

225,000

 

Mr. Hughes

 

 

$

 

156,000

   

 

 

- 0 -

   

 

$

 

156,000

   

 

$

 

1,401,500

   

 

$

 

311,500

 

Mr. Martin

 

 

 

- 0 -

   

 

 

- 0 -

   

 

 

- 0 -

   

 

 

- 0 -

   

 

$

 

214,000

 

 

*

 

 

 

The grants shown in the table above do not include Mr. Baker’s one-time promotional PSU grant received in February 2006 or Mr. Makowiecki’s prorated transitional LTIP grant received in February 2006, neither of which was considered part of the regular 2006 compensation package. Mr. Makowiecki’s regular 2006 LTIP grant is shown in the table.

29


Regular Annual Stock Options and Restricted Stock

Overall Regular Award Structure

We view regular annual grants of stock options and restricted stock as a single package, split in terms of total package value half in options and half in restricted shares. The restricted stock is valued using fair market value on the grant date with no discount for the restrictions, and options are valued by assuming—for ease of administration—that each option share is worth one-fifth of a restricted share. The one-fifth valuation assumption used for options roughly approximates the valuation used for stock options in determining compensation expense in our financial statements. To illustrate this process: if an officer’s 2006 package had been determined to be $100,000 and our stock price at grant was $40, that employee’s package would be 6,250 option shares (each with a $40 exercise price) and 1,250 shares of restricted stock.

For many years our regular annual equity package consisted only of stock options. In 2005 we divided the package into stock option and restricted stock components, and continued that practice in 2006. Although both award types fundamentally derive their value from our stock price, the two types differ and thus complement each other when they are used together. Options obtain value only to the extent our stock price rises during the option term until the time of exercise, while restricted stock has some value at all times. As a result, the value of options is leveraged, or magnified, in a manner not applicable to restricted stock. Although that leverage provides a stronger incentive to drive stock values higher, it can also allow the option holder to take advantage of short-term price fluctuations unrelated to long-term share value. By combining both types of awards into a single annual conventional equity package, we intend to temper the incentive to drive higher share values with the incentive to nurture long-term share values.

In 2006, for Messrs. Glass and Baker, each regular component was sub-divided into “management” and “performance” awards, so that in 2006 each of those two executive officers received a regular annual equity award divided into four types: management and performance stock options, and management and performance restricted stock. The maximum potential package size for all four types combined was split 20% management and 80% performance. When the Committee determined that Mr. Glass’s award would be reduced as described above, the reduction occurred in the performance awards, resulting in a split of 30% management and 70% performance in the maximum potential package size.

Package Size for NEOs

Information concerning package sizes for 2006 is provided in the “Grant Size of Regular 2006 Equity Incentives” table on page 29. Mr. Martin received no regular equity awards in 2006 due to his pre- announced retirement during the year. Mr. Baker also received a special PSU grant related to a promotion; see “Special One-Time Equity Grants” beginning on page 34 for more information. The overall equity award size for executives in 2006 was linked to salary in specific ways, and Mr. Glass’s performance awards were reduced, all as discussed under the caption “Compensation Overview for Our Named Executive Officers” beginning at page 23 of this proxy statement. The Committee intended to promote the following objectives in determining the size of these awards:

 

 

 

 

Provide stock and other long-term incentives at a level needed to provide competitive total compensation opportunity commensurate with the business results achieved.

 

 

 

 

Provide a mix of long-term incentives that takes into account the need for improving shareholder value, achievement of business results, competitive pay packages, retention, and the annual share usage run rate.

Selection of Option and Restricted Stock Recipients

All full-time employees above a certain grade level, including all executive officers, routinely are selected by the Compensation Committee to receive regular annual grants of stock options and restricted stock of the sort discussed in this proxy statement. Approximately 3,000 employees received regular annual equity awards of this sort.

For many years the Committee also approved annual “FirstShare” awards of stock options to those employees who do not receive the options and restricted stock discussed here. Executive officers do not receive FirstShare awards.

30


Option Grant Practices—General

Our executive stock options historically have fallen into four categories, each with its own grant practices: regular annual grants; special one-time grants; deferral grants; and reload grants. In 2006 and at the present time, the only option grants are annual and special one-time. This section discusses regular annual grants, deferral grants and reload grants; special one-time grants are discussed below under the caption “Special One-Time Equity Grants” on page 34.

Option Grant Practices—Timing and Pricing

Our shareholder-approved option plans are written so that the effective date of each grant determines the price of the option (market value on the grant date) and its vesting and expiration dates. For that reason, our practices regarding the timing of grants also affect the pricing of grants.

In addition, for regular annual grants, the pricing (and therefore the timing) of each grant also impacts the number of shares awarded. As is discussed above under the caption “Overall Regular Award Structure,” the Compensation Committee’s practice for executives is to approve an overall annual dollar level of option and restricted stock awards for each person. That dollar level is split 50% options and 50% restricted stock. The number of shares covered by the restricted stock award is determined by dividing that 50% amount by the value of our stock on the grant date. The number of option shares is five times the number of restricted shares.

Our regular annual option grants for many years, including 2006, have taken place in the early part of each year. Currently grants are approved by our Compensation Committee at the April meeting. For many years the effective date of each grant has been either the date of the Committee meeting at which the grants were approved, or a specified date shortly after the meeting date. A specified later date typically has been selected by the Committee whenever the Committee meeting date has occurred shortly before, or on the same day as, a planned quarterly earnings announcement. The effective date therefore occurs after the announcement so that the stock market has had an opportunity to take the announcement into account before the price of the option is set. In 2006, the effective date of the regular option grant was April 21, three days after the applicable Committee meeting and one full trading day after earnings were announced for the first quarter.

Deferral Option Grants (Discontinued in 2004)

For many years executives were permitted to defer a portion of their earned salary and bonus into new stock options. Deferral elections were irrevocable and typically were made by each individual officer in advance, during the year prior to earning the salary or bonus being deferred. With respect to deferrals of salary, deferral options were granted in arrears effective on the first trading days in July and January following each half of the year affected by the deferral election. With respect to deferrals of bonus, deferral options were granted effective in late February or early March, shortly after bonuses were decided. Over the years the option price of deferral options was set at 15%, 20%, and 50% of the market value of our stock on the grant date, depending upon which program was in place at the time of grant. The number of shares covered by each deferral option was determined by dividing the dollar amount deferred by the option price. For example, $1,000 deferred into options priced at $20 when the market value was $40 would result in a deferral option covering 50 shares. In that manner, deferral options had an immediate value at grant equal to the dollar amount deferred. Although we discontinued the deferral option program in 2004 (the last such grant was in early 2005, related to 2004), a number of the outstanding options mentioned in various tables in this proxy statement were deferral options granted at discount prices in this manner.

Reload Option Grants (Discontinued in 2004)

Our executives are permitted to exercise options by paying the option price using shares of our stock acquired previously by them. This is known as a “stock swap” exercise, because the option holder in effect gives us old shares and receives back a larger number of new shares. A stock swap exercise has the effect of reducing the total number of shares (including shares subject to option) in which the option holder has an interest. For many years our options had a feature that was intended to remedy that share compression. That feature allowed an executive who did a stock swap exercise to automatically obtain a new option grant on the exercise date; this was known as a “reload” grant. The reload grant covered the number of shares delivered to us to pay the option price, and the reload option price was equal to market value on the new grant date. Although we discontinued the reload

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option feature in early 2004 (no stock swaps after that time resulted in a reload grant), a number of the outstanding options mentioned in various tables in this proxy statement were reload options granted in this manner.

Restricted Stock Grant Practices

In 2005 and 2006 we made a regular annual grant of restricted stock to our executives. The effective dates of those grants have coincided with the grant dates of regular annual option grants. In some years, including 2006, the effective date of each annual option grant has been chosen by the Committee to occur after we announce quarterly earnings; that timing practice is discussed above under the caption “Option Grant Practices—Timing and Pricing.”

Restricted stock has no award price similar to an option price. Nevertheless, our restricted stock grants in 2005 and 2006 were linked to the market value of our stock on the effective date of the grant. The methodology used to calculate the number of options and restricted shares is discussed above under the caption “Overall Regular Award Structure.” Under this calculation methodology, the number of restricted shares varies inversely with our market value on the grant date.

Performance Options and Restricted Stock

Mr. Glass and Mr. Baker received performance options and shares in 2006 in addition to conventional management options and shares. Those performance awards were structured to forfeit in full if our earnings per share (EPS) growth in 2006 was not positive, and to forfeit in part if we did not achieve EPS growth in 2006 of 8%. To the extent those targets were achieved, the awards retained were not to vest immediately; instead, they simply were to remain outstanding and continue to vest over the normal 3- and 4-year time periods.

The 2006 fiscal year included a number of unusual items that impacted EPS and, therefore, EPS growth. After making adjustments required by the terms of the awards and our 2003 Equity Compensation Plan, the Compensation Committee determined that our EPS growth rate in 2006 was negative and therefore all of the 2006 performance awards were forfeited in early 2007.

LTIP Awards

Grant Practices

LTIP awards were initiated in 2003 based on a market analysis which showed that long-term incentive opportunity for senior executives was significantly below that of peer companies. The program was designed to provide competitive compensation opportunity and focus senior leaders on increasing shareholder value. The maximum award level was established to provide the opportunity to earn top quartile compensation relative to the Top 30 financial services companies if results were clearly superior to those companies during each 3-year performance period. The long-term incentive market data showed the highest award as a percentage of salary for the CEO and progressively lower awards as a percentage of salary for executives in lower positions. This was consistent with peer competitor data for bonus targets which also vary progressively as a percentage of salary based on the executive’s position in the organization. Information concerning the size of LTIP awards in 2006 is provided in the “Details of 2006 Equity Incentive Targets” table on page 24 and the “Grant Size of Regular 2006 Equity Incentives” table on page 29.

LTIP awards are granted annually to all executive-level officers, including each of the named executive officers. Each LTIP has a three-year performance period, and is paid shortly after the end of the performance period. The performance period for 2006 LTIP award covers the years 2006-2008. Because LTIPs are granted annually with three-year performance periods, company performance in any given year typically affects three different LTIP awards. LTIPs granted in, and outstanding during, 2006 all are denominated in performance share units (PSUs). Each PSU is payable in cash based on the value of a share of our stock at the time of payout. The total dollar amount paid therefore depends on (i) the number of PSUs granted, (ii) the percentage of PSUs earned based on achievement of the performance targets, and (iii) the value of our stock at the time of payment.

The number of PSUs in 2006 was determined by dividing the dollar target by the value of a share of our stock on the effective date of grant. Grant dates in 2006 were the same as the grant dates used for options.

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Performance Criteria

To earn the maximum 2006 award, First Horizon’s 3-year earnings per share (EPS) growth must be in the top 10% (90th percentile) of the Top 30 competitors. (Additional information concerning the Top 30 and other peer groups is in the “Use of Peer Group Data” section beginning on page 26.) Awards are earned based on achieving a minimum average annual EPS during the performance period of $3.00 and competitive EPS growth. The EPS growth objectives are: 100% vesting if we achieve EPS growth at the 90th percentile relative to the Top 30 group, 33% vesting if we achieve EPS growth at the 50th percentile, and proportionate vesting in between those results. If our EPS growth is below the 50th percentile, the Committee has discretion to determine that some percentage of the PSUs could vest but no guideline has been established. Four governance standards have been specified to further reduce the awards earned, though the Committee could base its vesting decision on other factors as well. The four specified governance standards are: our credit ratings should be at single A or better with a stable outlook; we maintain our well-capitalized regulatory ratios; no formal exceptions to governance are cited by our Board or any of its committees; and a particular regulatory rating should be maintained. We are not permitted to publicly discuss details of the last-mentioned rating; however, we are able to state that management currently expects to maintain the regulatory rating level specified in our LTIP award.

We cannot predict the degree to which the 2006 LTIP awards eventually will be earned. As a result of actual performance compared with our performance standards, all LTIP units granted in 2003 and in 2004 were forfeited.

PARSAP Awards

Objectives

The objectives of our PARSAP program are to provide competitive total compensation opportunity, associate more closely the long-term compensation of executive officers with shareholder interests, and provide an incentive to ensure that First Horizon’s TSR (total shareholder return) and EPS (earnings per share) are competitive. Vesting in the tenth year was required to ensure favorable accounting treatment based on the accounting regulations in effect when shares were granted.

Grant Practices

Prior to 2007, our practice was to grant PARSAP stock every three years to all executive-level officers, including each of the named executive officers. As part of its comprehensive review conducted during 2006, the Committee has decided not to make future PARSAP awards. Previously granted awards remain outstanding and are subject to accelerated vesting if performance criteria established by the Committee are met with respect to specified performance periods, as described below. If the performance criteria are not met, the PARSAP shares vest on the tenth anniversary of the grant date.

Each PARSAP award is divided into three equal installments. Each installment has its own three-year performance period. The three periods overlap so that, if all targets are achieved, the PARSAP will result in one installment vesting in each of three consecutive years. Any installment that fails to vest will vest on the tenth anniversary of grant, unless the recipient has resigned or has been discharged or re-assigned. If a PARSAP award is made every three years, then an officer who is with us for the long term has an opportunity to have a PARSAP installment vest every year. The most recent regular PARSAP award was granted in 2005, and its performance periods are: 2005-2007, 2006-2008, and 2007-2009. New executive officers typically have received prorated PARSAP awards.

The last regular grant of PARSAP shares was made at the April 2005 Compensation Committee meeting at the same time that stock options were granted by the Committee. Information concerning the size of PARSAP awards in 2006 is provided in the “Details of 2006 Equity Incentive Targets” table on page 24 and the “Grant Size of Regular 2006 Equity Incentives” table on page 29. The number of PARSAP shares was determined by dividing the target values by the same stock price used for the options granted at that Committee meeting. In setting the size of those awards, the Committee considered competitive long-term incentive market practice, the need to retain key members of the senior management team, and the Committee’s philosophy of linking compensation to delivery of shareholder value.

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Performance Criteria

The primary performance criteria, for all participants including the CEO, have always been based on our TSR (total shareholder return) targets relative to competitors established at the beginning of each performance period. For the 2005 grant, TSR targets are based on our percentile ranking in the Top 30 peer group, with the condition that TSR must be a positive number. The TSR ranking for a particular period must be at or above the 50th percentile for shares related to that period to vest early.

If the TSR targets are not met, the PARSAP may still vest on an accelerated basis if certain alternative criteria are achieved. Those alternative criteria are: (1) our achieving an EPS growth rate of 10% or higher; and (2) our achieving an operating return on equity (ROE) ranking within the Top 30 peer group at or above the top quartile. However, vesting will not accelerate under these alternative criteria unless TSR is a positive number.

Special One-Time Equity Grants

Over the past several years, special one-time grants of stock options, restricted stock and performance stock units have been made on a very selective basis. In 2006, one such grant was related to the promotion of Mr. Baker, and one other such grant was made to a newly-hired executive officer who is not a named executive in this proxy statement.

Major Promotions

Special, supplemental grants are made on a selective basis in the case of a substantial promotion at the executive level when the Committee deems it appropriate to provide competitive compensation at that next level of management and to emphasize equity and long-term incentives rather than focusing only on a base salary change. These grants are intended to reinforce the importance of increasing shareholder value and recognize the impact of the new position on creating long-term value for First Horizon. Promotion grants typically are made by the Committee off-cycle at or near the time of the promotion.

One promotion grant was made to a named executive officer in 2006: Mr. Baker received a special grant of performance stock units (PSUs) in February 2006 in connection with his promotion to Chief Operating Officer in 2005. The size of the grant was determined based on Mr. Baker’s additional responsibilities as COO, his compensation relative to market in his new role, his lower bonus opportunity as a result of the move, and linkage of the award to corporate results. Mr. Baker’s PSUs are directly linked to the value of our stock (one PSU has the value of one share), and additionally are linked to the same EPS growth performance criteria as his cash bonuses under our shareholder-approved Management Incentive Plan in the following manner: the PSUs will vest and pay out in the same proportion (up to 100%) as Mr. Baker’s average annual bonus payout relative to his target bonus over the three-year period 2006-2008. To illustrate this, if Mr. Baker’s average bonus payouts for those three years were 60% of target, then 60% of the special PSUs will pay out and the remainder will be forfeited. Mr. Baker’s 2006 bonus was 0% of target. Additional information concerning bonuses is provided under the heading “Annual Cash Bonus” beginning at page 27.

Mr. Glass received a special restricted stock grant when he was promoted to Chief Executive Officer in 2003 that was scheduled to vest half in 2007 and half in 2009. A pro rata portion of this grant, consisting of 23,750 shares, will vest in connection with Mr. Glass’s retirement as an employee on April 17, 2007; the remainder of the grant will be forfeited on that date.

In addition to special promotional grants, prorated grants of regular awards often are made in connection with a mid-year or mid-period promotion. In 2006, Mr. Makowiecki received a prorated portion of the number of PARSAP shares and LTIPs that he would have received had he been an executive officer in 2005. Those prorated awards were made in recognition of his promotion to an executive officer position in January 2006, after the regular 2005 grant date.

New-hire Grants

Grants sometimes are awarded to executive-level persons hired from another company. These grants sometimes are intended to replace forfeited compensation at a former employer, and in any case transition the new executive into our company’s equity and long-term incentive plans using prorata grants as needed. These grants typically are made at a Committee meeting following the hiring, and therefore typically are off-cycle. None of

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the named executive officers has an outstanding new-hire grant. During 2006 awards of this nature were made to hire talented managerial employees including one executive officer who is not a named executive officer for purposes of this proxy statement.

Deferral Plans and Programs

Objectives, Scope, and Practices

For many years we have offered many employees and directors the means to manage their personal tax obligations associated with their compensation from First Horizon through various nonqualified deferral plans and programs. Although personal tax management is our primary objective in providing this benefit, an important secondary objective is to encourage our senior personnel to save for retirement. We also provide this benefit in order to remain competitive in retaining talent and seeking new talent to join us.

During 2006, the plan under which the named executive officers and directors could elect to defer receipt and immediate taxation of earned cash compensation was the First Horizon National Corporation Nonqualified Deferred Compensation Plan. For executives, the types of compensation that could be deferred included salary and annual cash bonus.

Under that plan, executives and non-employee directors have deferred and may currently defer amounts that earn at-market returns indexed to the performance of certain mutual funds selected by the participant. These mutual funds merely serve as the measuring device to determine the participant’s rate of return; the participant has no ownership interest in the mutual funds selected.

Directors’ and Executives’ Deferred Compensation Plan (1985 D&E Plan)

Under an old cash deferral plan, initiated in 1985 for directors and executives and not offered with respect to compensation earned since 1995, non-employee directors and executive officers could elect to defer fees, salary, and bonus. The 1985 D&E Plan has paid, and in 2006 continued to pay, an accrual of interest at rates ranging from 17-20 percent annually. Although new deferrals have not been permitted under that plan since 1995, interest continues to accrue on certain older accounts. Certain non-employee directors and named executive officers, including Mr. Glass, have old accounts under the 1985 D&E Plan and received interest accruals under it in 2006.

The 1985 D&E Plan rates are considered above-market in 2006, and the above-market portion of earnings under the Plan is so reported in the Summary Compensation Table on page 43 for those named executives who have accounts. The 1985 D&E Plan’s above-market interest motivates participating executives to remain with First Horizon until normal retirement, and to refrain from joining a competitor after retirement, because each account is subject to retroactive re-calculation of the account balance using a guaranteed rate based on 10-year Treasury obligations if an executive terminates service prior to a change-in-control for a reason other than death, disability or retirement, or if an executive joins a competitor after leaving First Horizon. In most cases, any such re-calculation would result in a substantial reduction in the account’s value. The Committee has reduced the rates applicable to 2007 under the plan to 13% for most participants, as described under the heading “2006 Executive Compensation Review” beginning on page 40.

Other Compensation

Broad-Based Plans and Programs (Other than Retirement)

First Horizon provides a benefit package in line with competitors as described below. This allows all employees to receive certain benefits such as healthcare which are not readily available to individuals except through their employer and allows employees to receive a certain benefit on a pre-tax basis.

Perquisites and Other Personal Benefits

First Horizon provides benefits in line with those offered to other executives in our industry. The following benefits are provided, all of which are available to a broader group of employees beyond executive-level officers and most of which are broad-based and generally available to all employees:

 

 

 

 

Healthcare, dental, vision, accident—subject to the executive paying the same premiums as all other employees

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Flexible benefit dollars—same benefit percentages and limits available to all employees

 

 

 

 

Regular life and disability insurance—same benefits as provided to a broader group of employees, subject to standard limits

 

 

 

 

Executive Survivor Benefit Plan—provides a benefit of 2.5 times base salary if death occurs during service, reduced to 2 times salary if death occurs following departure due to disability or retirement; benefit is provided to about 1,000 employees, including all named executive officers, based on salary grade

 

 

 

 

Executive disability plan—for the top tier of covered employees, which includes all executive officers, this plan provides up to 75% of monthly pay (including base salary, bonus, commissions and incentive compensation) less the 60% income replacement up to $25,000 per month offered by our regular plan

 

 

 

 

401k match—same match percentage and limits as all other employees

 

 

 

 

Pension Plan—provides the same benefit schedule, subject to the same limits, to executives and all other employees in business units that participate in First Horizon’s Pension Plan

 

 

 

 

Pension Restoration Plan—provides a nonqualified restoration of pension benefits to about 40 active employees, including all named executive officers, who exceed the IRS salary limit applicable to our regular Pension Plan

 

 

 

 

Nonqualified deferred compensation—standard program with market-based interest rates that is available to employees who meet the Department of Labor requirements to participate in a nonqualified deferral arrangement and defer money they have earned. In addition, some of the executive officers have account balances in the 1985 D&E Plan, which was discontinued a number of years ago. That plan provides an above-market interest rate.

 

 

 

 

Nonqualified supplemental retirement arrangements—Occasionally special retirement agreements or arrangements are made in unusual or special situations. Three of the named executive officers have a total of four such arrangements, which are discussed in more detail at “Other Post-Employment Benefits—Special Retirement Agreements” and the immediately following sections, beginning at page 38 of this proxy statement. Each special arrangement is unique and tailored to the situation that prompted it.

 

 

 

 

Perquisites—Our goal is to offer perquisites that are customary (and therefore necessary to remain competitive) and, in some cases, that relate to business duties. Details of the perquisites we provided to our executives in 2006 are discussed on page 45 of this proxy statement in footnote (i) to the Summary Compensation Table.

Life and Disability Insurance

We provide a life insurance benefit to a broad group of employees which has a cap of $50,000. In addition to the regular life insurance benefit, we provide an executive survivor benefit of 2.5 times base salary if death occurs during service, reduced to 2 times salary if death occurs following departure due to disability or retirement. The executive benefit is provided to about 1,000 employees, including all named executive officers, based on salary grade.

We provide a 60% disability benefit (up to $25,000) to a broad group of employees. In addition, we provide an executive disability benefit for several tiers of senior employees. For the top tier of covered employees, which includes all executive officers, the total disability benefit provides up to 75% of monthly pay (including base salary, bonus, commissions and incentive compensation) less the 60% income replacement offered by our regular plan.

We believe that both of these benefits are customary. Therefore, we provide them to remain competitive in retaining talent and seeking new talent to join us.

401(k) Savings Plan

The primary objective of our tax-qualified 401(k) savings plan is to motivate employees to save for their retirement. Secondary objectives include attracting and retaining quality employees, since many U.S. employers offer 401(k) plans with some level of matching contribution. Our 401(k) plan was established many years ago; no substantial changes to the match or basic plan structure were made in 2006.

We provide all qualifying full-time employees with the opportunity to participate in the plan. The plan allows employees to defer receipt of earned salary, up to tax law limits, on a tax-advantaged basis. Accounts may be

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invested in a wide range of mutual funds and in our common stock. Up to tax law limits, we provide a 50% match for the first 6% of salary each participant elects to defer into the plan. Matched contributions are normally initially invested in First Horizon stock, but may be re-invested in other assets at the participant’s election.

Pension and Restoration Plan

Pension Plan

The primary objectives of our tax-qualified Pension Plan are: to attract and retain quality employees, since many large U.S. employers continue to offer traditional pension plans and, compared with those who do not, our plan gives us a competitive advantage; and to motivate employees to remain with our company for the long term, since the benefit usually is most valuable for an employee who is with us for many years, especially one who finishes his or her career with us. Our Pension Plan was established many years ago; no substantial changes to the basic plan structure were made in 2006.

In 2006 all qualifying full-time employees in corporate and participating business units participated in our Pension Plan. Our plan is a traditional pension plan that provides for a defined benefit to be paid to employees upon retirement. The benefit is based upon a participant’s average base salary for the highest 60 consecutive months of the last 120 months of service, years of credited service, and social security benefits (under an offset formula). Benefits are normally payable in monthly installments after age 65. Tax laws limit the qualifying salary that can be used, and thus the benefit that can be paid, under the Pension Plan to a dollar amount that is adjusted each year for inflation. The formula works in a traditional manner so that longevity with our company is rewarded.

The Pension Plan is funded by us through a trust, governed by various laws. Our payments into the trust are determined based on estimates each year of the eventual benefits to be paid and trust earnings. Assets in the trust are used to pay benefits.

Pension Restoration Plan

The objectives of our Pension Restoration Plan are the same as those for the Pension Plan discussed above. Many U.S. employers that continue to offer traditional pension plans also offer restoration plans to their senior personnel. No substantial changes to the basic plan structure were made in 2006; however, the plan is being administered to ensure compliance with new, preliminary Internal Revenue Code section 409A regulations.

Our Pension Plan is subject to certain dollar limitations on qualifying compensation and benefits imposed by the tax laws. Our pension restoration plan provides a restorative benefit to all of the executive officers, including all of the named executive officers, and other employees approved by the CEO on a case by case basis so that the combined pension and restoration benefit is calculated as if those tax limitations did not exist. The pension and pension restoration plans thus generally operate as a single plan in terms of defining the pension benefit payable to executives.

Other Post-Employment Benefits

Change in Control Severance Agreements

During 2006 we had change in control severance contracts with the named executive officers. Those contracts provided generally for a payment equal to three times annual base salary plus annual target bonus in the event of (1) a termination of the officer’s employment by us 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 event as defined in the agreement, or (2) 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. With respect to named executive officers whose bonuses are based on a percentage of business unit earnings, the severance payment under the contract was calculated using 100% of annual base salary in lieu of the annual target bonus; for such persons, salaries generally are less than actual bonuses. The contracts provided generally for an excise tax gross-up with respect to any taxes incurred under Tax Code section 4999 following a change-in-control, and for 3 years of continued welfare benefits. These contracts are not employment agreements and do not guarantee employment for any term or period; they only

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apply if a change in control occurs. Each contract could be terminated unilaterally upon three years’ prior notice or by mutual consent. The term “change in control” is defined in the contracts to include:

 

 

 

 

a merger or other business combination, unless (i) more than 50 percent of the voting power of the corporation resulting from the business combination is represented by our voting securities outstanding immediately prior thereto, (ii) no person or other entity beneficially owns 20 percent or more of the resulting corporation, and (iii) at least a majority of the members of the board of directors of the resulting corporation were our directors at the time of board approval of the business combination (solely for purposes of the severance contracts, but not for purposes of their 30-day termination period, the “50 percent” test in clause (i) is changed to “60 percent” and the “majority of the board” test in clause (iii) is changed to “two-thirds of the board”),

 

 

 

 

the acquisition by a person or other entity of 50 percent or more of our outstanding voting stock,

 

 

 

 

a change in a majority of the Board of Directors, or

 

 

 

 

shareholder approval of a plan of complete liquidation or a sale of substantially all of our assets.

Over the past 20 years the financial services industry has experienced an extraordinary period of consolidation as old legal barriers, which prevented multi-state banking and which restricted the business lines in which bank holding companies could engage, have been abruptly relaxed. Although the new legal environment has created substantial business opportunities for us and for many of our competitors, it has also created substantial personal uncertainties for officers and many levels of employees at all but the very largest financial services organizations. Our severance agreements were first put in place a number of years ago. They are re-examined from time to time, and were last revised in 2005. Based on a peer analysis, we believe that most of our competitors offer change in control severance arrangements, at least to their executive officers, and that competitors’ agreements generally are similar to ours. The primary objectives of our severance agreements are: to allow us to compete for executive talent during normal times; and, if a change in control situation were to arise, to motivate our executive team to remain with First Horizon, focused on company objectives, during the pursuit, closing, and transition periods that accompany nearly every change in control transaction in our industry.

In early 2007, as an outgrowth of our comprehensive review of executive compensation in 2006, the Committee approved the modification of the executive change in control severance agreements. The changes made are outlined under the heading “2006 Executive Compensation Review” beginning on page 40 of this proxy statement. Changes to the outstanding agreements may not be effected unilaterally; for that reason, we are in the process of seeking consents from the affected officers, including named executive officers.

Change in Control Features Under Other Plans and Programs

Under many of our plans and programs, a change in control event will cause benefits to vest, be paid, or be calculated and paid at target or maximum levels. Details of those change in control features are discussed under the heading “Change in Control” beginning on page 61.

No change in control features were changed substantially in 2006. All are triggered by the change in control itself, whether or not employment also terminates. The main objective of this feature in every case is to allow our company to offer competitive compensation packages so as to attract and retain top talent in an industry where consolidation continues at a robust pace. Each change in control feature in a plan was approved at the time that plan was considered by the Board and (in many cases) our shareholders. At times consultants were used to assist the Committee in the design of each plan, and at times peer data was reviewed. As part of our comprehensive review of executive compensation in 2006, the Committee approved changes to certain of the change in control features of our plans and programs.

Special Retirement Agreements

On occasion in the past the Compensation Committee has approved entering into special severance arrangements with some of our retiring executive officers. Those agreements are negotiated with each individual retiree and have varied considerably. Generally they have involved officers as to whom First Horizon desires a non-competition/non-solicitation covenant and other legal restrictions. Those restrictive covenants typically have had two to three-year terms. In order to induce a retiring officer to agree to those restrictions, First Horizon generally offers certain benefits which the retiree normally would not receive. Those benefits have included, at least in some

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instances, vesting of conventional and PARSAP restricted stock that otherwise would be forfeited, partial retention of LTIP incentive awards that normally would be forfeited, lump sum (rather than annual) payments of pension restoration plan benefits, increases in the years of credited service used to determine pension benefits, cash payments, and certain perquisites. The LTIP awards typically are prorated based on the years of the applicable performance period that the retiree worked, but remain subject to satisfaction of all applicable performance requirements. Cash payments typically are a specified number of months of salary, a percentage of bonus target or a retention of bonus opportunity, and/or some other severance-oriented amount. The perquisites have included post-retirement office space and administrative assistance. This perquisite has in the past been provided to retired CEOs and, in only one instance, to another executive officer.

Our executives do not have employment contracts, and we have no obligation to provide anyone with a special retirement arrangement. When such an arrangement is provided, the terms vary with the circumstances. We believe such an arrangement can be a useful tool in those situations where a non-competition covenant or other legal restriction is desirable and we intend to consider using them in the future in those situations that are appropriate.

In 2006 we entered into special retirement agreements with two named executive officers who retired in 2006: Mr. Martin and Mr. Hughes. Mr. Baker and Mr. Hughes also have supplemental retirement benefit agreements that we entered into in 2004. These special agreements are discussed under the headings “Special Retirement Agreement with Mr. Baker,” “Special Retirement Agreement with Mr. Martin,” “Supplemental Retirement Agreement with Mr. Hughes,” and “Non-Compete Agreement with Mr. Hughes” immediately following this section of this proxy statement. In early 2007 our Board approved a special retirement arrangement with Mr. Glass; information on this arrangement is provided under the caption “Early and Normal Retirement—Other Agreements and Arrangements” on page 61 of this proxy statement.

Special Retirement Agreement with Mr. Baker

In 2004, we entered into an agreement with Mr. Baker, who was then head of our mortgage business, relating to his years of credited service under our Pension Plan. At the time of this agreement, Mr. Baker began reporting directly to our Chairman and Chief Executive Officer, and was designated by the Board as an executive officer of First Horizon.

The agreement provides for an increase in Mr. Baker’s years of credited service for pension purposes equal to the six years he served with our mortgage company subsidiary. Our mortgage company does not participate in our Pension Plan, and those six years otherwise would not have been counted.

The supplemental agreement was intended to provide a transition for Mr. Baker from our mortgage company’s traditional bonus plan to our management plan used for executive officers. When Mr. Baker became an executive officer in 2004, his annual cash bonus previously was determined based on business unit results, in a traditional manner consistent with our understanding of industry practices. The bonus opportunity offered under the 2002 Management Incentive Plan was significantly less than that provided under mortgage industry norms. Given Mr. Baker’s tenure with the Corporation at that point and expected retirement age, the Compensation Committee and Mr. Baker agreed that this adjustment in his years of service adequately compensated Mr. Baker for giving up his expectations under our traditional mortgage company bonus arrangement.

Special Retirement Agreement with Mr. Martin

Mr. Martin’s special retirement agreement requires Mr. Martin to comply with certain non-competition, non-solicitation, and other covenants, and provides us with a release. Mr. Martin was paid one year of salary in a $482,000 lump sum. Mr. Martin is to receive a monthly nonqualified pension benefit in accordance with the terms of our Pension Restoration Plan, except that First Horizon has agreed to waive the requirement for working until age 65 to receive this benefit and the first six monthly payments under this plan will be delayed and paid in a lump sum six months after Mr. Martin’s retirement date. The annual benefit (in accordance with the terms of our Pension Restoration Plan) is estimated to be approximately $53,366. Mr. Martin was age 58 at the time of his retirement. Approximately six months after retirement, Mr. Martin received a one time lump sum payment of $1,330,000, which is the approximate present value of adding five years to his actual service for the purpose of determining his nonqualified pension benefit. This payment will not have any effect on, and Mr. Martin will receive no additional service credit for, his qualified defined pension benefit. Mr. Martin’s previously-granted unvested

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conventional and PARSAP restricted stock, which aggregates 30,236 shares, vested upon retirement. A percentage of each of Mr. Martin’s currently outstanding LTIP awards is to be paid. The amount of each LTIP award is to be calculated using the same performance formula, and is to be paid at the same time, as if Mr. Martin had not retired. However, his two LTIP awards are to be reduced prorata based on full years worked by Mr. Martin during each applicable performance period. LTIP payouts are not guaranteed; payment will not be made if it is not warranted by Company results in accordance with the terms and conditions of the program. Three annual LTIP awards were made to Mr. Martin from 2003 through 2005. To date, the performance periods for the 2003 and 2004 awards have expired with no payments being made due to failure to achieve the specified performance goals. Assuming that trend continues, Mr. Martin would receive no benefit from his remaining 2005 LTIP when its 3-year performance period expires at the end of 2007. Mr. Martin’s agreement does not alter benefits and rights under our qualified Pension Plan, stock options, deferred compensation not mentioned above, or other plans or programs not mentioned above.

The primary objective of this agreement was to provide protection for the Corporation, especially in terms of customer relationships and confidential proprietary information, over and above that which previously existing arrangements provided.

Supplemental Retirement Agreement with Mr. Hughes

In 2004, we entered into an agreement with Mr. Hughes, who had been an employee with us for over 40 years, relating to certain terms of Mr. Hughes’s employment and certain components of his compensation and benefits package. At the time of this agreement, Mr. Hughes began reporting directly to our Chairman and Chief Executive Officer, and was designated by the Board as an executive officer of First Horizon.

The agreement provides for a base salary of $575,000 and a maximum annual bonus opportunity of $3,425,000 under the 2002 Management Incentive Plan. It also provides for Mr. Hughes’s participation in our pension restoration plan and our PARSAP and LTIP awards programs, and states that he will be entitled to any other compensation or benefits to which he would otherwise be entitled under any plan or future plan based on his salary grade and/or base salary. Under the pension restoration plan, Mr. Hughes will receive a supplemental annual benefit of $330,747 which will be paid for 10 years following retirement. Mr. Hughes turned 65 in 2006, and fully retired effective December 31, 2006.

The supplemental agreement was intended to provide a transition for Mr. Hughes from our FTN Financial unit’s traditional bonus plan to our management plan used for executive officers. When Mr. Hughes became an executive officer in 2004, his annual cash bonus previously was determined based on business unit results, in a traditional manner consistent with our understanding of industry practices. The bonus opportunity offered under the 2002 Management Incentive Plan was substantial, but significantly less than that provided under industry norms. Given Mr. Hughes’ expected retirement age, the Compensation Committee and Mr. Hughes agreed that the guaranteed post-retirement payment levels provided in the supplemental agreement adequately compensated Mr. Hughes for giving up his expectations under our traditional FTN Financial bonus arrangement.

Non-Compete Agreement with Mr. Hughes

In connection with Mr. Hughes’ retirement, in 2006 we entered into a confidentiality and non-compete agreement with Mr. Hughes. Among other things, that agreement requires Mr. Hughes to refrain from competing with us for a period of five years and from divulging confidential information, contains a release of us, and contains certain non-solicitation and other covenants. Under the agreement, for a total of five years after his retirement, Mr. Hughes is entitled to receive external office space, including equipment and furnishings, and administrative assistant support.

The primary objective of this agreement was to provide protection for the Corporation, especially in terms of customer relationships and confidential proprietary information, over and above that which previously existing arrangements provided.

2006 Executive Compensation Review

During the later part of 2006 and early 2007, management and the Committee conducted a comprehensive review of our executive compensation programs. Management and its compensation consultant worked in collaboration with the Committee and its compensation consultant to ensure that the executive programs continued

40


to provide competitive benefits, met the necessary business objectives, and followed best practice corporate governance. Some of the key changes to our practices resulting from that review are discussed in this section below. Additional and further changes may be made later; this discussion is based on decisions made to date.

Cash Compensation

Management’s compensation consultant compiled competitive data using the Peer Banks group discussed under the heading “Use of Peer Group Data” beginning on page 26, though the members of that Group were updated somewhat due to mergers and other changes occurring since the compensation decisions for 2006 were made. An analysis comparing that updated Peer Banks group to our practices indicated that the base salaries we have provided to our executive officers (including those named in this proxy) are competitive, providing for pay in a range between median to 75th percentile.

That same updated Peer Banks group was used to analyze the annual bonus opportunity and to determine the metrics used by the peer companies. Based on the analysis, the annual bonus program under our Management Incentive Plan (MIP) for 2007 will be earned based a corporate rating which is determined based on achievement of certain pre-defined earnings per share (EPS) or business unit pre-tax earnings growth rates.

Long-term Incentives

The existing long-term incentive programs consisting of management and performance awards, PARSAP grants and LTIP grants have been simplified and consolidated into one program which provides for the total long-term incentive value to be delivered 50% in stock options and 50% in performance share units (PSUs). The value to be delivered in 2007 approximates the value awarded in 2006, including one third of the 2005 PARSAP. The stock options will continue with the same 3 and 4 year vesting period as the 2006 awards. The PSUs will be earned based on three-year average EPS growth (2007–2009) relative to the updated Peer Banks group. The performance criteria looks at the updated Peer Banks group historical EPS growth figures for top quartile (75th percentile) which provides for the maximum 200% payout and median EPS growth performance (50th percentile) which provides for a 100% payout. Straight line interpolation will be used to determine the actual amount earned up to the maximum of 200%. Following determination of the performance achievement based on EPS growth, the awards will be increased or decreased based on our total shareholder return (TSR) performance relative to peers. If we achieve top quartile TSR and the award earned based on EPS growth is in the bottom quartile, the award will be increased 50%, and likewise if the TSR relative performance is bottom quartile (25th percentile) the award can be adjusted down. The PSU awards will be paid 70% in stock and 30% in cash. These changes reflect First Horizon’s and the Committee’s intent to preserve the sharp focus on stock price growth provided by options and create new targeted goals tied to PSUs. Previously granted awards will remain outstanding and be allowed to run their prescribed courses.

Change in Control Severance Arrangements

We engaged a nationally-recognized law firm to review our current change in control (CIC) arrangements and to assist us in identifying emerging best practices. In addition, competitive practices within the banking industry were provided by our compensation consultant for purposes of this analysis. As a result, in January 2007 the following changes were approved for the outstanding executive officer agreements and prospectively for all new agreements:

 

 

 

 

The prior agreements contained a modified single trigger which allowed executives to leave during the 30-day period following the 12 months after a CIC; that trigger has been removed.

 

 

 

 

Welfare benefits have been limited to healthcare and life insurance and the period reduced (if applicable) to comply with the final Section 409A regulations.

 

 

 

 

The old excise tax gross-up feature has been modified. The new provision requires a reduction in the CIC severance payments if such a reduction would eliminate excise tax liability; the reduction cannot exceed the greater of 5% or $50,000. If the reduction cannot eliminate the excise tax, then the tax gross-up feature will apply.

41


 

 

 

 

The bonus amount used in the severance calculation has been changed to reflect an average of actual bonuses earned for all executive officers other than the business line heads, whose bonuses will continue to be calculated based on 100% of salary.

 

 

 

 

Non-disparagement, cooperation, and non-solicitation covenants have been included in the agreements.

 

 

 

 

A provision has been added to continue to accrue age and service credit under the Pension Restoration Plan during the severance period if the executive is at least 50 years of age and has at least 10 years of service upon termination following a CIC event.

 

 

 

 

Several other minor changes have been made, all in keeping with the Committee’s desire to remain competitive and at the same time consistent with best practices.

Other Changes

In addition to the changes noted above, the comprehensive review resulted in changes to our broad based equity grant practices to bring them in line with competitive industry practices, eliminated the payment of tax gross-ups related to certain perquisites, and, beginning in 2007, reduced the interest rates paid to those participating in the 1985 D&E plan (except for certain persons who retired prior to 2004) to 13%.

Compensation Committee Report

The Compensation Committee Report is located on page 12 of this proxy statement under the caption “The Compensation Committee.”

Recent Compensation

Summary Compensation Table

The Summary Compensation Table which appears below provides compensation information about the following persons: Mr. Glass, who served during 2006 as our CEO; Mr. Mosby, our Chief Financial Officer (“CFO”); and Messrs. Baker, Burkett, and Makowiecki, who are our three most highly compensated executive officers at year end 2006 other than Mr. Glass and Mr. Mosby. Also included are Mr. Hughes and Mr. Martin, who were executive officers during the year but who had retired from executive positions during the course of 2006. Mr. Glass retired as Chairman of the Board, President and CEO as of January 29, 2007. On that date, Mr. Baker was appointed President and CEO. All of the named officers are or were officers of both First Horizon and the Bank.

Executive compensation for 2006 continued to be largely based on First Horizon’s financial performance. Annual bonuses for the CEO, COO, all corporate executives, and two of the business unit heads for 2006 were $0. Payout from the Long-Term Incentive Plan (LTIP) was $0 for all executive officers, as it was in the previous year. The CEO and COO forfeited performance restricted stock and performance stock options with values of $942,000 for the CEO and $840,000 for the COO.

The amounts shown in the table include all compensation earned during the year indicated, including amounts deferred by those persons for all services rendered in all capacities to us and our subsidiaries. For named officers, information is provided for each entire year in which an individual served during any portion of the year as an executive officer. Additional executive compensation information is provided in tabular form in the following pages. A discussion and analysis of our compensation objectives and rationale, along with information on compensation of directors, is located in the “Compensation Discussion and Analysis” and “Director Compensation” sections of this proxy statement beginning on pages 23 and 65, respectively.

42


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary Compensation Table

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

Name and
Principal Position

 

Year

 

Salary
($)

 

Bonus
($)

 

Stock
Awards
($)

 

Option
Awards
($)

 

Non-Equity
Incentive
Plan
Compensation
($)

 

Change in
Pension
Value &
Nonqualified
Deferred
Compensation
Earnings ($)

 

All Other
Compensation
($)

 

Total
($)

 

J.K. Glass*

 

 

 

2006

   

 

$

 

939,692

   

 

 

   

 

$

 

299,220

   

 

$

 

986,056

   

 

 

   

 

$

 

780,115

   

 

$

 

63,271

   

 

$

 

3,068,354

 

Chr of Bd,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pres & CEO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M.L. Mosby

 

 

 

2006

   

 

$

 

338,461

   

 

 

   

 

 

($101,330

)

 

 

 

$

 

43,345

   

 

 

   

 

$

 

45,072

   

 

$

 

22,844

   

 

$

 

348,392

 

EVP & CFO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G.L. Baker*

 

 

 

2006

   

 

$

 

698,173

   

 

 

   

 

$

 

101,321

   

 

$

 

162,231

   

 

 

   

 

$

 

262,097

   

 

$

 

72,646

   

 

$

 

1,296,468

 

COO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C.G. Burkett

 

 

 

2006

   

 

$

 

673,654

   

 

 

   

 

 

($185,043

)

 

 

 

$

 

98,368

   

 

$

 

564,001

   

 

$

 

428,891

   

 

$

 

47,752

   

 

$

 

1,627,623

 

Pres—TN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

& Nat’l Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

P.F. Makowiecki

 

 

 

2006

   

 

$

 

447,346

   

 

 

   

 

$

 

149,797

   

 

$

 

38,052

   

 

 

   

 

 

   

 

$

 

55,889

   

 

$

 

691,084

 

Pres–Mortgage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

J.L. Hughes

 

 

 

2006

   

 

$

 

632,212

   

 

 

   

 

$

 

445,713

   

 

$

 

183,991

   

 

$

 

3,367,788

   

 

$

 

1,165,621

   

 

$

 

59,266

   

 

$

 

5,854,591

 

Pres–FTN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial (retired)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

L. Martin

 

 

 

2006

   

 

$

 

275,923

   

 

 

   

 

$

 

351,762

   

 

$

 

124,766

   

 

 

   

 

$

 

218,412

   

 

$

 

1,825,933

   

 

$

 

2,796,796

 

COO–First Tenn.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fin. Srvc. (retired)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

 

 

 

Mr. Glass retired as Chairman of the Board, President and CEO as of January 29, 2007. On that date, Mr. Baker was appointed President and CEO.

Details concerning information in certain of the columns are presented in the following paragraphs:

 

 

 

(c)

 

Salary Deferrals. There were no deferrals of the salary amounts included in column (c) during 2006.

(d)

 

Bonuses. Our 2006 cash bonuses were paid under the 2002 Management Incentive Plan (“MIP”). They constitute non-equity incentive plan compensation and are therefore reported in column (g).

(e)/(f)

 

Accounting Expense Values. The dollar values associated with awards shown in columns (e) and (f) reflect the accounting expense during the year shown, and are only partially related to awards granted during the year.

 

 

Those accounting expenses are based on values determined as of the grant date of each award using the same assumptions, valuation method, and amortization method used for accounting purposes in our financial statements. The accounting valuation method makes several assumptions about the growth and volatility of our stock value, the expected actual duration in the case of options, vesting, forfeiture, and other matters. The amortization method makes further assumptions concerning the expected vesting and duration of the awards. A discussion of those assumptions and methods appears in Note 21 to our consolidated financial statements, which is included in Exhibit 13 to the 2006 Annual Report on Form 10-K and also is provided in our 2006 Annual Report to Shareholders. Actual future events may be substantially inconsistent with those assumptions.

 

 

In most cases the total value of an award is amortized over more than one year. In those cases the amount amortized in a single year is only a portion of the total accounting value of the award, and the amount shown in the Summary Compensation Table for that award type often represents the sum of several such portions for several awards granted over several years.

 

 

In addition, events may occur which, under the accounting rules, result in a negative expense. Forfeiture is one such event. The amounts shown in the Summary Compensation Table in some cases reflect a netting of positive and negative expenses. A negative number appears if the negative expenses were larger than the positive ones.

 

 

43


 

 

 

 

 

For all those reasons, the actual values realized by an award holder may, and often will, differ substantially from the accounting values reflected in columns (e) and (f).

(e)

 

Stock Awards. Column (e) includes the accounting values of conventional restricted stock, PARSAP shares, and LTIP performance share units (PSUs) expensed during the year indicated. Except for a small amount of dividend earnings, these amounts do not represent amounts paid or earned; they are simply the values attributed to awards under the applicable accounting rules, amortized over specific periods as required by those rules.

 

 

PARSAP Shares (Discontinued in 2007). Our practice has been to grant PARSAP shares every three years. PARSAP shares vest in 10 years, however vesting can be accelerated if certain performance criteria are met. The performance and other features of the PARSAP awards are discussed in the “PARSAP Awards” section of this proxy statement beginning on page 33. Our last two regular PARSAP grants were in 2002 and 2005. To reflect his promotion to an executive officer, Mr. Makowiecki received a prorated grant into the 2005 PARSAP during 2006. This program has been discontinued, and no new awards will be made after 2006.

 

 

LTIP PSUs. Our LTIPs are performance-based, meaning that eventual payout may be higher or lower than the accounting values used in the table above. The LTIP payout may be zero. For example, the 2003 and 2004 LTIP awards matured at the end of 2005 and 2006, respectively; the performance criteria were not met and the payout in each case was zero. Previous accruals related to the 2004 LTIP were recouped resulting in a negative accrual for fiscal year 2006 and therefore, are included in the amounts shown in column (e): Mr. Glass, $(1,076,154); Mr. Mosby, $(311,407); Mr. Baker, $(570,919); Mr. Burkett, $(570,919); Mr. Makowiecki, $ 0 ; Mr. Hughes, $(570,919); and Mr. Martin, $(441,632). The performance and other features of the 2006 LTIP awards are discussed in the “LTIP Awards” section of this proxy statement beginning on page 32.

 

 

The promotional grant of 25,000 performance-based restricted stock units (PSUs) to Mr. Baker is also included in column (e). The PSUs will vest and pay out in the same proportion (up to 100%) as Mr. Baker’s average annual bonus payout relative to his target bonus over the three-year period 2006-2008.

 

 

Earnings. Column (e) also includes earnings (dividends) paid or payable during the year on all restricted and PARSAP shares that have not yet vested, regardless of when granted. Dividend amounts are not paid or accrued on LTIP PSUs. The earnings amounts included in column (e) were: Mr. Glass, $308,551; Mr. Mosby, $32,665; Mr. Baker, $61,592; Mr. Burkett, $64,364; Mr. Makowiecki, $15,244; Mr. Hughes, $61,592; and Mr. Martin, $98,906.

(f)

 

Option Awards. All column (f) amounts represent the amortized expense used for accounting purposes in our financial statements during each year shown associated with stock option grants in that year or prior years. No stock appreciation rights (SARs) were awarded.

(g)

 

Bonuses. This column represents the annual MIP payout made in 2007 for the 2006 plan year. Although our LTIP awards are incentive compensation, they are reported in column (e) rather than in this column. Of the bonus amounts included in column (g), no amounts were deferred into any of our qualified or nonqualified deferred compensation plans.

(h)

 

Column (h) includes changes in pension actuarial values and above-market earnings on nonqualified deferred compensation accounts. Changes in pension actuarial values are the aggregate increase during the year in actuarial value of all pension plans, both qualified and supplemental, for each named executive. Our Pension Plan and Pension Restoration Plan are designed to give employees an incentive to stay with First Horizon through their normal retirement age. As a result, most of the benefits are accrued during the last few years of their career. This is illustrated in the numbers shown in the table below. For example, the amount shown for Mr. Hughes, who retired at the end of 2006, represents about one-fifth of his total retirement benefit for working 42 years. The actual expenses of these plans are determined using the projected unit credit actuarial method which spreads the cost over the entire career of each employee, and in 2006 the actual expense was lower than the number shown in the column marked “Change in Pension Value.” The earnings on deferred compensation included in this column include all above-market interest accrued during the year, whether or not paid during the year. For this purpose, the Securities and Exchange Commission requires us to use one or more rates specified in certain Internal Revenue Service publications as the applicable “market” rate(s) in each situation. The amounts associated with each category are shown in the following table.

44


 

 

 

 

 

 

 

Changes in Pension Actuarial Value and
Above-Market Earnings on Deferred Compensation for 2006

Name

 

Change in
Pension Value

 

Above-Market
Earnings on
Deferred
Compensation

 

Total Shown in
Column (h)

 

Mr. Glass

 

 

$

 

692,824

   

 

$

 

87,291

   

 

$

 

780,115

 

Mr. Mosby

 

 

$

 

45,072

   

 

 

   

 

$

 

45,072

 

Mr. Baker

 

 

$

 

262,097

   

 

 

   

 

$

 

262,097

 

Mr. Burkett

 

 

$

 

428,891

   

 

 

   

 

$

 

428,891

 

Mr. Makowiecki

 

 

 

   

 

 

   

 

 

 

Mr. Hughes

 

 

$

 

971,954

   

 

$

 

193,667

   

 

$

 

1,165,621

 

Mr. Martin

 

 

$

 

216,970

   

 

$

 

1,442

   

 

$

 

218,412

 

 

 

(i)

 

 

 

Elements of “All Other Compensation” for 2006 consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

All Other Compensation for 2006

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

Name

 

Perquisites and
Other Personal
Benefits

 

Tax
Reimbursements

 

Compensation
Related to
Retirement

 

401(k) Plan
Company
Match

 

Life Insurance
Premiums

 

Total Shown
in Column (i)

 

Mr. Glass

 

 

$

 

44,089

   

 

 

   

 

 

   

 

$

 

6,600

   

 

$

 

12,582

   

 

$

 

63,271

 

Mr. Mosby

 

 

$

 

16,807

   

 

 

   

 

 

   

 

$

 

5,077

   

 

$

 

960

   

 

$

 

22,844

 

Mr. Baker

 

 

$

 

53,046

   

 

$

 

262

   

 

 

   

 

$

 

6,600

   

 

$

 

12,738

   

 

$

 

72,646

 

Mr. Burkett

 

 

$

 

36,259

   

 

 

   

 

 

   

 

$

 

6,600

   

 

$

 

4,893

   

 

$

 

47,752

 

Mr. Makowiecki

 

 

$

 

38,399

   

 

$

 

9,253

   

 

 

   

 

$

 

6,600

   

 

$

 

1,636

   

 

$

 

55,889

 

Mr. Hughes

 

 

$

 

52,666

   

 

 

   

 

 

   

 

$

 

6,600

   

 

 

   

 

$

 

59,266

 

Mr. Martin

 

 

$

 

7,327

   

 

$

 

7

   

 

$

 

1,812,000

   

 

$

 

6,600

   

 

 

   

 

$

 

1,825,933

 

 

Details concerning information in certain of the columns are presented in the following paragraphs:

 

(b)

 

 

 

“Perquisites and Other Personal Benefits” includes the following types of benefits: Flexible Dollars; Financial Counseling; Disability Insurance; Auto Allowance; Social Club Dues; Relocation Allowance; Health Club, and Other. Benefits are valued at the incremental cost to First Horizon. None of those benefit types individually exceeded $25,000 for any named person except for financial counseling for Mr. Hughes ($37,229) and auto allowance for Mr. Makowiecki ($28,800). “Flexible Dollars” represents First Horizon’s contribution to the Flexible Benefits Plan, based on salary and service. “Financial Counseling” represents payments for the preparation of income tax returns and related financial counseling. “Disability Insurance” represents insurance premiums with respect to our disability plan. “Auto Allowance” represents a cash allowance paid to certain executives in lieu of providing a company automobile and reimbursement of certain maintenance expenses. “Social Club Dues” represents annual dues for membership in a country club or other social organizations. Executives who use the club membership in part for business purposes may request reimbursement of 50% of the annual dues associated with club membership. In 2006 “Relocation Allowance” includes $17,014 in relocation expenses for Mr. Baker. “Health Club” represents reimbursement for certain health club memberships. In 2006, “Other” included only travel, lodging, meals, and other incidental expenses incurred by a spouse accompanying an executive on a business trip or function made at the Company’s request and miscellaneous gratuities provided to the executive and/or the spouse in connection with the business trip or function. Although most of these sorts of expenses are for business rather than personal purposes, certain expenses occasionally are classified as personal, and these are included in the “Other” category.

 

(c)

 

 

 

In the past, “Tax Reimbursements” represented tax gross-up payments on certain benefits. In late 2006 our Compensation Committee discontinued the payment of tax reimbursements on ordinary benefits; however, there were tax gross-up payments provided in early 2006 which are reflected in this column.

 

(d)

 

 

 

“Compensation Related to Retirement” includes all amounts paid or accrued to a named executive officer during the year in respect of severance or retirement. Mr. Martin retired during the year; no such payments were made or accrued to any other named executive. Details of the benefits provided to, and covenants given by, Messrs. Hughes and Martin are presented under the heading “Special Retirement Agreements” beginning on page 38 of this proxy statement.

45


 

(e)

 

 

 

“401(k) Match” represents First Horizon’s 50 percent matching contribution to the 401(k) Savings Plan, which is based on the amount of voluntary contributions by the participant to the FHNC stock fund, up to 6 percent of compensation. To the extent dollars from the Flexible Benefits Plan are contributed to the 401(k) Plan, they are included in column (b) rather than in column (e).

 

(f)

 

 

 

“Life Insurance Premiums” represents insurance premiums with respect to our supplemental life insurance plan. Under our 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).

Grants of Plan-Based Awards

The following table provides information about conventional and performance stock options, conventional and performance restricted stock, and Long-Term Incentive Program (“LTIP Awards”) granted during 2006 to the officers named in the Summary Compensation Table. No stock appreciation rights (SARs) were granted during 2006. Our most recent regular performance-accelerated (PARSAP) restricted share award was granted in 2005; only two prorated PARSAP awards were granted in 2006 in connection with the promotion of Mr. Makowiecki and the hiring of a new executive officer not named in the Summary Compensation Table. The PARSAP program and the practice of making annual grants of conventional restricted stock were discontinued at the end of 2006.

For the purposes of the following table: LTIPs, performance stock options, and performance restricted stock are considered to be “Equity Incentive Plan Awards”; conventional restricted stock and PARSAP shares are considered to be “All Other Stock Awards”, and conventional stock options are considered to be “All Other Option Awards.” The information is organized so that each row represents a separate grant of awards; a column for a row is blank if it does not apply to the type of award listed in that row. The amounts shown in the table below for Mr. Hughes represent the awards granted in 2006; however, upon his retirement, 50% of his option grant and 66% of his LTIP grant were forfeited. In 2006 Mr. Martin received no awards of the types reported in this table because he had announced his retirement prior to the regular grant date for the year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards in 2006

(a)

 

(b-1)

 

(b-2)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

(k)

 

(l)

Name

 

Grant
Date

 

Action
Date

 

Estimated Possible Payouts under
Non-Equity Incentive Plan Awards

 

Estimated Future Payouts under
Equity Incentive Plan Awards

 

All Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)

 

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

 

Exercise
or Base
Price of
Option
Awards
($/sh)

 

Grant Date
Fair Value
of Stock
and Option
Awards ($)

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

Mr. Glass

 

Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,189

   

 

$

 

40.71

   

 

$

 

185,976

 

 

 

P-Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

   

 

 

57,084

   

 

 

57,084

 

 

 

 

 

 

 

 

 

$

 

457,814

 

 

RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,637

 

 

 

 

 

 

 

$

 

188,772

 

 

 

P-RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

   

 

 

11,472

   

 

 

11,472

 

 

 

 

 

 

 

 

 

$

 

467,025

 

 

LTIP 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

21,739

   

 

 

65,217

   

 

 

65,217

 

 

 

 

 

 

 

 

 

$

 

2,654,984

 

 

 

MIP

 

 

 

 

 

   

 

$

 

1,180,000

   

 

$

 

1,770,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Mosby

 

Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,177

   

 

$

 

40.71

   

 

$

 

33,500

 

 

 

RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

835

 

 

 

 

 

 

 

$

 

33,993

 

 

LTIP 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

6,264

   

 

 

18,791

   

 

 

18,791

 

 

 

 

 

 

 

 

 

$

 

764,982

 

 

 

MIP

 

 

 

 

 

   

 

$

 

340,000

   

 

$

 

510,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Baker

 

Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,896

   

 

$

 

40.71

   

 

$

 

103,426

 

 

 

P-Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

   

 

 

51,601

   

 

 

51,601

 

 

 

 

 

 

 

 

 

$

 

413,840

 

 

RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,579

 

 

 

 

 

 

 

$

 

104,991

 

 

 

P-RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

   

 

 

10,318

   

 

 

10,318

 

 

 

 

 

 

 

 

 

$

 

420,046

 

 

LTIP 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

14,831

   

 

 

44,492

   

 

 

44,492

 

 

 

 

 

 

 

 

 

$

 

1,811,269

 

 

 

PRO 2-14

 

 

 

2-14

 

 

 

 

 

 

 

 

 

 

   

 

 

25,000

   

 

 

25,000

 

 

 

 

 

 

 

 

 

$

 

964,500

 

 

MIP

 

 

 

 

 

   

 

$

 

805,000

   

 

$

 

1,207,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Burkett

 

Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,365

   

 

$

 

40.71

   

 

$

 

83,127

 

 

RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,073

 

 

 

 

 

 

 

$

 

84,392

 

 

 

LTIP 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

12,436

   

 

 

37,307

   

 

 

37,307

 

 

 

 

 

 

 

 

 

$

 

1,581,768

 

 

MIP

 

 

 

 

 

   

 

$

 

705,000

   

 

$

 

4,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards in 2006

(a)

 

(b-1)

 

(b-2)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

 

(k)

 

(l)

Name

 

Grant
Date

 

Action
Date

 

Estimated Possible Payouts under
Non-Equity Incentive Plan Awards

 

Estimated Future Payouts under
Equity Incentive Plan Awards

 

All Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)

 

All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)

 

Exercise
or Base
Price of
Option
Awards
($/sh)

 

Grant Date
Fair Value
of Stock
and Option
Awards ($)

 

Threshold
($)

 

Target
($)

 

Maximum
($)

 

Threshold
(#)

 

Target
(#)

 

Maximum
(#)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Makowiecki

 

Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,910

   

 

$

 

40.71

   

 

$

 

55,418

 

 

RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,382

 

 

 

 

 

 

 

$

 

56,261

 

 

 

LTIP 2-14

 

 

 

2-14

 

 

 

 

 

 

 

 

 

 

5,850

   

 

 

17,550

   

 

 

17,550

 

 

 

 

 

 

 

 

 

$

 

677,079

 

 

LTIP 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

8,290

   

 

 

24,871

   

 

 

24,871

 

 

 

 

 

 

 

 

 

$

 

1,012,498

 

 

 

PAR 2-14

 

 

 

2-14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,400

 

 

 

 

 

 

 

$

 

401,232

 

 

MIP

 

 

 

 

 

   

 

$

 

736,000

   

 

$

 

4,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Hughes

 

Opt 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,567

   

 

$

 

40.71

   

 

$

 

76,727

 

 

RS 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,913

 

 

 

 

 

 

 

$

 

77,878

 

 

 

LTIP 4-21

 

 

 

4-18

 

 

 

 

 

 

 

 

 

 

11,478

   

 

 

34,433

   

 

 

34,433

 

 

 

 

 

 

 

 

 

$

 

1,401,767

 

 

MIP

 

 

 

 

 

   

 

$

 

3,368,000

   

 

$

 

4,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mr. Martin

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Details concerning information in certain of the columns are presented in the following paragraphs:

 

 

 

(b-1)

 

Column (b-1) shows the 2006 grant dates of the awards reported in this table. These are the dates as of which the grants are effective for legal and accounting purposes, and as of which prices are set or used for those awards that use grant date stock values.

 

 

The rows in column (b-1) are designated to indicate the different award types involved. The designations correspond to the following award types: “Opt” for conventional stock options; “P-Opt” for performance stock options; “RS” for conventional restricted stock (annual grants were discontinued at the end of 2006); “P-RS” for performance restricted stock; “LTIP” for LTIP performance share unit awards; “PRO” for the promotional grant to Mr. Baker of performance based restricted stock units; and “PAR” for the prorated PARSAP grant made to Mr. Makowiecki (annual PARSAP grants were discontinued at the end of 2006).

(b-2)

 

Column (b-2) shows the 2006 dates on which the Compensation Committee acted to grant the awards reported in this table. For those awards in April, these action dates precede the legally effective grant dates by a few days. Additional information concerning the Committee’s reasons for delaying the effective dates of grants in many instances is set forth in the “Compensation Discussion and Analysis” section of this proxy statement under the headings “Option Grant Practices—Timing and Pricing” beginning on page 31 and “Restricted Stock Grant Practices” beginning on page 32.

(c)-(e)

 

The 2006 cash bonuses paid to our executives under our MIP were based on performance criteria established early in 2006 by the Compensation Committee. For the corporate officers, including Messrs. Glass, Mosby and Baker, the target is derived as a percentage of salary with the maximum representing 150% of target. For the business line leaders, Messrs. Burkett, Makowiecki and Hughes, the target is derived as a percentage of pre-tax earnings, with the maximum allowed under the MIP of $4,000,000. Additional information concerning annual cash bonuses paid to the named executive officers for 2006 is set forth in column (g) of the Summary Compensation Table and under the caption “Compensation Overview for Our Named Executive Officers” on pages 43 and 23, respectively, of this proxy statement.

(f)

 

The threshold payouts listed in column (f) for performance option (P-Opt) and restricted stock (P-RS) awards are based on achieving prior year earnings per share (EPS), which would represent 0% growth over prior year. Additional information concerning the performance criteria related to these performance awards is set forth under the heading “Performance Options and Restricted Stock” beginning on page 32.

 

 

The threshold payouts listed in column (f) for LTIP awards are based on achieving a certain pre-set minimum earnings per share (EPS) level and EPS growth ranking. The Compensation Committee has the discretion to determine the payout when the pre-set EPS level is achieved but the growth ranking is not. Additional information concerning the performance criteria related to LTIP awards is set forth in the “LTIP Awards” section beginning on page 32.

47


 

 

 

(g)/(h)

 

The target and maximum payouts listed in columns (g) and (h) for performance option (P-Opt) and restricted stock (P-RS) awards may differ from the amounts actually paid because the actual values realized will be based on the fair market value of our common stock at the end of the applicable performance period and those values are shown assuming the performance criteria are met completely. In fact, all of those awards were terminated in early 2007 because the performance criteria were not achieved, as determined by the Compensation Committee; we are not allowed to reflect that termination in the table above.

 

 

The target and maximum payouts listed in columns (g) and (h) for LTIP and promotion awards may differ from the amounts actually paid because the payouts under this program are based on the fair market value of our common stock at the end of the applicable performance period, if the performance criteria are met.

(i)

 

Column (i) shows the number of shares of conventional restricted stock, and the number of PARSAP shares, granted in 2006 to the named executive officers. The PARSAP program and the practice of making annual grants of conventional restricted stock were discontinued at the end of 2006.

(j)

 

Column (j) shows the number of shares underlying conventional stock options granted in 2006 to the named executive officers.

(k)

 

Our options were priced at fair market value on the grant date, as defined in our 2003 Equity Compensation Plan. That was the average of the high and low prices for our common stock on the grant date, rounded up to the nearest whole cent. The grant price was higher than the closing price of our stock on the grant date, which was $40.28 per share.

(l)

 

Column (l) reflects the dollar value of each award shown in columns (f), (g) and (h) and either column (i) or (j) determined as of the grant date of each award using the same assumptions, valuation method, and amortization schedule used for accounting purposes in our financial statements. Additional information concerning the assumptions and valuation method is given in the discussion of columns (e) and (f) of the Summary Compensation Table on page 43 of this proxy statement.

Supplemental Disclosure Concerning Summary Compensation and Grants of Plan-Based Awards Tables

The proportion of annual cash salary and bonus to total compensation, as reported in the Summary Compensation Table, for each of the named officers is: Mr. Glass, 31%; Mr. Mosby, 97%; Mr. Baker, 54%; Mr. Burkett, 41%; Mr. Makowiecki, 65%; Mr. Hughes, 68%; and Mr. Martin, 10%. Additional information concerning how the amounts of those elements of compensation were established, and how they relate to other forms of compensation, is set forth under the heading “Base Salary and Annual Bonus” in the “Compensation Discussion and Analysis” section beginning on page 27 of this proxy statement.

Under the terms of all options, participants are permitted to pay the exercise price of the options with our stock.

The vesting schedules of equity-based awards are as follows:

 

 

 

 

For all options and restricted stock, both conventional and performance, vesting occurs 50% on each of the third and fourth anniversaries of the grant date. For performance awards, vesting will not occur at all except to the extent that the award is retained based on meeting the performance criteria established when the award was granted, and vesting is not accelerated merely because performance goals are achieved. Additional information concerning the performance criteria for performance awards is set forth under the heading “Performance Options and Restricted Stock” beginning on page 32.

 

 

 

 

For LTIP awards vesting occurs (if at all) when certain performance criteria, established when the award was granted, are met. Additional information concerning the performance criteria for LTIP awards is set forth under the “LTIP Awards” section beginning on page 32.

 

 

 

 

For PARSAP awards vesting occurs on the tenth anniversary of the grant date, but may be accelerated if performance criteria, established when each award was granted, are met. Additional information concerning the performance-acceleration criteria for PARSAP awards is set forth in the “PARSAP Awards” section beginning on page 33. This program was discontinued at the end of 2006.

More detailed vesting information is provided under the heading “Outstanding Equity Awards at Fiscal Year-End” beginning on page 50, especially in the notes to the table in that section. For all awards vesting will or may be

48


accelerated in the cases of death, disability, retirement, and change in control, and may be accelerated in the discretion of the Compensation Committee. Additional information concerning the acceleration features of awards is set forth under the caption “Change in Control Features under Other Plans and Programs” beginning on page 38.

Dividends are paid or accrued with respect to restricted stock and PARSAP shares, but not LTIP PSUs or stock options. No such dividends are at rates preferential to dividends paid in respect of ordinary outstanding shares.

The applicable plans provide for tax withholding features related to all award types upon approval of the Compensation Committee. To date, with respect to outstanding restricted stock and PARSAP awards, the Committee has approved a mandatory tax withholding feature under which vested shares are automatically withheld in an amount necessary to cover minimum required withholding taxes.

In many cases the Compensation Committee has the power to compel the deferral of payment of an award upon vesting if, absent the deferral, First Horizon would be unable to claim a corresponding deduction for tax purposes. On occasion the Committee has exercised that power. No such deferral would cause the amount deferred to be omitted from the Summary Compensation Table.

49


Equity Holdings and Value Realizations

Outstanding Equity Awards at Fiscal Year-End

The following table provides information about conventional and performance stock options, conventional and performance restricted stock, PARSAP shares, and LTIP performance share units (PSUs) held at December 31, 2006 by the officers named in the Summary Compensation Table. The PARSAP program and the practice of making annual grants of conventional restricted stock were discontinued at the end of 2006.

Outstanding Equity Awards at Fiscal Year-End 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

   

Option Awards

 

Stock Awards

Name

 

Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable

 

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unearned
Options(#)

 

Option
Exercise
Price
($/sh)

 

Option
Expiration
Date

 

Number
of Shares
or Units
of Stock
Held that
Have Not
Vested(#)

 

Market
Value of
Shares or
Units of
Stock that
Have Not
Vested($)

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
that Have Not
Vested(#)

 

Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights that
Have Not
Vested($)

 

Mr. Glass

 

 

 

48,458

 

 

 

 

 

 

   

 

$

 

21.13

   

 

 

4/16/07

 

 

 

 

 

 

 

 

 

 

 

 

 

16,169

 

 

 

 

 

 

   

 

$

 

34.88

   

 

 

4/21/08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,155

   

 

 

   

 

$

 

21.65

   

 

 

12/31/08

 

 

 

 

 

 

 

 

 

 

 

 

 

109,670

 

 

 

 

 

 

   

 

$

 

35.14

   

 

 

2/26/09

 

 

 

 

 

 

 

 

 

 

 

 

18,689

 

 

 

 

 

 

   

 

$

 

40.13

   

 

 

4/20/09

 

 

 

 

 

 

 

 

 

 

 

 

 

125,000

 

 

 

 

 

 

   

 

$

 

36.35

   

 

 

7/16/09

 

 

 

 

 

 

 

 

 

 

 

 

17,464

 

 

 

 

 

 

   

 

$

 

28.63

   

 

 

10/19/09

 

 

 

 

 

 

 

 

 

 

 

 

 

110,945

 

 

 

 

 

 

   

 

$

 

17.97

   

 

 

3/1/10

 

 

 

 

 

 

 

 

 

 

 

 

86,747

   

 

 

86,748

 

 

 

 

 

$

 

38.74

   

 

 

3/3/10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

163,280

   

 

 

   

 

$

 

45.73

   

 

 

2/17/11

 

 

 

 

 

 

 

 

 

 

 

 

36,976

 

 

 

 

 

 

   

 

$

 

30.48

   

 

 

2/23/11

 

 

 

 

 

 

 

 

 

 

 

 

 

21,565

 

 

 

 

 

 

   

 

$

 

35.14

   

 

 

2/26/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,405

   

 

 

   

 

$

 

40.34

   

 

 

4/22/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,189

   

 

 

57,084

   

 

$

 

40.71

   

 

 

4/21/13

 

 

 

 

 

 

 

 

 

 

 

 

1,106

 

 

 

 

 

 

   

 

$

 

22.60

   

 

 

7/1/14

 

 

 

 

 

 

 

 

 

 

 

 

 

4,156

 

 

 

 

 

 

   

 

$

 

20.46

   

 

 

7/1/17

 

 

 

 

 

 

 

 

 

 

 

 

3,018

 

 

 

 

 

 

   

 

$

 

28.16

   

 

 

1/2/18

 

 

 

 

 

 

 

 

 

 

 

 

 

2,984

 

 

 

 

 

 

   

 

$

 

27.41

   

 

 

7/1/18

 

 

 

 

 

 

 

 

 

 

 

 

2,758

 

 

 

 

 

 

   

 

$

 

31.99

   

 

 

1/4/19

 

 

 

 

 

 

 

 

 

 

 

 

 

3,172

 

 

 

 

 

 

   

 

$

 

32.96

   

 

 

7/1/19

 

 

 

 

 

 

 

 

 

 

 

 

5,140

 

 

 

 

 

 

   

 

$

 

23.72

   

 

 

1/3/20

 

 

 

 

 

 

 

 

 

 

 

 

 

4,441

 

 

 

 

 

 

   

 

$

 

22.53

   

 

 

1/2/21

 

 

 

 

 

 

 

 

 

 

 

 

3,546

 

 

 

 

 

 

   

 

$

 

28.19

   

 

 

7/2/21

 

 

 

 

 

 

 

 

 

 

 

 

 

3,482

 

 

 

 

 

 

   

 

$

 

28.70

   

 

 

1/2/22

 

 

 

 

 

 

 

 

 

 

 

 

1,315

 

 

 

 

 

 

   

 

$

 

19.01

   

 

 

7/1/22

 

 

 

 

 

 

 

 

 

 

 

 

 

1,368

 

 

 

 

 

 

   

 

$

 

18.28

   

 

 

1/2/23

 

 

 

 

 

 

 

 

 

 

 

 

1,139

 

 

 

 

 

 

   

 

$

 

21.94

   

 

 

7/1/23

 

 

 

 

 

 

 

 

 

 

 

 

 

1,142

 

 

 

 

 

 

   

 

$

 

21.89

   

 

 

1/2/24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

122,422

   

 

$

 

5,103,773

   

 

 

176,689

   

 

$

 

7,366,164

 

 

Mr. Mosby

 

 

 

3,942

 

 

 

 

 

 

   

 

$

 

35.14

   

 

 

2/26/09

 

 

 

 

 

 

 

 

 

 

 

 

2,842

   

 

 

2,843

   

 

 

   

 

$

 

38.74

   

 

 

3/3/10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,544

   

 

 

   

 

$

 

45.73

   

 

 

2/17/11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,125

   

 

 

   

 

$

 

40.34

   

 

 

4/22/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,177

   

 

 

   

 

$

 

40.71

   

 

 

4/21/13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,982

   

 

$

 

791,360

   

 

 

47,705

   

 

$

 

1,988,821

 

50


Outstanding Equity Awards at Fiscal Year-End 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)

 

(f)

 

(g)

 

(h)

 

(i)

 

(j)

   

Option Awards

 

Stock Awards

Name

 

Number of
Securities
Underlying
Unexercised
Options(#)
Exercisable

 

Number of
Securities
Underlying
Unexercised
Options(#)
Unexercisable

 

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unearned
Options(#)

 

Option
Exercise
Price
($/sh)

 

Option
Expiration
Date

 

Number
of Shares
or Units
of Stock
Held that
Have Not
Vested(#)

 

Market
Value of
Shares or
Units of
Stock that
Have Not
Vested($)

 

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
that Have Not
Vested(#)

 

Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights that
Have Not
Vested($)

 

Mr. Baker

 

 

 

10,194

 

 

 

 

 

 

   

 

$

 

35.14

   

 

 

2/26/09

 

 

 

 

 

 

 

 

 

 

 

 

 

5,809

 

 

 

 

 

 

   

 

$

 

40.13

   

 

 

4/20/09

 

 

 

 

 

 

 

 

 

 

 

 

6,636

 

 

 

 

 

 

   

 

$

 

28.63

   

 

 

10/19/09

 

 

 

 

 

 

 

 

 

 

 

 

 

10,271

 

 

 

 

 

 

   

 

$

 

17.97

   

 

 

3/1/10

 

 

 

 

 

 

 

 

 

 

 

 

4,762

   

 

 

4,762

   

 

 

   

 

$

 

38.74

   

 

 

3/3/10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,717

   

 

 

   

 

$

 

45.73

   

 

 

2/17/11

 

 

 

 

 

 

 

 

 

 

 

 

19,817

 

 

 

 

 

 

   

 

$

 

30.48

   

 

 

2/23/11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,453

   

 

 

   

 

$

 

40.34

   

 

 

4/22/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,896

   

 

 

51,601

   

 

$

 

40.71

   

 

 

4/21/13

 

 

 

 

 

 

 

 

 

 

 

 

 

2,186

 

 

 

 

 

 

   

 

$

 

22.87

   

 

 

2/17/14

 

 

 

 

 

 

 

 

 

 

 

 

2,581

 

 

 

 

 

 

   

 

$

 

19.37

   

 

 

3/3/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,797

   

 

$

 

1,534,067

   

 

 

132,819

   

 

$

 

5,537,224

 

 

Mr. Burkett

 

 

 

4,682

 

 

 

 

 

 

   

 

$

 

21.13

   

 

 

4/16/07

 

 

 

 

 

 

 

 

 

 

 

 

 

5,141

 

 

 

 

 

 

   

 

$

 

34.88

   

 

 

4/21/08

 

 

 

 

 

 

 

 

 

 

 

 

14,229

 

 

 

 

 

 

   

 

$

 

35.14

   

 

 

2/26/09

 

 

 

 

 

 

 

 

 

 

 

 

 

4,647

 

 

 

 

 

 

   

 

$

 

40.13

   

 

 

4/20/09

 

 

 

 

 

 

 

 

 

 

 

 

3,254

 

 

 

 

 

 

   

 

$

 

28.63

   

 

 

10/19/09

 

 

 

 

 

 

 

 

 

 

 

 

 

6,840

   

 

 

6,841

   

 

 

   

 

$

 

38.74

   

 

 

3/3/10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,667

   

 

 

   

 

$

 

45.73

   

 

 

2/17/11

 

 

 

 

 

 

 

 

 

 

 

 

 

8,332

 

 

 

 

 

 

   

 

$

 

30.48

   

 

 

2/23/11

 

 

 

 

 

 

 

 

 

 

 

 

5,594

 

 

 

 

 

 

   

 

$

 

35.14

   

 

 

2/26/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,453

   

 

 

   

 

$

 

40.34

   

 

 

4/22/12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,365

   

 

 

   

 

$

 

40.71

   

 

 

4/21/13

 

 

 

 

 

 

 

 

 

 

 

 

 

1,839

 

 

 

 

 

 

   

 

$

 

24.38

   

 

 

2/23/21

 

 

 

 

 

 

 

 

 

 

 

 

213

 

 

 

 

 

 

   

 

$

 

28.19

   

 

 

7/2/21

 

 

 

 

 

 

 

 

 

 

 

 

 

6,686

 

 

 

 

 

 

   

 

$

 

28.11

   

 

 

2/26/22

 

 

 

 

 

 

 

 

 

 

 

 

209

 

 

 

 

 

 

   

 

$

 

28.70

   

 

 

1/2/22

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

 

 

 

 

 

   

 

$

 

19.01

   

 

 

7/1/22

 

 

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

 

 

   

 

$

 

18.28

   

 

 

1/2/23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,831

   

 

$

 

1,577,174

   

 

 

90,316

   

 

$

 

3,765,274

 

 

Mr. Makowiecki

 

 

 

5,800

   

 

 

 

 

 

 

 

$

 

35.14

   

 

 

2/26/09

 

 

 

 

 

 

 

 

 

 

 

 

 

2,709

   

 

 

2,709

 

 

 

 

 

$

 

38.74

   

 

 

3/3/10

 

 

 

 

 

 

 

 

 

 

 

 

7,500

   

 

 

 

 

 

 

 

$

 

29.44

   

 

 

1/15/11

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

4,705

 

 

 

 

 

$

 

45.73

   

 

 

2/17/11

 

 

 

 

 

 

 

 

 

 

 

 

8,543

   

 

 

 

 

 

 

 

$

 

30.48

   

 

 

2/23/11

 

 

 

 

 

 

 

 

 

 

 

 

 

8,004

   

 

 

 

 

 

 

 

$

 

35.14

   

 

 

2/26/12

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

3,375

 

 

 

 

 

$

 

40.34

   

 

 

4/22/12

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

6,910

 

 

 

 

 

$

 

40.71

   

 

 

4/21/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,451

   

 

$

 

519,082

   

 

 

42,421

   

 

$

 

1,768,531

 

51


Outstanding Equity Awards at Fiscal Year-End 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

(e)