<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PACIFIC CENTURY FINANCIAL 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
[LOGO]
130 MERCHANT STREET
HONOLULU, HAWAII 96813
March 8, 1999
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of Pacific
Century Financial Corporation ("Pacific Century" or the "Company"). The meeting
will be held at 8:30 a.m. on Friday, April 23, 1999 on the Sixth Floor of the
Bank of Hawaii Building, 111 South King Street, Honolulu, Hawaii.
The Notice of Meeting and Proxy Statement accompanying this letter describe
the business we will consider and vote upon at the meeting. In addition to
consideration of these matters, a report to shareholders on the affairs of
Pacific Century will be given and shareholders will have the opportunity to
discuss matters of interest concerning the Company.
Your vote is very important. Please complete, sign, date and return the
enclosed proxy card and mail it promptly in the enclosed postage-paid return
envelope, even if you plan to attend the Annual Meeting. You may also vote by
telephone or electronically via the Internet. If you wish to do so, your proxy
may be revoked at any time prior to its use.
On behalf of the Board of Directors, thank you for your cooperation and
support.
Sincerely,
[LOGO]
LAWRENCE M. JOHNSON
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 1999
---------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Pacific Century Financial Corporation
("Pacific Century" or the "Company") will be held on Friday, April 23, 1999, at
8:30 a.m. on the sixth floor of the Bank of Hawaii Building, 111 South King
Street, Honolulu, Hawaii, for the following purposes:
1. To elect four Class I Directors for terms expiring in 2002.
2. To approve an Amendment to Article VII, Section E of the Company's
Certificate of Incorporation.
3. To approve an Amendment to Article VIII, Section A of the Company's
Certificate of Incorporation.
4. To approve an amendment to the Pacific Century Financial Corporation
Stock Option Plan of 1994 (the "Option Plan") to increase the number of
shares of common stock available for grant under the Option Plan.
5. To approve certain performance-based compensation provisions of the
Option Plan for purposes of Section 162(m).
6. To approve certain material terms of the One-Year Incentive Plan for
purposes of Section 162(m).
7. To approve certain material terms of the Long-Term Incentive Plan for
purposes of Section 162(m).
8. To elect an Independent Auditor.
9. To transact any other business that may be properly brought before the
meeting.
Shareholders of record of Pacific Century common stock at the close of
business February 23, 1999 are entitled to attend the meeting and vote on the
business brought before it.
We look forward to seeing you at the meeting. However, in the event that you
are unable to attend the meeting, your shares may still be voted if you
complete, sign, date and return the enclosed proxy card in the enclosed
postage-paid return envelope. You may also vote by telephone or electronically
via the Internet. The accompanying proxy statement provides certain background
information that will be helpful in deciding how to cast your vote on business
transacted at the meeting.
By Order of the Board of Directors
[LOGO]
CORI C. WESTON
VICE PRESIDENT AND SECRETARY
PACIFIC CENTURY FINANCIAL CORPORATION
Honolulu, Hawaii
Dated: March 8, 1999
IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD OR VOTE BY TELEPHONE OR ON
THE INTERNET AS PROMPTLY AS POSSIBLE. THIS WILL SAVE YOUR COMPANY THE EXPENSE
OF A SUPPLEMENTARY SOLICITATION.
THANK YOU FOR ACTING PROMPTLY.
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION
130 MERCHANT STREET
HONOLULU, HAWAII 96813
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 1999
(APPROXIMATE MAILING DATE: MARCH 8, 1999)
------------------------
The accompanying proxy is solicited by order of the Board of Directors of
Pacific Century Financial Corporation ("Pacific Century" or the "Company"). Any
proxy submitted as a result of this solicitation may be revoked by the
shareholder by giving notice of revocation to Pacific Century in writing or in
person at any time prior to its use. Attendance at the Annual Meeting will not
in itself constitute revocation of a proxy.
The expense of this solicitation will be paid by Pacific Century. In
addition to using the mail and Internet, proxies may be solicited by officers,
directors, and regular employees of Pacific Century or its subsidiaries, in
person, or by telephone, telegram, facsimile or other means without additional
compensation for such services. Pacific Century will also request brokers or
nominees who hold Pacific Century's common stock in their names to forward proxy
material at Pacific Century's expense to the beneficial owners of such stock.
Pacific Century has retained Georgeson & Company, a firm of professional proxy
solicitors, to aid in the solicitation of such proxies at an estimated fee of
$8,000 plus reimbursement of out-of-pocket expenses. The Company also reimburses
brokerage firms and others for their reasonable out-of-pocket expenses in
forwarding solicitation material to the beneficial owners of stock.
VOTING SECURITIES, VOTES REQUIRED, AND PRINCIPAL HOLDERS THEREOF
As of February 23, 1999 (the "record date"), Pacific Century had outstanding
shares of common stock. The presence at the meeting, in person or by
a proxy, of at least one-third of the outstanding shares is necessary to
constitute a quorum for the meeting. Each outstanding share is entitled to one
vote on all matters.
Brokers holding shares of record for customers generally are not entitled to
vote on certain matters unless they receive voting instructions from their
customers. As used herein, "broker non-votes" mean shares that are present for
quorum purposes but which are not voted on a particular matter by a broker
because the broker has no authority to vote on the matter without instructions.
The Company intends to treat abstentions and broker non-votes in accordance with
the principles set forth below.
ELECTION OF DIRECTORS (PROPOSAL 1): Directors are elected by a plurality,
and the nominees for each class who receive the most votes will be elected.
Abstentions and broker non-votes will not be taken into account in determining
the outcome of the election.
APPROVAL OF AMENDMENTS TO CERTIFICATE OF INCORPORATION (PROPOSALS 2 AND
3): To be adopted, Proposals 2 and 3 must each receive the affirmative vote of
the majority of shares outstanding on the record date. Accordingly, abstentions
and broker non-votes have the effect of negative votes.
OTHER PROPOSALS: All other proposals to be considered at the meeting
require the affirmative vote of the majority of the shares present in person or
by proxy at the meeting and entitled to vote. For these purposes, any broker
non-votes on a proposal will be treated as not entitled to vote and therefore
will not affect the outcome. Abstentions will have the effect of negative votes.
<PAGE>
At the close of business on December 31, 1998, Pacific Century had
80,352,548 shares of common stock outstanding. Two corporations were known to
Pacific Century to own beneficially 5% or more of Pacific Century's common
stock. Information about such ownership is set forth in the following table:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAMES AND ADDRESSES OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP CLASS
- -------------------------- ----------------------------------------------------- -------------------- -----------
<S> <C> <C> <C>
Common Stock.............. Wellington Management Co.
75 State Street
Boston, Massachusetts 02109
Common Stock.............. State Farm Mutual Auto Insurance Company 5,061,312 6.3%
and its related entities
One State Farm Plaza
Bloomington, Illinois 61701
</TABLE>
- ------------------------
(1) Wellington Management Company, LLP ("WMC") is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. As of December 31, 1998 WMC, in its
capacity as investment adviser, may be deemed to have beneficial ownership
of shares of common stock of Pacific Century that are owned by
numerous investment advisory clients, none of which is known to have such
interest with respect to more than five percent of the class. As of December
31, 1998, WMC had shared voting power over shares, and shared
dispositive power over shares.
(2) State Farm Mutual Automobile Insurance Company and its related entities have
sole voting and dispositive power over the 5,061,312 shares.
PROPOSAL 1: ELECTION OF DIRECTORS
The Certificate of Incorporation of Pacific Century provide that the Board
of Directors shall consist of not less than 3 nor more than 15 persons who shall
be elected for such terms as may be prescribed in the Certificate of
Incorporation of Pacific Century. The Certificate of Incorporation of Pacific
Century provides that the Board of Directors is to be divided into 3 classes,
with the terms of office of one class expiring each year. Directors to succeed
the class of directors whose terms expire will be elected for terms of 3 years
at Pacific Century's annual meetings. The Board of Directors has fixed the
number of directors at 11 (but is considering a possible increase in that number
as well as potential nominees for any resulting positions).
Listed below are the three persons who have been nominated as Class I
directors to serve 3-year terms to expire in 2002. All of the nominees are
currently serving as directors of Pacific Century. Should any of these nominees
become unable to serve, an event which is not anticipated by Pacific Century,
the proxies, except those from shareholders who have given instructions to
withhold voting for the following nominees, will be voted for such other persons
as management may nominate. Certain information concerning each of the nominees,
and each of the continuing directors, is set forth after his name. Each nominee
or director continuing in office is also currently a director of Bank of Hawaii
(the "Bank"), Pacific Century's major subsidiary.
2
<PAGE>
NOMINEES FOR ELECTION AS CLASS I DIRECTORS--TERMS EXPIRE IN 2002
<TABLE>
<CAPTION>
SHARES OF
PACIFIC CENTURY
NAME, AGE, AND YEAR COMMON STOCK
FIRST ELECTED AS PRINCIPAL OCCUPATION(S) OWNED AS OF
DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD DECEMBER 31, 1999
- ------------------------ ----------------------------------------- ------------------------ -----------------
<S> <C> <C> <C>
Peter D. Baldwin; President of Baldwin Pacific Corporation Maui Land & Pineapple 9,302(1)
61; 1991 (diversified foods distribution, milk and Co., Inc.
juice processing/packaging company, and
orchard farming in California) since
1965; President, Baldwin Pacific
Properties, Inc. (real estate development
company) since 1988; Director and Chief
Executive Officer of Orchards Hawaii,
Inc. (fruit juice marketing) since 1986;
President of Haleakala Ranch Co. (cattle
ranching and real estate development).
Richard J. Dahl; President of Pacific Century and the Bank Various subsidiaries and 518,668(2)
47; 1995 since August 1994; Chief Operating affiliates of Pacific
Officer of Pacific Century since 1997; Century.
Chief Operating Officer of the Bank since
August 1995; Executive Vice President and
Chief Financial Officer of Pacific
Century, April 1987 to January 1994; Vice
Chair of the Bank, December 1989 to July
1994. Director of Bank since April 1994.
Donald M. Takaki; Chairman and Chief Executive Officer, Various subsidiaries and 9,234(3)
57; 1997 Island Movers, Inc. since 1964 (a affiliates of Pacific
transportation service company); Century.
President, Transportation Concepts, Inc.
since 1988 (a transportation leasing
company) and General Partner, Don Rich
Associates since 1979 (a real estate
development company).
</TABLE>
The foregoing persons will be nominated for election as Class I directors,
as indicated above. The shares represented by the proxy cards returned will be
voted FOR the election of these nominees unless you specify otherwise.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE ABOVE
NOMINEES AS DIRECTORS.
A shareholder may nominate a particular individual to serve as a director,
provided notice of such nomination together with the written consent of such
individual to serve as a director is given within the time period provided for
in Section 1.12 of the By-Laws of Pacific Century. The notice of nomination must
be made in writing, delivered or mailed by first class mail to the Corporate
Secretary of Pacific Century, and must set forth (1) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (2) the principal occupation or employment of the nominee, and (3) the
number of shares of Pacific Century stock beneficially owned by the nominee.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS--TERMS EXPIRE IN 2000
<TABLE>
<CAPTION>
SHARES OF
PACIFIC CENTURY
COMMON STOCK
NAME, AGE, AND YEAR FIRST PRINCIPAL OCCUPATION(S) OWNED AS OF
ELECTED AS DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD DECEMBER 31, 1998
- ---------------------------- ------------------------------------- ------------------------ -----------------
<S> <C> <C> <C>
David A. Heenan; Trustee, The Estate of James Campbell Various subsidiaries 17,559(4)
59; 1993 since January 1, 1995; Chairman, and affiliates of
President and Chief Executive Officer Pacific Century.
of Theo H. Davies & Co., Ltd. (the
North American subsidiary of Hong
Kong-based Jardine Matheson Holdings
Ltd., a diversified multi-national
corporation) July 1982 to December
31, 1994.
Stuart T. K. Ho; Chairman of the Board and President, Capital Investment 24,140(5)
63; 1987 Capital Investment of Hawaii, Inc. of Hawaii, Inc.;
(diversified real estate development Gannett Co., Inc.;
and management company) since January College Retirement
1982; Chairman, Gannett Pacific Corp. Equities Fund;
(newspaper publishing company) since Various subsidiaries
1987. and affiliates of
Pacific Century.
Lawrence M. Johnson; Chairman and Chief Executive Officer Various subsidiaries 847,706(6)
58; 1989 of Pacific Century and Bank since and affiliates of
August 1994; President of Pacific Pacific Century.
Century and Bank March 1989 to July
1994; Executive Vice President of
Pacific Century August 1980 to
February 1989. Director of Bank since
April 1989.
Fred E. Trotter; President of F. E. Trotter, Inc. Longs Drug Stores; Maui 11,942(7)
68; 1978 since January 1970. Land &
Pineapple Co., Inc.;
Various subsidiaries
and affiliates of
Pacific Century.
</TABLE>
4
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS III DIRECTORS--TERMS EXPIRE IN 2001
<TABLE>
<CAPTION>
SHARES OF
PACIFIC CENTURY
COMMON STOCK
NAME, AGE, AND YEAR FIRST PRINCIPAL OCCUPATION(S) OWNED AS OF
ELECTED AS DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD DECEMBER 31, 1998
- ---------------------------- ------------------------------------- ------------------------ -----------------
<S> <C> <C> <C>
Mary G. F. Bitterman; President and Chief Executive Various subsidiaries and 18,417(8)
54; 1994 Officer, KQED, Inc. (public affiliates of Pacific
broadcasting center) since November Century. McKesson Corp.
1993; Consultant (telecommunications,
investments and Asian-Pacific
affairs) November 1988 to October
1993.
Herbert M. Richards, Jr.; President and Manager, Kahua Ranch, Various subsidiaries and 13,922(9)
69; 1994 Ltd. (cattle and sheep ranching and affiliates of Pacific
diversified agricultural business) Century.
since December 1953.
H. Howard Stephenson; Retired; Chairman and Chief Executive Various subsidiaries and 288,191(10)
69; 1980 Officer of Pacific Century and Bank affiliates of Pacific
March 1989 to July 1994; President of Century.
Pacific Century and Bank August 1980
to February 1989.
Stanley S. Takahashi; Executive Vice President & Chief Various subsidiaries and 8,100(11)
66 Operating Officer, Kyo-Ya Company, affiliates of Pacific
Ltd. since 1989; Chairman since 1996 Century.
and Director of United Laundry
Service, Inc. since 1992; President
and Director of Kyo-Ya Insurance
Services Inc. since 1994; Director of
Kokusai Kogyo Company, Ltd. since
1992 (diversified ownership of hotels
and resorts in Hawaii, California,
Florida and Australia).
</TABLE>
- ------------------------
(1) Includes 2,674 shares owned by Baldwin Pacific Corporation, of which Mr.
Baldwin is President, Director and sole shareholder, 600 restricted shares
and 28 shares held in trust for Mr. Baldwin, and 6,000 restricted shares
that Mr. Baldwin has the right to acquire under the Director Stock
Compensation Program ("Director Stock Program").
(2) Includes 52,468 shares held in trust for Mr. Dahl, 600 restricted shares
owned individually, 41,591 shares held in trust for spouse, 5,433 shares
owned by son Steven, 5,433 shares owned by daughter Sarah, 5,321 shares
owned by daughter Jane, 3,798 shares held in trust for Mr. Dahl under the
Bank of Hawaii Profit Sharing Plan, and 404,624 shares that Mr. Dahl has the
right to acquire within 60 days through the exercise of stock options.
5
<PAGE>
(3) Includes 2,312 shares owned jointly with spouse, 600 restricted shares held
individually, 1,322 shares acquired under the Directors Deferred
Compensation Plan ("Deferred Plan"), and 5,000 restricted shares Mr. Takaki
has the right to acquire under the Director Stock Program.
(4) Includes 600 restricted shares owned individually, 2,420 shares owned by a
family partnership, 656 shares owned by David Allan Heenan, Inc., 7,883
shares acquired under the Deferred Plan, and 6,000 restricted shares that
Mr. Heenan has the right to acquire under the Director Stock Program.
(5) Includes 1,340 shares owned individually, 740 shares of which are in an
individual retirement account and 600 of which are restricted shares, 1,124
shares owned by spouse in an individual retirement account, 14,421 shares
acquired under the Deferred Plan, 6,000 restricted shares that Mr. Ho has
the right to acquire under the Director Stock Program, and indirectly 1,255
shares as co-trustee for the Chinn Ho Trust under Trust Agreement dated
February 6, 1987.
(6) Includes 406,493 shares that Mr. Johnson has the right to acquire within 60
days through the exercise of stock options, 262,264 shares held in trust for
Mr. Johnson, 600 restricted shares issued under the Director Stock Program
owned individually, and 26,076 shares held in trust for Mr. Johnson under
the Pacific Century Profit Sharing Plan.
Includes 152,273 shares owned by the Bank of Hawaii Charitable Foundation
(the "Foundation"). The Board of Directors of the Foundation, which consists
of the Bank of Hawaii directors, has appointed Mr. Johnson as President of
the Foundation. Mr. Johnson, as President, has the authority to direct the
disposition and to vote and execute proxies for such shares on behalf of the
Foundation. Because Mr. Johnson possesses shared voting and investment power
with respect to such shares, he may be deemed to have beneficial ownership
for certain purposes within the meaning of regulations of the Securities and
Exchange Commission. If the total number of shares beneficially owned by Mr.
Johnson included such shares held in trust for the Foundation, the
percentage of shares of common stock owned by Mr. Johnson would be 0.01%.
Mr. Johnson has advised Pacific Century that he disclaims beneficial
ownership of such shares.
(7) Includes 1,934 shares owned by the F. E. Trotter, Inc. Pension Plan, of
which Mr. Trotter is the sole participant, 3,408 shares owned individually,
600 restricted shares held in trust, and 6,000 restricted shares that Mr.
Trotter has the right to acquire under the Director Stock Program.
(8) Includes 5,522 shares held in trust for Dr. Bitterman, 600 of which are
restricted, 1,000 shares owned individually in an individual retirement
account, 3,895 shares held in trust for spouse, 2,000 shares owned by spouse
in an individual retirement account, and 6,000 restricted shares that Dr.
Bitterman has the right to acquire under the Director Stock Program.
(9) Includes 4,206 shares owned by Kahua Ranch, Ltd., of which Mr. Richards is
President and Manager and beneficiary of a trust, 5,716 shares owned
individually, 2,600 of which are restricted shares, and 4,000 restricted
shares that Mr. Richards has the right to acquire under the Director Stock
Program.
(10) Includes 142,328 shares held in trust for Mr. Stephenson, 600 of which are
restricted shares, 127,232 shares held in trust for spouse, 12,631 shares
that Mr. Stephenson has the right to acquire within 60 days through the
exercise of stock options, and 6,000 restricted shares that Mr. Stephenson
has the right to acquire under the Director Stock Program.
(11) Includes 1,500 shares owned jointly with spouse in trust, 600 restricted
shares held individually, and 6,000 restricted shares that Mr. Takahashi has
the right to acquire under the Director Stock Program.
6
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows as of December 31, 1998, the number of shares of
common stock of Pacific Century beneficially owned by all named executive
officers of Pacific Century, individually, and all directors, executive officers
and nominees as a group. Chairman and Chief Executive Officer Johnson and
President and Chief Operating Officer Dahl are omitted from this table since
such information is provided for Mr. Johnson as a director continuing in office
on page 4 and for Mr. Dahl as a nominee for Class I director on page 3.
<TABLE>
<CAPTION>
CURRENT POSITION AND NUMBER OF SHARES
NAME, AND AGE OF BUSINESS EXPERIENCE BENEFICIALLY OWNED
INDIVIDUAL DURING THE PAST FIVE YEARS (A)
- ------------------------ ----------------------------------------------------------------- --------------------
<S> <C> <C>
Alton T. Kuioka, Vice Chair and Chief Lending Officer of Pacific Century since 241,698(b)
55 April 1997; Executive Vice President of Pacific Century since
October 1994; Vice Chair of the Bank since June 1994; Chief
Lending Officer of the Bank since August 1995; Executive Vice
President of the Bank from November 1991 to May 1994; Senior Vice
President from October 1988 to October 1991.
David A. Houle, Executive Vice President of Pacific Century since April 1997; 92,271(c)
51 Senior Vice President, Treasurer and Chief Financial Officer of
Pacific Century since December 1992; Executive Vice President and
Chief Financial Officer of the Bank since February 1994.
Mary P. Carryer, Vice Chair of Pacific Century and the Bank from November 1997; 82,545(d)
43 General Manager Consumer Marketing/ Product Development for
Westpac Banking Corporation from August 1993 to November 1997;
Senior Vice President, Corporate Banking Group, Wells Fargo and
Company from 1991 to August 1993.
Directors, nominees and 1,699,922(e)
executive officers as
a group (15 persons)
</TABLE>
- ------------------------
(a) Each of the above named executive officers beneficially owns less than 1% of
the outstanding shares of common stock of Pacific Century.
(b) Includes 17,988 shares held in trust for Mr. Kuioka under the Pacific
Century Profit Sharing Plan, 52,148 shares owned individually, 400 of which
are restricted shares, and 171,562 shares that Mr. Kuioka has the right to
acquire within 60 days through the exercise of stock options.
(c) Includes 2,475 shares held in trust for Mr. Houle under the Pacific Century
Profit Sharing Plan, 6,000 shares owned jointly with spouse, 200 shares
owned by spouse in an individual retirement account, 600 shares owned in an
individual retirement account and 82,996 shares that Mr. Houle has the right
to acquire within 60 days through the exercise of stock options.
(d) Includes 45 shares owned individually, and 82,500 shares that Ms. Carryer
has the right to acquire within 60 days through the exercise of stock
options.
(e) Includes 152,273 shares owned by the Bank of Hawaii Charitable Foundation of
which Mr. Johnson is President as mentioned in footnote (6) on page 4,
1,148,175 shares that may be acquired by executive officers within 60 days
through the exercise of stock options, and 50,337 shares held in trust under
the Pacific Century Profit Sharing Plan pursuant to elections by executive
officers. If all such shares are included, all directors and executive
officers of Pacific Century as a group owned 0.01% of Pacific Century's
common stock on December 31, 1998 and no one director or executive officer
owned more than 1% of such stock.
7
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Pacific Century's directors and executive officers and persons who own more than
ten percent of Pacific Century's common stock to report their ownership and
changes in their ownership of Pacific Century's common stock to the Securities
and Exchange Commission and the New York Stock Exchange. Specific due dates for
these reports have been established by the Securities and Exchange Commission
and Pacific Century is required to report in this proxy statement any failure of
its directors and executive (and certain other) officers to file by these dates.
To Pacific Century's knowledge, based solely on review of the copies of such
reports received by Pacific Century and the written representations of its
directors and officers, Pacific Century believes that all such filing
requirements were satisfied by its directors and officers for 1998, with the
exception of one option exercise with respect to 1,000 shares in August 1998 by
Mr. Houle, which was filed in October 1998. This late filing resulted from
administrative oversight at the Company.
DUTIES AND COMPENSATION OF DIRECTORS
Pacific Century's Board of Directors met a total of 10 times during 1998.
Each of the directors attended 75% or more of the aggregate of the total number
of meetings of the Board of Directors and the total number of meetings held by
the committees on which he or she served in 1998.
With the exception of Mr. Johnson and Mr. Dahl, who do not receive fees for
serving on the Board of Directors, each director was paid an annual retainer of
$8,000, plus $750 for each regular Board meeting attended. All Pacific Century
directors are also directors of the Bank of Hawaii and, with the exception of
Mr. Johnson, Mr. Dahl and Mr. Kuioka, receive an annual retainer as a Bank of
Hawaii director of $8,000, plus $750 for each regular Bank of Hawaii Board
meeting. Each Pacific Century director holds 125 shares of Bank of Hawaii, and
during 1998 received $4,350 in dividends on such shares. Directors are also
reimbursed for board-related travel expenses. The Company does not have a
retirement plan for directors who are not employees of the Company.
The Board of Directors has five committees--Audit Committee, Compensation
and Management Development Committee ("Compensation Committee"), Chief Executive
Officer Evaluation Committee ("CEO Evaluation Committee"), Executive Committee,
and Nominating Committee. Directors who are not employees of Pacific Century or
any of its subsidiaries serving as members of the Audit Committee, Compensation
Committee, and Executive Committee receive $600 for each meeting attended. In
1999, the Audit Committee meeting fee will be $750. The chair of the
Compensation Committee receives an annual retainer of $2,500. For 1998, the
chair and vice chair of the Audit Committee also receive an annual retainer of
$3,000 and $2,500 respectively and for 1999, $3,500 and $3,000, respectively.
The chair of the CEO Evaluation Committee receives an annual retainer of $1,500
and each member receives an annual retainer of $1,000 each. Members of the CEO
Evaluation Committee receive no separate meeting fees.
DIRECTORS DEFERRED PLAN
Pacific Century maintains a Deferred Plan under which each director may
elect to defer all of his or her annual retainer and meeting fees or all of his
or her annual retainer. Distribution of the deferred amounts will commence as of
the first day of the first calendar month after the participating director
ceases to be a director of Pacific Century. Distribution will be made in a lump
sum or in approximately equal annual installments over such period of years (not
exceeding 10 years) as the director elects at the time of deferral. Under the
Deferred Plan, deferred amounts are not credited with interest, but are valued
based on corresponding investments in Pacific Capital Funds or Pacific Century
Stock, as selected by participants.
8
<PAGE>
DIRECTOR STOCK PROGRAM
Pacific Century maintains a Director Stock Program under which each director
of Pacific Century and the Bank who is not an employee receives an annual grant
of options to acquire restricted stock at a price equal to the fair market value
of Pacific Century's stock at the date of grant. A director who is not an
employee of Pacific Century or the Bank and who is a member of both Boards
receives an annual option for 2,000 restricted shares, and a director who serves
on only one Board receives an annual option for 1,000 restricted shares. In
addition, under the Director Stock Program, all directors of the Bank receive
annual grants of 200 restricted shares (not to exceed 1,000 restricted shares to
any one director). Restricted stock issued under the Director Stock Program
carries voting and dividend rights but is generally non-transferable during a
restriction period that ends upon expiration of a director's last consecutive
term, at death, upon disability, upon a change in control, or upon removal from
office by shareholders without cause. Restricted stock will be forfeited if a
director ceases to serve as a director for any reason that does not cause a
lapse of the restriction period.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE
MEMBERS: Stuart T. K. Ho (Chair), Mary G. F. Bitterman (Vice-Chair), David A.
Heenan and Robert Wo, Jr.
NUMBER OF MEETINGS IN 1998: 8
FUNCTIONS:
- Reviews Pacific Century's filings with the Securities and Exchange
Commission
- Reviews tax matters of consequence to Pacific Century and its subsidiaries
- Reviews the internal financial controls of Pacific Century and its
subsidiaries
- Reviews the scope of auditing activity and reports prepared by Pacific
Century's independent and internal auditors and regulatory agencies
- Reviews the audit services provided by the independent auditors and makes
recommendations to the Board of Directors with respect to the nomination
of independent auditors for Pacific Century.
- Reviews matters pertaining to corporate governance.
COMPENSATION COMMITTEE
MEMBERS: Fred E. Trotter (Chair), Stuart T. K. Ho and Herbert M. Richards
NUMBER OF MEETINGS IN 1998: 4
FUNCTIONS:
- Reviews, approves, and reports to the Board of Directors as to the
compensation arrangements and plans for senior management of Pacific
Century and its subsidiaries.
- Reviews and approves goals for incentive compensation plans, stock option
plans and evaluates performance against these goals.
CEO EVALUATION COMMITTEE
MEMBERS: Fred E. Trotter (Chair), Stuart T. K. Ho, Mary G. F. Bitterman, Stanley
S. Takahashi and Herbert M. Richards, Jr.
NUMBER OF MEETINGS IN 1998: 4
9
<PAGE>
FUNCTIONS:
- Determines performance objectives of the CEO and evaluates the CEO's
performance measured against the performance objectives and goals of
Pacific Century.
EXECUTIVE COMMITTEE
MEMBERS: H. Howard Stephenson (Chair), Lawrence M. Johnson (Vice Chair), Richard
J. Dahl, Stuart T. K. Ho, Fred E. Trotter, and two other non-employee directors;
currently Mary G. F. Bitterman and Donald M. Takaki who serve for six-month
terms.
NUMBER OF MEETINGS IN 1998: 2
FUNCTIONS:
- Authorized to exercise certain powers of the Board of Directors during
intervals between the meetings of the Board of Directors when time is of
the essence.
NOMINATING COMMITTEE
MEMBERS: Fred E. Trotter (Chair), Stuart T. K. Ho (Vice Chair), Peter D.
Baldwin, Mary G. F. Bitterman, David A. Heenan, Herbert M. Richards, Jr., H.
Howard Stephenson, Stanley S. Takahashi and Donald M. Takaki.
NUMBER OF MEETINGS IN 1998: 1
FUNCTIONS:
- Reviews the qualifications of all Board candidates and recommends
candidates for membership on the Board.
In addition to the nomination procedure discussed on page 3, this Committee
will consider recommendations by shareholders for nominees for election to the
Board at the Annual Meeting to be conducted in 2000, if such recommendations are
received in writing, prior to February 4, 2000 and not earlier than January 25,
2000 and as otherwise provided by Section 1.12 of the By-Laws of Pacific
Century, addressed to Pacific Century's Nominating Committee in care of the
Corporate Secretary, Pacific Century, 130 Merchant Street, Honolulu, Hawaii
96813.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ending December 31,
1998, 1997, and 1996, information with respect to compensation paid by Pacific
Century to its Chief Executive Officer and to other persons who, at December 31,
1998, were the four most highly compensated executive officers of Pacific
Century other than the CEO ("named executive officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------------
AWARDS
ANNUAL COMPENSATION -------------------------- PAYOUTS
-------------------------------------------------- RESTRICTED SECURITIES -----------------
OTHER ANNUAL STOCK UNDERLYING LONG TERM
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ INCENTIVE PAYOUTS
POSITION(1) YEAR ($) ($)(2) ($)(3) (#)(4) SARS (#)(5) ($)(6)
- ------------------- --------- ----------- --------- --------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence M. 1998 735,000 200,000 -- 200 150,000 0
Johnson.......... 1997 700,000 80,151 -- 200 75,000 0
Chairman of the 1996 652,917 491,973 -- 200 100,000 0
Board and Chief
Executive Officer
Richard J. Dahl.... 1998 525,000 175,000 -- 200 120,000 0
President and Chief 1997 475,008 48,950 -- 200 60,000 0
Operating Officer 1996 443,750 300,929 -- 200 80,000 0
Alton T. Kuioka.... 1998 325,008 150,000 -- 200 55,000 0
Vice Chair and 1997 300,000 30,915 -- 200 32,500 0
Chief Lending 1996 271,567 184,234 -- 40,000 0
Officer
Mary P. Carryer.... 1998 325,008 150,000 -- 55,000 0
Vice Chair 1997 50,000 0 32,500 0
1996 0 0 -- 0 0
David A. Houle..... 1998 255,000 76,500 -- 25,000 0
Executive Vice 1997 236,256 58,420 -- 18,000 0
President, 1996 222,917 101,282 -- 20,000 0
Treasurer and
Chief Financial
Officer
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) ($)(7)
- ------------------- -------------
<S> <C>
Lawrence M. 86,361
Johnson.......... 145,454
Chairman of the 135,825
Board and Chief
Executive Officer
Richard J. Dahl.... 61,990
President and Chief 96,081
Operating Officer 84,585
Alton T. Kuioka.... 39,960
Vice Chair and 61,464
Chief Lending 52,980
Officer
Mary P. Carryer.... 6,138
Vice Chair 0
0
David A. Houle..... 35,666
Executive Vice 44,055
President, 38,834
Treasurer and
Chief Financial
Officer
</TABLE>
- ------------------------------
(1) Mr. Johnson has been Chairman of the Board and Chief Executive Officer since
August 1, 1994. Mr. Dahl has been President since August 1, 1994 and Chief
Operating Officer since August 1995. Mr. Kuioka has been Executive Vice
President since October 26, 1994 and Chief Lending Officer since August
1995; and in April of 1997 assumed the title of Vice Chair and Chief Lending
Officer. Ms. Carryer joined the Company on November 1, 1997 as Executive
Vice President and Vice Chair. Accordingly, information for Ms. Carryer for
1996 is not presented.
(2) "Bonus" consists of cash awards under Pacific Century's One-Year Incentive
Plans for the years 1996 and 1997. No cash awards were made to any named
executive officer under the Executive One-Year Incentive Plan for 1998 as
performance goals were not met. The Executive One-Year Plan participants are
Mr. Johnson, Mr. Dahl, Mr. Kuioka and Ms. Carryer. For the year 1998, a cash
bonus, as described on pages 20 and 21, was awarded to all Executive One
Year Incentive Plan participants. Mr. Houle received a cash award under the
Company's One-Year Incentive Plan which covers other key employees of the
Company and its subsidiaries. The Company's incentive plans are described on
page 20.
(3) Perquisites did not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for any named executive officer for 1998.
(4) In 1996, 1997 and 1998 Mr. Johnson and Mr. Dahl each received 200 restricted
shares and in 1997 and 1998 Mr. Kuioka received 200 restricted shares
(adjusted for the December 1997 100% stock dividend) under the Director
Stock Program. The fair market value on the date of the 1996, 1997 and 1998
grants (adjusted for the December 1997 100% stock dividend) were $17.75,
$20.88 and $24.50 per share respectively and the fair market value at
December 31, 1998 was $24.38. Dividends are paid on the restricted stock.
11
<PAGE>
(5) Under the Pacific Century Stock Option Plan of 1994, each stock option was
in tandem with a stock appreciation right ("SAR"). A SAR entitles the
optionee, in lieu of exercising the stock option, to receive cash equal to
the excess of the value of one share over the option price times the number
of shares as to which the option is exercised. All stock option awards were
granted with an exercise price equal to the fair market value of Pacific
Century's common stock on the date of grant. The number and exercise price
of the stock options awarded to the named executive officers were not
adjusted or amended for the years 1996, 1997 and 1998, except adjustments
for the 100% stock dividend paid on December 12, 1997, as required by the
underlying stock option plans.
(6) There were no amounts paid under Pacific Century's Sustained Profit Growth
Plan (the "Growth Plan") for the three-year incentive periods of January 1,
1994 through December 31, 1996; January 1, 1995 through December 31, 1997 or
January 1, 1996 through December 31, 1998. The Growth Plan is described on
page 20.
(7) This column includes the following allocations under the Pacific Century
Profit Sharing Plan (the "Profit Sharing Plan"), the Pacific Century Profit
Sharing Excess Plan (the "Excess Profit Sharing Plan"), the Pacific Century
Money Purchase Plan (the "Money Purchase Plan") and the Pacific Century
Excess Money Purchase Plan (the "Excess Money Purchase Plan"). These plans
are described on page 15.
<TABLE>
<CAPTION>
401(K)
PROFIT- 401(K) PROFIT EXCESS
SHARING PLAN SHARING PLAN PROFIT MONEY EXCESS MONEY
MATCHING FORMULA SHARING PLAN PURCHASE PLAN PURCHASE PLAN
ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Lawrence M. Johnson......... $ 4,000 $ 9,766 $ 39,989 $ 6,400 $ 26,206
Richard J. Dahl............. $ 4,000 $ 9,766 $ 25,266 $ 6,400 $ 16,558
Alton T. Kuioka............. $ 4,000 $ 9,766 $ 11,958 $ 6,400 $ 7,836
Mary P. Carryer............. $ 677 $ 1,627 $ 1,678 $ 1,066 $ 1,100
David A. Houle.............. $ 4,000 $ 9,766 $ 9,364 $ 6,400 $ 6,136
</TABLE>
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS POTENTIAL REALIZABLE
UNDERLYING GRANTED TO EXERCISE OR VALUE(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED (#) FISCAL YEAR $/SHARE DATE 5% 10%
- ---------------------------- ------------- ----------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence M. Johnson......... 150,000(2) 13.4%/37.3% $16.875 9-7-08 $ 1,591,890 $ 4,034,161
Richard J. Dahl............. 80,000(2) 7.2%/19.9% $16.875 9-7-08 $ 849,008 $ 2,151,552
30,000(3) 2.7%/7.5% $25.0625 4-14-08 $ 472,850 $ 1,198,295
Alton T. Kuioka............. 55,000(2) 4.9%/13.7% $16.875 9-7-08 $ 583,693 $ 1,479,192
Mary P. Carryer............. 55,000(2) 4.9%/13.7% $16.875 9-7-08 $ 583,693 $ 1,479,192
David A. Houle.............. 25,000(2) 2.2%/6.2% $16.875 9-7-08 $ 265,315 $ 672,360
</TABLE>
- ------------------------
(1) The Potential Realizable Values were determined using the Black-Scholes
model. The following assumptions were utilized in determining the values:
annual dividend yield of 3.10%; stock price volatility of 25.52% (based on
daily stock prices for the one year period prior to the grant date); and an
option term of ten years. An annual dividend yield of 3.10% and stock price
volatility of 19.76% was used for the April 1998 grant.
(2) Stock options in tandem with SARs become exercisable one year from the date
of grant for a nine-year period ending September 7, 2008. The exercise or
base price of the stock options and tandem SARs was the fair market value of
Pacific Century's common stock on date of grant. All such options and tandem
SARs would become immediately exercisable upon a change in control of
Pacific Century.
12
<PAGE>
(3) Stock options in tandem with SARs become exercisable one year from the date
of grant for a nine-year period ending April 14, 2008. The exercise or base
price of the stock options and tandem SARs would become immediately
exercisable upon a change in control of Pacific Century.
The stock options and stock appreciation rights exercised by the named
executive officers during fiscal 1998, as well as the number and total value of
unexercised in-the-money options as of December 31, 1998, are shown in the
following table:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
SHARES OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE YEAR-END (#) AT FISCAL YEAR-END ($)(2)
EXERCISE REALIZED ------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ------------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence M. Johnson.................. 47,333 $ 1,477,644 406,493 150,000 $ 2,420,306 $ 1,125,000
Richard J. Dahl...................... 9,442 542,243 404,624 110,000 $ 2,983,971 $ 600,000
Mary P. Carryer...................... 0 0 82,500 55,000 $ 0 $ 412,500
Alton T. Kuioka...................... 8,376 629,057 171,562 55,000 $ 1,089,034 $ 412,500
David A. Houle....................... 2,000 56,690 82,996 25,000 $ 444,751 $ 187,500
</TABLE>
- ------------------------
(1) Includes exercise of stock appreciation rights.
(2) The fair market value of Pacific Century's stock at year-end was $24.375.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NO. OF SHARES, -----------------------------------
UNITS PERFORMANCE OR OTHER PERIOD THRESHOLD TARGET
OR OTHER RIGHTS (#) UNTIL MATURATION OR PAYOUT (#) (#) MAXIMUM (#)
------------------- ---------------------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Lawrence M. Johnson.......... 10,000 3 years ending 12/31/2000 10,000 10,000 10,000
Richard J. Dahl.............. 10,000 3 years ending 12/31/2000 10,000 10,000 10,000
Mary P. Carryer.............. 10,000 3 years ending 12/31/2000 10,000 10,000 10,000
</TABLE>
- ------------------------
(1) Represents performance share (restricted stock unit) awards under the
Pacific Century Stock Option Plan of 1994. Each award provides for issuance
of 10,000 unrestricted shares of Pacific Century common stock if for the
year ending December 31, 2000 Pacific Century attains a return on average
assets for at least 1.2% and a return on average equity of at least 17.5%.
If the shares are earned, the grantee will also receive a cash payment equal
the amount of dividends (without interest) that would have been earned on
the shares if they had been outstanding during the performance period.
"Return on average assets" means "net income" of Pacific Century divided by
"average total assets." "Net income" means Pacific Century's consolidated
net income for the year as reported in the annual report to shareholders,
subject to adjustment by the compensation committee in its discretion for
extraordinary or unusual gain or loss transactions, security gains or losses
or dividends on preferred stock. "Average total assets" means the average
total assets for the year reported in the annual report to shareholders.
"Return on average equity" means net income for the year divided by average
total equity as the latter amount is reported in the annual report to
shareholders, reduced by the average amount of any preferred stock. Except
as described below, each grant will terminate if the grantee does not remain
in the employment of Pacific Century or its subsidiaries until December 31,
2000. If the grantee dies or becomes disabled, and the performance criteria
are met as of December 31, 2000, the grantee will be entitled to receive a
number of shares of stock (and the cash amount attributable to dividends)
obtained by prorating the grantee's
13
<PAGE>
period of service by the number of full months of the entire performance
period during which the grantee was an employee of Pacific Century or its
subsidiaries. Also, if a "change in control" occurs, the performance period
will be deemed to have ended on the date of the change of control and the
performance shares will be treated as having been earned on a prorated basis
as of that date. As a result, the grantee would be entitled to a portion of
the 10,000 shares (and the cash amount attributable to dividends) that
reflects the number of full months of the entire performance period which
had been completed as of the date of change in control. However, if the
performance criteria had been achieved for any year prior to the change in
control date, the shares will be treated as fully earned and the total
number of shares (rather than a prorated amount) will be payable. Grantees
may elect (subject to approval of the Compensation Committee) to satisfy
withholding requirements arising from issuance of shares by having Pacific
Century withhold shares that would otherwise be payable. Alton T. Kuioka and
David A. Houle also hold performance share grants that were effective as of
January 1, 1997. Each of those grants is for 10,000 shares, the original
5,000 grant has been adjusted for the 100% stock dividend paid on December
12, 1997, as required by the Plan, and has other terms identical to those
described above, except that the performance period (which affects proration
calculations and the cash amount payable with respect to dividends) is the
four-year period ended January 1, 2000.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM ANNUAL RETIREMENT BENEFIT
AVERAGE ANNUAL BASED UPON YEARS OF SERVICE
SALARY IN CONSECUTIVE ----------------------------------------------------------
HIGHEST PAID YEARS 15 20 25 30 35*
- ----------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 75,000............................................. $ 20,254 $ 27,005 $ 33,756 $ 40,507 $ 47,258
100,000............................................. 27,754 37,005 46,256 55,507 64,758
125,000............................................. 35,254 47,005 58,756 70,507 82,258
150,000............................................. 42,754 57,005 71,256 85,507 99,758
200,000............................................. 57,754 77,005 96,256 115,507 134,758
250,000............................................. 72,754 97,005 121,256 145,507 169,758
300,000............................................. 87,754 117,005 146,256 175,507 204,758
350,000............................................. 102,754 137,005 171,256 205,507 239,758
400,000............................................. 117,754 157,005 196,256 235,507 274,758
450,000............................................. 132,754 177,005 221,256 265,507 309,758
500,000............................................. 147,754 197,005 246,256 295,507 344,758
550,000............................................. 162,754 217,005 271,256 325,507 379,758
600,000............................................. 177,754 237,005 296,256 355,507 414,758
650,000............................................. 192,754 257,005 321,256 385,507 449,758
700,000............................................. 207,754 277,005 346,256 415,507 484,758
750,000............................................. 222,754 297,005 371,256 445,507 519,758
</TABLE>
- ------------------------
* Applies only to individuals hired before November 1, 1969.
The Employees' Retirement Plan of Bank of Hawaii (the "Retirement Plan")
provides retirement benefits for employees of participating employers who have
completed certain age and service requirements. "Participating employers" means
the Bank of Hawaii, First Savings and Loan Association of America, Pacific
Century Bank, N.A. and any associated company that has adopted the Retirement
Plan. Although retirement generally occurs at age 65, employees may retire at or
after age 62 with unreduced benefits.
The amount of benefits payable to employees who retire prior to age 62 is
subject to specified adjustments. Benefits paid under the Retirement Plan are
primarily determined by (1) the number of
14
<PAGE>
months a participant has worked, and (2) a participant's average annual salary
during the 60 consecutive months in his or her last 120 months of service
affording the highest average, excluding overtime, premium pay, incentive plan
payouts, and discretionary bonuses.
The normal retirement benefit shown earlier assumes payment in the form of a
single life annuity commencing at age 65, and is not subject to any deduction
for Social Security or other offset amounts. The Internal Revenue Code generally
limits the maximum annual benefit which can be paid under the Retirement Plan to
the lesser of $130,000 in 1998 or 100% of the participant's average compensation
for the highest three consecutive calendar years during which he or she was a
participant. Accordingly, if at retirement the annual benefit of any participant
should exceed this limit, the individual's benefit from the Retirement Plan will
be reduced to the permissible maximum. The amount of this reduction will be paid
to the participant from an unfunded excess benefit plan designed for this
purpose. The Internal Revenue Code also limits the maximum average annual salary
that may be considered for purposes of determining a participant's benefit
(e.g., $160,000 in 1998). The amount of the reduction of benefit due to this
salary limitation will also be paid to the participant under the unfunded excess
benefit plan.
On January 25, 1995, Pacific Century's Board of Directors approved
comprehensive revisions to Pacific Century's retirement and profit sharing
benefits, which include the freezing of the Retirement Plan and vesting of
participants as of December 31, 1995 (with the exception that for the next
succeeding five year period commencing January 1, 1996, benefits for certain
eligible participants, including Messrs. Johnson and Kuioka, will increase in
proportion to the increase in the participant's average annual salary).
The credited years of service and the 1996 compensation covered by the
Retirement Plan of the named executive officers as of the 1995 freeze date are
as follows: Mr. Johnson, 32 years and $575,004; Mr. Dahl, 13 years and $375,000;
Mr. Kuioka, 26 years and $226,257; and Mr. Houle, 2 years and $168,639. Through
1998, the Retirement Plan benefits for Messrs. Johnson and Kuioka were increased
by 11.44% and 16.77%, respectively due to increases in their average annual
salaries.
PROFIT SHARING PLANS
The Profit Sharing Plan is a tax-qualified defined contribution plan. Each
plan year, Pacific Century makes a profit sharing contribution based on Pacific
Century's adjusted net income and adjusted return on equity for the plan year.
The profit sharing contribution is allocated to all participants based on a
participant's eligible compensation. The Profit Sharing Plan contains a 401(k)
member savings feature as well as a company matching contribution of $1.25 for
each $1.00 (up to 2% of eligible compensation) a participant contributes in
401(k) savings. The Money Purchase Plan was adopted effective January 1, 1996.
The Money Purchase Plan is a tax-qualified defined contribution plan under which
a participant will receive an allocation of an amount equal to 4% of the
participant's total eligible compensation for each plan year. Ms. Carryer did
not participate in the above mentioned plans until 1998.
The Internal Revenue Code ("Code") imposes certain limitations on the annual
amounts that any participant may receive under tax-qualified defined
contribution plans equal to the lesser of $30,000 or 25% of eligible
compensation. As a result, the Excess Profit Sharing Plan and the Excess Money
Purchase Plan were adopted effective January 1, 1992 and January 1, 1996,
respectively. The amount of any reduction applied to the qualified plan
contributions as a result of Code limitations are credited under the Excess
Profit Sharing and Excess Money Purchase Plans to accounts maintained on the
books of Pacific Century. The amounts allocated under these plans will be paid
from the general assets of Pacific Century at the time the participant receives
a distribution of his respective account from the Profit Sharing Plan and Money
Purchase Plan. Effective August 1, 1996, "rabbi trusts" were established with
respect to the Excess Profit Sharing Plan and Excess Money Purchase Plan in
order to better
15
<PAGE>
secure the payment of benefits. While assets of these plans are set aside in
trust (with Pacific Century Trust, a division of Bank of Hawaii, as trustee),
such assets remain the general assets of Pacific Century and are subject to the
claims of Pacific Century's general creditors. Participants under these plans
are allowed to direct the investment of their accounts in a manner similar to
the Profit Sharing and Money Purchase Plans.
CHANGE-IN-CONTROL ARRANGEMENTS
Pacific Century's Key Executive Severance Plan (the "Severance Plan")
provides participants, following a change in control of Pacific Century, with
severance benefits under circumstances and in amounts set forth in the Severance
Plan and in individual severance agreements with each participant. Each of the
severance agreements with Pacific Century's current named executive officers
provides that a "change of control" will be deemed to have occurred if (1) any
person or group becomes the beneficial owner of 25% or more of the total number
of voting securities of Pacific Century, or (2) the persons who were directors
of Pacific Century before a cash tender or exchange offer, merger or other
business combination, sale of assets, or contested election cease to constitute
a majority of the Board of Directors of Pacific Century or any successor to
Pacific Century.
Mr. Johnson's agreement, and the Severance Plan, further provide that a
"change of control" will be deemed to have occurred if a majority of the Board
of Directors determines in good faith that a change of control is imminent. For
Messrs. Johnson, Dahl, Kuioka, and Ms. Carryer, severance benefits are payable
if their employment is terminated voluntarily or involuntarily within 2 years of
a change of control. Key features include the following:
(1) The payment of a lump sum amount equal to 3 years of compensation,
consisting of salary, bonuses, and certain other incentive compensation,
calculated in Mr. Johnson's case on the basis of his highest total
compensation during any 12-month period in the preceding three years, and
in the case of Messrs. Dahl and Kuioka, and Ms. Carryer, by applying a
multiplier of 3 to the highest salary, highest bonus and highest
incentive compensation amounts paid in the preceding three years.
(2) Special supplemental retirement payments equal to the retirement
benefits the participant would have received had his or her employment
continued for 3 years following his or her termination of employment (or
until his or her normal retirement date, if earlier).
(3) The continuation of all other benefits he or she would have received had
employment continued for 3 years following the termination of employment
(or until his or her normal retirement date, if earlier), such as
hospital, medical-surgical, major medical, and group life insurance.
(4) The lump sum payment to Mr. Dahl, Mr. Kuioka and Ms. Carryer would also
include a payment equal to any difference between the actual payout under
the One-Year Incentive Plan for the year of termination and the maximum
amount that would be payable if employment continued to the end of the
period and all performance goals were achieved.
(5) For Mr. Houle, severance benefits are payable if within 2 years of a
change of control his employment is involuntarily terminated (or if he
voluntarily terminates employment following certain events involving
demotion, reduction of responsibilities, relocation, reduction in base
salary, certain failures to continue compensation plans and benefits
programs or his participation therein, or a failure of Pacific Century or
its successor to assume the obligations to Mr. Houle under the agreement
following a change in control). If such events occur, Mr. Houle would
receive as severance two times his then base salary, two times his target
bonus under the One-Year Incentive Plan, payouts under the One-Year Plan
and the Long Term Incentive Plan, continuation of all benefits for two
years (or, if earlier, until normal
16
<PAGE>
retirement age), and special retirement benefits similar to those
described above but calculated as though he had continued employment for
two years following termination.
(6) The agreements with Mr. Dahl, Mr. Kuioka and Ms. Carryer provide that
amounts payable will be grossed up for the amount necessary to pay any
golden parachute excise tax due. Mr. Houle's agreement provides that if
payments to him would constitute or result in "excess parachute
payments", payments to him under the agreement are to be reduced, but
only if such reduction would result in an increase in his net benefit.
Stock options and SARs held by named executive officers will become
immediately exercisable upon a change of control. See notes to the table
entitled "Stock Option/SAR Grants in Last Fiscal Year" on page 12. A change in
control will also cause the lapse of restrictions on stock issued under the
Director Stock Program, and (as described on page 9) will entitle named
executive officers to receive all or a portion of the shares covered by
performance share grants. In the case of the Incentive Plans and the 1999 to
2001, 1998 - 2000 and 1997 to 1999 Growth Plan cycles, the relevant incentive
period will end and awards will be paid upon a dissolution, liquidation, or
change in control (as defined under the Severance Plan) of Pacific Century. In
those circumstances, payments will be calculated by multiplying contingent
awards by 2.0 and by adjusting awards in proportion to the number of months of
the original incentive period that elapsed prior to the triggering event.
17
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee, composed entirely of directors who are not
employed by the Company, sets and administers the policies which govern Pacific
Century's executive compensation programs, and various incentive and stock
option programs. The Committee reviews compensation levels of members of
management, evaluates the performance of management, and considers management
succession and related matters. All decisions relating to the compensation of
Pacific Century's officers are reviewed with the full Board.
The policies and underlying philosophy governing Pacific Century's executive
compensation program, which are endorsed by the Committee and the Board of
Directors, are designed to accomplish the following:
1. Maintain a compensation program that is equitable in a competitive
marketplace
2. Provide opportunities that integrate pay with Pacific Century's annual
and long-term performance goals
3. Encourage achievement of strategic objectives and creation of
shareholder value
4. Recognize and reward individual initiative and achievements
5. Maintain an appropriate balance between base salary and short and
long-term incentive opportunity
6. Allow Pacific Century to compete for, retain, and motivate talented
executives who are critical to Pacific Century's success.
The Committee seeks to target executive compensation at levels that the
Committee believes to be consistent with others in Pacific Century's industry.
The executive officers' compensation is weighted toward programs contingent upon
Pacific Century's level of annual and long-term performance.
The following are Pacific Century's competitive targets:
In general, for senior management positions of Pacific Century (including
Pacific Century's executive officers) and its subsidiaries, Pacific Century will
pay base salaries that, on average, are at the 50th percentile of other banks
and financial service companies of Pacific Century's current and projected asset
size, and with similar products and markets.
Goals for specific components are as follows:
1. Base salaries for executives generally are targeted at the 50th
percentile.
2. The short-term (one-year) incentive plan will provide 50th percentile
awards if annual goals are achieved. The plan will pay higher awards if
annual performance goals are exceeded.
3. Under long-term incentive plans, Pacific Century will provide to
participants a consistent 50th percentile opportunity from year-to-year,
with possibilities of earning substantially higher levels if long-term
performance goals are exceeded.
Pacific Century retains the services of nationally recognized consulting
firms to assist the Committee in connection with the performance of its various
duties. Those firms provide advice to the Committee with respect to compensation
programs for senior management (including executive officers) of Pacific Century
and its subsidiaries. Pacific Century also obtains an extensive compensation
survey every two years. Such a survey was received in October 1997 in connection
with the review by the consulting firm of Pacific Century's compensation
programs for senior managers.
The 1997 compensation survey provided a comparative analysis of 33 positions
utilizing a comparator group of 17 bank corporations (including Pacific
Century). Those bank corporations were viewed as
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more comparable to Pacific Century in terms of overall size, business mix and
geographic scope than the 25 bank corporations in the S&P Major Regional Bank
Index (which includes 10 of the 17 compensation survey bank corporations) used
in the performance graph. For purposes of the 1997 survey, the consultant
obtained base salaries as of April 1, 1997 and other compensation data from the
comparator group and derived market comparables from that data.
In addition to the survey performed every two years, Pacific Century
participates in a series of annual compensation practice reviews conducted by
nationally recognized compensation consultants. In 1998, those reviews provided
pay practice data for professional and managerial positions at nationwide banks
with $10 billion to $19.9 billion in assets (a group which includes 11 bank
corporations utilized for comparative purposes in the 1997 compensation survey)
and in the S&P Major Regional Bank Index and for various smaller bank
corporations. Based on that data and the results of Pacific Century's 1997
survey, Pacific Century believes, after taking into account the compensation
discussed below, that salary and total cash compensation of its executive
officers generally corresponds to the 50th percentile of cash compensation
opportunities provided by comparable banks and financial services companies.
1998 COMPENSATION ELEMENTS
Compensation paid to named executive officers in 1998, as reflected in the
Summary Compensation Table on page 11, consisted of the following elements: (1)
base salary, (2) profit sharing, (3) One-Year Incentive Plan cash award for 1998
payable to Mr. Houle, (4) bonuses paid to four of the five named executive
officers and (5) performance share grants.
In addition, as indicated in the Summary Compensation Table and the table on
page 12 entitled "Stock Option/SAR Grants in Last Fiscal Year", in 1998 the
Committee awarded stock options under Pacific Century's employee stock plans. No
awards were paid under the Executive One-Year Incentive Plan. Mr. Houle received
an award under the One-Year Incentive Plan covering other key employees which
utilizes both a financial performance factor and an individual performance
factor.
BASE SALARIES
Base salaries for executive officers are determined by evaluating the
following:
1. Responsibilities of the positions held.
2. The experience of the individual.
3. The competitive marketplace.
4. The individual's performance of his or her responsibilities.
The greatest emphasis is on individual performance and the competitive
marketplace. Adjustments to salary also reflect new responsibilities assigned or
assumed by the individual. In setting salaries, the focus is generally on
competitive data. Also taken into account are key differences in
responsibilities between the executives of Pacific Century and of other banks,
and the overall economic environment. No specific weighting is given to the
foregoing factors.
Effective January 1, 1998, the Committee increased the 1998 base salaries
for Messrs. Johnson, Dahl and Kuioka and Ms. Carryer upon the recommendation of
a 1997 compensation survey, discussed above, which reflected that the current
base salaries were under the 50th percentile of the financial services industry.
The annual base salaries were increased as follows: Mr. Johnson from $700,00 to
$735,000; Mr. Dahl from $475,000 to $525,000; Mr. Kuioka and Ms. Carryer from
$300,000 to $325,000.
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INCENTIVE PLANS
ONE-YEAR INCENTIVE PLAN The purpose of Pacific Century's One-Year Incentive
Plans is to accomplish the following: (1) motivate special achievement of
eligible employees; (2) supplement other compensation plans and (3) assist
Pacific Century in retaining and attracting key employees.
The awards are based on financial performance factors established at the
start of the fiscal year and reviewed and approved by the Compensation
Committee. Each participant received a contingent incentive award of a specified
percentage of his or her annual salary. For 1998, the performance factors
measured the Company's return on average assets ("ROAA") and net income.
Under the 1998 incentive plans, the maximum financial performance factor of
2.0 would be attained if Net Income were $148 million or more and ROAA were
1.03% or more. In the case of Executive One-Year Incentive Plan covering the
group which includes the Chairman, the amount of the annual award is determined
by multiplying the contingent incentive award by the financial performance
factor, and the Committee is not permitted to increase (though it may reduce)
the resulting award amount. No awards were made in 1998 to any named executive
officer under the Executive One-Year Incentive Plan.
The Incentive Plan covering other key employees, including Mr. Houle,
utilizes both a financial performance factor and an individual performance
factor. For 1998, the Committee increased Mr. Houle's contingent award from 35%
to 40%. The financial performance factor and the individual performance factor
are weighted by multiplying the factors by percentages which total 100% (e.g.,
75% financial performance factor and 25% individual performance factor).
Thereafter, the annual award is determined by multiplying the contingent
incentive award by the sum of the financial performance and individual
performance factors as so adjusted. The weighting of the performance factors
allows the annual award to be tied more directly to the employee's roles and
responsibilities.
GROWTH PLAN. The Growth Plan is intended to motivate special achievement by
eligible employees by emphasizing long-term performance objectives. Under the
Growth Plan, each selected senior officer receives a contingent incentive award
opportunity of a specified percentage of his or her average annual base salary
for the three-year period. Actual awards are determined by measuring Pacific
Century's performance over a three-year period. Before the beginning of a Growth
Plan year, the Committee selects business criteria or measures and establishes
specific objective numeric goals for the following three-year period.
The measures selected for the 1996 to 1998 Growth Plan cycle were net
earnings growth rate and return on average equity ("ROAE"). The measures
selected for the 1995 to 1997 and 1994 to 1996 Growth Plan cycles were net
income per employee and growth in earnings per share, weighted equally. Pacific
Century did not meet its performance goals for cycles ending 1998, 1997 or 1996
and, accordingly, no long-term incentive payments were made to any named
executive officer with respect to such cycles.
BONUS
Pacific Century's executive compensation program has certain objectives
which the Committee has determined were not met in 1998. These are as follows:
- Maintaining a fair compensation system in a competitive marketplace
- Recognizing and rewarding individual initiatives and achievements
- Retaining and motivating talented executives who are critical to the
Company's success.
The Committee believes that the compensation programs for four of the named
executive officers did not meet the Committee's objectives. In the Committee's
view, that occurred largely because the
20
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Executive One-Year Plan and the Three-Year Growth Plan do not address the fact
that objective results on which those plans are based may not be achieved in
some years due to reasons that largely lie beyond the control of Pacific Century
management; in this case, a sluggish Hawaii economy and the Asian Rim financial
volatility.
Accordingly, the Committee determined that a bonus should be considered for
key management personnel of Pacific Century for performance in 1998 even though
no payments were earned under either of incentive plans. The Committee reviewed
the performance of the named executive officers and noted significant objectives
were accomplished in 1998 by the named executive officers. These included the
following:
Continuing Pacific Century's strategy of improving efficiency and reducing
annual operating costs by up to $22 million:
- New Era restructuring and redesign program.
- Rationalization of Hawaii's delivery channels.
- Reincorporation into the state of Delaware.
- Merger of Pacific Century Bank, N.A. and California United Bank into one
nationally chartered entity.
- First Savings and Loan Association of America's change to a federally
chartered institution and direct subsidiary of the Company.
- Merger of First Federal Savings & Loan Association with Bank of Hawaii and
the closure of 19 branches, resulting in the total number of branch
closures to 27.
- Outsourcing of Bank of Hawaii's credit card processing.
Continued progress on Year 2000 compliance
Expansion of Pacific Century's products and services:
- $1 billion in origination of residential mortgages from $532 million in
1997.
- Expansion into the insurance services industry through the acquisition of
Triad Insurance Agency.
- Expansion of services and market share in the South Pacific through the
acquisition of Banque Paribas.
- Strategic alliance with the Bank of Queensland in Australia.
In 1998, in the face of the turmoil in the Asia markets, the named executive
officers took aggressive actions and prudently managed the Company's Asia
exposure.
Considering these factors and the desired objectives of the compensation
program, the Committee determined on a subjective basis and review of individual
performances to authorize bonuses of $200,000 to Mr. Johnson, $175,000 to Mr.
Dahl and $150,000 each to Mr. Kuioka and Ms. Carryer. The Committee determined
Mr. Johnson had done a commendable job in a difficult year. Although the amounts
of bonuses for these named executive officers fell within a narrow range, the
Committee established the bonus amount for Mr. Johnson so as to reflect his
greater degree of policy, decision-making authority and a level of
responsibility with respect to the strategic direction and financial and
operational results of the Company.
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STOCK OPTION PLAN
The Committee considers stock option grants under the Pacific Century
Financial Corporation Stock Option Plan of 1994 (the "Plan") for key employees
of Pacific Century and its subsidiaries. Stock options are granted by the
Committee to those key employees whose management responsibilities place them in
a position to make substantial contributions to the financial success of Pacific
Century. Directors who are not also employees may not participate in the Plans.
The Committee, which administers the Plans, determines whether the options are
incentive stock options or nonqualified stock options. Stock options are
ordinarily granted with an exercise price equal to the market price of Pacific
Century's common stock on the date of grant.
The Committee believes that stock options provide a strong incentive to
increase shareholder value, since stock options have value only if the stock
price increases over time. The Committee believes that option grants to its
executive officers and other key employees help to align the interests of
management with those of shareholders and to focus the attention of management
on the long-term success of Pacific Century.
The size of stock option awards is based primarily on the individual's
responsibilities and position. Individual awards are also affected by the
Committee's subjective evaluation of other factors it deems appropriate, such as
assumption of additional responsibilities, competitive factors, and achievements
that in the Committee's view are not fully reflected by other compensation
elements. The Committee's decisions concerning individual grants generally are
not affected by the number of options previously exercised, or the number of
unexercised options held.
In April 1998, 48,000 options were granted to 8 key employees and in
September 1998, 1,038,000 options were granted to 473 key employees for a total
of 1,086,000 options to 477 key employees. The number of grants in 1998
reflected advice received by the Committee from two compensation consulting
firms that annual levels of option grants should be 1% to 1.5% of outstanding
stock.
The amounts of individual awards to executive officers in 1998 were based on
their individual positions and responsibilities, and the other factors discussed
above. In the case of Mr. Johnson, the Committee elected to grant him a stock
option for 150,000 shares at an option price of $16.875. The 1998 award to Mr.
Johnson reflects the Committee's continuing strategy of balancing short and
long-term incentives in structuring executive officer compensation. The level of
his 1998 option awards was determined primarily by the Committee's subjective
evaluation of the importance to Pacific Century of its Chairman and Chief
Executive Officer relative to positions held by other key employees to whom
options were awarded. In addition, the Committee's September 1998 grants to Mr.
Johnson took into account, without any specific weighting, competitive
considerations and the Committee's view that Mr. Johnson had made significant
accomplishments.
PERFORMANCE GRANTS
As noted under "LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR",
during 1998 the Committee made performance share awards of 10,000 shares each to
Mr. Johnson, Mr. Dahl and Ms. Carryer, in recognition of their leadership and
performance as discussed in this report.
CEO COMPENSATION
In evaluating Mr. Johnson's annual compensation as Chief Executive Officer
("CEO"), the Committee has sought to provide levels that are competitive among
comparable banks and financial services corporations as described at pages
18-19. The specific target levels for each element of compensation were the same
as those shown on page 20 for all Pacific Century executive officers. Pacific
Century's One-Year Incentive Plan, the Growth Plan and option grants make a
substantial percentage of
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<PAGE>
Mr. Johnson's compensation dependent upon Pacific Century's performance. These
arrangements also implement the Committee's intent to have a significant
percentage of each executive officer's target compensation based on objective
long-term performance criteria.
The members of the Committee are a majority of the CEO Evaluation Committee
and as a result, they have the benefit of that Committee's deliberations on Mr.
Johnson's performance. The Committee engages in an evaluation process with the
CEO Evaluation Committee, which met 4 times in 1998. The CEO Evaluation
Committee requested a self-performance review from Mr. Johnson and the CEO
Evaluation Committee and Compensation Committee discussed Mr. Johnson's
peformance relative to the criteria set forth below. The Committee presented the
ratings and evaluation to Mr. Johnson and the full board for discussion and Mr.
Johnson responded to the Committees and the full board. Mr. Johnson's
performance was evaluated using the following criteria:
1. Strategic Planning
2. Financial Performance
3. Structural Soundness
4. Decision Making
5. External Relations
6. Board Relations
7. Shareholder Relations
8. Corporate Objectives
In early 1998, the Compensation Committee considered the results of the
evaluation and assessment of the CEO's performance for 1997 and also considered
the results of a 1997 review of Pacific Century's compensation program as
described on pages 18-19 and the Company's performance in 1997. Based on those
considerations, the Committee increased Mr. Johnson's salary effective January
1, 1998 by approximately 5% from $700,000 to $735,000. The Committee determined
that the salary adjustment was appropriate in view of the above findings (which
reflected that Mr. Johnson's base salary was below the 50th percentile of market
data) and also in view of the Company's 1997 corporate performance. In September
1998, the Committee awarded Mr. Johnson at-market options to acquire a total of
150,000 shares, for reasons previously described. He received no payment under
the incentive plans. As described on pages 20-21, the Committee awarded Mr.
Johnson a bonus. In considering that award, the Committee considered, without
any specific weighting, key quantitative performance indicators such as the
following:
<TABLE>
<CAPTION>
COMPANY PERFORMANCE
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net Income (millions)............................................ $ 133.1 $ 139.5 $ 107
Earnings Per Share (EPS)*........................................ $ 1.62 $ 1.72 $ 1.32
Return on Average Assets (ROAA).................................. .99% 0.98% 0.72%
Return on Average Equity (ROAE).................................. 12.43% 12.57% 9.21%
Equity to Assets (EOA)........................................... 7.95% 7.79% 7.81%
</TABLE>
- ------------------------
* EPS shown is diluted.
In reviewing these year-end results, the Committee took into account the fact
that they were greatly affected by second quarter 1998 results, which included
restructuring charges and increased provisioning to the reserve for loan losses.
The Committee viewed those actions and others as demonstrating prudent
management and sound leadership in a volatile environment, notwithstanding the
fact that various performance measures declined from the prior year.
Accordingly, the Committee awarded
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<PAGE>
Mr. Johnson a bonus based on its subjective assessment of Mr. Johnson's
contributions to Pacific Century during 1998, and the other factors discussed
above.
REVENUE RECONCILIATION ACT OF 1993
In 1993, Congress adopted the Revenue Reconciliation Act of 1993 (the "1993
Act"), certain provisions of which limit the ability of publicly-held companies
to deduct for taxation purposes the compensation paid to individual employees in
excess of $1 million in any fiscal year. The 1993 Act affords certain exemptions
to the deductibility limitation, generally requiring that compensation be
closely tied to objective performance criteria.
In general, Pacific Century intends to maintain deductibility for all
compensation paid to covered employees, and will comply with the required terms
of the specified exemptions under the 1993 Act, except in circumstances under
which such compliance would unduly interfere with the goals of Pacific Century's
executive compensation program or the loss of deductibility would not be
materially adverse to Pacific Century's overall financial position.
Compensation Committee
Fred E. Trotter, Chairman
Stuart T. K. Ho
Herbert M. Richards, Jr.
24
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No executive officer of Pacific Century served as a member of a compensation
committee (or board of directors serving as such) of any entity of which any
member of the Compensation Committee was an executive officer.
PERFORMANCE GRAPH
The following graph shows the cumulative total return for Pacific Century
common stock compared to the cumulative total returns for the S&P 500 Index and
the S&P Major Regional Bank Index. The graph assumes that $100 was invested on
December 31, 1993 in Pacific Century's stock, the S&P 500 Index and the S&P
Major Regional Bank Index. The cumulative total return on each investment is as
of December 31, of each of the subsequent five years and assumes reinvested
dividends.
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON DECEMBER 31, 1993 WITH DIVIDENDS
REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C> <C>
Based upon an initial investment
of $100 on December 31, 1993
with dividends reinvested
PCFC S&P S&P Major Reg. Banks Index
12/31/93 $100 $100 $100
12/31/94 $97 $101 $95
12/31/95 $141 $139 $149
12/31/96 $170 $171 $204
12/31/97 $206 $229 $306
12/31/98 $209 $294 $338
Source: Georgeson & Company Inc.
</TABLE>
25
<PAGE>
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Certain transactions involving loans, deposits and sales of commercial
paper, certificates of deposit and other money market instruments and certain
other banking transactions occurred during 1998 between the Company and Bank of
Hawaii on the one hand and certain directors or executive officers of the
Company and Bank of Hawaii, members of their immediate families or associates of
the directors, the executive officers or their family members on the other. All
such transactions were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, that prevailed at the
time for comparable transactions with other persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
26
<PAGE>
PROPOSAL 2: AMENDMENT OF ARTICLE VII, SECTION A
OF THE PACIFIC CENTURY FINANCIAL CORPORATION
CERTIFICATE OF INCORPORATION
Pacific Century's Board of Directors has approved, and recommends that
shareholders approve, an amendment to Article VII, Section A of the Company's
Certificate of Incorporation to reduce the percentage required to remove a
director for cause from sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares voting, to a majority of the outstanding shares. This is
intended to increase the power of shareholders to remove a director for cause.
The language in Article VII, Section A of the existing Certificate of
Incorporation would be amended as follows (new language in bold, old language
lined out):
"Except for such additional directors, if any, as are elected by the holders
of any series of Preferred Stock as provided for or fixed pursuant to the
provisions of Article V of this Certificate of Incorporation, any director
may be removed from office only for cause and only by the affirmative vote
of the holders of sixty-six and two-thirds percent (66 2/3%) or more AT
LEAST A MAJORITY of the combined voting power of the then-outstanding shares
of Voting Stock at a meeting of stockholders called for that purpose, voting
together as a single class"
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
PROPOSAL 3: AMENDMENT OF ARTICLE VIII, SECTION A
OF THE PACIFIC CENTURY FINANCIAL CORPORATION
CERTIFICATE OF INCORPORATION
Pacific Century's Board of Directors has approved, and recommends that
shareholders approve, an amendment to Article VIII, Section A of the Company's
Certificate of Incorporation to permit ten percent (10%) of the combined voting
power of the outstanding shares of the Company to call a special meeting of
shareholders. At present, the Certificate of Incorporation does not provide an
opportunity for shareholders to call a special meeting. The language in Article
VIII, Section A of the existing Certificate of Incorporation would be amended by
adding the phrase in bold type below:
"Meetings of stockholders of the Corporation may be held within or without
the State of Delaware, as the Bylaws of the Corporation may provide. Except
as otherwise provided for or fixed pursuant to the provisions of Article V
of this Certificate of Incorporation relating to the rights of the holders
of any series of Preferred Stock, special meetings of stockholders of the
Corporation may be called only by the Chairman of the Board, the President
or the Board pursuant to a resolution adopted by a majority of the
then-authorized number of directors of the Corporation, OR BY THE HOLDERS OF
NOT LESS THAN 10 PERCENT OF THE COMBINED VOTING POWER OF THE
THEN-OUTSTANDING SHARES OF VOTING STOCK; provided, however, that where such
special meeting of stockholders is called for the purpose of acting upon a
proposal made by or on behalf of a Related Person or, at any time that one
or more Related Persons exist, by or at the request of a director who is not
a Continuing Director as to all Related Persons, or where a Related Person
otherwise seeks action requiring approval of stockholders, then, in addition
to the aforesaid vote of directors, the affirmative vote of a majority of
the Continuing Directors, if any, shall also be required to call such
special meeting of stockholders. Special meetings of stockholders may not be
called by any other person or persons or in any other person or persons or
in any other manner. Elections of directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.
27
<PAGE>
PROPOSAL 4: AMENDMENT OF
THE PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994 TO INCREASE AVAILABLE SHARES
Pacific Century's Board of Directors has adopted, subject to shareholder
approval, an amendment increasing the total number of shares that may be granted
under the Pacific Century Financial Corporation Stock Option Plan of 1994 (the
"Plan"). The amendment to the Plan increases the maximum shares of common stock
issued under the Plan by 3,900,000 to 9,650,000.
The original 1,250,000 shares were adjusted to 1,875,000 as a result of a 50
percent stock dividend declared on January 26, 1994 and payable on March 15,
1994. On April 25, 1997, the shareholders approved an additional 1,000,000
shares, increasing the maximum number of shares to 2,875,000. This amount was
adjusted to 5,750,000 as a result of a 100 percent stock dividend declared on
October 24, 1997 and payable on December 12, 1997. As of December 31, 1998 there
were 1,393,176 shares available under the Plan.
The purpose of the Plan is to attract, retain and motivate high quality
personnel and to provide incentives for the promotion of business and financial
success of the Company by providing them with equity participation. The Board of
Directors believes that the additional shares are desirable in order to service
the needs of the Plan and to promote and closely align the interests of
employees of Pacific Century with its shareholders by providing stock-based
compensation. Beginning in 1995, the Compensation Committee, based on advice
from compensation consulting firms, concluded that it would increase, beginning
in 1995, the aggregate number of options awarded. The Compensation Committee
anticipates future annual awards approximating 1% to 1.5% of Pacific Century's
outstanding shares. The additional shares will fulfill this need.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
SUMMARY OF THE OPTION PLAN
The following is a brief description of the material features of the Plan,
as heretofore amended, other than those features described under Proposal 5. The
proposed amendment will not affect any existing provisions of the Plan except
the number of shares that may be granted. Reference should be made to the full
text of the Plan for a complete description of its terms and conditions. A
complete copy of the Plan can be obtained from the Corporate Secretary's office
at the address listed on page 40.
PREVIOUS AMENDMENTS. Since 1994, the Plan has been amended to increase the
available pool of shares, and in some other respects. In 1997 the Board amended
the Plan (subject to shareholder approval granted in 1998) to provide specific
authority for the issuance of options in connection with Pacific Century's
acquisition of CU Bancorp, and to add general authority to grant awards or amend
Plan provisions in connection with the assumption, substitution or conversion of
stock compensation awards of another party to a merger, acquisition or similar
transaction. In January 1999 the Board further amended the Plan to modify the
business criteria applicable to certain performance-based awards (as discussed
under Proposal 5) and to modify the Plan in various respects due to changes to
rules adopted under Section 16 of the Securities Exchange Act of 1934 ("Section
16").
TERM; SHARES AVAILABLE. The Plan will expire on January 1, 2004 and (unless
that date is extended) no Plan awards will be granted thereafter. As described
above, the Plan establishes a maximum number of shares available for awards. The
Plan includes rules to calculate the number of shares in the authorized pool
that remain available for grant. Among other things, these rules provide that
awards are counted against the authorized pool whether or not vested; that when
awards are cancelled or expire, shares subject to the awards are again available
for grant; and that if awards are settled in cash,
28
<PAGE>
the authorized pool of shares is increased by the appropriate number of shares.
The maximum number of shares subject to options (and the maximum number of
shares subject to stock appreciation rights) which may be granted to any single
participant during the term of the Plan is 20% of the authorized pool. The
number of shares of common stock subject to grant (as well as outstanding awards
and applicable exercise prices) is subject to equitable adjustment by the
Committee in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or similar changes, which may be required in
order to prevent dilution or enlargement of rights.
ADMINISTRATION. The Plan is administered by the Compensation Committee,
which is to consist of two or more directors who qualify as "outside directors"
for purposes of Section 162(m) of the Code. The Plan generally confers on the
Committee complete authority as to the grant of awards and their terms. The Plan
also permits the Committee, in connection with actions involving awards to or
transactions by persons subject to Section 16 to adopt procedures to assure the
availability of exemptions from Section 16 (which may involve, for example,
referring such approval to a subcommittee or to the full board of directors).
ELIGIBILITY. Persons eligible to participate in the Plan include all full
time, nonunion employees of Pacific Century and its subsidiaries, including
employees who are Directors. The Committee is permitted to select from all
eligible employees those to whom awards will be granted, and the nature and
amount of such awards. As of December 31, 1998, approximately 595 persons held
awards under the Plan.
AWARDS. The Plan authorizes issuance of awards in several forms, including
options, stock appreciation rights ("SARs"), restricted stock, restricted stock
units, and common stock for payment of obligations under the Company's One Year
Incentive Plan, its Growth Plan, or any successor Plan (including the Plans
discussed under Proposals 6 and 7). As discussed under Proposal 5, the Plan
gives the Committee discretion to issue any such awards as "performance-based
compensation" so as to satisfy exemption requirements under Section 162(m) of
the Code.
Stock options and SARs cannot be issued under the Plan at an exercise or
grant price less than the fair market value of Pacific Century's common stock at
the date of grant (which was $22.00 per share as of January 29, 1999). Options
may be either incentive stock options ("ISOs") or non-qualified stock options
("NQSOs"). Subject to any specific Plan rules that may apply to particular
option types, the Committee may grant premium options, performance-based
options, options issued in tandem with SARs, reload options, and various
combinations of the above. The terms of all options, as well as vesting
schedules, are determined by the Committee. However, the maximum term of options
granted under the Plan is ten years from the date of grant, and no options may
become exercisable earlier than six months following the date of grant. The
exercise price for an outstanding option (or the grant price for an SAR) may not
be changed after the date of grant. The exercise price for options is payable
either by payment in cash or by tendering previously acquired shares (valued at
the fair market value at the time of exercise). The Committee may also permit
certain forms of "cashless exercise". If a participant's employment is
terminated for cause, all outstanding options are forfeited. In the case of
termination due to death, disability or retirement, options generally remain
exercisable until the original expiration date or until five years after
termination, whichever occurs first. If employment is terminated for reasons
other than death, disability, retirement or cause, unvested options terminate,
and vested options remain exercisable until three months after the termination.
Further, ISOs are subject to additional exercise limitations. Options are not
transferable (except upon death).
SARs are granted either by themselves ("freestanding") or in connection with
stock options ("tandem SARs"). Upon exercise of an SAR, the holder is entitled
to receive an amount based on the appreciation in the Company's common stock
over the grant price. The grant price of SARs is to equal the fair market value
of the stock on the date of grant (in the case of freestanding SARs) and a grant
price equal to the related option price in the case of tandem SARs. Tandem SARs
may be awarded in
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<PAGE>
connection with new options and in connection with options previously granted,
and may be conditioned upon compliance with limitations (such as time or amount)
imposed by the Committee. SARs are nontransferable and if employment terminates
are subject to rules similar to those that apply to options. In the Committee's
discretion, payments upon SAR exercise may be made in cash or in stock.
Restricted stock or restricted stock units may be granted on such conditions
as the committee determines. Such grants may require, for example, the
completion of a specified period of employment to avoid forfeiture, or impose
restrictions based on the achievement of specific performance goals. Restricted
stock and restricted stock units generally may not be sold or transferred until
the termination of the relevant restriction. Prior to termination of
restrictions, restricted stock carries voting rights and participates in cash
dividends. Upon termination of employment due to the death or disability
restricted stock vests as of the date of employment termination. If employment
terminates for other reasons, restricted stock is forfeited (although the
Committee may allow accelerated vesting in the case of retirement).
The Committee has discretion to allow participants to defer receipt of cash
or stock due to them on exercise of an option or SAR, or upon lapse or waiver of
restrictions affecting restricted stock or restricted stock units.
CHANGE IN CONTROL. If there is a change in control of the Company all
options and SARs will become immediately exercisable, any period of restriction
for restricted stock or restricted stock units will end and such awards will
become fully vested, and the Committee will have authority to make any
modifications to awards the Committee deems appropriate.
TAX WITHHOLDING. Participants have the right to satisfy tax withholding
requirements arising from exercise of options or SARs, from the lapse of
restrictions on restricted stock or restricted stock units, or from other
taxable events under the Plan, by having the Company withhold shares that
otherwise would be deliverable.
SUCCESSORS. All obligations of the Company with respect to awards will be
binding on any successor to the Company, whether such succession results from
merger, purchase, or other direct or indirect acquisition of all or
substantially all of the Company's business or assets.
AMENDMENTS. The 1994 Plan permits the Board of Directors to amend, alter or
terminate the Plan in whole or in part at any time, and generally does not
require shareholder approval in connection with any such action. However, as
discussed under Proposal 5, shareholder approval is required in connection with
changes affecting the maximum number of awards that may be granted as
performance-based compensation exempt from Section 162(m) deduction limitations.
Amendments, suspensions or terminations of the Plan will not affect any award
previously granted without the written consent of affected participant.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.
The tax consequences of the Stock Option Plan are complex, and the following
discussion deals only with general tax principles applicable to the Plan under
federal law.
ISOs are options which under certain circumstances and subject to certain
tax restrictions have special tax benefits for employees under the Code. NQSOs
are options which do not receive such special tax treatment. When the Committee
grants an ISO and when the holder exercises an ISO and acquires common stock,
the holder realizes no income and the Company can claim no deduction. (However,
the difference between the fair market value of the shares upon exercise and the
exercise price is an item of tax preference subject to the possible application
of the alternative minimum tax.) If the holder disposes of the stock before two
years from grant or one year from exercise of the ISO (a disqualifying
disposition), any gain will be deemed compensation and taxed as ordinary income
to the
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<PAGE>
extent of the lesser of (i) the spread between the option price and the fair
market value of the stock at exercise (the spread) or (ii) the difference
between the sale price and the exercise price. If a disqualifying disposition
occurs, the Company can claim a deduction equal to the amount treated as
compensation. If the one- and two-year holding periods are satisfied, any gain
realized when the shares are sold will be treated as capital gain, and the
Company will receive no corresponding tax deduction.
When the Compensation Committee grants an NQSO, the holder realizes no
income and the Company can claim no deduction. On exercise of an NQSO, the
holder realizes ordinary income to the extent of the spread and the Company can
claim a deduction for the same amount.
When the Compensation Committee grants an SAR, the holder realizes no income
and the Company can claim no deduction. The cash or the fair market value of
stock received on an SAR exercise is taxed to the holder at ordinary income
rates. The Company can claim a deduction in the same amount at such time.
Grants of restricted stock are generally not taxable to recipients at the
time of grant and the Company generally claims no deduction at that time. The
Company will receive a deduction and the holder will recognize taxable income
equal to the fair market value of the stock at the time the restrictions lapse,
unless the holder elects, within thirty days of notification of the award, to
recognize the income on the award date, in accordance with Section 83 of the
Code. If the holder makes an election under Section 83, the Company receives a
corresponding deduction. Any dividends received on restricted stock prior to the
date the recipient recognizes income on that stock will be taxable compensation
income when received and the Company will be entitled to a corresponding
deduction.
The grant of restricted stock units does not result in taxable income to the
recipient. When the award is paid or distributed, the full value paid or
distributed will be treated as ordinary income, and the Company will receive a
corresponding tax deduction.
FUTURE AWARDS
The amount and nature of awards that will be issued under the Plan for 1999
and subsequent years are not presently determinable. Certain information
concerning 1998 awards under the Plan is presented under the captions "REPORT OF
THE COMPENSATION COMMITTEE--Stock Option Plan," "STOCK OPTION/SAR GRANTS IN LAST
FISCAL YEAR" and "LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR" on pages
12, 13 and 22.
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PROPOSAL 5: APPROVAL OF CERTAIN PERFORMANCE-BASED
COMPENSATION PROVISIONS OF THE STOCK OPTION PLAN
The purpose of this proposal is to secure shareholder approval that is
necessary to qualify certain awards under the Stock Option Plan of 1994 for
exemption from Section 162(m) of the Code. Section 162(m) precludes a publicly
held corporation from claiming deductions for compensation in excess of
$1,000,000 paid to its chief executive officer or to any of its four other most
highly compensated executive officers. Compensation is exempt from this
limitation if it satisfies requirements for "qualified performance-based
compensation." Options and SARs granted under the Plan generally qualify for the
performance-based exemption because, among other things, those awards have
exercise prices at least equal to the fair market value of the Company's common
stock at the date of grant, the Plan has been approved by shareholders, and the
Plan limits the number of options or SARs that may be granted to any one
individual.
However, other types of Plan awards are subject to additional requirements.
The Plan therefore permits the Compensation Committee to grant awards that are
intended to provide performance-based compensation satisfying Section 162(m)
exemption requirements. Such awards (typically in the form of restricted stock
or restricted stock units) involve requirements that compensation resulting from
the award be paid pursuant to preestablished objective performance formulas or
standards. The Plan describes the business criteria on which such awards may be
based and leaves the Committee with discretion to establish targets or numerical
goals based on these criteria. When such discretion exists, the
performance-based exemption is available only if a plan's "material terms" are
approved by shareholders at least once every five years. Accordingly, Pacific
Century is seeking such shareholder approval. If shareholder approval is not
granted, the Committee will no longer have the ability to grant awards (other
than options and SARs) that qualify for the performance-based exemption from
Section 162(m).
PLAN PROVISIONS CONCERNING PERFORMANCE-BASED COMPENSATION
The following is a brief summary of Plan provisions concerning
performance-based compensation awards.
The Plan provides that in granting any award, the Committee is to determine
whether the award is intended to provide performance-based compensation (meaning
compensation under an award granted to provide remuneration solely on account of
the attainment of one or more preestablished objective performance goals under
circumstances that satisfy exemption requirements of Section 162(m)). All plan
participants are eligible to receive awards that may provide for
performance-based compensation. The persons eligible for selection by the
Committee to participate in the Plan include all full-time, nonunion employees
of the Company or its subsidiaries, including employees who are Directors but
excluding Directors who are not employees. The maximum dollar amount that may be
paid in settlement of any award providing for performance-based compensation is
the fair market value of 20% of the total authorized pool of shares. That
maximum may be changed, provided the change is approved by shareholders in a
manner that satisfies applicable requirements under Section 162(m). As explained
under Proposal 4, the total authorized pool is presently 5,750,000 shares, and
if Proposal 4 is approved, will be increased to 9,650,000 shares.
Any award intended to provide performance-based compensation (other than the
award of an option and any related tandem SAR) must include requirements that
the award be payable only on account of attaining one or more preestablished
performance goals. The award agreement must specify the performance goals, and
state in terms of an objective formula or standard the method for computing the
amount payable if the goal is attained. Before payment of any such award, the
Committee must certify that the performance goals and any other material terms
of the award have been satisfied. Performance goals applicable to each award
intended to provide performance-based compensation are to be determined in such
manner that any compensation paid pursuant to a preestablished objective
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<PAGE>
performance formula or standard precludes discretion and generally allows a
third party with knowledge of relevant performance results to calculate the
amount to be paid to the participant. However, reservation of a right to reduce
or eliminate the compensation upon attainment of the performance goal will not
be considered impermissible discretion.
The performance goals applicable to each award intended to provide
performance-based compensation shall be based on one or more of the following
performance measures--earnings per share (actual or targeted growth), economic
value added, net income after capital cost, net income (before or after taxes),
various return measures (either absolute or relative to peers) including: return
on average assets, return on average equity, risk-adjusted return on capital,
efficiency ratio, full time equivalency control, stock price (actual or targeted
growth), total shareholder return (absolute or relative to an index), and
non-interest income to net interest income ratio. These criteria were
established in an amendment to the Plan adopted by the Board in January 1999 in
order to conform such criteria to those contained in the Long-Term Plan
discussed under Proposal 7. Prior to that amendment, the specified business
criteria included control of net overhead expenses, control of non-performing
loans, adequacy of loan loss reserves, control of non-interest expenses, control
of interest margins, increase in the Company's common stock price, increase in
earnings per share, growth in net income per employee, return on equity,
increase in bank deposit loans, return on average equity, return on assets,
increase in capitalization levels, increase in non-interest income and growth in
earnings. Apart from that amendment, and increases to the available pool of Plan
shares described under Proposal 4, the provisions of the Plan pertaining to
performance-based compensation have not been modified since shareholders
approved the Plan in 1994.
OTHER PLAN PROVISIONS
For a summary of other provisions of the Plan, please refer to Proposal 4.
APPROVAL OF CERTAIN MATERIAL TERMS
For purposes of Section 162(m) the "material terms" of the Plan include: (a)
the individuals eligible to receive compensation under the Plan; (b) a
description of the business criteria on which the performance goal is based; and
(c) either the maximum amount of compensation to be paid if the performance goal
is attained or the formula used to calculate the amount of compensation to be
paid if the goal is attained. In that context, the "material terms" of the Plan
being submitted for shareholders approval are as follows: (a) the eligible class
of individuals is all full-time, nonunion employees of the Company or its
subsidiaries (including employees who are Directors, but excluding Directors who
are not employees) as selected for participation in the Plan by the Compensation
Committee; (b) the business criteria upon which performance goals may be based
are earnings per share (actual or targeted growth), economic value added, net
income after capital cost, net income (before or after taxes), various return
measures (either absolute or relative to peers) including: return on average
assets, return on average equity, risk-adjusted return on capital, efficiency
ratio, full time equivalency control, stock price (actual or targeted growth),
total shareholder return (absolute or relative to an index), and non-interest
income to net interest income ratio; and (c) the maximum dollar amount that may
be paid in settlement of any award that provides performance-based compensation
is the fair market value (determined on the date the award is exercised or
settled) of 20% of the total authorized pool of shares under the Plan.
FUTURE AWARDS
The amounts that may be received by the Company's named executive officers
or other Plan participants pursuant to awards intended as performance-based
compensation are not presently determinable.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS
PROPOSAL.
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PROPOSAL 6: APPROVAL OF CERTAIN MATERIAL TERMS OF
THE ONE-YEAR INCENTIVE PLAN
On January 22, 1999, the Compensation Committee adopted the Pacific Century
Financial Corporation One-Year Incentive Plan ("One-Year Plan") and, on February
26, 1999, the Board of Directors approved and ratified the One-Year Plan.
In order to qualify certain awards under the One-Year Plan as
performance-based compensation exempt from the $1 million compensation
limitation under Section 162(m), the Company is seeking shareholder approval of
certain material terms of the One-Year Plan discussed under "Approval of Certain
Material Terms". A summary of the principal provisions of the One-Year Plan is
set forth below. Reference should be made to the full text of the One-Year Plan
for a complete description of its terms and conditions. A complete copy of that
Plan can be obtained from the Corporate Secretary's Office at the address listed
on page 40. This new One-Year Plan will replace the Company's One-Year Plan that
was in effect for 1998 and previous years and which is described on page 20.
SUMMARY OF THE ONE-YEAR PLAN
The One-Year Plan provides for contingent awards to eligible employees that
are contingent upon the financial performance of the Company and the individual
performances of eligible employees. The objectives of the One-Year Plan are to
optimize profitability and growth of the Company and its subsidiaries, to
provide an incentive for excellence in individual performance, and to promote
teamwork among employees. The One-Year Plan is effective as of January 1, 1999,
and operates for a ten year term ending January 1, 2009.
The One-Year Plan is administered by the Compensation Committee of the Board
of Directors of the Company. The Committee has the authority to: designate
eligible employees to whom awards may be granted under the One-Year Plan;
determine the amount and terms and conditions of the awards; interpret the terms
of the Plan and any award or award agreement; establish regulations governing
the administration of the Plan; amend the terms and conditions of any award or
award agreement to the extent such terms and conditions are with the Committee's
discretion under the Plan; and amend, modify, or terminate the Plan as provided
under the terms of the Plan. All determinations made by the Committee pursuant
to the provisions of the One-Year Plan are final and binding upon all persons,
including the Company and employees who participate in the Plan.
All officers and employees of the Company or its subsidiaries who are
determined by the Committee to be of exceptional importance and with the ability
to make substantial contributions to the success, growth, and profit of the
Company and its subsidiaries are eligible employees under the One-Year Plan. The
Committee may, from time to time and at its sole discretion, designate the
eligible employees who will receive contingent awards under the One-Year Plan.
A contingent award granted to an eligible employee for a fiscal year will be
an award which is contingent on the achievement of designated performance goals
for the fiscal year and will be an amount or range of amounts (expressed in
dollars or as percentages of salary for the fiscal year). In the case of a
contingent award to an executive officer which is intended to qualify for the
performance-based exemption under Section 162(m), the contingent award is to be
determined by the end of the first quarter of the fiscal year and is to include
a limitation expressed as a given percentage of an incentive pool for the fiscal
year. Prior to the end of the first quarter of the fiscal year, the Committee
will determine the incentive pool as an amount equal to a designated percentage
of the Company's net income for the fiscal year. For this purpose, net income is
defined as the Company's consolidated net income before taxes for the fiscal
year, as reported in the annual report to shareholders or as otherwise reported
to shareholders, and as adjusted by the Committee in its sole discretion for
expenses associated with the One-Year Plan, any extraordinary or unusual gain or
loss transaction, securities gains or losses, and dividends on preferred shares.
The total of contingent awards for a fiscal year to named
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<PAGE>
executive officers which are intended to qualify for the Section 162(m)
performance-based exemption will not exceed the incentive pool for the fiscal
year, and the Committee may, but need not, grant such contingent awards up to
the full amount of the incentive pool.
After the completion of a fiscal year, each participant's performance during
the fiscal year will be assessed by the participant's manager for the
achievement of the performance goals upon which the participant's contingent
award were based, and the manager will make a recommendation of a final award
amount to the Chief Executive Officer. The Chief Executive Officer will also
assess the participant's performance and make a recommendation of a final award
amount to the Committee. However, the determination of the final award remains
within the sole discretion of the Committee and, notwithstanding any of the
recommendations, the Committee may determine a lesser or greater final award
amount taking into account the participant's overall contribution to the Company
and its subsidiaries, the performance of the Company and its subsidiaries, and
such other criteria as the Committee may determine. In the case of a contingent
award to an executive officer which is intended to qualify for the
performance-based exemption under Section 162(m), the contingent award
established for that fiscal year will be subject to downward adjustment but will
not be subject to upward adjustment above the amount determined by the incentive
pool percentage for that year that is specified in the contingent award. In
addition, all contingent awards are subject to an overriding limitation, which
provides that the maximum aggregate payout for contingent awards granted in any
one fiscal year to any one participant is $2,000,000. Subject to the foregoing
limitations, the Committee may modify or revoke the participant's contingent
award at any time prior to the determination of a final award.
In the event of a change in control of the Company during a fiscal year, the
fiscal year will be treated as ending on the date of the change of control for
purposes of determining a final award, and the final award for a participant
will be calculated as an amount equal to two times the participant's contingent
award for the fiscal year based on the participant's annualized salary for the
fiscal year, which amount will be then prorated for the fiscal year in
proportion to the number of full months completed within the fiscal year.
The Company's Board of Directors or the Committee may amend or terminate the
One-Year Plan at any time without shareholder approval. However, in the case of
any amendment or termination which adversely affects a final award made to a
participant, such amendment or termination may not be made without the
participant's consent.
APPROVAL OF CERTAIN MATERIAL TERMS
In order for a grant of a contingent award under the One-Year Plan to
qualify for the performance-based exemption under Code Section 162(m), certain
"material terms" of the Plan must be approved by shareholders according to the
tax rules governing the performance-based exemption, which material terms are:
(a) the individuals eligible to receive compensation under the Plan; (b) a
description of the business criteria on which the performance goal is based; and
(c) the maximum amount of compensation to be paid if the performance goal is
attained. In this regard, the "material terms" of the One-Year Plan which are
being submitted for the approval of shareholders are as follows: (a) the
eligible class of individuals is all officers and employees of the Company or
its subsidiaries who are determined by the Committee to be of exceptional
importance and with the ability to make substantial contributions to the
success, growth, and profit of the Company and its subsidiaries; (b) the
business criteria upon which performance goals are based is the Company's net
income; and (c) the maximum dollar amount of compensation payable with respect
to contingent awards granted in any one fiscal year to any one participant is
$2,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS
PROPOSAL.
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1999 AWARDS
The Compensation Committee has established 1999 contingent awards under the
new One-Year Plan for a total of 152 participants, including all named executive
officers. All 1999 contingent awards for the named executive officers are
intended by the Committee to qualify for the performance-based exemption, and
have been granted subject to approval of this proposal by the Company's
shareholders. Awards to other participants are not conditioned upon approval of
this proposal.
Each 1999 contingent award to a named executive officer is expressed as a
range of percentages of such officer's 1999 salary. That element of the
contingent award does not preclude the Committee from making a final award
outside the range. However, each such contingent award also provides that the
final award will be limited to a specified percentage of the 1999 incentive
pool. The Committee has determined that this incentive pool will consist of two
percent of the Company's 1999 net income before tax. The 1999 limit on each
named executive officer's final award is the following percentage (the
"incentive pool percentage") of the 1999 incentive pool: Mr. Johnson, 11%; Mr.
Dahl, 8%; Ms. Carryer, 5%; Mr. Kuioka, 5%; and Mr. Houle 4%.
The 1999 incentive pool percentages cannot be exceeded when final awards are
determined without loss of the performance-based exemption under Section 162(m).
Accordingly, the Committee's emphasis in setting 1999 incentive pool percentages
was on the fact that they will constitute an upper limit on final awards. The
incentive pool percentages were thus set in 1999 (and will likely be set in
subsequent years) so as to give the Committee flexibility in establishing each
final award that is intended to qualify for the performance-based exemption.
Incentive pool percentages for 1999 are not "targets", and final awards to the
named executive officers for 1999 may be less than the maximums permitted by
such percentages.
The amounts payable for 1999 under this plan are not presently determinable.
However, if the plan had been in effect for the year ended December 31, 1998,
and if the final awards to the named executive officers were established solely
by applying the foregoing percentages to the Company's 1998 net earnings before
tax, without any downward adjustments by the Committee of the resulting amounts,
the following payments would have been made:
NEW PLAN BENEFITS
ONE-YEAR INCENTIVE PLAN
<TABLE>
<CAPTION>
1998
MAXIMUM
DOLLAR
NAME AND POSITION VALUE
- --------------------------------------------------------------------------------- -----------
<S> <C>
Lawrence M. Johnson, Chairman of the Board and Chief Executive Officer........... $ 359,949
Richard J. Dahl, President and Chief Operating Officer........................... $ 261,780
Alton T. Kuioka, Vice Chair and Chief Lending Officer............................ $ 163,613
Mary P. Carryer, Vice Chair...................................................... $ 163,613
David H. Houle, Executive Vice President, Treasurer and Chief Financial
Officer........................................................................ $ 130,890
</TABLE>
Notwithstanding the foregoing calculations, the Committee believes that if
this plan had been in effect during 1998, none of the final awards to named
executive officers would have equaled the amounts set forth above, and that
after exercise of the Committee's adjustment discretion, the final awards to
named executive officers would have been substantially identical to the bonus
amounts set forth in the Summary Compensation Table.
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PROPOSAL 7: APPROVAL OF CERTAIN MATERIAL TERMS OF
THE LONG-TERM INCENTIVE COMPENSATION PLAN
On January 22, 1999, the Compensation Committee adopted the Pacific Century
Financial Corporation Long-Term Incentive Compensation Plan ("Long-Term Plan")
and, on February 26, 1999, the Board of Directors approved and ratified the
Long-Term Plan.
In order to qualify certain awards under the Long-Term Plan as
performance-based compensation exempt from the $1 million compensation
limitation under Code Section 162(m), the Company is seeking shareholder
approval of certain material terms of the Long-Term Plan discussed under
"Approval of Certain Material Terms". A summary of the principal provisions of
the Long-Term Plan is set forth below. Reference should be made to the full text
of the Long-Term Plan for a complete description of its terms and conditions. A
complete copy of the Long-Term Plan can be obtained from the Corporate
Secretary's office at the address listed on page 40.
For awards made in 1999 and later years, the Long-Term Plan will replace the
Growth Plan utilized since 1994, which is described on page 20.
SUMMARY OF THE LONG-TERM PLAN
The Long-Term Plan provides for contingent cash awards to eligible employees
that are contingent upon the financial performance of the Company and the
individual performance of eligible employees. The objectives of the Long-Term
Plan are to optimize profitability and growth of the Company and its
subsidiaries over a multi-year period, to provide an incentive for excellence in
individual performance, and to promote teamwork among employees. The Long-Term
Plan is effective as of January 1, 1999, and operates for a ten year term ending
January 1, 2009.
The Long-Term Plan is administered by the Compensation Committee of the
Board of Directors. The Committee has the authority to: designate eligible
employees to whom awards may be granted under the Long-Term Plan; determine the
amount and terms and conditions of the awards; interpret the terms of the Plan
and any award or award agreement; establish regulations governing the
administration of the Plan; amend the terms and conditions of any award or award
agreement to the extent such terms and conditions are with the Committee's
discretion under the Plan; and amend, modify, or terminate the Plan as provided
under the terms of the Plan. All determinations made by the Committee pursuant
to the provisions of the Long-Term Plan are final and binding upon all persons,
including the Company and employees who participate in the Plan.
All officers and employees of the Company or its subsidiaries who are
determined by the Committee to be of exceptional importance and with the ability
to make substantial contributions to the success, growth, and profit of the
Company and its subsidiaries are eligible employees under the Long-Term Plan.
The Committee may, from time to time and at its sole discretion, designate the
eligible employees who will receive contingent awards under the Long-Term Plan.
A contingent award granted to an eligible employee for a performance period
will be an award which is contingent upon the achievement of designated
performance goals for the performance period and will be expressed as a dollar
amount or a percentage of average annual base salary for the performance period.
A performance period will be a multi-year period as may be determined by the
Committee in its sole discretion. The performance goals upon which contingent
awards are conditioned will be based upon one or more of the following
performance measures: earnings per share (actual or targeted growth); economic
value added; net income after capital cost; net income (before or after taxes);
various return measures (either absolute or relative to peers), including return
on average assets, return on average equity, risk-adjusted return on capital,
efficiency ratio, full time equivalency control, stock price (either actual or
targeted growth), total shareholder return (absolute or relative to an index),
and non-interest income to net interest income ratio. Prior to the end of the
first quarter of the
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first fiscal year of the applicable performance period, the Committee will
select among the performance measures and establish specific performance goals
relative to such performance measures for contingent awards made for the
performance period. In the case that external changes or unanticipated business
conditions materially affect the fairness of the goals as determined by the
Committee, the Committee may approve appropriate adjustments to performance
goals as they apply to contingent awards. Also, in the case of a change in
corporate capitalization or a corporate transaction or an unusual or
nonrecurring event, the Committee may make adjustments to contingent awards as
may be appropriate and equitable to prevent the dilution or enlargement or
rights. However, in the case of awards to named executive officers intended to
qualify for the performance-based exemption under Section 162(m), any
adjustments to performance goals or contingent awards must, to the extent
required by Section 162(m), be made before the end of the first quarter of the
first year of the performance period.
After the completion of a performance period, each participant's performance
during the performance period will be assessed and the Committee in its sole
discretion will make a determination of a final award amount. As compared to the
participant's contingent award, the Committee may determine a lesser or greater
final award amount. However, in determining the final award to a participant
which is intended to qualify for the performance-based exemption under Section
162(m), the participant's contingent award will be subject to downward
adjustment but will not be subject to upward adjustment. The maximum aggregate
payout for contingent awards granted in any one fiscal year to any one
participant is $2,000,000. Subject to the foregoing limitations, the Committee
may modify or revoke the participant's contingent award at any time prior to the
determination of a final award.
In the event of a change in control of the Company during a performance
period, the performance period will be treated as ending on the date of the
change of control for purposes of determining a final award, and the final award
for a participant will be calculated as an amount equal to two times the
participant's contingent award for the performance period based on the
participant's average annual base salary for the shortened performance period,
which amount will be then prorated for the performance period in proportion to
the number of full months completed within the performance period.
The Company's Board of Directors or the Committee may prior to a change in
control amend or terminate the Long-Term Plan at any time without shareholder
approval. However, in the case of any amendment or termination which adversely
affects a final award made to a participant, such amendment or termination may
not be made without the participant's consent.
APPROVAL OF CERTAIN MATERIAL TERMS
In order for a grant of a contingent award under the Long-Term Plan to
qualify for the performance-based exemption under Section 162(m), certain
"material terms" of the Plan must be approved by shareholders according to the
tax rules governing the performance-based exemption, which material terms are:
(a) the individuals eligible to receive compensation under the Plan; (b) a
description of the business criteria on which the performance goal is based; and
(c) the maximum amount of compensation to be paid if the performance goal is
attained. In this regard, the "material terms" of the Long-Term Plan which are
being submitted for the approval of shareholders are as follows: (a) the
eligible class of individuals is all officers and employees of the Company or
its subsidiaries who are determined by the Committee to be of exceptional
importance and with the ability to make substantial contributions to the
success, growth, and profit of the Company and its subsidiaries; (b) the
business criteria upon which performance goals may be based are earnings per
share (actual or targeted growth); economic value added; net income after
capital cost; net income (before or after taxes); various return measures
(either absolute or relative to peers), including return on average assets,
return on average equity, risk-adjusted return on capital, efficiency ratio,
full time equivalency control, stock price (either actual or targeted growth),
total shareholder return (absolute or relative to an index), and non-interest
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<PAGE>
income to net interest income ratio; and (c) the maximum dollar amount of
compensation payable with respect to contingent awards granted in any one fiscal
year to any one participant is $2,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS
PROPOSAL.
1999 AWARDS
In January 1999, the Committee made the first awards under the Long-Term
Plan. Awards were made to a total of 36 participants. Each such award to a named
executive officer was intended by the Committee to qualify for the
performance-based exemption and was granted subject to approval of this proposal
by the Company's shareholders. Awards to other participants were not conditioned
upon approval of this proposal.
The contingent awards are for a three-year performance period ended December
31, 2001. The contingent award to each named executive officer is equal to a
percentage of that officer's average annual base salary over the three-year
period. The Committee selected as performance measures for 1999 awards earnings
growth rate and return on average equity during the performance period. The
Committee established a matrix that sets forth multipliers to be applied to the
contingent awards based on Pacific Century's performance with respect to the two
factors chosen. No awards will be paid if return on average equity for the three
years covered by the plan is 10% or less or if the earnings growth rate is 10%
or less. If the return on average equity over that period is about 13% and the
earnings growth rate over that period is about 20%, then one times the
contingent awards would be payable (the "target" in the table below). The
maximum cash award payable for the three-year period is two times the contingent
award. The maximum payout would occur if return on average equity were 16% or
more, and the earnings growth rate were 30% or more.
The following table sets forth certain information concerning payments that
may result from the 1999 awards. Target amounts are not presently determinable;
the amounts set forth below are based on an assumed adjustment of 5% per annum
of 1999 base salaries and do not reflect the Committee's authority to reduce
awards intended to qualify for the performance-based exemption, or in the case
of other awards to adjust final awards either upwards or downwards.
NEW PLAN BENEFITS
LONG-TERM PLAN--1999 AWARDS
<TABLE>
<CAPTION>
TARGET PAYOUT
AS A % OF
FY 99-2001 THRESHOLD TARGET MAXIMUM
NAME AVERAGE PAY PERFORMANCE PERIOD ($ OR #) ($ OR #) ($ OR #)
- --------------------------- ------------- ----------------------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Lawrence M. Johnson........ 50% 3 years ending 12-31-2001 386 385,875 771,750
Richard J. Dahl............ 45% 3 years ending 12-31-2001 248 248,063 496,125
Mary P. Carryer............ 40% 3 years ending 12-31-2001 137 136,500 273,000
Alton T. Kuioka............ 40% 3 years ending 12-31-2001 137 135,500 273,000
David A. Houle............. 35% 3 years ending 12-31-2001 94 93,713 187,425
Executive Group............ 20% - 50% 3 years ending 12-31-2001 1,030 1,029,849 2,059,698
Non-Executive Officer
Employee Group........... 15% - 35% 3 years ending 12-31-2001 1,210 1,209,743 2,419,486
</TABLE>
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PROPOSAL 8: ELECTION OF AN INDEPENDENT AUDITOR
The Board of Directors, on recommendation of the Audit Committee, recommends
the reelection of Ernst & Young LLP as Pacific Century's Independent Auditor for
1999 and thereafter until its successor is elected. Ernst & Young LLP has been
Pacific Century's Independent Auditor since its incorporation in 1971 and also
serves as Independent Auditor for the Bank. Representatives of Ernst & Young LLP
are expected to attend the Annual Meeting and have indicated that they will have
no statement to make but will be available to respond to questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THIS
PROPOSAL.
OTHER MATTERS
Pacific Century knows of no other matter to come before the meeting.
However, if any other matter properly comes before the meeting, the persons
named in the enclosed proxy will vote in accordance with their judgment upon any
such matters.
Section 1.12 of Pacific Century's By-Laws provides that for business to be
properly brought before the meeting by a shareholder, the shareholder must give
written notice thereof to the Corporate Secretary of Pacific Century no later
than 80 days nor earlier than 90 days prior to the first anniversary of the
preceding year's annual meeting. Such notice must set forth as to each matter
the shareholder proposes to bring before such meeting certain information
specified in Pacific Century's By-Laws. Any such notice must be delivered or
received by the Corporate Secretary, Pacific Century Inc., 130 Merchant Street,
Honolulu, Hawaii 96813.
SHAREHOLDER PROPOSALS FOR 1999 MEETING
Proposals of shareholders to be presented at and included in Pacific
Century's Proxy Statement and proxy for the 2000 Annual Meeting of Shareholders
must be received by Pacific Century (at 130 Merchant Street, Honolulu, Hawaii
96813) on or before November 9, 1999.
By Order of the Board of Directors
[LOGO]
CORI C. WESTON
VICE PRESIDENT AND SECRETARY
Honolulu, Hawaii
March 8, 1999
A COPY OF PACIFIC CENTURY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE
RELATED FINANCIAL STATEMENTS AND SCHEDULES FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS AVAILABLE WITHOUT CHARGE TO ANY SHAREHOLDER WHO REQUESTS
A COPY IN WRITING. THE FORM 10-K CONSISTS PRIMARILY OF INCORPORATION BY
REFERENCE OF INFORMATION CONTAINED IN THE ANNUAL REPORT TO SHAREHOLDERS OR IN
THIS PROXY STATEMENT. REQUESTS FOR COPIES SHOULD BE MAILED TO CORI C. WESTON,
VICE PRESIDENT AND SECRETARY, PACIFIC CENTURY, 130 MERCHANT STREET, HONOLULU,
HAWAII 96813. INFORMATION ABOUT THE COMPANY MAY ALSO BE FOUND ON-LINE AT:
(WWW.BOH.COM).
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APPENDIX A
BANCORP HAWAII, INC. STOCK OPTION PLAN OF 1994
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan. Bancorp Hawaii, Inc., a Hawaii corporation
(hereinafter referred to as the "Company"), hereby establishes an incentive
compensation plan to be known as the "Bancorp Hawaii, Inc. Stock Option Plan of
1994" (hereinafter referred to as the "Plan"), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, SARs, Restricted Stock, Restricted Stock Units, and other similar
Awards; and it offers flexibility in determining the time of payment and
whether Awards will be conditioned on the attainment of performance goals and
whether they will be settled in cash.
Subject to ratification by an affirmative vote of a majority of Shares, the
Plan shall become effective as of January 1, 1994 (the "Effective Date"), and
shall remain in effect as provided in Section 1.3 herein.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the success
and enhance the value of the Company by linking the personal interests of
Participants to those of Company shareholders, and by providing Participants
with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants upon
whose judgment, interest, and special effort the successful conduct of its
operation largely is dependent.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date, as
described in Section 1.1 herein, and shall remain in effect, subject to the
right of the Board of Directors to terminate the Plan at any time pursuant to
Article 13 herein, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Award
be granted under the Plan on or after January 1, 2004.
ARTICLE 2. DEFINITIONS
2.1 Definitions. Whenever used in the Plan, the following terms shall have
the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized:
(a) "Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Restricted Stock Unit, or other vehicles described in the Plan.
(b) "Award Agreement" means an agreement entered into by each Participant and
the Company, setting forth the terms and provisions applicable to Awards
granted to Participants under this Plan.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in rule
13d-3 of the General Rules and Regulations under the Exchange Act.
(d) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(e) "Cause" means (i) willful misconduct on the part of a Participant that is
detrimental to the Company; or (ii) the conviction of a Participant for the
commission of a felony or crime involving turpitude. "Cause" under either (i)
or (ii) shall be determined in good faith by the Committee.
(f) "Change in Control" shall be deemed to have occurred if:
(1) Any person [other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a corporation
owned directly or indirectly by the shareowners of the Company
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in substantially the same proportions as their ownership of stock of the
Company], including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, is or becomes the beneficial owner of
shares of stock of the Company having 25% or more of the total number of
votes that may be cast for the election of directors of the Company; or
(2) As a result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets, contested
election, or any combination of the foregoing transactions, the persons who
were directors of the Company before the transaction shall cease to
constitute a majority of the Board of Directors of the Company or any
successor of the Company; or
(3) A majority of the Board of Directors determines in good faith that a
"Change in Control" is imminent.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(h) "Committee" means the committee, as specified in Article 3, appointed by
the Board to administer the Plan with respect to grants of Awards.
(i) "Company" means Bancorp Hawaii, Inc., a Hawaii corporation, or any
successor thereto as provided in Article 15 herein.
(j) "Director" means any individual who is a member of the Board of Directors
of the Company.
(k) "Disability" means a disability as defined in the then existing insured
disability income benefit program maintained by the Bank of Hawaii (regardless
of whether the Participant is covered under that program.)
(l) "Employee" means any full-time, nonunion employee of the Company or of
the Company's Subsidiaries. Directors who are not otherwise employed by the
Company shall not be considered Employees under this Plan. Individuals
described in the first sentence of this definition who are foreign nationals or
are employed outside of the United States, or both, are considered to be
"Employees" and may be granted Awards on the terms and conditions set forth in
the Plan or on such terms and conditions different from those specified in the
Plan as may, in the judgment of the Committee, be necessary or desirable to
further the purpose of the Plan, provided that any maximum amount for an
individual Award that is provided in the Plan shall continue to apply to such
Employees in the same manner as with respect to other Employees.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor Act thereto.
(n) "Fair Market Value" means
(1) When Shares are not listed on an established stock exchange, the mean
between the closing dealer "bid" and "ask" prices for the Shares as quoted
by NASDAQ on the date of the determination, and if no "bid" and "ask"
prices are quoted for such date, "Fair Market Value" shall be determined by
reference to such prices on the next preceding date on which such prices
were quoted; or
(2) When Shares are listed on an established stock exchange (or
exchanges), "Fair Market Value" shall be deemed to be the highest closing
price of a Share on such stock exchange, and if no sale of Shares shall
have been made on any stock exchange on that day, "Fair Market Value" shall
be determined by reference to such price for the next preceding day on
which a sale shall have occurred; or
(3) If Shares are not traded on an established stock exchange and no
closing dealer "bid" and "ask" prices are available, "Fair Market Value"
shall be determined by the Committee based on objective criteria.
(o) "Freestanding SAR" means a SAR that is granted independently of any
Options.
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(p) "Incentive Stock Option" or "ISO" means an option to purchase Shares,
granted under Article 6 herein, which is designated as an Incentive Stock
Option and is intended to meet the requirements of Section 422 of the Code.
(q) "Insider" shall mean an Employee who is, on the relevant date, a
specifically identified officer, director, or ten percent (10%) beneficial
owner of the Company, as defined under Section 16 of the Exchange Act.
(r) "Nonqualified Stock Option:" or "NQSO" means an option to purchase
Shares, granted under Article 6 herein, which is not intended to be an
Incentive Stock Option.
(s) "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
(t) "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option as determined by the Committee.
(u) "Participant" means an Employee of the Company who has outstanding an
Award granted under the Plan.
(v) "Performance-Based Compensation" means compensation under an Award that
is granted in order to provide remuneration solely on account of the attainment
of one or more preestablished, objective performance goals under circumstances
that satisfy the requirements of Code Section 162(m)(4)(C).
(w) "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.
(x) "Person" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d).
(y) "Reload Option" means a NQSO that allows the holder to receive a new
Option for the same or some other specified number of Shares if he or she
exercises the NQSO by tender previously owned Shares.
(z) "Restricted Stock" means an Award of Shares subject to restrictions that
include a requirement to complete a specified period of employment in order to
avoid forfeiture of such Shares.
(aa) "Restricted Stock Unit" means a unit representing a Share that is
subject to restrictions like those applicable to Restricted Stock and that,
depending on its terms, may be settled either in cash or by the issuance of an
unrestricted Share upon the lapse of the restrictions.
(ab) "Retirement" means termination of employment after attainment of both
age 62 and entitlement to an unreduced retirement allowance under the
Employees' Retirement Plan of Bank of Hawaii.
(ac) "Shares" means the shares of common stock of the Company.
(ad) "Stock Appreciation Right" or "SAR" means an Award pursuant to the terms
of Article 7 herein.
(ae) "Subsidiary" means any corporation in which the Company has at least a
50-percent direct or indirect ownership interest.
(af) "Tandem SAR" means a SAR that is granted in connection with a related
Option, the exercise of which shall require forfeiture of the right to purchase
a Share under the related Option (and when a Share is purchased under the
Option, the Tandem SAR shall similarly be canceled).
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(ag) "Window Period" means the period beginning on the third business day
following the date of public release of the Company's quarterly sales and
earnings information, and ending on the twelfth business day following such
date.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by a compensation committee
of the Board consisting of two or more outside Directors who meet the
requirements of this section. The members of the Committee shall be appointed
from time to time by, and shall serve at the discretion of the Board of
Directors.
The Committee shall be comprised solely of Directors who are eligible to
administer the Plan pursuant to Rule 16b-3(c)(2) under the Exchange Act and
whose status allows the Plan to meet the requirement of Code Section
162(m)(4)(C)(i) that performance goals under the Plan must be determined by a
compensation committee of the Board comprised solely of two or more outside
Directors. If for any reason the existing Committee does not qualify to
administer the Plan under these criteria, the Board of Directors may appoint a
new Committee so as to comply with Rule 16b-3(c)(2) and Code Section
162(m)(4)(C)(i).
3.2 Authority of the Committee. The Committee shall have full power except as
limited by law or by the Articles of Incorporation or Bylaws of the Company,
and subject to the provisions herein, to determine the participants, the size
and types of Awards; to determine the terms and conditions of such Awards in a
manner consistent with the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to establish, amend, or
waive rules and regulations for the Plan's administration; and (subject to the
provisions of Article 13 herein) to amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan. As permitted by law, the Committee may delegate its
authorities as identified hereunder.
All Participants under the Plan are eligible to receive Awards that may
provide Performance-Based Compensation. The Committee shall determine when
granting each Award whether or not it is intended to provide Performance-Based
Compensation, and shall cause the agreement covering any Award that is so
intended to indicate this fact and to include such other information as may be
necessary to satisfy the requirements for treatment as compensation described
in Code Section 162(m)(4)(C). Until the maximum dollar Award is changed and
approved by the Company's stockholders, the maximum dollar amount that will be
paid in settlement of any Award that provides Performance-Based Compensation is
the Fair Market Value (determined on the date the Award is exercised or
otherwise settled) of 20 percent of the total authorized pool of Shares
specified in Section 4.1. Notwithstanding the foregoing, if an initial dollar
maximum is specifically provided for a particular type of Award elsewhere in
this Plan, that specific maximum shall be substituted in place of the maximum
in the preceding sentence. A change in the foregoing maximum may be made by
Plan amendment or other means, provided that it is made and approved by the
Company's stockholders in a manner that satisfies regulatory guidance under
Code Section 162(m)(4)(C). Once made, the changed maximum dollar amount(s)
shall apply to Awards providing Performance-Based Compensation, and the maximum
specified in this section shall cease to apply.
The terms and conditions of any Award (other than an Award of an Option and
the related Tandem SAR, if any) that is intended to provide Performance-Based
Compensation shall include the requirement that such Award shall be payable
only on account of the attainment of one or more preestablished performance
goals. The agreement covering the Award shall specify the performance goals to
which payment under the Award is subject and shall state, in terms of an
objective formula or standard, the method for computing the amount of
compensation payable to the Participant if the goal is obtained. In addition,
before the payment of any such Award, the Committee shall certify that the
performance goals and any other material terms of the Award have in fact been
satisfied.
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For purposes of the foregoing, the Committee shall specify the performance
goals and certify the attainment of such goals with respect to performance-
related Awards in accordance with Code section 162(m) and related rules and
regulations followed by the Internal Revenue Service. Except as otherwise
permitted or required by such authorities, the performance goals applicable to
each Award subject to this paragraph shall be determined by the Committee in a
manner such that any compensation of a Participant under the Award is paid
pursuant to a preestablished objective performance formula or standard that
precludes discretion and generally allows a third party with knowledge of the
relevant performance results to calculate the amount to be paid to the
Participant.
In general, the reservation of a right to reduce or eliminate the
compensation or other economic benefit that was due upon attainment of the
performance goal shall not be considered to constitute impermissible
discretion, but the choice to pay upon the attainment of either of two
performance goals shall not be allowed under the rules precluding Committee
discretion. The performance goals applicable to each Award intended to provide
Performance-Based Compensation award may be based on but not limited to the
following business criteria: control of net overhead expenses, control of
nonperforming loans, adequacy of loan loss reserves, control of noninterest
expenses, control of interest margins, increase in the Company's common stock
price, increase in earnings per share, growth in net income per employee,
return on equity, increase in bank deposit levels, return on average equity,
return on assets, increase in capitalization levels, increase in noninterest
income and growth in earnings.
3.3 Decisions Binding. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan and all related orders or resolutions of
the Board shall be final, conclusive, and binding on all persons, including the
Company, its stockholders, Employees, Participants, and their estates and
beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan shall be
1,250,000. These Shares may be either authorized but unissued or reacquired
Shares.
The following rules will apply for purposes of the determination of the
number of Shares available for grant under the Plan:
(a) While an Award is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its vested status.
(b) The grant of an Option or Freestanding SAR shall reduce the Shares
available for grant under the Plan by the number of Shares subject to such
Award.
(c) The grant of a Tandem SAR shall reduce the number of Shares available
for grant by the number of Shares subject to the related Option (i.e.,
there is no double counting of Options and their related Tandem SARs).
(d) To the extent that an Award is settled in cash rather than in Shares,
the authorized Share pool shall be credited with the appropriate number of
Shares represented by the cash settlement of the Award, as determined at
the sole discretion of the Committee (subject to the limitation set forth
in Section 4.2 herein).
4.2 Lapsed Awards. If any Award granted under the Plan is canceled,
terminates, expires, or lapses for any reason (with the exception of the
termination of a Tandem SAR upon exercise of the related Option or the
termination of a related Option upon exercise of the corresponding Tandem SAR),
any Shares subject to such Award again shall be available for the grant of an
Award under the Plan. However, in the event that prior to the Award's
cancellation, termination, expiration, or lapse, the holder of the Award at any
time received one or more "benefits of ownership" pursuant to such Award (as
defined by the Securities and
5
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Exchange Commission, pursuant to any rule or interpretation promulgated under
Section 16 of the Exchange Act), the Shares subject to such Award shall not be
made available for regrant under the Plan. Further, any Award of an Option or
Freestanding Option that is canceled, terminated, expires, or lapses, shall
continue to be counted against the maximum number of Shares for which an Option
may be granted to an Employee under Article 6 or Article 7.
4.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, recapitalization, separation, liquidation, stock
dividend, split-up, Share combination, or other change in the corporate
structure of the Company affecting the shares, such adjustment shall be made in
the number and class of Shares which may be delivered under the Plan, and in
the number and class of and/or price of Shares subject to outstanding Awards
granted under the Plan, as may be determined to be appropriate and equitable by
the Committee, in its sole discretion, to prevent dilution or enlargement of
rights; and provided that the number of Shares subject to any Award shall
always be a whole number.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Persons eligible to participate in this Plan include all
full-time, active, salaried Employees of the Company and its subsidiaries, as
determined by the Committee, including Employees who are members of the Board,
but excluding Directors who are not Employees.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may from time to time, select from all eligible employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees at any time and from time to time as shall
be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each
Participant; provided, however, that the maximum number of Shares subject to
Options which may be granted to any single Participant during the term of the
Plan is 20 percent of the total authorized pool of Shares specified in
Section 4.1. The Committee may grant ISOs, NQSOs, or a combination thereof.
Subject to any specific Plan rules that may apply to particular Option types,
the NQSOs that may be granted include premium Options as well as performance-
based Options, Options issued in tandem with SARs, Reload Options, and various
combinations of the foregoing.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions
(including performance-based goals, if applicable) as the Committee shall
determine. The Option Agreement also shall specify whether the Option is
intended to be an ISO within the meaning of Section 422 of the Code, or a NQSO
whose grant is intended not to fall under the Code provisions of Section 422.
6.3 Option Price. The Option Price for each Option (except a premium Option
described in the next following sentence) shall be equal to 100 percent of the
Fair Market Value of a Share on the date the Option is granted. The Option
Price for each grant of a premium Option shall be a price determined by the
Committee that, expressed as a percentage of the Fair Market Value of a Share
on the date the Option is granted, shall not be less than 101 percent. The
Option Price shall in all cases be determined as of the date on which the
Option is granted, and shall in no event reflect a discount from the Fair
Market Value of a Share on such date. Accordingly, the Option Price of an ISO
shall never be less than 100 percent of the Fair Market Value of a Share on the
date the ISO is granted. Except in the case of an equitable adjustment pursuant
to Section 4.3, the Option Price of an outstanding Option shall not be changed
by means of repricing or other means after the date of the Option grant.
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6.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth anniversary date of its grant.
6.5 Exercise of Options. Options granted under the Plan shall be exercisable
at such times and be subject to such restrictions and conditions as the
Committee shall in each instance approve, which need not be the same for each
grant or for each Participant. However, in no event may any Option granted
under this Plan become exercisable prior to six months following the date of
its grant.
6.6 Payment. Options shall be exercised by the delivery of a written notice
of exercise to the Company, setting forth the number of Shares with respect to
which the Option is to be exercised, accompanied by full payment for the
Shares.
The Option Price upon exercise of any Option shall be payable to the Company
n full either: (a) in cash or its equivalent, or (b) by tendering previously
acquired Shares having an aggregate Fair Market Value at the time of exercise
equal to the Option Price (provided that the Shares which are tendered must
have been held by the Participant for at least six months prior to their tender
to satisfy the Option Price if NQSOs, and one year prior to tender if ISOs), or
(c) by a combination of (a) and (b).
The Committee also may allow cashless exercise for NQSOs as permitted under
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of exercise
and full payment, the Company shall deliver to the Participant one or more
Share certificates or other appropriate evidence of ownership indicating the
number of Shares purchased under the Option(s).
6.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option under
the Plan as it may deem advisable, including, without limitation, restrictions
under applicable federal securities laws, under the requirements of any stock
exchange or market upon which such Shares are then listed and/or traded, and
under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment Due to Death, Disability, or Retirement.
(a) Termination by Death. In the event the employment of a Participant is
terminated by reason of death after becoming eligible for Retirement, all
outstanding Options granted to that Participant shall remain exercisable at any
time prior to their original expiration date, or for five years after the date
of death, whichever period is shorter, by such person or persons as shall have
been named as the Participant's Beneficiary, or by such persons that have
acquired the Participant's rights under the Option by will or by the laws of
descent and distribution.
(b) Termination by Disability. In the event the employment of a Participant
is terminated by reason of Disability after becoming eligible for Retirement,
all outstanding Options granted to that Participant shall remain exercisable at
any time prior to their original expiration date, or for five years after the
date that the Committee determines the definition of Disability to have been
satisfied, whichever period is shorter.
(c) Termination by Retirement. In the event the employment of a Participant
is terminated by reason of Retirement, all outstanding Options granted to that
Participant shall remain exercisable at any time prior to their original
expiration date, or for five years after the effective date of Retirement,
whichever period is shorter.
(d) Employment Termination Followed by Death. In the event that a
Participant's employment terminates by reason of Disability or Retirement, and
within the exercise period following such termination
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the Participant dies, then the remaining exercise period under outstanding
Options shall equal the longer of: (i) one year following death; or (ii) the
remaining portion of the exercise period which was triggered by the employment
termination; but in no event shall such remaining exercise period extend beyond
the original expiration date. Such Options shall be exercisable by such person
or persons who shall have been named as the Participant's Beneficiary, or by
such persons who have acquired the Participant's rights under the Option by
will or by the laws of descent and distribution.
(e) Exercise Limitations on ISOs. The time limit for exercising an ISO is
subject to the limits in Code Section 422(a)(2) (as modified by Section
421(c)(1)(A) and 422(c)(6)). In general, these sections provide that an Option,
in order to be treated as an ISO, must be exercised within three months after a
Participant ceases to be an Employee, except that this three-month period does
not apply if the Option is exercised after the Employee's death and it is
changed to one year in the case of an Employee who is permanently and totally
disabled (within the meaning of Code Section 22(e)(3)). Accordingly, if an
Option intended to qualify as an ISO is not exercised within the applicable ISO
time limit, it will be treated as an NQSO instead of an ISO.
6.9 Termination of Employment for Cause. If the employment of a Participant
shall be terminated by the Company for Cause, all outstanding Options held by
the Participant shall be forfeited to the Company immediately and no additional
exercise period shall be allowed, regardless of the vested status of the
Options.
6.10 Termination of Employment for Other Reasons. If the employment of a
Participant shall be terminated by the Company for any reason other than the
reasons set forth in Section 6.8 or 6.9, all Options held by the Participant
which are not vested as of the effective date of employment termination shall
be forfeited to the Company immediately.
Options which are vested as of the effective date of employment termination
may be exercised by the Participant within the period beginning on the
effective date of employment termination, and ending three months after such
date.
6.11 Nontransferability of Options. No Option granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
Options granted to a Participant under the Plan shall be exercisable during his
or her lifetime only by such Participant.
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may
be granted to an Employee at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs or any combination of these forms of SARs. Other SARs such as limited SARs
may not be granted under this Plan.
The Committee shall have complete discretion in determining the number of
SARs granted to each Participant (subject to Article 4 herein) and, consistent
with the provisions of the Plan, in determining the terms and conditions
pertaining to such SARs; provided, however, that the maximum number of SARs
which may be granted to any single Participant during the term of the Plan is
20 percent of the total authorized pool of Shares specified in section 4.1.
The grant price of a Freestanding SAR shall equal the Fair Market Value of a
Share on the date of grant of the SAR. The grant price shall in all cases be
determined when the SAR is granted. Except in the case of an equitable
adjustment pursuant to Section 4.3, the grant price of an outstanding SAR shall
not be changed by means of repricing or other means after the date of the SAR
grant. In no event shall any SAR granted hereunder become exercisable within
the first six months of its grant.
8
<PAGE>
7.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of
the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR granted in connection with an ISO, (i) the Tandem SAR
will expire no later than the expiration of the underlying ISO; (ii) the value
of the payout with respect to the Tandem SAR may be for no more than 100
percent of the difference between the Option Price of the underlying ISO and
the Fair Market Value of the Shares subject to the underlying ISO at the time
the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon
whatever terms and conditions the Committee, in its sole discretion, imposes on
them.
7.4 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine.
7.5 Terms of SARS. The term of a SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
the term of a Tandem SAR shall not exceed the term of the related Option, and
the term of a Freestanding SAR shall not exceed ten years.
7.6 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date
of exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
7.7 Rule 16B-3 Requirements. Notwithstanding any other provision of the Plan,
the Committee may impose such conditions on exercise of a SAR (including,
without limitation, the right of the Committee to limit the time of exercise to
specified periods) as may be required to satisfy the requirements of Section 16
(or any successor rule) of the Exchange Act.
For example, if the Participant is an Insider, the ability of the Participant
to exercise SARs for cash will be limited to Window Periods. However, if the
Committee determines that the Participant is not an Insider, or if the
securities laws change to permit greater freedom of exercise of SARs, then the
committee may permit exercise at any point in time, to the extent the SARs are
otherwise exercisable under the Plan.
7.8 Termination of Employment Due to Death, Disability, or Retirement. In the
event the employment of a Participant is terminated by reason of death,
Disability, or Retirement; (i) the forfeiture or vesting and continued
exercisability of all outstanding Tandem SARs granted to that Participant shall
be the same as the forfeiture, vesting and continued exercisability, if any, of
the related Options, as determined under Section 6.8 of this Plan, and (ii) the
forfeiture or vesting and continued exercisability of all outstanding
Freestanding SARs shall be the same as if each Freestanding SAR were an Option
subject to the rules of Section 6.8.
7.9 Termination of Employment For Cause. If the employment of a Participant
shall be terminated by the Company for Cause, all outstanding SARs held by the
Participant shall be forfeited to the Company immediately and no additional
exercise period shall be allowed, regardless of the vested status of the SARs.
7.10 Termination of Employment for Other Reasons. If the employment of a
Participant shall terminate for any reason other than the reasons set forth in
Section 7.8 or 7.9: (i) the forfeiture or vesting and continued
9
<PAGE>
exercisability of all outstanding Tandem SARs granted to that Participant shall
be the same as the forfeiture vesting and continued exercisability, if any, of
the related Options, as determined under Section 6.10 of this Plan, and (ii)
the forfeiture or vesting and continued exercisability of all outstanding
Freestanding SARs shall be the same as if each Freestanding SAR were an Option
subject to the rules of Section 6.10.
7.11 Nontransferability of SARS. No SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all SARs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
ARTICLE 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grant of Restricted Stock/Restricted Stock Units. Subject to the terms
and provisions of the Plan, the Committee, at any time and from time to time,
may grant Shares of Restricted Stock and/or Restricted Stock Units to eligible
Employees in such amounts as the Committee shall determine.
8.2 Restricted Stock/Restricted Stock Unit Agreement. Each Restricted Stock
or Restricted Stock Unit grant shall be evidenced by an Agreement that shall
specify the Period of Restriction, or Periods, the number of Restricted Stock
Shares (or Restricted Stock Units) granted, and such other provisions as the
Committee shall determine.
8.3 Transferability. Except as provided in this Article 8, the Shares of
Restricted Stock and Restricted Stock Units granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until
the end of the applicable Period of Restriction established by the Committee
and specified in the governing Agreement. However, in no event may any
Restricted Stock or Restricted Stock Unit granted under the Plan become vested
in a Participant prior to six months following the date of its grant. All
rights with respect to any Restricted Stock or Restricted Stock Unit granted to
a Participant under the Plan shall be available during his or her lifetime only
to such Participant.
8.4 Other Restrictions. The Committee shall impose such other conditions
and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units
granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock or each Share provided in settlement of a
Restricted Stock Unit, restrictions based upon the achievement of specific
performance goals (Company-wide, divisional, and/or individual), and/or
restrictions under applicable federal or state securities laws; and may legend
the certificates representing Restricted Stock or Restricted Stock Units to
give appropriate notice of such restrictions.
8.5 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 8.4 herein, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan may bear a legend such as the
following:
"The sale or other transfer of the Shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer as set forth in the Company's
Stock Plan of 1994, and in a Restricted Stock Agreement. A copy of the Plan
and such Restricted Stock Agreement may be obtained from Bancorp Hawaii,
Inc."
The Company shall have the right to retain the certificates representing
Shares of Restricted Stock in the Company's possession until such time as all
conditions and/or restrictions applicable to such Shares have been satisfied.
8.6 Removal Of Restrictions. Except as otherwise provided in this Article 8,
Shares of Restricted Stock covered by each Restricted Stock grant made under
the Plan shall become freely transferable by the Participant after the last day
of the Period of Restriction. Once the Shares are released from the
restrictions, the Participant shall be entitled to have the legend required by
Section 8.5 removed from his or her Share certificate.
10
<PAGE>
8.7 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.8 Dividends And Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder shall be
entitled to receive all regular cash dividends paid with respect to all Shares
while they are so held. Except as provided in the succeeding sentence, in the
sole discretion of the Committee, other cash dividends and other distributions
paid with respect to Shares of Restricted Stock may be paid to Participants or
may be subjected to the same restrictions on transferability and forfeitability
as the Shares of Restricted Stock with respect to which they were paid. If any
such dividends or distributions are paid in Shares, the Shares shall be subject
to the same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
In the event that any dividend constitutes a "derivative security" or an
"equity security" pursuant to Rule 16(a) under the Exchange Act, such dividend
shall be subject to a vesting period equal to the longer of: (i) the remaining
vesting period of the Shares of Restricted Stock with respect to which the
dividend is paid; or (ii) six months. The Committee shall establish procedures
for the application of this provision.
8.9 Termination Of Employment Due to Death or Disability. In the event the
employment of a Participant is terminated by reason of death or Disability, all
outstanding Shares of restricted Stock shall immediately vest 100 percent as of
the date of employment termination (in the case of Disability, the date
employment terminates shall be deemed to be the date that the Committee
determines the definition of Disability to have been satisfied). The holder of
the certificates of Restricted Stock shall be entitled to have any
nontransferability legends required under Sections 8.4 and 8.5 of this Plan
removed from the Share certificates.
8.10 Termination of Employment for Other Reasons. If the employment of a
Participant shall terminate for any reason other than those specifically set
forth in section 8.9 herein, all Shares of Restricted Stock held by the
Participant which are not vested as of the effective date of employment
termination shall be forfeited immediately and returned to the Company;
provided, however, that in the case of termination of employment by reason of
retirement, the Committee may provide for accelerated vesting of some or all
such Shares upon such terms as the Committee, in its sole discretion, deems
appropriate.
ARTICLE 9. BENEFICIARY DESIGNATION. A Participant's "Beneficiary" is the person
or persons entitled to receive payments or other benefits or exercise rights
that are available under the Plan in the event of the Participant's death. A
Participant may designate a Beneficiary or change a previous Beneficiary
designation at any time by using forms and following procedures approved by the
Committee for that purpose. If no Beneficiary designated by the Participant is
eligible to receive payments or other benefits or exercise rights that are
available under the Plan at the Participant's death, the Beneficiary shall be
the Participant's estate. Notwithstanding the provisions above, the Committee
may in its discretion, after notifying the affected Participants, modify the
foregoing requirements, institute additional requirements for Beneficiary
designations, or suspend the existing Beneficiary designations of living
Participants or the process of determining Beneficiaries under this section, or
both. If the Committee suspends the process of designating Beneficiaries on
forms and in accordance with procedures it has approved pursuant to this
section, the determination of who is a Participant's Beneficiary shall be made
under the Participant's will and applicable state law.
ARTICLE 10. DEFERRALS AND SHARE SETTLEMENTS. The Committee may permit a
Participant to defer such Participant's receipt of the payment of cash or the
delivery of Shares that would otherwise be due to such Participant by virtue of
the exercise of an Option or SAR, or with respect to the lapse or waiver of
restrictions with respect to Restricted Stock or Restricted Stock Units. If any
such deferral election is required or permitted, the Committee shall, in its
sole discretion, establish rules and procedures for such payment deferrals. In
addition, the Committee may require or permit a Participant to receive
settlement in the form of Shares of equal or greater Fair Market Value that are
provided under this Plan in lieu of any cash payment
11
<PAGE>
that the Participant would otherwise receive under the Company's One-Year
Incentive Plan and/or Sustained Profit Growth Plan, or under any successor to
either or both of these cash incentive plans.
ARTICLE 11. RIGHTS OF EMPLOYEES
11.1 Employment. Nothing in the Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant's employment at any time,
nor confer upon any Participant any right to continue in the employ of the
Company.
For purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Subsidiaries (or between Subsidiaries) shall not be
deemed a termination of employment.
11.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or having been so selected, to be selected to
receive a future Award.
ARTICLE 12. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, unless otherwise specifically
prohibited by the terms of Article 16 herein:
(a) Any and all Options and SARs granted hereunder shall become
immediately exercisable;
(b) Any period of restriction for Restricted Stock and Restricted Stock
Units granted hereunder that have not previously vested shall end, and such
Restricted Stock and Restricted Stock Units shall become fully vested;
(c) Subject to Article 13 herein, the Committee shall have the authority
to make any modifications to the Awards as determined by the Committee to
be appropriate before the effective date of the Change in Control.
ARTICLE 13. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; provided, that no amendment which requires shareholder approval in
order for the Plan to continue to comply with Rule 16b-3 under the Exchange
Act, including any successor to such Rule, shall be effective unless such
amendment shall be approved by the requisite vote of shareholders of the
Company entitled to vote thereon. Further, no amendment, modification,
suspension, or termination of the Plan shall in any material manner affect any
Award theretofore granted under the Plan without the written consent of the
affected Participant or any person validly claiming under or through such
Participant.
ARTICLE 14. WITHHOLDING
14.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising or as a result of this Plan.
14.2 Share Withholding. With respect to withholding required upon the
exercise of Options or SARs upon the lapse of restrictions on Restricted Stock
or Restricted Stock Units, or upon any other taxable event hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be imposed on
the transaction. All elections shall be irrevocable, made in writing, signed by
the Participant, and elections by Insiders shall additionally comply with the
applicable requirement set forth in (a) or (b) of this section 14.2.
(a) Awards having exercise timing within Participants' discretion. The
Insider must either:
(1) Deliver written notice of the stock withholding election to the
Committee at least six months prior to the date specified by the Insider on
which the exercise of the Award is to occur; or
12
<PAGE>
(2) Make the stock withholding election in connection with an exercise of
an Award which occurs during a Window Period.
(b) Awards having a fixed exercise/payout schedule which is outside insider's
control. The Insider must either:
(1) Deliver written notice of the stock withholding election to the
Committee at least six months prior to the date on which the taxable event
(e.g., exercise or payout) relating to the Award is scheduled to occur; or
(2) Make the stock withholding election during a Window Period which
occurs prior to the scheduled taxable event relating to the Award (for this
purpose, an election may be made prior to such a Window Period, provided
that it becomes effective during a Window Period occurring prior to the
applicable taxable event).
ARTICLE 15. SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
ARTICLE 16. LEGAL CONSTRUCTION
16.1 Gender and Number. Except where otherwise indicated by the context any
masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
16.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
16.3 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
Notwithstanding any other provision set forth in the Plan, if required by the
then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold
or transferred for at least six months after the date of grant of such Award.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16(a) under the Exchange Act.
16.4 Securities Law Compliance. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions or Rule 16b-3
or its successors under the 1934 Act. To the extent any provision of the Plan
or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
16.5 Governing Law. To the extent not preempted by federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with and governed by
the laws of the State of Hawaii.
13
<PAGE>
AMENDMENT 97-2 TO
THE BANCORP HAWAII, INC.
STOCK OPTION PLAN OF 1994
In accordance with Article 13 of the Bancorp Hawaii, Inc.
Stock Option Plan of 1994 (hereinafter "Plan"), and conditioned on the
approval of shareholders no later than one year after the date of adoption by
the Board of Directors of Bancorp Hawaii, Inc., the Plan is hereby amended by
this Amendment No. 97-2 effective as of the date of adoption by the Board of
Directors.
1. The Plan shall be amended by adding the following
Article 17 at the end thereof:
Article 17. CU Bancorp Replacement Options
Pursuant and subject to the provisions of the Agreement and
Plan of Reorganization dated February 24, 1997 between the Company and
CU Bancorp (the "Merger Agreement"), Options shall be issued under the
Plan in assumption of or substitution for certain unexercised options
to acquire shares of common stock of CU Bancorp. Notwithstanding any
other provision of this Plan, options so issued (the "Replacement
Options") shall be in such amounts and shall have such terms as are
required by the Merger Agreement and such additional terms as are
approved by the Committee and set forth in the option agreements with
each optionee contemplated by the Merger Agreement, and shall also be
subject to those provisions of this Plan that the Committee determines
are not inconsistent with the Merger Agreement or such option
agreements and that, in the case of CU Bancorp stock options that are
"incentive stock options" within the meaning of Section 422 of the
Code, would not constitute or result in a "modification" of such
options within the meaning of Section 424 thereof. Subject to the
foregoing, the Committee shall have the authority and discretion to
establish the terms and conditions of each option agreement providing
for the issuance of Replacement Options.
2. Article 13 of the Plan shall be amended to include the
following at the end thereof:
Without limiting the foregoing, if the Company or any of its
subsidiaries is a party to a merger, consolidation, reorganization,
share exchange, acquisition of stock or assets, or similar transaction,
the Committee or the Board may grant Awards
<PAGE>
(including Options)hereunder in connection with the assumption,
substitution or conversion by the Company or its subsidiaries of
similar stock compensation awards that have been issued by another
party to such transaction, and the Board may amend the Plan, or
adopt supplements to the Plan, in such manner as it deems
appropriate to provide for such assumption, substitution or
conversion, all without further action by the Company's
shareholders.
To record the adoption of this amendment to the Plan,
Bancorp Hawaii, Inc. has executed this document this 25th day of April, 1997.
BANCORP HAWAII, INC.
By /s/ Lawrence M. Johnson
------------------------
Its Chairman and Chief
Executive Officer
By /s/ Richard J. Dahl
------------------------
Its President & Chief
Operating Officer
<PAGE>
AMENDMENT 99-1 TO THE
PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994
In accordance with Article 13 of the Pacific Century Financial Corporation
Stock Option Plan of 1994 (hereinafter "Plan"), and conditioned on the approval
of shareholders no later than one year after the date of adoption by the Board
of Directors of Pacific Century Financial Corporation, the Plan is hereby
amended by this Amendment No. 99-1, effective as of the date of adoption by the
Board of Directors, as follows:
1. The first sentence of Section 4.1 of the Plan shall be amended to
increase the total number of Shares reserved and available for grant under the
Plan by revising such sentence to read in its entirety as follows:
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3
herein, the total number of Shares available for grant under the Plan shall
be 9,650,000.
To record the adoption of this amendment to the Plan, Pacific Century
Financial Corporation has executed this document this 22nd day of January, 1999.
PACIFIC CENTURY FINANCIAL
CORPORATION
By: /s/ Lawrence M. Johnson
-----------------------------------------
Its Chairman and Chief Executive Officer
By: /s/ Richard J. Dahl
-----------------------------------------
Its President & Chief Operating Officer
<PAGE>
AMENDMENT 99-2 TO
THE PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994 AND RELATED AWARDS
In accordance with Article 13 of the Pacific Century Financial Corporation
Stock Option Plan of 1994 (hereinafter "Plan"), the Plan and related Awards are
hereby amended by this Amendment No. 99-2, effective as of the date of adoption
by the Board of Directors, in the following respects:
1. Section 2.1(ag) of the Plan shall be deleted.
2. Section 3.1 of the Plan shall be amended to read in its entirety as
follows:
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board of Directors, which shall be comprised of two or more
Directors who satisfy the requirements of an "outside" Director under Code
Section 162(m)(4)(C)(i). The members of the Committee shall be appointed
from time to time by, and shall serve at the discretion of the Board.
Notwithstanding any other provision of the Plan (and without limiting
the Committee's authority), in connection with any action concerning grants
of Awards to or a transactions by Insiders the Committee may adopt such
procedures as it deems necessary or desirable to assure the availability of
exemptions from Section 16 of the Exchange Act afforded by Rule 16b-3
thereunder or any successor rule. Without limiting the foregoing, in
connection with approval of any transaction by an Insider involving a grant,
award or other acquisition from the Company, or involving the disposition to
the Company of the Company's equity securities, the Committee may delegate
its approval authority to a subcommittee thereof comprised of two or more
"Non-Employee Directors" (as defined in Rule 16b-3), or take action by the
affirmative vote of two or more Non-Employee Directors (with all other
members of the Committee abstaining or recusing themselves from
participating in the matter), or refer the matter to the full Board of
Directors for action.
3. The final sentence of Section 3.2 shall be amended to read as follows:
The performance goals applicable to each Award intended to provide
Performance-Based Compensation shall be based on one or more of the
following performance measures: earnings per share (actual or targeted
growth), economic value added, net income after capital cost, net income
(before or after taxes), various return measures (either absolute or
relative to peers) including: return on average assets, return on average
equity, risk-adjusted return on capital ("RAROC"), efficiency ratio, full
time equivalency ("FTE") control, stock price (actual or targeted growth),
total shareholder return ("TSR", absolute or relative to an index), and
non-interest income to net interest income ratio.
4. The second paragraph of Section 7.7 of the Plan shall be deleted.
5. Section 14.2 of the Plan shall be revised to read in its entirety as
follows:
14.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs or upon the lapse of restrictions on Restricted
Stock or Restricted Stock Units, or upon any other taxable event hereunder,
Participants may elect to satisfy the withholding requirement, in whole or
in part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total
tax which could be imposed on the transaction. All elections shall be
irrevocable, made in writing, and signed by the Participant.
6. Section 16.4 shall be revised to read as follows:
16.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the
<PAGE>
Exchange Act (except to the extent that noncompliance of a particular
transaction would not result in liability under Section 16 of the Exchange
Act or the rules adopted thereunder). To the extent any provision of the
Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Committee.
7. Article 13 shall be revised to read as follows:
ARTICLE 13. AMENDMENT, MODIFICATION AND TERMINATION. The Board may at
any time and from time to time, alter, amend, suspend or terminate the Plan
in whole or in part; provided that no amendment, modification, suspension or
termination of the Plan shall in any material manner affect any Award
theretofore granted under the Plan without the written consent of the
affected Participant or any person validly claiming under or through such
Participant. Without limiting the foregoing, if the Company or any of its
subsidiaries is a party to a merger, consolidation, reorganization, share
exchange, acquisition of stock or assets, or similar transaction, the
Committee or the Board may grant Awards (including Options) hereunder in
connection with the assumption, substitution or conversion by the Company or
its subsidiaries of similar stock compensation awards that have been issued
by another party to such transaction, and the Board may amend the Plan, or
adopt supplements to the Plan, in such manner as it deems appropriate to
provide for such assumption, substitution or conversion, all without further
action by the Company's shareholders.
8. Each outstanding Award held by an Insider shall be and hereby is amended
to the extent necessary to conform such Award to the Plan amendments set forth
above (other than paragraph 3). Without limiting the foregoing:
(a) Section 5.4 of each such Award shall be amended by revising the last
sentence thereof to read as follows:
Any provision herein contained to the contrary notwithstanding (a) the
exercise of the Tandem SAR involving the receipt of cash shall be subject to
approval of the Committee or a subcommittee thereof, which approval may be
made subject to limitations or conditions, may be given in advance of or
following a request by the Optionee therefor, and may be granted or withheld
by the Committee or subcommittee in its sole discretion with or without
cause; and (b) the Tandem SAR may be exercised only when the Fair Market
Value of the Option Shares exceeds the Option Price.
(b) Section 5.5 shall be deleted; and
(c) Section 14 shall be amended by deleting the third sentence thereof,
and by revising the second sentence to read: "The Optionee may elect to
satisfy withholding requirements by having the Company withhold shares of
Company Stock made available upon exercise of the Option."
To record the adoption of these amendments, Pacific Century Financial
Corporation has executed this document this 22nd day of January, 1999.
PACIFIC CENTURY FINANCIAL
CORPORATION
By: /s/ Lawrence M. Johnson
-----------------------------------------
Its Chairman and Chief Executive Officer
By: /s/ Richard J. Dahl
-----------------------------------------
Its President & Chief Operating Officer
<PAGE>
PACIFIC CENTURY FINANCIAL CORPORATION
ONE-YEAR INCENTIVE PLAN
(Effective as of January 1, 1999)
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CONTENTS
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Article 1. Establishment, Objectives, and Effective Date 1
Article 2. Definitions 1
Article 3. Administration 3
Article 4. Eligibility and Participation 4
Article 5. Contingent Awards 4
Article 6. Determination and Payment of Final Awards 4
Article 7. Termination of Employment 6
Article 8. Beneficiary Designation 6
Article 9. Rights of Employees 6
Article 10. Change in Control 6
Article 11. Amendment, Modification, and Termination 7
Article 12. Withholding 8
Article 13. Indemnification 8
Article 14. Successors 8
Article 15. Legal Construction 8
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PACIFIC CENTURY FINANCIAL CORPORATION ONE-YEAR INCENTIVE PLAN
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ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND EFFECTIVE DATE
1.1. ESTABLISHMENT OF THE PLAN. Pacific Century Financial Corporation,
a Delaware corporation ("PCFC"), hereby establishes an incentive compensation
plan to be known as the "Pacific Century Financial Corporation One-Year
Incentive Plan" ("Plan"), as set forth in this document.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of PCFC and its Subsidiaries through incentives
for each current annual period which are consistent with PCFC's goals and
which link the personal interests of Participants to those of PCFC's
stockholders; to provide Participants with an incentive for excellence in
individual performance; and to promote teamwork among Participants.
1.3. EFFECTIVE DATE. The Plan shall become effective as of January 1,
1999 ("Effective Date"). The Plan shall commence on the Effective Date and
shall remain in effect, subject to the right of the Board of Directors to
amend or terminate the Plan at any time pursuant to Article 11 hereof, until
January 1, 2009.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following capitalized terms shall have
the meanings set forth below:
2.1. "AWARD AGREEMENT" shall mean an agreement entered into by PCFC and
each Participant setting forth the terms and conditions applicable to an
Award granted under this Plan.
2.2. "BOARD OF DIRECTORS" OR "BOARD" shall mean the Board of Directors
of PCFC.
2.3. "CHANGE IN CONTROL" of PCFC shall mean any one or more of the
following: (I) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner
of shares of PCFC having 25% or more of the total number of votes that may be
cast for the election of Directors of PCFC; or (II) as a result of, or in
connection with, any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions, the persons who were Directors of PCFC before the
transaction shall cease to constitute a majority of the Board of Directors of
PCFC or any successor to PCFC.
2.4. "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
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2.5. "COMMITTEE" shall mean the Compensation Committee of the Board of
Directors of PCFC.
2.6. "CONTINGENT AWARD" OR "AWARD" shall mean an award which is
contingent on the achievement of designated performance goals which is
granted to an Eligible Employee at the outset of the Performance Period.
2.7. "DISABILITY" shall have the meaning ascribed to such term under the
long-term disability plan sponsored by PCFC or a Subsidiary and applicable to
the Participant, or if no such plan exists, the meaning as determined at the
sole discretion of the Committee.
2.8. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Article 1.3 hereof.
2.9. "ELIGIBLE EMPLOYEES" shall mean officers or other employees of PCFC
or any Subsidiary, who, in the opinion of the Committee, are or give promise
of becoming of exceptional importance to PCFC or any Subsidiary, and of
making substantial contributions to the success, growth, and profit of PCFC
and its Subsidiaries. Neither members of the Committee nor any member of the
Board who is not an employee of PCFC or a Subsidiary shall be an Eligible
Employee.
2.10. "FINAL AWARD" shall mean the award ultimately paid out to each
Participant based on the Committee's determination under Article 6.
2.11. "NAMED EXECUTIVE OFFICER" shall mean a Participant who, as of the
date of vesting or payout of an Award, as applicable, is one of the group of
"covered employees" as defined under Code Section 162(m) and regulations
thereunder.
2.12. "NET INCOME" shall mean PCFC's consolidated net income before
taxes for the Performance Period, as reported in the annual report to
shareholders (or as otherwise reported to shareholders) adjusted as described
in this Section. The Committee may, in its sole discretion, adjust PCFC's
reported net income for the following in determining Net Income:
(a) Expenses associated with this incentive plan
(b) Any extraordinary or unusual gain or loss transaction
(c) Securities gains or losses, and
(d) Dividends on preferred shares
The Committee will, in its sole discretion, determine any adjustments to be
made pursuant to this definition.
2.
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2.13. "PARTICIPANT" shall mean a person that the Committee, in its sole
discretion, selects from among the Eligible Employees to be granted a
Contingent Award.
2.14. "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deduction limitations of Code Section 162(m).
2.15. "PERFORMANCE PERIOD", with respect to any Award, shall mean PCFC's
fiscal year.
2.16. "PLAN" shall mean this PCFC One-Year Incentive Plan, as it may be
amended from time to time.
2.17. "RETIREMENT" shall mean the termination of a Participant's
employment with PCFC or a Subsidiary under circumstances where the
Participant terminates on or after the retirement dates specified under the
Employees' Retirement Plan of Bank of Hawaii.
2.18. "SALARY" shall mean the actual base salary for the Performance
Period.
2.19. "SUBSIDIARY" shall mean any corporation in which PCFC or any
Subsidiary (as defined hereby) owns 50 percent or more of the total combined
voting power of all classes of stock.
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by the Committee.
The members of the Committee shall be appointed from time to time by, and
shall serve at the discretion of, the Board of Directors.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
articles of incorporation or bylaws of PCFC, and subject to the provisions
herein, the Committee shall have full power to interpret and administer the
Plan, including to: identify and designate Eligible Employees and
Participants under the Plan; determine the size of Awards; determine the
terms and conditions of Awards in a manner consistent with the Plan; construe
and interpret the Plan and any Award Agreement or any other agreement or
instrument entered into under the Plan; establish, amend, or waive rules and
regulations for the Plan's administration; amend the terms and conditions of
any outstanding Award or Award Agreement to the extent such terms and
conditions are within the discretion of the Committee as provided in the
Plan; and amend, modify, or terminate the Plan in the manner described in
Article 11. As permitted by law, the Committee may delegate its authority as
identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee shall
3.
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be final, conclusive, and binding on all persons, including PCFC and its
Subsidiaries, their shareholders, their employees, and the directors,
Eligible Employees, Participants, and their estates and beneficiaries.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1. ELIGIBILITY. Eligible Employees of PCFC or any Subsidiary shall
be eligible to participate in the Plan.
4.2. PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time and at its sole discretion, designate the
Eligible Employees who shall be Participants and receive grants of Contingent
Awards under the Plan.
ARTICLE 5. CONTINGENT AWARDS
5.1. GRANT. The Committee may, from time to time and at its sole
discretion, make a grant of a Contingent Award to each Participant. The
Contingent Award for any Participant shall be an amount or range of amounts
(expressed either in dollars or as percentages of Salary for the Performance
Period). The Committee shall cause notice to be given to each Participant of
his or her participation under the Plan.
In the event that the Committee determines that it is advisable to grant
Awards to Named Executive Officers which do not qualify for the
Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m).
5.2. INCENTIVE POOL. In the case of a Contingent Award to a Named
Executive Officer which is intended by the Committee to qualify for the
Performance-Based Exception, the Contingent Award shall be determined by the
Committee by the end of the first quarter of the applicable Performance
Period and shall not exceed a percent of the Incentive Pool for the
Performance Period specified by the Committee. The Incentive Pool shall be
established for each Performance Period and shall be an amount designated as
a percent of PCFC's Net Income for the Performance Period, which percent of
PCFC's Net Income shall be determined by the Committee prior to the end of
the first quarter of the Performance Period. The aggregate of Contingent
Awards made to Named Executives for a Performance Period that are intended to
qualify for the Performance-Based Exception shall not exceed the Incentive
Pool for the Performance Period. The Committee may, but need not, grant such
Contingent Awards up to the full amount of the Incentive Pool.
5.3. VALUE. A Contingent Award shall be of no immediate and certain
value, and rather the amount payable to a Participant with respect to a
Contingent Award for any given Performance Period shall be the Final Award as
determined under Article 6.
4.
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ARTICLE 6. DETERMINATION AND PAYMENT OF FINAL AWARDS
6.1. Determination of Final Awards. Subject to the terms and conditions
of the Plan, after the applicable Performance Period has ended, the Committee
shall determine the Final Award to be paid to each Participant. Each
Participant's performance during the Performance Period shall be assessed by
the Participant's manager, who shall make a recommendation of Final Award to
the Chief Executive Officer of PCFC. The Chief Executive Officer shall
thereafter also assess each Participant's performance during the Performance
Period and shall make a recommendation of Final Award to the Committee.
However, the determination of Final Award for a Participant shall be within
the sole discretion of the Committee. In this regard, the Committee may
follow the recommendation by the Chief Executive Officer or may make a lesser
or greater Final Award, taking into account the Participant's overall
contribution to PCFC and its Subsidiaries for the Performance Period, the
corporate performance of PCFC and its Subsidiaries for the Performance
Period, and such other criteria as the Committee may determine to promote the
objectives of the Plan in an individual case. The Committee may determine
the amount of any Final Award to a Participant without regard to the amount
of the Participant's Contingent Award. Except as otherwise provided in the
case of a Change in Control or other event as described in Article 10, the
Committee may modify or repeal the Contingent Award of any Participant at any
time before the determination of the Participant's Final Award. However, in
the case of a Contingent Award which is designed to qualify for the
Performance-Based Exception with respect to a Named Executive Officer, the
Final Award shall not result in an upward adjustment of the Contingent Award
to an amount greater than the maximum percent of the Incentive Pool
determined pursuant to Article 5.2 (although the Committee shall retain the
discretion to adjust such the Contingent Award downward).
6.2. MAXIMUM AWARDS. Notwithstanding any other provision of the Plan,
the maximum aggregate payout with respect to a Contingent Award granted in
any one Plan Year to any one Participant shall be $2,000,000.
6.3. PAYMENT. Payment of Final Awards shall be made in a single lump
sum as soon practicable following the close of the applicable Performance
Period and the determination of the Final Awards.
However, a Participant may make a request, on a form approved by the
Committee, for the deferral of all or part of any payment he or she may
receive, provided that such request is delivered to the Human Resources
Division no later than November 1 of the Performance Period. The Committee
may accept or reject any such request for a deferral and may determine the
conditions of such deferral at the Committee's sole discretion.
Payment of Final Awards shall be made normally in the form of cash.
However, the Committee, in its sole discretion, may provide for payment of
Final Awards in the form of PCFC stock, restricted stock, or nonqualified
stock options.
5.
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6.4. PARTICIPATION DURING PERFORMANCE PERIOD. Unless determined
otherwise by the Committee and set forth in the Participant's Award
Agreement, in the event that an Eligible Employee's participation commences
or terminates (for reason other than a termination of employment as described
in Article 7) mid-term during a Performance Period, the Participant shall
receive a payout of the Award which is prorated in a manner determined by the
Committee in its sole discretion.
ARTICLE 7. TERMINATION OF EMPLOYMENT
7.1. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment of a Participant
is terminated by reason of death, Disability, or Retirement during a
Performance Period, the Participant shall receive a payout of the Final Award
which is prorated in a manner determined by the Committee in its sole
discretion. Payments of any prorated Final Awards shall be made at the
similar time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.
7.2. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. Unless determined
otherwise by the Committee and set forth in the Participant's Award
Agreement, in the event that a Participant's employment terminates during a
Performance Period for any reason other than those reasons set forth in
Article 7.1, all Awards for that Performance Period shall be forfeited by the
Participant.
ARTICLE 8. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a
form prescribed by PCFC, and shall be effective only when filed by the
Participant in writing with PCFC during the Participant's lifetime. In the
absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 9. RIGHTS OF EMPLOYEES
9.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of PCFC or a Subsidiary to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continue
in the employ of the of PCFC or a Subsidiary.
9.2. PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
6.
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9.3. NONTRANSFERABILITY. No Award shall be sold, assigned, transferred,
encumbered, hypothecated, or otherwise anticipated by a Participant and,
during the lifetime of a Participant, any payment shall be payable only to
the Participant.
ARTICLE 10. CHANGE IN CONTROL
10.1. TREATMENT OF OUTSTANDING AWARDS. Notwithstanding any other
provision of the Plan to the contrary, in the event of a dissolution or
liquidation of PCFC, or a Change in Control of PCFC, the amount of cash
payable with respect to any Contingent Award for a Performance Period that
ends after such event shall be determined and payable as if the Performance
Period ended on the date of such event and a Final Award shall be calculated
and paid under the Plan in an amount equal to two times the Contingent Award.
The Contingent Award shall be calculated based on the annualized Salary of
the Participant for the shortened Performance Period. The Final Award
calculated under this Article 10 shall be multiplied by a fraction, the
numerator of which shall be the number of full months of the Performance
Period, as adjusted under this Article 10, and the denominator of which shall
be the number of full months in the intended Performance Period. The Final
Award under this Article 10 shall be paid to such Participant within ten days
of the end of the shortened Performance Period.
10.2. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE IN CONTROL
PROVISIONS. Notwithstanding any other provision of the Plan or any Award
Agreement provision, the provisions of this Article 10 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior
written consent of the Participant with respect to the Participant's
outstanding Awards; provided, however, the Board of Directors, upon
recommendation of the Committee, may terminate, amend, or modify this Article
10 at any time and from time to time prior to the date of a Change in Control.
10.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other
provision of the Plan to the contrary, in the event that the consummation of
a Change in Control is contingent on using pooling of interests accounting
methodology, the Board may take any action necessary, including but not
limited to the amendment or repeal of any Contingent Award, to preserve the
use of pooling of interests accounting.
ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION
11.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board or the
Committee, may, at any time, terminate , amend, modify, or suspend this Plan
provided that no such amendment, modification, suspension, or termination of
the Plan shall in any manner (except as allowable under Section 10.3)
adversely affect in any material way any Final Award made under the Plan
without the consent of the Participant holding the Final Award.
7.
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11.2. COMPLIANCE WITH CODE SECTION 162(m). Except as otherwise provided
by the Article 11.2, at all times when Code Section 162(m) is applicable, all
Awards granted under this Plan shall comply with the requirements of Code
Section 162(m). However, in the event the Committee determines that such
compliance is not desired with respect to the initial grant of any Award
under the Plan, then compliance with Code Section 162(m) shall not apply and
be required for such Award. In addition, in the event that changes are made
to Code Section 162(m) to permit greater flexibility with respect to any
Award available under the Plan, the Committee may, subject to this Article
11, make any adjustments it deems appropriate.
ARTICLE 12. WITHHOLDING
PCFC shall have the power and the right to deduct, withhold, or require
a Participant to remit to PCFC an amount sufficient to satisfy federal,
state, and local taxes, domestic or foreign, required by law or regulation to
be withheld with respect to any taxable event arising as a result of this
Plan.
ARTICLE 13. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by PCFC against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim,
action, suit, or proceeding to which he or she may be a party or in which he
or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with PCFC's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give PCFC an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle
and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under PCFC's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that PCFC have to
indemnify them or hold them harmless.
ARTICLE 14. SUCCESSORS
All obligations of PCFC under the Plan with respect to Awards granted
hereunder shall be binding on any successor to PCFC, whether the existence of
such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business
and/or assets of PCFC.
ARTICLE 15. LEGAL CONSTRUCTION
15.1. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
8.
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15.2. SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
15.3. REQUIREMENTS OF LAW. The granting of Contingent Awards and the
payment of Final Awards under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
15.4. GOVERNING LAW. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Delaware.
9.
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PACIFIC CENTURY FINANCIAL CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
(Effective as of January 1, 1999)
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CONTENTS
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Article 1. Establishment, Objectives, and Effective Date 1
Article 2. Definitions 1
Article 3. Administration 3
Article 4. Eligibility and Participation 3
Article 5. Contingent Awards 4
Article 6. Determination and Payment of Final Awards 5
Article 7. Termination of Employment 6
Article 8. Beneficiary Designation 6
Article 9. Rights of Employees 7
Article 10. Change in Control 7
Article 11. Amendment, Modification, and Termination 8
Article 12. Withholding 8
Article 13. Indemnification 8
Article 14. Successors 8
Article 15. Legal Construction 9
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PACIFIC CENTURY FINANCIAL CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
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ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND EFFECTIVE DATE
1.1. ESTABLISHMENT OF THE PLAN. Pacific Century Financial Corporation, a
Delaware corporation ("PCFC"), hereby establishes an incentive compensation
plan to be known as the "Pacific Century Financial Corporation Long-Term
Incentive Compensation Plan" ("Plan"), as set forth in this document.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of PCFC and its Subsidiaries through incentives
for a multi-year period which are consistent with PCFC's goals and which link
the personal interests of Participants to those of PCFC's stockholders; to
provide Participants with an incentive for excellence in individual
performance; and to promote teamwork among Participants.
1.3. EFFECTIVE DATE. The Plan shall become effective as of January 1,
1999 ("Effective Date"). The Plan shall commence on the Effective Date and
shall remain in effect, subject to the right of the Board of Directors to
amend or terminate the Plan at any time pursuant to Article 11 hereof, until
January 1, 2009.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following capitalized terms shall have
the meanings set forth below:
2.1. "AWARD AGREEMENT" shall mean an agreement entered into by PCFC and
each Participant setting forth the terms and conditions applicable to an
Award granted under this Plan.
2.2. "BOARD OF DIRECTORS" OR "BOARD" shall mean the Board of Directors
of PCFC.
2.3. "CHANGE IN CONTROL" of PCFC shall mean any one or more of the
following: (I) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner
of shares of PCFC having 25% or more of the total number of votes that may be
cast for the election of Directors of PCFC; or (II) as a result of, or in
connection with, any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions, the persons who were Directors of PCFC before the
transaction shall cease to constitute a majority of the Board of Directors of
PCFC or any successor to PCFC.
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2.4. "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
2.5. "COMMITTEE" shall mean the Compensation Committee of the Board of
Directors of PCFC or any other committee designated by the Board.
2.6. "CONTINGENT AWARD" OR "AWARD" shall mean an award which is
contingent on the achievement of designated performance goals and final
determination by the Committee and which is granted to an Eligible Employee
at the outset of the Performance Period.
2.7. "DISABILITY" shall have the meaning ascribed to such term under the
long-term disability plan sponsored by PCFC or a Subsidiary and applicable to
the Participant, or if no such plan exists, the meaning as determined at the
sole discretion of the Committee.
2.8. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Article 1.3. hereof.
2.9. "ELIGIBLE EMPLOYEES" shall mean officers or other employees of PCFC
or any Subsidiary, who, in the opinion of the Committee, are or give promise
of becoming of exceptional importance to PCFC or any Subsidiary, and of
making substantial contributions to the success, growth, and profit of PCFC
and its Subsidiaries. Neither members of the Committee nor any member of the
Board who is not an employee of PCFC or a Subsidiary shall be an Eligible
Employee.
2.10. "FINAL AWARD" shall mean the award ultimately paid out to each
Participant, based on the extent to which corresponding performance goals
have been achieved and the Committee's determination under Article 6.
2.11. "NAMED EXECUTIVE OFFICER" shall mean a Participant who, as of the
date of vesting or payout of an Award, as applicable, is one of the group of
"covered employees" as defined under Code Section 162(m) and regulations
thereunder.
2.12. "PARTICIPANT" shall mean a person that the Committee, in its sole
discretion, selects from among the Eligible Employees to be granted a
Contingent Award.
2.13. "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.14. "PERFORMANCE PERIOD" shall mean the length of time over which
performance is measured for determining Final Awards. The length of the
Performance Period shall be set at the sole discretion of the Committee.
2.15. "PLAN" shall mean this Pacific Century Financial Corporation
Long-Term Incentive Compensation Plan, as it may be amended from time to time.
2.
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2.16. "RETIREMENT" shall mean the termination of a Participant's
employment with PCFC or a Subsidiary under circumstances where the
Participant terminates on or after the retirement dates specified under the
Employees' Retirement Plan of Bank of Hawaii.
2.17. "SALARY" shall mean average annual base salary.
2.18. "SUBSIDIARY"" shall mean any corporation in which PCFC or any
Subsidiary (as defined hereby) owns 50 percent or more of the total combined
voting power of all classes of stock.
ARTICLE 3. ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by the Committee. The
members of the Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
articles of incorporation or bylaws of PCFC, and subject to the provisions
herein, the Committee shall have full power to interpret and administer the
Plan, including to: identify and designate Eligible Employees and Participants
under the Plan; determine the size of Awards; determine the terms and conditions
of Awards in a manner consistent with the Plan; construe and interpret the Plan
and any Award Agreement or any other agreement or instrument entered into under
the Plan; establish, amend, or waive rules and regulations for the Plan's
administration; amend the terms and conditions of any outstanding Award or Award
Agreement to the extent such terms and conditions are within the discretion of
the Committee as provided in the Plan; and amend, modify, or terminate the Plan
in the manner described in Article 11. As permitted by law, the Committee may
delegate its authority as identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee shall be final, conclusive, and binding on all
persons, including PCFC and its Subsidiaries, their shareholders, their
employees, and the directors, Eligible Employees, Participants, and their
estates and beneficiaries.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
4.1. ELIGIBILITY. Eligible Employees of PCFC or any Subsidiary shall be
eligible to participate in the Plan.
3.
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4.2. PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time and at its sole discretion, designate the
Eligible Employees who shall be Participants and receive grants of Contingent
Awards under the Plan.
ARTICLE 5. CONTINGENT AWARDS
5.1. GRANT. The Committee may, from time to time and at its sole
discretion, make a grant of a Contingent Award to each Participant. The
Contingent Award for any Participant shall be an amount, expressed either as
a dollar amount or as a percentage of Salary for the Performance Period. The
Committee shall cause notice to be given to each Participant of his or her
participation under the Plan.
In the event that the Committee determines that it is advisable to grant
Awards to Named Executive Officers which do not qualify for the
Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m).
5.2. VALUE. A Contingent Award shall be of no immediate and certain
value, and rather the amount payable to a Participant with respect to a
Contingent Award for any given Performance Period shall be the Final Award as
determined under Article 6 and shall be conditioned upon the extent to which
the Performance Goals designated under this Article 5 are met and any
adjustment to such Award as may be determined under Article 6.
5.3. PERFORMANCE MEASURE SELECTION. The performance goals upon which an
Award is conditioned shall be based upon one or more of the following
performance measures: earnings per share (actual or targeted growth),
economic value added, net income after capital cost, net income (before or
after taxes), various return measures (either absolute or relative to peers)
including: return on average assets, return on average equity, risk-adjusted
return on capital ("RAROC"), efficiency ratio, full time equivalency ("FTE")
control, stock price (actual or targeted growth), total shareholder return
("TSR", absolute or relative to an index), and non-interest income to net
interest income ratio. In the case of Awards to Named Executive Officers
which are intended by the Committee to qualify for the Performance-Based
Exception, the performance goals shall be based upon the performance measures
set forth in this Article 5 as of the Effective Date, and any material
addition or change to the performance measures shall not be utilized or taken
into account for such Awards unless and until such performance measures are
disclosed to and approved by shareholders in accordance with the requirements
of Code Section 162(m).
5.4. PERFORMANCE GOAL ESTABLISHMENT. The Committee shall select among
the performance measures, and shall establish specific performance goals
relative to such performance measures prior to the end of the first quarter
of the first year of the applicable Performance Period.
4.
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Such performance goals shall, depending on the extent to which they are met
as determined by the Committee, determine the value of the Final Awards paid
out to Participants.
5.5. ADJUSTMENT OF PERFORMANCE GOALS. Once established, performance
goals generally shall not be changed during a Performance Period. However, if
the Committee determines that external changes or other unanticipated
business conditions have materially affected the fairness of the goals, then
the Committee may approve appropriate adjustments to the performance goals
(either up or down) during a Performance Period as such goals apply to
Contingent Awards. However, in the case of Awards to Named Executive
Officers which are intended by the Committee to qualify for the
performance-based Exception, any adjustments shall be made within the time
period described in Article 5.4 to the extent required under Code Section
162(m).
5.6. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. In the event of any change in corporate capitalization,
such as a stock split, or a corporate transaction, such as any merger,
consolidation, separation, including a spin-off, or other distribution of
stock or property of PCFC or a Subsidiary, any reorganization (whether or not
such reorganization comes within the definition of such term in Code Section
368), or any partial or complete liquidation of PCFC or a Subsidiary, or in
the event of unusual or nonrecurring events affecting PCFC or the financial
statements of PCFC or of changes in applicable laws, regulations, or
accounting principles, such adjustments shall be made to the Contingent
Awards and performance goals relating to the then-current Performance Period,
as may be determined to be appropriate and equitable by the Committee, in its
sole discretion, to prevent dilution or enlargement of rights. However, in
the case of Awards to Named Executive Officers which are intended by the
Committee to qualify for the performance-based Exception, any adjustments
shall be made within the time period described in Article 5.4 to the extent
regarded under Code Section 162(m).
ARTICLE 6. DETERMINATION AND PAYMENT OF FINAL AWARDS
6.1. DETERMINATION OF FINAL AWARDS. Subject to the terms and conditions
of the Plan, after the applicable Performance Period has ended, the Committee
shall determine the Final Award to be paid to each Participant based on the
Participant's Contingent Award and the extent to which corresponding
performance goals have been achieved.
Notwithstanding any other provision in the Plan to the contrary, the
Committee may adjust the Final Award payable to a Participant by making any
upward or downward adjustment to the corresponding Contingent Award. Except
as otherwise provided in the case of a Change in Control or other event as
described in Article 10, the Committee may modify or repeal the Contingent
Award of any Participant at any time before the determination of the
Participant's Final Award. However, Contingent Awards which are designed to
qualify for the Performance-Based Exception with respect
5.
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to Named Executive Officers may not be adjusted upward (although the
Committee shall retain the discretion to adjust such Awards downward).
6.2. MAXIMUM AWARDS. The maximum aggregate payout with respect to
Contingent Awards granted in any one fiscal year to any one Participant shall
be $2,000,000.
6.3. PAYMENT. Payment of Final Awards shall be normally made in a
single lump sum as soon practicable following the close of the applicable
Performance Period.
However, a Participant may make a request, on a form approved by the
Committee, for the deferral of all or part of any payment he or she may
receive for a Performance Period, provided that such request is delivered to
the Human Resources Division no later than November 1 of the last year within
the Performance Period. The Committee may accept or reject any such request
for a deferral and may determine the conditions of such deferral at the
Committee's sole discretion.
Payment of Final Awards shall be made normally in the form of cash.
However, the Committee, in its sole discretion, may provide for payment of
Final Awards in the form of PCFC stock, restricted stock, or nonqualified
stock options.
6.4. PARTICIPATION DURING PERFORMANCE PERIOD. Unless determined
otherwise by the Committee and set forth in the Participant's Award
Agreement, in the event that an Eligible Employee's participation commences
or terminates (for reason other than a termination of employment as described
in Article 7) mid-term during a Performance Period, the Participant shall
receive a payout of the Award which is prorated in a manner determined by the
Committee in its sole discretion.
ARTICLE 7. TERMINATION OF EMPLOYMENT
7.1. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment of a Participant
is terminated by reason of death, Disability, or Retirement during a
Performance Period, the Participant shall receive a payout of the Award which
is prorated in a manner determined by the Committee in its sole discretion.
Payments of any prorated Final Awards shall be made at the similar time as
payments are made to Participants who did not terminate employment during the
applicable Performance Period.
7.2. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. Unless determined
otherwise by the Committee and set forth in the Participant's Award
Agreement, in the event that a Participant's employment terminates during a
Performance Period for any reason other than those reasons set forth in
Article 7.1, all Awards for that Performance Period shall be forfeited by the
Participant.
6.
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ARTICLE 8. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a
form prescribed by PCFC, and shall be effective only when filed by the
Participant in writing with PCFC during the Participant's lifetime. In the
absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 9. RIGHTS OF EMPLOYEES
9.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of PCFC or a Subsidiary to terminate any Participant's
employment at any time, nor confer upon any Participant any right to continue
in the employ of the of PCFC or a Subsidiary.
9.2. PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
9.3. NONTRANSFERABILITY. No Award shall be sold, assigned, transferred,
encumbered, hypothecated, or otherwise anticipated by a Participant and,
during the lifetime of a Participant, any payment shall be payable only to
the Participant.
ARTICLE 10. CHANGE IN CONTROL
10.1. TREATMENT OF OUTSTANDING AWARDS. Notwithstanding any other
provision of the Plan to the contrary, in the event of a dissolution or
liquidation of PCFC, or a Change in Control of PCFC, the amount of cash
payable with respect to any Contingent Award for a Performance Period that
ends after such event shall be determined and payable as if the Performance
Period ended on the date of such event and a Final Award shall be calculated
and paid under the Plan in an amount equal to two times the Contingent Award.
The Contingent Award shall be calculated based on the Salary of the
Participant for the shortened Performance Period. The Final Award
calculated under this Article 10 shall be multiplied by a fraction, the
numerator of which shall be the number of full months of the Performance
Period, as adjusted under this Article 10, and the denominator of which shall
be the number of full months in the intended Performance Period. The Final
Award under this Article 10 shall be paid to such Participant within ten days
of the end of the shortened Performance Period.
7.
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10.2. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE IN CONTROL
PROVISIONS. Notwithstanding any other provision of the Plan or any Award
Agreement provision, the provisions of this Article 10 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior
written consent of the Participant with respect to the Participant's
outstanding Awards; provided, however, the Board of Directors, upon
recommendation of the Committee, may terminate, amend, or modify this Article
10 at any time and from time to time prior to the date of a Change in Control.
10.3. POOLING OF INTERESTS ACCOUNTING. Notwithstanding any other
provision of the Plan to the contrary, in the event that the consummation of
a Change in Control is contingent on using pooling of interests accounting
methodology, the Board may take any action necessary, including but not
limited to the amendment or repeal of any Contingent Award, to preserve the
use of pooling of interests accounting.
ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION
11.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board or the
Committee, may, at any time, terminate, amend, modify, or suspend this Plan
provided that no such amendment, modification, suspension, or termination of
the Plan shall in any manner (except as allowable under Section 10.3)
adversely affect in any material way any Final Award previously made under
the Plan without the consent of the Participant holding the Final Award.
11.2. COMPLIANCE WITH CODE SECTION 162(m). At all times when Code
Section 162(m) is applicable, all Awards granted under this Plan shall comply
with the requirements of Code Section 162(m). However, in the event the
Committee determines that such compliance is not desired with respect to the
initial grant of any Award under the Plan, then compliance with Code Section
162(m) shall not apply and be required for such Award. In addition, in the
event that changes are made to Code Section 162(m) to permit greater
flexibility with respect to any Award available under the Plan, the Committee
may, subject to this Article 11, make any adjustments it deems appropriate.
ARTICLE 12. WITHHOLDING
PCFC shall have the power and the right to deduct, withhold, or require
a Participant to remit to PCFC an amount sufficient to satisfy federal,
state, and local taxes, domestic or foreign, required by law or regulation to
be withheld with respect to any taxable event arising as a result of this
Plan.
ARTICLE 13. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by PCFC against and from
any loss, cost, liability, or expense that
8.
<PAGE>
may be imposed upon or reasonably incurred by him or her in connection with
or resulting from any claim, action, suit, or proceeding to which he or she
may be a party or in which he or she may be involved by reason of any action
taken or failure to act under the Plan and against and from any and all
amounts paid by him or her in settlement thereof, with PCFC's approval, or
paid by him or her in satisfaction of any judgment in any such action, suit,
or proceeding against him or her, provided he or she shall give PCFC an
opportunity, at its own expense, to handle and defend the same before he or
she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights
of indemnification to which such persons may be entitled under PCFC's
articles of incorporation or bylaws, as a matter of law, or otherwise, or any
power that PCFC have to indemnify them or hold them harmless.
ARTICLE 14. SUCCESSORS
All obligations of PCFC under the Plan with respect to Awards granted
hereunder shall be binding on any successor to PCFC, whether the existence of
such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business
and/or assets of PCFC.
ARTICLE 15. LEGAL CONSTRUCTION
15.1. GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
15.2. SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
15.3. REQUIREMENTS OF LAW. The granting of Contingent Awards and the
payment of Final Awards under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental
agencies or national securities exchanges as may be required.
15.4. GOVERNING LAW. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Delaware.
9.
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[LOGO]
PROXY SERVICES
P.O. BOX 9079
FARMINGDALE, NY 11735-9769
This proxy will be voted as directed. If no direction is indicated, it will
be voted as recommended by the Board of Directors. If no choice is specified
for proposal number 1, the proxy will be voted for the election of all
nominees. Said proxies are authorized to vote in their discretion with respect
to other matters which may come before the meeting.
Please date, sign exactly as your name appears on the form and mail the proxy
promptly. When signing as an attorney, executor, administrator, trustee or
guardian, please give your full title. If shares are held jointly, both
owners must sign.
PACIFIC CENTURY FINANCIAL CORPORATION
130 MERCHANT STREET, HONOLULU, HAWAII 96813
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS -- APRIL 23, 1999
THIS PROXY IS SOLICITED BY MANAGEMENT BY ORDER OF
THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints David A. Heenan, Herbert M.
Richards, Jr., Mary G. F. Bitterman, Stuart T. K. Ho, and Fred E. Trotter, and
each of them, the proxy of the undersigned, with full powers of substitution,
to vote all common stock of Pacific Century Financial Corporation, which the
undersigned may be entitled to vote at the annual meeting of shareholders of
the corporation to be held on April 23, 1999, or any adjournment thereof.
Shareholders of record of Pacific Century common stock at the close of
business February 23, 1999 are entitled to attend the meeting and vote on
business brought before it.
We look forward to seeing you at the meeting. However, in the event that you
are unable to attend the meeting, your shares may still be voted if you
complete, sign, date and return the enclosed proxy card in the enclosed
postage-paid return envelope. You may also vote by telephone or
electronically via the Internet. The accompanying proxy statement provides
certain background information that will be helpful in deciding how to cast
your vote on business transacted at the meeting.
by Order of the Board Directors
CORI C. WESTON
Vice President and Secretary
Pacific Century Financial Corporation
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
PACCEN KEEP THIS PORTION FOR YOUR RECORD
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
PACIFIC CENTURY FINANCIAL CORPORATION
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR ALL OF THE FOLLOWING PROPOSALS:
VOTE ON PROPOSALS FOR WITHHOLD FOR ALL
1. To elect the following Class I Directors for ALL ALL EXCEPT
terms expiring in 2002
(01) Peter D. Baldwin, (02) Richard J. Dahl,
(03) Donald M. Takaki / / / / / /
To withhold authority to vote, mark "For All Except"
and write the nominee's number on the line below.
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FOR AGAINST ABSTAIN
2. To approve an Amendment to Article VII, Section E of
the Company's Certificate of Incorporation / / / / / /
3. To approve an Amendment to Article VIII, Section A
of the Company's Certificate of Incorporation / / / / / /
4. To approve an Amendment to the Pacific Century
Financial Corporation Stock Option Plan of 1994 (the
"Option Plan") to increase the number of shares of
common stock available for grant under the Option
Plan. / / / / / /
5. To approve certain performance-based compensation
provisions of the Option Plan for purposes of Section
162(m). / / / / / /
6. To approve certain material terms of the One-Year
Incentive Plan for purposes of Section 162(m). / / / / / /
7. To approve certain material terms of the Long-Term
Incentive Plan for purposes of Section 162(m). / / / / / /
8. To elect Ernst & Young LLP as Independent Auditor. / / / / / /
9. To transact any other business that may be properly
brought before it. / / / / / /
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Signature (PLEASE SIGN WITHIN BOX) Date
SUBMIT YOUR PROXY BY PHONE
1-800-690-6903
Use any touch-tone telephone to submit your proxy 24 hours a day, 7 days a
week. Have your proxy card in hand when you call. You will be prompted to
enter the 12-digit Control Number which is located below. Your voting
instructions will be repeated to you and you will be asked to confirm them.
SUBMIT YOUR PROXY BY INTERNET
www.proxyvote.com
Use the Internet to submit your proxy 24 hours a day, 7 days a week. Have
your proxy card in hand when you access the website. You will be prompted to
enter the 12-digit Control Number which is located below to obtain your
records and create an electronic ballot. You will then be asked to confirm
your submission.
SUBMIT YOUR PROXY BY MAIL Mark, sign and date your proxy card and return it
in the postage-paid envelope we've provided or return it to Pacific Century
Financial Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
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Signature (Joint Owners) Date
