<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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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 elect one Class III Director for a term expiring in 2001.
3. To approve an Amendment to the Company's Certificate of Incorporation to
reduce the percentage of shares required to remove a director for cause.
4. To approve an Amendment to the Company's Certificate of Incorporation to
permit ten percent of the shareholders to call a special meeting.
5. 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.
6. To approve certain performance-based compensation provisions of the
Option Plan for purposes of Section 162(m).
7. To approve certain material terms of the One-Year Incentive Plan for
purposes of Section 162(m).
8. To approve certain material terms of the Long-Term Incentive Plan for
purposes of Section 162(m).
9. To elect an Independent Auditor.
10. 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 on 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
80,530,016 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 (PROPOSALS 1 AND 2): 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 3 AND
4): To be adopted, Proposals 3 and 4 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., LLP 6,185,000 7.7%
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 6,185,000 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 4,611,740 shares, and shared
dispositive power over 6,185,000 shares.
(2) State Farm Mutual Automobile Insurance Company and its related entities have
sole voting and dispositive power over the 5,061,312 shares.
2
<PAGE>
PROPOSALS 1 AND 2: ELECTION OF DIRECTORS
The Certificate of Incorporation of Pacific Century provides 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 increased the
number of directors from 11 to 13 to provide for a greater diversity of skills
and experience on the Board. As discussed below, the Board recommends that Mr.
Fredericks and Mr. Stein be elected to the new positions.
Listed below are the four persons who have been nominated as Class I
directors to serve 3-year terms to expire in 2002 and one person who has been
nominated as a Class III director to serve a 2-year term to expire in 2001. With
the exception of Mr. Fredericks (Class I nominee) and Mr. Stein (Class III
nominee) all of the nominees are currently serving as directors of Pacific
Century. The Board recommends the election of Mr. Fredericks and Mr. Stein to
the Board. Both nominees will further enhance the Board's geographic diversity
and augment existing expertise and experience in the areas of technology,
strategic development and investment banking. Mr. Fredericks and Mr. Stein are
residents of the State of California, a significant market of the Company's
subsidiary, Pacific Century Bank, N.A. Mr. Fredericks was formerly Senior
Managing Director at NationsBanc Montgomery Securities. Mr. Fredericks joined
Montgomery in 1977 as a Security Analyst covering the banking industry until
1995, the last 17 years of which he was a member of Institutional Investor
Magazine's All-American Research Team. In 1995, until February 1999, he was
director of NationsBanc Montgomery Securities' Investment Banking Financial
Services and Financial Technology Group. He has played a leading role in
numerous mergers and acquisitions, including 5 of the 20 largest bank
transactions completed. Mr Fredericks is a past president of the Bank and
Financial Analysts Society and is the author of "Darwinian Banking". Mr. Stein
was formerly vice chairman of technology and operations at BankAmerica
Corporation. Mr. Stein was responsible for the corporation's technology
development, computer operations, check processing and vault functions and
environmental policies and programs. He was a member of the bank's Office of the
Chairman and Vice Chairman of the Capital Budget Committee. Mr. Stein is
currently president of Sonoma Mountain Ventures, a company that provides
strategic and technology consulting. Mr. Stein has over 30 years experience in
the area of technology and operations as well as strategic and tactical
planning, margin growth and re-engineering of financial institutions. 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.
3
<PAGE>
NOMINEES FOR ELECTION AS CLASS I DIRECTORS--TERMS EXPIRE IN 2002
<TABLE>
<CAPTION>
SHARES OF
PACIFIC CENTURY
COMMON STOCK
NAME, AGE, AND YEAR PRINCIPAL OCCUPATION(S) OWNED AS OF
FIRST ELECTED AS DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD DECEMBER 31, 1998
- ------------------------- ----------------------------------------- ------------------------ -----------------
<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 Bank of Various subsidiaries and 518,668(2)
47; 1995 Hawaii 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).
J. Richard Fredericks; Private investor and consultant; former Bank of Hawaii --
53 Senior Managing Director and Director of
Investment Banking Financial Services and
Financial Technology Group for
NationsBanc Montgomery Securities from
January 1995 to February 1999; Research
analyst covering the banking and
financial services industry for
NationsBanc Montgomery Securities from
1977 to January 1995.
</TABLE>
4
<PAGE>
NOMINEE FOR ELECTION AS CLASS III DIRECTOR--TERM EXPIRES IN 2001
<TABLE>
<CAPTION>
SHARES OF
PACIFIC CENTURY
COMMON STOCK
NAME, AGE, AND YEAR PRINCIPAL OCCUPATION(S) OWNED AS OF
FIRST ELECTED AS DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD DECEMBER 31, 1998
- ------------------------- ----------------------------------------- ------------------------ -----------------
<S> <C> <C> <C>
Martin A. Stein President, Sonoma Mountain Venture, Bank of Hawaii; Sequest --
58 (strategic and technology consulting and Computers
venture capital) since October 1998; Vice
Chair of BankAmerica Corp. from 1990 to
October 1998, responsible for Technology,
Operations, Payments and Purchasing.
</TABLE>
The foregoing persons will be nominated for election as Class I and Class
III 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.
5
<PAGE>
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS--TERMS EXPIRE IN 2000
<TABLE>
<CAPTION>
SHARES OF
PACIFIC CENTURY
COMMON STOCK
NAME, AGE, AND YEAR PRINCIPAL OCCUPATION(S) OWNED AS OF
FIRST 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 the Bank of and affiliates of
Hawaii since August 1994; President Pacific Century.
of Pacific Century and Bank March
1989 to July 1994; Executive Vice
President of Pacific Century August
1980 to February 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>
6
<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 the affiliates of Pacific
Bank of Hawaii March 1989 to July Century.
1994; President of Pacific Century
and the Bank of Hawaii 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
Pacific Century Profit Sharing Plan, and 404,624 shares that Mr. Dahl has
the right to acquire within 60 days through the exercise of stock options.
7
<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.
8
<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 6 and for Mr. Dahl as a nominee for Class I director on page 4.
<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)
51 General Manager Consumer Marketing/ Product Development for
Westpac Banking Corporation from August 1993 to November 1997;
Senior Vice President, Corporate Planning Group, Wells Fargo and
Company from 1991 to August 1993.
Directors, nominees and 1,699,922(e)
executive officers as
a group (17 persons)
</TABLE>
- ------------------------
(a) Each of the 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 8,
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.
9
<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 current 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 received an annual retainer of
$3,000 and $2,500, respectively, and for 1999 will receive $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.
10
<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, Jr.
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
11
<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 5, 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 Financial Corporation, 130 Merchant Street,
Honolulu, Hawaii 96813.
12
<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) ($)(6)
- ------------------- --------- ----------- --------- --------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lawrence M. 1998 735,000 200,000 -- 200 150,000 0
Johnson.......... 1997 700,000 80,151 -- 200 75,000 0
Chairman of the 1996 652,917 491,973 -- 200 100,000 0
Board and Chief
Executive Officer
Richard J. Dahl.... 1998 525,000 175,000 -- 200 120,000 0
President and Chief 1997 475,008 48,950 -- 200 60,000 0
Operating Officer 1996 443,750 300,929 -- 200 80,000 0
Alton T. Kuioka.... 1998 325,008 150,000 -- 200 55,000 0
Vice Chair and 1997 300,000 30,915 -- 200 32,500 0
Chief Lending 1996 271,567 184,234 -- 40,000 0
Officer
Mary P. Carryer.... 1998 325,008 150,000 -- 55,000 0
Vice Chair 1997 50,000 0 82,500 0
1996 0 0 -- 0 0
David A. Houle..... 1998 255,000 76,500 -- 25,000 0
Executive Vice 1997 236,256 58,420 -- 18,000 0
President, 1996 222,917 101,282 -- 20,000 0
Treasurer and
Chief Financial
Officer
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) ($)(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 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 22 and 23, 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
pages 21 and 22.
(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.
13
<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 22.
(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 pages 17 and 18.
<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% were 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.
14
<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 of 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, securities 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
15
<PAGE>
the grantee's 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,
after adjustment for the 100% stock dividend paid on December 12, 1997, 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
16
<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 1995 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
17
<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
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<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 14. A change in
control will also cause the lapse of restrictions on stock issued under the
Director Stock Program, and (as described on page 11) 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.
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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 13, 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 14 entitled "STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR", in 1998 the
Committee awarded stock options under Pacific Century's employee stock plans.
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.
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.
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<PAGE>
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 the 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 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 Asian Rim financial volatility.
22
<PAGE>
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 the one-year or three-year plan. 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 a total number of branch 27
closures
- 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 level of responsibility
with respect to the strategic direction and financial and operational results of
the Company.
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 Plan, determines whether the options are
incentive stock options or nonqualified stock options.
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<PAGE>
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
20-21. The specific target levels for each element of compensation were the same
as those shown on pages 20-22 for all Pacific Century executive officers.
Pacific Century's One-Year Incentive Plan, the Growth Plan and option grants
make a substantial percentage of 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
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<PAGE>
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 20-21 and the Company's performance in 1997. Based on those
considerations, the Committee increased Mr. Johnson's salary effective January
1, 1998 by 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 21-22, 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 1998 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 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
25
<PAGE>
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.
26
<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.
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>
27
<PAGE>
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Certain transactions involving loans, deposits and certificates of deposit,
other money market instruments, sales of commercial paper, 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.
28
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PROPOSAL 3: AMENDMENT OF PACIFIC CENTURY FINANCIAL CORPORATION
CERTIFICATE OF INCORPORATION TO REDUCE THE PERCENTAGE
OF SHARES REQUIRED TO REMOVE A DIRECTOR FOR CAUSE
Pacific Century's Board of Directors has approved, and recommends that
shareholders approve, an amendment to Article VII, Section E 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, to a majority of the voting power of then outstanding
shares. This is intended to increase the power of shareholders to remove a
director for cause. The language in Article VII, Section E 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 4: AMENDMENT OF PACIFIC CENTURY FINANCIAL CORPORATION
CERTIFICATE OF INCORPORATION TO PERMIT TEN PERCENT
OF THE SHAREHOLDERS TO CALL A SPECIAL MEETING
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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
29
<PAGE>
PROPOSAL 5: 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
that may be 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 6. 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 42.
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 6) 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,
30
<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 7 and 8). 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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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 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 6, 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 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 "STOCK
OPTION/SAR GRANTS IN LAST FISCAL YEAR", "LONG-TERM INCENTIVE PLAN--AWARDS IN
LAST FISCAL YEAR" and "REPORT OF THE COMPENSATION COMMITTEE--Stock Option Plan,"
on pages 14, 15 and 23.
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PROPOSAL 6: 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 Plan 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 5, the total authorized pool is presently 5,750,000 shares, and
if Proposal 5 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 8. 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 5, 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 5.
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 shareholder 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 7: 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 42 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 21.
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. 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 that context, 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 8: 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 42.
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 22.
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. 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 within 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 that context, 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
40
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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>
41
<PAGE>
PROPOSAL 9: 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 to or
received by the Corporate Secretary, Pacific Century Financial Corporation, 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 FINANCIAL CORPORATION, 130
MERCHANT STREET, HONOLULU, HAWAII 96813. INFORMATION ABOUT THE COMPANY MAY ALSO
BE FOUND ON-LINE AT: (WWW.BOH.COM).
42
<PAGE>
[LOGO]
PROXY SERVICES
P.O. BOX 9079
FARMINGDALE, NY 11735-9769
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 to the right. 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 to the right 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.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
PACCEN KEEP THIS PORTION FOR YOUR RECORD
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
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
- -------------------------------------------------------------------------------
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, (04) J. Richard Fredericks / / / / / /
To withhold authority to vote, mark "For All Except"
and write the nominee's number on the line below.
- ----------------------------------------
2. To elect the following Class III Director for term
expiring in 2001 - (05) Martin A. Stein. / / / / / /
3. To approve an Amendment to the Company's Certificate
of Incorporation to reduce the percentage of shares
required to remove a director for cause. / / / / / /
4. To approve an Amendment to the Company's Certificate
of Incorporation to permit ten percent of the
shareholders to call a special meeting. / / / / / /
5. 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. / / / / / /
6. To approve certain performance-based compensation
provisions of the Option Plan for purposes of Section
162(m). / / / / / /
7. To approve certain material terms of the One-Year
Incentive Plan for purposes of Section 162(m). / / / / / /
8. To approve certain material terms of the Long-Term
Incentive Plan for purposes of Section 162(m). / / / / / /
9. To elect Ernst & Young LLP as Independent Auditor. / / / / / /
10. To transact any other business that may be properly
brought before the meeting. / / / / / /
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.
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 numbers 1 & 2, 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.
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Signature (PLEASE SIGN WITHIN BOX) Date
- ------------------------------------------------------
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Signature (Joint Owners) Date
