SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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o | Soliciting Material Pursuant to §240.14a-12 |
Bank of Hawaii Corporation | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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Your VOTE is important!
Notice of 20042005
Annual Meeting of Shareholders
and Proxy Statement
Meeting Date: April 30, 200429, 2005
Bank of Hawaii Corporation
130 Merchant Street
Honolulu, Hawaii 96813
BANK OF HAWAII CORPORATION
130 Merchant Street
Honolulu, Hawaii 96813
March 18, 200417, 2005
Dear Shareholder:
The 20042005 Annual Meeting of shareholders of Bank of Hawaii Corporation ("Bank of Hawaii" or the "Company") will be held on Friday, April 30 200429, 2005 at 8:30 a.m. on the Sixth Floor of the Bank of Hawaii Building, 111 South King Street, Honolulu, Hawaii. Each shareholder may be asked to present valid picture identification. Shareholders holding stock in brokerage accounts will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date.
The Notice of Meeting and Proxy Statement accompanying this letter describe the business we will consider and vote upon at the meeting. A report to shareholders on the affairs of Bank of Hawaii also will be given, and shareholders will have the opportunity to discuss matters of interest concerning the Company.Bank of Hawaii Corporation.
For reasons explained in the accompanying Proxy Statement, the Board of Directors recommends that you vote FOR all proposals.
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 before its use.
On behalf of the Board of Directors, thank you for your cooperation and support.
Sincerely, | ||
ALLAN R. LANDON Chairman of the Board, President and Chief Executive Officer |
Sincerely,
MICHAEL E. O'NEILLChairman of the Board andChief Executive Officer
| Page | |||
---|---|---|---|---|
Notice of | 1 | |||
Proxy Statement | 2 | |||
Questions and Answers About the Proxy Materials and the Annual Meeting | 2 | |||
Proposal 1: Election of Directors | 6 | |||
Board of Directors | 6 | |||
Beneficial Ownership | 9 | |||
Corporate Governance, | 11 | |||
Board Committees and Meetings | 14 | |||
Audit Committee Report | 17 | |||
Executive Compensation | 18 | |||
Report of the Compensation Committee | 18 | |||
Summary Compensation Table | ||||
24 | ||||
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values | ||||
Long-Term Incentive Plans—Awards In Last Fiscal Year | ||||
Pension Plan Table and Retirement Plan | ||||
Change-in-Control Arrangements | ||||
Performance Graph | ||||
Certain Transactions with Management and Others | ||||
Section 16(a) Beneficial Ownership Reporting Compliance | ||||
Proposal 2: Approval of Bank of Hawaii Corporation | ||||
Proposal 3: | 33 | |||
Other Business | 34 | |||
Appendix A. Bank of Hawaii Corporation Audit Committee Charter | ||||
Appendix B. | ||||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held April 30, 200429, 2005
To Our Shareholders:
The Annual Meeting of shareholders of Bank of Hawaii Corporation ("Bank of Hawaii" or the "Company") will be held on Friday, April 30, 2004,29, 2005, 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:
The Board of Directors recommends that shareholders vote FOR all proposals.
Shareholders of record of Bank of Hawaii Corporation common stock (NYSE: BOH) at the close of business on March 1, 2004February 28, 2005 are entitled to attend the meeting and vote on the business brought before it.
We look forward to seeing you at the meeting. However, if you cannot 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 also may vote by telephone or electronically via the Internet. The accompanying proxy statement, also available online atwww.boh.com, 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
CORI C. WESTON
Senior Vice President and Corporate Secretary
Bank of Hawaii Corporation
Honolulu, Hawaii
Dated: March 18, 200417, 2005
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.
The Board of Directors (the "Board") of Bank of Hawaii Corporation ("Bank of Hawaii" or the "Company") is soliciting the enclosed proxy for the Company's 20042005 annual meeting. The proxy statement, proxy card, and the Company's Annual Report to Shareholders and Annual Report on Form 10-K are first being distributed to the Company's shareholders on or about March 18, 2004.17, 2005.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
Even if you plan to attend the annual meeting, we recommend you also submit your proxy so your vote will be counted if you later decide not to attend the annual meeting.
and mailing the proxy card in the prepaid and addressed envelope we have provided you. Please refer
2
to the summary instructions below and those on your proxy card, or, for shares held in street name, the voting instruction card sent by your broker or nominee.
Mail. You may mail your proxy by signing your proxy card or, for shares held in street name, the voting instruction card included by your broker or nominee, and mailing it in the enclosed, postage prepaid and addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board of Directors.the Board.
Internet. If you have Internet access, you may submit your proxy from anywhere, following the "Vote by Internet" instruction on your proxy card.
Telephone. If you live in the United States, you may submit your proxy by following the "Vote by Phone" instructions on the proxy card.
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telephone, the Internet, facsimile, or other means. None of those employees will receive any additional or special compensation for doing that task. We have retained Georgeson Shareholder Communications, Inc., 17 State Street, New York, New York 10004 to assist in the solicitation of proxies for an estimated fee of $6,500,$7,500, plus reasonable out-of-pocket costs and expenses. We will, upon request, reimburse brokers or other nominees for their reasonable out-of-pocket expenses in forwarding proxy materials to their customers who are beneficial owners and obtaining their voting instructions.
Potential nominees will be evaluated based on their independence, within the meaning of the Company's Corporate Governance Guidelines and the rules of the NYSE.New York Stock Exchange ("NYSE"). Candidates to be nominated as a director, including those submitted by shareholders, are selected based on, among other criteria, their integrity, informed judgment, financial literacy, high performance standards, accomplishments and reputation in the community, experience, skill sets, ability to commit adequate time to Board and committee matters, and to act on behalf of shareholders.
The criteria also include a determination of the needs of the Board and of the individuals' personal qualities and characteristics with those of the other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company and its shareholders. The Board should encompass a broad range of skills, expertise, industry knowledge, diversity of viewpoints, background, and business and community contacts relevant to the Company's business.
Candidates to be considered for nomination by the Nominating and Corporate Governance Committee at the 20052006 shareholder meeting must be presented in writing to the Corporate Secretary on or before November 18, 20042005 at 130 Merchant Street, Honolulu, Hawaii 96813.
Proposals To Be Included In The Proxy Statement and Voted On At The Meeting. Proposals that shareholders wish to have included in the proxy statement for the 20052006 annual meeting of shareholders must be made in accordance with SEC Rule 14a-8.14a-8 under the Securities Exchange Act of 1934. Proposals
must be received by the Company's Corporate Secretary on or before November 18, 20042005 at the above address.
Proposals To Be Voted On At The Meeting Only. Under our By-Laws, for a shareholder to bring a proposal before the 20052006 annual meeting, Bank of Hawaii must receive the written proposal no later than 80 days nor earlier than 90 days before the first anniversary of the 20042005 annual meeting; in other words, no later than February 9, 20052006 and no earlier than January 30, 2005.2006. (Please refer to
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Section 1.12 of Bank of Hawaii's By-Laws.) The proposal also must contain the information required in the By-Laws. If you wish to make one or more nominations for election to the Board, the required information includes, among other things, the written consent of such individual to serve as director and (i) the name, age, business address and, if known, residence address of each nominee proposed in person, (ii) the principal occupation or employment of each nominee, and (iii) the number of shares of Bank of Hawaii stock each nominee beneficially owns. These advance notice provisions are separate from the requirements a shareholder must meet to have a proposal included in the proxy statement under SECSecurities Exchange Commission ("SEC") rules. By complying with these provisions, a shareholder may present a proposal in person at the meeting, but will not be entitled to have the proposal included in the Company's proxy statement. In addition, persons holding proxies may exercise discretionary authority to vote against such proposals.
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PROPOSAL 1: ELECTION OF DIRECTORS
BOARD OF DIRECTORS
The Company's Certificate of Incorporation provides that the Board of Directors shall consist of not less than 3 nor more than 15 persons.persons as established from time to time by resolution of the Board. The Board ishas fixed the number of directors at twelve, divided into three classes, with the terms of office of one class expiring each year. Nominees for election are described below. Each nominee has consented to serve. All nominees are currently serving on the Company's Board with the exception of Ms. S. Haunani Apoliona (Class II), Mr. Michael J. Chun (Class I), Mr. Allan R. Landon (Class II) and Ms. Barbara J. Tanabe (Class III); who currently serve on the Board of Bank of Hawaii (the "Bank"), the Company's only subsidiary. These individuals have been nominated to fill four vacancies on the Board. In December 2003, the Board approved an increase in the number of directors from nine to thirteen as of the April 30, 2004 shareholder meeting and is recommending the aforementioned nominees to fill the vacancies. The nominees were originally proposed by the Nominating and Corporate Governance Committee. If a nominee is not a candidate at the time of the annual meeting, then the proxy holders plan to vote for the remaining nominees and other persons as they may determine.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
NOMINEES FOR ELECTION FOR CLASS IIII DIRECTORS TERMS EXPIRING IN 2008
Name, Age, and Year First Elected as Director | Principal Occupation(s) During Past 5 Years | Other Public Directorships Held | ||
---|---|---|---|---|
Peter D. Baldwin; 67; 1991 | Owner of Piiholo Ranch, LLC (a cattle ranching and eco-tourism company) since 2001; President of Baldwin Pacific Corporation (livestock maintenance and sales on Maui) since 1965; President, Baldwin Pacific Properties, Inc. (a real estate development company) since 1988; and Director and Chief Executive Officer of Orchards Hawaii, Inc. (a fruit juice marketing company) since 1986. | — | ||
Michael J. Chun; 61; 2004 | President and Headmaster of Kamehameha Schools—Kapalama (a college preparatory school serving children of Hawaiian ancestry) since 2001; President of Kamehameha Schools from 1998-2001; Vice President of Park Engineering (an environmental engineering firm) from 1985-1988. | Alexander & Baldwin, Inc. | ||
Robert Huret; 59; 2000 | Managing Member of Financial Technology Management (a venture capital management company) since 1998; Senior Consultant, Financial Services Group at Montgomery Securities from 1984-1998. | — | ||
Donald M. Takaki; 63; 1997 | Chairman and Chief Executive Officer, HawkTree International, Inc. (a diversified holding company engaged in transportation, leasing, business records management and real estate) since 1999; Chairman and Chief Executive Officer, Island Movers, Inc. (a transportation service company) since 1964; President, Transportation Concepts, Inc. (a transportation leasing company) since 1988; and General Partner, Don Rich Associates (a real estate development company) since 1979. | — | ||
CLASS III DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2007
Name, Age, and Year First Elected as Director | Principal Occupation(s) During Past 5 Years | Other Public Directorships Held | ||
---|---|---|---|---|
Mary G.F. Bitterman; | President, the Bernard Osher Foundation since 2004, Director, Osher Lifelong Learning Institute (a non-profit organization dedicated to providing continuing education opportunities through affiliations with colleges and universities) since 2003; President and Chief Executive Officer, The James Irvine Foundation (an organization administering the assets of the charitable trust of James Irvine) from 2002-2003; President and Chief Executive Officer, KQED, Inc. (a public broadcasting center) from 1993-2002. | |||
Martin A. Stein; | Chief Executive Officer and President, Sonoma Mountain Ventures, LLC (strategic and technology consulting and venture capital) since October 1998; Vice Chair of BankAmerica Corporation (a banking company) responsible for Technology, Operations, Payments, and Purchasing from 1990-1998. | |||
Barbara J. Tanabe; | Owner and Partner, Ho'akea Communications, LLC (a communication and community building company) since 2003; Owner and Partner, Ho'akea (a public affairs company) from 2001-2003; Managing Director, Pacific Century Inc. (a business consulting company) from 1995; President and Chief Executive Officer, Hill and Knowlton Hawaii (a public relations company) from | |||
Robert W. Wo, Jr.; | President and Director, C.S. Wo & Sons, Ltd. (a furniture retailer) since 1984. | |||
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CLASS II DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2006
Name, Age, and Year First Elected as Director | Principal Occupation(s) During Past 5 Years | Other Public Directorships Held | ||
---|---|---|---|---|
S. Haunani Apoliona; | Chairperson and Trustee, Office of Hawaiian Affairs ("OHA") (entity established by the Constitution of the State of Hawaii to improve the conditions and protect the entitlements of Native Hawaiians since 2000; Trustee, OHA from 1996-2000; | |||
Clinton R. Churchill; | Trustee, The Estate of James Campbell (an organization administering the assets held in trust under the will of James Campbell) since 1992 (Chairman 1998, 2000, 2004); Chief Executive Officer of The Estate of James Campbell from 1988-1992. | |||
David A. Heenan; | Trustee, The Estate of James Campbell (an organization administering the assets held in trust under the will of James Campbell) since 1995 (Chairman 1999, 2001). | Maui Land & Pineapple Co., Inc. | ||
Allan R. Landon; | Chairman, Chief Executive Officer and President since September 2004; President and Chief Operating Officer from April 2004-September 2004; President, Chief Financial Officer and Treasurer of the Company, and President and Chief Financial Officer of the Company's subsidiary, the Bank of Hawaii ("the Bank"), since 2003; Vice Chairman, Chief Financial Officer and Treasurer of the Company, and Vice Chairman and Chief Financial Officer of the Bank from 2001-2003; Executive Vice President and Director of Risk Management for the Company and Bank from | |||
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At the close of business on Notes to Table on Amount and Nature of Beneficial Ownership All stock is subject to sole voting and investment power unless otherwise specified. According to information furnished by it, Goldman Sachs Asset Management ("GSAM") is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended. As of December 31, 2004, GSAM, in its capacity as investment adviser, may be deemed to have beneficial ownership of 2,837,906 shares of Bank of Hawaii common stock owned by numerous investment advisory clients, none known to have more than five percent of the class. As of December 31, 2004, GSAM had sole power to vote or to direct the vote over 1,615,858 of those shares, and sole power to dispose or to direct the disposition of 2,837,906 shares. Corporate Governance Guidelines The Company Board Governance and Attendance The The Board has four standing committees: the Audit Committee, the Human Resources and Compensation Committee (the "Compensation Committee"), the Executive & Strategic Planning Committee (the "Executive Committee"), and the Nominating and Corporate Governance Committee (the "Nominating & Governance Committee"). The committee charters are posted on the Company's website previously given. Ms. Bitterman has served as the Lead Independent Director since 1999, and is Vice Board Independence The Board has a majority of independent directors as defined by the listing standards of the New York Stock Exchange ("NYSE") and the the end of such employment relationship. Employment as an interim Chairman or CEO shall not disqualify a director from being considered independent following that employment. For purposes of these independence standards, an "immediate family member" includes the director's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) that shares the director's home. Code of Business Conduct & Ethics The Company has earned its reputation as a respected leader in the communities it serves and in the financial services industry by conducting business in an ethical, responsible and professional manner. The Company is proud of the high standards of quality and service, which have been our hallmark through the years. These qualities represent fundamental business practices and apply to all directors, officers and employees. All directors owe a duty of loyalty to the Company. This duty mandates that, in the course of carrying out the duties and responsibilities of that position, the best interest of the Company and its shareholders take precedence over any personal interests of the director. The Company and Board have adopted a Code of Business Conduct and Ethics for Directors, Officers and Employees (the "Code of Conduct and Ethics"), which is posted on the Company's website previously provided. The Code of Conduct and Ethics addresses the professional, honest and candid conduct of each director, officer and employee; conflicts of interest, disclosure process, compliance with laws, rules and regulations, (including insider trading laws); corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets; and encourages the reporting of any illegal or unethical behavior. The Company will disclose any amendments to, or waivers, of the Code of Conduct and Ethics for directors or executive officers on the Company's website. Shareholders may obtain a printed copy by contacting the Corporate Secretary at the address previously provided. Board Compensation Directors' fees are paid only to directors who are not employees of the Directors who are not employed by the Company Directors Deferred Compensation Plan The Company maintains a Directors Deferred Compensation Plan under which each director may elect to defer either all of his or her annual retainer and meeting fees, or all of his or her annual retainer. Distribution of the deferred amounts will begin as of the first day of the first month after the participating director ceases to be a director of the Company. 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 they are valued based on corresponding investments in Pacific Capital Funds or Bank of Hawaii stock, as selected by the participants. Director Stock Program The Company has a Director Stock Compensation Program ("Director Stock Program") that will expire on December 31, 2005. The Company is submitting an amendment and restatement of the Director Stock Compensation Program ("Restated Director Stock Plan") for shareholder approval at the annual meeting. Further information regarding the Restated Director Stock Plan is provided on pages 31-33. A copy of the Restated Director Stock Plan is attached as Appendix B. Under the current Director Stock Program, the Company annually grants 200 shares of restricted common stock ("Restricted Shares") and an option for 3,000 common shares to each non-employee director. The exercise price of the options is based on the closing market price of the shares on the date that the options were granted. Each option expires ten years from the date of grant and is generally not transferable. If an optionee ceases to serve as a director for any reason other than death or disability, any unexercised options terminate. Upon the exercise of options, the shares received ("Option Shares") are nontransferable during the term of the director. If an optionee ceases to serve as a director prior to the end of his or her term, for any reason other than death or disability, the Option Shares will be redeemed by the Company at a price equal to the exercise price. The Restricted Shares are also nontransferable during the term of the director. If an optionee ceases to serve as a director prior to the end of his or her term, for any reason other than death, disability, removal without cause, or change of control, the Restricted Shares are forfeited. The following information provides an overview of the primary responsibilities of the Board's standing committees and committee membership. The Board has affirmatively determined that all of the members of the Audit, Compensation and Nominating & Governance Committees ("Board Committees") meet the standards of the NYSE and the Company's Governance Guidelines for independence. The Board Copies of the Board Committee charters can be viewed on the Company's Investor Relations website atCLASS I DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2005Name, Age, and YearFirst Elected as DirectorPrincipal Occupation(s)During Past 5 YearsOther PublicDirectorships HeldPeter D. Baldwin;66; 1991Owner of Piiholo Ranch, LLC (a cattle ranching and eco-tourism company) since 2001; President of Baldwin Pacific Corporation (livestock maintenance and sales on Maui) since 1965; President, Baldwin Pacific Properties, Inc. (a real estate development company) since 1988; and Director and Chief Executive Officer of Orchards Hawaii, Inc. (a fruit juice marketing company) since 1986.–Michael J. Chun;60President and Headmaster of Kamehameha Schools (a college preparatory school serving children of Hawaiian ancestry) since 2001; President of Kamehameha Schools from 1998-2001; Vice President of Park Engineering (an environmental engineering firm) from 1985-1988. Director of the Bank since 1993.Alexander & Baldwin, Inc.Robert A. Huret;58; 2000Managing Member of Financial Technology Management (a venture capital management company) since 1998; Senior Consultant, Financial Services Group at Montgomery Securities from 1984-1998.–Donald M. Takaki;62; 1997Chairman and Chief Executive Officer, Island Movers, Inc. (a transportation service company) since 1964; President, Transportation Concepts, Inc. (a transportation leasing company) since 1988 and General Partner, Don Rich Associates (a real estate development company) since 1979.–8December 31, 2003,February 18, 2005, Bank of Hawaii had 54,928,48053,463,015 shares of its common stock outstanding. As of December 31, 2003,February 18, 2005, this table shows how much Bank of Hawaii common stock was owned by (i) by its directors and nominees, and(ii) the Chief Executive Officer and("CEO"), the four other persons who were the most highly compensated executive officers of Bank of Hawaii at December 31, 20032004, and the former CEO of the Bank of Hawaii during 2004 (the "named executive officers"), and (ii)(iii) by one companytwo companies that isare known to us to own beneficially 5% or more than 5 percent of Bank of Hawaii's common stock. Unless otherwise indicated and subject to applicable community property and similar statutes, all persons listed below have sole voting and investment power over all shares of common stock beneficially owned. Share ownership has been computed in accordance with SEC rules and does not necessarily indicate beneficial ownership for any other purpose.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
Name Number of Shares Beneficially Owned Right to Acquire Within 60 Days Total Percent of Outstanding Shares as of 12-31-03 Number of Shares
Beneficially
Owned Right to
Acquire
Within
60 Days Total Percent of Outstanding Shares as of 02-18-05 Wellington Management Co., LLP
75 State Street
Boston, Massachusetts 02109 10,514,213 -0- 10,514,213 19.14 % Private Capital Management. L. P.
8889 Pelican Blvd.
Naples, Florida 34108 3,341,157 (1) -0- 3,341,157 6.3 % Goldman Sachs Asset Management, L.P.
32 Old Slip
New York, New York 10005 2,837,906 (1) -0- 2,837,906 5.4 % S. Haunani Apoliona 1,616 (2) 14,000 (7) 15,616 * 1,816 (2) 17,000 (7) 18,816 * Peter D. Baldwin 4,462 (2)(9) 19,000 (7) 23,462 * 4,698 (2)(9) 22,000 (7) 26,698 * Mary G.F. Bitterman 18,274 (2)(3) 19,000 (7) 37,274 * 13,191 (2)(3) 22,000 (7) 35,191 * Michael J. Chun 5,300 (2) 14,000 (7) 19,300 * 5,500 (2) 17,000 (7) 22,500 * Clinton R. Churchill 6,052 (2)(8) 14,000 (7) 20,052 * 6,615 (2)(8) 17,000 (7) 23,615 * David A. Heenan 15,961 (2)(6) 19,000 (7) 34,961 * 16,657 (2)(6) 22,000 (7) 38,657 * Robert A. Huret 6,441 (2) 9,000 (7) 15,441 * Robert Huret 7,909 (2) 12,000 (7) 19,909 * Martin A. Stein 1,000 (2) 12,000 (7) 13,000 * 1,200 (2) 15,000 (7) 16,200 * Donald M. Takaki 12,188 (2)(10) 18,000 (7) 30,188 * 13,303 (2)(10) 21,000 (7) 34,303 * Barbara J. Tanabe 7,206 (2) 13,000 (7) 20,206 * 8,677 (2) 16,000 (7) 24,677 * Robert W. Wo, Jr. 12,196 (2)(3) 14,000 (7) 26,196 * 12,817 (2)(3) 17,000 (7) 29,817 * Michael E. O'Neill 866,342 (5) 2,512,000 3,378,342 6.15 % 7,044 -0- 7,044 * Allan R. Landon 96,303 179,630 275,933 * 171,303 242,238 413,541 * Alton T. Kuioka 104,505 (2)(4) 205,833 310,338 * 145,348 (2)(4) 157,500 302,848 * William C. Nelson 8,520 169,633 178,153 * 8,308 188,300 196,608 * Donna A. Tanoue 163,237 (5) 89,733 252,970 * David W. Thomas 19,492 150,433 169,925 * 14,575 110,825 125,400 * Directors, nominees and executive officers as a group (17 persons) 1,193,358 3,394,196 4,587,554 Directors, nominees and executive officers as a group (19 persons) 612,717 1,025,197 1,637,914 1%1 percent of the outstanding common stock except Mr. O'Neill.stock.9WellingtonPrivate Capital Management, Company, LLPL.P. ("WMC"PCM") is an investment adviser registered with the SEC under the Investment Advisers Act of 1940 as amended. As of December 31, 2003, WMC,2004 PCM, in its capacity as investment adviser, may be deemed to have beneficial ownership of 10,514,2133,341,157 shares of Bank of Hawaii common stock owned by numerous investment advisory clients, none known to have more than five percent of the class. As of December 31, 2003, WMC had2004, PCM has shared power to vote or to direct the vote over 4,621,833 of those shares, and shared power to dispose or to direct the disposition of 5,892,3803,341,157 shares. The percentage of shares outstanding indicated is as of December 31, 2004.
The percentage of shares outstanding indicated is as of December 31, 2004.1,6001,800 restricted shares that each of the directors own under the Director Stock Program with the exception of the following directors and named executive officers: Mr. Stein, 1,0001,200 shares; Mr. Huret, 600800 shares; Mr. Kuioka, 600 shares. Mr. O'Neill does not own any restricted800 shares. Includes Messrs. Churchill 3,0673,430 shares, Heenan 13,36514,281 shares, Huret 5,8417,109 shares, Takaki 7,9218,728 shares, Tanabe 2,481Wo 3,267 shares and Wo 2,846Ms. Tanabe 3,602 shares owned under the Directors Deferred Compensation Plan. See discussion on page 13 for further information on the Directors Deferred Compensation Plan and Director Stock Program.6,4956,524 shares and Mr. Wo, 2,400 shares.19,66220,186 shares held in trust for Mr. Kuioka under the Bank of Hawaii Profit SharingRetirement Savings Plan.Mr. O'NeillMs. Tanoue is President. Mr. O'NeillMs. Tanoue disclaims beneficial ownership of those shares. Mr. O'NeillMs. Tanoue directly owns 5.87%0.2 percent of the outstanding shares, and beneficially owns 6.15%0.5 percent of the outstanding shares, if the shares owned by the Foundation are included.December 31, 2003February 18, 2005 under the Director Stock Program described on page 13.2,7042,776 shares held jointly with spousean individual which are subject to shared voting and investment power.10
CORPORATE GOVERNANCE
BOARD STRUCTURE & COMPENSATIONand Board havehas adopted Corporate Governance Guidelines ("Governance Guidelines"), which are attached as Appendix C and posted on the Company's Investor Relations website at www.boh.com.www.boh.com. Shareholders may receive a copy of the Governance Guidelines by writing the Corporate Secretary at 130 Merchant Street Honolulu, Hawaii 96813. The Governance Guidelines address Directordirector qualification and independence standards, responsibilities, access to management and independent advisors, compensation, orientation and continuing education, Board committees, Chief Executive OfficerCEO evaluation, management succession, Code of Business Conduct and Ethics, shareholder communications to the Board and the Board's annual performance evaluation.Company's Board of Directors met nineten times during 2003.2004. The Board's policy is that directors should make every effort to regularly attend meetings of the Board and committees on which they serve and the Company's annual shareholder meeting. Each director attended 75%75 percent or more of the aggregate of the total number of Board meetings and the total number of meetings held by the committees on which he or she served in 2003. Eight2004. Thirteen of the Company's Directorsdirectors attended the 20032004 shareholders' meeting.ChairChairman of the Executive Committee and ChairChairman of the Nominating & Governance Committee. The Lead Independent Director's duties are set forth in the Board's Governance Guidelines and include presiding over regularly scheduled executive sessions of the non-management directors or serving as a liaison between the non-management directors and executive management and assisting the Board and executive management to ensure compliance with the Governance Guidelines. The non-management directors meet in executive session without management in attendance for regularly scheduled meetings which are usually five times a year. The non-management directors may also meet in executive session each time the full Board convenes for a meeting. In 2003,2004, the non-management directors met in executive session eight times.Board's Governance Guidelines. In considering all of the relevant facts and the categorical standards with respect to each director and nominee, the Board has affirmatively determined that all directors and nominees other than Messrs. O'Neill, Landon, Stein and Takaki are independent within the meaning of the NYSE listing standards and the Board's categorical standards for determining independence. The following nine directors and nominees have been affirmatively determined by the Board to be independent: Messrs. Baldwin, Chun, Churchill, Heenan, Huret, and Wo and Mmes. Apoliona, Bitterman and Tanabe. All of the committees, with the exception of the Executive Committee, are comprisedcomposed entirely of independent directors. The Board has adopted categorical standards for determining whether a director is independent and has no material relationships with the Company, including but not limited to the following:11such fees or consideration paid to directors with respect to service on committees of the Board). Until November 4, 2004, references in these standards to "three years" shall be deemed to be references to such shorter periods as may be permitted by Section 303A of the NYSE Listed Company Manual.12Company or its subsidiaries.Company. In 2003,2004, each such director was paid an annual retainer of $16,000 and a quarterly payment of $750,$20,000, plus $750 for each Board meeting attended. Directors are reimbursed for board-related travel expenses, and directors who are non-Hawaii residents receive an additional $5,000 to compensate them for travel time. The Company does not have a retirement plan for directors who are not employed by the Company or its subsidiaries.or its subsidiaries and who serve as members of the Compensation Committee or the Executive Committee receive $750 for each meeting attended. The Audit Committee meeting fee is $1,500. The chairschairmen of the Compensation and Audit Committees, and the vice chairchairmen of the Executive Committee, also receive an annual retainer of $5,000.13Committee'sCommittees' charters require that each committee perform an annual evaluation of its performance and assess the adequacy of its charter. Each Committee has the authority to retain consultants and advisors to assist it in its duties, including the sole authority for the retention, termination and negotiation of the terms and conditions of the assignment. www.boh.com.www.boh.com. Shareholders may request a printed copy of the charters and Corporate Governance Guidelines by contacting the Corporate Secretary at 130 Merchant Street Honolulu, Hawaii 96813. A copy of the Audit Committee charter is included as Appendix A and a copy of the corporate governance guidelinesGovernance Guidelines is attached as Appendix B.posted on the Company's Investor Relations website atwww.boh.com.14
Audit Committee: 8 Meetings in 20032004Responsibilities of Committee Current Members • The Committee assists the Board in its oversight of the following areas of the Company: regulatory and financial accounting and reporting and credit risk management; compliance with legal and regulatory requirements; independent auditor's qualifications and independence; and performance of internal audit function and independent auditors. Clinton R. Churchill (Chair)(Chairman)
Robert A. Huret (Financial Expert)
Mary G.F. Bitterman
Robert W. Wo, Jr.
•
The Board has determined that Robert A. Huret meets the definition of "financial expert" within the meaning of the SEC regulations adopted under the Sarbanes-Oxley Act of 2002.
•
The Board has determined that all Committee members meet the NYSE standard of financial literacy and have accounting or related financial management expertise.
•
None of the Committee members serve on the audit committee of another publicly traded company.
•
The Committee has adopted policies and procedures governing the following: pre-approval of audit and non-audit services; the receipt and treatment of complaints regarding accounting, internal auditing controls, or auditing matters and the confidential, anonymous submission by employees of the Company regarding questionable accounting or audit matters; and restrictions on the Company's hiring of employees of the independent auditor.
•
Further information regarding the responsibilities performed by the Committee is provided in the Report of the Audit Committee Report on page 17 and in the Audit Committee Charter included as Appendix A.
Compensation Committee: 710 Meetings in 20032004Responsibilities of Committee Current Members
•
The Committee reviews, approves and reports to the Board on the corporate goals and objectives relevant to the CEO's compensation andcompensation; evaluates the CEO's performance in light of those goals and objectivesobjectives; and determines and approves the CEO's compensation based on this evaluation.
David A. Heenan (Chair)(Chairman)
Peter D. Baldwin
Mary G.F. Bitterman
Barbara J. Tanabe
•
The Committee reviews, approves, and reports to the Board on the compensation arrangements and plans for seniorexecutive management of the Bank of Hawaii and its subsidiaries.
•
The Committee reviews and approves goals for incentive compensation plans and stock plans, and evaluates performance against those goals.
•
The Committee reviews management development and training programs.
•
The Committee reviews succession planning for senior and executive management.
•
Further information regarding the responsibilities performed by the Committee is provided in the Report of the Compensation Committee on page 18.pages 18-23.
Executive Committee: 2-0- Meetings in 20032004
Responsibilities of CommitteeCurrent Members
Current Members
•
The Committee has power to act for the Board in between its meetings except on those matters reserved to the Board by the By-Laws or otherwiseotherwise. Michael E. O'Neill (Chair)Mary G.F. Bitterman (Vice Chair)• The Committee has the authority to advise the CEO and Board on long-range strategy and monitor the Company's progress.
Allan R. Landon (Chairman)
Mary G.F. Bitterman
(Vice Chairman)
Clinton R. Churchill
David A. Heenan
Robert W. Wo, Jr. 15
Nominating & Governance Committee: 85 Meetings in 20032004
Responsibilities of CommitteeCurrent Members
Current Members
•
The Committee reviews the qualifications of all Board candidates and recommends qualified candidates for membership on the Board.Mary G.F. Bitterman (Chair)Peter D. Baldwin• The Committee reviews the Board's organization, procedures and committees and makes recommendations concerning the size and composition of the Board and its committees. Clinton R. ChurchillDavid A. HeenanRobert A. Huret• The Committee makes recommendations to the Board regarding standards for determining non-management director independence and reviews the qualifications and independence of the members of the Board and its committees. Robert W. Wo, Jr.
•
The Committee reviews and evaluates the Company's compliance with corporate governance requirements and leads and oversees the Board and its committees' annual performance evaluationsevaluations.
•
Further information regarding the responsibilities performed by the Committee and the Company's corporate governance is provided in the Governance Guidelines.
Mary G.F. Bitterman (Chairman)
S. Haunani Apoliona
Peter D. Baldwin
Michael J. Chun
Clinton R. Churchill
David A. Heenan
Robert Huret
Barbara J. Tanabe
Robert W. Wo, Jr.16
The Company's Board has determined that the Audit Committee is composed ofCommittee's four members are independent directors, in accordance with the applicable laws, regulations, New York Stock Exchange's listing requirements and the Company's Governance Guidelines. The Audit Committee operates under a written charter whichthat has been adopted by the Company's Board and which is included as Appendix A to this proxy statement. Audit Committee members do not accept any consulting, advisory or other compensatory fees (except director fees) and are not affiliated with the Company (except as a director) or any subsidiary.
Each Audit Committee member shall be or must become financially literate at or within a reasonable period of time following his or her appointment. At least one member of the Audit Committee must have accounting or related financial management expertise. The Board has determined that the Audit Committee has one audit committee financial expert, Robert A. Huret, within the meaning of Securities Exchange Commission ("SEC") regulations adopted under the Sarbanes-Oxley Act of 2002, and that all Audit Committee members are financially literate and have accounting or related financial management expertise. None of the Audit Committee members serve on the audit committee of another publicly traded company.
The Audit Committee's responsibilities include providing oversight of the quality and integrity of the Company's regulatory and financial accounting and reporting, risk management, legal and regulatory compliance theand internal and external audit functions and the preparation of this Audit Committee report. In this context, the Audit Committee has reviewed and discussed with management and the independent auditors the Company's audited financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" to be included in the Company's Annual Report on Form 10-K. The Audit Committee has also discussed with management and the independent auditors the matters required to be discussed by Statement on Accounting Standards No. 61 (Communication with Audit Committees). These discussions include the quality, not just the acceptability, of the accounting principles applied. The Company's independent accountantsauditors have provided to the Audit Committee their written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee has discussed with the independent accountants,auditors, that firm's qualifications and independence. The Audit Committee has adopted Pre-Approval Procedures for Audit and Non-Audit Services (the "Pre-Approval Procedures") that requires advance approval of all audit, audit-related, tax services, and other services performed by the independent auditor. The Preapproval Procedures providesprovide for pre-approval by the Audit CommitteeCommittee's pre-approval of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. The Audit Committee may delegate pre-approval authority to any one of its members who shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Based on the review and discussions referred to above, the Audit Committee recommended to the Company's Board that the audited financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" be included in the Company's Annual Report on Form 10-K for the year ended December 31, 20032004 for filing with the SEC. The Audit Committee and the Board also have recommended, subject to shareholder approval, the selection of the Company's independent auditor.registered public accounting firm.
Members of the Audit Committee
Clinton R. Churchill (Chair)(Chairman)
Robert A. Huret (Financial Expert)
Mary G.F. Bitterman
Robert W. Wo, Jr.
17
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee, composed entirely of independent directors, sets and administers the policies that govern the Company's executive compensation programs, and various incentive and stock programs. The Compensation Committee reviews compensation levels of members of seniorexecutive management, evaluates the performance of executive management, and considers executive management succession and related matters. All decisions relating to the compensation of the named executive officers are shared with the full Board.
The policies and underlying philosophy governing the Company's executive compensation program, as endorsed by the Compensation Committee and the Board, of Directors, are designed to accomplish the following:
The Compensation Committee seeks to target executive compensation at levels that the Compensation Committee believes to be consistent with others in the banking industry. The executive officers' compensation is weighted toward programs contingent upon the Company's level of annual and long-term performance. In general, for seniorexecutive management positions of the Company (including the Bank'sCompany's named executive officers) and its subsidiaries, the Company will pay base salaries that, on average, are at the 50th percentile of other banks and financial service companies of Bank of Hawaii's asset size and complexity and that have similar products and markets. A significant portion of each executive's compensation is dependent on achieving business and financial goals, attaining other individual performance objectives and upon stock price appreciation. Goals for specific components include:
The CompanyCompensation Committee retains the services of nationally recognized consulting firms to assist the Compensation Committee in performing its various duties. These duties include the evaluation of competitive compensation levels and to make recommendations for the compensation of the CEO. Those firms advise the Compensation Committee on compensation programs for the named executive officers and seniorexecutive management of Bank of Hawaii and its subsidiaries.the Company. The Company also obtains extensive compensation studies every 2-3 years. The most recent compensation study focusing on executive officers was conducted in 2003;2004-2005; the results were presented along with the consulting firm's review of the Company's programs for seniorexecutive management.
The study provided an external competitive analysis of compensation for incumbents in the Company's ManagingOperating Committee, which includes the named executive officers and senior management, using a comparable group of 13data that focused primarily on the Company's major talent and business competitors including banking and diversified financial organizations. These corporations were viewed as representative oforganizations reflected in the Company's talent competitors, anddata area also generally comparable in terms of overall size, business mix, and geographic scope. Many of the banking organizations in this group also are part of the S&P BanksBank index usedare represented in the performance graph.study. For the 20032004-2005 study, the consultantconsultants provided base salary
levels and other pay data from the peer companies to derive market-based compensation levels that were appropriate for the Company's executive positions. The results of the study found that the Company's pay levels overall were at the median levels of peer companies.
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20032004 Compensation Elements
Compensation earned by named executive officers in 2003,2004, as reflected in the Summary Compensation Table on page 23,24, consisted of the following elements: base salary, value sharing and retirement savings plan, stock options, restricted stock and restricted stock units. As indicated in the Summary Compensation Table the Stock Option Grants in Last Fiscal Year Table, and the Long-Term Incentive Plans—Awards In Last Fiscal Year Tabletable on pages 24-25,24 and 26, in 20032004, the Compensation Committee awarded stock options, restricted stock and restricted stock units under the Company's 2004 Stock Option and Incentive Compensation Plan of 1994 as amended (the "1994"2004 Stock Option and Incentive Plan"). In addition,No stock options were awarded to the named executive officers in 2004. The named executive officers (other than Mr. O'Neill) were granted contingent awards under the Bank of Hawaii Corporation Executive Incentive Plan ("Executive Incentive Plan") in 20032004 as described below.
Base Salaries
Base salaries for named executive officers are determined by evaluating the responsibilities of the positions held, the experience of the individual, the competitive marketplace, and 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. Also taken into account are key differences in responsibilities between the executives of Bank of Hawaii and of other banks, and the overall economic environment. No specific weighting is given to the foregoing factors.
To ease the expense burden of the Company, Messrs. Landon, Kuioka, Nelson and Thomas reduced their 2002 salaries by 10%10 percent from 2001 levels and their salaries were reinstated to the 2001 level in 2003. In 2003, Mr. Landon and Ms. Tanoue elected to reduce his salarytheir respective salaries and this reduction wasthese reductions were considered in determining the amount of equity compensation granted to Mr. Landon and Ms. Tanoue, which isare discussed on pages 20-21.24-25. Mr. O'Neill elected to waive his base salary and any bonus for 2002 and 2003 and this reduction was considered in determining the amount of equity compensation granted to Mr. O'Neill, which is discussed on pages 20-22.24-25.
Stock Ownership Guidelines
The Compensation Committee believes that it is important for executive management to support an ownership culture for the Company's employees and shareholders and in 2001, implemented stock ownership guidelines which require the named executive officers to own a minimum amount of the Company's stock within 3 years. The Chairman and CEO is required to own at least 5 times his salary and the other named executive officers are required to own at least 2.5 times their salary in market value of Company stock. Stock ownership includes net after taxafter-tax value of vested stock options, vested grants of performance-based restricted stock and stock or stock units from qualified plans. All of the named executive officers currently employed by the Company, have met or exceeded the stock ownership requirements. The amount of shares held by each of the named executive officers is reported in the Beneficial Ownership Table on page 9.
Executive Incentive Plan
The objectives of the Executive Incentive Plan are to optimize profitability and growth of the Company, provide an incentive for excellence in individual performance, advance the corporate and cultural imperatives and promote corporate initiatives. The Company's corporate and cultural imperatives include acting accountably, communicating openly and honestly, being results driven, working effectively in
teams and embracing change. The corporate initiatives are to focus on customer service and sales, improve processes and systems, invest in the Company's employees and businesses, increase efficiency, and align compensation to performance and to the governing objective of maximizing shareholder value over time.
At the Compensation Committee's discretion, each participant is granted a contingent award expressed as dollars or a percentage of salary for the fiscal year and contingent on both individual and corporate performance criteria. At the end of the fiscal year, the Compensation Committee assesses the performance and makes a determination of the final award amount that may be greater or smaller than the
19
contingent award. The Compensation Committee granted contingent awards of up to 9%9 percent of the 20032004 incentive pool to each of the named executive officers in 20032004 with the exception of Mr. O'Neill,Landon, who does not participate inwas granted a contingent award of up to 15 percent of the Executive Incentive Plan.2004 incentive pool. The 20032004 limit for total awards for participants under the Executive Incentive Plan is 2%was 2 percent of the Company's total net income before taxes. During 2004, the Compensation Committee granted awards to the named executive officers that participated in the Executive Incentive Plan for their 2004 performance. The amounts of these awards are described in the Summary Compensation Table on page 24.
To qualify certain awards as performance-based compensation exempt from the $1 million compensation deduction limitation under Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), a contingent award to a named executive officer is limited to a percentage of an incentive pool determined for the fiscal year (the "incentive pool percentage"). The incentive pool is expressed as a percentage of the Company's net income for the fiscal year, and the total of the contingent awards for named executive officers for a fiscal year may not exceed 100%100 percent of the incentive pool. After assessing the satisfaction of the applicable performance criteria for the fiscal year, the final award amount for a named executive officer may be lesser, but not greater, than the officer's stated incentive pool percentage. The incentive pool percentages do not constitute "targets," but instead constitute the stated upper limit on final award amounts to give the Compensation Committee flexibility in determining final awards in compliance with the performance-based exemption under Section 162(m). In addition, as an overriding limitation, the maximum aggregate payout for contingent awards granted in any one fiscal year to any one participant is $2,000,000.
19942004 Stock Option and Incentive Plan
The Compensation Committee considered stock options, restricted stock and restricted stock unit grants under the 19942004 Stock Option and Incentive Plan for employees of the Company and its subsidiaries. (The authority to grant awardsCompany. Awards under the 1994 Stock Option Plan expired on December 31, 2003. The Company is submitting the 2004 Stock Option and Incentive Compensation Plan to the shareholders for approval at the April 2004 annual meeting and further information is provided on pages 29-34.)
Awards under the 1994 Stock Option Plan arewere granted by the Compensation Committee to those employees whose management responsibilities placeplaced them in a position to make substantial contributions to the financial success of the Company. Directors who arewere not employees arewere not eligible to participate in the 19942004 Stock Option and Incentive Plan. The Compensation Committee, which administersadministered the 19942004 Stock Option and Incentive Plan, determinesdetermined whether the options will bewere incentive stock options or nonqualified stock options. All stock options granted in 20032004 had an exercise price equal to the market price of the Company's common stock on the date of grant.
The Compensation Committee believes stock options provide a strong incentive to increase shareholder value, because these awards have value only if the stock price increases over time. The Compensation Committee also believes that restricted stock and restricted stock units, when used as an integral part of incentive compensation programs, provide an incentive to increase shareholder value. The Compensation Committee believes such equity awards to its named executive officers and other 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 the Company.
In 2003,2004, the size of the stock option, restricted stock and restricted stock unit grants under the 19942004 Stock Option and Incentive Plan were based primarily on the individual's responsibilities, performance and position. Individual awards were also affected by the Compensation Committee's subjective evaluation of
other factors it deemed appropriate, such as assumption of additional responsibilities, competitive factors, and achievements that in the Compensation Committee's view arewere not fully reflected by other compensation elements. The Compensation Committee's decisions concerning individual grants generally were not affected by the number of options previously exercised, or the number of unexercised options held.
In 2003,2004, the Compensation Committee granted a total of 1,664,2503,000 options to 521 employees and 270,000one employee, 63,500 restricted stock units to three employees and 80,556 shares of restricted stock to 9three employees. Of these, 425,000 options37,500 restricted stock units were granted in February 2003April 2004 to Mr. O'Neill and were subject to certain time- and performance-based vesting criteria that were not met at the time Mr. O'Neill departed the Company on September 1, 2004. In May 2004, Mr. Landon received 75,000 shares of restricted stock that will vest based on time and the successful completion of certain performance objectives. None of the named executive officers as follows: Mr. O'Neill (300,000), Mr. Landon (70,000), Mr. Thomas (30,000) and Mr. Nelson (25,000). All of thesereceived stock options vest one year from the date of
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grant.in 2004. Additional information regarding the stock optionsunits and restricted stock granted to the named executive officersMessrs. O'Neill and Landon is provided in Stock Option GrantsLong-Term Incentive Plans—Awards In Last Fiscal Year Tabletable on page 24.26 and in the CEO Compensation discussion below. The amounts of individual awards to executive officersMessrs. O'Neill and Landon in 20032004 were based on their individual positions, responsibilities, performance, leadership and the other factors discussed above. In addition, the amount of the award to Mr. Landon was in recognition of his appointment as Chief Operating Officer of the Company in April 2004.
Managing Committee 2003 Stock Compensation and Retention Program
In October 2003, the Compensation Committee granted theAll members of the Company's Managing Committee (otheras constituted in 2003, including the named executive officers, other than Mr. O'Neill) restricted stock unitsO'Neill, participate in the Managing Committee 2003 Stock Compensation and Retention Program ("RSUs"Retention Program"). As part of this program and under the 1994 Stock Option Plan, all participants were awarded restricted stock units ("RSUs") in furtherance of the Managing Committee 2004 Stock Compensation and Retention Program,October 2003 including grants to certainthe named executive officers as follows: Mr. Landon (30,000), Mr. Kuioka (30,000), Mr. Nelson (20,000) and, Mr. Thomas (30,000) and Ms. Tanoue (20,000). The RSU grants wereEach grant was based on the recipients'recipient's individual positions,position, responsibilities, performance, leadership impact and the other factors discussed above. Dividend equivalents are paid on the restricted stock units. The restricted stock units will vest based on time and the successful completion of certain performance objectives. The participant is entitled to a cash payment based on the fair market value of the Company's stock upon vesting. Fifty percent of the RSUs awarded to the named executive officers vested on April 30, 2004 on the successful completion of certain performance objectives, the remaining fifty percent will vest on March 31, 2005. The fair market value of the Company's stock on December 31, 2003April 30, 2004 was $42.20.$43.72. Further information aboutregarding the restricted stock unitscash payment made in 2004 is provided below on this page and in the Long-Term Incentive Plans—Awards In Last Fiscal Year Table on page 25.
In December 2003, the Compensation Committee granted 75,000 shares of restricted stock to Mr. Landon upon his appointment as President of the Company and the Bank, which is further described in the Summary Compensation Table on page 23. Of the 75,000 restricted shares, 40,000 are time-based restricted shares with 10,000 shares24. The vesting each year beginning March 31, 2005 and 35,000 are performance-based restricted shares with a five year vesting period to be vested upon meeting certain efficiency ratio targets and top quartile performance or achieving annual NIACC (net income after capital charge) budget. If the efficiency ratio target is met, 20% of the original performance-based share grant vests each year. If the top quartile performance or annual NIACC budget is met, 30% of the original grant vests each year. A maximum of 50% of the original grant can vest in one year. If the performance-based shares are not earned by 2008, they are forfeited.
Managing Committee 2003 Stock Compensation and Retention Program
All of the members of the Company's Managing Committee, including the named executive officers, other than Mr. O'Neill participate in the Managing Committee 2003 Stock Compensation and Retention Program. As a part of this program and under the 1994 Stock Option Plan, all participants were awarded RSUs in October 2003, as further described above on this page and in the Long-Term Incentive Plans—Awards in Last Fiscal Year Table on page 25. Certain participants in this program, includingfor Messrs. Kuioka, Nelson and Thomas also may be entitledaccelerated in the event of a departure prior to receive retention compensation designed to further encourage them to remainthe end of the vesting period only if the departure is with the Company. This retention compensation, whichCompany's approval. If such a participant's employment continues beyond the end of the vesting period, they will be payable inreceive a lump sum or as salary continuation uponsupplemental payment vesting on the participant's departure if and only if that departure occurs on or after an agreed upon date (which currently is expected to be withinearlier of twelve months offrom the original final vesting date for eachor the date of departure, contingent on the successful completion of certain performance objectives. The amount of the supplemental payment will be equal to the cash equivalent value of 50 percent of the participant's RSUs), will equal up to twenty-fouroriginal RSU, based on the fair market value of the Company's stock on the last trading day of the month immediately preceding the payment of the supplemental payment, multiplied by a fraction, the numerator of which is the number of full months salary for participants.of additional employment, and the denominator of which is twelve.
CEO Compensation
Mr. Landon was appointed to the position of Chairman and CEO effective September 1, 2004. Mr. Landon also retained the position of President. In determining Mr. O'Neill'sLandon's annual compensation as Chief Executive Officer ("CEO"),CEO, the Compensation Committee has sought to provide levels that are competitive among comparable banks and financial services corporations, as described on page 18. The Compensation Committee's objectives with regard to Mr. O'Neill'sLandon's compensation are to attract, motivate and retain a CEO with the
experience and capabilities needed to maximize shareholder value, provide outstanding leadership to employees, and deliver products and services to itsthe Company's customers. Mr. O'Neill'sLandon's compensation reflects the Compensation Committee's continuing strategy of balancing short- and long-term incentives in structuring executive officer compensation and aligning the interest of the CEO with those of shareholders.
In determining Mr. O'Neill's 2003Landon's 2004 compensation for the position of Chairman and CEO, the Compensation Committee considered, among other factors, the 2002 financial performance of the Company. The Company's stock finished 2002 up 17 percent; it was the top performing bank in the Lehman Brothers 56 Bank Index and the leader in the
21
Bloomberg Bank Index for generating total shareholder returns in 2002. On December 17, 2002, the Company's stock reached a new high of $31.05. In 2002, the Company's strong credit quality continued to improve as did its operating performance in the core franchise.
In 2003, thefirst six months in 2004. The Company's stock price performance remained among the bestwas in the industry.top quartile of the S & P Supercomposite Banks Index. The Company's diluted earnings per share finished the yearfirst half of 2004 up 30 percent; the 10th performing bank of a 51 bank universe of which 23 banks are in the S & P Banks Index used in the stock performance graph. On December 30, 2003, the Company's stock reached a new high of $42.72, finishing the year up 3755.8 percent. Net income for 2003the first half of 2004 was up 1240.4 percent from the prior year, return on average assets was 1.441.73 percent, up from 1.221.29 percent in 2002,2003, and the return on average equity for 2003the first half of 2004 was 15.0222.03 percent, up from 10.2412.67 percent in 2002.the first half of 2003. The Company successfully implementedCompany's efficiency ratio for the first half of 2004 was 56.89 percent, an improvement from 67.01 percent for the same period in 2003.
In April and May 2004, respectively, the Compensation Committee increased Mr. Landon's base salary from $550,000 to $600,000 and granted 75,000 shares of restricted stock to Mr. Landon upon his assumption of the additional responsibilities of Chief Operating Officer. Of the 75,000 restricted shares, (i) 35,000 are time-based restricted shares, with 8,750 shares vesting each year beginning March 31, 2005, and (ii) 40,000 are performance-based restricted shares with a technology systems replacement project that has streamlined operationsfive- year vesting period upon meeting certain efficiency ratio targets and improved efficiency.top quartile performance for shareholder return or achieving annual NIACC (net income after capital charge) budget. If the efficiency ratio target is met, 20% of the original performance-based share grant vests each year. If the top quartile return or NIACC budget is met, 30 percent of the original grant vests each year. A maximum of 50 percent of the original grant can vest in one year. If the performance-based shares are not earned by 2008, they are forfeited. The lower-cost platform is expectedrestricted stock grants are further described in the Summary Compensation Table on page 24. Effective September 2004, the Compensation Committee approved an increase in Mr. Landon's compensation to provide annual cost savings of over $17 million based on second quarter 2002 expense levels. Under Mr. O'Neill's leadership, the Company successfully completed an ambitious three-year strategic plan that began in 2001, which included improvement of risk management, divestiture or repair of underperforming businesses, improvement and growth of continuing businesses, improvement in operating efficiency and return of re-deployment of excess capital.
Mr. O'Neill serves$750,000 upon his appointment as Chairman and CEOCEO.
In 2005, the Compensation Committee awarded Mr. Landon a bonus of $600,000 under the Executive Incentive Plan in recognition of the Company pursuant to a written employment agreement effective asCompany's 2004 performance. The Company's diluted earnings per share for 2004 was $3.08, up 39.4 percent from the diluted earnings per share of November 3, 2000.$2.21 in 2003. Net income for the year was $173.3 million, up $38.1 million or 28.2% from $135.2 million in the previous year. The agreement includes a base salary of $900,000, subject to annual review. A copy ofreturn on average assets in 2004 was 1.78 percent, up from 1.44 percent in 2003. The return on average equity for the agreement is included asyear was 22.78 percent, up from 15.02 percent in 2003. The Company's efficiency ratio was 56.14% in 2004, an exhibit to the Company's Annual Report on Form 10-K. As previously noted,improvement from 63.38% in 2003.
Mr. O'Neill elected to waive his base salary and any bonus for 2002 and 2003. Mr. O'NeillLandon participates in the Company's Retirement Savings Plan and basic medical and dental insurance and life insurance and long term disability programs generally applicable to similarly situated executives of the Company. Mr. O'Neill does not participate in the Company's Executive Incentive Plan. As noted above, Mr. O'NeillLandon received a grant of 300,00075,000 restricted stock optionsunits in February 2003May 2004 under the 19942004 Stock Option and Incentive Plan. Mr. O'Neill does not participateLandon participates in the Company's Key Executive Severance Plan orand the Managing Committee 2003 Stock Compensation and Retention Program. Similar to other employees,Under the Retention Program, Mr. O'Neill'sLandon was awarded 30,000 restricted stock options become immediately exercisable upon a changeunits in control ofOctober 2003 under the Company as provided for in theCompany's 1994 Stock Option Plan.
Revenue Reconciliation Act of 1993
In general, Bank of Hawaii intends to maintain deductibility for all compensation paid to covered employees, and it will comply with the required terms of the specified exemptions under Section 162(m) of the Code as enacted by the Revenue Reconciliation Act of 1993, except where that compliance unduly would interfere with the goals of Bank of Hawaii's executive compensation program or the loss of deductibility would not be materially adverse to Bank of Hawaii's overall financial position.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee during fiscal year 20032004 served as an officer, former officer, or employee of the Company or any of its subsidiaries, or had a relationship discloseable under "Certain Transactions with Management and Others." Further, during fiscal year 20032004, no executive officer of the Company served as:
Members of the Compensation Committee
David A. Heenan, ChairChairman
Peter D. Baldwin
Mary G. F. Bitterman
Barbara J. Tanabe
22
Executive Compensation
The following table shows, for the fiscal years ending December 31, 2004, 2003, 2002, and 2001,2002, information on compensation the BankCompany paid its named executive officers.
| | | | | | Long-Term Compensation | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Annual Compensation | | | Awards | Payouts | | |||||||||
| | Other Annual Compensation ($)(3) | Restricted Stock Award(s) | Securities Underlying Options (#)(5) | Long-Term Incentive Payouts ($)(6) | | ||||||||||
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | All Other Compensation ($) | ||||||||||||
Chairman of the Board, Chief Executive Officer & President | 2004 2003 2002 | |||||||||||||||
16,861 74,028 | ||||||||||||||||
Alton T. Kuioka Vice Banking | 2004 2003 2002 | 369,718 375,014 337,506 | 300,000 290,000 | — 57,500 | 54,788 31,980 93,622 | |||||||||||
William C. Nelson Vice Risk Officer | 2004 2003 2002 | 283,506 | 240,000 115,000 | — 25,000 56,300 | 452,500 — — | 30,141 21,171 36,314 | ||||||||||
Donna A. Tanoue Vice Chairman, Chief Administrative Officer | 2004 2003 2002 | 306,813 207,844 201,146 | 230,000 211,437 250,000 | — — 17,506 | — — 282,000 | — 8,400 125,000 | ||||||||||
David W. Thomas Vice Banking | 2004 2003 2002 | 345,074 350,017 315,006 | 330,000 180,000 | — 51,582 | — 30,000 67,100 | 39,475 30,186 27,471 | ||||||||||
Michael E. O'Neill | 2004 2003 2002 | — — — | — — — | 135,200 — 3,385 | — — — | — 300,000 300,000 | — — — | — — 21,963 |
23
Name | Retirement Savings Plan 401(k) Matching Allocation($) | Retirement Savings Plan Value Sharing Allocation($) | Retirement Savings Plan Company Fixed Allocation($) | Excess Plan Value Sharing Allocation($) | Excess Plan Company Fixed Allocation($) | |||||
---|---|---|---|---|---|---|---|---|---|---|
Michael E. O'Neill | — | — | — | — | — | |||||
Allan R. Landon | — | 6,910 | 6,000 | 2,301 | 1,650 | |||||
Alton T. Kuioka | 6,500 | 6,910 | 6,000 | 7,320 | 5,250 | |||||
William C. Nelson | — | 6,910 | 6,000 | 4,811 | 3,450 | |||||
David W. Thomas | 6,500 | 6,910 | 6,000 | 6,275 | 4,501 |
There were no option grants made to the named executive officers during 2004. The following table shows the stock options exercised by the named executive officers during Retirement Plan The Employees' Retirement Plan of Bank of Hawaii (the "Retirement Plan") provides retirement benefits for eligible employees based on the employee's years of service and average annual salary during the 60 consecutive months resulting in the highest average (excluding overtime, incentive plan payouts, and discretionary bonuses). The normal retirement benefit in the above table assumes payment in the form of a single life annuity commencing at age 65 and not subject to any deduction for Social Security or other offset amounts. The Internal Revenue Code generally limits the maximum annual benefit that can be paid under the Retirement Plan. If at retirement the annual benefit of any participant should exceed this limit, the excess amount will be paid to the participant out of general assets from the Bank of Hawaii Excess Benefit Plan, an unfunded excess benefit plan designed for this purpose, at the time the participant receives a distribution on his Retirement Plan benefits. The Retirement Plan was frozen as of December 31, 1995, except that for the five-year period commencing January 1, 1996, benefits for certain eligible participants, including Mr. Kuioka, were increased in proportion to the increase in the participant's average annual salary. The credited years of service and compensation covered by the plan as of the 1995 freeze date are as follows: Mr. Kuioka, 26 years and $226,257. The other named executive officers are not participants in the Retirement Plan. As of December 31, 2000, the benefits under the Plan were completely frozen and not subject to increase for any additional years of service or increase in average annual salary. From the 1995 freeze date through 2000, the retirement benefit determined under the table for Mr. Kuioka was increased by 8.54% due to an increase in his average annual salary. The frozen retirement monthly annuity amount for Mr. Kuioka is approximately $13,096. Change-In-Control Arrangements Bank of Hawaii's Key Executive Severance Plan (the "Severance Plan") provides participants, following a change in control of the Company, with severance benefits under circumstances and in amounts set forth in the Severance Plan and in individual severance agreements with each participant. All of the currently employed named executive officers Severance benefits are payable if their employment is terminated voluntarily or involuntarily within two years of a change in control. Key features include: Stock options held by named executive officers will become immediately exercisable upon a change in control. A change in control also will cause the lapse of restrictions on restricted stock issued under the Director Stock Program, Name Retirement Savings Plan
401(k)
Matching Allocation($) Retirement
Savings
Plan
Value Sharing Allocation($) Retirement Savings Plan Company Fixed Allocation($) Excess Plan Value Sharing Allocation($) Excess Plan
Company
Fixed
Allocation($)Michael E. O'Neill — — — — — Allan R. Landon 0 8,187 6,150 21,607 16,231 Alton T. Kuioka 8,200 8,187 6,150 18,160 13,641 William C. Nelson 0 8,187 6,150 8,809 6,617 Donna A. Tanoue 8,200 8,187 6,150 12,510 9,397 David W. Thomas 2,333 8,187 6,150 12,783 9,602 STOCK OPTION GRANTS IN LAST FISCAL YEAR Individual Grants Number of
Securities
Underlying
Options
Granted(#) % of Total
Options
Granted to
Employees in
Fiscal Year Potential Realizable Value(1) Name Exercise or
Base Price
$/Share Expiration Date 5% 10% Michael E. O'Neill 300,000 18.84 29.92 2/20/2013 5,644,958 14,305,433 Allan R. Landon 70,000 4.40 29.92 2/20/2013 1,317,157 3,337,934 Alton T. Kuioka – – – – – – William C. Nelson 25,000 1.57 29.92 2/20/2013 470,413 1,192,119 David W. Thomas 30,000 1.88 29.92 2/20/2013 564,496 1,430,543 (1)The Potential Realizable Values were determined using the 2003 year-end stock price of $42.20 and an option term of ten years at a 5% and 10% annualized rate.(2)Stock options become exercisable one year from the date of grant and remain exercisable for a nine-year period. The exercise price of the stock options is the fair market value of the Company's common stock on date of grant. All such options would become immediately exercisable upon a change in control of the Company.24
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES2003,2004, and the number and total value of unexercised in-the-money options as of December 31, 2003.2004.
Number of Securities
Underlying Unexercised
Options
at Fiscal Year-End(#) Value of Unexercised,
In-the-Money
Options at
Fiscal Year-End($)(1) Number of Securities
Underlying Unexercised
Options at
Fiscal Year-End(#) Value of Unexercised,
In-the-Money
Options at
Fiscal Year-End($)(1)Name Shares
Acquired on
Exercise(#) Value
Realized
($) Shares
Acquired on
Exercise(#) Value
Realized
($) Exercisable Unexercisable Exercisable Unexercisable Exercisable Unexercisable Exercisable Unexercisable Michael E. O'Neill – – 2,512,000 300,000 67,903,150 3,684,000 2,812,000 88,449,741 — — — — Allan R. Landon – – 179,630 111,667 3,809,586 1,834,608 49,059 1,386,533 242,238 — 6,452,946 — Alton T. Kuioka 2,066 53,520 386,271 41,667 8,611,132 975,008 215,438 5,315,133 212,500 — 6,472,300 — William C. Nelson 45,000 949,050 169,633 66,667 3,351,564 1,282,008 48,000 1,406,800 188,300 — 5,118,454 — Donna A Tanoue — — 94,733 41,667 2,053,214 939,174 David W. Thomas – – 150,433 71,667 2,772,575 1,245,074 111,275 2,225,146 110,825 — 3,278,204 — at 2003 year-endon December 31, 2004 was $42.20.$50.74.
LONG-TERM INCENTIVE PLANS—AWARDS IN LAST FISCAL YEAR Estimated Future Payouts Under Non-Stock Price-Based Plans Estimated Future Payouts Under Non-Stock Price-Based Plans Number Of
Shares, Units, or
Other Rights
(#)(1) Performance Or
other Period Until
Maturation Or
Payout(2) Number Of
Shares, Units, or
Other Rights
(#)(1)(2) Performance Or
other Period Until
Maturation Or
PayoutName Threshold
($ Or #) Target
($ Or #) Maximum
($)r #) Threshold
($ Or #) Target
($ Or #) Maximum
($ or #)Michael E. O'Neill – N/A N/A N/A N/A 37,500 N/A N/A N/A N/A Allan R. Landon 30,000 2005 N/A N/A N/A 40,000 2009 $ 405,920 $ 1,014,800 $ 2,029,600 Alton T. Kuioka 30,000 2005 N/A N/A N/A — — — — — William C. Nelson 20,000 2005 N/A N/A N/A — — — — — Donna A. Tanoue — — — — — David W. Thomas 30,000 2005 N/A N/A N/A — — — — — RSU'sRestricted stock units were awarded to all members of the Managing Committee, including the named executive officers other than Mr. O'Neill in October 2003May 2004 under the 19942004 Stock Option Plan in furtherance of the Managing Committee 2003 Stock Compensation and Retention Program, as described on page 21.Incentive Plan. During the vesting period, the participant is entitled to receiveMr. O'Neill received dividend equivalent payments equalin proportion to the actual dividends declared on the Company's stock. Mr. O'Neill forfeited the restricted stock units upon his departure from the Company in September 2004.The participant75,000 restricted shares were awarded to Mr. Landon in May 2004 in recognition of his appointment as Chief Operating Officer and are further described in the Summary Compensation table on page 24 and in the Compensation Committee Report on page 22. Of the 75,000 shares, 40,000 are performance-based with a five-year vesting period upon meeting certain efficiency ratio targets and top quartile performance or achieving annual NIACC budget. If the efficiency ratio target is entitled to a cash payment based upon the fair market valuemet, twenty percent of the Company's stock upon vesting. For certain participants in this program (including alloriginal performance-based share grant vests each year. If the top quartile performance or NIACC budget is met, thirty percent of the named executive officers who participate), 50%original grant vests each year. A maximum of their RSUs willfifty percent of the original grant can vest on April 30, 2004 and 50% will vest on March 31, 2005, and for certain other participants, all of their RSUs will vest on April 30, 2004, in each case contingent onone year. If the successful completion of certain performance objectives. For the subgroup of participants whoperformance- based shares are eligible to receive retention compensation (including Messrs. Kuioka, Nelson and Thomas) as described on page 21, the vesting of their RSUs may be acceleratednot earned by 2008, they are forfeited. The amounts reflected in the event of a departure prior to the end of the vesting period only if the departure is with the Company's approval. If such a participant's employment continues beyond the end of the vesting period, he or she also will receive a supplemental payment vesting on the earlier of twelve months from the original final vesting date or the date of departure, contingent on the successful completion of certain performance objectives. The amount of the supplemental payment will be equal to the cash equivalent value of the participant's original RSUs (for those with an original vesting period ending in 2004) or 50% of the participants original RSUs (for those with an original vesting period ending in 2005),above table are based on the fair market value of the Company's stock at the endon December 31, 2004 of the original vesting period, multiplied by a fraction, the numerator of which is the number of full months of additional employment, and the denominator of which is 12.$50.7425 Estimated Maximum Annual Retirement Benefit
Based Upon Years of ServiceAverage Annual
Salary in Consecutive 5
Highest Paid Years 15 20 25 30 35* $ 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
*Applies only to individuals hired before November 1, 1969.26with the exception of Mr. O'Neill, participate in the Severance Plan. Each of the severance agreements with these named executive officers provides that a "change in control" will be deemed to have occurred if any person or group becomes the beneficial owner of 25%twenty percent or more of the total number of voting securities of the Company, or the persons who were directors of the Company 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 the Company or any successor to the Company.andthe 1994 Stock Option Plan and 2004 Stock and Incentive Compensation Plan. The incentive period for the Executive Incentive Plan will end, and awards will be paid upon a dissolution, liquidation, or change in control (as defined under the Severance Plan) of the Company. 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 before the triggering event.27
Performance Graph
The following graph shows the cumulative total return for Bank of Hawaii common stock compared to the cumulative total returns for the S&P 500 Index and the S&P Banks Index. The graph assumes that $100 was invested on December 31, 19981999 in Bank of Hawaii's stock, the S&P 500 Index and the S&P Banks Index. The cumulative total return on each investment is as of December 31 of each of the subsequent five years and assumes reinvested dividends.
CUMULATIVE TOTAL RETURN
Based upon an initial investment of $100 on December 31, 19981999
with dividends reinvested
| Dec-98 | Dec-99 | Dec-00 | Dec-01 | Dec-02 | Dec-03 | Dec-99 | Dec-00 | Dec-01 | Dec-02 | Dec-03 | Dec-04 | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Bank of Hawaii Corp. | $ | 100 | $ | 79 | $ | 78 | $ | 118 | $ | 143 | $ | 203 | $ | 100 | $ | 99 | $ | 150 | $ | 180 | $ | 256 | $ | 317 | ||||||||||||
S&P 500® | $ | 100 | $ | 121 | $ | 110 | $ | 97 | $ | 76 | $ | 97 | $ | 100 | $ | 91 | $ | 80 | $ | 62 | $ | 80 | $ | 89 | ||||||||||||
S&P © Banks Index | $ | 100 | $ | 86 | $ | 103 | $ | 103 | $ | 102 | $ | 134 | ||||||||||||||||||||||||
S&P© Banks index | $ | 100 | $ | 119 | $ | 119 | $ | 118 | $ | 156 | $ | 183 |
Certain Transactions with Management and Others
Certain transactions involving loans, deposits and certificates of deposit, and money market instruments, and certain other banking transactions occurred during fiscal year 20032004 between the Bank and its subsidiaries, on the one hand, and one or more of the Company's directors, nominees for director and executive officers, members of their immediate families, corporations and organizations of which one or more of them was a beneficial owner of 10% or more of a class of equity securities, certain of their associates and affiliates, and certain trusts and estates of which one or more of them was a trustee or substantial beneficiary, on the other hand.beneficiary. 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
28
for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features.
On May 10, 2004, the Company purchased 644,069 mature shares from Mr. O'Neill, at a purchase price with a volume weighted average price per share of $44.26 and totaling $28.5 million. The Company paid Sonoma Mountain Ventures, LLC, a company of which Mr. Stein is the President, $131,410 in 2003 for consulting services related to the analysis of existing management information systems ("MIS") policies and practices and development of a strategy to improve the efficiency and overall qualityclosing price of the Company's technologyshares was $44.35 for that day. The purchase was approved by the Board and MIS. The Company successfully completed its systems conversion to Metavante in 2003 andunder the Company's contract with Sonoma Mountain Ventures, LLC concluded in June 2003. Neither Mr. Stein nor his company currently is providing any consulting or other services for the Company.ongoing share repurchase program.
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the Securities and Exchange CommissionSEC require Bank of Hawaii to disclose late filings of reports of ownership (and changes in stock ownership) of Bank of Hawaii common stock by its directors and certain officers. To our knowledge, based on review of the copies of such reports received by Bank of Hawaii and the written representations of its directors and officers, the Company believes that all of its directors and officers complied timely with those filing requirements for 2003,2004, with the exception of two reports which were not filed timely due tobecause of administrative errors. Upon discovery of the omissions, the relevant forms were immediately filed. Mr. LandonBrian Stewart sold 1,817 Bank of Hawaii shares on November 5, 2004 and Ms. Donna Tanoue received options for 15,000 and 4,600Bitterman sold 1,000 Bank of Hawaii shares respectively, on February 20, 2003, whichNovember 4, 2004. Both transactions were not reported until February 26, 2003.on November 10, 2004.
PROPOSAL 2: APPROVAL OF BANK OF HAWAII CORPORATION 2004
AMENDED AND RESTATED DIRECTOR STOCK OPTION PLAN AND INCENTIVE COMPENSATION PLAN
General
The Board of Directors has approved, and recommended for submission to the shareholders forshareholder approval, the Bank of Hawaii Corporation 2004Amended and Restated Director Stock and Incentive Compensation Plan ("Restated Director Stock Plan"). If adopted, the Restated Director Stock Plan would amend, restate and extend the Company's existing Director Stock Compensation Plan ("Current Director Stock Plan") that shareholders approved in 1996. Existing awards will remain outstanding under the Current Directors Stock Compensation Plan and continue to be governed by their terms and the Current Director Stock Plan.
The Restated Director Stock Plan will provide for greater flexibility in granting and administering awards than the Current Director Stock Plan. As explained below, no additional shares will be reserved for issuance under the Restated Director Stock Plan.
The following description of the Restated Director Stock Plan is not intended to be complete and is qualified in its entirety by the complete text of the Restated Director Stock Plan, a copy of which is included as Appendix B to this proxy statement.
Description of the Principal Features of the Restated Director Stock Plan
Authorized Shares. A maximum of 471,900 shares (as adjusted for prior stock splits) is authorized for awards under the Restated Director Stock Plan. This is the original number of shares (as adjusted for prior stock splits) authorized under the Current Director Stock Plan. Of this number, as of February 28, 2005, 233,100 shares are subject to existing awards and 238,800 shares remain available for new awards under the Restated Director Stock Plan. The number of shares available for new awards will be increased by any options issued under the Current Director Stock Plan and any awards issued under the Restated Director Stock Plan that, in the future, are forfeited, surrendered or otherwise unexercised. In addition, the number of authorized shares will be adjusted for stock splits, stock dividends and certain other corporate changes in accordance with the terms of the Restated Director Stock Plan.
Purpose. The purpose of the Restated Director Stock Plan is to promotealign the success and enhanceinterest of the valueDirectors with those of the Company Shareholders by linking the interests of participantsencouraging and enabling Directors to thoseacquire and retain Company common stock.
Eligibility. Any non-employee member of the Company's shareholdersBoard or of the board of directors of an affiliate of the Company ("Director") is eligible to participate in the Restated Director Stock Plan.
Administration. The Restated Director Stock Plan will be administered by the Board. The Board has the authority to establish, among other things, Directors to whom awards will be made, the exercise price of options, any exceptions to nontransferability, vesting schedules, and by providing participants with incentive for outstanding performance. Subjectall other material terms and conditions of the awards (which terms need not be identical), subject to the discretionprovisions of the Human ResourcesRestated Director Stock Plan. The Board also has the authority to interpret and Compensation Committee ("Compensation Committee"),construe the provisions of the Restated Director Stock Plan.
Types of Awards. The Restated Director Stock Plan providesallows for the granting of stock options, restricted stock, and restricted stock units ("RSUs"). Stock options may only be "nonqualified stock options," which do not qualify under Section 422 of the Internal Revenue Code of 1986, as amended. Restricted stock is Company common stock subject to transfer restrictions and risk of forfeiture. RSUs entitle grantees to the delivery of unrestricted shares of Company common stock (or the cash equivalent thereof) on a specified payment date in the future. The Current Director Stock Plan does not authorize the award of incentive stock options ("ISOs"), nonqualified stock options ("NQSOs"), stock appreciation rights ("SARs"), restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and stock-based awards. Further,RSUs. Each award under the Restated Director Stock Plan is intended to serve as the successor to the existing Bank of Hawaii Corporation Stock Option Plan of 1994 ("Predecessor Plan") and shallwill be effective as of the date of shareholder approval of the Stock Plan ("Effective Date").
Description of the Stock Plan.
A copy of the Stock Plan is attached hereto as Appendix "C", and the following summary of its principal provisions is subject in all respects to the full text of the Stock Plan.
Administration. The Stock Plan is administeredevidenced by the Compensation Committee. The Compensation Committee maintains the discretionary authority to interpretan agreement, specifying the terms and conditions of the Stock Plan,award.
The Board will determine the employees and independent contractors to whom awards may be granted, determine the terms and conditionsexercise price of any award, and adopt rules, regulations, and guidelines relating to the administration of the Stock Plan. Except with respect to awards to certain officers, the Compensation Committee may by resolution authorize one or more officers of the Company to designate the participants to whom awards are granted and to determine the size (subject to the aggregate number as the Compensation Committee may authorize) and terms and conditions of the awards. All decisions made by the Compensation Committee pursuant to the provisions of the Stock Plan are final and binding on persons, including the Company and participants.
29
Authorized Shares. The number of shares of Common Stock reserved and available for awards under the Stock Plan is 700,000. The maximum number of shares that may be issued under the Stock Plan for the award of ISOs and NQSOs is 700,000 for each category. If any award under the Stock Plan, or under the Predecessor Plan after the Effective Date of the Stock Plan, is exercised or cashed out, or terminates or expires or is forfeited, without payment made in the form of Common Stock, the shares subject to such award will again be available for grant under the Stock Plan. Further, if the option price or tax withholding requirements with respect to an award are satisfied by tendering shares, or if an SAR is exercised, only the number of shares issued will be taken into account in determining the maximum number of shares available for awards under the Stock Plan. The number of shares reserved and available for awards is subject to equitable adjustment at the discretion of the Compensation Committee in connection with any transaction or event that affects the Company's Common Stock (including, but not limited to, a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, split up, spin-off, combination of shares, exchange of shares, or other like change in capital structure) which may be required in order to prevent dilution or enlargement of rights.
Eligibility. The Compensation Committee may grant awards under the Stock Plan to any employee, including officers and other key employees, or independent contractors of the Company or any of its subsidiaries or affiliates. A director of the Company or any of its subsidiaries or affiliates, who is not otherwise employed by such an organization, is not eligible to participate in awards under the Stock Plan.
Limits on Awards. Annual grant limitations under the Stock Plan apply to awards that are intended to qualify for exemption from Section 162(m) of the Code. Section 162(m) precludes a publicly held corporation from claiming a deduction for compensation in excess of $1 million 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." In order to comply with the exemption from Section 162(m), awards that are intended to qualify as performance based compensation to covered employees are subject to the following annual limits: (a) the maximum aggregate number of shares for options granted in any one calendar year to any one covered employee is 2,500,000 shares; (b) the maximum aggregate number of shares for SARs granted in any one calendar year to any one covered employee is 2,500,000 shares; (c) the maximum aggregate number of shares for restricted stock and restricted stock units granted in any one calendar year to any one covered employee is 500,000 shares; (d) the maximum aggregate number of shares for performance shares and performance units granted in any one calendar year to any one covered employee is 500,000 shares; (e) the maximum aggregate value for cash-based awards paid in any one calendar year to any one covered employee is $10,000,000; and (h) the maximum aggregate number of shares for any other stock-based awards granted in any one calendar year to any one covered employee is 500,000 shares. These annual limits, the above description of the individuals eligible to participate in the Stock Plan, and the below description of performance measures upon which awards may be conditioned are material terms of the Stock Plan required to be disclosed and approved by shareholders for purposes of meeting the requirements for performance-based compensation under Section 162(m) of the Code. The shareholder approval of this Proposal is intended to satisfy shareholder approval of such material terms for purposes of meeting the requirements for qualified performance-based compensation under Section 162(m).
Stock Options. Options granted under the Restated Director Stock Plan may be either an option intended to be an ISO withinPlan; however, the meaning of Section 422 of the Code or an NQSO. Upon exercise of an option, the participant is entitled to purchase option shares at a specified exercise price. The Compensation Committee at its discretion determines the number of option shares, duration of the option (but no later than the tenth anniversary of the date of grant), exercise price (e.g., equal to, greater than fair market value, or indexed), vesting, rights to dividend equivalents, and other terms and conditionswill not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant's options are exercisable in the manner determined by the Compensation Committee and
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provided under the award agreement. However, for purposes of complying with tax qualification requirements, ISOs may be granted only to employees, may not be granted following the tenth anniversary of the Effective Date, and shall be subject to an exercise price no less than fair market value of Common Stock as ofon the date of grant. Further, following a participant's termination of employment (other than due to death or disability) ISOs are generally exercisable only within three months after such termination, andThe Board will also determine the aggregate fair market value (determined atoption period, provided that the time of grant) of Common Stock, with respect to which ISOs are exercisable for the first time by a participant during any calendar year,stock option may not exceed $100,000. Upon exercisebe exercisable after ten years from its grant. Any award of an option, the exercise price is payable in cash, by tendering shares having a fair market value equal to the exercise price, or by any other method as determined by the Compensation Committee and provided under the award agreement. The Compensation Committee may also permit certain forms of "cashless exercise" of an option, including an arrangement under which the participant instructs a registered securities broker to sell a sufficient numberrestricted stock will consist of shares that are restricted as to cover the coststransfer, subject to forfeiture and expenses associated with the exercise of the option. As soon a practicable following payment of the exercise price, the option shares are deliveredsubject to the participant and, as may be determined by the Compensation Committee and provided under the award agreement, the option shares acquired may comprise restricted stock as described below.
SARs. SARs are granted either by themselves ("freestanding") or in connection with options ("tandem SARs"). Upon exercise of an SAR, the participant is entitled to receive an amount based upon the appreciation in the Common Stock over the grant price. The Compensation Committee at its discretion determines the number of SARs, duration of the SARs (but not later than the tenth anniversary of the date of grant), grant price (e.g., equal to, greater than fair market value, or indexed), vesting, form of payment (in cash or equivalent value in shares), rights to dividend equivalents, and other terms and conditions not inconsistent withas the Stock Plan. IfBoard may specify. Any award of RSUs will provide for the issuance of shares (or the cash equivalent thereof) at a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant's SARs are exercisable in the manner determinedtime(s) specified by the Compensation Committee and provided under the award agreement. However, the grant price of tandem SARs is equal to the exercise price of the related option, and tandem SARs granted in connection with ISOs are subject generally to the terms and conditions relating to the underlying ISOs. The Compensation Committee may at its discretion substitute SARs for outstanding options granted to a participant, provided that the substituted SARs are at least equivalent to the terms and economic benefit of the options.
Restricted Stock and Restricted Stock Units. Restricted stock is a stock grant to participants that generally remain nontransferable andBoard subject to forfeiture until the satisfaction of specified conditions. Restricted stock units are similar to restricted stock except that restricted stock units represent defined units of value and not shares of Common Stock. The Compensation Committee at its discretion determines the number of restricted stock or restricted stock units, term of the restriction period, applicable restrictions (e.g., vesting conditioned on service or attainment of performance goals, and holding requirements or sale restrictions upon vesting), any applicable purchase price, voting rights during the restriction period (although voting rights do not apply to restricted stock units), rights to dividends (or dividend equivalents in the case of restricted stock units) during the restriction period, form of payment, custody of restricted stock certificates during the restriction period, andsuch other terms and conditions not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant is entitled to the restricted stock or restricted stock units in manner determined by the Compensation Committee and provided under the award agreement. Upon satisfaction or lapse of applicable conditions, restricted stock generally becomes freely transferable and nonforfeitable in favor of the participant, and restricted stock units become payable in cash, shares, or a combination of cash and shares as may be determinedspecified by the Compensation Committee and providedBoard. The terms of any award under the Restated Director Stock Plan may provide a Director with the right to receive dividend payments or dividend equivalent payments with respect to shares covered by the award, agreement.
Performance Shares and Performance Units. A performance share is a hypothetical share unit withas the Board may specify. The payments may be made either currently or credited to an initial value equal to the fair market value of a share of Common Stock asaccount established on behalf of the date of grant, and a
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performance unit is a unit of value with an initial value as of the date of grant as may be established by the Compensation Committee and provided under the award agreement. The Compensation Committee at its discretion determines the number of performance shares or performance units granted to a participant, term of the performance period, applicable performance goals, any applicable purchase price, rights to dividend equivalents during the performance period, form of payment, and other terms and conditions not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant is entitled to the performance share or performance units in the manner determined by the Compensation Committee and provided under the award agreement. Upon satisfaction of the performance goals, shares of Common Stock equivalent to the performance shares are transferred to the participant, and the performance units become payable in cash, shares, or a combination of cash and shares as may be determined by the Compensation Committee and provided under the award agreement.
Cash-Based Awards and Stock-Based Awards. The Compensation Committee maintains the flexibility to provide for cash-based awards and stock-based awards in the amount and manner that it may determine at its discretion. Such awards may be valued and conditioned upon performance periods and goals,Director and may be payablesettled in cash shares, or a combination of cash and shares as may be determined by the Compensation Committee. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant shall be entitled to payment of cash-based awards and stock-based awards in the manner determined by the Compensation Committee and provided under the award agreement. Cash-based awards and stock-based awards may serve as the basis for formulating short-term or long-term, performance-based bonus arrangements.shares.
Performance Measures. As determined at the discretion of the Compensation Committee, the terms and conditions of awards under the Stock Plan (e.g., relating to amount, measurement, vesting, payment) may be conditioned upon certain performance measures. In the case of awards that are intended to comprise qualified performance-based compensation to covered employees under Section 162(m) of the Code, the performance measures are limited to one or more, separately or in combination, of the following performance measures: (a) earnings per share (actual or targeted growth); (b) net income after capital charge; (c) net income (before or after taxes); (d) return measures (including, but not limited to, return on average assets, risk-adjusted return on capital, or return on average equity); (e) efficiency ratio; (f) full-time equivalency control; (g) stock price (including, but not limited to, growth measures and total shareholder return); (h) noninterest income compared to net interest income ratio; (i) expense targets; (j) margins; (k) operating efficiency; (l) EVA®; (economic value added) and (m) customer satisfaction. The performance measures may apply to the Company as a whole or any subsidiary, affiliate, or business unit of the Company.
Change In Control. In the event of a "change in control" of the Company within the meaning of the Stock Plan, unless otherwise determined by the Compensation Committee and provided under the award agreement: (a) options and SARs are immediately vested and, if the participant is terminated without "cause" (within the meaning of the Stock Plan) from employment or service within one year of the change in control, such options and SARs are exercisable within one year of such termination (or, if lesser, the remaining term of the options and SARs); (b) restricted stock and restricted stock units are immediately vested; (c) performance shares and performance units, and other awards conditioned upon performance goals or restrictions, become payable based on the assumed achievement or satisfaction of applicable performance goals or restrictions and based on a proration in accordance with completion of the applicable performance periods.
Nontransferability. Except as may be provided under an award agreement, any award granted is not transferable other than will or by the laws of descent and distribution and, further, the rights to the award apply to and may be exercised by, during the participant's lifetime, only by the participant.
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Amendment and Termination. The Compensation Committee or the Board may amend or terminate the Stock Plan in whole or in part at any time. However, no amendment can be made without shareholder approval as may be required by law, regulation, or stock exchange rule. Further, options may not be repriced, replaced, or regranted through cancellation without prior shareholder approval. An amendment may not adversely affect in a material way any outstanding award without the written consent of the participant unless terminated sooner by action of the Compensation Committee or Bank, theRestated Director Stock Plan will terminate ten years followingafter the Effective Date.2005 annual meeting unless the Board terminates the Plan at an earlier time. The Board may amend the Restated Director Stock Plan at any time, subject to shareholder approval if required by law or the rules of the principal exchange or interdealer quotation system on which Company common stock is listed or quoted. In addition, no termination or amendment of the Restated Director Stock Plan may adversely affect the rights of a Director under an outstanding award without the consent of such Director.
Certain Proposed Awards. If shareholders approve the Restated Director Stock Plan, the Board will have the flexibility to set the form and terms of awards. The Board currently anticipates that approximately half of the total annual equity-based awards to Directors will be paid in shares of restricted stock, and half will be granted in the form of stock options, valued using an option-pricing model such as Black-Scholes. Options are expected to have a ten-year term and vest in one-third annual increments. Shares of restricted stock will vest after three years. Board compensation for 2005 has not yet been determined.
The Board does not expect to award any RSUs in 2005, but it may do so in the future in accordance with the terms of the Restated Director Stock Plan.
Federal Income Tax Considerations.Consequence
The following discussion is a brief summary of certain United States federal income tax consequences under current federal income tax laws relating to awards under the Restated Director Stock Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences.
Nonqualified Stock Options. A grantee generally is not required to recognize income on the grant of a nonqualified stock option. Instead, ordinary income generally is recognized on the Stock Plan are complex, anddate the following discussion deals only withnonqualified stock option is exercised. In general, tax principles applicablethe amount of ordinary income recognized is an amount equal to the Stock 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 Compensation Committee grants an ISO and when the participant exercises an ISO and acquires Common Stock, the participant realizes no income and the Company can claim no deduction. (However, the difference betweenexcess, if any, of the fair market value of the shares upon exercise andof Company common stock on the exercise pricedate over the exercise price.
Restricted Stock. A grantee of shares of restricted stock awarded under the Restated Director Stock Plan is an item of tax preference subjectnot required to recognize income with respect to the possible applicationshares until the shares vest, unless the grantee makes a special tax election to recognize income upon award of the alternative minimum tax.) Ifshares. In either case, the participant disposesamount of income 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 extent of the lesser of (i) the spread between the option price andgrantee recognizes equals the fair market value of the shares of Company common stock at exercise (the spread)the time the shares vest.
RSUs. A grantee generally is not required to recognize income on the grant of a RSU. Instead, ordinary income generally is recognized on the date of payment of the RSU in cash or (ii)shares of Company common stock. In general, the difference between the sale price and the exercise price. If a disqualifying disposition occurs, the Company can claim a deductionamount of ordinary income recognized is equal to the amount treated as compensation. If 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 participant realizes no income and the Company can claim no deduction. On exercise of an NQSO, the participant realizes ordinary income to the extent of the spread and the Company can claim a tax deduction for the same amount.
When the Compensation Committee grants an SAR, the participant realizes no income and the Company can claim no deduction. The cash or the fair market value of any shares of Company common stock receivedreceived.
Gain or Loss on an SAR exercise is taxed toSale or Exchange of Shares. In general, gain or loss from the participant at ordinary income rates. Thesale or exchange of shares of Company can claim a tax deduction incommon stock awarded under the same amount at such time.
Grants of restricted stockRestated Director Stock Plan will be treated as capital gain or loss, provided that the shares are generally not taxable to participantsheld as capital assets at the time of grant andthe sale or exchange.
Deductibility by Company. In general, the Company generally claims no deduction at that time. The Company receiveswill be allowed a deduction and the participant recognizes taxable incomein an amount equal to the fair market valueamount of ordinary income recognized by the grantee of a nonqualified stock option, restricted stock, or an RSU, provided that certain income tax reporting requirements are satisfied.
New Tax Rules Affecting Nonqualified Deferred Compensation Plans. Awards under the Restated Director Stock Plan may be subject to new federal income tax rules that apply to "nonqualified deferred compensation plans" that were enacted as part of the stock atAmerican Jobs Creation Act of 2004 (the "Act"), and which became effective on January 1, 2005. Failure to comply with the timenew rules or qualify for an exemption could result in significant adverse tax results to grantees of awards under the restrictions lapse, unless the participant elects, within thirty daysRestated Director Stock Plan, including immediate taxation of notificationbenefits under an award, a penalty of 20 percent of the award, to recognize the income onbenefits under the award, date, in accordance with Section 83 of the Code. If the participant makes an election under Section 83, the Company receivesplus a corresponding deduction. Any dividends received on restricted stock prior to the date the participant recognizes income on that stock are taxable compensation income when received and the Company is entitled to a corresponding tax deduction at such time.special interest payment.
The grant of restricted stock units, performance shares, performance units, and cash-based awards that is subject to performance measures does not generally result in taxable income to the participant. Following the completion of the performance period, the award is determined and paid or distributed. The full value paid or distributed is treated as ordinary income, and the Company is entitled to a corresponding tax deduction at such time.THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE
RESTATED DIRECTOR STOCK PLAN.
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Equity Compensation Plan Information.
The following table contains information with respect to all of the Company's compensation plans (including individual compensation arrangements) under which securities are authorized for issuance:
Equity Compensation Plan Information
December 31, 20032004
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights a | Weighted-average exercise price of outstanding options, warrants and rights b | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) c | Number of Securities to be issued upon exercise of outstanding options, warrants and rights a | Weighted-average exercise price of outstanding options, warrants and rights b | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) c | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders | 9,112,505 | $22.03 | 196,000 | 3,961,574 | $26.03 | 855,244 |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
PROPOSAL 3: ELECTIONRATIFICATION OF SELECTION OF AN
INDEPENDENT AUDITOR
REGISTERED PUBLIC ACCOUNTING FIRM
Subject to shareholder election, the Audit Committee has selected Ernst & Young, LLP as the Company's independent auditorregistered public accountant for 2004.2005. The Board of Directors recommends that the shareholders make this election. Ernst & Young, LLP has been the Company's independent auditorregistered public accountant since its incorporation in 1971. We expect representatives of Ernst & Young, LLP to attend the annual meeting. Ernst & Young, LLP has indicated that they will have no statement to make but will be available to respond to questions. If this Proposal 3 does not pass, the selection of independent registered public accountant will be reconsidered by the Audit Committee and the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL
The following table summarizes Ernst & Young, LLP audit fees for 20032004 and 2002.2003.
Service | 2003 | 2002 | 2004 | 2003 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees | $ | 671,000 | $ | 621,000 | $ | 1,063,900 | $ | 734,800 | ||||
Audit Related Fees | $ | 190,000 | $ | 215,000 | $ | 166,300 | $ | 160,000 | ||||
Tax Fees | $ | 41,000 | $ | 544,000 | 25,200 | $ | 41,000 | |||||
All Other Fees | – | $ | 251,000 | $ | 6,000 | — | ||||||
Total | $ | 902,000 | $ | 1,631,000 | $ | 1,261,400 | $ | 935,800 |
Audit Fees
The aggregate fees billed for professional services rendered for the audit of the Company's annual consolidated financial statements, statutory and subsidiary audits, reports on internal controls and the reviews of the Company's financial statements included in the quarterly reports on Form 10-Q and out-of-pocket expenses were $671,000$1,063,900 and $621,000$734,800 for fiscal years 2004 and 2003, respectively. The fees for 2004 include professional services rendered for Sarbanes Oxley Act Section 404 attestation and 2002, respectively.Form S-8 Registration Statement for the 2004 Stock & Incentive Compensation Plan reports.
Audit Related Fees
The Audit Related Fees for 2004 and 2003 include fees for benefit plan audits and other attestation reports. The Audit Related Fees for 2002 include the same services as well as internal audit augmentation services.
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Tax Fees
The Tax Fees for 2004 and 2003 were primarily related to expatriate tax services and other advisory services. The Tax Fees for 2002 included tax-related services for the divestiture activity, expatriate tax services and other advisory tax assistance, including the final payment of a multi-year tax study.
All Other Fees
The All Other Fees for 2002 were primarily related to the assistance with the sale2004 include fees billed for copyrighted and other professional on-line publication services provided by an affiliate of the Company's Tahiti and New Caledonia operations.Ernst & Young, LLP. There were no fees in the category "All Other Fees" in 2003.
The Board knows of no other business for consideration at the annual meeting. Your signed proxy or proper telephone or Internet vote gives authority to the proxies to vote at their discretion on other matters properly presented at the annual meeting, or adjournment or postponement of the meeting.
A copy of the Company's Annual Report on Form 10-K, including the related financial statements and schedules filed with the SEC, is available without charge to any shareholder who requests a copy in writingwriting. Any exhibit to Form 10-K is also available upon written request at a reasonable charge for copying and mailing. Written requests should be made to the Corporate Secretary at 130 Merchant Street, Honolulu, Hawaii 96813. A copy of the Company's Annual report on Form 10-K is also available on the Company's internet site atwww.boh.com.
Bank of Hawaii Corporation
Audit Committee Charter
Statement of Policy
The Audit Committee (the "Committee") will provide assistance to the Board of Directors (the "Board") in fulfilling their oversight responsibility to the shareholders of Bank of Hawaii Corporation (the "Company"). The purpose of the Committee will be to:
In fulfilling its purpose, it is the responsibility of the Committee to maintain free and open communications between the Committee, independent auditors, internal auditors and management of the Company. In discharging its oversight role, the Committee shall be empowered to conduct or authorize investigations into any matter within the scope of its responsibilities. The Committee may employ one or more independent accountants,auditors, outside counsel or other experts as it deems appropriate, at the Company's expense. The Committee shall have full access to the independent auditors and all records, facilities or personnel of the Company. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditors, experts hired by the Committee, and necessary or appropriate Committee expenses.
Organization
The Committee shall be appointed by the Board and shall be comprised of at least three members consisting entirely of independent directors of the Board and meet any and all other requirements for audit committee members set forth in the listing requirement of the New York Stock Exchange and Rule 10A-3 of the Securities Exchange Act of 1934. Each Committee member shall be or must become financially literate at or within a reasonable period of time following his or her appointment. At least one member of the Committee must have accounting or related financial management expertise. Members shall not serve on more than two other public audit committees simultaneously. The Committee will meet at least quarterly. The Board shall appoint one of the members of the Audit Committee to serve as Chair. The Chair shall prepare or approve an agenda and distribute it to the members of the Committee in advance of each meeting.
The Committee may perform the duties required to be performed by the financial audit committee of its subsidiary, Bank of Hawaii (the "Bank"), and any other bank or non-bank subsidiary exercising fiduciary powers that does not have its own audit committee, to the extent permitted and in the manner required by applicable laws and regulations. The Committee may act simultaneously on behalf of the Company and of the Bank.
Responsibilities
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Board and the Company's shareholders. The independent auditors will report directly to the Committee. The Committee shall have the sole authority to hire and fire, to determine the compensation and direct the payment of, and to oversee the independent auditors (including the resolution of any disagreements regarding financial reporting). Annually, the Committee will review and select the independent auditors for the upcoming fiscal year, subject to the shareholders' approval. The Committee shall set clear hiring policies for employees or former employees of the independent auditors that meet the SEC regulations and NYSE listing standards.
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of the accounting principles applied, the reasonableness of significant judgments and the clarity of the disclosures in the financial statements. The Committee will discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards.
Limitation of the Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in this charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
BANK OF HAWAII CORPORATIONCORPORATE GOVERNANCE GUIDELINESAMENDED AND RESTATED
DIRECTOR STOCK COMPENSATION PLAN
The Board. In this Plan, except where the context otherwise indicates, the following definitions shall apply:
2. Director Qualifications
Independence
The Board shall be comprised ofsign an Agreement.
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Until November 4, 2004, references in Section 2 to:three years: shall be deemed to be references to such shorter periods as may be permitted by Section 303A of the NYSE Listed Company Manual.
Minimum Qualification Standards and Process for Identifying and Evaluating Director Nominees
In addition to consideration of the independence standards set forth above, nominees for directors, including those submitted by shareholders, are selected based on, among other criteria, their integrity, informed judgment, financial literacy, high performance standards, accomplishments and reputation in the community, experience, skill sets, ability to commit adequate time to Board and committee matters, and to act on behalf of shareholders. The criteria shall also include a determination of the needs of the Board and of the individual's personal qualities and characteristics with those of the other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Corporation and its shareholders. The composition of the Board should encompass a broad range of skills, expertise, industry knowledge, diversity of viewpoints, background, and business and community contacts relevant to the Corporation's business.
The Nominating & Corporate Governance Committee is responsible for reviewing the qualifications and independence of the members of the Board and its committees as well as the general composition of the Board. The Nominating & Corporate Governance Committee is responsible for identifying and recommending to the Board an annual slate of qualified nominees, including one or more nominees to fill vacancies on the Board that may occur between annual meetings. Final approval of the candidate is determined by the full Board. The invitation to join the Board should be extended by the Board.
The Nominating & Corporate Governance Committee will evaluate director candidates submitted by shareholders in accordance with the applicable procedures set forth in the Corporation's proxy statement and pursuant to the criteria set forth above.
Lead Independent Director
The Board shall periodically appoint a Lead Independent Director whose duties shall include, but not be limited to the following: a) serve as Vice Chairperson of the Corporation and Bank of Hawaii (the "Bank") Executive & Strategic Planning Committee; b) serve as Chairperson of the Corporation and
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Bank's Nominating & Corporate Governance Committee; c) preside over regularly scheduled executive sessions of the non-management directors; d) serve as a liaison between the independent and non-management directors and executive management when circumstances are such as the Chairman cannot act in such capacity; and e) assist the Board and executive management in ensuring compliance with these Guidelines.
Service on Other Boards and Change in Professional Role
Directors should advise the Chairman of the Board and Chairperson of the Nominating & Corporate Governance Committee in advance of accepting an invitation to serve on another public company board (or taking on additional significant committee assignments on other boards) to allow the Board the opportunity to review the director's availability to continue to fulfill his or her responsibilities as a member of the Board.
Directors who significantly change their professional role or responsibilities should offer their resignation from the Board to provide the Board the opportunity to review the continued appropriateness of Board membership.
Size of Board
The Board currently has 13 positions and has recommend nominees for 4 vacant positions to be voted on at the 2004 annual shareholder's meeting. The Board believes a 13 member Board to be the right number, but will periodically review the size and determine the number that is the most effective in relation to the Board's needs.
Term Limits and Retirement
The Board observes a retirement age of 70 and no director may stand for election to the Board after his or her 70th birthday. The Board does not have term limits as it is the belief of the Board that they prevent the Corporation from benefiting from those directors who have developed, over a period of time, valuable knowledge, experience and insight into the Corporation and its operations. As an alternative to term limits, the Nominating & Corporate Governance Committee will review each director's continuation on the Board at least every three years. Each member of the Board shall stand for election every three years by the shareholders of the Corporation at the annual shareholder's meeting.
3. Director Responsibilities
Attendance and Board Meetings
The Board currently plans at least 9 meetings each year, with further meetings to occur at the discretion of the Board. Directors should make every effort to regularly attend meetings of the Board and committees on which they serve and the Corporation's annual shareholder's meeting. Directors may attend meetings by telephone to mitigate conflicts. The basic responsibility of directors is to exercise their business judgment in good faith to act on what they reasonably believe to be the best interests of the Corporation and comport themselves as representatives of all shareholders. Directors are expected to spend the time and effort necessary to properly discharge their responsibilities; ask incisive and probing questions in a manner that promotes open discussion; and seek to add value to the Corporation through their range of expertise and diversity of background.
Meeting Materials and Agenda Items
Board and committee materials should, to the extent practicable and advisable in light of all the circumstances, be distributed in writing to the Board sufficiently in advance of the meeting to permit prior review by the directors, and directors should review these materials in advance of the meeting. The Nominating & Corporate Governance Committee is responsible for assessing the quality and scope of information provided to the Board and making recommendations to management as appropriate.
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The Chairman of the Board will establish the agenda for each Board meeting. Each Board member is free to suggest the inclusion of items on the agenda. The Board will review the Corporation's long term strategic plan and annual operating plan each year.
Access to Management and Independent Advisors
Board members have complete access to the officers and employees of the Corporation and its subsidiaries. Meetings or contacts that a director desires to initiate may be arranged through the CEO, Managing Committee Member, Corporate Secretary or directly by the director. Board members will use their judgment to assure that such access is not disruptive to the Corporation's business and to the extent not inappropriate, copy the CEO on any written communications between a director and an officer or employee.
The Board encourages the attendance of senior management at the Board meetings to, among other reasons, make presentations on their respective business areas and provide insight into areas of discussion. Such attendance is at the discretion of the Board. The Board and its committees have the authority to hire, at the expense of the Corporation, independent legal, financial or other advisors as they deem necessary.
Executive Sessions
To ensure free and open discussion and communication among the independent directors of the Board, the Lead Independent Director shall preside over regularly scheduled executive sessions of the independent directors without management present.
4. Board Committees
Standing Committees and Subcommittees
The Board shall have at least the following four standing committees: Audit, Human Resources & Compensation, Nominating & Corporate Governance, and Executive. The Board may establish such additional committees as it deems necessary or appropriate. The purpose and goals and responsibilities of each of the committees shall be set forth in their respective charters as approved by the Board. Each charter shall include the requirements established by the NYSE and applicable laws and regulations. Each Board committee may establish additional subcommittees and delegate such power and authority as it deems appropriate. Each committee chairperson will give a report of his or her committee's activities to the full Board.
Committee Member Qualifications
The Audit, Human Resources & Compensation and Nominating & Corporate Governance committees shall be composed solely of independent directors. The Nominating & Corporate Governance Committee is responsible for reviewing the effectiveness of the Board committees and shall recommend the appointment of committee members to the Board.
Committee Organization
The Chairperson of each committee, in accordance with the committee's charter and in consultation with committee members, will determine the frequency of the committee meetings. The Chairperson of each committee, in consultation with committee members and management, will develop the committee's agenda.
Committee Evaluation
Each Committee shall annually review its charter and evaluate its performance and recommend to the Board any changes it deems necessary.
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5. Director Compensation
The Corporation's executive officers serving as directors shall not receive additional compensation for their service as directors.
The members of the Corporation's Audit Committee shall not receive any additional compensation from the Corporation in addition to director fees (which may include fees for service on committees of the Board).
Director compensation will be determined in accordance with the policies and principles set forth in the Human Resources & Compensation Committee charter and the standards set by the NYSE and other applicable laws and regulations. The Directors are compensated in cash and the Corporation's stock through restricted stock grants and stock options as provided for in the Director Stock Program. Directors may elect to defer their fees pursuant to the Directors Deferred Compensation Plan.
The Board's Human Resources & Compensation Committee shall review and assess director compensation and the current practices in relation to, but not limited to, other comparable U.S. banks and those of the Corporation's competitors. Such an assessment will include review of material charitable contributions by the Corporation to organizations in which a director is affiliated and significant consulting or other similar arrangements between the Corporation and the director. The Human Resources and Compensation Committee shall make any recommendations they deem appropriate to the Board for their discussion and concurrence.
6. Director Orientation and Continuing Education
The Corporation shall provide new directors with a director orientation program to familiarize them with the Corporation's business, strategic plan, significant financial, accounting and risk management issues, compliance programs, code of business conduct and ethics, corporate governance guidelines, principal officers, internal auditors and independent auditors.
Periodically, management will provide continuing education to directors through, but not limited to, Board and committee meetings and strategic and educational sessions on matters relevant to the Corporation and as requested by the Board. Board members are encouraged to continue their education as necessary to maintain their level of expertise or enhance their knowledge to assist them in performing their responsibilities as directors.
7. CEO Evaluation and Management Succession
The Human Resources & Compensation Committee is responsible for conducting an annual review and evaluation of the CEO's performance and compensation as set forth in its charter and shall report to the Board on the results of its evaluation.
The Human Resources & Compensation Committee is also responsible for reviewing the succession planning for the CEO in the event of an emergency or retirement and for senior officers, and shall periodically report to the Board on succession planning to allow the Board to determine that the Corporation has a satisfactory process for succession planning and the education, development and evaluation of senior officers.
8. Annual Performance Evaluation of the Board and Corporate Governance Guidelines
The Nominating & Corporate Governance Committee shall lead and oversee the Board in its annual performance evaluation to determine whether the Board and its committees are functioning effectively. The evaluation criteria will be established by the Nominating & Corporate Governance Committee which will implement the evaluation process and discuss the results with the Board.
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The Corporate Governance Guidelines will be reviewed on at least an annual basis under the oversight of the Nominating & Corporate Governance Committee which shall make such recommendations to the Board as it deems necessary.
9. Code of Business Conduct and Ethics
All directors owe a duty of loyalty to the Corporation. This duty mandates that, in the course of carrying out the duties and responsibilities of that position, the best interest of the Corporation and its shareholders take precedence over any personal interests of the director. The Board shall adopt and disclose publicly a Code of Business Conduct and Ethics for directors, officers and employees (the "Code"), and promptly disclose any waivers of the code for directors or executive officers. The Code will address at a minimum conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Corporation assets, compliance with laws, rules and regulations, and encourage the reporting of any illegal or unethical behavior.
10. Shareholder Communications to the Board and Independent Directors
Shareholders may communicate with the Board, Independent Directors as a group or Lead Independent Director, by sending correspondence c/o the Corporation's Corporate Secretary, 130 Merchant Street, Dept. 232, Honolulu, Hawaii 96813. All communication will be provided to the Board, Independent Directors as a group, or Lead Independent Director as appropriate.
Appendix C
Bank of Hawaii Corporation2004 Stock and Incentive Compensation Plan
Article 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. Bank of Hawaii Corporation, a Delaware corporation (hereinafter referred to as the "Company"), establishes an incentive compensation plan to be known as the Bank of Hawaii Corporation 2004 Stock and Incentive Compensation Plan (hereinafter referred to as the "Plan"), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights ("SARs"), Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, and Stock-Based Awards.
The Plan shall become effective upon shareholder approval of the Plan (the "Effective Date") and shall remain in effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of the Participants to those of the Company's shareholders, and by providing Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants upon whose judgment, interest, and special effort the successful conduct of its operation largely is dependent.
1.3 Duration of the Plan. Unless sooner terminated as provided herein, the Plan shall terminate ten (10) years from the Effective Date. After the Plan is terminated, no future Awards may be granted but Awards previously granted shall remain outstanding in accordance with their applicable terms and conditions and the Plan's terms and conditions. Notwithstanding the foregoing, no Incentive Stock Options may be granted more than ten (10) years after the earlier of (a) the adoption of the Plan by the Board, and (b) the Effective Date.
1.4 Successor Plan. This Plan shall serve as the successor to the Pacific Century Financial Corporation Stock Option Plan of 1994 (the "Predecessor Plan"), and no further grants can be made under the Predecessor Plan on or after January 1, 2004. All outstanding Awards under the Predecessor Plan immediately prior to the Effective Date of this Plan are hereby incorporated into this Plan and shall accordingly be treated as Awards under this Plan. However, each such Award shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance, and, except as otherwise expressly provided herein, no provision of this Plan shall affect or otherwise modify the rights or obligations of holders of such incorporated Awards. Any Shares as to which Awards granted or issued under the Predecessor Plan that may lapse, expire, terminate, or be cancelled, are settled in cash in lieu of common stock, are tendered (either by actual delivery or attestation) to pay the Option Price, or satisfy any tax withholding requirements also shall be deemed available for issuance or reissuance under Section 4.1 of the Plan.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meaning set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
2.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act.
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2.2 "Award" means, individually or collectively, a grant under this Plan of NQSOs, ISOs, SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, or Stock-Based Awards.
2.3 "Award Agreement" means either (i) an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan; or (ii) a statement issued by the Company to a Participant describing the terms and provisions of such Award.
2.4 "Beneficial Owner or Beneficial Ownership" shall have the meaning ascribed to such term in rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.5 "Board" or "Board of Directors""Board" means the Board of Directors of the Company.
2.6 "Cash-Based Award" means an Award granted to a Participant as described in Article 10 herein.
2.7 "Cause" means (i) willful misconduct on the part of a Participant that is detrimental to the Company, its Affiliates, and/or its Subsidiaries; or (ii) the conviction of a Participant for the commission of a felony or crime involving turpitude. "Cause" under either (i) or (ii) shall be determined in good faith by the Committee.
2.8 "Change in Control" shall occur for purposes of the Plan or the Predecessor Plan if any of the following events occur:
As of the Effective Date, the Change in Control definition described in this Section 2.8 shall constitute an amendment to Section 2.1(f) of the Predecessor Plan and shall replace the definition thereunder.
2.9 "Code""Code" means the U.S. Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
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2.10 "Committee"
2.11 "Company"Company's common stock, par value $0.01 per share.
2.12 "Covered Employee"thereto.
2.13 "Director"this Plan.
2.14 "Employee" means any Affiliate, and (b) is not an employee of the Company its Affiliates, and/or its Subsidiaries. Directors who are not otherwise employed by the Company, its Affiliates, and/or its Subsidiaries shall not be considered Employees under this Plan.
Individuals described in the first sentence of this definition who are foreign nationals or are employed outside of the United States, or both, are considered to be Employees and may be granted Awards on the terms and conditions set forth in the Plan, or on such other terms and conditions as may, in the judgment of the Committee, be necessary or desirable to further the purpose of the Plan
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.16 "Fair Market Value" orAffiliate.
2.17 "Fiscal Year" means the year commencing on January 1 and ending December 31 or other time period as approved by the Board.
2.18 "Freestanding SAR" means an SAR that is granted independently of any Options, as described in Article 7 herein.
2.19 "Full Value Award" means an Award other than in the form of an ISO, NQSO, or SAR and which is settled by the issuance of Shares.
2.20 "GrantExercise Price" means the price per Share at which a SARan Option may be exercisedexercised.
2.21 "Incentive Stock Board may select.
2.22 "Independent Contractor"period during which an Option may be exercised.
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as selected by the Committee in accordance with Article 5. Notwithstanding any other provision in theamended from time-to-time.
Unless the context expressly requires the contrary, the following shall apply in the case of an Independent Contractor who is allowed to participate in the Plan: (a) with respect to any referencereferences in this Plan to the working relationship between such Independent Contractor and the Company, its Affiliates, and/or its Subsidiaries,(a) the term "service" shall apply as may be appropriate in lieu"Section" refers to the sections of this Plan, and (b) the word "including" means "including (without limitation)."
2.23 "Insider" shall mean an individual who is, on the relevant date, an officer, Director, or more than ten percent (10%) Beneficial Owner of any classDirectors with those of the Company's equity securities that is registered pursuant to Section 12stockholders of the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act.
2.24 "Nonqualified Stock Option" or"NQSO" means an Option to purchase Shares, granted under Article 6 herein, which is not intended to be an Incentive Stock Option or that otherwise does not meet such requirements.
2.25 "Option" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.
2.26 "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee.
2.27 "Participant" means an Employee or Independent Contractor who has been selected to receive an Award or who has an outstanding Award granted under the Plan.
2.28 "Performance-Based Compensation" means compensation under an Award that satisfies the requirements of Section 162(m) of the Code for deductibility of remuneration paid to Covered Employees.
2.29 "Performance Measures" means measures as described in Article 11 on which the performance goals are based and which are approved by the Company's shareholders pursuant to this Plan in order to qualify Awards as Performance-Based Compensation.
2.30 "Performance Period" means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
2.31 "Performance Share" means an Award granted to a Participant, as described in Article 9 herein.
2.32 "Performance Unit" means an Award granted to a Participant, as described in Article 9 herein.
2.33 "Period of Restriction" means the period when Awards are subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Committee, at its discretion.
2.34 "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.35 "Restricted Stock" means an Award of Shares granted to a Participant pursuant to Article 8 herein.
2.36 "Restricted Stock Unit" means an Award granted to a Participant pursuant to Article 8 herein.
2.37 "Shares" or "Stock" means the Shares of common stock of the Company.
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2.38 "Stock Appreciation Right"or"SAR" means an Award, designated as an SAR, pursuant to the terms of Article 7 herein.
2.39 "Stock-Based Award" means an Award granted pursuant to the terms of Section 10.2 herein.
2.40 "Subsidiary" means any corporation, partnership, joint venture, limited liability company, or other entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns at least fifty percent (50%) of the total combined voting power in one of the other entities in such chain.
2.41 "Tandem SAR" means an SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be cancelled) or an SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results in the exercise of the related SAR.
Article 3. Administration
3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, consultants, accountants, and other persons, and the Committee, the Company and its officersAffiliates by encouraging and enabling Directors to acquire and retain Common Stock.
3.2 Authorityprovisions of the Committee.Plan. The CommitteeBoard shall have fullplenary authority and exclusive discretionary powerdiscretion, subject to interpret the terms and the intentprovisions of the Plan, and to determine eligibility for Awards and to adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to Article 16, adopting modifications and amendments, or subplans to the Plan or any Award Agreement, including without limitation, any that are necessary to comply with the laws of the countries in which the Company, its Affiliates, and/or its Subsidiaries operate.
3.3 Delegation. The Committee may delegate to one or more of its members or to one or more officers of the Company, its Affiliates and/or its Subsidiaries, or to one or more agents or advisors such administrative duties as it may deem advisable, and the Committee or any personDirectors to whom it has delegated duties as aforesaid may employ onegrants Awards, the terms (which terms need not be identical) of all Awards, including the Exercise Price of Options, the time or more persons to render advice with respect to any responsibilitytimes at which Awards are granted or vest, the Committee or such person may have under the Plan. Except with respect to Awards to Insiders, the Committee may, by resolution, authorize one or more officers of the Company to do one or both of the following: (a) designate officers, Employees, or Independent Contractors of the Company, its Affiliates, and/or its Subsidiaries to be recipients of Awards; and (b) determine the size of the Award; provided, however, that the resolution providing such authorization sets forth the total number of Shares covered by Awards, such officer or officers may grant.
Article 4. Sharesand any exceptions to nontransferability. Subject to the provisions of this Plan, the Board shall have plenary authority to interpret this Plan and MaximumAgreements, prescribe, amend and rescind rules and regulations relating to them, and make all other determinations deemed necessary or advisable for the administration of this Plan and Awards
4.1 Number granted hereunder. The determinations of Shares Available for Awards.the Board on the matters referred to in this Section 3 shall be binding and final.
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may be credited to Share Authorizations. Moreover, if the Option Price of any Option granted under the Plan or the tax withholding requirements with respect to any Award granted under the Plan are satisfied by tendering Shares to the Company (by either actual delivery or by attestation),forfeited or if an SARAward otherwise terminates, expires, or is exercised, only the number of Shares issued, netsurrendered or settled without all or a portion of the Shares tendered, if any, willcovered by the Award being issued, the forfeited or unissued Shares under the terminated, expired, or settled exercise Award shall again be deemed delivered for purposes of determining the maximum number of Shares available for delivery under the Plan. The maximum number of Shares available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, or Stock-Based Awards. The Shares available for issuance under the Plan may be authorized and unissued Shares or treasury Shares.
Unless and until the Committee determines that an Award to a Covered Employee shall not be designed to qualify as Performance-Based Compensation, the following limits (each an "Annual Award Limit," and collectively, "Annual Award Limits") shall apply to grants of such Awards under the Plan:
4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, Stock dividend, Stock split, reverse Stock split, split up, spin-off, or other distribution of Stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants' rights under the Plan, shall substitute or adjust, in an equitable manner, as applicable, the number and kind of Shares that may be issued under the Plan, the number and kind of Shares subject to
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outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the Award Limits, and other value determinations applicable to outstanding Awards.
Appropriate adjustments may also be made by the Committee in the terms of any Awards under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance goals and changes in the length of Performance Periods. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
Subject to the provisions of Article 15 and any applicable law or regulatory requirement, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance, assumption, substitution, or conversion of Awards under this Plan.
Article 5. Eligibility and Participation
5.1 Eligibility. Individuals eligible to participate in the Plan include all Employees and Independent Contractors.
5.2 Actual Participation. Subject to the provisionsnot being an incentive stock option under Section 422 of the Plan, the Committee may from time to time, select from all eligible EmployeesCode, and Independent Contractors, those to whom Awards shall be granted and shall determine the nature and amount of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, provided that ISOs shall not be granted to Independent Contractors.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that specifies the terms and conditions of the Option. Options shall specifybe subject to the terms and conditions set forth in this Section 6 and such other terms and conditions not inconsistent with this Plan as the Board may specify.
6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the Committee and shall be specified in the Award Agreement. The Option Price may include (but not be limited to) an Option Price based on one hundred percent (100%) of the FMV of the Shares on the date of grant, an Option Price that is set at a premium to the FMV of the Shares on the date of grant, or is indexed to the FMV of the Shares on the date of grant, with the index determined by the Committee, in its discretion, however, if the Option is an ISO the Option Price must be at least equal to one hundred percent (100%) of the FMV of the Shares on the date of grant.
6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, no Option shall be exercisable later than the tenth (10th) anniversary date of its grant. Notwithstanding the foregoing, for Options granted to Participants outside the United States, the Committee has the authority to grant Options that have a term greater than ten (10) years.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
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6.6 Payment. Options granted under this Article 6 shall be exercised, in whole or in part, by the delivery of a written notice of exercisedelivering to the Company setting fortha notice of the number ofexercise, in such form as the Board may prescribe, accompanied by full payment for the Shares with respect to which the Option is exercised, or to be exercised, accompaniedthe extent provided in the applicable Agreement or otherwise authorized by full payment for the Shares.
The Option Price upon exercise of any Option shall be payableBoard, irrevocable instructions to a broker to deliver promptly to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate FMV at the time of exercise equal to the total Option Priceexercise price of the Option.
The Committee also may allow cashless exercise as permitted under the Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law.
Subject to Section 6.7 and any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, Share certificates or evidence of book entry Shares, in an appropriate amount based upon the number of Shares purchased under the Option(s).
Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option grantedRestricted Stock under this Article 6 as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant to exercise for a specified period of time, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment. Each Participant's Award AgreementPlan shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for termination.
6.9 Transferability of Options.
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6.10 Notification of Disqualifying Disposition. The Participant will notify the Company upon the disposition of Shares issued pursuant to the exercise of an ISO. The Company will use such information to determine whether a disqualifying disposition as described in Section 421(b) of the Code has occurred.
6.11 Dividend Equivalents. At the discretion of the Committee, Participants holding Options may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividend equivalents may be in the form of cash, Shares, Restricted Stock, or Restricted Stock Units, and may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject toan Agreement specifying the terms and conditions of the Award. Restricted Stock granted under this Plan SARs may be grantedshall consist of Shares that are restricted as to Participants at any timetransfer, subject to forfeiture, and from timesubject to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs.
Subject to thesuch other terms and conditions ofas the Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.
The SAR Grant Price for eachBoard may specify.
7.2 SAR Agreement. Each SAR AwardRestricted Stock Units under this Plan shall be evidenced by an Award Agreement that shall specify(a) provides for the Grant Price,issuance of Shares (or the term of the SAR, andcash equivalent thereof) to a Participant at such other provisionstime(s) as the Committee shall determine.
7.3 Term of SAR. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion,Board may specify, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth (10th) anniversary date of its grant. Notwithstanding the foregoing, for SARs granted to Participants outside the United States, the Committee has the authority to grant SARs that have a term greater than ten (10) years.
7.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever(b) contains such other terms and conditions the Committee, in its sole discretion, imposes upon them.
7.5. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject to the ISO exceeds the Option Price of the ISO.
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7.6 Payment of SAR Amount. Upon the exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, in some combination thereof, or in any other manner approved by the Committee at its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later determination in the Award Agreement pertaining to the grant of the SAR.
7.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
7.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided that the Board or Committee may permit further transferability, on a general or a specific basis, and may impose conditions and limitations on any permitted transferability. Further, except as otherwise provided in a Participant's Award Agreement or otherwise unless the Board or the Committee decides to permit further transferability, all SARs granted to a Participant under this Article 7 shall be exercisable during his or her lifetime only by such Participant.specify.
7.10 Substituting SARs. In the event the Company no longer uses APB Opinion 25 to account for equity compensation and is required to or elects to expense the cost of Options pursuant to FAS 123 (or a successor standard), the Committee shall have the ability to substitute, without receiving Participant permission, SARs paid only in Stock (or SARs paid in Stock or cash at the Committee's discretion) for outstanding Options; provided, the terms of the substituted Stock SARs are the same as the terms for the Options and the difference between the Fair Market Value of the underlying Shares and the Grant Price of the SARs is equivalent to the difference between the Fair Market Value of the underlying Shares and the Option Price of the Options. If, in the opinion of the Company's auditors, this provision creates adverse accounting consequences for the Company, it shall be considered null and void.
7.11 Dividend Equivalents. At the discretion of the Committee, Participants holding SARs may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividend equivalents may be in the form of cash, Shares, Restricted Stock, or Restricted Stock Units, and may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
Article 8. Restricted Stock and Restricted Stock Units
8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts, as the Committee shall determine. Restricted
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Stock Units shall be similar to Restricted Stock except that no Shares are actually awarded to the Participant on the date of grant.
8.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.
8.3 Transferability. Except as provided in this Article 8, the Shares of Restricted Stock and/or Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Award Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction of any other conditions, as specified by the Committee, in its sole discretion, and set forth in the Award Agreement. All rights with respect to the Restricted Stock and/or Restricted Stock Units granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.
8.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, restrictions under applicable federal or state securities laws, or any holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted Stock Units.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse, and Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.
8.5 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 8.4 herein, each certificate representing Shares of Restricted Stock granted pursuant to the Plan may bear a legend such as the following:
The sale or other transfer of the Shares of Stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Bank of Hawaii Corporation's 2004 Equity and Incentive Compensation Plan, and in the associated Restricted Stock Award Agreement. A copy of the Plan and such Restricted Stock Award Agreement may be obtained from the Bank of Hawaii.
8.6 Voting Rights. To the extent permitted or required by law, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
8.7 Dividends and Dividend Equivalents.Equivalents During the Period. The terms of Restriction, Participants holding Shares of Restricted Stock or Restricted Stock Units granted hereunder may, if the Committee so determines, be credited with dividends paid with respect to Restricted Stock or dividend equivalents with respect to Restricted Stock Units while they are so held in a manner determined by the Committee in its
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sole discretion. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, Shares, Restricted Stock, or Restricted Stock Units and such dividends or dividend equivalents may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee.
8.8 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Restricted Stock and/or Restricted Stock Units following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock or Restricted Stock Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
8.9 Section 83(b) Election. The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
Article 9. Performance Shares and Performance Units
9.1 Grant of Performance Shares and Performance Units. Subject to the terms of the Plan, Performance Shares and/or Performance Units may, be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
9.2 Value of Performance Shares and Performance Units. Each Performance Share shall have an initial value equal to the FMV of a Share on the date of grant. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the value and/or number of Performance Shares/Performance Units that will be paid out to the Participant.
9.3 Earning of Performance Shares and Performance Units. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Shares/Performance Units shall be entitled to receive payout on the value and number of Performance Shares/Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved. Notwithstanding the foregoing, the Company has the ability to require the Participant to hold the Shares received pursuant to such Award for a specified period of time.
9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance Shares/Performance Units shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Shares/Performance Units in the form of cash or in Shares (or in a combination thereof) equal to the value of the earned Performance Shares/Performance Units as soon as practicable after the end of the applicable Performance Period. Any Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
9.5 Dividend Equivalents. At the discretion of the Committee, Participants holding Performance Shares may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividends may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
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9.6 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Performance Shares and/or Performance Units following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Performance Shares or Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
9.7 Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Performance Shares/Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during his or her lifetime only by such Participant.
Article 10. Cash-Based Awards and Stock-Based Awards
10.1 Grant of Cash-Based Awards. Subject to the terms of the Plan, Cash-Based Awards may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
10.2 Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions as the Committee shall determine. Such AwardsBoard may entail the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may include, without limitation, Awards designed to complyspecify, provide a Participant with or take advantage of the applicable local laws of jurisdictions other than the United States.
10.3 Value of Cash-Based and Stock-Based Awards. Each Cash-Based Award shall have a value as may be determined by the Committee. Each Stock-Based Award shall have a value based on the value of a Share, as determined by the Committee. The Committee may establish performance goals in its discretion. If the Committee exercises its discretion to establish performance goals, the number and/or value of Cash-Based and Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met.
10.4 Earning of Cash-Based and Stock-Based Awards. Subject to the terms of this Plan, the holder of Cash-Based and Stock-Based Awards shall be entitled to receive payout on the number and value of Cash-Based Awards and Stock-Based Awards earned by the Participant, to be determined as a function of the extent to which applicable performance goals, if any, have been achieved.
10.5 Form and Timing of Payment of Cash-Based and Stock-Based Awards. Payment of earned Cash-Based and Stock-Based Awards shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Cash-Based Awards or earned Stock-Based Awards in the form of cash or in Shares (or in a combination thereof) that have an aggregate FMV equal to the value of the earned Cash-Based Awards or to the value of the earned Stock-Based Awards. Such Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
10.6 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to receive Cash-Based Awards and Stock-Based Awards following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Cash-Based
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Awards and Stock-Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
10.7 Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Cash-Based Awards and Stock-Based Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant.
10.8 Dividend Equivalents. At the discretion of the Committee, Participants holding Stock-Based Awards may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividends may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
Article 11. Performance Measures
Unless and until the Committee proposes for shareholder vote and the shareholders approve a change in the general Performance Measures set forth in this Article 11, the performance goals upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
Any Performance Measure(s) may be used to measure the performance of the Company as a whole or any business unit of the Company or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate, or the Company may select Performance Measure (h) above as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article 11.
The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (d) reorganization or restructuring programs;
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(e) extraordinary or nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
Awards that are designed to qualify as Performance-Based Compensation, and that are held by Covered Employees, may not be adjusted upward. The Committee shall retain the discretion to adjust such Awards downward.
In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m).
Article 12. Beneficiary Designation
A Participant's "beneficiary" is the person or persons entitled to receive payments or other benefits or exercise rights that are available under the Plan in the event of the Participant's death. A Participant may designate a beneficiary or change a previous beneficiary designation at any time by using forms and following procedures approved by the Committee for that purpose. If no beneficiary designated by the Participant is eligible to receivedividend equivalent payments or other benefits or exercise rights that are available under the Plan at the Participant's death the beneficiary shall be the Participant's estate.
Notwithstanding the provisions above, the Committee may in its discretion, after notifying the affected Participants, modify the foregoing requirements, institute additional requirements for beneficiary designations, or suspend the existing beneficiary designations of living Participants or the process of determining beneficiaries under this Article 12, or both. If the Committee suspends the process of designating beneficiaries on forms and in accordance with procedures it has approved pursuant to this Article 12, the determination of who is a Participant's beneficiary shall be made under the Participant's will and applicable state law.
Article 13. Deferrals and Share Settlements
Notwithstanding any other provision under the Plan, the Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, or with respect to the lapse or waiver of restrictions with respect to Restricted Stock or Restricted Stock Units or the satisfaction of any requirements or performance goals with respect to Performance Shares, Performance Units, Cash-Based Awards, or Stock-Based Awards. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
Article 14. Rights of Employees and Independent Contractors
14.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Affiliates, and/or its Subsidiaries to terminate any Participant's employment or other service relationship at any time, nor confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company, its Affiliates, and/or its Subsidiaries.
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Neither an Award nor any benefits arising under this Plan shall constitute part of an employment contract with the Company, its Affiliates, and/or its Subsidiaries and, accordingly, subject to Articles 3 and 16, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company, its Affiliates, and/or its Subsidiaries for severance payments.
For purposes of the Plan, transfer of employment of a Participant between the Company, its Affiliates, and/or its Subsidiaries shall not be deemed a termination of employment. Additionally, the Committee shall have the ability to stipulate in a Participant's Award Agreement that a transfer to a company that is spun-off from the Company shall not be deemed a termination of employment with the Company for purposes of the Plan until the Participant's employment is terminated with the spun-off company.
14.2 Participation. No Employee or Independent Contractor shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
14.3 Rights as a Shareholder. A Participant shall have none of the rights of a shareholder with respect to Shares covered by the Award, which payments may be either made currently or credited to an account established for the Participant, and may be settled in cash or Shares, as determined by the Board.
Article 15. Changegranted hereunder to be canceled in Control
Upon the occurrenceconsideration of a Change in Control, unless otherwise specifically prohibited under applicable laws, orcash payment equal to the fair value of the canceled Award, as determined by the rules and regulationsBoard in its discretion. Unless the Board determines otherwise, the fair value of any governing governmental agencies or national securities exchanges, or unless the Committee shall determine otherwise in the Award Agreement:
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Article 16. Amendment, Modification, Suspension, and Termination
16.1 Amendment, Modification, Suspension, and Termination. The Committee or Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Plan in whole or in part. Notwithstanding anything herein to the contrary, without the prior approval of the Company's shareholders, Options issued under the Plan will not be repriced, replaced, or regranted through cancellation, or by lowering the exercise price of a previously granted Option. No amendment of the Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule.
16.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of this Plan, the Board may modify the terms of any outstanding Awards; provided, that (a) no modification of an Award shall, without the consent of the Participant, alter or impair any of the Participant's rights or obligations under the Award, and (b) subject to Section 11, in no event may (i) an Option be modified to reduce the criteria includedExercise Price of the Option, or (ii) an Option be cancelled or surrendered in Awardsconsideration for the grant of a new Option with a lower Exercise Price.
16.3 Awards Previously Granted. Notwithstanding any other provisionrequirement of the Plan to the contrary, no termination, amendment, suspension, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.
Article 17. Withholding
17.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign (including the Participant's FICA obligation), required by law or regulation to be withheld with respect to any taxable event arising or as a result of this Plan.
17.2 Share Withholding. With respect to withholding requiredstockholder approval upon the exercisesame.
Article 18. Successors
All obligationsconflict of the Company under the Plan with respectlaws principles.
Article 19. General Provisions
19.1 Forfeiture Events. The Committee may specify in an Award Agreementwriting that the Participant's rights, payments, and benefits with respectperson is acquiring the Shares without a view to an Award shall be subject to reduction, cancellation,
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forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events shall include, but shall not be limited to, termination of employment for Cause, violation of material Company, Affiliate, and/or Subsidiary policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company, its Affiliates, and/or its Subsidiaries.
19.2 Legend.distribution thereof. The certificates for the Shares may include any legend thatwhich the CommitteeBoard deems appropriate to reflect any restrictions on transfer. All certificates for Shares issued pursuant to this Plan shall be subject to such stock transfer orders and other restrictions as the Board may deem advisable under the rules, regulations, and other requirements of such Shares.
19.3 Delivery of Title.the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or interdealer quotation system upon which the Common Stock is then quoted, and any applicable federal or state securities laws. The Board may place a legend or legends on certificates for Shares to make appropriate reference to the restrictions.
19.4 Investment Representations. The Committee may require each Participant receiving Shares pursuant to an AwardAwards granted under this Plan, or record any person as a holder of record of Shares, without obtaining, to represent and warrant in writing that the Participant is acquiringcomplete satisfaction of the Shares for investmentBoard, the approval of all regulatory bodies the Board deems necessary, and without any present intention to sell or distribute such Shares.
19.5 Employees Based Outside of the United States. Notwithstanding any provision of the Plancomplying to the contrary, in order to complyBoard's complete satisfaction, with all rules and regulations, under federal, state or local law the laws in other countries in which the Company, its Affiliates, and/or its Subsidiaries operate or have Employees or Independent Contractors, the Committee, in its sole discretion, shall have the power and authority to:
Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law, or governing statute or any other applicable law.
19.6 Uncertificated Shares.To the extent that thethis Plan provides for issuance of stock certificates to reflect the transferissuance of Shares, the transfer of such Sharesissuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
19.7 Unfunded Plan. Participants shall have no right, title,exchange or interest whatsoever in or to any investments thatautomated dealer quotation system on which the Company, its Affiliates, and/or its Subsidiaries may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company,
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its Affiliates, and/or its Subsidiaries and any Participant, beneficiary, legal representative, or any other person. To the extent that any person acquires a right to receive payments from the Company, its Affiliates, and/or its Subsidiaries under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to ERISA.
19.8 No Fractional Shares.Shares are traded. No fractional Shares shall be issued or delivered pursuant to thethis Plan or any Award.award. The CommitteeBoard shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of any fractional Shares or whether suchany fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
19.9 Retirement and Welfare Plans. The Awards under this Plans will not be included as "compensation" for purposes of computing benefits payable to any Participant under the Company's retirement plans (both qualified and nonqualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant's benefit.
Article 20. Legal Construction
20.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
20.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
20.3 Requirements of Law. The granting of Awards and the issuance of Shares
The inabilitydate of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by2005 annual meeting of the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
20.4 Securities Law Compliance. The Company may use reasonable endeavors to register Shares allotted pursuant to the exercise of an Award with the United States Securities and Exchange Commission or to effect compliance with the registration, qualification, and listing requirements of any national or foreign securities laws, stock exchange, or automated quotation system. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
20.5 Governing Law. The Plan and each Award Agreementstockholders shall be governed by the laws of the State of Hawaii, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretationterms of the Plan in effect immediately prior to the substantive lawdate of another jurisdiction. Unless otherwise providedsuch annual meeting.
INSTRUCTIONS FOR VOTING YOUR PROXY
Bank of Hawaii Corporation is offering shareholders of record three alternative ways of voting your proxies:
Your telephone or Internet vote authorizes the named proxies to vote your shares in the Award Agreement, recipientssame manner as if you had returned your proxy card. We encourage you to use these cost effective and convenient ways of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venuevoting, 24 hours a day, 7 days a week.
TELEPHONE VOTING | Available only until 5:00 p.m. Eastern time on Thursday, April 28, 2005 |
INTERNET VOTING | Available only until 5:00 p.m. Eastern time on Thursday, April 28, 2005. |
VOTING BY MAIL
COMPANY NUMBER | CONTROL NUMBER |
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
ý | Please mark votes as in this example. |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE FOLLOWING PROPOSALS:
Class I | Peter D. Baldwin Michael J. Chun Robert Huret Donald M. Takaki | FOR ALL nominees listed o | WITHHOLD AUTHORITY o | FOR EXCEPT* o |
(To withhold authority for any nominee, write his name on the line below.)
*Exception
FOR o | AGAINST o | ABSTAIN o |
FOR o | AGAINST o | ABSTAIN o |
DATE: | , 2005 | |||
SIGNATURE | ||||
SIGNATURE (JOINT OWNERS) | ||||
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. |
Notice of the Annual Meeting of Shareholders
April 30, 200429, 2005
Shareholders of record of Bank of Hawaii Corporation common stock at the close of business on March 1, 2004February 28, 2005 are entitled to attend the meeting and vote on the business brought before it. The meeting will be held on Friday, April 30, 200429, 2005 at 8:30 a.m. on the Sixth Floor of the Bank of Hawaii Building, 111 South King St., Honolulu, Hawaii.
We look forward to seeing you at the meeting. However, if you cannot 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 also may vote by telephone or electronically via the Internet. By voting your proxy each year, you can keep your account active and avoid the potential escheatment of uncashed dividends and stock holdings to the state. The accompanying proxy statement, also available online at www.boh.com, 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
By Order of the Board of Directors | ||||
/s/ CORI C. WESTON CORI C. WESTON Senior Vice President and Secretary Bank of Hawaii Corporation |
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE | ||
BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 29, 2005 The undersigned hereby constitutes and appoints S. HAUNANI APOLIONA, MARY G. F. BITTERMAN, and ROBERT W.WO, JR., and each of them, the proxy of the undersigned, with full powers of substitution, to vote all common stock of Bank of Hawaii Corporation, that the undersigned may be entitled to vote at the annual meeting of shareholders of Bank of Hawaii Corporation to be held on April 29, 2005, or any adjournment thereof. THIS PROXY WILL BE VOTED AS DIRECTED. |
INSTRUCTIONS FOR VOTING YOUR PROXY
Bank of Hawaii Corporation is offering shareholders of record three alternative ways of voting your proxies:•By Telephone (using a touch-tone telephone) •Through the Internet (using the browser) •By Mail (traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you had returned your proxy card. We encourage you to use these cost effective and convenient ways of voting, 24 hours a day, 7 days a week.
TELEPHONE VOTING Available only until 5:00 p.m. Eastern time on Thursday, April 29, 2004
INTERNET VOTING Available only until 5:00 p.m. Eastern time on Thursday, April 29, 2004.
VOTING BY MAIL
COMPANY NUMBERCONTROL NUMBER
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALLFOR EACH OF THE FOLLOWING PROPOSALS:PROPOSALS. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR ALL NOMINEES AND PROPOSALS, AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.