SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
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14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Pacific Century Financial Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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and 0-11.
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[Pacific Century Financial Logo]
YOUR VOTE IS IMPORTANT!
Notice of 2001
Annual Meeting of Shareholders
and Proxy Statement
Meeting Date: April 27, 2001
PACIFIC CENTURY FINANCIAL CORPORATION
130 Merchant Street
Honolulu, Hawaii 96813
[Pacific Century Financial Logo]
PACIFIC CENTURY FINANCIAL CORPORATION
130 MERCHANT STREET
HONOLULU, HAWAII 96813
March 9, 2001
Dear Shareholder:
You are invited to attend the Annual Meeting of shareholders of Pacific
Century Financial Corporation ("Pacific Century" or the "Company"). We will meet
at 8:30 a.m. on Friday, April 27, 2001 on the Sixth Floor of the Bank of Hawaii
Building, 111 South King Street, Honolulu, Hawaii.
The Notice of Meeting and Proxy Statement accompanying this letter describe
the business we will consider and vote upon at the meeting. A report to
shareholders on the affairs of Pacific Century also will be given, and
shareholders will have the opportunity to discuss matters of interest concerning
the Company.
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,
[/S/ MICHAEL E. O'NEILL]
MICHAEL E. O'NEILL
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
TABLE OF CONTENTS
PAGE
--------
NOTICE OF 2001 ANNUAL MEETING OF SHAREHOLDERS............... 1
PROXY STATEMENT............................................. 2
Questions and Answers About the Proxy Materials and the
Annual Meeting............................................ 2
Proposals 1: Election of Directors........................ 5
Board of Directors........................................ 5
Beneficial Ownership.................................... 8
Board Compensation...................................... 10
Board Committees and Meetings........................... 11
Audit Committee Report and Audit Fees................... 12
Executive Compensation.................................... 13
Compensation Committee Report........................... 13
Summary Compensation Table.............................. 18
Stock Option/SAR Grants in Last Fiscal Year............. 19
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option Values....................... 20
Long-Term Incentive Plans -- Awards in Last Fiscal
Year.................................................... 20
Pension Plan Table and Retirement Plan.................. 21
Profit Sharing and Money Purchase Plans................. 22
Change-in-Control Arrangements.......................... 22
Performance Graph......................................... 23
Certain Transactions with Management and Others........... 23
Section 16(a) Beneficial Ownership Reporting Compliance... 23
Proposal 2: Amendment to Option Plan to Increase Available
Shares.................................................. 24
Proposal 3: Amendment to Option Plan to Allow the Number
of Options Granted to Exceed 20% of the Authorized Pool
but No More Than 23% for CEO Upon Hire.................. 24
Proposal 4: Amendment to Option Plan to Allow Grant of
Options to Independent Contractors...................... 25
Proposal 5: Election of Independent Auditor............... 26
Appendix A. Audit Committee Charter....................... 27
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 27, 2001
------------------------
To Our Shareholders:
The Annual Meeting of shareholders of Pacific Century Financial Corporation
("Pacific Century" or the "Company") will be held on Friday, April 27, 2001, at
8:30 a.m. on the sixth floor of the Bank of Hawaii Building, 111 South King
Street, Honolulu, Hawaii, for the following purposes:
1. To elect three Class III Directors for terms expiring in 2004 and to
elect one Class II Director for a term expiring in 2003.
2. To approve an amendment to the Pacific Century Financial Corporation
Stock Option Plan of 1994 (the "Option Plan") to increase the number of
shares of common stock available for grant under the Option Plan.
3. To approve an amendment to the Option Plan to allow the number of
options granted to a Chief Executive Officer upon initial hire, to exceed
20%, but no more than 23% of the authorized pool limitation.
4. To approve an amendment to the Option Plan to allow the grant of options
to independent contractors.
5. To elect an Independent Auditor.
6. To transact any other business that may be properly brought before the
meeting.
The Board of Directors recommends that shareholders vote FOR all proposals.
Shareholders of record of Pacific Century common stock at the close of
business on February 27, 2001 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 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
[/S/ CORI C. WESTON]
CORI C. WESTON
VICE PRESIDENT AND SECRETARY
PACIFIC CENTURY FINANCIAL CORPORATION
Honolulu, Hawaii
Dated: March 9, 2001
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.
PROXY STATEMENT
The Board of Directors of Pacific Century Financial Corporation ("Company"
or "Pacific Century") is soliciting the enclosed proxy for the Company's 2001
annual meeting. The proxy statement, proxy card, and the Company's 2001 Annual
Report to Shareholders and Form 10-K are being distributed on or about March 9,
2001.
------------------------
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
Q: WHAT AM I VOTING ON?
A: The election of directors, three amendments to the Option Plan and the
election of an independent auditor.
Q: WHO CAN VOTE AT THE ANNUAL MEETING?
A: Shareholders as of the close of business on February 27, 2001 (the "Record
Date") can attend and vote at the annual meeting. Each share of common stock
is entitled to one vote. On the Record Date, there were 79,791,250 shares of
common stock issued and outstanding.
Q: HOW MANY VOTES DO WE NEED TO HOLD THE ANNUAL MEETING?
A: The holders of at least one-third of the outstanding common stock on the
Record Date entitled to vote at the annual meeting must be present to
conduct business. That amount is called a QUORUM. Shares are counted as
present at the meeting, if a shareholder entitled to vote is present and
votes at the meeting, has submitted a properly signed proxy, or has properly
voted by telephone or over the Internet. We also count abstentions and
broker non-votes for a quorum.
Q: WHAT SHARES CAN I VOTE?
A: You may votes all shares you own on the Record Date. The enclosed proxy card
shows the number of shares you may vote.
Q: HOW CAN I VOTE MY SHARES IN PERSON AT THE ANNUAL MEETING?
A: If you are a shareholder of record, you can attend the annual meeting and
vote in person the shares you hold directly in your name as the shareholder
of record. If you choose to do that, please bring the enclosed proxy card or
proof of identification. If you hold your shares as a beneficial owner, you
must vote your shares through your broker or other nominee.
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.
Q: HOW CAN I VOTE MY SHARES WITHOUT ATTENDING THE ANNUAL MEETING?
A: You may direct your vote without attending the annual meeting. You may vote
by granting a proxy, or, for shares held in street name, by submitting
voting instructions to your broker or other nominee. You can do that over
the Internet, by telephone, or by mail. If your shares are held by a broker
or other nominee, then you will receive instructions from it, that you must
follow to have your shares voted. If you hold your shares as the shareholder
of record, then you may instruct the proxies how to vote your shares, using
the toll free telephone number or the Internet voting site listed on the
proxy card, or by signing, dating, and mailing the proxy card in the postage
paid envelope we have provided you. Please refer 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.
2
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.
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.
Q: CAN I CHANGE MY VOTE?
A: Yes. You may change your proxy instructions any time before the vote at the
annual meeting. For shares you hold as shareholder of record, you may change
your vote by granting a new proxy or by attending the annual meeting and
voting in person. Attendance at the annual meeting will not cause your
previously granted proxy to be revoked unless you specifically so request.
For shares you hold as beneficial owner, you may change your vote by
submitting new voting instructions to your broker or nominee.
Q: WHERE CAN I FIND THE VOTING RESULTS OF THE ANNUAL MEETING?
A: We will announce voting results at the annual meeting. We also will publish
those results in our quarterly report on Form 10-Q for the first quarter of
fiscal 2001.
Q: WHO WILL COUNT THE VOTES?
A: Georgeson Shareholder Communications, Inc. will count and tabulate the
votes. The shares represented by your proxy will be voted FOR each of the
proposals, unless you indicate to the contrary.
Q: WHAT ARE THE VOTING PROCEDURES?
A: Directors are elected by a plurality of votes cast. Nominees who receive the
most votes will be elected. Abstentions and broker non-votes will not be
taken into account in determining the outcome of the election. All other
proposals require the affirmative vote of a majority of shares present in
person or by proxy and entitled to vote at the meeting.
Q: IS MY VOTE CONFIDENTIAL?
A: Yes. Proxy instructions, ballots, and voting tabulations that identify the
individual shareholders are handled to protect your privacy. Your vote will
not be disclosed within Pacific Century or to third parties except (i) as
necessary to meet applicable legal requirements, (ii) to allow for the
tabulation of votes and certification of the vote, and (iii) to facilitate a
successful proxy solicitation by our Board. Occasionally, shareholders write
comments on their proxy cards, which are forwarded to Pacific Century
management.
Q: WHO WILL BEAR THE COST OF SOLICITING PROXIES?
A: We will pay the cost of this proxy solicitation. In addition to soliciting
proxies by mail, we expect that a number of our employees will solicit
shareholders for the same type of proxy, personally, and by 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. a firm of professional proxy
solicitors, to assist in the solicitation of proxies for an estimated fee of
$6,500, 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.
3
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: It means your shares are registered differently and are in more than one
account. Sign and return all proxy cards or vote each proxy card by
telephone or Internet, to ensure all your shares are voted. To provide
better shareholder services, we encourage you to have all accounts
registered in the same name and address. You may do that, by contacting our
transfer agent, Continental Stock Transfer & Trust Company (1-800-509-5586).
Q: MAY I PROPOSE ACTIONS FOR CONSIDERATION AT NEXT YEAR'S ANNUAL MEETING OF
SHAREHOLDERS OR NOMINATE INDIVIDUALS TO SERVE AS DIRECTORS?
A: Yes. You may submit proposals for consideration at future shareholder
meetings, including director nominations.
PROXY STATEMENT PROPOSALS. Under the rules of the Securities and Exchange
Commission, proposals that shareholders wish to have included in the proxy
statement for the 2002 annual meeting of shareholders must be received by
the Corporate Secretary of Pacific Century on or before November 10, 2001
(address below).
OTHER SHAREHOLDER PROPOSALS. Under our By-Laws, for Pacific Century to
consider a shareholder proposal for the 2002 annual meeting, it must receive
the written proposal no later than 80 days nor earlier than 90 days before
the first anniversary of the 2001 annual meeting; that date range will be
not later than February 6, 2002 and not earlier than January 26, 2002.
(Please refer to Section 1.12 Pacific Century's By-Laws.) The proposal also
must contain the information as required in Pacific Century's By-Laws. Those
advance notice provisions are in addition to, and separate from, the
requirements a shareholder must meet to have a proposal included in the
proxy statement under the rules of the Securities and Exchange Commission.
NOMINATING DIRECTOR CANDIDATES. The Nominating Committee will consider your
recommendation for nominees for election to the Board at the 2002 annual
meeting if it receives your recommendation in writing, on or before
February 6, 2002 and not earlier than January 26, 2002, and as otherwise
provided in Section 1.12 of Pacific Century's By-Laws, addressed to Pacific
Century's Nominating Committee in care of the Corporate Secretary (address
below). Your written notice, and written consent of such individual to serve
as director, must be delivered or mailed by first class mail to the
Corporate Secretary and must set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice,
(ii) the principal occupation or employment of the nominee, and (iii) the
number of shares of Pacific Century stock the nominee beneficially owns.
COPY OF BY-LAW PROVISIONS. You may contact the Corporate Secretary at 130
Merchant Street, Honolulu, Hawaii 96813, for a copy of the relevant by-law
provisions regarding the requirements for making shareholder proposals and
nominating director candidates.
Q: WHERE CAN I FIND OUT MORE INFORMATION ABOUT THE COMPANY BEFORE THE ANNUAL
MEETING?
A: You can find more information about the Company on-line at: www.boh.com.
4
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. The Board
is to be divided into 3 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 Mr. Clinton R. Churchill who serves on the Board of Bank of Hawaii,
the Company's largest subsidiary. Mr. Churchill has been nominated as a
Class II director (term to expire in 2003) to succeed Mr. Fred E. Trotter, who
has reached mandatory retirement age. 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 III TERMS EXPIRING IN 2004
NAME, AGE, AND YEAR
FIRST ELECTED AS PRINCIPAL OCCUPATION(S)
DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ------------------------ ------------------------------------------------------ ------------------------------
Mary G.F. Bitterman; President and Chief Executive Officer, KQED, Inc.
56; 1994 (public broadcasting center) since November 1993.
Martin A. Stein President, Sonoma Mountain Ventures, LLC, (strategic 724 Solutions, Inc.
60; 1999; and technology consulting and venture capital) since
October 1998; Vice Chair of BankAmerica Corp. from
1990 to October 1998, responsible for Technology,
Operations, Payments, and Purchasing.
* Stanley S. Takahashi; Executive Vice President & Chief Operating Officer,
68; 1996 Kyo-Ya Company, Ltd. since 1989; Chairman since 1996
and Director of United Laundry Service, Inc. since
1992; President and Director of Kyo-Ya Insurance
Services Inc. since 1994; Director of Kokusai Kogyo
Company, Ltd. since 1992 (diversified ownership of
hotels and resorts in Hawaii, California, Florida, and
Australia).
* Mr. Takahashi's term of office will expire on the day of the annual shareholders meeting to be held in 2002,
as he will have reached the mandatory retirement age.
NOMINEE FOR ELECTION FOR CLASS II TERM EXPIRING IN 2003
NAME, AGE, AND YEAR
FIRST ELECTED AS PRINCIPAL OCCUPATION(S)
DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ------------------------ ------------------------------------------------------ ------------------------------
Clinton R. Churchill Trustee, The Estate of James Campbell since 1992;
57 Chief Executive Officer of The Estate of James
Campbell from 1988 to 1992
5
CLASS II DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2003
NAME, AGE, AND YEAR
FIRST ELECTED AS PRINCIPAL OCCUPATION(S)
DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ------------------------ ------------------------------------------------------ ------------------------------
David A. Heenan; Trustee, The Estate of James Campbell since January 1, Maui Land & Pineapple Co.;
61; 1993 1995; Chairman, President and Chief Executive Officer Inc.
of Theo H. Davies & Co., Ltd. (the North American
subsidiary of Hong Kong-based Jardine Matheson
Holdings Ltd., a diversified multi-national
corporation) July 1982 to December 31, 1994.
Michael E. O'Neill; Chairman and Chief Executive Officer of Pacific
54; 2000 Century and the Bank of Hawaii since November 2000;
Vice Chairman and Chief Financial Officer, BankAmerica
Corporation, 1995--1999.
6
CLASS I DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2002
NAME, AGE, AND YEAR
FIRST ELECTED AS PRINCIPAL OCCUPATION(S)
DIRECTOR DURING PAST 5 YEARS OTHER DIRECTORSHIPS HELD
- ------------------------ ------------------------------------------------------ ------------------------------
Peter D. Baldwin; President of Baldwin Pacific Corporation (livestock
63; 1991 maintenance and sales on Maui and orchard farming in
California) since 1965; President, Baldwin Pacific
Properties, Inc. (real estate development company)
since 1988; Director and Chief Executive Officer of
Orchards Hawaii, Inc. (fruit juice marketing) since
1986; President of Haleakala Ranch Co. (cattle
ranching and real estate development).
Richard J. Dahl; President of Pacific Century and Bank of Hawaii since
49; 1995 August 1994; Chief Operating Officer of Pacific
Century since 1997; Chief Operating Officer of the
Bank since August 1995; Executive Vice President and
Chief Financial Officer of Pacific Century, April 1987
to January 1994; Vice Chair of the Bank, December 1989
to July 1994. Director of Bank since April 1994.
Robert A. Huret General Partner and Managing Member of FTVentures Corillian Corp.
55; 2000 (investment technology fund) since 1998; Senior
Consultant, Financial Services Group at Montgomery
Securities from 1984--1998.
Donald M. Takaki; Chairman and Chief Executive Officer, Island Movers,
59; 1997 Inc. since 1964 (a transportation service company);
President, Transportation Concepts, Inc. since 1988 (a
transportation leasing company) and General Partner,
Don Rich Associates since 1979 (a real estate
development company).
7
BENEFICIAL OWNERSHIP
At the close of business on December 31, 2000, Pacific Century had
79,653,774 shares of common stock outstanding. As of December 31, 2000, this
table shows how much Pacific Century common stock is owned (i) by its directors,
nominees, and executive officers and (ii) by two companies that own beneficially
5% or more of Pacific Century's common stock.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
NUMBER OF PERCENT OF
SHARES OUTSTANDING
BENEFICIALLY RIGHT TO SHARES AS OF
NAME OWNED ACQUIRE TOTAL 12-31-00
- ------------------------------------------- ---------- --------- ---------- -----
Wellington Management Co., LLP
75 State Street
Boston, Massachusetts 02109 11,114,251 (1) -0- 11,114,251 13.95%
Peter D. Baldwin 3,771 (2) 10,000 (7) 13,771 *
Mary G.F. Bitterman 12,497 (2)(3) 10,000 (7) 22,497 *
Clinton R. Churchill 4,758 (2)(3) 5,000 (7) 9,758 *
David A. Heenan 12,260 (2)(6) 10,000 (7) 22,260 *
Stuart T.K. Ho 19,324 (2)(3)(8) 10,000 (7) 29,324 *
Robert A. Huret 1,255 (2) -0- 1,255 *
Martin A. Stein 400 (2) 3,000 (7) 3,400 *
Stanley S. Takahashi 2,500 (2)(3) 10,000 (7) 12,500 *
Donald M. Takaki 6,814 (2)(3) 9,000 (7) 15,814 *
Fred E. Trotter 4,408 (2) 10,000 (7) 14,408 *
Michael E. O'Neill 828,961 (5) 828,961
Richard J. Dahl 160,653 (2)(3)(4) 487,500 648,153 *
Mary P. Carryer 6,393 (2) 166,575 172,968 *
Alton T. Kuioka 89,430 (2)(4) 237,938 327,368 *
David A. Houle 11,774 (3)(4) 141,698 153,472 *
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
AS A GROUP (17 PERSONS) 1,172,135 1,259,211 2,431,346 3.05%
* Each of the directors and named executive officers beneficially owns less than 1% of the outstanding common
stock except Mr. O'Neill. Mr. O'Neill directly owns 0.8% of the outstanding shares, and beneficially owns
1.04% of the outstanding shares, if the 152,273 shares owned by the Bank of Hawaii Charitable Foundation
mentioned in footnote 5 are included.
8
NOTES TO TABLE ON AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
(1) According to information furnished by them, Wellington Management Company,
LLP ("WMC") is an investment adviser registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940, as amended.
As of December 31, 2000, WMC, in its capacity as investment adviser, may be
deemed to have beneficial ownership of 11,114,251 shares of Pacific Century
common stock owned by numerous investment advisory clients, none known to
have such interest for more than five percent of the class. As of
December 31, 2000, WMC had shared voting power over 9,341,405 shares, and
shared dispositive power over 11,114,251 shares.
(2) Includes 1,000 restricted shares that each of the directors owns under the
Director Stock Program with the exception of the following directors and
named executive officers: Mr. Stein, 400 shares; Mr. Kuioka, 800 shares; and
Ms. Carryer, 400 shares. Mr. O'Neill and Mr. Huret do not own any restricted
shares. Also includes shares that Messrs. Heenan, Ho, Huret and Takaki own
under the Directors Deferred Compensation Plan. See discussion on page 10
for further information on the Directors Deferred Compensation Plan and
Director Stock Program.
(3) Includes shares held by family members individually, jointly, or in trust as
follows: Ms. Bitterman, 6,201 shares; Mr. Churchill, 685 shares; Mr. Ho, 675
shares; Mr. Takahashi, 1,500 shares; Mr. Takaki, 2,494 shares; Mr. Dahl,
52,345 shares; and Mr. Houle, 7,298 shares.
(4) Includes shares held in trust for the following named executive officers
under the Pacific Century Profit Sharing Plan described on page 22:
Mr. Dahl, 7,497 shares; Mr. Kuioka, 19,444 shares; and Mr. Houle, 2,676
shares.
(5) Includes 152,273 shares owned by the Bank of Hawaii Charitable Foundation,
of which Mr. O'Neill is President. Mr. O'Neill disclaims beneficial
ownership of those shares.
(6) Includes 420 shares owned by a family partnership.
(7) Includes restricted shares that each director has the right to acquire under
the Director Stock Program described on page 10.
(8) Includes 1353 shares as co-trustee for the Chinn Ho Trust under Trust
Agreement dated February 6, 1987.
9
BOARD COMPENSATION
Pacific Century's Board of Directors met fourteen times during 2000. Each
director attended 75% 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 2000.
Directors' fees are paid only to directors who are not employees. Each such
director was paid an annual retainer of $8,000, plus $750 for each Board meeting
attended. All Pacific Century directors are also directors of the Bank of Hawaii
and receive an annual retainer as a Bank director of $8,000, plus $750 for each
Bank Board meeting attended. Directors are reimbursed for board-related travel
expenses. The Company does not have a retirement plan for directors not employed
by the Company.
The Board has four standing committees: Audit Committee, Compensation and
Management Development Committee ("Compensation Committee"), Executive
Committee, and Nominating Committee. Directors not employed by the Company or
its subsidiaries serving as members of the Compensation Committee and Executive
Committee receive $600 for each meeting attended. The Audit Committee meeting
fee is $750. The chair of the Compensation Committee and the chair of the Audit
Committee receive an annual retainer of $3,500.
Upon Mr. Lawrence M. Johnson's announced retirement as Chairman and Chief
Executive Officer ("CEO") of the Company, the Board established a CEO Search
Committee ("Search Committee") to assist in the selection and evaluation of
potential candidates to fill the position of Chairman and CEO of the Company.
The chair of the Search Committee received a fee of $25,000. Members of the
Search Committee received a $600 meeting fee.
DIRECTORS DEFERRED COMPENSATION PLAN
Pacific Century maintains a Directors Deferred Compensation Plan under which
each director may elect to defer all of his or her annual retainer and meeting
fees or all of his or her annual retainer. Distribution of the deferred amounts
will begin as of the first day of the first month after the participating
director ceases to be a director of Pacific Century. Distribution will be made
in a lump sum or in approximately equal annual installments over such period of
years (not exceeding 10 years) as the director elects at the time of deferral.
Under the Deferred Plan, deferred amounts are not credited with interest, but
they are valued based on corresponding investments in Pacific Capital Funds or
Pacific Century Stock, as selected by participants.
DIRECTOR STOCK PROGRAM
Pacific Century maintains a Director Stock Program under which each director
of Pacific Century and the Bank, who is not an employee, receives an annual
grant of options to acquire restricted stock at a price equal to the fair market
value of Pacific Century's stock at the date of grant. The annual grant is an
option of 1,000 shares for each board. Under the Director Stock Program, all
directors of the Bank also receive annual grants of 200 restricted shares (not
to exceed 1,000 restricted shares to any one director). Currently, the only
Pacific Century directors eligible to receive annual grants are, Huret, Stein
and O'Neill because the other directors have received the maximum 1,000 shares.
Bank directors Kuioka and Carryer also continue to receive annual grants.
Restricted stock issued under the Director Stock Program carries voting and
dividend rights but is generally non-transferable during a restriction period
that ends upon expiration of a director's last consecutive term, at death, upon
disability, upon a change in control, or upon removal from office by
shareholders without cause. Restricted stock will be forfeited if a director
ceases to serve as a director for any reason that does not cause a lapse of the
restriction period.
10
BOARD COMMITTEES AND MEETINGS
AUDIT COMMITTEE 6 MEETINGS IN 2000
FUNCTIONS CURRENT MEMBERS
- --------- ---------------
- - Information regarding the functions performed by the David A. Heenan (Chair)
Committee is set forth in the Report of the Audit Mary G.F. Bitterman
Committee and the Audit Committee Charter included in Martin A. Stein
this proxy statement.
* Robert Wo, Jr.
* Mr. Wo is a director of the Bank of Hawaii.
COMPENSATION COMMITTEE 6 MEETINGS IN 2000
FUNCTIONS CURRENT MEMBERS
- --------- ---------------
Reviews, approves, and reports to the Board of Directors on the compensation + Fred E. Trotter (Chair)
arrangements and plans for senior management of Pacific Century and its Mary G.F. Bitterman
subsidiaries. ++ Stuart T.K. Ho
- - Reviews and approves goals for incentive compensation plans and stock Martin A. Stein
option plans, and evaluates performance against those goals. Stanley S. Takahashi
- - Determines the performance objectives of the CEO and evaluates the CEO's
performance measured against the performance objective and goals of
Pacific Century.
+ Mr. Trotter assumed the Chair of the Compensation Committee in
October, succeeding Ms. Bitterman. Mr. Trotter, currently a director, has
reached the mandatory retirement age of 70 and will retire
from the Board effective April 27, 2001.
++ Mr. Ho resigned from the Board effective January 26, 2001.
EXECUTIVE COMMITTEE 5 MEETINGS IN 2000
FUNCTIONS CURRENT MEMBERS
- --------- ---------------
Has power to act for the Board whenever the Board is not in session and time is ** Michael E. O'Neill (Chair)
of essence. Mary G.F. Bitterman (Vice Chair)
Richard J. Dahl
++ Stuart T.K. Ho
+ Fred E. Trotter
Peter D. Baldwin
David A. Heenan
** Mr. O'Neill assumed the Chair of the Executive Committee in
November 2000, succeeding Mr. Johnson who retired November 2000.
NOMINATING COMMITTEE 3 MEETINGS IN 2000
FUNCTIONS CURRENT MEMBERS
- --------- ---------------
- - Reviews the qualifications of all Board candidates and recommends Mary G.F. Bitterman (Chair)
candidates for membership on the Board. ++ Stuart T.K. Ho (Vice Chair)
Peter D. Baldwin
David A. Heenan
Robert A. Huret
Martin A. Stein
Stanley S. Takahashi
Donald M. Takaki
11
CEO SEARCH COMMITTEE 3 MEETINGS IN 2000
FUNCTIONS CURRENT MEMBERS
- --------- ---------------
Assist in the selection and evaluation of candidates to fill the position Mary G.F. Bitterman (Chair)
of Chairman and CEO of the Company. David A. Heenan
++ Stuart T.K. Ho
Robert A. Huret
Martin A. Stein
Stanley S. Takahashi
AUDIT COMMITTEE REPORT
The Company's Board of Directors has determined that the Audit Committee is
composed of four independent directors, as required by the New York Stock
Exchange's listing standards, and operates under a written charter which has
been adopted by the Company's Board of Directors and which is included as
Appendix A to this proxy statement.
The Audit Committee's responsibilities include providing oversight to the
Company's financial accounting and reporting, risk management and the internal
and external audit functions. In this context, the Audit Committee has reviewed
and discussed the audited financial statements with management. The Audit
Committee has also discussed with management and the independent auditors the
matters required to be discussed by SAS 61, including the quality, not just the
acceptability, of the accounting principles. The Company's independent
accountant's have provided to the Audit Committee, their written disclosures and
letter required by the Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee), and the Audit Committee discussed with the
independent accountant, that firm's independence. The Audit Committee considered
the compatibility of non-audit services with the Company's principal
accountant's independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for year
ended December 31, 2000 for filing with the Securities and Exchange Commission.
The Audit Committee and the Board of Directors have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors.
Fees for the last fiscal year were:
Audit Fees: $555,000
Financial Information Systems Design and Implementation Fees: $ -0-
*All Other Fees: $1,360,000
* This includes audit related services of $1,120,000 and nonaudit services
of $240,000. Audit related services generally include fees for statutory
and pension audits, internal audit and credit review augmentation,
accounting consultations, and SEC registration statements.
Members of the Audit Committee
David A. Heenan (Chair)
Mary G.F. Bitterman
Martin A. Stein
Robert Wo, Jr.
12
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee, composed entirely of independent directors, sets
and administers the policies that govern Pacific Century's executive
compensation programs, and various incentive and stock option programs. The
Committee reviews compensation levels of members of senior management, evaluates
the performance of executive management, and considers executive management
succession and related matters. All decisions relating to the compensation of
Pacific Century's officers are reviewed with the full Board.
The policies and underlying philosophy governing Pacific Century's executive
compensation program, endorsed by the Committee and the Board of Directors, are
designed to accomplish the following:
1. Maintain a compensation program that is equitable in a competitive
marketplace.
2. Provide opportunities that integrate pay with Pacific Century's annual
and long-term performance goals.
3. Encourage achievement of strategic objectives and creation of
shareholder value.
4. Recognize and reward individual initiative and achievements.
5. Maintain an appropriate balance between base salary and short- and
long-term incentive opportunity.
6. Allow Pacific Century to compete for, retain, and motivate talented
executives critical to Pacific Century's success.
The Committee seeks to target executive compensation at levels that the
Committee believes to be consistent with others in Pacific Century's industry.
The executive officers' compensation is weighted toward programs contingent upon
Pacific Century's level of annual and long-term performance. In general, for
senior management positions of Pacific Century (including Pacific Century's
executive officers) and its subsidiaries, Pacific Century will pay base salaries
that, on average, are at the 50th percentile of other banks and financial
service companies of Pacific Century's current and projected asset size, and
with similar products and markets. Goals for specific components include:
1. Base salaries for executives generally are targeted at the 50th
percentile.
2. The short-term (one-year) incentive plan will provide above 50th
percentile awards if annual goals are exceeded.
3. Under long-term incentive plans, Pacific Century will provide to
participants an above 50th percentile opportunity from year-to-year, if
long-term performance goals are exceeded.
Pacific Century retains the services of nationally recognized consulting
firms to assist the Committee in performing its various duties. Those firms
advise the Committee on compensation programs for senior management (including
executive officers) of Pacific Century and its subsidiaries. Pacific Century
also obtains an extensive compensation survey every two years. That survey was
received in October 1999 with the consulting firm's review of Pacific Century's
compensation programs for senior managers.
The 1999 compensation survey provided a comparative analysis of 35 positions
using a comparator group of 24 bank corporations (including Pacific Century).
Those bank corporations were viewed as more comparable to Pacific Century in
terms of overall size, business mix, and geographic scope than the bank
corporations in the S&P Major Regional Bank Index (which includes 9 of the 24
compensation survey bank corporations) used in the performance graph. For the
1999 survey, the consultant obtained base salaries as of April 1, 1999 and other
compensation data from the comparator group and derived market comparables from
those data.
13
In addition to the survey performed every two years, Pacific Century
participates in a series of annual compensation practice reviews conducted by
nationally recognized compensation consultants. In 2000, those reviews provided
pay practice data for professional and managerial positions at 44 nationwide
banks with $15 billion and higher in assets, West Coast banks $1 billion and
higher in assets, and a customized cluster (a group that includes 14 of the 24
bank corporations utilized for comparative purposes in the 1999 compensation
survey and 15 in the S&P Major Regional Bank Index.) Based on that data and the
results of Pacific Century's 1999 survey, Pacific Century believes, after taking
into account the compensation discussed below, that salary and total cash
compensation of its executive officers generally corresponds to the 50th
percentile of cash compensation opportunities provided by comparable banks and
financial services companies.
2000 COMPENSATION ELEMENTS
Compensation paid to named executive officers in 2000, as reflected in the
Summary Compensation Table on page 18, consisted of the following elements:
(1) base salary, (2) profit sharing and money purchase pension plans, and
(3) one-year incentive plan cash award for 2000 payable to Mr. Dahl,
Ms. Carryer, Mr. Kuioka, and Mr. Houle. In addition, as indicated in the Summary
Compensation Table and the Stock Option/SAR Grants in Last Fiscal Year table on
page 19, in 2000 the Committee awarded stock options under Pacific Century's
Option Plan.
BASE SALARIES
Base salaries for executive officers are determined by evaluating: (i) the
responsibilities of the positions held, (ii) the experience of the individual,
(iii) the competitive marketplace, and (iv) 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 Pacific Century and of other banks,
and the overall economic environment. No specific weighting is given to the
foregoing factors.
The Committee increased the base salaries of Ms. Carryer, Mr. Kuioka and
Mr. Houle for 2000 in consideration of a number of factors including the
successful implementation of New Era Redesign Initiatives and accomplishments in
successfully addressing the Company's Y2K issues.
INCENTIVE PLANS
ONE-YEAR PLAN. The objectives of the Pacific Century One-Year Incentive
Plan (the "One-Year Plan") are to optimize profitability and growth of the
Company, provide an incentive for excellence in individual performance, and
promote teamwork among participants.
At the 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 Committee assesses the performance and makes a
determination of the final award amount that may be greater or smaller than the
contingent award.
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 ("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% 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
14
percentages do not constitute "targets", but instead constitute the stated upper
limit on final award amounts to give the 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.
For grants made in 2000, the Committee determined the incentive pool to
consist of 3% of the Company's 2000 net income before tax. The 2000 incentive
pool percentages as a maximum limitation on each named executive officer's final
award were: Mr. Johnson, 11%; Mr. Dahl, 8%; Ms. Carryer, 5%; Mr. Kuioka, 5%; and
Mr. Houle, 4%. The actual payout amounts for 2000 under the One-Year Plan are
set forth in the Summary Compensation Table on page 18. Mr. O'Neill does not
participate in the One-Year Plan.
GROWTH PLAN AND LONG-TERM PLAN. The Pacific Century Sustained Growth Plan
(the "Growth Plan") was intended to motivate participants by emphasizing
long-term performance objectives. Under the Growth Plan, each participant
received a contingent incentive award equal to a specified percentage of his or
her average annual base salary for a three-year performance period. At the
beginning of the three-year performance period, the Committee established
specific objective numeric performance goals for the three-year period based on
earnings growth rate and return on average equity. The Company did not meet its
performance goals for the cycle ending 2000 and, accordingly, no long-term
incentive payments were made to any named executive officer for that cycle. The
Growth Plan has now expired.
The Pacific Century Financial Corporation Long-Term Incentive Compensation
Plan (the "Long-Term Plan") was established effective as of January 1, 1999, and
replaces the Growth Plan. The stated objectives of the Long-Term Plan are to
optimize profitability and growth of the Company over a multi-year period,
provide an incentive for excellence in individual performance, and promote
teamwork among participants.
At the discretion of the Compensation Committee, each participant is granted
a contingent award expressed as a dollar amount or a percentage of average
annual base salary for a performance period and the payment of the award is
contingent upon the achievement of designated performance goals for the
performance period. At the beginning of the performance period, the Committee
establishes specific numeric performance goals for the performance period based
on selected business criteria. Following the completion of the performance
period, the Committee assesses the performance of each participant and make a
determination of the payment of a final award amount that may be greater or
smaller than the contingent award. To qualify certain awards as
performance-based compensation exempt from the compensation limitation under
Section 162(m) of the Code, a contingent award to a named executive officer is
subject to downward adjustment but not upward adjustment above the contingent
award amount. In addition, the maximum aggregate payout for contingent awards
granted in any one fiscal year to any one participant is $2,000,000.
In 2000, the Committee made contingent awards under the Long-Term Plan for
the three-year performance period 2000 to 2003, and the business criteria
selected for measuring the performance objectives were return on average equity
and earnings growth rate. The Long-Term Incentive Plans--Awards In Last Fiscal
Year Table on page 20 sets forth the estimated future payouts for named
executive officers for the performance period if the performance objectives are
achieved. Mr. O'Neill does not participate in the Growth Plan or Long-Term Plan.
STOCK OPTION PLAN
The Committee considers stock option grants under the Stock Option Plan for
key employees of Pacific Century and its subsidiaries. Stock options are granted
by the Committee to those key employees whose management responsibilities place
them in a position to make substantial contributions to the financial success of
Pacific Century. Directors who are not employees may not participate in the
Option Plan. The Committee, which administers the Plan, determines whether the
options are incentive stock
15
options or nonqualified stock options. Stock options ordinarily are granted with
an exercise price equal to the market price of Pacific Century's common stock on
the date of grant.
The Committee believes stock options provide a strong incentive to increase
shareholder value, because stock options have value only if the stock price
increases over time. The Committee believes option grants to its executive
officers and other key employees help to align the interests of management with
those of shareholders and to focus the attention of management on the long-term
success of Pacific Century.
The size of stock option awards is based primarily on the individual's
responsibilities and position. Individual awards are also affected by the
Committee's subjective evaluation of other factors it deems appropriate, such as
assumption of additional responsibilities, competitive factors, and achievements
that in the Committee's view are not fully reflected by other compensation
elements. The Committee's decisions concerning individual grants generally are
not affected by the number of options previously exercised, or the number of
unexercised options held.
In 2000, the Committee granted a total of 3,438,750 options to 603 key
employees as follows: In January 2000, 19,000 options to 3 key employees; in
April 2000, 20,500 options to 2 key employees; in May 2000, 3,500 options to 1
key employee; in August 2000, 26,750 options to 8 key employees; in
September 2000, 5,000 options to 1 key employee; in November 2000, 3,114,000
options to 586 key employees (including 2,212,000 options granted to
Mr. O'Neill), and in December 2000, 250,000 options to 1 key employee.
The amounts of individual awards to executive officers in 2000 were based on
their individual positions and responsibilities, and the other factors discussed
above. In the case of Mr. O'Neill, the Committee elected to grant him a stock
option for 2,212,000 shares at an option price of $13.5625. The 2000 award to
Mr. O'Neill reflects the Committee's decision to link a significant portion of
the Chairman and Chief Executive Officer's compensation directly to long-term
share price appreciation and enhanced shareholder value.
The Committee previously granted performance share (restricted stock units)
awards under the Plan to certain of the named executive officers in 1997 and
1998 which provide for the issuance of shares conditioned on the achievement of
designated financial performance criteria as of December 31, 2000. The Company
did not meet the performance criteria as of December 31, 2000, and, accordingly,
no shares were issued with respect to the performance share awards. There are
currently no outstanding performance share awards under the Plan.
CEO COMPENSATION
In determining Mr. O'Neill's annual compensation as Chief Executive Officer
("CEO"), the Committee has sought to provide levels that are competitive among
comparable banks and financial services corporations as described on pages
13-14. The Committee's objectives with regard to Mr. O'Neill'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 its customers. Mr. O'Neill's
compensation reflects the 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. Mr. O'Neill's
2,212,000 option grants vest in equal amounts over a three-year period and link
a substantial percentage of his long-term compensation to Pacific Century's
performance and stock price appreciation.
Mr. O'Neill serves as Chairman and CEO of the Company pursuant to a written
employment agreement effective as of November 3, 2000 as provided in the
Company's annual report on Form 10-K which is being provided to shareholders
with the mailing of this proxy statement. The agreement includes a base salary
of $900,000, subject to annual review, a bonus of $600,000 on November 3, 2001
and option
16
grants as described on page 15-16. Mr. O'Neill participates in all employee
benefit, welfare and other plans, practices and policies and programs generally
applicable to similarly situated executives of the Company. Mr. O'Neill does not
participate in the Company's One-Year Incentive Plan, Growth Plan or Long-Term
Plan. Mr. O'Neill received a reimbursement on an after-tax basis for relocation
expenses, which are described on page 18 in the Summary Compensation Table.
Mr. O'Neill does not participate in the Company's Key Executive Severance Plan
(the "Severance Plan") which provides severance benefits following a change in
control. The Severance Plan as it relates to other named executive officers is
described on page 22. Similar to other employees, Mr. O'Neill's stock options
become immediately exercisable upon a change in control of the Company as
provided for in the Company's Option Plan.
SEPARATION AGREEMENT WITH MR. JOHNSON
Mr. Johnson resigned as Chairman of the Board and Chief Executive Officer of
the Company effective November 3, 2000, pursuant to a written Separation
Agreement. Under the terms of the Separation Agreement, Mr. Johnson received a
payment of $2,940,000 on the effective date of resignation and Mr. Johnson's
rights to participate in the Company's incentive plans, Profit Sharing Plan,
Excess Profit Sharing Plan, Money Purchase Plan, and Excess Money Purchase Plan
applicable during the year in which his resignation occurred (2000) were
recognized and preserved. In addition, the Separation Agreement, in general
terms: treats Mr. Johnson as if he had retired from the Company at age 62 for
purposes of determining the periods over which his outstanding options are
exercisable under the Company's stock option plans; provides for a payment by
the Company equivalent to the additional value he would otherwise receive under
the Employees' Retirement Plan of Bank of Hawaii and the Company's Excess
Benefit Plan if he had retired from the Company at age 62; continues his current
level of coverage under the Company's medical and dental benefit plans until he
attains age 62; and provides certain security, office, secretarial service, and
life insurance benefits.
REVENUE RECONCILIATION ACT OF 1993
In general, Pacific Century 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 Pacific Century's executive compensation
program or the loss of deductibility would not be materially adverse to Pacific
Century's overall financial position.
Members of the Compensation Committee
Fred E. Trotter, Chair
Mary G. F. Bitterman
Stuart T. K. Ho
Martin A. Stein
Stanley S. Takahashi
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of Pacific Century served as a member of a compensation
committee (or board of directors serving as such) of any entity of which any
member of the Compensation Committee was an executive officer.
17
EXECUTIVE COMPENSATION
The following table shows for the fiscal years ending December 31, 2000,
1999, and 1998, information on compensation Pacific Century paid its Chief
Executive Officer and other persons who, at December 31, 2000, were the four
most highly compensated executive officers of Pacific Century other than the CEO
("named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
--------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------- ----------
OTHER RESTRICTED SECURITIES LONG-TERM
------------------- ANNUAL STOCK UNDERLYING INCENTIVE
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS
POSITION(1) YEAR ($) ($)(2) ($)(3) (#)(4) (#)(5) ($)(6)
- ------------------------------ -------- -------- -------- ------------- --------- ------------- ----------
Michael E. O'Neil............. 2000 143,654 0 88,931 0 2,212,000 0
Chairman of the Board
and Chief Executive Officer
Lawrence M. Johnson........... 2000 735,000 0 -- 200 0 0
Retired Chairman of the Board 1999 735,000 0 -- 200 35,000 0
and Chief Executive Officer 1998 735,000 200,000 -- 200 150,000 0
Richard J. Dahl............... 2000 525,000 0 -- 200 55,000 0
President and Chief 1999 525,000 0 -- 200 35,000 0
Operating Officer 1998 525,000 175,000 -- 200 120,000 0
Mary P. Carryer............... 2000 350,000 200,000 -- 200 50,000 0
Vice Chair 1999 325,000 250,000 -- 200 35,000 0
1998 325,000 150,000 -- 55,000 0
Alton T. Kuioka............... 2000 350,000 175,000 -- 200 30,000 0
Vice Chairman 1999 325,000 225,000 -- 200 35,000 0
1998 325,000 150,000 -- 200 55,000 0
David A. Houle................ 2000 300,000 160,000 -- -- 50,000 0
Executive Vice President 1999 255,000 130,000 -- -- 35,000 0
and Chief Financial Officer 1998 255,000 76,500 -- -- 25,000 0
- ------------------------------
(1) Mr. O'Neill became Chairman of the Board and Chief Executive Officer on November 3, 2000, succeeding Mr. Johnson
who retired on November 3, 2000. Mr. Johnson served as Chairman of the Board and Chief Executive Officer since
August 1, 1994. Mr. Dahl has been President since August 1, 1994 and Chief Operating Officer since August 1995.
Mr. Kuioka, age 57, has been Executive Vice President since October 26, 1994, and Vice Chair--Hawaii Market since
April 1997. Ms. Carryer, age 53, joined the Company on November 1, 1997 as Vice Chair--U.S. Mainland Market; Ms.
Carryer was General Manager Consumer Marketing/Product Development for Westpac Banking Corporation from August
1993 to November 1997. Mr. Houle, age 53, was Executive Vice President from April 1997 & Senior Vice President,
Treasurer and Chief Financial Officer from December 1992 until his resignation on January 26, 2001.
(2) In 2000, Ms. Carryer, Mr. Kuioka, and Mr. Houle received a cash award under the Company's One-Year Plan. The
Company's incentive plans are described on pages 14-15. In 1999, Ms. Carryer, Mr. Kuioka, and Mr. Houle received a
cash award under the Company's One-Year Plan. Ms. Carryer also received a bonus of $25,000 for her accomplishments
in successfully addressing the Company's Y2K issues. No cash awards were made to any named executive officer under
the Executive One-Year Plan for 1998, as performance goals were not met. In 1998, a discretionary cash bonus was
awarded to the Executive One-Year Plan participants: Mr. Johnson, Mr. Dahl, Ms. Carryer and Mr. Kuioka. In 1998,
Mr. Houle received a cash award under the Company's One-Year Plan that covers other key employees of the Company
and its subsidiaries.
(3) With the exception of Mr. O'Neill, perquisites and other personal benefits did not exceed the lesser of $50,000 or
10% of the total of annual salary and bonus reported for any named executive officer for 2000. Mr. O'Neill
received reimbursement for relocation expenses incurred in moving to Honolulu in the amount of $88,931.
(4) In 2000, 1999, and 1998, Messrs. Johnson, Dahl, Kuioka each received 200 restricted shares under the Director
Stock Program. In 2000 and 1999, Ms. Carryer received 200 restricted shares under the Director Stock Program. The
fair market value on the date of the 2000, 1999 and 1998 grants were $20.50, $18.69 and $24.50 per share,
respectively. Dividends are paid on the restricted stock. The restricted stocks grants are described on page 10.
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION(1) ($)(7)
- ------------------------------ -------------
Michael E. O'Neil............. 0
Chairman of the Board
and Chief Executive Officer
Lawrence M. Johnson........... 2,998,188
Retired Chairman of the Board 87,790
and Chief Executive Officer 86,361
Richard J. Dahl............... 42,777
President and Chief 66,730
Operating Officer 61,990
Mary P. Carryer............... 48,281
Vice Chair 46,568
6,138
Alton T. Kuioka............... 46,447
Vice Chairman 46,658
39,960
David A. Houle................ 35,805
Executive Vice President 33,707
and Chief Financial Officer 35,666
- ------------------------------
(1) Mr. O'Neill became Chairm
who retired on November 3
August 1, 1994. Mr. Dahl
Mr. Kuioka, age 57, has b
April 1997. Ms. Carryer,
Carryer was General Manag
1993 to November 1997. Mr
Treasurer and Chief Finan
(2) In 2000, Ms. Carryer, Mr.
Company's incentive plans
cash award under the Comp
in successfully addressin
the Executive One-Year Pl
awarded to the Executive
Mr. Houle received a cash
and its subsidiaries.
(3) With the exception of Mr.
10% of the total of annua
received reimbursement fo
(4) In 2000, 1999, and 1998,
Stock Program. In 2000 an
fair market value on the
respectively. Dividends a
18
(5) Under the Pacific Century Stock Option Plan of 1994, each stock option was in tandem with a stock appreciation right
("SAR"), with the exception of the 2000 stock option award to Mr. O'Neill. A SAR entitles the optionee, in lieu of
exercising the stock option, to receive cash equal to the excess of the value of one share over the option price times
the number of shares as to which the option is exercised. All stock option awards were granted with an exercise price
equal to the fair market value of Pacific Century's common stock on the date of grant.
(6) There were no amounts paid under Pacific Century's Sustained Profit Growth Plan (the "Growth Plan") for the three-year
incentive periods of January 1, 1996 through December 31, 1998, January 1, 1997 through December 31, 1999, or January
1, 1998--December 31, 2000. The Growth Plan is described on page 15.
(7) This column includes the following allocations under the Pacific Century Profit Sharing Plan, the Pacific Century
Profit Sharing Excess, the Pacific Century Money Purchase Plan, and the Pacific Century Excess Money Purchase Plan.
Those plans are described on pages 22. Mr. O'Neill did not participate in these plans in 2000. This column also
includes payments received by Mr. Johnson pursuant to a Separation Agreement, a copy of which is included in the
Company's annual report on Form 10-K, a copy of which is being provided to shareholders with the mailing of this proxy
statement. Mr. Johnson's Separation Agreement is discussed on page 17.
EXCESS
401(K) PROFIT-SHARING 401(K) PROFIT SHARING PROFIT EXCESS MONEY
PLAN PLAN SHARING PLAN MONEY PURCHASE PURCHASE PLAN
MATCHING ALLOCATION FORMULA ALLOCATION ALLOCATION PLAN ALLOCATION ALLOCATION
------ ------ -------- ------ -------
Michael E. O'Neill... -0- -0- -0- -0- -0-
Lawrence M. Johnson.. $4,250 $5,675 $ 18,863 $6,800 $22,600
Richard J. Dahl...... $4,250 $5,675 $ 11,852 $6,800 $14,200
Mary P. Carryer...... $4,250 $5,675 $ 14,356 $6,800 $17,200
Alton T. Kuioka...... $4,250 $5,675 $ 13,522 $6,800 $16,200
David A. Houle....... $4,250 $5,675 $ 8,680 $6,800 $10,400
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE POTENTIAL REALIZABLE
UNDERLYING GRANTED TO OR VALUE(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE -------------------------
NAME GRANTED(#) FISCAL YEAR $/SHARE EXPIRATION DATE 5% 10%
- --------------------------- ------------- -------------- ---------- --------------- ----------- -----------
Michael E. O'Neill......... 2,212,000 64.33%/ -- $13.5625 11/3/2010 $18,866,996 $47,812,672
Richard J. Dahl............ 55,000(2) 1.60%/25.00% $13.5625 11/3/2010 $ 469,116 $ 1,188,832
Mary P. Carryer............ 50,000(2) 1.45%/22.73% $13.5625 11/3/2010 $ 426,469 $ 1,080,757
Alton T. Kuioka............ 30,000(2) 0.87%/13.64% $13.5625 11/3/2010 $ 255,882 $ 648,454
David A. Houle............. 50,000(2) 1.45%/22.73% $13.5625 11/3/2010 $ 426,469 $ 1,080,757
- ------------------------------
(1) The Potential Realizable Values were determined using the Black-Scholes model. The following assumptions were
used in determining the values: annual dividend yield of 3.28%; stock price volatility of 29.36% (based on daily
stock prices for the one year period prior to the grant date); and an option term of ten years.
(2) Stock options in tandem with SARs become exercisable one year from the date of grant for a nine-year period
ending November 3, 2010. The exercise or base price of the stock options and tandem SARs was the fair market
value of Pacific Century's common stock on date of grant. All such options and tandem SARs would become
immediately exercisable upon a change in control of Pacific Century. Mr. O'Neill's options were not granted in
tandem with SARs. Mr. Johnson did not receive any grants in 2000.
19
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows the stock options and stock appreciation rights exercised by the named executive
officers during fiscal 2000, and the number and total value of unexercised in-the-money options as of December 31,
2000.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
OPTION/SARS IN-THE-MONEY OPTIONS/SARS
SHARES VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- -------- ---------- ------------- ---------- -------------
Michael E. O'Neill................ 0 0 0 2,212,000 $ 0 $9,124,500
Lawrence M. Johnson............... 18,690 $101,474 570,017 0 $580,048 $ 0
Richard J. Dahl................... 6,610 36,951 487,500 55,000 $550,466 $ 226,875
Mary P. Carryer................... 0 0 166,575 50,000 $ 39,873 $ 206,250
Alton T. Kuioka................... 11,250 72,023 237,938 30,000 $175,261 $ 123,750
David A. Houle.................... 500 1,552 141,698 50,000 $106,724 $ 206,250
- ------------------------------
(1) Includes exercise of stock appreciation rights.
(2) The fair market value of Pacific Century's stock at year-end was $17.69.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR(1)
ESTIMATED FUTURE PAYOUT UNDER
TARGET PAYOUT LONG-TERM INCENTIVE PLAN
AS A % OF FY PERFORMANCE OR OTHER ---------------------------------
2000-2002 PERIOD UNTIL MATURATION THRESHOLD TARGET MAXIMUM
AVERAGE PAY OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
--------------------- ------------------------- --------- --------- ---------
Michael E. O'Neill.................... -- -- -- -- --
Lawrence M. Johnson................... 50% 3 years ending 12/31/2002 386 385,875 771,750
Richard J. Dahl....................... 45% 3 years ending 12/31/2002 248 248,063 496,175
Mary P. Carryer....................... 40% 3 years ending 12/31/2002 147 147,000 294,000
Alton T. Kuioka....................... 40% 3 years ending 12/31/2002 147 147,000 294,000
David A. Houle........................ 40% 3 years ending 12/31/2002 126 126,000 282,000
Executive Group....................... 40%-50% 3 years ending 12/31/2002 1,180 1,179,938 2,359,875
- ------------------------------
(1) Represents contingent awards under the Pacific Century Financial Corporation Long Term Incentive Compensation Plan for
the three-year performance period January 1, 2000 through December 31, 2002. Under this Plan each executive receives a
contingent award of a specified percentage of his or her average annual base salary over the three-year period. The
payment of final awards is contingent upon the Company's performance as measured by return on average equity ("ROAE")
and earnings growth rate. ROAE is defined as the summation of the Company's net income as reported in the annual report
to shareholders (subject to certain adjustments as determined by the Compensation Committee) for the performance period
divided by the summation of the Company's reported average total assets (subject to certain adjustments as determined by
the Committee) for the performance period. Earnings growth rate is defined as the percentage growth of earnings per
share during the performance period (as compared to the earnings per share for the fiscal year immediately preceding the
performance period). Earnings per share is defined as the Company's fully diluted earnings per share as reported in the
annual report to shareholders (subject to certain adjustments as determined by the Committee). Maximum payout, which is
two times the contingent award, can occur only if the ROAE for the performance period is 16% or more and earnings growth
rate for the performance period is 30% or more. No payments will be made if ROAE for the performance period is 10% or
less and earnings growth rate is 10% or less. If the ROAE for the performance period is about 13% and earnings growth
rate is about 20%, then one times the contingent award would be payable ("Target" above). After the end of the
performance period, the Compensation Committee will make a determination as to the final award amounts. Target amounts
are not presently determinable and the amounts set forth above are based on an assumed adjustment of 5% per annum of the
2000 base salaries.
20
PENSION PLAN TABLE
ESTIMATED MAXIMUM ANNUAL RETIREMENT BENEFIT
AVERAGE ANNUAL BASED UPON YEARS OF SERVICE
SALARY IN CONSECUTIVE ----------------------------------------------------
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.
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 Pacific Century 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 Messrs. Johnson and Kuioka were increased in proportion
to the increase in the participant's average annual salary. The credited years
of service as of the 1995 freeze date are as follows: Mr. Johnson, 32 years and
575,000; Mr. Dahl, 13 years and 375,000; Mr. Kuioka, 26 years and $226,257;
Mr. Houle, 2 years and $168,639.
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. Mr. O'Neill and Ms. Carryer are not
participants in the Retirement Plan.
21
PROFIT SHARING AND MONEY PURCHASE PLANS
In addition to the Retirement Plan, Pacific Century maintains the Profit
Sharing Plan and Money Purchase Plan as tax-qualified defined contribution
plans. Each plan year, Pacific Century makes a profit sharing contribution to
the Profit Sharing Plan based on Pacific Century's adjusted net income and
adjusted return on equity for the plan year. The profit sharing contribution is
allocated to all participants based on a participant's eligible compensation.
The Profit Sharing Plan contains a 401(k) member savings feature as well as a
company matching contribution of $1.25 for each $1.00 (up to 2% of eligible
compensation) a participant contributes in 401(k) savings. Under the Money
Purchase Plan, a participant receives an allocation of an amount equal to 4% of
the participant's total eligible compensation for each plan year.
The Code imposes certain limitations on the annual amounts that any
participant may receive under the Profit Sharing Plan and Money Purchase Plan.
The amount of any excess contributions as a result of Code limitations are
credited under the Excess Profit Sharing and Excess Money Purchase Plans to
accounts maintained on the books of Pacific Century. The amounts allocated under
these plans will be paid from the general assets of Pacific Century at the time
the participant receives a distribution of his respective account from the
Profit Sharing Plan and Money Purchase Plan.
CHANGE-IN-CONTROL ARRANGEMENTS
Pacific Century's Key Executive Severance Plan (the "Severance Plan")
provides participants, following a change in control of Pacific Century, with
severance benefits under circumstances and in amounts set forth in the Severance
Plan and in individual severance agreements with each participant. All of the
currently employed named executive officers, with 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 (1) any person or group becomes the beneficial owner of 25% or
more of the total number of voting securities of Pacific Century, or (2) the
persons who were directors of Pacific Century before a cash tender or exchange
offer, merger or other business combination, sale of assets, or contested
election cease to constitute a majority of the Board of Directors of Pacific
Century or any successor to Pacific Century.
Severance benefits are payable if their employment is terminated voluntarily
or involuntarily within two years of a change in control. Key features include:
(1) The payment of a lump sum amount equal to three years of compensation,
consisting of salary, bonuses, and certain other incentive compensation,
calculated by applying a multiplier of three to the highest salary,
bonus, and incentive compensation amounts paid in the preceding three
years.
(2) Special supplemental retirement payments equal to the retirement
benefits the participant would have received had his or her employment
continued for three years following his or her termination of employment
(or until his or her normal retirement date, if earlier).
(3) The continuation of all other benefits he or she would have received had
employment continued for three years following the termination of
employment (or until his or her normal retirement date, if earlier), such
as medical and group life insurance.
(4) The lump sum payment would also include a payment equal to any
difference between the actual payout under the One-Year Incentive Plan
for the year of termination and the maximum amount that would be payable
if employment continued to the end of the period and all performance
goals were achieved.
(5) The agreements provide that amounts payable will be grossed up for the
amount necessary to pay any golden parachute excise tax due.
Stock options and SARs held by named executive officers will become
immediately exercisable upon a change in control. See notes to the table
entitled "Stock Option/SAR Grants In Last Fiscal Year" on page 19. A change in
control also will cause the lapse of restrictions on stock issued under the
Director Stock Program. For the One-Year Incentive Plan, the 2000 to 2002, and
1999 to 2001 Long-Term Incentive Plans cycles, the relevant incentive period
will end and awards will be paid upon a dissolution, liquidation, or change in
control (as defined under the Severance Plan) of Pacific Century. In those
circumstances, payments will be calculated by multiplying contingent awards by
2.0 and by adjusting awards in proportion to the number of months of the
original incentive period that elapsed before the triggering event.
22
PERFORMANCE GRAPH
The following graph shows the cumulative total return for Pacific Century
common stock compared to the cumulative total returns for the S&P 500 Index and
the S&P Major Regional Bank Index. The graph assumes that $100 was invested on
December 31, 1995 in Pacific Century's stock, the S&P 500 Index and the S&P
Major Regional Bank Index. The cumulative total return on each investment is as
of December 31, of each of the subsequent five years and assumes reinvested
dividends.
CUMULATIVE TOTAL RETURN
BASED UPON AN INITIAL INVESTMENT OF $100 ON DECEMBER 31, 1995
WITH DIVIDENDS REINVESTED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
12/1/95 12/1/96 1-DEC 12/1/98 12/1/99 DEC-00
Pacific Century Financial Corporation 100 121 146 148 118 116
S&P 500 100 123 164 211 255 232
S&P (0)Banks (Major Regional) Index 100 137 205 227 195 260
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------
Pacific Century Financial Corporation...... $100 $121 $146 $148 $118 $116
S&P 500 Index.............................. $100 $123 $164 $211 $255 $232
S&P Major Regional Bank Index.............. $100 $137 $205 $227 $195 $260
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Certain transactions involving loans, deposits and certificates of deposit,
other money market instruments, sales of commercial paper, and certain other
banking transactions occurred during 2000 between the Company and Bank of Hawaii
on the one hand and certain directors or executive officers of the Company and
Bank of Hawaii, and members of their immediate families or associates of the
directors on the other. All such transactions were made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, that prevailed at the time for comparable transactions with other
persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require Pacific Century
to disclose late filings of reports of ownership (and changes in stock
ownership) of Pacific Century common stock by its directors and Section 16
officers. To Pacific Century's knowledge, based solely on review of the copies
of such reports received by Pacific Century and the written representations of
its directors and officers, Pacific Century believes that its directors and
officers satisfied all those filing requirements for 2000.
23
PROPOSAL 2: TO APPROVE AN AMENDMENT TO
THE PACIFIC CENTURY FINANCIAL CORPORATION
STOCK OPTION PLAN OF 1994
TO INCREASE AVAILABLE SHARES
Pacific Century's Board of Directors has adopted, subject to shareholder
approval, and recommends that shareholders approve an amendment to Section 4.1
of the Pacific Century Stock Option Plan of 1994 (the "Option Plan") to increase
the total number of shares that may be granted under the Option Plan. The
amendment to the Option Plan increases the maximum shares of common stock that
may be issued under the Plan by 5,000,000 to 14,650,000.
The original 1,250,000 shares were adjusted to 1,875,000 as a result of a
50 percent stock dividend declared on January 26, 1994 and payable on March 15,
1994. On April 25, 1997, the shareholders approved an additional 1,000,000
shares, increasing the maximum number of shares to 2,875,000. This amount was
adjusted to 5,750,000 as a result of a 100 percent stock dividend declared on
October 24, 1997 and payable on December 12, 1997. On April 23, 1999,
shareholders approved an additional 3,900,000 shares, increasing the maximum
number of shares to 9,650,000. As of December 31, 2000 there were 1,718,480
shares available under the Option Plan.
The purpose of the Option Plan is to attract, retain and motivate high
quality personnel and to provide incentives for the promotion of business and
financial success of the Company by providing them with equity participation.
The Board of Directors believes that the additional shares are desirable in
order to fulfill the objectives of the Option Plan and to promote and closely
align the interests of employees of Pacific Century with its shareholders by
providing stock-based compensation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
PROPOSAL 3: TO APPROVE AN AMENDMENT TO THE OPTION PLAN TO
ALLOW THE NUMBER OF OPTIONS GRANTED TO
EXCEED 20% OF THE AUTHORIZED POOL BUT NO MORE
THAN 23% FOR CEO UPON HIRE
Pacific Century's Board of Directors has adopted, and recommends that
shareholders approve an amendment to Section 6.1 of the Option Plan relating to
the maximum limitation of shares for options granted to an individual
participant. The Option Plan currently provides that the maximum number of
shares subject to options granted to any single participant during the term of
the Plan is 20 percent of the total authorized pool of shares. The amendment to
the Option Plan would permit the Company to follow a separate maximum limitation
equal to 23 percent of the total authorized pool of shares as it relates to the
number of options granted to the Chief Executive Officer at the time of hire.
At the time of Mr. O'Neill's hire, Mr. O'Neill received an option award of
2,212,000 shares, of which 282,000 shares were in excess of the 20 percent
limitation. The grant to Mr. O'Neill provides that the option for the 282,000
excess shares may not be exercised unless the shareholders approve the amendment
to the Option Plan. As discussed in the Compensation Committee Report on pages
13-17, the Compensation Committee's objectives in determining Mr. O'Neill's
compensation, is to provide a competitive level of compensation consistent with
achieving the Company's annual and long-term performance goals and in aligning
the Chief Executive Officer's goals with the shareholders' goals of stock
appreciation and yield. The Compensation Committee and Pacific Century's Board
of Directors believe that stock options serve as a strong motivator, a capital
accumulation opportunity and a retention mechanism, and that the amount and
timing of the initial grant of options to Mr. O'Neill provide an appropriate and
desirable balance between cash and stock to maximize long-term shareholder
interests.
24
Code Section 162(m) precludes a publicly held corporation from claiming
income tax deductions 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. However, compensation is exempt from this limitation if it satisfies
the requirements for "qualified performance-based compensation" under Code
Section 162(m). In order for a grant of options under the Option Plan to qualify
for the performance-based compensation exemption under Code Section 162(m), the
Option Plan must specify a limitation on the number of options that may be
granted to any individual participant during a specified period and, further,
this limitation constitutes a "material term" which must be approved by
shareholders. Accordingly, in order to fully qualify the options granted to
Mr. O'Neill for tax deductibility pursuant to the performance-based compensation
exemption under Code Section 162(m) (specifically, the 282,000 shares in excess
of the current 20% individual participant limitation), Pacific Century is
seeking shareholder approval of the amendment to increase this limitation
exclusively for option grants to the Chief Executive Officer at the time of
initial hire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL
PROPOSAL 4: TO APPROVE AN AMENDMENT TO THE OPTION PLAN
TO ALLOW THE GRANT OF OPTIONS TO
INDEPENDENT CONTRACTORS
Pacific Century's Board of Directors has adopted, subject to shareholder
approval, and recommends that shareholders approve an amendment to
Section 2.1(l) of the Option Plan which would allow the Company to make awards
to an independent contractor providing services to the Company or a subsidiary.
The Option Plan currently provides that persons eligible to participate are
full-time, non-union employees of the Company and its subsidiaries, including
employees who are directors. The Committee is permitted to select from all
eligible employees those to whom awards may be granted, and the nature and
amount of such awards, and is authorized to issue awards in several forms,
including options, stock appreciation rights, restricted stock, restricted stock
units, and common stock for payment of obligations under the Company's One-Year
Plan and Long-Term Plan. The Option Plan provides for the specific treatment of
awards in the event of a participant's termination of employment (for example,
in the case of termination for cause, options are forfeited; in the case of
termination due to death, disability, or retirement, options generally remain
exercisable until the original expiration date or until five years after
termination, whichever occurs first; and in the case of termination for other
reasons, unvested options are terminated and vested options generally remain
exercisable until three months after the termination).
Under the amendment to the Option Plan, an independent contractor who
provides services to, and is not a director of, the Company or its subsidiaries
would be eligible to participate in the Option Plan as selected by the
Committee. While an award to an employee is subject to specific treatment
following a termination of employment as described above, the treatment of an
award to an independent contractor following termination of service (e.g., the
exercise period) would be governed under the terms and conditions of the award
as determined by the Committee. The Company will from time to time, engage the
services of independent contractors, who are not employees, but are retained for
a limited time and purpose, to provide distinct and specialized advice and
services regarding various operations of the Company, including credit risk and
management, financial reporting and other significant areas. The Board is of the
opinion that it is in the best interests of the Company and its shareholders to
maintain the flexibility of compensating these individuals through awards under
the Option Plan, thereby aligning their overall compensation to the Company's
long-term performance and stock appreciation. The Company believes that
providing a balance of cash compensation and equity participation will provide
these individuals with the proper motivation and incentive to achieve the
Company's financial goals.
25
As previously discussed, a corporation is exempt from the $1 million
compensation deduction limitation under Code Section 162(m) with respect to
compensation that meets the requirements for "qualified performance-based
compensation". Among other requirements, in order to qualify as
performance-based compensation, the "material terms" of a plan under which the
compensation is paid must be approved by shareholders. For this purpose, the
material terms of a plan include the employees eligible to receive compensation
under the plan. Accordingly, Pacific Century is seeking shareholder approval of
the proposed amendment relating to the eligibility of independent contractors,
which constitutes a material term of the Option Plan, in order that awards under
the Option Plan may qualify for the exemption for performance-based compensation
under Code Section 162(m).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL
PROPOSAL 5: ELECTION OF AN
INDEPENDENT AUDITOR
The Board of Directors, on recommendation of the Audit Committee, recommends
the reelection of Ernst & Young, LLP as Pacific Century's independent auditor
for 2001. Ernst & Young, LLP has been Pacific Century's independent auditor
since its incorporation in 1971, and also serves as independent auditor for Bank
of Hawaii. We expect representatives of Ernst & Young LLP to attend the annual
meeting. Ernst & Young LLP have indicated that they will have no statement to
make but will be available to respond to questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL
OTHER BUSINESS
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.
26
APPENDIX A
PACIFIC CENTURY FINANCIAL CORPORATION
AUDIT COMMITTEE CHARTER
STATEMENT OF POLICY
The audit committee (Committee) will provide assistance to the board of
directors (Board) in fulfilling their oversight responsibility to the
shareholders of Pacific Century Financial Corporation (PCFC). The Committee will
provide oversight to the quality and integrity of regulatory and financial
accounting and reporting, credit risk management, the internal and external
audit functions and the independent audit of PCFC's annual financial statement.
In doing so, it is the responsibility of the Committee to maintain free and open
communications between the Committee, independent auditors, internal auditors
and management of PCFC. 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 an independent
accountant, outside counsel or other experts as deemed appropriate and shall
have full access to all records, facilities or personnel of PCFC.
ORGANIZATION
The audit committee shall be appointed by the Board and shall be comprised
of at least three members, each of whom will have no relationship to PCFC that
may interfere with the exercise of their independence from management and PCFC.
The Committee shall be or must become financially literate within a reasonable
period of time following appointment. At least one member of the Committee must
have accounting or related financial management expertise. The Committee will
meet at least quarterly.
RESPONSIBILITIES
1. The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Committee, as representatives of PCFC's
shareholders. The Committee shall discuss the auditor's independence from
management and PCFC and the matters included in the written disclosures
required by the Independence Standards Board. Annually, the Committee will
review and recommend to the Board the selection of PCFC's independent
auditors, subject to the shareholder's approval.
2. The Committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits and credit
review examinations including the adequacy of staffing. Also, the Committee
will discuss with management, the internal auditors and independent auditors
the adequacy and effectiveness of the accounting and financial controls,
including PCFC's processes to monitor and manage business risk, and relevant
compliance programs. The Committee will meet separately with the internal
auditors and the independent auditors, with and without the presence of
management, to discuss the results of their examinations.
3. The Committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the PCFC's Quarterly
Report on Form 10-Q. The Committee will discuss the results of the quarterly
review and any other matters required to be communicated to the Committee by
the independent auditors under generally accepted auditing standards. The
Chair of the Committee may represent the entire Committee for purposes of
this review.
4. The Committee shall review with management and the independent auditors the
financial statement to be included in the PCFC's Annual Report on Form 10-K,
including their judgment about the quality, not just the acceptability, of
accounting principles, 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.
5. The Committee will review this charter annually and any revisions adopted by
the Committee will be subject to approval by the Board.
27
[PACIFIC CENTURY LOGO]
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 2001
Shareholders of record of Pacific Century common stock at the close of business
on February 27, 2001 are entitled to attend the meeting and vote on the business
brought before it. The meeting will be held on Friday, April 27, 2001 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. 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
/s/ Cori C. Weston
CORI C. WESTON
Vice President and Secretary
Pacific Century Financial Corporation
PLEASE DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON
P APRIL 27, 2001
R
O The undersigned hereby constitutes and appoints DAVID A. HEENAN,
X ROBERT A. HURET, AND DONALD M. TAKAKI, and each of them, the proxies of
Y the undersigned, with full powers of substitution, to vote all common
stock of Pacific Century Financial Corporation, that the undersigned
may be entitled to vote at the annual meeting of shareholders of
Pacific Century Financial Corporation to be held on April 27, 2001,
or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED. THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR EACH OF THE 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 MEETING OR ANY ADJOURNMENT THEREOF.
INSTRUCTIONS FOR VOTING YOUR PROXY
PACIFIC CENTURY FINANCIAL CORPORATION IS OFFERING SHAREHOLDERS OF RECORD THREE
ALTERNATIVE WAYS OF VOTING YOUR PROXIES:
- - BY TELEPHONE (USING A TOUCH-TONE TELEPHONE)
- - THROUGH THE INTERNET (USING A 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 26, 2001.
- - THIS METHOD OF VOTING IS AVAILABLE FOR RESIDENTS OF THE U.S. AND
CANADA.
- - ON A TOUCH TONE TELEPHONE, CALL TOLL FREE 1-877-260-0406, 24 HOURS A DAY, 7
DAYS A WEEK.
- - YOU WILL BE ASKED TO ENTER ONLY THE CONTROL NUMBER SHOWN BELOW.
- - HAVE YOUR PROXY CARD READY, THEN FOLLOW THE SIMPLE INSTRUCTIONS.
- - YOUR VOTE WILL BE CONFIRMED AND CAST AS YOU DIRECTED.
/INTERNET VOTING/ AVAILABLE ONLY UNTIL 5:00 P.M. EASTERN TIME ON THURSDAY,
APRIL 26, 2001.
- - VISIT OUR INTERNET VOTING WEBSITE AT HTTP//:PROXY.GEORGESON.COM
- - ENTER THE COMPANY NUMBER AND CONTROL NUMBER SHOWN BELOW AND FOLLOW THE
INSTRUCTIONS ON YOUR SCREEN.
- - YOU WILL INCUR ONLY YOUR USUAL INTERNET CHARGES.
/VOTING BY MAIL/
- - SIMPLY MARK, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAID
ENVELOPE.
- - IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL YOUR PROXY
CARD.
/COMPANY NUMBER/ /CONTROL NUMBER/
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE FOLLOWING PROPOSALS:
1. Elect the following directors
Three Class III Directors for terms expiring in 2004
Nominees: Mary G. F. Bitterman
Martin A. Stein
Stanley S. Takahashi
Class II Director for term expiring in 2003
Nominee: Clinton R. Churchill
FOR ALL WITHHOLD FOR
NOMINEES LISTED AUTHORITY EXCEPT*
/ / / / / /
(Instruction: To withhold authority to vote for an individual nominee, mark the
"FOR EXCEPT*" box and write that nominee's name on the space provided.)
*Exception
------------------------------------------------------------
2. Approve an Amendment to Stock FOR AGAINST ABSTAIN
Option Plan To Increase Shares / / / / / /
Available for Grant
3. Approve an Amendment to Stock FOR AGAINST ABSTAIN
Option Plan To Allow the Number / / / / / /
of Options Granted To Exceed 20%
of the Authorized Pool But No More
Than 23% For CEO Upon Hire
4. Approve an Amendment to Stock FOR AGAINST ABSTAIN
Option Plan To Allow Grant of / / / / / /
Option to Independent Contractors
5. Elect Ernst & Young LLP as FOR AGAINST ABSTAIN
Auditor. / / / / / /
DATE: , 2001
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SIGNATURE
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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.