UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Bank of Hawaii Corporation | ||||
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
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Your VOTE is important!
Notice of 20042008
Annual Meeting of Shareholders
and Proxy Statement
Meeting Date: April 30, 200425, 2008
Bank of Hawaii Corporation
130 Merchant Street
Honolulu, Hawaii 96813
BANK OF HAWAII CORPORATION
130 Merchant Street
Honolulu, Hawaii 96813
March 18, 200414, 2008
Dear Shareholder:
The 20042008 Annual Meeting of shareholders of Bank of Hawaii Corporation ("Bank of Hawaii" or the "Company") will be held on Friday, April 30 200425, 2008 at 8:30 a.m. on the Sixth Floor of the Bank of Hawaii Building, 111 South King Street, Honolulu, Hawaii. Each shareholder may be asked to present valid picture identification. Shareholders holding stock in brokerage accounts will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date.
The Notice of Meeting and Proxy Statement accompanying this letter describe the business we will consider and vote upon at the meeting. A report to shareholders on the affairs of Bank of Hawaii Corporation 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.voting occurs.
On behalf of the Board of Directors, thank you for your cooperation and support.
Sincerely,
Sincerely,
ALLAN R. LANDON
Chairman of the Board,
Chief Executive Officer and PresidentMICHAEL E. O'NEILLChairman of the Board andChief Executive Officer
| Page | ||||
---|---|---|---|---|---|
Notice of | 1 | ||||
Proxy Statement | |||||
Questions and Answers About the Proxy Materials and the Annual Meeting | 2 | ||||
Proposal 1: Amendment of the Company's Certificate of Incorporation to Provide for Annual Election of All Directors | 5 | ||||
Proposal 2: Election of Directors | |||||
Board of Directors | |||||
Beneficial Ownership | |||||
Corporate Governance | |||||
Board Committees and Meetings | |||||
Director Compensation | 18 | ||||
Director Compensation Table | 19 | ||||
Audit Committee Report | |||||
Compensation Committee Report | 21 | ||||
Executive Compensation | |||||
Compensation | |||||
Summary Compensation Table | |||||
Option Exercises and Stock Vested | 38 | ||||
Equity Compensation Plan Information | 40 | ||||
Pension | |||||
Certain | |||||
Section 16(a) Beneficial Ownership Reporting Compliance | |||||
Proposal 3: | |||||
Other Business | 44 | ||||
Appendix | |||||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held April 30, 200425, 2008
To Our Shareholders:
The Annual Meeting of shareholders of Bank of Hawaii Corporation ("Bank of Hawaii" or the "Company") will be held on Friday, April 30, 2004,25, 2008, at 8:30 a.m. on the Sixth Floor of the Bank of Hawaii Building, 111 South King Street, Honolulu, Hawaii, for the following purposes:
The Board of Directors recommends that shareholders vote FOR all proposals.
Shareholders of record of Bank of Hawaii Corporation common stock (NYSE: BOH) at the close of business on March 1, 2004February 29, 2008 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
CORI C. WESTONMARK A. ROSSISenior Vice PresidentChairman and Corporate Secretary
Bank of Hawaii Corporation
Honolulu, Hawaii
Dated: March 18, 200414, 2008
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.
Important Notice Regarding the Availability of Proxy Materials
for the Annual Shareholder Meeting to be Held April 25, 2008
The Proxy Statement and the Bank of Hawaii Corporation 2007 Annual Report to Shareholders for the year ended December 31, 2007 are available atwww.boh.com/proxymaterials.
The Board of Directors (the "Board") of Bank of Hawaii Corporation ("Bank(Bank of Hawaii Corporation and its subsidiaries, as appropriate, are referred to as "Bank of Hawaii" or the "Company") is soliciting the enclosed proxy for the Company's 20042008 annual meeting. The proxy statement, proxy card, and the Company's Annual Report to Shareholders and Annual Report on Form 10-K are first being distributed to the Company's shareholders on or about March 18, 2004.14, 2008.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
Even if you plan to attend the annual meeting, we recommend you also submit your proxy so your vote will be counted if you later decide not to attend the annual meeting.
voting site listed on the proxy card, or by signing, dating, and mailing the proxy card in the prepaid and addressed envelope we have provided you. Please refer
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to the summary instructions below and those on your proxy card, or, for shares held in street name, the voting instruction card sent by your broker or nominee.
Mail.You may mail your proxy by signing your proxy card or, for shares held in street name, the voting instruction card included by your broker or nominee, and mailing it in the enclosed, postage prepaid and addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board of Directors.the Board.
Internet.If you have Internet access, you may submit your proxy from anywhere, following the "Vote by Internet" instructioninstructions on your proxy card.
Telephone.If you live in the United States, you may submit your proxy by following the "Vote by Phone" instructions on the proxy card.
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telephone, the Internet, facsimile, or other means. None of thosethese employees will receive any additional or special compensation for doing that task.soliciting proxies. We have retained Georgeson Shareholder Communications, Inc., 17 State Street, New York, New York 10004 to assist in the solicitation of proxies for an estimated fee of $6,500,$10,000 plus reasonable out-of-pocket costs and expenses. We will, upon request, reimburse brokers or other nominees for their reasonable out-of-pocket expenses in forwarding proxy materials to their customers who are beneficial owners and obtaining their voting instructions.
Potential nominees will be evaluated based on their independence, within the meaning of the Company's Corporate Governance Guidelines and the rules of the NYSE. Candidates to be nominated as a director, including those submitted by shareholders, are selected based on, among other criteria, their integrity, informed judgment, financial literacy, high performance standards, accomplishments and reputation in the community, experience, skill sets, ability to commit adequate time to Board and committee matters, and to act on behalf of shareholders.
The criteria also include a determination of the needs of the Board and of the individuals' personal qualities and characteristics with those of the other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company and its shareholders. The Board should encompass a broad range of skills, expertise, industry knowledge, diversity of viewpoints, background, and business and community contacts relevant to the Company's business.
Candidates to be considered for nomination by the Nominating and Corporate Governance Committee at the 2005 shareholder meeting must be presented in writing to the Corporate Secretary on or before November 18, 2004 at 130 Merchant Street, Honolulu, Hawaii 96813.
Proposals To Be Included In The Proxy Statement and Voted On At The Meeting.Proposals that shareholders wish to have included in the proxy statement for the 20052009 annual meeting of shareholders must be made in accordance with SECU. S. Securities and Exchange Commission ("SEC") Rule 14a-8. Proposals must be received by the Company's Corporate Secretary on or before November 18, 200414, 2008 at the above address.
Proposals To Be Voted On At The Meeting Only.Under our By-Laws, for a shareholder to bring a proposal before the 20052009 annual meeting, Bank of Hawaii must receive the written proposal no later than 80 days nor earlier than 90 days before the first anniversary of the 20042008 annual meeting; in other words, no later than February 9, 20056, 2009 and no earlier than January 30, 2005.27, 2009. (Please refer to
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Section 1.12 of Bank of Hawaii's By-Laws.) The proposal also must contain the information required in the By-Laws. If you wish to make one or more nominations for election to the Board, the required information includes, among other things, the written consent of such individual to serve as director and (i) the name, age, business address and, if known, residence address of each nominee proposed in person, (ii) the principal occupation or employment of each nominee, and (iii) the number of shares of Bank of Hawaii stock each nominee beneficially owns. These advance notice provisions are separate from the requirements a shareholder must meet to have a proposal included in the proxy statement under SEC rules. By complying with these provisions, a shareholder may present a proposal in person at the meeting, but will not be entitled to have the proposal included in the Company's proxy statement. In addition, persons holding proxies may exercise discretionary authority to vote against such proposals.
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PROPOSAL 1: AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO PROVIDE FOR ANNUAL ELECTION OF ALL DIRECTORS
General
Article VII of the Company's Certificate of Incorporation, as amended, establishes three (3) classes of directors (Class I, Class II and Class III) with terms of three years each. Generally, absent the earlier resignation or removal of a Class member, the terms of the classes are staggered and one Class stands for reelection at each annual meeting of stockholders. On January 25, 2008, upon the recommendation of the Board's Nominating and Corporate Governance Committee, the Board unanimously approved an amendment of Article VII of the Company's Certificate of Incorporation to declassify the board of directors, remove the class designations for each of the director's terms and institute annual voting for each director to serve a one-year term, subject to, in the case of the amendment to the Certificate of Incorporation, stockholder approval at the Annual Meeting. If approved and adopted by the Company's stockholders, the amendment to the Certificate of Incorporation shall be filed with the Secretary of State of the State of Delaware immediately following the vote at the Annual Meeting and will be in effect immediately upon approval by the Secretary of State of Delaware. The form of the Certificate of Amendment to the Certificate of Incorporation is set forth asAppendix A to this Proxy Statement. The amendment to Article VII will result in the reduction of the remaining terms of our Class II and Class III directors, who will each stand for election at this Annual Meeting, along with the Class I directors. Thus, all twelve members of the Board will be standing for election at this Annual Meeting.
Under Delaware corporate law, directors of companies that have a classified board structure may be removed only for cause unless their certificate of incorporation provides otherwise. However, directors of companies that do not have a classified structure may be removed with or without cause by a majority vote of the stockholders at any annual or special meeting of stockholders. Accordingly, in conjunction with our proposal to declassify our Board, we are proposing to amend our Certificate of Incorporation to eliminate the provision that allows stockholders to remove our Directors only for cause. We are also proposing additional conforming changes to our Certificate of Incorporation which are reflected in the proposed amendments set forth inAppendix A.
Similar to the Certificate of Incorporation, the Company's By-Laws contain provisions concerning the classification of the Board of Directors. On January 25, 2008, upon the recommendation of the Board's Nominating and Corporate Governance Committee, the Board also unanimously adopted resolutions approving an amendment to the By-Laws to be consistent with the Certificate of Incorporation, whereby the By-Laws will be amended to declassify the board of directors, remove the class designations for each of the director's terms and institute annual voting for each director to serve a one-year term. These amendments to the By-Laws were subject to, and only become effective upon, the adoption of the amendment to the Certificate of Incorporation. If this Proposal 1 is not approved, the Board will not amend the Bylaws as described above.
Based upon the analysis and recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has decided that it is an appropriate time to propose declassifying the Board of Directors. This determination by the Board furthers its goal of ensuring that the Company's corporate governance policies maximize management accountability to stockholders and would, if adopted, allow stockholders the opportunity each year to more effectively register their views on the performance of the Board.
If this Proposal No. 1 is not approved by Company's stockholders, then the election of the four Class I director nominees as set forth in Proposal No. 2 shall proceed under the Company's Certificate of Incorporation as currently in effect. In such case, the Class I director nominees shall be elected for a term of three years and the Class II and Class III directors shall serve the remaining terms of such class.
Required Vote and Board Recommendation
This proposal will be approved upon the affirmative vote of at least a majority of the outstanding shares of voting stock voting together as a single class. Abstentions and broker non-votes will have the same effect as votes cast against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION TO DECLASSIFY THE BOARD OF DIRECTORS AND TO ALLOW FOR THE REMOVAL OF DIRECTORS WITHOUT CAUSE.
PROPOSAL 2: ELECTION OF DIRECTORS
BOARD OF DIRECTORS
TheAs discussed in Proposal No. 1, the Company's Certificate of Incorporation currently provides thatfor the classification of the Company's Board of Directors. The Board of Directors, which currently is comprised of twelve (12) members, is divided into three (3) classes. Generally, absent the earlier resignation or removal of a Class member, one Class stands for re-election at each annual meeting of stockholders. The Board of Directors currently is comprised of four Class I directors (Michael J. Chun, Robert Huret, Kent T. Lucien and Donald M. Takaki), four Class II directors (S. Haunani Apoliona, Clinton R. Churchill, David A. Heenan and Allan R. Landon) and four Class III directors (Mary G.F. Bitterman, Martin A. Stein, Barbara J. Tanabe and Robert W. Wo, Jr.).
The term of the Class I directors expires in 2008. The term of the Class II directors expires in 2009. The term of the Class III directors expires in 2010. On January 25, 2008, upon the recommendation of the Board's Nominating and Corporate Governance Committee, the Board of Directors unanimously approved an amendment of Article VII of the Company's Certificate of Incorporation and an amendment to the Company's By-Laws to declassify the board of directors, remove the class designations for each of the director's terms and institute annual voting for each director to serve a one-year term, subject to, in the case of the amendment to the Certificate of Incorporation, stockholder approval at the Annual Meeting.
This Proposal No. 2 concerns the election of directors under two alternative scenarios:
Effect of Vote for Directors Subject to Proposal No. 1
If Proposal No. 1 Is Approved:
Under Proposal No. 1, the adoption of the amendment to Article VII of the Certificate of Incorporation shall consistshorten the current term of any member of the Board of Directors whose term, under the existing classified board structure, extends past the 2008 Annual Meeting. Accordingly, if Proposal No. 1 is approved by the Company's stockholders, the classified structure of the Board shall be eliminated, and each of the twelve directors listed below shall be nominated for a one-year term to serve until the 2009 Annual Meeting of stockholders or until their earlier resignation or removal.
If Proposal No. 1 Is Not Approved:
If Proposal No. 1 is not less than 3 nor more than 15 persons. Theapproved by the Company's stockholders, the election of Messrs. Chun, Huret, Lucien and Takaki as the four Class I director nominees shall proceed under the Company's Certificate of Incorporation as currently in effect. In such case, the Class I director nominees shall, if elected by the stockholders, continue to serve for a term of three years, expiring in 2011, and the Class II and Class III directors shall continue their service until their re-election at the 2009 and 2010 Annual Stockholder meetings, respectively.
Certain information with respect to each of the nominees who will be presented at the Annual Meeting by the Board is divided into three classes, with the terms of office of one class expiring each year. NomineesDirectors for election are describedas a director is set forth below. Each nominee has consented to serve. Allserve and all nominees are currently serving on the Company's Board with the exception of Ms. S. Haunani Apoliona (Class II), Mr. Michael J. Chun (Class I), Mr. Allan R. Landon (Class II) and Ms. Barbara J. Tanabe (Class III); who currently serve on the Board of Bank of Hawaii (the "Bank"), the Company's only subsidiary. These individuals have been nominated to fill four vacancies on the Board. In December 2003, the Board approved an increase in the number of directors from nine to thirteen as of the April 30, 2004 shareholder meeting and is recommending the aforementioned nominees to fill the vacancies. The nominees were originally proposedeach recommended to the Board by the Company's Nominating and Corporate Governance Committee. In the event that any or all of the director nominees are unable to stand for election as director, the Board,
upon the recommendation of the Nominating and Corporate Governance Committee. If a nominee is not a candidate at the time of the annual meeting, then the proxy holders plan to voteCommittee, may select different nominees for the remaining nominees and other personselection as they may determine.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.directors.
NOMINEES FOR ELECTION FOR CLASS III DIRECTORS TERMS EXPIRING IN 2007THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES.
Name, Age, and Year First Elected as Director | Principal Occupation(s) | Other Public Directorships Held | ||
---|---|---|---|---|
Chairperson and Trustee, Office of Hawaiian Affairs ("OHA") (entity established by the Constitution of the State of Hawaii to improve the conditions and protect the entitlements of Native Hawaiians) since 2000; Trustee, OHA from 1996 to 2000. | — | |||
Mary G. F. Bitterman; 63; 1994 | President and Trustee, the Bernard Osher Foundation since 2004; Director, Osher Lifelong Learning | |||
President and | ||||
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CLASS II DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2006
Clinton R. Churchill; | Trustee and Chairman, The Estate of James Campbell (an organization administering the assets held in trust under the will of James Campbell) since 1992 (Chairman 1998, | |||
David A. Heenan; | Trustee, The Estate of James Campbell (an organization administering the assets held in trust under the will of James Campbell) since 1995 (Chairman 1999, 2001). | Maui Land & Pineapple Co., Inc. | ||
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CLASS I DIRECTORS WHOSE CURRENT TERMS EXPIRE IN 2005
Robert | Managing Member of Financial Technology Ventures Management (a venture capital management company) since 1998; Senior Consultant, Financial Services Group at Montgomery Securities from | |||
Name, Age, and Year First Elected as Director | Principal Occupation(s) | Other Public Directorships Held | ||
---|---|---|---|---|
Allan R. Landon; 59; 2004 | Chairman, Chief Executive Officer and President since September 2004; President and Chief Operating Officer of the Company from April 2004 to September 2004; President, Chief Financial Officer and Treasurer of the Company from 2003 to 2004; Vice Chairman, Chief Financial Officer and Treasurer of the Company from 2001 to 2003. | — | ||
Kent T. Lucien; 54; 2006 | Trustee, C. Brewer & Co. Ltd., (a Hawaii corporation engaged in agriculture, real estate and power production) since 2001; Chief Executive Officer, Executive Vice President and Chief Financial Officer, C. Brewer & Co. Ltd. from 1991 to 2006. | Maui Land & Pineapple Co., Inc. | ||
Martin A. Stein; 67; 1999 | Partner, RSA Ventures (a consulting and venture capital company) since 1999; Chief Executive Officer and President, Sonoma Mountain Ventures, LLC (strategic and technology consulting and venture capital) 1998 to 2004; Vice Chair, BankAmerica Corp 1990 to 1998. | — | ||
Donald M. Takaki; | Chairman and Chief Executive Officer, HawkTree International, Inc. (a diversified holding company engaged in transportation, leasing, business records management and real estate) since 1999; Chairman and Chief Executive Officer, Island Movers, Inc. (a transportation service company) since 1964; President, Transportation Concepts, Inc. (a transportation leasing company) since 1988 and General Partner, Don Rich Associates (a real estate development company) since 1979. | |||
Barbara J. Tanabe; 58; 2004 | Owner and Partner, Ho'akea Communications, LLC (a communication and community building company) since 2003; [Owner and Partner, Ho'akea (a public affairs company) from 2001 to 2003]; Managing Director, Pacific Century Inc. (a business consulting company) since 1995. | — | ||
Robert W. Wo, Jr.; 55; 2002 | President and Director, C.S. Wo & Sons, Ltd. (a furniture retailer) since 1984. | — | ||
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At the close of business on December 31, 2003,February 14, 2008, Bank of Hawaii had 54,928,480 shares of its common stock outstanding. As of December 31, 2003,February 14, 2008, this table shows how much Bank of Hawaii common stock was owned by (i) by its directors and nominees, and(ii) the Chief Executive Officer and the four other persons who were the most highly compensated executive officers of Bank of Hawaii at December 31, 2003named in the Summary Compensation Table (the "named executive officers"), (iii) all executive officers and (ii)directors as a group, and (iv) entities that are known by one company that is known to us to own beneficially 5% or more than five percent of Bank of Hawaii's common stock. Unless otherwise indicated and subject to applicable community property and similar statutes, all persons listed below have sole voting and investment power over all shares of common stock beneficially owned. Share ownership has been computed in accordance with SEC rules and does not necessarily indicate beneficial ownership for any other purpose.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
Name | Number of Shares Beneficially Owned | Right to Acquire Within 60 Days | Total | Percent of Outstanding Shares as of 12-31-03 | Number of Shares Beneficially Owned | Right to Acquire Within 60 Days | Total | Percent of Outstanding Shares as of 02-14-08 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Wellington Management Co., LLP 75 State Street Boston, Massachusetts 02109 | 10,514,213 | -0- | 10,514,213 | 19.14 | % | |||||||||||||
Barclays Global Investors, NA. Barclays Global Fund Advisors Barclays Global Investors, Ltd. Barclays Global Investors Australia, Ltd. Barclays Global Investors Canada, Ltd. Barclays Global Investors (Deutschland) AG Barclays Global Investors Japan Trust and Banking Company Limited Barclays Global Investors Japan, Ltd. 45 Fremont Street San Francisco, CA 94105 | 3,619,309 | 0 | 3,619,309 | 7.4 | %(1) | |||||||||||||
Private Capital Management L.P. 8889 Pelican Blvd. Naples, Florida 34108 | 3,447,245 | 0 | 3,447,245 | 7.0 | %(1) | |||||||||||||
S. Haunani Apoliona | 1,616 | (2) | 14,000 | (7) | 15,616 | * | 4,896 | (2) | 16,902 | 21,798 | * | |||||||
Peter D. Baldwin | 4,462 | (2)(9) | 19,000 | (7) | 23,462 | * | ||||||||||||
Mary G.F. Bitterman | 18,274 | (2)(3) | 19,000 | (7) | 37,274 | * | ||||||||||||
Mary G. F. Bitterman | 19,189 | (2)(3) | 20,102 | 39,291 | * | |||||||||||||
Michael J. Chun | 5,300 | (2) | 14,000 | (7) | 19,300 | * | 8,820 | (2)(3) | 17,102 | 25,922 | * | |||||||
Clinton R. Churchill | 6,052 | (2)(8) | 14,000 | (7) | 20,052 | * | 11,161 | (2)(3)(5) | 17,102 | 28,263 | * | |||||||
David A. Heenan | 15,961 | (2)(6) | 19,000 | (7) | 34,961 | * | 25,177 | (2)(4) | 20,102 | 45,279 | * | |||||||
Robert A. Huret | 6,441 | (2) | 9,000 | (7) | 15,441 | * | ||||||||||||
Robert Huret | 13,182 | (2) | 14,102 | 27,284 | * | |||||||||||||
Kent T. Lucien | 1,465 | (2) | 731 | 2,196 | * | |||||||||||||
Martin A. Stein | 1,000 | (2) | 12,000 | (7) | 13,000 | * | 3,220 | (2) | 17,102 | 20,322 | * | |||||||
Donald M. Takaki | 12,188 | (2)(10) | 18,000 | (7) | 30,188 | * | 16,964 | (2) | 20,102 | 37,066 | * | |||||||
Barbara J. Tanabe | 7,206 | (2) | 13,000 | (7) | 20,206 | * | 13,494 | (2) | 17,102 | 30,596 | * | |||||||
Robert W. Wo, Jr. | 12,196 | (2)(3) | 14,000 | (7) | 26,196 | * | ||||||||||||
Michael E. O'Neill | 866,342 | (5) | 2,512,000 | 3,378,342 | 6.15 | % | ||||||||||||
Robert W. Wo, Jr | 17,860 | (2)(3) | 17,102 | 34,962 | * | |||||||||||||
Allan R. Landon | 96,303 | 179,630 | 275,933 | * | 170,301 | 242,238 | 412,539 | * | ||||||||||
Alton T. Kuioka | 104,505 | (2)(4) | 205,833 | 310,338 | * | |||||||||||||
William C. Nelson | 8,520 | 169,633 | 178,153 | * | ||||||||||||||
Peter S. Ho | 67,874 | 57,835 | 125,709 | * | ||||||||||||||
Mark A. Rossi | 4,000 | 0 | 4,000 | * | ||||||||||||||
Daniel C. Stevens | 4,000 | 0 | 4,000 | * | ||||||||||||||
David W. Thomas | 19,492 | 150,433 | 169,925 | * | 7,487 | 19,000 | 26,487 | * | ||||||||||
Directors, nominees and executive officers as a group (17 persons) | 1,193,358 | 3,394,196 | 4,587,554 | |||||||||||||||
Richard C. Keene | 11,700 | 0 | 11,700 | * | ||||||||||||||
Directors, nominees and executive officers as a group (21 persons) | 465,417 | 670,969 | 1,136,386 | % |
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Notes to Table on Amount and Nature of Beneficial Ownership
All stock is subject to sole voting and investment power unless otherwise specified.
According to the information furnished by it, WellingtonPrivate Capital Management, Company, LLPL.P. ("WMC"PCM") is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended. As of December 31, 2003, WMC,Based solely on a Schedule 13G filed with the Securities Exchange Commission on February 14, 2008, PCM, in its capacity as investment adviser, may be deemed to have beneficial ownership as of 10,514,213December 31, 2007 of 3,447,245 shares of Bank of Hawaii common stock owned by numerous investment advisory clients, none known to have more than five percent5 percent. According to the same filing, PCM has sole power to vote or direct the vote of 16,900 of those shares and sole power to dispose or to direct the class. Asdisposition of December 31, 2003, WMC had16,900 shares. PCM also has shared power to vote or to direct the vote over 4,621,833 of those shares, and shared power to dispose or to direct the disposition of 5,892,380 of those3,430,345 shares.
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CORPORATE GOVERNANCEBOARD STRUCTURE & COMPENSATION
Corporate Governance Guidelines
The Company and the Board have adopted Corporate Governance Guidelines ("Governance Guidelines"), which are attached as Appendix C and posted on the Company's Investor Relations website at www.boh.com.www.boh.com. Shareholders and other interested parties may receive a copy of the Governance Guidelines by writing the Corporate Secretary at 130 Merchant Street, Honolulu, Hawaii 96813. The Governance Guidelines address Directordirector qualification and independence standards, responsibilities, access to management and independent advisors, compensation, orientation and continuing education, Board committees, Chief Executive Officer evaluation, management succession, Code of Business Conduct and Ethics, shareholder communications to the Board and the Board's annual performance evaluation.
Board Governance and Attendance
The Company's Board of Directors met nine times during 2003. The Board's policy is that directors should make every effort to regularly attend meetings of the Board and committees on which they serve and the Company's annual shareholder meeting. Each director attended 75% or more of the aggregate of the total number of Board meetings and the total number of meetings held by the committees on which he or she served in 2003. Eight of the Company's Directors attended the 2003 shareholders' meeting.
The Board has four standing committees: the Audit Committee, the Human Resources and Compensation Committee (the "Compensation Committee"), the Executive & Strategic Planning Committee (the "Executive Committee"), and the Nominating and Corporate Governance Committee (the "Nominating & Governance Committee"). The committee charters are posted on the Company's website previously given.
Ms. Bitterman has served as the Lead Independent Director since 1999, and is Vice ChairChairman of the Executive Committee and Chair of the Nominating & Corporate Governance Committee. The Lead Independent Director's duties are set forth in the Board's Governance Guidelines and include presiding over regularly scheduled executive sessions of the non-management directors, or serving as a liaison between the non-management directors and executive management and assisting the Board and executive management to ensure compliance with the Governance Guidelines. The non-management directors meet in executive session without management in attendance for regularly scheduled meetings which are usually held five times a year. The non-management directors may also meet in executive session each time the full Board convenes for a meeting. In 2003,2007, the non-management directors met in executive session eightfive times.
Director Qualifications and Nomination Process
The Nominating & Corporate Governance Committee is responsible for identifying and assessing all director candidates and recommending nominees to the Board. Potential nominees will be evaluated based on their independence, within the meaning of the Governance Guidelines and the rules of the New York Stock Exchange ("NYSE"). Candidates to be nominated as a director, including those submitted by shareholders, are selected based on, among other criteria, their integrity, informed judgment, financial literacy, high performance standards, accomplishments and reputation in the community, experience, skill sets, and ability to commit adequate time to Board and committee matters and to act on behalf of shareholders.
The criteria also include a determination of the needs of the Board and of the individuals' personal qualities and characteristics with those of the other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company and its shareholders. The Board should encompass a broad range of skills, expertise, industry knowledge, diversity of viewpoints, background, and business and community contacts relevant to the Company's business.
A shareholder may submit a candidate for consideration by the Board to be included in the Board's slate of director nominees. Candidates proposed by shareholders will be evaluated by the Nominating & Corporate Governance Committee under the same criteria that are applied to other candidates. The criteria are set forth above and in the Company's By-Laws and Governance Guidelines. Candidates to be considered for nomination by the Nominating & Corporate Governance Committee at the 2009 Annual Meeting of Shareholders must be presented in writing to the Corporate Secretary on or before November 14, 2008 at 130 Merchant Street, Honolulu, Hawaii 96813 to be included in the Company's proxy statement for 2008.
Communication with Directors
Shareholders and any interested parties may communicate with the Board, Non-Management Directors or Lead Independent Director by sending correspondence c/o the Company's Corporate Secretary,
130 Merchant Street, Dept. 232, Honolulu, Hawaii 96813. All appropriate communications received will be forwarded to the Board, Non-Management Directors or Lead Independent Director as addressed.
Code of Business Conduct and Ethics
The Company has earned its reputation as a respected leader in the communities it serves and in the financial services industry by conducting business in an ethical, responsible and professional manner. The Company is proud of the high standards of quality and service that have been its hallmark through the years. These qualities represent fundamental business practices and apply to all directors, officers and employees.
The Company and Board have adopted a Code of Business Conduct and Ethics for Directors, Officers and Employees (the "Code"), which is posted on the Investor Relations page of the Company's websitewww.boh.com. The Code addresses the professional, honest and candid conduct of each director, officer and employee; conflicts of interest, disclosure process, compliance with laws, rules and regulations (including insider trading laws); corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets; and encourages the reporting of any illegal or unethical behavior. A waiver for an executive officer or director of the Company may be made only by the Audit Committee of the Board of Directors and must be promptly disclosed as required by SEC or NYSE rules. The Company will disclose any such waivers, as well as any amendments to the Code, on the Company's website. Shareholders may obtain a printed copy of the Code by contacting the Corporate Secretary at the address previously provided.
Director Independence
The Board hasis comprised of a majority of independent directors as defined by the listing standards of the New York Stock Exchange ("NYSE") and the Board's Governance Guidelines. In considering all of the relevant facts and the categorical standards with respect to each director and nominee, the Board has affirmatively determined that all directors and nominees other than Messrs. O'Neill, Landon, Stein and Takaki are independent within the meaning of the NYSE listing standards and the Board's categorical standards forstandards. In affirmatively determining independence. The following nine directors and nominees have been affirmatively determined by the Board to be independent: Messrs. Baldwin, Chun, Churchill, Heenan, Huret, and Wo and Mmes. Apoliona, Bitterman and Tanabe. All of the committees, with the exception of the Executive Committee, are comprised entirely of independent directors. The Board has adopted categorical standards for determining whetherthat a director is independent of the Company's management and has no material relationshipsrelationship with the Company, including but not limitedeither directly or indirectly as a partner, shareholder, or officer of an organization that has a relationship with the Company, the Board applies the following categorical standards, in addition to such other factors as the following:Board deems appropriate:
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Until November 4, 2004, references in these standards to "three years" shall be deemed to be references to such shorter periods as may be permitted by Section 303A of the NYSE Listed Company Manual.
For purposes of these independence standards, an "immediate family member" includes the director's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employees) thatemployee) who shares the director's home.
Code The following ten directors have been determined by the Board to be independent: Messrs. Chun, Churchill, Heenan, Huret, Lucien, Stein and Wo, and Mmes. Apoliona, Bitterman and Tanabe, and accordingly, the Board has a majority of Business Conduct & Ethics
The Company has earned its reputationindependent directors as a respected leader indefined by the communities it serves and in the financial services industry by conducting business in an ethical, responsible and professional manner. The
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Company is proudlisting standards of the high standardsNYSE and the Governance Guidelines. There were no relationships that were considered in determining the independence of quality and service, which have been our hallmark through the years. These qualities represent fundamental business practices and apply to allindependent directors. All of the committees, with the exception of the Executive Committee, are composed entirely of independent directors officers and employees. All directors owe a duty of loyalty towho also meet applicable committee independence standards. Mr. Landon is the Company. This duty mandates that, in the course of carrying out the duties and responsibilities of that position, the best interestCEO of the Company and its shareholders take precedence over any personal intereststherefore not independent, and Mr. Takaki has been determined not to be an independent director due to his and his family's ownership interest in Pacific Courier, Inc. ("PCI"), a company that provides courier and armored car services among the branches for the Company. In 2007, the Company paid approximately $1.99 million in courier fees, and reimbursed airfreight costs of approximately $293,000, to PCI. PCI was selected to continue to provide courier and armored car services after a request for quote process conducted by the Company in February 2005. The Company has the right to terminate the services provided by PCI upon 30 days notice. The Audit Committee ratified and approved the terms of the director.services provided by PCI in January 2007.
Compensation Committee Interlocks and Insider Participation
The Company and Board have adopted a Code of Business Conduct and Ethics for Directors, Officers and Employees (the "Code of Conduct and Ethics") which is posted on the Company's website previously provided. The Code of Conduct and Ethics addresses the professional, honest and candid conduct of each director, officer and employee; conflicts of interest, disclosure process, compliance with laws, rules and regulations, (including insider trading laws); corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets; and encourages the reporting of any illegal or unethical behavior. The Company will disclose any amendments to, or waivers,No member of the Code of Conduct and Ethics for directorsCompensation Committee during fiscal year 2007 served as an officer, former officer, or executive officers on the Company's website. Shareholders may obtain a printed copy by contacting the Corporate Secretary at the address previously provided.
Board Compensation
Directors' fees are paid only to directors who are not employeesemployee of the Company or its subsidiaries. In 2003, each such directorhad a relationship that was paid an annual retainerrequired to be disclosed under "Related Person Transactions." Further, during 2007, no executive officer of $16,000 and a quarterly payment of $750, plus $750 for each Board meeting attended. Directors are reimbursed for board-related travel expenses, and directors who are non-Hawaii residents receive an additional $5,000 to compensate them for travel time. The Company does not have a retirement plan for directors who are not employed by the Company or its subsidiaries.served as:
Directors who are not employed by the Company or its subsidiaries and who serve as members
Directors Deferred Compensation Plan
The Company 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, or served on our Compensation Committee; or
The Company has a Director Stock Compensation Program that annually grants 200 shares of restricted common stock ("Restricted Shares") and an option for 3,000 common shares to each non-employee director. The exercise price of the options is based on the closing market price of the shares on the date that the options were granted. Each option expires ten years from the date of grant and is generally not transferable. If an optionee ceases to serve as a director for any reason other than death or disability, any unexercised options terminate. Upon the exercise of options, the shares received ("Option Shares") are nontransferable during the term of the director. If an optionee ceases to serve as a director prior to the end of his or her term, for any reason other than death or disability, the Option Shares will be redeemed by the Company at a price equal to the exercise price. The Restricted Shares are also nontransferable during the term of the director. If an optionee ceases to serve as a director prior to the end of his or her term, for any reason other than death, disability, removal without cause, or change of control, the Restricted Shares are forfeited.
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The following information provides an overviewBoard met 10 times during 2007. The Board's policy is that directors should make every effort to regularly attend meetings of the primary responsibilitiesBoard and committees on which they serve and the Company's annual shareholder meeting. Each director attended 75% or more of the Board'saggregate of the total number of Board meetings and the total number of meetings held by the committees on which he or she served in 2007. All of the Company's directors attended the 2007 shareholders' meeting.
Board Committees
The Board has four standing committeescommittees: the Audit Committee, the Human Resources & Compensation Committee (the "Compensation Committee"), the Executive & Strategic Planning Committee (the "Executive Committee"), and the Nominating & Corporate Governance Committee. The committee membership.charters are posted in the Investor Relations section of the Company's website atwww.boh.com. Shareholders and any interested parties may request a printed copy of the charters and Governance Guidelines by contacting the Corporate Secretary at 130 Merchant Street, Honolulu, Hawaii 96813.
The Board has affirmatively determined that all of the members of the Audit, Compensation and Nominating & Corporate Governance Committees ("Board Committees") meet the independence standards of the NYSE and the Company's Governance Guidelines for independence.Guidelines. The Board Committee'sCommittees' charters require that each committee perform an annual evaluation of its performance and assess the adequacy of its charter. Each Committeecommittee has the authority to retain consultants and advisors to assist it in its duties, including the sole authority for the retention, termination and negotiation of the terms and conditions of the assignment.engagement.
CopiesBelow are the members of the Board Committee charters can be viewed on the Company's Investor Relations website at www.boh.com. Shareholders may request a printed copy of the charters and Corporate Governance Guidelines by contacting the Corporate Secretary at 130 Merchant Street Honolulu, Hawaii 96813. A copy of the Audit Committee charter is included as Appendix A and a copy of the corporate governance guidelines is attached as Appendix B.each current standing committee.
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Audit Committee: 8 Meetings in 2003
Audit | Compensation | Executive | Nominating and Governance | |||
---|---|---|---|---|---|---|
Mary G. F. Bitterman | Mary G. F. Bitterman | S. Haunani Apoliona | ||||
Clinton R. Churchill | David A. Heenan* | Clinton R. Churchill | Mary | |||
Barbara J. Tanabe | ||||||
David A. Heenan | ||||||
Clinton R. Churchill | ||||||
Kent T. Lucien* | Robert W. Wo, Jr. | Allan R. Landon* | Michael J. Chun | |||
Martin A. Stein | Robert W. Wo, Jr. | David A. Heenan | ||||
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Robert | ||||||
Kent T. Lucien | ||||||
Martin A. Stein | ||||||
Barbara J. Tanabe | ||||||
Robert W. Wo, Jr. | ||||||
16*Committee Chairman
Audit Committee: 6 Meetings in 2007
The duties of the Audit Committee are set forth in its charter, and include assisting the Board in its oversight of the following areas of the Company: regulatory and financial accounting and reporting and credit risk management; compliance with legal and regulatory requirements; independent registered public accounting firm's qualifications and independence; and overseeing the performance of the Company's internal audit function and independent registered public accounting firm. The Board has determined that Robert Huret and Kent Lucien meet the definition of "financial expert" within the meaning of the SEC regulations adopted under the Sarbanes-Oxley Act of 2002. The Board has determined that all Committee members meet the NYSE standard of financial literacy and have accounting or related financial management expertise. The Committee has adopted policies and procedures governing the following: pre-approval of audit and non-audit services; the receipt and treatment of complaints regarding accounting, internal
controls, or auditing matters and the confidential, anonymous submission by employees of the Company regarding questionable accounting or audit matters; and restrictions on the Company's hiring of employees of the independent registered public accounting firm. The Committee is also responsible for reviewing conflict of interest transactions involving a director or executive officer. The report of the Audit Committee is on page 20.
Compensation Committee: 9 Meetings in 2007
The duties of the Compensation Committee are set forth in its charter, and include responsibility for compensation levels of directors and members of executive management and reviewing the performance of executive management. The Committee reviews and approves goals for incentive compensation plans and stock plans, and evaluates performance against those goals. The Compensation Committee also reviews management development and training programs and reviews succession planning for senior and executive management. The Compensation Committee charter allows for the delegation of its duties to its own subcommittee as long as in compliance with all applicable laws, rules and listing standards. The CEO, in consultation with the director of human resources, makes recommendations with respect to non-CEO executive officer compensation. Watson Wyatt Worldwide, Inc. ("Watson Wyatt"), an employee benefits and human capital consulting firm with worldwide operations in the Americas, Europe and Asia Pacific, has been retained by the Compensation Committee to provide compensation consulting and market data information. The report of the Compensation Committee is on page 21.
Executive Committee: No Meetings Held in 2007
The Committee has power to act for the Board in between its meetings except on those matters reserved to the Board by the By-Laws or otherwise. The Committee has the authority to advise the CEO and Board on long-range strategy and monitor the Company's progress. The Committee did not meet in 2007.
Nominating & Corporate Governance Committee: 5 Meetings in 2007
The duties of the Nominating & Corporate Governance Committee are set forth in its charter and include reviewing the qualifications of all Board candidates and recommending qualified candidates for membership on the Board. The Committee reviews the Board's organization, procedures and committees and makes recommendations concerning the size and composition of the Board and its committees. The Committee makes recommendations to the Board regarding standards for determining non-management director independence and reviews the qualifications and independence of the members of the Board and its committees. The Committee reviews and evaluates the Company's compliance with corporate governance requirements and leads and oversees the Board and its committees' annual performance evaluations. Further information regarding the responsibilities performed by the Committee and the Company's corporate governance is provided in the Committee charter and the Governance Guidelines.
Retainer and Meeting Fees
In 2007, each director was paid an annual retainer of $20,000, plus $750 for each Board meeting attended. The Lead Independent Director is paid an additional annual retainer fee of $10,000. The chairs of the Compensation and Audit Committees, and the vice chair of the Executive Committee, also receive an annual retainer of $5,000. The Directors are reimbursed for board-related travel expenses, and directors who are non-Hawaii residents receive an additional $5,000 to compensate them for travel time. Members of the Compensation Committee and the Executive Committee receive $750 for each meeting attended. The fee is $1,500 per meeting for members of the Audit Committee and $2,000 per meeting for the Chairman of the Audit Committee. No fees are paid for attendance at Nominating & Corporate Governance meetings.
Director Stock Program
The Company maintains the Bank of Hawaii Corporation Amended and Restated Director Stock Compensation Plan ("Director Stock Plan"). The purpose of the Director Stock Plan is to advance the interests of the Company by encouraging and enabling eligible non-employee members of the Board to acquire and retain throughout each member's tenure as director a proprietary interest in the Company by ownership of shares of Bank of Hawaii common stock. The Director Stock Plan allows for the granting of stock options, restricted stock, and restricted stock units. Under the Director Stock Plan, the Board has the flexibility to set the form and terms of awards. In 2007, the Company issued 982 shares of restricted common stock ("Restricted Shares") to each non-employee director. Under the Director Stock Plan, grants of restricted stock generally vest on the third anniversary of the date of grant. No options were granted under the Director Stock Plan in 2007. The Company is presently reviewing a proposal to amend grants of restricted shares (and grants of options to purchase restricted shares) that were made under the Director Stock Plan's predecessor plan. Grants of restricted stock under the predecessor plan (including restricted stock received from options granted under the predecessor plan) are currently subject to forfeiture in the event that the director who received such a grant leaves the Board prior to the expiration of his or her last term of service.
Directors' Deferred Compensation Plan
The Company maintains the Directors' Deferred Compensation Plan, under which a non-employee director may elect to defer the payment of either all of the director's annual retainer and meeting fees, or all of the director's annual retainer. Deferred amounts under the Directors' Deferred Compensation Plan are generally payable beginning on the first day of the first month after the participating director ceases to be a director of the Company. Deferred amounts are paid to the participant in a lump sum or in equal annual installments over such period of years (not exceeding 10 years) as the participant elects at the time of deferral. If a participant dies, all deferred and previously unpaid amounts will be paid in a lump sum to the participant's beneficiary on the second day of the calendar year following the year of death. A participant's deferred amounts are adjusted for appreciation or depreciation in value based on hypothetical investments in one or more Pacific Capital funds or in shares of Bank of Hawaii common stock, as may be directed by the participant.
The Bank of Hawaii's obligations under the Directors' Deferred Compensation Plan are payable from its general assets, although the Company has established a rabbi trust to assist it in meeting its liabilities under the plan. The assets of the trust are at all times subject to the claims of the Company's general creditors.
Director Stock Ownership Guidelines
The Board of Directors believes it is important to support an ownership culture for the Company's employees and shareholders. To ensure that linkage to shareholders occurs among the fiduciaries of the Company, in December 2006, the Nominating & Corporate Governance Committee implemented stock ownership guidelines which require each non-management director to own a minimum amount of five times his or her annual cash retainer in the Company's stock. Directors were given five years to achieve guideline levels of ownership. As of December 31, 2007, 10 of the 11 non-management directors had satisfied the ownership guideline.
Director Compensation
The following table shows, for the year ended December 31, 2007, information on compensation earned by or awarded to each non-employee director who served on the Board of Directors during 2007.
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
S. Haunani Apoliona | $ | 35,750 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 72,580 | |||||||
Mary G. F. Bitterman | $ | 58,250 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 95,080 | |||||||
Michael J. Chun | $ | 31,250 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 68,080 | |||||||
Clinton R. Churchill | $ | 41,000 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 77,830 | |||||||
David A. Heenan | $ | 38,500 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 75,330 | |||||||
Robert Huret | $ | 41,500 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 78,330 | |||||||
Kent T. Lucien | $ | 40,000 | $ | 21,539 | $ | 8,740 | 0 | 0 | 0 | $ | 70,279 | |||||||
Martin A. Stein | $ | 38,500 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 75,330 | |||||||
Donald M. Takaki | $ | 35,750 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 72,580 | |||||||
Barbara J. Tanabe | $ | 38,750 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 75,580 | |||||||
Robert W. Wo, Jr. | $ | 46,000 | $ | 21,539 | $ | 15,291 | 0 | 0 | 0 | $ | 82,830 |
The Company's Board has determined that the Audit Committee is composed of fourCommittee's five members are independent directors, in accordance with the applicable laws, regulations, New York Stock Exchange'sNYSE listing requirements and the Company's Governance Guidelines. The Audit Committee operates under and annually reviews a written charter whichthat has been adopted by the Company's Board and which is included as Appendix A to this proxy statement.Board. Audit Committee members do not accept any consulting, advisory or other compensatory fees (except director fees) and are not affiliated with the Company or any subsidiaries (except as a director) or any subsidiary..
Each Audit Committee member shall be or must become financially literate at or within a reasonable period of time following his or her appointment. At least one member of the Audit Committee must have accounting or related financial management expertise. The Board has determined that the Audit Committee has onetwo audit committee financial expert,experts, Robert A. Huret and Kent Lucien, within the meaning of Securities Exchange Commission ("SEC")SEC regulations adopted under the Sarbanes-Oxley Act of 2002, and that all Audit Committee members are financially literate and have accounting or related financial management expertise. NoneTwo of the Audit Committee members, Ms. Bitterman and Mr. Lucien, currently serve on the audit committeecommittees of anotherother publicly traded company.companies.
The Audit Committee's responsibilities include providing oversight of the quality and integrity of the Company's regulatory and financial accounting and reporting, risk management, legal and regulatory compliance theand internal and external audit functions and the preparation of this Audit Committee report. In this context, theThe Audit Committee has reviewed and discussed with management and the independent auditorsregistered public accounting firm the Company's audited financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" to be included infor the Company's Annual Report on Form 10-K.fiscal year 2007. The Audit Committee has also discussed with management and the independent auditorsregistered public accounting firm the matters required to be discussed by Statement on Accounting Standards No. 61 (Communication with Audit CommitteesCommittees),). as amended. These discussions include the quality, not just the acceptability, of the accounting principles applied. The Company's independent accountants haveregistered public accounting firm has provided to the Audit Committee theirits written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee has discussed with the independent accountants,registered public accounting firm, that firm's qualifications and independence. The Audit Committee has adopted Pre-Approval Procedures for Audit and Non-Audit Services (the "Pre-Approval Procedures") that requires advance approval of all audit, audit-related, tax services, and other services performed by the independent auditor.registered public accounting firm. The PreapprovalPre-Approval Procedures providesprovide for pre-approval by the Audit CommitteeCommittee's pre-approval of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditorregistered public accounting firm is engaged to perform it.such service. The Audit Committee may delegate pre-approval authority to any one of its members who shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Based on the review and discussions referred to above, the Audit Committee recommended to the Company's Board that the audited financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" be included in the Company's Annual Report on Form 10-K for the year ended December 31, 20032007 for filing with the SEC. The Audit Committee and
As submitted by the Board also have recommended, subject to shareholder approval, the selection of the Company's independent auditor.
Membersmembers of the Audit Committee,
Kent T. Lucien, Chairman
Mary G. F. Bitterman
Clinton R. Churchill (Chair)
Robert Huret
Martin A. Huret (Financial Expert)Mary G.F. BittermanRobert W. Wo, Jr.Stein
17
EXECUTIVE COMPENSATIONREPORT OF THE COMPENSATION COMMITTEE REPORT
The Compensation Committee, composed entirely of independent directors in accordance with the applicable laws, regulations, NYSE listing requirements and the Governance Guidelines, sets and administers the policies that govern the Company's executive compensation programs, and various incentive and stock programs. The Compensation Committee reviews compensation levels ofhas reviewed and discussed the Compensation Disclosure and Analysis to be included in the Company's 2008 Proxy Statement with management and, based on these discussions, recommended to the Company's Board that the Compensation Disclosure and Analysis be included in such Proxy Statement.
As submitted by the members of senior management,the Compensation Committee
David A. Heenan, Chairman
Mary G. F. Bitterman
Barbara J. Tanabe
Robert W. Wo, Jr.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation of our named executive officers, including the Chief Executive Officer (the "CEO"), is the responsibility of the Compensation Committee of the Board (the "Committee").
Compensation Philosophy
The Committee believes that executive compensation should align with shareholders' interests, link to achievement of the Company's business plan, reinforce support for the Company's vision and be consistent with market compensation trends after taking into account the unique circumstances facing the Company in light of its geographic, demographic and economic conditions in the markets served by the Company. The Committee also believes that compensation should recognize short and long-term performance and may include both cash and equity components. The composition of components may vary from year to year based on individual, market and other factors. There are no specific formulas to determine the mix of pay elements, or the allocation between cash and non-cash compensation or among non-cash forms of pay. As described below, neither total compensation nor any element of cash and non-cash compensation is formally benchmarked against a peer group of companies. In making compensation decisions, the Committee considers individual performance, experience in the position, breadth of duties, pay parity among positions of comparable responsibility, and may request market data.
Compensation Process
The Committee, consistent with its Charter, determines compensation for the named executive officers. The Committee evaluates the CEO's performance against the overall corporate business plan. With respect to compensation decisions for the other named executive officers, the Committee gives significant weight to the recommendations of the CEO.
The Committee monitors the Company's performance throughout the year as to both financial and non-financial performance. In January, the Committee reviews the Company's annual results and the longer-term performance trend compared to the business plan. The Committee uses this review, together with factors as described on page 25, as the basis for the annual evaluation of the CEO. The Committee's evaluation is discussed with the full Board and then communicated to the CEO by the Lead Independent Director.
Based on similar factors and individual objectives, the CEO annually reviews the performance of each of the other named executive management,officers. The conclusions reached and considers executive management successionrecommendations based on those reviews, including any recommendations for salary adjustments, annual bonus awards and related matters. All decisions relatingequity components, are presented to the compensationCommittee. The Committee considers the CEO's recommendations. The CEO does not attend executive sessions of the Committee where his own compensation is being reviewed and determined by the Committee or the Board. The CEO is assisted by the director of human resources (herself not a named executive officers are shared with the full Board.
The policies and underlying philosophy governing the Company's executive compensation program, as endorsed by the Compensation Committee and the Board of Directors, are designed to accomplish the following:
The Compensation Committee seeks to target executive compensation at levels that the Compensation Committee believes to be consistent with others in the banking industry. The executive officers' compensation is weighted toward programs contingent upon the Company's level of annual and long-term performance. In general, for senior management positions of the Company (including the Bank's named executive officers) and its subsidiaries, the Company will pay base salaries that, on average, are at the 50th percentile of other banks and financial service companies of Bank of Hawaii's asset size and complexity and that have similar products and markets. Goals for specific components include:
The Company retains the services of nationally recognized consulting firms to assist the Compensation Committee in performing its various duties. Those firms advise the Compensation Committee on compensation programsformulating recommendations for the named executive officers, other than for himself. The Committee has the discretion to accept, reject or modify the CEO's recommendations. The Committee has discretion to determine the amount of equity and senior managementother compensation payable to executives based on its assessment of Banktheir performance. Rather than relying on formulaic models, the Committee believes that retaining discretion to assess performance of Hawaiithe CEO and its subsidiaries. other named executive officers gives the Committee members the ability to more accurately reflect individual contributions that cannot be quantified.
The Role of the Compensation Consultant
Hewitt Associates, a nationally recognized human resources and compensation consulting firm retained by the Company, also obtains extensive compensation studies every 2-3 years. The most recent compensation study focusingcontinued to advise the Committee on executive officers was conducted in 2003;compensation matters during 2007. For 2007, Hewitt Associates provided the results were presented alongCommittee with market data for executive compensation.
The market data included compensation information from Hewitt's proprietary database of total compensation. The Committee used this data as a "market check" to help assess the consulting firm's reviewcompetitiveness of the Company's programs for senior management.
The study provided an external competitive analysispay practices, but neither total compensation nor any element of compensation for incumbents in the Company's Managing Committee, which includespaid to the named executive officers and senior management, usingis benchmarked against a comparablesubset of the companies identified by Hewitt or any other group of 13 bankingcompanies. With the knowledge of the Committee, management also separately retained Hewitt, beginning in 1983, to provide actuarial services in connection with the Company's Employees' Retirement Plan of Bank of Hawaii.
In November 2007, the Committee retained and diversifiedinstructed Watson Wyatt Worldwide, Inc. ("Watson Wyatt"), an employee benefits and human capital consulting firm, to review its executive compensation programs and provide external information on executive compensation programs. The focus of Watson Wyatt's engagement is on 2008 compensation decisions and, to a lesser extent, reporting on market information with respect to bonus compensation for 2007. With input from management, Watson Wyatt identified a peer group of ten financial organizations.services organizations similar in size to the Company ranging between $7.6 billion and $15.2 billion in assets and a market capitalization of $1 billion to $3.2 billion. These corporationsfinancial organizations were viewedalso selected on the basis of their relatively low risk orientation and high levels of performance as representativemeasured by return-on-assets, return-on-equity, total shareholder return, loan reserves and nonperforming assets. The ten organizations include:
A number, but not all, of these companies are in the S&P Banking index shown on the Performance Graph included in the Company's 2007 Annual Report on Form 10-K.
The Committee did not target the elements of its compensation program at any specific level or percentiles within a peer group. Watson Wyatt conducted an analysis using the ten financial services organizations identified above and data from three national and highly regarded surveys representing financial services companies to determine competitiveness of the Company's talent competitors,pay practices. They reported that the Committee's historic compensation practices generally resulted in competitive pay and:
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2003 Compensation Elements and Determination of Compensation
Compensation earned by named executive officers in 2003, as reflected in the Summary Compensation Table on page 23, consistedelements for 2007 included:
The measurements of the following elements: base salary, value sharingcorporate performance and retirement savings plan, stock options, restricted stockindividual performance and restricted stock units. As indicated in the Summary Compensation Table, the Stock Option Grants in Last Fiscal Year Table, and the Long-Term Incentive Plans—Awards In Last Fiscal Year Table on pages 24-25, in 2003 the Compensation Committee awarded stock options, restricted stock and restricted stock units under the Company's Stock Option Plan of 1994 as amended (the "1994 Stock Option Plan"). In addition, thecontribution that are used to evaluate named executive officers (other than the CEO) for each element of compensation paid to such executive officers, and the specific items of corporate performance that are taken into account in setting compensation policies and making compensation decisions, are set forth below. The CEO makes an initial recommendation to the Committee as to each element of compensation for each of the other named executive officers for their consideration. The Committee has the discretion to accept, reject, or modify the CEO's recommendations. Restricted stock awards align with the Company's focus on long term performance, contribution to overall company value, retention of key talent, and alignment with shareholder interests. Long term equity awards granted in 2007 were comprised exclusively of restricted stock. The amount of the Company's equity awards is determined independently of the value of a named executive officer's existing equity holdings and independently of the amount of his or her annual incentive award.
Base Salary
Base salary is based on each individual's responsibilities. The CEO may consider the compensation of named executive officers disclosed by other banking companies. The Company generally establishes base salaries in connection with recruiting or retaining qualified executive officers. The Committee reviews salary levels as part of the Company's annual performance review process, as well as upon promotion or other changes in job responsibility. Merit-based increases to salaries for executive officers other than the CEO are determined by the Committee based on the CEO's assessment of individual performance.
In recommending base salaries the CEO considers the needs of the Company and of the executive officer, comparability within the Company, pay parity among positions of comparable responsibility and individual performance. The Committee also looks at market survey data to verify that salaries are competitive and within market ranges.
Consistent with the Company's practices, the Committee increased the base salary of Mr. O'Neill) were granted contingent awards underHo in April 2007, and again in September 2007 to reflect Mr. Ho's increasing operational responsibilities. Messrs. Rossi and Stevens joined the Company in February 2007 and May 2007, respectively. The CEO negotiated and the Committee approved base salaries of $350,000 and $350,000, respectively. At the request of Mr. Landon, the Committee has not increased his salary since 2004, and he has not received any other type of award in lieu of a salary increase.
Performance Based Variable Compensation
The named executive officers participate in the Bank of Hawaii Corporation Executive Incentive Plan ("Executive(the "Executive Incentive Plan") in 2003 as described below.
Base Salaries
Base salaries for named executive officers are determined by evaluating the responsibilities of the positions held, the experience of the individual, the competitive marketplace, and the individual's performance of his or her responsibilities.
The greatest emphasis is on individual performance and the competitive marketplace. Adjustments, pursuant to salary also reflect new responsibilities assigned or assumed by the individual. Also taken into account are key differences in responsibilities between the executives of Bank of Hawaii and of other banks, and the overall economic environment. No specific weighting is given to the foregoing factors.
To ease the expense burden ofwhich the Company Messrs. Landon, Kuioka, Nelson and Thomas reduced their 2002 salaries by 10% from 2001 levels and their salaries were reinstatedawards annual cash bonuses to the 2001 level in 2003. In 2003, Mr. Landon elected to reduce his salary and this reduction was considered in determining the amount of equity compensation granted to Mr. Landon which is discussed on pages 20-21. Mr. O'Neill elected to waive his base salary and any bonus for 2002 and 2003 and this reduction was considered in determining the amount of equity compensation granted to Mr. O'Neill which is discussed on pages 20-22.
Stock Ownership Guidelines
executives. The Compensation Committee believes that it is important for executive management to support an ownership culture for the Company's employees and shareholders and in 2001, implemented stock ownership guidelines which require the named executive officers to own a minimum amount of the Company's stock within 3 years. The Chairman and CEO is required to own at least 5 times his salary and the other named executive officers are required to own at least 2.5 times their salary in market value of Company stock. Stock ownership includes net after tax value of vested stock options, vested grants of performance-based restricted stock and stock or stock units from qualified plans. The amount of shares held by each of the named executive officers is reported in the Beneficial Ownership Table on page 9.
Executive Incentive Plan
The objectivespurpose of the Executive Incentive Plan areis to optimize the profitability and growth of the Company, provideBank of Hawaii through incentives for each annual period. These incentives are consistent with the Company's goals and link the personal interests of participants with those of the Company's stockholders. The Executive Incentive Plan provides participants with an incentive for excellence in individual performance advance the corporate and cultural imperatives and promote corporate initiatives. The Company's corporate and cultural imperatives include acting accountably, communicating openly and honestly, being results driven, working effectively in teams and embracing change. The corporate initiatives are to focus on customer service and sales, improve processes and systems, invest in the Company's employees and businesses, increase efficiency, and align compensation to performance and to the governing objective of maximizing shareholder value over time.promote teamwork amongst participants.
At the Compensation Committee's discretion, each participant is granted a contingent award expressed as dollars or a percentage of salary for the fiscal year and contingent on both individual and corporate performance criteria. At the end of the fiscal year, the Compensation Committee assesses the performance and makes a determination of the final award amountFor awards that may be greater or smaller than the
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contingent award. The Compensation Committee granted contingent awards of upare intended to 9% of the 2003 incentive pool to each of the named executive officers in 2003 with the exception of Mr. O'Neill, who does not participate in the Executive Incentive Plan. The 2003 limit for total awards for participants under the Executive Incentive Plan is 2% of the Company's total net income before taxes.
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 Section 162(m) (see "Tax Considerations" below), the Committee establishes, at the beginning of 1986 (the "Code"), a contingent award to a named executive officer is limited to a percentage ofan annual performance period, an incentive pool determined for the fiscal year (the "incentive pool percentage").from which bonus awards are paid to participants. The incentive pool is expressed as a percentage of the Company's net income before taxes for the fiscal year. For performance year 2007, the incentive pool was established as an amount equal to 2% of the Company's net income before taxes for the fiscal year. At the beginning of the performance period, each participating executive is allocated a maximum percentage of the incentive pool. For 2007, the Compensation Committee allocated a maximum of 19% to Mr. Landon and 9% to each of the other named executive officers (pro rated for each of Messrs. Rossi and Stevens). The Committee exercises its discretion, however, to reduce an executive's actual bonus payment to a dollar value based on a target award opportunity. A target award opportunity, expressed as a percentage of base salary, is established for each named executive officer at the beginning of the year. Each named executive officer's target opportunity takes into account the executive's position, scope of responsibilities, and individual contribution to the Company's 2007+ business plan. For 2007, the target bonus opportunity for the Chief Executive Officer was 100% of his base salary, the target opportunity for Messrs. Ho and Thomas was 80% of their base salary, and the totaltarget bonus opportunity for the each of the contingentother named executive officers was 67.5% of base salary. The potential range of annual bonus opportunities is as follows:
Mr. Landon | 0 - 120% | |
Messrs. Ho and Thomas | 0 - 110% | |
Other Named Executive Officers | 0 - 85% |
Set forth below is the framework used by the Committee in evaluating the CEO's performance and determining the amount by which the CEO's incentive pool percentage would be adjusted to arrive at his final bonus.
The Committee employs a scoring system that assigns to the CEO a weighted score based on satisfaction of specified criteria established at the beginning of the year. For 2007, the Committee considered the criteria below and assigned the listed weights to such criteria:
| Score | Weight | Product | |||||
---|---|---|---|---|---|---|---|---|
Measurement Based | ||||||||
Stock performance as defined by the 2007 Mid-Cap Bank Performance1 or Total Shareholder Return | 5 | 25 | % | 1.25 | ||||
Company financial performance | 2 | 25 | % | 5.5 | ||||
Judgement Based | ||||||||
Community and customer relations | 4 | 10 | % | 0.4 | ||||
Development of the management team | 5 | 10 | % | 0.5 | ||||
Customer satisfaction as measured by the Company's Customer Satisfaction Survey | 5 | 10 | % | 0.5 | ||||
Employee satisfaction as measured by the Company's Employee Satisfaction Survey | 5 | 10 | % | 0.5 | ||||
Other significant achievements or activities accomplished | 5 | 10 | % | 0.5 | ||||
Score | 4.15 |
Cathay General Bancorp, Central Pacific Financial Corp., Chittenden Corp., City National Corp./Beverly Hills CA, The Colonial BancGroup Inc., Comerica Inc., Commerce Bancorp Inc./NJ, Commerce Bancshares, Cullen/Frost Bankers Inc., East West Bancorp Inc., Fifth Third Bancorp, First Bancorp/Puerto Rico, First Horizon National Corp., First Midwest Bancorp Inc./IL, FirstMerit Corp., Fulton Financial Corp., Glacier Bancorp Inc., Greater Bay Bancorp, Huntington Bancshares Inc./OH, Keycorp, M&T Bank Corp., Marshall & Ilsley Corp., National City Corp., Old National Bancorp, PNC Financial Services Group Inc., Popular Inc., Prosperity Bancshares Inc., Provident Bankshares, The South Financial Group Inc., Sterling Financial Corp./WA, Susquehanna Bancshares Inc., SVB Financial Group, Synovus Financial Corp., TCF Financial Corp., Trustmark Corp., UCBH Holdings Inc., Umpqua Holdings Corp., Unionbancal Corp., United Bankshares Inc., Valley National Bancorp, Westamerica Bancorporation, Whitney Holding Corp., Wilmington Trust Corp., Wintrust Financial Corp. and Zions Bancorporation. The Mid-Cap Bank Performance Index was modified by the Committee in March 2007 due to mergers and acquisitions as follows: First Republic was replaced by Prosperity Bancshares Inc. Compass Bancshares Inc. was replaced by Comerica, and Mercantile Bankshares was replaced by Provident Bankshares.
Goals are generally not adjusted during the year, except, in the Committee's discretion, in the event of certain extraordinary, non-recurring transactions affecting the Company. The Committee did not make any adjustments in 2007. Certain adjustments also may be made by the Committee with respect to awards granted to individuals who are promoted or change job responsibilities during the performance period. The Committee did not make any such adjustments for the CEO or named executive officers for 2007.
The CEO receives a fiscal year may not exceed 100%score, possibly ranging from 1 (lowest possible score) to 5 (highest possible score) for each of the incentive pool. After assessingspecified criteria, and the satisfactionscores are then weighted according to the specified percentages. For example, the Committee assigns a score of 5 if the applicableCompany's stock performance is in the top quartile or if Total Shareholder Return (dividends and share appreciation for the calendar year) is above 12.5%; a score of 4 if the Company's stock performance is in the second quartile or if Total Shareholder Return is above 10%; and a score of 3 if the Company's stock performance is in the third quartile or if Total Shareholder Return is above 7.5%. The Company's stock performance is measured through comparison with the banking companies identified in the Mid-Cap Bank Performance Index referenced above. In 2007, the Committee assigned a score of "5" for the stock performance criteria because the Company's stock performance was in the top quartile as measured by the Mid-Cap Bank Performance Index. The Committee uses earnings per share growth to assign a score relating to the Company's financial performance. If earnings per share growth is above 10%, 8%, 6%, or 4%, respectively, a score of "5", "4", "3" or "2" is assigned. If earnings per share growth is below 4%, a score of "1" is assigned. In 2007, the Committee assigned a score of "2" for the fiscal year,financial performance criteria because earnings per share growth was 4.8%. With respect to the final award amount for a named executive officer may be lesser, but not greater, thanother criteria used in the officer's stated incentive pool percentage. The incentive pool percentages do not constitute "targets," but instead constitutescoring system, including the stated upper limitcustomer and employee satisfaction surveys, the Committee's assessment is based on final award amounts to giveits subjective assessment of such surveys or interviews. As noted above, the Compensation Committee flexibilityassigned a score of 5 in determiningthese categories, resulting in a final awardsweighted score of 4.15 to the CEO.
In January 2007, the Company introduced its 2007+ business plan that emphasizes growth in compliancerevenues, integration of service delivery and business units, development of people, enhancement of the Company's brand, and discipline in managing risk and financial performance. Performance objectives under the 2007+ business plan include an annual return on assets above 1.7%, return on equity above 25%, and an efficiency ratio approaching 50%, assuming a stable economy and a return to a more traditional interest rate environment. The Committee believes that Total Shareholder Return and earnings per share correlate most closely with the performance-based exemption under Section 162(m). In addition, as an overriding limitation,financial objectives of the maximum aggregate payout2007+ business plan and that the more subjective elements can be assessed through survey data. The Committee determined the final bonus based on a subjective determination that takes into consideration the results of the scoring system, but which is not determined by reference to a specific formula driven off the numerical score. The Committee also noted that the Company did not achieve all of the 2007 goals established in the Company's 2007+ business
plan. Based on this evaluation, the Committee awarded the CEO a bonus of $600,000 (approximately 80% of base salary), down from $650,000 (approximately 87% of base salary) in 2006. The CEO requested that his bonus be limited to $600,000, consistent with limitations on bonuses for contingent awards granted in any one fiscal year to any one participant is $2,000,000.
1994 Stock Option Planother officers and employees throughout the Company.
The final bonus amounts payable to each of the other named executive officers is determined by a similar process that does not include formal scoring but takes into account individual business unit objectives, as well as the individual's performance, scope of responsibilities and market data. The CEO makes an initial recommendation to the Committee as to the final bonuses of each of the other named executive officers for the Committee's consideration. The Committee has the discretion to accept, reject, or modify the CEO's recommendations. For 2007 compensation determinations, the Committee recognized the strong performance of the business units managed by the Chief Banking Officer and Chief Operating Officer, respectively, as well as the contributions and leadership provided by the Chief Financial Officer and the Chief Administrative Officer during 2007. The Committee accepted and approved the CEO's bonus recommendations (as reflected in the Summary Compensation Committee considered stock options, restricted stockTable) for the other named executive officers.
Long-Term and restricted stock unit grants underEquity-based Compensation
Long-term incentives are intended to encourage decision-making with the 1994 Stock Option Plan for employeeslong-term interests of the Company in mind, to retain and its subsidiaries. (The authorityreward management and to grant awards under the 1994 Stock Option Plan expired on December 31, 2003. The Company is submitting the 2004 Stock and Incentive Compensation Plan to the shareholders for approval at the April 2004 annual meeting and further information is provided on pages 29-34.)
Awards under the 1994 Stock Option Plan are granted by the Compensation Committee to those employees whose management responsibilities place them in a position to make substantial contributions to the financial success of the Company. Directors who are not employees are not eligible to participate in the 1994 Stock Option Plan. The Compensation Committee, which administers the 1994 Stock Option Plan, determines whether the options will be incentive stock options or nonqualified stock options. All stock options granted in 2003 had an exercise price equal to the market price of the Company's common stock on the date of grant.
The Compensation Committee believes stock options provide a strong incentive to increase shareholder value, because these awards have value only if the stock price increases over time. The Compensation Committee also believes that restricted stock and restricted stock units, when used as an integral part of incentive compensation programs, provide an incentive to increase shareholder value. The Compensation Committee believes such equity awards to its named executive officers and other employees help toclosely align the interests of management with those of shareholdersstockholders and to focusexecutives through the attention of management on the long-term success of the Company.
In 2003, the size of the stock option, restricted stock and restricted stock unit grants under the 1994 Stock Option Plan were based primarily on the individual's responsibilities, performance and position. Individual awards were also affected by the Compensation Committee's subjective evaluation of other factors it deemed appropriate, such as assumption of additional responsibilities, competitive factors, and achievements that in the Compensation Committee's view are not fully reflected by other compensation elements. The Compensation Committee's decisions concerning individual grants generally were not affected by the number of options previously exercised, or the number of unexercised options held.
In 2003, the Compensation Committee granted a total of 1,664,250 options to 521 employees and 270,000 restricted stock units and shares of restricted stock to 9 employees. Of these, 425,000 options were granted in February 2003 to the named executive officers as follows: Mr. O'Neill (300,000), Mr. Landon (70,000), Mr. Thomas (30,000) and Mr. Nelson (25,000). All of these options vest one year from the date of
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grant. Additional information regarding the stock options granted to the named executive officers is provided in Stock Option Grants In Last Fiscal Year Table on page 24. The amounts of individual awards to executive officers in 2003 were based on their individual positions, responsibilities, performance, leadership and the other factors discussed above.
In October 2003, the Compensation Committee granted the members of the Managing Committee (other than Mr. O'Neill) restricted stock units ("RSUs") under the 1994 Stock Option Plan in furtherance of the Managing Committee 2004 Stock Compensation and Retention Program, including grants to certain named executive officers as follows: Mr. Landon (30,000), Mr. Kuioka (30,000), Mr. Nelson (20,000) and Mr. Thomas (30,000). The RSU grants were based on the recipients' individual positions, responsibilities, performance, leadership impact and the other factors discussed above. Dividend equivalents are paid on the restricted stock units. The restricted stock units will vest based on time and the successful completion of certain performance objectives. The fair market valueachievement of the Company's stock on December 31, 2003 was $42.20. Further information aboutstrategic business plan.
Equity awards can be an important component of total compensation and reflect the restricted stock units is provided below on this page and in the Long-Term Incentive Plans—Awards In Last Fiscal Year Table on page 25.
In December 2003, the Compensation Committee granted 75,000 shares of restricted stock to Mr. Landon upon his appointment as President of the Company and the Bank, which is further described in the Summary Compensation Table on page 23. Of the 75,000 restricted shares, 40,000 are time-based restricted shares with 10,000 shares vesting each year beginning March 15, 2005 and 35,000 are performance-based restricted shares with a five year vesting period to be vested upon meeting certain efficiency ratio targets and top quartile performance or achieving annual NIACC (net income after capital charge) budget. If the efficiency ratio target is met, 20% of the original performance-based share grant vests each year. If the top quartile performance or annual NIACC budget is met, 30% of the original grant vests each year. A maximum of 50% of the original grant can vest in one year. If the performance-based shares are not earned by 2008, they are forfeited.
Managing Committee 2003 Stock Compensation and Retention Program
All of the members of the Company's Managing Committee, including the named executive officers, other than Mr. O'Neill participate in the Managing Committee 2003 Stock Compensation and Retention Program. As a part of this program and under the 1994 Stock Option Plan, all participants were awarded RSUs in October 2003, as further described above on this page and in the Long-Term Incentive Plans—Awards in Last Fiscal Year Table on page 25. Certain participants in this program, including Messrs. Kuioka, Nelson and Thomas, also may be entitled to receive retention compensation designed to further encourage them to remain with the Company. This retention compensation, which will be payable in a lump sum or as salary continuation upon the participant's departure if and only if that departure occurs on or after an agreed upon date (which currently is expected to be within twelve months of the final vesting date for each participant's RSUs), will equal up to twenty-four months salary for participants.
CEO Compensation
In determining Mr. O'Neill's annual compensation as Chief Executive Officer ("CEO"), the Compensation Committee has sought to provide levels that are competitive among comparable banks and financial services corporations as described on page 18. The Compensation Committee's objectives with regard to Mr. O'Neill'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 Compensation Committee's continuing strategy of balancing short-short and long-term incentives in structuring executive officer compensation and aligning the interest of the CEOexecutives with those of shareholders.
In determining Mr. O'Neill's 2003accordance with the Company's equity compensation plans, the Compensation Committee considered, among other factors,may grant stock options, restricted stock awards or restricted stock units. However, it currently expects to award shares of restricted stock or restricted stock units to the 2002 financial performanceextent, if any, it utilizes equity compensation as part of the Company.overall compensation program.
The Company's stock finished 2002 up 17 percent; it wasamount of the top performing bank inlong-term incentive grant awards is subjectively determined, taking into account position and job responsibilities, individual performance, Company performance, future potential contributions to the Lehman Brothers 56 Bank IndexCompany, internal pay parity, market survey data, and the leader insize of previously granted awards. In addition, the
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Bloomberg Bank Index Committee may review additional factors to determine the size, frequency and type of long-term incentive grants. These factors may include the tax consequences of the grants to the individual and the Company, accounting impact, potential dilutive effects, potential future stock values and the number of shares remaining available for generating total shareholder returns in 2002. On December 17, 2002,issuance under the Company's stock reached a new highequity incentive plans.
As determined at the discretion of $31.05.the Committee, the terms and conditions of awards under the 2004 Stock and Incentive Compensation Plan, including the amount, measurement, vesting and payment of such awards, may be conditioned upon certain performance measures. In 2002, the Company's strong credit quality continuedcase of awards that are intended to improve as did its operatingcomprise qualified performance-based compensation to covered employees under Section 162(m) of the Internal Revenue Code, the performance measures are limited to one or more, separately or in combination, of the core franchise.
In 2003, the Company's stock pricefollowing performance remained among the best in the industry. The Company's dilutedmeasures: (a) earnings per share finished the year up 30 percent; the 10th performing bank of a 51 bank universe of which 23 banks are in the S & P Banks Index used in the stock performance graph. On December 30, 2003, the Company's stock reached a new high of $42.72, finishing the year up 37 percent. Net(actual or targeted growth); (b) net income for 2003 was up 12 percent from the prior year,after capital charge (NIACC); (c) net income (before or after taxes); (d) return measures (including, but not limited to, return on average assets, was 1.44 percent, up from 1.22 percent in 2002, and therisk-adjusted return on capital, or return on average equity for 2003 was 15.02 percent, up from 10.24 percent in 2002.equity); (e) efficiency ratio; (f) full-time equivalency control; (g) stock price (including, but not limited to, growth measures and total shareholder return); (h) noninterest income compared to net interest income ratio; (i) expense targets; (j) margins; (k) operating efficiency; (l) EVA® (economic value added); and (m) customer satisfaction. The performance measures may apply to the Company successfully implementedas a technology systems replacement project that has streamlined operations and improved efficiency. The lower-cost platform is expected to provide annual cost savingswhole or any subsidiary, affiliate, or business unit of over $17 millionthe Company.
Restricted stock or restricted stock unit awards generally vest based on second quarter 2002 expense levels. Under Mr. O'Neill's leadership,achievement of one or more performance goals, length of service or both. The discussion under "Grants of Plan-Based Awards" and the Company successfully completed an ambitious three-year strategic planfootnotes to the "Outstanding Equity Awards at Fiscal Year-End" table disclose the performance criteria that beganhave been used for recent equity awards given to the named executive officers. These criteria include achievement of top quartile total shareholder return based on the Mid-Cap Bank Performance Index, Total Shareholder Return, Earnings Per Share growth, efficiency ratio, NIACC (as more fully defined in 2001, which included improvement of risk management, divestiture or repair of underperforming businesses, improvement and growth of continuing businesses, improvement in operating efficiency and return of re-deployment of excess capital.
Mr. O'Neill serves as Chairman and CEO of the Company pursuant to a written employment agreement effective as of November 3, 2000. The agreement includes a base salary of $900,000, subject to annual review. A copy of the agreement is included as an exhibit to the Company's Annual Report on Form 10-K. As previously noted, Mr. O'Neill elected10-K filed with the SEC on February 25, 2008), risk adjusted return on capital (RAROC), return on equity (ROE), direct expense, operating income growth, operating leverage, and credit loss management.
Additional information regarding stock option and equity awards issued, and the criteria for performance based vesting, is provided in "Grants of Plan-Based Awards" and in the tables "Outstanding Equity Awards at Fiscal Year-End" and "Option Exercises and Stock Vested."
Health, Welfare, Retirement, Perquisites and Other Compensation
Executive officers are eligible to waive hisparticipate in health and insurance plans, retirement plans, and other benefits generally available to all full-time employees. This is consistent with our belief in offering employees basic health, welfare and retirement benefits that are competitive in our markets. The retirement programs assist our employees in planning for their retirement income needs. Benefits under our qualified health, welfare and retirement plans are not directly tied to specific Company performance. The Committee regularly reviews the value of benefits from the retirement plans.
Our employees who meet service requirements are eligible to participate in the Company-sponsored Retirement Savings Plan, a tax-qualified defined contribution pension plan.
We believe that ongoing perquisites should be limited in scope and value. The most significant perquisites as defined by the SEC, relate to moving and relocation expenses in connection with the hiring of new executive officers.
Stock Ownership Guidelines
In 2001, the Committee adopted stock ownership guidelines applicable to the executive officers. The objective of stock ownership guidelines is to align shareholder and management interests. Under the guidelines, the CEO should own Company stock having a market value equal to at least five times base salary, and the other named executive officers should own at least 2.5 times base salary. Stock ownership includes the value of vested stock options, stock units from qualified plans, and other stock held by the executive. The guidelines provide that executives comply with the stock ownership levels within three years of the date that they are hired or promoted to such position within the Company. At December 31, 2007, each named executive officer satisfied the stock ownership guidelines that pertain to them.
Nonqualified Deferred Compensation Plans
The Committee has adopted the Bank of Hawaii Corporation Executive Deferred Compensation Program (the "Deferred Compensation Program"), a program that offers senior management the ability to defer up to 80% of base salary and/or 100% of bonus amounts under the Executive Incentive Plan in order to allow executives to defer, along with the receipt of such bonus amounts, the income tax liability on such amounts (including any bonusappreciation in value as a result of the deemed investment of such amounts) until payment. This program allows participants to manage their cash flow and estate planning needs. The Company also maintains the Bank of Hawaii Retirement Savings Excess Benefit Plan (the "Excess Benefit Plan"), a non-qualified supplemental retirement benefits plan that compensates participants for 2002 and 2003. Mr. O'Neill participates inbenefits that would otherwise be payable under the Company's Retirement Savings Plan but for certain Internal Revenue Code limitations. The Committee believes that this plan is important to ensure equitability in retirement funding amounts between those that fall below and basic lifeabove the IRC limitations. See the
discussion under "Nonqualified Deferred Compensation" for additional information regarding the Deferred Compensation Program and long term disabilitythe Excess Benefit Plan. Benefits under the Executive Deferred Compensation Program and the Retirement Savings Excess Benefit Plan are not directly tied to specific Company performance. The value of these programs generally applicableis viewed independently by the Committee from the other pay elements. Gains from longer-term incentives are not included in the determination of nonqualified deferred compensation benefits.
Employment Agreements
The Company does not provide employment agreements for any of the named executive officers. The Company believes in a policy of "at will" employment arrangements.
Change In Control and Termination of Employment
The Committee believes that it is an important part of an executive's total compensation package to similarly situated executivesprovide for protections in the event of a change in control of the Company. Mr. O'Neill does not participateChange-in-control benefits play an important role in attracting and retaining valuable executives. The payment of such benefits ensures a smooth transition in management following a change in control by giving an executive the incentive to remain with the Company through the transition period, and, in the Company'sevent the executive's employment is terminated as part of the transition, by compensating the executive with a degree of financial and personal security during a period in which he is likely to be unemployed.
In 2007, the Company adopted a new Change in Control Retention Plan (the "Retention Plan"), replacing its previous Key Executive IncentiveSeverance Plan. As noted above, Mr. O'Neill received a grant of 300,000 stock options in February 2003 under the 1994 Stock Option Plan. Mr. O'Neill does not participate in the Company'sThe Key Executive Severance Plan provided a participant with benefits in the event that his employment was terminated for any reason (including voluntary termination) within 24 months following a change in control. The Retention Plan provides benefits only in the event that a participant's employment is terminated by the Company without cause or by the Managingparticipant for "good reason" within 24 months following a change in control. The Committee 2003believes that this change is consistent with encouraging executives to remain with the Company upon a change in control. Other changes include the following:
Each of the named executive officers other than Mr. Landon participates in the Retention Plan. Mr. Landon has terminated his participation in the Key Executive Severance Plan and has not yet determined if he will participate in the Retention Plan.
The terms of the Company's 2004 Stock Compensation and Retention Program. SimilarIncentive Plan provide for full acceleration of vesting of restricted stock and restricted stock units upon the occurrence of a change in control of the Company. We
believe that it is generally appropriate to otherfully vest equity and incentive-based awards to employees Mr. O'Neill's stock options become immediately exercisablein a change in control transaction because such a transaction may often cut short or reduce the employee's ability to realize value with respect to such awards. Similarly, the Executive Incentive Plan provides that bonus awards will, upon a change in control of the Company, be prorated as providedthough the applicable performance period ended on the change in control date and will be calculated as an amount equal to two times a participant's bonus allocation for in the 1994 Stock Option Plan.
Revenue Reconciliation Act of 1993original performance period.
Richard Keene, former Vice Chairman and Chief Financial Officer, resigned from the Company during the first quarter of 2007 to accept employment with another company, after serving with the Company since March 2001. In general,December 2007, the Company determined that David Thomas, the Company's Chief Operating Officer, had completed his assigned duties with the Bank of Hawaii intends to maintain deductibility for all compensation paid to covered employees, and, it will complyin accordance with the required terms of his Retention Agreement with the specified exemptions underBank of Hawaii dated December 16, 2005, the Company advanced the date of Mr. Thomas' separation from service to December 31, 2007.
For additional discussion of the Company's change-in-control and other retention arrangements, including the individual arrangements with Messrs. Keene and Thomas, see "Change-In-Control, Termination and Other Arrangements."
Tax Considerations
Under Section 162(m) of the Internal Revenue Code, the Company may not deduct compensation in excess of $1 million paid to the corporation's chief executive officer and four other most highly paid executive officers. "Performance-based compensation" (as defined for purposes of Section 162(m)) is not taken into account for purposes of calculating the $1 million compensation limit. Generally, the Committee seeks to maximize executive compensation deductions for federal income tax purposes. However, the Committee may authorize compensation payments that are not fully deductible when it believes that such payments are appropriate. In 2007, Messrs. Landon and Thomas received compensation of $909,440 and $575,140, respectively, which was not deductible for purposes of Section 162(m).
Section 409A of the Internal Revenue Code is a relatively new federal tax provision. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, the executive would be subject to adverse tax treatment, including accelerated income recognition (in the first year that benefits are no longer subject to a substantial risk of forfeiture) and a 20% penalty tax pursuant to Section 409A. The Internal Revenue Service has extended the transition relief period for amending plans to comply with Section 409A through December 31, 2008. The Company is continuing to evaluate the impact of Section 409A on various of its compensation and benefits plans, programs and arrangements and may modify certain of them as enacted bya result of that evaluation.
SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($)(5) | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allan R. Landon Chairman of the Board, Chief Executive Officer and President | 2007 2006 | 750,001 750,001 | — — | 1,198,019 779,075 | — — | 600,000 650,000 | — — | 95,683 | 2,274,759 | |||||||||
Peter S. Ho Vice Chairman, Chief Banking Officer | 2007 2006 | 451,539 398,038 | — — | 682,457 278,744 | — — | 365,000 325,000 | (861 160 | ) | 50,232 | 1,052,174 | ||||||||
Mark A. Rossi Vice Chairman, Chief Administrative Officer, General Counsel and Secretary | 2007 | 310,961 | 100,000 | 44,873 | — | 220,000 | — | |||||||||||
Daniel C. Stevens Vice Chairman, Chief Financial Officer | 2007 | 212,692 | 75,000 | 42,865 | — | 100,000 | — | |||||||||||
David W. Thomas Vice Chairman, Chief Operating Officer | 2007 2006 | 450,000 447,692 | — — | 1,087,200 | — — | 316,000 350,000 | — — | 55,094 | 1,939,986 | |||||||||
Richard C. Keene Former Vice Chairman and Former Chief Financial Officer | 2007 2006 | 68,077 294,539 | — — | (40,711 169,604 | ) | — — | — 200,000 | — — | 39,363 | 703,506 |
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee during fiscal year 2003 served as an officer, former officer, or employee ofpaid for by the Company was less than $10,000 for Messrs. Landon and Keene during 2007 and the value of any such perquisites is not included in this column for these executive officers. The total value of perquisites provided by or any of its subsidiaries, or had a relationship discloseable under "Certain Transactions with Management and Others." Further, during fiscal year 2003 nopaid for by the Company was less than $10,000 for each named executive officer ofduring 2006 and the Company served as:
Members of the Compensation Committee
David A. Heenan, Chair
22
Executive Compensation
The following table shows,provides additional information about the amounts that appear in the "All Other Compensation" amounts in the Summary Compensation Table for 2007 and 2006, respectively.
| | Bank of Hawaii Retirement Savings Plan 401(k) Matching Contribution ($)(1) | Bank of Hawaii Value Sharing Contribution ($)(2) | Bank of Hawaii Excess Plan Value Sharing Contribution ($)(3) | Bank of Hawaii Retirement Savings Plan Company Fixed Contribution ($)(4) | Bank of Hawaii Excess Plan Company Fixed Contribution ($)(5) | Term Life Insurance ($)(6) | Relocation Expenses ($)(7) | Club Member Expenses ($)(8) | Other Compensation ($)(9) | Total All Other Compensation ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allan R. Landon | 2007 2006 | — — | 6,802 | 39,578 | 6,600 | 38,400 | 4,353 4,303 | — — | — — | — — | 4,353 95,683 | |||||||||||
Peter S. Ho | 2007 2006 | 8,800 | 6,802 | 14,008 | 6,600 | 13,591 | 501 431 | — — | 5,220 — | 6,435 — | 12,156 50,232 | |||||||||||
Mark A. Rossi | 2007 2006 | — | — | — | — | — | 1,290 — | 239,560 — | 33,160 — | 5,432 — | 279,442 — | |||||||||||
Daniel C. Stevens | 2007 2006 | — | — | — | — | — | 607 — | 157,718 — | 30,000 — | 3,418 — | 191,743 — | |||||||||||
David W. Thomas | 2007 2006 | 8,800 | 6,802 | 15,773 | 6,600 | 15,303 | 2,064 1,816 | — — | — — | 1,926,015 — | 1,928,079 55,094 | |||||||||||
Richard C. Keene | 2007 2006 | 8,800 | 6,802 | 8,489 | 6,600 | 8,236 | 112 436 | — — | — — | — — | 112 39,363 |
SUMMARYNONQUALIFIED DEFERRED COMPENSATION TABLE
Executive Deferred Compensation Program
The Company's Deferred Compensation Program is a nonqualified deferred compensation plan that allows senior management (including the named executive officers) to defer up to 80% of efforts to reduce the expense burden of the Company, Mr. Landon elected to reduce histheir base salary and bonus in 2003, this reduction was considered in determining the amount of equity compensation granted to Mr. Landon. Mr. Landon receivedearned for a portion of his 2003 salary in options as described on pages 20-21. The value of such options using the Black-Scholes model is $75,000.
A participant is always 100% vested in determininghis or her deferred amounts. Deferred amounts under the Deferred Compensation Program are subject to adjustment for appreciation or depreciation in value based on hypothetical investments in one or more investment funds or vehicles permitted by the Human Resources and Compensation Committee and chosen by the participant. A participant's deferred amounts are generally payable beginning on the earliest to occur of (a) a specified time chosen by the participant, or if none, the date that is six months following a separation from service, (b) the participant's death, (c) the participant's disability or (d) an "unforeseeable emergency" (generally, a severe financial hardship resulting from the illness of the participant or his or her spouse or dependent, or other extraordinary and unforeseeable circumstances arising from events beyond the control of the participant). Distributions in the event of an unforeseeable emergency are subject to restrictions and are limited to an amount that is reasonably necessary to satisfy the emergency need. For distributions upon a separation from service or at a specified time chosen by a participant, the participant may choose to receive deferred amounts as a lump sum cash payment or in annual installments over a period not to exceed five years. The amount of each installment will be calculated using the "declining balance method", under which each installment payment is determined by dividing a participant's aggregate unpaid balance by the remaining years in the payment period. For distributions on all other events, payment will be made as a cash lump sum.
Bank of Hawaii's obligations with respect to deferred amounts under the Salary Deferral Plan and the Executive Incentive Plan are payable from its general assets, although the Company has established a rabbi trust to assist it in meeting its liabilities under the plans. The assets of the trust are at all times subject to the claims of the Company's general creditors.
Retirement Savings Excess Benefit Plan
The Excess Benefit Plan is a non-qualified supplemental retirement benefits plan that compensates participants for the amount of equity compensation granted. Mr. O'Neill is notbenefits that would otherwise be payable under the Company's Retirement Savings Plan but for limitations under Internal Revenue Code Sections 415 and 401(a)(17) as to the amount of annual contributions to, and annual benefits payable under, the Retirement Savings Plan. A participant's accrued benefits under the Excess Benefit Plan are hypothetically invested in one or more Pacific Capital funds permitted by the Committee and chosen by the participant, and are adjusted for appreciation or depreciation in value attributable to such hypothetical investments.
For an individual who first becomes a participant in the Executive Incentive Plan. In 2001, Messrs. Landon, Kuioka, Nelson and Thomas receivedExcess Benefit Plan after May 19, 2006, the plan provides that benefits are payable upon a cash awardseparation from service according to a distribution schedule that is determined by reference to the aggregate amount accrued by such individual under the plan. For example, the plan provides that a participant with $100,000 or less in deferred amounts will receive a lump sum payment on the first day of the seventh month following separation from service; a participant with more than $500,000 in deferred amounts will receive distributions in five installments, with the first installment on the first day of the seventh month following separation from service and subsequent installments paid in each January thereafter. An individual who first becomes a participant in the Excess Benefit Plan on or prior to May 19, 2006 will receive benefits upon the participant's separation from service and may elect to be paid (a) according to the distribution schedule applicable to individuals who become participants after May 19, 2006, (b) in a lump sum on the first day of the seventh month following
separation from service, or (c) in annual installments (not to exceed five) commencing on the first day of the seventh following separation from service or commencing on an anniversary of the participant's separation from service (not later than the fifth anniversary). The amount of each installment will be calculated using the declining balance method. If a participant dies prior to the full distribution of his or her deferred amounts, however, any unpaid amounts remaining will be distributed in a lump sum.
The Company's Executive Incentive Plan. In 2001, Mr. Nelson received a $100,000 bonus as consideration for joiningobligations under the Excess Benefit Plan are payable from its general assets, although the Company andhas established a $35,000 bonus. In 2001, Mr. O'Neill received a bonus pursuantrabbi trust to assist it in meeting its liabilities under the plan. The assets of the trust are at all times subject to the written employment agreement pursuant to which he joined the Company. In 2003, Messrs. Landon, Kuioka, Nelson and Thomas received grants of RSUs as further described in the Long-Term Incentive Plans—Awards in Last Fiscal Year Table below.
The Company is currently reviewing the impact of Internal Revenue Code Section 409A on the terms of its nonqualified deferred compensation plans and bonusmay amend them as necessary to ensure compliance with Section 409A. See the discussion under "Tax Considerations."
Set forth below is information regarding the amounts deferred by or for any named, reported executive officer for any year reported. Those perquisites and benefits which exceed 25%the benefit of the named executive officer's total perquisites are further described below. In 2002, Mr. O'Neill was reimbursed $1,190 for payment of taxes and $1,490officers in automobile fuel cost. In 2002 and 2001,2007.
Name | Executive Contributions In Last Fiscal Year ($)(1) | Registrant Contributions In Last Fiscal Year ($)(2) | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Withdrawals or Distributions in Last Fiscal Year ($) | Aggregate Balance at Last Fiscal Year-End ($) | |||||
---|---|---|---|---|---|---|---|---|---|---|
Allan R. Landon | — | 13,236 | — | 256,320 | ||||||
Peter S. Ho | — | 2,645 | — | 82,578 | ||||||
Mark A. Rossi | — | — | — | — | ||||||
Daniel C. Stevens | — | — | — | — | ||||||
David W. Thomas | 165,000 | 10,084 | — | 340,305 | ||||||
Richard C. Keene | — | 867 | 48,988 | — |
Name of Fund | Rate of Return | Name of Fund | Rate of Return | |||
---|---|---|---|---|---|---|
Vanguard Prime Money Market Fund | 5.14% | Vanguard 500 Index Fund | 5.39% | |||
Vanguard Short-Term Federal Fund | 7.43% | Vanguard Growth Equity Fund | 22.47% | |||
Vanguard Target Retirement Income Fund | 8.17% | Vanguard Mid-Cap Index Fund | 6.02% | |||
Vanguard Target Retirement 2005 Fund | 8.12% | Vanguard Windsor Fund | -3.30% | |||
Vanguard Target Retirement 2010 Fund | 7.70% | Vanguard International Growth | 15.98% | |||
Vanguard Target Retirement 2015 Fund | 7.55% | Pacific Capital Growth & Income Fund | 1.15% | |||
Vanguard Target Retirement 2020 Fund | 7.52% | Pacific Capital Growth Stock Fund | 7.30% | |||
Vanguard Target Retirement 2025 Fund | 7.59% | Pacific Capital HG Core Fixed Income Fund | 6.34% | |||
Vanguard Target Retirement 2030 Fund | 7.49% | Pacific Capital HG Short Inter. Fixed Income Fund | 5.84% | |||
Vanguard Target Retirement 2035 Fund | 7.49% | Pacific Capital International Stock Fund | 17.34% | |||
Vanguard Target Retirement 2040 Fund | 7.48% | Pacific Capital Mid-Cap Stock Fund | 0.91% | |||
Vanguard Target Retirement 2045 Fund | 7.47% | Pacific Capital New Asia Growth Fund | 40.69% | |||
Vanguard Target Retirement 2050 Fund | 7.49% | Pacific Capital Small Cap Fund | -4.30% | |||
Vanguard Wellington Fund | 8.34% | Pacific Capital Value Fund | -0.54% |
| | | | | | | | All Other Stock Awards; Number of Shares of Stock or Units (#) | All Other Option Awards; Number of Securities Underlying Options (#) | | | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Payouts Under Equity Incentive Plan Awards | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | |||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($)(1) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||
Allan R. Landon | — | — | — | — | — | 49,320 | — | — | — | — | 2,488,687 | |||||||||||
Peter S. Ho | — | — | — | — | — | 30,000 | — | — | — | — | 1,513,800 | |||||||||||
Mark A. Rossi | — | — | — | — | — | — | — | 4,000 | — | — | 213,680 | |||||||||||
Daniel C. Stevens | — | — | — | — | — | — | — | 4,000 | — | — | 218,760 | |||||||||||
David W. Thomas | — | — | — | — | — | — | — | — | — | — | — | |||||||||||
Richard C. Keene | — | — | — | — | — | — | — | — | — | — | — |
In 2007, the Company granted restricted shares of the Company's common stock to Messrs. Landon, Ho, Rossi and Stevens.
Mr. O'Neill's 2001 relocation expenses included the reimbursementLandon received a grant of brokerage commission paid49,320 restricted shares on August 30, 2007. The restricted shares generally vest on the salefollowing dates:
The terms of Mr. Landon's grant also provide that, on any date that a tranche of restricted shares are scheduled to vest, if the Company, for the applicable fiscal period, has not achieved at least one of the above described TSR or EPS objectives but has achieved positive net income, the number of shares that will vest will be 45 shares per day instead of 67.5 shares per day as provided above.
On January 31, 2008, Mr. Landon became vested in 8,303 shares, as the Company met the TSR objective.
Mr. Ho received a grant of 30,000 shares on August 30, 2007. Mr. Ho's restricted shares generally vest as to 6,000 shares on each of March 3, 2008 and the first Monday of March in each of 2009, 2010, 2011 and 2012, provided that, with respect to each vesting date, Mr. Ho is an employee of the Company on such date and the Company achieves positive net income for the fiscal year ending on the December 31 immediately preceding such date. Mr. Ho's grant also contains provisions for the acceleration of vesting of additional shares on each vesting date (in an amount equal to 50% of the shares originally scheduled to vest),
provided that, for the applicable fiscal period, the same TSR and/or EPS objectives as are described above for Mr. Landon's grant are satisfied.
Messrs. Rossi and Stevens each received a grant of 4,000 restricted shares on February 14, 2007 and May 21, 2007 (respectively). Messrs. Rossi's and Stevens' grants are subject to substantially the same terms. Under his respective restricted share grant, the executive is eligible to become vested in up to 1,000 shares (25% of his California residence.
23 Notwithstanding the general vesting schedules applicable to Mr. Landon's restricted share grants, all restrictions with respect to such shares will lapse upon the earliest to occur of a change in control of the Company, the recipient's death or the termination of the recipient's employment due to disability, by the Company without cause or by the recipient for "good reason" (as defined in the Company's Change-in-Control Retention Plan—see the discussion under "Change-in-Control, Termination and Other Arrangements"). In the case of Messrs. Ho's, Rossi's and Stevens' restricted share grants, all restrictions will, notwithstanding the general vesting schedules specified in the grants, lapse upon the earliest to occur of a change in control of the Company, the recipient's death or the termination of the recipient's employment due to disability.
See the "Outstanding Equity Awards at Fiscal Year-End" and "Option Exercises and Stock Vested" tables for grants reported in prior years, some of which may have restricted stock awards subject to performance vesting in which the performance criteria for vesting was or will be established subsequent to the grant date.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| Option Awards | | | | Stock Awards | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options Exercisable (#)(1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Options Unexercisable (#) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | |||||||||
Allan R. Landon(3) | 110,638 61,600 70,000 — — — | — — — — — — | — — — — — — | 18.80 27.01 29.92 — — — | 3/22/11 3/22/12 2/20/13 — — — | — — — 10,000 8,750 — | — — — 511,400 447,475 — | — — — — — 49,320 | — — — — — 2,522,225 | |||||||||
Peter S. Ho(4) | 2,916 54,919 — | — — — | — — — | 27.01 50.72 — | 3/22/12 12/16/15 — | — 9,375 — | — 479,438 — | — 10,567 30,000 | — 540,396 1,534,200 | |||||||||
Mark A. Rossi(5) | 0 | — | — | — | — | — | 4,000 | 204,560 | — | |||||||||
Daniel C. Stevens(6) | 0 | — | — | — | — | — | 4,000 | 204,560 | — | |||||||||
David W. Thomas | 0 | — | — | — | — | — | — | — | — | |||||||||
Richard C. Keene | 0 | — | — | — | — | — | — | — | — |
The following table includes values realized for stock options exercised, the following allocations under the Bankvesting of Hawaii Retirement Savings Plan ("Retirement Savings Plan")restricted stock, and the Bank of Hawaii Retirement Savings Excess Benefit Plan ("Excess Plan"). Messrs. Nelson and Thomas did not participate inpayouts on performance-based restricted stock units. For further information on the vesting criteria for these plans in 2001. In 2002,restricted stock awards see the named executive officers received a one time payout of accumulated vacation in excess of 80 hours as follows: Mr. O'Neill, $21,963; Mr. Landon; $35,651; Mr. Kuioka, $48,090; Mr. Nelson $4,858, and Mr. Thomas, $12,573. In 2002, Mr. Nelson and Mr. Thomas received, $705 and $2,468, respectively as a one time payout of an auto allowance which was discontinued in that year. In 2001, Mr. Landon received $75,000 upon completion of a risk management project pursuant to an agreement with the Company.
Name | Retirement Savings Plan 401(k) Matching Allocation($) | Retirement Savings Plan Value Sharing Allocation($) | Retirement Savings Plan Company Fixed Allocation($) | Excess Plan Value Sharing Allocation($) | Excess Plan Company Fixed Allocation($) | |||||
---|---|---|---|---|---|---|---|---|---|---|
Michael E. O'Neill | — | — | — | — | — | |||||
Allan R. Landon | — | 5,865 | 6,000 | 1,953 | 1,650 | |||||
Alton T. Kuioka | 6,500 | 5,865 | 6,000 | 6,213 | 5,250 | |||||
William C. Nelson | — | 5,865 | 6,000 | 4,083 | 3,450 | |||||
David W. Thomas | 6,500 | 3,498 | 6,000 | 1,716 | 4,501 |
OPTION EXERCISES AND STOCK OPTION GRANTS IN LAST FISCAL YEARVESTED
| Individual Grants | | | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of Securities Underlying Options Granted(#) | % of Total Options Granted to Employees in Fiscal Year | | | Potential Realizable Value(1) | |||||||
Name | Exercise or Base Price $/Share | Expiration Date | ||||||||||
5% | 10% | |||||||||||
Michael E. O'Neill | 300,000 | 18.84 | 29.92 | 2/20/2013 | 5,644,958 | 14,305,433 | ||||||
Allan R. Landon | 70,000 | 4.40 | 29.92 | 2/20/2013 | 1,317,157 | 3,337,934 | ||||||
Alton T. Kuioka | – | – | – | – | – | – | ||||||
William C. Nelson | 25,000 | 1.57 | 29.92 | 2/20/2013 | 470,413 | 1,192,119 | ||||||
David W. Thomas | 30,000 | 1.88 | 29.92 | 2/20/2013 | 564,496 | 1,430,543 |
| OPTION AWARDS | | STOCK AWARDS | | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||
Allan R. Landon(1) | 0 | 0 | 18,750 | $ | 986,813 | |||||
Peter S. Ho(2) | 0 | 0 | 4,558 | $ | 223,146 | |||||
Mark A. Rossi | 0 | 0 | 0 | 0 | ||||||
Daniel C. Stevens | 0 | 0 | 0 | 0 | ||||||
David W. Thomas(3) | 50,950 | $ | 1,578,551 | 20,000 | $ | 1,034,400 | ||||
Richard C. Keene(4) | 63,316 | $ | 844,551 | 1,489 | $ | 77,551 |
24
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEARAND FISCAL YEAR-END OPTION VALUES
The following table shows the stock options exercised by the named executive officers during 2003, and the number and total value of unexercised in-the-money options as of DecemberMarch 31, 2003.
| | | Number of Securities Underlying Unexercised Options at Fiscal Year-End(#) | | | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Value of Unexercised, In-the-Money Options at Fiscal Year-End($)(1) | |||||||||
Name | Shares Acquired on Exercise(#) | Value Realized ($) | ||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||
Michael E. O'Neill | – | – | 2,512,000 | 300,000 | 67,903,150 | 3,684,000 | ||||||
Allan R. Landon | – | – | 179,630 | 111,667 | 3,809,586 | 1,834,608 | ||||||
Alton T. Kuioka | 2,066 | 53,520 | 386,271 | 41,667 | 8,611,132 | 975,008 | ||||||
William C. Nelson | 45,000 | 949,050 | 169,633 | 66,667 | 3,351,564 | 1,282,008 | ||||||
David W. Thomas | – | – | 150,433 | 71,667 | 2,772,575 | 1,245,074 |
LONG-TERM INCENTIVE PLANS—AWARDS IN LAST FISCAL YEAR
| | | Estimated Future Payouts Under Non-Stock Price-Based Plans | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| Number Of Shares, Units, or Other Rights (#)(1) | Performance Or other Period Until Maturation Or Payout(2) | ||||||||
Name | Threshold ($ Or #) | Target ($ Or #) | Maximum ($)r #) | |||||||
Michael E. O'Neill | – | N/A | N/A | N/A | N/A | |||||
Allan R. Landon | 30,000 | 2005 | N/A | N/A | N/A | |||||
Alton T. Kuioka | 30,000 | 2005 | N/A | N/A | N/A | |||||
William C. Nelson | 20,000 | 2005 | N/A | N/A | N/A | |||||
David W. Thomas | 30,000 | 2005 | N/A | N/A | N/A |
2007 were comprised of 1,125 performance-based shares from the April 2003 grant, which is 12.
25Equity Compensation Plan Information
The following table contains information with respect to all of the Company's compensation plans (including individual compensation arrangements) under which securities are authorized for issuance as of December 31, 2007.
PENSIONEQUITY COMPENSATION PLAN TABLEINFORMATION
| Estimated Maximum Annual Retirement Benefit Based Upon Years of Service | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Annual Salary in Consecutive 5 Highest Paid Years | ||||||||||||||||
15 | 20 | 25 | 30 | 35* | ||||||||||||
$ | 75,000 | $ | 20,254 | $ | 27,005 | $ | 33,756 | $ | 40,507 | $ | 47,258 | |||||
100,000 | 27,754 | 37,005 | 46,256 | 55,507 | 64,758 | |||||||||||
125,000 | 35,254 | 47,005 | 58,756 | 70,507 | 82,258 | |||||||||||
150,000 | 42,754 | 57,005 | 71,256 | 85,507 | 99,758 | |||||||||||
200,000 | 57,754 | 77,005 | 96,256 | 115,507 | 134,758 | |||||||||||
250,000 | 72,754 | 97,005 | 121,256 | 145,507 | 169,758 | |||||||||||
300,000 | 87,754 | 117,005 | 146,256 | 175,507 | 204,758 | |||||||||||
350,000 | 102,754 | 137,005 | 171,256 | 205,507 | 239,758 | |||||||||||
400,000 | 117,754 | 157,005 | 196,256 | 235,507 | 274,758 | |||||||||||
450,000 | 132,754 | 177,005 | 221,256 | 265,507 | 309,758 | |||||||||||
500,000 | 147,754 | 197,005 | 246,256 | 295,507 | 344,758 | |||||||||||
550,000 | 162,754 | 217,005 | 271,256 | 325,507 | 379,758 | |||||||||||
600,000 | 177,754 | 237,005 | 296,256 | 355,507 | 414,758 | |||||||||||
650,000 | 192,754 | 257,005 | 321,256 | 385,507 | 449,758 | |||||||||||
700,000 | 207,754 | 277,005 | 346,256 | 415,507 | 484,758 | |||||||||||
750,000 | 222,754 | 297,005 | 371,256 | 445,507 | 519,758 |
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights A | Weighted-average exercise price of outstanding options, warrants and rights b | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) c | ||||
---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders | 1,678,299 | $ | 31.55 | 1,180,974 |
*Applies only to individuals hired before November 1, 1969.
Retirement PlanPENSION BENEFITS
The Employees' Retirement Plan of Bank of Hawaii (the "Retirement Plan") provides retirement benefits for eligible employees based on the employee's years of service and average annual salary during the 60 consecutive months resulting in the highest average (excluding overtime, incentive plan payouts, and discretionary bonuses). The normal retirement benefit in the above table assumes payment in the form of a single life annuity commencing at age 65 and not subject to any deduction for Social Security or other offset amounts. The Internal Revenue Code generally limits the maximum annual benefit that can be paid under the Retirement Plan. If at retirement the annual benefit of any participant should exceed this limit, the excess amount will be paid to the participant out of general assets from the Bank of Hawaii Excess Benefit Plan, an unfunded excess benefit plan designed for this purpose, at the time the participant receives a distribution on his Retirement Plan benefits.
The Retirement Plan was frozen as of December 31, 1995, except that for the five-year period commencing January 1, 1996, benefits for certain eligible participants including Mr. Kuioka, were increased in proportion to the increase in the participant's average annual salary. The credited years of service and compensation covered by the plan as of the 1995 freeze date are as follows: Mr. Kuioka, 26 years and $226,257. The other named executive officers are not participants in the Retirement Plan.
As of December 31, 2000, the benefits under the Retirement Plan were completely frozen and not subject to increase for any additional years of service or increase in average annual salary. FromPeter S. Ho is the 1995 freeze date through 2000,only named executive officer who is a participant in the retirement benefit determined under the table for Mr. Kuioka was increased by 8.54% due to an increase inRetirement Plan. A summary of his average annual salary. The frozen retirement monthly annuity amount for Mr. Kuiokabenefits is approximately $13,096.listed below:
Name | Plan Name | Number of Years of Credited Service (#) | Present Value of Accumulated Benefits ($) | Payments During Last Fiscal Year ($) | |||||
---|---|---|---|---|---|---|---|---|---|
Peter S. Ho | Employees' Retirement Plan of Bank of Hawaii | 2 | $ | 3,115 | 0 |
26
Bank of Hawaii's Key Executive SeveranceChange in Control Retention Plan (the "Severance"Retention Plan") provides participants,a participant with benefits in the event that the participant's employment is terminated by the Company without cause or by the participant for "good reason" within 24 months following a change in control of the Company, with severance benefits under circumstances and in amounts set forth in the Severance Plan and in individual severance agreements with each participant.Company. All of the currently employed named executive officers with the exception ofexcept Mr. O'Neill, participateLandon are participants in the SeveranceRetention Plan. Two levels of benefits are payable to participants in the Retention Plan, with executives holding the position of Vice Chairperson or above being eligible for the higher tier of benefits. Each of the severance agreements with these named executive officers provides thatother than Mr. Landon are eligible for the higher tier of benefits (described in the table below). In consideration of the benefits payable under the Retention Plan, participants are, for 12 months following termination of employment, subject to non-disclosure, non-competition (generally with respect to any other financial institution doing business in Hawaii), non-solicitation of business and employees, and non-disparagement restrictions.
Under the Retention Plan, a "change in control" will be deemed to have occurred if if:
consents by or on behalf of a party of other than the Board (but disregarding directors whose nomination or election was approved by at least a majority of the directors as of April 30, 2004 or other directors approved by them).
A participant is deemed to have "good reason" if one or more the following occur after a change in control without the participant's written consent:
The table below sets forth the benefits that would have been payable to each of the named executive officers had a qualifying termination occurred under the terms of the Retention Plan on December 31, 2007.
| Base Salary and Bonus Payment (1) | Executive Incentive Plan Payment (2) | Welfare Benefits (3) | Outplacement (4) | Relocation Payment/ Gross-Up (5) | Acceleration of Restricted Stock (6) | Non- competition Payment (7) | Excise Tax Gross Up (8) | Total | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allan R. Landon(9) | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Peter S. Ho | 1,800,000 | 800,000 | 36,101 | 20,000 | 150,000 | 757,026 | 900,000 | 1,492,337 | 5,955,464 | ||||||||||||||||||
Mark A. Rossi | 1,172,500 | 433,125 | 23,998 | 20,000 | 150,000 | 100,022 | 586,250 | 655,987 | 3,102,506 | ||||||||||||||||||
Daniel C. Stevens | 1,172,500 | 236,250 | 36,108 | 20,000 | 150,000 | 100,022 | 586,250 | 740,645 | 3,278,025 | ||||||||||||||||||
David W. Thomas | 1,620,000 | 720,000 | 12,059 | 20,000 | 150,000 | 0 | 810,000 | 740,645 | 3,332,059 | ||||||||||||||||||
Richard C. Keene | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Severance benefits aresum of (a) two times the participant's highest annual base salary in the three fiscal years preceding termination of employment (the "Highest Base Salary"), and (b) two times the product of the participant's annual bonus target percentage under the Executive Incentive Plan in the year of termination and the participant's Highest Base Salary. Amounts would be payable if their employment is terminated voluntarily or involuntarily within two yearsin a lump sum on the first day of the seventh month following termination.
The continuationCompany does not have employment agreements with its executives. However, the Committee has from time to time entered into retention agreements with certain of all other benefits heits executives as an incentive to the executives to stay with the Company for a specified period of time.
The Company entered into a Retention Agreement as of December 16, 2005 with David Thomas (the "Retention Agreement"). The Retention Agreement provided for certain payments to be made to Mr. Thomas subject to his remaining in the employ of the Company through February 29, 2008, although the Company retained the right, under the terms of the agreement, to advance or shedelay the date of Mr. Thomas' separation from service. In December 2007, the Company determined that Mr. Thomas had completed his responsibilities for service to the Company and, in accordance with the terms of the Retention Agreement, determined that December 31, 2007 would have received had employment continued for three years followingbe his last day of employment. As provided in the terminationRetention Agreement, Mr. Thomas became entitled, upon signing a general release of employment (or until his or her normal retirement date, if earlier), such as medical and group life insurance.
Stock options held by named executive officers will become immediately exercisable upon a change in control. A change in control also will cause the lapse of restrictions on restricted stock issued under the Director Stock Program and 1994 Stock Option Plan. The incentive period for the Executive Incentive Plan will end, and awards will be paid upon a dissolution, liquidation, or change in control (as defined under the Severance Plan) of the Company. In those circumstances, payments will be calculated by multiplying contingent awards by 2.0 and by adjusting awards in proportion to the number of months of the original incentive period that elapsed before the triggering event.
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Performance Graph
The following graph shows the cumulative total return for Bank of HawaiiCompany's common stock compared to the cumulative total returns for the S&P 500 Index and the S&P Banks Index. The graph assumes that $100 was invested on December 31, 1998 in Bank2007 (based on the per share closing price of Hawaii's stock, the S&P 500 IndexCompany's shares on the New York Stock Exchange on such date). In exchange for benefits payable under his Retention Agreement, Mr. Thomas agreed to non-compete restrictions for a period of 24 months following termination and non-solicitation restrictions for a period of 36 months, and to not disparage the S&P Banks Index.Company.
In January 2007, the Company announced Richard Keene's intention to resign from the Company during the first quarter of 2007. In order to retain Mr. Keene's services during a transition period preceding the hiring of a new Chief Financial Officer, on February 21, 2007, the Company and Mr. Keene entered into an agreement pursuant to which Mr. Keene would continue to receive his salary, bonus and other executive benefits through his departure date and receive a lump sum separation payment of $400,000. As part of his agreement with the Company, Mr. Keene executed a release of claims against the Company, agreed to a non-compete for a period of twenty-four (24) months following termination and a non-solicitation period of thirty-six (36) months, and to not disparage the Company. Mr. Keene completed his employment on March 14, 2007.
The cumulative total return on each investment is as of December 31terms of each of the subsequent five yearsforegoing agreements were negotiated at arms' length between management of the Company and assumes reinvested dividends.each executive. The Committee reviewed the terms of each agreement and determined in each case that any increase in compensation over the executive's prior compensation was necessary to induce the executive to stay with the Company during a specified transition period.
CUMULATIVE TOTAL RETURNBased upon an initial investment of $100 on December 31, 1998with dividends reinvestedCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
| Dec-98 | Dec-99 | Dec-00 | Dec-01 | Dec-02 | Dec-03 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Bank of Hawaii Corp. | $ | 100 | $ | 79 | $ | 78 | $ | 118 | $ | 143 | $ | 203 | ||||||
S&P 500® | $ | 100 | $ | 121 | $ | 110 | $ | 97 | $ | 76 | $ | 97 | ||||||
S&P © Banks Index | $ | 100 | $ | 86 | $ | 103 | $ | 103 | $ | 102 | $ | 134 |
Certain Transactions The Company has ethics and business conduct policies and procedures to monitor and approve related person transactions, including procedures related to any loans the Company makes to executive officers and directors. The Company also conducts ethics training for its officers and directors. In accordance with Managementapplicable NYSE listing standards, each related party transaction is reviewed and Othersevaluated by an appropriate group, generally the Audit Committee, to determine whether a particular relationship serves the best interest of the Company and its stockholders and whether the relationship should be continued. The Company also has adopted a Code of Business Conduct and Ethics ("Code") for all directors, officers and employees to address, among other topics, possible conflicts of interest, corporate opportunities, compliance responsibilities, and reporting and accountability. The Code stresses personal accountability. Directors, officers, or employees who become aware of conflicts of interest or are concerned that a conflict might develop are required to disclose the matter promptly.
CertainIn accordance with the applicable NYSE listing standards and the Code, any material transactions or relationships involving loans, depositsa director or executive officer that could reasonably be expected to give rise to a conflict of interest must be approved by the Audit Committee and certificatesa list of deposit,those approvals must be submitted semi-annually to the Board of Directors. The Audit Committee acts on approvals based on the facts and money market instruments,circumstances of each case. In addition to self-reporting, information about potential conflicts of interest is obtained as part of the annual questionnaire process. In response to the annual Directors' and certain other banking transactions occurred during fiscal year 2003 betweenOfficers' Questionnaire, each director and executive officer submits to the BankCorporate Secretary a description of any current or proposed related person transactions. These descriptions are presented to the Audit Committee for review and approval or ratification.
The Company and its subsidiaries onare also subject to extensive federal regulations regarding certain transactions, including banking regulations relating to the one hand,extension of credit by subsidiary banks to insiders, such as executive officers, directors and entities in which these individuals have specified control positions.
During 2007, the Company and its banking and investment subsidiaries engaged in transactions in the ordinary course of business with one or more of the Company's directors nominees for director and executive officers, members of their immediate families, corporations and organizations of which one or more of them was a beneficial owner of 10% or more of a class of equity securities, certain of their associates and affiliates, and certain trusts and estates of which one or more of them was a trustee or substantial beneficiary, on the other hand.beneficiary. All loans to such transactionspersons were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, that prevailedas those prevailing at the time
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for comparable transactionsloans with other persons not related to the lender, and did not involve more than the normal risk of collectibility or present other unfavorable features.
The Company paid Sonoma Mountain Ventures, LLC, a company of which Mr. Stein is the President, $131,410 in 2003 for consulting services related to the analysis of existing management information systems ("MIS") policies and practices and development of a strategy to improve the efficiency and overall quality of the Company's technology and MIS. The Company successfully completed its systems conversion to Metavante in 2003 and the Company's contract with Sonoma Mountain Ventures, LLC concluded in June 2003. Neither Mr. Stein nor his company currently is providing any consulting or other services for the Company.
Section
SECTION 16(a) Beneficial Ownership Reporting ComplianceBENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange CommissionSEC require Bank of Hawaii to disclose late filings of reports of ownership (and changes in stock ownership) of Bank of Hawaii common stock by its directors and certain officers. To our knowledge, based on review of the copies of such reports received by Bank of Hawaii and the written representations of its directors and officers, the Company believes that all of its directors and officers complied timely with those filing requirements for 2003,2007, with the exception of twothe following reports which were not timely filed timely due to administrative errors. Upon discovery of the omissions, the relevant formsOn December 17, 2007, Form 4 reports were immediately filed. Mr. Landon andnot filed timely for Ms. Mary Sellers for shares withheld to pay taxes on a restricted stock lapse. On December 6, 2007, Ms. Donna Tanoue received options for 15,000 and 4,600reported she sold 4,900 shares respectively, on February 20, 2003, which were not reported until February 26, 2003.
PROPOSAL 2: APPROVAL OF BANK OF HAWAII CORPORATION 2004 STOCK OPTION PLAN AND INCENTIVE COMPENSATION PLAN
The Board of Directors has approved and recommended for submission to the shareholders for approval, the Bank of Hawaii Corporation 2004 Stock and Incentive Compensation Plan ("Stock Plan"). The purpose of the Stock Plan is to promote the success and enhance the value of the Company by linking the interests of participants to those of the Company's shareholders and by providing participants with incentive for outstanding performance. Subject to the discretion of the Human Resources and Compensation Committee ("Compensation Committee"), the Stock Plan provides for the award of incentive stock options ("ISOs"), nonqualified stock options ("NQSOs"), stock appreciation rights ("SARs"), restricted stock, restricted stock units, performance shares, performance units, cash-based awards, and stock-based awards. Further, the Stock Plan is intended to serve as the successor to the existing Bank of Hawaii Corporation Stock Option Plan of 1994 ("Predecessor Plan") and shall be effective as of the date of shareholder approval of the Stock Plan ("Effective Date").
Description of the Stock Plan.
A copy of the Stock Plan is attached hereto as Appendix "C", and the following summary of its principal provisions is subject in all respects to the full text of the Stock Plan.
Administration. The Stock Plan is administered by the Compensation Committee. The Compensation Committee maintains the discretionary authority to interpret the terms and conditions of the Stock Plan, determine the employees and independent contractors to whom awards may be granted, determine the terms and conditions of any award, and adopt rules, regulations, and guidelines relating to the administration of the Stock Plan. Except with respect to awards to certain officers, the Compensation Committee may by resolution authorize one or more officers of the Company to designate the participants to whom awards are granted and to determine the size (subject to the aggregate number as the Compensation Committee may authorize) and terms and conditions of the awards. All decisions made by the Compensation Committee pursuant to the provisions of the Stock Plan are final and binding on persons, including the Company and participants.
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Authorized Shares. The number of shares of Common Stock reserved and available for awards under the Stock Plan is 700,000. The maximum number of shares that may be issued under the Stock Plan for the award of ISOs and NQSOs is 700,000 for each category. If any award under the Stock Plan, or under the Predecessor Plan after the Effective Date of the Stock Plan, is exercised or cashed out, or terminates or expires or is forfeited, without payment made in the form of Common Stock, the shares subject to such award will again be available for grant under the Stock Plan. Further, if the option price or tax withholding requirements with respect to an award are satisfied by tendering shares, or if an SAR is exercised, only the number of shares issued will be taken into account in determining the maximum number of shares available for awards under the Stock Plan. The number of shares reserved and available for awards is subject to equitable adjustment at the discretion of the Compensation Committee in connection with any transaction or event that affects the Company's Common Stock (including, but not limited to, a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, split up, spin-off, combination of shares, exchange of shares, or other like change in capital structure) which may be required in order to prevent dilution or enlargement of rights.
Eligibility. The Compensation Committee may grant awards under the Stock Plan to any employee, including officers and other key employees, or independent contractors of the Company or any of its subsidiaries or affiliates. A director of the Company or any of its subsidiaries or affiliates, who is not otherwise employed by such an organization, is not eligible to participate in awards under the Stock Plan.
Limits on Awards. Annual grant limitations under the Stock Plan apply to awards that are intended to qualify for exemption from Section 162(m) of the Code. Section 162(m) precludes a publicly held corporation from claiming a deduction for compensation in excess of $1 million paid to its chief executive officer or to any of its four other most highly compensated executive officers. Compensation is exempt from this limitation if it satisfies requirements for "qualified performance-based compensation." In order to comply with the exemption from Section 162(m), awards that are intended to qualify as performance based compensation to covered employees are subject to the following annual limits: (a) the maximum aggregate number of shares for options granted in any one calendar year to any one covered employee is 2,500,000 shares; (b) the maximum aggregate number of shares for SARs granted in any one calendar year to any one covered employee is 2,500,000 shares; (c) the maximum aggregate number of shares for restricted stock and restricted stock units granted in any one calendar year to any one covered employee is 500,000 shares; (d) the maximum aggregate number of shares for performance shares and performance units granted in any one calendar year to any one covered employee is 500,000 shares; (e) the maximum aggregate value for cash-based awards paid in any one calendar year to any one covered employee is $10,000,000; and (h) the maximum aggregate number of shares for any other stock-based awards granted in any one calendar year to any one covered employee is 500,000 shares. These annual limits, the above description of the individuals eligible to participate in the Stock Plan, and the below description of performance measures upon which awards may be conditioned are material terms of the Stock Plan required to be disclosed and approved by shareholders for purposes of meeting the requirements for performance-based compensation under Section 162(m) of the Code. The shareholder approval of this Proposal is intended to satisfy shareholder approval of such material terms for purposes of meeting the requirements for qualified performance-based compensation under Section 162(m).
Stock Options. Options granted under the Stock Plan may be either an option intended to be an ISO within the meaning of Section 422 of the Code or an NQSO. Upon exercise of an option, the participant is entitled to purchase option shares at a specified exercise price. The Compensation Committee at its discretion determines the number of option shares, duration of the option (but no later than the tenth anniversary of the date of grant), exercise price (e.g., equal to, greater than fair market value, or indexed), vesting, rights to dividend equivalents, and other terms and conditions not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant's options are exercisable in the manner determined by the Compensation Committee and
30
provided under the award agreement. However, for purposes of complying with tax qualification requirements, ISOs may be granted only to employees, may not be granted following the tenth anniversary of the Effective Date, and shall be subject to an exercise price no less than fair market value of Common Stock as of the date of grant. Further, following a participant's termination of employment (other than due to death or disability) ISOs are generally exercisable only within three months after such termination, and the aggregate fair market value (determined at the time of grant) of Common Stock, with respect to which ISOs are exercisable for the first time by a participant during any calendar year, may not exceed $100,000. Upon exercise of an option, the exercise price is payable in cash, by tendering shares having a fair market value equal to the exercise price, or by any other method as determined by the Compensation Committee and provided under the award agreement. The Compensation Committee may also permit certain forms of "cashless exercise" of an option, including an arrangement under which the participant instructs a registered securities broker to sell a sufficient number of shares to cover the costs and expenses associated with the exercise of thea stock option. As soon a practicable following payment of the exercise price, the option shares are delivered to the participant and, as may be determined by the Compensation Committee and provided under the award agreement, the option shares acquired may comprise restricted stock as described below.
SARs. SARs are granted either by themselves ("freestanding") orAdditionally, on October 19, 2007, Form 4 reports were not timely filed for Ms. Shelley Thompson in connection with options ("tandem SARs"). Upon exercise of an SAR, the participant is entitled to receive an amount based upon the appreciation in the Common Stock over the grant price. The Compensation Committee at its discretion determines the number of SARs, duration of the SARs (but not later than the tenth anniversary of the date of grant), grant price (e.g., equal to, greater than fair market value, or indexed), vesting, form of payment (in cash or equivalent value in shares), rights to dividend equivalents, and other terms and conditions not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant's SARs are exercisable in the manner determined by the Compensation Committee and provided under the award agreement. However, the grant price of tandem SARs is equal to the exercise price of the related option, and tandem SARs granted in connection with ISOs are subject generally to the terms and conditions relating to the underlying ISOs. The Compensation Committee may at its discretion substitute SARs for outstanding options granted to a participant, provided that the substituted SARs are at least equivalent to the terms and economic benefit of the options.
Restricted Stock and Restricted Stock Units. Restricted stock is a stock grant to participants that generally remain nontransferable and subject to forfeiture until the satisfaction of specified conditions. Restricted stock units are similar to restricted stock except that restricted stock units represent defined units of value and not shares of Common Stock. The Compensation Committee at its discretion determines the number of restricted stock or restricted stock units, term of the restriction period, applicable restrictions (e.g., vesting conditioned on service or attainment of performance goals, and holding requirements or sale restrictions upon vesting), any applicable purchase price, voting rights during the restriction period (although voting rights do not apply to restricted stock units), rights to dividends (or dividend equivalents in the case of restricted stock units) during the restriction period, form of payment, custody of restricted stock certificates during the restriction period, and other terms and conditions not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant is entitled to the restricted stock or restricted stock units in manner determined by the Compensation Committee and provided under the award agreement. Upon satisfaction or lapse of applicable conditions, restricted stock generally becomes freely transferable and nonforfeitable in favor of the participant, and restricted stock units become payable in cash, shares, or a combination of cash and shares as may be determined by the Compensation Committee and provided under the award agreement.grant.
Performance Shares and Performance Units. A performance share is a hypothetical share unit with an initial value equal to the fair market value of a share of Common Stock as of the date of grant, and a
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performance unit is a unit of value with an initial value as of the date of grant as may be established by the Compensation Committee and provided under the award agreement. The Compensation Committee at its discretion determines the number of performance shares or performance units granted to a participant, term of the performance period, applicable performance goals, any applicable purchase price, rights to dividend equivalents during the performance period, form of payment, and other terms and conditions not inconsistent with the Stock Plan. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant is entitled to the performance share or performance units in the manner determined by the Compensation Committee and provided under the award agreement. Upon satisfaction of the performance goals, shares of Common Stock equivalent to the performance shares are transferred to the participant, and the performance units become payable in cash, shares, or a combination of cash and shares as may be determined by the Compensation Committee and provided under the award agreement.
Cash-Based Awards and Stock-Based Awards. The Compensation Committee maintains the flexibility to provide for cash-based awards and stock-based awards in the amount and manner that it may determine at its discretion. Such awards may be valued and conditioned upon performance periods and goals, and may be payable in cash, shares, or a combination of cash and shares as may be determined by the Compensation Committee. If a participant's employment or service with the Company or any of its subsidiaries or affiliates terminates, the participant shall be entitled to payment of cash-based awards and stock-based awards in the manner determined by the Compensation Committee and provided under the award agreement. Cash-based awards and stock-based awards may serve as the basis for formulating short-term or long-term, performance-based bonus arrangements.
Performance Measures. As determined at the discretion of the Compensation Committee, the terms and conditions of awards under the Stock Plan (e.g., relating to amount, measurement, vesting, payment) may be conditioned upon certain performance measures. In the case of awards that are intended to comprise qualified performance-based compensation to covered employees under Section 162(m) of the Code, the performance measures are limited to one or more, separately or in combination, of the following performance measures: (a) earnings per share (actual or targeted growth); (b) net income after capital charge; (c) net income (before or after taxes); (d) return measures (including, but not limited to, return on average assets, risk-adjusted return on capital, or return on average equity); (e) efficiency ratio; (f) full-time equivalency control; (g) stock price (including, but not limited to, growth measures and total shareholder return); (h) noninterest income compared to net interest income ratio; (i) expense targets; (j) margins; (k) operating efficiency; (l) EVA®; (economic value added) and (m) customer satisfaction. The performance measures may apply to the Company as a whole or any subsidiary, affiliate, or business unit of the Company.
Change In Control. In the event of a "change in control" of the Company within the meaning of the Stock Plan, unless otherwise determined by the Compensation Committee and provided under the award agreement: (a) options and SARs are immediately vested and, if the participant is terminated without "cause" (within the meaning of the Stock Plan) from employment or service within one year of the change in control, such options and SARs are exercisable within one year of such termination (or, if lesser, the remaining term of the options and SARs); (b) restricted stock and restricted stock units are immediately vested; (c) performance shares and performance units, and other awards conditioned upon performance goals or restrictions, become payable based on the assumed achievement or satisfaction of applicable performance goals or restrictions and based on a proration in accordance with completion of the applicable performance periods.
Nontransferability. Except as may be provided under an award agreement, any award granted is not transferable other than will or by the laws of descent and distribution and, further, the rights to the award apply to and may be exercised by, during the participant's lifetime, only by the participant.
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Amendment and Termination. The Compensation Committee or the Board may amend or terminate the Stock Plan in whole or in part at any time. However, no amendment can be made without shareholder approval as may be required by law, regulation, or stock exchange rule. Further, options may not be repriced, replaced, or regranted through cancellation without prior shareholder approval. An amendment may not adversely affect in a material way any outstanding award without the written consent of the participant unless terminated sooner by action of the Compensation Committee or Bank, the Stock Plan will terminate ten years following the Effective Date.
Certain Federal Income Tax Considerations.
The tax consequences of the Stock Plan are complex, and the following discussion deals only with general tax principles applicable to the Stock Plan under federal law.
ISOs are options which under certain circumstances and subject to certain tax restrictions have special tax benefits for employees under the Code. NQSOs are options which do not receive such special tax treatment. When the Compensation Committee grants an ISO and when the participant exercises an ISO and acquires Common Stock, the participant realizes no income and the Company can claim no deduction. (However, the difference between the fair market value of the shares upon exercise and the exercise price is an item of tax preference subject to the possible application of the alternative minimum tax.) If the participant disposes of the stock before two years from grant or one year from exercise of the ISO (a disqualifying disposition), any gain will be deemed compensation and taxed as ordinary income to the extent of the lesser of (i) the spread between the option price and the fair market value of the stock at exercise (the spread) or (ii) the difference between the sale price and the exercise price. If a disqualifying disposition occurs, the Company can claim a deduction equal to the amount treated as compensation. If one- and two-year holding periods are satisfied, any gain realized when the shares are sold will be treated as capital gain, and the Company will receive no corresponding tax deduction.
When the Compensation Committee grants an NQSO, the participant realizes no income and the Company can claim no deduction. On exercise of an NQSO, the participant realizes ordinary income to the extent of the spread and the Company can claim a tax deduction for the same amount.
When the Compensation Committee grants an SAR, the participant realizes no income and the Company can claim no deduction. The cash or the fair market value of stock received on an SAR exercise is taxed to the participant at ordinary income rates. The Company can claim a tax deduction in the same amount at such time.
Grants of restricted stock are generally not taxable to participants at the time of grant and the Company generally claims no deduction at that time. The Company receives a deduction and the participant recognizes taxable income equal to the fair market value of the stock at the time the restrictions lapse, unless the participant elects, within thirty days of notification of the award, to recognize the income on the award date, in accordance with Section 83 of the Code. If the participant makes an election under Section 83, the Company receives a corresponding deduction. Any dividends received on restricted stock prior to the date the participant recognizes income on that stock are taxable compensation income when received and the Company is entitled to a corresponding tax deduction at such time.
The grant of restricted stock units, performance shares, performance units, and cash-based awards that is subject to performance measures does not generally result in taxable income to the participant. Following the completion of the performance period, the award is determined and paid or distributed. The full value paid or distributed is treated as ordinary income, and the Company is entitled to a corresponding tax deduction at such time.
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Equity Compensation Plan Information.
The following table contains information with respect to all of the Company's compensation plans (including individual compensation arrangements) under which securities are authorized for issuance:
Equity Compensation Plan InformationDecember 31, 2003
Plan Category | Number of Securities to be issued upon exercise of outstanding options, warrants and rights a | Weighted-average exercise price of outstanding options, warrants and rights b | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) c | |||
---|---|---|---|---|---|---|
Equity compensation plans approved by security holders | 9,112,505 | $22.03 | 196,000 |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL.
PROPOSAL 3: ELECTIONRATIFICATION OF SELECTION OF AN
INDEPENDENT AUDITORREGISTERED PUBLIC ACCOUNTING FIRM
Subject to shareholder election, theThe Audit Committee has selected Ernst & Young LLP as the Company's independent auditorregistered public accounting firm for 2004.2008. The Board of Directors recommends that the shareholders makeratify this election.selection. Ernst & Young LLP has been the Company's independent auditorregistered public accounting firm since its incorporation in 1971. We expect representatives of Ernst & Young LLP to attend the annual meeting. Ernst & Young LLP has indicated that they will have no statement to make but will be available to respond to questions. If this Proposal does not pass, the selection of independent registered public accounting firm will be reconsidered by the Audit Committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOREGOING PROPOSAL
The following table summarizes Ernst & Young LLP audit fees for 20032007 and 2002.2006.
Service | 2003 | 2002 | 2007 | 2006 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Audit Fees | $ | 671,000 | $ | 621,000 | $ | 1,225,500 | $ | 1,191,100 | ||||
Audit Related Fees | $ | 190,000 | $ | 215,000 | $ | 149,000 | $ | 117,500 | ||||
Tax Fees | $ | 41,000 | $ | 544,000 | $ | 37,800 | $ | 17,900 | ||||
All Other Fees | – | $ | 251,000 | $ | 28,085 | $ | 2,500 | |||||
Total | $ | 902,000 | $ | 1,630,00 | $ | 1,440,385 | $ | 1,329,000 |
Audit Fees
The aggregateAudit Fees for 2007 and 2006 represent fees billed for professional services rendered for the audit of the Company's annual consolidated financial statements, statutory and subsidiary audits, reports on internal controls and the reviews of the Company's financial statements included in the quarterly reports on Form 10-Q were $671,000 and $621,000 for fiscal years 2003 and 2002, respectively.out-of-pocket expenses.
Audit Related Fees
The Audit Related Fees for 20032007 and 2006 include fees for benefit plan audits and other attestation reports. The Audit Related Fees for 2002 include the same services as well as internal audit augmentation services.
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Tax Fees
The Tax Fees for 2003 were2007 and 2006 relate primarily related to expatriate tax services and other tax advisory services. The Tax Fees for 2002 included tax-related services for the divestiture activity, expatriate tax services and other advisory tax assistance, including the final payment of a multi-year tax study.
All Other Fees
The All Other Fees category for 2002 were primarily2007 and 2006 includes fees billed for copyrighted and other professional on-line publication services provided by an affiliate of Ernst & Young LLP. The All Other Fees category for 2007 includes fees related to the assistance with the salereview of the Company's Tahiti and New Caledonia operations. There were no fees in the category "All Other Fees" in 2003.certain corporate policies.
The Board knows of no other business for consideration at the annual meeting. Your signed proxy or proper telephone or Internet vote gives authority to the proxies to vote at their discretion on other matters properly presented at the annual meeting, or adjournment or postponement of the meeting.
A copy of the Company's Annual Report on Form 10-K, including the related financial statements and schedules filed with the SEC, is available without charge to any shareholder who requests a copy in writingwriting. Any exhibit to Form 10-K is also available upon written request at a reasonable charge for copying and mailing. Written requests should be made to the Corporate Secretary at 130 Merchant Street, Honolulu, Hawaii 96813.
Bank of Hawaii CorporationAudit Committee Charter
Statement of Policy
The Audit Committee (the "Committee") will provide assistance to the Board of Directors (the "Board") in fulfilling their oversight responsibility to the shareholders of Bank of Hawaii Corporation (the "Company"). The purpose of the Committee will be to:
In fulfilling its purpose, it is the responsibility of the Committee to maintain free and open communications between the Committee, independent auditors, internal auditors and management of the Company. In discharging its oversight role, the Committee shall be empowered to conduct or authorize investigations into any matter within the scope of its responsibilities. The Committee may employ one or more independent accountants, outside counsel or other experts as it deems appropriate, at the Company's expense. The Committee shall have full access to the independent auditors and all records, facilities or personnel of the Company. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditors, experts hired by the Committee, and necessary or appropriate Committee expenses.
Organization
The Committee shall be appointed by the Board and shall be comprised of at least three members consisting entirely of independent directors of the Board and meet any and all other requirements for audit committee members set forth in the listing requirement of the New York Stock Exchange and Rule 10A-3 of the Securities Exchange Act of 1934. Each Committee member shall be or must become financially literate at or within a reasonable period of time following his or her appointment. At least one member of the Committee must have accounting or related financial management expertise. Members shall not serve on more than two other public audit committees simultaneously. The Committee will meet at least quarterly. The Board shall appoint one of the members of the Audit Committee to serve as Chair. The Chair shall prepare or approve an agenda and distribute it to the members of the Committee in advance of each meeting.
The Committee may perform the duties required to be performed by the financial audit committee of its subsidiary, Bank of Hawaii (the "Bank"), and any other bank or non-bank subsidiary exercising fiduciary powers that does not have its own audit committee, to the extent permitted and in the manner required by applicable laws and regulations. The Committee may act simultaneously on behalf of the Company and of the Bank.
Responsibilities
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Board and the Company's shareholders. The independent auditors will report directly to the Committee. The Committee shall have the sole authority to hire and fire, to determine the compensation and direct the payment of, and to oversee the independent auditors (including the resolution of any disagreements regarding financial reporting). Annually, the Committee will review and select the independent auditors for the upcoming fiscal year, subject to the shareholders' approval. The Committee shall set clear hiring policies for employees or former employees of the independent auditors that meet the SEC regulations and NYSE listing standards.
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of the accounting principles applied, the reasonableness of significant judgments and the clarity of the disclosures in the financial statements. The Committee will discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards.
Limitation of the Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in this charter, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.
BANK OF HAWAII CORPORATIONCORPORATE GOVERNANCE GUIDELINES
1. Purpose
The Board of Directors of Bank of Hawaii Corporation (together with its subsidiaries, the "Corporation") is committed to providing leadership that ensures the long-term success of the Corporation and maximizing shareholder value over time. The Board believes that its independence is fundamental to the diligent execution of its duties. The Nominating & Corporate Governance Committee of the Board of Directors (the "Board") has developed, and the Board has adopted, the following Corporate Governance Guidelines (the "Guidelines") to assist the Board in its responsibilities in serving the shareholders and the Corporation. The Guidelines provide the general structure within which the Board may conduct its business and are subject to change from time to time as the Board deems appropriate in the best interest of the Corporation or as required by applicable laws and regulations.
2. Director Qualifications
Independence
The Board shall be comprised of a majority of independent directors as defined by the NYSE listing standards. In affirmatively determining that a director is independent of the Corporation's management and has no material relationship with the Corporation either directly or indirectly as a partner, shareholder, or officer of an organization that has a relationship with the Corporation, the following categorical standards, in addition to such other factors as may be deemed appropriate, will be considered:
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Until November 4, 2004, references in Section 2 to:three years: shall be deemed to be references to such shorter periods as may be permitted by Section 303A of the NYSE Listed Company Manual.
Minimum Qualification Standards and Process for Identifying and Evaluating Director Nominees
In addition to consideration of the independence standards set forth above, nominees for directors, including those submitted by shareholders, are selected based on, among other criteria, their integrity, informed judgment, financial literacy, high performance standards, accomplishments and reputation in the community, experience, skill sets, ability to commit adequate time to Board and committee matters, and to act on behalf of shareholders. The criteria shall also include a determination of the needs of the Board and of the individual's personal qualities and characteristics with those of the other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Corporation and its shareholders. The composition of the Board should encompass a broad range of skills, expertise, industry knowledge, diversity of viewpoints, background, and business and community contacts relevant to the Corporation's business.
The Nominating & Corporate Governance Committee is responsible for reviewing the qualifications and independence of the members of the Board and its committees as well as the general composition of the Board. The Nominating & Corporate Governance Committee is responsible for identifying and recommending to the Board an annual slate of qualified nominees, including one or more nominees to fill vacancies on the Board that may occur between annual meetings. Final approval of the candidate is determined by the full Board. The invitation to join the Board should be extended by the Board.
The Nominating & Corporate Governance Committee will evaluate director candidates submitted by shareholders in accordance with the applicable procedures set forth in the Corporation's proxy statement and pursuant to the criteria set forth above.
Lead Independent Director
The Board shall periodically appoint a Lead Independent Director whose duties shall include, but not be limited to the following: a) serve as Vice Chairperson of the Corporation and Bank of Hawaii (the "Bank") Executive & Strategic Planning Committee; b) serve as Chairperson of the Corporation and
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Bank's Nominating & Corporate Governance Committee; c) preside over regularly scheduled executive sessions of the non-management directors; d) serve as a liaison between the independent and non-management directors and executive management when circumstances are such as the Chairman cannot act in such capacity; and e) assist the Board and executive management in ensuring compliance with these Guidelines.
Service on Other Boards and Change in Professional Role
Directors should advise the Chairman of the Board and Chairperson of the Nominating & Corporate Governance Committee in advance of accepting an invitation to serve on another public company board (or taking on additional significant committee assignments on other boards) to allow the Board the opportunity to review the director's availability to continue to fulfill his or her responsibilities as a member of the Board.
Directors who significantly change their professional role or responsibilities should offer their resignation from the Board to provide the Board the opportunity to review the continued appropriateness of Board membership.
Size of Board
The Board currently has 13 positions and has recommend nominees for 4 vacant positions to be voted on at the 2004 annual shareholder's meeting. The Board believes a 13 member Board to be the right number, but will periodically review the size and determine the number that is the most effective in relation to the Board's needs.
Term Limits and Retirement
The Board observes a retirement age of 70 and no director may stand for election to the Board after his or her 70th birthday. The Board does not have term limits as it is the belief of the Board that they prevent the Corporation from benefiting from those directors who have developed, over a period of time, valuable knowledge, experience and insight into the Corporation and its operations. As an alternative to term limits, the Nominating & Corporate Governance Committee will review each director's continuation on the Board at least every three years. Each member of the Board shall stand for election every three years by the shareholders of the Corporation at the annual shareholder's meeting.
3. Director Responsibilities
Attendance and Board Meetings
The Board currently plans at least 9 meetings each year, with further meetings to occur at the discretion of the Board. Directors should make every effort to regularly attend meetings of the Board and committees on which they serve and the Corporation's annual shareholder's meeting. Directors may attend meetings by telephone to mitigate conflicts. The basic responsibility of directors is to exercise their business judgment in good faith to act on what they reasonably believe to be the best interests of the Corporation and comport themselves as representatives of all shareholders. Directors are expected to spend the time and effort necessary to properly discharge their responsibilities; ask incisive and probing questions in a manner that promotes open discussion; and seek to add value to the Corporation through their range of expertise and diversity of background.
Meeting Materials and Agenda Items
Board and committee materials should, to the extent practicable and advisable in light of all the circumstances, be distributed in writing to the Board sufficiently in advance of the meeting to permit prior review by the directors, and directors should review these materials in advance of the meeting. The Nominating & Corporate Governance Committee is responsible for assessing the quality and scope of information provided to the Board and making recommendations to management as appropriate.
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The Chairman of the Board will establish the agenda for each Board meeting. Each Board member is free to suggest the inclusion of items on the agenda. The Board will review the Corporation's long term strategic plan and annual operating plan each year.
Access to Management and Independent Advisors
Board members have complete access to the officers and employees of the Corporation and its subsidiaries. Meetings or contacts that a director desires to initiate may be arranged through the CEO, Managing Committee Member, Corporate Secretary or directly by the director. Board members will use their judgment to assure that such access is not disruptive to the Corporation's business and to the extent not inappropriate, copy the CEO on any written communications between a director and an officer or employee.
The Board encourages the attendance of senior management at the Board meetings to, among other reasons, make presentations on their respective business areas and provide insight into areas of discussion. Such attendance is at the discretion of the Board. The Board and its committees have the authority to hire, at the expense of the Corporation, independent legal, financial or other advisors as they deem necessary.
Executive Sessions
To ensure free and open discussion and communication among the independent directors of the Board, the Lead Independent Director shall preside over regularly scheduled executive sessions of the independent directors without management present.
4. Board Committees
Standing Committees and Subcommittees
The Board shall have at least the following four standing committees: Audit, Human Resources & Compensation, Nominating & Corporate Governance, and Executive. The Board may establish such additional committees as it deems necessary or appropriate. The purpose and goals and responsibilities of each of the committees shall be set forth in their respective charters as approved by the Board. Each charter shall include the requirements established by the NYSE and applicable laws and regulations. Each Board committee may establish additional subcommittees and delegate such power and authority as it deems appropriate. Each committee chairperson will give a report of his or her committee's activities to the full Board.
Committee Member Qualifications
The Audit, Human Resources & Compensation and Nominating & Corporate Governance committees shall be composed solely of independent directors. The Nominating & Corporate Governance Committee is responsible for reviewing the effectiveness of the Board committees and shall recommend the appointment of committee members to the Board.
Committee Organization
The Chairperson of each committee, in accordance with the committee's charter and in consultation with committee members, will determine the frequency of the committee meetings. The Chairperson of each committee, in consultation with committee members and management, will develop the committee's agenda.
Committee Evaluation
Each Committee shall annually review its charter and evaluate its performance and recommend to the Board any changes it deems necessary.
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5. Director Compensation
The Corporation's executive officers serving as directors shall not receive additional compensation for their service as directors.
The members of the Corporation's Audit Committee shall not receive any additional compensation from the Corporation in addition to director fees (which may include fees for service on committees of the Board).
Director compensation will be determined in accordance with the policies and principles set forth in the Human Resources & Compensation Committee charter and the standards set by the NYSE and other applicable laws and regulations. The Directors are compensated in cash and the Corporation's stock through restricted stock grants and stock options as provided for in the Director Stock Program. Directors may elect to defer their fees pursuant to the Directors Deferred Compensation Plan.
The Board's Human Resources & Compensation Committee shall review and assess director compensation and the current practices in relation to, but not limited to, other comparable U.S. banks and those of the Corporation's competitors. Such an assessment will include review of material charitable contributions by the Corporation to organizations in which a director is affiliated and significant consulting or other similar arrangements between the Corporation and the director. The Human Resources and Compensation Committee shall make any recommendations they deem appropriate to the Board for their discussion and concurrence.
6. Director Orientation and Continuing Education
The Corporation shall provide new directors with a director orientation program to familiarize them with the Corporation's business, strategic plan, significant financial, accounting and risk management issues, compliance programs, code of business conduct and ethics, corporate governance guidelines, principal officers, internal auditors and independent auditors.
Periodically, management will provide continuing education to directors through, but not limited to, Board and committee meetings and strategic and educational sessions on matters relevant to the Corporation and as requested by the Board. Board members are encouraged to continue their education as necessary to maintain their level of expertise or enhance their knowledge to assist them in performing their responsibilities as directors.
7. CEO Evaluation and Management Succession
The Human Resources & Compensation Committee is responsible for conducting an annual review and evaluation of the CEO's performance and compensation as set forth in its charter and shall report to the Board on the results of its evaluation.
The Human Resources & Compensation Committee is also responsible for reviewing the succession planning for the CEO in the event of an emergency or retirement and for senior officers, and shall periodically report to the Board on succession planning to allow the Board to determine that the Corporation has a satisfactory process for succession planning and the education, development and evaluation of senior officers.
8. Annual Performance Evaluation of the Board and Corporate Governance Guidelines
The Nominating & Corporate Governance Committee shall lead and oversee the Board in its annual performance evaluation to determine whether the Board and its committees are functioning effectively. The evaluation criteria will be established by the Nominating & Corporate Governance Committee which will implement the evaluation process and discuss the results with the Board.
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The Corporate Governance Guidelines will be reviewed on at least an annual basis under the oversight of the Nominating & Corporate Governance Committee which shall make such recommendations to the Board as it deems necessary.
9. Code of Business Conduct and Ethics
All directors owe a duty of loyalty to the Corporation. This duty mandates that, in the course of carrying out the duties and responsibilities of that position, the best interest of the Corporation and its shareholders take precedence over any personal interests of the director. The Board shall adopt and disclose publicly a Code of Business Conduct and Ethics for directors, officers and employees (the "Code"), and promptly disclose any waivers of the code for directors or executive officers. The Code will address at a minimum conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Corporation assets, compliance with laws, rules and regulations, and encourage the reporting of any illegal or unethical behavior.
10. Shareholder Communications to the Board and Independent Directors
Shareholders may communicate with the Board, Independent Directors as a group or Lead Independent Director, by sending correspondence c/o the Corporation's Corporate Secretary, 130 Merchant Street, Dept. 232, Honolulu, Hawaii 96813. All communication will be provided to the Board, Independent Directors as a group, or Lead Independent Director as appropriate.
Appendix C
Bank of Hawaii Corporation2004 Stock and Incentive Compensation PlanAppendix A
Article 1. Establishment, Purpose, and DurationPROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
OF
BANK OF HAWAII CORPORATION
1.1 Establishment If approved by the stockholders, the Corporation's Certificate of Incorporation would be amended by amending Article VII.B, VII.C and VII.E in their entirety as follows:
B. The Board, other than those directors elected by the holders of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Article V of this Certificate of Incorporation, shall be elected at each annual meeting of stockholders for a term expiring at the next annual meeting of stockholders following their election, notwithstanding that such director may have been elected for a term that extended beyond the date of such next annual meeting of stockholders. A director shall be elected to hold office until the next annual meeting of stockholders after their election and until their successors shall have been elected and qualified.
C. Except as otherwise provided for or fixed pursuant to the provisions of Article V of this Certificate of Incorporation relating to the rights of the Plan. Bankholders of Hawaii Corporation,any series of Preferred Stock to elect additional directors, and subject to the provisions hereof, newly created directorships resulting from any increase in the authorized number of directors, and any vacancies on the Board resulting from death, resignation, disqualification, removal, or other cause, may be filled only by the affirmative vote of a Delaware corporation (hereinafter referred to as the "Company"), establishes an incentive compensation plan to be known as the Bank of Hawaii Corporation 2004 Stock and Incentive Compensation Plan (hereinafter referred to as the "Plan"), as set forth in this document.
The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights ("SARs"), Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, and Stock-Based Awards.
The Plan shall become effective upon shareholder approvalmajority of the Plan (the "Effective Date") and shall remainremaining directors then in effect as provided in Section 1.3 hereof.
1.2 Purposeoffice, even though less than a quorum of the Plan. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of the Participants to those of the Company's shareholders, and by providing Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants upon whose judgment, interest, and special effort the successful conduct of its operation largely is dependent.
1.3 Duration of the Plan. Unless sooner terminated as provided herein, the Plan shall terminate ten (10) years from the Effective Date. After the Plan is terminated, no future Awards may be granted but Awards previously granted shall remain outstandingBoard. Any director elected in accordance with their applicable termsthe preceding sentence shall hold office until such director's successor shall have been duly elected and conditions andqualified, subject to his earlier death, disqualification, resignation or removal. No decrease in the Plan's terms and conditions. Notwithstandingnumber of directors constituting the foregoing, no IncentiveBoard shall shorten the term of any incumbent director.
E. Except for such additional directors, if any, as are elected by the holders of any series of Preferred Stock Optionsas provided for or fixed pursuant to the provisions of Article V of this Certificate of Incorporation, any director may be granted more than ten (10) years afterremoved, with or without cause, with the earlier of (a) the adoptionaffirmative vote of the Plan by the Board, and (b) the Effective Date.
1.4 Successor Plan. This Plan shall serve as the successor to the Pacific Century Financial Corporation Stock Option Plan of 1994 (the "Predecessor Plan"), and no further grants can be made under the Predecessor Plan on or after January 1, 2004. All outstanding Awards under the Predecessor Plan immediately prior to the Effective Date of this Plan are hereby incorporated into this Plan and shall accordingly be treated as Awards under this Plan. However, each such Award shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance, and, except as otherwise expressly provided herein, no provision of this Plan shall affect or otherwise modify the rights or obligations of holders of such incorporated Awards. Any Shares as to which Awards granted or issued under the Predecessor Plan that may lapse, expire, terminate, or be cancelled, are settled in cash in lieu of common stock, are tendered (either by actual delivery or attestation) to pay the Option Price, or satisfy any tax withholding requirements also shall be deemed available for issuance or reissuance under Section 4.1 of the Plan.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meaning set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
2.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Exchange Act.
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2.2 "Award" means, individually or collectively,at least a grant under this Plan of NQSOs, ISOs, SARs, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Cash-Based Awards, or Stock-Based Awards.
2.3 "Award Agreement" means either (i) an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under this Plan; or (ii) a statement issued by the Company to a Participant describing the terms and provisions of such Award.
2.4 "Beneficial Owner or Beneficial Ownership" shall have the meaning ascribed to such term in rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.5 "Board" or "Board of Directors" means the Board of Directors of the Company.
2.6 "Cash-Based Award" means an Award granted to a Participant as described in Article 10 herein.
2.7 "Cause" means (i) willful misconduct on the part of a Participant that is detrimental to the Company, its Affiliates, and/or its Subsidiaries; or (ii) the conviction of a Participant for the commission of a felony or crime involving turpitude. "Cause" under either (i) or (ii) shall be determined in good faith by the Committee.
2.8 "Change in Control" shall occur for purposes of the Plan or the Predecessor Plan if any of the following events occur:
As of the Effective Date, the Change in Control definition described in this Section 2.8 shall constitute an amendment to Section 2.1(f) of the Predecessor Plan and shall replace the definition thereunder.
2.9 "Code" means the U.S. Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
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2.10 "Committee" means the Human Resources and Compensation Committee of the Board of Directors. The members of the Committee shall be appointed from time to time by and shall serve at the discretion of the Board.
2.11 "Company" means Bank of Hawaii Corporation, a Delaware corporation, and any successor thereto as provided in Article 18 herein.
2.12 "Covered Employee" means a Participant who is a "covered employee," as defined in Section 162(m) of the Code and the regulations promulgated under Section 162(m) of the Code, or any successor statute.
2.13 "Director" means any individual who is a member of the Board of Directors of the Company.
2.14 "Employee" means any employee of the Company, its Affiliates, and/or its Subsidiaries. Directors who are not otherwise employed by the Company, its Affiliates, and/or its Subsidiaries shall not be considered Employees under this Plan.
Individuals described in the first sentence of this definition who are foreign nationals or are employed outside of the United States, or both, are considered to be Employees and may be granted Awards on the terms and conditions set forth in the Plan, or on such other terms and conditions as may, in the judgment of the Committee, be necessary or desirable to further the purpose of the Plan
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.16 "Fair Market Value" or"FMV" means a price that is based on the opening, closing, actual, high, low, or average selling prices of a Share on the New York Stock Exchange ("NYSE") or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determined by the Committee in its discretion. Such definition of FMV shall be specified in the Award Agreement and may differ depending on whether FMV is in reference to the grant, exercise, vesting, or settlement or payout of an Award. If, however, the accounting standards used to account for equity awards granted to Participants are substantially modified subsequent to the Effective Date of the Plan, the Committee shall have the ability to determine an Award's FMV based on the relevant facts and circumstances. If Shares are not traded on an established stock exchange, FMV shall be determined by the Committee based on objective criteria.
2.17 "Fiscal Year" means the year commencing on January 1 and ending December 31 or other time period as approved by the Board.
2.18 "Freestanding SAR" means an SAR that is granted independently of any Options, as described in Article 7 herein.
2.19 "Full Value Award" means an Award other than in the form of an ISO, NQSO, or SAR and which is settled by the issuance of Shares.
2.20 "Grant Price" means the price at which a SAR may be exercised by a Participant, as determined by the Committee and set forth in Section 7.1 herein.
2.21 "Incentive Stock Option" or"ISO" means an Option to purchase Shares granted under Article 6 herein and that is designated as an Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code, or any successor provision.
2.22 "Independent Contractor" means an individual providing services to the Company, its Affiliates, and/or its Subsidiaries, other than a Director who is not also an Employee of the Company, its Affiliates, and/or its Subsidiaries. Such Independent Contractor shall be eligible to participate in the Plan
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as selected by the Committee in accordance with Article 5. Notwithstanding any other provision in the Plan to the contrary, the following shall apply in the case of an Independent Contractor who is allowed to participate in the Plan: (a) with respect to any reference in this Plan to the working relationship between such Independent Contractor and the Company, its Affiliates, and/or its Subsidiaries, the term "service" shall apply as may be appropriate in lieu of the term "employment" or "employ"; (b) no such Independent Contractor shall be eligible for a grant of an ISO; and (c) the exercise period and vesting of an Award following such Independent Contractor's termination from service shall be specified and governed under the terms and conditions of the Award as may be determined by the Committee and set forth in the Independent Contractor's Award Agreement related to such Award.
2.23 "Insider" shall mean an individual who is, on the relevant date, an officer, Director, or more than ten percent (10%) Beneficial Owner of any class of the Company's equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act.
2.24 "Nonqualified Stock Option" or"NQSO" means an Option to purchase Shares, granted under Article 6 herein, which is not intended to be an Incentive Stock Option or that otherwise does not meet such requirements.
2.25 "Option" means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.
2.26 "Option Price" means the price at which a Share may be purchased by a Participant pursuant to an Option, as determined by the Committee.
2.27 "Participant" means an Employee or Independent Contractor who has been selected to receive an Award or who has an outstanding Award granted under the Plan.
2.28 "Performance-Based Compensation" means compensation under an Award that satisfies the requirements of Section 162(m) of the Code for deductibility of remuneration paid to Covered Employees.
2.29 "Performance Measures" means measures as described in Article 11 on which the performance goals are based and which are approved by the Company's shareholders pursuant to this Plan in order to qualify Awards as Performance-Based Compensation.
2.30 "Performance Period" means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
2.31 "Performance Share" means an Award granted to a Participant, as described in Article 9 herein.
2.32 "Performance Unit" means an Award granted to a Participant, as described in Article 9 herein.
2.33 "Period of Restriction" means the period when Awards are subject to forfeiture based on the passage of time, the achievement of performance goals, and/or upon the occurrence of other events as determined by the Committee, at its discretion.
2.34 "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.35 "Restricted Stock" means an Award of Shares granted to a Participant pursuant to Article 8 herein.
2.36 "Restricted Stock Unit" means an Award granted to a Participant pursuant to Article 8 herein.
2.37 "Shares" or "Stock" means the Shares of common stock of the Company.
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2.38 "Stock Appreciation Right"or"SAR" means an Award, designated as an SAR, pursuant to the terms of Article 7 herein.
2.39 "Stock-Based Award" means an Award granted pursuant to the terms of Section 10.2 herein.
2.40 "Subsidiary" means any corporation, partnership, joint venture, limited liability company, or other entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns at least fifty percent (50%) of the total combined voting power in one of the other entities in such chain.
2.41 "Tandem SAR" means an SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be cancelled) or an SAR that is granted in tandem with an Option but the exercise of such Option does not cancel the SAR, but rather results in the exercise of the related SAR.
Article 3. Administration
3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, consultants, accountants, and other persons, and the Committee, the Company, and its officers and Directors shall be entitled to rely upon the advice, opinions, or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final, conclusive, and binding upon the Participants, the Company, and all other interested parties.
3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of the Plan and to determine eligibility for Awards and to adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to Article 16, adopting modifications and amendments, or subplans to the Plan or any Award Agreement, including without limitation, any that are necessary to comply with the laws of the countries in which the Company, its Affiliates, and/or its Subsidiaries operate.
3.3 Delegation. The Committee may delegate to one or more of its members or to one or more officers of the Company, its Affiliates and/or its Subsidiaries, or to one or more agents or advisors such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. Except with respect to Awards to Insiders, the Committee may, by resolution, authorize one or more officers of the Company to do one or both of the following: (a) designate officers, Employees, or Independent Contractors of the Company, its Affiliates, and/or its Subsidiaries to be recipients of Awards; and (b) determine the size of the Award; provided, however, that the resolution providing such authorization sets forth the total number of Awards such officer or officers may grant.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.2 herein, the number of Shares hereby reserved for issuance to Participants under the Plan (the "Share Authorization") shall be seven hundred thousand (700,000) Shares. The maximum number of Shares that may be issued pursuant to Awards in the form of ISOs shall be seven hundred thousand (700,000) Shares and the maximum number of Shares that may be issued in the form of NQSOs shall be seven hundred thousand (700,000) Shares. Any Shares related to Awards which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committee's permission for Awards not involving Shares, shall be available again for grant under the Plan under Section 1.4, Awards under the Predecessor Plan that terminate following the Effective Date
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may be credited to Share Authorizations. Moreover, if the Option Price of any Option granted under the Plan or the tax withholding requirements with respect to any Award granted under the Plan are satisfied by tendering Shares to the Company (by either actual delivery or by attestation), or if an SAR is exercised, only the number of Shares issued, net of the Shares tendered, if any, will be deemed delivered for purposes of determining the maximum number of Shares available for delivery under the Plan. The maximum number of Shares available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional Shares or credited as additional Restricted Stock, Restricted Stock Units, Performance Shares, or Stock-Based Awards. The Shares available for issuance under the Plan may be authorized and unissued Shares or treasury Shares.
Unless and until the Committee determines that an Award to a Covered Employee shall not be designed to qualify as Performance-Based Compensation, the following limits (each an "Annual Award Limit," and collectively, "Annual Award Limits") shall apply to grants of such Awards under the Plan:
4.2 Adjustments in Authorized Shares. In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, Stock dividend, Stock split, reverse Stock split, split up, spin-off, or other distribution of Stock or property of the Company, combination of securities, exchange of securities, dividend in kind, or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of the Company, or any similar corporate event or transaction, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants' rights under the Plan, shall substitute or adjust, in an equitable manner, as applicable, the number and kind of Shares that may be issued under the Plan, the number and kind of Shares subject to
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outstanding Awards, the Option Price or Grant Price applicable to outstanding Awards, the Award Limits, and other value determinations applicable to outstanding Awards.
Appropriate adjustments may also be made by the Committee in the terms of any Awards under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance goals and changes in the length of Performance Periods. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
Subject to the provisions of Article 15 and any applicable law or regulatory requirement, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance, assumption, substitution, or conversion of Awards under this Plan in connection with any merger, consolidation, acquisition of property or Stock, or reorganization, upon such terms and conditions as it may deem appropriate. Additionally, the Committee may amend the Plan, or adopt supplements to the Plan, in such manner as it deems appropriate to provide for such issuance, assumption, substitution, or conversion, all without further action by the Company's shareholders.
Article 5. Eligibility and Participation
5.1 Eligibility. Individuals eligible to participate in the Plan include all Employees and Independent Contractors.
5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may from time to time, select from all eligible Employees and Independent Contractors, those to whom Awards shall be granted and shall determine the nature and amount of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee, provided that ISOs shall not be granted to Independent Contractors.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, the conditions upon which an Option shall become vested and exercisable, and such other provisions as the Committee shall determine which are not inconsistent with the terms of the Plan. The Award Agreement also shall specify whether the Option is intended to be an ISO or a NQSO.
6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be determined by the Committee and shall be specified in the Award Agreement. The Option Price may include (but not be limited to) an Option Price based on one hundred percent (100%) of the FMV of the Shares on the date of grant, an Option Price that is set at a premium to the FMV of the Shares on the date of grant, or is indexed to the FMV of the Shares on the date of grant, with the index determined by the Committee, in its discretion, however, if the Option is an ISO the Option Price must be at least equal to one hundred percent (100%) of the FMV of the Shares on the date of grant.
6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, no Option shall be exercisable later than the tenth (10th) anniversary date of its grant. Notwithstanding the foregoing, for Options granted to Participants outside the United States, the Committee has the authority to grant Options that have a term greater than ten (10) years.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
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6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company in full either: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate FMV at the time of exercise equal to the total Option Price (provided, if required to maintain favorable accounting treatment for the Options granted, the Shares that are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Option Price or have been purchased on the open market); (c) by a combination of (a) and (b); or (d) any other method approved by the Committee in its sole discretion at the time of grant and as set forth in the Award Agreement.
The Committee also may allow cashless exercise as permitted under the Federal Reserve Board's Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan's purpose and applicable law.
Subject to Section 6.7 and any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, Share certificates or evidence of book entry Shares, in an appropriate amount based upon the number of Shares purchased under the Option(s).
Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, requiring the Participant to hold the Shares acquired pursuant to exercise for a specified period of time, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment. Each Participant's Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to this Article 6, and may reflect distinctions based on the reasons for termination.
6.9 Transferability of Options.
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6.10 Notification of Disqualifying Disposition. The Participant will notify the Company upon the disposition of Shares issued pursuant to the exercise of an ISO. The Company will use such information to determine whether a disqualifying disposition as described in Section 421(b) of the Code has occurred.
6.11 Dividend Equivalents. At the discretion of the Committee, Participants holding Options may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividend equivalents may be in the form of cash, Shares, Restricted Stock, or Restricted Stock Units, and may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs.
Subject to the terms and conditions of the Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.
The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price may include (but not be limited to) a Grant Price based on one hundred percent (100%) of the FMV of the Shares on the date of grant, a Grant Price that is set at a premium to the FMV of the Shares on the date of grant, or is indexed to the FMV of the Shares on the date of grant, with the index determined by the Committee, in its discretion. The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option.
7.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, the term of the SAR, and such other provisions as the Committee shall determine.
7.3 Term of SAR. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable later than the tenth (10th) anniversary date of its grant. Notwithstanding the foregoing, for SARs granted to Participants outside the United States, the Committee has the authority to grant SARs that have a term greater than ten (10) years.
7.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.
7.5. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the FMV of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the FMV of the Shares subject to the ISO exceeds the Option Price of the ISO.
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7.6 Payment of SAR Amount. Upon the exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, in some combination thereof, or in any other manner approved by the Committee at its sole discretion. The Committee's determination regarding the form of SAR payout shall be set forth or reserved for later determination in the Award Agreement pertaining to the grant of the SAR.
7.7 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with Participants, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
7.8 Nontransferability of SARs. Except as otherwise provided in a Participant's Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided that the Board or Committee may permit further transferability, on a general or a specific basis, and may impose conditions and limitations on any permitted transferability. Further, except as otherwise provided in a Participant's Award Agreement or otherwise unless the Board or the Committee decides to permit further transferability, all SARs granted to a Participant under this Article 7 shall be exercisable during his or her lifetime only by such Participant.
7.9 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring the Participant to hold the Shares received upon exercise of an SAR for a specified period of time.
7.10 Substituting SARs. In the event the Company no longer uses APB Opinion 25 to account for equity compensation and is required to or elects to expense the cost of Options pursuant to FAS 123 (or a successor standard), the Committee shall have the ability to substitute, without receiving Participant permission, SARs paid only in Stock (or SARs paid in Stock or cash at the Committee's discretion) for outstanding Options; provided, the terms of the substituted Stock SARs are the same as the terms for the Options and the difference between the Fair Market Value of the underlying Shares and the Grant Price of the SARs is equivalent to the difference between the Fair Market Value of the underlying Shares and the Option Price of the Options. If, in the opinion of the Company's auditors, this provision creates adverse accounting consequences for the Company, it shall be considered null and void.
7.11 Dividend Equivalents. At the discretion of the Committee, Participants holding SARs may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividend equivalents may be in the form of cash, Shares, Restricted Stock, or Restricted Stock Units, and may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
Article 8. Restricted Stock and Restricted Stock Units
8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts, as the Committee shall determine. Restricted
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Stock Units shall be similar to Restricted Stock except that no Shares are actually awarded to the Participant on the date of grant.
8.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.
8.3 Transferability. Except as provided in this Article 8, the Shares of Restricted Stock and/or Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Award Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction of any other conditions, as specified by the Committee, in its sole discretion, and set forth in the Award Agreement. All rights with respect to the Restricted Stock and/or Restricted Stock Units granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.
8.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, restrictions under applicable federal or state securities laws, or any holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted Stock Units.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company's possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse, and Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.
8.5 Certificate Legend. In addition to any legends placed on certificates pursuant to Section 8.4 herein, each certificate representing Shares of Restricted Stock granted pursuant to the Plan may bear a legend such as the following:
The sale or other transfer of the Shares of Stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer as set forth in the Bank of Hawaii Corporation's 2004 Equity and Incentive Compensation Plan, and in the associated Restricted Stock Award Agreement. A copy of the Plan and such Restricted Stock Award Agreement may be obtained from the Bank of Hawaii.
8.6 Voting Rights. To the extent permitted or required by law, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
8.7 Dividends and Dividend Equivalents. During the Period of Restriction, Participants holding Shares of Restricted Stock or Restricted Stock Units granted hereunder may, if the Committee so determines, be credited with dividends paid with respect to Restricted Stock or dividend equivalents with respect to Restricted Stock Units while they are so held in a manner determined by the Committee in its
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sole discretion. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, Shares, Restricted Stock, or Restricted Stock Units and such dividends or dividend equivalents may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee.
8.8 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Restricted Stock and/or Restricted Stock Units following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock or Restricted Stock Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
8.9 Section 83(b) Election. The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
Article 9. Performance Shares and Performance Units
9.1 Grant of Performance Shares and Performance Units. Subject to the terms of the Plan, Performance Shares and/or Performance Units may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
9.2 Value of Performance Shares and Performance Units. Each Performance Share shall have an initial value equal to the FMV of a Share on the date of grant. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the value and/or number of Performance Shares/Performance Units that will be paid out to the Participant.
9.3 Earning of Performance Shares and Performance Units. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Shares/Performance Units shall be entitled to receive payout on the value and number of Performance Shares/Performance Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved. Notwithstanding the foregoing, the Company has the ability to require the Participant to hold the Shares received pursuant to such Award for a specified period of time.
9.4 Form and Timing of Payment of Performance Shares and Performance Units. Payment of earned Performance Shares/Performance Units shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Shares/Performance Units in the form of cash or in Shares (or in a combination thereof) equal to the value of the earned Performance Shares/Performance Units as soon as practicable after the end of the applicable Performance Period. Any Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
9.5 Dividend Equivalents. At the discretion of the Committee, Participants holding Performance Shares may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividends may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
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9.6 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to retain Performance Shares and/or Performance Units following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Performance Shares or Performance Units issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
9.7 Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Performance Shares/Performance Units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during his or her lifetime only by such Participant.
Article 10. Cash-Based Awards and Stock-Based Awards
10.1 Grant of Cash-Based Awards. Subject to the terms of the Plan, Cash-Based Awards may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
10.2 Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may entail the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
10.3 Value of Cash-Based and Stock-Based Awards. Each Cash-Based Award shall have a value as may be determined by the Committee. Each Stock-Based Award shall have a value based on the value of a Share, as determined by the Committee. The Committee may establish performance goals in its discretion. If the Committee exercises its discretion to establish performance goals, the number and/or value of Cash-Based and Stock-Based Awards that will be paid out to the Participant will depend on the extent to which the performance goals are met.
10.4 Earning of Cash-Based and Stock-Based Awards. Subject to the terms of this Plan, the holder of Cash-Based and Stock-Based Awards shall be entitled to receive payout on the number and value of Cash-Based Awards and Stock-Based Awards earned by the Participant, to be determined as a function of the extent to which applicable performance goals, if any, have been achieved.
10.5 Form and Timing of Payment of Cash-Based and Stock-Based Awards. Payment of earned Cash-Based and Stock-Based Awards shall be as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Cash-Based Awards or earned Stock-Based Awards in the form of cash or in Shares (or in a combination thereof) that have an aggregate FMV equal to the value of the earned Cash-Based Awards or to the value of the earned Stock-Based Awards. Such Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
10.6 Termination of Employment. Each Award Agreement shall set forth the extent to which the Participant shall have the right to receive Cash-Based Awards and Stock-Based Awards following termination of the Participant's employment with the Company, its Affiliates, and/or its Subsidiaries. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Awards of Cash-Based
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Awards and Stock-Based Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination.
10.7 Nontransferability. Except as otherwise provided in a Participant's Award Agreement, Cash-Based Awards and Stock-Based Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant's Award Agreement, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant.
10.8 Dividend Equivalents. At the discretion of the Committee, Participants holding Stock-Based Awards may be entitled to receive dividend equivalents with respect to dividends declared with respect to the Shares. Such dividends may be subject to accrual, forfeiture, or payout restrictions as determined by the Committee in its sole discretion.
Article 11. Performance Measures
Unless and until the Committee proposes for shareholder vote and the shareholders approve a change in the general Performance Measures set forth in this Article 11, the performance goals upon which the payment or vesting of an Award to a Covered Employee that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:
Any Performance Measure(s) may be used to measure the performance of the Company as a whole or any business unit of the Company or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or published or special index that the Committee, in its sole discretion, deems appropriate, or the Company may select Performance Measure (h) above as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article 11.
The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (d) reorganization or restructuring programs;
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(e) extraordinary or nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management's discussion and analysis of financial condition and results of operations appearing in the Company's annual report to shareholders for the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that meets the requirements of Code Section 162(m) for deductibility.
Awards that are designed to qualify as Performance-Based Compensation, and that are held by Covered Employees, may not be adjusted upward. The Committee shall retain the discretion to adjust such Awards downward.
In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards that shall not qualify as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m).
Article 12. Beneficiary Designation
A Participant's "beneficiary" is the person or persons entitled to receive payments or other benefits or exercise rights that are available under the Plan in the event of the Participant's death. A Participant may designate a beneficiary or change a previous beneficiary designation at any time by using forms and following procedures approved by the Committee for that purpose. If no beneficiary designated by the Participant is eligible to receive payments or other benefits or exercise rights that are available under the Plan at the Participant's death the beneficiary shall be the Participant's estate.
Notwithstanding the provisions above, the Committee may in its discretion, after notifying the affected Participants, modify the foregoing requirements, institute additional requirements for beneficiary designations, or suspend the existing beneficiary designations of living Participants or the process of determining beneficiaries under this Article 12, or both. If the Committee suspends the process of designating beneficiaries on forms and in accordance with procedures it has approved pursuant to this Article 12, the determination of who is a Participant's beneficiary shall be made under the Participant's will and applicable state law.
Article 13. Deferrals and Share Settlements
Notwithstanding any other provision under the Plan, the Committee may permit or require a Participant to defer such Participant's receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an Option or SAR, or with respect to the lapse or waiver of restrictions with respect to Restricted Stock or Restricted Stock Units or the satisfaction of any requirements or performance goals with respect to Performance Shares, Performance Units, Cash-Based Awards, or Stock-Based Awards. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals.
Article 14. Rights of Employees and Independent Contractors
14.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Affiliates, and/or its Subsidiaries to terminate any Participant's employment or other service relationship at any time, nor confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company, its Affiliates, and/or its Subsidiaries.
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Neither an Award nor any benefits arising under this Plan shall constitute part of an employment contract with the Company, its Affiliates, and/or its Subsidiaries and, accordingly, subject to Articles 3 and 16, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to liability on the part of the Company, its Affiliates, and/or its Subsidiaries for severance payments.
For purposes of the Plan, transfer of employment of a Participant between the Company, its Affiliates, and/or its Subsidiaries shall not be deemed a termination of employment. Additionally, the Committee shall have the ability to stipulate in a Participant's Award Agreement that a transfer to a company that is spun-off from the Company shall not be deemed a termination of employment with the Company for purposes of the Plan until the Participant's employment is terminated with the spun-off company.
14.2 Participation. No Employee or Independent Contractor shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
14.3 Rights as a Shareholder. A Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares.
Article 15. Change in Control
Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, or unless the Committee shall determine otherwise in the Award Agreement:
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Article 16. Amendment, Modification, Suspension, and Termination
16.1 Amendment, Modification, Suspension, and Termination. The Committee or Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Plan in whole or in part. Notwithstanding anything herein to the contrary, without the prior approval of the Company's shareholders, Options issued under the Plan will not be repriced, replaced, or regranted through cancellation, or by lowering the exercise price of a previously granted Option. No amendment of the Plan shall be made without shareholder approval if shareholder approval is required by law, regulation, or stock exchange rule.
16.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
16.3 Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment, suspension, or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award.
Article 17. Withholding
17.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign (including the Participant's FICA obligation), required by law or regulation to be withheld with respect to any taxable event arising or as a result of this Plan.
17.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock or Restricted Stock Units, or upon the achievement of performance goals related to Performance Shares, or any other taxable event arising as a result of Awards granted hereunder, the Company may require or Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a FMV of a Share on the date the tax is to be determined equal to the tax that could be imposed on the transaction, provided that if required by the accounting rules and regulations to maintain favorable accounting treatment for the Awards, the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. All elections shall be irrevocable, made in writing, and signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
Article 18. Successors
All obligations of the Company under the Plan with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 19. General Provisions
19.1 Forfeiture Events. The Committee may specify in an Award Agreement that the Participant's rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation,
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forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events shall include, but shall not be limited to, termination of employment for Cause, violation of material Company, Affiliate, and/or Subsidiary policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company, its Affiliates, and/or its Subsidiaries.
19.2 Legend. The certificates for Shares may include any legend that the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
19.3 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under the Plan prior to:
19.4 Investment Representations. The Committee may require each Participant receiving Shares pursuant to an Award under this Plan to represent and warrant in writing that the Participant is acquiring the Shares for investment and without any present intention to sell or distribute such Shares.
19.5 Employees Based Outside of the United States. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company, its Affiliates, and/or its Subsidiaries operate or have Employees or Independent Contractors, the Committee, in its sole discretion, shall have the power and authority to:
Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law, or governing statute or any other applicable law.
19.6 Uncertificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
19.7 Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments that the Company, its Affiliates, and/or its Subsidiaries may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company,
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its Affiliates, and/or its Subsidiaries and any Participant, beneficiary, legal representative, or any other person. To the extent that any person acquires a right to receive payments from the Company, its Affiliates, and/or its Subsidiaries under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to ERISA.
19.8 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, Awards, or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
19.9 Retirement and Welfare Plans. The Awards under this Plans will not be included as "compensation" for purposes of computing benefits payable to any Participant under the Company's retirement plans (both qualified and nonqualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a Participant's benefit.
Article 20. Legal Construction
20.1 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
20.2 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
20.3 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. The Company shall receive the consideration required by law for the issuance of Awards under the Plan.
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
20.4 Securities Law Compliance. The Company may use reasonable endeavors to register Shares allotted pursuant to the exercise of an Award with the United States Securities and Exchange Commission or to effect compliance with the registration, qualification, and listing requirements of any national or foreign securities laws, stock exchange, or automated quotation system. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
20.5 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the State of Hawaii, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of Hawaii, to resolve any and all issues that may arise out of or relate to the Plan or any related Award Agreement.
Notice of the Annual Meeting of ShareholdersApril 30, 2004
Shareholders of record of Bank of Hawaii Corporation common stock at the close of business on March 1, 2004 are entitled to attend the meeting and vote on the business brought before it. The meeting will be held on Friday, April 30, 2004 at 8:30 a.m. on the Sixth Floor of the Bank of Hawaii Building, 111 South King St., Honolulu, Hawaii.
We look forward to seeing you at the meeting. However, if you cannot attend the meeting, your shares may still be voted if you complete, sign, date, and return the enclosed proxy card in the enclosed postage-paid return envelope. You also may vote by telephone or electronically via the Internet. By voting your proxy each year, you can keep your account active and avoid the potential escheatment of uncashed dividends and stock holdings to the state. The accompanying proxy statement, also available online at www.boh.com, provides certain background information that will be helpful in deciding how to cast your vote on business transacted at the meeting.
By Order of the Board of Directors
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
You can vote by Internet or telephone! Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on April 25, 2008. | ||||
Vote by Internet • Log on to the Internet and go to www.investorvote.com/boh • Follow the steps outlined on the secured website. | ||||
Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the United States, Canada & Puerto Rico any time on a touch tone telephone. There isNO • Follow the instructions provided by the recorded message. |
INSTRUCTIONS FOR VOTING YOUR PROXY
Bank of Hawaii Corporation is offering shareholders of record three alternative ways of voting your proxies:•By Telephone (using a touch-tone telephone) •Through the Internet (using the browser) •By Mail (traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you had returned your proxy card. We encourage you to use these cost effective and convenient ways of voting, 24 hours a day, 7 days a week.
TELEPHONE VOTING Available only until 5:00 p.m. Eastern time on Thursday, April 29, 2004
INTERNET VOTING Available only until 5:00 p.m. Eastern time on Thursday, April 29, 2004.
VOTING BY MAIL
COMPANY NUMBERCONTROL NUMBER
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
Using a |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE FOLLOWING PROPOSALS:
Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
1. | To approve the Amendment to the Company's Certificate of Incorporation to Provide for Annual Election of All Directors | o | o |
For | Withhold | For | Withhold | For | Withhold | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
01—S. Haunani Apoliona | o | o | o | o | 03—Michael J. Chun | o | o | |||||||||||||
04—Clinton R. Churchill | o | 05—David A. Heenan | o | o | 06—Robert Huret | o | o | |||||||||||||
07—Allan R. Landon | o | o | 08—Kent T. Lucien | o | o | 09—Martin A. Stein | o | o | ||||||||||||
10—Donald M. Takaki | o | o | 11—Barbara J. Tanabe | o | o | 12—Robert W. Wo, Jr. | o | o |
For | Withhold | For | Withhold | For | Withhold | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
01—Michael J. Chun (Class I) | o | o | 02—Robert Huret (Class I) | o | o | 03—Kent T. Lucien (Class I) | o | o | ||||||||||||
04—Donald M. Takaki (Class I) | o | o | ||||||||||||||||||
For | Against | Abstain | ||||||||||||||||||
3. | ||||||
Ratification of Selection of An Independent Registered Public Accounting Firm (Ernst & Young). | o | o |
PLEASE COMPLETE SECTIONS A - E ON BOTH SIDES OF THIS CARD.
2008 Annual Meeting Admission Ticket
2008 Annual Meeting of
Bank of Hawaii Corporation Shareholders
April 25, 2008, 8:30 a.m.
111 S. King Street, 6th floor
Honolulu, Hawaii
Upon arrival, please present this admission ticket
and photo identification at the registration desk.
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
Notice of 2008 Annual Meeting of Shareholders
111 S. King Street, 6th floor, Honolulu, Hawaii
Proxy Solicited by Board of Directors for Annual Meeting—April 25, 2008
Mark A. Rossi and Cynthia G. Wyrick, or either of them, with the full power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Shareholders of Bank of Hawaii Corporation to be held on April 25, 2008 at 8:30 a.m. or at any postponement or 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 THE MEETING OR ANY ADJOURNMENT THEREOF.
Important Notice Regarding the Availability of Proxy Materials for the Annual Shareholder Meeting to be Held April 25, 2008:
The Proxy Statement and the Bank of Hawaii Corporation 2007 Annual Report to Shareholders for the year ended December 31, 2007 are available at www.boh.com/proxymaterials.
(Items to be voted appear on reverse side.)
Consent to Electronic Delivery: By marking this box, I consent to access future Annual Reports and Proxy Statements of Bank of Hawaii Corporation electronically over the Internet. I understand that unless I request otherwise or revoke my consent, Bank of Hawaii Corporation will notify me when any such communications are available and how to access them. I understand that costs associated with the use of the Internet will be my responsibility. To revoke my consent, I can contact Bank of Hawaii Corporation's transfer agent, Computershare Investor Services, at 1-888-660-5443.
Change of Address—Please print new address below.
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy)—Please print date below. | Signature 1—Please keep signature within the box. | Signature 2—Please keep signature within the box. | ||
PLEASE COMPLETE SECTIONS A - E ON BOTH SIDES OF THIS CARD.