Exhibit 10.38
Executive Change-in-Control
Severance Agreement
___________________
Pacific Century Financial Corporation
Contents
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Page
Article 1. Establishment and Purpose ............................. 1
Article 2. Definitions and Construction .......................... 2
Article 3. Severance Benefits .................................... 4
Article 4. Disqualification From Receipt of Benefits ............. 7
Article 5. Form and Timing of Severance Benefits ................. 7
Article 6. Parachute Payments .................................... 8
Article 7. Other Rights and Benefits Not Affected ................ 9
Article 8. Successors ............................................ 10
Article 9. Administration ........................................ 10
Article 10. Legal Fees ............................................ 11
Pacific Century Financial Corporation
Executive Change-in-Control Severance Agreement
Article 1. Establishment and Purpose
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1.1 Effective Date. This Executive Change-in-Control Severance Agreement
(the "Agreement) is made and entered into pursuant to Pacific Century Financial
Corporation's Key Executive Severance Plan (the "Plan"), and is effective as of
this 25th day of January, 2002 (the "Effective Date"), by and between Pacific
Century Financial Corporation ("PCFC"), a Delaware corporation, and Xxxxxxx X.
Xxxxx, an executive (the "Executive") of its subsidiary, Bank of Hawaii (the
"Bank"). This Agreement shall supersede and replace any prior severance
agreement entered into between the Bank and the Executive.
1.2 Term of the Agreement. The Agreement shall commence as of the Effective
Date written above, and shall continue until the Board of Directors of PCFC (the
"Board") determines, in good faith and in its sole discretion, that the
Executive is no longer to be included in the Plan and so notifies in writing the
Executive during the term of this Agreement of such determination.
Provided, however, in the event that a Change in Control of PCFC, as
defined in Section 2.1 herein, occurs during the term of this Agreement, this
Agreement shall remain irrevocably in effect for the greater of twenty-four (24)
months from the date of such Change in Control, or until all benefits have been
paid to the Executive hereunder.
Further, in the event that the Board has knowledge that a third party
has taken steps reasonably calculated to effect a Change in Control of PCFC,
including, but not limited to, the commencement of a tender offer for the voting
stock of PCFC, or the circulation of a proxy to PCFC's shareholders, then this
Agreement shall remain irrevocably in effect until the Board, in good faith,
determines that such third party has fully abandoned or terminated its effort to
effect a Change in Control of PCFC.
1.3 Purpose of the Agreement. The purpose of this Agreement pursuant to the
Plan, is to advance the interests of PCFC and the Bank by assuring that PCFC and
the Bank will have the continued employment and dedication of the Executive and
the availability of his advice and counsel in the event that an acquisition or
Change in Control of PCFC occurs. This Agreement shall also assure the Executive
of equitable treatment during the period of uncertainty that surrounds an
acquisition or Change in Control, and allow the Executive to act at all times in
the best interests of PCFC and its shareholders.
1.4 Contractual Right to Benefits. This Agreement establishes and vests in
the Executive a contractual right to the benefits which he or she is entitled
hereunder, enforceable by
the Executive against PCFC. However, nothing herein shall require PCFC to
segregate, earmark, or otherwise set aside any funds or other assets to provide
for any payments hereunder.
This Agreement shall be considered an unfunded agreement to provide
benefits to a select group of management or highly compensated employees, and is
therefore intended to be a "top-hat" plan exempt from the requirements of the
provisions of Parts 2, 3, and 4 of Title I of ERISA.
Article 2. Definitions and Construction
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2.1 Definitions. Whenever used in the Agreement, the following terms shall
have the meanings set forth below and, when the meaning is intended, the initial
letter of the word is capitalized.
(a) "Base Salary" means the annualized salary at the beginning of each
Year, which includes all regular basic wages, before reduction for
any amounts deferred on a tax-qualified or nonqualified basis,
payable in cash to an Executive for services rendered during the
Year. Base Salary shall exclude bonuses, incentive compensation,
special fees or awards, commissions, allowances, or any other form
of premium or incentive pay, or amounts designated by PCFC as
payment toward or reimbursement of expenses.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c) "Beneficiary" with respect to an Executive means the person or
entities designated or deemed designated by an Executive pursuant
to Section 8.2 herein.
(d) "Board" means the Board of Directors of PCFC.
(e) "Change in Control" of PCFC means any one or more of the following
occurrences:
(i) Any Person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes the
beneficial owner of shares of PCFC having 25 percent or more
of the total number of votes that may be cast for the
election of Directors of PCFC; or
(ii) As the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the
foregoing transactions, the person who were Directors of
PCFC before the transaction shall cease to constitute a
majority of the Board of Directors of PCFC or any successor
to PCFC.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "PCFC" means Pacific Century Financial Corporation, a Delaware
corporation, or any successor thereto that adopts the Agreement,
as provided in Section 8.1 herein.
(h) "Committee" means the Compensation Committee of the Board of
Directors of PCFC or any other committee appointed by the Board
to administer this Agreement.
(i) "Disability" means a physical or mental condition which renders
an Executive unable to discharge his normal work responsibility
with PCFC or the Bank and which, in the opinion of a licensed
physician selected by the Executive, subject to reasonable
approval by the Committee based upon sufficient medical evidence,
can be reasonably expected to continue for a period of at least
one full calendar year. If an Executive fails to select a
physician with ten (10) business days of a written request made
by PCFC, then PCFC may select a physician for purposes of this
paragraph.
(j) "Effective Date" means the date the Agreement is approved by the
Board, or such other date as the Board shall designate in its
resolution approving the Agreement, and as provided in Section
1.1 herein.
(k) "Effective Date of Termination" means the date on which a
Qualifying Termination occurs.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor act thereto.
(m) "Expiration Date" means the date the Agreement expires, as
provided in Section 1.2 herein.
(n) "Just Cause" shall mean the basis for a termination of an
Executive's employment by the Bank for which no Severance
Benefits are payable hereunder, as provided in Article 4 herein.
(o) "Normal Retirement Date" shall mean the date on which the
Executive attains age 65.
(p) "Person" shall have the meaning ascribed to such terms 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).
(q) "Plan" means the Pacific Century Financial Corporation Key
Executive Severance Plan, adopted April 27, 1983.
(r) "Qualifying Termination" shall mean a termination of the
Executive's employment by the Bank as described in Section 3.2
herein.
(s) "Severance Benefit" means the payment of severance compensation
as provided in Article 3 herein.
(t) "Year" means the consecutive 12-month period beginning each
January 1 and ending December 31.
2.2 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.
2.3 Severability. In the event any provision of the Agreement shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Agreement, and the Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.
2.4 Modification. No express provisions of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to by the Executive in writing and approved by the Compensation Committee of the
Board of Directors.
2.5 Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the State of Hawaii shall be the controlling law in all
matters relating to the Agreement without regard to the conflicts of law
principles in such laws.
Article 3. Severance Benefits
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3.1 Right to Severance Benefits. The Executive shall be entitled to
receive from PCFC Severance Benefits as described in Section 3.4 herein, if
there has been a Change in Control of PCFC, as defined in Section 2.1(e) herein,
and if, within twenty-four (24) months thereafter, the Executive's employment
with the Bank shall end for any reason specified in Section 3.2 herein as being
a Qualifying Termination. An Executive shall not be entitled to receive
Severance Benefits if the Executive's employment with the Bank ends due to an
involuntary termination by the Bank for Just Cause, as provided under Article 4
herein, or if the Executive's employment terminates due to death, Disability, or
voluntary employment termination on or after Normal Retirement Date.
3.2 Qualifying Termination. The occurrence of any one or more of the
following events within twenty-four (24) calendar months after a Change in
Control of PCFC shall trigger the payment of Severance Benefits to the
Executive, as provided under Section 3.4 herein:
(a) The Bank's involuntary termination of the Executive's employment
without Just Cause;
(b) The Executive's voluntary employment termination for Good Reason,
as defined by Section 3.3 herein;
(c) A successor company fails or refuses to assume PCFC's obligations
under this Agreement in their entirety, as required by Article 8
herein; or
(d) PCFC, or any successor company, commits a material breach of any
of the provisions of this Agreement.
3.3 Definition of Good Reason. "Good Reason" means, without the
Executive's express written consent, the occurrence after a Change in Control of
PCFC of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an executive and/or officer of PCFC or the Bank, or a material
reduction of the Executive's authorities, duties, or
responsibilities from those in effect as of ninety (90) days
prior to the Change in Control, other than an act that is
remedied by PCFC or the Bank promptly after receipt of notice
thereof given by the Executive;
(b) The Bank requiring the Executive to be based at a location in
excess of seventy-five (75) miles from the location of the
Executive's principal job location or office immediately prior to
the Change in Control; except for required travel on Bank
business to an extent substantially consistent with the
Executive's then present business travel obligations;
(c) A reduction by the Bank of the Executive's annual rate of Base
Salary in effect as of ninety (90) days prior to the Change in
Control;
(d) The failure of PCFC or the Bank to continue in effect any of
PCFC's or the Bank's annual and long-term incentive compensation
plans, or employee benefit or retirement plans, policies,
practices, or other compensation arrangements in which the
Executive participates as in effect prior to the Change in
Control, unless such failure to continue the plan, policy,
practice, or arrangement pertains to all plan participants
generally; or the failure by PCFC or the Bank to continue the
Executive's participation therein on substantially the same
basis, both in terms of the amount of benefits provided and the
level of the Executive's participation relative to other
participants and commensurate with the Executive's responsibility
and duties; and
(e) The failure of PCFC or the Bank to obtain a satisfactory
agreement from any successor to PCFC to assume and agree to
perform PCFC's obligations under this Agreement, as contemplated
in Article 8 herein.
3.4 Description of Severance Benefits. In the event that an Executive
becomes entitled to receive Severance Benefits, as provided in Section 3.1
herein, PCFC shall pay to the Executive and provide him with the following:
(a) An amount equal to two (2) times the Executive's annual rate of
Base Salary in effect upon the Effective Date of Termination; and
(b) An amount equal to two (2) times the Executive's target bonus
under the PCFC One-Year Incentive Plan for the fiscal year prior
to the Effective Date of Termination. If the Executive's period
of employment is less than one year, the bonus shall be
considered zero (0) however, the "Completion Bonus" stipulated in
the offer of employment letter will be paid, and
(c) A payout under the PCFC One-Year Incentive Plan, in accordance
with the terms of such Plan; and
(d) A payout under the PCFC Long-Term Incentive Plan, in accordance
with the terms of such Plan; and
(e) A continuation of all welfare benefits at normal employee cost
including medical insurance, long-term disability, and group term
life insurance for two (2) full years from the Effective Date of
Termination or until the Executive reaches his Normal Retirement
Date, whichever occurs earlier. However, these benefits will be
discontinued prior to the end of the two (2) years in the event
the Executive receives substantially similar benefits from a
subsequent employer, as determined by the Compensation Committee.
3.5 Reduction of Severance Benefits. In the event there are fewer than
twenty-four (24) whole or partial months remaining from the Executive's
Effective Date of Termination until the Executive's Normal Retirement Date, then
the amounts provided for under Sections 3.4(a), (b), (c), and (d) above shall be
reduced by a fraction, the numerator of which shall be the number of whole or
partial months remaining until the Executive's Normal Retirement Date, and the
denominator of which shall be twenty-four (24).
3.6 Outplacement Services. In the event that the Executive becomes entitled
to receive Severance Benefits as provided in Section 3.1 herein, the Executive
shall be entitled, at the expense of PCFC, to receive standard outplacement
services from a nationally recognized outplacement firm as selected by the
Executive, for a period of up to twenty-four (24) months from the Effective Date
of Termination. However, such services shall not exceed a maximum annual benefit
of ten percent (10%) of the Executive's annual rate of Base Salary as of the
Effective Date of Termination.
3.7 Incentive Compensation. In the event that the Executive becomes
entitled to receive Severance Benefits as provided in Section 3.1 herein, any
deferred awards previously granted to the Executive under the PCFC One-Year
Incentive Plan and PCFC Long-Term Incentive Plan, and not previously paid to the
Executive, shall immediately vest on the date of the Executive's Effective Date
of Termination and shall be paid no later than ninety (90) calendar days
following that date, and be included as compensation in the month paid.
3.8 Stock Options and SARs. Stock options ("options") and stock
appreciation rights ("SARs"), if any, granted to the Executive by PCFC will be
exercisable pursuant to the terms of the applicable plans.
Article 4. Disqualification From Receipt of Benefits
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No Severance Benefits shall be payable to the Executive under this
Agreement in the event the Executive is terminated by the Bank for Just Cause.
For this purpose, Just Cause shall mean willful, malicious conduct by
the Executive which is detrimental to the best interests of PCFC including
theft, embezzlement, the conviction of a criminal act, disclosure of trade
secrets, a gross dereliction of duty, or other grave misconduct on the part of
the Executive which is substantially injurious to PCFC or the Bank. Just Cause
also shall include the failure of the Executive to perform any and all covenants
under this Agreement.
Article 5. Form and Timing of Severance Benefits
-------------------------------------
5.1 Form and Timing of Severance Benefits. The Severance Benefits described
in Sections 3.4(a), (b), (c) and (d) herein, shall be paid in cash to the
Executive in a single lump sum as soon as practicable following the Executive's
Effective Date of Termination, but in no event beyond ninety (90) calendar days
from such date.
The Severance Benefits described in Section 3.4(e) herein shall be
provided by PCFC to the Executive immediately upon the Executive's Effective
Date of Termination and shall continue to be provided for two (2) full calendar
years from the Executive's Effective Date of Termination or until the Executive
reaches his Normal Retirement date, whichever occurs
earlier. However, the Severance Benefits described in Section 3.4(e) herein
shall be discontinued prior to the end of the two (2) year period immediately
upon the Executive receiving substantially similar benefits from a subsequent
employer, as determined by the Committee.
5.2 Withholding of Taxes. PCFC shall withhold from any amounts payable
under this Agreement all Federal, state, city, or other taxes as legally shall
be required.
Article 6. Parachute Payments
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6.1 Determination of Alternative Severance Benefit Limit. Notwithstanding
any other provision of this Agreement, if any portion of the Severance Benefits
or any other payment under this Agreement, or under any other agreement with, or
plan of PCFC (in the aggregate "Total Payments") would constitute an "excess
parachute payment", then the payments to be made to the Executive under this
Agreement shall be reduced such that the value of the aggregate Total Payments
that the Executive is entitled to receive shall be one dollar ($1) less than the
maximum amount which the Executive may receive without becoming subject to the
tax imposed by Section 4999 of the Code, or which PCFC may pay without loss of
deduction under Section 280G(a) of the Code. However, such reduction in
Severance Benefits shall apply if, and only if, the resulting Severance Benefits
with such reduction is greater in value to the Executive than the value of the
Severance Benefits without a reduction, net of any tax imposed on the Executive
pursuant to Section 4999 of the Code.
For purposes of this Agreement, the terms "excess parachute payment"
and "parachute payments" shall have the meanings assigned to such terms in
Section 280G of the Code, and such "parachute payments" shall be valued as
provided therein.
6.2 Procedure for Establishing Alternative Limitation. Within fifteen (15)
calendar days following delivery of the notice of Qualifying Termination or
notice by PCFC to the Executive of its belief that there is a payment or benefit
due the Executive which will result in an "excess parachute payment" as defined
in Section 280G of the Code, the Executive and PCFC, at PCFC's expense, shall
obtain the opinion of PCFC's principal outside law firm, accounting firm, and/or
compensation and benefits consulting firm, which sets forth: (i) the amount of
the Executive's "annualized includible compensation for the base period" [as
defined in Code Section 280G(d)(1)]; (ii) the present value of the Total
Payments; and (iii) the amount and present value of any "excess parachute
payment".
In the event that such opinion determines that there would be an
"excess parachute payment", such that a reduction in the Severance Benefits
would result in a greater net benefit to the Executive (as provided in Section
6.1 herein), then the Severance Benefits hereunder or any other payment
determined under the opinion to be includible in Total Payments shall be reduced
or eliminated so that, on the basis of calculations set forth in such opinion,
there will be no "excess parachute payment".
The reduction or elimination of specific payments shall apply to such
type and amount of specific payments as may be designated by the Executive in
writing delivered to PCFC within ten (10) calendar days of receipt of the
opinion, or, if the Executive fails to so notify PCFC, as may be reasonably
determined by PCFC.
The provisions of this Section 6.2, including the calculations,
notices, and opinion provided for herein, shall be based upon the conclusive
presumption that the following amounts are reasonable: (i) the compensation and
benefits provided for in Article 3 herein; and (ii) any other compensation
earned prior to the Effective Date of Termination by the Executive pursuant to
PCFC's compensation programs (if such payments would have been made in the
future in any event, even though the timing of such payment is triggered by the
Change in Control).
6.3 Subsequent Imposition of Excise Tax. If, notwithstanding compliance
with the provisions of Sections 6.1 and 6.2 herein, it is ultimately determined
by a court or pursuant to a final determination by the Internal Revenue Service
that any portion of the Total Payments is considered to be a "parachute
payment", subject to excise tax under Section 4999 of the Code, which was not
contemplated to be a "parachute payment" at the time of payment (so as to
accurately determine whether a limitation should have been applied to the Total
Payments to maximize the net benefit to the Executive, as provided in Sections
6.1 and 6.2 herein), the Executive shall be entitled to receive a lump-sum cash
payment sufficient to place the Executive in the same net after-tax position,
computed by using the "Special Tax Rate" as such term is defined below, that the
Executive would have been in had such payment not been subject to such excise
tax, and had the Executive not incurred any interest charges or penalties with
respect to the imposition of such excise tax. For purposes of this Agreement,
the "Special Tax Rate" shall be the highest effective Federal and state marginal
tax rates applicable to the Executive in the year in which the payment
contemplated under the Section 6.3 is made.
Article 7. Other Rights and Benefits Not Affected
--------------------------------------
7.1 Other Benefits. Neither the provisions of this Agreement nor the
Severance Benefits provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish the Executive's rights as an employee of PCFC,
whether existing now or hereafter, under any benefit, incentive, retirement,
stock option, stock bonus, stock purchase plan, or any employment agreement, or
other plan or arrangement.
7.2 Employment Status. This Agreement does not constitute a contract of
employment or impose on the Bank or PCFC any obligation to retain the Executive
as an employee, to change the status of the Executive's employment, or to change
PCFC's policies regarding termination of employment. The Executive serves as an
employee of the Bank and this Agreement shall not create an employment
relationship between PCFC and the Executive.
Article 8. Successors
----------
8.1 Successors. PCFC will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of PCFC or of any division or
subsidiary thereof to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that PCFC would be required to perform it
if no such succession had taken place. Failure of PCFC to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation from
PCFC in the same amount and on the same terms as they would be entitled
hereunder if terminated voluntarily following a Change in Control. Except for
the purposes of implementing the foregoing, the date on which any succession
becomes effective shall be deemed the Effective Date of Termination.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If an Executive should
die while any amount would still be payable to him hereunder had he continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the Executive's devisee,
legatee, or other designee, or if there is no such designee, to the Executive's
estate.
8.2 Beneficiaries. The beneficiary of the Executive's Severance Benefits
under this Agreement shall be designated by the Executive in the form of a
signed writing acceptable to the Committee. An Executive may make or change such
designation at any time.
Article 9. Administration
--------------
9.1 Administration. This Agreement shall be administered by the
Compensation Committee of the Board of Directors. The Committee is authorized to
interpret this Agreement, to prescribe and rescind rules and regulations, to
provide conditions and assurances deemed necessary and advisable, to protect the
interests of PCFC, and to make all other determinations necessary or advisable
for the Agreement's administration.
In fulfilling its administrative duties hereunder, the Committee may
rely on outside counsel, independent accountants, or other consultants to render
advice or assistance.
9.2 Indemnification and Exculpation. The members of the Board, its agents
and officers, directors, and employees of PCFC and its affiliates shall be
indemnified and held harmless by PCFC against and from any and all loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by them in
connection with or resulting from any claim, action, suit, or proceeding to
which they may be a party or in which they may be involved by reason of any
action taken or failure to act under this Agreement and against and from any and
all amounts paid by them in settlement (with PCFC's written approval) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding. The
foregoing provision shall
not be applicable to any person if the loss, cost, liability, or expense is due
to such person's gross negligence or willful misconduct.
Article 10. Legal Fees
----------
PCFC shall pay all reasonable legal fees, costs of litigation, and other
expenses incurred in good faith by the Executive as a result of PCFC's refusal
to provide the Severance Benefits to which the Executive becomes entitled under
this Agreement, or as a result of PCFC's contesting the validity,
enforceability, or interpretation of the Agreement. Provided, however, that such
payments shall not exceed the amount permitted by law and PCFC's Restated
Articles of Incorporation.
IN WITNESS WHEREOF, PCFC has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.
Pacific Century Financial Corporation
By: /S/ Xxxxxxx X. X'Xxxxx
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Xxxxxxx X. X'Xxxxx
Its: Chairman & CEO
By: /S/ Xxxxxxx X. Xxxxx
---------------------------------
(Executive)
ATTEST:
/S/ Xxxx X. Xxxxxxxxxx
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