Exhibit 10.2

 

Executive Change-in-Control
Severance Agreement

 

 

Bank of Hawaii Corporation

 

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Contents

 

 

 

Page

 

 

 

Article 1.

Establishment and Purpose

3

 

 

 

Article 2.

Definitions and Construction

4

 

 

 

Article 3.

Severance Benefits

6

 

 

 

Article 4.

Disqualification From Receipt of Benefits

9

 

 

 

Article 5.

Form and Timing of Severance Benefits

9

 

 

 

Article 6.

Parachute Payments

10

 

 

 

Article 7.

Other Rights and Benefits Not Affected

11

 

 

 

Article 8.

Successors

12

 

 

 

Article 9.

Administration

12

 

 

 

Article 10.

Legal Fees

13

 

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Bank of Hawaii Corporation

Executive Change-in-Control Severance Agreement

 

Article 1.               Establishment and Purpose

 

1.1          Effective Date.   This Executive Change-in-Control Severance
Agreement (the “Agreement) is made and entered into pursuant to Bank of Hawaii
Corporation’s Executive Severance Plan (the “Plan”), and is effective as of this
25th  day of June, 2004 (the “Effective Date”), by and between Bank of Hawaii
Corporation (“BOHC”), a Delaware corporation, and Brian T. Stewart, 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
BOHC (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 BOHC, 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 BOHC, including,
but not limited to, the commencement of a tender offer for the voting stock of
BOHC, or the circulation of a proxy to BOHC’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 BOHC.

 

1.3          Purpose of the Agreement.   The purpose of this Agreement pursuant
to the Plan is to advance the interests of BOHC and the Bank by assuring that
BOHC 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 BOHC 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 BOHC and its shareholders.

 

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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 BOHC.  However, nothing
herein shall require BOHC 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

 

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 BOHC 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 BOHC.

 

(e)           “Change in Control” of BOHC 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
BOHC having 25 percent or more of the total number of votes that may be cast for
the election of Directors of BOHC; or

 

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(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 BOHC before the transaction shall cease to constitute a
majority of the Board ofDirectors of BOHC or any successor to BOHC.

 

(f)            “Code” means the Internal Revenue Code of 1986, as amended.

 

(g)           “BOHC” means Bank of Hawaii Corporation, a Delaware corporation,
or any successor thereto that adopts the Agreement, as provided in Section 8.1
herein.

 

(h)           “Committee” means the Human Resources and Compensation Committee
of the Board of Directors of BOHC 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 BOHC 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 BOHC, then BOHC 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.

 

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(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 Bank of Hawaii 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 Human Resources and
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

 

3.1          Right to Severance Benefits.   The Executive shall be entitled to
receive from BOHC Severance Benefits as described in Section 3.4 herein, if
there has been a Change in Control of BOHC, 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

 

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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 BOHC 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 BOHC’s obligations
under this Agreement in their entirety, as required by Article 8 herein; or

 

(d)           BOHC, 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
BOHC 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 BOHC 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 BOHC
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 BOHC or the Bank to continue in effect any of
BOHC’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

 

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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 BOHC 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 BOHC or the Bank to obtain a satisfactory agreement
from any successor to BOHC to assume and agree to perform BOHC’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, BOHC 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 annual incentive plan (which, for purposes of this Agreement, means
the One-Year Incentive Plan, or Key Contributor Incentive Plan, or any successor
or alternative plan or arrangement providing for an annual incentive bonus) 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 annual incentive plan, in accordance with the
terms of such plan; and

 

(d)           A payout under the 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 Human Resources and 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),

 

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(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 BOHC, 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 annual incentive
plan and 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”), stock
appreciation rights (“SARs”) and restricted shares, if any, granted to the
Executive by BOHC will be exercisable or payable pursuant to the terms of the
applicable plans.

 

Article 4.               Disqualification From Receipt of Benefits

 

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 BOHC 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 BOHC 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.

 

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The Severance Benefits described in Section 3.4(e) herein shall be provided by
BOHC 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.   BOHC 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

 

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 BOHC (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 BOHC
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 BOHC 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 BOHC, at BOHC’s expense, shall
obtain the opinion of BOHC’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

 

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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 BOHC within ten (10) calendar days of receipt of the opinion, or,
if the Executive fails to so notify BOHC, as may be reasonably determined by
BOHC.

 

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 BOHC’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 BOHC,
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 BOHC any obligation to retain the
Executive as an employee, to change the status of the Executive’s employment, or
to change BOHC’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 BOHC and the Executive.

 

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Article 8.               Successors

 

8.1          Successors.   BOHC 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 BOHC 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 BOHC would be required to perform it
if no such succession had taken place.  Failure of BOHC 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 BOHC 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 Human
Resources and 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 BOHC, 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 BOHC and its affiliates shall
be indemnified and held harmless by BOHC 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 BOHC’s written approval) or paid by
them in

 

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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

 

BOHC shall pay all reasonable legal fees, costs of litigation, and other
expenses incurred in good faith by the Executive as a result of BOHC’s refusal
to provide the Severance Benefits to which the Executive becomes entitled under
this Agreement, or as a result of BOHC’s contesting the validity,
enforceability, or interpretation of the Agreement.  Provided, however, that
such payments shall not exceed the amount permitted by law and BOHC’s Restated
Articles of Incorporation.

 

IN WITNESS WHEREOF, BOHC has caused this Agreement to be executed by a
resolution of the Board of Directors, as of the day and year first above
written.

 

 

Bank of Hawaii Corporation

 

 

 

By:

 

/s/ Michael E. O’Neill

 

 

 

Michael E. O’Neill

 

 

Its:

Chairman & CEO

 

 

 

 

 

 

By:

 

/s/ Brian T. Stewart

 

 

 

(Executive)

 

 

 

ATTEST:

 

 

 

/s/ Neal C. Hocklander

 

 

 

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