<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NOS. 333-18809
333-18809-01
333-18809-02
333-18809-03
333-18809-04
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 24, 1997)
4,000,000 TRUST PREFERRED SECURITIES
HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUST I
8.36% TRUST ORIGINATED PREFERRED SECURITIES/SM/ ("TOPrS/SM/")
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
HAWAIIAN ELECTRIC INDUSTRIES, INC.
---------------
The 8.36% Trust Originated Preferred Securities/SM/ (the "TOPrS/SM/" or "Trust
Preferred Securities") offered hereby represent preferred undivided beneficial
ownership interests in the assets of Hawaiian Electric Industries Capital
Trust I, a statutory business trust formed under the laws of the State of
Delaware (the "Trust"). Hawaiian Electric Industries, Inc., a Hawaii
corporation (the "Company" or "HEI"), will own all the common securities (the
"Trust Common Securities" and, together with the Trust Preferred Securities,
the "Trust Securities") representing undivided beneficial ownership interests
in the assets of the Trust. The Trust exists for the sole purpose of issuing
the Trust Securities and investing the proceeds as described below and
engaging in activities incident thereto. The proceeds from the sale of the
Trust Securities will be used by the Trust to purchase partnership
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT FOR
A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE TRUST PREFERRED SECURITIES, INCLUDING CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES.
The Trust Preferred Securities have been approved for listing on the New
York Stock Exchange, Inc. (the "New York Stock Exchange"), subject to official
notice of issuance. Trading on the New York Stock Exchange is expected to
commence within the 30-day period after the initial delivery of the Trust
Preferred Securities. See "Underwriting."
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC COMMISSION(1) TRUST(2)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Trust Preferred Security....... $25.00 (2) $25.00
- --------------------------------------------------------------------------------
Total............................... $100,000,000 (2) $100,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) HEI, the Trust and the Partnership have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will ultimately be invested in investment instruments of HEI
and certain of its subsidiaries, HEI has agreed to pay or cause to be paid
to the Underwriters as compensation (the "Underwriters' Compensation")
$.7875 per Trust Preferred Security (or $3,150,000 in the aggregate);
provided that such compensation for sales of 10,000 or more Trust
Preferred Securities to a single purchaser will be $.50 per Trust
Preferred Security. Therefore, to the extent of such sales, the actual
amount of Underwriters' Compensation will be less than the aggregate
amount specified in the preceding sentence. See "Underwriting."
(3) Expenses of the offering that are payable by HEI are estimated at
$500,000.
---------------
The Trust Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Trust Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company ("DTC")
on or about February 4, 1997.
---------------
MERRILL LYNCH & CO. GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
---------------
The date of this Prospectus Supplement is January 29, 1997.
- -------
SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
(Continued from cover page)
preferred securities (the "Partnership Preferred Securities"), representing
the limited partner interests in HEI Preferred Funding, LP, a Delaware limited
partnership (the "Partnership"). All of the partner interests in the
Partnership other than the limited partner interests represented by the
Partnership Preferred Securities are owned by Hycap Management, Inc.
("Hycap"), a Delaware corporation, which is a wholly-owned subsidiary of HEI
and the sole general partner of the Partnership (the "General Partner").
Substantially all of the proceeds from the sale of the Partnership Preferred
Securities and the capital contribution from the General Partner will be used
by the Partnership initially to purchase debt instruments of HEI (the "Company
Debentures") and debt instruments of one or more of its subsidiaries (the
"Subsidiary Debentures" and, together with the Company Debentures, the
"Debentures"). In addition, approximately one percent of the proceeds from the
sale of the Partnership Preferred Securities and of the capital contribution
from the General Partner will be used by the Partnership to purchase certain
U.S. government obligations and commercial paper of entities not affiliated
with HEI (the "Eligible Debt Securities"). See "Supplemental Description of
the Partnership Preferred Securities--Partnership Investments."
Holders of the Trust Preferred Securities will be entitled to receive
cumulative cash distributions accumulating from the date of original issuance
and payable quarterly in arrears on each March 31, June 30, September 30 and
December 31, commencing March 31, 1997, at an annual rate of 8.36% of the
liquidation amount of $25 per Trust Preferred Security (equivalent to $2.09
per Trust Preferred Security per annum) if, as and when the Trust has funds
available for payment. See "Supplemental Description of the Trust Preferred
Securities--Distributions." Distributions not paid on the scheduled payment
date will accumulate and compound quarterly at a rate per annum equal to
8.36%. The distribution rate and the distribution payment dates and other
payment dates for the Trust Preferred Securities will correspond to the
distribution rate and distribution payment dates and other payment dates for
the Partnership Preferred Securities, which constitute the sole assets of the
Trust. As described above, the assets of the Partnership will initially
consist only of the Debentures and, to a limited extent, certain Eligible Debt
Securities. The payment of distributions by the Trust and payments on
liquidation of the Trust or the redemption of Trust Preferred Securities, as
described below, are guaranteed on a subordinated basis by HEI (the "Trust
Guarantee") to the extent the Trust has funds legally available therefor as
described under "Supplemental Description of the Trust Guarantee." The payment
of distributions by the Partnership (if, as and when declared by the General
Partner) and payments on liquidation of the Partnership or the redemption of
Partnership Preferred Securities, as described below, are also guaranteed on a
subordinated basis by HEI (the "Partnership Guarantee") to the extent the
Partnership has funds legally available therefor as described under
"Supplemental Description of the Partnership Guarantee." In addition, payments
in respect of the Subsidiary Debentures are fully and unconditionally
guaranteed, on a subordinated basis, by HEI (the "Investment Guarantees") for
the benefit of the holders of the Subsidiary Debentures.
The Trust Guarantee, the Partnership Guarantee and the Investment Guarantees
(individually, a "Guarantee" and collectively, the "Guarantees"), when taken
together with the Company Debentures and HEI's obligations to pay all fees and
expenses of the Trust and the Partnership, constitute a guarantee to the
extent set forth herein by HEI of the distribution, redemption and liquidation
payments payable to the holders of the Trust Preferred Securities. The
Guarantees do not apply, however, to current distributions by the Partnership
unless and until such distributions are declared by the General Partner out of
funds legally available for payment or to liquidating distributions unless
there are assets legally available for payment in the Partnership, each as
more fully described in the next succeeding paragraph and under "Risk
Factors--Insufficient Income or Assets Available to Partnership." HEI's
obligations under the Guarantees are subordinate and junior in right of
payment to all liabilities of HEI and rank pari passu with the most senior
preferred stock (if any) issued from time to time by HEI, with each other and
with any guarantee hereafter entered into by HEI in respect of any preferred
security of any affiliate of HEI, and its obligations under the Company
Debentures are subordinate and junior in right of payment to all senior
indebtedness of HEI. At September 30, 1996, HEI (holding company only) had
outstanding senior indebtedness aggregating approximately $246 million
(exclusive of contingent amounts under guarantees of approximately $17.5
million of subsidiary obligations), which would have ranked senior to HEI's
obligations under the Guarantees and the Company Debentures. In addition,
HEI's obligations under the
S-2
<PAGE>
Guarantees and the Company Debentures will be effectively subordinated to all
existing and future liabilities of its subsidiaries. See "Risk Factors--
Ranking of Subordinate Obligations Under the Guarantees and the Company
Debentures."
Distributions on the Partnership Preferred Securities will be declared and
paid only as determined in the sole discretion of the General Partner of the
Partnership. In addition, the General Partner is not obligated to declare
distributions on the Partnership Preferred Securities at any time, including
upon or following a Partnership Enforcement Event (as defined herein). To the
extent that the issuers (including HEI as issuer and guarantor) of the
securities in which the Partnership invests defer or fail to make any payments
in respect of such securities (or, if applicable, guarantees), the Partnership
will not have sufficient funds to pay and will not declare or pay
distributions on the Partnership Preferred Securities. In addition, as
described under "Risk Factors--Insufficient Income or Assets Available to
Partnership," the Partnership may not have sufficient funds to pay current or
liquidating distributions on the Partnership Preferred Securities if (i) at
any time that the Partnership is receiving current payments in respect of the
securities held by the Partnership (including the Debentures), the General
Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership
reinvests the proceeds received in respect of the Debentures upon their
retirement or at their maturities in Affiliate Investment Instruments (as
defined herein) and Eligible Debt Securities that do not generate income in an
amount that is sufficient to pay full distributions in respect of the
Partnership Preferred Securities or (iii) the Partnership invests in equity or
debt securities of Investment Affiliates (as defined herein) that are not
guaranteed by HEI and that cannot be liquidated by the Partnership for an
amount sufficient to pay such distributions in full. The Debentures will
provide that payments of interest may be deferred at any time, and from time
to time, by the relevant issuer for a period not exceeding six consecutive
quarters. If an issuer were to so defer the payment of interest on any
Debenture, interest thereon would continue to accrue and compound at the
stated interest rate thereon. If the General Partner does not declare and pay
distributions on the Partnership Preferred Securities out of funds legally
available for distribution, the Trust will not have sufficient funds to make
distributions on the Trust Preferred Securities, in which event the Trust
Guarantee will not apply to such distributions until the Trust has sufficient
funds available therefor. See "Risk Factors--Distributions Payable Only if
Declared by General Partner; Restrictions on Certain Payments; Tax
Consequences," "--Insufficient Income or Assets Available to Partnership,"
"Supplemental Description of the Trust Preferred Securities--Distributions"
and "Supplemental Description of the Partnership Preferred Securities--
Distributions."
The Partnership may, from time to time and subject to the restrictions
described herein, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus Supplement, the General Partner
does not intend to cause the Partnership to reinvest regularly scheduled
periodic payments of interest or dividends received by the Partnership in the
manner described herein, although there can be no assurance that the General
Partner's intention in respect of such reinvestments will not change in the
future.
If (i) for any distribution period full distributions on a cumulative basis
on any Trust Preferred Securities have not been paid or declared and set apart
for payment, (ii) an Investment Event of Default (as defined herein) by any
Investment Affiliate in respect of any Affiliate Investment Instrument has
occurred and is continuing and HEI is in default of its obligations with
respect thereto under an applicable Investment Guarantee or (iii) HEI is in
default of its obligations under the Trust Guarantee or the Partnership
Guarantee, then, during such period, (a) HEI shall not declare or pay
dividends on, make distributions or a liquidation payment with respect to, or
redeem, purchase or acquire, any of its capital stock (except for dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase shares of, its common stock and exchanges of common stock of one
class for common stock of another class and other exceptions set forth in the
accompanying Prospectus), (b) HEI shall not make any payment or cause any
payment to be made that would result in, and shall take such actions as shall
be necessary to prevent, the payment of any dividends on, any distribution or
liquidation payment
S-3
<PAGE>
with respect to, or any redemption, purchase or other acquisition of, any
Comparable Equity Interest, and (c) HEI shall not make any guarantee payments
with respect to the foregoing other than pursuant to the Trust Guarantee (or
any other guarantee by the Company with respect to any Comparable Equity
Interest).
The Partnership Preferred Securities are redeemable by the Partnership, in
whole or in part, from time to time, on or after February 4, 2002 at a
redemption price per Partnership Preferred Security equal to $25 plus
accumulated and unpaid distributions thereon to the date fixed for redemption.
The Partnership Preferred Securities may also be redeemed, in whole but not in
part, at any time upon the occurrence of a Partnership Special Event (as
defined herein) at an amount per Partnership Preferred Security equal to $25
plus accumulated and unpaid distributions thereon to the date fixed for
redemption. If the Partnership redeems the Partnership Preferred Securities,
the Trust must redeem Trust Preferred Securities on a pro rata basis having an
aggregate liquidation amount equal to the aggregate liquidation preference of
the Partnership Preferred Securities so redeemed at a redemption price
corresponding to the redemption price of the Partnership Preferred Securities
(which includes all accumulated and unpaid distributions thereon to the date
fixed for redemption) (the "Redemption Price"). See "Supplemental Description
of the Trust Preferred Securities--Redemption." Neither the Partnership
Preferred Securities nor the Trust Preferred Securities have any scheduled
maturity or are redeemable at any time at the option of the holders thereof.
Upon the occurrence of a Trust Special Event (as defined herein), except in
certain limited circumstances, the Trust may be dissolved. Upon dissolution of
the Trust, after satisfaction of obligations to creditors of the Trust, if
any, the Partnership Preferred Securities will be distributed to the holders
of the Trust Preferred Securities, on a pro rata basis, in lieu of any cash
distribution, unless the Partnership Preferred Securities are redeemed in the
limited circumstances described herein. If the Partnership Preferred
Securities are distributed to the holders of the Trust Preferred Securities,
HEI will use its best efforts to cause the Partnership Preferred Securities to
be listed on the New York Stock Exchange or such other national securities
exchange or similar organization as the Trust Preferred Securities are then
listed or quoted. See "Supplemental Description of the Trust Preferred
Securities--Trust Special Event Redemption or Distribution."
In the event of any liquidation, dissolution, winding up or termination of
the Trust, after satisfaction of obligations to creditors of the Trust, if
any, the holders of the Trust Preferred Securities will be entitled to receive
for each Trust Preferred Security a liquidation amount of $25 plus accumulated
and unpaid distributions thereon to the date of payment, except to the extent,
in connection with such dissolution, Partnership Preferred Securities are
distributed to the holders of the Trust Preferred Securities. Upon (i) the
occurrence and continuation of an Investment Event of Default by an Investment
Affiliate (including HEI) in respect of any Affiliate Investment Instrument
and the failure of HEI to perform its obligations under an applicable
Investment Guarantee or (ii) default by HEI on any of its obligations under
the Trust Guarantee or the Partnership Guarantee, the holders of the Trust
Preferred Securities will have a preference over the holder of the Trust
Common Securities with respect to payments upon liquidation of the Trust.
Under no circumstances will the Affiliate Investment Instruments or the
Eligible Debt Securities held by the Partnership be distributed in kind to the
holders of the Trust Preferred Securities or Partnership Preferred Securities.
See "Supplemental Description of the Trust Preferred Securities--Liquidation
Distribution Upon Dissolution."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-4
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus Supplement and the accompanying Prospectus. It does not purport to
be complete and is qualified in its entirety by the more detailed information
contained elsewhere in this Prospectus Supplement and the accompanying
Prospectus. Capitalized terms which are not defined in this summary are used as
defined elsewhere in this Prospectus Supplement. See "Index of Selected Defined
Terms" for a cross reference to the location in this Prospectus Supplement
where such terms are defined.
THE COMPANY
HEI was incorporated in 1981 under the laws of the State of Hawaii and is a
holding company with subsidiaries engaged in the electric utility, savings
bank, freight transportation, real estate development and other businesses,
primarily in the State of Hawaii, and also engaged in the pursuit of
independent power projects and energy services projects in Asia and the
Pacific. HEI's predecessor, Hawaiian Electric Company, Inc. ("HECO"), was
incorporated under the laws of the Kingdom of Hawaii (now the State of Hawaii)
on October 13, 1891. As a result of a 1983 corporate reorganization, HECO
became an HEI subsidiary, and common shareholders of HECO became common
shareholders of HEI.
HECO and its subsidiaries, Maui Electric Company, Limited ("MECO") and Hawaii
Electric Light Company, Inc. ("HELCO"), are regulated operating public
utilities providing the only public utility electric service on the islands of
Oahu, Maui, Lanai, Molokai and Hawaii. HEI also owns directly or indirectly the
following principal subsidiaries which comprise its diversified companies: HEI
Diversified, Inc. ("HEIDI") and its subsidiary, American Savings Bank, F.S.B.
("ASB") and its subsidiaries; Hawaiian Tug & Barge Corp. ("HTB") and its
subsidiary, Young Brothers, Limited ("YB"); Malama Pacific Corp. ("MPC") and
its subsidiaries; HEI Investment Corp. ("HEIIC"); and HEI Power Corp. ("HEIPC")
and its subsidiaries.
ASB, acquired in 1988, is the fourth largest financial institution in Hawaii
based on total assets and the third largest financial institution based on
deposits, in each case as of June 30, 1996, and has 48 retail branches. HTB was
acquired in 1986 and provides ship assist and charter towing services and owns
YB, a regulated intrastate public carrier of waterborne freight among the
Hawaiian Islands. MPC was formed in 1985 and directly or through subsidiaries
develops and invests in real estate. HEIIC was formed in 1984 and is a passive
investment company which primarily holds investments in leveraged leases and
currently plans no new investments. HEIPC was formed in March 1995 to pursue,
directly or through its subsidiaries or affiliates, independent power projects
and energy services projects in Asia and the Pacific.
THE OFFERING
The Trust................... Hawaiian Electric Industries Capital Trust I, a
Delaware statutory business trust. The sole
assets of the Trust will be the Partnership
Preferred Securities.
The Partnership............. HEI Preferred Funding, LP, a Delaware limited
partnership. The sole assets of the Partnership
will initially consist of the Debentures and, to
a limited extent, certain Eligible Debt
Securities.
Securities Offered.......... 4,000,000 8.36% Trust Originated Preferred
Securities/SM/.
Distributions............... Distributions on the Trust Preferred Securities
will accumulate from the date of original
issuance of the Trust Preferred Securities and
will be payable at the annual rate of 8.36% of
the liquidation
S-5
<PAGE>
amount of $25 per Trust Preferred Security
(equivalent to $2.09 per Trust Preferred Security
per annum) if, as, and when the Trust has funds
legally available for payment. Distributions will
be payable quarterly in arrears on each March 31,
June 30, September 30 and December 31, commencing
March 31, 1997. Distributions not made on the
scheduled payment date will accumulate and
compound quarterly at a rate per annum equal to
8.36%. The distributions payable on March 31, 1997
will represent distributions accumulated from
February 4, 1997 and will equal approximately $.32
for each $25 Trust Preferred Security.
The ability of the Trust to pay distributions on
the Trust Preferred Securities is entirely depen-
dent on its receipt of corresponding distribu-
tions with respect to the Partnership Preferred
Securities. The ability of the Partnership to pay
distributions on the Partnership Preferred Secu-
rities is, in turn, dependent on its receipt of
payments with respect to the Debentures and the
Eligible Debt Securities held by the Partnership.
The Debentures will provide that payments of in-
terest may be deferred at any time, and from time
to time, by the relevant issuer for a period not
exceeding six consecutive quarters. Distributions
on the Partnership Preferred Securities will be
declared and paid only as determined in the sole
discretion of the General Partner of the Partner-
ship. However, in the event full distributions on
Trust Preferred Securities have not been paid,
the Company will be prohibited from, among other
things, making distributions with respect to its
capital stock or Comparable Equity Interests as
described below. See "Risk Factors--Distributions
Payable Only if Declared by General Partner; Re-
strictions on Certain Payments; Tax Conse-
quences," "Supplemental Description of the Trust
Preferred Securities--Distributions" and "Supple-
mental Description of the Partnership Preferred
Securities--Distributions" and "--Partnership In-
vestments."
Rights Upon Nonpayment of
Distributions and Certain
Defaults; Covenants of the
Company.................... If, at any time, (i) arrearages on distributions
on the Trust Preferred Securities shall exist for
six consecutive quarterly distribution periods,
(ii) an Investment Event of Default occurs and is
continuing on any Affiliate Investment Instrument
and the Company is in default of its obligations
with respect thereto under an applicable
Investment Guarantee or (iii) the Company is in
default on any of its obligations under the Trust
Guarantee or the Partnership Guarantee, then
(a) the Property Trustee (as defined herein), as
the holder of the Partnership Preferred
Securities, will have the right to enforce the
terms of the Partnership Preferred Securities,
including the right to direct the Special
Representative (as defined herein) to enforce
(1) to the fullest extent permitted by law, the
Partnership's creditors' rights and other rights
with respect to the Affiliate Investment
Instruments and the Investment Guarantees and (2)
the rights of the holders of the Partnership
Preferred Securities to receive distributions
(but only if, as and when declared by the
S-6
<PAGE>
General Partner) on the Partnership Preferred
Securities, and (b) the Trust Guarantee Trustee
(as defined herein) or the Special Representative
shall have the right to enforce the Trust
Guarantee and the Partnership Guarantee,
respectively, including the right to enforce the
covenant restricting certain distributions by the
Company described below.
Under no circumstances, however, shall the
Special Representative have authority to cause
the General Partner to declare distributions on
the Partnership Preferred Securities. If the
Partnership does not declare and pay
distributions on the Partnership Preferred
Securities out of funds legally available for
distribution, the Trust will not have sufficient
funds to make distributions on the Trust
Preferred Securities. See "Risk Factors--
Insufficient Income or Assets Available to
Partnership," "Supplemental Description of the
Trust Preferred Securities--Trust Enforcement
Events" and "Supplemental Description of the
Partnership Preferred Securities--Partnership
Enforcement Events."
The Company has agreed that if (a) for any
distribution period, full distributions on a
cumulative basis on any Trust Preferred
Securities have not been paid or declared and set
apart for payment, (b) an Investment Event of
Default by any Investment Affiliate in respect of
any Affiliate Investment Instrument has occurred
and is continuing and the Company is in default
of its obligations with respect thereto under an
applicable Investment Guarantee or (c) the
Company is in default of its obligations under
the Trust Guarantee or the Partnership Guarantee,
then, during such period, (i) the Company shall
not declare or pay dividends on, make
distributions or a liquidation payment with
respect to, or redeem, purchase or acquire, any
of its capital stock (except for dividends or
distributions in shares of, or options, warrants
or right to subscribe for or purchase shares of,
its common stock and exchanges of common stock of
one class for common stock of another class and
other exceptions set forth in the accompanying
Prospectus), (ii) the Company shall not make any
payment or cause any payment to be made that
would result in, and shall take such action as
shall be necessary to prevent, the payment of
dividends on, any distribution or liquidation
payment with respect to, or any redemption,
purchase or other acquisition of, any Comparable
Equity Interest, and (iii) the Company shall not
make any guarantee payments with respect to the
foregoing other than pursuant to the Trust
Guarantee (or any other guarantee by the Company
with respect to any Comparable Equity Interest).
Guarantees.................. The Company will irrevocably guarantee, on a
subordinated basis and to the extent set forth
herein, the payment in full of (i) any
accumulated and unpaid distributions on the Trust
Preferred Securities to the extent of funds of
the Trust legally available therefor, (ii) the
amount payable upon redemption of the Trust
Preferred Securities to the extent of funds of
the Trust legally available therefor and (iii)
generally, the liquidation amount of the Trust
Preferred Securities to the extent of the assets
of the Trust
S-7
<PAGE>
legally available for distribution to holders of
Trust Preferred Securities. See "Supplemental
Description of the Trust Guarantee."
The Company will also irrevocably guarantee, on a
subordinated basis and to the extent set forth
herein, the payment in full of (i) any
accumulated and unpaid distributions on the
Partnership Preferred Securities if, as and when
declared out of funds legally available therefor,
(ii) the amount payable upon redemption of the
Partnership Preferred Securities to the extent of
funds of the Partnership legally available
therefor and (iii) generally, the liquidation
preference of the Partnership Preferred
Securities to the extent of the assets of the
Partnership legally available for distribution to
holders of Partnership Preferred Securities. The
Company will also agree in the Partnership
Guarantee to pay in full the obligations of the
General Partner under the Agreement of Limited
Partnership, to the extent not paid by the
General Partner, including the obligation to pay
the fees and expenses of the Partnership. See
"Supplemental Description of the Partnership
Guarantee."
The Company will fully and unconditionally
guarantee, on a subordinated basis, payments in
respect of the Subsidiary Debentures as described
under "Supplemental Description of the
Partnership Preferred Securities--Investment
Guarantees."
The Guarantees, when taken together with the
Company Debentures and the Company's obligations
to pay all fees and expenses of the Trust,
constitute a guarantee to the extent set forth
herein by the Company of the distribution,
redemption and liquidation amounts payable to the
holders of the Trust Preferred Securities. The
Guarantees do not apply, however, to current
distributions by the General Partner unless and
until such distributions are declared by the
Partnership out of funds legally available for
payment or to liquidating distributions unless
there are assets legally available for payment in
the Partnership, each as more fully described
under "Risk Factors--Insufficient Income or
Assets Available to Partnership." The Company's
obligations under the Guarantees are subordinate
and junior in right of payment to all other
liabilities of the Company, and will be
effectively subordinated to all existing and
future liabilities of its subsidiaries and rank
pari passu with the most senior preferred stock
(if any) issued from time to time by the Company,
with each other and with any guarantee hereafter
entered into by the Company in respect of any
preferred security of any affiliate of the
Company.
Liquidation Amount.......... In the event of any liquidation of the Trust,
after satisfaction of obligations to creditors of
the Trust, if any, holders will be entitled to
receive the Trust Liquidation Distribution (as
defined herein), such amount being $25 per Trust
Preferred Security plus an amount equal to any
accumulated and unpaid distributions thereon to
the date of payment, unless Partnership Preferred
Securities are distributed to such holders in
connection with a Trust Special Event. If, upon a
liquidation of the Trust in which the Partnership
Preferred Securities are not distributed to
holders of the Trust Preferred Securities, the
Trust Liquidation Distribution can be paid only
in
S-8
<PAGE>
part because the Trust has insufficient assets
available to pay in full the aggregate Trust
Liquidation Distribution, then the amounts
payable directly by the Trust on the Trust
Preferred Securities shall be paid on a pro rata
basis. The holder of the Trust Common Securities
will be entitled to receive distributions upon
any such liquidation pro rata with the holders of
the Trust Preferred Securities, except that upon
(i) the occurrence and continuation of an
Investment Event of Default by an Investment
Affiliate (including the Company) in respect of
any Affiliate Investment Instrument where the
Company has not performed its obligations under
an applicable Investment Guarantee or (ii)
default by the Company on any of its obligations
under the Trust Guarantee or the Partnership
Guarantee, the holders of the Trust Preferred
Securities will have a preference over the holder
of the Trust Common Securities with respect to
payments upon liquidation of the Trust. See
"Supplemental Description of the Trust Preferred
Securities--Subordination of Trust Common
Securities" and "--Liquidation Distribution Upon
Dissolution."
Optional Redemption......... The Partnership Preferred Securities will be
redeemable for cash, at the option of the
Partnership, in whole or in part, from time to
time, after February 4, 2002, at a redemption
price per Partnership Preferred Security equal to
$25 plus accumulated and unpaid distributions
thereon to the date fixed for redemption. Upon
any redemption of the Partnership Preferred
Securities, the Trust Preferred Securities will
be redeemed, in whole or in part, as applicable,
at the Redemption Price. See "Supplemental
Description of the Partnership Preferred
Securities--Optional Redemption" and
"Supplemental Description of the Trust Preferred
Securities--Redemption." Neither the Partnership
Preferred Securities nor the Trust Preferred
Securities have any scheduled maturity or are
redeemable at any time at the option of the
holders thereof.
Special Event Redemptions
or Distributions........... Upon the occurrence of a Trust Tax Event (which
event will generally be triggered upon the
occurrence of certain adverse tax consequences or
the denial of an interest deduction on Affiliate
Investment Instruments which are debt instruments
held by the Partnership) or a Trust Investment
Company Event (which event will generally be
triggered if the Trust is considered an
"investment company" under the 1940 Act (as
defined herein)), except in certain limited
circumstances, the Regular Trustees (as defined
herein) will have the right to dissolve the Trust
and, after satisfaction of obligations to
creditors of the Trust, if any, cause Partnership
Preferred Securities to be distributed to the
holders of the Trust Preferred Securities. In
certain circumstances involving a Partnership Tax
Event (which event will generally be triggered
upon the occurrence of certain adverse tax
consequences or the denial of an interest
deduction on the Debentures held by the
Partnership) or a Partnership Investment Company
Event (which event will generally be triggered if
the Partnership is considered an "investment
company" under the 1940 Act), the Partnership
will have the right to redeem the Partnership
Preferred Securities, in
S-9
<PAGE>
whole (but not in part), at $25 per Partnership
Preferred Security plus accumulated and unpaid
distributions thereon, regardless of the
occurrence of any Trust Tax Event or Trust
Investment Company Event and in lieu of any
distribution of the Partnership Preferred
Securities required in connection therewith, in
which event the Trust Preferred Securities will
be redeemed at the Redemption Price. See
"Supplemental Description of the Trust Preferred
Securities--Trust Special Event Redemption or
Distribution" and "Supplemental Description of
the Partnership Preferred Securities--Partnership
Special Event Redemption."
Voting Rights............... Generally, holders of the Trust Preferred
Securities will not have voting rights. The
holders of a majority in liquidation amount of
the Trust Preferred Securities, however, have the
right to direct the time, method and place of
conducting any proceeding for any remedy
available to the Property Trustee, or to direct
the exercise of any trust or other power
conferred upon the Property Trustee under the
Trust Agreement (as defined herein), including
the right to direct the Property Trustee, as the
holder of the Partnership Preferred Securities,
(i) to exercise its rights in the manner
described above under "Rights Upon Non-Payment of
Distributions and Certain Defaults; Covenants of
the Company" and (ii) to consent to any
amendment, modification or termination of the
Agreement of Limited Partnership (as defined
herein) or the Partnership Preferred Securities
where such consent shall be required. See
"Supplemental Description of the Trust Preferred
Securities--Voting Rights."
Form of Trust Preferred The Trust Preferred Securities will be
Securities.................. represented by a global certificate registered in
the name of Cede & Co., as nominee for DTC.
Beneficial interests in the Trust Preferred
Securities will be evidenced by, and transfers
thereof will be effected only through, records
maintained by the participants in DTC. Except as
described herein, Trust Preferred Securities in
certificated form will not be issued in exchange
for such global certificate. See "Supplemental
Description of the Trust Preferred Securities--
Book-Entry Only Issuance--The Depository Trust
Company."
Use of Proceeds............. All of the proceeds from the sale of the Trust
Securities will be invested by the Trust in the
Partnership Preferred Securities. The Partnership
will use the proceeds from the sale of the
Partnership Preferred Securities and the capital
contribution from the General Partner to make
investments in the Debentures and, to a limited
extent, certain Eligible Debt Securities. The
Company and any subsidiaries that are issuers of
the Debentures will use the proceeds from the
sale of such Debentures, after deduction of the
Underwriters' Compensation and other expenses of
this offering to the extent not paid by the
General Partner, principally to fund investments
in or to extend credit to HEI's subsidiaries, to
repay short-term and inter-company debt, and for
working capital and other corporate purposes.
Proceeds not immediately so applied by the
Company and its subsidiaries will be temporarily
invested in short-term money market securities.
See "Use of Proceeds."
S-10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with HEI's consolidated financial statements and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," incorporated herein by reference to other documents (see
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus). The consolidated statement of income data for each of the years in
the three-year period ended December 31, 1995, are derived from, and are
qualified by reference to, the audited consolidated financial statements
incorporated herein by reference to other documents. The consolidated income
and capitalization data for the nine months ended September 30, 1996 and 1995
are derived from unaudited consolidated financial statements incorporated
herein by reference to other documents, which, in the opinion of management,
include all material adjustments, consisting only of normal recurring
adjustments, unless otherwise noted, necessary for a fair presentation of HEI's
consolidated financial position as of September 30, 1996 and results of
operations for the nine-month periods ended September 30, 1996 and 1995. The
results of operations for the nine months ended September 30, 1996 may not
necessarily be indicative of the results to be expected for the full fiscal
year. The historical results are not necessarily indicative of the results of
operations to be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenue................. $1,041,570 $ 963,052 $1,295,924 $1,188,523 $1,142,170
Operating income (loss)
from continuing
operations
Electric utility...... $ 132,246 $ 124,383 $ 159,043 $ 136,628 $ 119,565
Savings bank.......... 16,143(1) 29,757 40,044 42,525 44,117
Other................. (5,499) (7,086) (11,423) (5,020) (6,044)
---------- --------- ---------- ---------- ----------
$ 142,890 $ 147,054 $ 187,664 $ 174,133 $ 157,638
========== ========= ========== ========== ==========
Net income (loss)
Continuing operations. $ 57,604 $ 61,878 $ 77,493 $ 73,030 $ 61,684
Discontinued
operations (2)....... -- -- -- -- (13,025)
---------- --------- ---------- ---------- ----------
$ 57,604 $ 61,878 $ 77,493 $ 73,030 $ 48,659
========== ========= ========== ========== ==========
Earnings (loss) per
common share
Continuing operations. $ 1.91 $ 2.13 $ 2.66 $ 2.60 $ 2.38
Discontinued
operations (2)....... -- -- -- -- (0.50)
---------- --------- ---------- ---------- ----------
$ 1.91 $ 2.13 $ 2.66 $ 2.60 $ 1.88
========== ========= ========== ========== ==========
Dividends per common
share................... $ 1.80 $ 1.77 $ 2.37 $ 2.33 $ 2.29
Weighted average number
of common
shares outstanding..... 30,178 29,058 29,187 28,137 25,938
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------------
ACTUAL(3) AS ADJUSTED(3)(6)
---------------- --------------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
CAPITALIZATION DATA:
Short-term borrowings.................... $ 170,174 9.2% $ 80,174 4.3%
Long-term debt (4)....................... 822,514 44.6 822,514 44.4
Company-obligated trust preferred
securities (5).......................... -- -- 100,000 5.4
Preferred stock of electric utility
subsidiaries (4)........................ 87,548 4.8 87,548 4.7
Common stock equity...................... 761,947 41.4 761,947 41.2
---------- ----- ----------- ------
$1,842,183 100.0% $1,852,183 100.0%
========== ===== =========== ======
</TABLE>
S-11
<PAGE>
- --------
(1) On September 30, 1996, President Clinton signed the omnibus appropriations
bill, which authorized a special one-time assessment by the Federal Deposit
Insurance Corporation on all deposits insured by the Savings Association
Insurance Fund held as of March 31, 1995. ASB's assessment was estimated to
be $13.8 million and was accrued in September 1996.
(2) Reflects losses from discontinued nonutility wind energy business and
insurance business.
(3) Excludes ASB's deposit liabilities, securities sold under agreements to
repurchase and advances from the Federal Home Loan Bank.
(4) Includes amounts of long-term debt due within one year and preferred stock
sinking fund requirements.
(5) As described herein, the sole assets of the Trust will be the Partnership
Preferred Securities with an aggregate stated liquidation preference of
approximately $103.1 million, and the sole assets of the Partnership will
consist of the Debentures and the Eligible Debt Securities. HEI will own
all of the Common Securities of the Trust and Hycap will own all of the
general partner interests of the Partnership. See "Accounting Treatment."
(6) Adjusted to reflect the consummation of the offering of the Trust Preferred
Securities and the intended application of the estimated net proceeds from
the sale of the Trust Preferred Securities to, among other things, reduce
short-term borrowings. See "Use of Proceeds."
S-12
<PAGE>
RISK FACTORS
Prospective purchasers of the Trust Preferred Securities should consider
carefully the risk factors set forth below, as well as all other information
contained or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus, in evaluating an investment in the Trust Preferred
Securities. To the extent any of the information contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus
constitutes a "forward-looking statement" as defined in Section 27A(i)(1) of
the Securities Act of 1933, as amended (the "Securities Act"), the risk
factors set forth below are meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those in the forward-looking statement.
DISTRIBUTIONS PAYABLE ONLY IF DECLARED BY GENERAL PARTNER; RESTRICTIONS ON
CERTAIN PAYMENTS; TAX CONSEQUENCES
Distributions on the Partnership Preferred Securities will be payable only
if, as and when declared by the General Partner in its sole discretion. Hycap,
a newly-formed, wholly-owned subsidiary of HEI, is the sole General Partner of
the Partnership, and the Debentures will constitute obligations of HEI and
certain of its subsidiaries. If interest payments on the Debentures are
deferred as permitted by their terms, or if such interest payments are not
paid to the Partnership according to their terms (and guarantee payments on
the Investment Guarantees are not made by the Company), the Partnership will
generally lack funds to pay distributions on the Partnership Preferred
Securities. If the Partnership does not make current distributions on the
Partnership Preferred Securities, either because the General Partner does not
declare distributions to be made or because the Partnership lacks sufficient
funds, the Trust will not have funds available to make current distributions
on the Trust Preferred Securities. As described under "Supplemental
Description of the Trust Guarantee--Certain Covenants of the Company," the
Company will be restricted (with certain exceptions) from paying dividends or
making other distributions with respect to its capital stock or Comparable
Equity Interests (as defined herein) if full distributions on the Trust
Preferred Securities have not been paid.
Should the Partnership fail to pay current distributions on the Partnership
Preferred Securities, each holder of Trust Preferred Securities will generally
be required to accrue income, for United States federal income tax purposes,
in respect of the cumulative deferred distributions (including interest
thereon) allocable to its proportionate share of the Partnership Preferred
Securities. As a result, each holder of Trust Preferred Securities will
recognize income for United States federal income tax purposes in advance of
the receipt of cash and will not receive the cash from the Trust related to
such income if such holder disposes of its Trust Preferred Securities prior to
the record date for the date on which distributions of such amount are made.
See "Certain Federal Income Tax Considerations--Income and Deductions."
INSUFFICIENT INCOME OR ASSETS AVAILABLE TO PARTNERSHIP
The Trust Preferred Securities are subject to the risk of a current or
liquidating distribution rate mismatch between the rate paid on the Trust
Preferred Securities and the rate paid on the securities held by the
Partnership, including the Debentures and any additional securities acquired
by the Partnership in the future. Such mismatch could occur if (i) at any time
that the Partnership is receiving current payments in respect of the
securities held by the Partnership (including the Debentures), the General
Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership
reinvests the proceeds received in respect of the Debentures upon their
retirement or at their maturities in Affiliate Investment Instruments or
Eligible Debt Securities that do not generate income in an amount that is
sufficient to pay full distributions in respect of the Partnership Preferred
Securities at a rate of 8.36% per annum or (iii) the Partnership invests in
equity or debt securities of Investment Affiliates that are not guaranteed by
the Company and that cannot be liquidated by the Partnership for an amount
sufficient to pay such distributions in full. If the reinvestments in the
securities of the Investment Affiliates contemplated by the General Partner do
not meet the eligibility criteria for Affiliate Investment Instruments
described under "Supplemental Description of the Partnership Preferred
Securities--Partnership Investments," the Partnership
S-13
<PAGE>
shall invest funds available for reinvestment in Eligible Debt Securities
(subject to restrictions of applicable law, including the 1940 Act). To the
extent that the Partnership lacks sufficient funds to make current or
liquidating distributions on the Partnership Preferred Securities in full, the
Trust will not have sufficient funds available to pay full current or
liquidating distributions on the Trust Preferred Securities.
DEPENDENCE ON AFFILIATE INVESTMENT INSTRUMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and of the General Partner's capital contribution will be
invested initially in the Debentures, which will consist of debt instruments
of HEI (i.e., the Company Debentures) and certain subsidiaries of HEI (i.e.,
the Subsidiary Debentures). See "Supplemental Description of the Partnership
Preferred Securities--Partnership Investments."
PROPOSED TAX LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department proposed legislation (the "Proposed
Legislation") that would, among other things, deny the borrower an interest
deduction with respect to certain types of debt instruments that are payable
in stock of the issuer or a related party. The Proposed Legislation also would
treat as equity for United States federal income tax purposes instruments with
a maximum term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer. On March 29, 1996, Senate Finance
Committee Chairman William V. Roth and House Ways and Means Committee Chairman
Bill Archer issued a joint statement (the "Joint Statement") indicating their
intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action." In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to the Treasury Department officials concurring with the view
expressed in the Joint Statement (the "Democrat Letters"). If the principles
contained in the Joint Statement and the Democrat Letters were followed and
the Proposed Legislation were enacted, such legislation would not apply to the
Debentures. There can be no assurances, however, that legislation enacted
after the date hereof will not adversely affect the tax treatment of the
Debentures, or whether such tax treatment would cause a Partnership Tax Event
(as defined herein) or a Trust Tax Event (as defined herein) that may result
in the redemption of the Partnership Preferred Securities and, consequently,
the Trust Preferred Securities.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Trust Special Event or a Partnership Special Event
(each of which will generally be triggered either upon (i) the occurrence of
certain adverse tax consequences to the Trust or the Partnership, as the case
may be, or the denial of an interest deduction with respect to the Affiliate
Investment Instruments that are debt instruments held by the Partnership or
(ii) the Trust or the Partnership, as the case may be, being considered an
"investment company" under the 1940 Act) (each, a "Special Event"), the Trust
will be dissolved with the result, except in the limited circumstances
described below, that the Partnership Preferred Securities will be distributed
to the holders of the Trust Preferred Securities in connection with the
liquidation of the Trust. In certain circumstances, the Partnership will have
the right to redeem the Partnership Preferred Securities, in whole but not in
part, in lieu of a distribution of the Partnership Preferred Securities by the
Trust, in which event the Trust will redeem the Trust Preferred Securities for
cash. See "Supplemental Description of the Trust Preferred Securities--Trust
Special Event Redemption or Distribution" and "Supplemental Description of the
Partnership Preferred Securities--Partnership Special Event Redemption."
Unless the liquidation of the Trust occurs as a result of the Trust being
subject to United States federal income tax with respect to income on the
Partnership Preferred Securities, under current United States federal income
tax law a distribution of the Partnership Preferred Securities upon the
dissolution of the Trust will not be a taxable event to holders of the Trust
Preferred Securities. If, however, the liquidation of the Trust were to occur
because the Trust is subject to United States federal income tax with respect
to income accumulated or received
S-14
<PAGE>
on the Partnership Preferred Securities, the distribution of Partnership
Preferred Securities to holders by the Trust would likely be a taxable event
to each such holder, and a holder would recognize gain or loss as if the
holder had exchanged its Trust Preferred Securities for the Partnership
Preferred Securities it received upon the liquidation of the Trust. Similarly,
the holders of the Trust Preferred Securities would recognize gain or loss if
the Trust were to dissolve upon an occurrence of a Partnership Special Event
and the holders of Trust Preferred Securities were to receive cash in exchange
for their Trust Preferred Securities. See "Certain Federal Income Tax
Considerations--Redemption of Trust Preferred Securities for Cash."
There can be no assurance as to the market prices for the Partnership
Preferred Securities that may be distributed in exchange for Trust Preferred
Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Trust Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Partnership Preferred Securities that a holder of Trust Preferred Securities
may receive upon dissolution and liquidation of the Trust, may trade at a
discount to the price that the investor paid to purchase the Trust Preferred
Securities offered hereby. Because holders of Trust Preferred Securities may
receive Partnership Preferred Securities upon the occurrence of a Special
Event, prospective purchasers of Trust Preferred Securities are also making an
investment decision with regard to the Partnership Preferred Securities and
should carefully review all the information regarding the Partnership
Preferred Securities contained herein. See "Supplemental Description of the
Partnership Preferred Securities."
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEES AND THE COMPANY
DEBENTURES
HEI's obligations under the Trust Guarantee, the Partnership Guarantee and
the Investment Guarantees are subordinate and junior in right of payment to
all liabilities of HEI and will rank pari passu with the most senior preferred
stock (if any) issued from time to time by HEI, with each other and with any
guarantee hereafter entered into by HEI in respect of any preferred security
issued by any affiliate of the Company, and its obligations under the Company
Debentures are subordinate and junior in right of payment to all senior
indebtedness of the Company. As of September 30, 1996, senior indebtedness of
HEI (holding company only) aggregated approximately $246 million (exclusive of
contingent amounts under guarantees of approximately $17.5 million of
subsidiary obligations).
HEI is a non-operating holding company and substantially all of the
operating assets of HEI and its consolidated subsidiaries are owned by such
subsidiaries. HEI relies primarily on interest and dividends from such
subsidiaries to meet its obligations for payment of principal of and interest
on its outstanding debt obligations and corporate expenses. Accordingly, HEI's
obligations under the Company Debentures, the Trust Guarantee, the Partnership
Guarantee and the Investment Guarantees will be subordinated to its senior
indebtedness and will be effectively subordinated to all existing and future
indebtedness and liabilities of its subsidiaries. Except for certain
limitations on additional Affiliate Investment Instruments that may be issued
to the Partnership, as described under "Supplemental Description of the
Partnership Preferred Securities--Partnership Investments," there are no terms
in the Trust Preferred Securities, the Partnership Preferred Securities, the
Guarantees or the Debentures that limit the ability of HEI or its subsidiaries
to incur additional indebtedness, including indebtedness that ranks senior to
the Guarantees and the Debentures. See "Supplemental Description of the
Partnership Preferred Securities--Partnership Investments" and "--Investment
Guarantees," "Supplemental Description of the Trust Guarantee" and
"Supplemental Description of the Partnership Guarantee."
ENFORCEMENT OF CERTAIN RIGHTS BY OR ON BEHALF OF HOLDERS OF TRUST PREFERRED
SECURITIES
If a Trust Enforcement Event (as defined herein) occurs and is continuing,
then (a) the holders of Trust Preferred Securities will rely on the
enforcement by the Property Trustee of its rights, as the holder of the
Partnership Preferred Securities, including the right to direct the Special
Representative (as defined herein) to enforce (i) to the fullest extent
permitted by law, the Partnership's creditors' rights and other rights with
respect to the Affiliate Investment Instruments and the Investment Guarantees,
(ii) the rights of the holders of the Partnership Preferred Securities under
the Partnership Guarantee, and (iii) the rights of the holders of the
Partnership Preferred Securities to receive distributions (only if and to the
extent declared by the General Partner out of funds legally available
therefor) on the Partnership Preferred Securities, and (b) the Trust Guarantee
S-15
<PAGE>
Trustee shall have the right to enforce the terms of the Trust Guarantee,
including the right to enforce the covenant restricting payments by the
Company of dividends and other distributions with respect to any of its
capital stock or Comparable Equity Interests. Under no circumstances, however,
will the Special Representative have authority to cause the General Partner to
declare distributions on the Partnership Preferred Securities. As a result,
although the Special Representative may be able to enforce the Partnership's
creditors' rights to accelerate and receive payments in respect of the
Affiliate Investment Instruments and the Investment Guarantees, the
Partnership would be entitled to reinvest such payments in additional
Affiliate Investment Instruments (subject to satisfying the reinvestment
criteria described under "Supplemental Description of the Partnership
Preferred Securities--Partnership Investments") and in Eligible Debt
Securities, rather than declaring and making distributions on the Partnership
Preferred Securities. See "Supplemental Description of the Trust Preferred
Securities--Trust Enforcement Events."
LIMITED VOTING RIGHTS
Holders of the Trust Preferred Securities will have limited voting rights
and will not be entitled to vote to appoint, remove or replace the Regular
Trustees, or to increase or decrease the number of, Trustees, which voting
rights are vested exclusively in the holder of the Trust Common Securities.
See "Supplemental Description of the Trust Preferred Securities--Voting
Rights" and "Description of the Trust Preferred Securities" in the
accompanying Prospectus.
TRADING CHARACTERISTICS OF TRUST PREFERRED SECURITIES
The price at which the Trust Preferred Securities may trade may not fully
reflect the value of the accumulated but unpaid distributions on the Trust
Preferred Securities (which will equal the accumulated but unpaid
distributions on the Partnership Preferred Securities). In addition, as a
result of the right of the General Partner not to declare current
distributions on the Partnership Preferred Securities, the market price of the
Trust Preferred Securities (which represent undivided beneficial ownership
interests in the Partnership Preferred Securities) may be more volatile than
other similar securities where there is no such right to defer current
distributions. For United States federal income tax purposes, a holder who
disposes of its Trust Preferred Securities will be required to include in
income as ordinary income accumulated but unpaid distributions on the
Partnership Preferred Securities through the date of disposition (to the
extent not previously included in income) and to add such amount to its
adjusted tax basis in its pro rata share of the Partnership Preferred
Securities deemed disposed of. To the extent the selling price is less than
the holder's adjusted tax basis (which will include all accumulated but unpaid
distributions), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain Federal Income Tax
Considerations--Income and Deductions" and "--Disposition of Trust Preferred
Securities."
NO PRIOR MARKET FOR THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities constitute a new issue of securities with no
established trading market. The Trust Preferred Securities have been approved
for listing on the New York Stock Exchange, subject to official notice of
issuance. There can be no assurance, however, that an active market for the
Trust Preferred Securities will develop or be sustained in the future.
Although the Underwriters have indicated to the Company that they intend to
make a market in the Trust Preferred Securities, as permitted by applicable
laws and regulations, they are not obligated to do so and may discontinue any
such market-making at any time without notice. Accordingly, no assurance can
be given as to the liquidity of, or trading markets for, the Trust Preferred
Securities.
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
Holders of the Trust Preferred Securities are afforded no protection in the
event of a highly leveraged transaction, a change of control or other similar
transactions involving HEI that may adversely affect such holders. See
"Description of the Junior Subordinated Debt Securities--General" in the
accompanying Prospectus.
S-16
<PAGE>
USE OF PROCEEDS
All of the proceeds from the sale of the Trust Securities will be invested
by the Trust in the Partnership Preferred Securities. The Partnership will use
the proceeds from the sale of the Partnership Preferred Securities and the
capital contribution from the General Partner to make investments in the
Debentures and, to a limited extent, certain Eligible Debt Securities. The
Company and any subsidiaries that are issuers of the Debentures will use the
proceeds from the sale of such Debentures to the Partnership, after deduction
of the Underwriters' Compensation and other expenses of this offering to the
extent not paid by the General Partner, principally to fund investments in or
to extend credit to HEI's subsidiaries, to repay short-term and inter-company
debt, and for working capital and other corporate purposes. Proceeds not
immediately so applied by HEI and its subsidiaries will be temporarily
invested in short-term money market securities.
ACCOUNTING TREATMENT
The financial statements of the Trust and the Partnership will be
consolidated into HEI's consolidated financial statements, with the Trust
Preferred Securities treated as minority interest and shown in HEI's
consolidated balance sheet as "Company-obligated trust preferred securities."
The financial statement footnotes of HEI will describe the terms of the
applicable securities and reflect that the sole asset of the Trust will be the
Partnership Preferred Securities and that the Partnership's principal assets
will consist of the Debentures. It is expected that all future reports filed
by HEI under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will present information regarding the Trust and the Partnership and
other similar arrangements (if any) in the manner described above. In
addition, if Staff Accounting Bulletin 53 treatment is sought, a footnote to
HEI's audited consolidated financial statements will be added to reflect that
(i) the Common Securities of the Trust are wholly-owned by HEI; (ii) the sole
assets of the Trust are the Partnership Preferred Securities and the sole
assets of the Partnership will be the Debentures and certain Eligible Debt
Securities, in each case specifying principal amount, interest rate and
maturity date of the Debentures held; and (iii) the Guarantees, when taken
together with HEI's obligations under its Debentures and its obligations under
the Trust Agreement, including its obligations to pay costs, expenses, debts
and liabilities of the Trust (other than with respect to the Trust
Securities), and the corresponding obligations of HEI under the Partnership
Guarantee with respect to the Partnership, effectively provide a full and
unconditional guarantee, on a subordinated basis, of amounts due on the Trust
Preferred Securities. See "Selected Consolidated Financial Data."
DESCRIPTION OF HAWAIIAN ELECTRIC INDUSTRIES, INC.
GENERAL
HEI was incorporated in 1981 under the laws of the State of Hawaii and is a
holding company with subsidiaries engaged in the electric utility, savings
bank, freight transportation, real estate development and other businesses,
primarily in the State of Hawaii, and also engaged in the pursuit of
independent power projects and energy services projects in Asia and the
Pacific. HEI's predecessor, Hawaiian Electric Company, Inc. ("HECO"), was
incorporated under the laws of the Kingdom of Hawaii (now the State of Hawaii)
on October 13, 1891. As a result of a 1983 corporate reorganization, HECO
became an HEI subsidiary, and common shareholders of HECO became common
shareholders of HEI.
HECO and its subsidiaries, Maui Electric Company, Limited ("MECO") and
Hawaii Electric Light Company, Inc. ("HELCO"), are regulated operating public
utilities providing the only public utility electric service on the islands of
Oahu, Maui, Lanai, Molokai and Hawaii. HEI also owns directly or indirectly
the following subsidiaries which comprise its principal diversified companies:
HEI Diversified, Inc. ("HEIDI") and its subsidiary, American Savings Bank,
F.S.B. ("ASB") and its subsidiaries; Hawaiian Tug & Barge Corp. ("HTB") and
its subsidiary, Young Brothers, Limited ("YB"); Malama Pacific Corp. ("MPC")
and its subsidiaries; HEI Investment Corp. ("HEIIC"); and HEI Power Corp.
("HEIPC") and its subsidiaries.
ASB, acquired in 1988, is the fourth largest financial institution in Hawaii
based on total assets and the third largest financial institution based on
deposits, in each case as of June 30, 1996, and has 48 retail branches.
S-17
<PAGE>
HTB was acquired in 1986 and provides ship assist and charter towing services
and owns YB, a regulated intrastate public carrier of waterborne freight among
the Hawaiian Islands. MPC was formed in 1985 and directly or through
subsidiaries develops and invests in real estate. HEIIC was formed in 1984 and
is a passive investment company which primarily holds investments in leveraged
leases and currently plans no new investments. HEIPC was formed in March 1995
to pursue, directly or through its subsidiaries or affiliates, independent
power projects and energy services projects in Asia and the Pacific.
HEI is a legal entity separate and distinct from its various subsidiaries.
As a holding company with no significant operations of its own, the principal
sources of its funds are dividends or other distributions from its operating
subsidiaries, borrowings and sales of equity. The ability of certain of HEI's
direct and indirect subsidiaries to pay dividends or make other distributions
to HEI, or to make loans or extend credit to or purchase assets from HEI, is
subject to contractual, statutory and regulatory restrictions, including
without limitation the provisions of an agreement with the Hawaii Public
Utilities Commission and the capital requirements imposed by the Office of
Thrift Supervision, as well as restrictions and limitations set forth in debt
instruments, preferred stock resolutions and guarantees. However, HEI
currently does not expect that these restrictions will affect the ability of
HEI to pay its indebtedness or significantly affect the operations of HEI and
its subsidiaries as they are now being conducted.
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS CONCERNING HEI AND ITS SUBSIDIARIES DOES NOT PURPORT TO BE
COMPREHENSIVE. ADDITIONAL INFORMATION CONCERNING THE BUSINESSES AND AFFAIRS OF
HEI AND ITS PRINCIPAL SUBSIDIARIES, INCLUDING PENDING LEGAL AND REGULATORY
PROCEEDINGS, DESCRIPTIONS OF REGULATIONS TO WHICH THESE COMPANIES ARE SUBJECT
AND THEIR CAPITAL REQUIREMENTS AND RESOURCES, IS CONTAINED IN THE DOCUMENTS
INCORPORATED BY REFERENCE IN THE ACCOMPANYING PROSPECTUS. SEE "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" IN THE ACCOMPANYING PROSPECTUS.
THIRD QUARTER RESULTS
Consolidated Information. In its Form 10-Q for the quarterly period ended
September 30, 1996, HEI reported consolidated net income of $17.4 million for
the third quarter of 1996, a decrease of 31% compared to $25.2 million for the
same period in 1995, and reported consolidated earnings per common share of
$0.57 for the third quarter of 1996, a decrease of 34% compared to $0.86 per
common share for the third quarter of 1995. Consolidated net income for the
first nine months of 1996 was reported at $57.6 million, a decrease of 7%
compared to $61.9 million for the same period in 1995, and consolidated
earnings per common share for the first nine months of 1996 was $1.91, a
decrease of 10% compared to $2.13 per common share for the first nine months
of 1995.
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996, which authorized a special, one-time deposit-
insurance premium assessment (the "FDIC Assesment") by the Federal Deposit
Insurance Corporation (the "FDIC"). In October 1996, the FDIC set the FDIC
Assessment for Savings Association Insurance Fund ("SAIF") insured deposits
held as of March 31, 1995 at 65.7 cents per $100 of deposits. ASB's assessment
was estimated to be $8.3 million after-tax and was accrued in September 1996.
Additionally, in December 1995, a rate order by the Public Utilities
Commission of the State of Hawaii (the "PUC Order") reduced the allowed return
on equity for HECO to 11.4% and required a refund to customers retroactive to
January 1, 1995. If the adjusted rates had been in effect at the beginning of
1995, net income for the third quarter and nine months ended September 30,
1995 would have been reduced by $1.5 million and $4.1 million, respectively.
Adjusted for the effects of the FDIC Assessment and the PUC Order discussed
above, HEI's consolidated net income for the third quarter of 1996 was $25.7
million, an increase of 9% compared to $23.7 million for the same period in
1995, and consolidated earnings per common share were $0.84 for the third
quarter of 1996 compared to $0.81 per common share for the third quarter of
1995. Also adjusted for the effects of the FDIC Assessment and the PUC Order
discussed above, HEI's consolidated net income for the first nine months of
1996 was $65.9 million, an increase of 14% compared to $57.8 million for the
same period in 1995, and consolidated earnings per common share for the first
nine months of 1996 was $2.18, compared to $1.99 per common share
S-18
<PAGE>
for the first nine months of 1995. These increases in adjusted consolidated
net income were primarily due to higher operating income for all segments,
partly offset by higher interest expense due to higher average borrowings and
lower allowance for funds used during construction.
For the first nine months of 1996, consolidated net cash provided by
operating activities was $121 million. Consolidated net cash used in investing
activities was $370 million, largely due to ASB's loan originations, net of
repayments, and consolidated HECO's capital expenditures. Consolidated net
cash provided by financing activities was $212 million, as a result of several
factors, including net increases in long-term debt, advances from Federal Home
Loan Bank of Seattle and securities sold under agreements to repurchase,
partly offset by decreases in deposit liabilities and short-term borrowings
and by common stock dividends.
HEI's total consolidated assets amounted to $5.9 billion as of September 30,
1996, compared to $5.6 billion as of December 31, 1995. Total consolidated
liabilities amounted to $5.1 billion as of September 30, 1996, compared to
$4.8 billion as of December 31, 1995. HEI's common stock equity increased from
$730 million as of December 31, 1995 to $762 million as of September 30, 1996.
Segment Information. Consolidated net income for the electric utilities,
adjusted for the effects of the PUC Order, increased 2% from $23.3 million for
the third quarter of 1995 to $23.8 million for the third quarter of 1996, and
increased 13% from $54.1 million for the first nine months of 1995 to $61.3
million for the first nine months of 1996. The increase in adjusted
consolidated net income is primarily attributable to higher revenues from
increased sales of kilowatthours of electricity and from higher rates allowed
by the PUC, partly offset by higher expenses and higher interest expense due
to higher average borrowings and lower allowance for funds used during
construction. Average fuel oil price per barrel increased from $21.26 for the
third quarter of 1995 to $24.31 for the third quarter of 1996, and from $20.57
for the first nine months of 1995 to $23.35 for the first nine months of 1996.
Under energy adjustment clauses in the rate schedules of the electric
utilities, changes in fuel oil costs are automatically passed on to customers.
Consolidated net income from ASB and its subsidiaries, adjusted to reverse
the effects of the FDIC Assessment, increased 1% from $5.6 million for the
third quarter of 1995 to $5.7 million for the third quarter of 1996, and
increased 1% from $17.3 million for the first nine months of 1995 to $17.4
million for the first nine months of 1996. The increase in adjusted
consolidated net income was primarily due to higher net interest income partly
offset by higher compensation expense and an increase in allowance for loan
losses. The increase in adjusted consolidated net income for ASB was achieved
despite a narrowing in ASB's interest rate spread from 2.84% for the third
quarter of 1995 to 2.76% for the third quarter of 1996 and from 2.93% for the
first nine months of 1995 to 2.80% for the first nine months of 1996. The
decrease in ASB's interest rate spread, the difference between the weighted
average yield on interest-earning assets and the weighted average rate on
interest-bearing liabilities, is due to several factors. One of the primary
factors is the flattening of the yield curve that began in 1995. Another
factor is the shift from deposit liabilities to more expensive alternatives,
such as borrowings from the Federal Home Loan Bank of Seattle or selling
securities under agreements to repurchase. Deposits have traditionally been
the principal source of ASB's funds for lending, meeting liquidity
requirements and making investments. However, deposits have declined in recent
years. Deposits at ASB decreased by $83 million and $48 million for the three
and nine months ended September 30, 1996, respectively, compared with
increases of $14 million and $48 million for the three and nine months ended
September 30, 1995, respectively.
The freight transportation subsidiaries recorded operating income of $1.1
million and $2.0 million for the third quarter and first nine months of 1996,
respectively, compared with $0.9 million and $2.4 million for the same periods
of 1995. The increase in operating income for the third quarter of 1996 was
primarily due to higher general freight and interstate revenue. However,
freight transportation income continues to be negatively impacted by the slow
economic activity and slow construction industry on the islands the freight
transportation subsidiaries serve in Hawaii.
The real estate subsidiaries recorded an operating loss of $0.3 million and
operating income of $37,000 for the third quarter and first nine months of
1996, respectively, compared with operating losses of $0.3 million and
S-19
<PAGE>
$0.9 million for the same periods of 1995. In April 1996, MPC sold land in
downtown Honolulu for a pretax gain of $1.1 million. Other real estate
development activities continue to be negatively impacted by the slow real
estate market in Hawaii, which is not expected to rebound in the near term.
MPC is focusing on reducing real estate investments while increasing cash flow
by developing and selling existing projects. There are currently no plans to
invest in new projects.
HEIPC and its subsidiaries continue to pursue independent power and energy
services projects in Asia and the Pacific. Consolidated operating losses,
including startup costs for the first nine months of 1996, were $1.6 million,
compared with $1.0 million for the same period of 1995. In September 1996, an
HEIPC subsidiary entered into an energy conversion agreement with the Guam
Power Authority to rehabilitate, operate and maintain for approximately 20
years, two 26.5-megawatt (50-megawatt net) units in Guam, with total
rehabilitation costs estimated at about $12 million, about $10 million of
which is planned to be funded through nonrecourse financing. HEIPC also
continues to pursue development of a 22-megawatt hydroelectric plant in the
Philippines and other projects in Asia and the Pacific.
FINANCING REQUIREMENTS
Total HEI consolidated financing requirements for 1997 through 2001,
including net capital expenditures (which excludes the allowance for funds
used during construction and capital expenditures funded by third-party cash
contributions in aid of construction), debt retirements (excluding ASB's
repayments of advances from FHLB of Seattle and securities sold under
agreements to repurchase) and sinking fund requirements, are currently
estimated to total $1.0 billion. Of this amount, approximately $0.8 billion is
for net capital expenditures (mostly relating to the electric utilities' net
capital expenditures described below). HEI's consolidated internal sources,
after the payment of HEI dividends, are expected to provide approximately 66%
of the consolidated financing requirements, with debt and equity financing
providing the remaining requirements.
Over the five-year period 1997 through 2001, HEI estimates that, in addition
to retained earnings and the proceeds from the sale of the Trust Preferred
Securities offered hereby, it will require approximately $157 million in
additional equity, which is expected to be provided by HEI's Dividend
Reinvestment and Stock Purchase Plan, the Hawaiian Electric Industries
Retirement Saving Plan and other offerings pursuant to the registration
statement of which this Prospectus Supplement is a part. The additional equity
will be used primarily to reduce HEI's overall borrowing level and to fund the
common equity requirements of its subsidiaries, such as the electric
utilities' common equity requirements related to their capital expenditure
programs. Additional equity in excess of the $157 million described above, and
additional debt financing, may be required by reason of activities of the
Company's subsidiaries not included in the 1997-2001 forecast, such as the
development of additional independent power projects and energy services
projects by HEIPC in Asia and the Pacific.
HEI's forecasts of financing requirements are reviewed periodically by
management and may change significantly as a result of many considerations,
including but not limited to changes in the operating results of its
subsidiaries and their respective financing requirements.
CAPITAL EXPENDITURE PROGRAMS
Capital expenditures of HEI's utility subsidiaries include costs of projects
which are required to meet expected load growth, to improve reliability, and
to replace and upgrade existing equipment.
HECO and its subsidiaries' current forecast of net capital expenditures for
1997 through 2001, which excludes the allowance for funds used during
construction and capital expenditures funded by third-party contributions in
aid of construction, is approximately $711 million. Approximately 65% of
forecast gross capital expenditures, including allowance for funds used during
construction and third-party contributions in aid of construction, is for
transmission and distribution projects, with the remaining 35% primarily for
generation projects.
S-20
<PAGE>
Capital expenditure estimates and the timing of construction projects are
reviewed periodically by management and may change significantly as a result
of many considerations, including changes in economic conditions, changes in
forecasts of kilowatthour sales and peak load, the availability of alternate
energy and purchased power, the availability of generating sites and
transmission and distribution corridors, the ability to obtain adequate and
timely rate relief, escalations in construction costs, demand-side management
programs and requirements of environmental and other regulatory and permitting
authorities.
DESCRIPTION OF THE TRUST
The Trust is a statutory business trust created under the Delaware Business
Trust Act, as amended (the "Trust Act"), pursuant to (i) a trust agreement,
dated as of December 19, 1996, executed by HEI, as sponsor and depositor, and
the trustees of the Trust (the "Trustees") and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
December 23, 1996. Such trust agreement will be amended and restated in its
entirety (as so amended and restated, the "Trust Agreement") substantially in
the form filed as an exhibit to the Registration Statement (the "Registration
Statement") of which this Prospectus Supplement and the accompanying
Prospectus form a part. The Trust Agreement will be qualified as an indenture
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
Upon issuance of the Trust Preferred Securities, the purchasers thereof will
beneficially own all of the Trust Preferred Securities. See "Supplemental
Description of the Trust Preferred Securities--Book-Entry Only Issuance--The
Depository Trust Company." HEI will acquire all of the Common Securities of
the Trust in an aggregate stated liquidation amount of not less than 3 percent
of the total capital of the Trust. The Trust will use all proceeds derived
from the issuance of the Trust Common Securities and the Trust Preferred
Securities to purchase the Partnership Preferred Securities from the
Partnership, and accordingly the assets of the Trust will consist solely of
the Partnership Preferred Securities. The Trust exists for the exclusive
purposes of (i) issuing the Trust Securities representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds of the
Trust Securities in the Partnership Preferred Securities and (iii) engaging in
only those other activities necessary or incidental thereto.
Pursuant to the Trust Agreement, there will be five Trustees. Three of the
Trustees (the "Regular Trustees") will be persons who are employees or
officers of, or who are affiliated with, HEI. Robert F. Clarke, President of
HEI, Robert F. Mougeot, Financial Vice President of HEI, and Constance H. Lau,
Treasurer of HEI, will be the initial Regular Trustees. The fourth trustee
will be a financial institution that is unaffiliated with HEI, which trustee
will serve as institutional trustee under the Trust Agreement and as indenture
trustee for the purposes of compliance with the provisions of the Trust
Indenture Act (the "Property Trustee"). Initially, The Bank of New York will
be the Property Trustee until removed or replaced by the holder of the Trust
Common Securities. For purposes of compliance with the provisions of the Trust
Indenture Act, The Bank of New York will also act as trustee under the Trust
Guarantee (the "Trust Guarantee Trustee"), as trustee under the indenture
applicable to the Company Debentures (the "Debt Trustee") and as trustee under
the Partnership Guarantee and the Investment Guarantees. The fifth trustee
will be an entity that maintains its principal place of business in the State
of Delaware (the "Delaware Trustee"). Initially, The Bank of New York
(Delaware), an affiliate of the initial Property Trustee, will act as Delaware
Trustee. The address of The Bank of New York is 101 Barclay Street, 21st
Floor, New York, N.Y. 10286--Attn: Corporate Trust Trustee Administration. The
address of The Bank of New York (Delaware) is White Clay Center, Route 273,
Newark, Delaware 19711--Attn: Corporate Trust Department. See "Description of
the Trust Guarantees" in the accompanying Prospectus and "Supplemental
Description of the Trust Preferred Securities--Voting Rights," "--Information
Concerning the Property Trustee" and "Supplemental Description of the Trust
Guarantee" herein.
The Property Trustee will hold legal title to the Partnership Preferred
Securities for the benefit of the holders of the Trust Securities and will
have the power to exercise all rights, powers and privileges with respect to
the Partnership Preferred Securities under the agreement of limited
partnership (as amended and restated, the "Agreement of Limited Partnership")
to be entered into by Hycap, as General Partner, and the Trust as the holder
of the limited partner interests consisting of the Partnership Preferred
Securities. In addition, the Property
S-21
<PAGE>
Trustee will maintain exclusive control of a segregated noninterest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Partnership Preferred Securities for the benefit of the holders of the
Trust Securities. The Trust Guarantee Trustee will hold the Trust Guarantee
for the benefit of the holders of the Trust Preferred Securities. The Company,
as the holder of all the Trust Common Securities, will have the right to
appoint, remove or replace any of the Trustees and to increase or decrease the
number of trustees; provided, however, that there must be at least one
Delaware Trustee, at least one Property Trustee (which may also be the
Delaware Trustee) and at least one Regular Trustee. The Company will pay all
fees and expenses related to the organization and operations of the Trust
(including any taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes or taxes or charges imposed by reason of
the transfer of the Trust Preferred Securities or beneficial interests
therein) imposed by the United States or any other domestic taxing authority
upon the Trust) and the offering of the Trust Preferred Securities. The
Company will also be responsible for all debts and obligations of the Trust
(other than with respect to the Trust Securities).
For so long as the Trust Preferred Securities remain outstanding, the
Company will covenant (i) to maintain direct ownership of 100% of the Trust
Common Securities, (ii) to cause the Trust to remain a statutory business
trust and not to voluntarily dissolve, wind-up, liquidate or be terminated,
except as permitted by the Trust Agreement, (iii) to use its commercially
reasonable efforts to ensure that the Trust will not be an "investment
company" for purposes of the 1940 Act and (iv) to take no action which would
be reasonably likely to cause the Trust to be classified as an association or
a publicly traded partnership taxable as a corporation for United States
federal income tax purposes.
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Trust Agreement, the Trust Act and the Trust Indenture Act (which is
incorporated by reference in the Trust Agreement and the Trust Guarantee). See
"Supplemental Description of the Trust Preferred Securities."
The location of the principal executive office of the Trust is 101 Barclay
Street, 21st Floor, New York, New York 10286, telephone number (212) 815-5084.
Information concerning the Trust may also be obtained from Hawaiian Electric
Industries, Inc., Honolulu, Hawaii 96813, telephone number (808) 543-5662.
DESCRIPTION OF THE PARTNERSHIP
The Partnership, HEI Preferred Funding, LP, is a limited partnership formed
on December 23, 1996, under the Delaware Revised Uniform Limited Partnership
Act, as amended (the "Partnership Act"). Pursuant to the certificate of
limited partnership, as amended, and the Agreement of Limited Partnership,
Hycap is now the sole General Partner of the Partnership. The Agreement of
Limited Partnership will be substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part. Upon the issuance of the Partnership
Preferred Securities, which securities represent limited partner interests in
the Partnership, the Trust will be the sole limited partner of the
Partnership. Contemporaneously with the issuance and sale of the Partnership
Preferred Securities, the General Partner will contribute capital to the
Partnership in an amount that will establish its initial capital account at a
level equal to at least 15% of the total capital of the Partnership.
The Partnership will be managed by the General Partner and exists for the
sole purpose of (i) issuing its partnership interests, (ii) investing the
proceeds thereof in debt or equity securities of HEI and its subsidiaries (the
"Affiliate Investment Instruments," which initially will consist of the
Debentures) and certain Eligible Debt Securities, (iii) receiving interest and
other payments on the Affiliate Investment Instruments and the Eligible Debt
Securities held by the Partnership from time to time, (iv) making
distributions on the Partnership Preferred Securities and distributions on the
General Partner's interest in the Partnership if, as and when declared by the
General Partner in its sole discretion, (v) subject to the restrictions and
conditions contained in the Agreement of Limited Partnership, making
additional investments in Affiliate Investment Instruments and Eligible Debt
Securities and disposing of any such investments and (vi) except as otherwise
limited in the Agreement of
S-22
<PAGE>
Limited Partnership, entering into, making and performing all contracts and
other undertakings, and engaging in those activities and transactions as the
General Partner may reasonably deem necessary or advisable for carrying out
the purposes of the Partnership. The Partnership may not engage in any other
activities or operations except as contemplated by the preceding sentence. To
the extent that aggregate payments to the Partnership on the Affiliate
Investment Instruments and the Eligible Debt Securities exceed distributions
payable with respect to the Partnership Preferred Securities, the Partnership
may at times have excess funds which will be allocated to and may, in the
General Partner's sole discretion, be distributed to the General Partner.
For so long as the Partnership Preferred Securities remain outstanding,
Hycap will covenant in the Agreement of Limited Partnership (i) to remain the
sole general partner of the Partnership and to maintain direct ownership of
100% of the General Partner's interest in the Partnership, which interest will
at all times represent at least 1% of the total capital of the Partnership,
(ii) to cause the Partnership to remain a limited partnership and not to
voluntarily dissolve, liquidate, wind-up or be terminated, except as permitted
by the Agreement of Limited Partnership, (iii) to use its commercially
reasonable efforts to ensure that the Partnership will not be an "investment
company" for purposes of the 1940 Act and (iv) to take no action that would be
reasonably likely to cause the Partnership to be classified as an association
or a publicly traded partnership taxable as a corporation for United States
federal income tax purposes. In the Partnership Guarantee, HEI will, among
other things, covenant to directly or indirectly maintain ownership of 100% of
the ownership of the General Partner's interest in the Partnership.
The rights of the holders of the Partnership Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Agreement of Limited Partnership and the Partnership Act. See "Supplemental
Description of the Partnership Preferred Securities."
The Agreement of Limited Partnership provides that the General Partner will
have liability for the fees and expenses of the Partnership (including any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes or taxes or charges imposed by reason of the transfer
of the Partnership Preferred Securities) imposed by the United States or any
other domestic taxing authority upon the Partnership) and be responsible for
all debts and obligations of the Partnership (other than with respect to the
Partnership Preferred Securities). These obligations of the General Partner
will be guaranteed by HEI in the Partnership Guarantee. Under Delaware law,
assuming a limited partner in a Delaware limited partnership such as the
Partnership (i.e., a holder of the Partnership Preferred Securities) does not
participate in the control of the business of the limited partnership, such
limited partner will not be personally liable for the debts, obligations and
liabilities of such limited partnership, whether arising in contract, tort or
otherwise, solely by reason of being a limited partner of such limited
partnership (subject to any obligation such limited partner may have to repay
any funds that may have been wrongfully distributed to it).
The location of the principal place of activity of the Partnership is c/o
Hycap Management, Inc., 300 Delaware Avenue, Suite 1704, Wilmington, Delaware
19801, telephone number (302) 427-5738. Information concerning the Partnership
may also be obtained from Hawaiian Electric Industries, Inc., 900 Richards
Street, Honolulu, Hawaii 96813, telephone number (808) 543-5662.
SUPPLEMENTAL DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of the
Trust Agreement. The Trust Agreement will be qualified as an indenture under
the Trust Indenture Act. The Property Trustee, The Bank of New York, will act
as trustee for the Trust Preferred Securities under the Trust Agreement for
purposes of compliance with the provisions of the Trust Indenture Act. The
terms of the Trust Preferred Securities will include those stated in the Trust
Agreement and those made part of the Trust Agreement by the Trust Act and the
Trust Indenture Act.
The following summary of certain terms and provisions of the Trust Preferred
Securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Trust Agreement (a copy of
S-23
<PAGE>
which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and the accompanying Prospectus form a part), the Trust
Act and the Trust Indenture Act.
GENERAL
The Trust Preferred Securities will be issued in fully registered form
without coupons. Trust Preferred Securities will not be issued in bearer form.
See "--Book-Entry Only Issuance--The Depository Trust Company."
The Trust Agreement authorizes the Regular Trustees of the Trust to cause
the Trust to issue the Trust Preferred Securities, which represent undivided
beneficial ownership interests in the assets of the Trust. Legal title to the
Partnership Preferred Securities to be purchased by the Trust will be held by
the Property Trustee for the benefit of the holders of the Trust Securities.
The Trust Agreement does not permit the Trust to acquire any assets other than
the Partnership Preferred Securities, issue any securities other than the
Trust Securities or incur any indebtedness. The payment of distributions out
of money held by the Trust and payments out of money held by the Trust upon
redemption of the Trust Preferred Securities or liquidation of the Trust are
guaranteed by the Company to the extent described under "Supplemental
Description of the Trust Guarantee." The Trust Guarantee will be held by The
Bank of New York, the Trust Guarantee Trustee, for the benefit of the holders
of the Trust Preferred Securities. The Trust Guarantee does not cover payment
of distributions when the Trust does not have sufficient funds that are
legally available to pay such distributions. In such event, holders of Trust
Preferred Securities will have the remedies described below under "--Trust
Enforcement Events."
DISTRIBUTIONS
The distribution rate on Trust Preferred Securities will be fixed at a rate
per annum of 8.36% of the stated liquidation amount of $25 per Trust Preferred
Security and will be payable if, as and when the Trust has funds legally
available for payment. Distributions not paid on the scheduled payment date
will accumulate and compound quarterly at a rate per annum equal to 8.36%. The
term "distribution" as used herein includes any such compounded amounts unless
otherwise stated or the context otherwise requires. The amount of
distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months, except that, if such period is shorter than
a full 90-day quarter, distributions will be computed on the basis of the
actual number of days elapsed in such 90-day quarter.
Distributions on the Trust Preferred Securities will be cumulative, will
accumulate from the date of initial issuance and will be payable quarterly in
arrears on each March 31, June 30, September 30 and December 31, commencing
March 31, 1997, if, as and when the Trust has funds legally available for
payment, by the Property Trustee, except as otherwise described below. If
distributions are not paid when regularly scheduled, the accumulated
distributions shall be paid to the holders of record of Trust Preferred
Securities as they appear on the books and records of the Trust on the record
date with respect to the actual payment date for the Trust Preferred
Securities, which will correspond to the actual payment date fixed by the
Partnership with respect to the payment of cumulative distributions on the
Partnership Preferred Securities not declared and paid when regularly
scheduled. The initial holder of record of the Trust Preferred Securities will
be DTC or its nominee. See "--Book-Entry Only Issuance--The Depository Trust
Company."
Distributions on the Trust Preferred Securities will be made to the extent
that the Trust has funds legally available for the payment of such
distributions in the Property Account. Amounts available to the Trust for
distribution to the holders of the Trust Preferred Securities will be limited
to payments received by the Trust from the Partnership with respect to the
Partnership Preferred Securities or from the Company under the Partnership
Guarantee or the Trust Guarantee. Distributions on the Partnership Preferred
Securities will be paid only if, as and when declared in the sole discretion
of the General Partner of the Partnership. Pursuant to the Agreement of
Limited Partnership, the General Partner is not obligated to declare
distributions on the Partnership Preferred Securities at any time, including
upon or following a Partnership Enforcement Event. See
S-24
<PAGE>
"Supplemental Description of Partnership Preferred Securities--Partnership
Enforcement Events." If the Property Trustee, as the holder of the Partnership
Preferred Securities for the benefit of the holders of the Trust Securities,
receives written notice of any determination by the General Partner not to pay
distributions on the Partnership Preferred Securities, the Property Trustee
shall give notification of such determination to such holders.
The assets of the Partnership consist only of Affiliate Investment
Instruments (which initially will be the Debentures) and certain Eligible Debt
Securities. To the extent that the issuers (and, where applicable, the Company
as an issuer and as guarantor) of the securities in which the Partnership
invests, defer or fail to make any payment in respect of such securities (or,
if applicable, such guarantees), the Partnership may not have sufficient funds
legally available to pay and may not declare or pay distributions on the
Partnership Preferred Securities. To the extent that the Partnership does not
declare and pay distributions on the Partnership Preferred Securities out of
funds legally available for distribution, the Trust will not have sufficient
funds to make corresponding distributions on the Trust Preferred Securities,
in which event the Trust Guarantee will not apply to such distributions until
the Trust has sufficient funds legally available therefor. See "Supplemental
Description of the Partnership Preferred Securities--Distributions" and
"Supplemental Description of the Trust Guarantee." In addition, as described
under "Risk Factors--Insufficient Income or Assets Available to Partnership,"
the Partnership may not have sufficient funds legally available to pay current
or liquidating distributions on the Partnership Preferred Securities if (i) at
any time that the Partnership is receiving current payments in respect of the
securities held by the Partnership (including the Debentures), the General
Partner, in its sole discretion, does not declare distributions on the
Partnership Preferred Securities and the Partnership receives insufficient
amounts to pay the additional compounded distributions that will accumulate in
respect of the Partnership Preferred Securities, (ii) the Partnership
reinvests the proceeds received in respect of the Debentures upon their
retirement or at their maturities in Affiliate Investment Instruments that do
not generate income in an amount that is sufficient to pay full distributions
in respect of the Partnership Preferred Securities or (iii) the Partnership
invests in equity or debt securities of Investment Affiliates that are not
guaranteed by the Company and that cannot be liquidated by the Partnership for
an amount sufficient to pay such distributions in full.
Distributions on the Trust Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be one Business Day prior to the relevant
payment dates. Such distributions will be paid through the Property Trustee
who will hold amounts received in respect of the Partnership Preferred
Securities in the Property Account for the benefit of the holders of the Trust
Preferred Securities. Subject to any applicable laws and regulations and the
provisions of the Trust Agreement, each such payment will be made as described
under "--Book-Entry Only Issuance--The Depository Trust Company" below. In the
event that the Trust Preferred Securities do not remain in book-entry only
form, the relevant record dates shall be the 15th day of the month of the
relevant payment dates. In the event that any date on which distributions are
payable on the Trust Preferred Securities is not a Business Day, payment of
the distribution payable on such date will be made on the next succeeding day
which is a Business Day (without any interest or other payment in respect of
any such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day (without any reduction in interest or other payments in respect
of such early payment), in each case with the same force and effect as if made
on such date. A "Business Day" shall mean any day other than a day on which
banking institutions in the City of New York are authorized or required by law
to close.
TRUST ENFORCEMENT EVENTS
The occurrence, at any time, of (i) arrearages on distributions on the Trust
Preferred Securities that shall exist for six consecutive quarterly
distribution periods, (ii) a default by the Company in respect of any of its
obligations under the Trust Guarantee or (iii) a Partnership Enforcement Event
under the Agreement of Limited Partnership will constitute an enforcement
event under the Trust Agreement with respect to the Trust Preferred Securities
(a "Trust Enforcement Event"); provided, that pursuant to the Trust Agreement,
the holder of the Trust Common Securities will be deemed to have waived any
Trust Enforcement Event and its consequences with respect to the Trust Common
Securities until all Trust Enforcement Events with respect to the Trust
S-25
<PAGE>
Preferred Securities have been cured, waived or otherwise eliminated. Until
such Trust Enforcement Events with respect to the Trust Preferred Securities
have been so cured, waived or otherwise eliminated, the Property Trustee will
be deemed to be acting solely on behalf of the holders of the Trust Preferred
Securities, and only the holders of the Trust Preferred Securities will have
the right to direct the Property Trustee with respect to certain matters under
the Trust Agreement and, therefore, the Special Representative with respect to
certain matters under the Agreement of Limited Partnership. See "Supplemental
Description of the Partnership Preferred Securities--Partnership Enforcement
Events" for a description of the events which will trigger the occurrence of a
Partnership Enforcement Event.
Upon the occurrence of a Trust Enforcement Event, (a) the Property Trustee,
as the holder of the Partnership Preferred Securities, shall have the right to
enforce the terms of the Partnership Preferred Securities, including the right
to direct the Special Representative to enforce (i) to the fullest extent
permitted by law, the Partnership's creditors' rights and other rights with
respect to the Affiliate Investment Instruments and the Investment Guarantees,
(ii) the rights of the holders of the Partnership Preferred Securities under
the Partnership Guarantee and (iii) the rights of the holders of the
Partnership Preferred Securities to receive distributions (only if and to the
extent declared by the General Partner in its sole discretion out of funds
legally available therefor) on the Partnership Preferred Securities, and (b)
the Trust Guarantee Trustee shall have the right to enforce the terms of the
Trust Guarantee, including the right to enforce the covenant restricting the
payment of dividends and certain other distributions by the Company.
If the Property Trustee fails to enforce its rights under the Partnership
Preferred Securities after a holder of Trust Preferred Securities has made a
written request, such holder of Trust Preferred Securities may, to the fullest
extent permitted by law, directly institute a legal proceeding against the
General Partner and the Special Representative to enforce the Property
Trustee's rights under the Partnership Preferred Securities without first
instituting any legal proceeding against the Property Trustee, the Trust or
any other person or entity. In addition, for so long as the Trust holds any
Partnership Preferred Securities, if the Special Representative fails to
enforce its rights on behalf of the Partnership under the Affiliate Investment
Instruments or the Investment Guarantees after a holder of record of Trust
Preferred Securities has made a written request, such holder of Trust
Preferred Securities, to the fullest extent permitted by law, may on behalf of
the Partnership directly institute a legal proceeding against the Investment
Affiliates to enforce the rights of the Special Representative and the
Partnership under the Affiliate Investment Instruments and against the Company
under the applicable Investment Guarantee, without first instituting any legal
proceeding against the Property Trustee, the Trust, the Special
Representative, the Partnership or any other person or entity. In any event,
for so long as the Trust is the holder of any Partnership Preferred
Securities, if a Trust Enforcement Event has occurred and is continuing and
such event is attributable to the failure of an Investment Affiliate to make
any required payment when due on any applicable Affiliate Investment
Instrument or the failure of the Company to make any required payment when due
on any Investment Guarantee, then a holder of Trust Preferred Securities may,
to the fullest extent permitted by law, on behalf of the Partnership directly
institute a proceeding against such Investment Affiliate with respect to such
Affiliate Investment Instrument or against the Company with respect to any
such Investment Guarantee, in each case for enforcement of payment.
Under no circumstances, however, shall the Property Trustee, the Special
Representative or holders of Trust Preferred Securities have authority to
cause the General Partner to declare distributions on the Partnership
Preferred Securities. As a result, although the Property Trustee, the Special
Representative and such holders may be able to enforce the Partnership's
creditors' rights to accelerate and receive payments in respect of the
Affiliate Investment Instruments and the Investment Guarantees, the
Partnership would be entitled to reinvest such payments in additional
Affiliate Investment Instruments, subject to satisfying the reinvestment
criteria described under "Supplemental Description of the Partnership
Preferred Securities--Partnership Investments," and in Eligible Debt
Securities, rather than declaring and making distributions on the Partnership
Preferred Securities.
The Company and the Trust are each required to file annually with the
Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Trust Agreement.
S-26
<PAGE>
REDEMPTION
The Partnership Preferred Securities may be redeemed by the Partnership at
the option of the General Partner, in whole or in part, subject to
satisfaction of certain conditions, at any time on or after February 4, 2002,
or at any time in certain circumstances, in whole, upon the occurrence of a
Partnership Special Event, in either case at an amount per Partnership
Preferred Security of $25 plus accumulated and unpaid distributions thereon to
the date fixed for redemption. Upon the redemption of the Partnership
Preferred Securities (either at the option of the General Partner or pursuant
to a Partnership Special Event), the proceeds from such redemption shall
simultaneously be applied pro rata to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate liquidation preference of
the redeemed Partnership Preferred Securities at the Redemption Price;
provided, that holders of the Trust Preferred Securities shall be given not
less than 30 nor more than 60 days' notice of such redemption. See
"Supplemental Description of the Partnership Preferred Securities--Optional
Redemption," "--Partnership Special Event Redemption" and "--Redemption
Procedures."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Trust Preferred Securities
by tender, in the open market or by private agreement.
TRUST SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Trust Tax Event or a Trust Investment Company Event (each
as defined below, and each a "Trust Special Event") shall occur and be
continuing, the Regular Trustees shall, unless the Partnership Preferred
Securities are redeemed in the limited circumstances described below, within
90 days following the occurrence of such Trust Special Event elect to either
(i) dissolve the Trust upon not less than 30 nor more than 60 days' notice
with the result that, after satisfaction of creditors of the Trust, if any,
Partnership Preferred Securities (which will have an aggregate liquidation
preference equal to the aggregate stated liquidation amount of, a distribution
rate identical to the distribution rate of, accumulated and unpaid
distributions equal to accumulated and unpaid distributions on, and a record
date for payment the same as, the Trust Preferred Securities and the Trust
Common Securities outstanding at such time) will be distributed on a pro rata
basis to the holders of the Trust Preferred Securities and the Trust Common
Securities in liquidation of such holders' interests in the Trust; provided,
however, that if at the time there is available to the Trust the opportunity
to eliminate, within such 90-day period, the Trust Special Event by taking
some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure which in the sole judgment of
the Company has or will cause no adverse effect on the Trust, the Partnership,
the Company or the holders of the Trust Preferred Securities and will involve
no material cost, the Trust will pursue such measure in lieu of dissolution or
(ii) cause the Trust Preferred Securities to remain outstanding, provided that
in the case of this clause (ii), the Company shall pay any and all expenses
incurred by or payable by the Trust attributable to the Trust Special Event.
Furthermore, if in the case of the occurrence of a Trust Tax Event, the
Regular Trustees have received an opinion (a "Trust Redemption Tax Opinion")
of recognized independent tax counsel (which may be counsel for the Company)
experienced in such matters that there has been a Trust Tax Event and,
following such Trust Tax Event, there is more than an insubstantial risk that
interest payable by one or more of the Investment Affiliates with respect to
the Affiliate Investment Instrument that is a debt instrument issued by such
Investment Affiliate is not, or will not be, deductible by such Investment
Affiliate for United States federal income tax purposes even if the
Partnership Preferred Securities were distributed to the holders of the Trust
Preferred Securities and Trust Common Securities in liquidation of such
holders' interests in the Trust as described above, then the General Partner
shall have the right, within 90 days following the occurrence of such Trust
Tax Event, to elect to cause the Partnership to redeem the Partnership
Preferred Securities in whole (but not in part) for cash upon not less than
30 nor more than 60 days' notice, and promptly following such redemption the
Trust Preferred Securities and Trust Common Securities will be redeemed by the
Trust at the Redemption Price.
"Trust Tax Event" means that the Company shall have requested and received
and shall have delivered to the Regular Trustees an opinion of recognized
independent tax counsel (which may be counsel to the Company) experienced in
such matters (a "Trust Dissolution Tax Opinion") to the effect that there has
been (a) an amendment to, change in or announced proposed change in the laws
(or any regulations thereunder) of the
S-27
<PAGE>
United States or of any State or the District of Columbia or of any political
subdivision or taxing authority thereof or therein, (b) a judicial decision
interpreting, applying or clarifying such laws or regulations, (c) an
administrative pronouncement or action that represents an official position
(including a clarification of an official position) of the governmental
authority or regulatory body making such administrative pronouncement or
taking such action, or (d) a threatened challenge asserted in connection with
an audit of the Company or any of its subsidiaries, the Partnership or the
Trust, or a threatened challenge asserted in writing against any other
taxpayer that has raised capital through the issuance of securities that are
substantially similar to the Debentures, the Partnership Preferred Securities
or the Trust Preferred Securities, that occurs on or after the date of this
Prospectus Supplement (collectively a "Tax Action") and that results in there
being more than an insubstantial risk that (i) the Trust is or will be subject
to United States federal income tax with respect to income accumulated or
received on the Partnership Preferred Securities, (ii) the Trust is or will be
subject to more than a de minimis amount of other taxes, duties or other
governmental charges or (iii) interest payable by an Investment Affiliate with
respect to the Affiliate Investment Instrument that is a debt instrument
issued by such Investment Affiliate is not, or will not be, deductible by such
Investment Affiliate for United States federal income tax purposes.
"Trust Investment Company Event" means that the Company shall have requested
and received and shall have delivered to the Regular Trustees an opinion of
recognized independent legal counsel (which may be counsel to the Company)
experienced in such matters to the effect that, as a result of the occurrence
on or after the date of this Prospectus Supplement of a change in law or
regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority (a
"Change in 1940 Act Law"), there is more than an insubstantial risk that the
Trust is or will be considered an "investment company" which is required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
If the Partnership Preferred Securities are distributed to the holders of
the Trust Preferred Securities, the Company will use its best efforts to cause
the Partnership Preferred Securities to be listed on the New York Stock
Exchange or on such other national securities exchange or similar organization
as the Trust Preferred Securities are then listed or quoted.
On the date fixed for any distribution of Partnership Preferred Securities,
upon dissolution of the Trust, (i) the Trust Preferred Securities and the
Trust Common Securities will no longer be deemed to be outstanding and
(ii) certificates representing Trust Securities will be deemed to represent
the Partnership Preferred Securities so distributed having a liquidation
preference equal to the stated liquidation amount of, and bearing accumulated
and unpaid distributions equal to accumulated and unpaid distributions on,
such Trust Securities until such certificates are presented to the Company or
its agent for transfer or reissuance.
There can be no assurance as to the market price for the Partnership
Preferred Securities which may be distributed in exchange for Trust Preferred
Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Partnership Preferred Securities which an investor may
subsequently receive on dissolution and liquidation of the Trust may trade at
a discount to the price of the Trust Preferred Securities exchanged.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Trust Preferred
Securities unless all accumulated and unpaid distributions have been paid on
all Trust Preferred Securities for all quarterly distribution periods
terminating on or prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Trust Preferred
Securities (which notice will be irrevocable), and if the Company has paid to
the Property Trustee a sufficient amount of cash in connection with the
related redemption of the Partnership Preferred Securities, then, by 12:00
noon, New York time, on the redemption date, the Property Trustee will
irrevocably deposit with DTC funds sufficient to pay the amount payable on
redemption of all book-entry certificates and will give DTC irrevocable
instructions and authority to pay such amount to holders of the Trust
Preferred Securities. See "--Book-Entry Only Issuance--The Depository Trust
Company." If notice of redemption shall have been given and funds are
deposited as required,
S-28
<PAGE>
then upon the date of such deposit all rights of holders of such Trust
Preferred Securities so called for redemption will cease, except the right of
the holders of such Trust Preferred Securities to receive the Redemption
Price, but without interest on such Redemption Price, and, from and after the
date fixed for redemption, such Trust Preferred Securities will not accumulate
distributions or bear interest. In the event that any date fixed for
redemption of Trust Preferred Securities is not a Business Day, then payment
of the amount payable on such date will be made on the next succeeding day
which is a Business Day (without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day
(without any reduction in interest or other payments in respect of such early
payments), in each case with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of Trust
Preferred Securities is improperly withheld or refused and not paid either by
the Property Trustee or by the Company pursuant to the Trust Guarantee
described under "Supplemental Description of the Trust Guarantee,"
distributions on such Trust Preferred Securities will continue to accumulate
at the then applicable rate, from the original redemption date to the date of
payment.
In the event that fewer than all of the outstanding Trust Preferred
Securities are to be redeemed, the Trust Preferred Securities will be redeemed
in accordance with the procedures of DTC. See "--Book-Entry Only Issuance--The
Depository Trust Company."
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of amounts upon liquidation of the Trust Securities (as described
below) shall be made pro rata based on the liquidation amount of the Trust
Securities; provided, however, that if (i) an Investment Event of Default by
an Investment Affiliate (including the Company) in respect of any Affiliate
Investment Instrument has occurred and is continuing and the Company is in
default of its obligations under an applicable Investment Guarantee or
(ii) the Company is in default under any of its obligations under the Trust
Guarantee or the Partnership Guarantee, then the holders of the Trust
Preferred Securities will have a preference over the holders of the Trust
Common Securities with respect to distributions and payments upon liquidation
of the Trust.
In the case of any Trust Enforcement Event, the holder of Trust Common
Securities will be deemed to have waived any such Trust Enforcement Event
until all such Trust Enforcement Events with respect to the Trust Preferred
Securities have been cured, waived or otherwise eliminated. Until all Trust
Enforcement Events with respect to the Trust Preferred Securities have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Trust Preferred Securities and not on behalf
of the holder of the Trust Common Securities, and only the holders of the
Trust Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Trust Liquidation"), the
holders of the Trust Preferred Securities on the date of the Trust Liquidation
will be entitled to receive out of the assets of the Trust available for
distributions to holders of Trust Securities, after satisfaction of
obligations to creditors of the Trust, if any, distributions in cash or other
immediately available funds in an amount equal to the aggregate of the stated
liquidation amount of $25 per Trust Security plus accumulated and unpaid
distributions thereon to the date of payment (the "Trust Liquidation
Distribution"), unless, in connection with such Trust Liquidation, Partnership
Preferred Securities (which will have an aggregate liquidation preference
equal to the aggregate stated liquidation amount of, a distribution rate
identical to the distribution rate of, and accumulated and unpaid
distributions equal to accumulated and unpaid distributions on, the Trust
Securities) have been distributed on a pro rata basis to the holders of the
Trust Securities in exchange for such Trust Securities.
If, upon any such Trust Liquidation, the Trust Liquidation Distribution can
be paid only in part because the Trust has insufficient assets legally
available to pay in full the aggregate Trust Liquidation Distribution, then
the amounts payable directly by the Trust on the Trust Preferred Securities
shall be paid on a pro rata basis, and the
S-29
<PAGE>
holders of the Trust Common Securities will be entitled to receive
distributions upon any such liquidation as described above under "--
Subordination of Trust Common Securities."
Pursuant to the Trust Agreement, the Trust shall dissolve (i) upon the
bankruptcy, insolvency or dissolution of the Company, (ii) upon the filing of
a certificate of dissolution or the equivalent with respect to the Company,
the filing of a certificate of cancellation with respect to the Trust after
having obtained the consent of at least a majority in liquidation amount of
the Trust Securities, voting together as a single class, to file such
certificate of cancellation, or the revocation of the charter of the Company
and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iii) upon the distribution of all of the Partnership
Preferred Securities upon the occurrence of a Trust Special Event, (iv) upon
the entry of a decree of a judicial dissolution of the Company or the Trust,
or (v) upon the redemption of all the Trust Preferred Securities. A merger,
amalgamation, conversion or consolidation of the Company with or into another
entity will not constitute one of the foregoing events.
VOTING RIGHTS
Except as described herein and under "Supplemental Description of the Trust
Guarantee--Amendments and Assignment," and except as provided in the Trust
Act, the Trust Indenture Act or as otherwise required by law or the Trust
Agreement, the holders of the Trust Preferred Securities will have no voting
rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
as set forth in the last sentence of this paragraph, the holders of a majority
in liquidation amount of the Trust Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or direct the exercise of any trust or
power conferred upon the Property Trustee under the Trust Agreement, including
the right to direct the Property Trustee, as holder of the Partnership
Preferred Securities, to (i) exercise the remedies available to it under the
Agreement of Limited Partnership as a holder of the Partnership Preferred
Securities, including the right to direct the Special Representative to
exercise its rights in the manner described above under "--Trust Enforcement
Events" and (ii) consent to any amendment, modification or termination of the
Agreement of Limited Partnership or the Partnership Preferred Securities where
such consent shall be required; provided, however, that where a consent or
action under the Agreement of Limited Partnership would require the consent or
act of the holders of more than a majority of the aggregate liquidation
preference of Partnership Preferred Securities affected thereby, only the
holders of the percentage of the aggregate stated liquidation amount of the
Trust Preferred Securities which is at least equal to the percentage required
under the Agreement of Limited Partnership may direct the Property Trustee to
give such consent or take such action on behalf of the Trust. See
"Supplemental Description of the Partnership Preferred Securities--Voting
Rights." The Property Trustee shall notify all holders of the Trust Preferred
Securities of any notice of any Partnership Enforcement Event received from
the General Partner with respect to the Partnership Preferred Securities and
the Affiliate Investment Instruments. Such notice shall state that such
Partnership Enforcement Event also constitutes a Trust Enforcement Event.
Except with respect to directing the time, method, and place of conducting a
proceeding for a remedy as described above, the Property Trustee shall be
under no obligation to take any of the actions described in clause (i) or (ii)
above unless the Property Trustee has obtained an opinion of independent tax
counsel to the effect that, as a result of such action, for United States
federal income tax purposes the Trust will not be classified as an association
or a publicly traded partnership taxable as a corporation and that after such
action each holder of Trust Securities will continue to be treated as owning
an undivided beneficial ownership interest in the Partnership Preferred
Securities.
In the event the consent of the Property Trustee, as the holder of the
Partnership Preferred Securities, is required under the Agreement of Limited
Partnership with respect to any amendment, modification or termination of the
Agreement of Limited Partnership, the Property Trustee shall request the
direction of the holders of the Trust Securities with respect to such
amendment, modification or termination and shall vote with respect to such
amendment, modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a single class;
provided, however, that where a consent under the Agreement of Limited
Partnership would require the consent of the holders of more than a majority
in aggregate liquidation preference
S-30
<PAGE>
of the Partnership Preferred Securities, the Property Trustee may only give
such consent at the direction of the holders of at least the same proportion
in aggregate stated liquidation amount of the Trust Securities. The Property
Trustee shall not take any such action in accordance with the directions of
the holders of the Trust Securities unless the Property Trustee has obtained
an opinion of tax counsel to the effect that such action is not inconsistent
with the Trust being classified as a grantor trust for United States federal
income tax purposes.
Subject to certain exceptions, the holders of a majority in liquidation
amount of the Trust Preferred Securities may waive any past Trust Enforcement
Event in respect of the Trust Preferred Securities. A waiver of a Partnership
Enforcement Event with respect to the Partnership Preferred Securities held by
the Property Trustee will constitute a waiver of the corresponding Trust
Enforcement Event. See "Supplemental Description of the Partnership Preferred
Securities--Voting Rights."
Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Preferred Securities or pursuant to written consent. The Regular Trustees will
cause a notice of any meeting at which holders of Trust Preferred Securities
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of Trust
Preferred Securities. Each such notice will include a statement setting forth
the following information: (i) the date of such meeting or the date by which
such action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or distribute Partnership Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned beneficially at such time by the
Company or any entity directly or indirectly controlled by, or under direct or
indirect common control with, the Company, will not be entitled to vote or
consent and will, for purposes of such vote or consent, be treated as if such
Trust Preferred Securities were not outstanding; provided, however, that
persons (other than affiliates of the Company) to whom the Company or any of
its subsidiaries have pledged Trust Preferred Securities may vote or consent
with respect to such pledged Trust Preferred Securities under any of the
circumstances described herein.
The procedures by which holders of Trust Preferred Securities represented by
global certificates may exercise their voting rights are described below. See
"--Book-Entry Only Issuance--The Depository Trust Company."
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Regular Trustees, who may be appointed, removed or replaced solely
by the Company, as the holder of all of the Trust Common Securities.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee, consolidate, amalgamate, merge with
or into, or be replaced by a trust organized as such under the laws of any
state of the United States; provided, that (i) if the Trust is not the
survivor, such successor entity either (x) expressly assumes all of the
obligations of the Trust under the Trust Securities or (y) substitutes for the
Trust Preferred Securities other securities having substantially the same
terms as the Trust Preferred Securities (the "Successor Securities"), so long
as the Successor Securities rank the same as the Trust Securities rank with
respect to distributions, assets and payments upon liquidation, redemption and
otherwise, (ii) the Company expressly acknowledges a trustee of
S-31
<PAGE>
such successor entity possessing the same powers and duties as the Property
Trustee as the holder of the Partnership Preferred Securities, (iii) the Trust
Preferred Securities or any Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Trust Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Trust Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Preferred Securities (including any
Successor Securities) in any material respect, (vi) such successor entity has
a purpose substantially identical to that of the Trust, (vii) the Company
guarantees the obligations of such successor entity under the Successor
Securities to the same extent as provided by the Trust Guarantee and (viii)
prior to such merger, consolidation, amalgamation or replacement, the Company
has received an opinion of a recognized independent counsel to the Trust
(which may be counsel for the Company) experienced in such matters to the
effect that: (A) such merger, consolidation, amalgamation or replacement will
not adversely affect the rights, preferences and privileges of the holders of
the Trust Preferred Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will
be required to register as an investment company under the 1940 Act, (C)
following such merger, consolidation, amalgamation or replacement, the Trust
(or such successor trust) will not be treated as an association or a publicly
traded partnership taxable as a corporation for United States federal income
tax purposes and (D) following such merger, consolidation, amalgamation or
replacement, the Partnership will not be treated as an association or a
publicly traded partnership taxable as a corporation for United States federal
income tax purposes. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in stated liquidation amount of the
Trust Preferred Securities, consolidate, amalgamate, merge with or into, or be
replaced, if such consolidation, amalgamation, merger or replacement would
cause the Trust or the successor entity to be classified as an association or
a publicly traded partnership taxable as a corporation for United States
federal income tax purposes.
MODIFICATION OF THE TRUST AGREEMENT
The Trust Agreement may be modified and amended if approved by a majority of
the Regular Trustees (and in certain circumstances the Property Trustee and
the Delaware Trustee), provided, that if any proposed amendment provides for,
or the Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the holders of
Trust Securities, whether by way of amendment to the Trust Agreement or
otherwise or (ii) the dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the Trust Agreement, then the holders of
the Trust Securities voting together as a single class will be entitled to
vote on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of the holders of at least a majority in
liquidation amount of the Trust Securities affected thereby; provided,
further, that if any amendment or proposal referred to in clause (i) above
would adversely affect only the Trust Preferred Securities or the Trust Common
Securities, then only the affected class of security holders will be entitled
to vote on such amendment or proposal and such amendment or proposal shall not
be effective except with the approval of a majority in liquidation amount of
such class of Trust Securities.
The Trust Agreement may be amended without the consent of any holders of the
Trust Preferred Securities to (i) cure any ambiguity, (ii) correct or
supplement any provision in the Trust Agreement that may be defective or
inconsistent with any other provision of the Trust Agreement, (iii) add to the
covenants, restrictions or obligations of the Company, (iv) conform to any
change in the 1940 Act, the Trust Indenture Act or the rules or regulations
promulgated under either such Act and (v) modify, eliminate and add to any
provision of the Trust Agreement to such extent as may be necessary or
desirable; provided that no such amendment shall have a material adverse
effect on the rights, preferences or privileges of the holders of the Trust
Preferred Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Trust Agreement if such amendment or modification would (i) cause the
Trust to be classified as an association or a publicly traded
S-32
<PAGE>
partnership taxable as a corporation for United States federal income tax
purposes, (ii) cause the Partnership to be classified as an association or a
publicly traded partnership taxable as a corporation for such purposes,
(iii) reduce or otherwise adversely affect the powers of the Property Trustee
in contravention of the Trust Indenture Act or (iv) cause the Trust or the
Partnership to be deemed an "investment company" which is required to be
registered under the 1940 Act.
BOOK-ENTRY ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
DTC will act as securities depository (the "Depository") for the Trust
Preferred Securities and, to the extent distributed to the holders of Trust
Preferred Securities, the Partnership Preferred Securities. The Trust
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. as nominee for DTC. One or more fully-
registered global Trust Preferred Securities certificates ("Global
Certificates"), representing the total aggregate number of Trust Preferred
Securities, will be issued and will be deposited with DTC or its custodian.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission (the "Commission").
Purchases of Trust Preferred Securities within the DTC system must be made
by or through Participants, which will receive a credit for the Trust
Preferred Securities on DTC's records. The ownership interest of each actual
purchaser of Trust Preferred Securities ("Beneficial Owner") is in turn to be
recorded on the Participants' and Indirect Participants' records. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Participants or Indirect Participants through which the Beneficial
Owners purchased Trust Preferred Securities. Transfers of ownership interests
in the Trust Preferred Securities are to be accomplished by entries made on
the books of Participants and Indirect Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Trust Preferred Securities, except
in the event that use of the book-entry system for the Trust Preferred
Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Trust Preferred
Securities; DTC's records reflect only the identity of the Participants to
whose accounts such Trust Preferred Securities are credited, which may or may
not be the Beneficial Owners. The Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Trust Agreement and the Trust
Preferred Securities. No Beneficial Owner of an interest in a Global
Certificate will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the Trust
Agreement.
S-33
<PAGE>
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Trust Preferred Securities (including the presentation of
Trust Preferred Securities for exchange as described below) only at the
direction of one or more Participants to whose account the DTC interests in
the Global Certificates are credited and only in respect of such portion of
the aggregate liquidation amount of Trust Preferred Securities as to which
such Participant or Participants has or have given such direction. However, if
there is a Trust Enforcement Event under the Trust Preferred Securities, DTC
will exchange the Global Certificates for Certificated Securities, which it
will distribute to its Participants in accordance with its customary
procedures.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Trust Preferred Securities held in
book-entry form will be sent to Cede & Co. If less than all of the Trust
Preferred Securities are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither DTC nor Cede & Co. will
itself consent or vote with respect to Trust Preferred Securities. Under its
usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Participants to whose accounts the Trust
Preferred Securities are allocated on the record date (identified in a listing
attached to the Omnibus Proxy).
Distributions on the Trust Preferred Securities held in book-entry form will
be made to DTC in immediately available funds. DTC's practice is to credit
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payments on such payment date. Payments by
Participants and Indirect Participants to Beneficial Owners will be governed
by standing instructions and customary practices and will be the
responsibility of such Participants and Indirect Participants and not of DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of any distributions to DTC is
the responsibility of the Trust, disbursement of such payments to Participants
is the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners is the responsibility of Participants and Indirect
Participants.
Except as described herein, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Trust Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Certificates among Participants of DTC,
DTC is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor
the Trust will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the Trust Preferred Securities at any time by giving notice to the
Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Trust Preferred Security certificates are required
to be printed and delivered to the Property Trustee. Additionally, the Trust
(with the consent of the Company) may decide to discontinue use of the system
of book-entry transfers through DTC or any successor depository. In that
event, and in the event of certain Trust Enforcement Events, certificates for
the Trust Preferred Securities will be printed and delivered to the Property
Trustee. In each of the above circumstances, the Company will appoint a paying
agent with respect to the Trust Preferred Securities.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Trust
Preferred Securities as represented by a Global Certificate.
S-34
<PAGE>
PAYMENT
Payments in respect of the Trust Preferred Securities represented by the
Global Certificates shall be made to DTC, which shall credit the relevant
accounts at DTC on the scheduled payment dates or, in the case of certificated
securities, if any, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the register.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The Property Trustee will act as registrar, transfer agent and, if required,
paying agent for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (with the giving
of such indemnity as the Trust or the Company may require) in respect of any
tax or other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Trust Preferred Securities after such Trust Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, during the period prior to the occurrence of any Trust
Enforcement Event and during the period after the curing or waiver of all
Trust Enforcement Events that may have occurred, undertakes to perform only
such duties as are specifically set forth in the Trust Agreement and, after a
Trust Enforcement Event, shall exercise the same degree of care as a prudent
individual would exercise in the conduct of his or her own affairs. Subject to
such provisions, the Property Trustee is under no obligation to exercise any
of the powers vested in it by the Trust Agreement at the request of any holder
of Trust Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Trust Preferred Securities will not be required to
offer such indemnity in the event such holders, by exercising their voting
rights, direct the Property Trustee to take any action following a Trust
Enforcement Event.
GOVERNING LAW
The Trust Agreement and the Trust Preferred Securities will be governed by,
and construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as an association or a publicly traded partnership taxable as a
corporation for United States federal income tax purposes. In this connection,
the Regular Trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust or the Trust Agreement that the
Regular Trustees determine in their discretion to be necessary or desirable
for such purposes as long as such action does not materially adversely affect
the interests of the holders of the Trust Preferred Securities.
S-35
<PAGE>
SUPPLEMENTAL DESCRIPTION OF THE TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
which will be executed and delivered by the Company for the benefit of the
holders from time to time of Trust Preferred Securities. The summary does not
purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Trust Guarantee, which
is filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part. The Trust Guarantee
incorporates by reference the terms of, and will be qualified as an indenture
under, the Trust Indenture Act. The Bank of New York, as the Trust Guarantee
Trustee, will hold the Trust Guarantee for the benefit of the holders of the
Trust Preferred Securities and will act as indenture trustee for the purposes
of compliance with the Trust Indenture Act.
GENERAL
Pursuant to the Trust Guarantee, the Company will irrevocably agree, on a
subordinated basis and to the extent set forth therein, to pay in full to the
holders of the Trust Preferred Securities (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set off or
counterclaim which the Trust may have or assert, the following payments (the
"Trust Guarantee Payments"), without duplication: (i) any accumulated and
unpaid distributions on the Trust Preferred Securities that are required to be
paid on such Trust Preferred Securities to the extent the Trust has funds
available therefor, (ii) the Redemption Price with respect to any Trust
Preferred Securities called for redemption by the Trust to the extent the
Trust has funds available therefor and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with the distribution of Partnership Preferred Securities to the holders of
Trust Preferred Securities or the redemption of all of the Trust Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid distributions on the Trust Preferred Securities to the
date of payment and (b) the amount of assets of the Trust remaining available
after satisfaction of all obligations of creditors of the Trust, if any, for
distribution to holders of Trust Preferred Securities in liquidation of the
Trust. The Company's obligation to make a Trust Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Trust Preferred Securities or by causing the Trust to pay such
amounts to such holders.
The Trust Guarantee will be a guarantee on a subordinated basis with respect
to the Trust Preferred Securities from the time of issuance of such Trust
Preferred Securities but will only apply to any payment of distributions or
Redemption Price, or to payments upon the dissolution, winding-up or
termination of the Trust, to the extent the Trust shall have funds available
therefor. If the Partnership fails to declare distributions on Partnership
Preferred Securities, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and in such event holders of the Trust Preferred
Securities would not be able to rely upon the Trust Guarantee for payment of
such amounts. Instead, holders of the Trust Preferred Securities will have the
remedies described above under "Supplemental Description of the Trust
Preferred Securities--Trust Enforcement Events," including the right to direct
the Trust Guarantee Trustee to enforce the covenant restricting certain
distributions by the Company. See "--Certain Covenants of the Company."
The Trust Guarantee, when taken together with the Company Debentures, the
Partnership Guarantee, the Investment Guarantees, and the Company's
obligations to pay all fees and expenses of the Trust, constitute a guarantee
to the extent described herein by the Company of the distribution, redemption
and liquidation payments payable to the holders of the Trust Preferred
Securities. The Guarantees do not apply, however, to current distributions by
the Partnership unless and until such distributions are declared by the
General Partner out of funds legally available for payment or to liquidating
distributions unless there are assets available for payment in the
Partnership, each as more fully described under "Risk Factors--Insufficient
Income or Assets Available to Partnership."
S-36
<PAGE>
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant in the Trust Guarantee that so long as any Trust
Preferred Securities are outstanding if, (a) for any distribution period, full
distributions on a cumulative basis on any Trust Preferred Securities have not
been paid or declared and set apart for payment, (b) an Investment Event of
Default by any Investment Affiliate in respect of any Affiliate Investment
Instrument has occurred and is continuing and the Company is in default under
its obligations with respect thereto under an applicable Investment Guarantee
or (c) the Company is in default of its obligations under the Trust Guarantee
or the Partnership Guarantee, then, during such period, (i) the Company shall
not declare or pay dividends on, make distributions or liquidation payments
with respect to, or redeem, purchase or acquire, any of its capital stock
(except for dividends or distributions in shares of, or options, warrants or
rights to subscribe for or purchase shares of, its common stock and
conversions and exchanges of common stock of one class for common stock of
another class and other exceptions set forth in the accompanying Prospectus),
(ii) the Company shall not make any payment or cause any payment to be made
that would result in, and shall take such actions as shall be necessary to
prevent, the payment of any dividends on, any distribution or liquidation
payment with respect to, or any redemption, purchase or other acquisition of,
any Comparable Equity Interest, and (iii) the Company will not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Trust Guarantee or any other guarantee by the Company with respect to any
Comparable Equity Interest). "Comparable Equity Interest" means any preferred
security issued by any finance subsidiary of the Company, the principal
purpose of which is to lend the proceeds of the sale thereof to the Company or
to eligible affiliates of the Company.
EVENTS OF DEFAULT; ENFORCEMENT OF TRUST GUARANTEE
An event of default under the Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trust Guarantee Trustee or to
direct the exercise of any trust or power conferred upon the Trust Guarantee
Trustee under the Trust Guarantee. If the Trust Guarantee Trustee fails to
enforce its rights under the Trust Guarantee after a holder of record of Trust
Preferred Securities has made a written request, such holder may institute a
legal proceeding directly against the Company to enforce the Trust Guarantee
Trustee's rights under the Trust Guarantee, without first instituting a legal
proceeding against the Trust, the Trust Guarantee Trustee or any other person
or entity. In any event, if the Company has failed to make a guarantee payment
under the Trust Guarantee, a holder of Trust Preferred Securities may directly
institute a proceeding in such holder's own name against the Company for
enforcement of the Trust Guarantee for such payment.
STATUS OF THE TRUST GUARANTEE; SUBORDINATION
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior to all other existing liabilities of the
Company and will rank pari passu with the most senior preferred or preference
stock (if any) issued from time to time by the Company, with the Partnership
Guarantee and the Investment Guarantees and with any guarantee hereafter
entered into by the Company in respect of any preferred security of the
Company or any affiliate of the Company. Accordingly, the rights of the
holders of Trust Preferred Securities to receive payments under the Trust
Guarantee will be subject to the rights of the holders of any obligations of
the Company that are senior in priority to the obligations under the Trust
Guarantee. Furthermore, the holders of obligations of the Company that are
senior to the obligations under the Trust Guarantee (including, but not
limited to, obligations constituting senior indebtedness of the Company) will
be entitled to the same rights upon payment default or dissolution,
liquidation and reorganization in respect of the Trust Guarantee that inure to
the holders of senior indebtedness of the Company as against the holders of
the Company Debentures. In addition, the Trust Guarantee will be effectively
subordinated to all future indebtedness and liabilities of the Company's
subsidiaries. See "Risk Factors--Ranking of Subordinate Obligations Under the
Guarantees and the
S-37
<PAGE>
Company Debentures." The terms of the Trust Preferred Securities provide that
each holder of Trust Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
AMENDMENTS AND ASSIGNMENT
Except with respect to any amendments that may be made without the consent of
the holders of Trust Preferred Securities, as described above under "--
Modification of the Trust Agreement," the Trust Guarantee may be amended only
with the prior approval of the holders of at least a majority in liquidation
amount of all the outstanding Trust Preferred Securities. The manner of
obtaining any such approval of holders of the Trust Preferred Securities will
be as set forth under "Supplemental Description of the Trust Preferred
Securities--Voting Rights." All guarantees and agreements contained in the
Trust Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Trust Preferred Securities then outstanding. Except in connection with any
permitted merger or consolidation of the Company with or into another entity or
any permitted sale, transfer or lease of the Company's assets to another
entity, the Company may not assign its rights or delegate its obligations under
the Trust Guarantee without the prior approval of the holders of at least a
majority of the aggregate stated liquidation amount of the Trust Preferred
Securities then outstanding.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to each holder of Trust Preferred
Securities upon (i) full payment of the Redemption Price of all Trust Preferred
Securities, (ii) distribution of the Partnership Preferred Securities held by
the Trust to the holders of the Trust Preferred Securities or (iii) full
payment of the amounts payable in accordance with the Trust Agreement upon
liquidation of the Trust. The Trust Guarantee will continue to be effective or
will be reinstated, as the case may be, if at any time any holder of Trust
Preferred Securities must restore payment of any sum paid under such Trust
Preferred Securities or such Trust Guarantee.
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
The Trust Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, after default with respect
to the Trust Guarantee, shall exercise the same degree of care as a prudent
person would exercise in the conduct of such person's own affairs. Subject to
such provision, the Trust Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by the Trust Guarantee at the request of any
holder of Trust Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
S-38
<PAGE>
SUPPLEMENTAL DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
GENERAL
All of the partnership interests in the Partnership other than the
Partnership Preferred Securities acquired by the Trust are owned directly by
Hycap, the sole General Partner of the Partnership. The Agreement of Limited
Partnership authorizes and creates the Partnership Preferred Securities, which
represent limited partner interests in the Partnership. The limited partner
interests represented by the Partnership Preferred Securities will have a
preference with respect to distributions and amounts payable on redemption or
liquidation over the General Partner's interest in the Partnership. Except as
otherwise described herein or provided in the Agreement of Limited
Partnership, the Agreement of Limited Partnership does not permit the issuance
of any additional partner interests or the incurrence of any indebtedness by
the Partnership.
The summary of certain terms and provisions of the Partnership Preferred
Securities set forth below does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Agreement of Limited
Partnership, which is filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus form a part,
and the Partnership Act.
DISTRIBUTIONS
Holders of Partnership Preferred Securities will be entitled to receive
cumulative cash distributions, if, as and when declared by the General Partner
in its sole discretion out of assets of the Partnership legally available for
payment. The distributions payable on each Partnership Preferred Security will
be fixed at a rate per annum of 8.36% of the stated liquidation preference of
$25 per Partnership Preferred Security. Distributions not paid on the
scheduled payment date will accumulate and compound quarterly at the rate per
annum equal to 8.36%. The amount of distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months, except
that, if such period is shorter than a full 90-day quarter, distributions will
be calculated on the basis of the actual number of days elapsed in such 90-day
quarter.
Distributions on the Partnership Preferred Securities will accumulate from
the date of original issuance and will be payable quarterly in arrears if, as
and when declared by the General Partner on March 31, June 30, September 30
and December 31 of each year, commencing March 31, 1997. If distributions are
not declared and paid when regularly scheduled, the accumulated distributions
shall be paid to the holders of record of Partnership Preferred Securities as
they appear on the books and records of the Partnership on the record date
with respect to the actual payment date for such accumulated distributions.
The Partnership's funds available for distribution to the holders of the
Partnership Preferred Securities will be limited to payments received by the
Partnership on the Affiliate Investment Instruments, the Investment Guarantees
and the Eligible Debt Securities in which the Partnership has invested from
time to time. See "--Partnership Investments." To the extent that the issuers
(and, where applicable, the Company as issuer of its Debentures and as
guarantor) of the securities in which the Partnership invests fail to make any
payment in respect of such securities (or, if applicable, such guarantees),
the Partnership will not have sufficient funds to pay and will not declare or
pay distributions on the Partnership Preferred Securities, in which event the
Partnership Guarantee will not apply to such distributions until the
Partnership has sufficient funds available therefor and declares such
distributions. See "Supplemental Description of the Partnership Guarantee"
herein. In addition, distributions on the Partnership Preferred Securities may
be declared and paid only if, as and when determined in the sole discretion of
the General Partner of the Partnership. If the General Partner determines that
a distribution will not be made on a regularly scheduled payment date, the
General Partner shall give notice of such determination to holders of the
Partnership Preferred Securities as of the record date for such distribution,
and the General Partner may not declare a distribution on its General Partner
interest unless all accumulated and unpaid distributions have been paid in
full for all previous payment periods.
If the Partnership fails to declare and pay distributions on the Partnership
Preferred Securities out of funds legally available for distribution, the
Trust will not have sufficient funds to make distributions on the Trust
S-39
<PAGE>
Preferred Securities, in which event the Trust Guarantee will not apply to
such distributions until the Trust has sufficient funds legally available
therefor. In addition, as described under "Risk Factors--Insufficient Income
or Assets Available to Partnership," the Partnership may not have sufficient
funds to pay current or liquidating distributions on the Partnership Preferred
Securities if (i) at any time that the Partnership is receiving current
payments in respect of the securities held by the Partnership (including the
Debentures), the General Partner, in its sole discretion, does not declare
distributions on the Partnership Preferred Securities and the Partnership
receives insufficient amounts to pay the additional compounded distributions
that will accumulate in respect of the Partnership Preferred Securities,
(ii) the Partnership reinvests the proceeds received in respect of the
Debentures upon their retirement or at their maturities in Affiliate
Investment Instruments that do not generate income in an amount that is
sufficient to pay full distributions in respect of the Partnership Preferred
Securities or (iii) the Partnership invests in equity or debt securities of
Investment Affiliates that are not guaranteed by the Company and that cannot
be liquidated by the Partnership for an amount sufficient to pay such
distributions in full.
Distributions on the Partnership Preferred Securities will be payable to the
holders thereof as they appear on the books and records of the Partnership on
the relevant record dates, which, as long as the Trust Preferred Securities
remain (or, in the event that the Trust is liquidated in connection with a
Trust Special Event and Partnership Preferred Securities are distributed to
holders of the Trust Preferred Securities, as long as the Partnership
Preferred Securities remain) in book-entry only form, will be one Business Day
prior to the relevant payment dates. In the event the Trust Preferred
Securities (or in the event that the Trust is liquidated in connection with a
Trust Special Event and Partnership Preferred Securities are distributed to
holders of the Trust Preferred Securities, the Partnership Preferred
Securities) shall not continue to remain in book-entry only form, the relevant
record dates shall be the 15th day of the month of the relevant payment dates.
In the event that any date on which distributions are payable on the
Partnership Preferred Securities is not a Business Day, then payment of the
distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding
Business Day (without any reduction in interest on payments in respect of such
early payments), in each case with the same force and effect as if made on
such date.
PARTNERSHIP ENFORCEMENT EVENTS
If one or more of the following events shall occur and be continuing (each a
"Partnership Enforcement Event"): (i) arrearages on distributions on the
Partnership Preferred Securities shall exist for six consecutive quarterly
distribution periods, (ii) the Company is in default on any of its obligations
under the Partnership Guarantee or (iii) an Investment Event of Default (as
defined below) occurs and is continuing on any Affiliate Investment Instrument
and the Company is in default under its obligations with respect thereto under
an applicable Investment Guarantee, then holders of the Partnership Preferred
Securities, by the vote of a majority in aggregate liquidation preference of
such holders (or, for so long as the Partnership Preferred Securities are held
by the Property Trustee, the Property Trustee, as the holder of the
Partnership Preferred Securities), will have the right (a) under the Agreement
of Limited Partnership to enforce the terms of the Partnership Preferred
Securities, including the right to appoint and authorize a special
representative of the Partnership and the limited partners (a "Special
Representative") to enforce (1) to the fullest extent permitted by law, the
Partnership's creditors' rights and other rights with respect to the Affiliate
Investment Instruments and the Investment Guarantees, (2) the rights of the
holders of the Partnership Preferred Securities under the Partnership
Guarantee and (3) the rights of the holders of the Partnership Preferred
Securities to receive distributions (only if and to the extent declared by the
General Partner in its sole discretion out of funds legally available
therefor) on the Partnership Preferred Securities, and (b) under the
Partnership Guarantee to enforce the terms of the Partnership Guarantee,
including the right to enforce the covenant restricting the payment of
dividends and certain other distributions by the Company.
S-40
<PAGE>
The Special Representative, in its own name, in the name of the Partnership,
in the name of the holders of the Partnership Preferred Securities, or
otherwise, may, to the fullest extent permitted by law, institute, or cause to
be instituted, an appropriate proceeding to enforce on behalf of the
Partnership the Partnership's rights directly against HEI or any other obligor
(including the General Partner) in connection with its obligations to the
Partnership, and may prosecute such proceeding to judgment or final decree,
and enforce the same against HEI or any other obligor in connection with such
obligations and collect, out of the property, wherever situated, of HEI or any
such other obligor upon such obligations, the monies adjudged or decreed to be
payable in the manner provided by law. The General Partner agrees to execute
and deliver such documents as may be necessary, appropriate or convenient for
the Special Representative to enforce the foregoing rights and obligations on
behalf and in the name of the Partnership.
If the Special Representative fails to enforce its rights on behalf of the
Partnership under the Affiliate Investment Instruments and the Investment
Guarantees after a holder of Partnership Preferred Securities has made a
written request, such holder of record of Partnership Preferred Securities
may, to the fullest extent permitted by law, directly institute a legal
proceeding against the applicable Investment Affiliate to enforce the rights
of the Special Representative and the Partnership under the Affiliate
Investment Instruments and against the Company under any applicable Investment
Guarantees without first instituting any legal proceeding against the Special
Representative, the Partnership or any other person or entity. In any event,
if a Partnership Enforcement Event has occurred and is continuing and such
event is attributable to the failure of an Investment Affiliate to make any
required payment when due on any Affiliate Investment Instrument, then a
holder of Partnership Preferred Securities may on behalf of the Partnership
directly institute a proceeding against such Investment Affiliate with respect
to such Affiliate Investment Instrument for enforcement of payment. A holder
of Partnership Preferred Securities may also bring a direct action against the
Company to enforce such holder's right under the Partnership Guarantee. See
"Supplemental Description of the Partnership Guarantee--Events of Default;
Enforcement of Partnership Guarantee."
Under no circumstances, however, shall the Special Representative, any
holder of Partnership Preferred Securities or any holder of the Trust
Preferred Securities have authority to cause the General Partner to declare
distributions on the Partnership Preferred Securities. As a result, although
the Special Representative may be able to enforce the Partnership's creditors'
rights to accelerate and receive payments in respect of the Affiliate
Investment Instruments and the Investment Guarantees, the Partnership would be
entitled to reinvest such payments in additional Affiliate Investment
Instruments, subject to satisfying the reinvestment criteria described under
"--Partnership Investments," and in Eligible Debt Securities, rather than
declaring and making distributions on the Partnership Preferred Securities.
The Special Representative shall not, by virtue of acting in such capacity, be
admitted as a general or limited partner in the Partnership or otherwise be
deemed to be a general or limited partner in the Partnership and shall have no
liability for the debts, obligations or liabilities of the Partnership.
PARTNERSHIP INVESTMENTS
Approximately 99% of the proceeds from the issuance of the Partnership
Preferred Securities and Hycap's purchase of the general partner interests in
the Partnership (the "Initial Partnership Proceeds") will be used by the
Partnership to purchase debt or equity securities of HEI and its subsidiaries
("Affiliate Investment Instruments," which initially will be the Debentures)
and the remaining 1% of the Initial Partnership Proceeds will be used to
purchase Eligible Debt Securities. The purchase of the initial Affiliate
Investment Instruments by the Partnership will occur contemporaneously with
the issuance of the Partnership Preferred Securities.
The initial Affiliate Investment Instruments purchased by the Partnership
will consist of the Debentures. Approximately 85% of the Initial Partnership
Proceeds will be used to purchase the Company Debentures, which will be issued
pursuant to the Junior Indenture described in the accompanying Prospectus, and
approximately 14% of the Initial Partnership Proceeds will be used to purchase
the Subsidiary Debentures. Each of the Debentures is expected to have a term
of 20 years and to provide for interest accruing from the date of original
issuance and payable quarterly in arrears on each March 31, June 30, September
30 and December 31,
S-41
<PAGE>
commencing March 31, 1997. The Debentures will be general unsecured debt
obligations of the relevant issuer and will rank subordinate and junior to all
senior indebtedness of the relevant issuer.
The payment of interest on each of the Debentures may be deferred at any
time, and from time to time, by the relevant issuer for a period not exceeding
six consecutive quarters. If an issuer were so to defer the payment of
interest, interest would continue to accrue and compound at the stated
interest rate on such Debenture. The Debentures will contain covenants
appropriate for comparable unsecured debt securities issued by similar
borrowers pursuant to a public offering or private placement under Rule 144A
under the Securities Act. See "Description of the Junior Subordinated Debt
Securities" in the accompanying Prospectus. The Debentures will contain
redemption provisions that correspond to the redemption provisions applicable
to the Partnership Preferred Securities, including an option to redeem the
Debentures by the relevant issuer, in whole or in part, from time to time, on
or after February 4, 2002, and at any time, in whole, following the occurrence
of a Partnership Special Event, in each case, in the same manner described
under "--Optional Redemption" and "--Partnership Special Event Redemption,"
respectively. Each of the indentures for the Debentures will provide that, in
certain specified circumstances, the Debentures may be assumed by another
subsidiary of the Company that meets certain criteria. The Debentures, and any
other Affiliate Investment Instruments that are debt instruments acquired by
the Partnership in the future, will also contain customary events of default
(the "Investment Events of Default"), including events of default for defaults
in payments on such securities when due (provided that no default shall occur
upon a valid deferral of an interest payment by an issuer), defaults in the
performance of the relevant issuer's obligations under its Debentures or other
Affiliate Investment Instruments, as the case may be, and certain bankruptcy,
insolvency or reorganization events (subject to customary exceptions and grace
periods).
The payment of interest and principal when due and other payment terms of
the Subsidiary Debentures will be fully and unconditionally guaranteed by the
Company for the benefit of the holders of the Subsidiary Debentures.
Debentures (including Company Debentures) that are transferred to and assumed
by a subsidiary of the Company will be covered by Investment Guarantees. See
"--Investment Guarantees."
Approximately 1% of the Initial Partnership Proceeds will be invested in
Eligible Debt Securities. "Eligible Debt Securities" means cash or book-entry
securities, negotiable instruments, or other securities of entities not
affiliated with the Company represented by instruments in registered form
which evidence any of the following: (a) any security issued or guaranteed as
to principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States, or
any certificate of deposit for any of the foregoing; (b) commercial paper
issued pursuant to Section 3(a)(3) of the Securities Act and having, at the
time of the investment or contractual commitment to invest therein, a rating
from each of Standard & Poor's Ratings Services ("S&P") and Moody's Investors
Service, Inc. ("Moody's") in the highest investment rating category granted by
such rating agency and having a maturity not in excess of nine months; (c)
demand deposits, time deposits and certificates of deposit which are fully
insured by FDIC; (d) repurchase obligations with respect to any security that
is a direct obligation of, or fully guaranteed by, the Government of the
United States of America or any agency or instrumentality thereof, the
obligations of which are backed by the full faith and credit of the United
States of America, in either case entered into with a depository institution
or trust company which is an Eligible Institution (as defined below) and the
deposits of which are insured by the FDIC; and (e) any other security which is
identified as a permitted investment of a finance subsidiary pursuant to Rule
3a-5 under the 1940 Act at the time it is acquired by the Partnership.
"Eligible Institution" means a depository institution organized under the
laws of the United States or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (a)(i) which has either
(A) a long-term unsecured debt rating of AA or better by S&P and Aa or better
by Moody's or (B) a short-term unsecured debt rating or a certificate of
deposit rating of A-1+ by S&P and P-1 by Moody's and (ii) whose deposits are
insured by the FDIC or (b)(i) the parent of which has a long-term or short-
term unsecured debt rating which signifies investment grade and (ii) whose
deposits are insured by the FDIC.
S-42
<PAGE>
The Partnership may, from time to time and subject to the restrictions
described below, reinvest payments received with respect to the Affiliate
Investment Instruments (including the Debentures) and the Eligible Debt
Securities in additional Affiliate Investment Instruments and Eligible Debt
Securities. As of the date of this Prospectus Supplement, the General Partner
does not intend to cause the Partnership to reinvest regularly scheduled,
periodic payments of interest or dividends received by the Partnership in the
manner described below, although there can be no assurance that the General
Partner's intention in respect of such reinvestments will not change in the
future.
Certain financial terms of all Affiliate Investment Instruments (including
the Debentures) will be reviewed by a nationally recognized investment banking
firm designated by the General Partner that does not (and whose directors,
officers, employees and affiliates do not) have a direct or indirect material
equity interest in the General Partner or any of its affiliates or another
entity which is an investment banking, accounting or financial services firm
selected by the General Partner and approved by the holders of a majority in
liquidation preference of the Partnership Preferred Securities (the
"Independent Financial Advisor"). Merrill Lynch & Co. will serve as the
initial Independent Financial Advisor.
The Partnership may reinvest in additional Affiliate Investment Instruments
only if certain procedures and criteria are satisfied with respect to such
Affiliate Investment Instrument, including the satisfaction of the following
conditions: (i) the Partnership did not hold Affiliate Investment Instruments
of the requesting Investment Affiliate that will issue the proposed Affiliate
Investment Instrument within the three-year period ending on the date of such
proposed investment; (ii) there was never a default on any debt obligation of,
or arrearages of dividends on preferred stock issued by, the requesting
Investment Affiliate that will issue the proposed Affiliate Investment
Instrument that was previously owned by the Partnership; (iii) the applicable
financial terms with respect to the proposed Affiliate Investment Instrument
have been determined by the Independent Financial Advisor to be at least as
favorable as terms which could be obtained by the Partnership in a public
offering or private placement under Rule 144A under the Securities Act of a
comparable security issued by the requesting Investment Affiliate that is
supported by a full and unconditional guarantee issued by an entity comparable
to HEI; and (iv) the requesting Investment Affiliate shall not be deemed to be
an investment company by reason of Section 3(a) or 3(b) of the 1940 Act. The
term "Investment Affiliate" means the Company or any corporation, partnership,
limited liability company or other entity (other than the Partnership or the
Trust) that is controlled by the Company and is not an investment company by
reason of Section 3(a) or 3(b) of the 1940 Act. If the Partnership is unable
to reinvest payments and proceeds from Affiliate Investment Instruments in
additional Affiliate Investment Instruments meeting the above criteria, the
Partnership may only invest such funds in Eligible Debt Securities (subject to
restrictions of applicable law, including the 1940 Act).
INVESTMENT GUARANTEES
General. The Company will agree, on a subordinated basis, to execute and
deliver an Investment Guarantee for the benefit of the holders of the
Debentures issued by each Investment Affiliate (other than the Company
Debentures, unless HEI's obligations under the Company Debentures are
transferred to and assumed by another Investment Affiliate) to the extent set
forth below. The Investment Guarantees shall be enforceable regardless of any
defense, right of set-off or counterclaim that the Company may have or assert.
The Investment Guarantees will be full and unconditional guarantees on a
subordinated basis with respect to the applicable Debentures from the time of
issuance (or, in the case of the Company Debentures, from the time of transfer
to and assumption by an Investment Affiliate other than the Company). To the
extent that, as described above, the Partnership invests in additional
Affiliate Investment Instruments, the determination as to whether such
Affiliate Investment Instrument will contain an Investment Guarantee will be
made at the date of its issuance and will be based, among other things, upon
its approval by the Independent Financial Advisor in accordance with the
reinvestment criteria described above.
The Investment Guarantees will constitute guarantees of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the applicable
Investment Guarantee without instituting a legal proceeding against any other
person or entity). If no
S-43
<PAGE>
Special Representative has been appointed to enforce any Investment Guarantee,
the General Partner and the Investment Guarantee trustee (if any) each has the
right to enforce such Investment Guarantee on behalf of the holders of the
Partnership Preferred Securities. The holders of not less than a majority in
aggregate liquidation preference of the Partnership Preferred Securities have
the right to direct the time, method and place of conducting any proceeding
for any remedy available in respect of any Investment Guarantee, including the
giving of directions to the General Partner or the Special Representative, as
the case may be. If the General Partner, the Investment Guarantee trustee or
the Special Representative fails to enforce any Investment Guarantee as above
provided, any holder of Trust Preferred Securities may institute its own legal
proceeding to enforce such Investment Guarantee. No Investment Guarantee will
be discharged except by payment in full of all amounts guaranteed by such
Investment Guarantee (without duplication of amounts theretofore paid by the
relevant Investment Affiliate).
Amendments and Assignment. Except with respect to any changes that do not
materially adversely affect the rights of holders of the Subsidiary Debentures
(in which case no consent will be required), the Investment Guarantees may be
amended only with the prior approval of the holders of not less than a
majority in liquidation preference of the outstanding Partnership Preferred
Securities, provided that for so long as the Property Trustee of the Trust is
the holder of the Partnership Preferred Securities, such amendment will not be
effective without the prior written approval of a majority in liquidation
amount of the outstanding Trust Preferred Securities. All guarantees and
agreements contained in the Investment Guarantees shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall
inure to the benefit of the holders of Partnership Preferred Securities. In
the event of the transfer or assignment of the obligations under an Affiliate
Investment Instrument to another Investment Affiliate (other than the
Company), and the assumption thereof by such Investment Affiliate, the
Investment Guarantee will continue to apply to such Affiliate Investment
Instrument.
Status of the Investment Guarantees. The Company's obligations under the
Investment Guarantees will constitute unsecured obligations of the Company and
will rank subordinate and junior to all other existing liabilities of the
Company and will rank pari passu with the most senior preferred or preference
stock (if any) issued from time to time by the Company, with the Trust
Guarantee and the Partnership Guarantee and with any guarantee hereafter
entered into by the Company in respect of any preferred security of the
Company or any affiliate of the Company. Accordingly, the rights of the
Partnership and the holders of the Partnership Preferred Securities to receive
payments under the Investment Guarantees will be subject to the rights of the
holders of any obligations of the Company that are senior in priority to the
obligations under the Investment Guarantees. Furthermore, the holders of
obligations of the Company that are senior to the obligations under the
Investment Guarantees (including, but not limited to, obligations constituting
senior indebtedness of the Company) will be entitled to the same rights upon
payment default or dissolution, liquidation and reorganization in respect of
the Investment Guarantees that inure to the holders of senior indebtedness of
the Company as against the holders of the Company Debentures. In addition, the
Investment Guarantees will be effectively subordinated to all future
indebtedness and liabilities of the Company's subsidiaries. See "Risk
Factors--Ranking of Subordinate Obligations Under the Guarantees and the
Company Debentures." The terms of the Debentures provide that each holder of
Debentures, by acceptance thereof, agrees to the subordination provisions and
other terms of the Investment Guarantees.
Governing Law. The Investment Guarantees will be governed by, and construed
in accordance with, the internal laws of the State of New York.
OPTIONAL REDEMPTION
The Partnership Preferred Securities are redeemable, at the option of the
General Partner, in whole or in part, from time to time, on or after February
4, 2002, upon not less than 30 nor more than 60 days' notice, at an amount per
Partnership Preferred Security of $25 plus accumulated and unpaid
distributions thereon to the date fixed for redemption. If the Partnership
redeems Partnership Preferred Securities in accordance with the terms thereof,
Trust Preferred Securities will be mandatorily redeemed at the Redemption
Price. See "Supplemental Description of the Trust Preferred Securities--
Redemption." If a partial redemption would result in the delisting
S-44
<PAGE>
of the Trust Preferred Securities (or, if the Partnership Preferred Securities
have been distributed in connection with a Trust Special Event, the delisting
of the Partnership Preferred Securities), the Partnership may only redeem the
Partnership Preferred Securities in whole.
PARTNERSHIP SPECIAL EVENT REDEMPTION
If, at any time, a Partnership Tax Event or a Partnership Investment Company
Event (each as hereinafter defined, and each a "Partnership Special Event")
shall occur and be continuing, the General Partner shall, within 90 days
following the occurrence of such Partnership Special Event, elect to either
(i) redeem the Partnership Preferred Securities in whole (but not in part),
upon not less than 30 or more than 60 days' notice at the Redemption Price,
provided that, if at the time there is available to the Partnership the
opportunity to eliminate, within such 90-day period, the Partnership Special
Event by taking some ministerial action, such as filing a form or making an
election, or pursuing another reasonable measure that in the sole judgment of
the General Partner has or will cause no adverse effect on the Partnership,
the General Partner, the Trust or the Company, the General Partner will pursue
such measure in lieu of redemption; or (ii) cause the Partnership Preferred
Securities to remain outstanding, provided that in the case of this clause
(ii), the General Partner shall pay any and all costs and expenses incurred by
or payable by the Partnership attributable to the Partnership Special Event.
The General Partner may elect to redeem the Partnership Preferred Securities
upon the occurrence of any Partnership Special Event (subject to certain
conditions), regardless of the occurrence of any Trust Tax Event or Trust
Investment Company Event.
"Partnership Tax Event" means that the General Partner shall have requested
and received an opinion of recognized independent tax counsel (which may be
counsel to the Company) experienced in such matters to the effect that there
has been a Tax Action that results in there being more than an insubstantial
risk that (i) the Partnership is, or will be, subject to United States federal
income tax with respect to income accrued or received on the Affiliate
Investment Instruments or the Eligible Debt Securities, (ii) the Partnership
is, or will be, subject to more than a de minimis amount of other taxes,
duties or other governmental charges or (iii) interest payable by an
Investment Affiliate with respect to the Affiliate Investment Instruments that
are debt instruments issued by such Investment Affiliate to the Partnership is
not, or will not be, deductible for United States federal income tax purposes.
"Partnership Investment Company Event" means that the General Partner shall
have requested and received an opinion of recognized independent legal counsel
experienced in such matters to the effect that, as a result of the occurrence
on or after the date of this Prospectus Supplement of a Change in 1940 Act
Law, there is more than an insubstantial risk that the Partnership is or will
be considered an "investment company" which is required to be registered under
the 1940 Act.
REDEMPTION PROCEDURES
The Partnership may not redeem fewer than all the outstanding Partnership
Preferred Securities unless all accumulated and unpaid distributions have been
paid on all Partnership Preferred Securities for all quarterly distribution
periods terminating on or prior to the date of redemption.
If the Partnership gives a notice of redemption in respect of Partnership
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, the General Partner, on behalf of
the Partnership, (i) if the Partnership Preferred Securities are in book-entry
only form with DTC, will deposit irrevocably with DTC funds sufficient to pay
the applicable Redemption Price and will give DTC irrevocable instructions and
authority to pay the Redemption Price in respect of the Partnership Preferred
Securities held through DTC in global form or (ii) if the Partnership
Preferred Securities are held in certificated form, will deposit with the
paying agent for the Partnership Preferred Securities funds sufficient to pay
such amount in respect of any Partnership Preferred Securities in certificated
form and will give such paying agent irrevocable instructions and authority to
pay such amounts to the holders of Partnership Preferred Securities upon
surrender of their certificates. See "--Book-Entry Only Issuance--The
Depository Trust Company."
S-45
<PAGE>
If notice of redemption shall have been given and funds deposited as
required, then upon the date of such deposit, all rights of holders of such
Partnership Preferred Securities so called for redemption will cease, except
the right of the holders of such Partnership Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price and, from
and after the date fixed for redemption, such Partnership Preferred Securities
will not accumulate distributions or bear interest. In the event that any date
fixed for redemption of Partnership Preferred Securities is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay) except that, if such Business Day falls
in the next calendar year, the payment will be made on the immediately
preceding Business Day (without any reduction in interest or other payments in
respect of such early payment), in each case with the same force and effect as
if made on the date fixed for redemption. In the event that payment of the
Redemption Price in respect of Partnership Preferred Securities is improperly
withheld or refused and not paid either by the Partnership or by the Company
pursuant to the Partnership Guarantee described under "Supplemental
Description of the Partnership Guarantee," distributions on such Partnership
Preferred Securities will continue to accumulate at the then applicable rate
from the original redemption date to the date of payment.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or any of its subsidiaries
may at any time and from time to time purchase outstanding Partnership
Preferred Securities by tender offer, in the open market or by private
agreement.
In the event that the Partnership Preferred Securities have been distributed
and fewer than all of the outstanding Partnership Preferred Securities are to
be redeemed, the Partnership Preferred Securities will be redeemed in
accordance with the procedures of DTC. See "--Book-Entry Only Issuance--The
Depository Trust Company."
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Partnership, the holders of the Partnership Preferred
Securities at the time will be entitled to receive out of the assets of the
Partnership available for distribution to partners after satisfaction of
liabilities of creditors as required by the Partnership Act, before any
distribution of assets is made to the General Partner, an amount equal to, in
the case of holders of Partnership Preferred Securities, the aggregate of the
stated liquidation preference of $25 per Partnership Preferred Security plus
accumulated and unpaid distributions thereon to the date of payment (such
amount being the "Partnership Liquidation Distribution").
The Agreement of Limited Partnership provides that the Partnership shall be
dissolved and its affairs shall be wound up: (i) upon the bankruptcy,
insolvency or dissolution of the General Partner, (ii) upon the assignment by
the General Partner of its entire interest in the Partnership when the
assignee is not admitted to the Partnership as a general partner of the
Partnership in accordance with the Agreement of Limited Partnership, or the
filing of a certificate of dissolution or its equivalent with respect to the
General Partner, or the revocation of the General Partner's charter and the
expiration of 90 days after the date of notice to the General Partner of
revocation without a reinstatement of its charter, or if any other event
occurs that causes the General Partner to cease to be a general partner of the
Partnership under the Partnership Act, unless the business of the Partnership
is continued in accordance with the Partnership Act, (iii) if the Partnership
has redeemed or otherwise purchased all of the Partnership Preferred
Securities, (iv) upon the entry of a decree of judicial dissolution or (v)
upon the written consent of all partners of the Partnership.
VOTING RIGHTS
Except as provided below and under "Supplemental Description of the
Partnership Guarantee--Amendments and Assignment" and as otherwise required by
law and the Agreement of Limited Partnership, the holders of the Partnership
Preferred Securities will have no voting rights.
S-46
<PAGE>
Not later than 30 days after any Partnership Enforcement Event occurs, the
General Partner will convene a meeting for the purpose of appointing a Special
Representative. If the General Partner fails to convene such meeting within
such 30-day period, the holders of 10% in liquidation preference of the
outstanding Partnership Preferred Securities will be entitled to convene such
meeting. The provisions of the Agreement of Limited Partnership relating to
the convening and conduct of the meetings of the partners will apply with
respect to any such meeting. In the event that, at any such meeting, holders
of less than a majority in aggregate liquidation preference of Partnership
Preferred Securities entitled to vote for the appointment of a Special
Representative vote for such appointment, no Special Representative shall be
appointed. Any Special Representative appointed will cease to be a Special
Representative of the Partnership and the limited partners if (i) the
Partnership (or the Company pursuant to the Partnership Guarantee) shall have
paid in full all accumulated and unpaid distributions on the Partnership
Preferred Securities, (ii) any Investment Event of Default giving rise to the
Partnership Enforcement Event shall have been cured, and (iii) the Company is
in compliance with all its obligations under the Partnership Guarantee and the
General Partner will continue the activities of the Partnership without
dissolution. Notwithstanding the appointment of any such Special
Representative, Hycap will continue as General Partner and will retain all
rights under the Agreement of Limited Partnership, including the right to
declare, in its sole discretion, the payment of distributions on the
Partnership Preferred Securities for which the failure of such declaration
would not constitute a default under the Agreement of Limited Partnership.
If any proposed amendment to the Agreement of Limited Partnership provides
for, or the General Partner otherwise proposes to effect, (i) any action that
would materially adversely affect the powers, preferences or special rights of
the Partnership Preferred Securities, whether by way of amendment to the
Agreement of Limited Partnership or otherwise (including, without limitation,
the authorization or issuance of any limited partner interests in the
Partnership ranking, as to participation in the profits or distributions or in
the assets of the Partnership, senior to the Partnership Preferred
Securities), or (ii) the dissolution, winding-up or termination of the
Partnership, other than (x) in connection with the occurrence of a Partnership
Special Event or (y) in certain limited circumstances described under "--
Merger, Consolidation or Amalgamation of the Partnership," then the holders of
outstanding Partnership Preferred Securities will be entitled to vote on such
amendment or proposal of the General Partner (but not on any other amendment
or proposal) as a class, and such amendment or proposal will not be effective
except with the approval of the holders of a majority in liquidation
preference of such outstanding Partnership Preferred Securities having a right
to vote on the matter; provided, however, that if the Property Trustee on
behalf of the Trust is the holder of the Partnership Preferred Securities, any
such amendment or proposal not excepted by clauses (x) and (y) above will not
be effective without the prior or concurrent approval of the holders of a
majority in liquidation amount of the outstanding Trust Preferred Securities
having a right to vote on such matters and provided, further, that no such
approval shall be required if the dissolution, winding-up or termination of
the Partnership is proposed or initiated upon or after the initiation of
proceedings for the dissolution, winding-up, liquidation or termination of the
General Partner or the Company.
Subject to certain exceptions, the holders of a majority in liquidation
preference of the Partnership Preferred Securities may waive any past
Partnership Enforcement Event with respect to the Partnership Preferred
Securities. A waiver of an Investment Event of Default by the Special
Representative, acting at the direction of the holders of Partnership
Preferred Securities, constitutes a waiver of the corresponding Partnership
Enforcement Event.
Neither the General Partner nor the Special Representative will (i) direct
the time, method and place of conducting any proceeding for any remedy
available, (ii) waive any Investment Event of Default that is waivable under
the Affiliate Investment Instruments, (iii) exercise any right to rescind or
annul a declaration that the principal of any Affiliate Investment Instruments
which are debt instruments shall be due and payable, (iv) waive the breach of
the covenant by the Company in the Partnership Guarantee to restrict certain
payments by the Company, or (v) consent to any amendment, modification or
termination of any Affiliate Investment Instrument, where such consent shall
be required from the holder thereof, without, in each case, obtaining the
prior approval of the holders of at least a majority in liquidation preference
of the Partnership Preferred Securities; provided, however, that if the
Property Trustee on behalf of the Trust is the holder of the Partnership
Preferred Securities,
S-47
<PAGE>
such waiver, consent or amendment or other action shall not be effective
without the prior or concurrent approval of at least a majority in liquidation
amount of the outstanding Trust Preferred Securities having a right to vote on
such matters. The General Partner will not revoke any action previously
authorized or approved by a vote of the holders of the Partnership Preferred
Securities. The General Partner will notify all holders of the Partnership
Preferred Securities of any notice of an Investment Event of Default received
with respect to any Affiliate Investment Instrument.
Any required approval of holders of Partnership Preferred Securities may be
given at a separate meeting of holders of Partnership Preferred Securities
convened for such purpose, at a meeting of all of the partners in the
Partnership or pursuant to written consent. The General Partner will cause a
notice of any meeting at which holders of Partnership Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of
Partnership Preferred Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any matter proposed for adoption at such
meeting on which such holders are entitled to vote or of such matters upon
which written consent is sought and (iii) instruction for the delivery of
proxies or consents. No vote or consent of the holders of Partnership
Preferred Securities will be required for the Partnership to redeem and cancel
Partnership Preferred Securities in accordance with the Agreement of Limited
Partnership.
Notwithstanding that holders of Partnership Preferred Securities are
entitled to vote or consent under any of the circumstances described above,
any of the Partnership Preferred Securities at such time that are owned by the
Company or by any entity more than 50% of which is owned by the Company,
directly or indirectly, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if they were not
outstanding; provided, however, that persons otherwise eligible to vote to
whom the Company or any of its subsidiaries have pledged Partnership Preferred
Securities may vote or consent with respect to such pledged Partnership
Preferred Securities under any of the circumstances described herein.
Holders of the Partnership Preferred Securities will have no rights to
remove or replace the General Partner.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE PARTNERSHIP
The Partnership may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except as
described below. The Partnership may, without the consent of the holders of
the Partnership Preferred Securities, consolidate, amalgamate, merge with or
into, or be replaced by a limited partnership, limited liability company or
trust organized under the laws of any state of the United States of America;
provided, that (i) such successor entity either (x) expressly assumes all of
the obligations of the Partnership under the Partnership Preferred Securities
or (y) substitutes for the Partnership Preferred Securities other securities
having substantially the same terms as the Partnership Preferred Securities
(the "Partnership Successor Securities"), so long as the Partnership Successor
Securities are not junior to any other equity securities of the successor
entity with respect to participation in the profits and distributions, and in
the assets, of the successor entity, (ii) the Investment Affiliates expressly
acknowledge such successor entity as the holder of the Affiliate Investment
Instruments, (iii) if the Partnership Preferred Securities are then so listed,
the Partnership Preferred Securities continue to be listed, or any Partnership
Successor Securities are or will be listed upon notification of issuance, on
any national securities exchange or with another organization on which the
Partnership Preferred Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Trust Preferred
Securities (or, in the event that the Trust is liquidated in connection with a
Trust Special Event, the Partnership Preferred Securities (including any
Partnership Successor Securities)) to be downgraded by any nationally
recognized statistical securities rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the
powers, preferences and other special rights of the holders of the Trust
Preferred Securities or Partnership Preferred Securities (including any
Partnership Successor Securities) in any material respect (other than, in the
case of Partnership Preferred Securities or Partnership Successor Securities,
with respect to any dilution of the holders' interest in the new resulting
entity), (vi) such successor entity has a purpose substantially
S-48
<PAGE>
identical to that of the Partnership, (vii) the Company guarantees the
obligations of such successor entity under the Partnership Successor
Securities to the same extent as provided by the Partnership Guarantee and
(viii) prior to such merger, consolidation, amalgamation or replacement, the
Company has received an opinion of a recognized independent counsel to the
Partnership experienced in such matters to the effect that: (A) such successor
entity will be treated as a partnership for United States federal income tax
purposes, (B) such merger, consolidation, amalgamation or replacement will not
adversely affect the limited liability of the holders of the Partnership
Preferred Securities (or the Partnership Successor Securities), (C) following
such merger, consolidation, amalgamation or replacement, neither the Company
nor such successor entity will be required to register as an investment
company under the 1940 Act, and (D) such merger, consolidation, amalgamation
or replacement would not cause the Trust to be classified as an association or
a publicly traded partnership taxable as a corporation for United States
federal income tax purposes.
BOOK-ENTRY AND SETTLEMENT
If the Partnership Preferred Securities are distributed to holders of Trust
Preferred Securities in connection with the involuntary or voluntary
dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Trust Special Event, the Partnership Preferred Securities will
be issued in the form of one or more global certificates (each a "Global
Partnership Security") registered in the name of DTC as the depository or its
nominee. For a description of DTC and the specific terms of the Depository
arrangements, see "Supplemental Description of the Trust Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company." As of the
date of this Prospectus Supplement, the description therein of DTC's book-
entry system and DTC's practices as they relate to purchases, transfers,
notices and payments with respect to the Trust Preferred Securities apply in
all material respects to any Partnership Preferred Securities represented by
one or more Global Partnership Securities.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The General Partner will act as registrar, transfer agent and paying agent
for the Partnership Preferred Securities for so long as the Partnership
Preferred Securities are held by the Property Trustee or, if the Trust is
liquidated in connection with a Trust Special Event, for so long as the
Partnership Preferred Securities remain in book-entry only form. In the event
the Partnership Preferred Securities are distributed in connection with a
Trust Special Event and the book-entry system for the Partnership Preferred
Securities is discontinued, it is anticipated that The Bank of New York or one
of its affiliates will act as registrar, transfer agent and paying agent for
the Partnership Preferred Securities.
Registration of transfers of Partnership Preferred Securities will be
effected without charge by or on behalf of the Partnership, but upon payment
(with the giving of such indemnity as the Partnership or the General Partner
may require) in respect of any tax or other governmental charges that may be
imposed in relation to it.
The Partnership will not be required to register or cause to be registered
the transfer of Partnership Preferred Securities after such Partnership
Preferred Securities have been called for redemption.
GOVERNING LAW
The Agreement of Limited Partnership and the Partnership Preferred
Securities will be governed by, and construed in accordance with, the internal
laws of the State of Delaware.
MISCELLANEOUS
The General Partner is authorized and directed to conduct its affairs and to
operate the Partnership in such a way that (i) the Partnership will not be
deemed to be an "investment company" required to be registered under the 1940
Act, (ii) the Affiliate Investment Instruments that are debt instruments will
be treated as indebtedness of the issuer of such debt instruments for United
States federal income tax purposes and (iii) the Partnership will
S-49
<PAGE>
not be treated as an association or a publicly traded partnership (within the
meaning of Section 7704 of the Code) taxable as a corporation for federal
income tax purposes. In this connection, the General Partner is authorized to
take any action, not inconsistent with applicable law, the certificate of
limited partnership of the Partnership or the Agreement of Limited
Partnership, that the General Partner determines in its discretion to be
necessary or desirable for such purposes as long as such action does not
materially adversely affect the interests of the holders of the Partnership
Preferred Securities.
Holders of the Partnership Preferred Securities have no preemptive or
similar rights.
SUPPLEMENTAL DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of certain information concerning the
Partnership Guarantee that will be executed and delivered by the Company for
the benefit of the holders from time to time of Partnership Preferred
Securities. The summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the Partnership Guarantee, which is filed as an exhibit to the
Registration Statement of which this Prospectus Supplement and the
accompanying Prospectus form a part. The Partnership Guarantee incorporates by
reference the terms of, and will be qualified as an indenture under, the Trust
Indenture Act. The Bank of New York, as trustee (the "Partnership Guarantee
Trustee") will hold the Partnership Guarantee for the benefit of the holders
of the Partnership Preferred Securities and will act as indenture trustee for
the purpose of compliance with the Trust Indenture Act.
GENERAL
Pursuant to the Partnership Guarantee, the Company will irrevocably agree,
on a subordinated basis to the extent set forth therein, to pay in full to the
holders of the Partnership Preferred Securities (without duplication of
amounts theretofore paid by the Partnership), as and when due, regardless of
any defense, right of set-off or counterclaim that the Partnership may have or
assert, the following payments (the "Partnership Guarantee Payments"): (i) any
accumulated and unpaid distributions that have theretofore been declared by
the General Partner on the Partnership Preferred Securities out of funds
legally available therefor, (ii) the Redemption Price with respect to any
Partnership Preferred Securities called for redemption by the Partnership out
of funds legally available therefor, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Partnership, the lesser of
(a) the aggregate of the liquidation preference and all accumulated and unpaid
distributions on the Partnership Preferred Securities to the date of payment
and (b) the amount of assets of the Partnership remaining available for
distribution to holders of Partnership Preferred Securities in liquidation of
the Partnership after satisfaction of all liabilities of the Partnership.
Pursuant to the Partnership Guarantee, the Company, to the extent not paid by
the General Partner, will fully and irrevocably agree to pay in full the
obligations of the General Partner under the Agreement of Limited Partnership,
including but not limited to the obligations to pay the fees and expenses of
the Partnership (including any taxes, duties, assessments or governmental
charges of whatever nature (other than withholding taxes or taxes or charges
imposed by reason of the transfer of the Partnership Preferred Securities)
imposed by the United States or any other domestic taxing authority upon the
Partnership) and to be responsible for all debts and obligations of the
Partnership (other than with respect to the Partnership Preferred Securities).
The Company's obligation to make a Partnership Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of Partnership Preferred Securities or by causing the Partnership to
pay such amounts to such holders.
The Partnership Guarantee will be a guarantee on a subordinated basis with
respect to the Partnership Preferred Securities from the time of issuance of
such Partnership Preferred Securities but will not apply to any payment of
distributions or Redemption Price, or to payments upon the dissolution,
winding-up or termination of the Partnership, except to the extent the
Partnership shall have funds legally available therefor. If Investment
Affiliates (including, where applicable, the Company, as issuer of the Company
Debentures and as guarantor) fail to make any payment in respect of the
Affiliate Investment Instruments in which the Partnership invests (or, if
applicable, payments in respect of an Investment Guarantee), the General
Partner may not declare or pay
S-50
<PAGE>
dividends on the Partnership Preferred Securities. In such event, holders of
the Partnership Preferred Securities would not be able to rely upon the
Partnership Guarantee for payment of such amounts. Instead, holders of the
Partnership Preferred Securities will have the remedies described under
"Supplemental Description of the Partnership Preferred Securities--Partnership
Enforcement Events," including the right to direct the Partnership Guarantee
Trustee or the Special Representative, as the case may be, to enforce the
covenant restricting payment of dividends and certain other distributions by
the Company. See "--Certain Covenants of the Company."
The Partnership Guarantee, when taken together with the Trust Guarantee, the
Investment Guarantees, the Company Debentures and the Company's obligations to
pay all fees and expenses of the Trust, constitute a guarantee to the extent
described herein by the Company of the distribution, redemption and
liquidation amounts payable to the holders of the Trust Preferred Securities
and the Partnership Preferred Securities. The Guarantees do not apply,
however, to current distributions by the Partnership unless and until such
distributions are declared by the General Partner out of funds legally
available for payment or to liquidating distributions unless there are assets
available for payment in the Partnership, each as more fully described under
"Risk Factors--Insufficient Income or Assets Available to Partnership."
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant in the Partnership Guarantee that so long as any
Partnership Preferred Securities are outstanding if, (a) for any distribution
period, full distributions on a cumulative basis on any Partnership Preferred
Securities have not been paid or declared and set apart for payment, (b) an
Investment Event of Default by any Investment Affiliate in respect of any
Affiliate Investment Instrument has occurred and is continuing and the Company
is in default of its obligations with respect thereto under an applicable
Investment Guarantee or (c) the Company is in default of its obligations under
the Trust Guarantee or the Partnership Guarantee, then, during such period,
(i) the Company shall not declare or pay dividends on, make distributions or
liquidation payments with respect to, or redeem, purchase or acquire, any of
its capital stock (except for dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, its common
stock and exchanges or conversions of common stock of one class for common
stock of another class and other exceptions set forth in the accompanying
Prospectus), (ii) the Company shall not make any payment or cause any payment
to be made that would result in, and shall take such action as shall be
necessary to prevent, the payment of dividends on, any distribution or
liquidation payment with respect to, or any redemption, purchase or other
acquisition of, any Comparable Equity Interest, and (iii) the Company shall
not make any guarantee payments with respect to the foregoing other than
pursuant to the Partnership Guarantee or any other guarantee by the Company
with respect to any Comparable Equity Interest. The Company will also covenant
in the Partnership Guarantee to directly or indirectly maintain ownership of
100% of the General Partner's interest in the Partnership.
EVENTS OF DEFAULT; ENFORCEMENT OF PARTNERSHIP GUARANTEE
An event of default under the Partnership Guarantee will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation preference of the Partnership
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Partnership
Guarantee Trustee or the Special Representative in respect of the Partnership
Guarantee or to direct the exercise of any trust or power conferred under the
Partnership Guarantee. If the Partnership Guarantee Trustee or the Special
Representative fails to enforce its rights under the Partnership Guarantee,
after a holder of record of Partnership Preferred Securities has made a
written request, such holder of Partnership Preferred Securities may institute
a legal proceeding directly against the Company to enforce the rights under
the Partnership Guarantee without first instituting a legal proceeding against
the Partnership, the General Partner, the Partnership Guarantee Trustee, the
Special Representative or any other person or entity. Notwithstanding the
foregoing, if the Company has failed to make a guarantee payment under the
Partnership Guarantee, a holder of Partnership Preferred Securities may
directly institute a proceeding against the Company for enforcement of the
Partnership Guarantee for such payment.
S-51
<PAGE>
STATUS OF THE PARTNERSHIP GUARANTEE; SUBORDINATION
The Partnership Guarantee will constitute an unsecured obligation of the
Company and will rank subordinate and junior to all other existing liabilities
of the Company and will rank pari passu with the most senior preferred or
preference stock (if any) issued from time to time by the Company, with the
Trust Guarantee and the Investment Guarantees and with any guarantee hereafter
entered into by the Company in respect of any preferred security of the
Company or any affiliate of the Company. Accordingly, the rights of the
holders of Partnership Preferred Securities to receive payments under the
Partnership Guarantee will be subject to the rights of the holders of any
obligations of the Company that are senior in priority to the obligations
under the Partnership Guarantee. Furthermore, the holders of the obligations
of the Company that are senior to the obligations under the Partnership
Guarantee (including, but not limited to, obligations constituting senior
indebtedness of the Company) will be entitled to the same rights upon payment
default or dissolution, liquidation and reorganization in respect of the
Partnership Guarantee that inure to the holders of senior indebtedness of the
Company as against the holders of the Company Debentures. In addition, the
Partnership Guarantee will be effectively subordinated to all future
indebtedness and liabilities of the Company's subsidiaries. See "Risk
Factors--Ranking of Subordinate Obligations Under the Guarantees and the
Company Debentures." The Agreement of Limited Partnership provides that each
holder of Partnership Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Partnership Guarantee.
The Partnership Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may directly institute a legal
proceeding against the Company to enforce its rights under the Partnership
Guarantee without instituting a legal proceeding against any other person or
entity).
The Partnership Guarantee will be deposited with the Partnership Guarantee
Trustee to be held for the benefit of the holders of the Partnership Preferred
Securities. In the event of the appointment of a Special Representative to,
among other things, enforce the Partnership Guarantee, the Special
Representative may take possession of the Partnership Guarantee for such
purpose. If no Special Representative has been appointed to enforce the
Partnership Guarantee, the Partnership Guarantee Trustee has the right to
enforce the Partnership Guarantee on behalf of the holders of the Partnership
Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Partnership Preferred Securities (in which case no
consent will be required), the Partnership Guarantee may be amended only with
the prior approval of the holders of not less than a majority in liquidation
preference of the outstanding Partnership Preferred Securities, provided that
for so long as the Property Trustee is the holder of the Partnership Preferred
Securities, such amendment will not be effective without the prior written
approval of a majority in liquidation amount of the Trust Preferred
Securities. All guarantees and agreements contained in the Partnership
Guarantee will bind the successors, assigns, receivers, trustees and
representatives of the Company and will inure to the benefit of the holders of
the Partnership Preferred Securities then outstanding. Except in connection
with any permitted merger or consolidation of the Company with or into another
entity or any permitted sale, transfer or lease of the Company's assets to
another entity as described above under "Supplemental Description of the
Partnership Preferred Securities--Merger, Consolidation or Amalgamation of the
Partnership," the Company may not assign its rights or delegate its
obligations under the Partnership Guarantee without the prior approval of the
holders of at least a majority of the aggregate stated liquidation preference
of the Partnership Preferred Securities then outstanding.
TERMINATION OF THE PARTNERSHIP GUARANTEE
The Partnership Guarantee will terminate and be of no further force and
effect as to the Partnership Preferred Securities upon (i) full payment of the
redemption price of all Partnership Preferred Securities or (ii) payment of
the amounts payable in accordance with the Agreement of Limited Partnership
upon liquidation of the Partnership. The Partnership Guarantee will continue
to be effective or will be reinstated, as the case may
S-52
<PAGE>
be, if at any time any holder of Partnership Preferred Securities must in
accordance with the Partnership Act restore payment of any sums paid under the
Partnership Preferred Securities or the Partnership Guarantee. The Partnership
Act provides that a limited partner of a limited partnership who wrongfully
receives a distribution may be liable to the limited partnership for the
amount of such distribution.
GOVERNING LAW
The Partnership Guarantee will be governed by, and construed in accordance
with, the internal laws of the State of New York.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain United States federal income tax
considerations that may be relevant to the purchase, ownership and disposition
of Trust Preferred Securities and represents the opinion of Goodsill Anderson
Quinn & Stifel, counsel to the Company, the Trust and the Partnership ("Tax
Counsel"), insofar as it relates to matters of law and legal conclusions.
Unless otherwise stated, this summary deals only with Trust Preferred
Securities held as capital assets by United States Persons (defined below) who
purchase the Trust Preferred Securities upon original issuance. As used
herein, a "United States Person" means a person that is a citizen or resident
of the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust which is not treated as a foreign
estate or foreign trust for United States federal tax purposes. The tax
treatment of a holder may vary depending on its particular situation. This
summary does not address all the tax consequences that may be relevant to
holders who may be subject to special tax treatment, such as banks, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or foreign
investors. This summary does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or
of any foreign government that may be applicable to the Trust Preferred
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
The Trust Preferred Securities are not being marketed to persons that are
not United States Persons ("non-United States Persons") and, consequently, the
following discussion does not discuss the tax consequences that might be
relevant to non-United States Persons. Moreover, in order to protect the Trust
and the Partnership from potential adverse consequences, non-United States
Persons may be subject to withholding on distributions on the Trust Preferred
Securities held by such non-United States Persons at a rate of 30%. In
determining a holder's status, the United States entity otherwise required to
withhold taxes may rely on an IRS form W-8, an IRS form W-9, or a holder's
certification of its non-foreign status signed under penalty of perjury. NON-
UNITED STATES PERSONS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF TRUST PREFERRED SECURITIES.
Tax Counsel has advised that there is no authority directly on point dealing
with securities such as the Trust Preferred Securities or transactions of the
type described herein and that the opinions of Tax Counsel are not binding on
the Internal Revenue Service ("IRS") or the courts, either of which could take
a contrary position. No rulings have been or will be sought from the IRS.
Accordingly, there can be no assurance that the IRS will not challenge the
opinions expressed herein or that a court would not sustain such a challenge.
Nevertheless, Tax Counsel has advised that it is of the view that, if
challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
S-53
<PAGE>
TRUST PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION
OF THE TRUST PREFERRED SECURITIES OR REDEMPTION OF THE PARTNERSHIP PREFERRED
SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE "SUPPLEMENTAL
DESCRIPTION OF THE TRUST PREFERRED SECURITIES--TRUST SPECIAL EVENT REDEMPTION
OR DISTRIBUTION" AND "SUPPLEMENTAL DESCRIPTION OF THE PARTNERSHIP PREFERRED
SECURITIES--PARTNERSHIP SPECIAL EVENT REDEMPTION," RESPECTIVELY.
CLASSIFICATION OF THE TRUST
Tax Counsel is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the Trust
will not be classified for United States federal income tax purposes as an
association or a publicly traded partnership taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Trust Preferred Securities will be required to include in its gross income its
distributive share of income attributable to the Partnership, which generally
will be equal to such holder's allocable share of amounts accrued on the
Partnership Preferred Securities. Unless the Partnership invests in the equity
securities of certain Investment Affiliates (for example, after repayment of
the Debentures), no amount included in income with respect to the Trust
Preferred Securities will be eligible for the corporate dividends-received
deduction.
CLASSIFICATION OF THE PARTNERSHIP
Tax Counsel is of the opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the
Partnership will be classified for United States federal income tax purposes
as a partnership and not as an association or a publicly traded partnership
taxable as a corporation.
Tax Counsel's opinion is based on certain factual assumptions relating to
the organization and operation of the Partnership and is conditioned upon
certain representations made by the General Partner and the Partnership as to
factual matters, such as the organization and operation of the Partnership and
the type and frequency of investments made by the Partnership.
The General Partner has represented that it intends to operate the
Partnership in a manner such that it will continue to constitute a partnership
for all future taxable years in which any Partnership Preferred Securities
remain outstanding. In particular, pursuant to the Agreement of Limited
Partnership, the General Partner is prohibited from taking any action that
would cause the Partnership to constitute a "publicly traded partnership"
taxable as a corporation under Section 7704(a) of the Code. Accordingly, it is
expected that the Partnership will continue to qualify as a partnership, and
therefore will not constitute a publicly traded partnership taxable as a
corporation, for all taxable years in which the Partnership Preferred
Securities remain outstanding. If, however, the Partnership were to constitute
a publicly traded partnership taxable as a corporation with respect to a
future taxable year, the Partnership's net income would be subject to United
States federal income tax at the applicable corporate rates.
CLASSIFICATION OF THE DEBENTURES
The Partnership, the Company, the relevant Investment Affiliates and the
holders of the Trust Securities (by acceptance of a beneficial interest in a
Trust Security) will agree to treat the Debentures as indebtedness of the
relevant issuer for all United States federal income tax purposes. Tax Counsel
will issue its opinion that, under current law, and based on certain
representations, facts and assumptions set forth in such opinion, the
Debentures will be classified as indebtedness of the relevant issuer for
United States federal income tax purposes.
S-54
<PAGE>
INCOME AND DEDUCTIONS
A holder's distributive share of income attributable to the Partnership
generally will be substantially equal to the amount of the cash distributions
that accumulate with respect to the Trust Preferred Securities. Accordingly,
if quarterly distributions on the Trust Preferred Securities are paid
currently, the amount of income recognized by a holder during a taxable year
generally will be substantially equal to the cash distributions received by
the holder with respect to its Trust Preferred Securities.
The nature and timing of the income that is allocated to holders of Trust
Preferred Securities will, however, depend on the United States federal income
tax characterization of the investments held by the Partnership during the
period in question. Because the Partnership will be an accrual basis taxpayer
for United States federal income tax purposes, income will accrue on the Trust
Preferred Securities and will be allocated to holders of Trust Preferred
Securities on a daily accrual basis, generally at a rate that is expected to
be equal to (and that will not be greater than) the distribution rate on the
Trust Preferred Securities, regardless of the holders' method of accounting.
Actual cash distributions on the Trust Preferred Securities will not, however,
be separately reported as taxable income to the holders at the time they are
received.
If, however, distributions on the Partnership Preferred Securities are not
made currently, the corresponding distributions on the Trust Preferred
Securities will not be made currently. Because the Partnership is an accrual
basis taxpayer it can be expected that during a period in which interest
payments on the Debentures or distributions on the Partnership Preferred
Securities are deferred (for whatever reason), holders will generally
recognize income in advance of their receipt of any cash distributions with
respect to their Trust Preferred Securities. The amount of income that will be
allocated to holders of Trust Preferred Securities during any such deferral
period will equal their pro rata share of the amount accruing on the
Partnership Preferred Securities during such deferral period.
The Partnership does not presently intend to make an election under Section
754 of the Code. Accordingly, a subsequent purchaser of Trust Preferred
Securities will not be permitted to adjust the tax basis in his allocable
share of the Partnership's assets so as to reflect any difference between such
purchaser's purchase price for the Trust Preferred Securities and such
purchaser's share of the Partnership's underlying tax basis in its assets. As
a result, a holder of Trust Preferred Securities may be required to report a
larger or smaller amount of income from holding the Trust Preferred Securities
than would otherwise be appropriate based upon the holder's purchase price for
the Trust Preferred Securities.
RECEIPT OF PARTNERSHIP PREFERRED SECURITIES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Supplemental
Description of the Trust Preferred Securities--Trust Special Event Redemption
or Distribution," Partnership Preferred Securities may be distributed to
holders of Trust Preferred Securities in liquidation of the Trust. Unless the
liquidation of the Trust occurs as a result of the Trust's being subject to
United States federal income tax with respect to income accrued or received on
the Partnership Preferred Securities, such a distribution to holders would be
treated as a nontaxable event to each holder, each holder would receive an
aggregate tax basis in the Partnership Preferred Securities equal to such
holder's aggregate tax basis in its Trust Preferred Securities, and a holder's
holding period for the Partnership Preferred Securities so received in
liquidation of the Trust would include the period during which the Trust
Preferred Securities were held by such holder. If, however, the liquidation of
the Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Partnership
Preferred Securities, the distribution of Partnership Preferred Securities to
holders by the Trust would likely be a taxable event to each holder, and a
holder would recognize gain or loss measured by the difference between the
holder's tax basis in the Trust Preferred Securities surrendered and the fair
market value of the Partnership Preferred Securities received in exchange
therefor upon the liquidation of the Trust.
S-55
<PAGE>
REDEMPTION OF TRUST PREFERRED SECURITIES FOR CASH
Under certain circumstances, as described under the caption "Supplemental
Description of the Trust Preferred Securities--Redemption," "Supplemental
Description of the Trust Preferred Securities--Trust Special Event Redemption
or Distribution" and "Supplemental Description of the Partnership Preferred
Securities--Partnership Special Event Redemption," the General Partner may
cause the Partnership to redeem the Partnership Preferred Securities for cash,
in which event the Trust would use the proceeds of such redemption to redeem
the Trust Preferred Securities. Under current law, such a redemption would
constitute, for United States federal income tax purposes, a taxable
disposition, and a holder would recognize gain or loss as if it sold the
holder's proportionate interest in the redeemed Partnership Preferred
Securities for an amount of cash equal to the proceeds received upon
redemption. See "--Disposition of Trust Preferred Securities."
DISPOSITION OF TRUST PREFERRED SECURITIES
A holder that sells Trust Preferred Securities will recognize gain or loss
equal to the difference between the amount realized on the sale of the Trust
Preferred Securities and the holder's tax basis in such Trust Preferred
Securities. Such gain or loss will be a capital gain or loss and will be a
long-term capital gain or loss if the Trust Preferred Securities have been
held for more than one year at the time of the sale. A holder will be required
to include accrued but unpaid distributions on the Partnership Preferred
Securities through the date of disposition in income as ordinary income (to
the extent not previously included in income), and to add such amount to the
adjusted tax basis of its Trust Preferred Securities. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
A holder's tax basis in its Trust Preferred Securities generally will be
equal to (i) the amount paid by such holder for its Trust Preferred
Securities, (ii) increased by the amount includible in income by such holder
with respect to its Trust Preferred Securities, and (iii) reduced by the
amount of cash or other property distributed to such holder with respect to
its Trust Preferred Securities. A holder who acquires Trust Preferred
Securities at different prices may be required to maintain a single aggregate
adjusted tax basis in all of his Trust Preferred Securities and, upon sale or
other disposition of some of such Trust Preferred Securities, to allocate a
pro rata portion of such aggregate tax basis to the Trust Preferred Securities
sold or disposed of (rather than maintaining a separate tax basis in each
Trust Preferred Security for purposes of computing gain or loss upon a sale or
other disposition of that Trust Preferred Security).
OTHER PARTNERSHIP PROVISIONS
Section 708. Under Section 708 of the Code, the Partnership will be deemed
to terminate for United States federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a deemed termination were to occur, the Partnership
would be considered to have distributed its assets to the partners who would
then be treated as having recontributed those assets to a new partnership. If
any such constructive termination occurs, the General Partner may be unable to
comply with certain technical requirements that might be applicable for
various reasons including the likely lack of relevant data. As a result, the
Partnership may be subject to certain tax penalties and may incur additional
expenses, which would be the obligation of the General Partner. Proposed
Treasury regulations, should they become effective, would mitigate some of the
effects of a constructive termination.
Section 701. The Department of Treasury has promulgated regulations under
Section 701 of the Code that permit it to disregard a partnership or recast a
transaction if a partnership is formed or availed of with a principal purpose
to reduce substantially the present value of the partners' aggregate tax
liability in a manner inconsistent with the intent of the partnership
provisions of the Code. Although there is no precedent that applies to the
transactions contemplated herein, inasmuch as the Partnership has been formed
for, and will engage in, activities typical for partnerships, Tax Counsel
believes that the Partnership is not of the type intended to fall within the
scope of these regulations.
S-56
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Trust Preferred Securities will be reported to holders on an
IRS Form 1099, which should be mailed to holders of Trust Preferred Securities
by January 31 following each calendar year. Payments made on and proceeds from
the sale of Trust Preferred Securities may be subject to a "back-up"
withholding tax of 31% unless the holder complies with certain identification
requirements. Any withheld amount generally will be allowed as a credit
against the holder's United States federal income tax, provided the required
information is timely filed with the IRS.
PROPOSED LEGISLATION
On March 19, 1996, as part of President Clinton's Fiscal 1997 Budget
Proposal, the Treasury Department released the Proposed Legislation which
would, among other things, deny the borrower an interest deduction with
respect to certain types of debt instruments that are payable in stock of the
issuer or a related party. The Proposed Legislation also would treat as equity
for United States federal income tax purposes instruments with a maximum term
of more than 20 years that are not shown as indebtedness on the consolidated
balance sheet of the issuer. On March 29, 1996, Senate Finance Committee
Chairman William V. Roth and House Ways and Means Committee Chairman Bill
Archer issued a joint statement (the "Joint Statement") indicating their
intent that certain legislative proposals initiated by the Clinton
administration, including the Proposed Legislation, that may be adopted by
either of the tax-writing committees of Congress, would have an effective date
that is no earlier than the date of "appropriate Congressional action." In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to the Treasury Department officials concurring with the view
expressed in the Joint Statement (the "Democrat Letters"). If the principles
contained in the Joint Statement and the Democrat Letters were followed and
the Proposed Legislation were enacted, such legislation would not apply to the
Debentures. There can be no assurances, however, that legislation enacted
after the date hereof will not adversely affect the tax treatment of the
Debentures, or whether such tax treatment would cause a Partnership Tax Event
or a Trust Tax Event that may result in the redemption of the Partnership
Preferred Securities and, consequently, the Trust Preferred Securities.
S-57
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the
Underwriters named below, and each of the Underwriters has severally agreed to
purchase, the number of Trust Preferred Securities set forth opposite its name
below. In the Purchase Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all the
Trust Preferred Securities offered hereby if any of the Trust Preferred
Securities are purchased. In the event of default by an Underwriter, the
Purchase Agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting Underwriters may be increased or the Purchase
Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
TRUST PREFERRED
UNDERWRITER SECURITIES
----------- ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................... 675,000
Goldman, Sachs & Co. ........................................ 665,000
Dean Witter Reynolds Inc. ................................... 665,000
A.G. Edwards & Sons, Inc. ................................... 665,000
Legg Mason Wood Walker, Incorporated......................... 665,000
Robert W. Baird & Co., Incorporated.......................... 665,000
---------
Total................................................... 4,000,000
=========
</TABLE>
The Underwriters propose to offer the Trust Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and, in part, to certain securities
dealers at such price less a concession of $.50 per Trust Preferred Security.
The Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $.45 per Trust Preferred Security to certain brokers and dealers.
After the Trust Preferred Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will ultimately be used to purchase the Debentures of the Company
and its subsidiaries, the Purchase Agreement provides that the Company will
pay or cause to be paid as compensation ("Underwriters' Compensation") to the
Underwriters for their services an amount in immediately available funds of
$.7875 per Trust Preferred Security (or $3,150,000 in the aggregate) for the
accounts of the several Underwriters; provided that such compensation for
sales of 10,000 or more Trust Preferred Securities to a single purchaser will
be $.50 per Trust Preferred Security. Therefore, to the extent of such sales,
the actual amount of Underwriters' Compensation will be less than the
aggregate amount specified in the preceding sentence.
During a period of 30 days from the date of this Prospectus Supplement, none
of the Trust, the Partnership and the Company will, without the prior written
consent of the Underwriters, (i) directly or indirectly, sell, offer to sell,
grant any option for sale of, or otherwise dispose of, any Trust Preferred
Securities, any Partnership Preferred Securities, any preferred stock of the
Company or any security convertible into or exchangeable into or exercisable
for Trust Preferred Securities or Partnership Preferred Securities or any
preferred stock of the Company or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of any Trust Preferred
Securities, Partnership Preferred Securities, any preferred stock of the
Company or any security convertible into or exchangeable into or exercisable
for Trust Preferred Securities or Partnership Preferred Securities or any
preferred stock of the Company, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Trust Preferred
Securities, Partnership Preferred Securities, any preferred stock of the
Company or such other securities, in cash or otherwise.
The Trust Preferred Securities have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance. Trading of the
Trust Preferred Securities on the New York Stock Exchange is expected
S-58
<PAGE>
to commence within a 30-day period after the initial delivery of the Trust
Preferred Securities. The Underwriters have advised the Trust that they intend
to make a market in the Trust Preferred Securities prior to the commencement
of trading on the New York Stock Exchange. The Underwriters will have no
obligation to make a market in the Trust Preferred Securities, however, and
may cease market making activities, if commenced, at any time.
Prior to this offering there has been no public market for the Trust
Preferred Securities. In order to meet one of the requirements for listing the
Trust Preferred Securities on the New York Stock Exchange, the Underwriters
will undertake to sell Trust Preferred Securities to a minimum of 400
beneficial holders.
The Company, the Trust and the Partnership have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the Securities Act.
The Underwriters and/or their affiliates have provided investment banking
and financial advisory services to HEI and its subsidiaries in the past, for
which they have received customary compensation and expense reimbursement, and
may do so again in the future.
ERISA CONSIDERATIONS
HEI, the obligor with respect to the Company Debentures held by the Trust,
and its affiliates and the Property Trustee may be considered a "party in
interest" (within the meaning of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) or a "disqualified person" (within the meaning
of Section 4975 of the Code) with respect to many employee benefit plans (each
a "Plan") that are subject to ERISA. The purchase and/or holding of Trust
Preferred Securities by a Plan that is subject to the fiduciary responsibility
provisions of ERISA or the prohibited transaction provisions of Section 4975
of the Code (including individual retirement arrangements and other plans
described in Section 4975(e)(1) of the Code) and with respect to which HEI,
the Property Trustee or any affiliate is a service provider (or otherwise is a
party in interest or a disqualified person) may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless such
Trust Preferred Securities are acquired pursuant to and in accordance with an
applicable exemption, such as Prohibited Transaction Class Exemption ("PTCE")
84-14 (an exemption for certain transactions determined by an independent
qualified professional asset manager), PTCE 91-38 (an exemption for certain
transactions involving bank collective investment funds), PTCE 90-1 (an
exemption for certain transactions involving insurance companies pooled
separate accounts) or PTCE 95-60 (an exemption for transactions involving
certain insurance company general accounts).
Any purchaser proposing to acquire Trust Preferred Securities with assets of
any Plan should consult with its ERISA counsel.
S-59
<PAGE>
INDEX OF SELECTED DEFINED TERMS
<TABLE>
<S> <C>
1940 Act............................................................. S-28
Affiliate Investment Instruments..................................... S-22
Agreement of Limited Partnership..................................... S-21
ASB.................................................................. S-17
Beneficial Owner..................................................... S-33
Business Day......................................................... S-25
Change in 1940 Act Law............................................... S-28
Code................................................................. S-53
Commission........................................................... S-33
Company.............................................................. S-1
Company Debentures................................................... S-2
Comparable Equity Interest........................................... S-37
Debentures........................................................... S-2
Debt Trustee......................................................... S-21
Delaware Trustee..................................................... S-21
Democrat Letters..................................................... S-14; S-57
Depository........................................................... S-33
DTC.................................................................. S-1
Eligible Debt Securities............................................. S-2; S-42
Eligible Institution................................................. S-42
ERISA................................................................ S-59
Exchange Act......................................................... S-17
FDIC................................................................. S-18
General Partner...................................................... S-2
Global Certificates.................................................. S-33
Global Partnership Security.......................................... S-49
Guarantees........................................................... S-2
HECO................................................................. S-17
HEI.................................................................. S-1; S-17
HEIDI................................................................ S-17
HEIIC................................................................ S-17
HEIPC................................................................ S-17
HELCO................................................................ S-17
HTB.................................................................. S-17
Hycap................................................................ S-2
Independent Financial Advisor........................................ S-43
Indirect Participants................................................ S-33
Initial Partnership Proceeds......................................... S-41
Investment Affiliate................................................. S-43
Investment Events of Default......................................... S-42
Investment Guarantees................................................ S-2
IRS.................................................................. S-53
Joint Statement...................................................... S-14; S-57
MECO................................................................. S-17
MPC.................................................................. S-17
New York Stock Exchange.............................................. S-1
non-United States Persons............................................ S-53
Participants......................................................... S-33
Partnership.......................................................... S-2
Partnership Act...................................................... S-22
</TABLE>
S-60
<PAGE>
<TABLE>
<S> <C>
Partnership Enforcement Event......................................... S-40
Partnership Guarantee................................................. S-2
Partnership Guarantee Payments........................................ S-50
Partnership Guarantee Trustee......................................... S-50
Partnership Investment Company Event.................................. S-45
Partnership Liquidation Distribution.................................. S-46
Partnership Preferred Securities...................................... S-2
Partnership Special Event............................................. S-45
Partnership Successor Securities...................................... S-48
Partnership Tax Event................................................. S-45
Property Account...................................................... S-22
Property Trustee...................................................... S-21
Proposed Legislation.................................................. S-14
PUC Order............................................................. S-18
Purchase Agreement.................................................... S-58
Redemption Price...................................................... S-4
Registration Statement................................................ S-21
Regular Trustees...................................................... S-21
SAIF.................................................................. S-18
Securities Act........................................................ S-13
Special Event......................................................... S-14
Special Representative................................................ S-40
Subsidiary Debentures................................................. S-2
Successor Securities.................................................. S-31
Tax Action............................................................ S-28
Tax Counsel........................................................... S-53
TOPrSSM............................................................... S-1
Trust................................................................. S-1
Trust Act............................................................. S-21
Trust Agreement....................................................... S-21
Trust Common Securities............................................... S-1
Trust Dissolution Tax Opinion......................................... S-27
Trust Enforcement Event............................................... S-25
Trust Guarantee....................................................... S-2
Trust Guarantee Payments.............................................. S-36
Trust Guarantee Trustee............................................... S-21
Trust Indenture Act................................................... S-21
Trust Investment Company Event........................................ S-28
Trust Liquidation..................................................... S-29
Trust Liquidation Distribution........................................ S-29
Trust Preferred Securities............................................ S-1
Trust Redemption Tax Opinion.......................................... S-27
Trust Securities...................................................... S-1
Trust Special Event................................................... S-27
Trust Tax Event....................................................... S-27
Trustees.............................................................. S-21
Underwriters' Compensation............................................ S-1; S-58
United States Person.................................................. S-53
YB.................................................................... S-17
</TABLE>
S-61
<PAGE>
PROSPECTUS
- ----------
HAWAIIAN ELECTRIC INDUSTRIES, INC.
SENIOR DEBT SECURITIES
SENIOR SUBORDINATED DEBT SECURITIES
JUNIOR SUBORDINATED DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
----------------
HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUST I
HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUST II
HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUST III
TRUST PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
HAWAIIAN ELECTRIC INDUSTRIES, INC.
Hawaiian Electric Industries, Inc. ("HEI" or the "Company"), a Hawaii
corporation, may from time to time offer (i) its unsecured senior debt
securities ("Senior Debt Securities"), unsecured senior subordinated debt
securities ("Senior Subordinated Debt Securities") or unsecured junior
subordinated debt securities ("Junior Subordinated Debt Securities"),
consisting of debentures, notes or other evidences of indebtedness, each in
one or more series (collectively, "Debt Securities"), (ii) shares of its
preferred stock, without par value, in one or more series (the "Preferred
Stock"), and (iii) shares of its common stock, without par value (the "Common
Stock"). Such securities may be offered in one or more separate classes or
series, in such amounts, in such numbers of securities, at such prices and on
such terms to be determined by market conditions at the time of sale and to be
set forth in a supplement or supplements to this Prospectus (each, a
"Prospectus Supplement"). Such securities may be sold for U.S. dollars,
foreign denominated currency or currency units; amounts payable with respect
to any such securities may likewise be payable in U.S. dollars, foreign
denominated currency or currency units--in each case as the Company
specifically designates. The Company's obligations under the Senior
Subordinated Debt Securities and Junior Subordinated Debt Securities will be
subordinate and junior in right of payment to Senior Debt Securities (if any)
and to certain other indebtedness of HEI and its subsidiaries, as described
herein and as may be described in an accompanying Prospectus Supplement.
Each of Hawaiian Electric Industries Capital Trust I, Hawaiian Electric
Industries Capital Trust II and Hawaiian Electric Industries Capital Trust III
(severally, a "Trust" and, collectively, the "Trusts") is a statutory business
trust created under the laws of the State of Delaware, which may offer, from
time to time, preferred securities representing undivided beneficial interests
in the assets of the respective Trust ("Trust Preferred Securities"). HEI will
own all the common securities (the "Trust Common Securities" and, together
with the Trust Preferred Securities, the "Trust Securities") representing
undivided beneficial ownership interests in the assets of the Trust. The Trust
exists for the sole purpose of issuing the Trust Securities and investing the
proceeds as described below and engaging in activities incident thereto. The
payment of periodic cash distributions ("distributions") with respect to the
Trust Preferred Securities of each of the Trusts out of moneys held by each of
the Trusts, and payments on liquidation, redemption or otherwise with respect
to such Trust Preferred Securities, will be guaranteed by HEI to the extent
described herein (each a "Trust Guarantee"). See "Description of the Trust
Guarantees."
(continued on next page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is January 24, 1997
<PAGE>
(Continued from previous page)
The proceeds from the sale of the Trust Securities will be used by the
relevant Trust to purchase either Junior Subordinated Debt Securities from HEI
(the "Company Debentures") or to purchase partnership preferred securities
("Partnership Preferred Securities"), representing the limited partner
interests in HEI Preferred Funding, LP, a Delaware limited partnership (the
"Partnership"). All of the partner interests in the Partnership other than the
limited partner interests represented by the Partnership Preferred Securities
will be owned by Hycap Management, Inc. ("Hycap"), a wholly-owned subsidiary
of HEI and the sole general partner of the Partnership (the "General
Partner"). If the relevant Trust uses the proceeds from the sale of Trust
Preferred Securities to purchase Partnership Preferred Securities,
substantially all of the proceeds from the sale of the Partnership Preferred
Securities and the capital contribution from the General Partner will be used
by the Partnership to purchase Company Debentures and debt securities of
certain of HEI's subsidiaries ("Subsidiary Debentures"). The payment of
distributions by the Partnership (if, as and when declared by the General
Partner) and payments on liquidation of the Partnership or the redemption of
Partnership Preferred Securities and the performance of the payment and
certain other obligations of the General Partner, will be guaranteed by HEI
(the "Partnership Guarantee"). See "Description of the Partnership Guarantee."
In addition, payments in respect of the Subsidiary Debentures may also be
fully and unconditionally guaranteed, on a subordinated basis, by HEI (the
"Investment Guarantees") for the benefit of the holders of the Partnership
Preferred Securities.
The Trust Guarantees, the Partnership Guarantee and the Investment
Guarantees (collectively, the "Guarantees") will be subordinate and junior in
right of payment to all other liabilities of HEI and rank pari passu with the
most senior preferred or preference stock (if any) issued from time to time by
HEI, with each other and with any guarantee hereafter entered into by HEI in
respect of any preferred security of any affiliate of HEI.
The Company Debentures in one or more series may be issued and sold from
time to time to a Trust in connection with the investment of the proceeds from
the offering of Trust Securities of such Trust. The Company Debentures, or the
Partnership Preferred Securities, purchased by a Trust may subsequently be
distributed pro rata to holders of Trust Securities in connection with the
dissolution of such Trust upon the occurrence of certain events to be
described in an accompanying Prospectus Supplement.
Specific terms of the particular Senior Debt Securities, Senior Subordinated
Debt Securities, Junior Subordinated Debt Securities, Trust Preferred
Securities, Partnership Preferred Securities, Guarantees, Preferred Stock and
Common Stock, in respect of which this Prospectus is being delivered (the
"Offered Securities"), will be set forth in an accompanying Prospectus
Supplement or Supplements, which will describe the terms of the offering of
the Offered Securities, the initial price thereof and the net proceeds from
the sale thereof. The Prospectus Supplement will set forth with regard to the
particular Offered Securities, certain terms thereof, including, where
applicable, (i) in the case of Senior Debt Securities, Senior Subordinated
Debt Securities and Junior Subordinated Debt Securities, the ranking as
senior, senior subordinated or junior subordinated Debt Securities, the
specific designation, aggregate principal amount, purchase price,
denomination, currency or currency unit for which the Debt Securities may be
purchased, currency or currency unit in which the principal of and any
interest on the Debt Securities is payable, maturity, the right of HEI, if
any, to extend or shorten the maturity after issuance, any premium that may be
payable, any exchange, conversion or redemption provisions, the interest rate
(which may be fixed or variable), if any, the time and method of calculating
interest payments, if any, dates on which premium, if any, and interest, if
any, will be payable, the right of HEI, if any, to defer payment of interest
on the Debt Securities and the maximum length of such deferral period, the
initial public offering price, subordination terms, and any listing on a
securities exchange and other specific terms of the offering; (ii) in the case
of Preferred Stock, the specific designation of the offering, number of
shares, purchase price and the rights, preferences and privileges thereof and
any qualifications or restrictions thereon (including dividends, liquidation
value, voting rights, terms for the redemption, conversion or exchange thereof
and any other specific terms of the Preferred Stock), and any listing on a
securities exchange and whether the Company has elected to offer the Preferred
Stock in the form of depositary shares; (iii) in the case of Common Stock, the
number of shares offered, the initial offering price, the market price and
dividend information; and (iv) in the case of Trust Preferred Securities of a
Trust, the designation, number of securities, liquidation preference per
security, initial public offering price, any listing on a securities exchange,
distribution rate (or method of
2
<PAGE>
calculation thereof), dates on which distributions shall be payable and dates
from which distributions shall accrue, any voting rights, terms for any
conversion or exchange into other securities, any redemption, exchange or
sinking fund provisions, any other rights, preferences, privileges,
limitations or restrictions relating to the Trust Preferred Securities and the
terms upon which the proceeds of the sale of the Trust Preferred Securities
shall be used to purchase Company Debentures or Partnership Preferred
Securities.
The Offered Securities may be offered in one or more series and in amounts,
at prices and on terms to be determined at the time of offering; provided,
however, that the aggregate initial public offering price to the public of the
Offered Securities will be limited to $300,000,000. The Prospectus Supplement
relating to any Offered Securities will contain information concerning certain
United States federal income tax considerations, if applicable to the Offered
Securities.
----------------
HEI and/or each of the Hawaiian Electric Industries Capital Trusts may sell
the Offered Securities directly, through agents designated from time to time,
or through underwriters or dealers. See "Plan of Distribution" below. If any
agents of HEI and/or any Hawaiian Electric Industries Capital Trust or any
underwriters or dealers are involved in the sale of the Offered Securities,
the names of such agents, underwriters or dealers and any applicable
commissions and discounts will be set forth in any related Prospectus
Supplement.
This Prospectus may not be used to consummate sales of securities unless
accompanied by a Prospectus Supplement.
3
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by HEI, the Partnership and the Trusts with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Offered Securities.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, although it does include a
summary of certain terms of the Debt Securities and the indentures pursuant to
which such Debt Securities will be issued; the Trust Securities and the Trust
Agreements creating the Trusts; the Partnership and the Agreement of Limited
Partnership pursuant to which the Partnership is created; the Partnership
Preferred Securities; and the Guarantees. Reference is made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company, the Trusts, the Partnership and the
Offered Securities. Any statements contained herein concerning the provisions
of any document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission or incorporated by reference herein are not
necessarily complete, and, in each instance, reference is made to the copy of
such document so filed for a more complete description of the matter involved.
Each such statement is qualified in its entirety by such reference.
HEI is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith,
files reports, proxy statements and other information with the Commission.
Reports, proxy statements and other information concerning HEI can be
inspected and copied at prescribed rates at the Commission's Public Reference
Room, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, as well as the following Regional Offices of the Commission: 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained by mail from the Commission's Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
If available, such reports and other information may also be accessed through
the Commission's electronic data gathering, analysis and retrieval system
("EDGAR") via electronic means, including the Commission's Web site on the
Internet (http://www.sec.gov). Such reports, proxy statements and other
information may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, and the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104, on which exchanges
HEI's common stock is listed.
No separate financial statements of any of the Trusts or the Partnership
have been included herein. HEI does not believe that such financial statements
would be material to holders of the Trust Preferred Securities because (i) all
of the voting securities of each of the Trusts will be owned by, and the sole
General Partner of the Partnership will be a wholly-owned subsidiary of, HEI,
a reporting company under the Exchange Act, (ii) none of the Trusts nor the
Partnership has independent operations but exists for the sole purpose of
issuing securities representing undivided beneficial interests in the assets
of such Trust and the Partnership, respectively, and investing the proceeds
thereof in Company Debentures and, in the case of the Partnership, also in the
Subsidiary Debentures and other qualified investments, and (iii) HEI's
obligations described herein and in any accompanying Prospectus Supplement to
provide certain indemnities in respect of, and be responsible for, certain
costs, expenses, debts and liabilities of each of the Trusts under any
indenture and any supplemental indenture thereto and pursuant to the trust
agreement for each Trust, the Trust Guarantee issued with respect to Trust
Preferred Securities issued by such Trust and, in case the Trust purchases the
Company Debentures, such Company Debentures and the related indenture and, in
case such Trust purchases the Partnership Preferred Securities, the Company
Debentures, the Subsidiary Debentures and the Guarantees, in either case taken
together, effectively constitute a full and unconditional guarantee, on a
subordinated basis, of payments due on the Trust Preferred Securities. See
"Description of the Junior Subordinated Debt Securities," "Description of the
Trust Guarantees," and "Description of the Investment Guarantees."
4
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-8503) by HEI
pursuant to Section 13 of the Exchange Act are incorporated by reference in
this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as amended by HEI's Annual Report on Form 10-K/A dated April 30, 1996
for the fiscal year ended December 31, 1995;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996, and September 30, 1996; and
(c) Current Reports on Form 8-K dated February 21, 1996, April 30, 1996
and January 3, 1997.
All documents filed by HEI pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in this Prospectus
or in a document incorporated or deemed to be incorporated by reference herein
or in any Prospectus Supplement (each an "Incorporated Document") shall be
deemed to be modified or superseded for purposes of this Prospectus and any
Prospectus Supplement to the extent that a statement contained herein or
therein (or in any subsequently filed Incorporated Document) modifies or
supersedes such statement. Such incorporation by reference shall not be deemed
to specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any Prospectus Supplement.
Certain information contained in this Prospectus and in any Prospectus
Supplement summarizes, is based upon or refers to information and financial
statements contained in one or more of the Incorporated Documents;
accordingly, such information contained herein or in any Prospectus Supplement
is qualified in its entirety by reference to such Incorporated Documents and
should be read in conjunction therewith.
HEI WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS
PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE WHICH HAVE
BEEN OR MAY BE INCORPORATED BY REFERENCE HEREIN (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS). REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO TREASURER,
HAWAIIAN ELECTRIC INDUSTRIES, INC., P.O. BOX 730, HONOLULU, HAWAII 96808-0730,
TELEPHONE: (808) 543-7383.
5
<PAGE>
HAWAIIAN ELECTRIC INDUSTRIES, INC.
HEI was incorporated in 1981 under the laws of the State of Hawaii and is a
holding company with subsidiaries engaged in the electric utility, savings
bank, freight transportation, real estate development and other businesses,
primarily in the State of Hawaii, and also engaged in the pursuit of
independent power projects and energy services projects in Asia and the
Pacific. HEI's predecessor, Hawaiian Electric Company, Inc. ("HECO"), was
incorporated under the laws of the Kingdom of Hawaii (now the State of Hawaii)
on October 13, 1891. As a result of a 1983 corporate reorganization, HECO
became an HEI subsidiary, and common shareholders of HECO became common
shareholders of HEI. The principal office of HEI is located at 900 Richards
Street, Honolulu, Hawaii 96813 and its telephone number is (808) 543-5662.
HECO and its subsidiaries, Maui Electric Company, Limited ("MECO") and
Hawaii Electric Light Company, Inc. ("HELCO"), are regulated operating
electric public utilities engaged in the production, purchase, transmission,
distribution and sale of electricity on the islands of Oahu, Maui, Lanai,
Molokai and Hawaii. These five islands had a combined population estimated at
1,130,000 as of July 1, 1995, or approximately 95 percent of the State's total
population, and a service area of approximately 5,766 square miles. HECO and
its subsidiaries provide the only electric public utility service on these
islands.
HEI also owns directly or indirectly the following operating subsidiaries
which comprise its diversified companies: HEI Diversified, Inc. ("HEIDI") and
its subsidiary, American Savings Bank, F.S.B. ("ASB") and its subsidiaries;
Hawaiian Tug & Barge Corp. ("HTB") and its subsidiary, Young Brothers, Limited
("YB"); Malama Pacific Corp. ("MPC") and its subsidiaries; HEI Investment
Corp. ("HEIIC"); and HEI Power Corp. ("HEIPC") and its subsidiaries.
ASB, acquired in 1988, is the fourth largest financial institution in Hawaii
based on total assets and the third largest financial institution in Hawaii
based on deposits, in each case as of June 30, 1996, and has 48 retail
branches. HTB was acquired in 1986 and provides ship assist and charter towing
services and owns YB, a regulated intrastate public carrier of waterborne
freight among the Hawaiian Islands. MPC was formed in 1985 and directly or
through subsidiaries develops and invests in real estate. HEIIC was formed in
1984 and is a passive investment company which primarily holds investments in
leveraged leases and currently plans no new investments. HEIPC was formed in
March 1995 to pursue, directly or through its subsidiaries or affiliates,
independent power projects and energy services projects in Asia and the
Pacific.
HEI is a legal entity separate and distinct from its various subsidiaries.
As a holding company with no significant operations of its own, the principal
sources of its funds are dividends or other distributions from its operating
subsidiaries, borrowings and sales of equity. The ability of certain of HEI's
direct and indirect subsidiaries to pay dividends or make other distributions
to HEI, or to make loans or extend credit to or purchase assets from HEI, is
subject to contractual, statutory and regulatory restrictions, including
without limitation the provisions of an agreement with the Hawaii Public
Utilities Commission (pertaining to the electric public utility subsidiaries)
and the capital requirements imposed on ASB by the Office of Thrift
Supervision, as well as restrictions and limitations set forth in debt
instruments, preferred stock resolutions and guarantees.
THE INFORMATION IN THIS PROSPECTUS CONCERNING HEI AND ITS SUBSIDIARIES DOES
NOT PURPORT TO BE COMPREHENSIVE. ADDITIONAL INFORMATION CONCERNING THE
BUSINESSES AND AFFAIRS OF HEI AND ITS SUBSIDIARIES, INCLUDING WITHOUT
LIMITATION PENDING LEGAL AND REGULATORY PROCEEDINGS, DESCRIPTIONS OF
REGULATIONS TO WHICH THESE COMPANIES ARE SUBJECT AND THEIR CAPITAL
REQUIREMENTS AND RESOURCES, IS CONTAINED IN THE INCORPORATED DOCUMENTS. SEE
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
6
<PAGE>
THE HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUSTS
Each of the Trusts is a statutory business trust created under Delaware law
pursuant to (a) a separate trust agreement (each, a "Trust Agreement")
executed by HEI, as sponsor for such trust (the "Sponsor"), and the Trustees
(as defined herein) for such trust and (b) the filing of a certificate of
trust with the Delaware Secretary of State. Each Trust exists for the
exclusive purposes of (i) issuing the Trust Securities, (ii) investing the
gross proceeds of the Trust Securities in Company Debentures or in Partnership
Preferred Securities, and (iii) engaging in only those other activities
necessary or incidental thereto. All of the Trust Common Securities will be
owned by HEI. The Trust Common Securities of each Trust will rank pari passu,
and payments will be made thereon pro rata, with the Trust Preferred
Securities of such Trust except that upon an event of default under the Trust
Agreement with respect thereto, the rights of the holders of the Trust Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Trust Preferred Securities. HEI will acquire Trust Common
Securities of each Trust in an aggregate liquidation preference amount equal
to not less than 3 percent of the total capital of each Trust.
Each Trust Agreement may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Property Trustee) (as defined
herein), provided that, if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would materially
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to such Trust Agreement or otherwise
or (ii) the dissolution, winding-up or termination of the related Trust other
than pursuant to the terms of such Trust Agreement, then the holders of record
of the Trust Securities voting together as a single class will be entitled to
vote on such amendment or proposal and such amendment or proposal shall not be
effective except with the approval of at least a majority in liquidation
amount of the Trust Securities affected thereby; provided, that, if any
amendment or proposal referred to in clause (i) above would materially
adversely affect only the Trust Preferred Securities or the Trust Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
Trust Securities.
Each Trust shall be subject to termination as provided in the applicable
Trust Agreement. Each Trust's business and affairs will be conducted by the
trustees (the "Trustees") appointed by HEI, as the holder of record of all the
Trust Common Securities. The holder of record of the Trust Common Securities
will be entitled to appoint, remove or replace any of, or increase or reduce
the number of, the Trustees of a Trust. The duties and obligations of the
Trustees shall be governed by the Trust Agreement of their respective Trust.
One or more of the Trustees for each Trust will be persons who are employees
or officers of or affiliated with HEI (the "Regular Trustees"). One Trustee of
each Trust will be a financial institution which will be unaffiliated with HEI
and which shall act as institutional trustee under the Trust Agreement and as
indenture trustee for purposes of the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), pursuant to the terms set forth in a Prospectus
Supplement (the "Property Trustee"). In addition, unless the Property Trustee
maintains a principal place of business in the State of Delaware, and
otherwise meets the requirements of applicable law, one Trustee of each Trust
will have its principal place of business or reside in the State of Delaware
(the "Delaware Trustee"). HEI will pay all fees and expenses related to each
of the Trusts and the offering of Trust Securities. The initial Property
Trustee and the initial Delaware Trustee for each Trust will be The Bank of
New York and The Bank of New York (Delaware), respectively. The principal
office of the Property Trustee is 101 Barclay St., 21st Floor, New York, N.Y.
10286. The office of the Delaware Trustee for each Trust in the State of
Delaware, and its principal place of business is, White Clay Center,
Route 273, Newark, Delaware 19711. The principal place of business of each
Trust is 101 Barclay St., 21st Floor, New York, N.Y. 10286.
7
<PAGE>
THE PARTNERSHIP
The following description sets forth certain general information concerning
the Partnership. In the event Partnership Preferred Securities are to be
purchased by a Trust with the proceeds from the sale of its Trust Securities,
the Prospectus Supplement relating to such offering will contain additional
information concerning the Partnership. The information set forth below and in
any Prospectus Supplement relating to the Partnership does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Agreement of Limited Partnership relating to the Partnership which, as amended
and restated, is in substantially the form filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
HEI Preferred Funding, LP is a limited partnership formed under the Delaware
Revised Uniform Limited Partnership Act, as amended (the "Partnership Act").
Pursuant to the certificate of limited partnership and the Agreement of
Limited Partnership for the Partnership, as amended, Hycap is the sole General
Partner of the Partnership. Upon the issuance of the Partnership Preferred
Securities to a Trust, which securities represent limited partner interests in
the Partnership, the Trust will be the sole limited partner of the
Partnership. Contemporaneously with the issuance of the Partnership Preferred
Securities, the General Partner will contribute capital to the Partnership in
an amount that will establish its initial capital account at a level equal to
at least 15% of the total capital of the Partnership.
The Partnership will be managed by the General Partner and exists for the
sole purpose of (i) issuing the Partnership Preferred Securities, (ii)
investing the proceeds thereof in securities of HEI and its subsidiaries (the
"Affiliate Investment Instruments," including the Company Debentures and the
Subsidiary Debentures) and certain U.S. government obligations and commercial
paper of entities not affiliated with HEI (the "Eligible Debt Securities") and
(iii) engaging in only those other activities necessary or incidental thereto.
The rights of the holders of the Partnership Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Agreement of Limited Partnership and the Partnership Act. See "Description of
the Partnership Preferred Securities."
The location of the principal place of activity of the Partnership is Hycap
Management, Inc., 300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801
(302) 427-5738.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
The following tables set forth the ratios of earnings to fixed charges for
HEI and its subsidiaries for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
30, YEARS ENDED DECEMBER 31,
----------- ------------------------
1996 1995 1995 1994 1993 1992 1991
----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
(excluding interest on ASB deposits)...... 1.90 2.03 1.94 2.22 2.25 2.08 1.99
Ratio of earnings to fixed charges
(including interest on ASB deposits)...... 1.54 1.62 1.57 1.69 1.65 1.50 1.46
</TABLE>
For purposes of calculating the ratio of HEI's consolidated earnings to
fixed charges, "earnings" represent the sum of (a) pretax income from
continuing operations (excluding undistributed net income or net loss from
less than fifty-percent-owned persons) and (b) fixed charges (as hereinafter
defined, but excluding capitalized interest). "Fixed charges" are calculated
both excluding and including interest on ASB's deposits during the applicable
periods and represent the sum of (i) interest, whether capitalized or
expensed, incurred by HEI and its subsidiaries plus their proportionate share
of interest on debt to outsiders incurred by fifty-percent-owned persons, but
excluding interest on nonrecourse debt from leveraged leases which is not
included in interest
8
<PAGE>
expense in HEI's consolidated statements of income, (ii) amortization of debt
expense and discount or premium related to any indebtedness, whether
capitalized or expensed, (iii) the interest factor in rental expense and
(iv) the preferred stock dividend requirements of HEI's subsidiaries,
increased to an amount representing the pretax earnings required to cover such
dividend requirements. HEI has not issued Preferred Stock and consequently
pays no preferred stock dividends.
The following table sets forth the ratio of earnings to fixed charges for
HECO and its subsidiaries for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... 3.67 3.66 3.46 3.47 3.25 3.03 2.82
</TABLE>
For purposes of calculating the ratio of HECO's consolidated earnings to
fixed charges, "earnings" represent the sum of (a) pretax income before
preferred stock dividends of HECO and (b) fixed charges (as hereinafter
defined, reduced by the allowance for borrowed funds used during
construction). "Fixed charges" represent the sum of (i) interest, whether
capitalized or expensed, incurred by HECO and its subsidiaries,
(ii) amortization of debt expense and discount or premium related to any
indebtedness, whether capitalized or expensed, (iii) the estimated interest
component in rental expense and (iv) the preferred stock dividend requirements
of HELCO and MECO, increased to an amount representing the pretax earnings
required to cover such dividend requirements.
USE OF PROCEEDS
Each Trust will use all proceeds from the sale of the Trust Securities to
purchase Company Debentures or Partnership Preferred Securities. The
Partnership will use all proceeds received from the General Partner's capital
contribution and the sale of Partnership Preferred Securities to purchase
Company Debentures, Subsidiary Debentures and Eligible Debt Securities. Unless
otherwise indicated in the applicable Prospectus Supplement, HEI intends to
use the net proceeds received by it from the sale of the Offered Securities
principally to fund investments in, or extend credit, to its subsidiaries, for
repayment of outstanding indebtedness and for general corporate purposes. The
precise amounts and timing of investments in, and extensions of credit to,
HEI's subsidiaries will depend upon the subsidiaries' funding requirements and
the availability of other funds. Accordingly, the net proceeds to HEI from the
sale of Offered Securities may be temporarily invested in marketable
securities or applied to the reduction of HEI's short-term indebtedness. Based
upon the historic and anticipated future growth of HEI and the financial needs
of its subsidiaries, HEI may engage in additional financings of a character
and amount to be determined as the need arises.
DESCRIPTION OF SENIOR DEBT SECURITIES
AND SENIOR SUBORDINATED DEBT SECURITIES
HEI may issue unsecured Senior Debt Securities and Senior Subordinated Debt
Securities (collectively, for purposes of this Section only, the "Debt
Securities"), consisting of notes, debentures or other evidences of
indebtedness issued from time to time in one or more series. Prior to issuing
any Senior Debt Securities or Senior Subordinated Debt Securities, HEI will
enter into a senior debt indenture (the "Senior Indenture"), in the case of
Senior Debt Securities, and a senior subordinated debt indenture (the "Senior
Subordinated Indenture"), in the case of Senior Subordinated Debt Securities.
For purposes of this Section only, the Senior Indenture and the Senior
Subordinated Indenture are sometimes hereinafter referred to individually as
an "Indenture" and collectively as the "Indentures." HEI will select the
trustee under each of the Indentures (each, a "Debt Trustee"). The forms of
the contemplated Indentures are included as exhibits to the Registration
Statement of
9
<PAGE>
which this Prospectus is a part and are described below. The terms of the Debt
Securities will include those stated in the applicable Indenture and any
supplemental indenture thereto, and those made part of the Indenture by
reference to the Trust Indenture Act.
The following summary of certain of the terms of the Indentures and the Debt
Securities does not purport to be complete and is subject in all respects to
the provisions of, and is qualified in its entirety by reference to, the
applicable Indenture and the Trust Indenture Act. Numerical references in
parentheses below are to sections in the applicable Indenture. Wherever
particular sections or defined terms of the applicable Indenture are referred
to, such sections or defined terms are incorporated herein by reference. The
Indentures are substantially identical except for provisions relating to
subordination and those relating to HEI's covenants. Any Debt Securities
offered by this Prospectus will be accompanied by a Prospectus Supplement
which will indicate that the securities being offered thereby are Senior Debt
Securities or Senior Subordinated Debt Securities and will set forth the
designation and describe the specific terms and provisions thereof, which
description will supplement and, when inconsistent, supersede the description
in this Section.
GENERAL
Neither of the Indentures will limit the amount of additional indebtedness
HEI or any of its subsidiaries may incur. The Debt Securities will be
unsecured senior or senior subordinated obligations of HEI. Since HEI is a
holding company, the Debt Securities effectively will be subordinate to all
obligations of HEI's subsidiaries, and HEI's rights and the rights of its
creditors, including the holders of Debt Securities, to participate in the
assets of any subsidiary upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that HEI may itself be a creditor with
recognized claims against such subsidiary. Claims on HEI's subsidiaries by
creditors other than HEI include obligations arising out of short and long-
term indebtedness, as well as other liabilities incurred in the ordinary
course of business. In addition, since HEI's principal subsidiaries are
subject to state or federal regulatory control, the ability of such
subsidiaries to pay dividends or to make distributions, loans or advances to
HEI without prior regulatory approval is limited by applicable laws,
regulations and agreements with regulatory agencies.
The Indentures do not limit the aggregate principal amount of indebtedness
that may be issued thereunder and provide that Debt Securities may be issued
from time to time in one or more series and may be denominated and payable in
foreign currencies or units based on or related to foreign currencies,
including European Currency Units. Special United States federal income tax
considerations applicable to any Debt Securities so denominated will be
described in the relevant Prospectus Supplement.
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for the following terms of and information relating
to the Senior Debt and Senior Subordinated Debt Securities offered thereby (to
the extent such terms are applicable to such Debt Securities): (i)
classification as Senior or Senior Subordinated Debt Securities, and the
specific designation, aggregate principal amount, purchase price and
denominations; (ii) if other than U.S. Dollars, the currency or units based on
or relating to currencies in which the Debt Securities are denominated and/or
in which principal, premium, if any, and/or any interest will or may be
payable; (iii) any date of maturity; (iv) interest rate or rates (or the
method by which such rate or rates will be determined), if any; (v) the dates
on which any such interest will be payable and from which such interest will
accrue; (vi) the place or places where the principal of and premium, if any,
and interest, if any, on the Debt Securities will be payable; (vii) any
redemption, repayment or sinking fund provisions; (viii) whether, in the case
of Senior Subordinated Debt Securities, such Debt Securities are convertible
into Common Stock of HEI; (ix) whether the Debt Securities will be issuable in
registered form ("Registered Debt Securities") or bearer form ("Bearer Debt
Securities") or both and, if Bearer Debt Securities are issuable, any
restrictions applicable to the place of payment of any principal of and
premium, if any, and interest on such Bearer Debt Securities, to the exchange
of one form for another and to the offer, sale and delivery of such Bearer
Debt Securities (including the requirement that under current United States
federal income tax law, Registered Debt Securities will not be exchangeable
into Bearer Debt Securities); (x) any applicable United States federal income
tax consequences,
10
<PAGE>
including whether and under what circumstances HEI will pay additional amounts
on Debt Securities held by a person who is not a U.S. person (as hereinafter
defined) in respect of any tax, assessment or governmental charge withheld or
deducted and, if so, whether HEI will have the option to redeem such Debt
Securities rather than pay such additional amounts; (xi) the proposed listing,
if any, of the Debt Securities on any securities exchange; and (xii) any other
specific terms of the Debt Securities, including any modifications of or
additions to the events of default or covenants provided for with respect to
such Debt Securities, and any terms which may be required by or advisable
under applicable laws or regulations not inconsistent with the applicable
Indenture.
Debt Securities may be presented for exchange and Registered Debt Securities
may be presented for transfer in the manner, at the places and subject to the
restrictions set forth in the Debt Securities and the applicable Prospectus
Supplement. Such services will be provided without charge, other than any tax
or other governmental charge payable in connection therewith, but subject to
the limitations provided in the applicable Indenture. Bearer Debt Securities
and the coupons, if any, appertaining thereto will be transferable by
delivery.
Debt Securities will bear interest at a fixed rate or a floating rate. Debt
Securities bearing no interest or interest at a rate that at the time of
issuance is below the prevailing market rate will be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes will be described in
the relevant Prospectus Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on
any interest payment date, to be determined by reference to one or more
currency exchange rates, commodity prices, equity indices or other factors.
Holders of such Debt Securities may receive a principal amount on any
principal payment date, or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value on such dates of the
applicable currency, commodity, equity index or other factors. Information as
to the methods for determining the amount of principal or interest payable on
any date, the currencies, commodities, equity indices or other factors to
which the amount payable on such date is linked and certain additional tax
considerations will be set forth in the applicable Prospectus Supplement.
GLOBAL DEBT SECURITIES
The registered Debt Securities of a series may be issued in the form of one
or more global securities ("Global Securities") that will be deposited with,
or on behalf of, a depositary (the "Global Depositary"), or its nominee,
identified in the Prospectus Supplement relating to such series. In such a
case, one or more Global Securities will be issued in a denomination or
aggregate denomination equal to the aggregate principal amount of outstanding
Debt Securities of the series to be represented by such Global Security or
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in definitive registered form, a Global Security may not be
transferred or exchanged except as a whole by the Global Depositary for such
Global Security to a nominee for such Global Depositary and except in the
circumstances described in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security and a
description of the Global Depositary will be provided in the applicable
Prospectus Supplement.
SENIOR DEBT SECURITIES
Payment of the principal of and premium, if any, and interest on Senior Debt
Securities issued under the Senior Indenture will rank pari passu with all
other unsecured and unsubordinated debt of HEI. The Senior Debt Securities
effectively will be subordinate to all obligations of HEI's subsidiaries. See
discussion above under "--General." If this Prospectus is being delivered in
connection with the offer and sale of a series of Senior
11
<PAGE>
Debt Securities, the accompanying Prospectus Supplement will set forth the
approximate amount of HEI (holding company only) secured debt and
unsubordinated debt, if any, outstanding as of the end of the most recent
quarter.
SENIOR SUBORDINATED DEBT SECURITIES
Subordination. Payment of the principal of and premium, if any, and interest
on Senior Subordinated Debt Securities issued under the Senior Subordinated
Indenture will be subordinate and junior in right of payment, to the extent
and in the manner set forth in the Senior Subordinated Indenture, to all
"Senior Indebtedness" of HEI. The Senior Subordinated Indenture defines
"Senior Indebtedness" as the principal of and premium, if any, and interest on
(a) all indebtedness of HEI, whether outstanding on the date of the Senior
Subordinated Indenture or thereafter created, (i) for money borrowed by HEI,
(ii) for money borrowed by, or obligations of, others and either assumed or
guaranteed, directly or indirectly, by HEI, (iii) in respect of letters of
credit and acceptances issued or made by banks, or (iv) constituting purchase
money indebtedness, or indebtedness secured by property included in the
property, plant and equipment accounts of HEI at the time of the acquisition
of such property by HEI, for the payment of which HEI is directly liable, and
(b) all deferrals, renewals, extensions and refundings of, and amendments,
modifications and supplements to, any such indebtedness. As used in the
preceding sentence the term "purchase money indebtedness" means indebtedness
evidenced by a note, debenture, bond or other instrument (whether or not
secured by any lien or other security interest) issued or assumed as all or a
part of the consideration for the acquisition of property, whether by
purchase, merger, consolidation or otherwise, unless by its terms such
indebtedness is subordinate to other indebtedness of HEI. Notwithstanding
anything to the contrary in the Senior Subordinated Indenture or the Senior
Subordinated Debt Securities, Senior Indebtedness shall not for such purposes
include (i) any indebtedness of HEI which, by its terms or the terms of the
instrument creating or evidencing it, is subordinate in right of payment to or
pari passu with the Senior Subordinated Debt Securities or (ii) any
indebtedness of HEI to a subsidiary of HEI. (Senior Subordinated Indenture,
Section 1.1) Junior Subordinated Debt Securities issued by HEI pursuant to the
Junior Indenture (as defined under "Description of the Junior Subordinated
Debt Securities" below) will be subordinate in right of payment to the Senior
Subordinated Debt Securities. The Senior Subordinated Debt Securities
effectively will also be subordinate to all debts and other obligations of
HEI's subsidiaries. See discussion above under "--General." The Senior
Subordinated Indenture does not contain any limitation on the amount of Senior
Indebtedness that can be incurred by HEI.
In the event (a) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of HEI or its property, or (b) that Senior Subordinated Debt
Securities of any series are declared due and payable before their expressed
maturity because of the occurrence of an Event of Default pursuant to Section
5.1 of the Senior Subordinated Indenture (under circumstances other than as
set forth in clause (a) above), then the holders of all Senior Indebtedness
shall first be entitled to receive payment of the full amount due thereon in
money or money's worth, before the holders of any of such Senior Subordinated
Debt Securities or coupons appertaining thereto are entitled to receive a
payment on account of the principal of or premium, if any, or interest on the
indebtedness evidenced by such Senior Subordinated Debt Securities or of such
coupons appertaining thereto. In the event and during the continuation of any
default in payment of any Senior Indebtedness or if any Event of Default shall
exist under any Senior Indebtedness, as "Event of Default" is defined therein
or in the agreement under which the same is outstanding, no payment of the
principal of or interest on the Senior Subordinated Debt Securities or coupons
shall be made. (Senior Subordinated Indenture, Article 13) If this Prospectus
is being delivered in connection with the offer and sale of a series of Senior
Subordinated Debt Securities, the accompanying Prospectus Supplement will set
forth the approximate amount of Senior Indebtedness (holding company only) and
Senior Subordinated Debt Securities outstanding as of the end of the most
recent fiscal quarter.
Conversion Rights. The terms and conditions, if any, on which Senior
Subordinated Debt Securities are convertible into Common Stock of HEI will be
set forth in the Prospectus Supplement relating thereto. Such terms will
include the conversion price, the conversion period, provisions as to whether
conversion will be at the option of the holder or HEI, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of the convertible Senior Subordinated Debt
Securities; and such terms
12
<PAGE>
may include provisions under which the number of shares of Common Stock to be
received by the holders of the Senior Subordinated Debt Securities would be
calculated according to the market price of the Common Stock as of a time
stated in the Prospectus Supplement.
CERTAIN COVENANTS OF HEI
Restriction on Liens. The Senior Indenture provides that, so long as any
Senior Debt is issued and outstanding thereunder, and except as otherwise
provided in any applicable supplemental indenture as described in the relevent
Prospectus Supplement, HEI will not create, incur, issue or assume any
Indebtedness (as defined below) secured after the date of the Senior Indenture
by any security interest on any property of HEI (holding company only)
(including, without limitation, property of HEI consisting of any share or
shares of capital stock of or any indebtedness owed to HEI by any subsidiary
of HEI), whether such property, shares or indebtedness are owned by HEI at the
date of the Indenture or thereafter acquired, without effectively providing
concurrently therewith that the Senior Debt (together, at the option of HEI,
with any other indebtedness ranking equally with the Senior Debt and then
existing or thereafter created) shall be secured equally and ratably with (or
prior to) the Indebtedness so created, incurred, issued or assumed; provided,
however, that the foregoing does not apply to:
(1) security interests on any property acquired, constructed or improved
by HEI or on any shares of capital stock or indebtedness of any subsidiary
acquired by HEI after the date of the Indenture which security interests
are created or assumed at the time of or within 270 days after the
acquisition of, or the expenditure of the costs of construction or
improvements of, and which secure the payment of all or any part of the
purchase price of, such property, shares of capital stock or indebtedness,
or which secure payment of all or any part of the cost of any such
construction or improvements, provided that, in the case of any such
acquisition, construction or improvement, such security interest does not
apply to any property or shares of capital stock or indebtedness owned
theretofore by HEI other than, in the case of any such construction or
improvement, any real property on which the property is so constructed or
the improvement is located;
(2) security interests on any property, shares of capital stock or
indebtedness, which security interests exist at the time of acquisition of
such property, shares or indebtedness by HEI;
(3) security interests on any property of a corporation or other Person,
which interests exist at the time such corporation is merged with or into
or consolidated with HEI or which interests exist at the time of a sale or
transfer of the properties of such corporation or other Person as an
entirety or substantially as an entirety to HEI;
(4) security interests in favor of the United States of America or any
State thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any State thereof, or in
favor of any other country or political subdivision, (A) to secure partial
progress, advance or other payments pursuant to any contract or statute,
(B) to secure any indebtedness incurred or guaranteed for the purpose of
financing or refinancing all or any part of the purchase price of the
property, shares of capital stock or indebtedness subject to such security
interests, or (C) to secure the cost of constructing or improving the
property subject to such security interests (including, without limitation,
security interests incurred in connection with pollution control,
industrial revenue or similar financings);
(5) security interests on any property arising in connection with any
defeasance, covenant defeasance or in substance defeasance of any
Indebtedness pursuant to express contractual provision or generally
accepted accounting principles;
(6) security interests on any capital stock of any corporation which is
registered in the name of HEI or otherwise owned by or held for the benefit
of HEI which may constitute "margin stock" as such term is defined in
Section 207.2(i) of Title 12 of the Code of Federal Regulations (or any
successor provisions); and
13
<PAGE>
(7) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any security interest
referred to above in clauses (1)-(6), inclusive; provided, however, that
the principal amount of Indebtedness secured thereby shall not exceed the
original principal amount of Indebtedness and that such extension, renewal
or replacement shall be limited to all or a part of the property (plus
improvements and construction on such property), shares of capital stock or
indebtedness which was subject to the security interest so extended,
renewed or replaced.
Notwithstanding the foregoing, under the Senior Indenture as supplemented,
HEI may, without equally and ratably securing the Senior Debt Securities,
create, incur, issue, and assume Indebtedness secured by any security interest
not excepted by the foregoing clauses (1) through (7), inclusive, if the
aggregate amount of such Indebtedness, together with all other Indebtedness of
HEI (holding company only) existing at such time and secured by security
interests not so excepted, does not exceed 10% of HEI's Consolidated Net
Assets. (Senior Indenture, Section 3.9)
"Indebtedness" means (i) any indebtedness, whether or not represented by
bonds, debentures, notes or other securities, for the repayment of money
borrowed, (ii) all deferred indebtedness (including, without limitation,
capitalized leases) for the payment of the purchase price of property or
assets purchased, and (iii) all guarantees, endorsements, assumptions or other
contingent obligations in respect of, or to purchase or otherwise to acquire,
indebtedness of the types described in clauses (i) and (ii) above.
"Consolidated Net Assets" means the total amount of assets appearing on the
consolidated balance sheet of HEI and its subsidiaries less, without
duplication: (a) all current liabilities (excluding current liabilities of ASB
and any current liabilities which are by their terms extendable or renewable
at the sole option of the obligor thereon without requiring the consent of the
obligee to a date more than 12 months after the date of determination); (b)
all reserves for depreciation and other asset valuation reserves but excluding
any reserves for deferred Federal income taxes arising from accelerated
amortization or otherwise; and (c) all appropriate adjustments on account of
minority interests of other persons holding interests in any subsidiary.
Consolidated Net Assets are determined in accordance with generally accepted
accounting principles and as of a date not more than 90 days prior to the
happening of the event for which such determination is being made.
Restrictions on Dispositions of HECO Shares. HEI currently holds 100% of the
outstanding common stock of HECO. The Senior Indenture provides that, so long
as any Senior Debt Security is issued and outstanding under the Senior
Indenture, HEI will not sell, transfer or otherwise dispose of, and will not
permit HECO to issue, sell, transfer or otherwise dispose of, any shares of
capital stock of any class or classes of HECO ordinarily having voting power
for the election of HECO's board of directors. This covenant will not restrict
the issuance, sale, transfer or other disposition of HECO's voting shares to
HEI or to any of HEI's direct or indirect wholly-owned subsidiaries. The
covenant also will not restrict (i) sales, transfers or other dispositions by
HECO of any securities, including the capital stock of its subsidiaries, (ii)
consolidations of HECO or mergers of HECO with or into HEI or any of its
direct or indirect wholly-owned subsidiaries, or (iii) consolidations or
mergers of HECO with or into any other corporation if the corporation formed
by such consolidation or merger is a direct or indirect wholly-owned
subsidiary of HEI. (Senior Indenture, Section 9.3)
Consolidation, Merger, Conveyance, Transfer or Lease. Each Indenture
provides that, so long as any Debt Security is issued and outstanding
thereunder, HEI will not consolidate with or merge into any other corporation
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person or permit any Person to consolidate with or merge into
HEI or convey, transfer or lease its properties and assets substantially as an
entirety to HEI unless certain conditions are met, including the conditions
that (a) the corporation formed by such consolidation or into which HEI is
merged or the Person which acquires by conveyance or transfer, or which
leases, the property and assets of HEI substantially as an entirety is a
Person organized and existing in corporate form under the laws of the United
States of America, any State thereof or the District of Columbia, and such
Person expressly assumes, by supplemental indenture, the due and punctual
payment of the principal of (and premium, if any) and interest (if any) on all
the Debt Securities and the performance of all of the covenants of HEI under
the Indenture, (b) immediately after giving effect to such transaction no
Event of Default by HEI,
14
<PAGE>
and no event which after notice and lapse of time would become an Event of
Default by HEI, has occurred and is continuing, and (c) HEI has delivered to
the Debt Trustee an Officers' Certificate and an Opinion of Counsel as
provided in the Indentures. (Senior and Senior Subordinated Indenture, Section
9.1)
ABSENCE OF RESTRICTIONS ON CERTAIN TRANSACTIONS
Other than the restrictions on liens and disposition of HECO shares, as set
forth in the Senior Indenture, and restrictions on mergers, consolidations,
conveyances, transfers and leases set forth in each Indenture as described
above, neither the Senior Indenture nor the Senior Subordinated Indenture
contains any covenants or other provisions designed to afford holders of
Senior Debt Securities or Senior Subordinated Debt Securities protection in
the event of a highly leveraged transaction involving HEI, or in the event of
a recapitalization, merger or other transaction (leveraged or otherwise)
involving HEI, its affiliates or its management, or in the event of a change
in control of HEI.
EVENTS OF DEFAULT
An Event of Default is defined under each Indenture with respect to Debt
Securities of any series issued under such Indenture as being: (a) default in
payment of all or any part of the principal of the Debt Securities of such
series when due, whether at maturity (or upon any redemption), by declaration
or otherwise; (b) default for 30 days in payment of any interest on any Debt
Securities of such series; (c) default in payment of any sinking fund
installment when due; (d) default for 60 days after written notice, as
provided in such Indenture, in the observance or performance of any other
covenant or agreement in the Debt Securities of such series or such Indenture
other than a covenant included in such Indenture solely for the benefit of a
series of Debt Securities other than such series; (e) certain events of
bankruptcy, insolvency or reorganization with respect to HEI; or (f) an Event
of Default with respect to any other indebtedness for borrowed money (other
than nonrecourse obligations) of HEI in an aggregate principal amount
exceeding $10,000,000, if such Event of Default shall result in the
acceleration of such other indebtedness under the terms of the instrument
under which such indebtedness is issued or secured, so long as such
acceleration is not cured, waived, rescinded or annulled, or such indebtedness
is not discharged, within 20 days after written notice thereof as provided in
such Indenture; provided that if any such acceleration shall cease or be
cured, waived, rescinded or annulled, then the Event of Default by reason
thereof shall be deemed likewise to have been thereupon cured. (Senior and
Senior Subordinated Indentures, Section 5.1)
Each Indenture provides that (a) if an Event of Default due to the default
in payment of principal of or premium, if any, or interest on, any series of
Debt Securities issued under such Indenture or due to the default in the
performance or breach of any other covenant or agreement of HEI applicable to
the Debt Securities of such series but not applicable to all outstanding Debt
Securities issued under such Indenture shall have occurred and be continuing,
either the Debt Trustee or the holders of not less than 25% in principal
amount of the Debt Securities of each affected series (treated as one class)
issued under such Indenture and then outstanding may then declare the
principal of all Debt Securities of each such affected series and interest
accrued thereon to be due and payable immediately; and (b) if any Event of
Default due to a default in the performance of any other of the covenants or
agreements in such Indenture applicable to all outstanding Debt Securities
issued thereunder and then outstanding or due to certain events of bankruptcy,
insolvency and reorganization of HEI shall have occurred and be continuing,
either the Debt Trustee or the holders of record of not less than 25% in
principal amount of all Debt Securities issued under such Indenture and then
outstanding (treated as one class) may declare the principal of all such Debt
Securities and interest accrued thereon to be due and payable immediately, but
upon certain conditions such declarations may be annulled and past defaults
may be waived (except a continuing default in payment of principal of (or
premium, if any) or interest on such Debt Securities) by the holders of record
of a majority in principal amount of the Debt Securities of all such affected
series then outstanding but no such annulment or waiver will apply to
subsequent defaults. (Senior and Senior Subordinated Indentures, Sections 5.1
and 5.10)
15
<PAGE>
Each Indenture contains a provision entitling the Debt Trustee, subject to
the duty of the Debt Trustee during a default to act with the required
standard of care, to be indemnified by the holders of record of Debt
Securities issued under such Indenture requesting the Debt Trustee to exercise
any right or power under such Indenture before proceeding to exercise any such
right or power at the request of such holders. (Senior and Senior Subordinated
Indentures, Sections 6.1 and 6.2) Subject to such provisions in each Indenture
for the indemnification of the Debt Trustee and certain other limitations, the
holders of record of a majority in principal amount of the outstanding Debt
Securities of each affected series (treated as one class) issued under such
Indenture may direct the time, method and place of conducting any proceedings
for any remedy available to the Debt Trustee, or exercising any trust or power
conferred on the Debt Trustee. (Senior and Senior Subordinated Indentures,
Section 5.9)
Each Indenture provides that no holder of Debt Securities issued under such
Indenture may institute any action against HEI under such Indenture (except
actions for payment of overdue principal, premium, if any, or interest) unless
such holder previously shall have given to the Debt Trustee written notice of
default and continuance thereof and unless the holders of not less than 25% in
principal amount of the Debt Securities of each affected series (treated as
one class) issued under such Indenture and then outstanding shall have
requested the Debt Trustee to institute such action and shall have offered the
Debt Trustee reasonable indemnity, the Debt Trustee shall not have instituted
such action within 60 days of such request and the Debt Trustee shall not have
received direction inconsistent with such written request by the holders of a
majority in principal amount of the Debt Securities of each affected series
(treated as one class) issued under such Indenture and then outstanding.
(Senior and Senior Subordinated Indentures, Sections 5.6, 5.7 and 5.9)
Each Indenture contains a covenant that HEI will file annually with the Debt
Trustee a certificate of no default or a certificate stating that a default
exists. (Senior and Senior Subordinated Indentures, Section 3.5)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
HEI can discharge or defease its obligations under each Indenture, including
its obligations under the covenants set forth therein, as set forth below.
(Senior and Senior Subordinated Indentures, Section 10.1)
Upon satisfying certain conditions, HEI may discharge certain obligations to
holders of any series of Debt Securities issued under such Indentures which
have not already been delivered to the Debt Trustee for cancellation and which
have either become due and payable or are by their terms due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with the Debt Trustee cash or, in the case of Debt Securities
payable only in U.S. dollars, U.S. Government Obligations (as defined in such
Indenture), as trust funds in an amount certified to be sufficient to pay when
due, whether at maturity, upon redemption or otherwise, the principal of and
premium, if any, and interest on such Debt Securities and sinking fund
payments.
HEI may also discharge any and all of its obligations to holders of any
series of Debt Securities issued under an Indenture at any time
("defeasance"), but may not thereby avoid its duty to register the transfer or
exchange of such series of Debt Securities, to replace any temporary,
mutilated, destroyed, lost or stolen series of Debt Securities or to maintain
an office or agency in respect of such series of Debt Securities or certain
other obligations. Upon satisfying certain conditions, HEI may instead be
released with respect to any outstanding series of Debt Securities issued
under the relevant Indenture from the obligations imposed by certain
provisions of such Indenture including Sections 3.6, 3.7, 3.8, 3.9, 3.10, 9.1
and 9.3, in the case of the Senior Indenture, and Sections 3.6, 3.7, 3.8 and
9.1, in the case of the Senior Subordinated Indenture (which contain, among
other things, the covenants described above limiting liens, consolidations,
mergers, transfers and leases and certain dispositions) and omit to comply
with such Sections without creating an Event of Default ("covenant
defeasance"). Defeasance or covenant defeasance may be effected only if, among
other things: (i) HEI irrevocably deposits with the Debt Trustee cash or, in
the case of Debt Securities payable only in U.S. dollars, U.S. Government
Obligations, as trust funds in an amount certified to be sufficient to pay at
maturity (or upon redemption) the principal of and premium, if any, and
interest on and any sinking fund for all outstanding Debt
16
<PAGE>
Securities of such series issued under such Indenture; (ii) HEI delivers to
the Debt Trustee an opinion of counsel to the effect that the holders of such
series of Debt Securities will not recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance or covenant
defeasance and that such defeasance or covenant defeasance will not otherwise
alter such holders' United States federal income tax treatment of principal,
premium and interest payments on such series of Debt Securities (in the case
of a defeasance, such opinion must be based on a ruling of the Internal
Revenue Service or a change in United States federal income tax law occurring
after the date of such Indenture, since such a result would not occur under
current tax law); and (iii) in the case of the Senior Subordinated Indenture
no event or condition shall exist that, pursuant to certain provisions
described under "--Senior Subordinated Debt Securities" above, would prevent
HEI from making payments of principal of and premium, if any, and interest on
the Senior Subordinated Debt Securities at the date of the irrevocable deposit
referred to above or at any time during the period ending on the 91st day
after the date of such deposit.
MODIFICATION OF THE INDENTURES
Each Indenture provides that HEI and the Debt Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to, among other things: (a) secure any Debt Securities, (b) evidence the
assumption by a successor corporation of the obligations of HEI, (c) add
covenants for the protection of the holders of Debt Securities, (d) cure any
ambiguity or correct any inconsistency in such Indenture, provided that such
cure or correction does not adversely affect the holders of such Debt
Securities, (e) establish the forms or terms of Debt Securities of any series
and (f) evidence the acceptance of appointment by a successor trustee or
facilitate any administration by more than one trustee. (Senior and Senior
Subordinated Indentures, Section 8.1)
Each Indenture also contains provisions permitting HEI and the Debt Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of Debt Securities of all series issued under such Indenture
then outstanding and affected (voting as one class), to add any provisions to,
or change in any manner or eliminate any of the provisions of, such Indenture
or modify in any manner the rights of the holders of the Debt Securities of
each series so affected; provided that HEI and the Debt Trustee may not,
without the consent of the holder of each outstanding Debt Security affected
thereby, (a) extend the stated maturity of the principal of any Debt Security,
or reduce the principal amount thereof or reduce the rate or extend the time
of payment of interest thereon, or reduce any amount payable on redemption
thereof or change the currency in which the principal thereof (including any
amount in respect of original issue discount), premium, if any, or interest
thereon is payable or reduce the amount of any original issue discount Debt
Security that is payable upon acceleration or provable in bankruptcy or alter
certain provisions of such Indenture relating to the Debt Securities issued
thereunder not denominated in U.S. dollars or impair the right to institute
suit for the enforcement of any payment on any Debt Security when due or (b)
reduce the aforesaid percentage in principal amount of Debt Securities of any
series issued under such Indenture, the consent of the holders of which is
required for any such modification. (Senior and Senior Subordinated
Indentures, Section 8.2)
The Senior Subordinated Indenture may not be amended to alter the
subordination of any outstanding Senior Subordinated Debt Securities without
the consent of each holder of Senior Indebtedness then outstanding that would
be adversely affected thereby. (Senior Subordinated Indenture, Section 8.6)
CONCERNING THE DEBT TRUSTEE
HEI and its subsidiaries maintain ordinary banking and trust relationships
with a number of banks that could serve as trustee under the Indentures.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
HEI may issue unsecured notes, debentures or other evidences of indebtedness
from time to time in one or more series (the "Junior Subordinated Debt
Securities"). Prior to issuing any Junior Subordinated Debt Securites, HEI
will enter into a Junior Indenture (the "Junior Indenture"). HEI will select
the trustee under the
17
<PAGE>
Junior Indenture (the "Junior Debt Trustee"). The form of the contemplated
Junior Indenture is included as an exhibit to the Registration Statement of
which this Prospectus is a part and is described below. The terms of the
Junior Subordinated Debt Securities will include those stated in the Junior
Indenture, those stated in any supplemental indenture supplementing the Junior
Indenture and those made part of the Junior Indenture by reference to the
Trust Indenture Act. Junior Subordinated Debt Securities which are issued to a
Trust or the Partnership in connection with a sale of Trust Preferred
Securities are referred to in this Prospectus as "Company Debentures."
The following summary of the terms of the Junior Indenture does not purport
to be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Junior Indenture and the Trust
Indenture Act. Whenever particular provisions or defined terms in the Junior
Indenture are referred to herein, such provisions or defined terms are
incorporated by reference herein. Section and Article references used herein
are references to provisions of the Junior Indenture unless otherwise noted.
Any Junior Subordinated Debt Securities offered by this Prospectus will be
accompanied by a Prospectus Supplement which will set forth the designation
and describe the specific terms and provisions thereof, which description will
supplement and, when inconsistent, supersede the description in this Section.
GENERAL
The Junior Indenture will not limit the amount of additional indebtedness
HEI or any of its subsidiaries may incur, nor does the Junior Indenture limit
the aggregate principal amount of Junior Subordinated Debt Securities which
may be issued thereunder. The Junior Subordinated Debt Securities will be
unsecured, fully subordinated obligations of HEI. Since HEI is a holding
company, the Junior Subordinated Debt Securities effectively will be
subordinate to all obligations of HEI's subsidiaries and HEI's rights and the
rights of its creditors, including the holders of Junior Subordinated Debt
Securities, to participate in the assets of any subsidiary upon such
subsidiary's liquidation or recapitalization will be subject to the prior
claims of such subsidiary's creditors, except to the extent that HEI may
itself be a creditor with recognized claims against such subsidiary. Claims on
HEI's subsidiaries by creditors other than HEI include obligations arising out
of short and long-term indebtedness, as well as other liabilities incurred in
the ordinary course of business. In addition, since HEI's principal
subsidiaries are subject to state or federal regulatory control, the ability
of such subsidiaries to pay dividends or to make distributions, loans or
advances to HEI without prior regulatory approval is limited by applicable
laws, regulations and agreements with regulatory agencies. The Junior
Subordinated Debt Securities will also be subordinate to Senior Indebtedness,
including the Senior Debt Securities and the Senior Subordinated Debt
Securities.
In the event Junior Subordinated Debt Securities (i.e., Company Debentures)
are purchased by a Trust or a trustee of such Trust with the proceeds of the
issuance of Trust Securities by such Trust, the Company Debentures may be
subsequently distributed pro rata to the holders of such Trust Securities if
the Trust dissolves. Such dissolution may occur upon the occurrence of certain
events which will be described in the Prospectus Supplement relating to such
Trust Securities. Only one series of Company Debentures will be issued to a
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by that Trust.
Reference is made to the Prospectus Supplement relating to the particular
Junior Subordinated Debt Securities being offered thereby for the following
terms: (1) the designation of such Junior Subordinated Debt Securities; (2)
the aggregate principal amount and denomination (if other than multiples of
$25) of such Junior Subordinated Debt Securities; (3) the percentage of the
principal amount at which such Junior Subordinated Debt Securities will be
issued; (4) the date or dates on which such Junior Subordinated Debt
Securities will mature and HEI's right, if any, to shorten or extend such date
or dates; (5) the rate or rates, if any, per annum, at which such Junior
Subordinated Debt Securities will bear interest, or the method of
determination of such rate or rates; (6) the date or dates from which such
interest shall accrue, the interest payment dates on which such interest will
be payable or the manner of determination of such interest payment dates and
the record dates for the determination of holders to whom interest is payable
on any such interest payment dates; (7) the right, if any, to
18
<PAGE>
extend the interest payment periods and the duration of such extension; (8)
provisions, if any, for a sinking, purchase or other analogous fund; (9) the
period or periods, if any, within which, the price or prices at which, and the
terms and conditions upon which such Junior Subordinated Debt Securities may
be redeemed, in whole or in part, at the option of HEI or the holder; (10) the
form of such Junior Subordinated Debt Securities; and (11) any other specific
terms of the Junior Subordinated Debt Securities.
If a Prospectus Supplement specifies that a series of Junior Subordinated
Debt Securities is denominated in a currency or currency unit other than
United States dollars, such Prospectus Supplement shall also specify the
denomination in which such Junior Subordinated Debt Securities will be issued
and the coin or currency in which the principal, premium, if any, and
interest, if any, on such Junior Subordinated Debt Securities will be payable,
which may be United States dollars based upon the exchange rate for such other
currency or currency unit existing on or about the time a payment is due.
The Junior Indenture does not contain any covenants or other provisions
designed to afford holders of Junior Subordinated Debt Securities protection
in the event of a highly leveraged transaction involving HEI, or in the event
of a recapitalization, merger or other transaction (leveraged or otherwise)
involving HEI, its affiliates or its management or in the event of a change in
control.
ADDITIONAL INTEREST
If, at any time while the Property Trustee is the holder of any Junior
Subordinated Debt Securities issued to the related Trust, or the Property
Trustee is a holder of Partnership Preferred Securities in the Partnership
which is in turn a holder of any Junior Subordinated Debt Securities, such
Trust, the Property Trustee or the Partnership shall be required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes or taxes or charges imposed by reason of the transfer
of the Trust Preferred Securities or beneficial interests therein) imposed by
the United States, or any other taxing authority, then, in any such case, HEI
will pay as additional interest ("Additional Interest") on the Junior
Subordinated Debt Securities held by the Property Trustee or the Partnership,
such additional amounts as shall be required so that the net amounts received
and retained by such Trust and by the Property Trustee or by the Partnership
after paying any such taxes, duties, assessments or other governmental charges
will be equal to the amounts such Trust and the Property Trustee or the
Partnership would have received had no such taxes, duties, assessments or
other governmental charges been imposed. (Section 4.05)
FORM, EXCHANGE, REGISTRATION, TRANSFER AND PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Debt Securities will be issued in fully registered form
without coupons and in denominations of $25 and multiples of $25. (Section
2.03) No service charge will be made for any transfer or exchange of the
Junior Subordinated Debt Securities, but the Company or the Junior Debt
Trustee may in general require payment of a sum sufficient to cover any tax or
other government charge payable in connection therewith. (Section 2.07)
Unless otherwise provided in the applicable Prospectus Supplement,
principal, premium, if any, and interest, will be payable and the Junior
Subordinated Debt Securities may be surrendered for payment or transferred at
an office or agency maintained for that purpose or the corporate trust office
of the Junior Debt Trustee as paying and authenticating agent in New York, New
York, provided that payment of interest, if any, on registered Junior
Subordinated Debt Securities that are not issued to a Trust or the Partnership
may be made at the option of HEI by check mailed to the address of the person
entitled thereto as it appears in the Security Register or by wire transfer to
an account appropriately designated by the person entitled thereto. (Section
2.03 and 4.02)
BOOK-ENTRY JUNIOR SUBORDINATED DEBT SECURITIES
The Junior Subordinated Debt Securities of a series may be issued in whole
in the form of one or more Global Securities that will be deposited with, or
on behalf of, a depositary (the "Global Depositary"), or its nominee,
identified in the Prospectus Supplement relating to such series. In such a
case, one or more Global Securities will be issued in a denomination or
aggregate denomination equal to the aggregate principal amount
19
<PAGE>
of outstanding Junior Subordinated Debt Securities of the series to be
represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Junior Subordinated Debt Securities in
definitive registered form, a Global Security may not be registered for
transfer or exchange except as a whole by the Global Depositary for such
Global Security to a nominee for such Global Depositary and except in the
circumstances described in the applicable Prospectus Supplement. (Section
2.11)
The specific terms of the depositary arrangement with respect to any portion
of a series of Junior Subordinated Debt Securities to be represented by a
Global Security and a description of the Global Depositary will be provided in
the applicable Prospectus Supplement.
SUBORDINATION
Payment of the principal of and premium, if any, and interest on Junior
Subordinated Debt Securities issued under the Junior Indenture will be
subordinate and junior in right of payment, to the extent and in the manner
set forth in the Junior Indenture, to all "Senior Indebtedness" (as defined
under "Description of Senior Debt Securities and Senior Subordinated Debt
Securities--Senior Subordinated Debt Securities--Subordination" above) of HEI.
Notwithstanding anything to the contrary contained in the Junior Indenture,
Senior Indebtedness shall not for such purposes include (i) any indebtedness
of HEI which, by its terms or the terms of the instrument creating or
evidencing it, is subordinate in right of payment to or pari passu with the
Junior Subordinated Debt Securities or (ii) any indebtedness of HEI to a
subsidiary of HEI. (Junior Indenture, Section 1.1) The Junior Subordinated
Debt Securities effectively will also be subordinate to all debts and other
obligations of HEI's subsidiaries. See "--General" and "Description of Senior
Debt Securities and Senior Subordinated Debt Securities--Senior Subordinated
Debt Securities--Subordination." The Junior Indenture does not contain any
limitation on the amount of Senior Debt Securities, Senior Indebtedness and
Senior Subordinated Debt Securities that can be issued by HEI.
CERTAIN COVENANTS OF HEI
If (i) there shall have occurred any event that would constitute a Junior
Indenture Event of Default (as defined herein) or (ii) HEI shall be in default
with respect to its payment of any obligations under a related Trust or
Partnership Guarantee or (iii) HEI shall have given notice of its election to
defer payments of interest on any series of such Junior Subordinated Debt
Securities by extending the interest payment period as provided in and
permitted by a supplemental indenture to the Junior Indenture or appropriate
officer's certificate pursuant thereto, and such period, or any extension
thereof, shall be continuing, then (a) HEI shall not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock (except for dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, its common stock
and other than (x) purchases or acquisitions of shares of HEI Common Stock in
connection with the satisfaction by HEI of its obligations under any employee
benefit, dividend reinvestment, stock purchase or other stock plans or any
other contractual obligation of HEI (other than a contractual obligation
ranking pari passu with or junior to the Junior Subordinated Debt Securities),
(y) as a result of a reclassification of HEI capital stock or the exchange or
conversion of one class or series of HEI capital stock for another class or
series of HEI capital stock or (z) the purchase of fractional interests in
shares of HEI capital stock pursuant to the conversion or exchange provisions
of such HEI capital stock or the security being converted or exchanged), (b)
HEI shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by HEI which rank
pari passu with or junior to such Junior Subordinated Debt Securities,
provided that, if only the event referred to in clause (iii) above (and not
the events referred to in clause (i) and (ii)) has occurred, this restriction
shall apply only to other series of Junior Subordinated Debt Securities or
debt securities with equivalent deferral options, and (c) HEI shall not make
any guarantee payments with respect to the foregoing (other than pursuant to
the Trust Guarantee or Partnership Guarantee or any other guarantee by HEI
with respect to comparable securities). (Section 6.09)
In the event Junior Subordinated Debt Securities are issued to a Trust or a
trustee of such trust, or to the Partnership, in connection with the issuance
of Trust Securities of a Trust, for so long as such Trust Securities remain
outstanding, HEI will covenant (i) to directly or indirectly maintain 100
percent ownership of the Trust
20
<PAGE>
Common Securities of such Trust; provided, however, that any permitted
successor of HEI under the Junior Indenture may succeed to HEI's ownership of
such Trust Common Securities, (ii) to use its reasonable efforts to cause such
Trust (a) to remain a statutory business trust, except in connection with the
distribution of Junior Subordinated Debt Securities to the holders of Trust
Securities in liquidation of such Trust, the redemption of all of the Trust
Securities of such Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Trust Agreement of such Trust, and (b) to otherwise
continue not to be treated as an association taxable as a corporation or a
partnership for United States federal income tax purposes and (iii) to use its
reasonable efforts to cause each holder of Trust Securities to be treated as
owning an undivided beneficial interest in the Junior Subordinated Debt
Securities. (Section 4.06)
LIMITATION ON MERGERS AND SALES OF ASSETS
HEI shall not consolidate with, or merge into, any corporation or convey or
transfer its properties and assets substantially as an entirety to any entity
unless (a) HEI shall be the continuing entity or the successor entity shall be
a legal entity organized under the laws of any domestic jurisdiction and shall
expressly assume the obligations of HEI under the Junior Indenture and (b)
after giving effect thereto, no Event of Default, and no event which after
notice or a lapse of time or both would become an Event of Default, shall have
occurred and be continuing under the Junior Indenture. (Section 10.01)
EVENTS OF DEFAULT, WAIVER AND NOTICE
The Junior Indenture provides that any one or more of the following
described events which has occurred and is continuing constitutes a "Junior
Indenture Event of Default" with respect to each series of Junior Subordinated
Debt Securities:
(a) default for 30 days in payment of any interest on the Junior
Subordinated Debt Securities of that series, including any Additional
Interest in respect thereof, when due; provided, however, that a valid
extension of the interest payment period by HEI shall not constitute a
default in the payment of interest for this purpose; or
(b) default in payment of principal of or premium, if any, on the Junior
Subordinated Debt Securities of that series when due whether at maturity,
upon redemption, by declaration or otherwise; provided, however, that a
valid extension of the maturity of such Junior Subordinated Debt Securities
shall not constitute a default for this purpose; or
(c) default by the Company in the performance of any other of the
covenants or agreements in the Junior Indenture (other than a covenant or
agreement expressly included solely for the benefit of one or more other
series than such series) which shall not have been remedied for a period of
90 days after notice has been given by the Junior Debt Trustee or the
holders of at least 25 percent in aggregate principal amount of the Junior
Subordinated Debt Securities of such series then outstanding, unless the
Junior Debt Trustee or the holders of not less than the aggregate principal
amount of Junior Subordinated Debt Securities of such series the holders of
which gave such notice, as the case may be, agree in writing to an
extension of such period prior to its expiration; or
(d) certain events of bankruptcy, insolvency or reorganization of HEI; or
(e) in the event Junior Subordinated Debt Securities are issued to a
Trust or a trustee of such trust, or to the Partnership, in connection with
the issuance of Trust Securities by such Trust, the voluntary or
involuntary dissolution, winding-up or termination of such Trust, except in
connection with the distribution of Junior Subordinated Debt Securities to
the holders of Trust Securities in liquidation of such Trust, the
redemption of all of the Trust Securities of such Trust, or certain
mergers, consolidations or amalgamations, each as permitted by the Trust
Agreement of such Trust.
21
<PAGE>
The Junior Indenture provides that, if a Junior Indenture Event of Default on
any series of Junior Subordinated Debt Securities shall have occurred and be
continuing, either the Junior Debt Trustee or the holders of record of not less
than 25 percent in aggregate principal amount of the Junior Subordinated Debt
Securities of such series then outstanding by proper notice may declare the
principal of all such Junior Subordinated Debt Securities of such series to be
due and payable immediately. The holders of a majority in aggregate outstanding
principal amount of such series of Junior Subordinated Debt Securities may
annul such declaration and waive the default if the default (other than the
non-payment of the principal of such series of Junior Subordinated Debt
Securities which has become due solely by reason of such acceleration) has been
cured and a sum sufficient to pay all matured installments of interest and
principal and premium, if any due otherwise than by acceleration has been
deposited with the Junior Debt Trustee. (Section 6.01)
The holders of record of a majority in principal amount of the Junior
Subordinated Debt Securities of any series affected and then outstanding and,
in the case of Junior Subordinated Debt Securities issued to a Trust or the
Partnership, the holders of a majority in aggregate liquidation amount of the
related Trust Preferred Securities, shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Junior Debt Trustee under the Junior Indenture with respect to such series,
provided that such direction shall not be in conflict with any rule of law or
the Junior Indenture or unduly prejudicial to the rights of holders of any
other series of the Junior Subordinated Debt Securities and subject to the
right of the Junior Debt Trustee to require reasonable indemnity against
expenses and liabilities. Notwithstanding the foregoing, subject to the
subordination provisions set forth in a Prospectus Supplement, the right of any
holder of Junior Subordinated Debt Securities to receive payment of the
principal of and premium (if any) and interest on such Junior Subordinated Debt
Securities on or after the due dates therefor, as the same may be extended in
accordance with the terms of such Junior Subordinated Debt Securities, or to
institute suit for the enforcement of any such payment provisions, shall not be
impaired or affected without the consent of such holder. (Sections 6.04, 6.06
and 7.02)
The Junior Indenture requires the annual filing by HEI with the Junior Debt
Trustee of a certificate as to compliance by HEI with certain conditions and
covenants under the Junior Indenture. (Section 5.03)
The Junior Indenture provides that the Junior Debt Trustee may withhold
notice of a Junior Indenture Event of Default from the holders of a series of
Junior Subordinated Debt Securities (except a Junior Indenture Event of Default
in payment of principal of or premium (if any) or interest on the Junior
Subordinated Debt Securities) if the Trustee determines in good faith that it
is in the interest of such holders to do so. (Section 6.07)
MODIFICATION OF THE INDENTURE
The Junior Indenture contains provisions permitting the Company and the
Junior Debt Trustee, with the consent of the holders of not less than a
majority in principal amount of the Junior Subordinated Debt Securities of all
series affected by such modification at the time outstanding, and, in the case
of Junior Subordinated Debt Securities issued to a Trust or the Partnership,
the holders of a majority in aggregate liquidation preference amount of the
related Trust Preferred Securities, to modify the Junior Indenture or any
supplemental indenture or the rights of the holders of the Junior Subordinated
Debt Securities of such series; provided that no such modification shall,
without the consent of the holders of each Junior Subordinated Debt Security
(and each Trust Preferred Security, if applicable) affected thereby, (i) extend
the fixed maturity of any Junior Subordinated Debt Security, or reduce the
principal amount thereof (including in the case of a discounted Junior
Subordinated Debt Security the amount payable thereon in the event of
acceleration or the amount provable in bankruptcy) or any premium thereon, or
reduce any amount payable on redemption thereof, or reduce the rate or extend
the time of payment of interest thereon, or make the principal of or interest
or premium, if any, on the Junior Subordinated Debt Securities payable in any
coin or currency other than that provided in the Junior Subordinated Debt
Securities, or impair or affect the right of any holder of Junior Subordinated
Debt Securities to institute suit for the payment thereof or the right of
prepayment, if any, at the option of the holder, (ii) reduce the aforesaid
percentage of Junior Subordinated Debt Securities the consent of the holders of
which is required for any such modification or (iii) otherwise adversely affect
the interest of the holders of any series of Junior Subordinated Debt
Securities. (Section 9.02)
22
<PAGE>
DEFEASANCE AND DISCHARGE
HEI may discharge certain obligations to holders of any series of Junior Debt
Securities which have not already been delivered to the Junior Debt Trustee for
cancellation and which either become due and payable or are by their terms due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Junior Debt Trustee or Defeasance Agent cash or
Governmental Obligations (as defined in the Junior Indenture), or a combination
thereof, as trust funds in an amount certified to be sufficient to pay when
due, whether at maturity, upon redemption or otherwise, the principal of,
premium on, if any, and interest on such Junior Subordinated Debt Securities.
The Indenture provides that HEI, at HEI's option: (a) will be discharged from
any and all obligations in respect of the Junior Subordinated Debt Securities
of a series (except for certain obligations to register the transfer or
exchange of Junior Subordinated Debt Securities, replace stolen, lost or
mutilated Junior Subordinated Debt Securities, maintain paying agencies and
hold moneys for payment in trust) or (b) need not comply with certain
restrictive covenants of the Indenture (including those described herein under
"--Certain Covenants of HEI"), in each case if HEI deposits, in trust with the
Junior Debt Trustee or the Defeasance Agent, money or U.S. Government
Obligations which, through the payment of interest thereon and principal
thereof in accordance with their terms, will provide money in an amount
certified to be sufficient to pay all the principal (including any mandatory
sinking fund payments) and premium, if any, of and interest on, the Junior
Subordinated Debt Securities of such series on the dates such payments are due
in accordance with the terms of such Junior Subordinated Debt Securities. To
exercise any such option, among other things, HEI is required to deliver to the
Junior Debt Trustee and the Defeasance Agent, if any, an opinion of counsel to
the effect that (i) the deposit and related defeasance would not cause the
holders of the Junior Subordinated Debt Securities of such series to recognize
income, gain or loss for U.S. federal income tax purposes and, in the case of
any such discharge pursuant to clause (a), such opinion must be accompanied by
a ruling to that effect received by HEI from the United States Internal Revenue
Service, or a ruling pertaining to a comparable form of transaction to that
effect published by the United States Internal Revenue Service, or must
otherwise be based on a change in United States federal income tax law, since
such a result would not occur under current tax law and (ii) if listed on any
national securities exchange, such Junior Subordinated Debt Securities would
not be delisted from such exchange as a result of the exercise of such option.
(Section 11.01)
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain tax law changes that
would, among other things, generally deny corporate issuers a deduction for
interest in respect of certain debt obligations, such as the Junior
Subordinated Debt Securities, issued on or after December 7, 1995 (the
"Proposed Legislation") if such debt obligations have a maximum term in excess
of forty years or a maximum term in excess of twenty years and are not shown as
indebtedness on the issuer's applicable consolidated balance sheet. On March
29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways
and Means Committee Chairman Bill Archer issued a joint statement (the "Joint
Statement") indicating their intent that the Proposed Legislation, if adopted
by either of the tax-writing committees of Congress, would have an effective
date that is no earlier than the date of "appropriate Congressional action." In
addition, subsequent to the publication of the Joint Statement, Senator Daniel
Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote
letters to Treasury Department officials concurring with the view expressed in
the Joint Statement (the "Democrat Letters"). If the principles contained in
the Joint Statement and the Democrat Letters were followed and if the Proposed
Legislation were enacted, such legislation would not apply to the Junior
Subordinated Debt Securities. There can be no assurance, however, that the
effective date guidance contained in the Joint Statement will be incorporated
into the Proposed Legislation, if enacted, or that other legislation enacted
after the date hereof will not otherwise adversely affect the ability of HEI to
deduct the interest payable on the Junior Subordinated Debt Securities or the
treatment of the Hawaiian Electric Industries Capital Trusts as grantor trusts
not subject to federal income tax with respect to income received or accrued on
the Junior Subordinated Debt Securities.
GOVERNING LAW
The Junior Indenture and the Junior Subordinated Debt Securities will be
governed by, and construed in accordance with, the internal laws of the State
of New York. (Section 13.05)
23
<PAGE>
THE JUNIOR DEBT TRUSTEE
The Bank of New York shall be the initial Junior Debt Trustee. HEI or its
affiliates maintain certain accounts and other banking relationships with the
Junior Debt Trustee and its affiliates in the ordinary course of business.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
Each Trust may issue, from time to time, a series of Trust Preferred
Securities having terms described in the Prospectus Supplement relating
thereto. The Trust Agreement of each Trust authorizes the Regular Trustees of
such Trust to issue on behalf of the Trust only one series of Trust Preferred
Securities. Each Trust Agreement will be qualified as an indenture under the
Trust Indenture Act. Unless otherwise specified in the applicable Prospectus
Supplement, The Bank of New York will act as Property Trustee for purposes of
the Trust Indenture Act. The Trust Preferred Securities will have such terms,
including distribution, redemption, voting, and liquidation rights and such
other preferred, deferral or other special rights, and such restrictions, as
shall be set forth in the Trust Agreement or made part of the Trust Agreement
by the Trust Indenture Act.
Reference is made to the Prospectus Supplement for the specific terms of the
Trust Preferred Securities of each Trust, including (i) the distinctive
designation of such Trust Preferred Securities; (ii) the number of Trust
Preferred Securities issuable by such Trust; (iii) the annual distribution rate
(or method of determining such rate) for Trust Preferred Securities issued by
such Trust and the date or dates upon which such distributions shall be
payable; (iv) whether distributions on Trust Preferred Securities issued by
such Trust shall be cumulative, and, in the case of Trust Preferred Securities
having such cumulative distribution rights, the date or dates or method of
determining the date or dates from which distributions on Trust Preferred
Securities issued by such Trust shall be cumulative; (v) the amount or amounts
which shall be paid out of the assets of such Trust to the holders of Trust
Preferred Securities of such Trust upon voluntary or involuntary dissolution,
winding-up or termination of such Trust; (vi) the obligation, if any, of such
Trust to purchase or redeem Trust Preferred Securities issued by such Trust and
the price or prices at which, the period or periods within which, and the terms
and conditions upon which, Trust Preferred Securities issued by such Trust
shall be purchased or redeemed, in whole or in part, pursuant to such
obligation; (vii) the voting rights and the rights to direct action by the
Property Trustee, if any, of holders of Trust Preferred Securities issued by
the Trust, in addition to those required by law, including the number of votes
per Preferred Security and any requirement for the approval by the holders of
Trust Preferred Securities as a condition to specified action or amendments to
the Trust Agreement of such Trust; (viii) the terms and conditions, if any,
upon which the Junior Subordinated Debt Securities or the Partnership Preferred
Securities, as the case may be, owned by such Trust may be distributed to
holders of Trust Preferred Securities of such Trust; (ix) if applicable, any
securities exchange upon which the Trust Preferred Securities shall be listed;
(x) the manner in which holders of the Trust Preferred Securities may enforce
their rights through the Property Trustee, through the Partnership and
directly; and (xi) any other relevant rights, preferences, privileges,
limitations or restrictions of the Trust Preferred Securities issued by such
Trust not inconsistent with the Trust Agreement of such Trust or with
applicable law.
The rights of Trust Preferred Securities to receive certain distributions
will be guaranteed by HEI to the extent set forth below under "Description of
the Trust Guarantees." Certain United States federal income tax considerations
applicable to any offering of Trust Preferred Securities will be described in
the Prospectus Supplement relating thereto.
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Regular Trustees, who may be appointed, removed or replaced solely
by HEI as the holder of all of the Trust Common Securities.
The Trust Agreement of each Trust authorizes the Regular Trustees of such
trust to issue on behalf of such Trust one series of Trust Common Securities
having such terms including distribution, redemption, voting, and liquidation
rights or such restrictions as shall be set forth therein. Except for voting
rights, the terms of the Trust Common Securities issued by a Trust will be
substantially identical to the terms of the Trust Preferred Securities issued
by such Trust and the Trust Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Trust Preferred Securities
except that, upon an event of default under such Trust Agreement,
24
<PAGE>
the rights of the holders of the Trust Common Securities to payment in respect
of distributions and payments upon liquidation, redemption and otherwise will
be subordinated to the rights of the holders of the Trust Preferred Securities.
Except in certain limited circumstances, the Trust Common Securities of a Trust
will also carry the right to vote to appoint, remove or replace any of the
Trustees of such Trust.
DESCRIPTION OF THE TRUST GUARANTEES
Set forth below is a summary of certain information concerning the Trust
Guarantees which will be executed and delivered by HEI for the benefit of the
holders from time to time of Trust Preferred Securities. Each Trust Guarantee
will be qualified as an indenture under the Trust Indenture Act. Unless
otherwise specified in the applicable Prospectus Supplement, The Bank of New
York will act as indenture trustee under each Trust Guarantee for purposes of
the Trust Indenture Act (the "Trust Guarantee Trustee"). The terms of each
Trust Guarantee will be those set forth in such Trust Guarantee and those made
part of such Trust Guarantee by the Trust Indenture Act. The following summary
of the Trust Guarantees does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the form of Trust Guarantee, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the Trust
Indenture Act, and this summary of the terms of the Trust Guarantee is subject
to supplementation and modification in any Prospectus Supplement relating to
the particular Trust Preferred Securities being offered thereby. Each Trust
Guarantee will be held by the Property Trustee for the benefit of the holders
of the Trust Preferred Securities of the applicable Trust.
GENERAL
Pursuant to each Trust Guarantee, HEI will agree, to the extent set forth
therein, to pay in full, to the holders of the Trust Preferred Securities
issued by a Trust, the Trust Guarantee Payments (as defined herein) (except to
the extent paid by such Trust), as and when due, regardless of any defense,
right of set-off or counterclaim which such Trust may have or assert. The
following payments with respect to Trust Preferred Securities issued by a
Trust, to the extent not paid by such Trust (the "Guarantee Payments"), will be
subject to the Trust Guarantee thereon (without duplication): (i) any
accumulated and unpaid distributions which are required to be paid on such
Trust Preferred Securities, to the extent such Trust shall have funds legally
available therefor; (ii) the redemption price, including all accumulated and
unpaid distributions to the date of payment (the "Redemption Price"), to the
extent such Trust has funds legally available therefor with respect to any
Trust Preferred Securities called for redemption by such Trust; and (iii) upon
a voluntary or involuntary dissolution, winding-up or termination of such Trust
(other than in connection with the distribution of Junior Subordinated Debt
Securities or Partnership Preferred Securities, as the case may be, to the
holders of Trust Preferred Securities or the redemption of all of the Trust
Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accumulated and unpaid distributions on such Trust Preferred
Securities to the date of payment, to the extent such Trust has funds legally
available therefor and (b) the amount of assets of such Trust remaining legally
available after satisfaction of obligations to creditors of the Trust, if any,
for distribution to holders of such Trust Preferred Securities in liquidation
of such Trust. The redemption price and liquidation amount will be fixed at the
time the Trust Preferred Securities are issued. HEI's obligation to make a
Trust Guarantee Payment may be satisfied by direct payment of the required
amounts by HEI to the holders of Trust Preferred Securities or by causing the
applicable Trust to pay such amounts to such holders.
The Trust Guarantees will not apply to any payment of distributions except to
the extent a Trust shall have funds available therefor. If HEI does not make
interest payments on the Junior Subordinated Debt Securities purchased by a
Trust, or if HEI or its subsidiaries do not make payments on the Company
Debentures or on the Subsidiary Debentures issued to the Partnership,
respectively, and as a result the Partnership does not make distributions on
Partnership Preferred Securities purchased by such Trust, such Trust will not
pay distributions on the Trust Preferred Securities issued by such Trust and
will not have sufficient funds legally available therefor.
25
<PAGE>
HEI has also agreed separately irrevocably and unconditionally to guarantee
the obligations of each Trust with respect to the Trust Common Securities (the
"Trust Common Securities Guarantees") to the same extent as the Trust
Guarantees, except that upon an event of default under the Indenture, holders
of Trust Preferred Securities shall have priority over holders of Trust Common
Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF HEI
In each Trust Guarantee, HEI will covenant that, so long as any Trust
Preferred Securities issued by the applicable Trust remain outstanding, if
there shall have occurred any event that would constitute an event of default
under such Trust Guarantee or the Trust Agreement of such Trust, or if HEI has
exercised its option to defer interest payments on the Junior Subordinated Debt
Securities by extending the interest payment period and such period or
extension thereof shall be continuing, then (a) HEI shall not declare or pay
any dividend (other than a stock dividend) on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (except for dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, its common stock and other than (i) purchases or acquisitions of shares of
HEI Common Stock in connection with the satisfaction by HEI of its obligations
under any employee benefit plans or any other contractual obligation of HEI
(other than a contractual obligation ranking pari passu with or junior to the
Junior Subordinated Debt Securities), (ii) as a result of a reclassification of
HEI capital stock or the exchange or conversion of one class or series of HEI
capital stock for another class or series of HEI capital stock or (iii) the
purchase of fractional interests in shares of HEI capital stock pursuant to the
conversion or exchange provisions of such HEI capital stock or the security
being converted or exchanged), (b) HEI shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by HEI which rank pari passu with or junior to such Junior
Subordinated Debt Securities, and (c) HEI shall not make any guarantee payments
with respect to the foregoing (other than pursuant to such Trust Guarantee or
any other guarantee by HEI with respect to comparable securities).
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of Trust Preferred Securities (in which case no vote will
be required), each Trust Guarantee may be amended only with the prior approval
of the holders of at least a majority in liquidation amount of the outstanding
Trust Preferred Securities issued by the applicable Trust. The manner of
obtaining any such approval of holders of such Trust Preferred Securities will
be as set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Trust Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of HEI and shall inure to the benefit
of the holders of the Trust Preferred Securities of the applicable Trust then
outstanding. Except in connection with any merger or consolidation of HEI with
or into another entity or any sale, transfer or lease of HEI's assets to
another entity, each as permitted by the Junior Indenture, HEI may not assign
its rights or delegate its obligations under such Trust Guarantee without the
prior approval of the holders of at least a majority in liquidation amount of
the outstanding Trust Preferred Securities issued by the applicable Trust.
TERMINATION
Each Trust Guarantee will terminate as to the Trust Preferred Securities
issued by the applicable Trust (a) upon full payment of the Redemption Price of
all Trust Preferred Securities of such Trust, (b) upon distribution of the
Junior Subordinated Debt Securities or Partnership Preferred Securities, as the
case may be, held by such Trust to the holders of the Trust Securities of such
Trust or (c) upon full payment of the amounts payable in accordance with the
Trust Agreement of such Trust upon liquidation of Trust. Notwithstanding the
foregoing, each Trust Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Trust Preferred
Securities issued by the applicable Trust must restore payment of any sums paid
under such Trust Preferred Securities or such Trust Guarantee.
26
<PAGE>
EVENTS OF DEFAULT
An event of default under a Trust Guarantee will occur upon the failure of
HEI to perform any of its payment obligations thereunder.
The holders of a majority in liquidation amount of the Trust Preferred
Securities relating to such Trust Guarantee have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trust Guarantee Trustee in respect of the Trust Guarantee or to direct the
exercise of any trust or power conferred upon the Trust Guarantee Trustee under
such Trust Guarantee. Any holder of record of Trust Preferred Securities
relating to such Trust Guarantee may institute a legal proceeding directly
against HEI to enforce the Trust Guarantee Trustee's rights and the obligations
of HEI under such Trust Guarantee, without first instituting a legal proceeding
against the relevant Trust, the Trust Guarantee Trustee or any other person or
entity.
STATUS OF THE TRUST GUARANTEES
The Trust Guarantees will constitute unsecured obligations of HEI and will
rank (i) subordinate and junior in right of payment to all other liabilities of
HEI, except those made pari passu or subordinate by their terms, (ii) pari
passu with the most senior preferred or preference stock now or hereafter
issued by HEI, with the Partnership Guarantee and the Investment Guarantees and
with any guarantee hereafter entered into by HEI in respect of any preferred or
preference stock of any affiliate of HEI, and (iii) senior to HEI Common Stock.
The terms of the Trust Preferred Securities provide that each holder of Trust
Preferred Securities issued by the applicable Trust, by acceptance thereof,
agrees to the subordination provisions and other terms of the Trust Guarantee
relating thereto.
The Trust Guarantees will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE
The Trust Guarantee Trustee, prior to the occurrence of a default with
respect to a Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in such Trust Guarantee and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, the Trust
Guarantee Trustee is under no obligation to exercise any of the powers vested
in it by a Trust Guarantee at the request of any holder of Trust Preferred
Securities, unless offered reasonable indemnity against the costs, expenses and
liabilities which might be incurred thereby.
HEI or its affiliates maintain certain accounts and other banking
relationships with The Bank of New York, which shall be the initial Trust
Guarantee Trustee, and its affiliates in the ordinary course of business.
GOVERNING LAW
The Trust Guarantees will be governed by, and construed in accordance with,
the internal laws of the State of New York.
DESCRIPTION OF THE PARTNERSHIP PREFERRED SECURITIES
The summary of certain of the terms and provisions of the Partnership
Preferred Securities set forth below and in any Prospectus Supplement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Agreement of Limited Partnership, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
and the Partnership Act.
27
<PAGE>
The Partnership may issue to a Trust a series of Partnership Preferred
Securities having terms to be described in the Prospectus Supplement relating
thereto. All of the partnership interests in the Partnership, other than the
Partnership Preferred Securities acquired by the Trust, will be owned by Hycap,
as the sole General Partner of the Partnership. The Agreement of Limited
Partnership will authorize and create the Partnership Preferred Securities,
which represent limited partner interests in the Partnership. The limited
partner interests represented by the Partnership Preferred Securities will have
a preference with respect to distributions and amounts payable on redemption or
liquidation over the General Partner's interest in the Partnership. Except as
otherwise described herein or in any Prospectus Supplement, the Agreement of
Limited Partnership does not permit the issuance of any additional partnership
interests or the incurrence of any indebtedness by the Partnership. Reference
is made to the Prospectus Supplement relating to the Partnership Preferred
Securities for specific terms, including, if applicable, provisions concerning
(i) distributions to holders of Partnership Preferred Securities, (ii)
liquidation preferences of holders of Partnership Preferred Securities,
(iii) enforcement of the Agreement of Limited Partnership, (iv) investments by
the Partnership in Company Debentures, Subsidiary Debentures and Eligible Debt
Securities, (v) Investment Guarantees, (vi) redemption rights and procedures
relating to the Partnership Preferred Securities, (vii) liquidation and
dissolution of the Partnership, (viii) voting rights of holders of Partnership
Preferred Securities, and (ix) any other relevant rights, preferences,
privileges, limitations or restrictions relating to the Partnership Preferred
Securities issued by the Partnership.
DESCRIPTION OF THE PARTNERSHIP GUARANTEE
Set forth below is a summary of certain information concerning the
Partnership Guarantee that will be executed and delivered by HEI for the
benefit of the holders from time to time of Partnership Preferred Securities.
The summary does not purport to be complete and is subject in all respects to
the provisions of, and is qualified in its entirety by reference to, the
Partnership Guarantee, which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
Pursuant to the Partnership Guarantee, HEI will irrevocably agree, on a
subordinated basis to the extent set forth therein, to pay in full to the
holders of the Partnership Preferred Securities (without duplication of amounts
theretofore paid by the Partnership), as and when due, regardless of any
defense, right of set-off or counterclaim that the Partnership may have or
assert, certain payments, including certain distribution, redemption,
liquidation preference, and other payments, all as will be described in more
detail in the Prospectus Supplement relating to the Partnership Guarantee.
The Partnership Guarantee will be a guarantee on a subordinated basis with
respect to the Partnership Preferred Securities from the time of issuance of
such Partnership Preferred Securities but will not apply to any payment of
distributions or redemption price, or to payments upon the dissolution,
winding-up or termination of the Trust, except to the extent the Partnership
shall have funds legally available therefor.
Reference is made in an applicable Prospectus Supplement for the specific
terms of the Partnership Guarantee, including, if applicable, provisions
concerning (i) certain covenants of HEI, (ii) events of default under and
enforcement of the Partnership Guarantee, (iii) status of the Partnership
Guarantee and subordination provisions, (iv) termination of the Partnership
Guarantee, and (v) any other relevant provisions relating to the Partnership
Guarantee.
DESCRIPTION OF THE INVESTMENT GUARANTEES
The Company will guarantee, on a subordinated basis, payments in respect of
each Debenture issued by an Investment Affiliate (other than the Company,
unless HEI's obligation under the Company Debentures are transferred to and
assumed by another Investment Affiliate) to the extent set forth below and in
any accompanying Prospectus Supplement (the "Investment Guarantees"). The
Investment Guarantees will be enforceable regardless of any defense, right of
set-off or counterclaim that the Company may have or assert. The Investment
Guarantees will be full and unconditional guarantees with respect to the
applicable Subsidiary Debentures from the time of issuance. To the extent that
the Partnership invests in additional Affiliate Investment
28
<PAGE>
Instruments as described in an accompanying Prospectus Supplement, the
determination as to whether such Affiliate Investment Instrument will contain
an Investment Guarantee will be made at the date of its issuance or upon its
transfer to an Investment Affiliate (other than the Company).
The Company's obligations under the Investment Guarantees will constitute
unsecured obligations of the Company and will rank subordinate and junior to
all other existing liabilities of the Company and will rank pari passu with the
most senior preferred stock (if any) issued from time to time by the Company
and with any guarantee now or hereafter entered into by the Company in respect
of any preferred security of any affiliate of the Company. Accordingly, the
rights of the holders of the Subsidiary Debentures to receive payments under
the Investment Guarantees will be subject to the rights of the holders of any
obligations that are senior in priority to the obligations under the Investment
Guarantees. Furthermore, the holders of obligations of the Company that are
senior to the obligations under the Investment Guarantees (including, but not
limited to, obligations constituting senior indebtedness of the Company) will
be entitled to the same rights upon payment default or dissolution, liquidation
and reorganization in respect of the Investment Guarantees that inure to the
holders of senior indebtedness of the Company as against the holders of the
Company Debentures. The terms of the Debentures provide that each holder of
Debentures, by acceptance thereof, agrees to the subordination provisions and
other terms of the Investment Guarantees.
DESCRIPTION OF THE PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to HEI's
Restated Articles of Incorporation, as amended (the "Articles"), and the
rights, preferences and privileges of the particular series of the Preferred
Stock which will be set forth in a board resolution or articles of amendment to
be filed with the Hawaii Department of Commerce and Consumer Affairs and
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part at or prior to the time of issuance of such series of
Preferred Stock.
Under the Articles, HEI is authorized to issue 10,000,000 shares of Preferred
Stock without par value ("Preferred Stock").
Preferred Stock may be issued by the Board of Directors in one or more
series, without action by stockholders and with such preferences, voting
powers, restrictions and qualifications as may be fixed by resolution of the
Board of Directors authorizing the issuance of such shares. Under current
Hawaii law, the terms and provisions of all shares of Preferred Stock must be
identical except with respect to dividend rates, redemption and redemption
prices, amounts payable in liquidation, sinking fund provisions, conversion
privileges, if any, and voting rights, if any.
If and when authorized by the Board of Directors, any such Preferred Stock
may be preferred as to dividends or in liquidation, or both, over the Common
Stock. For example, the terms of the Preferred Stock, if and when authorized,
could prohibit dividends on shares of Common Stock until all dividends and any
mandatory redemptions have been paid with respect to shares of Preferred Stock.
In addition, the Board of Directors may, without stockholder approval, issue
Preferred Stock with voting and conversion rights which could adversely affect
the voting power or economic rights of the holders of Common Stock. Issuance of
Preferred Stock by HEI could thus have the effect of delaying, deferring or
preventing a change of control of HEI.
DESCRIPTION OF THE COMMON STOCK
GENERAL
Under the Articles, HEI is authorized to issue 100,000,000 shares of Common
Stock without par value ("Common Stock").
29
<PAGE>
The outstanding shares of HEI's Common Stock are fully paid and
nonassessable. Additional shares of Common Stock, when issued, will be fully
paid and nonassessable when the consideration for which HEI's board of
directors authorizes their issuance has been received. The holders of Common
Stock have no preemptive rights and there are no conversion, redemption or
sinking fund provisions applicable thereto. Unless otherwise specified in the
applicable Prospectus Supplement, HEI's Common Stock is transferable at the
Stock Transfer Division of the Company, Transfer Agent, P.O. Box 730,
Honolulu, Hawaii 96808-0730, and at the office of First Chicago Trust Company
of New York, Co-Transfer Agent and Registrar, 30 West Broadway, New York, New
York 10007.
DIVIDENDS
Stock and cash dividends may be issued and paid to the holders of Common
Stock as and when declared by the Board of Directors, provided that, after
giving effect to the payment of cash dividends, HEI is able to pay its debts
as they become due in the usual course of its business and HEI's total assets
are not less than the sum of its total liabilities plus the maximum amount
that then would be payable in any liquidation in respect of all outstanding
shares having preferential rights in liquidation. All shares of Common Stock
will participate equally with respect to dividends.
HEI's ability to pay dividends is limited by the restrictions and
limitations set forth in debt instruments.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution, receivership, bankruptcy,
disincorporation or winding-up of the affairs of the Company, voluntarily or
involuntarily, holders of HEI's Common Stock are entitled to any assets of HEI
available for distribution to HEI's stockholders after the payment in full of
any preferential amounts to which holders of any Preferred Stock may be
entitled. All shares of Common Stock will rank equally in the event of
liquidation.
VOTING RIGHTS
Holders of Common Stock are entitled to one vote per share, subject to such
limitation or loss of right as may be provided in resolutions which may be
adopted from time to time creating issues of Preferred Stock or otherwise. At
annual and special meetings of stockholders, a majority of the outstanding
shares of Common Stock constitute a quorum and the affirmative vote of a
majority of such quorum so present is sufficient to approve of any action
except as otherwise required by law and except with respect to the amendment
of certain provisions of HEI's By-laws.
Under HEI's current By-laws, one-third (as nearly as possible) of the total
number of directors is elected at each annual meeting of stockholders and no
holder of Common Stock is entitled to cumulate votes in an election of
directors so long as HEI shall have a class of equity securities registered
pursuant to the Exchange Act which are listed on a national securities
exchange or traded over-the-counter on the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotation System.
Directors may be removed from office only for cause.
An amendment to the provisions in the By-laws relating to (1) matters which
may be brought before an annual meeting, (2) matters which may be brought
before a special meeting, (3) cumulative voting, (4) the number and staggered
terms of members of the Board of Directors, (5) removal of directors and (6)
amendment of the By-laws must in each case be approved either (a) by the
affirmative vote of 80% of the shares entitled to vote generally with respect
to election of directors voting together as a single class, or (b) by the
affirmative vote of a majority of the entire Board of Directors plus a
concurring vote of a majority of the "continuing directors" (as that term is
defined in Article XVIII of the By-laws) voting separately and as a subclass
of directors.
The provisions of HEI's By-laws referred to in the foregoing two paragraphs,
and the statutory provisions referred to below, may have the effect of
delaying, deferring or preventing a change in control of HEI.
30
<PAGE>
RESTRICTION ON PURCHASE OF SHARES AND CONSEQUENCES OF SUBSTANTIAL HOLDINGS
UNDER CERTAIN HAWAII AND FEDERAL LAWS
The Hawaii Control Share Acquisition Act places restrictions on the
acquisition of ranges of voting power (starting at 10% and at 10% intervals up
to a majority) for the election of directors of HEI unless the acquiring
person obtains approval of the acquisition by the affirmative vote of the
holders of a majority of the voting power of all shares entitled to vote
exclusive of the shares beneficially owned by the acquiring person and
consummates the proposed control share acquisition within 180 days after
shareholder approval. If such approval is not obtained, the statute provides
that the shares acquired may not be voted for a period of one year from the
date of acquisition, the shares will be nontransferable on HEI's books for one
year after acquisition and HEI, during the one-year period, shall have the
right to call the shares for redemption either at the prices at which the
shares were acquired or at book value per share as of the last day of the
fiscal quarter ended prior to the date of the call for redemption.
Under the Hawaii Public Utilities Commission ("PUC") statute, not more than
25% of the issued and outstanding voting stock of certain public utility
corporations, including HECO and its wholly-owned electric utility
subsidiaries, may be held, directly or indirectly, by any single foreign
corporation or any single nonresident alien, or held by any person, without
the prior approval of the PUC. The acquisition of more than 25% of the issued
and outstanding voting stock of HEI in one or more transactions might be
deemed to result in the holding of more than 25% of the voting stock of its
electric utility subsidiaries. In addition, HEI is subject to an agreement
(the "PUC Agreement") entered into with the PUC when HECO became a wholly-
owned subsidiary of HEI. The PUC Agreement provides that the acquisition of
HEI by a third party, whether by purchase, merger, consolidation or otherwise,
requires the prior written approval of the PUC.
Under the Hawaii Environmental Disclosure Law, a person and that person's
affiliates who in the aggregate beneficially own 10% or more but less than 50%
of securities entitled to vote for the election of directors of HEI may not
acquire more than 5% of such securities during any 12-month period without
first filing an environmental disclosure statement with the Hawaii Office of
Environmental Quality Control.
The Savings and Loan Holding Company Act, the Financial Institutions Reform,
Recovery and Enforcement Act, the Change in Bank Control Act and the Office of
Thrift Supervision ("OTS") regulations place restrictions on certain types of
acquisitions of control of a savings bank and its holding company. Generally,
no company, or any director or officer of a savings and loan holding company,
or person who owns, or controls or holds with power to vote more than 25% of
the voting stock of such holding company, may acquire control of a savings
bank insured by the Federal Deposit Insurance Corporation or its holding
company, without the prior written approval of the OTS. In addition, no person
(with certain exceptions) may acquire control of a savings bank or savings and
loan holding company, unless the OTS has been given 60 days' prior written
notice of the acquisition and has not objected to it. As a result of HEI's
ownership of ASB, the acquisition of control of HEI, HEIDI or ASB may be
subject to the requirement of prior written OTS approval or 60 days' prior
written notice to the OTS, unless such transaction would be exempt from such
requirements under federal law or regulation. "Control" in this context means
the acquisition of, control of, or holding proxies representing, more than 25%
of the voting shares of HEI, HEIDI or ASB, or the power to control in any
manner the election of a majority of the directors thereof. However, under OTS
regulations, one would be determined, subject to rebuttal, to have acquired
control if one acquires more than 10% of the voting shares of HEI, HEIDI or
ASB and is subject to one of certain specified "control factors." Anyone
acquiring more than 10%, or additional stock above 10%, of any class of shares
of HEI, HEIDI or ASB may be required to file a certification with the OTS.
Under the Jones Act, it is unlawful to transport merchandise between points
in the U.S. except in vessels owned by U.S. citizens. For corporations to
demonstrate U.S. citizenship, a majority of the officers and directors must be
citizens, 75% of its voting stock must be owned by U.S. citizens and certain
additional requirements must be met. If less than 75% of the Common Stock of
HEI (which is the only class of voting stock presently outstanding) is owned
by U.S. citizens, the vessels of HTB and YB would not be permitted to engage
in transport between points in Hawaii.
31
<PAGE>
Under the Public Utility Holding Company Act of 1935 (the "1935 Act"), any
company (as defined in the 1935 Act) which directly or indirectly owns,
controls or holds with power to vote 10% or more of the outstanding voting
securities of HEI may be a public utility holding company, subject to
regulation under the 1935 Act, unless an exemption is available under the 1935
Act or the Securities and Exchange Commission, upon application, declares such
a company not to be a holding company. In addition, under the 1935 Act, unless
an exemption is available, no person who directly or indirectly owns, controls
or holds 5% or more of the Common Stock or other voting securities of HEI may,
without approval of the Commission, become the owner of 5% or more of the
outstanding voting securities of any other public utility or public utility
holding company. In addition, no person who directly or indirectly owns,
controls, or holds 5% or more of the outstanding voting securities of any
public utility holding company may, without the approval of the Commission,
become the owner of 5% or more of HEI's Common Stock, unless there is an
applicable exemption.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The holders of record of Common Stock of HEI and of Preferred Stock of HEI's
electric utility subsidiaries (HECO, MECO or HELCO) and any residents of
Hawaii who are of legal age are eligible to participate in the HEI Dividend
Reinvestment and Stock Purchase Plan (the "Plan"). Stockholders participating
in the Plan automatically reinvest their dividends to purchase Common Stock at
market price (as defined in the Plan). Stockholders and residents of Hawaii
are also eligible to purchase shares of Common Stock at market price (as
defined in the Plan) by making cash contributions. Participants do not pay
brokerage commissions or service charges in connection with such purchases.
HEI reserves the right to suspend, modify or terminate the Plan at any time.
PLAN OF DISTRIBUTION
HEI may sell the Debt Securities, Preferred Stock or Common Stock and any
Trust may sell Trust Preferred Securities in any of, or any combination of,
the following ways: (i) directly to purchasers, (ii) through agents, (iii) to
or through underwriters or (iv) through dealers. Such underwriters, dealers or
agents may be affiliates of HEI, and offers or sales of such securities may
include secondary market transactions by affiliates of HEI.
Offers to purchase Offered Securities may be solicited directly by HEI
and/or any Trust, as the case may be, or by agents designated by HEI and/or a
Trust, as the case may be, from time to time. Any such agent, who may be
deemed to be an underwriter as that term is defined in the Securities Act,
involved in the offer or sale of the Offered Securities in respect of which
this Prospectus is delivered will be named, and any commissions payable by HEI
to such agent will be set forth, in the applicable Prospectus Supplement.
Unless otherwise indicated in the related Prospectus Supplement, any such
agency will be acting on a best efforts basis for the period of its
appointment.
If an underwriter or underwriters are utilized in the sale of Offered
Securities in respect of which this Prospectus is delivered, such Offered
Securities will be acquired by such underwriter or underwriters for its own
account or their own accounts and may be resold from time to time in one or
more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The
underwriter or underwriters with respect to a particular underwritten offering
of such Offered Securities will be named in, and if an underwriting syndicate
is used the managing underwriter or underwriters will be set forth on the
cover page of, the applicable Prospectus Supplement. In connection with the
sale of such Offered Securities, underwriters may receive compensation from
HEI in the form of underwriting discounts or commissions and may also receive
commissions from purchasers of any such Offered Securities for whom they may
act as agent. Unless otherwise set forth in such Prospectus Supplement, the
obligations of such underwriter or underwriters will be subject to certain
conditions precedent, and such underwriters will be obligated to purchase all
such Offered Securities if any are purchased.
32
<PAGE>
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, HEI and/or any Trust, as the case may be,
will sell such Offered Securities to the dealer, as principal. The dealer may
then resell such Offered Securities to the public at varying prices to be
determined by such dealer at the time of resale. The name of the dealer
involved in the offer or sale of such Offered Securities will be named, and
any discounts or commissions allowed or reallowed or paid to the dealer will
be set forth, in the Prospectus Supplement.
Agents, underwriters, and dealers may be entitled under the relevant
agreements to indemnification by HEI and/or any Trust, as the case may be,
against certain liabilities, including liabilities under the Securities Act,
or to contribution payments in respect thereof.
Certain of the underwriters, agents and their controlling persons may engage
in transactions with or perform services for HEI or its affiliates in the
ordinary course of business.
LEGAL MATTERS
The validity of the Debt Securities, the Guarantees, the Preferred Stock and
the Common Stock offered by this Prospectus and any applicable Prospectus
Supplement, and certain matters relating thereto, will be passed upon for HEI,
and certain United States federal income taxation matters will be passed upon
for HEI, the Trusts and the Partnership, by Goodsill Anderson Quinn & Stifel,
1800 Alii Place, 1099 Alakea Street, Honolulu, Hawaii 96801. Certain matters
of Delaware law relating to the validity of the Trust Preferred Securities and
the Partnership Preferred Securities will be passed upon on behalf of each of
the Trusts by Richards, Layton & Finger, special Delaware counsel to the
Trusts, the Partnership and HEI. Certain legal matters will be passed upon for
the Underwriters by Winthrop, Stimson, Putnam & Roberts, New York, New York.
EXPERTS
The consolidated financial statements and schedules of HEI and its
subsidiaries as of December 31, 1995 and 1994, and for each of the years in
the three-year period ended December 31, 1995, which financial statements and
schedules have been incorporated by reference and included, respectively, in
HEI's most recent Annual Report on Form 10-K, for its fiscal year ended
December 31, 1995, as amended by Form 10-K/A dated April 30, 1996, which is
incorporated by reference herein (and elsewhere in the Registration
Statement), have been incorporated by reference herein (and elsewhere in the
Registration Statement) in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, also incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HAWAIIAN ELECTRIC INDUSTRIES,
INC., THE TRUSTS, THE PARTNERSHIP OR THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND
THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF HAWAIIAN ELECTRIC INDUSTRIES, INC., THE
TRUSTS OR THE PARTNERSHIP SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Summary........................................................ S-5
Selected Consolidated Financial Data...................................... S-11
Risk Factors.............................................................. S-13
Use of Proceeds........................................................... S-17
Accounting Treatment...................................................... S-17
Description of Hawaiian Electric Industries, Inc. ........................ S-17
Description of the Trust.................................................. S-21
Description of the Partnership............................................ S-22
Supplemental Description of the Trust Preferred Securities................ S-23
Supplemental Description of the Trust Guarantee........................... S-36
Supplemental Description of the Partnership Preferred Securities.......... S-39
Supplemental Description of the Partnership Guarantee..................... S-50
Certain Federal Income Tax Considerations................................. S-53
Underwriting ............................................................. S-58
ERISA Considerations...................................................... S-59
Index of Selected Defined Terms........................................... S-60
PROSPECTUS
Available Information..................................................... 4
Incorporation of Certain Documents by Reference........................... 5
Hawaiian Electric Industries, Inc. ....................................... 6
The Hawaiian Electric Industries Capital Trusts........................... 7
The Partnership........................................................... 8
Consolidated Ratios of Earnings to Fixed Charges.......................... 8
Use of Proceeds........................................................... 9
Description of Senior Debt Securities and Senior Subordinated Debt
Securities............................................................... 9
Description of the Junior Subordinated Debt Securities.................... 17
Description of the Trust Preferred Securities............................. 24
Description of the Trust Guarantees....................................... 25
Description of the Partnership Preferred Securities....................... 27
Description of the Partnership Guarantee.................................. 28
Description of the Investment Guarantees.................................. 28
Description of the Preferred Stock........................................ 29
Description of the Common Stock........................................... 29
Plan of Distribution...................................................... 32
Legal Matters............................................................. 33
Experts................................................................... 33
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000
TRUST PREFERRED SECURITIES
HAWAIIAN ELECTRIC INDUSTRIES CAPITAL TRUST I
8.36% TRUST ORIGINATED
PREFERRED SECURITIES/SM/ ("TOPrS/SM/")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
HAWAIIAN ELECTRIC
INDUSTRIES, INC.
--------------
PROSPECTUS SUPPLEMENT
--------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
LEGG MASON WOOD WALKER
INCORPORATED
ROBERT W. BAIRD & CO.
INCORPORATED
JANUARY 29, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
