<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HAWAIIAN ELECTRIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
HAWAIIAN ELECTRIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
HAWAIIAN ELECTRIC INDUSTRIES, INC. . PO BOX 730 . HONOLULU, HI 96808-0730
[LOGO OF HEI]
Robert F. Clarke
Chairman, President and
Chief Executive Officer
March 12, 1999
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is once again my pleasure to invite
you to attend the Annual Meeting of Stockholders of Hawaiian Electric
Industries, Inc. (HEI). The meeting will be held on the Company's premises in
Room 805 on the eighth floor of the Pacific Tower in Honolulu, Hawaii on
April 27, 1999, at 9:30 a.m. A map showing the location of the meeting site
appears on the last page of the Proxy Statement.
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
describe the items of business to be discussed during the meeting. In addition,
we will review significant events of 1998 and their impact on you and your
Company. Corporate officers will be available before and after the meeting to
talk with you and answer any questions you may have.
As a stockholder of HEI, it is important that your views be represented.
Please help us obtain the quorum needed to conduct business at the meeting by
promptly signing, dating and returning the enclosed proxy in the postage
prepaid envelope.
I join the management team of HEI in expressing our appreciation for your
confidence and support. I look forward to seeing you at the Annual Meeting in
Honolulu.
Sincerely,
[LOGO OF RECYCLED PAPER] /s/ Robert F. Clarke
Recycled
<PAGE>
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc.
900 Richards Street [LOGO OF HEI]
Honolulu, Hawaii 96813
- --------------------------------------------------------------------------------
Notice of Annual Meeting of Stockholders
to be held April 27, 1999
To the Holders of Common Stock
Hawaiian Electric Industries, Inc. will hold its 1999 Annual Meeting of
Stockholders on Tuesday, April 27, 1999, at 9:30 a.m. in the Pacific Tower, 8th
floor, Room 805, 1001 Bishop Street, Honolulu, Hawaii 96813. At the meeting we
will:
1.Elect four Class III directors.
2.Elect the independent auditor of the Company.
3.Transact any other business properly brought before the meeting.
Only stockholders who own stock at the close of business on February 17,
1999, can vote at the meeting. If your shares are registered in the name of a
brokerage firm (street name) or trustee and you plan to attend the meeting,
please bring a letter from the firm or trustee or other evidence of your
beneficial ownership.
All stockholders are urged to attend the meeting in person or by proxy. It is
important that your shares be represented at the meeting, regardless of the
size of your holding. Therefore, we urge you to sign, date and return the
enclosed proxy in the postage prepaid envelope as soon as possible.
Peter C. Lewis, Vice President--
Administration and Secretary
Hawaiian Electric Industries, Inc.
Honolulu, Hawaii
March 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Voting Information......................................................... 1
Purpose.................................................................. 1
Who Can Vote............................................................. 1
How You Can Vote......................................................... 1
Revocation of Proxies.................................................... 2
Required Votes........................................................... 2
Who Will Count the Votes................................................. 2
Shares Held in Street Name............................................... 2
Expenses of Solicitation................................................. 2
Proposals You May Vote On.................................................. 3
Election of Class III Directors.......................................... 3
Election of Auditor...................................................... 3
Nominees for Class III Directors........................................... 4
Continuing Class I Directors............................................... 5
Continuing Class II Directors.............................................. 6
Board of Directors......................................................... 7
Corporate Governance..................................................... 7
Committees of the Board.................................................. 8
Recommendation for Director Nominee...................................... 9
Attendance at Meetings................................................... 9
Compensation of Directors................................................ 9
Nonemployee Director Retirement Plan..................................... 9
Indemnification and Limitation of Liability................................ 10
Security Ownership of Directors and Executive Officers..................... 11
Security Ownership of Certain Beneficial Owners............................ 12
Section 16(a) Beneficial Ownership Reporting Compliance.................... 12
Executive Management Compensation.......................................... 13
Summary Compensation Table............................................... 13
Option Grants in Last Fiscal Year ....................................... 14
Aggregated Option Exercises and Fiscal Year-End Option Values............ 15
Long-Term Incentive Plan (LTIP) Awards................................... 16
Pension Plans............................................................ 17
Change-in-Control Agreements ............................................ 19
Compensation Committee Report on Executive Compensation.................. 20
Stockholder Performance Graph............................................ 25
Indebtedness of Management................................................. 26
Transactions with Management and Directors................................. 27
Stockholder Proposals for 2000............................................. 28
Other Business............................................................. 28
</TABLE>
<PAGE>
Proxy Statement
VOTING INFORMATION
Purpose
Hawaiian Electric Industries, Inc. is soliciting proxies for the Annual
Meeting of Stockholders scheduled for April 27, 1999. The mailing address of
the principal executive offices of the Company is P.O. Box 730, Honolulu,
Hawaii 96808-0730.
The approximate mailing date for this Proxy Statement, form of proxy and
annual report to stockholders for the fiscal year ended December 31, 1998, is
March 12, 1999. The annual report is not considered proxy soliciting material.
Who Can Vote
Stockholders of Common Stock at the close of business on February 17, 1999
(the record date), are entitled to vote. On February 17, 1999, 32,176,314
shares of Common Stock were outstanding. Each stockholder is entitled to one
vote for each share held. Under the By-Laws of the Company, stockholders do not
have cumulative voting rights in the election of directors.
How You Can Vote
Sign and date your proxy and return it in the enclosed prepaid envelope. You
can specify on your proxy whether your shares should be voted for all, some, or
none of the nominees for director. You can also specify whether you approve,
disapprove, or abstain from the proposal to elect the Company's independent
auditor.
If you return your signed proxy but do not mark the boxes showing how you
wish to vote, we will vote your shares "FOR" the election of all nominees for
director and "FOR" the election of the Company's independent auditor.
You may also vote your shares by attending the meeting and voting in person.
In addition, if you wish to give your proxy to someone other than the
individuals listed on the enclosed proxy, cross out all three names and insert
the name of another person to vote your shares at the meeting.
Your share ownership is shown on the enclosed proxy, including your shares
held in the Dividend Reinvestment and Stock Purchase Plan (DRIP) and the
Hawaiian Electric Industries Retirement Savings Plan (HEIRS) (including shares
held in the Hawaiian Electric Industries Stock Ownership Plan, formerly the Tax
Reduction Act Stock Ownership Plan (TRASOP)). The respective plan trustees will
vote the shares of stock held in the Plans according to your directions. For
both DRIP and HEIRS (excluding TRASOP), the respective trustees will vote all
the shares of Common Stock for which they receive no voting instructions in the
same proportion as they vote shares for which they receive instructions. The
trustee cannot vote the shares in TRASOP for which it receives no voting
instructions.
1
<PAGE>
Revocation of Proxies
You can revoke your proxy at any time before the Annual Meeting in one of
three ways:
(1) notify the Secretary of the Company in writing;
(2) return a properly signed, later-dated proxy; or
(3) vote in person at the meeting.
Required Votes
A quorum is needed to transact business at the Annual Meeting. A majority of
the outstanding shares present in person or represented by proxy constitutes a
quorum. The affirmative vote of more than 50% of the quorum is required to
elect the Class III directors and the Company's independent auditor.
Abstentions are counted as "shares present" at the meeting in determining
whether a quorum exists and have the effect of a vote against any proposal.
Who Will Count the Votes
Beacon Hill Partners, Inc. will act as tabulator for broker and bank proxies
and Continental Stock Transfer & Trust Company will act as tabulator for the
proxies of the other stockholders of record. Your identity and vote will not be
disclosed to persons other than those acting as tabulators except as follows:
(1)as required by law;
(2) to verify the validity of proxies and the results of the voting in the case
of a contested proxy solicitation; or
(3)when you write a comment on the proxy form.
Shares Held in Street Name
If your shares are held in the name of a brokerage firm or trustee or other
holder of record and you bring a letter from the holder of record or other
evidence of your beneficial ownership, you are invited to attend the meeting.
However, you may not vote at the meeting unless you obtain a legal proxy from
the brokerage firm or trustee.
Under New York Stock Exchange rules, your broker or nominee may vote your
shares on routine matters (such as the election of directors and the
independent auditor) if you do not give your broker or nominee specific
instructions. A broker does not have discretionary voting power with respect to
nonroutine proposals and cannot vote on these matters if you do not send the
broker your instructions. This is referred to as a "broker nonvote" and will be
considered as "shares present" at the meeting in determining whether a quorum
exists. Broker nonvotes, if any, have the effect of a vote to withhold
authority in connection with the election of directors and the effect of a vote
against other proposals at the meeting.
Expenses of Solicitation
The Company pays all expenses of the proxy solicitation. We hired Beacon Hill
Partners, Inc. to assist in the distribution of proxy materials and
solicitation of votes for $3,000 plus reasonable out-of-pocket expenses. In
addition, we will reimburse brokerage firms and other custodians, nominees, and
fiduciaries for their expenses to forward proxy and solicitation material to
stockholders.
2
<PAGE>
PROPOSALS YOU MAY VOTE ON
1. Election of Class III Directors
The Board of Directors currently consists of 12 individuals who are divided
into three classes: Class I, Class II and Class III with the term of office of
one class expiring each year.
The four Class III nominees being proposed for election at this Annual
Meeting are Don E. Carroll, Richard Henderson, Bill D. Mills and Oswald K.
Stender. Each of the nominees is currently a member of the Board of Directors
and has consented to serve for a new three-year term expiring at the 2002
Annual Meeting. If a nominee is unable to stand for election, the proxy holders
listed in the proxy may vote in their discretion for a suitable substitute.
Terms for Class I Directors will expire in 2000 and for Class II directors in
2001.
Detailed information on each nominee and director is provided on pages 4 to
6.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE CLASS III DIRECTORS.
2. Election of Auditor
The firm of KPMG LLP, independent certified public accountants, has been the
auditor of the Company since 1981. The Board of Directors recommends the
election of KPMG LLP as the auditor of the Company for fiscal year 1999 and
thereafter until its successor is elected. Representatives of KPMG LLP will be
present at the Annual Meeting and will be given the opportunity to make a
statement and to respond to appropriate questions.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR KPMG LLP AS AUDITOR OF THE COMPANY.
3
<PAGE>
NOMINEES FOR CLASS III DIRECTORS
Terms would end at the 2002 Annual Meeting.
[PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS
HERE] HERE] HERE] HERE]
Don E. Richard Bill D. Oswald K.
Carroll Henderson Mills Stender
Age 57 Age 70 Age 47 Age 67
Director Director Director Director
Since 1996 Since 1981 Since 1988 Since 1993
President, President Chairman of Trustee,
chief execu- and director the board Kamehameha
tive offi- of HSC, Inc. and chief Schools /
cer, and di- (real estate executive Bishop Es-
rector of investment officer of tate.
Oceanic Ca- and Bill Mills Director of
blevision. development) Development Hawaiian
Vice presi- and its and Invest- Electric In-
dent of Time subsidiaries. ment Compa- dustries
Warner Ca- Director of ny, Inc. Charitable
ble. Hawaiian Director, Foundation,
Director of Electric Grace Pa- Malama Pa-
Pacific Company, cific Corpo- cific Corp.
Guardian Inc., Hawaii ration. and its sub-
Life and Electric Trustee, sidiary com-
American Red Light Hawaii Pa- panies, Grace
Cross-- Company, cific Uni- Pacific Cor-
Hawaii Chap- Inc., versity, poration,
ter. Secre- Hawaiian Tug St. Andrew's Hawaii Commu-
tary-trea- & Barge Priory, and nity Rein-
surer and Corp., Young The Nature vestment
director of Brothers, Conservancy Corp., Ameri-
the Hawaii Limited, of Hawaii. can Red
Cable Tele- InterIsland Member, Cross--Hawaii
vision Asso- Petroleum, Board of Chapter, and
ciation. Inc., and Governors, March of
Treasurer Big Island Iolani Dimes Birth
and director Substance School. Defects Foun-
of Aloha Abuse dation--Chap-
United Way. Council. ter of the
President Secretary, Pacific.
and director Hawaii Trustee, Cash
of Hawaii Island Assets Trust,
Nature Cen- Economic Hawaiian Tax-
ter. Chair- Development Free Trust,
man, Oceanic Board. Vice Pacific Capi-
Cable Foun- president tal Funds,
dation. Past and trustee, Kahi Mohala
president, Lyman House (Sutter
Boy Scouts Memorial Health Pacif-
of America- Museum. ic), Academy
Aloha Coun- of the Pacif-
cil and The ic, ASSETS
200 Club Ad- School, and
visory St. Andrew's
Board. Mem- Priory. Mem-
ber, Hawaii ber, Board of
Business Governors,
Roundtable. Iolani
School.
4
<PAGE>
CONTINUING CLASS I DIRECTORS
Directors continuing in office with terms ending at the 2000 Annual Meeting.
[PHOTO APPEARS HERE] [PHOTO APPEARS HERE] [PHOTO APPEARS HERE]
Robert F. A. Maurice James K. Scott,
Clarke Myers Ed.D.
Age 56 Age 58 Age 47
Director Since Director Since Director Since
1989 1991 1995
Chairman, Chairman, President of
president and president and Punahou School
chief execu- chief since August
tive officer executive 1994. From
of the Compa- officer of 1985 to June
ny. Yellow 1994,
Chairman of Corporation Headmaster of
the board of (transportation The Catlin
Hawaiian services), Gabel School,
Electric Overland Park, Portland,
Company, Inc., Kansas, since Oregon.
American 1996. Director of
Savings Bank, President, Hawaiian
F.S.B., chief Electric
Hawaiian Tug & operating Company, Inc.
Barge Corp., officer, and and Hawaii
Young director of Public
Brothers, America West Television.
Limited, Airlines, Inc. President,
Malama Pacific from 1994 to Hawaii
Corp. and its 1995. Association of
subsidiary Director of Independent
companies, and Pleasant Schools.
HEI Power Holidays, Trustee, the
Corp. American College Board.
President and Trucking Member,
director of Association, Hawaiian
Hawaiian and Civic Educational
Electric Council of Council and
Industries Kansas City. Young
Charitable Trustee, Presidents
Foundation and University of Organization.
Hycap Missouri--
Management, Kansas City.
Inc. Director Member,
of Dames & Advisory
Moore Council of
(engineering Northwestern
and University
consulting), Kellogg
Los Angeles, Transportation
California, School.
and Aloha
United Way.
Chairman,
Hawaii
Business
Roundtable and
Advisory Board
for the
College of
Business
Administration
at the
University of
Hawaii--Manoa.
Member,
Oceanic
Cablevision
Advisory
Board, Council
on Revenues,
and Air Force
Civilian
Advisory
Council.
Trustee, The
Nature
Conservancy of
Hawaii and
Hawaii Pacific
University.
5
<PAGE>
CONTINUING CLASS II DIRECTORS
Directors continuing in office with terms ending at the 2001 Annual Meeting.
[PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS
HERE] HERE] HERE] HERE] HERE]
Victor Hao T. Michael Diane J. Kelvin H. Jeffrey N.
Li, S.J.D. May Plotts Taketa Watanabe
Age 57 Age 52 Age 63 Age 44 Age 56
Director Director Director Director Director
Since 1988 Since 1995 Since 1987 Since 1993 Since 1987
Co-chairman, Senior vice General President Partner in
Asia Pacific president of partner of and chief the law firm
Consulting the Company Mideast and executive of Watanabe,
Group. Vice since Sep- China Trad- officer of Ing &
president, tember 1995. ing Company, the Hawaii Kawashima.
General Re- President, formerly Community Director of
insurance chief execu- known as Foundation. Hawaiian
Corporation. tive officer Hemmeter In- Vice presi- Electric
Director of and director vestment dent and di- Company,
Hawaiian of Hawaiian Company. rector of Inc.,
Electric In- Electric Director of the Asia Pa- American
dustries Company, Hawaiian cific Re- Savings
Charitable Inc. and Electric gion, The Bank,
Foundation, chairman of Company, Nature Con- F.S.B., HEI
HEI Power the boards Inc., Ameri- servancy Power Corp.,
Corp., and of Maui can Savings from 1989 to Hawaiian
Cologne Re- Electric Bank, 1998. Electric In-
insurance Company, F.S.B., Director of dustries
Corp. Super- Limited and Malama Pa- HEI Power Charitable
visory Hawaii Elec- cific Corp. Corp., Foundation,
Board. tric Light and its sub- HISCO, Ltd., American
Chairman of Company, sidiary com- Sustainable Classic Voy-
the board of Inc. since panies, Forest ages, First
Queen's In- September Hawaii Resources, Insurance
ternational 1995. From Health Sys- LLC, and Company of
Corporation. February 1992 tems Corpo- Sustainable Hawaii, and
Consulting to Au- ration, Conservation. Grace Pa-
Professor of gust 1995, Plaza Club, cific Corpo-
Law, Stan- senior vice Oahu Country ration.
ford Univer- president of Club, and Member, Ad-
sity. Hawaiian Honolulu visory
Electric Country Board, Oce-
Company, Club. anic Cable-
Inc. vision.
Director of Trustee,
Hawaiian Children's
Electric In- Television
dustries Workshop,
Charitable Children and
Foundation, Youth Foun-
HEI Power dation of
Corp., and the Philip-
the Electric pines, and
Power Re- The Queen's
search In- Health Sys-
stitute. tems. Chair,
Member, Boy The Consuelo
Scouts of Zobel Alger
America- Foundation
Aloha Coun- and The Na-
cil Execu- ture Conser-
tive Board vancy of
and Japanese Hawaii.
Chamber of
Commerce.
Trustee,
Academy of
the Pacific.
6
<PAGE>
BOARD OF DIRECTORS
Corporate Governance
The management of the Company periodically reviews trends in corporate
governance with the Board. In 1996, the Board of Directors adopted a new annual
process of evaluating the operations of the Board as a whole. Each director
currently rates the following:
. mechanics of Board meetings (length of meetings, number of meetings,
adequacy of pre-meeting information, quality of presentations,
communications between meetings);
. meeting content/conduct (topics covered, amount of detail, climate for
open debate, time for discussion);
. Board organization/operation (size, mandatory retirement at age 72,
committee structure, exposure and access to management, and skills,
diversity and experience of directors);
. Board practices (executive compensation, executive succession planning,
selection of committee members, criteria for the selection and retention
of directors, compensation of directors); and
. overall performance of directors (understanding the business and
strategies, doing their homework, asking good questions, sharing
insights, attending meetings and keeping current on issues affecting the
business).
The Board also adopted an annual process for evaluating those directors whose
terms expire at the next Annual Meeting. The directors evaluate themselves on
various factors, including meeting preparation, attendance, participation at
meetings, and knowledge of issues and trends affecting the Company. The
evaluation forms for the Board as a whole and individual directors are then
submitted to the Nominating and Corporate Governance Committee before directors
are nominated for reelection to the Board. After reviewing the comments
received, the Nominating and Corporate Governance Committee recommends to the
Board any procedures and practices to be adopted to improve the operations of
the Board. The Chairman of the Nominating and Corporate Governance Committee
may meet with individual directors to discuss their performance.
7
<PAGE>
Committees of the Board
The Board of Directors has four standing committees: Audit, Compensation,
Executive, and Nominating and Corporate Governance. The names of the members
and the number of meetings held in 1998 are shown in the table below:
<TABLE>
<CAPTION>
Nominating
and
Corporate
Name Audit Compensation Executive Governance
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Don E. Carroll X X
-------------------------------------------------------------------
Robert F. Clarke* X
-------------------------------------------------------------------
Richard Henderson X** X**
-------------------------------------------------------------------
Victor Hao Li X
-------------------------------------------------------------------
T. Michael May*
-------------------------------------------------------------------
Bill D. Mills X
-------------------------------------------------------------------
A. Maurice Myers X X
-------------------------------------------------------------------
Diane J. Plotts X X** X
-------------------------------------------------------------------
James K. Scott X
-------------------------------------------------------------------
Oswald K. Stender X X
-------------------------------------------------------------------
Kelvin H. Taketa X
-------------------------------------------------------------------
Jeffrey N. Watanabe X X**
-------------------------------------------------------------------
Number of Meetings in
1998 6 2 0 1
</TABLE>
- --------
*Employee director
**Committee chair
The Audit Committee reviews the Company's auditing, accounting, financial
reporting, and internal control functions. All members of the committee are
nonemployee directors.
The Compensation Committee reviews the current salary administration policies
and compensation strategy for the Company. All members of the committee are
nonemployee directors. Since 1991, the Compensation Committee has annually
evaluated the performance of the President. At least once a year, the
Compensation Committee meets in executive session with the other nonemployee
directors of the Board to discuss the President's compensation and to evaluate
the President's performance. See pages 20 to 24 for the Compensation
Committee's Report on Executive Compensation.
The Executive Committee possesses and exercises the authority of the Board as
delegated by the Board and is responsible for considering and making
recommendations to the Board regarding any questions concerning the business
and affairs of the Company. The Committee is comprised of nonemployee directors
and the President.
The Nominating and Corporate Governance Committee reviews and recommends to
the Board of Directors the slate of nominees to be submitted to the
stockholders for election at the next Annual Meeting. All members of the
committee are nonemployee directors. See page 7 for a discussion concerning the
involvement of this Committee on matters relating to corporate governance.
8
<PAGE>
Recommendation for Director Nominee
You can recommend any person as a nominee for director of HEI by writing to
the Nominating and Corporate Governance Committee, in care of the Secretary,
Hawaiian Electric Industries, Inc., P. O. Box 730, Honolulu, Hawaii 96808-0730.
Recommendations must be received by December 13, 1999 for consideration by the
Committee for the 2000 Annual Meeting of Stockholders. The recommendation must
include the nominee's qualifications and other relevant biographical
information and confirmation of the nominee's consent to serve.
Attendance at Meetings
In 1998, there were ten regular monthly meetings and two special meetings of
the Board of Directors. All directors attended at least 75% of the combined
total meetings of the Board and Board committees on which they served.
Compensation of Directors
Nonemployee directors of the Company received the following compensation for
their services as directors during 1998 (employee members of the Board of
Directors receive no additional compensation for service as directors).
<TABLE>
<CAPTION>
Compensation Amount
- ------------ -------
<S> <C>
Annual Board Retainer $20,000
Stock component -- 296 shares*
Cash component -- $8,000**
Board Attendance Fee (per meeting) 700
Committee Attendance Fee (per meeting) 700
Committee Attendance Fee for Committee Chair (per meeting) 800
</TABLE>
- ----------
* To link directors' compensation to performance and to more effectively
align the Board's interests with the interests of stockholders, 60% of the
retainer is paid in stock in accordance with the Nonemployee Director Stock
Plan. The number of shares of stock distributed was based on a price of
$40.44 per share, which was the average high and low sales prices of HEI
Common Stock on May 1, 1998 (the third business day following the Annual
Meeting in April), with a cash payment made in lieu of any fractional
share.
** Paid quarterly in installments. In order to receive the fourth quarter
installment, directors are required to have attended at least 75% of the
combined total of all Board meetings and all meetings of Board committees
on which they serve.
Nonemployee Director Retirement Plan
The Nonemployee Director Retirement Plan (which was approved by the
stockholders on April 17, 1990) provides certain retirement benefits to
nonemployee directors of the Company or any subsidiary of the Company upon
retirement from service as a director. The Plan provides an annual payment to
each director who serves for at least 5 consecutive years and meets other
requirements of the Plan in an amount equal to the annual retainer which was in
effect in the year that the
9
<PAGE>
nonemployee director retired. The payments are for a period equal to the number
of years of active service accumulated and terminate in the event of the
director's death.
At the meeting of the Board of Directors on December 17, 1996, the Board
voted to terminate the Nonemployee Director Retirement Plan as described above,
and pay the present value of the accrued retirement benefits to directors age
55 or younger or with 5 years of service or less as of April 22, 1997.
The retirement benefits for all other directors (Mr. Henderson, Mr. Myers and
Ms. Plotts) were frozen as of December 31, 1996, and will be paid according to
the terms of the Plan based on the $15,000 annual retainer in effect on
December 31, 1996. The right of previously retired directors to receive
benefits continues according to the Plan.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company entered into Indemnity Agreements with each of its directors and
executive officers as approved by stockholders at the 1989 Annual Meeting. The
Indemnity Agreement provides for mandatory indemnification of the director or
officer to the fullest extent permitted by law. This includes indemnification
against all expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred. The Indemnity Agreement
also provides for the mandatory payment of expenses incurred by the director or
officer in defending a proceeding. However, these expenses must be repaid if it
is later determined that the officer or director is not entitled to
indemnification.
The Indemnity Agreement excludes indemnification for:
. proceedings initiated by the officer or director unless the Board of
Directors determines indemnification to be appropriate;
. amounts covered by insurance;
. profits made from the purchase or sale of stock by a director or officer
which are subject to the "short-swing profits" liability provisions of
federal or state securities laws;
. an action or omission by the officer or director determined to be willful
misconduct or to have been knowingly fraudulent or deliberately
dishonest; or
. if an appropriate court determines that such indemnification is not
permitted by law.
At the 1990 Annual Meeting, the stockholders approved a proposal to amend the
Restated Articles of Incorporation of the Company to add a new Article
Fourteenth eliminating the personal liability of its directors for monetary
damages to the fullest extent permitted by Hawaii law.
10
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows how many shares of HEI Common Stock were owned as
of February 17, 1999 by each director, Named Executive Officer (as listed in
the Summary Compensation Table on page 13) and by all directors and executive
officers as a group.
Amount of Common Stock and Nature of Beneficial Ownership
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Name of Individual Sole Voting or Shared Voting or Other Beneficial
or Group Investment Power Investment Power* Ownership** Stock Options*** Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonemployee directors
Don E. Carroll 2,188 2,188
Richard Henderson 2,442 2,442
Victor Hao Li 3,043 304 3,347
Bill D. Mills 4,228 5 4,233
A. Maurice Myers 3,923 3,923
Diane J. Plotts 2,190 2,190
James K. Scott 1,313 1,313
Oswald K. Stender 4,127 4,127
Kelvin H. Taketa 1,510 1,510
Jeffrey N. Watanabe 2,411 196 2 2,609
Employee directors and
Named Executive
Officers
Robert F. Clarke 10,763 10,000 121,087 141,850
T. Michael May 1,149 22,029 23,178
Other Named Executive
Officers
Peter C. Lewis 2,210 317 10,389 12,916
Wayne K. Minami 1,825 7,508 24,968 34,301
Robert F. Mougeot 5,550 15,271 20,821
All directors and
executive officers as a
group (20 persons) 44,927 26,332 3,152 253,874 328,285****
</TABLE>
- ----------
* Shares registered in name of the individual and spouse.
** Shares owned by spouse, children or other relatives sharing the home of
the director or officer and which the director or officer disclaims
personal interest.
*** Stock options, including accompanying dividend equivalent shares,
exercisable within 60 days after February 17, 1999, under the 1987 Stock
Option and Incentive Plan (as amended and restated effective February 20,
1996).
**** The directors and executive officers of HEI as a group beneficially owned
1.02% of HEI Common Stock on February 17, 1999 and no director or officer
owned more than .44% of such stock.
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table presents information about the beneficial ownership of
each person known to the Company to own more than 5% of the outstanding Common
Stock as of December 31, 1998.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name and Address Owned Class
---------------- ------------ ----------
<S> <C> <C>
Pioneer Investment Management, Inc. 2,669,063(1) 8.32%
60 State Street
Boston, Massachusetts 02109
</TABLE>
- ----------
(1) This information is based on a Schedule 13G, dated January 11, 1999, filed
with the Securities and Exchange Commission that discloses that Pioneer
Investment Management, Inc. has sole voting and dispositive powers over the
2,669,063 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of forms filed by its reporting persons during the last
fiscal year, the Company believes that its reporting persons complied with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.
12
<PAGE>
EXECUTIVE MANAGEMENT COMPENSATION
Summary Compensation Table
The following summary compensation table shows the annual and long-term
compensation of the chief executive officer and the four other most highly
compensated executive officers of the Company and its subsidiaries serving
during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------------------------
Awards Payouts
-----------------
Securities
Other Annual Underlying LTIP All Other
Name and Principal Salary Bonus(1) Compensation(2) Options(3) Payouts(4) Compensation(5)
Position Year ($) ($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert F. Clarke 1998 $490,000 $138,237 $ -0- 20,000 $ -- $19,697
Chairman, President
& CEO 1997 483,000 132,842 -0- 20,000 -0- 18,236
1996 464,000 196,702 -0- 20,000 247,708 26,609
- ---------------------------------------------------------------------------------------------------------
T. Michael May 1998 325,000 92,425 -0- 12,000 -- 17,030
Senior Vice
President; 1997 313,000 -0- -0- 12,000 -0- 16,423
President & CEO,
HECO 1996 282,000 98,747 107,412 12,000 52,175 13,945
- ---------------------------------------------------------------------------------------------------------
Wayne K. Minami 1998 267,000 -0- -0- 10,000 -- 54
President & CEO 1997 257,000 74,355 -0- 8,000 -0- 50
American Savings
Bank, 1996 242,000 41,684 -0- 8,000 48,315 98
F.S.B.
- ---------------------------------------------------------------------------------------------------------
Robert F. Mougeot 1998 238,000 39,077 -0- 5,000 -- 9,329
Financial Vice
President and 1997 235,000 38,274 -0- 5,000 -0- 16,189
Chief Financial
Officer 1996 225,000 46,217 -0- 5,000 88,645 13,583
- ---------------------------------------------------------------------------------------------------------
Peter C. Lewis 1998 203,000 36,844 -0- 5,000 -- 14,172
Vice President -- 1997 201,000 34,868 -0- 5,000 -0- 13,060
Administration and 1996 194,000 39,655 -0- 5,000 73,471 12,576
Secretary
</TABLE>
- ----------
(1) The Named Executive Officers are eligible for an incentive award under the
Company's annual Executive Incentive Compensation Plan (EICP). EICP bonus
payouts are reflected as compensation for the year earned.
(2) Covers perquisites of $107,412 for Mr. May for 1996 which he recognized as
imputed income under the Internal Revenue Code, including $95,691 under the
category club membership (representing once in a lifetime reimbursement of
initiation fees of $50,000 grossed up for taxes, plus reimbursement of
monthly dues not grossed up for taxes).
(3) Options granted for the three-year period 1996-1998 contained dividend
equivalents as further described below under the heading Option Grants in
Last Fiscal Year.
13
<PAGE>
(4) Long-Term Incentive Plan (LTIP) payouts are determined in the second
quarter of each year for the three-year cycle ending on December 31 of the
previous calendar year. If there is a payout, the amount is reflected as
LTIP compensation in the table for the previous year for the Named
Executive Officers. In May 1997, LTIP payouts were made for the 1994-1996
performance cycle and are reflected as LTIP compensation in the table for
1996. In 1998, no LTIP payouts were received for the 1995-1997 performance
cycle because none of the minimum threshold levels was achieved. The
determination of whether there will be a payout under the 1996-1998 LTIP
will not be made until the second quarter of this year.
(5) Represents amounts accrued each year by the Company for certain death
benefits provided to the Named Executive Officers, as described in the
Compensation Committee Report on pages 23 and 24 under the heading, "Other
Compensation Plans."
Option Grants in Last Fiscal Year
The following table presents information on the nonqualified stock options
which were granted to the five Named Executive Officers on April 14, 1998. The
practice of granting stock options, which include dividend equivalent shares,
has been followed each year since 1987.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Percent of Grant
Underlying Total Options Date
Options Granted to Exercise Present
Granted(1) Employees in Price Expiration Value(2)
Name (#) Fiscal Year ($/share) Date ($)
---- ---------- ------------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
Robert F. Clarke........ 20,000 23% $40.99 April 14, 2008 $182,200
T. Michael May.......... 12,000 14 40.99 April 14, 2008 109,320
Wayne K. Minami......... 10,000 12 40.99 April 14, 2008 91,100
Robert F. Mougeot....... 5,000 6 40.99 April 14, 2008 45,550
Peter C. Lewis.......... 5,000 6 40.99 April 14, 2008 45,550
</TABLE>
- ----------
(1) For the 52,000 option shares granted with an exercise price of $40.99 per
share to the Named Executive Officers, additional dividend equivalent
shares are granted at no additional cost throughout the four-year vesting
period (vesting in equal installments) which begins on the date of grant.
Dividend equivalents are computed, as of each dividend record date, both
with respect to the number of shares under the option and with respect to
the number of dividend equivalent shares previously credited to the
participant and not issued during the period prior to the dividend record
date. Accelerated vesting is provided in the event a Change-in-Control
occurs. No stock appreciation rights have been granted under the Company's
stock option plans.
(2) Based on a Binomial Option Pricing Model, which is a variation of the
Black-Scholes Option Pricing Model. For the stock options granted on April
14, 1998, with a 10-year option period, an exercise price of $40.99, and
with additional dividend equivalent shares granted for the first four years
of the option, the Binomial Value adjusted for forfeiture risk is $9.11 per
share. The following assumptions were used in the model: Stock Price:
$40.99; Exercise Price: $40.99;
14
<PAGE>
Term: 10 years; Volatility: 0.1244; Interest Rate: 5.82%; and Dividend
Yield: 6.67%. The following were the valuation results: Binomial Option
Value: $3.47; Dividend Credit Value: $5.64; and Total Value: $9.11.
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table shows the stock options, including dividend equivalents,
exercised by the Named Executive Officers in 1998. Also shown is the number of
unexercised options and the value of unexercised in the money options,
including dividend equivalents, at the end of 1998. Under the Stock Option and
Incentive Plan, dividend equivalents have been granted to each executive
officer as part of the stock option grant, except for Mr. May's 1993 and 1995
stock option grants and a one-time, premium-priced grant to Mr. Clarke in May
1992.
Dividend equivalents permit a participant who exercises a stock option to
obtain at no additional cost, in addition to the option shares, the amount of
dividends declared on the number of shares of Common Stock with respect to
which the option is exercised during the period between the grant and the
exercise of the option. Dividend equivalents are computed, as of each dividend
record date throughout the four-year vesting period (vesting in equal
installments), which begins on the date of grant, both with respect to the
number of shares underlying the option and with respect to the number of
dividend equivalent shares previously credited to the executive officer and
not issued during the period prior to the dividend record date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options (Including In the Money Options
Dividend Equivalents) (Including Dividend Equivalents)
Dividend Value at Fiscal Year-End at Fiscal Year-End(1)(2)
Shares Equivalents Value Realized --------------------- --------------------------------
Acquired Acquired Realized On Dividend Exercisable/ Exercisable/
On Exercise On Exercise On Options Equivalents Unexercisable Unexercisable
Name (#) (#) ($) ($) (#) ($)
- ---- ----------- ----------- ---------- ----------- --------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Clarke..... 35,000 10,852 $163,319 $435,001 96,789/56,174 $456,918/414,323
T. Michael May....... 7,000 -- 27,774 -- 10,559/30,886 106,149/200,016
Wayne K. Minami...... 13,000 4,031 55,629 159,134 14,716/24,567 182,759/169,603
Robert F. Mougeot.... 5,000 1,552 31,256 61,353 9,197/14,043 114,188/103,581
Peter C. Lewis....... 5,000 1,362 34,819 54,352 4,400/14,043 44,223/103,581
</TABLE>
- ---------
(1) All options were in the money (where the option price is less than the
closing price on December 31, 1998) except the 1998 stock option grant
with dividend equivalents with an exercise price of $40.99 per share and
the 1992 premium-priced stock option grant without dividend equivalents
with an exercise price of $41.00 per share.
(2) Value based on closing price of $40.25 per share on the New York Stock
Exchange on December 31, 1998.
15
<PAGE>
Long-Term Incentive Plan (LTIP) Awards
The table below lists the LTIP awards made to the Named Executive Officers
during 1998. The table shows potential payments that are tied to the
achievement of better than average performance over a three-year period (1998-
2000) relating to two separate goals for all the Named Executive Officers
except Mr. May and Mr. Minami, who have a third goal in addition to the two
goals listed immediately below.
The two goals are (1) return on average common equity (weighted 60%), and (2)
total return to shareholders (weighted 40%). The weighting of each goal applies
to all the Named Executive Officers except Mr. May and Mr. Minami. The
Company's performance for the return on average common equity goal is based on
an internal goal. The Company's performance for the total return to
shareholders goal is measured against the Edison Electric Institute Index of
100 Investor-Owned Electric Companies as of December 31, 2000 (Peer Group).
This is the same Peer Group used for the Stockholder Performance Graph shown on
page 25. However, the performance of the LTIP Peer Group is calculated on a
noncapitalized weighted basis whereas the Stockholder Performance Graph Peer
Group is calculated on a capitalized weighted basis. The LTIP uses a
noncapitalized weighted basis so as not to give a disproportionate emphasis to
the larger companies in the Edison Electric Institute Index. For Mr. May and
Mr. Minami, the two goals set forth above are weighted (1) return on average
common equity (30%), and (2) total return to shareholders (20%). Mr. May's
third goal (weighted 50%) is based on a prorated percent of allowed return on
average common equity for Hawaiian Electric Company, Inc. (consolidated) for
the same three-year LTIP cycle. Mr. Minami's third goal (weighted 50%) is based
on a return on average common equity for American Savings Bank, F.S.B. (ASB)
for the same three-year LTIP cycle.
The threshold for minimum awards with respect to the return on average common
equity goal is 10.75%. The threshold minimum award with respect to the total
return to shareholders will be earned if the Company's performance is at the
40th percentile of the Peer Group. Mr. May's threshold minimum for his third
goal, which must be achieved in at least two out of three years during the LTIP
cycle, is a prorated percent of allowed return on average common equity for
Hawaiian Electric Company, Inc. (consolidated) of 90%. Mr. Minami's threshold
minimum for his third goal, which must be achieved in at least two out of three
years during the LTIP cycle, is a return on average common equity for ASB of
12%. Maximum awards with respect to the return on average common equity goal
will be earned if the return on average common equity is 12.5%. Maximum awards
with respect to the total return to shareholders will be earned if the
Company's performance is measured at the 70th percentile of the Peer Group. For
Mr. May, the maximum award on his third goal will be earned if the prorated
percent of allowed return on average common equity for Hawaiian Electric
Company, Inc. (consolidated) equals or exceeds 100%. For Mr. Minami, the
maximum award on his third goal will be earned if the return on average common
equity for ASB equals or exceeds 16%. Earned awards are distributed in the form
of 60% cash and 40% HEI Common Stock with the maximum award level for each
Named Executive Officer ranging from 75% to 100% of the midpoint of the
officer's salary grade range at the end of the three-year performance period.
16
<PAGE>
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts
------------------------------
Three-Year Minimum
Performance Cycle Threshold(1) Target Maximum
Name Ending Date ($) ($) ($)
- ---- ----------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Robert F. Clarke............... 12/31/00 $207,240 $420,760 $628,000
T. Michael May................. 12/31/00 98,000 196,000 294,000
Wayne K. Minami................ 12/31/00 89,250 178,500 267,750
Robert F. Mougeot.............. 12/31/00 67,500 135,000 202,500
Peter C. Lewis................. 12/31/00 55,570 111,500 167,250
</TABLE>
- ----------
(1) Assumes meeting minimum threshold on all goals; however, if only one goal
(weighted 40%) is met, the minimum threshold estimated future payout would
be: Mr. Clarke -- $82,869; Mr. Mougeot -- $27,000; and Mr. Lewis --
$22,300. If only one goal (weighted 20%) is met, the minimum threshold
estimated future payout would be $19,600 for Mr. May and $17,850 for Mr.
Minami. There is no LTIP payout unless the minimum threshold is met on at
least one of the goals.
Pension Plans
All regular employees (including the Named Executive Officers) are covered by
noncontributory, qualified defined benefit pension plans. The plans provide
retirement benefits at normal retirement (age 65), reduced early retirement
benefits and death benefits. The Named Executive Officers except Mr. Minami
participate in the Retirement Plan for Employees of HEI and Participating
Subsidiaries (HEI Plan). Mr. Minami is a participant in the American Savings
Bank Retirement Plan (ASB Plan). Mr. Clarke and Mr. May also participate in the
HEI Supplemental Executive Retirement Plan (HEI SERP) and Mr. Minami also
participates in the ASB Supplemental Retirement, Disability, and Death Benefit
Plan (ASB SERP) (see pages 18 and 19).
Some executives are affected by Internal Revenue Code limitations on
qualified plan benefits. They are, therefore, also covered under the Hawaiian
Electric Industries, Inc. Excess Benefit Plan (Excess Plan) and the Hawaiian
Electric Industries, Inc. Excess Pay Supplemental Executive Retirement Plan
(Excess Pay SERP), which are noncontributory, nonqualified plans.
The following table shows estimated annual pension benefits payable at
retirement under the HEI Plan, Excess Plan and Excess Pay SERP based on base
salary that is covered under the three plans and years of service with the
Company and all of its subsidiaries.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------
Remuneration 5 10 15 20 25 30
- ------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000................... $20,400 $ 40,800 $ 61,200 $ 81,600 $102,000 $122,400
250,000................... 25,500 51,000 76,500 102,000 127,500 153,000
300,000................... 30,600 61,200 91,800 122,400 153,000 183,600
350,000................... 35,700 71,400 107,100 142,800 178,500 214,200
400,000................... 40,800 81,600 122,400 163,200 204,000 244,800
450,000................... 45,900 91,800 137,700 183,600 229,500 275,400
500,000................... 51,000 102,000 153,000 204,000 255,000 306,000
550,000................... 56,100 112,200 168,300 224,400 280,500 336,600
600,000................... 61,200 122,400 183,600 244,800 306,000 367,200
</TABLE>
17
<PAGE>
The HEI Plan provides a monthly retirement pension for life. Benefits are
determined by multiplying years of credited service and 2.04% (not to exceed
67%) times the participant's Final Average Compensation (average base salary
for any consecutive 36 months that produces the highest monthly average). As of
December 31, 1998, the Named Executive Officers had the following number of
years of credited service under the HEI Plan: Mr. Clarke, 11 years; Mr. May, 6
years; Mr. Mougeot, 10 years; and Mr. Lewis, 30 years.
Benefits under the ASB Plan are determined by multiplying years of credited
service (not to exceed 35 years) and 1.5% times the participant's Final Average
Compensation (average compensation for the highest five of the last ten years
of credited service). As of December 31, 1998, Mr. Minami had 12 years of
credited service under the ASB Plan. His estimated annual benefit payable in
the form of a single life annuity projected to age 65 is $55,180, based on his
current compensation level.
Internal Revenue Code Section 415 limits the retirement benefit that a
participant can receive from qualified retirement plans such as the HEI Plan
and ASB Plan. The limit for 1998 is $130,000 per year at age 65. The Company
adopted the Excess Plan to provide benefits that cannot be paid from the
qualified plans due to this maximum limit, based on the same formula as the
qualified plans.
Internal Revenue Code Section 401(a) limits a participant's compensation that
can be recognized under qualified retirement plans. The limit on the maximum
compensation for 1998 under Section 401(a) is $160,000. The Company adopted the
Excess Pay SERP to provide benefits that cannot be paid from the qualified
plans due to the maximum compensation limit under Section 401(a), based on the
same formula as the qualified plans.
The Company also maintains two supplemental executive retirement plans (HEI
SERP and ASB SERP) for certain executive officers. Mr. Clarke and Mr. May
participate in the HEI SERP and Mr. Minami participates in the ASB SERP.
Benefits under the HEI SERP and ASB SERP are in addition to qualified
retirement benefits payable from the HEI Plan, the ASB Plan and Social
Security.
Under the HEI SERP, the executive is eligible to receive, at age 60, a
benefit of up to 60% (depending on years of credited service) of the
participant's average compensation, which includes amounts received under the
annual Executive Incentive Compensation Plan (EICP), in the highest three out
of the last five years of service. The benefit payable under the HEI SERP is
reduced by the participant's primary Social Security benefit and the benefit
payable from the HEI Plan, but in no event is it less than the benefit payable
under the HEI Plan (before any Internal Revenue Code Section 415 and 401(a)
reductions). The HEI SERP provides for reduced early retirement benefits at age
50 with 15 years of service or age 55 with five years of service, and survivor
benefits in the form of an annuity in the event of the participant's death
after becoming eligible for early retirement. The overall total retirement
benefits payable to Mr. Clarke in the form of a straight life annuity projected
to age 65 is $241,429, based on his current compensation level ($84,031 from
the HEI Plan and $157,398 from the HEI SERP, with no amounts owing from the
Excess Plan or the Excess Pay SERP). The overall total retirement benefits
payable to Mr. May in the form of a straight life annuity projected to age 65
is $150,901 based on his current compensation level ($71,007 from the HEI Plan
and $79,894 from the HEI SERP, with no amounts owing from the Excess Plan or
the Excess Pay
18
<PAGE>
SERP). As of December 31, 1998, Mr. Clarke had 11 years of credited service and
Mr. May had 6 years of credited service under the HEI SERP.
The ASB SERP provides a benefit at age 65 of up to 60% (depending upon years
of credited service) of the participant's average compensation (including 50%
of the amounts received under the EICP) in the highest five consecutive years
out of the last ten years of service, reduced by the participant's primary
Social Security benefit and the benefit payable from the ASB Plan, but in no
event is it less than the benefit payable under the ASB Plan (before any
Internal Revenue Code Section 415 and 401(a) reductions). The ASB SERP also
provides for termination and survivor benefits in certain circumstances. The
overall total retirement benefits payable to Mr. Minami in the form of a
straight life annuity projected to age 65 is $144,972, based on his current
compensation level ($55,180 from the ASB Plan and $89,792 from the ASB SERP).
As of December 31, 1998, Mr. Minami had 12 years of credited service under the
ASB SERP.
Change-in-Control Agreements
Since 1989, the Company has entered into Change-in-Control Agreements with
certain executives, including the Named Executive Officers listed in the
Summary Compensation Table, to encourage and ensure their continued attention
and dedication to the performance of their assigned duties without distraction
in the event of potentially disturbing circumstances arising from a change-in-
control of the Company.
Each Agreement provides that benefits, compensation and position
responsibility of these officers will remain at existing levels for a period of
two years following a "Change-in-Control," unless the "Expiration Date" of the
Agreement has occurred. A "Change-in-Control" is defined to include a change-
in-control required to be reported under the proxy rules in effect on the date
of the Agreements, the acquisition by a person (as defined under the Securities
Exchange Act of 1934) of 25% or more of the voting securities of the Company,
or specified changes in the composition of the Board of Directors of the
Company following a merger, tender offer or certain other corporate
transactions. "Expiration Date" is defined as the earliest to occur of the
following:
(1)two years after a change-in-control;
(2)termination of the executive's employment by the Company for "Cause" (as
defined in the Agreement) or by the executive other than for "Good Reason" (as
defined in the Agreement);
(3)retirement; or
(4)termination of the Agreement by the Company's Board of Directors, or
termination of the executive's employment, prior to a change-in-control.
If the employment of one of these executives is terminated after a change-in-
control and prior to the expiration date, the Company is obligated to provide a
lump sum severance equal to 2.99 times the executive's average W-2 earnings for
the last five years (or such lesser period that the executive has been employed
by the Company), subject to certain limitations. Based on W-2 earnings for the
five most recent years (1994-1998), the lump sum severance would be as follows:
Mr. Clarke -- $2,993,559; Mr. May -- $1,020,690; Mr. Minami -- $1,293,675;
Mr. Mougeot -- $1,226,784; and Mr. Lewis -- $1,023,293. In the event of a
change-in-control, all outstanding stock options would be accelerated and
become immediately exercisable.
19
<PAGE>
Compensation Committee Report on Executive Compensation
Introduction
The Compensation Committee of the Board, which is composed entirely of
outside directors, makes decisions on executive compensation. The full Board
approves all decisions by the Committee.
The Committee retained the services of an independent compensation consulting
firm to assist in executive compensation matters.
Executive Compensation Philosophy
The Committee applies the following principles in developing an executive
compensation program which:
. maintains a compensation program that is fair in a competitive
marketplace;
. provides compensation opportunities that relate pay with the Company's
annual and long-term performance goals which support growth in
stockholder value;
. recognizes and rewards individual initiative and achievements; and
. allows the Company to attract, retain, and motivate qualified executives
who are critical to the Company's success.
The Committee believes that stock ownership by management is beneficial in
aligning management's and stockholders' interests in improving stockholder
value. It, therefore, uses stock options and stock payouts in the compensation
program for executive officers with a goal of increasing their stock ownership
over time.
Executive Compensation Program
The Company's executive compensation program includes:
. base salary;
. potential for an annual bonus based on overall Company financial and
operational performance as well as individual performance; and
. the opportunity to earn long-term cash and stock-based incentives which
are intended to encourage the achievement of superior results over time
and to align executive officer and stockholder interests.
The second and third elements constitute the "at-risk" portion of the
compensation program and are designed to link the interests of the executive
with those of the stockholders. This means that total compensation for each
executive may change significantly from year to year depending on the short-
and long-term performance of the Company and its subsidiaries.
Base Salary
The Committee reviews salaries for executive officers in April of each year
in consultation with the Committee's independent compensation consultant. The
consultant examines the position
20
<PAGE>
responsibilities of each officer at HEI and each of its subsidiaries against
similar positions in similar organizations. All compensation references
represent the fiftieth percentile or midpoint of pay practices found in similar
organizations.
Salaries for executive officers of the various companies are based on
competitive references drawn from compensation surveys as follows:
. holding company -- other electric utilities (75%) and general industry
(25%)
. electric utilities -- other electric utilities (100%)
. financial institution -- other financial institutions (100%)
. interisland freight transportation -- other service companies (50%) and
general industry (50%)
. international power producer -- private power producers (100%)
. real estate -- other real estate companies (100%)
Based on the information from these surveys, the consultant recommends a
salary range for each executive officer position. The midpoint of the range
approximates the fiftieth percentile of the survey data and the range has a
spread of plus and minus 20% around this midpoint. Actual setting of an
executive officer's base salary (except for Mr. Clarke) is based on Mr.
Clarke's recommendation and the Committee's approval.
Mr. Clarke's base salary is determined through the Committee's overall
evaluation of his performance during the preceding year. This evaluation is
subjective in nature and takes into account all aspects of his responsibilities
at the total discretion of the Committee. In 1998, a salary freeze was put into
effect for all the executives of the Company, including Mr. Clarke, due to the
expected weak performance of the Hawaii economy. The only exception to the
salary freeze was for the officers and employees of American Savings Bank,
including Mr. Minami. Mr. Clarke's salary remained at the annual rate of
$490,000, the level established for Mr. Clarke effective May 1, 1997.
Annual Executive Incentive Compensation Plan
Under the Executive Incentive Compensation Plan (EICP), annual incentive
awards are granted upon the achievement of financial and nonfinancial
performance measures established by the Committee in the early part of each
calendar year. The measures are stated in terms of minimum, target and maximum
goals. These measures, which may differ for individual Named Executive
Officers, include:
. earnings per share;
. net income;
. total return to shareholders measured against the Edison Electric
Institute Peer Group of 100 investor-owned electric utility companies for
the same period;
. company (subsidiary) specific operational and strategic goals;
. measurement of individual officers actual administrative and general
expenses against budgeted expenses established at the beginning of the
year; and
. individual officer's performance.
21
<PAGE>
The EICP has a minimum financial performance threshold linked to earnings per
share or net income (based on whether measurement is at the Company or
subsidiary level) which must be achieved before a bonus can be considered. The
maximum awards under the EICP differ for each of the Named Executive Officers,
currently ranging from a low of 37% to a high of 60% for Mr. Clarke, based on
the midpoint of the salary grade range at the end of the year for each officer.
Each year the Committee establishes the minimum, target and maximum EICP
potential award levels for the Named Executive Officers based on
recommendations from the Committee's independent compensation consultant. The
consultant bases its recommendations on an assessment of competitive practices
from a cross-section of all industries, including some of the electric utility
companies included in the Stockholder Performance Graph.
Under the 1998 EICP, Mr. Clarke received a payout of $138,237 in early 1999.
This resulted from achievement of (1) the earnings per share goal (weighted
70%) at a level slightly below target and (2) lower than forecast 1998
administrative and general expenses for the Company (weighted 10%) at a level
slightly above target. There was no payout for the total return to stockholders
goal (weighted 20%) since the Company's total return for 1998 was below the
minimum threshold of the average total return of the Edison Electric Institute
Peer Group of 100 investor-owned electric utility companies. The EICP award for
Mr. Clarke was exclusively based on the foregoing measures. No further
adjustment was made by the Committee. The other Named Executive Officers,
except Mr. Minami, also received EICP awards under the 1998 EICP.
Long-Term Incentive Plan
The Company provides a long-term incentive plan (LTIP) that is linked to the
long-term financial performance of the Company. All awards under the LTIP are
paid 60% in cash and 40% in HEI Common Stock. The LTIP goals are based on
achieving financial criteria established by the Committee for a three-year
period. A new performance period of three years starts each year. In April
1998, the Committee established the financial measures for the 1998-2000 cycle
which included (1) return on average common equity (weighted 60%) and (2) total
return to stockholders (weighted 40%). The Company's results on the return on
average common equity is measured against an internal goal and the results on
the total return to stockholders goal is measured against the Edison Electric
Institute Peer Group of 100 investor-owned electric utility companies included
in the Stockholder Performance Graph. The weighting of each goal is the same
for all the Named Executive Officers except Mr. May and Mr. Minami who have a
third LTIP goal (weighted 50%) which is discussed in the Long-Term Incentive
Plan (LTIP) Awards section on page 16. The two LTIP financial performance goals
for the Named Executive Officers were selected by the Committee because they
represented a meaningful method of supporting growth in stockholder value over
time. The achievement of each of the two goals is expressed in terms of
minimum, target and maximum levels. The LTIP award levels for each of the Named
Executive Officers are established by the Committee each year based on
recommendations from the Committee's independent compensation consultant. The
consultant bases its recommendations on an assessment of competitive practices
from a cross-section of all industries, including some of the electric utility
companies included in the Stockholder Performance Graph. These goals are
covered in more detail in the discussion of the Long-Term Incentive Plan (LTIP)
Awards on page 16.
For the three-year cycle ended December 31, 1997, none of the Named Executive
Officers received an LTIP payout because the Company did not achieve the
minimum level for any of the
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<PAGE>
financial goals. In order to have achieved a payout under any of the goals for
the cycle ended December 31, 1997, the Company's performance for the three-year
period must have equaled the average financial results of the Edison Electric
Institute Peer Group of 100 investor-owned utility companies for the respective
goal.
Stock Options
The Committee can grant nonqualified stock options, incentive stock options,
restricted stock, stock appreciation rights, and dividend equivalents based on
the 1987 Stock Option and Incentive Plan of Hawaiian Electric Industries, Inc.
(as amended and restated effective February 20, 1996), which was previously
approved by the stockholders. To date, only nonqualified stock options and
dividend equivalents have been issued under the Plan. Periodically, the
Committee requests its independent compensation consultant to assess
competitive practices with respect to stock option grants from a cross section
of all industries, including some of the electric utility companies included in
the Stockholder Performance Graph. Based on this assessment, the consultant
recommends a range of stock option grants for each Named Executive Officer.
This range takes into account the fact that a portion of the officer's long-
term incentive opportunity is delivered through participation in the LTIP. In
granting stock options, the Committee takes into consideration the amount and
value of current options outstanding. The grants are intended to retain the
officers and to motivate them to improve long-term stock performance. Stock
options are granted at average fair market value which is based on the average
of the daily high and low sales prices of HEI Common Stock on the New York
Stock Exchange during the calendar month preceding the date of grant. Stock
options generally vest in equal installments over a four-year period.
The 1998 stock option award to Mr. Clarke of 20,000 shares of HEI Common
Stock plus dividend equivalents was based on the consultant's recommendation
and the independent evaluation of an appropriate award level by the Committee.
In this evaluation, the Committee took into account prior grants to Mr. Clarke
and an overall subjective evaluation of his job performance. To receive the
dividend equivalents which accrue only during the first four years following a
stock option grant, Mr. Clarke must exercise the underlying stock option before
the expiration of the ten-year period from the date the option was granted.
Other Compensation Plans
The Named Executive Officers participate in certain broad-based employee
benefit plans and executive retirement and death benefits adopted by the
Company. Other than the HEI Retirement Savings Plan (which qualifies under
Section 401(k) of the Internal Revenue Code), which offers HEI Common Stock as
one of the investment options, benefits under these other plans are not tied to
Company performance.
The Company provides additional retirement benefits which are discussed on
pages 17 to 19 for the Named Executive Officers and certain other employees. In
the event of death during active employment, the Company also provides all the
Named Executive Officers (except Mr. Minami) and certain other employees
$50,000 term life insurance plus an amount equal to two times the employee's
salary on an after-tax basis at the date of death, paid by the Company to the
employee's beneficiary. If the employee dies after retirement, this benefit is
reduced to $20,000 term life
23
<PAGE>
insurance plus an amount equal to one times the employee's salary at
retirement, also on an after-tax basis. For Mr. Minami, American Savings Bank
provides term life insurance equal to one and one-half times his salary at the
date of death in the event of death during active employment.
Finally, the Committee reviewed the provisions of Section 162(m) of the
Internal Revenue Code of 1986, as amended (IRC), relating to the $1 million
deduction cap for executive salaries and believes that no compensation for the
five highest paid named executives will be governed by this regulation during
1999. Compensation alternatives to comply with IRC 162(m) will be considered by
the Committee at the appropriate time.
SUBMITTED BY THE
COMPENSATION COMMITTEE
OF THE HEI BOARD OF DIRECTORS
Diane J. Plotts, Chair
Don E. Carroll
Bill D. Mills
A. Maurice Myers
Oswald K. Stender
24
<PAGE>
Stockholder Performance Graph
The graph below compares the cumulative total stockholder return on HEI
Common Stock against the cumulative total return of companies listed on
Standard & Poor's 500 Stock Index and the Edison Electric Institute (EEl) Index
of 100 Investor-Owned Electric Companies. The companies comprising the EEl
Index serve 99% of the customers of the investor-owned electric utility
industry. The graph is based on the market price of common stock for all
companies at December 31 each year and assumes that $100 was invested on
December 31, 1993 in HEI Common Stock and the common stock of all companies and
that dividends were reinvested for all companies.
Comparison of Five-Year Cumulative Total Return
Among Hawaiian Electric Industries, Inc.,
S&P 500 Index, and Edison Electric Institute 100 Index
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
HAWAIIAN EEI
Measurement Period ELECTRIC S&P 100
(Fiscal Year Covered) INDS 500 INDEX INDEX
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/93 $100.00 $100.00 $100.00
FYE 12/94 $ 96.95 $101.32 $ 88.43
FYE 12/95 $123.94 $139.40 $115.86
FYE 12/96 $123.53 $171.40 $117.25
FYE 12/97 $149.45 $228.59 $149.33
FYE 12/98 $156.81 $293.91 $170.07
</TABLE>
25
<PAGE>
INDEBTEDNESS OF MANAGEMENT
American Savings Bank, F.S.B. (ASB), a subsidiary of the Company, offers
preferential rate loans to its directors and executive officers, as allowed by
the amended Federal Reserve Act.
Three ASB directors who are also directors of HEI (Mr. Clarke, Mr. Watanabe
and Ms. Plotts) and one Named Executive Officer of the Company (Mr. Minami),
whose aggregate indebtedness to ASB exceeded $60,000 at any time during 1998,
received preferential rate loans as shown below.
<TABLE>
<CAPTION>
Largest
Loan Loan Amount Average
Amount Outstanding Interest
Outstanding on Type of Rate
During 1998 1/31/99 Transaction Charged(1)
----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Robert F. Clarke.............. $977,104 $946,574 First Mortgage 6.0 %
Wayne K. Minami............... 86,114 84,991 First Mortgage 6.0 %
Diane J. Plotts............... 300,000 298,796 First Mortgage 6.0 %
Jeffrey N. Watanabe........... 659,047 650,978 First Mortgage 6.625%
</TABLE>
- ----------
(1) The first mortgage rate is based on ASB's policy for employees and
directors using a formula of .50% above the cost of funds or .50% above the
Applicable Federal Rate established by the Internal Revenue Service,
whichever is greater.
ASB made other loans, established lines of credit and issued credit cards to
directors and executive officers of the Company, and to members of their
immediate families. These loans and extensions of credit were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable features.
In addition to the above loans financed by ASB, two officers of the Company,
T. Michael May (also a director of the Company) and Robert F. Mougeot, are
indebted to the Company or one of its subsidiaries. Mr. May is indebted in the
amount of $180,000 for an employee relocation loan made to him by Hawaiian
Electric Company, Inc. in 1993. The loan is an interest only loan at an
interest rate of 6.28%, with the unpaid principal and interest due on December
28, 2008, or sooner if Mr. May ceases to be an employee of Hawaiian Electric
Company, Inc. Mr. Mougeot is indebted in the amount of $165,000 for a loan made
to him by the Company in 1989 to finance his purchase of the fee simple
interest in his home. The loan is an interest only loan at an interest rate of
8.01%, with the entire principal balance of the loan due on March 1, 2004 or
sooner if Mr. Mougeot ceases to be an employee of the Company.
26
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
The Board of Directors of HEI adopted a Plan of Disposition in September 1998
whereby Malama Pacific Corp. (MPC), a subsidiary of the Company, was declared a
discontinued operation. Prior to that, MPC was engaged in real estate
development activities. Two of MPC's subsidiaries are currently involved in
partnerships with HSC, Inc. (HSC), a corporation in which director Richard
Henderson and his family own, directly or indirectly, 76% of the stock. All of
the transactions described below were negotiated on an arm's length basis and
were approved by the disinterested members of the HEI Board.
Sunrise Estates. Malama Development Corp. (Malama Development), a wholly
owned subsidiary of MPC, and HSC are partners in a general partnership known as
Sunrise Estates which is completing the sale of the last lot in a project
consisting of 165 one-acre residential agricultural lots in Hilo, Hawaii. HSC
is the managing partner of the partnership. Three sales were made in 1998. RSM,
Inc., a subsidiary of HSC, was paid sales commissions of $12,250 in 1998.
Malama Development and HSC have each contributed $399,300 to the partnership.
Each partner received distributions of $1,196,639. Malama Development and HSC
share equally in the profits and losses of the partnership. As of December 31,
1998, 164 lots were sold.
Sunrise Estates II. Malama Elua Corp. (Malama Elua), a wholly owned
subsidiary of MPC, and HSC are partners in a general partnership known as
Sunrise Estates II which was formed to develop and market approximately 146
one-acre residential agricultural lots in Hilo, Hawaii, adjacent to the Sunrise
Estates development. HSC purchased the property in June 1990 for $2.1 million.
In 1991, the partnership purchased the development property from HSC at an
agreed upon fair market value of $2.7 million, subject to a bank loan of $2.1
million. The valuation of the property interest transferred by HSC to the
Sunrise Estates II partnership was negotiated and took into account HSC's
incurred acquisition, carrying, and development costs as well as existing
market conditions. HSC is the managing partner of the partnership. The
partnership has decided not to develop the property at this time and has placed
it on the market. On June 15, 1998, MPC acquired the land loan made by First
Hawaiian Bank to the partnership in the amount of $1,224,568. Subsequently, the
partnership agreement was amended and all past due payments on the loan were
brought current. The amendment clarified the individual partner's obligations
under the extended loan and after the sale of the property and dissolution of
the partnership. As of December 31, 1998, Malama Elua and HSC have each
contributed $1,539,366 to the partnership, and HSC has advanced $448,000 to the
partnership. The partners share equally in the profits and losses of the
partnership.
Palailai Associates. Malama Mohala Corp. (Malama Mohala), a wholly owned
subsidiary of MPC, and Palailai Holdings, Inc. (PHI), a subsidiary of Finance
Enterprises, Ltd., are equal partners in a general partnership known as
Palailai Associates (Palailai) which has been developing homes in Makakilo,
Hawaii. The family of the spouse of Constance H. Lau, the Treasurer of the
Company, owns approximately one-sixth of the common stock of Finance
Enterprises, Ltd. Her spouse is the President of Finance Enterprises, Ltd.,
which is also the parent company of Finance Realty, Ltd., Finance Factors
Limited and Finance Insurance Ltd. Management fees in the amount of $403,453
were received by Finance Realty, Ltd. from the partnership during 1998. The
partnership earned $1,387 of interest income from Finance Factors Limited. In
addition, Finance Insurance Ltd., an insurance agency, received payment of
$9,066 for insurance coverage from the partnership. All of the property of the
partnership is being actively marketed to builders and investors.
27
<PAGE>
Finally, director Jeffrey Watanabe is a partner in the law firm of Watanabe,
Ing & Kawashima that performed legal services for the Company and certain of
its subsidiaries during 1998.
STOCKHOLDER PROPOSALS FOR 2000
Stockholder proposals intended to be presented at the next Annual Meeting
must be received by the Company by November 14, 1999, for inclusion in the
Proxy Statement and form of proxy for the 2000 Annual Meeting of Stockholders.
Proposals should be sent to the attention of the Secretary of the Company.
OTHER BUSINESS
The Company knows of no other business to be presented at the Annual Meeting,
but if further matters do properly come before the meeting, the holders of your
proxy will vote your stock in accordance with their best judgment.
Additionally, HEI's advance notice by-law provision requires that any
stockholder who wishes to properly present business before the Annual Meeting
give notice to the Secretary of the Company no later than 60 days nor earlier
than 90 days prior to the anniversary date of the preceding year's annual
meeting. To be timely in the year 2000, such notice must be received by the
Secretary of the Company no later than February 27, 2000 nor earlier than
January 28, 2000. The notice must be in writing and state the reason and brief
description of the business, the name and address of the stockholder, the
number of shares of Common Stock owned by the stockholder, and any material
interest of the stockholder in such business, and include a representation that
the stockholder will present the business before the meeting in person or by
proxy.
Please date, sign and return your proxy as soon as possible to make certain
that your shares will be voted at the meeting. If you attend the meeting, as we
hope you will, you may vote your shares in person.
By Order of the Board of Directors
Peter C. Lewis, Vice President--
Administration and Secretary
March 12, 1999
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<PAGE>
[MAP APPEARS HERE]
<PAGE>
[LETTERHEAD OF HAWAIIAN ELECTRIC INDUSTRIES, INC.]
[LOGO OF HEI]
P
R
O
X
Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 27, 1999, AT 9:30 A.M., IN THE
PACIFIC TOWER, 8TH FLOOR, ROOM 805, 1001 BISHOP STREET, HONOLULU, HAWAII 96813.
The undersigned hereby constitutes and appoints Robert F. Clarke, Richard
Henderson and Jeffrey N. Watanabe and each of them the proxy of the undersigned,
with full power of substitution, to vote all the Common Stock of the Company
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on April 27, 1999, or at any adjournment thereof.
Said proxies are instructed to vote as indicated below. If no direction is
indicated, said proxies will vote FOR all Nominees in Class III and FOR proposal
2. Said proxies are also authorized to vote in their discretion with respect to
any other matters that may come before the meeting.
The Board of Directors recommends a vote FOR the following proposals:
1. Election of Class III directors (term ending at the 2002 Annual Meeting)
(Check one box only)
[_] To vote FOR ALL Nominees named below, check this box.
[_] To WITHHOLD AUTHORITY to vote for ALL Nominees named below, check
this box.
[_] To withhold authority for any particular Nominee, strike a line
through the Nominee's name listed below:
NOMINEES: Don E. Carroll
Richard Henderson
Bill D. Mills
Oswald K. Stender
2. Election of KPMG LLP as auditor (Check one box only)
[_] FOR [_] AGAINST [_] ABSTAIN
(Please sign your name exactly as it appears at the top of this proxy. Joint
owners should each sign personally. Attorney, Executor, Administrator, Trustee
or Guardian should indicate full title. If address is incorrect, please give
us the correct one.)
- --------------------------------- Dated , 1999
Signature (no witness required) ------------------------
- ---------------------------------
Signature (if held jointly)
PLEASE COMPLETE AND RETURN ENTIRE PROXY
