<PAGE>
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-73225
PROSPECTUS
- ----------
[LOGO OF HAWAIIAN ELECTRIC INDUSTRIES, INC.]
$300,000,000
Hawaiian Electric Industries, Inc.
Medium-Term Notes, Series C
Due from 9 Months to 30 Years from Date of Issue
--------------
Hawaiian Electric Industries, Inc. ("HEI") may offer from time to time up to
$300,000,000 aggregate principal amount of its Medium-Term Notes, Series C (the
"Medium-Term Notes" or the "Notes"). Each Note will be denominated in U.S.
dollars and will include the following terms, unless different terms are
described in the applicable pricing supplement:
. A stated maturity date from 9 months to 30 years from date of issue
. Interest payments on fixed rate Notes on each April 10 and October 10
. Interest payments on floating rate Notes on a monthly, quarterly, semiannual
or annual basis
. Minimum denominations of $1,000 and integral multiples of $1,000
. Redemption and/or repayment provisions, whether mandatory, at HEI's option,
at the option of the holders or none at all
. Book-entry (through The Depository Trust Company) or certificated form
. Interest at fixed or floating rates, or no interest at all. The floating
interest rate may be based on one or more of the following indices plus or
minus a spread and/or multiplied by a spread multiplier:
. CD rate
. Commercial paper rate
. Federal funds rate
. LIBOR
. Prime rate
. Treasury rate
. Such other interest basis or interest rate formula as may be specified in
the applicable pricing supplement
HEI will specify final terms for each Note in the applicable pricing
supplement, which may be different from the terms described in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus or any pricing supplement is truthful or complete. Any
representation to the contrary is a criminal offense.
HEI may sell the Notes to the Agents as principals for resale at varying or
fixed offering prices or through the Agents as agents using their reasonable
best efforts on HEI's behalf. Unless otherwise specified in the applicable
pricing supplement, the price to the public for the Notes will be 100% of the
principal amount. If HEI sells all of the Notes, HEI expects to receive
proceeds of between $297,750,000 and $299,625,000 after paying the Agents'
discounts and commissions of between $375,000 and $2,250,000 and before
deducting expenses payable by HEI. HEI may also sell the Notes without the
assistance of the Agents (whether acting as principal or as agent).
The address of HEI's principal executive offices is 900 Richards Street,
Honolulu, Hawaii 96813 and its telephone number is (808) 543-5662.
--------------
Merrill Lynch & Co. Goldman, Sachs & Co.
--------------
The date of this Prospectus is April 27, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company................................................................ 3
Ratio of Earnings to Fixed Charges......................................... 4
Use of Proceeds............................................................ 4
Where You Can Find More Information........................................ 5
Description of the Notes................................................... 6
General.................................................................. 6
Interest Rate............................................................ 8
Book-Entry Notes......................................................... 17
Redemption at the Option of HEI.......................................... 19
Repayment at the Option of the Holder.................................... 20
Discount Notes........................................................... 21
Amortizing Notes......................................................... 21
Other Provisions; Addenda................................................ 21
Restriction on Liens..................................................... 21
Restriction on Sale-Leaseback Transactions............................... 23
Restriction on Dispositions of HECO Shares............................... 24
Consolidations, Mergers, Conveyances, Transfers or Leases................ 24
Absence of Restrictions on Certain Transactions.......................... 24
Events of Default........................................................ 25
Defeasance............................................................... 26
Modification of Indenture and Waiver..................................... 27
Regarding the Trustee.................................................... 28
Listing.................................................................. 28
Governing Law............................................................ 28
Certain United States Federal Income Tax Consequences...................... 28
General.................................................................. 28
Payments of Interest..................................................... 29
Original Issue Discount.................................................. 29
Short-Term Notes......................................................... 31
Market Discount.......................................................... 32
Amortizable Bond Premium................................................. 32
Election to Treat All Interest as OID.................................... 33
Sale, Exchange and Retirement of Notes................................... 33
Backup Withholding and Information Reporting............................. 33
Plan of Distribution....................................................... 34
Validity of Notes.......................................................... 35
Experts.................................................................... 35
</TABLE>
----------------
You should rely only on the following information contained or
incorporated by reference in this prospectus and any pricing supplement. HEI
has not, and the Agents have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. HEI is not, and the Agents
are not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information
appearing in this prospectus, any pricing supplement or the documents
incorporated by reference is accurate only as of the date such information is
given. HEI's business, financial condition and results of operations may have
changed since those dates.
2
<PAGE>
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 and other businesses, primarily in the State of
Hawaii, and also engaged in independent power and integrated 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 electric utility 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 operating subsidiaries which comprise its principal
diversified companies: American Savings Bank, F.S.B. ("ASB"), Hawaiian Tug &
Barge Corp. ("HTB") and HEI Power Corp. ("HEIPC").
ASB, a federal savings bank acquired in 1988, is the third largest
financial institution in Hawaii based on total assets of $5.6 billion as of
March 31, 1999, and had deposits of $3.8 billion as of March 31, 1999. HTB was
acquired in 1986 and provides ship assist and charter towing services and owns
Young Brothers, Limited, a regulated intrastate public carrier of waterborne
freight among the Hawaiian Islands. HEIPC was formed in March 1995 to pursue
independent power and integrated energy services projects in Asia and the
Pacific, and through subsidiaries had committed (as of March 31, 1999) to
invest up to an additional $84 million in connection with existing and planned
projects. HEI also has a subsidiary with passive investments primarily in
leveraged leases and, in September 1998, began winding down the land
development and real estate investment businesses of its real estate
subsidiaries.
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 subsidiaries to pay dividends or make other distributions to
HEI is subject to contractual and regulatory restrictions, including the
provisions of an agreement with the Hawaii Public Utilities Commission
(pertaining to the electric utility subsidiaries) and the capital requirements
imposed on the savings bank, as well as restrictions and limitations set forth
in debt instruments, preferred stock resolutions and guarantees. HEI does not
expect that the regulatory and contractual restrictions applicable to HEI or
its direct or indirect subsidiaries will affect the ability of HEI and its
subsidiaries to pay their indebtedness or significantly affect their operations
as they are now being conducted.
For additional information concerning HEI's and its subsidiaries'
businesses and affairs, including their capital requirements and external
financing plans, pending legal and regulatory proceedings and descriptions of
certain laws and regulations to which those companies are subject, prospective
purchasers should refer to the documents incorporated by reference that are
listed under the caption "Where You Can Find More Information."
3
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following tables set forth the ratio of earnings to fixed charges for
HEI and its subsidiaries for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31, Three Months
------------------------ Ended
1994 1995 1996 1997 1998 March 31, 1999
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges, excluding interest on
ASB deposits..................... 2.31 2.02 1.93 1.89 1.85 1.76
==== ==== ==== ==== ==== ====
Ratio including interest on ASB
deposits......................... 1.73 1.60 1.56 1.58 1.47 1.43
==== ==== ==== ==== ==== ====
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent the sum of (i) pretax income from continuing operations
(excluding undistributed net income or net loss from less-than-fifty-percent-
owned persons) and (ii) fixed charges (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, but excluding interest on nonrecourse debt from
leveraged leases which is not included in interest 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, (iv) the preferred stock
dividend requirements of HEI's subsidiaries, increased to an amount
representing the pretax earnings required to cover such dividend requirements
and (v) the preferred securities distribution requirements of trust
subsidiaries.
USE OF PROCEEDS
HEI expects to use the net proceeds from the sale of the Notes to reduce
its short-term debt, to repay other indebtedness (including refinancing
previously issued Notes), to make investments in and loans to subsidiaries
(principally to help finance their capital expenditure programs and their
investments in subsidiaries and to retire debt) and for its working capital and
general corporate purposes. The use of proceeds in connection with a particular
issuance of Notes will be set forth in the applicable pricing supplement.
4
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement filed with the SEC.
The registration statement contains additional information and exhibits not
included in this prospectus and refers to documents that are filed as exhibits
to other SEC filings. HEI also files annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy the
registration statement and any document that HEI files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can call
the SEC's toll-free telephone number at 1-800-SEC-0330 for further information
on the public reference room. The SEC maintains a web site at www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies (such as HEI) that file documents with the SEC
electronically. The documents can be found by searching the EDGAR Archives at
the SEC's web site. HEI's SEC filings, and other information on HEI, may also
be obtained on the Internet at its web site at www.hei.com.
The SEC allows HEI to "incorporate by reference" the information that it
files with the SEC, which means that HEI can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus and should be read with
the same care. Later information that HEI files with the SEC will automatically
update and supersede information in this prospectus or an earlier filed
document. HEI has filed with the SEC and incorporates by reference the
documents below:
. Annual Report on Form 10-K for the year ended December 31, 1998.
. Current Reports on Form 8-K dated February 23, 1999 and April 26,
1999.
. Any future filings made with the SEC under Sections 13(a), 13(c),
14 and 15 of the Securities Exchange Act of 1934 (the "Exchange
Act") if the filings are made prior to the time that all of the
Notes are sold in this offering.
You may request a free copy of any of these filings by writing or
telephoning HEI at the following address or telephone number:
Hawaiian Electric Industries, Inc.
Attn: Investor Relations
P.O. Box 730
Honolulu, Hawaii 96808-0730
Telephone: (808) 543-7383
5
<PAGE>
DESCRIPTION OF THE NOTES
HEI will issue Notes under an Indenture, dated as of October 15, 1988, as
supplemented by a Second Supplemental Indenture (collectively, the
"Indenture"), between HEI and Citibank, N.A., as trustee (the "Trustee"). This
prospectus briefly outlines some of the Indenture provisions. If you would like
more information about the Indenture, you should review the Indenture as filed
with the SEC. See "Where You Can Find More Information" on how to locate the
Indenture and the supplements to the Indenture. You may also review the
Indenture and its supplements at the Trustee's offices at 399 Park Avenue, New
York, New York 10043.
HEI provides information to you about the Notes in two separate
documents. The first document is this prospectus, which provides general
information concerning the Notes, some of which may not apply to a particular
Note. The second document is a pricing supplement, which will provide final
details about the terms of a specific Note and is filed with the SEC about the
time the Note is sold. To the extent information in a pricing supplement about
a specific Note you are purchasing differs from the information in this
prospectus, you should rely on the specific information in the pricing
supplement. This prospectus describes some, but not all, of the terms of the
Notes, all of which may be varied by a pricing supplement.
This prospectus includes summaries of the Notes and the Indenture. If the
information in this prospectus differs from the information in the Notes or the
Indenture, you should in all cases rely on the information in the Notes and the
Indenture.
General
The Notes are a single series of securities under the Indenture, except
as described below under "Defeasance". The Indenture does not limit the amount
of additional debt securities that HEI may issue in the future under additional
supplements to the Indenture. Each series of debt securities, and each specific
Note or other debt security of a series, may differ as to its terms. The Notes
and all other debt securities which HEI has issued or may issue in the future
under the Indenture will be referred to herein as the "Securities."
The Indenture contains certain limitations on the ability of HEI to incur
secured indebtedness. See "Restriction on Liens" and "Restriction on Sale-
Leaseback Transactions." The Indenture does not impose restrictions on the
ability of HEI's subsidiaries to incur any indebtedness, including secured
indebtedness. Some of HEI's subsidiaries are subject to debt instruments which
impose limitations on their ability to incur indebtedness and to grant security
interests. These limitations are applicable, however, only so long as the
related indebtedness is outstanding and, in any event, are not enforceable by
holders of the Notes.
Unless secured as described under "Restriction on Liens," the Notes will
be unsecured obligations of HEI and will rank pari passu (that is, without
priority and on the same creditor level in the event of a liquidation of HEI)
with all other unsecured and unsubordinated indebtedness of HEI, including
other Securities issued under the Indenture. As of March 31, 1999, the amount
of HEI's total unsecured and unsubordinated indebtedness with which the Notes
would have ranked pari passu was $272 million.
The rights of HEI, and consequently its creditors, to participate in any
distribution of the assets of any of its subsidiaries is subject to the prior
claims of the creditors of such subsidiaries, except to the extent that claims
of HEI in its capacity as a creditor are recognized. Accordingly, the Notes
will be effectively subordinated to all obligations of such subsidiaries. As of
March 31, 1999, $631 million of HEI's total consolidated indebtedness of $903
million was indebtedness of such subsidiaries.
The Notes are currently limited to up to $300,000,000 aggregate principal
amount. Each Note will mature and be due and payable on the maturity date
stated in the Note (the "Stated Maturity"), which will be from nine months to
thirty years from the Original Issue Date. Each Note will also be due and
payable (in
6
<PAGE>
whole or in part) on any earlier date on which the principal or an installment
of principal of a Note becomes due and payable, whether by a declaration of
acceleration, call for redemption at the option of HEI, repayment at the option
of the holder or otherwise as agreed to by the purchaser and HEI and specified
in the specific Note and applicable pricing supplement. The date upon which a
Note is due and payable, whether the Stated Maturity or such earlier date, will
be referred to as the "Maturity."
Each Note will bear interest from the date of original issuance (the
"Original Issue Date") at a fixed rate ("Fixed Rate Notes") or at a floating
rate ("Floating Rate Notes") determined by reference to the Commercial Paper
Rate, the Prime Rate, the London Interbank Offered Rate ("LIBOR"), the Treasury
Rate, the Certificate of Deposit ("CD") Rate, the Federal Funds Rate or other
interest rate basis, plus or minus a Spread and/or multiplied by a Spread
Multiplier, if any, applicable to such Note. See "Interest Rate." HEI may also
issue a Note ("Discount Notes") at a discount from the principal amount payable
at its Stated Maturity and such Discount Note will bear no interest or will
bear interest at a rate that is below market interest rates at the time of
issuance.
HEI may offer different interest rates at the same time depending upon,
among other factors, the Stated Maturity of the Notes and the aggregate
principal amount of Notes purchased in any single transaction. HEI may also
offer Notes with different variable terms other than interest rates at the same
time to different investors. HEI may change interest rates, interest rate
formula and other variable terms of the Notes from time to time, but no change
will affect any Note already issued or as to which an offer to purchase has
been accepted by HEI.
HEI will make payments of principal, premium, if any, and interest with
respect to the Notes in United States dollars. HEI will issue Notes in fully
registered book-entry form (each, a "Book-Entry Note"), except in certain
limited circumstances, in which case HEI will issue Notes in certificated form
(each, a "Definitive Note"). See "Book-Entry Notes." HEI will issue Notes in
denominations of $1,000 and integral multiples of $1,000. Book-Entry Notes may
be transferred or exchanged only through a participating member of The
Depository Trust Company (or such other depositary as is identified in an
applicable pricing supplement) (the "Depositary"). See "Book-Entry Notes."
Registration of transfers of Definitive Notes will be made at the Corporate
Trust Office of the Trustee. HEI and the Trustee will not charge any service
charge for any such registration of transfer or exchange of Definitive Notes.
HEI may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with the transfer or exchange (other
than exchanges not involving any transfer).
HEI will make payments of principal of, and premium, if any, and
interest, if any, on Book-Entry Notes through the Trustee to the Depositary.
See "Book-Entry Notes." In the case of Definitive Notes, HEI will pay principal
and premium, if any, at the Maturity of each Definitive Note in immediately
available funds upon presentation and surrender of the Definitive Note at the
Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of
New York, or at such other place as HEI is entitled to designate. In the case
of a permitted repayment on an Optional Repayment Date, HEI will make payment
upon submission of a duly completed election form in accordance with the
provisions described below. HEI will pay any interest due at the Maturity of a
Definitive Note to the person to whom payment of the principal thereof and
premium, if any, thereon shall be made. HEI will pay interest due on Definitive
Notes other than at Maturity at the Corporate Trust Office of the Trustee or,
at HEI's option, by check mailed to the address of the Person entitled thereto
as such address shall appear in the Security Register. A holder of $10,000,000
or more in aggregate principal amount of Definitive Notes having the same
Interest Payment Dates will be entitled to receive interest payments (other
than at Maturity) by wire transfer of immediately available funds if the
Trustee has received appropriate wire transfer instructions from the holder not
less than 15 calendar days prior to the applicable Interest Payment Date. Any
such wire transfer instructions received by the Trustee shall be effective
until revoked by the holder.
7
<PAGE>
Reference is made to the pricing supplement applicable to each Note for
the following terms:
. the principal amount and purchase price of such Note (the "Issue
Price"), which may be expressed as a percentage of the principal
amount at which such Note will be issued;
. the Original Issue Date of such Note;
. the Stated Maturity of such Note;
. whether such Note is a Fixed Rate Note, a Floating Rate Note and/or
a Discount Note;
. if such Note is a Fixed Rate Note, the annual interest rate, if
any;
. if such Note is a Floating Rate Note, the Base Rate or Rates, the
Initial Interest Rate, the Interest Determination Date or Dates,
the Interest Reset Date or Dates, the Interest Payment Dates, the
Index Maturity, the Maximum Interest Rate and/or Minimum Interest
Rate, if any, and the Spread and/or Spread Multiplier, if any, and
the Calculation Agent (if other than the Trustee), and any other
terms relating to the particular method of calculating the interest
rate for such Note;
. if such Note is a Discount Note, the issue price and the annual
interest rate, if any;
. the date or dates from which any such interest shall accrue, if
other than the Original Issue Date;
. the terms for redemption, repayment or a sinking fund, if any; and
. any other terms of such Note consistent with the provisions of the
Indenture.
Interest Rate
General
Each interest-bearing Note will bear interest from its Original Issue
Date at the rate per annum, in the case of a Fixed Rate Note, or pursuant to
the interest rate formula, in the case of a Floating Rate Note, specified in
the Note and in the applicable pricing supplement, until the principal thereof
is paid or made available for payment. Interest payments on the Notes will be
in an amount equal to the interest accrued from and including the immediately
preceding Interest Payment Date (as defined below) in respect of which interest
has been paid or duly made available for payment (or from and including the
Original Issue Date, if no interest has been paid or duly made available for
payment since that date) to but excluding the applicable Interest Payment Date
or Maturity (each, an "Interest Period"). Interest will be payable in arrears
to the holders of such Notes (which, in the case of Book-Entry Notes, will be a
nominee of the Depositary) on the Regular Record Date (as defined below) for
each Interest Payment Date and, in the case of interest payable at Maturity, to
the person to whom principal shall be payable at Maturity.
HEI will make the first payment of interest on any Note originally issued
between a Regular Record Date and the related Interest Payment Date to the
holder of the Note on the next Regular Record Date. The payment will be made on
the Interest Payment Date following such next Regular Record Date. The "Regular
Record Date" with respect to any Note shall be the date (whether or not a
Business Day) that is 15 calendar days prior to the related Interest Payment
Date. However, any interest not punctually paid or duly provided for will no
longer be payable to the holder of the Note on the Regular Record Date and
instead will be paid either (a) to the holder of record on a special record
date to be fixed by the Trustee in accordance with the Indenture or (b) in such
other lawful manner that is selected by HEI and deemed practicable by the
Trustee.
8
<PAGE>
Fixed Rate Notes
HEI will pay interest on Fixed Rate Notes semiannually on April 10 and
October 10 of each year (each, an "Interest Payment Date" with respect to Fixed
Rate Notes), and at Maturity with respect to the principal then maturing.
Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months. If any Interest Payment Date or the Maturity of a Fixed
Rate Note falls on a day that is not a Business Day, the applicable payments
may be made on the next Business Day. In such case, no interest will accrue on
the amount so payable for such period of delay.
Floating Rate Notes
Each Floating Rate Note will bear interest at a rate determined by
reference to one or more interest rate bases (each, a "Base Rate"), which may
be adjusted by a Spread and/or Spread Multiplier (each as described below). The
applicable pricing supplement will designate one or more of the following Base
Rates as applicable to each Floating Rate Note:
. the Commercial Paper Rate (such Note being a "Commercial Paper Rate
Note");
. the Prime Rate (such Note being a "Prime Rate Note");
. LIBOR (such Note being a "LIBOR Note");
. the Treasury Rate (such Note being a "Treasury Rate Note");
. the CD Rate (such Note being a "CD Rate Note");
. the Federal Funds Rate (such Note being a "Federal Funds Rate
Note"); or
. such other Base Rate or interest rate formula as is set forth in
such pricing supplement and in such Floating Rate Note.
If the Base Rate for a Note is LIBOR, the applicable pricing supplement
and Note will also specify the Designated LIBOR Page, as explained below.
The interest rate on each Floating Rate Note will be calculated by
reference to the specified Base Rate or Rates (a) plus or minus the Spread, if
any, and/or (b) multiplied by the Spread Multiplier, if any. The "Spread" is
the number of basis points (one one-hundredth of a percentage point) specified
in the pricing supplement to be added to or subtracted from the Base Rate for
such Note to calculate the interest rate for such Floating Rate Note. The
"Spread Multiplier" is the percentage specified in the pricing supplement to be
multiplied by the Base Rate (or by the Base Rate increased or decreased by the
Spread) to calculate the interest rate for such Floating Rate Note. The "Index
Maturity" for any Floating Rate Note is the period to maturity of the
instrument or obligation from which the Base Rate or Rates is calculated.
The interest rate with respect to each Base Rate will be determined in
accordance with the applicable provisions below. Except as set forth above or
in an applicable pricing supplement, the interest rate in effect on each day
shall be (a) if such day is an Interest Reset Date, the interest rate
determined as of the Interest Determination Date immediately preceding such
Interest Reset Date, or (b) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
9
<PAGE>
Interest Reset Dates. The rate of interest on each Floating Rate Note
will be reset daily, weekly, monthly, quarterly, semiannually or annually
(each, an "Interest Reset Date"), as specified in the applicable Note and
pricing supplement. The Interest Reset Date will be as follows:
<TABLE>
<CAPTION>
Type of Floating Rate Note Interest Reset Date
--------------------------------- -------------------------------------
<C> <S>
Notes which reset daily.......... Each Business Day
Notes (other than Treasury Rate
Notes) which reset weekly....... Wednesday of each week
Treasury Rate Notes which reset
weekly.......................... Tuesday of each week
Notes which reset monthly........ Third Wednesday of each month
Notes which reset quarterly...... Third Wednesday of March, June,
September and December of each year
Notes which reset semiannually... Third Wednesday of two months of each
year as specified in the applicable
Note and pricing supplement
Notes which reset annually....... Third Wednesday of one month of each
year as specified in the applicable
Note and pricing supplement
</TABLE>
Notwithstanding the foregoing, (a) the interest rate in effect from the
Original Issue Date to the first Interest Reset Date with respect to a Floating
Rate Note will be the Initial Interest Rate (as set forth in the applicable
Note and pricing supplement) and (b) the interest rate in effect for the ten
days immediately prior to Maturity of a Floating Rate Note will be that in
effect on the tenth day preceding Maturity. Any Interest Reset Date that does
not fall on a Business Day will be postponed to the next Business Day. In the
case of a LIBOR Note, however, if such next succeeding Business Day falls in
the next calendar month, the Interest Reset Date will be the preceding Business
Day. The term "Business Day" means any day other than a Saturday or Sunday or
any other day on which banks in The City of New York are generally authorized
or obligated by law or executive order to close and, with respect to LIBOR
Notes, is also a London Business Day. As used herein, "London Business Day"
means any day on which dealings in deposits in U.S. dollars are transacted in
the London interbank market.
10
<PAGE>
Interest Payment Dates. Except as provided below or in an applicable
pricing supplement, interest will be payable on the following dates ("Interest
Payment Dates" with respect to Floating Rate Notes):
<TABLE>
<CAPTION>
Type of Floating Rate Note Interest Payment Date
--------------------------------- --------------------------------------
<C> <S>
Notes which reset daily, weekly
or monthly...................... Third Wednesday of each month or the
third Wednesday of March, June,
September and December of each year,
as specified in the applicable Note
and pricing supplement
Notes which reset quarterly...... Third Wednesday of March, June,
September and December of each year
Notes which reset semiannually... Third Wednesday of the two months of
each year specified in the applicable
Note and pricing supplement
Notes which reset annually....... Third Wednesday of the month of each
year specified in the applicable Note
and pricing supplement
All Notes........................ At Maturity with respect to the
principal then maturing
</TABLE>
If any Interest Payment Date or the Maturity of a Floating Rate Note
falls on a day that is not a Business Day, the applicable payments may be made
on the next Business Day. In such case, no interest will accrue on the amount
so payable for such period of delay. In the case of a LIBOR Note, however, if
such next succeeding Business Day falls in the next calendar month, such
Interest Payment Date will be the immediately preceding Business Day.
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<PAGE>
Interest Determination Dates. The Interest Determination Dates for
Floating Rate Notes pertaining to an Interest Reset Date will be as follows:
<TABLE>
<CAPTION>
Type of Floating Rate Note Interest Determination Date
--------------------------------- ---------------------------------------
<C> <S>
Commercial Paper Rate Note....... Second Business Day preceding such
Interest Reset Date
Prime Rate Note.................. Second Business Day preceding such
Interest Reset Date
CD Rate Note..................... Second Business Day preceding such
Interest Reset Date
Federal Funds Rate Note.......... Second Business Day preceding such
Interest Reset Date
LIBOR Note....................... Second London Business Day preceding
such Interest Reset Date
Treasury Rate Note............... Day of the week in which such Interest
Reset Date falls on which day Treasury
bills would normally be auctioned by
the U.S. Department of the Treasury,
as described below
Note with two or more Base Most recent Business Day that is at
Rates........................... least two Business Days prior to the
applicable Interest Reset Date for
such Floating Rate Note on which each
Base Rate is determinable
</TABLE>
Treasury bills are generally sold at auction on Monday of each week,
unless that day is a legal holiday, in which case the auction is usually held
on the following Tuesday, except that such auction may be held on the preceding
Friday. If, as a result of a legal holiday, an auction is so held on the
preceding Friday, such Friday will be the Interest Determination Date for the
Treasury Rate Note pertaining to the Interest Reset Date occurring in the next
succeeding week. If an auction date with respect to a Treasury Rate Note shall
fall on any Interest Reset Date, then such Interest Reset Date shall instead be
the Business Day next succeeding such auction date.
Each Base Rate will be determined as of the Interest Determination Date,
and the applicable interest rate will take effect on the applicable Interest
Reset Date.
Maximum and Minimum Interest Rates. The pricing supplement applicable to
a Floating Rate Note may provide that such Note has either or both of (a) a
maximum limitation, or ceiling, on the rate of interest which may accrue during
any Interest Period (a "Maximum Interest Rate"), and (b) a minimum limitation,
or floor, on the rate of interest which may accrue during any Interest Period
(a "Minimum Interest Rate"). In addition to any Maximum Interest Rate that may
be applicable to any Floating Rate Note pursuant to the above provisions, the
interest rate on the Floating Rate Notes will in no event be higher than the
maximum rate permitted by New York or Hawaii law, whichever is lower, as the
same may be modified by United States law of general application.
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Floating Rate Determinations and Calculations
Except as otherwise provided herein, all percentages resulting from any
calculations on any Floating Rate Notes will be rounded to the nearest one
hundred-thousandth of a percentage point (with five one-millionths of a
percentage point being rounded up, e.g., 9.876545% (or .09876545) being rounded
to 9.87655% (or .0987655)), and all dollar amounts used in or resulting from
such calculation on any Floating Rate Notes will be rounded to the nearest cent
(with one half cent being rounded up).
Accrued interest on a Floating Rate Note is calculated by multiplying the
principal amount of such Floating Rate Note by an accrued interest factor. Such
accrued interest factor is computed by adding the interest factors calculated
for each day in the applicable Interest Period. The interest factor (expressed
as a decimal) for each such day is computed by dividing the interest rate
(expressed as a decimal) applicable to such date by 360, in the case of
Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, CD Rate Notes or
Federal Funds Rate Notes, or by the actual number of days in the year, in the
case of Treasury Rate Notes. The interest factor for Floating Rate Notes for
which the interest rate is calculated with reference to two or more Base Rates
will be calculated in each period in the same manner as if only the lowest,
highest or average of the applicable Base Rate applied, as specified in the
applicable Note and pricing supplement.
The Trustee shall be the calculation agent (the "Calculation Agent") and
shall calculate the interest rate on Floating Rate Notes on or before each
Calculation Date. Upon the request of the holder of any Floating Rate Note, the
Calculation Agent will provide the interest rate then in effect, and, if
determined, the interest rate that will become effective on the next Interest
Reset Date with respect to such Floating Rate Note. The Calculation Agent's
determination of any interest rate will be final and binding in the absence of
manifest error. The "Calculation Date," if applicable, pertaining to any
Interest Determination Date will be the earlier of (i) the tenth calendar day
after such Interest Determination Date, or, if such day is not a Business Day,
the next succeeding Business Day and (ii) the Business Day preceding the
applicable Interest Payment Date or Maturity, as the case may be.
The Calculation Agent shall determine each Base Rate in accordance with
the following provisions. To the extent a Base Rate is determined by reference
to the offered rates or quotations of dealers, banks, trust companies, brokers
or others selected by the Calculation Agent as described below, such parties
may include the Calculation Agent, the Agents and/or their respective
affiliates, as the case may be.
Commercial Paper Rate Notes. Commercial Paper Rate Notes will bear
interest at the interest rates (calculated with reference to the Commercial
Paper Rate and the Spread and/or Spread Multiplier, if any) specified in the
Commercial Paper Rate Notes and in the applicable pricing supplement.
The "Commercial Paper Rate," with respect to each Interest Reset Date,
will be determined by the Calculation Agent on the Calculation Date and will be
the Money Market Yield (as defined below) as of the Interest Determination Date
next preceding such Interest Reset Date of the rate for commercial paper having
the Index Maturity specified in the applicable Note and pricing supplement, as
such rate shall be published by the Board of Governors of the Federal Reserve
System in "Statistical Release H.15(519), Selected Interest Rates", or any
successor publication (such publication being hereinafter called "H.15(519)"),
under the heading "Commercial Paper-Nonfinancial". In the event that such rate
is not published prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Commercial Paper Rate with respect to such Interest
Reset Date will be the Money Market Yield on the applicable Interest
Determination Date of the rate for commercial paper of the Index Maturity
specified in the applicable Note and pricing supplement as published by the
Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities", or any successor
publication (such publication being hereinafter called "Composite Quotations"),
under the heading "Commercial Paper" (with an Index Maturity of one month or
three months being deemed to be equivalent to an Index Maturity of 30 days or
90 days, respectively). If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the Commercial Paper Rate will be calculated by the
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<PAGE>
Calculation Agent and shall be the Money Market Yield of the arithmetic mean of
the offered rates as of 11:00 A.M., New York City time, on the applicable
Interest Determination Date of three leading dealers of commercial paper in The
City of New York selected by the Calculation Agent, in its discretion, for
commercial paper of the specified Index Maturity placed for an industrial
issuer whose bond rating is "Aa," or the equivalent, from a nationally
recognized statistical rating organization. If the dealers selected as
aforesaid by the Calculation Agent are not quoting offered rates as described
in the preceding sentence, the Commercial Paper Rate with respect to such
Interest Reset Date will be the Commercial Paper Rate in effect under the Note
on such Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
Money Market Yield = DX360X100
----------
360-(DXM)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable Interest Reset Period.
Prime Rate Notes. Prime Rate Notes will bear interest at the interest
rates (calculated with reference to the Prime Rate and the Spread and/or Spread
Multiplier, if any) specified in the Prime Rate Notes and in the applicable
pricing supplement.
The "Prime Rate," with respect to each Interest Reset Date, will be
determined by the Calculation Agent on the Calculation Date and will be the
rate as of the Interest Determination Date next preceding such Interest Reset
Date as published in H.15(519) under the heading "Bank Prime Loan". In the
event that such rate is not published prior to 3:00 P.M., New York City time,
on the related Calculation Date, then the Prime Rate with respect to such
Interest Reset Date will be the arithmetic mean of the rates of interest
publicly announced by each bank that appears on such Interest Determination
Date on the display designated as page "USPRIME1" on the Reuters Monitor Money
Rates Service (or any successor service or such other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks) ("Reuters Screen USPRIME1 Page") as
such bank's prime rate or base lending rate as in effect for such Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page as of the applicable Interest Determination Date, the Prime Rate
with respect to such Interest Reset Date will be the arithmetic mean of the
prime rates or base lending rates (quoted on the basis of the actual number of
days in the year divided by a 360-day year) as of the close of business on such
Interest Determination Date as furnished in The City of New York by the major
money center banks, if any, that have provided such quotations and by a
reasonable number of substitute banks or trust companies to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing business under the laws of the United States, or any state
thereof, each having total equity capital of at least $500 million and being
subject to supervision or examination by federal or state authority, selected
by the Calculation Agent to provide such rate or rates. If the banks or trust
companies selected as aforesaid by the Calculation Agent are not quoting rates
as described in the preceding sentence, the Prime Rate with respect to such
Interest Reset Date will be the Prime Rate in effect on such Interest
Determination Date.
LIBOR Notes. Each LIBOR Note will bear interest at the interest rate
(calculated with reference to LIBOR and the Spread and/or Spread Multiplier if
any) specified in the LIBOR Notes and in the applicable pricing supplement.
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<PAGE>
"LIBOR," with respect to each Interest Reset Date, will be determined by
the Calculation Agent in accordance with the following provisions:
. With respect to an Interest Determination Date, LIBOR will be
either: (a) if "LIBOR Reuters" is specified in the applicable Note
and pricing supplement, the arithmetic mean of the offered rates
(unless the Designated LIBOR Page by its terms provides only for a
single rate, in which case such single rate shall be used) for
deposits in U.S. dollars having the Index Maturity specified in
such Note and pricing supplement, commencing on the applicable
Interest Reset Date, that appear (or, if only a single rate is
required as aforesaid, appears) on the Designated LIBOR Page as of
11:00 A.M., London time, on such Interest Determination Date, or
(b) if "LIBOR Telerate" is specified in the applicable Note and
pricing supplement or if neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified in the applicable Note and pricing
supplement as the method for calculating LIBOR, the rate for
deposits in U.S. dollars having the Index Maturity specified in
such Note and pricing supplement, commencing on such Interest Reset
Date, that appears on the Designated LIBOR Page as of 11:00 A.M.,
London time, on such Interest Determination Date. If fewer than two
such offered rates so appear, or if no such rate so appears where
the Designated LIBOR Page provides only for a single rate, LIBOR on
such Interest Determination Date will be determined in accordance
with the provisions described in the following paragraph.
. With respect to an Interest Determination Date on which fewer
offered rates appear than are required in the preceding paragraph,
the Calculation Agent will request the principal London offices of
each of four major reference banks (which may include the Agents or
their affiliates) in the London interbank market as selected by the
Calculation Agent, to provide the Calculation Agent with its
offered quotation for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Note and pricing
supplement, commencing on the applicable Interest Reset Date to
prime banks in the London interbank market at approximately 11:00
A.M., London time, on such Interest Determination Date and in a
principal amount that is representative for a single transaction in
U.S. dollars in such market at such time. If at least two such
quotations are so provided, then LIBOR on such Interest
Determination Date will be the arithmetic mean of such quotations.
If fewer than two such quotations are so provided, then LIBOR on
such Interest Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 A.M., New York City time on
such Interest Determination Date by three major banks in The City
of New York selected by the Calculation Agent for loans in
U.S. dollars to leading European banks, having the Index Maturity
specified in the applicable Note and pricing supplement and in a
principal amount that is representative for a single transaction in
U.S. dollars in such market at such time. If the banks so selected
by the Calculation Agent are not quoting rates as described in the
preceding sentence, LIBOR determined as of such Interest
Determination Date will be LIBOR in effect under the Note on such
Interest Determination Date.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable pricing supplement, the display in the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such pricing
supplement (or any other page as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for U.S.
dollars, or (b) if "LIBOR Telerate" is specified in the applicable pricing
supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable pricing supplement as the method for calculating LIBOR, the display
on the Dow Jones Telerate Service (or any successor service) on the page
specified in such pricing supplement (or any other page as may replace such
page on such service) for the purpose of displaying the London interbank rates
of major banks for U.S. dollars.
15
<PAGE>
Treasury Rate Notes. Treasury Rate Notes will bear interest at the
interest rates (calculated with reference to the Treasury Rate and the Spread
and/or Spread Multiplier, if any) specified in the Treasury Rate Notes and in
the applicable pricing supplement.
The "Treasury Rate," with respect to each Interest Reset Date, will be
determined by the Calculation Agent on the Calculation Date and will be the
rate for the auction held on the Interest Determination Date next preceding
such Interest Reset Date of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Note and pricing
supplement as published in H.15(519) under the heading "Treasury bills-auction
average (investment)". If by 3:00 P.M., New York City time, on such Calculation
Date such rate is not yet published in H.15(519), then the Treasury Rate shall
be the auction average rate (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise reported by the U.S. Department of the Treasury. In the event that
the results of the auction of Treasury bills having the Index Maturity
designated in the applicable Note and pricing supplement are not published or
reported as provided above by 3:00 P.M., New York City time, on such
Calculation Date or if no such auction is held on the applicable Interest
Determination Date, then the Treasury Rate will be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent rounded as aforesaid) of the arithmetic mean of the secondary market
bid rates, as of approximately 3:30 P.M., New York City time, on such Interest
Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent, in its discretion, for
the issue of Treasury bills with a remaining maturity closest to the Index
Maturity designated in the applicable Note and pricing supplement. If the
dealers selected as aforesaid by the Calculation Agent are not quoting bid
rates as described in the preceding sentence, the Treasury Rate with respect to
such Interest Reset Date will be the Treasury Rate in effect under the Note on
such Interest Determination Date.
CD Rate Notes. CD Rate Notes will bear interest at the interest rates
(calculated with reference to the CD Rate and the Spread and/or Spread
Multiplier, if any) specified in the CD Rate Notes and in the applicable
pricing supplement.
The "CD Rate," with respect to each Interest Reset Date, will be
determined by the Calculation Agent on the Calculation Date and will be the
rate as of the Interest Determination Date next preceding such Interest Reset
Date for negotiable United States dollar certificates of deposit having the
Index Maturity specified in the applicable Note and pricing supplement as
published in H.15(519) under the heading "CDs (Secondary Market)". In the event
that such rate is not published prior to 3:00 P.M., New York City time, on the
related Calculation Date, then the CD Rate with respect to such Interest Reset
Date shall be the rate on such Interest Determination Date for negotiable
United States dollar certificates of deposit having the Index Maturity
specified in the applicable Note and pricing supplement as published in the
Composite Quotations under the heading "Certificates of Deposit". If by 3:00
P.M., New York City time, on such Calculation Date such rate is not published
in either H.15(519) or Composite Quotations, the CD Rate with respect to such
Interest Reset Date shall be calculated by the Calculation Agent and shall be
the arithmetic mean of the secondary market offered rates, as of 10:00 A.M.,
New York City time, on such Interest Determination Date, of three leading
nonbank dealers in negotiable United States dollar certificates of deposit in
The City of New York selected by the Calculation Agent for negotiable United
States certificates of deposit of major United States money center banks with a
remaining maturity closest to the Index Maturity specified in the applicable
Note and pricing supplement in United States dollars. If the dealers selected
as aforesaid by the Calculation Agent are not quoting rates as described in the
preceding sentence, the CD Rate with respect to such Interest Reset Date will
be the CD Rate in effect under the Note on such Interest Determination Date.
Federal Funds Rate Notes. Federal Funds Rate Notes will bear interest at
the interest rates (calculated with reference to the Federal Funds Rate and the
Spread and/or Spread Multiplier, if any) specified in the Federal Funds Rate
Notes and in the applicable pricing supplement.
16
<PAGE>
The "Federal Funds Rate," with respect to each Interest Reset Date, will
be determined by the Calculation Agent on the Calculation Date and will be the
rate as of the Interest Determination Date next preceding such Interest Reset
Date for United States dollar federal funds as published in H.15(519) under the
heading "Federal Funds (Effective)". In the event that such rate is not
published prior to 3:00 P.M., New York City time, on the relevant Calculation
Date, then the Federal Funds Rate with respect to such Interest Reset Date will
be the rate on such Interest Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If by 3:00 P.M.,
New York City time, on such Calculation Date such rate is not published in
either H.15(519) or Composite Quotations, the Federal Funds Rate with respect
to such Interest Reset Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean of the rates, as of 9:00 A.M., New York City time,
on the applicable Interest Determination Date, for the last transaction in
overnight United States dollar federal funds arranged by three leading brokers
of United States dollar federal funds transactions in The City of New York
selected by the Calculation Agent. If the brokers selected as aforesaid by the
Calculation Agent are not quoting rates as described in the preceding sentence,
the Federal Funds Rate with respect to such Interest Reset Date will be the
Federal Funds Rate in effect under the Note on such Interest Determination
Date.
Book-Entry Notes
Except as described below, the Notes will be issued as Book-Entry Notes
and represented by one or more global securities (each, a "Global Security")
that will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC"), or such other Depositary as is designated by HEI, and
registered in the name of a nominee of the Depositary.
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. Direct
participants ("Direct Participants") include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. The Agents are Direct Participants of the
Depositary. 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 Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the SEC.
Upon issuance, all Book-Entry Notes having the same issue price, issue
date, maturity date, interest rate, redemption and repayment provisions, if
any, and interest payment dates will be represented by one or more Global
Securities and will be deposited with DTC or its custodian. If, however, the
aggregate principal amount of any issue exceeds $200 million, one Global
Security will be issued with respect to each $200 million of principal amount
and an additional Global Security will be issued with respect to any remaining
principal amount of such issue.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided below, the beneficial owners of the
Global Security or Securities representing Book-Entry Notes will not be
entitled to receive physical delivery of Definitive Notes and will not be
considered the holders thereof for any purpose under the Indenture, and no
Global Security representing Book-Entry Notes shall be so exchangeable or
transferable. Accordingly, each beneficial owner must rely on the procedures of
the Depositary and, if such beneficial owner is not a Participant, on the
17
<PAGE>
procedures of the Participant through which such beneficial owner owns its
interest in order to exercise any rights of a holder under such Global Security
or the Indenture. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such limits and laws may impair the ability to transfer
beneficial interests in a Global Security representing Book-Entry Notes.
Purchases of Book-Entry Notes under the DTC system must be made by or
through Direct Participants, which will receive a credit for such Book-Entry
Notes on DTC's records. The ownership interest of each actual purchaser of each
Book-Entry Note ("beneficial owner") is in turn to be recorded on the Direct
and Indirect Participants' records. Beneficial owners will not receive written
confirmation from DTC of their purchase, but beneficial owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which the beneficial owner entered into the transaction. Transfers of
ownership interests in a Global Security representing Book-Entry Notes are to
be accomplished by entries made on the books of Participants acting on behalf
of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interests of a Global Security representing Book-
Entry Notes, except in the event that use of the book-entry system for such
Book-Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary are
registered in the name of the Depositary's nominee, Cede & Co. The deposit of
Global Securities with, or on behalf of, the Depositary and their registration
in the name of Cede & Co. will effect no change in beneficial ownership. DTC
has no knowledge of the actual beneficial owners of the Global Securities
representing the Book-Entry Notes. DTC's records reflect only the identity of
the Direct Participants to whose accounts such Book-Entry Notes are credited,
which may or may not be the beneficial owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
If applicable, redemption notices will be sent to Cede & Co. as
registered holder of the Book-Entry Notes. If less than all of the Notes within
an issue are being redeemed, DTC will determine in accordance with its usual
procedures the amount of the interest of each Direct Participant to be
redeemed.
Neither DTC nor Cede & Co. will itself consent or vote with respect to
the Global Securities representing Book-Entry Notes. Under its usual
procedures, DTC mails an omnibus proxy (the "Omnibus Proxy") to HEI as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Book-Entry Notes are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
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.
So long as the Notes are Book-Entry Notes, principal, premium (if any)
and interest payments on such Book-Entry Notes will be made by HEI in
immediately available funds through the Trustee to DTC. DTC's practice is to
credit Direct Participants' accounts on the date on which interest is payable
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payment on such date. Payments
by Participants to beneficial owners will be governed by standing instructions
and customary practices as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of such Participant and not of DTC, the Agents or HEI, subject
to any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal, premium (if any) and interest to DTC is the
responsibility of HEI and the Trustee. Disbursement of such payments to Direct
Participants is the responsibility of DTC and disbursement of such payments to
the beneficial owners is the responsibility of Direct and Indirect
Participants.
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<PAGE>
A beneficial owner shall give notice of its exercise of any option it may
have to elect to have its Book-Entry Notes repaid by HEI, through its
Participant, to the Trustee, and shall effect delivery of such Book-Entry Notes
by causing the Direct Participant to transfer to the Trustee the Participant's
interest in the Global Security or Securities representing such Book-Entry
Notes on the Depositary's records. The requirement for physical delivery of
Book-Entry Notes in connection with the exercise of a beneficial owner's option
for repayment will be deemed satisfied when the ownership rights in the Global
Security or Securities representing such Book-Entry Notes are transferred by
Direct Participants to the Trustee on the Depositary's records.
Each Global Security representing Book-Entry Notes will be exchangeable
for Definitive Notes of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (i) the Depositary
notifies HEI that it is unwilling or unable to continue as Depositary for the
Global Securities or HEI becomes aware that the Depositary has ceased to be a
clearing agency registered under the Exchange Act and, in either such case, HEI
shall not have appointed a successor to the Depositary within 90 days
thereafter, (ii) HEI, in its sole discretion, determines that the Global
Securities will be exchangeable for Definitive Notes or (iii) an Event of
Default will have occurred and be continuing with respect to the Notes under
the Indenture. Upon any such exchange, the Definitive Notes will be registered
in the names of the beneficial owners of the Global Security or Securities
representing Book-Entry Notes, which names will be provided by the Depositary's
relevant Participants (as identified by the Depositary) to the Trustee.
DTC management is aware that some computer applications, systems and the
like for processing data that are dependent upon calendar dates, including
dates before, on and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its data processing
computer applications and systems relating to the timely payment of
distributions (including principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC, continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. In addition, DTC's plan includes a
testing phase, which is expected to be completed within appropriate time
frames.
However, DTC's ability to perform its services properly is also dependent
upon other parties, including issuers and their agents, as well as third-party
vendors from whom DTC licenses software and hardware, and third-party vendors
on whom DTC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTC
has informed the financial community that it is contacting (and will continue
to contact) third-party vendors from whom DTC acquires services to: (i) impress
upon them the importance of those services being Year 2000 compliant; and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to Year 2000 has
been provided to the financial community for informational purposes only and is
not intended to serve as a representation, warranty or contract modification of
any kind.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources (including DTC) that HEI believes to be
accurate, but HEI assumes no responsibility for the accuracy thereof. HEI
assumes no responsibility for the performance by DTC or its Participants of
their respective obligations as described herein or under the rules and
procedures governing their respective operations.
Redemption at the Option of HEI
The Notes will not be subject to any sinking fund. The Notes will be
redeemable at the option of HEI prior to the Stated Maturity only if a
Redemption Commencement Date and an Initial Redemption Percentage are specified
in the applicable Note and pricing supplement. If so specified, the Notes will
be subject to redemption at the option of HEI on any date on and after the
applicable Redemption Commencement Date in
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whole or from time to time in part in increments of $1,000 or such other
minimum denomination specified in such pricing supplement (provided that any
remaining principal amount thereof shall be at least $1,000 or such other
minimum denomination), at the applicable Redemption Price (as defined below),
together with unpaid interest accrued thereon to the date of redemption, on
written notice given to the holders thereof not less than 30 nor more than 60
calendar days prior to the date of redemption and in accordance with the
provisions of the Indenture. "Redemption Price", with respect to a Note, means
an amount equal to the Initial Redemption Percentage specified in the
applicable Note and pricing supplement (as adjusted by the Annual Redemption
Percentage Reduction, if applicable) multiplied by the unpaid principal amount
to be redeemed. The Initial Redemption Percentage, if any, applicable to a Note
shall decline at each anniversary of the Redemption Commencement Date by an
amount equal to the Annual Redemption Percentage Reduction (if any) specified
in the applicable Note and pricing supplement, until the Redemption Price is
equal to 100% of the unpaid principal amount to be redeemed. If any Note is
redeemed in part, a new Note of like tenor for the unredeemed portion and
otherwise having the same terms as the partially redeemed Note will be issued
in the name of the holder upon presentation and surrender of the partially
redeemed Note. For a discussion of the redemption of Discount Notes, see
"Discount Notes."
Repayment at the Option of the Holder
The Notes will be repayable by HEI at the option of the holders thereof
prior to the Stated Maturity only if one or more Optional Repayment Dates are
specified in the applicable Note and pricing supplement. If so specified, the
Notes will be subject to repayment at the option of the holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination as is specified in the applicable
pricing supplement (provided that any remaining principal amount thereof shall
be at least $1,000 or such minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued thereon to the date of repayment. For any Note to be repaid, such Note
must be received, together with the form entitled "Option to Elect Repayment"
duly completed, by the Trustee at its office maintained for such purpose in the
Borough of Manhattan in The City of New York, or in such other location as HEI
selects in conformity with the Indenture, not less than 30 nor more than 60
calendar days prior to the date of repayment. If any Note is repaid in part, a
new Note of like tenor for the unpaid portion and otherwise having the same
terms as the partially repaid Note will be issued in the name of the holder
upon presentation and surrender of the partially repaid Note. For a discussion
of the repayment of Discount Notes, see "Discount Notes."
Only the Depositary may exercise a repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, beneficial owners of
Global Securities that desire to exercise their repayment option, if any, with
respect to all or any portion of the Book-Entry Notes represented by such
Global Securities, must instruct the Participant through which they own their
interest to direct the Depositary to exercise the repayment option on their
behalf by delivering the related Global Security and duly completed election
form to the Trustee as aforesaid. In order to ensure that such Global Security
and election form are received by the Trustee on a particular day, the
applicable beneficial owner must so instruct the Participant through which it
owns its interest before such Participant's deadline for accepting instructions
for that day. Participants may have different deadlines for accepting
instructions from their customers. Accordingly, a beneficial owner should
consult the Participant through which it owns an interest in a Global Security
for the Participant's deadline for receiving repayment instructions. In
addition, at the time such instructions are given, each such beneficial owner
shall cause the Participant through which it owns its interest to transfer such
beneficial owner's interest in the Global Security or Securities representing
the related Book-Entry Notes, on the Depositary's records, to the Trustee. The
exercise of an option to elect repayment shall be irrevocable. See "Book-Entry
Notes."
If applicable, HEI will comply with the requirements of Section 14(e) of
the Exchange Act and the rules promulgated thereunder, and any other securities
laws or regulations, in connection with any such repayment.
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Discount Notes
HEI may offer Discount Notes from time to time that have an Issue Price
(as specified in the applicable pricing supplement) that is less than 100% of
the principal amount thereof (i.e., par) by more than a percentage equal to the
product of 0.25% and the number of full years to the Stated Maturity. Such
Discount Notes will bear no interest or will bear interest at a rate that is
below market rates at the time of issuance. The difference between the Issue
Price of a Discount Note and 100% of the principal amount of the Note is
referred to as the "Discount." In the event of redemption, repayment or
acceleration of maturity of a Discount Note, the amount payable to the holder
of such Discount Note will be equal to the sum of (i) the Issue Price
(increased by an accrual of Discount) and, in the event of any redemption of
such Discount Note (if applicable), multiplied by the Initial Redemption
Percentage (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) and (ii) any unpaid interest accrued thereon to the date of such
redemption, repayment or acceleration of maturity, as the case may be.
For purposes of determining the amount of Discount that has accrued as of
any date on which redemption, repayment or acceleration of maturity occurs for
a Discount Note, such Discount will be accrued using a constant yield method.
The constant yield will be calculated using a 30-day month, 360-day year
convention, a compounding period that, except for the Initial Period (as
defined below), corresponds to the shortest period between Interest Payment
Dates for the applicable Discount Note (with ratable accruals within a
compounded period), a coupon rate equal to the initial coupon rate applicable
to such Discount Note and an assumption that the maturity of such Discount Note
will not be accelerated. If the period from the date of issue to the initial
Interest Payment Date for a Discount Note (the "Initial Period") is shorter
than the compounded period for such Discount Note, a proportionate amount of
the yield for an entire compounding period will be accrued. If the Initial
Period is longer than the compounding period, then such period will be divided
into a regular compounding period and a short period with the short period
being treated as provided above.
The accrual of the applicable Discount may differ from the accrual of
original issue discount, certain Discount Notes may not be treated as having
original issue discount, and Notes other than Discount Notes may be treated as
issued with original issue discount, in each case for United States federal
income tax purposes. See "Certain United States Federal Income Tax
Consequences."
Amortizing Notes
HEI may from time to time offer Notes with the amount of principal
thereof and interest thereon payable in installments over the term of such
Notes ("Amortizing Notes"). Interest on each Amortizing Note will be computed
on the basis of a 360-day year of twelve 30-day months. Payments with respect
to Amortizing Notes will be applied first to interest due and payable thereon
and then to the reduction of the unpaid principal amount thereof. Further
information concerning additional terms and provisions of Amortizing Notes will
be specified in the applicable pricing supplement, including a table setting
forth a principal repayment schedule for such Amortizing Notes.
Other Provisions; Addenda
Any provisions of a Note, including but not limited to the specification
and determination of one or more Base Rates, the calculation of the interest
rate applicable to a Floating Rate Note, the Interest Payment Dates, the Stated
Maturity and any redemption or repayment provisions, may be modified by the
terms specified under "Other Provisions" in the Note or in an Addendum to the
Note, if so specified in the Note (or any Addendum to the Note) and in the
applicable pricing supplement.
Restriction on Liens
Except as described below, HEI will not create, incur, issue, assume,
permit or suffer to exist any Indebtedness (as defined below) secured after the
date of the Indenture by any security interest on any property
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of HEI (including, without limitation, property of HEI consisting of any share
or shares of capital stock or indebtedness of 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 Securities, including the Notes (together, at the option of
HEI, with any other indebtedness ranking equally with the Securities and then
existing or thereafter created), shall be secured equally and ratably with (or
prior to) the Indebtedness so created, incurred, issued, assumed, permitted or
suffered to exist.
The foregoing restrictions do not limit the ability of any subsidiary of
HEI to incur, issue, assume, permit or suffer to exist any of its own
indebtedness or to grant security interests on any of its properties. The
foregoing restrictions also do 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 by HEI other than that acquired, constructed or
improved except, 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 which exist on any property, shares of
capital stock or indebtedness at the time of acquisition of such
property, shares or indebtedness by HEI;
(3) security interests which exist on any property of a
corporation or other Person (as defined below) at the time such
corporation is merged with or into or consolidated with HEI or 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 any property, shares of capital stock or
indebtedness subject to such security interests, or (C) to secure the
cost of constructing or improving any 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 provisions 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
(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.
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Notwithstanding the foregoing, HEI may, without equally and ratably
securing the Securities, create, incur, issue, assume, permit or suffer to
exist 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 existing at such time
and secured by security interests not so excepted, does not exceed 10% of
Consolidated Net Tangible Assets (as defined below).
"Indebtedness" means (1) any indebtedness, whether or not represented by
bonds, debentures, notes or other securities, for the repayment of money
borrowed, (2) all deferred indebtedness (including, without limitation,
capitalized leases) for the payment of the purchase price of property or assets
purchased, and (3) all guaranties, endorsements, assumptions or other
contingent obligations in respect of, or to purchase or otherwise to acquire,
indebtedness of the types described in clauses (1) and (2) above.
"Consolidated Net Tangible 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 any thereof which
are by their terms extendable or renewable at the sole option of the obligor
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; (c) all intangible
assets such as goodwill, trademarks, trade names, patents and unamortized debt
discount and expense carried as an asset on such balance sheet; and (d) all
appropriate adjustments on account of minority interests of other persons
holding common stock in any subsidiary. The Indenture states that Consolidated
Net Tangible 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.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any governmental agency or political subdivision.
Restriction on Sale-Leaseback Transactions
HEI may not engage in any Sale-Leaseback Transaction unless the amount of
Sale-Leaseback Debt resulting from such transaction plus the aggregate of all
other Sale-Leaseback Debt then existing, does not exceed 5% of Consolidated Net
Tangible Assets. However, if a Sale-Leaseback Transaction would result in the
amount of Sale-Leaseback Debt exceeding the foregoing limitation, then such
transaction is permitted, but only if the excess amount of Sale-Leaseback Debt,
if treated as Indebtedness secured by a security interest for the purposes of
the restrictions described under "Restriction on Liens", would be permissible
under such restrictions, and provided further that the amount of such excess
shall be treated as Indebtedness for such purpose and not as Sale-Leaseback
Debt.
"Sale-Leaseback Transaction" means any sale by HEI to any person (other
than HEI or a subsidiary) after the date of the Indenture of any property owned
by HEI, which sale occurs more than 270 days after the later of the
acquisition, completion of construction or commencement of commercial
operations of such property by HEI, if, as part of the same transaction or
series of transactions, HEI leases as lessee for a period of three years or
longer the same property or other substantially equivalent property which it
intends to use for substantially the same purposes pursuant to a lease which
contains an option or right to repurchase said property.
"Sale-Leaseback Debt" means, as to any particular lease entered into in a
Sale-Leaseback Transaction, at any date as of which the amount thereof is to be
determined, the total net amount of rent (determined in accordance with
generally accepted accounting principles) required to be paid under such lease
during the remaining term thereof, discounted from the respective due dates
thereof to such date at the rate per annum which would then be used to
determine lease classification under generally accepted accounting principles.
The
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net amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of the rent payable by the lessee with respect to
such period after excluding amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates and similar
charges. The term "Sale-Leaseback Debt" excludes any part thereof representing
any extension, renewal or replacements (or successive extensions, renewals or
replacements) of Indebtedness secured by any security interest existing at the
date of the Indenture, provided that the Sale-Leaseback Transaction resulting
in such Sale-Leaseback Debt is limited to all or a part of the property (plus
improvements and construction on such property) which was subject to the
security interest securing the Indebtedness so extended, renewed or replaced.
Restriction on Dispositions of HECO Shares
HEI currently holds 100% of the outstanding common stock of HECO. 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 or transfers by HECO of preferred stock or other classes of
capital stock of HECO which do not ordinarily have voting power in the election
of HECO's Board of Directors or of 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.
Consolidations, Mergers, Conveyances, Transfers or Leases
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:
. 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 Securities and the performance of all of the covenants of HEI
under the Indenture;
. immediately after giving effect to such transaction no Event of
Default, and no event which after notice and lapse of time would
become an Event of Default, has occurred and is continuing; and
. HEI has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, as provided in the Indenture.
Absence of Restrictions on Certain Transactions
Other than the restrictions on liens, sale and leaseback transactions and
consolidations, mergers, conveyances, transfers and leases described above, the
Indenture and the Notes do not contain any covenants or other provisions
designed to afford holders of the Notes 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.
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Events of Default
Each of the following is an Event of Default under the Indenture with
respect to any series of Securities outstanding thereunder, including the Notes
as a series of Securities:
. failure to pay any interest on any Security of such series when due
and payable and continuation of such failure for 30 days;
. failure to pay any principal of (or premium, if any, on) any
Security of such series when due and payable and continuance of
such failure for a period of three Business Days;
. failure to deposit any sinking fund payment, when and as due by the
terms of a Security of that series, and continuance of such failure
for a period of three Business Days;
. failure to perform or the breach of any covenant or warranty of HEI
made in or pursuant to the Indenture (other than a covenant or
warranty of HEI made in or pursuant to the Indenture solely for the
benefit of one or more series of Securities other than such
series), continued for 60 days after written notice to HEI by the
Trustee, or to HEI and the Trustee by the holders of at least 10%
in principal amount of the Securities of such series outstanding
under the Indenture as provided in the Indenture;
. failure to pay when due and payable after the expiration of any
applicable grace period, any portion of the principal of indebtedness of
HEI pursuant to a bond, debenture, note or other evidence of indebtedness
in excess of $5,000,000 (including a default with respect to Securities
of any series other than that series), or acceleration of such
indebtedness for other default thereunder, without such Indebtedness
having been discharged, or such acceleration having been rescinded or
annulled, within 10 days after written notice to HEI by the Trustee or to
HEI and the Trustee by the holders of at least 10% in principal amount of
the Securities of such series outstanding under the Indenture (provided
that this Event of Default shall be inapplicable if and so long as HEI is
contesting in good faith such payment obligation or such acceleration and
HEI has received the written opinion of counsel that it has a meritorious
position with respect thereto);
. certain events of bankruptcy, insolvency or reorganization; and
. any other Event of Default specified with respect to Securities of
such series.
An Event of Default with respect to any other series of Securities issued under
the Indenture will not necessarily constitute an Event of Default with respect
to the Notes.
The Trustee must, within 90 days after a default occurs with respect to a
series of Securities, transmit by mail to all holders of such series notice of
such default, unless it has been cured or waived (default is defined to include
the events specified above without the grace periods or notice). The Trustee
may withhold notice of a default, except a default in the payment of principal,
premium, if any, or interest, if and so long as the Trustee determines in good
faith (through its board, executive committee, trust committee or certain
officers specified in the Indenture) that the withholding of such notice is in
the interest of such holders. In the case of any default or breach of any
covenant or warranty, except for a default or breach that is specifically
addressed in the Indenture, no notice of such default or breach shall be given
to holders for at least 30 days after the occurrence of such default or breach.
If an Event of Default with respect to any series of outstanding
Securities issued under the Indenture (including the Notes) shall occur and be
continuing, then either the Trustee or the holders of not less than 25% in
principal amount of the outstanding Securities of such series may declare the
principal amount (or if any of the Securities of such series are Discount Notes
or similar securities, such portion of the principal amount as may be specified
thereon) of all of the Securities of such series to be due and payable
immediately; provided, however, that at any time after a declaration of
acceleration of the Securities of any series and before a
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judgment or decree for payment has been obtained, the holders of a majority in
principal amount of the outstanding Securities of such series may, under
certain circumstances, rescind and annul such acceleration and its consequences
if all Events of Default with respect to the Securities of such series, other
than the nonpayment of the principal of the Securities of such series which has
become due solely by such declaration of acceleration, have been cured or
waived as provided in the Indenture. Any money collected by the Trustee
pursuant to the exercise of its rights upon an Event of Default shall be
applied first to amounts owing to the Trustee under the Indenture.
No holder of any Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or trustee or for any remedy thereunder, unless such holder shall have
previously given to the Trustee written notice of a continuing Event of Default
and the holders of at least 25% in aggregate principal amount of the
outstanding Securities of such series shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the outstanding Securities of such series a
direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. However, such limitations do not apply to a
suit instituted by a holder of a Security for enforcement of payment of the
principal of and premium, if any, or interest on such Security on or after the
respective due dates expressed in such Security.
For purposes of the preceding two paragraphs a series of Securities will
not deemed to be outstanding if HEI takes certain steps to discharge its
obligations relating to that series. See "Defeasance".
HEI will be required to furnish to the Trustee annually a statement as to
the performance by HEI of certain of its obligations under the Indenture and as
to any default in such performance.
Defeasance
Defeasance and Discharge
Subject to election by HEI, which election HEI has made with respect to
the Notes, the Indenture provides that HEI will be discharged from any and all
obligations in respect of a series of Securities (except for certain
obligations to register the transfer or exchange of Securities of such series,
to replace stolen, lost or mutilated Securities, to maintain paying agencies
and to hold monies for payment in trust) upon the deposit with the Trustee or
any other trustee, in trust, of money and/or U.S. Government Obligations which
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the
principal of (and premium, if any) and each installment of interest on such
Securities at least one day prior to the dates on which such payments are due
in accordance with the terms of the Indenture and such Securities. Such a trust
may only be established if, among other things required by the Indenture, HEI
delivers to the Trustee an opinion of counsel to the effect that HEI has
received from, or there has been published by, the Internal Revenue Service a
ruling or there has been a change in applicable federal income tax laws and
regulations (including a change in the official interpretation by the Internal
Revenue Service) to the effect that holders of such Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge had not occurred.
Defeasance of Certain Covenants and Certain Events of Default
Subject to election by HEI, which election HEI has made with respect to
the Notes, the Indenture provides that with respect to a series of the
Securities HEI may omit to comply with certain restrictive covenants, including
those described under "Restrictions on Liens" and "Restriction on Sale-
Leaseback Transactions" above, and the Event of Default described in the fourth
bullet point under "Events of Default" above, shall be inapplicable to
Securities of such series, upon the deposit with the Trustee, in trust, of
money
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and/or U.S. Government Obligations which through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of (and premium, if any) and each
installment of interest on such Securities at least one day prior to the date
on which such payments are due in accordance with the terms of the Indenture
and such Securities. The obligations of HEI under the Indenture and such
Securities other than with respect to the covenants referred to above and the
Events of Default other than the Event of Default referred to above shall
remain in full force and effect. Such a trust may only be established if, among
other things required by the Indenture, HEI has delivered to the Trustee an
opinion of counsel to the effect that the holders of such Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain obligations and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Designation of a Portion of a Series as a New Series
It is contemplated that a single series of the Securities, such as the
Notes, will be created which would include Securities with sufficiently
different terms that some of them (e.g., fixed rate Securities), but not others
of them (e.g., floating rate Securities), would readily be the subject of
defeasance and discharge or covenant defeasance, as described below. In order
to facilitate such defeasance or covenant defeasance, HEI acting by board
resolution of its Board of Directors shall have the right, at any time or from
time to time, unilaterally to designate a portion of the Securities of any
series, which is to be the subject of such defeasance or covenant defeasance,
as a separate series under the Indenture, with the remainder to be unaffected
as to series designation by such action, and to assign a new series designation
thereto to distinguish the Securities of such new series from all other
Securities. Thereafter, the Securities included in such new series, on the one
hand, and the remainder of such Securities, on the other hand, shall be of
different series for all purposes under the Indenture, and provisions in the
Indenture or in any Security which apply to each series separately or otherwise
depend upon or relate to series designation, shall give effect to such action
by HEI, but the provisions of the Indenture and of any Security shall otherwise
be unaffected thereby.
Covenant Defeasance and Certain Other Events of Default
In the event that HEI exercises its option to omit compliance with
certain covenants of the Indenture with respect to the Notes as described above
and the Notes are declared due and payable prior to the Stated Maturity because
of the occurrence of any then-applicable Event of Default, the amount of money
and U.S. Government Obligations on deposit with the Trustee will be sufficient
to pay amounts due on the Notes at their Stated Maturity but may not be
sufficient to pay amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, HEI shall remain liable for such
payments.
Modification of Indenture and Waiver
Without the consent of any holders of Securities, HEI and the Trustee may
enter into one or more supplemental indentures for certain purposes enumerated
in the Indenture, such as to evidence succession to HEI of another corporation,
to cure ambiguities in the Indenture or to make any other provisions that shall
not adversely affect the interests of the holders of Securities of any series
in any material respect. The consent of the holders of not less than 66 2/3% in
principal amount of the Securities of each series affected by a supplemental
indenture is required for the purpose of adding any provisions to, or changing
in any manner or eliminating any of the provisions of, the Indenture pursuant
to such supplemental indenture. No such supplemental indenture will, however,
without the consent of the holders of each outstanding Security under the
Indenture of each such series directly affected thereby:
. change the Stated Maturity of, or any installment of, principal of
or interest on, any Security, or reduce the principal thereof or
the rate of interest thereon or redemption premium payable thereon,
or shorten the time period during which such Security may not be
redeemed at the option of HEI, or reduce the amount of principal of
a Discount Note that would be due and
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payable upon a declaration of acceleration of the Stated Maturity,
or otherwise modify the terms of payment of or the place of payment
for the principal thereof or interest or redemption premium thereon;
. reduce the percentage of principal amount of the outstanding
Securities of such series required to consent to any supplemental
indenture or to any waiver provided for in the Indenture;
. change any obligation of HEI to maintain an office or agency at the
place or places where the principal of and premium, if any, and
interest, if any, on the Securities of such series are payable; or
. modify certain of the provisions in the Indenture relating to
supplemental indentures, waivers of certain covenants and waivers
of past defaults.
A supplemental indenture which changes or eliminates any covenant or
other provision of the Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under the
Indenture of the holders of any other Securities.
The holders of 66 2/3% in aggregate principal amount of the outstanding
Securities of a series may waive compliance by HEI with the provisions of the
Indenture restricting liens and sale-leaseback transactions insofar as they
relate to the Securities of such series. The holders of a majority in aggregate
principal amount of the outstanding Securities of a series may waive any past
default under the Indenture, except a default in the payment of principal,
premium, if any, or interest or in respect of any covenant or provision of the
Indenture referred to in the second preceding paragraph above.
Regarding the Trustee
HEI and its affiliates may, from time to time, enter into commercial
banking and other transactions with the Trustee in the ordinary course of
business.
Listing
The Notes will not be listed on any national or regional securities
exchange.
Governing Law
The Indenture and the Notes will be governed by the laws of the State of
New York.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
General
The following summary describes certain United States federal income tax
consequences of the purchase, ownership and disposition of Notes. Except where
noted, it deals only with Notes held as capital assets by holders that are
United States Persons ("U.S. Holders") and that purchased Notes at their
original issuance, and assumes that the holder is the beneficial owner of the
Note. For this purpose, "United States Person" means 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, an estate the income of which is subject to United States
federal income taxation regardless of its source, or a trust the administration
of which is subject to the primary jurisdiction of a United States court and
with respect to which one or more United States persons have authority to
control all substantial decisions.
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<PAGE>
This summary does not deal with special situations, such as those of
dealers in securities, financial institutions, insurance companies, individual
retirement or other tax-deferred accounts, tax exempt organizations, persons
who hold Notes as a hedge against currency risk, persons who have otherwise
hedged the risk of ownership of a Note or persons who hold Notes as part of a
straddle with other investments or whose "functional currency" is not the U.S.
dollar. Furthermore, it does not address the United States federal income tax
consequences of purchasing, owning and disposing of Amortizing Notes and it
does not address, to the extent relevant, the United States federal income tax
consequences of purchasing, owning and disposing of extendible Notes or
renewable Notes. Finally, it does not purport to cover any foreign, state or
local tax consequences associated with the purchase, ownership or disposition
of Notes or all of the possible United States federal income tax consequences
of the purchase, ownership or disposition of Notes.
The discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), including the regulations, rulings and judicial decisions
thereunder as of the date hereof. Such authorities may be repealed, revoked or
modified so as to result in United States federal income tax consequences
different from those discussed below. There is no assurance that the Internal
Revenue Service ("IRS") will not take a contrary view.
Payments of Interest
Interest on a Note will generally be taxable to a U.S. Holder as ordinary
interest income from domestic sources at the time it is paid or accrued in
accordance with the holder's method of accounting for United States federal
income tax purposes. However, different rules apply with respect to Original
Issue Discount Notes (as defined below).
Original Issue Discount
An "Original Issue Discount Note" is a Note whose stated redemption price
at maturity (i.e., the sum of its principal amount plus all other payments to
be made on the Note other than "qualified stated interest") exceeds its issue
price (i.e., the first price at which a substantial amount of the Notes in the
issuance is sold, excluding sales to bond houses, brokers and others acting as
underwriters, placement agents or wholesalers) by more than 0.25 percent of the
stated redemption price at maturity multiplied by the number of complete years
to maturity. The term "Original Issue Discount Note" does not necessarily
include all Notes identified as Discount Notes, and may include Notes that are
not otherwise Discount Notes but that have been issued with OID for United
States federal income tax purposes. "Qualified stated interest" is stated
interest that is unconditionally payable in cash or in property (other than
debt instruments of the issuer) at least annually at a single fixed rate,
provided that the rate appropriately takes into account the length of intervals
between payments, or at certain variable rates of interest or certain
combinations thereof.
U.S. Holders of Original Issue Discount Notes with maturities of more
than one year will be required to include original issue discount within the
meaning of the Code ("OID") in gross income as interest income before receiving
cash to which such interest income is attributable. The amount of OID annually
includible in income by a U.S. Holder is the sum of the daily portions of OID
with respect to each Original Issue Discount Note held by such U.S. Holder for
each day during the taxable year or portion of a taxable year that the U.S.
Holder holds such Original Issue Discount Note. The daily portion is determined
by allocating to each day of any accrual period a pro rata portion of an amount
equal to the "adjusted issue price" of the Original Issue Discount Note at the
beginning of the accrual period multiplied by the yield to maturity of the
Original Issue Discount Note less the amount, if any, of qualified stated
interest allocable to the accrual period. The "accrual period" for an Original
Issue Discount Note may be of any length and may vary in length over the term
of the Original Issue Discount Note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest occurs
on either the first or final day of an accrual period. The "adjusted issue
price" is the issue price of the Original Issue Discount Note increased by the
accrued OID for all prior accrual periods (and decreased by the amount of all
payments previously made on the Original Issue Discount Note,
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<PAGE>
other than qualified stated interest payments). Sections 1271 through 1275 of
the Code and the regulations thereunder (the "OID Regulations") provide
detailed rules for computing OID.
Under the OID Regulations, a Floating Rate Note will qualify as a
"variable rate debt instrument" if (a) its issue price does not exceed the
total noncontingent principal payments due under the Floating Rate Note by more
than a specified de minimis amount, (b) it does not provide for any principal
payments that are contingent, and (c) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate. Any qualified
floating rate or objective rate must be set at current value. The meanings of
the terms "qualified floating rates," "single objective rate," "qualified
inverse floating rate," "current value" and other terms are contained in the
OID Regulations.
If a Floating Rate Note that provides for stated interest at a single
qualified floating rate (or a single objective rate) throughout the term
thereof qualifies as a "variable rate debt instrument" under the OID
Regulations, then any stated interest on such Note which is unconditionally
payable in cash or property (other than debt instruments of the issuer) at
least annually during the term of the Note will constitute qualified stated
interest and will be taxed accordingly. Thus, such a Floating Rate will
generally not be treated as having been issued with OID unless the Floating
Rate Note is issued at a "true" discount (i.e., at a price below the Note's
stated principal amount) in excess of a specified de minimis amount. OID on
such a Floating Rate Note arising from "true" discount is allocated to an
accrual period using the constant yield method described above by assuming that
the variable rate is a fixed rate equal to, in the case of a qualified floating
rate or qualified inverse floating rate, the value as of the issue date of the
qualified floating rate or qualified inverse floating rate.
In general, any other Floating Rate Note that qualifies as a "variable
rate debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of OID and
qualified stated interest on the Floating Rate Note. The OID Regulations
generally require that such a Floating Rate Note be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Floating Rate Note with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as of the
Floating Rate Note's issue date.
Once the Floating Rate Note is converted into an "equivalent" fixed rate
debt instrument pursuant to the foregoing rules, the amount of OID and
qualified stated interest, if any, are determined for the "equivalent" fixed
rate debt instrument by applying the general OID rules to the "equivalent"
fixed rate debt instrument. A U.S. Holder of the Floating Rate Note will
account for such OID and qualified stated interest as if the U.S. Holder held
the "equivalent" fixed rate debt instrument. In each accrual period,
appropriate adjustments will be made to the amount of qualified stated interest
or OID assumed to have been accrued or paid with respect to the "equivalent"
fixed rate debt instrument in the event that such amounts differ from the
actual amount of interest accrued or paid on the Floating Rate Note during the
accrual period.
If a Floating Rate Note does not qualify as a "variable rate debt
instrument" under the OID Regulations, then the Floating Rate Note would be
treated as a contingent payment debt obligation (a "CP Note").
U.S. Holders of CP Notes would be required to take amounts treated as
interest into income, under the noncontingent bond method, as described in the
OID Regulations, whether or not any payment thereon is fixed or determinable in
the taxable year. HEI would be required to determine the "comparable yield" for
the CP Note, which is the yield at which HEI would issue a fixed rate
instrument with similar terms and conditions, such as the level of
subordination. In no event may this yield be less than the applicable federal
rate, which is periodically published in IRS revenue rulings.
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<PAGE>
In addition, HEI would be required to construct a projected payment
schedule, including the amount of all noncontingent payments and each
contingent payment. These scheduled payments must produce the comparable yield
for the CP Note. A U.S. Holder will be required to use this projected payment
schedule to determine its interest (all of which is accrued as OID, as
described above) and adjustments thereto with respect to a CP Note, unless it
determines its own schedule and explicitly discloses that fact to the IRS. In
such an event, HEI would provide the projected payment schedule for any CP Note
with the relevant pricing supplement.
If the amount of a contingent payment on a CP Note is more than the
projected amount of the contingent payment, as reflected in the projected
payment schedule, the excess constitutes a positive adjustment, generally on
the date of payment. If the amount of the contingent payment is less than the
projected amount thereof, the difference is a negative adjustment.
The amount by which the positive adjustments on a CP Note in a taxable
year exceeds the negative adjustments in that year constitutes a net positive
adjustment, which is treated as additional interest for the taxable year.
The amount by which negative adjustments on a CP Note in a taxable year
exceed the positive adjustments in that year constitutes a net negative
adjustment. A U.S. Holder's net negative adjustment for a taxable year first
reduces the U.S. Holders' amount otherwise includible as interest on the CP
Note for the taxable year. Second, to the extent the negative adjustment
exceeds the U.S. Holder's amount of interest for the taxable year, the excess
constitutes an ordinary loss, limited to the amount of interest on the CP Note
included by the U.S. Holder in prior taxable years reduced by any amount of net
negative adjustments from prior taxable years which were previously treated as
ordinary losses. Third, any remainder of net negative adjustments is a
carryforward to the extent of the U.S. Holder's interest on the CP Note in
subsequent taxable years or, if the U.S. Holder has a negative adjustment
carryforward in the year of retirement, sale or disposition, it reduces the
amount realized on such retirement, sale or disposition.
Short-Term Notes
In the case of Original Issue Discount Notes having a term of one year or
less ("Short-Term Notes"), all payments (including stated interest) are
included in the stated redemption price at maturity. The excess of the stated
redemption price at maturity over the issue price of a Short-Term Note
generally constitutes OID.
In general, individuals and certain other cash-method U.S. Holders of
Short-Term Notes are not required to include OID in income as it accrues unless
they elect to do so. However, accrual-method taxpayers and certain other
holders are required to include OID in income. Unless such holder makes an
election to accrue OID according to a constant-yield method based on daily
compounding, it must be included on a straight-line basis. In the case of a
U.S. Holder who is not required (and does not elect) to include OID in income
currently, any gain realized on the sale, exchange or retirement of a Short-
Term Note will be ordinary income to the extent of the OID accrued through the
date of sale, exchange or retirement. In addition, U.S. Holders who do not
elect to currently include OID may be required to defer deductions for a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry the Short-Term Notes in an amount not exceeding the deferred
interest income, until such deferred interest income is recognized.
In addition, U.S. Holders may elect to determine the amount of discount,
referred to as acquisition discount, to be included in gross income by using
their tax basis instead of the issue price. If such an election is made, it
applies to all obligations acquired in or after the first taxable year to which
the election applies, which election may be revoked only with the consent of
the IRS. This acquisition discount constitutes ordinary income and not capital
gain.
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Market Discount
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note, for an amount that is less than its stated redemption price at maturity
or, in the case of an Original Issue Discount Note, for an amount that is less
than its adjusted issue price, such U.S. Holder will be treated as having
purchased such Note at a "market discount," unless such market discount is less
than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of an Original Issue Discount
Note, any payment that does not constitute qualified stated interest) on, or
any gain realized on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the lesser of (i) the amount of such
payment or realized gain or (ii) the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. Market discount will be considered to
accrue ratably during the period from the date of acquisition to the maturity
date of the Note, unless the U.S. Holder elects to accrue market discount under
a constant-yield method.
A U.S. Holder may be required to defer the deduction of all or a portion
of the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions. A U.S. Holder may elect to include market
discount in income currently as it accrues (either ratably or under a constant-
yield method), in which case the rules described above regarding the treatment
as ordinary income of gain upon the disposition of the Note and upon the
receipt of certain cash payments and regarding the deferral of interest
deductions will not apply. Generally, such currently included market discount
is treated as ordinary interest for United States federal income tax purposes.
Such an election will apply to all debt instruments acquired by the U.S. Holder
on or after the first day of the first taxable year to which such election
applies and may be revoked only with the consent of the IRS.
Amortizable Bond Premium
On December 30, 1997, final Treasury regulations were issued relating to
the federal income tax treatment of amortizable bond premium. The final
regulations are effective for debt instruments acquired on or after March 2,
1998. However, if a holder makes an election to amortize bond premium for the
taxable year containing March 2, 1998, or any subsequent taxable year, the
regulations apply to debt instruments held on or after the first day of the
taxable year in which the election is made. The final regulations generally
apply to debt instruments acquired at a premium. Certain instruments, however,
including certain instruments providing for contingent payments, are excluded
from the application of the final regulations. The following discussion
reflects the final regulations.
A U.S. Holder who purchases a Note for an amount in excess of the sum of
all amounts, other than qualified stated interest, payable on the Note after
the purchase date will be considered to have purchased the Note at a "premium"
and, in the case of an Original Issue Discount Note, will not be required to
include any OID in income. A U.S. Holder generally may elect to amortize the
premium over the remaining term of the Note on a constant yield method. For any
Floating Rate Note that is a "variable rate debt instrument" under the OID
Regulations, that method is implemented by constructing an "equivalent fixed
rate instrument," as provided in the OID Regulations. The amount amortized in
any year reduces both the U.S. Holder's adjusted basis in the Note and interest
income from the Note. Under the final regulations, any excess bond premium
allocable to an accrual period is deductible by the holder for that accrual
period. The amount deductible, however, is limited by the amount of the
holder's prior income inclusions on the instrument, and any excess is carried
forward to the next accrual period. In addition, in the case of instruments
that have alternative payment schedules that are predicated on the unilateral
exercise of an option by the issuer or the holder, the amount of bond premium
that is amortizable in an accrual period is calculated by assuming that both
the issuer and the holder will exercise or not exercise options in a manner
that maximizes the holder's yield. Thus, under the final regulations, a holder
may be required to amortize bond premium by reference to the Stated Maturity,
even if it
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appears likely that the Note will be called. The final regulations also contain
rules applicable if such contingency occurs or fails to occur contrary to the
assumption utilized.
U.S. Holders not making an election to amortize bond premium are not
required to reduce the adjusted basis of their Notes and consequently may
recognize less gain or more loss upon their disposition. The election to
amortize premium, once made, applies to all debt instruments held or
subsequently acquired by the electing U.S. Holder on or after the first day of
the taxable year to which the election applies and may not be revoked without
the consent of the IRS. Holders should consult with their own tax advisors
about this election.
Election to Treat All Interest as OID
Subject to certain limitations, U.S. Holders may elect to treat all
interest and discount on Notes as OID and calculate the amount includible in
gross income under the constant-yield method described above. For purposes of
this election, interest includes stated interest, OID, de minimis OID, market
discount, acquisition discount and other unstated interest, as adjusted by any
amortizable bond premium. If a U.S. Holder makes this election for a Note with
amortizable bond premium, the election is treated also as an election under the
amortizable bond premium provisions, described above, and the electing U.S.
Holder will be required to amortize bond premium currently for all of the U.S.
Holder's other debt instruments with amortizable bond premium. The election is
to be made for the taxable year in which the U.S. Holder acquired the Note, and
may not be revoked without the consent of the IRS.
Sale, Exchange and Retirement of Notes
A U.S. Holder's tax basis of a Note will, in general, be the U.S.
Holder's cost therefor, increased by OID previously included in income of the
U.S. Holder but reduced by any amortizable bond premium to the extent amortized
and any payments, other than qualified stated interest, while held by the U.S.
Holder. Upon the sale, exchange, retirement or other taxable disposition of a
Note, gain or loss will be recognized equal to the difference between (i) the
amount of cash and fair market value of property received (excluding an amount
attributable to accrued and unpaid stated interest not previously included in
income, which will be taxed as ordinary income) and (ii) the U.S. Holder's tax
basis in the Note. Except as described above with respect to Short-Term Notes
and the OID, market discount and amortizable bond premium rules, the gain or
loss will be capital gain or loss and will be long-term capital gain or loss if
the Note was held for more than one year. Net capital gains of individuals are,
under certain circumstances, taxed at lower rates than items of ordinary
income, and the deductibility of capital losses of U.S. Holders is subject to
limitations.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium on Notes and to the proceeds
of sale of a Note made to U.S. Holders other than certain exempt recipients
(such as corporations). A 31 percent backup withholding tax will apply to such
payments if the holder fails to provide its taxpayer identification number or
certification of its exempt status or fails to report in full dividend and
interest income.
The Paying Agent will report the amount of accrued OID on Original Issue
Discount Notes held of record by persons other than corporations and other
exempt holders, to the extent required by applicable law.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against a U.S. Holder's federal income tax
liability provided the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis for sale by HEI, to or
through the Agents, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. or one or more other Agents appointed from
time to time by HEI pursuant to the terms of the Distribution Agreement
relating to the offering of the Notes. The Agents, individually or in a
syndicate, may purchase Notes, as principal, from HEI from time to time for
resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the applicable
Agent, or, if so specified in the applicable pricing supplement, for resale at
a fixed offering price. If agreed to by HEI and the applicable Agent, such
Agent may utilize its reasonable efforts on an agency basis to solicit offers
to purchase the Notes at 100% of the principal amount thereof, unless the
applicable pricing supplement states otherwise. HEI will pay a commission to
each such Agent, ranging from .125 % to .750% of the principal amount of a
Note, depending upon its Stated Maturity, sold through such Agent, as agent.
The following table describes the potential proceeds HEI will receive if it
sells all of the Notes but does not include expenses payable by HEI, which are
estimated to be $250,000:
<TABLE>
<CAPTION>
Price to Agents' Commissions
Public and Discounts Proceeds to HEI
------------ ------------------- ---------------
<S> <C> <C> <C>
Per Note...... 100% .125% to .750% 99.250% to 99.875%
Total......... $300,000,000 $375,000 to $2,250,000 $297,750,000 to $299,625,000
</TABLE>
HEI may also sell the Notes directly to purchasers in those jurisdictions
in which it is permitted to do so. No commission or discount will be payable by
HEI on Notes sold directly by HEI.
Any Note sold to an Agent as principal will be purchased by such Agent at
a price equal to 100% of the principal amount thereof less a percentage of the
principal amount equal to the commission applicable to an agency sale of a Note
of identical maturity. An Agent may sell Notes it has purchased from HEI as
principal to certain dealers less a concession equal to all or any portion of
the discount it received in connection with such purchase. Such Agent may
allow, and such dealers may reallow, any portion of the discount received in
connection with such purchase. After the initial offering of Notes, the
offering price (in the case of Notes to be resold on a fixed offering price
basis), the concession and the reallowance may be changed.
HEI reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject orders in whole or in part (whether placed
directly with HEI or through an Agent). Each Agent will have the right, in its
discretion, reasonably exercised, to reject in whole or in part any offer to
purchase Notes received by it on an agency basis.
Payment of the purchase price of the Notes will be required to be made in
immediately available funds in New York City on the date of settlement.
No Note will have an established trading market when issued. The Notes
will not be listed on any securities exchange. Each of the Agents may from time
to time purchase and sell Notes in the secondary market, but no Agent is
obligated to do so, and there can be no assurance that there will be a
secondary market for the Notes or liquidity in the secondary market if one
develops. From time to time, each of the Agents may make a market in the Notes,
but no Agent is obligated to do so and the Agents may discontinue any such
market-making activity at any time.
In connection with an offering of Notes purchased by one or more Agents
as principal on a fixed price basis, each such Agent will be permitted to
engage in certain transactions that stabilize the price of such Notes. Such
transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of such Notes. If an Agent creates a short
position in such Notes (i.e., if it sells Notes in an aggregate principal
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amount exceeding that set forth in the applicable pricing supplement), such
Agent may reduce that short position by purchasing Notes in the open market.
In general, purchases of Notes for the purpose of stabilization or to
reduce a short position could cause the price of Notes to be higher than it
might be in the absence of such purchases.
Neither HEI nor any of the Agents makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the Notes. In addition, neither HEI nor any of
the Agents makes any representation that the Agents will engage in any such
transactions or that such transactions once commenced will not be discontinued
without notice.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act. HEI has agreed to indemnify the Agents against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Agents may be required to make in respect thereof. HEI has
agreed to reimburse each of the Agents for certain other expenses.
The Agents from time to time provide investment banking services to HEI
and may from time to time engage in transactions with and perform other
services for HEI in the ordinary course of business.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for HEI by Goodsill
Anderson Quinn & Stifel, Honolulu, Hawaii, and for the Agents by Winthrop,
Stimson, Putnam & Roberts, New York, New York. The opinions of counsel will be
delivered at the commencement date for HEI's Series C medium-term note program
(and under certain circumstances at intervals thereafter) and will assume that
each future issuance of the Notes complies with the Indenture and laws,
agreements and instruments then binding on HEI. Goodsill Anderson Quinn &
Stifel will rely as to all matters of New York law upon the opinion of
Winthrop, Stimson, Putnam & Roberts, and Winthrop, Stimson, Putnam & Roberts
will rely as to all matters of Hawaii law upon the opinion of Goodsill Anderson
Quinn & Stifel.
EXPERTS
The consolidated financial statements and schedules of HEI and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, incorporated by reference and
included, respectively, in HEI's Annual Report on Form 10-K for the year ended
December 31, 1998, incorporated by reference herein, have been incorporated by
reference herein in reliance upon the reports of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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[LOGO OF HAWAIIAN ELECTRIC INDUSTRIES, INC.]
$300,000,000
Hawaiian Electric
Industries, Inc.
Medium-Term Notes,
Series C
----------------
PROSPECTUS
----------------
Merrill Lynch & Co.
Goldman, Sachs & Co.
April 27, 1999
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