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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HAWAIIAN ELECTRIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
HAWAIIAN ELECTRIC INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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HAWAIIAN ELECTRIC INDUSTRIES, INC. . PO BOX 730 . HONOLULU, HI 96808-0730
[LOGO OF HEI]
Robert F. Clarke
Chairman, President and
Chief Executive Officer
March 10, 2000
Dear Fellow Stockholder:
On behalf of the Board of Directors, it is once again my pleasure to invite
you to attend the Annual Meeting of Stockholders of Hawaiian Electric
Industries, Inc. (HEI). The meeting will be held on the Company's premises in
Room 805 on the eighth floor of the Pacific Tower in Honolulu, Hawaii on
April 25, 2000, at 9:30 a.m. A map showing the location of the meeting site
appears on the last page of the Proxy Statement.
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
describe the items of business to be discussed during the meeting. In addition,
we will review significant events of 1999 and their impact on you and your
Company. Corporate officers will be available before and after the meeting to
talk with you and answer any questions you may have.
As a stockholder of HEI, it is important that your views be represented.
Please help us obtain the quorum needed to conduct business at the meeting by
promptly voting your shares.
I join the management team of HEI in expressing our appreciation for your
confidence and support. I look forward to seeing you at the Annual Meeting in
Honolulu.
Sincerely,
/s/ Robert F. Clarke
[LOGO OF RECYCLED PAPER]
<PAGE>
- --------------------------------------------------------------------------------
Hawaiian Electric Industries, Inc.
900 Richards Street [LOGO OF HEI]
Honolulu, Hawaii 96813
- --------------------------------------------------------------------------------
Notice of Annual Meeting of Stockholders
to be held April 25, 2000
To the Holders of Common Stock
Hawaiian Electric Industries, Inc. will hold its 2000 Annual Meeting of
Stockholders on Tuesday, April 25, 2000, at 9:30 a.m. in the Pacific Tower,
8th floor, Room 805, 1001 Bishop Street, Honolulu, Hawaii 96813. At the
meeting we will:
1. Elect three Class I directors.
2. Elect the independent auditor of the Company.
3. Transact any other business properly brought before the meeting.
Only stockholders who own stock at the close of business on February 16,
2000, can vote at the meeting. If your shares are registered in the name of a
brokerage firm (street name) or trustee and you plan to attend the meeting,
please bring a letter from the firm or trustee or other evidence of your
beneficial ownership.
All stockholders are urged to attend the meeting in person or by proxy. It
is important that your shares be represented at the meeting, regardless of the
size of your holding. Therefore, we urge you to vote your shares as soon as
possible.
Peter C. Lewis, Vice President--
Administration and Secretary
Hawaiian Electric Industries, Inc.
Honolulu, Hawaii
March 10, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Voting Information......................................................... 1
Purpose.................................................................. 1
Who Can Vote............................................................. 1
How You Can Vote......................................................... 1
Revocation of Proxies.................................................... 2
Required Votes........................................................... 2
Who Will Count the Votes................................................. 2
Shares Held in Street Name............................................... 2
Expenses of Solicitation................................................. 3
Proposals You May Vote On.................................................. 3
Election of Class I Directors............................................ 3
Election of Auditor...................................................... 3
Nominees for Class I Directors............................................. 4
Continuing Class II Directors.............................................. 5
Continuing Class III Directors............................................. 6
Board of Directors......................................................... 7
Corporate Governance..................................................... 7
Committees of the Board.................................................. 8
Recommendation for Director Nominee...................................... 9
Attendance at Meetings................................................... 9
Compensation of Directors................................................ 9
Nonemployee Director Retirement Plan..................................... 9
Indemnification and Limitation of Liability................................ 10
Security Ownership of Directors and Executive Officers..................... 11
Section 16(a) Beneficial Ownership Reporting Compliance.................... 11
Executive Management Compensation.......................................... 12
Summary Compensation Table............................................... 12
Option Grants in Last Fiscal Year ....................................... 13
Aggregated Option Exercises and Fiscal Year-End Option Values............ 14
Long-Term Incentive Plan (LTIP) Awards................................... 15
Pension Plans............................................................ 16
Change-in-Control Agreements ............................................ 18
Compensation Committee Report on Executive Compensation.................. 19
Stockholder Performance Graph............................................ 24
Indebtedness of Management................................................. 25
Transactions with Management and Directors................................. 26
Stockholder Proposals for 2001............................................. 26
Other Business............................................................. 27
</TABLE>
<PAGE>
Proxy Statement
VOTING INFORMATION
Purpose
Hawaiian Electric Industries, Inc. is soliciting proxies for the Annual
Meeting of Stockholders scheduled for April 25, 2000. The mailing address of
the principal executive offices of the Company is P.O. Box 730, Honolulu,
Hawaii 96808-0730.
The approximate mailing date for this Proxy Statement, form of proxy and
annual report to stockholders for the fiscal year ended December 31, 1999, is
March 10, 2000. The annual report is not considered proxy soliciting material.
Who Can Vote
Stockholders of Common Stock at the close of business on February 16, 2000
(the record date), are entitled to vote. On February 16, 2000, 32,297,786
shares of Common Stock were outstanding. Each stockholder is entitled to one
vote for each share held. Under the By-Laws of the Company, stockholders do not
have cumulative voting rights in the election of directors.
How You Can Vote
You may vote by granting a proxy or, for shares held in street name, by
submitting voting instructions to your broker or nominee. In most instances,
you will be able to do this over the Internet, by telephone or by mail.
If you vote over the Internet or by telephone, please follow the instructions
included on your proxy card. If your shares are held in street name, please
follow the voting instruction card included by your broker or nominee.
If you vote by mail, sign and date your proxy and return it in the enclosed
prepaid envelope. You can specify on your proxy whether your shares should be
voted for all, some, or none of the nominees for director. You can also specify
whether you approve, disapprove, or abstain from the proposal to elect the
Company's independent auditor.
If you return your signed proxy but do not mark the boxes showing how you
wish to vote, we will vote your shares "FOR" the election of all nominees for
director and "FOR" the election of the Company's independent auditor.
You may also vote your shares by attending the meeting and voting in person.
In addition, if you wish to give your proxy to someone other than the
individuals listed on the enclosed proxy, cross out all three names and insert
the name of another person to vote your shares at the meeting.
Your share ownership is shown on the enclosed proxy, including your shares
held in the Dividend Reinvestment and Stock Purchase Plan (DRIP) and the
Hawaiian Electric Industries Retirement Savings Plan (HEIRS) (including shares
held in the Hawaiian Electric Industries Stock Ownership Plan, formerly the Tax
Reduction Act Stock Ownership Plan (TRASOP)). The respective
1
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plan trustees will vote the shares of stock held in the Plans according to your
directions. For both DRIP and HEIRS (excluding TRASOP), the respective trustees
will vote all the shares of Common Stock for which they receive no voting
instructions in the same proportion as they vote shares for which they receive
instructions. The trustee cannot vote the shares in TRASOP for which it
receives no voting instructions.
Revocation of Proxies
You can revoke your proxy at any time before the Annual Meeting in one of
three ways:
(1) notify the Secretary of the Company in writing;
(2) return a properly signed, later-dated proxy; or
(3) vote in person at the meeting.
Required Votes
A quorum is needed to transact business at the Annual Meeting. A majority of
the outstanding shares present in person or represented by proxy constitutes a
quorum. The affirmative vote of more than 50% of the quorum is required to
elect the Class I directors and the Company's independent auditor. Abstentions
are counted as "shares present" at the meeting in determining whether a quorum
exists and have the effect of a vote against any proposal.
Who Will Count the Votes
Beacon Hill Partners, Inc. will act as tabulator for broker and bank proxies
and Proxy Services Corporation will act as tabulator for the proxies of the
other stockholders of record. Your identity and vote will not be disclosed to
persons other than those acting as tabulators except as follows:
(1)as required by law;
(2) to verify the validity of proxies and the results of the voting in the case
of a contested proxy solicitation; or
(3)when you write a comment on the proxy form.
Shares Held in Street Name
If your shares are held in the name of a brokerage firm or trustee or other
holder of record and you bring a letter from the holder of record or other
evidence of your beneficial ownership, you are invited to attend the meeting.
However, you may not vote at the meeting unless you obtain a legal proxy from
the brokerage firm or trustee.
Under New York Stock Exchange rules, your broker or nominee may vote your
shares on routine matters (such as the election of directors and the
independent auditor) if you do not give your broker or nominee specific
instructions. A broker does not have discretionary voting power with respect to
nonroutine proposals and cannot vote on these matters if you do not send the
broker your instructions. This is referred to as a "broker nonvote" and will be
considered as "shares present" at the meeting in determining whether a quorum
exists. Broker nonvotes, if any, have the effect of a vote to withhold
authority in connection with the election of directors and the effect of a vote
against other proposals at the meeting.
2
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Expenses of Solicitation
The Company pays all expenses of the proxy solicitation. We hired Beacon Hill
Partners, Inc. to assist in the distribution of proxy materials and
solicitation of votes for $3,000 plus reasonable out-of-pocket expenses. In
addition, we will reimburse brokerage firms and other custodians, nominees, and
fiduciaries for their expenses to forward proxy and solicitation material to
stockholders.
PROPOSALS YOU MAY VOTE ON
1. Election of Class I Directors
The Board of Directors currently consists of 12 individuals who are divided
into three classes: Class I, Class II and Class III with the term of office of
one class expiring each year.
The three Class I nominees being proposed for election at this Annual Meeting
are Robert F. Clarke, A. Maurice Myers and James K. Scott. Each of the nominees
is currently a member of the Board of Directors and has consented to serve for
a new three-year term expiring at the 2003 Annual Meeting. If a nominee is
unable to stand for election, the proxy holders listed in the proxy may vote in
their discretion for a suitable substitute.
Terms for Class II Directors will expire in 2001 and for Class III directors
in 2002.
Detailed information on each nominee and director is provided on pages 4 to
6.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE CLASS I DIRECTORS.
2. Election of Auditor
The firm of KPMG LLP, independent certified public accountants, has been the
auditor of the Company since 1981. The Board of Directors recommends the
election of KPMG LLP as the auditor of the Company for fiscal year 2000 and
thereafter until its successor is elected. Representatives of KPMG LLP will be
present at the Annual Meeting and will be given the opportunity to make a
statement and to respond to appropriate questions.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR KPMG LLP AS AUDITOR OF THE COMPANY.
3
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NOMINEES FOR CLASS I DIRECTORS
Terms would end at the 2003 Annual Meeting.
[PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS
HERE] HERE] HERE]
Robert F. A. Maurice James K. Scott,
Clarke Myers Ed.D.
Age 57 Age 59 Age 48
Director Since Director Since Director Since
1989 1991 1995
Chairman, Chairman, President of
president and president and Punahou
chief execu- chief executive School.
tive officer officer of Director of
of the Company. Waste Hawaiian
Chairman of Management, Electric
the board of Inc. Company, Inc.,
Hawaiian (environmental Pacific and
Electric services), Asian Affairs
Company, Inc., Houston, Council, and
American Texas, since Hawaii Public
Savings Bank, November 1999. Television.
F.S.B., and Chairman, President,
HEI Power president and Hawaii
Corp. chief Association of
President and executive Independent
director of officer of Schools.
Hawaiian Yellow Trustee, the
Electric Corporation College Board.
Industries from April Member, Hawaii
Charitable 1996 to Executives
Foundation and November 1999. Council,
Hycap President, Hawaiian
Management, chief Educational
Inc. Director operating Council, and
of Aloha officer, and Young
United Way. director of Presidents
Chairman, America West Organization.
Advisory Board Airlines, Inc.
for the from 1994 to
College of 1995.
Business Director of
Administration Pleasant
at the Holidays and
University of Cheap Tickets,
Hawaii--Manoa. Inc. Member,
Member, Oceanic Advisory
Cablevision Council of
Advisory Northwestern
Board, Hawaii University
Business Kellogg
Roundtable, Transportation
Council on School.
Revenues for
the State of
Hawaii, and
Air Force
Civilian
Advisory
Council.
Trustee, The
Nature
Conservancy of
Hawaii, Straub
Foundation,
and Hawaii
Pacific
University.
4
<PAGE>
CONTINUING CLASS II DIRECTORS
Directors continuing in office with terms ending at the 2001 Annual Meeting.
[PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS
HERE] HERE] HERE] HERE] HERE]
Victor Hao T. Michael Diane J. Kelvin H. Jeffrey N.
Li, S.J.D. May Plotts Taketa Watanabe
Age 58 Age 53 Age 64 Age 45 Age 57
Director Director Director Director Director
Since 1988 Since 1995 Since 1987 Since 1993 Since 1987
Co-chairman, Senior vice General President Partner in
Asia Pacific president of partner of and chief the law firm
Consulting the Company Mideast and executive of Watanabe,
Group. Vice since Sep- China Trad- officer of Ing &
president, tember 1995. ing Company, the Hawaii Kawashima.
General Re- President, formerly Community Director of
insurance chief execu- known as Foundation. Hawaiian
Corporation. tive officer Hemmeter In- Vice presi- Electric
Director of and director vestment dent and di- Company,
Hawaiian of Hawaiian Company. rector of Inc.,
Electric In- Electric Director of the Asia Pa- American
dustries Company, Hawaiian cific Re- Savings
Charitable Inc. and Electric gion, The Bank,
Foundation, chairman of Company, Nature Con- F.S.B., HEI
HEI Power the boards Inc., Ameri- servancy Power Corp.,
Corp. Trust- of Maui can Savings from 1989 to Hawaiian
ee, Japan- Electric Bank, 1998. Electric In-
America In- Company, F.S.B., Director of dustries
stitute of Limited and Hawaii HEI Power Charitable
Management Hawaii Elec- Health Sys- Corp., Foundation,
Science. tric Light tems Corpo- HISCO, Ltd., American
Consulting Company, ration, and Classic Voy-
Professor of Inc. since Plaza Club, Sustainable ages, First
Law, Stan- September and Honolulu Forest Insurance
ford Univer- 1995. From Country Resources, Company of
sity. February 1992 Club. LLC. Hawaii, and
to Au- Grace Pa-
gust 1995, cific Corpo-
senior vice ration.
president of Member, Ad-
Hawaiian visory
Electric Board, Oce-
Company, anic Cable-
Inc. vision.
Director of Trustee,
Hawaiian Children's
Electric In- Television
dustries Workshop,
Charitable Children and
Foundation, Youth Foun-
HEI Power dation of
Corp., and the Philip-
the Electric pines, The
Power Re- Queen's
search In- Health Sys-
stitute. tem, and The
Member, Boy Queen's Med-
Scouts of ical Center.
America- Chair, The
Aloha Coun- Consuelo
cil Execu- Zobel Alger
tive Board Foundation
and Japanese and The Na-
Chamber of ture Conser-
Commerce. vancy of
Trustee, Hawaii.
Academy of
the Pacific.
5
<PAGE>
CONTINUING CLASS III DIRECTORS
Directors continuing in office with terms ending at the 2002 Annual Meeting.
[PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS
HERE] HERE] HERE] HERE]
Don E. Richard Bill D. Oswald K.
Carroll Henderson Mills Stender
Age 58 Age 71 Age 48 Age 68
Director Director Director Director
Since 1996 Since 1981 Since 1988 Since 1993
President, President Chairman of Real estate
chief execu- and director the board consultant
tive offi- of HSC, Inc. and chief since June
cer, and di- (real estate executive 1999. Trust-
rector of investment officer of ee,
Oceanic Ca- and Bill Mills Kamehameha
blevision. development) Development Schools/
Vice presi- and its and Invest- Bishop Estate
dent of Time subsidiaries. ment Compa- from January
Warner Ca- Director of ny, Inc. 1990 to May
ble. Hawaiian Director, 1999.
Director of Electric Grace Pa- Director of
Pacific Company, cific Corpo- Hawaiian
Guardian Inc., Hawaii ration. Electric In-
Life and Electric Trustee, dustries
American Red Light Hawaii Pa- Charitable
Cross-- Company, cific Uni- Foundation,
Hawaii Chap- Inc., versity, Grace Pacific
ter. Secre- InterIsland St. Andrew's Corporation,
tary-trea- Petroleum, Priory, and Hawaii Commu-
surer and Inc., and The Nature nity Rein-
director of Big Island Conservancy vestment
the Hawaii Substance of Hawaii. Corp., Ameri-
Cable Tele- Abuse Member, can Red
vision Asso- Council. Board of Cross--Hawaii
ciation. Secretary, Governors, Chapter, and
Treasurer Hawaii Iolani March of
and director Island School and Dimes Birth
of Aloha Economic Hawaii Com- Defects Foun-
United Way. Development munity Foun- dation--Chap-
Past presi- Board. Vice dation. ter of the
dent and di- president Pacific.
rector of and trustee, Trustee, Cash
Hawaii Na- Lyman House Assets Trust,
ture Center. Memorial Hawaiian Tax-
Chairman, Museum. Free Trust,
Oceanic Ca- Pacific Capi-
ble Founda- tal Funds,
tion. Past and Kahi
president, Mohala
Boy Scouts (Sutter
of America- Health Pacif-
Aloha Coun- ic). Member,
cil and The Board of Gov-
200 Club Ad- ernors,
visory Iolani School
Board. Mem- and East-West
ber, Hawaii Center Foun-
Business dation.
Roundtable.
6
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BOARD OF DIRECTORS
Corporate Governance
The management of the Company periodically reviews trends in corporate
governance with the Board. In 1996, the Board of Directors adopted an annual
process of evaluating the operations of the Board as a whole. Each director
currently rates the following:
. mechanics of Board meetings (length of meetings, number of meetings,
adequacy of pre-meeting information, quality of presentations,
communications between meetings);
. meeting content/conduct (topics covered, amount of detail, climate for
open debate, time for discussion);
. Board organization/operation (size, mandatory retirement at age 72,
committee structure, exposure and access to management, and skills,
diversity and experience of directors);
. Board practices (executive compensation, executive succession planning,
selection of committee members, criteria for the selection and retention
of directors, compensation of directors); and
. overall performance of directors (understanding the business and
strategies, doing their homework, asking good questions, sharing
insights, attending meetings and keeping current on issues affecting the
business).
The Board also adopted an annual process for evaluating those directors whose
terms expire at the next Annual Meeting. The directors evaluate themselves on
various factors, including meeting preparation, attendance, participation at
meetings, and knowledge of issues and trends affecting the Company. The
evaluation forms for the Board as a whole and individual directors are then
submitted to the Nominating and Corporate Governance Committee before directors
are nominated for reelection to the Board. After reviewing the comments
received, the Nominating and Corporate Governance Committee recommends to the
Board any procedures and practices to be adopted to improve the operations of
the Board. The Chairman of the Nominating and Corporate Governance Committee
may meet with individual directors to discuss their performance.
7
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Committees of the Board
The Board of Directors has four standing committees: Audit, Compensation,
Executive, and Nominating and Corporate Governance. The names of the members
and the number of meetings held in 1999 are shown in the table below:
<TABLE>
<CAPTION>
Nominating
and
Corporate
Name Audit Compensation Executive Governance
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Don E. Carroll X X
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Robert F. Clarke* X
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Richard Henderson X** X**
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Victor Hao Li X
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T. Michael May*
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Bill D. Mills X
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A. Maurice Myers X X
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Diane J. Plotts X X** X
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James K. Scott X
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Oswald K. Stender X X
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Kelvin H. Taketa X
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Jeffrey N. Watanabe X X**
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Number of Meetings in
1999 5 3 0 2
</TABLE>
- --------
*Employee director
**Committee chair
The Audit Committee reviews the Company's auditing, accounting, financial
reporting, and internal control functions. All members of the committee are
nonemployee directors.
The Compensation Committee reviews the current salary administration policies
and compensation strategy for the Company. All members of the committee are
nonemployee directors. Since 1991, the Compensation Committee has annually
evaluated the performance of the Chairman. At least once a year, the
Compensation Committee meets in executive session with the other nonemployee
directors of the Board to discuss the Chairman's compensation and to evaluate
the Chairman's performance. See pages 19 to 23 for the Compensation Committee
Report on Executive Compensation.
The Executive Committee possesses and exercises the authority of the Board as
delegated by the Board and is responsible for considering and making
recommendations to the Board regarding any questions concerning the business
and affairs of the Company. The Committee is comprised of nonemployee directors
and the President.
The Nominating and Corporate Governance Committee reviews and recommends to
the Board of Directors the slate of nominees to be submitted to the
stockholders for election at the next Annual Meeting. All members of the
committee are nonemployee directors. See page 7 for a discussion concerning the
involvement of this Committee on matters relating to corporate governance.
8
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Recommendation for Director Nominee
You can recommend any person as a nominee for director of HEI by writing to
the Nominating and Corporate Governance Committee, in care of the Secretary,
Hawaiian Electric Industries, Inc., P. O. Box 730, Honolulu, Hawaii 96808-0730.
Recommendations must be received by December 10, 2000 for consideration by the
Committee for the 2001 Annual Meeting of Stockholders. The recommendation must
include the nominee's qualifications and other relevant biographical
information and confirmation of the nominee's consent to serve.
Attendance at Meetings
In 1999, there were ten regular monthly meetings and three special meetings
of the Board of Directors. All directors attended at least 75% of the combined
total meetings of the Board and Board committees on which they served.
Compensation of Directors
Nonemployee directors of the Company received the following compensation for
their services as directors during 1999 (employee members of the Board of
Directors receive no additional compensation for service as directors).
<TABLE>
<CAPTION>
Compensation Amount
- ------------ ----------
<S> <C>
Annual HEI Common Stock Grant 300 shares(1)
Annual Board Retainer $20,000(2)
Board Attendance Fee (per meeting) 1,000(3)
Committee Attendance Fee (per meeting) 1,000(3)
Committee Attendance Fee for Committee Chair (per meeting) 2,000(3)
</TABLE>
- ----------
(1) The Board of Directors adopted the 1999 Nonemployee Company Director Stock
Grant Plan, whereby an annual 300-share stock grant is made to
participating directors for the purpose of further aligning directors' and
stockholders' interests in improving stockholder value.
(2) Paid quarterly in cash installments. In order to receive the fourth quarter
installment, directors are required to have attended at least 75% of the
combined total of all Board meetings and all meetings of Board committees
on which they serve.
(3) In the case of multiple meetings on the same day, only one fee is paid.
Nonemployee Director Retirement Plan
The Nonemployee Director Retirement Plan (which was approved by the
stockholders on April 17, 1990) provides certain retirement benefits to
nonemployee directors of the Company or any subsidiary of the Company upon
retirement from service as a director. The Plan provides an annual payment to
each director who serves for at least 5 consecutive years and meets other
requirements of the Plan in an amount equal to the annual retainer which was in
effect in the year that the nonemployee director retired. The payments are for
a period equal to the number of years of active service accumulated and
terminate in the event of the director's death.
At the meeting of the Board of Directors on December 17, 1996, the Board
voted to terminate the Nonemployee Director Retirement Plan as described above,
and pay the present value of the accrued retirement benefits to directors age
55 or younger or with 5 years of service or less as of April 22, 1997.
9
<PAGE>
The retirement benefits for all other directors (Mr. Henderson, Mr. Myers and
Ms. Plotts) were frozen as of December 31, 1996, and will be paid according to
the terms of the Plan based on the $15,000 annual retainer in effect on
December 31, 1996. The right of previously retired directors to receive
benefits continues according to the Plan.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company entered into Indemnity Agreements with each of its directors and
executive officers as approved by stockholders at the 1989 Annual Meeting. The
Indemnity Agreement provides for mandatory indemnification of the director or
officer to the fullest extent permitted by law. This includes indemnification
against all expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred. The Indemnity Agreement
also provides for the mandatory payment of expenses incurred by the director or
officer in defending a proceeding. However, these expenses must be repaid if it
is later determined that the officer or director is not entitled to
indemnification.
The Indemnity Agreement excludes indemnification for:
. proceedings initiated by the officer or director unless the Board of
Directors determines indemnification to be appropriate;
. amounts covered by insurance;
. profits made from the purchase or sale of stock by a director or officer
which are subject to the "short-swing profits" liability provisions of
federal or state securities laws;
. an action or omission by the officer or director determined to be willful
misconduct or to have been knowingly fraudulent or deliberately
dishonest; or
. if an appropriate court determines that such indemnification is not
permitted by law.
At the 1990 Annual Meeting, the stockholders approved a proposal to amend the
Restated Articles of Incorporation of the Company to add a new Article
Fourteenth eliminating the personal liability of its directors for monetary
damages to the fullest extent permitted by Hawaii law.
10
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows how many shares of HEI Common Stock were owned as
of February 16, 2000 by each director, Named Executive Officer (as listed in
the Summary Compensation Table on page 12) and by all directors and executive
officers as a group.
Amount of Common Stock and Nature of Beneficial Ownership
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Name of Individual Sole Voting or Shared Voting or Other Beneficial
or Group Investment Power Investment Power(1) Ownership(2) Stock Options(3) Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonemployee directors
Don E. Carroll 2,488 2,488
Richard Henderson 2,742 2,742
Victor Hao Li 3,585 326 3,911
Bill D. Mills 4,528 5 4,533
A. Maurice Myers 5,077 5,077
Diane J. Plotts 2,490 2,490
James K. Scott 1,728 1,728
Oswald K. Stender 4,648 4,648
Kelvin H. Taketa 1,810 1,810
Jeffrey N. Watanabe 3,956 210 2 4,168
Employee directors and
Named Executive
Officers
Robert F. Clarke 12,273 12,000 142,280 166,553
T. Michael May 6,118 34,744 40,862
Other Named Executive
Officers
Peter C. Lewis 2,744 340 15,686 18,770
Wayne K. Minami 1,968 8,315 34,061 44,344
Robert F. Mougeot 5,985 20,568 26,553
All directors and
executive officers as a
group (19 persons) 58,056 30,095 674 288,883 377,708(4)
</TABLE>
- ----------
(1) Shares registered in name of the individual and spouse.
(2) Shares owned by spouse, children or other relatives sharing the home of the
director or officer in which the director or officer disclaims personal
interest.
(3) Stock options, including accompanying dividend equivalent shares,
exercisable within 60 days after February 16, 2000, under the 1987 Stock
Option and Incentive Plan (as amended and restated effective February 20,
1996).
(4) The directors and executive officers of HEI as a group beneficially owned
1.17% of HEI Common Stock on February 16, 2000 and no director or officer
owned more than .52% of such stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of forms filed by its reporting persons during the last
fiscal year, the Company believes that they complied with the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934.
11
<PAGE>
EXECUTIVE MANAGEMENT COMPENSATION
Summary Compensation Table
The following summary compensation table shows the annual and long-term
compensation of the chief executive officer and the four other most highly
compensated executive officers of the Company and its subsidiaries serving
during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------------------------------
Awards Payouts
-----------------
Securities
Other Annual Underlying LTIP All Other
Name and Principal Salary Bonus(1) Compensation Options(2) Payouts(3) Compensation(4)
Position Year ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert F. Clarke 1999 $532,000 $427,349 $-0- 50,000 $ -- $28,503
Chairman, President
& CEO 1998 490,000 138,237 -0- 20,000 107,973 24,192
1997 483,000 132,842 -0- 20,000 -0- 21,975
- ------------------------------------------------------------------------------------------------------
T. Michael May 1999 372,000 211,652 -0- 20,000 -- 14,400
Senior Vice
President; 1998 325,000 92,425 -0- 12,000 55,973 11,612
President & CEO,
HECO 1997 313,000 -0- -0- 12,000 -0- 10,333
- ------------------------------------------------------------------------------------------------------
Wayne K. Minami 1999 303,000 156,013 -0- 20,000 -- N/A
President & CEO 1998 267,000 -0- -0- 10,000 21,114 N/A
American Savings
Bank, 1997 257,000 74,355 -0- 8,000 -0- N/A
F.S.B.
- ------------------------------------------------------------------------------------------------------
Robert F. Mougeot 1999 245,000 96,135 -0- 7,000 -- 13,126
Financial Vice
President and 1998 238,000 39,077 -0- 5,000 38,750 11,750
Chief Financial
Officer 1997 235,000 38,274 -0- 5,000 -0- 10,692
- ------------------------------------------------------------------------------------------------------
Peter C. Lewis 1999 209,000 77,804 -0- 5,000 -- 21,807
Vice President -- 1998 203,000 36,844 -0- 5,000 32,126 19,480
Administration and 1997 201,000 34,868 -0- 5,000 -0- 17,724
Secretary
- ------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) The Named Executive Officers are eligible for an incentive award under the
Company's annual Executive Incentive Compensation Plan (EICP). EICP bonus
payouts are reflected as compensation for the year earned.
(2) Options granted for the three-year period 1997-1999 contained dividend
equivalents as further described below under the heading Option Grants in
Last Fiscal Year.
(3) Long-Term Incentive Plan (LTIP) payouts are determined in the second
quarter of each year for the three-year cycle ending on December 31 of the
previous calendar year. If there is a payout, the amount is reflected as
LTIP compensation in the table for the previous year for the Named
Executive Officers. In 1998, no LTIP payouts were received for the 1995-
1997 performance cycle because none of the minimum threshold levels was
achieved. In April 1999, LTIP payouts were made for the 1996-1998
performance cycle and are reflected as LTIP compensation in the table for
1998. The determination of whether there will be a payout under the 1997-
1999 LTIP will not be made until the second quarter of this year.
12
<PAGE>
(4) Represents amounts accrued each year by the Company for certain
preretirement death benefits provided to the Named Executive Officers,
except Mr. Minami, as described in the Compensation Committee Report on
pages 22 and 23 under the heading, "Other Compensation Plans."
Option Grants in Last Fiscal Year
The following table presents information on the nonqualified stock options
which were granted to the five Named Executive Officers on April 26, 1999. The
practice of granting stock options, which include dividend equivalent shares,
has been followed each year since 1987.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of
Securities Percent of Grant
Underlying Total Options Date
Options Granted to Exercise Present
Granted(1) Employees in Price Expiration Value(2)
Name (#) Fiscal Year ($/share) Date ($)
---- ---------- ------------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
Robert F. Clarke........ 20,000 9% $35.21 April 26, 2009 $159,000
Robert F. Clarke........ 10,000 4 36.00 April 26, 2009 75,500
Robert F. Clarke........ 10,000 4 38.00 April 26, 2009 65,900
Robert F. Clarke........ 10,000 4 40.00 April 26, 2009 57,100
T. Michael May.......... 20,000 9 35.21 April 26, 2009 159,000
Wayne K. Minami......... 20,000 9 35.21 April 26, 2009 159,000
Robert F. Mougeot....... 7,000 3 35.21 April 26, 2009 55,650
Peter C. Lewis.......... 5,000 2 35.21 April 26, 2009 39,750
</TABLE>
- ----------
(1) For the 72,000 option shares granted with an exercise price of $35.21 per
share and for each 10,000 option shares granted with exercise prices of
$36.00 per share, $38.00 per share and $40.00 per share, to the Named
Executive Officers, additional dividend equivalent shares are granted at
no additional cost throughout the four-year vesting period (vesting in
equal installments) which begins on the date of grant. Dividend
equivalents are computed, as of each dividend record date, both with
respect to the number of shares under the option and with respect to the
number of dividend equivalent shares previously credited to the
participant and not issued during the period prior to the dividend record
date. Accelerated vesting is provided in the event a Change-in-Control
occurs. No stock appreciation rights have been granted under the Company's
stock option plans.
(2) Based on a Binomial Option Pricing Model, which is a variation of the
Black-Scholes Option Pricing Model. For the stock options granted on April
26, 1999, with a 10-year option period, an exercise price of $35.21, and
with additional dividend equivalent shares granted for the first four years
of the option, the Binomial Value adjusted for forfeiture risk is $7.95 per
share. The following assumptions were used in the model: Stock Price:
$35.21; Exercise Price: $35.21; Term: 10 years; Volatility: 0.1428;
Interest Rate: 5.60%; and Dividend Yield: 6.65%. The following were the
valuation results: Binomial Option Value: $3.40; Dividend Credit Value:
$4.55; and Total Value $7.95.
13
<PAGE>
The same assumptions except for exercise price were used for the following
stock options. For the stock options granted on April 26, 1999, with an
exercise price of $36.00, the following were the valuation results: Binomial
Option Value: $3.15; Dividend Credit Value: $4.40; and Total Value $7.55.
For the stock options granted on April 26, 1999, with an exercise price of
$38.00, the following were the valuation results: Binomial Option Value:
$2.61; Dividend Credit Value: $3.98; and Total Value $6.59. For the stock
options granted on April 26, 1999, with an exercise price of $40.00, the
following were the valuation results: Binomial Option Value: $2.16; Dividend
Credit Value: $3.55; and Total Value $5.71.
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table shows the stock options, including dividend equivalents,
exercised by the Named Executive Officers in 1999. Also shown is the number of
securities underlying unexercised options and the value of unexercised in the
money options, including dividend equivalents, at the end of 1999. Under the
Stock Option and Incentive Plan, dividend equivalents have been granted to each
of the Named Executive Officers as part of the stock option grant, except for
Mr. May's 1995 stock option grant and a one-time, premium-priced grant to Mr.
Clarke in May 1992.
Dividend equivalents permit a participant who exercises a stock option to
obtain at no additional cost, in addition to the option shares, the amount of
dividends declared on the number of shares of Common Stock with respect to
which the option is exercised during the period between the grant and the
exercise of the option. Dividend equivalents are computed, as of each dividend
record date throughout the four-year vesting period (vesting in equal
installments), which begins on the date of grant, both with respect to the
number of shares underlying the option and with respect to the number of
dividend equivalent shares previously credited to the Named Executive Officer
and not issued during the period prior to the dividend record date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options (Including In the Money Options
Dividend Equivalents) (Including Dividend Equivalents)
Dividend Value at Fiscal Year-End at Fiscal Year-End(1)
Shares Equivalents Value Realized ---------------------- --------------------------------
Acquired Acquired Realized On Dividend Exercisable/ Exercisable/
On Exercise On Exercise On Options Equivalents Unexercisable Unexercisable
Name (#) (#) ($) ($) (#) ($)
- ---- ----------- ----------- ---------- ----------- ---------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Clarke.... -- -- $ -- $ -- 123,022/88,122 $116,986/8,129
T. Michael May...... -- -- -- -- 23,190/42,321 13,038/4,872
Wayne K. Minami..... -- -- -- -- 25,772/36,938 46,766/3,229
Robert F. Mougeot... -- -- -- -- 15,755/16,227 29,232/2,033
Peter C. Lewis...... -- -- -- -- 10,873/14,117 11,378/2,033
</TABLE>
- ---------
(1) Value based on closing price of $28.88 per share on the New York Stock
Exchange on December 31, 1999.
14
<PAGE>
Long-Term Incentive Plan (LTIP) Awards
The table on page 16 lists the LTIP awards made to the Named Executive
Officers during 1999. The table shows potential payments that are tied to the
achievement of better than average performance over a three-year period (1999-
2001) relating to two separate goals for all the Named Executive Officers
except Mr. May and Mr. Minami, who have a third goal in addition to the two
goals listed immediately below.
The two goals are (1) return on average common equity (weighted 60%), and (2)
total return to shareholders (weighted 40%). The weighting of each goal applies
to all the Named Executive Officers except Mr. May and Mr. Minami. The
Company's performance for the return on average common equity goal is based on
an internal goal. The Company's performance for the total return to
shareholders goal is measured against the Edison Electric Institute Index of
100 Investor-Owned Electric Companies as of December 31, 2001 (Peer Group).
This is the same Peer Group used for the Stockholder Performance Graph shown on
page 24. However, the performance of the LTIP Peer Group is calculated on a
noncapitalized weighted basis whereas the Stockholder Performance Graph Peer
Group is calculated on a capitalized weighted basis. The LTIP uses a
noncapitalized weighted basis so as not to give a disproportionate emphasis to
the larger companies in the Edison Electric Institute Index. For Mr. May and
Mr. Minami, the two goals set forth above are weighted (1) return on average
common equity (30%), and (2) total return to shareholders (20%). Mr. May's
third goal (weighted 50%) is based on a prorated percent of allowed return on
average common equity for Hawaiian Electric Company, Inc. (consolidated) for
the same three-year LTIP cycle. Mr. Minami's third goal (weighted 50%) is based
on a return on average common equity for American Savings Bank, F.S.B. (ASB)
for the same three-year LTIP cycle.
The threshold for minimum awards with respect to the return on average common
equity goal for the Company is 10.75%. The threshold minimum award with respect
to the total return to shareholders will be earned if the Company's performance
is at the 40th percentile of the Peer Group. Mr. May's threshold minimum for
his third goal, which must be achieved in at least two out of three years
during the LTIP cycle, is a prorated percent of allowed return on average
common equity for Hawaiian Electric Company, Inc. (consolidated) of 90%.
Mr. Minami's threshold minimum for his third goal, which must be achieved in at
least two out of three years during the LTIP cycle, is a return on average
common equity for ASB of 12%. Maximum awards with respect to the return on
average common equity goal will be earned if the Company's return on average
common equity is 12.5%. Maximum awards with respect to the total return to
shareholders will be earned if the Company's performance is measured at the
70th percentile of the Peer Group. For Mr. May, the maximum award on his third
goal will be earned if the prorated percent of allowed return on average common
equity for Hawaiian Electric Company, Inc. (consolidated) equals or exceeds
100%. For Mr. Minami, the maximum award on his third goal will be earned if the
return on average common equity for ASB equals or exceeds 16%. Earned awards
are distributed in the form of 60% cash and 40% HEI Common Stock with the
maximum award level for each Named Executive Officer ranging from 75% to 100%
of the midpoint of the officer's salary grade range at the end of the three-
year performance period.
15
<PAGE>
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts
------------------------------
Three-Year Minimum
Performance Cycle Threshold(1) Target Maximum
Name Ending Date ($) ($) ($)
- ---- ----------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Robert F. Clarke............... 12/31/01 $212,520 $428,260 $644,000
T. Michael May................. 12/31/01 100,250 200,500 300,750
Wayne K. Minami................ 12/31/01 91,500 183,000 274,500
Robert F. Mougeot.............. 12/31/01 69,000 138,000 207,000
Peter C. Lewis................. 12/31/01 57,250 114,500 171,750
</TABLE>
- ----------
(1) Assumes meeting minimum threshold on all goals; however, if only one goal
(weighted 40%) is met, the minimum threshold estimated future payout would
be: Mr. Clarke -- $85,008; Mr. Mougeot -- $27,600; and Mr. Lewis --
$22,900. If only one goal (weighted 20%) is met, the minimum threshold
estimated future payout would be $20,050 for Mr. May and $18,300 for Mr.
Minami. There is no LTIP payout unless the minimum threshold is met on at
least one of the goals.
Pension Plans
All regular employees (including the Named Executive Officers) are covered by
noncontributory, qualified defined benefit pension plans. The plans provide
retirement benefits at normal retirement (age 65), reduced early retirement
benefits and death benefits. The Named Executive Officers except Mr. Minami
participate in the Retirement Plan for Employees of HEI and Participating
Subsidiaries (HEI Plan). Mr. Minami is a participant in the American Savings
Bank Retirement Plan (ASB Plan). Mr. Clarke and Mr. May also participate in the
HEI Supplemental Executive Retirement Plan (HEI SERP) and Mr. Minami also
participates in the ASB Supplemental Retirement, Disability, and Death Benefit
Plan (ASB SERP) (see pages 17 and 18).
Some executives are affected by Internal Revenue Code limitations on
qualified plan benefits. They are, therefore, also covered under the Hawaiian
Electric Industries, Inc. Excess Benefit Plan (Excess Plan) and the Hawaiian
Electric Industries, Inc. Excess Pay Supplemental Executive Retirement Plan
(Excess Pay SERP), which are noncontributory, nonqualified plans.
The following table shows estimated annual pension benefits payable at
retirement under the HEI Plan, Excess Plan and Excess Pay SERP based on base
salary that is covered under the three plans and years of service with the
Company and all of its subsidiaries.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------
Remuneration 5 10 15 20 25 30
- ------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000................... $20,400 $ 40,800 $ 61,200 $ 81,600 $102,000 $122,400
250,000................... 25,500 51,000 76,500 102,000 127,500 153,000
300,000................... 30,600 61,200 91,800 122,400 153,000 183,600
350,000................... 35,700 71,400 107,100 142,800 178,500 214,200
400,000................... 40,800 81,600 122,400 163,200 204,000 244,800
450,000................... 45,900 91,800 137,700 183,600 229,500 275,400
500,000................... 51,000 102,000 153,000 204,000 255,000 306,000
550,000................... 56,100 112,200 168,300 224,400 280,500 336,600
600,000................... 61,200 122,400 183,600 244,800 306,000 367,200
</TABLE>
16
<PAGE>
The HEI Plan provides a monthly retirement pension for life. Benefits are
determined by multiplying years of credited service and 2.04% (not to exceed
67%) times the participant's Final Average Compensation (average base salary
for any consecutive 36 months that produces the highest monthly average). As of
December 31, 1999, the Named Executive Officers had the following number of
years of credited service under the HEI Plan: Mr. Clarke, 12 years; Mr. May, 7
years; Mr. Mougeot, 11 years; and Mr. Lewis, 31 years.
Benefits under the ASB Plan are determined by multiplying years of credited
service (not to exceed 35 years) and 1.5% times the participant's Final Average
Compensation (average compensation for the highest five of the last ten years
of credited service). As of December 31, 1999, Mr. Minami had 13 years of
credited service under the ASB Plan. His estimated annual benefit payable in
the form of a single life annuity projected to age 65 is $55,180 based on his
current compensation level.
Internal Revenue Code Section 415 limits the retirement benefit that a
participant can receive from qualified retirement plans such as the HEI Plan
and ASB Plan. The limit for 1999 is $130,000 per year at age 65. The Company
adopted the Excess Plan to provide benefits that cannot be paid from the
qualified plans due to this maximum limit, based on the same formula as the
qualified plans.
Internal Revenue Code Section 401(a) limits a participant's compensation that
can be recognized under qualified retirement plans. The limit on the maximum
compensation for 1999 under Section 401(a) is $160,000. The Company adopted the
Excess Pay SERP to provide benefits that cannot be paid from the qualified
plans due to the maximum compensation limit under Section 401(a), based on the
same formula as the qualified plans.
The Company also maintains two supplemental executive retirement plans (HEI
SERP and ASB SERP) for certain executive officers. Mr. Clarke and Mr. May
participate in the HEI SERP and Mr. Minami participates in the ASB SERP.
Benefits under the HEI SERP and ASB SERP are in addition to qualified
retirement benefits payable from the HEI Plan, the ASB Plan and Social
Security.
Under the HEI SERP, the executive is eligible to receive, at age 60, a
benefit of up to 60% (depending on years of credited service) of the
participant's average compensation, which includes amounts received under the
annual Executive Incentive Compensation Plan (EICP), in the highest three out
of the last five years of service. The benefit payable under the HEI SERP is
reduced by the participant's primary Social Security benefit and the benefit
payable from the HEI Plan, but in no event is it less than the benefit payable
under the HEI Plan (before any Internal Revenue Code Section 415 and 401(a)
reductions). The HEI SERP provides for reduced early retirement benefits at age
50 with 15 years of service or age 55 with five years of service, and survivor
benefits in the form of an annuity in the event of the participant's death
after becoming eligible for early retirement. The overall total retirement
benefits payable to Mr. Clarke in the form of a straight life annuity projected
to age 65 is $283,302, based on his current compensation level ($84,031 from
the HEI Plan and $199,271 from the HEI SERP, with no amounts owing from the
Excess Plan or the Excess Pay SERP). The overall total retirement benefits
payable to Mr. May in the form of a straight life annuity projected to age 65
is $168,002 based on his current compensation level ($71,007 from the HEI Plan
and $96,995 from the HEI SERP, with no amounts owing from the Excess Plan or
the Excess Pay
17
<PAGE>
SERP). As of December 31, 1999, Mr. Clarke had 12 years of credited service and
Mr. May had 7 years of credited service under the HEI SERP.
The ASB SERP provides a benefit at age 65 of up to 60% (depending upon years
of credited service) of the participant's average compensation (including 50%
of the amounts received under the EICP) in the highest five consecutive years
out of the last ten years of service, reduced by the participant's primary
Social Security benefit and the benefit payable from the ASB Plan, but in no
event is it less than the benefit payable under the ASB Plan (before any
Internal Revenue Code Section 415 and 401(a) reductions). The ASB SERP also
provides for termination and survivor benefits in certain circumstances. The
overall total retirement benefits payable to Mr. Minami in the form of a
straight life annuity projected to age 65 is $178,688, based on his current
compensation level ($55,180 from the ASB Plan and $123,508 from the ASB SERP).
As of December 31, 1999, Mr. Minami had 13 years of credited service under the
ASB SERP.
Change-in-Control Agreements
Since 1989, the Company has entered into Change-in-Control Agreements with
certain executives, including the Named Executive Officers listed in the
Summary Compensation Table, to encourage and ensure their continued attention
and dedication to the performance of their assigned duties without distraction
in the event of potentially disturbing circumstances arising from a change-in-
control of the Company.
Each Agreement provides that benefits, compensation and position
responsibility of these officers will remain at existing levels for a period of
two years following a "Change-in-Control," unless the "Expiration Date" of the
Agreement has occurred. A "Change-in-Control" is defined to include a change-
in-control required to be reported under the proxy rules in effect on the date
of the Agreements, the acquisition by a person (as defined under the Securities
Exchange Act of 1934) of 25% or more of the voting securities of the Company,
or specified changes in the composition of the Board of Directors of the
Company following a merger, tender offer or certain other corporate
transactions. "Expiration Date" is defined as the earliest to occur of the
following:
(1)two years after a change-in-control;
(2)termination of the executive's employment by the Company for "Cause" (as
defined in the Agreement) or by the executive other than for "Good Reason"
(as defined in the Agreement);
(3)retirement; or
(4)termination of the Agreement by the Company's Board of Directors, or
termination of the executive's employment, prior to a change-in-control.
If the employment of one of these executives is terminated after a change-in-
control and prior to the expiration date, the Company is obligated to provide a
lump sum severance equal to 2.99 times the executive's average W-2 earnings for
the last five years (or such lesser period that the executive has been employed
by the Company), subject to certain limitations. Based on W-2 earnings for the
five most recent years (1995-1999), the lump sum severance would be as follows:
Mr. Clarke -- $2,994,389; Mr. May -- $1,207,712; Mr. Minami -- $1,223,150;
Mr. Mougeot -- $1,245,405; and Mr. Lewis -- $1,041,870. In the event of a
change-in-control, all outstanding stock options would be accelerated and
become immediately exercisable.
18
<PAGE>
Compensation Committee Report on Executive Compensation
Introduction
The Compensation Committee of the Board, which is composed entirely of
outside directors, makes decisions on executive compensation. The full Board
approves all decisions by the Committee.
The Committee has retained the services of an independent compensation
consulting firm to assist the Committee in executive compensation matters.
Executive Compensation Philosophy
The Committee applies the following principles for the executive compensation
program:
. maintains a compensation program that is fair in a competitive
marketplace;
. provides compensation opportunities that relate pay with the Company's
annual and long-term performance goals which support growth in
stockholder value;
. recognizes and rewards individual initiative and achievements; and
. allows the Company to attract, retain, and motivate qualified executives
who are critical to the Company's success.
The Committee believes that stock ownership by management is beneficial in
aligning management's and stockholders' interests in improving stockholder
value. It, therefore, uses stock options and stock payouts in the compensation
program for the executive officers with a goal of increasing their stock
ownership over time.
Executive Compensation Program
The Company's executive compensation program includes:
. base salary;
. potential for an annual bonus based on overall Company financial and
operational performance as well as individual performance; and
. the opportunity to earn long-term cash and stock-based incentives which
are intended to encourage the achievement of superior results over time
and to align executive officer and stockholder interests.
The second and third elements constitute the "at-risk" portion of the
compensation program and are designed to link the interests of the executive
with those of the stockholders. This means that total compensation for each
executive may change significantly from year to year depending on the short-
and long-term performance of the Company and its subsidiaries.
Base Salary
The Committee reviews salaries for executive officers in April of each year
in consultation with the Committee's independent compensation consultant. The
consultant examines the position
19
<PAGE>
responsibilities of each officer at HEI and its subsidiaries against similar
positions in similar organizations. All compensation references represent the
fiftieth percentile or midpoint of pay practices found in similar
organizations.
Salaries for executive officers of the various companies are based on
competitive references drawn from compensation surveys and are weighted as
follows:
. holding company -- other electric utilities (50%) and general industry
(50%)
. electric utilities -- other electric utilities (100%)
. financial institution -- other financial institutions (100%)
. international power producer -- private power producers (100%)
Based on the information from these surveys, the consultant recommends a
salary range for each executive officer position. The midpoint of the range
approximates the fiftieth percentile of the survey data and the range has a
spread of plus and minus 20% around this midpoint. Actual setting of an
executive officer's base salary (except for Mr. Clarke) is based on Mr.
Clarke's recommendation and the Committee's approval.
Mr. Clarke's base salary is determined through the Committee's overall
evaluation of his performance during the preceding year. This evaluation is
subjective in nature and takes into account all aspects of his responsibilities
at the discretion of the Committee. Based on the survey data provided by the
consultant, the resulting salary range recommendation, and the Committee's
overall evaluation of Mr. Clarke's performance during 1998, Mr. Clarke's base
salary was raised from an annual rate of $490,000 to an annual rate of
$552,500, effective May 1, 1999. The $62,500 increase placed Mr. Clarke's base
salary at the 25th percentile of the relevant salary range. The other Named
Executive Officers also received salary increases ranging from 4.2% to 21.5%.
Annual Executive Incentive Compensation Plan
Under the Executive Incentive Compensation Plan ("EICP"), annual incentive
awards are granted upon the achievement of financial and nonfinancial
performance measures established by the Committee in the early part of each
calendar year. The measures are stated in terms of minimum, target and maximum
goals. These measures, which may differ for individual Named Executive
Officers, include:
. earnings per share;
. net income;
. total return to shareholders measured against the Edison Electric
Institute Index of 100 Investor-Owned Electric Companies (currently 83
companies) for the same period;
. company (subsidiary) specific operational and strategic goals;
. measurement of individual officer's actual administrative and general
expenses against budgeted expenses established at the beginning of the
year; and
. individual officer's performance.
20
<PAGE>
The EICP has a minimum financial performance threshold linked to earnings per
share or net income (based on whether the measurement is at the Company or
subsidiary level) which must be achieved before a bonus can be considered. The
maximum awards under the EICP differ for each of the Named Executive Officers,
currently ranging from a low of 53% to a high of 90% for Mr. Clarke based on
the midpoint of the salary grade range at the end of the year for each officer.
Each year the Committee establishes the minimum, target and maximum EICP
potential award levels for the Named Executive Officers based on
recommendations from the Committee's independent compensation consultant. The
consultant bases its recommendations on an assessment of competitive practices
from a cross-section of all industries, including some of the electric utility
companies included in the Stockholder Performance Graph.
Under the 1999 EICP, Mr. Clarke received a payout of $427,349 in early 2000.
This resulted from achievement of (1) the earnings per share goal (weighted
70%) at the maximum level and (2) lower than forecast 1999 administrative and
general expenses for the Company (weighted 10%) at a level slightly above
target. There was no payout for the total return to stockholders goal (weighted
20%) since the Company's total return for 1999 was below the minimum threshold
of the total return of the Edison Electric Institute Index of 100 Investor-
Owned Electric Companies (Peer Group). The EICP award for Mr. Clarke was
exclusively based on the foregoing measures. No further adjustment was made by
the Committee. The other Named Executive Officers also received EICP awards
under the 1999 EICP.
Long-Term Incentive Plan
The Company provides a long-term incentive plan ("LTIP") that is linked to
the long-term financial performance of the Company. All awards under the LTIP
are paid 60% in cash and 40% in HEI Common Stock. The LTIP goals are based on
achieving financial criteria established by the Committee for a three-year
period. A new performance period of three years starts each year. In April
1999, the Committee established the financial measures for the 1999-2001 cycle
which included (1) return on average common equity (weighted 60%) and (2) total
return to stockholders (weighted 40%). The Company's results on the return on
average common equity is measured against an internal goal and the results on
the total return to stockholders goal is measured against the Peer Group
included in the Stockholder Performance Graph. The weighting of each goal
applies to all the Named Executive Officers except Mr. May and Mr. Minami who
have a third LTIP goal (weighted 50%) which is discussed in the Long-Term
Incentive Plan ("LTIP") Awards section on page 15. The first two LTIP financial
performance goals for the Named Executive Officers were selected by the
Committee because they represented a meaningful method of supporting growth in
stockholder value over time. The achievement of each of the goals is expressed
in terms of minimum, target and maximum levels. The LTIP award levels for each
of the Named Executive Officers are established by the Committee each year
based on recommendations from the Committee's independent compensation
consultant. The consultant bases its recommendations on an assessment of
competitive practices from a cross-section of all industries, including some of
the electric utility companies included in the Stockholder Performance Graph.
These goals are covered in more detail in the discussion of the Long-Term
Incentive Plan ("LTIP") Awards on page 15.
21
<PAGE>
For the three-year cycle ended December 31, 1998, all of the Named Executive
Officers received an LTIP payout for the return on average common equity goal,
weighted 40% for the Named Executive Officers except Mr. May and Mr. Minami
whose weighting for the goal was 20%. The Company's return on average common
equity for the three-year cycle, excluding one-time charges and discontinued
operations losses, was 11.35% compared to the average for the Peer Group of
10.53%. Mr. Clarke received a payout for this goal of $107,973 in April 1999.
There was no payout for the total return to stockholders' goal because the
Company's total return for the three-year cycle was below the average total
return of the Peer Group.
Stock Options
The Committee can grant nonqualified stock options, incentive stock options,
restricted stock, stock appreciation rights, and dividend equivalents based on
the 1987 Stock Option and Incentive Plan of Hawaiian Electric Industries, Inc.
(as amended and restated effective February 20, 1996), which was previously
approved by the stockholders. To date, only nonqualified stock options and
dividend equivalents have been issued under the Plan. Periodically, the
Committee requests its independent compensation consultant to assess
competitive practices with respect to stock option grants from a cross-section
of all industries, including some of the electric utility companies included in
the Stockholder Performance Graph. Based on this assessment, the consultant
recommends a range of stock option grants for each Named Executive Officer.
This range takes into account the fact that a portion of the officer's long-
term incentive opportunity is delivered through participation in the LTIP. In
granting stock options, the Committee takes into consideration the amount and
value of current options outstanding. The grants are intended to retain the
officers and to motivate them to improve long-term stock performance. Stock
options are generally granted at average fair market value which is based on
the average of the daily high and low sales prices of HEI Common Stock on the
New York Stock Exchange during the calendar month preceding the date of grant.
Stock options generally vest in equal installments over a four-year period.
In 1999, the Compensation Committee granted Mr. Clarke a stock option award
of 50,000 shares of HEI Common Stock plus dividend equivalents, as follows:
20,000 shares with an exercise price of $35.21 per share (average fair market
value); 10,000 shares with an exercise price of $36.00 per share; 10,000 shares
with an exercise price of $38.00 per share; and 10,000 shares with an exercise
price of $40.00 per share. The award was based on the consultant's
recommendation and the independent evaluation of an appropriate award level by
the Committee. In this evaluation, the Committee took into account prior grants
to Mr. Clarke and an overall subjective evaluation of his job performance. To
receive the dividend equivalents which accrue only during the first four years
following a stock option grant, Mr. Clarke must exercise the underlying stock
option before the expiration of the ten-year period from the date the option
was granted.
Other Compensation Plans
The Named Executive Officers participate in certain broad-based employee
benefit plans and executive retirement and death benefits adopted by the
Company. Other than the Hawaiian Electric Industries Retirement Savings Plan
(which qualifies under Section 401(k) of the Internal Revenue Code), which
offers HEI Common Stock as one of the investment options, benefits under these
other plans are not tied to Company performance.
22
<PAGE>
The Company provides additional retirement benefits which are discussed on
pages 16 to 18 for the Named Executive Officers and certain other employees. In
the event of death during active employment, the Company also provides all the
Named Executive Officers (except Mr. Minami) and certain other employees
$50,000 term life insurance plus an amount equal to two times the employee's
salary on an after-tax basis at the date of death, paid by the Company to the
employee's beneficiary. If the employee dies after retirement, this benefit is
reduced to $20,000 term life insurance plus an amount equal to one times the
employee's salary at retirement, also on an after-tax basis. For Mr. Minami,
American Savings Bank provides term life insurance equal to one and one-half
times his salary at the date of death in the event of death during active
employment.
Finally, the Committee reviewed the provisions of Section 162(m) of the
Internal Revenue Code of 1986, as amended (IRC), relating to the $1 million
deduction cap for executive salaries and believes that no compensation for the
five highest paid named executives will be governed by this regulation during
2000. Compensation alternatives to comply with IRC 162(m) will be considered by
the Committee at the appropriate time.
SUBMITTED BY THE
COMPENSATION COMMITTEE
OF THE HEI BOARD OF DIRECTORS
Diane J. Plotts, Chair
Don E. Carroll
Bill D. Mills
A. Maurice Myers
Oswald K. Stender
23
<PAGE>
Stockholder Performance Graph
The graph below compares the cumulative total stockholder return on HEI
Common Stock against the cumulative total return of companies listed on
Standard & Poor's 500 Stock Index and the Edison Electric Institute (EEl) Index
of 100 Investor-Owned Electric Companies. The companies comprising the EEl
Index serve 99% of the customers of the investor-owned electric utility
industry. The graph is based on the market price of common stock for all
companies at December 31 each year and assumes that $100 was invested on
December 31, 1994 in HEI Common Stock and the common stock of all companies and
that dividends were reinvested for all companies.
Comparison of Five-Year Cumulative Total Return
Among Hawaiian Electric Industries, Inc.,
S&P 500 Index, and Edison Electric Institute 100 Index
1994-1999
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
HAWAIIAN
Measurement Period ELECTRIC S&P EEI
(Fiscal Year Covered) INDS 500 INDEX 100 INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- DEC 94 $100 $100 $100
FYE Dec 95 $127.84 $137.58 $131.02
FYE Dec 96 $127.42 $169.17 $132.59
FYE Dec 97 $154.15 $225.60 $168.88
FYE Dec 98 $161.74 $290.08 $192.34
FYE Dec 99 $124.66 $351.12 $156.57
</TABLE>
24
<PAGE>
INDEBTEDNESS OF MANAGEMENT
American Savings Bank, F.S.B. (ASB), a subsidiary of the Company, offers
preferential rate loans to its directors and executive officers, as allowed by
the amended Federal Reserve Act.
Three ASB directors who are also directors of HEI (Mr. Clarke, Mr. Watanabe
and Ms. Plotts) and two Named Executive Officers of the Company (Mr. Lewis and
Mr. Minami), whose aggregate indebtedness to ASB exceeded $60,000 at any time
during 1999, received preferential rate loans as shown below.
<TABLE>
<CAPTION>
Largest
Loan Loan Amount Average
Amount Outstanding Interest
Outstanding on Type of Rate
During 1999 1/31/00 Transaction Charged(1)
----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Robert F. Clarke.............. $946,574 $914,027 First Mortgage 5.0%
Peter C. Lewis ............... 222,160 $196,469 First Mortgage 6.3%
Wayne K. Minami............... 84,991 83,614 First Mortgage 5.0%
Diane J. Plotts............... 298,796 294,415 First Mortgage 5.0%
Jeffrey N. Watanabe........... 650,978 640,819 First Mortgage 5.0%
</TABLE>
- ----------
(1) The first mortgage rate is based on ASB's policy for employees and
directors using a formula of .50% above the cost of funds or .50% above the
Applicable Federal Rate established by the Internal Revenue Service,
whichever is greater.
ASB made other loans, established lines of credit and issued credit cards to
directors and executive officers of the Company, and to members of their
immediate families. These loans and extensions of credit were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk of collectibility or present other unfavorable features.
In addition to the above loans financed by ASB, T. Michael May (also a
director of the Company) is currently indebted to Hawaiian Electric Company,
Inc. in the amount of $100,000 for an employee relocation loan made to him in
1993. The loan is an interest only loan at an interest rate of 6.28%, with the
unpaid principal and interest due on June 30, 2004 or sooner if Mr. May ceases
to be an employee of Hawaiian Electric Company, Inc. Another Named Executive
Officer, Robert F. Mougeot, was indebted in the amount of $165,000 for a loan
made to him by the Company in 1989 to finance his purchase of the fee simple
interest in his home. The loan was an interest only loan at an interest rate of
8.01%, with the entire principal balance of the loan due on March 1, 2004 or
sooner if Mr. Mougeot ceased to be an employee of the Company. Full payment of
the loan was made by Mr. Mougeot in 1999.
25
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
The Board of Directors of HEI adopted a Plan of Disposition in September 1998
whereby Malama Pacific Corp. (MPC), a subsidiary of the Company, was declared a
discontinued operation. Prior to that, MPC was engaged in real estate
development activities. Two of MPC's subsidiaries were involved in partnerships
with HSC, Inc. (HSC), a corporation in which director Richard Henderson and his
family own, directly or indirectly, 76% of the stock. All of the transactions
described below were negotiated on an arm's length basis and were approved by
the disinterested members of the HEI Board.
Sunrise Estates. Malama Development Corp. (Malama Development), a wholly
owned subsidiary of MPC, and HSC were partners in a general partnership known
as Sunrise Estates. The project consisted of 165 one-acre residential
agricultural lots in Hilo, Hawaii. HSC was the managing partner of the
partnership. The final lot was sold in 1999 and RSM, Inc., a subsidiary of HSC,
was paid a sales commission of $3,625. Malama Development and HSC have each
contributed $399,300 to the partnership. Each partner received distributions of
$1,234,538. Malama Development and HSC shared equally in the profits and losses
of the partnership. As of December 31, 1999, the project was sold out and the
partnership was dissolved.
Sunrise Estates II. Malama Elua Corp. (Malama Elua), a wholly owned
subsidiary of MPC, and HSC were partners in a general partnership known as
Sunrise Estates II which was formed to develop and market approximately 146
one-acre residential agricultural lots in Hilo, Hawaii, adjacent to the Sunrise
Estates development. HSC purchased the property in June 1990 for $2.1 million.
In 1991, the partnership purchased the development property from HSC at an
agreed upon fair market value of $2.7 million, subject to a bank loan of $2.1
million. The valuation of the property interest transferred by HSC to the
Sunrise Estates II partnership was negotiated and took into account HSC's
incurred acquisition, carrying, and development costs as well as existing
market conditions. HSC was the managing partner of the partnership. On June 15,
1998, MPC acquired the land loan made by First Hawaiian Bank to the partnership
in the amount of $1,224,568. In 1999, MPC acquired title to the property in
lieu of payment of the loan and the partnership was dissolved. As of December
31, 1999, Malama Elua and HSC had each contributed $1,968,123 to the
partnership, and received distributions of $385. The partners shared equally in
the losses of the partnership. MPC is actively marketing this property to
builders and investors.
Finally, director Jeffrey Watanabe is a partner in the law firm of Watanabe,
Ing & Kawashima that performed legal services for the Company and certain of
its subsidiaries during 1999.
STOCKHOLDER PROPOSALS FOR 2001
Stockholder proposals intended to be presented at the next Annual Meeting
must be received by the Company by November 12, 2000, for inclusion in the
Proxy Statement and form of proxy for the 2001 Annual Meeting of Stockholders.
Proposals should be sent to the attention of the Secretary of the Company.
26
<PAGE>
OTHER BUSINESS
The Company knows of no other business to be presented at the Annual Meeting,
but if further matters do properly come before the meeting, the holders of your
proxy will vote your stock in accordance with their best judgment.
Additionally, HEI's advance notice by-law provision requires that any
stockholder who wishes to properly present business before the Annual Meeting
give notice to the Secretary of the Company no later than 60 days nor earlier
than 90 days prior to the anniversary date of the preceding year's annual
meeting. To be timely in the year 2001, such notice must be received by the
Secretary of the Company no later than February 26, 2001 nor earlier than
January 27, 2001. The notice must be in writing and state the reason and brief
description of the business, the name and address of the stockholder, the
number of shares of Common Stock owned by the stockholder, and any material
interest of the stockholder in such business, and include a representation that
the stockholder will present the business before the meeting in person or by
proxy.
Please vote your proxy as soon as possible to make certain that your shares
will be counted at the meeting. If you attend the meeting, as we hope you will,
you may vote your shares in person.
By Order of the Board of Directors
Peter C. Lewis, Vice President--
Administration and Secretary
March 10, 2000
27
<PAGE>
[MAP APPEARS HERE]
<PAGE>
HAWAIIAN ELECTRIC INDUSTRIES, INC.
900 Richards Street, Honolulu, Hawaii 96813
---
HEI
---
P
R
O
X
Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 2000, AT 9:30 A.M., IN THE
PACIFIC TOWER, 8TH FLOOR, ROOM 805, 1001 BISHOP STREET, HONOLULU, HAWAII 96813.
The undersigned hereby constitutes and appoints Robert F. Clarke, Richard
Henderson and Jeffrey N. Watanabe and each of them the proxy of the undersigned,
with full power of substitution, to vote all the Common Stock of the Company
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders to be held on April 25, 2000, or at any adjournment thereof.
Said proxies are instructed to vote as indicated below. If no direction is
indicated, said proxies will vote FOR all Nominees in Class I and FOR proposal
2. Said proxies are also authorized to vote in their discretion with respect to
any other matters that may come before the meeting.
The Board of Directors recommends a vote FOR the following proposals:
1. Election of Class I directors (term ending at the 2003 Annual Meeting)
(Check one box only)
[ ] To vote FOR ALL Nominees named below, check this box.
[ ] To WITHHOLD AUTHORITY to vote for ALL Nominees named below, check
this box.
[ ] To withhold authority for any particular Nominee, strike a line
through the Nominee's name listed below:
NOMINEES: Robert F. Clarke
A. Maurice Myers
James K. Scott
2. Election of KPMG LLP as auditor (Check one box only)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Please sign your name exactly as it appears at the top of this proxy. Joint
owners should each sign personally. Attorney, Executor, Administrator, Trustee
or Guardian should indicate full title. If address is incorrect, please give us
the correct one.)
_________________________________________ Dated___________________, 2000
Signature (no witness required)
_________________________________________
Signature (if held jointly)
============================================
PLEASE COMPLETE AND RETURN ENTIRE PROXY
============================================
