<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Commission I.R.S. Employer
Specified in Its Charter File Number Identification No.
- ------------------------------------- ----------- ------------------
HAWAIIAN ELECTRIC INDUSTRIES, INC. 1-8503 99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC. 1-4955 99-0040500
State of Hawaii
- ---------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
900 Richards Street, Honolulu, Hawaii 96813
- ---------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Hawaiian Electric Industries, Inc. ----- (808) 543-5662
Hawaiian Electric Company, Inc. ------- (808) 543-7771
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
===============================================================================
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class of Common Stock Outstanding May 7, 1999
- --------------------------------------------------------------------------------------------------------
<S> <C>
Hawaiian Electric Industries, Inc. (Without Par Value) 32,185,604 Shares
Hawaiian Electric Company, Inc. ($6 2/3 Par Value). 12,805,843 Shares (not publicly traded)
</TABLE>
===============================================================================
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended March 31, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Glossary of terms...................................................... ii
Forward-looking information............................................ v
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Hawaiian Electric Industries, Inc. and subsidiaries
---------------------------------------------------
Consolidated balance sheets (unaudited) -
March 31, 1999 and December 31, 1998....................... 1
Consolidated statements of income (unaudited) -
three months ended March 31, 1999 and 1998................. 2
Consolidated statements of retained earnings (unaudited) -
three months ended March 31, 1999 and 1998................. 3
Consolidated statements of cash flows (unaudited) -
three months ended March 31, 1999 and 1998................. 4
Notes to consolidated financial statements (unaudited)..... 5
Hawaiian Electric Company, Inc. and subsidiaries
------------------------------------------------
Consolidated balance sheets (unaudited) -
March 31, 1999 and December 31, 1998....................... 11
Consolidated statements of income (unaudited) -
three months ended March 31, 1999 and 1998................. 12
Consolidated statements of retained earnings (unaudited) -
three months ended March 31, 1999 and 1998................. 12
Consolidated statements of cash flows (unaudited) -
three months ended March 31, 1999 and 1998................. 13
Notes to consolidated financial statements (unaudited)..... 14
Item 2. Management's discussion and analysis of financial condition
and results of operations.................................. 24
Item 3. Quantitative and qualitative disclosures about market risk. 36
PART II. OTHER INFORMATION
Item 1. Legal proceedings.......................................... 36
Item 4. Submission of matters to a vote of security holders........ 37
Item 5. Other information.......................................... 37
Item 6. Exhibits and reports on Form 8-K........................... 39
Signatures............................................................... 40
</TABLE>
i
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Hawaiian Electric Company, Inc. and subsidiaries
Form 10-Q--Quarter ended March 31, 1999
GLOSSARY OF TERMS
<TABLE>
<CAPTION>
Terms Definitions
- ----- -----------
<S> <C>
AFUDC Allowance for funds used during construction
ASB American Savings Bank, F.S.B., a wholly owned subsidiary of HEI Diversified, Inc.
and parent company of American Savings Investment Services Corp., ASB Service
Corporation, AdCommunications, Inc., American Savings Mortgage Co., Inc. and ASB
Realty Corporation
ASBR ASB Realty Corporation
BIF Bank Insurance Fund
BLNR Board of Land and Natural Resources of the State of Hawaii
CDUP Conservation District Use Permit
Company Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries,
including, without limitation, Hawaiian Electric Company, Inc., Maui Electric
Company, Limited, Hawaii Electric Light Company, Inc., HECO Capital Trust I, HECO
Capital Trust II, HEI Investment Corp., Hawaiian Tug & Barge Corp., Young Brothers,
Limited, HEI Diversified, Inc., American Savings Bank, F.S.B. and its subsidiaries,
HEIDI Real Estate Corp., Pacific Energy Conservation Services, Inc., HEI Power
Corp. and its subsidiaries, HEI District Cooling, Inc., ProVision Technologies,
Inc., Hycap Management, Inc., Hawaiian Electric Industries Capital Trust I,
Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital
Trust III, HEI Preferred Funding, LP and Malama Pacific Corp. and its subsidiaries
Consumer Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the
Advocate State of Hawaii
D&O Decision and order
DLNR Department of Land and Natural Resources of the State of Hawaii
DOH Department of Health of the State of Hawaii
Encogen Encogen Hawaii, L.P.
Enserch Enserch Development Corporation
EPA Environmental Protection Agency - federal
</TABLE>
ii
<PAGE>
GLOSSARY OF TERMS, continued
<TABLE>
<CAPTION>
Terms Definitions
- ----- -----------
<S> <C>
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
federal U.S. Government
FHLB Federal Home Loan Bank
FICO Financing Corporation
GAAP Generally accepted accounting principles
GPA Guam Power Authority
HCPC Hilo Coast Power Company, formerly Hilo Coast Processing Company
HECO Hawaiian Electric Company, Inc., a wholly owned electric utility subsidiary of
Hawaiian Electric Industries, Inc. and parent company of Maui Electric Company,
Limited, Hawaii Electric Light Company, Inc., HECO Capital Trust I and HECO Capital
Trust II
HEI Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric
Company, Inc., HEI Investment Corp., Hawaiian Tug & Barge Corp., HEI Diversified,
Inc., Pacific Energy Conservation Services, Inc., HEI Power Corp., HEI District
Cooling, Inc., ProVision Technologies, Inc., Hycap Management, Inc., Hawaiian
Electric Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II,
Hawaiian Electric Industries Capital Trust III and Malama Pacific Corp.
HEIDI HEI Diversified, Inc., a wholly owned subsidiary of Hawaiian Electric Industries,
Inc. and the parent company of American Savings Bank, F.S.B. and HEIDI Real Estate
Corp.
HEIIC HEI Investment Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.
HEIPC HEI Power Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc.,
and the parent company of several subsidiaries
HEIPC
Group HEI Power Corp. and its subsidiaries
HELCO Hawaii Electric Light Company, Inc., a wholly owned electric utility subsidiary of
Hawaiian Electric Company, Inc.
HPG HEI Power Corp. Guam, a wholly owned subsidiary of HEI Power Corp.
</TABLE>
iii
<PAGE>
GLOSSARY OF TERMS, continued
<TABLE>
<CAPTION>
Terms Definitions
- ----- -----------
<S> <C>
HTB Hawaiian Tug & Barge Corp., a wholly owned subsidiary of Hawaiian Electric
Industries, Inc. and parent company of Young Brothers, Limited
IPP Independent power producer
KCP Kawaihae Cogeneration Partners
KWH Kilowatthour
MECO Maui Electric Company, Limited, a wholly owned electric utility subsidiary of
Hawaiian Electric Company, Inc.
MPC Malama Pacific Corp., a wholly owned subsidiary of Hawaiian Electric Industries,
Inc. and parent company of several real estate subsidiaries. On September 14, 1998,
the HEI Board of Directors adopted a plan to exit the residential real estate
development business engaged in by Malama Pacific Corp. and its subsidiaries.
MW Megawatt
NOV Notice of Violation
OTS Office of Thrift Supervision, Department of Treasury
PSD permit Prevention of Significant Deterioration/Covered Source permit
PUC Public Utilities Commission of the State of Hawaii
REIT Real estate investment trust
ROACE Return on average common equity
SAIF Savings Association Insurance Fund
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
UST Underground storage tank
YB Young Brothers, Limited, a wholly owned subsidiary of Hawaiian Tug & Barge Corp.
</TABLE>
iv
<PAGE>
Forward-looking information
This report and other presentations made by Hawaiian Electric Industries, Inc.
(HEI) and its subsidiaries contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934. Except for historical
information contained herein, the matters set forth are forward-looking
statements that involve certain risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements.
Potential risks and uncertainties include, but are not limited to, such factors
as the effect of international, national and local economic conditions,
including the condition of the Hawaii tourist and construction industries and
the Hawaii housing market; the effects of weather and natural disasters; product
demand and market acceptance risks; increasing competition in the electric
utility industry; capacity and supply constraints or difficulties; new
technological developments; governmental and regulatory actions, including
decisions in rate cases and on permitting issues; the results of financing
efforts; the timing and extent of changes in interest rates and foreign currency
exchange rates; the convertibility and availability of foreign currency;
political and business risks inherent in doing business in developing countries;
and the risks associated with the installation of new computer systems and the
avoidance of Year 2000 problems. Investors are also referred to other risks and
uncertainties discussed elsewhere in this report and in other periodic reports
previously and subsequently filed by HEI and/or Hawaiian Electric Company, Inc.
(HECO) with the Securities and Exchange Commission.
v
<PAGE>
PART I - FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
Item 1. Financial statements
- -----------------------------
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated balance sheets (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ------
Cash and equivalents............................................ $ 164,930 $ 412,254
Accounts receivable and unbilled revenues, net.................. 144,241 156,220
Investment and mortgage-backed securities....................... 1,960,663 1,902,927
Loans receivable, net........................................... 3,186,092 3,143,197
Property, plant and equipment, net of accumulated
depreciation and amortization of $1,091,533 and $1,063,023... 2,087,751 2,093,398
Regulatory assets............................................... 111,951 110,459
Other........................................................... 270,107 265,799
Goodwill and other intangibles.................................. 112,939 115,006
------------------ -------------------
$8,038,674 $8,199,260
================== ===================
Liabilities and stockholders' equity
- ------------------------------------
Liabilities
Accounts payable................................................ $ 112,974 $ 107,863
Deposit liabilities............................................. 3,816,271 3,865,736
Short-term borrowings........................................... 242,113 222,847
Securities sold under agreements to repurchase.................. 461,270 515,330
Advances from Federal Home Loan Bank............................ 807,581 805,581
Long-term debt.................................................. 903,232 899,598
Deferred income taxes........................................... 186,005 186,138
Contributions in aid of construction............................ 200,299 198,904
Other........................................................... 241,480 285,243
------------------ -------------------
6,971,225 7,087,240
------------------ -------------------
HEI- and HECO-obligated preferred securities of
trust subsidiaries directly or indirectly holding solely HEI
and HEI-guaranteed and HECO and HECO-guaranteed
subordinated debentures..................................... 200,000 200,000
Preferred stock of electric utility subsidiaries
Subject to mandatory redemption............................. - 33,080
Not subject to mandatory redemption......................... 34,293 48,293
Minority interests.............................................. 3,628 3,675
------------------ -------------------
237,921 285,048
------------------ -------------------
Stockholders' equity
Preferred stock, no par value, authorized 10,000 shares;
issued: none............................................... - -
Common stock, no par value, authorized 100,000 shares; issued
and outstanding: 32,176 shares and 32,116 shares............ 663,471 661,720
Retained earnings............................................... 166,057 165,252
------------------ -------------------
829,528 826,972
------------------ -------------------
$8,038,674 $8,199,260
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated statements of income (unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(in thousands, except per share amounts and -------------------------------------
ratio of earnings to fixed charges) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Electric utility..................................................... $237,791 $258,262
Savings bank......................................................... 100,280 101,827
Other................................................................ 14,176 14,769
-------------- -----------------
352,247 374,858
-------------- -----------------
Expenses
Electric utility..................................................... 196,890 215,701
Savings bank......................................................... 85,149 85,776
Other................................................................ 16,176 16,920
-------------- -----------------
298,215 318,397
-------------- -----------------
Operating income (loss)
Electric utility..................................................... 40,901 42,561
Savings bank......................................................... 15,131 16,051
Other................................................................ (2,000) (2,151)
-------------- -----------------
54,032 56,461
-------------- -----------------
Interest expense--electric utility and other......................... (17,888) (17,609)
Allowance for borrowed funds used during construction................ 640 1,616
Preferred stock dividends of electric utility subsidiaries........... (627) (1,508)
Preferred securities distributions of trust subsidiaries............. (3,999) (3,096)
Allowance for equity funds used during construction.................. 1,039 2,776
-------------- -----------------
Income from continuing operations before income taxes................ 33,197 38,640
Income taxes......................................................... 12,443 15,821
-------------- -----------------
Income from continuing operations.................................... 20,754 22,819
Loss from discontinued operations - loss from operations
(less applicable income tax benefits of $379 in 1998)............. - (596)
-------------- -----------------
Net income........................................................... $ 20,754 $ 22,223
============== =================
Basic earnings (loss) per common share
Continuing operations............................................. $ 0.65 $ 0.72
Discontinued operations........................................... - (0.02)
-------------- -----------------
$ 0.65 $ 0.70
============== =================
Diluted earnings (loss) per common share............................. $ 0.64 $ 0.71
Continuing operations............................................. - (0.02)
-------------- -----------------
Discontinued operations........................................... $ 0.64 $ 0.69
============== =================
Dividends per common share............................................ $ 0.62 $ 0.62
============== =================
Weighted-average number of common shares outstanding................. 32,153 31,958
Dilutive effect of stock options and dividend equivalents......... 83 134
-------------- -----------------
Adjusted weighted-average shares..................................... 32,236 32,092
============== =================
Ratio of earnings to fixed charges (SEC method)
Excluding interest on ASB deposits.............................. 1.76 1.90
============== =================
Including interest on ASB deposits.............................. 1.43 1.48
============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated statements of retained earnings (unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retained earnings, beginning of period............................... $165,252 $159,862
Net income........................................................... 20,754 22,223
Common stock dividends............................................... (19,949) (19,826)
-------------- -----------------
Retained earnings, end of period..................................... $166,057 $162,259
============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
Consolidated statements of cash flows (unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Income from continuing operations............................................. $ 20,754 $ 22,819
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operating activities
Depreciation and amortization of property, plant and equipment.......... 27,190 24,611
Other amortization...................................................... 4,261 4,103
Provision for loan losses............................................... 2,920 2,924
Deferred income taxes................................................... (130) (1,601)
Allowance for equity funds used during construction..................... (1,039) (2,776)
Changes in assets and liabilities
Decrease in accounts receivable and unbilled revenues, net........ 11,979 5,846
Increase (decrease) in accounts payable........................... 5,111 (30,067)
Changes in other assets and liabilities........................... (53,665) 32,740
------------------------------
Net cash provided by continuing operating activities.......................... 17,381 58,599
------------------------------
Cash flows from investing activities
Held-to-maturity mortgage-backed securities purchased......................... (249,256) (132,625)
Principal repayments on held-to-maturity mortgage-backed securities........... 191,956 92,842
Loans receivable originated and purchased..................................... (208,096) (132,555)
Principal repayments on loans receivable...................................... 159,420 112,990
Capital expenditures.......................................................... (22,174) (32,011)
Cash paid to Bank of America, FSB for the purchase of loans receivable and
other assets, net of the assumption of deposit and other liabilities....... - (24,018)
Proceeds from loans returned to Bank of America, FSB.......................... - 26,864
Other......................................................................... 4,517 2,798
------------------------------
Net cash used in investing activities......................................... (123,633) (85,715)
------------------------------
Cash flows from financing activities
Net decrease in deposit liabilities........................................... (49,465) (52,940)
Net increase (decrease) in short-term borrowings with original maturities of
three months or less....................................................... 19,266 (37,514)
Proceeds from securities sold under agreements to repurchase.................. 132,000 284,000
Repurchase of securities sold under agreements to repurchase.................. (186,000) (235,000)
Proceeds from advances from Federal Home Loan Bank............................ 32,000 155,000
Principal payments on advances from Federal Home Loan Bank.................... (30,000) (156,000)
Proceeds from issuance of long-term debt...................................... 3,594 112,837
Repayment of long-term debt................................................... - (57,500)
Redemption of electric utility subsidiaries' preferred stock.................. (37,068) (2,400)
Net proceeds from issuance of common stock.................................... 2,162 4,332
Common stock dividends........................................................ (19,949) (19,826)
Preferred securities distributions of trust subsidiaries...................... (3,999) (3,096)
Other......................................................................... (3,613) (6,766)
------------------------------
Net cash used in financing activities......................................... (141,072) (14,873)
------------------------------
Net decrease in cash and equivalents.......................................... (247,324) (41,989)
Cash and equivalents, beginning of period..................................... 412,254 253,910
------------------------------
Cash and equivalents, end of period........................................... $ 164,930 $ 211,921
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Hawaiian Electric Industries, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
(1) Basis of presentation
- -------------------------
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to Securities and Exchange
Commission (SEC) Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet and the reported amounts of revenues and expenses
for the period. Actual results could differ significantly from those estimates.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
incorporated by reference in HEI's Annual Report on SEC Form 10-K for the year
ended December 31, 1998.
In the opinion of HEI's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by GAAP to
present fairly the Company's financial position as of March 31, 1999 and
December 31, 1998, and the results of its operations and its cash flows for the
three months ended March 31, 1999 and 1998. All such adjustments are of a normal
recurring nature, unless otherwise disclosed in this Form 10Q or other
referenced material. Results of operations for interim periods are not
necessarily indicative of results for the full year.
Certain reclassifications have been made to prior periods' consolidated
financial statements to conform to the 1999 presentation.
5
<PAGE>
(2) Segment financial information
- ----------------------------------
Segment financial information was as follows:
<TABLE>
<CAPTION>
Electric Savings Holding Elimi-
($ in thousands) utility bank Other companies nations Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
Revenues from external
customers................... 237,791 100,272 14,034 150 - 352,247
Intersegment revenues........ - 8 2,644 2,002 (4,654) -
-----------------------------------------------------------------
Revenues................. 237,791 100,280 16,678 2,152 (4,654) 352,247
=================================================================
Profit (loss)*............... 27,701 13,781 416 (8,701) - 33,197
Income taxes (benefit)....... 10,620 5,256 415 (3,848) - 12,443
-----------------------------------------------------------------
Income (loss) from
continuing operations. 17,081 8,525 1 (4,853) - 20,754
=================================================================
Three months ended March 31, 1998
Revenues from external
customers................... 258,262 101,820 14,711 65 - 374,858
Intersegment revenues........ - 7 2,616 2,036 (4,659) -
-----------------------------------------------------------------
Revenues................. 258,262 101,827 17,327 2,101 (4,659) 374,858
=================================================================
Profit (loss)*............... 32,278 14,701 343 (8,682) - 38,640
Income taxes (benefit)....... 13,016 6,341 598 (4,134) - 15,821
-----------------------------------------------------------------
Income (loss) from
continuing operations. 19,262 8,360 (255) (4,548) - 22,819
=================================================================
</TABLE>
* Income before income taxes and discontinued operations.
Revenues attributed to foreign countries for the periods identified above were
not significant.
(3) Electric utility subsidiary
- --------------------------------
For Hawaiian Electric Company, Inc.'s consolidated financial information,
including its commitments and contingencies, see pages 11 through 23.
6
<PAGE>
(4) Savings bank subsidiary
- ----------------------------
Selected consolidated financial information
American Savings Bank, F.S.B. and subsidiaries
Balance sheet data
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash and equivalents............................................................ $ 140,810 $ 352,566
Held-to-maturity investment securities.......................................... 112,876 111,574
Held-to-maturity mortgage-backed securities..................................... 1,847,787 1,791,353
Loans receivable, net........................................................... 3,186,092 3,143,197
Other........................................................................... 184,809 177,976
Goodwill and other intangibles.................................................. 112,939 115,006
--------------------- --------------------
$5,585,313 $5,691,672
===================== ====================
Liabilities and equity
Deposit liabilities............................................................. $3,816,271 $3,865,736
Securities sold under agreements to repurchase.................................. 461,270 515,330
Advances from Federal Home Loan Bank............................................ 807,581 805,581
Other........................................................................... 81,932 92,153
--------------------- --------------------
5,167,054 5,278,800
Minority interests.............................................................. 113 113
Preferred stock held by parent.................................................. 75,000 75,000
Common stock equity............................................................. 343,146 337,759
--------------------- --------------------
$5,585,313 $5,691,672
===================== ====================
</TABLE>
American Savings Bank, F.S.B. and subsidiaries
Income statement data
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------------
(in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income................................................................... $ 92,947 $ 95,271
Interest expense.................................................................. 51,456 53,141
--------------------- ---------------------
Net interest income............................................................... 41,491 42,130
Provision for loan losses......................................................... (2,920) (2,924)
Other income...................................................................... 7,333 6,556
Operating, administrative and general expenses.................................... (30,773) (29,711)
--------------------- ---------------------
Operating income.................................................................. 15,131 16,051
Income taxes...................................................................... 5,256 6,341
--------------------- ---------------------
Income before preferred stock dividends........................................... 9,875 9,710
Preferred stock dividends......................................................... 1,350 1,350
--------------------- ---------------------
Net income........................................................................ $ 8,525 $ 8,360
===================== =====================
</TABLE>
Deposit-insurance premiums
The Savings Association Insurance Fund (SAIF) insures the deposit accounts of
ASB and other thrifts. The Bank Insurance Fund (BIF) insures the deposit
accounts of commercial banks. The Federal Deposit Insurance Corporation (FDIC)
administers the SAIF and BIF.
7
<PAGE>
In December 1996, the FDIC adopted a risk-based assessment schedule for SAIF
institutions, effective January 1, 1997, that was identical to the existing base
rate schedule for BIF institutions: zero to 27 cents per $100 of deposits.
Added to this base rate schedule through 1999 will be the assessment to fund the
Financing Corporation's (FICO's) interest obligations, which assessment was
initially set at 6.48 cents per $100 of deposits for SAIF institutions and 1.3
cents per $100 of deposits for BIF institutions (subject to quarterly
adjustment). In December 1997, ASB acquired BIF-assessable deposits as well as
SAIF-assessable deposits from Bank of America, FSB. As a "well-capitalized"
thrift, ASB's base deposit insurance premium effective for the March 31, 1999
quarterly payment is zero and its assessment for funding FICO interest payments
is 5.9 cents per $100 of SAIF-assessable deposits and 1.2 cents per $100 of BIF-
assessable deposits, on an annual basis, based on deposits as of December 31,
1998.
(5) Cash flows
- ---------------
Supplemental disclosures of cash flow information
Cash paid for interest (net of capitalized amounts) and income taxes was as
follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest (including interest paid by savings bank, but excluding interest paid on
nonrecourse debt on leveraged leases).............................................. $58,359 $60,083
================= =================
Income taxes........................................................................ $37,106 $ 3,239
================= =================
</TABLE>
Supplemental disclosures of noncash activities
The allowance for equity funds used during construction, which was charged to
construction in progress as part of the cost of electric utility plant, amounted
to $1.0 million and $2.8 million for the three months ended March 31, 1999 and
1998, respectively.
(6) Accounting changes
- -----------------------
Costs of computer software developed or obtained for internal use and start-up
activities
In March 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which requires that certain costs,
including certain payroll and payroll-related costs, be capitalized and
amortized over the estimated useful life of the software. In April 1998, the
AICPA Accounting Standards Executive Committee issued SOP 98-5, "Reporting on
the Costs of Start-up Activities," which requires that costs of start-up
activities, including organization costs, be expensed as incurred. The
provisions of SOP 98-1 and SOP 98-5 are effective for fiscal years beginning
after December 15, 1998. The Company adopted SOP 98-1 and SOP 98-5 effective
January 1, 1999. The adoption of SOP 98-1 and SOP 98-5 did not have a material
effect on the Company's financial condition, results of operations or liquidity.
Derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
provisions of
8
<PAGE>
SFAS No. 133 are effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company will adopt SFAS No. 133 on January 1, 2000 but
has not yet determined the impact of adoption.
(7) Commitments and contingencies
- ----------------------------------
Environmental regulation
In early 1995, the Department of Health of the State of Hawaii (DOH) initially
advised HECO, Hawaiian Tug & Barge Corp. (HTB), Young Brothers, Limited (YB) and
others that it was conducting an investigation to determine the nature and
extent of actual or potential releases of hazardous substances, oil, pollutants
or contaminants at or near Honolulu Harbor. The DOH issued letters in December
1995, indicating that it had identified a number of parties, including HECO, HTB
and YB, who appear to be potentially responsible for the contamination and/or to
operate their facilities upon contaminated land. The DOH met with these
identified parties in January 1996 and certain of the identified parties
(including HECO, Chevron Products Company, Equilon Enterprises LLC (formerly
Shell Oil Products Company), the State of Hawaii Department of Transportation
Harbors Division and others, but not including HTB and YB) formed a Technical
Work Group. Effective January 30, 1998, the Technical Work Group and the DOH
entered into a voluntary agreement and scope of work to determine the nature and
extent of any contamination, the responsible parties and appropriate remedial
actions.
On April 19, 1999, the Technical Work Group submitted to the DOH a "Data
Assimilation and Review" report, which presents the results of a study conducted
by a consultant to document environmental conditions in the Iwilei Unit of the
Honolulu Harbor study area related to potential petroleum impacts. The location
and sources (confirmed and potential) of petroleum releases were identified. The
Technical Work Group will later submit a report that will include the
identification and evaluation of potential hazardous areas, a preliminary risk
screening and recommendations for additional data gathering to allow an
assessment of the need for risk-based corrective action. Tentatively, it is
expected that this report will be submitted to the DOH in the third quarter of
1999.
Because the process for determining appropriate remedial and cleanup action, if
any, is at an early stage, management cannot predict at this time the costs of
further site analysis or future remediation and cleanup requirements, nor can it
estimate when such costs would be incurred. Certain of the costs incurred may be
claimed and covered under insurance policies, but such coverage is not
determinable at this time.
China project
In September 1998, HEI Power Corp. (HEIPC), through a wholly owned subsidiary's
80% ownership of a Mauritius Company, acquired an effective 60% interest in a
joint venture, Baotou Tianjiao Power Co., Ltd. (Tianjiao), formed to design,
construct, own, operate and manage a 200 megawatt (MW) coal-fired power plant to
be located inside Baotou Iron & Steel (Group) Co., Ltd.'s (BaoSteel's) complex
in Inner Mongolia, People's Republic of China. BaoSteel, a state-owned
enterprise and the fifth largest steel company in China, is a 25% partner in the
joint venture and will purchase all the electricity generated. Ownership of the
plant will be transferred, without charge, to BaoSteel in approximately 20
years. Construction has commenced and unit 1 is expected to be on line by the
end of 2000 and unit 2 six months thereafter. As of March 31, 1999, HEIPC and
its subsidiaries (the HEIPC Group) had invested approximately $17 million and
are committed to invest up to an additional $83 million toward the China
project.
HEI is currently arranging, on behalf of HEIPC, for the issuance by one or more
U.S. banks of standby letters of credit totaling up to approximately $64
million. The letters of credit are in support of the Tianjiao project and will
secure a portion of the payments that will be due to the project's construction
contractor upon the completion of each of the two units comprising the power
plant. The letters of credit will not shift the project's construction risk,
which remains with the contractor. It is anticipated that the letters will be
drawn against only if Tianjiao fails to pay after testing and acceptance of the
units.
9
<PAGE>
(8) Discontinued operations--Malama Pacific Corp. (MPC)
- --------------------------------------------------------
On September 14, 1998, the HEI Board of Directors adopted a plan to exit the
residential real estate development business (engaged by MPC and its
subsidiaries) by September 1999. Accordingly, MPC management commenced a program
to sell all of MPC's real estate assets and investments and HEI reported MPC as
a discontinued operation in the Company's consolidated statements of income in
the third quarter of 1998.
Summary financial information for the discontinued operations of MPC is as
follows:
<TABLE>
<CAPTION>
Three months ended
(in thousands) March 31, 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Operations
Revenues.................................................................... $ 763
Operating loss.............................................................. $ (443)
Interest expense............................................................ (532)
Income tax benefits......................................................... 379
------------------------------
Loss from discontinued operations-loss from operations...................... $ (596)
==============================
Basic and diluted loss per common share..................................... $(0.02)
==============================
</TABLE>
As of March 31, 1999, the remaining net assets of the discontinued residential
real estate development operations amounted to $24 million (included in "Other"
assets) and consisted primarily of real estate assets, receivables and deferred
tax assets, reduced by loans and accounts payable. The amounts that MPC will
ultimately realize from the sale of the real estate assets could differ
materially from the recorded amounts as of March 31, 1999. For the period from
September 14, 1998 to March 31, 1999, the loss from operations was approximately
$2 million.
(9) Subsequent event - issuance of medium-term notes
- -----------------------------------------------------
On March 2, 1999, HEI filed a registration statement with the SEC to register
$300 million of Medium-Term Notes, Series C (Series C Notes). On May 5, 1999,
HEI sold $100 million of its Series C Notes, with $200 million of Series C Notes
remaining available for issuance from time to time. The $100 million of Series C
Notes sold have a fixed interest rate of 6.51% with a maturity date of May 5,
2014. At the option of the holder, HEI may be required to repay the notes on May
5, 2006 at a repayment price equal to 98.1% of the principal amount to be
repaid.
10
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated balance sheets (unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands, except par value) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility plant, at cost
Land.................................................................. $ 28,315 $ 30,312
Plant and equipment................................................... 2,767,668 2,750,487
Less accumulated depreciation......................................... (1,007,174) (982,172)
Plant acquisition adjustment, net..................................... 497 510
Construction in progress.............................................. 147,479 144,035
------------------- ------------------
Net utility plant............................................... 1,936,785 1,943,172
------------------- ------------------
Current assets
Cash and equivalents.................................................. 19,357 54,783
Customer accounts receivable, net..................................... 62,846 69,170
Accrued unbilled revenues, net........................................ 37,902 43,445
Other accounts receivable, net........................................ 5,850 4,082
Fuel oil stock, at average cost....................................... 11,405 16,778
Materials and supplies, at average cost............................... 18,694 17,266
Prepayments and other................................................. 3,558 3,858
------------------- ------------------
Total current assets............................................ 159,612 209,382
------------------- ------------------
Other assets
Regulatory assets..................................................... 109,874 108,344
Other................................................................. 48,877 50,355
------------------- ------------------
Total other assets.............................................. 158,751 158,699
------------------- ------------------
$ 2,255,148 $2,311,253
=================== ==================
Capitalization and liabilities
Capitalization
Common stock, $6 2/3 par value, authorized
50,000 shares; outstanding 12,806 shares........................... $ 85,387 $ 85,387
Premium on capital stock.............................................. 294,933 295,344
Retained earnings..................................................... 409,530 405,836
------------------- ------------------
Common stock equity............................................. 789,850 786,567
Cumulative preferred stock - not subject to mandatory redemption...... 34,293 34,293
HECO-obligated mandatorily redeemable preferred securities
of trust subsidiaries holding solely HECO and HECO-guaranteed
subordinated debentures............................................ 100,000 100,000
Long-term debt, net................................................... 625,632 621,998
------------------- ------------------
Total capitalization............................................ 1,549,775 1,542,858
------------------- ------------------
Current liabilities
Preferred stock sinking fund and optional redemption payments......... - 47,080
Short-term borrowings - nonaffiliates................................. 129,230 133,863
Short-term borrowings - affiliate..................................... - 5,550
Accounts payable...................................................... 37,672 40,008
Interest and preferred dividends payable.............................. 17,628 11,214
Taxes accrued......................................................... 42,429 58,335
Other................................................................. 32,351 30,166
------------------- ------------------
Total current liabilities....................................... 259,310 326,216
------------------- ------------------
Deferred credits and other liabilities
Deferred income taxes................................................. 128,523 128,327
Unamortized tax credits............................................... 48,128 48,130
Other................................................................. 69,113 66,818
------------------- ------------------
Total deferred credits and other liabilities.................... 245,764 243,275
------------------- ------------------
Contributions in aid of construction..................................... 200,299 198,904
------------------- ------------------
$ 2,255,148 $2,311,253
=================== ==================
See accompanying notes to HECO's consolidated financial statements.
</TABLE>
11
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated statements of income (unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------
(in thousands, except for ratio of earnings to fixed charges) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues......................................................... $236,625 $256,043
------------------ ------------------
Operating expenses
Fuel oil................................................................... 44,878 56,731
Purchased power............................................................ 59,980 66,583
Other operation............................................................ 32,323 36,086
Maintenance................................................................ 13,305 10,364
Depreciation and amortization.............................................. 23,365 21,442
Taxes, other than income taxes............................................. 22,896 24,292
Income taxes............................................................... 10,668 13,002
------------------ ------------------
207,415 228,500
------------------ ------------------
Operating income........................................................... 29,210 27,543
------------------ ------------------
Other income
Allowance for equity funds used during construction........................ 1,039 2,776
Other, net................................................................. 1,071 2,002
------------------ ------------------
2,110 4,778
------------------ ------------------
Income before interest and other charges................................... 31,320 32,321
------------------ ------------------
Interest and other charges
Interest on long-term debt................................................. 9,911 10,178
Amortization of net bond premium and expense............................... 363 349
Other interest charges..................................................... 2,069 1,634
Allowance for borrowed funds used during construction...................... (640) (1,616)
Preferred stock dividends of subsidiaries.................................. 258 638
Preferred securities distributions of trust subsidiaries................... 1,909 1,006
------------------ ------------------
13,870 12,189
------------------ ------------------
Income before preferred stock dividends of HECO............................ 17,450 20,132
Preferred stock dividends of HECO.......................................... 369 870
------------------ ------------------
Net income for common stock................................................ $ 17,081 $ 19,262
================== ==================
Ratio of earnings to fixed charges (SEC method)............................ 2.85 3.19
================== ==================
</TABLE>
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated statements of retained earnings (unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retained earnings, beginning of period..................................... $405,836 $387,582
Net income for common stock................................................ 17,081 19,262
Common stock dividends..................................................... (13,387) (15,326)
------------------ ------------------
Retained earnings, end of period........................................... $409,530 $391,518
================== ==================
HEI owns all the common stock of HECO. Therefore, per share data with respect to shares of common stock of HECO are
not meaningful.
See accompanying notes to HECO's consolidated financial statements.
</TABLE>
12
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
Consolidated statements of cash flows (unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
<S> <C> <C>
Income before preferred stock dividends of HECO............................ $ 17,450 $ 20,132
Adjustments to reconcile income before preferred stock dividends of HECO
to net cash provided by operating activities
Depreciation and amortization of property,
plant and equipment............................................... 23,365 21,442
Other amortization................................................... 1,650 1,873
Deferred income taxes................................................ 196 1,353
Tax credits, net..................................................... 396 1,276
Allowance for equity funds used during construction.................. (1,039) (2,776)
Changes in assets and liabilities
Decrease in accounts receivable................................. 4,556 4,024
Decrease in accrued unbilled revenues........................... 5,543 658
Decrease in fuel oil stock...................................... 5,373 8,832
Decrease (increase) in materials and supplies................... (1,428) 660
Increase in regulatory assets................................... (23) (2,991)
Decrease in accounts payable.................................... (2,336) (5,471)
Changes in other assets and liabilities......................... (11,851) (12,357)
------------------ ------------------
Net cash provided by operating activities.................................. 41,852 36,655
------------------ ------------------
Cash flows from investing activities
Capital expenditures....................................................... (17,592) (27,081)
Contributions in aid of construction....................................... 3,750 1,264
Payments on notes receivable............................................... 395 376
------------------ ------------------
Net cash used in investing activities...................................... (13,447) (25,441)
------------------ ------------------
Cash flows from financing activities
Common stock dividends..................................................... (13,387) (15,326)
Preferred stock dividends.................................................. (369) (870)
Preferred securities distributions of trust subsidiaries................... (1,909) (1,006)
Proceeds from issuance of long-term debt................................... 3,594 60,337
Repayment of long-term debt................................................ - (57,500)
Redemption of preferred stock.............................................. (37,068) (2,400)
Net increase (decrease) in short-term borrowings from nonaffiliates
and affiliate with original maturities of three months or less.......... (10,183) 9,190
Other...................................................................... (4,509) (1,082)
------------------ ------------------
Net cash used in financing activities...................................... (63,831) (8,657)
------------------ ------------------
Net increase (decrease) in cash and equivalents............................ (35,426) 2,557
Cash and equivalents, beginning of period.................................. 54,783 1,676
------------------ ------------------
Cash and equivalents, end of period........................................ $ 19,357 $ 4,233
================== ==================
See accompanying notes to HECO's consolidated financial statements.
</TABLE>
13
<PAGE>
Hawaiian Electric Company, Inc. and subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
- --------------------------------------------------------------------------------
(1) Basis of presentation
- --------------------------
The accompanying unaudited consolidated financial statements have been prepared
in conformity with GAAP for interim financial information and with the
instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In preparing the financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the balance sheet and the reported amounts of revenues and expenses
for the period. Actual results could differ significantly from those estimates.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
incorporated by reference in HECO's Annual Report on SEC Form 10-K for the year
ended December 31, 1998.
In the opinion of HECO's management, the accompanying unaudited consolidated
financial statements contain all material adjustments required by GAAP to
present fairly the financial position of HECO and its subsidiaries as of March
31, 1999 and December 31, 1998, and the results of their operations and cash
flows for the three months ended March 31, 1999 and 1998. All such adjustments
are of a normal recurring nature, unless otherwise disclosed in this Form 10-Q
or other referenced material. Results of operations for interim periods are not
necessarily indicative of results for the full year.
Certain reclassifications have been made to prior periods' consolidated
financial statements to conform to the 1999 presentation.
(2) Cash flows
- ---------------
Supplemental disclosures of cash flow information
Cash paid for interest (net of capitalized amounts) and income taxes was as
follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest.............................................................. $4,459 $4,951
================== ==================
Income taxes.......................................................... $4,095 $ 296
================== ==================
</TABLE>
Supplemental disclosure of noncash activities
The allowance for equity funds used during construction, which was charged to
construction in progress as part of the cost of electric utility plant, amounted
to $1.0 million and $2.8 million for the three months ended March 31, 1999 and
1998, respectively.
(3) Commitments and contingencies
- ----------------------------------
HELCO power situation
Background. In 1991, HELCO identified the need, beginning in 1994, for
- ----------
additional generation to provide for forecast load growth while maintaining a
satisfactory generation reserve margin, to address uncertainties about future
deliveries of power from existing firm power producers and to permit the
retirement of older generating units. Accordingly, HELCO proceeded with plans to
install at its Keahole power plant site two 20 MW combustion turbines (CT-4 and
CT-5), followed by an 18 MW heat
14
<PAGE>
recovery steam generator (ST-7), at which time these units would be converted to
a 58 MW dual-train combined-cycle (DTCC) unit. In January 1994, the Public
Utilities Commission of the State of Hawaii (PUC) approved expenditures for CT-
4, which HELCO had planned to install in late 1994.
The timing of the installation of HELCO's phased DTCC unit at the Keahole power
plant site has been revised on several occasions due to delays in (a) obtaining
approval from the Hawaii Board of Land and Natural Resources (BLNR) of a
Conservation District Use Permit (CDUP) amendment and (b) obtaining from the
Department of Health of the State of Hawaii (DOH) and the U.S. Environmental
Protection Agency (EPA) a Prevention of Significant Deterioration/Covered Source
permit (PSD permit) for the Keahole power plant site. The delays are primarily
attributable to lawsuits, claims and petitions filed by independent power
producers and other parties. Subject to satisfactory resolution of the CDUP
amendment, PSD permit and other matters, HELCO's current plan continues to
contemplate that CT-4 and CT-5 will be added to its system. HELCO has deferred
plans for ST-7 to approximately 2006 or 2007, unless the Encogen Hawaii, L.P.
(Encogen) facility (described below) is not placed in service as planned, and,
in December 1998, removed ST-7 costs from construction work-in-progress as
described below.
CDUP amendment. On July 10, 1997, the Third Circuit Court of the State of Hawaii
- ---------------
issued its Amended Findings of Fact, Conclusions of Law, Decision and Order
addressing HELCO's appeal of an order of the BLNR, along with other consolidated
civil cases relating to HELCO's application for a CDUP amendment. This decision
allows HELCO to use its Keahole property as requested in its application. An
amended order to the same effect was issued on August 18, 1997. Final judgments
have been entered in all of the consolidated cases. Appeals with respect to the
final judgments for certain of the cases have been filed with the Hawaii Supreme
Court. Motions filed with the Third Circuit Court to stay the effectiveness of
the judgments pending resolution of the appeals were denied in April and July
1998 (in response to a motion for reconsideration). In August 1998, the Hawaii
Supreme Court denied nonhearing motions for stay of final judgment pending
resolution of the appeals. Management believes that HELCO will ultimately
prevail on appeal and that the final judgments of the Third Circuit Court will
be upheld.
PSD permit. In November 1995, the EPA declined to sign HELCO's PSD permit for
- ----------
the combined-cycle unit. HELCO revised its permit application and, in 1997, the
EPA approved a revised draft permit and the DOH issued a final PSD permit for
HELCO's DTCC unit. Nine appeals of the issuance of the permit were filed with
the EPA's Environmental Appeals Board (EAB) in December 1997.
On November 25, 1998, the EAB issued an Order Denying Review in Part and
Remanding in Part. The EAB denied appeals of the permit that were based on
challenges to (1) the DOH's use of a netting analysis (with respect to nitrogen
oxide (NOx) emissions), (2) the DOH's determination of Best Available Control
Technology (BACT) for control of sulfur dioxide emissions, and (3) certain
aspects of the DOH's ambient air and source impact analysis. However, the EAB
concluded that the DOH had not adequately responded to comments that had been
made during the public comment period that data relating to certain ambient air
concentrations were outdated or were measured at unrepresentative locations. The
EAB remanded the proceedings and directed the DOH to reopen the permit for the
limited purpose of (1) providing an updated air quality impact report
incorporating current data on sulfur dioxide and particulate matter ambient
concentrations and (2) providing a sufficient explanation of why the carbon
monoxide and ozone data used to support the permit are reasonably
representative, or performing a new air quality analysis based on data shown to
be representative of the air quality in the area to be affected by the project.
The EAB directed the DOH to accept and respond to public comments on the DOH's
decisions with respect to these issues and ruled that any further appeals of its
decision would be limited to the issues addressed on remand. On March 3, 1999,
the EAB issued an Order denying motions for reconsideration which had been filed
by HELCO, the Keahole Defense Coalition (KDC) and Kawaihae Cogeneration Partners
(KCP).
As a result of the EAB's decision on November 25, 1998 and its denial of all
motions for reconsideration on March 3, 1999, there has been a further delay in
HELCO's construction of CT-4 and CT-5. The actual length of the delay will
depend on the actions needed to address the EAB's rulings, but
15
<PAGE>
completion of CT-4 and CT-5 is currently expected to be delayed until 2000 or
early 2001. HELCO continues to work with the DOH to address the EAB's concerns
regarding air quality data in the PSD permit application, with the intent of
reaching a final resolution as expeditiously as possible. Despite this
additional delay, HELCO believes that the PSD permit will eventually be
obtained, and CT-4 and CT-5 will be built.
Declaratory judgment actions. In February 1997, KDC and three individuals
- ----------------------------
(Plaintiffs) filed a lawsuit in the Third Circuit Court of the State of Hawaii
against HELCO, the director of the DOH, and the BLNR, seeking declaratory
rulings with regard to five counts alleging that, with regard to the Keahole
project, one or more of the defendants had violated, or could not allow the
plant to operate without violating, the State Clean Air Act, the State Noise
Pollution Act, conditions of HELCO's conditional use permit, covenants of
HELCO's land patent and Hawaii administrative rules regarding standard
conditions applicable to land permits. The Complaint was amended in March of
1998 to add a sixth count, claiming that an amendment to a provision of the land
patent (relating to the conditions under which the State could repurchase the
land) is void and that the original provision should be reinstated. Cross
motions for summary judgment were denied without explanation by orders filed in
March 1998. In December 1998, the case was set for jury trial in May 1999. As a
result of various motions which have been filed and ruled upon since that time,
on April 12, 1999, the Court ruled that, because there were no remaining issues
of fact in the case, the May 1999 trial date was vacated, no further discovery
was authorized, and proceedings before the Court were suspended pending any
further administrative action by the DOH and BLNR.
In summary, the status of the various counts in the KDC complaint are as
follows:
1. Count I (State Clean Air Act): On April 5, 1999, the Court orally ruled
that the DOH was within its discretionary authority in granting HELCO's
requests for additional extensions of time to file its Title V air permit
applications.
2. Count II (State Noise Pollution Act): At a hearing relating to Count II on
February 16, 1999, the DOH notified the Court and the parties of a change
in its interpretation of the noise rules promulgated under the State Noise
Pollution Act. The change in interpretation would disadvantage HELCO's
Keahole plant by applying the noise standard applicable to the emitter
property (which the DOH claims to be a 55 dBA (daytime) and 45 dBA
(nighttime) standard) rather than the previously-applied noise standard of
the receptor properties in the surrounding Agricultural Park (a 70 dBA
standard).
In response to the new position announced by the DOH, on February 23, 1999
HELCO filed a declaratory judgment action against the DOH, alleging that
the noise rules were invalid on constitutional grounds. At a hearing on
March 31, 1999, the Court granted KDC's motion to dismiss the new
complaint and Plaintiffs' motion for reconsideration on Count II and ruled
that the applicable noise standard was 55 dBA daytime and 45 dBA
nighttime. The Court specifically reserved ruling on HELCO's claims or
potential claims based on estoppel and on the constitutionality of the
noise rules "as applied" to HELCO's Keahole plant. Also on March 31, 1999,
the Court granted in part and denied in part HELCO's motion for leave to
file a cross-claim and a third-party complaint, stating that HELCO may
file such motions on the "as applied" and "estoppel" claims once the DOH
actually applies the 55/45 dBA noise standard to the Keahole plant.
The DOH has not yet issued any formal enforcement action applying the
55/45 dBA standard to the Keahole plant.
3. Count III (violation of CDUP): At a hearing on April 12, 1999, the Court
granted HELCO's motion for summary judgment and suspended proceedings on
this Count pending referral of this matter to BLNR. (Should DOH find HELCO
in violation of the noise rules (see Count II), BLNR would be called to
act on the impact of such violation, if any, on the CDUP.) Discovery on
this Count was suspended until May 3, 1999.
16
<PAGE>
4. Count IV (violations of HELCO's land patent): At a hearing on April 12,
1999, the Court granted HELCO's motion for summary judgment and suspended
proceedings on this Count pending referral of this matter to BLNR. (Should
DOH find HELCO in violation of the noise rules (see Count II), BLNR would
be called to act on the impact of such violation, if any, on the land
patent.) Discovery on this Count was suspended until May 3, 1999.
5. Count V (HELCO's ability to comply with land use regulations): At a
hearing on April 12, 1999, the Court granted HELCO's motion for summary
judgment and suspended proceedings on this Count pending referral of this
matter to BLNR for resolution of the administrative proceeding now pending
before it. (See "BLNR petition," below.)
6. Count VI (amendment of HELCO's land patent): At the March 31, 1999
hearing, the Court granted Plaintiffs' motion for summary judgment,
finding that a 1984 amendment was invalid because BLNR had failed to
comply with the statutory procedure relating to amendments. The amendment
was intended to correct an error in the original land patent with regard
to the repurchase clause in the patent and to conform the language to the
applicable statute, under which the State would have the right to
repurchase the site (as opposed to an automatic reversion) if it were no
longer used for utility purposes. While the Count is no longer an issue
for trial, BLNR must address the status of the original land patent in
light of the invalidity of the amendment.
If and when the DOH and BLNR/ Department of Land and Natural Resources of the
State of Hawaii (DLNR) act on the issues relating to Counts II, III, IV and V,
and depending upon their rulings, the KDC lawsuit may be moot.
An Order was entered on April 16, 1999 with regard to Count I. With regard to
the other counts, draft orders have been circulated and various objections
filed, reflecting disagreements among the parties as to the intended meaning of
the Court's oral rulings. With regard to the KDC complaint, on April 30, 1999,
KDC filed a motion to determine prevailing party and to tax attorney fees and
costs and a motion for discovery sanctions. A hearing on these motions is
scheduled for June 7, 1999. With regard to the separate complaint brought by
HELCO against DOH, on April 30, 1999, KDC filed a motion for sanctions under
Rule 11 of the Hawaii Rules of Civil Procedure against HELCO and its legal
counsel for bringing the lawsuit. That motion is also scheduled for hearing on
June 7, 1999.
HELCO intends to vigorously defend against the claims raised in this case and in
related administrative actions and, based on the status of these matters to
date, management believes the final resolution of these matters will not prevent
it from constructing CT-4 and CT-5 at Keahole.
Two additional cases were filed in 1998. First, in March 1998, Plaintiff Ratliff
filed a complaint for declaratory judgment against HELCO, the BLNR and the DLNR.
The complaint alleges a violation of plaintiff's constitutional due process
rights because the land use conditions (if any) which apply to HELCO's use of
the Keahole site were determined administratively by the DLNR (through a letter
issued to HELCO on January 30, 1998) rather than being decided by the BLNR in a
contested case. Also filed with the complaint was a motion to stay enforcement
of the DLNR letter, which motion was denied in April 1998. Second, in May 1998,
Waimana Enterprises, whose subsidiary is a partner in KCP, filed a lawsuit in
the Third Circuit Court of the State of Hawaii, asking for a declaration that
the January 1998 DLNR letter is void and seeking an injunction to prevent HELCO
from further construction until the Court or the BLNR, at a public hearing,
determines what conditions and limitations apply and whether HELCO is in
compliance with them. At a hearing on February 8, 1999, the parties agreed, and
the Court orally ordered, the consolidation of the Ratliff lawsuit with the KDC
lawsuit and the dismissal with prejudice of the Waimana lawsuit. Ratliff filed a
motion for summary judgment with regard to the claims in her lawsuit and BLNR
and DLNR, joined by HELCO, also filed a motion for summary judgment in that
lawsuit. At the March 31, 1999 hearing, the Court granted the BLNR/DLNR motion
and HELCO's joinder, finding that the January 30, 1998 letter was a ministerial
function properly performed by DLNR.
17
<PAGE>
IPP complaints. Two independent power producers (IPPs), KCP and Enserch
- --------------
Development Corporation (Enserch), filed separate complaints against HELCO with
the PUC in 1993 and 1994, respectively, alleging that they are entitled to power
purchase contracts to provide HELCO with additional capacity, which they claimed
would be a substitute for HELCO's planned 58 MW DTCC unit at Keahole.
In September 1995, the PUC allowed HELCO to continue to pursue construction of
and commit expenditures for the second combustion turbine (CT-5) and the steam
recovery generator (ST-7) for its planned DTCC unit, but stated in its order
that "no part of the project may be included in HELCO's rate base unless and
until the project is in fact installed, and is used and useful for utility
purposes." The PUC also ordered HELCO to continue negotiating with the IPPs and
held that the facility to be built (i.e., either HELCO's or one of the IPP's)
should be the one that can be most expeditiously put into service at "allowable
cost."
The current status of the IPPs' PUC complaints, and of a complaint filed by Hilo
Coast Power Company (HCPC) in April 1997, is as follows:
Enserch complaint. On January 16, 1998, HELCO filed with the PUC an
-----------------
application for approval of a power purchase agreement for a 60 MW (net)
facility and an interconnection agreement with Encogen, an Enserch
affiliate, both dated October 22, 1997. The agreements were entered into
following a settlement agreement between Enserch and HELCO and are subject
to PUC approval. The parties to the proceeding include HELCO, Encogen and
the Consumer Advocate. Motions to intervene filed by KCP, HCPC and one
other IPP were denied by the PUC. KCP filed a notice of appeal, which was
denied by the Hawaii Circuit Court of the First Circuit by written order
filed on February 8, 1999. The Consumer Advocate filed a Statement of
Position on December 11, 1998, in which it recommended that an evidentiary
hearing be held, following additional discovery, to address its issues and
concerns regarding the agreements. The parties signed an amendment to the
power purchase agreement on January 14, 1999 which, in part, provides that
either party may terminate the agreement if the PUC does not issue an order
within eighteen (18) months (extended from twelve (12) months originally in
the agreement) from the submission of the application. The PUC established
a schedule of proceedings in 1999 that provides the PUC with the
opportunity to issue a decision within the amendment's six-month extension
period, which ends on July 16, 1999. The parties have filed direct
testimonies, final information requests (FIRs) and responses to FIRs. On
April 9, 1999, HELCO filed a motion to strike certain portions of the
Consumer Advocate's direct testimony and exhibits relating to the amount of
AFUDC included in the avoided cost calculation for Encogen. On April 21,
1999, the PUC granted HELCO's motion to strike and, as a result, the
remaining issues among the parties were limited. On May 3, 1999, the
parties filed a stipulation stating that the Consumer Advocate withdraws
its opposition to the PUC's approval of HELCO's agreements with Encogen,
waiving the filing of rebuttal testimonies and exhibits and the holding of
evidentiary hearings, and requesting that the parties have the opportunity
to submit proposed findings of fact on May 25, 1999. The PUC approved the
stipulation on May 5, 1999.
KCP complaint. In January 1996, the PUC ordered HELCO to continue in good
-------------
faith to negotiate a power purchase agreement with KCP. In May 1997, KCP
filed a motion for unspecified "sanctions" against HELCO for allegedly
failing to negotiate in good faith. In June 1997, KCP filed a motion asking
the PUC to designate KCP's facility as the next generating unit on the
HELCO system and to determine the "allowable cost" which would be payable
by HELCO to KCP. HELCO filed memoranda in opposition to KCP's motions. The
PUC held an evidentiary hearing in August 1997. KCP filed two other
motions, which HELCO opposed, to supplement the record. The PUC issued an
Order in June 1998 which denied all of KCP's pending motions; provided
rulings and/or guidance on certain avoided cost and contract issues;
directed HELCO to prepare an updated avoided cost calculation that includes
the Encogen agreement; and directed HELCO and KCP to resume contract
negotiations. HELCO filed a motion for partial reconsideration with respect
to one avoided cost issue. The PUC granted HELCO's motion and
18
<PAGE>
modified its order in July 1998. HELCO resumed negotiations with KCP in
1998 in compliance with the Order, but no agreement has been reached.
HCPC complaint. In April 1997, HCPC filed a complaint against HELCO with
--------------
the PUC, requesting an immediate hearing on HCPC's offer for a new 20-year
power purchase agreement for its existing facility, which is proposed to be
expanded from 22 MW to 32 MW. HCPC's existing power purchase agreement is
scheduled to terminate at the end of 1999. The PUC converted the HCPC
complaint into a purchased power contract negotiation proceeding. HCPC
submitted a new proposal in the proceeding in March 1998 for a 32-year
power purchase agreement. An evidentiary hearing, which was limited to
three issues affecting the calculation of avoided costs, including which of
HELCO's planned unit additions could be deferred or displaced by a new
power purchase agreement (PPA) with HCPC, was held in April 1998. On
November 25, 1998, the PUC issued a Decision and Order in the HCPC
complaint docket. The Decision and Order states that (1) "whether the next
immediate unit is ultimately provided by Encogen at Hamakua or HELCO at
Keahole, HCPC can negotiate to provide the increment of power following the
next immediate unit", and "HELCO's sunk and parallel planning costs for CT-
4 and CT-5 will not be part of the avoided cost calculation", and (2) the
reconductoring of a transmission line to accept HCPC's proposed 32 MWs
would be of system-wide benefit, and the cost would not be included in the
avoided cost calculation. The decision also addressed a system-modeling
issue, and required that the avoided cost calculation be based on the same
assumptions used in the last (April 1998) avoided cost calculation. The PUC
directed that HCPC and HELCO continue to negotiate a power purchase
agreement and by February 1, 1999 submit to the PUC either a finalized
agreement or reports informing the PUC of the matters preventing the
finalization of an agreement. The parties entered into negotiations but
have not yet finalized an agreement. Status reports were filed by HCPC on
February 1, 1999 and by HELCO on February 2, 1999 (HELCO had received a
one-day extension). In its status report, HELCO requested a hearing with
respect to the pricing and avoided cost issues. On February 24, 1999, the
PUC issued an Order reopening the docket to further assist HELCO and HCPC
in negotiating an agreement and giving each party an opportunity to file
supplemental memoranda by March 12, 1999. On March 8, 1999, HELCO filed a
Motion for Partial Reconsideration of the Order, stating that it would
waive its right to a hearing if it were allowed to present oral arguments
to the PUC. The PUC granted HELCO's motion, and oral arguments were held on
March 25, 1999.
Management cannot determine at this time whether the PUC will approve the
Encogen power purchase agreement or whether the negotiations with KCP or HCPC or
related PUC proceedings will result in the execution and/or PUC approval of a
power purchase agreement. Under HELCO's current estimate of generating capacity
requirements, there is a need for capacity in addition to the capacity which
might be provided by any one of the IPPs. Management cannot determine at this
time the impact on its plans with regard to the installation of units CT-4 and
CT-5 at the Keahole power plant site if power purchase agreements with two or
more of the IPPs were to be negotiated, approved by the PUC and implemented.
BLNR petition. On August 5, 1998, KDC filed with the BLNR a Petition for
- --------------
Declaratory Ruling under Section 91-8, Hawaii Revised Statutes. The petition
alleges that all conditions in Hawaii Administrative Rules Section 13-2-21 apply
to HELCO's default entitlement to use its Keahole site, that the letter issued
to HELCO by the DLNR in January 1998 was erroneous because it failed to
incorporate all conditions applicable to the existing permits, and that the DOH
issued three separate Notices of Violation (NOVs) to HELCO in 1992 and 1998 for
violation of clean air rules, which NOVs constitute violations under the
existing permits and render such permits null and void. The petition requests
that the BLNR commence a contested case on the petition; that the BLNR determine
that HELCO has violated the terms of its existing conditional use permits,
causing such permits to be null and void; and that the BLNR determine that HELCO
has violated the conditions applicable to its default entitlement, such that
HELCO should be enjoined from using the Keahole property under such default
entitlement. The BLNR requested that each of the parties submit statements of
position on the issues and HELCO filed its statement in October 1998. The last
of the responsive submissions of the parties was filed in December 1998. The
matter has not yet been set before BLNR for a determination of whether a hearing
will be held.
19
<PAGE>
DOH Notice of Violation. In July 1998, the DOH issued an NOV to HELCO for items
- -----------------------
allegedly constituting unauthorized construction activity at the Keahole
Generating Station prior to receipt of an effective PSD permit for CT-4 and CT-
5. The NOV required HELCO to immediately halt construction activities on pipe
rack foundations, a retaining wall and an oil/water separator, and imposed a
fine of $48,800. HELCO complied with the stop work order on the designated items
and paid the fine.
EPA Notice of Violation. In September 1998, the EPA issued an NOV to HELCO
- -----------------------
stating that HELCO violated the Hawaii State Implementation Plan by commencing
construction activities at the Keahole generating station without first
obtaining a final air permit. By law, 30 days after the NOV, the EPA may issue
an order requiring compliance with applicable laws, assessing penalties and/or
commencing a civil action seeking an injunction; however, no order has yet been
issued. HELCO has put the EPA on notice that certain construction activities not
affected by the NOV are continuing, and has received approval to proceed with
certain construction activities. However, HELCO has halted work on other
construction activities at Keahole until further notice is provided or approval
is obtained from the EPA, or until the final air permit is received.
Costs incurred. Although management believes it has acted prudently with respect
- --------------
to this project, effective December 1, 1998, HELCO decided to discontinue, for
financial reporting purposes, the accrual of an Allowance For Funds Used During
Construction (AFUDC) on CT-4 and CT-5 (which would have been approximately $0.4
million after tax per month). The length of the delays to date and potential
further delays were factors considered by management in its decision to
discontinue the accrual of AFUDC.
HELCO determined that ST-7 would not be needed in the immediate future and, in
December 1998, removed $0.8 million in costs accumulated against ST-7 from
construction work-in-progress, writing off $0.6 million and reclassifying $0.2
million in costs to inventory.
If it becomes probable that CT-4 and/or CT-5 will not be installed, HELCO may be
required to write-off a material portion of the costs incurred in its efforts to
put these units into service. As of March 31, 1999, HELCO's costs incurred in
its efforts to put CT-4 and CT-5 into service amounted to $76.1 million,
including approximately $31.2 million for equipment and material purchases,
approximately $23.4 million for planning, engineering, permitting, site
development and other costs and approximately $21.5 million for AFUDC accrued
through November 30, 1998, after which HELCO stopped accruing AFUDC.
Contingency planning. In June 1995, HELCO filed with the PUC its generation
- --------------------
resource contingency plan detailing alternatives and mitigation measures to
address the delays that have occurred in obtaining the permits necessary to
construct its combined-cycle unit at Keahole. Actions under the plan have helped
HELCO maintain its reserve margin and reduce the risk of near-term capacity
shortages. In January 1996, the PUC opened a proceeding to evaluate HELCO's
contingency resource plan and HELCO's efforts to insure system reliability.
HELCO has filed reports with the PUC from time to time updating the contingency
plan and the status of implementing the plan. The most recent update was filed
on March 1, 1999. Due to the delays in adding new generation, and the expiration
of the HCPC power purchase agreement for 22 MW at the end of 1999, HELCO's
reserve margin (based on firm capacity without considering as-available
resources such as wind and run-of-the-river hydroelectric generators) in 2000
will be less than the margin called for by its generation planning criteria
until new generation is added. The addition of new generation is not expected to
occur until April 2000, at the earliest. As a result, HELCO will have sufficient
generation to cover projected monthly system peak loads with units on scheduled
maintenance, but may not always have enough reserve margin to make up for the
unexpected outage of one of its largest generation units beginning in January
2000 until new generation is added.
Competition proceeding
On December 30, 1996, the PUC instituted a proceeding to identify and examine
the issues surrounding electric competition and to determine the impact of
competition on the electric utility infrastructure in Hawaii. After a
collaborative process involving the 19 parties to the proceeding, final
statements of position were prepared by several of the parties and submitted to
the PUC in October 1998. HECO's
20
<PAGE>
position is that retail competition is not feasible in Hawaii, but that some of
the benefits of competition can be achieved through competitive bidding for new
generation, performance-based rate-making and innovative pricing provisions. The
other parties to the proceeding advanced numerous other proposals in their
statements of position. The PUC will determine what subsequent steps will be
followed in the proceeding, but no timetable has been set for such a
determination. Some of the parties may seek state legislative action on their
proposals. HECO cannot predict what the ultimate outcome of the proceeding will
be or which (if any) of the proposals advanced in the proceeding will be
implemented.
Environmental regulation
See discussion of the DOH NOV and the EPA NOV issued to HELCO above and note
(7), "Commitments and contingencies," in HEI's "Notes to consolidated financial
statements."
(4) HECO-obligated mandatorily redeemable preferred securities of trust
- ------------------------------------------------------------------------
subsidiaries holding solely HECO and HECO-guaranteed subordinated
-----------------------------------------------------------------
debentures
----------
In March 1997, HECO Capital Trust I (Trust I), a grantor trust and a wholly
owned subsidiary of HECO, sold (i) in a public offering, 2 million of its HECO-
Obligated 8.05% Cumulative Quarterly Income Preferred Securities, Series 1997
(1997 trust preferred securities) with an aggregate liquidation preference of
$50 million and (ii) to HECO, common securities with a liquidation preference of
approximately $1.55 million. Proceeds from the sale of the 1997 trust preferred
securities and the common securities were used by Trust I to purchase 8.05%
Junior Subordinated Deferrable Interest Debentures, Series 1997 (1997 junior
deferrable debentures) issued by HECO in the principal amount of $31.55 million
and issued by each of MECO and HELCO in the respective principal amounts of $10
million. The 1997 junior deferrable debentures, which bear interest at 8.05%
and mature on March 27, 2027, together with the subsidiary guarantees (pursuant
to which the obligations of MECO and HELCO under their respective debentures are
fully and unconditionally guaranteed by HECO), are the sole assets of Trust I.
The 1997 trust preferred securities must be redeemed at the maturity of the
underlying debt on March 27, 2027, which maturity may be shortened to a date no
earlier than March 27, 2002 or extended to a date no later than March 27, 2046,
and are not redeemable at the option of the holders, but may be redeemed by
Trust I, in whole or in part, from time to time, on or after March 27, 2002 or
upon the occurrence of certain events.
In December 1998, HECO Capital Trust II (Trust II), a grantor trust and a wholly
owned subsidiary of HECO, sold (i) in a public offering, 2 million of its HECO-
Obligated 7.30% Cumulative Quarterly Income Preferred Securities, Series 1998
(1998 trust preferred securities) with an aggregate liquidation preference of
$50 million and (ii) to HECO, common securities with a liquidation preference of
approximately $1.55 million. Proceeds from the sale of the 1998 trust preferred
securities and the common securities were used by Trust II to purchase 7.30%
Junior Subordinated Deferrable Interest Debentures, Series 1998 (1998 junior
deferrable debentures) issued by HECO in the principal amount of $31.55 million
and issued by each of MECO and HELCO in the respective principal amounts of $10
million. The 1998 junior deferrable debentures, which bear interest at 7.30% and
mature on December 15, 2028, together with the subsidiary guarantees (pursuant
to which the obligations of MECO and HELCO under their respective debentures are
fully and unconditionally guaranteed by HECO), are the sole assets of Trust II.
The 1998 trust preferred securities must be redeemed at the maturity of the
underlying debt on December 15, 2028, which maturity may be shortened to a date
no earlier than December 15, 2003 or extended to a date no later than December
15, 2047, and are not redeemable at the option of the holders, but may be
redeemed by Trust II, in whole or in part, from time to time, on or after
December 15, 2003 or upon the occurrence of certain events. All of the proceeds
from the sale were invested by Trust II in the underlying debt securities of
HECO, HELCO and MECO, who used such proceeds from the sale of the 1998 junior
deferrable debentures primarily to effect the redemption of certain series of
their preferred stock having a total par value of $47 million.
The 1997 and 1998 junior deferrable debentures and the common securities of the
Trusts have been eliminated in HECO's consolidated balance sheets as of March
31, 1999 and December 31, 1998. The 1997 and 1998 junior deferrable debentures
are redeemable only (i) at the option of HECO, MECO and
21
<PAGE>
HELCO, respectively, in whole or in part, on or after March 27, 2002 (1997
junior deferrable debentures) and December 15, 2003 (1998 junior deferrable
debentures) or (ii) at the option of HECO, in whole, upon the occurrence of a
"Special Event" (relating to certain changes in laws or regulations).
(5) Accounting changes
- -----------------------
Costs of computer software developed or obtained for internal use and start-up
activities
In March 1998, the AICPA Accounting Standards Executive Committee issued SOP 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires that certain costs, including certain payroll and
payroll-related costs, be capitalized and amortized over the estimated useful
life of the software. In April 1998, the AICPA Accounting Standards Executive
Committee issued SOP 98-5, "Reporting on the Costs of Start-up Activities,"
which requires that costs of start-up activities, including organization costs,
be expensed as incurred. The provisions of SOP 98-1 and SOP 98-5 are effective
for fiscal years beginning after December 15, 1998. HECO and its subsidiaries
adopted SOP 98-1 and SOP 98-5 effective January 1, 1999. The adoption of SOP 98-
1 and SOP 98-5 did not have a material effect on HECO's consolidated financial
condition, results of operations or liquidity.
Derivative instruments and hedging activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities and requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
provisions of SFAS No. 133 are effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. HECO and its subsidiaries will adopt SFAS No. 133
on January 1, 2000 but management has not yet determined the impact of adoption.
(6) Summarized financial information
- -------------------------------------
Summarized financial information for HECO's subsidiaries, HELCO and MECO, is as
follows:
<TABLE>
<CAPTION>
Balance sheet data
HELCO MECO
------------------------------------ -------------------------------------
March 31, December 31, March 31, December 31,
(in thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets........................... $ 29,975 $ 35,473 $ 37,243 $ 41,103
Noncurrent assets........................ 423,047 424,278 388,380 382,517
--------------- ------------------ --------------- ------------------
$453,022 $459,751 $425,623 $423,620
=============== ================== =============== ==================
Common stock equity...................... $156,805 $157,269 $158,745 $157,402
Cumulative preferred stock--not subject
to mandatory redemption.............. 7,000 7,000 5,000 5,000
Current liabilities...................... 53,442 62,313 31,631 32,052
Noncurrent liabilities................... 235,775 233,169 230,247 229,166
--------------- ------------------ --------------- ------------------
$453,022 $459,751 $425,623 $423,620
=============== ================== =============== ==================
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Income statement data
HELCO MECO
------------------------------------------ ----------------------------------
Three months ended Three months ended
March 31, March 31,
------------------------------------------ ----------------------------------
(in thousands) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues....................... $36,900 $38,775 $35,681 $35,730
Operating income......................... 5,445 4,566 5,020 4,701
Net income for common stock.............. 2,923 3,751 2,407 3,584
</TABLE>
HECO has not provided separate financial statements and other disclosures
concerning MECO and HELCO because management has concluded that such financial
statements and other information are not material to holders of the 1997 and
1998 junior deferrable debentures issued by MECO and HELCO which have been fully
and unconditionally guaranteed by HECO.
(7) Reconciliation of electric utility operating income per HEI and HECO
- --------------------------------------------------------------------------
consolidated statements of income
---------------------------------
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating income from regulated and nonregulated activities before income
taxes (per HEI consolidated statements of income)....................... $ 40,901 $ 42,561
Deduct:
Income taxes on regulated activities.................................... (10,668) (13,002)
Revenues from nonregulated activities................................... (1,166) (2,219)
Add:
Expenses from nonregulated activities................................... 143 203
---------------- ----------------
Operating income from regulated activities after income taxes (per HECO
consolidated statements of income)...................................... $ 29,210 $ 27,543
================ ================
</TABLE>
23
<PAGE>
Item 2. Management's discussion and analysis of financial condition and results
-----------------------------------------------------------------------
of operations
-------------
The following discussion should be read in conjunction with the consolidated
financial statements of HEI and HECO and accompanying notes.
RESULTS OF OPERATIONS
HEI Consolidated
- ----------------
<TABLE>
<CAPTION>
Three months ended
March 31,
(in thousands, except per ------------------------------- % Primary reason(s) for
share amounts) 1999 1998 change significant change*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues........................ $352,247 $374,858 (6) Decrease for all segments
Operating income................ 54,032 56,461 (4) Decreases for the electric utility and
savings bank segments, partly offset by an
increase for the "other" segment
Net income (loss)
Continuing operations........ $ 20,754 $ 22,819 (9) Lower operating income and AFUDC and
higher preferred securities distributions,
partly offset by lower preferred stock
dividends (primarily due to the redemption
of several series in January 1999) and
lower income taxes**
Discontinued operations...... - (596) NM Discontinued operations of real estate
subsidiary in 1998
-----------------------------
$ 20,754 $ 22,223 (7)
=============================
Basic earnings
per common share.............
Continuing operations........ $ 0.65 $ 0.72 (10) See explanation for "net income
(loss)--continuing operations"
Discontinued operations...... - (0.02) NM See explanation for "net income
(loss)--discontinued operations"
-----------------------------
$ 0.65 $ 0.70 (7)
=============================
Weighted-average number of
common shares outstanding...... 32,153 31,958 1 Issuances under the 1987 Stock Option and
Incentive Plan and other plans
</TABLE>
* Also see segment discussions which follow.
** Income taxes decreased primarily due to the lower operating income and the
impact of the formation of ASB Realty Corporation (see savings bank segment
discussion which follows).
NM Not meaningful.
24
<PAGE>
Following is a general discussion of the results of operations by business
segment.
Electric utility
- ----------------
<TABLE>
<CAPTION>
Three months ended
March 31,
(in thousands, except per -------------------------------------- % Primary reason(s) for significant
barrel amounts) 1999 1998 change change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................... $237,791 $258,262 (8) Lower fuel oil prices, the effects of
which are passed on to customers ($20
million), partly offset by higher rates
at MECO and slightly higher KWH sales
Expenses
Fuel oil.................. 44,878 56,731 (21) Lower fuel oil prices, partly offset by
higher KWHs generated
Purchased power........... 59,980 66,583 (10) Lower fuel prices and KWHs purchased
Other..................... 92,032 92,387 - Lower other operation expenses and taxes,
other than income taxes, partly offset by
higher maintenance and depreciation and
amortization expenses
Operating income........... 40,901 42,561 (4) Higher maintenance and depreciation and
amortization expenses, partly offset by
lower other operation expenses (note:
lower revenues were offset by lower fuel
oil and purchased power expenses and
lower taxes, other than income taxes)
Net income................ 17,081 19,262 (11) Lower operating income and lower AFUDC
Kilowatthour sales
(millions).............. 2,135 2,127 -
Fuel oil price per barrel.. $16.94 $23.59 (28)
</TABLE>
Kilowatthour (KWH) sales in the first quarter of 1999 increased 0.4% from the
same quarter in 1998, partly due to an increase in the number of customers and
warmer weather. However, Hawaii's slow economy continues to dampen KWH sales.
Although KWH sales were slightly higher, electric utility operating income
decreased 4% from first quarter 1998, primarily due to a 28% increase in
maintenance expenses, including a major scheduled combustion turbine overhaul, a
$0.8 million write-off at MECO (see "Recent rate requests--MECO" below) and a 9%
increase in depreciation and amortization expense as a result of additions to
plant in 1998, partly offset by a 10% decrease in other operation expenses,
primarily due to lower employee benefits expense.
25
<PAGE>
Competition
The electric utility industry is becoming increasingly competitive. Independent
power producers (IPPs) are well established in Hawaii and continue to actively
pursue new projects. Customer self-generation, with or without cogeneration, has
made inroads in Hawaii and is a continuing competitive factor. Competition in
the generation sector in Hawaii is moderated, however, by the scarcity of
generation sites, various permitting processes and lack of interconnections to
other electric utilities. HECO has been able to compete successfully by offering
customers economic alternatives that, among other things, employ energy
efficient electrotechnologies such as the heat pump water heater.
Legislation has been introduced in Congress that would restructure the electric
utility industry with a view toward increasing competition by, for example,
allowing customers to choose their generation supplier. Some of the bills would
exempt Alaska and Hawaii. Also, the Department of Energy's proposed
"Comprehensive Electricity Competition Act", submitted to Congress in June 1998,
includes a provision that would permit states to "opt out" of the proposed
retail competition deadline of not later than January 1, 2003.
On December 30, 1996, the PUC instituted a proceeding to identify and examine
the issues surrounding electric competition and to determine the impact of
competition on the electric utility infrastructure in Hawaii. See note (3) in
HECO's "Notes to Consolidated Financial Statements." In their statement of
position (SOP), HECO and its subsidiaries proposed to achieve some of the
benefits of competition through proposals for (1) competitive bidding for new
generation, (2) performance-based ratemaking (which would include an index-based
price cap, an earnings sharing mechanism and a benchmark incentive plan) and (3)
innovative pricing provisions (including rate restructuring, expanded time-of-
use rates, customer migration rates such as standby charges, flexible pricing to
encourage economic development and to compete with customer generation options,
new service options and two-part rates incorporating real-time pricing). HECO
suggests in its SOP that these proposals be implemented through PUC approval of
applications submitted in a series of separate proceedings to be initiated by
HECO in 1999 and 2000. In May 1999, the PUC approved HECO's standard form
contract for customer retention, which allows HECO to provide an option for
customers who would otherwise reduce their energy use from HECO's system by
using energy from a nonutility generator. Based on HECO's current rates, the
standard form contract provides a 2.77% discount on base energy rates for "Large
Power" customers and an 11.27% discount on base energy rates for general service
demand customers.
PUC regulation of electric utility rates
The PUC has broad discretion in its regulation of the rates charged by HEI's
electric utility subsidiaries and in other matters. Any adverse decision and
order (D&O) by the PUC concerning the level or method of determining electric
utility rates, the authorized returns on equity or other matters, or any
prolonged delay in rendering a D&O in a rate or other proceeding, could have a
material adverse effect on the Company's financial condition and results of
operations. Upon a showing of probable entitlement, the PUC is required to issue
an interim D&O in a rate case within 10 months from the date of filing a
completed application if the evidentiary hearing is completed (subject to
extension for 30 days if the evidentiary hearing is not completed). There is no
time limit for rendering a final D&O. Interim rate increases are subject to
refund with interest, pending the final outcome of the case. Management cannot
predict with certainty when D&Os in pending or future rate cases will be
rendered or the amount of any interim or final rate increase that may be
granted.
Recent rate requests
HEI's electric utility subsidiaries initiate PUC proceedings from time to time
to request electric rate increases to cover rising operating costs, the cost of
purchased power and the cost of plant and equipment, including the cost of new
capital projects to maintain and improve service reliability. As of May 5, 1999,
the return on average common equity (ROACE) found by the PUC to be reasonable in
the most recent final rate decision for each utility was 11.4% for HECO (D&O
issued on December 11, 1995 and based on a 1995 test year), 11.65% for HELCO
(D&O issued on April 2, 1997
26
<PAGE>
and based on a 1996 test year) and 10.94% for MECO (D&O issued on April 6, 1999
and based on a 1999 test year).
Hawaii Electric Light Company, Inc.
- -----------------------------------
In March 1998, HELCO filed a request to increase rates by 11.5%, or $17.3
million in annual revenues, based on a 1999 test year and a 12.5% ROACE,
primarily to recover costs relating to (1) an agreement, which is subject to PUC
approval, to buy power from Encogen's 60 MW plant and (2) adding two combustion
turbines (CT-4 and CT-5) at HELCO's Keahole power plant. Due to the EAB's denial
of HELCO's motion for reconsideration of the EAB's November 25, 1998 decision
(see "HELCO power situation--PSD permit" in note (3) to HECO's "Notes to
consolidated financial statements") and the delay in purchasing power from
Encogen, HELCO's test year 1999 rate increase application was withdrawn in March
1999. New applications are expected to be filed closer to the time when the new
generation facilities are expected to be completed.
Maui Electric Company, Limited
- ------------------------------
In January 1998, MECO filed a request with the PUC to increase rates by 15.3%,
or $22.4 million in annual revenues, based on a 12.75% ROACE and a 1999 test
year, primarily to recover the costs related to the addition of generating unit
M17 in late 1998. In November 1998, MECO revised its requested increase to
11.9%, or $16.4 million in annual revenues, based on a 12.75% ROACE. In December
1998, MECO received an interim D&O from the PUC, effective January 1, 1999,
authorizing an 8.5%, or $11.7 million, increase in annual revenues (subject to
refund with interest, pending the final outcome of the case), based on a ROACE
of 11.12%, which was the ROACE authorized in MECO's prior rate case.
In April 1999, MECO received an amended final D&O from the PUC which authorized
an 8.2%, or $11.3 million, increase in annual revenues, based on a 1999 test
year and a 10.94% ROACE. The amended final D&O required a refund to customers
because MECO had previously received under the interim D&O an interim increase
of $11.7 million in annual revenues, or $0.4 million annually in excess of the
amount that was finally approved. MECO will refund with interest the excess
amounts collected since January 1, 1999, which amounted to approximately $0.1
million.
In March 1999, the PUC issued a D&O denying MECO's request to include $0.8
million in its rate base for exhaust flow enhancers, which were provided as part
of a settlement for a warranty claim. MECO wrote-off the $0.8 million in the
first quarter of 1999.
27
<PAGE>
Savings bank
- ------------
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------ %
(in thousands) 1999 1998 change Primary reason(s) for significant change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................. $100,280 $101,827 (2) Lower interest income as a result of lower
weighted-average yields on interest-earning
assets and lower average balances of
mortgage-backed securities, partly offset
by higher average loan and investments
balances and higher other income
Operating income......... 15,131 16,051 (6) Lower net interest income and higher office
occupancy expenses (including rent and
depreciation), Year 2000 costs, goodwill
amortization and compensation and employee
benefit expenses
Net income............... 8,525 8,360 2 Lower operating income more than offset by
lower taxes
Interest rate spread..... 3.04% 3.21% (5) 42 basis points decrease in the
weighted-average yield on interest-earning
assets, partly offset by a 25 basis points
decrease in the weighted-average rate on
interest-bearing liabilities
</TABLE>
ASB continued to be affected by Hawaii's weak economy, including the effects of
increased delinquencies, and the relatively flat yield curve. The yield curve
has started to widen which should be favorable for ASB's net interest income
over time.
ASB's interest rate spread--the difference between the weighted-average yield on
interest-earning assets and the weighted-average rate on interest-bearing
liabilities--decreased 5%. Comparing first quarter 1999 to the same period in
1998, the weighted-average yield on interest-earning assets decreased more than
the weighted-average rate on interest-bearing liabilities decreased.
Deposits traditionally have been the principal source of ASB's funds for use in
lending, meeting liquidity requirements and making investments. ASB experienced
an outflow of deposits of $77 million ($54 million of which were certificates of
deposits) in the first quarter of 1999, partly offset by $28 million of interest
credited to accounts. ASB also derives funds from borrowings, payments of
interest and principal on outstanding loans receivable and mortgage-backed
securities, and other sources. In recent years, advances from the Federal Home
Loan Bank (FHLB) of Seattle and securities sold under agreements to repurchase
have become more significant sources of funds as the demand for deposits
decreased due in part to increased competition from money market and mutual
funds. Using sources of funds with a higher cost than deposits, such as advances
from the FHLB, puts downward pressure on ASB's interest rate spread and net
interest income.
In the slow Hawaii economy, ASB has experienced an increase in nonaccrual loans
and loan loss reserves. During the first quarter of 1999, ASB added $2.9 million
to its allowance for loan losses. As of March 31, 1999, ASB's allowance for loan
losses was 1.29% of average loans outstanding. The following table presents the
changes in the allowance for loan losses for the periods indicated.
28
<PAGE>
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses, beginning of quarter.............................. $39,779 $29,950
Additions to provisions for losses........................................... 2,920 2,924
Allowance for losses on loans returned to Bank of America, FSB............... - (98)
Net charge-offs.............................................................. (1,861) (579)
--------------- ---------------
Allowance for loan losses, end of quarter.................................... $40,838 $32,197
=============== ===============
</TABLE>
In March 1998, ASB formed a wholly owned operating subsidiary, ASB Realty
Corporation (ASBR), which elects to be taxed as a real estate investment trust.
This reorganization has reduced ASB's income taxes. For the first quarter of
1999, ASB and subsidiaries' income taxes decreased 17% even though operating
income only decreased 6% when compared to the same period in 1998. Although
the State of Hawaii has indicated that it may challenge the tax treatment
of this reorganization, ASB believes that its tax position is proper.
Other
- -----
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------- %
(in thousands) 1999 1998 change Primary reason(s) for significant change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues......... $14,176 $14,769 (4) Freight transportation subsidiaries' lower
contract work, partly offset by higher
general freight revenues
Operating loss... (2,000) (2,151) 7 Lower expenses at the holding companies
</TABLE>
The "other" business segment includes results of operations from Hawaiian Tug &
Barge Corp. and its subsidiary, Young Brothers, Limited, maritime freight
transportation companies; HEI Investment Corp., a company primarily holding
investments in leveraged leases; the HEIPC Group, companies formed to pursue
independent power and integrated energy services projects in Asia and the
Pacific; Pacific Energy Conservation Services, Inc., a contract services company
primarily providing windfarm operational and maintenance services to an
affiliated electric utility; HEI District Cooling, Inc., a company formed to
develop, build, own, operate and/or maintain central chilled water, cooling
system facilities, and other energy related products and services; ProVision
Technologies, Inc., a company formed to sell, install, operate and maintain on-
site power generation equipment and auxiliary appliances in Hawaii and the
Pacific Rim; Hawaiian Electric Industries Capital Trust I, HEI Preferred
Funding, LP and Hycap Management, Inc., companies formed primarily for the
purpose of effecting the issuance of 8.36% Trust Originated Preferred
Securities; HEI and HEI Diversified, Inc., holding companies; and eliminations
of intercompany transactions.
Freight transportation
The freight transportation subsidiaries recorded operating income of $0.6
million and $0.7 million in the first quarters of 1999 and 1998, respectively.
The decrease was primarily due to lower contract work revenues as the freight
transportation subsidiaries continued to be negatively impacted by the slow
economic activity on the neighbor islands and the slow construction industry in
Hawaii.
Independent power and integrated energy services
HEIPC was formed in 1995 and its subsidiaries have been and will be formed from
time to time to pursue independent power and integrated energy services projects
in Asia and the Pacific. HEIPC's consolidated operating loss in the first
quarters of 1999 and 1998 was $0.6 million.
29
<PAGE>
In September 1996, HEI Power Corp. Guam (HPG), entered into an energy conversion
agreement for approximately 20 years with the Guam Power Authority (GPA),
pursuant to which HPG has repaired and is operating and maintaining two oil-
fired 25-MW (net) units at Tanguisson, Guam. In November 1996, HPG assumed
operational control of the Tanguisson facility. HPG's total cost to repair the
two units was $15 million. The GPA project site is contaminated with oil from
spills occurring prior to HPG's assuming operational control. HPG has agreed to
manage the operation and maintenance of GPA's waste oil recovery system at the
project site consistent with GPA's oil recovery plan as approved by the U.S.
Environmental Protection Agency. GPA, however, has agreed to indemnify and hold
HPG harmless from any pre-existing environmental liability.
In September 1998, HEIPC (through a wholly owned, indirect subsidiary) acquired
an effective 60% interest in a joint venture, Baotou Tianjiao Power Co., Ltd.,
formed to design, construct, own, operate and manage a 200 MW (nominal) coal-
fired power plant to be located inside Baotou Iron & Steel (Group) Co., Ltd.'s
(BaoSteel's) complex in Inner Mongolia, Peoples Republic of China. BaoSteel, a
state-owned enterprise and the fifth largest steel company in China, is a 25%
partner in the joint venture and will purchase all the electricity generated.
Ownership of the plant will be transferred, without charge, to BaoSteel in
approximately 20 years. Construction has commenced and unit 1 is expected to be
on line by the end of 2000 and unit 2 six months thereafter. The HEIPC Group has
committed to invest up to $100 million.
In December 1998, HEIPC (through a wholly owned, indirect subsidiary) invested
$7.6 million to acquire convertible cumulative nonparticipating 8% preferred
shares in Cagayan Electric Power & Light Co., Inc. (CEPALCO), an electric
distribution company in the Philippines. The acquisition is a strategic move
which puts the HEIPC Group in a position to participate in the eventual
privatization of the National Power Corporation and growth in the electric
distribution business in the Philippines. In May 1999, the HEIPC subsidiary also
signed a memorandum of agreement to acquire 5% of CEPALCO common stock for
approximately $2.2 million.
The HEIPC Group is actively pursuing other projects in Asia and the Pacific. The
success of any project undertaken by the HEIPC Group will be dependent on many
factors, including the economic, political, monetary, technological, regulatory
and logistical circumstances surrounding each project and the location of the
project. Due to political or regulatory actions or other circumstances, projects
may be delayed or even prohibited. There is no assurance that any project
undertaken by the HEIPC Group will be successfully completed or that the HEIPC
Group's investment in any such project will not be lost, in whole or in part.
See note (7) in HEI's "Notes to consolidated financial statements" for a
discussion of the HEIPC Group's commitment with respect to the China project.
The HEIPC Group is pursuing additional international projects that are subject
to approval by the HEIPC and HEI Boards of Directors.
Discontinued operations
See note (8) in HEI's "Notes to consolidated financial statements."
Accounting for the effects of certain types of regulation
- ---------------------------------------------------------
In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," the Company's financial statements reflect assets and costs of HECO
and its subsidiaries and YB based on current cost-based rate-making regulations.
Management believes HECO and its subsidiaries' and YB's operations currently
satisfy the SFAS No. 71 criteria. However, if events or circumstances should
change so that those criteria are no longer satisfied, management believes that
a material adverse effect on the Company's results of operations, financial
position or liquidity may result. As of March 31, 1999, HEI's and HECO's
consolidated regulatory assets amounted to $112 million and $110 million,
respectively.
30
<PAGE>
Contingencies
- -------------
See note (7) in HEI's "Notes to consolidated financial statements" and note (3)
in HECO's "Notes to consolidated financial statements" for discussions of
contingencies.
Year 2000 issue
- ---------------
The following discussion includes numerous forward-looking statements. See
"Forward-looking information" on page v.
HEI consolidated
The Company is aware of the Year 2000 date issues associated with the practice
of encoding only the last two digits of four digit years in computer equipment,
software and devices with embedded technology. Year 2000 date issues, if not
properly addressed, may result in computer errors that could cause a disruption
of business operations. Further, the Company could be adversely impacted by Year
2000 date issues if suppliers, customers and other related businesses do not
address the issues successfully. HEI and subsidiary management have developed
Year 2000 programs and have teams in place that are actively assessing,
renovating, validating and implementing Year 2000 ready systems. All significant
computer-based systems are being included in the inventory and assessment
process. Priority is being given to systems that are considered mission or
business critical. HEI and each business unit have appointed a Year 2000 project
manager who provides periodic reporting to their respective senior management
and board of directors.
Both the electric utility and the savings bank segments are subject to external
oversight by their respective regulators. Although substantial effort is being
devoted to the Year 2000 issue, no absolute assurance can be given that the
Company will successfully avoid all problems that may arise. Further, no
absolute assurance can be given that the Year 2000 problems of other entities
will not have a material adverse impact on the Company's systems or results of
operations.
Costs. Management believes that the cost to remediate its systems to become
- ------
Year 2000 ready will not have a material adverse effect on the Company's
financial condition, results of operations or liquidity. The total cost of
initiatives undertaken primarily for Year 2000 remediation is estimated at $11.2
million, of which approximately $5.3 million has been incurred through March 31,
1999. The cost to remediate systems and the target dates provided below
represent management's best estimates at this time. These estimates are based on
information provided by various work units within the Company and external
parties such as vendors and business partners. Numerous assumptions have been
made regarding future dates, including the continued availability of internal
and external resources, third party remediation plans and the successful testing
of mission critical systems.
Electric utility
State of readiness. HECO and its subsidiaries have identified information
- -------------------
technology (IT) and non-IT systems which will require Year 2000 remediation
work. HECO has prioritized these systems by importance, business risk and Year
2000 exposure, allocating resources accordingly. Remediation work for each of
the systems includes an assessment phase, a renovation and validation phase and
an implementation phase. Overall, the assessment phase is substantially complete
for HECO's and its subsidiaries' systems and it is roughly estimated that 50% of
the renovation and validation phase has been completed as of March 31, 1999,
with lesser amounts of work completed on the implementation phase. The scheduled
completion date for each critical system is not later than September 1999.
In December 1998, HECO and its subsidiaries replaced the majority of their
business-critical applications with an integrated application suite that is
represented to be Year 2000 ready. The installation of an integrated application
suite has both simplified and lowered the cost of Year 2000 remediation efforts.
HECO and its subsidiaries have identified third parties with whom they have
significant business relationships and are corresponding with these vendors and
service providers to determine their Year
31
<PAGE>
2000 readiness. Significant third parties include fuel suppliers, independent
power producers, financial institutions and large customers. 287 vendors have
been contacted and 87% have responded regarding their compliance. HECO has
formed an Oahu Power Partners Year 2000 Group to provide a forum to share
information among HECO, independent power producers and fuel suppliers. HECO has
contracted with two of its major vendors of power plant equipment for their
services in assessing, remediating and testing their installed control systems.
HECO and these vendors have completed remediation of nine of HECO's 15
generating units which could be affected by Year 2000 problems and have tested
six of the nine. By June 30, 1999, HECO expects to have remediated and tested
generating units with sufficient generating capacity to meet projected peak load
on Oahu on January 1, 2000. HELCO and MECO have remediated and tested generating
units with sufficient generating capacity to meet projected peak load on Hawaii
and Lanai, respectively, on January 1, 2000. And by mid-August 1999, MECO
expects to have remediated and tested generating units with sufficient
generating capacity to meet projected peak load on Maui and Molokai on January
1, 2000.
Costs. HECO management believes that the cost to remediate its systems to
- ------
become Year 2000 ready will not have a material adverse effect on HECO's
consolidated financial condition, results of operations or liquidity. The total
cost of initiatives undertaken primarily for Year 2000 remediation is estimated
at $4.3 million, of which $1.2 million has been incurred through March 31,
1999.
Risks. The Year 2000 remediation effort addresses two distinct areas of risk--
- ------
(1) electric systems, which deliver power to customers, and (2) business
systems, which handle data processing. Importantly, with respect to the electric
systems, neither the generation nor distribution systems are fully dependent on
automated control systems. Because HECO and its subsidiaries have the capability
to manually control the generation and dispatching of power and have some degree
of diversity and redundancy in their systems, HECO believes the most reasonably
likely worst case scenario would be brief, localized power outages and billing,
payment, collection and/or reporting errors or delays.
Contingency plans. Contingency plans in the event of a Year 2000 problem are
- ------------------
being developed for HECO and its subsidiaries. HECO and its subsidiaries will
have personnel on standby at midnight on December 31, 1999 and on other critical
dates in 1999 and 2000, as deemed necessary. Work crews will be able to manually
operate equipment, making a prolonged power outage unlikely.
Savings Bank
State of readiness. ASB and its subsidiaries follow guidelines provided by the
- -------------------
Office of Thrift Supervision (OTS), which require ASB to first renovate its
mission critical systems. ASB, in its assessment, identified IT and non-IT
mission critical systems requiring Year 2000 remediation work. IT systems
include outsourced and in-house mainframe systems and applications, licensed
vendor applications, ATMs, desktop applications and high speed check sorting.
ASB has prioritized these systems by importance, business risk, and Year 2000
exposure, allocating resources accordingly.
The OTS guidelines use a five-phase approach to Year 2000 issues--an awareness
phase, assessment phase, renovation phase, validation phase and implementation
phase. As of March 31, 1999, the assessment and renovation of ASB's internal
mission critical systems has been completed. Validation (92% complete) and
implementation (63% complete) are the focal points for ASB's remaining Year 2000
effort. As of March 31, 1999, ASB had substantially completed its internal
mission critical testing. Testing with business partners, service providers and
vendors is expected to be completed by June 30, 1999. ASB is targeting to
implement all renovated mission critical systems by June of 1999.
ASB and its subsidiaries identified third parties with whom they have
significant relationships including software-hardware systems providers, large
customers and a service bureau. ASB has implemented a Customer Impact Program
that monitors the activities of its large business and deposit customers. ASB
monitors its service and supply vendors for Year 2000 compliance and 352 of 426
vendors have responded that they are compliant or are making efforts to be
compliant by January 1, 2000. Adequate time is being factored into the planning
to allow movement to an alternative service provider or suppliers. ASB should
reach decisions on whether to continue doing business with current suppliers and
vendors by June 30, 1999.
Costs. The total cost of initiatives undertaken by ASB primarily for Year 2000
- ------
remediation is estimated at $6.1 million, of which approximately $3.6 million
has been incurred through March 31, 1999.
32
<PAGE>
Risks. The Year 2000 remediation effort addresses various areas of risk,
- ------
primarily in ASB's business systems, including in-house applications, vendor
applications, service bureau applications and electronic banking. ASB believes
that the most likely worst case scenario would be a localized disruption of
customer services. ASB believes off-line processing at all branch sites is
feasible for up to five working days.
Contingency plans. ASB's overall contingency plan provides the broad steps that
- ------------------
ASB could take if entire systems or partial systems were lost. During 1998, ASB
engaged a consultant who assisted in the development of detailed contingency
plans for mission critical systems. ASB is using these contingency plans as
models to develop similar detailed plans for other departments. ASB's
contingency plans include implementing off-line or manual procedures,
implementing stand-in programs, activating the disaster recovery plan and
relocating certain operations to the recovery site. ASB will backup critical
reports and files prior to yearend 1999. Further, ASB and its subsidiaries will
have personnel on standby at midnight on December 31, 1999 and on other critical
dates in 1999 and 2000, as deemed necessary.
Accounting changes
- ------------------
See note (6) and note (5) in HEI's and HECO's respective "Notes to consolidated
financial statements."
FINANCIAL CONDITION
Liquidity and capital resources
- -------------------------------
The Company and consolidated HECO each believes that its ability to generate
cash, both internally from operations and externally from debt and equity
issues, is adequate to maintain sufficient liquidity to fund their respective
construction programs and investments and to satisfy debt and other cash
requirements in the foreseeable future.
The consolidated capital structure of HEI was as follows:
<TABLE>
<CAPTION>
(in millions) March 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings........................... $ 242 11% $ 223 10%
Long-term debt.................................. 903 41 900 40
HEI- and HECO-obligated preferred
securities of trust subsidiaries............. 200 9 200 9
Preferred stock of electric utility subsidiaries 34 2 81 4
Minority interests.............................. 4 - 4 -
Common stock equity............................. 830 37 827 37
--------------- ------------- -------------- -------------
$2,213 100% $2,235 100%
=============== ============= ============== =============
</TABLE>
ASB's deposit liabilities, securities sold under agreements to repurchase and
advances from the FHLB are not included in the table above.
For the first three months of 1999, net cash provided by operating activities of
HEI consolidated was $17 million. Net cash used in investing activities was $124
million, largely due to ASB's origination of loans and purchase of mortgage-
backed securities, net of repayments, and HECO's consolidated capital
expenditures. Net cash used by financing activities was $141 million as a result
of several factors, including net decreases in securities sold under agreements
to repurchase and deposit liabilities, the redemption of certain series of the
electric utilities subsidiaries' preferred stock and the payment of common stock
dividends and trust preferred securities distributions, partly offset by net
increases in short-term borrowings and long-term debt.
Total HEI consolidated financing requirements for 1999 through 2003, including
net capital expenditures (which exclude the AFUDC and capital expenditures
funded by third-party cash
33
<PAGE>
contributions in aid of construction), long-term debt retirements (excluding
repayments of advances from the FHLB of Seattle and securities sold under
agreements to repurchase) and preferred stock retirements, are estimated to
total $1.2 billion. Of this amount, approximately $0.8 billion is for net
capital expenditures (mostly relating to the electric utilities' net capital
expenditures described below). HEI's consolidated internal sources, after the
payment of HEI dividends, are expected to provide approximately 55% of the
consolidated financing requirements, with debt financing providing the remaining
requirements. Additional debt and equity financing may be required to fund
activities not included in the 1999-2003 forecast, such as the development of
additional independent power projects by the HEIPC Group in Asia and the
Pacific, or to fund changes in requirements, such as increases in the amount of
or an acceleration of capital expenditures of the electric utilities.
See note (9) in HEI's "Notes to consolidated financial statements" for a
description of the medium-term notes issued in May 1999.
Following is a discussion of the liquidity and capital resources of HEI's
largest segments.
Electric utility
HECO's consolidated capital structure was as follows:
<TABLE>
<CAPTION>
(in millions) March 31, 1999 December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term borrowings from nonaffiliates
and affiliate.............................. $ 129 8% $ 139 8%
Long-term debt.............................. 626 37 622 36
HECO-obligated preferred securities of
trust subsidiaries......................... 100 6 100 6
Preferred stock............................. 34 2 81 5
Common stock equity......................... 790 47 787 45
---------------- ------------- --------------- ------------
$1,679 100% $1,729 100%
================ ============= =============== ============
</TABLE>
Operating activities provided $42 million in net cash during the first quarter
of 1999. Investing activities used net cash of $13 million, primarily for
capital expenditures. Financing activities used net cash of $64 million,
including $16 million for the payment of common and preferred dividends and
preferred securities distributions, $37 million for preferred stock redemptions
and $10 million for the repayment of short-term borrowings, partially offset by
a $4 million net increase in long-term debt.
The electric utilities' consolidated financing requirements for 1999 through
2003, including net capital expenditures, long-term debt retirements and
preferred stock retirements, are estimated to total $660 million. HECO's
consolidated internal sources, after the payment of common stock and preferred
stock dividends, are expected to provide approximately 78% of the consolidated
financing requirements, with debt and equity financing providing the remaining
requirements. As of March 31, 1999, $26 million of proceeds from previous sales
by the Department of Budget and Finance of the State of Hawaii of special
purpose revenue bonds issued for the benefit of HECO, MECO and HELCO remain
undrawn. Also as of March 31, 1999, an additional $88 million of special purpose
revenue bonds were authorized by the Hawaii Legislature for issuance for the
benefit of HECO and MECO prior to the end of 1999 and an additional $100 million
of revenue bonds were authorized for issuance for the benefit of HECO and HELCO
prior to the end of 2003. HECO estimates that it will require approximately $28
million in new common equity, in addition to retained earnings, over the five-
year period 1999 through 2003. The PUC must approve issuances of long-term debt
and equity securities by HECO, HELCO and MECO.
Capital expenditures include the costs of projects which are required to meet
expected load growth, to improve reliability and to replace and upgrade existing
equipment. Net capital expenditures for the five-year period 1999 through 2003
are currently estimated to total $608 million. Approximately 75% of forecast
gross capital expenditures, which includes the allowance for funds used during
construction and
34
<PAGE>
capital expenditures funded by third-party cash contributions in aid of
construction, is for transmission and distribution projects, with the remaining
25% primarily for generation projects.
For 1999, electric utility net capital expenditures are estimated to be $142
million. Gross capital expenditures are estimated to be $157 million, comprised
of approximately $120 million for transmission and distribution projects,
approximately $12 million for new generation projects and approximately $25
million for general plant and existing generation projects. Drawdowns of
proceeds from previous and future sales of tax-exempt special purpose revenue
bonds, sales of common stock to HEI and the generation of funds from internal
sources are expected to provide the cash needed for the net capital
expenditures.
Management periodically reviews capital expenditure estimates and the timing of
construction projects. These estimates may change significantly as a result of
many considerations, including changes in economic conditions, changes in
forecasts of KWH sales and peak load, the availability of purchased power, the
availability of generating sites and transmission and distribution corridors,
the ability to obtain adequate and timely rate increases, escalation in
construction costs, demand-side management programs and requirements of
environmental and other regulatory and permitting authorities.
Savings bank
<TABLE>
<CAPTION>
March 31, December 31, %
(in millions) 1999 1998 change
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets....................................... $5,585 $5,692 (2)
Mortgage-backed securities......................... 1,848 1,791 3
Loans receivable, net.............................. 3,186 3,143 1
Deposit liabilities................................ 3,816 3,866 (1)
Securities sold under agreements to repurchase..... 461 515 (10)
Advances from Federal Home Loan Bank............... 808 806 -
</TABLE>
As of March 31, 1999, ASB was the third largest financial institution in the
state based on total assets of $5.6 billion and deposits of $3.8 billion.
For the first quarter of 1999, net cash provided by ASB's operating activities
was $1 million. Net cash used in ASB's investing activities was $108 million,
due largely to the origination of loans and purchase of mortgage-backed
securities, net of repayments. Net cash used in financing activities was $105
million largely due to a net decrease of $54 million in securities sold under
agreements to repurchase, a net of decrease of $49 million in deposit
liabilities and $5 million in common and preferred stock dividends.
Minimum liquidity levels are currently governed by the regulations adopted by
the OTS. ASB was in compliance with OTS liquidity requirements as of March 31,
1999.
ASB believes that a satisfactory regulatory capital position provides a basis
for public confidence, affords protection to depositors, helps to ensure
continued access to capital markets on favorable terms and provides a foundation
for growth. As of March 31, 1999, ASB was in compliance with the OTS minimum
capital requirements (noted in parentheses) with a tangible capital ratio of
5.5% (1.5%), a core capital ratio of 5.6% (3.0%) and a risk-based capital ratio
of 12.4% (8.0%).
FDIC regulations restrict the ability of financial institutions that are not
"well-capitalized" to compete on the same terms as "well-capitalized"
institutions, such as by offering interest rates on deposits that are
significantly higher than the rates offered by competing institutions. As of
March 31, 1999, ASB was "well-capitalized" (ratio requirements noted in
parentheses) with a leverage ratio of 5.6% (5.0%), a Tier-1 risk-based ratio of
11.4% (6.0%) and a total risk-based ratio of 12.4% (10.0%).
Significant interstate banking legislation has been enacted at both the federal
and state levels. Under the federal Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, a bank holding company may acquire control of a bank in
any state, subject to certain restrictions. Under state law, effective June 1,
1997, a bank chartered under state law may merge with an out-of-state bank and
convert all branches of both banks into branches of a single bank, subject to
certain restrictions. Although the
35
<PAGE>
federal and state laws apply only to banks, such legislation may nonetheless
affect the competitive balance among banks, thrifts and other financial
institutions and the level of competition among financial institutions doing
business in Hawaii.
For a discussion of the unfavorable disparity in the Financing Corporation
assessment rates that ASB and other thrifts have paid in relation to the rates
that most commercial banks have paid, see note (4) in HEI's "Notes to
Consolidated Financial Statements." By law, the Financing Corporation's
assessment rate on deposits insured by the Bank Insurance Fund must be one-fifth
the rate on deposits insured by the Savings Association Insurance Fund until the
insurance funds are merged or until January 1, 2000, whichever occurs first, at
which time the FICO interest obligation for both banks and thrifts should
thereafter be identical, at a currently estimated rate of 2.4 cents per $100 of
deposits.
Certain legislative proposals advanced to eliminate thrift charters, if adopted,
could have a material adverse effect on the Company. For example, if thrift
charters were eliminated and ASB obtained a bank charter, HEI and its
subsidiaries might become subject to the restrictions on the permissible
activities of a bank holding company. While certain of the proposals that have
been advanced would "grandfather" the activities of existing savings and loan
holding companies such as HEI, management cannot predict whether or in what form
any of these proposals might ultimately be adopted nor the extent to which the
business of HEI or ASB might be affected.
Item 3. Quantitative and qualitative disclosures about market risk
- ------------------------------------------------------------------
The Company's results are impacted by ASB's ability to manage interest rate
risk. For quantitative and qualitative information about the Company's market
risks, see pages 39 to 41 of HEI's 1998 Annual Report to Stockholders.
U.S. Treasury yields at March 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
(%) March 31, 1999 December 31, 1998
----- -------------- -----------------
<S> <C> <C>
3 month 4.47 4.46
1 year 4.70 4.52
5 year 5.10 4.54
10 year 5.23 4.65
30 year 5.62 5.09
</TABLE>
As interest rates (as measured by U.S. Treasury yields) have increased between 1
and 58 basis points from December 31, 1998 to March 31, 1999, management
believes there was an unfavorable, but immaterial change between those dates in
the Company's quantitative disclosures of its interest-sensitive assets,
liabilities and off-balance sheet items.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal proceedings
- --------------------------
There are no significant developments in pending legal proceedings except as set
forth in HECO's "Notes to consolidated financial statements," and management's
discussion and analysis of financial condition and results of operations.
36
<PAGE>
Item 4. Submission of matters to a vote of security holders
- ------------------------------------------------------------
HEI
The Annual Meeting of Stockholders of HEI was held on April 27, 1999. Proxies
for the meeting were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934. As of February 17, 1999, the record date for the Annual
Meeting, there were 32,176,314 shares of common stock issued and outstanding and
entitled to vote. There was no solicitation in opposition to the management
nominees to the Board of Directors as listed in the proxy statement for the
meeting and such nominees were elected to the Board of Directors.
The results of the voting for the Class III director-nominees and the
independent auditor are as follows:
<TABLE>
<CAPTION>
Shares of Common Stock
---------------------------------------------------------------------------------------
Broker
For Withheld Against Abstain nonvotes
------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Election of Class III Directors
Don E. Carroll 29,520,966 395,807 --
Richard Henderson 29,461,394 455,379 --
Bill D. Mills 29,499,643 417,130 --
Oswald K. Stender 28,967,774 948,999 --
Election of KPMG LLP
as independent auditor 29,478,940 209,173 228,660 --
</TABLE>
Class I Directors--Robert F. Clarke, A. Maurice Myers and James K. Scott--
continue in office with terms ending at the 2000 Annual Meeting. Class II
Directors--Victor Hao Li, S.J.D., T. Michael May, Diane J. Plotts, Kelvin Taketa
and Jeffrey N. Watanabe--continue in office with terms ending at the 2001 Annual
Meeting.
HECO
The Annual Meeting of the Sole Stockholder of HECO was conducted by written
consent effective April 27, 1999. The incumbent members of the Board of
Directors of HECO were re-elected. The incumbent members continuing in office
are Robert F. Clarke, Richard Henderson, T. Michael May, Paul A. Oyer, Diane J.
Plotts, James K. Scott, Anne M. Takabuki, Jeffrey N. Watanabe and Paul C. Yuen.
In addition, KPMG LLP was elected independent auditor of HECO for the fiscal
year 1999.
Item 5. Other information
- --------------------------
A. MECO underground storage tank (UST)
In June 1998, the DOH conducted a UST inspection at MECO's Kahului transmission
and distribution baseyard. In July 1998, the DOH issued a Notice of Violation
for alleged deficiencies in compliance with UST requirements. Subsequently, with
the assistance of HECO's Environmental Department, MECO determined that its UST
was in compliance with UST requirements. A certification of compliance status
was submitted to the DOH on March 3, 1999.
37
<PAGE>
B. 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:
Ratio of earnings to fixed charges excluding interest on ASB deposits
<TABLE>
<CAPTION>
Three months Years ended December 31,
ended -------------------------------------------------------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
- -------------------- ---------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
1.76 1.85 1.89 1.93 2.02 2.31
==================== ================ =============== ============== =============== ================
</TABLE>
Ratio of earnings to fixed charges including interest on ASB deposits
<TABLE>
<CAPTION>
Three months Years ended December 31,
ended -------------------------------------------------------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
- -------------------- ---------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
1.43 1.47 1.58 1.56 1.60 1.73
==================== ================ =============== ============== =============== ================
</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 (as hereinafter defined, but excluding capitalized
interest). "Fixed charges" are calculated both excluding and including interest
on ASB's deposits during the applicable periods and represent the sum of (i)
interest, whether capitalized or expensed, 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.
The following table sets forth the ratio of earnings to fixed charges for HECO
and its subsidiaries for the periods indicated:
Ratio of earnings to fixed charges
<TABLE>
<CAPTION>
Three months Years ended December 31,
ended -------------------------------------------------------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
- -------------------- ---------------- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
2.85 3.33 3.26 3.58 3.46 3.47
==================== ================ =============== ============== =============== ================
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, "earnings"
represent the sum of (i) pretax income before preferred stock dividends of HECO
and (ii) fixed charges (as hereinafter defined, but excluding the allowance for
borrowed funds used during construction). "Fixed charges" represent the sum of
(i) interest, whether capitalized or expensed, incurred by HECO and its
subsidiaries, (ii) amortization of debt expense and discount or premium related
to any indebtedness, whether capitalized or expensed, (iii) the interest factor
in rental expense, (iv) the preferred stock dividend requirements of HELCO and
MECO, increased to an amount representing the pretax earnings required to cover
such dividend requirements and (v) the preferred securities distribution
requirements of the trust subsidiaries.
38
<PAGE>
Item 6. Exhibits and reports on Form 8-K
- -----------------------------------------
(a) Exhibits
<TABLE>
<S> <C>
HEI Distribution Agreement dated April 27, 1999 between HEI and Merrill Lynch &
Exhibit 1 Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman, Sachs &
Co., as Agents
HEI Second Supplemental Indenture dated as of April 1, 1999 between HEI and
Exhibit 4.1 Citibank, N.A., as Trustee, to Indenture dated as of October 15, 1988 between
HEI and Citibank, N.A., as Trustee
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 12.1 Computation of ratio of earnings to fixed charges, three months ended
March 31, 1999 and 1998
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 12.2 Computation of ratio of earnings to fixed charges, three months ended
March 31, 1999 and 1998
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 27.1 Financial Data Schedule
March 31, 1999 and three months ended March 31, 1999
HEI Hawaiian Electric Industries, Inc. and subsidiaries
Exhibit 27.1(a) Restated Financial Data Schedule
March 31, 1998 and three months ended March 31, 1998
HECO Hawaiian Electric Company, Inc. and subsidiaries
Exhibit 27.2 Financial Data Schedule
March 31, 1999 and three months ended March 31, 1999
HEI Letter dated May 7, 1999 from the Hawaiian Electric Industries, Inc. Pension
Exhibit 99.1 Investment Committee to Fidelity Investments Institutional Operations Company,
Inc. relating to Schedule "D" to the Hawaiian Electric Industries Retirement
Savings Plan Trust Agreement dated as of November 28, 1988, as amended, between
HEI and Fidelity Management Trust Company for incorporation by reference into
Registration Statement on Form S-8 (Registration No. 333-02103)
HEI Letter dated May 7, 1999 from the Hawaiian Electric Industries, Inc. Pension
Exhibit 99.2 Investment Committee to Fidelity Investments Institutional Operations Company,
Inc. relating to Schedule "E" to the Hawaiian Electric Industries Retirement
Savings Plan Trust Agreement dated as of November 28, 1988, as amended, between
HEI and Fidelity Management Trust Company for incorporation by reference into
Registration Statement on Form S-8 (Registration No. 333-02103)
</TABLE>
39
<PAGE>
(b) Reports on Form 8-K
Subsequent to December 31, 1998, HEI and/or HECO filed Current Reports, Forms 8-
K, with the SEC as follows:
<TABLE>
<CAPTION>
Dated Registrant/s Items reported
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
December 4, 1998 HEI/HECO Item 5: HEI's January 19, 1999 news release reporting 1998
earnings, "HEIPC subsidiary makes strategic investment in the
Philippines," "HELCO power situation," "HELCO rate request," "MECO
rate request" and the "issuance of trust preferred securities and
redemption of preferred stock," and Item 7: the final form of
documents delivered in connection with the offer and sale of
HECO-Obligated 7.30% Cumulative Quarterly Income Preferred
Securities, Series 1998
February 23, 1999 HEI/HECO Item 7, portions of HEI's 1998 Annual Report to Stockholders and
HECO's 1998 Annual Report to Stockholder
April 26, 1999 HEI/HECO Item 5: HEI's April 27, 1999 news release reporting first quarter
1999 earnings, "HELCO power situation," "MECO rate request" and
"China project," and Item 7: "Computation of ratio of earnings to
fixed charges" and the "Consent of KPMG LLP in connection with the
Registration Statement on S-3 (Regis. No. 333-73225)"
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized. The signature of the undersigned
companies shall be deemed to relate only to matters having reference to such
companies and any subsidiaries thereof.
HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant) (Registrant)
By /s/ Curtis Y. Harada By /s/ Paul Oyer
---------------------------- -----------------------------
Curtis Y. Harada Paul A. Oyer
Controller Financial Vice President and
(Principal Accounting Officer Treasurer
of HEI) (Principal Financial Officer of HECO)
Date: May 10, 1999 Date: May 10, 1999
40
<PAGE>
HEI Exhibit 1
$300,000,000
HAWAIIAN ELECTRIC INDUSTRIES, INC.
Medium-Term Notes, Series C
DISTRIBUTION AGREEMENT
----------------------
April 27, 1999
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center
North Tower, 10th Floor
New York, New York 10281-1310
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Hawaiian Electric Industries, Inc., a Hawaii corporation (the
"Company"), proposes to issue and sell from time to time its Medium-Term Notes,
Series C (the "Securities") in an aggregate amount of up to $300,000,000 and
confirms its agreement with each of Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Goldman, Sachs & Co. (individually, an "Agent"
and, collectively, together with any others who are subsequently appointed as
agents pursuant to Section 2(d) hereof, the "Agents") with respect to such
issuance and sale as set forth in this Agreement.
Subject to the terms and conditions stated herein and subject to the
reservation by the Company of the right to sell Securities directly on its own
behalf as provided in Section 2(b) hereof and to appoint additional Agents as
provided in Section 2(d) hereof, the Company hereby agrees that Securities shall
be sold exclusively to or through the Agents. This Agreement
<PAGE>
provides for both the sale of Securities by the Company to the Agents as
principal for resale to investors and other purchasers and for the sale of
Securities by the Company directly to investors (as may from time to time be
agreed to by the Company and the Agents), in which case the Agents shall act as
agents of the Company in soliciting offers for the purchase of Securities,
subject to the Company's right to solicit, sell and accept offers to purchase
Securities directly on its own behalf as provided in Section 2(b) hereof. The
Agents shall not have any obligation to purchase Securities from the Company as
principal. Any such purchase of Securities as principal shall be made in
accordance with Section 2(a) hereof.
The Securities shall be issued under an indenture, dated as of October
15, 1988, between the Company and Citibank, N.A., as trustee (the "Trustee"), as
previously supplemented, and as to be further supplemented by a Second
Supplemental Indenture dated as of April 1, 1999 (such indenture, as so
supplemented, being hereinafter referred to as the "Indenture"). The Securities
shall have the maturity dates (between nine months and thirty years from date of
issue), interest rates, if any, redemption and repayment provisions and other
terms as set forth in the Prospectus referred to below as it may be amended or
supplemented from time to time. The Securities shall be issued, and the terms
and rights thereof established, from time to time by the Company in accordance
with the Indenture.
1. The Company represents and warrants to, and agrees with, each
Agent that as of the date hereof, as of the date of each acceptance by the
Company of an offer for the purchase of Securities (whether to such Agent as
principal or through such Agent as agent), as of the date of each delivery of
Securities (whether to such Agent as principal or through such Agent as agent)
(the date of each such delivery to such Agent as principal is referred to herein
as a "Time of Delivery"), and as of any time that the Registration Statements
(as hereinafter defined) or the Prospectus (as hereinafter defined) shall be
amended or supplemented (each of the times referenced above is referred to
herein as a "Representation Date"), except as may be disclosed in the Prospectus
(including any documents incorporated by reference therein and any supplements
thereto) or otherwise in writing by the Company to the Agents on or before a
Representation Date:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3
(Registration No. 33-58820), which registration statement, as amended (the
"1993 Registration Statement"), has been declared effective by the
Commission for the registration of various securities under the Securities
Act of 1933, as amended (the "Act"), of which $6,000,000 aggregate
principal amount remains unissued and unsold. The Company (and affiliated
entities) have also filed with the Commission a registration statement on
Form S-3 (Registration Nos. 33-18809, 33-18809-01, 33-18809-02, 33-18809-03
and 33-18809-04), which registration statement, as amended (the "1996
Registration Statement"), has been declared effective by the Commission,
for the registration of various securities under the Act, of which
$200,000,000 aggregate principal amount/offering price remains unissued and
unsold. The Company has also filed with the Commission a registration
statement on Form S-3 (Registration No. 333-73225) (the "1999 Registration
Statement") for the registration of $94,000,000 aggregate principal amount
of, and the redesignation of $206,000,000 aggregate principal
amount/offering price of securities remaining unissued and unsold under the
1993 Registration Statement and the 1996 Registration Statement as,
Securities under the Act and the offering thereof from time to time
pursuant to Rule
2
<PAGE>
415 promulgated by the Commission under the Act. The 1999 Registration
Statement has been declared effective by the Commission. The 1993
Registration Statement, the 1996 Registration Statement and the 1999
Registration Statement and the combined prospectus constituting a part of
the 1999 Registration Statement and relating, pursuant to Rule 429
promulgated by the Commission under the Act, to $300,000,000 aggregate
principal amount of Securities, and any Pricing Supplement relating to a
particular issuance of the Securities (each, a "Pricing Supplement"),
including all documents incorporated or deemed to be incorporated therein
by reference pursuant to Item 12 of Form S-3 under the Act, in each case,
as from time to time amended or supplemented, are referred to herein as the
"Registration Statements" and the "Prospectus," respectively, except that
if any revised prospectus is provided to the Agents by the Company for use
in connection with the offering of the Securities that is not required to
be filed by the Company pursuant to Rule 424(b) promulgated by the
Commission under the Act, the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to an Agent for
such use. As used in this Agreement, the terms "amendment" or "supplement"
when applied to the Registration Statements or the Prospectus shall be
deemed to include the filing by the Company with the Commission of any
document under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), after the date hereof that is or is deemed to be
incorporated therein by reference.
(b) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed
with the Commission under the Exchange Act, conformed and will conform in
all material respects to the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of such
documents contained or will contain at such time an untrue statement of a
material fact or omitted or will omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(c) No stop order suspending the effectiveness of any of the
Registration Statements has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission. The Registration
Statements, as of the Effective Date, conformed or will conform in all
material respects to the requirements of the Act and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission promulgated thereunder and, as of the
Effective Date, does not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus, as of its original issue date, as of the date of any filing of
a Pricing Supplement thereto pursuant to Rule 424(b) promulgated by the
Commission under the Act and as of the date of any other amendment or
supplement thereto (each, an "Issue Date"), conforms or will conform in all
material respects to the requirements of the Act and the Trust Indenture
Act and the rules and regulations of the Commission promulgated thereunder
and, as of such respective dates, does not and will not contain an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this representation
-------- -------
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information
3
<PAGE>
furnished in writing to the Company by any Agent expressly for use in the
Prospectus (it being agreed that, for purposes of this subsection (c) and
Section 7 hereof, the only information so furnished by any Agent as of the
date hereof consists of the sixth, seventh and eighth paragraphs under
"Plan of Distribution" therein). As used herein, with respect to each of
the Registration Statements, the term "Effective Date" means, as of a
specified time, the later of (i) the date that such Registration Statement
or the most recent post-effective amendment thereto was or is declared
effective by the Commission under the Act and (ii) the date that the
Company's Annual Report on Form 10-K for its most recently completed fiscal
year is filed with the Commission under the Exchange Act.
(d) Otherwise than as set forth in or contemplated by the
Prospectus, neither the Company nor any Subsidiaries (as hereinafter
defined) has sustained since the date of the most recent audited financial
statements incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, which loss or interference
would have a material adverse effect on the consolidated financial
position, stockholders' equity or results of operations of the Company and
Subsidiaries taken as a whole; and, since the respective dates as of which
information is given in the Registration Statements and the Prospectus,
there has not been any change in the capital stock of the Company or any
Significant Subsidiary (as hereinafter defined) (except for (i) issuances
of capital stock of the Company pursuant to dividend reinvestment, stock
purchase, stock option, director or employee benefit plans, (ii) issuances
of capital stock (x) by Hawaiian Electric Company, Inc. ("HECO") or its
subsidiaries that have been approved by the Public Utilities Commission of
the State of Hawaii, (y) by any other Significant Subsidiary to the Company
or any Subsidiary or (z) that have been disclosed in writing to the Agents
and (iii) redemptions by HECO, Hawaii Electric Light Company, Inc.
("HELCO") and Maui Electric Company, Limited ("MECO") of their respective
preferred stock in accordance with the terms thereof), or any material
adverse change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
the Subsidiaries taken as a whole, otherwise than as set forth in or
---
contemplated by the Prospectus.
(e) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Hawaii, with corporate power and authority to own or lease its properties
and conduct its business as described in the Prospectus; the Company does
not itself conduct any business or own or lease any property in any
jurisdiction outside the State of Hawaii that would require it to qualify
to do business as a foreign corporation and where the failure to be so
qualified would subject the Company to any material liability or
disability. Each Significant Subsidiary of the Company, other than
American Savings Bank, F.S.B. ("ASB"), has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. As used in this Agreement, the term
"Subsidiary" means each corporation, at least a majority of the outstanding
voting stock of which is owned by the Company, by one or more Subsidiaries
or by the Company and one or more Subsidiaries.
4
<PAGE>
(f) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully paid
and non-assessable; all of the issued shares of capital stock of each
Significant Subsidiary have been duly and validly authorized and issued and
are fully paid and non-assessable; and all of such shares, other than
shares of preferred stock (including the existing preferred stock of HECO
and its subsidiaries) are owned directly or indirectly by the Company, free
and clear of any liens, encumbrances or security interests, except as
described in the Prospectus.
(g) The Indenture has been duly authorized, executed and
delivered by the Company and qualified under the Trust Indenture Act and
constitutes a valid and binding instrument of the Company enforceable
against the Company in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement of creditors' rights and by general equitable
principles (regardless of whether considered in a proceeding in equity or
at law); the Securities have been duly authorized by the Company for
issuance, offer and sale pursuant to this Agreement and, when duly
executed, authenticated, issued and delivered pursuant to the provisions of
this Agreement and the Indenture against payment of the consideration
therefor, the Securities will constitute valid and legally binding
obligations of the Company enforceable against the Company in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights and by general equitable principles
(regardless of whether considered in a proceeding in equity or at law); the
Securities and the Indenture will conform in all material respects to all
statements relating thereto contained in the Prospectus; and the Securities
will be entitled to the benefits provided by the Indenture.
(h) The issuance and sale of the Securities, the compliance by
the Company with all of the provisions of the Securities, the Indenture,
this Agreement, and the consummation of the transactions contemplated
herein and therein do not and will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, or result in the imposition of a lien or security interest under,
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any Significant Subsidiary
is a party or by which the Company or any Significant Subsidiary is bound
or to which any of the property or assets used in the conduct of the
business of the Company or any Significant Subsidiary is subject, nor will
such action result in any violation of the provisions of the articles of
incorporation or the by-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any Significant Subsidiary or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the consummation by the Company of the transactions
contemplated by this Agreement or the Indenture or in connection with the
issuance and sale of the Securities hereunder, except such as have been, or
will have been prior to the Commencement Date (as defined in Section 3
hereof), obtained under the Act, the Trust Indenture Act or otherwise and
such consents, approvals, authorizations,
5
<PAGE>
orders, registrations or qualifications as may be required under state
securities or blue sky laws, as the case may be.
(i) Other than as set forth in or contemplated by the
Prospectus, there are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened to which the Company or any
Subsidiary is a party or to which any property of the Company or any
Subsidiary is the subject that is reasonably expected to have a material
adverse effect on the Company and the Subsidiaries taken as a whole.
(j) Immediately after any sale of Securities by the Company
hereunder, the aggregate amount of Securities that has been issued and sold
by the Company hereunder will not exceed the aggregate principal amount of
Securities registered under the 1999 Registration Statement (in this
regard, the Company acknowledges and agrees that the Agents shall have no
responsibility for maintaining records with respect to the aggregate
principal amount of Securities sold, or of otherwise monitoring the
availability of Securities for sale, under the 1999 Registration
Statement).
(k) ASB has been duly formed and is validly existing as a
federal savings bank duly chartered and in good standing under the laws of
the United States; and, since the respective dates as of which information
is given in the Prospectus, there have not been any increases in total non-
accruing loans or the provision for loan losses of ASB and its
subsidiaries, which increase or increases, individually or in the
aggregate, would have a material adverse effect on the consolidated
financial position, stockholders' equity or results of operations of the
Company and the Subsidiaries taken as a whole.
---
(l) The Company and each of HECO, HELCO, MECO, and (to the
extent they are Subsidiaries of the Company at any time relevant
hereunder), HEI Diversified Inc., ASB and HEI Power Corp. (each, a
"Significant Subsidiary") have all requisite power and authority, and
possess all necessary authorizations, approvals, orders, licenses,
franchises, certificates and permits of and from, and to the extent
required by law are duly registered with, all governmental and regulatory
officials, commissions, departments and bodies in, and are in compliance
with all applicable laws, rules and regulations of or under, each
jurisdiction in which any of them owns properties or assets or conducts any
business as described in the Prospectus, where the failure to possess such
authorization, approval, order, license, franchise, certificate or permit,
or where the failure so to register or so to comply, would have a material
adverse effect on the consolidated financial position, stockholders' equity
or results of operations of the Company and the Subsidiaries taken as a
whole; each such authorization, approval, order, license, franchise,
certificate and permit is valid and in full force and effect, and there is
no proceeding pending or, to the Company's knowledge, threatened that may
lead to the revocation, termination, suspension or non-renewal of any such
authorization, approval, order, license, franchise, certificate or permit;
the Company and Significant Subsidiaries have taken appropriate action to
maintain in effect or renew each such authorization, approval, order,
license, franchise, certificate or permit; the Company and Significant
Subsidiaries own, or possess adequate rights to use, all patents,
trademarks, service marks and rights necessary for or material to the
conduct of their respective business as described in the Prospectus; and
the Company and Significant Subsidiaries possess
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adequate easements, rights-of-way and other rights to use of land not owned
by the Company and Significant Subsidiaries, with such exceptions and
defects as are described in the Prospectus or as do not materially
interfere with the use made of such land by the Company and Significant
Subsidiaries or as do not have a material adverse effect on the
consolidated financial position, stockholders' equity or results of
operations of the Company and the Subsidiaries taken as a whole.
(m) The Company and HECO are holding companies within the
meaning of the Public Utility Holding Company Act of 1935, as amended;
however, by virtue of having filed an appropriate application under the
provisions of Section 3(a) of such Act, the Company and HECO are exempt
from all of the provisions of such Act, except Section 9(a)(2) thereof, and
will remain so exempt, subject to future timely filing of annual exemption
statements and such filings as are required by Section 33 of such Act with
respect to interests of the Company or any of the Subsidiaries in any
foreign utility company, unless and except insofar as the Commission finds
such exemption detrimental to the public interest or the interest of
investors or consumers.
(n) Neither the Company nor HEI Investment Corp. ("HEIIC") is an
"investment company", nor is either, nor upon issuance of the Securities
will either become, "controlled" by an "investment company", in each case
within the meaning of the Investment Company Act of 1940, as amended (the
"1940 Act").
(o) This Agreement has been duly authorized, executed and
delivered by the Company.
(p) The accountants who have audited the consolidated financial
statements of the Company that are incorporated by reference into the
Prospectus are independent certified public accountants as required by the
Act and the rules and regulations of the Commission promulgated thereunder.
(q) The Medium-Term Note Program under which the Securities are
issued (the "Program") is rated Baa2 by Moody's Investors Service, Inc.,
BBB by Standard & Poor's Ratings Service or such other rating as to which
the Company has most recently notified the Agents pursuant to Section 4(a)
hereof.
Any certificate signed by any officer of the Company and delivered to
one or more Agents or to counsel for the Agents in connection with an offering
of Securities to one or more Agents as principal or through an Agent as agent
shall be deemed a representation and warranty by the Company to such Agent or
Agents as to the matters covered thereby on the date of such certificate.
2. (a) If agreed to by an Agent and the Company, Securities shall be
purchased by such Agent as principal. Such purchases shall be made in
accordance with terms agreed upon by such Agent and the Company (which terms,
unless otherwise agreed to, shall, to the extent applicable, include those terms
specified in Annex I hereto and be agreed upon orally, with written confirmation
prepared by such Agent and delivered to the Company). Any Agent's commitment to
purchase Securities as principal shall be deemed to have been made on the basis
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<PAGE>
of the representations and warranties of the Company herein contained and shall
be subject to the terms and conditions herein set forth. Unless the context
otherwise requires, references herein to "this Agreement" shall include the
applicable agreement of one or more Agents to purchase Notes from the Company as
principal. Each purchase of Securities by an Agent as principal, unless
otherwise agreed, shall be at a discount from the principal amount of each such
Security equivalent to the applicable commission set forth in Schedule A hereto.
The Agents may engage the services of any broker or dealer in connection with
the resale of the Securities purchased as principal and may allow all or any
portion of the discount received from the Company in connection with such
purchases to such brokers and dealers. At the time of each purchase of
Securities from the Company by one or more Agents as principal, such Agent or
Agents shall specify the requirements for the Stand-Off Agreement (as defined in
Section 4(f) hereof), officer's certificate, opinions of counsel and comfort
letter pursuant to Sections 4(f), 6(b), 6(c), 6(d) and 6(g) hereof.
If the Company and two or more Agents enter into an agreement pursuant to which
such Agents agree to purchase Securities from the Company as principal,
severally and not jointly as set forth in such agreement, and one or more of
such Agents fails at the Time of Delivery to purchase the Securities that it or
they are obligated to purchase (the "Defaulted Securities"), then the
nondefaulting Agents shall have the right, within 24 hours thereafter, to make
arrangements for one of them or one or more other Agents or underwriters to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; provided, however,
that if such arrangements have not been completed within such 24-hour period,
then:
(i) if the aggregate principal amount of Defaulted Securities does
not exceed 10% of the aggregate principal amount of Securities to be so
purchased by all of such Agents at the Time of Delivery, the nondefaulting
Agents shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective initial
underwriting obligations bear to the underwriting obligations of all
nondefaulting Agents; or
(ii) if the aggregate principal amount of Defaulted Securities
exceeds 10% of the aggregate principal amount of Securities to be so
purchased by all of such Agents at the Time of Delivery, such agreement
shall terminate without liability on the part of any nondefaulting Agent.
No action taken pursuant to this paragraph shall relieve any defaulting Agent
from liability in respect of its default pursuant to this Section 2(a). In the
event of any such default pursuant to this Section 2(a) that does not result in
a termination of such agreement, each of the nondefaulting Agents and the
Company shall have the right to postpone the Time of Delivery for a period not
exceeding seven days in order to effect any required changes in the Registration
Statements or the Prospectus or in any other documents or arrangements.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, when agreed
by the Company and an Agent, such Agent, as agent of the Company, upon receipt
of instructions from the Company, shall use its reasonable efforts to solicit
offers for the purchase of Securities upon the terms set forth in the
Prospectus. Unless otherwise agreed upon by the Company and an Agent, all
Securities sold
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<PAGE>
through such Agent as agent shall be sold at 100% of their principal amount.
The Company reserves the right to sell, and may solicit and accept offers to
purchase, the Securities directly on its own behalf, and, in the case of any
such sale not resulting from a solicitation made by any Agent, no commission
shall be payable with respect to such sale.
The Company reserves the right, in its sole discretion, to instruct
the Agents to suspend at any time, for any period of time or permanently, the
solicitation of offers to purchase the Securities. As soon as practicable, but
in any event not later than one business day in New York City, after receipt of
notice from the Company, the Agents shall suspend solicitation of offers for the
purchase of Securities from the Company until such time as the Company has
advised the Agents that such solicitation may be resumed.
Each Agent, in soliciting offers for the purchase of Securities from
the Company as agent and in performing the other obligations of an Agent
hereunder, is acting solely as agent for the Company and not as principal. Such
Agent will communicate to the Company, orally, each offer for the purchase of
Securities solicited by it on an agency basis other than those offers rejected
by such Agent. Such Agent shall have the right, in its discretion reasonably
exercised, to reject any offer for the purchase of Securities, in whole or in
part, and any such rejection shall not be deemed a breach of its agreement
contained herein. The Company may accept or reject any offer for the purchase
of Securities, in whole or in part. Each Agent shall make reasonable efforts to
assist the Company in obtaining performance by each purchaser whose offer to
purchase Securities from the Company was solicited by it on an agency basis and
has been accepted by the Company, but such Agent shall not have any liability to
the Company in the event such purchase is not consummated for any reason. If
the Company defaults on its obligation to deliver Securities to a purchaser
whose offer has been solicited by such Agent on an agency basis and accepted by
the Company, the Company shall (i) hold each Agent harmless against any loss,
claim or damage arising from or as a result of such default by the Company and
(ii) notwithstanding such default, pay to the Agent that solicited such offer
any commission to which it would otherwise be entitled absent such default.
The Company agrees to pay each Agent a commission (which may be in the
form of a discount), at the time of settlement of any sale of a Security by the
Company as a result of a solicitation made by such Agent, in an amount equal to
the applicable percentage of the principal amount of such Security sold as set
forth in Schedule A hereto.
(c) The purchase price, interest rate or formula, maturity date and
other terms of the Securities (as applicable) specified in Annex I hereto shall
be agreed upon by the Company and such Agent and set forth in the applicable
Pricing Supplement to be prepared in connection with each sale of Securities.
Except as may be otherwise provided in the applicable Pricing Supplement, the
Securities shall be issued in denominations of $1,000 or any larger amount that
is an integral multiple of $1,000.
Procedural details relating to the issue and delivery of Securities,
the solicitation of offers for the purchase of Securities and the payment in
each case therefor shall be as set forth in the Administrative Procedures
attached hereto as Annex II as they may be amended from time to time by written
agreement between the Agents and the Company (the "Administrative Procedures").
Each Agent and the Company agree to perform their respective duties and
9
<PAGE>
obligations specifically provided to be performed by them in the Administrative
Procedures. The Company will furnish to the Trustee a copy of the
Administrative Procedures as from time to time in effect.
(d) The Company may appoint additional agents in connection with the
offering and sale of the Securities from time to time or in connection with a
single offering and sale of the Securities, whether as agent or principal,
provided that, in any such case, the Company gives the Agents at least five (5)
days' prior notice of such appointment and any such additional agent enters into
an agreement with the Company making such additional agent an Agent under this
Agreement with respect to such offering and sale of the Securities from time to
time or solely for the purpose of such single offering and sale of the
Securities, as the case may be.
3. The documents required to be delivered pursuant to Section 6
hereof on the Commencement Date (as defined below) shall be delivered to the
Agents at the offices of Winthrop, Stimson, Putnam & Roberts. in New York, New
York at 10:00 a.m., New York time, or at such other places or times as the
parties agree, on the date of this Agreement, which date and time of such
delivery may be postponed by agreement between the Agents and the Company but in
no event shall be later than the day prior to the date of any agreement by the
Agents to purchase Securities, as principal, or on which solicitation of offers
for the purchase of Securities is commenced by the Agents, as agents (such time
and date being referred to herein as the "Commencement Date").
4. The Company covenants and agrees with each Agent as follows:
(a)(i) To make no amendment or supplement to the Registration
Statements or the Prospectus (A) prior to the Commencement Date that is
reasonably disapproved by any Agent promptly after reasonable notice
thereof or (B) after the date of an agreement by an Agent to purchase
Securities as principal and prior to the related Time of Delivery that is
reasonably disapproved by any Agent so purchasing as principal promptly
after reasonable notice thereof; (ii) to prepare, with respect to any
Securities to be sold through or to such Agent pursuant to this Agreement,
a Pricing Supplement with respect to such Securities in a form previously
approved by such Agent and to file such Pricing Supplement pursuant to Rule
424(b) promulgated by the Commission under the Act within the time period
required thereby; (iii) to make no amendment or supplement to the
Registration Statements or the Prospectus (other than any Pricing
Supplement and any document filed under the Exchange Act (provided that the
Company furnishes such documents to the Agents at or before the time they
are filed with the Commission and, in the case of Current Reports on Form
8-K, the Company notifies the Agents (or Agents' counsel) a reasonable time
in advance of filing such documents with the Commission)) at any time prior
to having afforded each Agent a reasonable opportunity to review and
comment thereon; (iv) to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act for so long as the delivery of a prospectus is required under the Act
or under the blue sky or securities laws of any jurisdiction in connection
with the offering or sale of the Securities, and during such same period to
advise such Agent, promptly after the Company receives notice thereof, of
the time when
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<PAGE>
any amendment to any of the Registration Statements has been filed or has
become effective or any supplement to the Prospectus or any amended
Prospectus (other than any Pricing Supplement that relates to Securities
not purchased through or by such Agent) has been filed with the Commission,
of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any prospectus relating to the
Securities, of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, of any request by the Commission for
the amendment or supplement of any of the Registration Statements or the
Prospectus or for additional information or of any change in the rating
assigned by any nationally recognized statistical rating organization to
the Program or any debt securities (including the Securities) of the
Company, or the public announcement by any nationally recognized
statistical rating organization that it has under surveillance or review,
with possible negative implications, its rating of the Program or any such
debt securities, or the withdrawal by any nationally recognized statistical
rating organization of its rating of the Program or any such debt
securities; and (v) in the event of the issuance of any such stop order or
of any such order preventing or suspending the use of any such prospectus
or suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) Promptly from time to time to take such action as such Agent may
reasonably request to cooperate with such Agent in the qualification of the
Securities for offering and sale under the blue sky or securities laws of
such jurisdictions within the United States of America and its territories
as such Agent may request and to use its best efforts to comply with such
laws so as to permit the continuance of sales and dealings therein for as
long as may be necessary to complete the distribution or sale of the
Securities; provided, however, that in connection therewith the Company
-------- -------
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction;
(c) To furnish such Agent with copies of the Registration Statements
and each amendment thereto, and with copies of the Prospectus and each
amendment or supplement thereto other than any Pricing Supplement (except
as provided in the Administrative Procedures), in the form in which it is
filed with the Commission pursuant to the Act or Rule 424(b) promulgated by
the Commission under the Act, both in such quantities as such Agent may
reasonably request from time to time; and, if the delivery of a prospectus
is required under the Act or under the blue sky or securities laws of any
jurisdiction at any time in connection with the offering or sale of the
Securities (including Securities purchased from the Company by such Agent
as principal) and if at such time any event has occurred as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it is necessary during such
same period to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus in
order to comply with the Act, the Exchange Act or the Trust Indenture Act,
to notify such Agent and request such Agent, in its capacity as agent of
the Company, to suspend solicitations of offers to purchase
11
<PAGE>
Securities from the Company (and, if so notified, such Agent shall cease
such solicitations as soon as practicable, but in any event not later than
one business day later); and if the Company decides to amend or supplement
any of the Registration Statements or the Prospectus as then amended or
supplemented, to advise such Agent promptly by telephone (with confirmation
in writing) and to prepare and cause to be filed promptly with the
Commission an amendment or supplement to any of the Registration Statements
or the Prospectus as then amended or supplemented that will correct such
statement or omission or effect such compliance; provided, however, that if
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during such same period such Agent continues to own Securities purchased
from the Company by such Agent as principal or such Agent is otherwise
required to deliver a prospectus in respect of transactions in the
Securities, the Company shall promptly prepare and file with the Commission
such an amendment or supplement;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the registration statement (as defined in Rule 158(c)
promulgated by the Commission under the Act), an earning statement of the
Company and the Subsidiaries (which need not be audited) complying with
Section 11(a) of the Act and the rules and regulations of the Commission
promulgated thereunder (including, the option of the Company to file
periodic reports in order to make generally available such earning
statement, to the extent that it is required to file such reports under
Section 13 or Section 15(d) of the Exchange Act, pursuant to Rule 158
promulgated by the Commission under the Act);
(e) So long as any Securities are outstanding, to furnish to such
Agent (in paper or electronic format) copies of all publicly available
reports or other communications (financial or other) furnished generally to
stockholders and filed with the Commission pursuant to the Exchange Act,
and deliver to such Agent (i) promptly after they are available, copies of
any publicly available reports and financial statements furnished to or
filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed; and (ii) such additional
publicly available information concerning the business and financial
condition of the Company as such Agent may from time to time reasonably
request (such financial statements to be on a consolidated basis to the
extent the accounts of the Company and its Subsidiaries are consolidated in
reports furnished to its stockholders generally or to the Commission);
(f) That, if specified by an Agent in connection with a purchase
as principal, from the date of any agreement by such Agent to purchase
Securities as principal and continuing to and including the earlier of (i)
the termination of the trading restrictions for the Securities purchased
thereunder, as notified to the Company by such Agent and (ii) the related
Time of Delivery, not to offer, sell, contract to sell or otherwise dispose
of any debt securities of the Company that mature more than 9 months after
such Time of Delivery and are substantially similar to the Securities,
without the prior written consent of such Agent (each, a "Stand-Off
Agreement");
(g) That each acceptance by the Company of an offer for the
purchase of Securities and each delivery of Securities (including in each
case any purchase by such Agent as principal) shall be deemed to be (i) an
affirmation to such Agent that the
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<PAGE>
representations and warranties of the Company contained in or made pursuant
to this Agreement are true and correct as of the date of such acceptance or
of such delivery, as the case may be, as though made at and as of each such
date, except as may be disclosed in the Prospectus (including any documents
incorporated by reference therein and any supplements thereto) or otherwise
in writing by the Company to the Agents on or before said date of
acceptance or date of delivery, as the case may be, and (ii) an undertaking
that the Company will advise such Agent if any of such representations and
warranties will not be true and correct as of the settlement date for the
Securities relating to such acceptance or as of the date of such delivery
relating to such sale, as the case may be, as though made at and as of each
such date (except that such representations and warranties shall be deemed
to relate to the Registration Statements and the Prospectus as amended and
supplemented relating to such Securities);
(h) That reasonably in advance of each time that any of the
Registration Statements or the Prospectus is amended or supplemented (other
than by a Pricing Supplement or, unless reasonably requested by the Agents
within 30 days of the filing thereof with the Commission, a Current Report
on Form 8-K), including by means of an Annual Report on Form 10-K or a
Quarterly Report on Form 10-Q filed with the Commission under the Exchange
Act and incorporated or deemed to be incorporated by reference into the
Prospectus, except in either case during periods in which the Company has
suspended solicitation of offers pursuant to Section 2(b) hereof (it being
understood that the Company may not resume such solicitation until this
provision is complied with) or except as an Agent otherwise elects, and
each time the Company sells Securities to such Agent as principal pursuant
to an agreement to purchase Securities as principal and such agreement
specifies the delivery of an opinion or opinions by Winthrop, Stimson,
Putnam & Roberts (or other counsel selected by the Agents), counsel to the
Agents, as a condition to the purchase of Securities pursuant to such
agreement, the Company shall as soon as practicable thereafter furnish to
such counsel such papers and information as they may reasonably request to
enable them to furnish to such Agent the opinion or opinions referred to in
Section 6(b) hereof;
(i) That each time any of the Registration Statements or the
Prospectus is amended or supplemented (other than by a Pricing Supplement
or, unless reasonably requested by the Agents within 30 days of the filing
thereof with the Commission, a Current Report on Form 8-K), including by
means of an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q
filed with the Commission under the Exchange Act and incorporated or deemed
to be incorporated by reference into the Prospectus, except in either case
during periods in which the Company has suspended solicitation of offers
pursuant to Section 2(b) hereof (it being understood that the Company may
not resume such solicitation until this provision is complied with) or
except as an Agent otherwise elects, and each time the Company sells
Securities to such Agent as principal pursuant to an agreement to purchase
Securities as principal and such agreement specifies the delivery of an
opinion under this Section 4(i) as a condition to the purchase of
Securities pursuant to such agreement, the Company shall as soon as
practicable thereafter furnish or cause to be furnished forthwith to such
Agent a written opinion of Goodsill Anderson Quinn & Stifel (or other
counsel satisfactory to the Agents), counsel for the Company, dated the
date of such amendment, supplement,
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<PAGE>
incorporation or Time of Delivery relating to such sale, as the case may
be, in form reasonably satisfactory to such Agent, to the effect that such
Agent may rely on the opinion of such counsel referred to in Section 6(c)
hereof that was last furnished to such Agent to the same extent as though
it were dated the date of such letter authorizing reliance (except that the
statements in such last opinion shall be deemed to relate to the
Registration Statements and the Prospectus as amended and supplemented to
such date) or, in lieu of such opinion, an opinion of the same tenor as the
opinion of such counsel referred to in Section 6(c) hereof but modified to
relate to the Registration Statements and the Prospectus as amended and
supplemented to such date;
(j) That each time any of the Registration Statements or the
Prospectus is amended or supplemented, including by means of an Annual
Report on Form 10-K, a Quarterly Report on Form 10-Q or a Current Report on
Form 8-K filed with the Commission under the Exchange Act and incorporated
or deemed to be incorporated by reference into the Prospectus, in either
case to set forth financial information included in or derived from the
Company's consolidated financial statements or accounting records, except
in either case during periods in which the Company has suspended
solicitation of offers pursuant to Section 2(b) hereof (it being understood
that the Company may not resume such solicitation until this provision is
complied with) or except as an Agent otherwise elects, and each time the
Company sells Securities to such Agent as principal pursuant to an
agreement to purchase Securities as principal and such agreement specifies
the delivery of a letter under this Section 4(j) as a condition to the
purchase of Securities pursuant to such agreement, the Company shall as
soon as practicable thereafter cause the independent certified public
accountants who have audited the financial statements of the Company and
its Subsidiaries included or incorporated by reference in the Registration
Statements forthwith to furnish to such Agent a letter, dated the date of
such amendment, supplement, incorporation or Time of Delivery relating to
such sale, as the case may be, in form reasonably satisfactory to such
Agent, of the same tenor as the letter referred to in Section 6(d) hereof
but modified to relate to the Registration Statements and the Prospectus as
amended or supplemented to the date of such letter, with such changes as
may be necessary to reflect changes in the financial statements and other
information derived from the accounting records of the Company, to the
extent such financial statements and other information are available as of
a date not more than five business days prior to the date of such letter;
provided, however, that, with respect to any financial information or other
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matter, such letter may reconfirm as true and correct at such date as
though made at and as of such date, rather than repeat, statements with
respect to such financial information or other matters made in the letter
referred to in Section 6(d) hereof that was last furnished to such Agent;
(k) That each time any of the Registration Statements or the
Prospectus is amended or supplemented (other than by a Pricing Supplement
or, unless reasonably requested by the Agents within 30 days of the filing
thereof with the Commission, a Current Report on Form 8-K), including by
means of an Annual Report on Form 10-K or a Quarterly Report on Form 10-Q
filed with the Commission under the Exchange Act and incorporated or deemed
to be incorporated by reference into the Prospectus, except in either case
during periods in which the Company has suspended solicitation of offers
pursuant to Section 2(b) hereof (it being understood that the
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<PAGE>
Company may not resume such solicitation until this provision is complied
with) or except as an Agent otherwise elects, and each time the Company
sells Securities to such Agent as principal and the applicable agreement to
purchase Securities as principal specifies the delivery of a certificate
under this Section 4(k) as a condition to the purchase of Securities
pursuant to such agreement, the Company shall as soon as practicable
thereafter furnish or cause to be furnished forthwith to such Agent a
certificate, dated the date of such supplement, amendment, incorporation or
Time of Delivery relating to such sale, as the case may be, in such form
and executed by such officers of the Company as is reasonably satisfactory
to such Agent, to the effect that the statements contained in the
certificate referred to in Section 6(g) hereof that was last furnished to
such Agent are true and correct at such date as though made at and as of
such date (except that such statements shall be deemed to relate to the
Registration Statements and the Prospectus as amended and supplemented to
such date) or, in lieu of such certificate, certificates of the same tenor
as the certificates referred to in said Section 6(g) but modified to relate
to the Registration Statements and the Prospectus as amended and
supplemented to such date; and
(l) To offer to any person who has agreed to purchase Securities
as the result of an offer to purchase solicited by such Agent the right to
refuse to purchase and pay for such Securities if, on the related
settlement date fixed pursuant to the Administrative Procedures, any
condition set forth in Section 6(a), 6(e) or 6(f) hereof has not been
satisfied (it being understood that the judgment of such person with
respect to the impracticability or inadvisability of such purchase of
Securities shall be substituted, for purposes of this Section 4(l), for the
respective judgments referred to therein of an Agent with respect to
certain matters referred to in such Sections 6(a), 6(e) and 6(f), and that
such Agent shall have no duty or obligation whatsoever to exercise the
judgment permitted under such Sections 6(a), 6(e) and 6(f) on behalf of any
such person).
5. The Company covenants and agrees with each Agent that the Company
shall pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
preparation, printing and filing of the Registration Statements, the Prospectus
and any Pricing Supplements and all other amendments and supplements thereto and
the mailing and delivering of copies thereof to such Agent; (ii) the reasonable
fees, disbursements and expenses of counsel for the Agents in connection with
the establishment of the Program, any opinions to be rendered by such counsel
hereunder and ongoing services in connection with the transactions contemplated
hereunder including advice and services in connection with purchases by the
Agents or any Agent pursuant to Section 2(a) hereof; (iii) the cost of printing,
preparing by word processor or reproducing this Agreement, any other agreement
to purchase Securities as principal, the Indenture, any blue sky survey and any
other documents in connection with the offering, purchase, sale and delivery of
the Securities; (iv) all expenses (not to exceed an aggregate of $7,500 for all
sales hereunder) in connection with the qualification of the Securities for
offering and sale under state securities laws as provided in Section 4(b)
hereof, including the fees and disbursements of counsel for the Agents in
connection with such qualification and in connection with the blue sky survey;
(v) any fees charged by securities rating services for rating the Securities;
(vi) any filing fees incident to any required review by the National Association
of Securities Dealers, Inc. of the terms of the sale of the Securities; (vii)
the cost of preparing the Securities; (viii) the fees and expenses of any
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Trustee and any agent of a Trustee and any transfer or paying agent of the
Company and the fees and disbursements of counsel for any Trustee or such agent
in connection with the Indenture and the Securities; (ix) any advertising
expenses connected with the solicitation of offers to purchase and the sale of
Securities so long as such advertising expenses have been approved in advance by
the Company; (x) the Agents' reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated hereunder; (xi) the cost of
providing any CUSIP or other identification numbers for the Securities; (xii)
the fees and expenses of any depositary and any nominees thereof in connection
with the Securities; and (xiii) all other costs and expenses incident to the
performance of the Company's obligations hereunder that are not otherwise
specifically provided for in this Section. Except as provided in this Section 5
and in Sections 7 and 2(b) hereof, each Agent shall pay all other expenses it
incurs.
6. The obligation of any Agent, as agent of the Company, at any time
(each, a "Solicitation Time") to solicit offers to purchase Securities and the
obligation of any Agent to purchase Securities as principal, pursuant to any
agreement, shall in each case be subject, in such Agent's discretion, to the
condition that all representations and warranties and other statements of the
Company herein are true and correct at and as of the Commencement Date and any
applicable date referred to in Section 4(k) hereof that is prior to such
Solicitation Time or Time of Delivery, as the case may be, and at and as of such
Solicitation Time or Time of Delivery, as the case may be, the condition that
prior to such Solicitation Time or Time of Delivery, as the case may be, the
Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) (i) With respect to any Securities sold at or prior to such
Solicitation Time or Time of Delivery, as the case may be, the Prospectus
as amended and supplemented (including the Pricing Supplement) with respect
to such Securities shall have been filed with the Commission pursuant to
Rule 424(b) promulgated by the Commission under the Act within the
applicable time period prescribed for such filing by the rules and
regulations promulgated by the Commission under the Act and in accordance
with Section 4(a) hereof; (ii) no stop order suspending the effectiveness
of any of the Registration Statements shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and (iii) all requests for additional information on the part
of the Commission shall have been complied with to the reasonable
satisfaction of such Agent;
(b) Winthrop, Stimson, Putnam & Roberts, counsel to the Agents,
or other counsel selected by the Agents and reasonably satisfactory to the
Company, shall have furnished to such Agent (i) such opinion or opinions,
dated the Commencement Date, with respect to this Agreement, the validity
of the Indenture and the Securities, the Registration Statements, the
Prospectus as amended or supplemented, and other related matters as such
Agent may reasonably request, and (ii) if and to the extent requested by
such Agent, with respect to each applicable date referred to in Section
4(h) hereof that is on or prior to such Solicitation Time or Time of
Delivery, as the case may be, but excluding dates in periods in which the
Company has suspended solicitation of offers pursuant to Section 2(b)
hereof, an opinion or opinions, dated such applicable date, to the effect
that such Agent may rely on the opinion or opinions that were last
furnished to such Agent pursuant to this Section 6(b) to the same extent as
though it or they were
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<PAGE>
dated the date of such letter authorizing reliance (except that the
statements in such last opinion or opinions shall be deemed to relate to
the Registration Statements and the Prospectus as amended and supplemented
to such date) or, in any case, in lieu of such an opinion or opinions, an
opinion or opinions of the same tenor as the opinion or opinions referred
to in clause (i) but modified to relate to the Registration Statements and
the Prospectus as amended and supplemented to such date; and in each case
such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Goodsill Anderson Quinn & Stifel, counsel for the Company, or
other counsel selected by the Company and reasonably satisfactory to the
Agents, shall have furnished to such Agent their written opinions, dated
the Commencement Date and each applicable date referred to in Section 4(i)
hereof that is on or prior to such Solicitation Time or Time of Delivery,
as the case may be, but excluding dates in periods in which the Company has
suspended solicitation of offers pursuant to Section 2(b) hereof, in form
and substance satisfactory to such Agent, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Hawaii, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus as amended or
supplemented;
(ii) the Company has an authorized equity capitalization as
set forth in the Prospectus as amended or supplemented and all of the
issued and outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable;
(iii) to such counsel's knowledge, the Company does not
itself conduct any business or own or lease any property in any
jurisdiction outside the State of Hawaii that would require it to
qualify to do business as a foreign corporation and where the failure
to be so qualified would subject the Company to any material liability
or disability;
(iv) each Significant Subsidiary, other than ASB, has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; ASB has
been duly formed and is duly chartered as a federal savings bank under
the laws of the Untied States; all of the issued and outstanding
shares of capital stock of each Significant Subsidiary have been duly
and validly authorized and issued and are fully paid and non-
assessable; and, to such counsel's knowledge, all of such shares,
other than shares of preferred stock (including the existing preferred
stock of HECO and its subsidiaries), are owned directly or indirectly
by the Company, free and clear of any perfected encumbrance or
security interest or any other encumbrance, claim or equity, and with
such exceptions as are described in the Prospectus as amended or
supplemented or as are otherwise disclosed to the Agents;
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(v) the Company and HECO are holding companies within the
meaning of the Public Utility Holding Company Act of 1935; however, by
virtue of having filed an appropriate application under the provisions
of Section 3(a) of such Act, the Company and HECO are exempt from all
of the provisions of such Act except Section 9(a)(2) thereof, and will
remain so exempt, subject to the future timely filings of annual
exemption statements and such filings as are required by Section 33 of
such Act with respect to interests of the Company or the Subsidiaries
---
in any foreign utility company, unless and except insofar as the
Commission finds such exemption detrimental to the public interest or
the interest of investors or consumers;
(vi) except as indicated in the Prospectus as amended or
supplemented, to such counsel's knowledge, (a) neither the Company nor
any Significant Subsidiary is engaged in, or threatened with, any
litigation, and (b) there are no proceedings, or any proceedings
threatened, with respect to the Company or any Significant Subsidiary
or their property, that, in the case of either clause (a) or (b)
above, such counsel (or other counsel as to litigation or proceedings
that are not principally handled by their firm) has concluded is
reasonably expected to have a material adverse effect on the Company
and the Subsidiaries taken as a whole;
---
(vii) this Agreement has been duly authorized, executed
and delivered by the Company;
(viii) the Securities have been duly authorized by the
Company for issuance, offer and sale pursuant to the provisions of
this Agreement and, when duly executed, authenticated, issued and
delivered pursuant to the provisions of this Agreement and the
Indenture against payment of the consideration therefor, will
constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement
of mortgagees' and other creditors' rights and by general equitable
principles (regardless of whether considered in a proceeding in equity
or at law) and will be entitled to the benefits provided by the
Indenture; and the Indenture and the Securities conform in all
material respects to the descriptions thereof in the Prospectus as
amended or supplemented;
(ix) the Indenture has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution
and delivery by the Trustee, constitutes a valid and legally binding
instrument of the Company, enforceable against the Company in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights and by general equitable principles
(regardless of whether considered in a proceeding in equity or at
law); and the Indenture has been duly qualified under the Trust
Indenture Act;
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<PAGE>
(x) the issuance and sale of the Securities, the compliance
by the Company with all of the provisions of the Securities, the
Indenture, this Agreement and the consummation of the transactions
contemplated herein and therein will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any material indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any Significant Subsidiary is a party or by which the
Company or any Significant Subsidiary is bound or to which any of the
material property or assets of the Company or any Significant
Subsidiary is subject, nor will such action result in any violation of
the provisions of the charter or the by-laws of the Company or any
statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the
Company or any of its properties, except that such counsel need not
express an opinion with respect to compliance with state securities or
blue sky laws in connection with the solicitation by the Agents of
offers for the purchase of Securities from the Company, with any
resulting purchases of Securities and with any purchases of Securities
by an Agent as principal, as the case may be, in each case in the
manner contemplated hereby;
(xi) no consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required for the solicitation of offers to purchase
Securities, the issuance and sale of the Securities or the
consummation by the Company of the other transactions contemplated by
this Agreement or the Indenture, except such as have been obtained or
made under the Act and the Trust Indenture Act or otherwise and such
consent, approvals, authorizations, registrations, or qualifications
as may be required under state securities or blue sky laws in
connection with the solicitation by the Agents of offers for the
purchase of Securities from the Company, with any resulting purchases
of Securities and with any purchases of Securities by an Agent as
principal, as the case may be, in each case in the manner contemplated
hereby;
(xii) neither the Company nor HEIIC is an "investment
company", nor is either "controlled" by an "investment company", in
each case within the meaning of the 1940 Act;
(xiii) the documents incorporated by reference in the
Prospectus as amended or supplemented, when they were filed with the
Commission, complied as to form in all material respects with the
requirements of the Exchange Act, and the rules and regulations of the
Commission promulgated thereunder; and nothing has come to the
attention of such counsel that causes them to believe that any of such
documents, when they were so filed, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made when the documents were so filed, not
misleading; and
(xiv) the Registration Statements, as of the Effective
Date, and the Prospectus, as of its Issue Date, comply as to form in
all material respects
19
<PAGE>
with the requirements of the Act and the Trust Indenture Act and the
rules and regulations of the Commission promulgated thereunder; to
such counsel's knowledge, each of the Registration Statements has been
declared, and as of the date of such opinion is, effective under the
Act and no proceedings for a stop order with respect thereto are
threatened or pending under Section 8 of the Act; nothing has come to
the attention of such counsel that causes them to believe that the
Registration Statements, as of the Effective Date, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that, as of its Issue Date and as of the
date of such opinion, the Prospectus (as most recently amended and
supplemented), contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and they do not know of any contracts or other documents
of a character required to be filed as an exhibit to any of the
Registration Statements or required to be incorporated by reference
into the Prospectus as amended or supplemented or required to be
described in any of the Registration Statements or the Prospectus as
amended or supplemented that are not filed or incorporated by
reference or described as required.
In rendering such opinion, (A) such counsel may state that it is
expressing an opinion only as to the federal laws of the United States and,
the laws of the State of Hawaii and the laws of the State of New York, (B)
such counsel may rely, as to matters involving the application of the laws
of the State of New York, upon the opinion or opinions of counsel for the
Agents, (C) such counsel may rely, as to matters of good standing and valid
existence and as to matters of fact, upon certificates of government
officials (provided that copies of such certificates will be furnished to
counsel for the Agents), (D) such counsel may rely, as to matters of fact,
upon certificates and representations of officers and employees of the
Company (provided that copies of such certificates will be furnished to
counsel for the Agents upon its reasonable request), (E) such counsel may
rely, with respect to matters involving litigation or proceedings not
principally handled by such counsel's firm, upon opinions and information
upon which such counsel has been permitted to rely by other counsel
representing the Company in such litigation or proceedings (provided that
copies of such opinions are delivered to counsel for the Agents, other than
opinions of counsel who do not consent to such delivery if, in such case,
the Company makes such counsel reasonably available to discuss such
litigation or proceedings with counsel for the Agents), (F) for purposes of
the opinion expressed in paragraph (vi) above, "material" shall mean
$15,000,000, (G) such counsel may state that it has not been requested to,
and does not, express any opinion with respect to the financial statements
and notes thereto and the schedules and other financial and statistical
data and information included or incorporated by reference in the
Registration Statements and the Prospectus, (H) such counsel may state,
with respect to the matters set forth in paragraphs (xiii) and (xiv) above,
that they have not independently verified and assume no responsibility for
the accuracy, completeness or fairness of the statements in the
Registration Statements or the Prospectus or in any document incorporated
by reference therein, except insofar as such statements relate to such
counsel or as set forth in paragraph (viii) above, (I) such counsel may
state that, whenever such opinion is qualified by the phrases "known to
such counsel," "to the best of our
20
<PAGE>
knowledge," "to our knowledge" or "nothing has come to our attention," or
other phrases of similar import, such phrases are intended to mean the
actual knowledge of information by the lawyers in such counsel's firm who
have been principally involved in drafting the Prospectus and supervising
the issuance, sale and delivery of the Securities and preparing the
pertinent documents and the lawyers having supervisory responsibility for
the client relationship with the Company and general transaction
representation, but does not include other information that might be
revealed if there were to be undertaken a canvass of all lawyers in such
counsel's firm, a general search of all files or any other type of
independent investigation (other than, with respect to the matters set
forth in paragraph (vi) above, such review of internal litigation files or
inquiries of other counsel as such counsel deems necessary), and (J) such
counsel may include therein such other customary qualifications reasonably
acceptable to the Agents and counsel for the Agents;
(d) Not later than 10:00 A.M., New York City time, on the
Commencement Date, and not later than 10:00 A.M., New York City time, on
each applicable date referred to in Section 4(j) hereof that is on or prior
to such Solicitation Time or Time of Delivery, as the case may be, but
excluding dates in periods during which the Company has suspended
solicitation of offers pursuant to Section 2(b) hereof, the independent
certified public accountants who have audited the financial statements of
the Company and its Subsidiaries included or incorporated by reference in
the Registration Statements shall have furnished to such Agent a letter,
dated the Commencement Date or such applicable date, as the case may be, in
form and substance satisfactory to such Agent, to the effect set forth in
Annex III hereto;
(e) (i) Neither the Company nor any Subsidiary shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus as amended or
supplemented any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus as amended or
supplemented and (ii) since the respective dates as of which information is
given in the Prospectus as amended or supplemented or since the date of any
agreement of any Agent to purchase Securities as principal there shall not
have been any change in the capital stock of the Company or any Subsidiary
(except for (i) issuances of capital stock of the Company pursuant to
dividend reinvestment, stock purchase, stock option, director or employee
benefit plans, (ii) issuances of capital stock (x) by Hawaiian Electric
Company, Inc. ("HECO") or its subsidiaries that have been approved by the
Public Utilities Commission of the State of Hawaii, (y) by any other
Significant Subsidiary to the Company or any Subsidiary or (z) that have
been disclosed in writing to the Agents and (iii) redemptions by HECO,
Hawaii Electric Light Company, Inc. ("HELCO") and Maui Electric Company,
Limited ("MECO") of their respective preferred stock in accordance with the
terms thereof), or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
the Subsidiaries taken as a whole, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of such Agent so
material and adverse as to make it impracticable or inadvisable to proceed
with the solicitation by such Agent of offers for the purchase of
Securities from the Company or the purchase by such Agent of such
Securities from the Company as principal, as the case may be;
21
<PAGE>
(f) There shall not have occurred (and be continuing in the case
of occurrences under clause (i) and (ii) below) any of the following: (i)
a suspension or material limitation in trading in securities of the Company
or in securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities in New York or Hawaii declared
by either federal or New York or Hawaii State authorities; (iii) after an
Agent has agreed to purchase Securities from the Company as principal, any
material adverse change in the financial markets in the United States, any
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war or any
change or development involving a prospective change in national or
international political, financial or economic conditions, if the effect of
any such event specified in this clause (iii) in the judgment of such Agent
makes it impracticable or inadvisable to proceed with the purchase of such
Securities from the Company as principal; or (iv) after an Agent has agreed
to purchase Securities from the Company as principal, any downgrading in
the rating accorded the Program or the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) promulgated under
the Act, or any public announcement by any such organization that it has
under surveillance or review, with possible negative implications, its
rating of the Program or any of the Company's debt securities; and
(g) The Company shall have furnished or caused to be furnished to
such Agent certificates of officers of the Company dated the Commencement
Date and each applicable date referred to in Section 4(k) hereof that is on
or prior to such Solicitation Time or Time of Delivery, as the case may be,
but excluding dates in periods during which the Company has suspended
solicitation of offers pursuant to Section 2(b) hereof, in such form and
executed by such officers of the Company as are reasonably satisfactory to
such Agent, as to the accuracy of the representations and warranties of the
Company herein at and as of the Commencement Date or such applicable date,
as the case may be, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to the Commencement Date
or such applicable date, as the case may be, as to the matters set forth in
subsection (a) of this Section 6, and as to such other matters as such
Agent may reasonably request.
7. (a) The Company shall indemnify and hold harmless each Agent and
each person, if any, who controls each Agent within the meaning of Section 15 of
the Act and Section 20 of the Exchange Act against any losses, claims, damages
or liabilities, joint or several, to which such Agent or such person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
of the Registration Statements, the Prospectus, the Prospectus as amended or
supplemented or any other prospectus relating to the Securities, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and to the
extent of the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, provided that
(subject to Section 7(d) hereof) any such settlement is effected with the
written consent of the
22
<PAGE>
Company, and shall reimburse such Agent or such person for any legal or other
expenses reasonably incurred by it in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however, that
-------- -------
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any of the Registration Statements, the Prospectus, the Prospectus as amended or
supplemented or any other prospectus relating to the Securities, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by such Agent expressly for use therein;
and provided, further, that the Company shall not be required to reimburse any
-------- -------
Agent or such person for fees and expenses of counsel other than one counsel for
all Agents and one counsel for all Agents in each jurisdiction in which
proceedings are or are threatened to be brought or of which matters of law are
or may be at issue, unless and to the extent that there are actual or potential
conflicts of interest between or among Agents or defenses available to one or
more Agents that are not available to other Agents; and provided, further, that
-------- -------
the indemnification contained in this Section 7(a) with respect to the
Prospectus shall not inure to the benefit of any Agent (or to the benefit of any
person controlling such Agent) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Securities, or arrangement
thereof, by such Agent to any person if the Company has established that a copy
of the most recent Prospectus (excluding documents incorporated by reference)
has not been delivered or sent to such person within the time required by the
Act and the rules and regulations of the Commission promulgated thereunder,
provided that the Company has delivered such Prospectus to such Agent in
requisite quantity on a timely basis to permit such delivery or sending.
(b) Each Agent shall indemnify and hold harmless the Company, each of
the directors and each of the officers of the Company who signed any of the
Registration Statements, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors, such officers or such persons may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
of the Registration Statements, the Prospectus, the Prospectus as amended or
supplemented or any other prospectus relating to the Securities, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and to the
extent of the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, provided that
(subject to Section 7(d) hereof) any such settlement is effected with the
written consent of such Agent, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any of the Registration Statements, the Prospectus,
the Prospectus as amended or supplemented or any other prospectus relating to
the Securities, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by such Agent
expressly for use therein; and shall reimburse the Company, such directors, such
officers or such persons for any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
23
<PAGE>
(c) Promptly after receipt by an indemnified party under Section 7(a)
or (b) hereof of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under Section 7(a) or (b) hereof, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability that it may have to
any indemnified party unless and only to the extent that such indemnifying party
is prejudiced by such omission nor relieve it from any liability that it may
have to any indemnified party otherwise than under Section 7(a) or (b) hereof.
In case any such action is brought against any indemnified party and such
indemnified party notifies the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under Section 7(a) or (b) hereof for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 7 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party has requested an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a) or Section 7(b) hereof, as the case may be,
effected without its written consent if (i) such settlement is entered into more
than 45 days after receipt by such indemnifying party of the aforesaid request,
(ii) such indemnifying party has received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party has not reimbursed such indemnified party in accordance with
such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and each Agent on the
other from the offering of the Securities to which such loss, claim, damage or
liability (or action in respect thereof) relates. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under Section
7(c) above and such indemnifying party was prejudiced by such omission, then
each indemnifying party shall
24
<PAGE>
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and each Agent on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and each Agent on the other shall be deemed to be in the
same proportion as the total net proceeds from the sale of Securities (before
deducting expenses) received by the Company bear to the total commissions or
discounts received by such Agent in respect thereof. The relative fault shall
be determined by reference to, among other things, whether the untrue statement
of a material fact or the omission or alleged omission to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading relates to information supplied by the Company on the one
hand or by any Agent on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and each Agent agree that it would not be just and
equitable if contribution pursuant to this Section 7(e) were determined by per
capita allocation (even if all Agents were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to above in this Section 7(e). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
Section 7(e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 7(e),
an Agent shall not be required to contribute any amount in excess of the amount
by which the total public offering price at which the Securities purchased by or
through it were sold exceeds the amount of any damages that such Agent has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of each of the Agents under this Section
7(e) to contribute are several in proportion to the respective purchases made by
or through it to which such loss, claim, damage or liability (or action in
respect thereof) relates and are not joint. The obligations of the Company and
the Agents under this Section 7 shall be in addition to any liability that the
Company and the Agents may otherwise have. For purposes of this Section 7(e),
each person, if any, who controls an Agent within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such agent, and each director of the Company, each officer of
the Company who signed any of the Registration Statements, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Company.
8. The respective indemnities, agreements, representations,
warranties and other statements by any Agent and the Company set forth in or
made pursuant to this Agreement shall remain in full force and effect regardless
of any investigation (or any statement as to the results thereof) made by or on
behalf of any Agent or any controlling person of any Agent or the Company, or
any officer or director or any controlling person of the Company, and shall
survive each delivery of and payment for any of the Securities.
9. The provisions of the Agreement relating to the solicitation of
offers for the purchase of Securities from the Company may be suspended or
terminated at any time by the
25
<PAGE>
Company as to any Agent or by any Agent as to such Agent upon the giving of
written notice of such suspension or termination to such Agent or the Company,
as the case may be. In the event of such suspension or termination with respect
to any Agent, (a) this Agreement shall remain in full force and effect with
respect to any Agent as to which such suspension or termination has not
occurred, (b) this Agreement shall remain in full force and effect with respect
to the rights and obligations of any party that have previously accrued or that
relate to Securities that have already been issued or agreed to be issued or are
the subject of a pending offer at the time of such suspension or termination and
(c) in any event, this Agreement shall remain in full force and effect insofar
as the third and fourth paragraphs of Section 2(b), Section 4(d), Section 4(e),
Section 5, Section 7 and Section 8 hereof are concerned.
10. Except as otherwise specifically provided herein or in the
Administrative Procedures, all statements, requests, notices and advices
hereunder shall be in writing, or by telephone if promptly confirmed in writing,
and if to Merrill Lynch & Co. shall be sufficient in all respects when delivered
or sent by facsimile transmission or registered mail to Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, World Financial Center,
North Tower - 10th Floor, New York, New York 10281-1310, Facsimile Transmission
No. (212) 449-2234, Attention: MTN Product Management, and if to Goldman, Sachs
& Co. shall be sufficient in all respects when delivered or sent by facsimile
transmission or registered mail to Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004, Facsimile Transmission No. (212) 357-8680, Attention:
Credit Department, and if to the Company shall be sufficient in all respects
when delivered or sent by facsimile transmission or registered mail to 900
Richards Street, Honolulu, Hawaii 96813, Facsimile Transmission No. (808) 543-
7966, Attention: Treasurer.
11. This Agreement shall be binding upon, and inure solely to the
benefit of, each Agent and the Company, and to the extent provided in Section 7
and Section 8 hereof, the officers and directors of the Company and any person
who controls any Agent or the Company, and their respective personal
representatives, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities through or from any Agent hereunder shall be deemed a successor or
assign by reason of such purchase.
12. Time shall be of the essence of this Agreement. As used herein,
except as otherwise noted the term "business day" shall mean any day when the
office of the Commission in Washington, D.C. is normally open for business.
13. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York.
14. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be an original, but
all of such respective counterparts shall together constitute one and the same
instrument.
26
<PAGE>
If the foregoing is in accordance with the Agents' understanding,
please sign and return to the Company all counterparts hereof, whereupon this
letter and the acceptance by each of you thereof shall constitute a binding
agreement between the Company and each of you in accordance with its terms.
Very truly yours,
Hawaiian Electric Industries, Inc.
By: /s/ Robert F. Mougeot
-------------------------------------
Title: Financial Vice President and
Chief Financial Officer
By: /s/ Constance H. Lau
-------------------------------------
Title: Treasurer
Accepted in New York, New York,
as of the date hereof:
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ N. L. Kenna
-----------------------------
Title: Authorized Signatory
/s/ Goldman, Sachs & Co.
- ---------------------------------
(Goldman, Sachs & Co.)
27
<PAGE>
SCHEDULE A
As compensation for the services of the Agents hereunder, the Company shall
pay the applicable Agent, on a discount basis, a commission for the sale of each
Security equal to the principal amount of such Security multiplied by the
appropriate percentage set forth below:
<TABLE>
<CAPTION>
============================================================================================
PERCENT OF PRINCIPAL
MATURITY RANGES AMOUNT
============================================================================================
<S> <C>
From 9 months to less than 1 year .125%
- --------------------------------------------------------------------------------------------
From 1 year to less than 18 months .150
- --------------------------------------------------------------------------------------------
From 18 months to less than 2 years .200
- --------------------------------------------------------------------------------------------
From 2 years to less than 3 years .250
- --------------------------------------------------------------------------------------------
From 3 years to less than 4 years .350
- --------------------------------------------------------------------------------------------
From 4 years to less than 5 years .450
- --------------------------------------------------------------------------------------------
From 5 years to less than 6 years .500
- --------------------------------------------------------------------------------------------
From 6 years to less than 7 years .550
- --------------------------------------------------------------------------------------------
From 7 years to less than 10 years .600
- --------------------------------------------------------------------------------------------
From 10 years to less than 15 years .625
- --------------------------------------------------------------------------------------------
From 15 years to less than 20 years .700
- --------------------------------------------------------------------------------------------
From 20 years to 30 years .750
- --------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
ANNEX I
The following terms, to the extent applicable, shall be agreed to by the
applicable Agent and the Company in connection with each sale of Securities:
Name of Agent: _____________________
Acting as principal
Acting as agent for the Company
Principal Amount: $______________________
Price to Public: ___% of the principal amount, plus accrued interest, if
any, from ______
Commission (or Discount): ___% of the principal amount
Purchase Price: ____%, plus accrued interest, if any, from _________
Interest Rate:
If Fixed Rate Note:
Interest Rate:
Interest Payment Date(s):
If Floating Rate Note:
Base Rate:
If LIBOR:
LIBOR Reuters Page:
LIBOR Telerate Page:
Initial Interest Rate:
Spread or Spread Multiplier, if any:
Initial Interest Reset Date:
Interest Reset Date(s):
Interest Payment Date(s):
Interest Determination Date(s):
Index Maturity:
Maximum Interest Rate, if any:
Minimum Interest Rate, if any:
Interest Reset Period:
Interest Payment Period:
Calculation Agent:
If Discount Note, terms:
If Redeemable:
Redemption Commencement Date:
Initial Redemption Percentage:
Annual Redemption Percentage Reduction:
If Repayable:
Optional Repayment Date(s):
Repayment Provisions, if any:
29
<PAGE>
Original Issue Date:
Stated Maturity Date:
Settlement Date and Time:
Additional Terms:
Also, in connection with the purchase of Securities by one or more Agents
as principal, agreement as to whether the following will be required:
Officer's Certificate pursuant to Section 6(g) of the Distribution
Agreement.
Legal Opinions pursuant to Sections 6(b) and (c) of the Distribution
Agreement.
Comfort Letter pursuant to Section 6(d) of the Distribution Agreement.
Stand-Off Agreement pursuant to Section 4(f) of the Distribution Agreement.
30
<PAGE>
ANNEX II
Hawaiian Electric Industries, Inc.
ADMINISTRATIVE PROCEDURES
for Fixed Rate and Floating Rate Medium-Term Notes, Series C
Due From Nine Months to 30 Years From Date of Issue
(Dated as of April 27, 1999)
Medium-Term Notes, Series C Due From Nine Months to 30 Years From Date of
Issue (the "Notes") are to be offered on a continuous basis by Hawaiian Electric
Industries, Inc., a Hawaii corporation (the "Company"), to or through Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman,
Sachs & Co., and any other agent or agents appointed by the Company from time to
time (each, an "Agent" and, collectively, the "Agents"), pursuant to a
Distribution Agreement, dated April 27, 1999 (the "Distribution Agreement"), by
and among the Company and the Agents. The Distribution Agreement provides both
for the sale of Notes by the Company to one or more of the Agents as principal
for resale to investors and other purchasers and for the sale of Notes by the
Company directly to investors (as may from time to time be agreed to by the
Company and the related Agent or Agents), in which case each such Agent will act
as an agent of the Company in soliciting purchases of Notes.
If agreed upon by the related Agent or Agents and the Company, Notes shall
be purchased by such Agent or Agents as principal. Such purchases will be made
in accordance with terms agreed upon by the related Agent or Agents and the
Company (which terms, unless otherwise agreed to, shall, to the extent
applicable, include those terms specified in Annex I to the Distribution
Agreement, and be agreed upon orally, with written confirmation prepared by such
Agent or Agents and mailed or sent by facsimile transmission to the Company).
If agreed upon by any Agent or Agents and the Company, the Agent or Agents,
acting solely as agent or agents for the Company, and not as principal, will use
reasonable efforts to solicit offers to purchase the Notes. Only those
provisions in these Administrative Procedures that are applicable to the
particular role to be performed by the related Agent or Agents shall apply to
the offer and sale of the relevant Notes.
The Notes will be issued under an Indenture, dated as of October 15, 1998,
as amended, supplemented or modified from time to time, including by a Second
Supplemental Indenture thereto dated as of April 1, 1999 relating to the Notes
(collectively, the "Indenture"), between the Company and Citibank, N.A., as
trustee (the "Trustee"). The Company has filed Registration Statements (as
defined in the Distribution Agreement) with the Securities and Exchange
Commission (the "Commission") registering the Notes. A pricing supplement to
the Prospectus (as defined in the Distribution Agreement) setting forth the
purchase price, interest rate or formula, maturity date and other terms of any
Notes (as applicable) is herein referred to as a "Pricing Supplement."
The Notes will either be issued (a) in book-entry form (each, a "Book-Entry
Note") and represented by one or more fully registered Notes without coupons
(each, a "Global Note") delivered to the Trustee, as agent for The Depository
Trust Company, New York, New York
<PAGE>
("DTC"), and recorded in the book-entry system maintained by DTC, or (b) in
certificated form (each, a "Certificated Note") delivered to the investor or
other purchaser thereof or a person designated by such investor or other
purchaser. Except in the limited circumstances described in the Prospectus or a
Pricing Supplement, owners of beneficial interests in Book-Entry Notes will not
be entitled to physical delivery of Certificated Notes equal in principal amount
to their respective beneficial interests.
General procedures relating to the issuance of all Notes are set forth in
Part I hereof. Book-Entry Notes will be issued in accordance with the procedures
set forth in Part II hereof and Certificated Notes will be issued in accordance
with the procedures set forth in Part III hereof. Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed thereto in the
Prospectus, the Indenture or the Notes, as the case may be.
PART I: PROCEDURES OF GENERAL APPLICABILITY
<TABLE>
<S> <C>
Date of Issuance/Authentication: Each Note will be dated as of the date of its
authentication by the Trustee. Each Note
shall also bear an original issue date (the
"Original Issue Date"). The Original Issue
Date shall remain the same for all Notes
subsequently issued upon transfer, exchange or
substitution of an original Note regardless of
their dates of authentication.
Maturities: Each Note will mature on a date selected by
the purchaser and agreed to by the Company
that is not less than nine months nor more
than thirty years from its Original Issue Date
(the "Stated Maturity Date").
Currency/Denominations: Notes will be denominated in, and payments of
principal, premium, if any, and interest, if
any, in respect thereof will be made in, U.S.
dollars and the Notes will be issued in
denominations of $1,000 and integral multiples
thereof.
Registration: The Notes will be issued only in fully
registered form.
Base Rates Applicable to
Floating Rate Notes: Unless otherwise provided in the applicable
Pricing Supplement, Floating Rate Notes will
bear interest at a rate or rates determined by
reference to the CD Rate, the Commercial Paper
Rate, the Federal Funds Rate, LIBOR,
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
the Prime Rate, the Treasury Rate, or such
other interest rate basis or formula as may be
set forth in the applicable Pricing
Supplement, or by reference to two or more
such rates, as adjusted by the Spread and/or
Spread Multiplier, if any, applicable to such
Floating Rate Notes.
Redemption/Repayment: The Notes will be subject to redemption by the
Company on and after their respective
Redemption Commencement Dates, if any.
Redemption Commencement Dates, if any, will be
fixed at the time of sale and set forth in the
applicable Pricing Supplement and in the
applicable Note. If no Redemption
Commencement Dates are indicated with respect
to a Note, such Note will not be redeemable at
the option of the Company prior to its Stated
Maturity Date.
The Notes will be subject to repayment at the
option of the Holders thereof in accordance
with the terms of the Notes on their
respective Optional Repayment Dates, if any.
Optional Repayment Dates, if any, will be
fixed at the time of sale and set forth in the
applicable Pricing Supplement and in the
applicable Note. If no Optional Repayment
Dates are indicated with respect to a Note,
such Note will not be repayable at the option
of the Holder prior to its Stated Maturity
Date.
Calculation of Interest: In the case of Fixed Rate Notes, interest
(including payments for partial periods) will
be calculated and paid on the basis of a
360-day year of twelve 30-day months.
The interest rate on each Floating Rate Note
will be calculated by reference to the
specified Base Rate or Rates plus or minus the
applicable Spread, if any, and/or multiplied
by the applicable Spread Multiplier, if any.
Unless otherwise provided in the applicable
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Pricing Supplement, accrued interest on each
Floating Rate Note will be calculated by
multiplying its principal amount by an accrued
interest factor. Such accrued interest factor
is computed by adding the interest factors
calculated for each day in the period for
which accrued interest is being calculated.
Unless otherwise provided in the applicable
Pricing Supplement, the interest factor for
each such day is computed by dividing the
interest rate applicable to such day by 360 if
the CD Rate, Commercial Paper Rate, Federal
Funds Rate, LIBOR or Prime Rate is an
applicable Base Rate, or by the actual number
of days in the year if the Treasury Rate is an
applicable Base Rate. 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 Rates applied as specified in the
applicable Pricing Supplement.
Interest: General. Each Note will bear interest in
-------
accordance with its terms. Unless otherwise
provided in the applicable Pricing Supplement,
interest on each Note will accrue from and
including the Original Issue Date of such Note
for the first interest period or from and
including the most recent Interest Payment
Date to which interest has been paid or duly
made available for payment for all subsequent
interest periods, to but excluding the
applicable Interest Payment Date or the Stated
Maturity Date, Redemption Date or Optional
Repayment Date (each Stated Maturity Date,
Redemption Date or Optional Repayment Date is
referred to herein as a "Maturity"). Interest
on Notes will be payable in arrears to the
Holders of such Notes as of the Regular Record
Date for each Interest Payment Date and at
Maturity to the Person to whom the principal
of such Notes is payable.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
If an Interest Payment Date or the Maturity
with respect to any Fixed Rate Note falls on a
day that is not a Business Day, the required
payment to be made on such day need not be
made on such day, but may be made on the next
succeeding Business Day with the same force
and effect as if made on such day and no
interest shall accrue on such payment for the
period from and after such day to the next
succeeding Business Day. If an Interest
Payment Date (other than at Maturity) with
respect to any Floating Rate Note would
otherwise fall on a day that is not a Business
Day, such Interest Payment Date will be
postponed to the next succeeding Business Day,
except that in the case of a LIBOR Note, if
such next succeeding Business Day falls in the
next succeeding calendar month, such Interest
Payment Date will be the immediately preceding
Business Day. If the Maturity of a Floating
Rate Note falls on a day that is not a
Business Day, the required payment need not be
made on such day, but may be made on the next
succeeding Business Day as if made on the date
such payment was due, and no interest on such
payment shall accrue for the period from and
after such Maturity to the date of such
payment on the next succeeding Business Day.
Regular Record Dates. Unless otherwise
--------------------
specified in an applicable Pricing Supplement,
the Regular Record Date with respect to any
Interest Payment Date for any Note shall be
the date 15 calendar days (whether or not a
Business Day) preceding such Interest Payment
Date.
Interest Payment Dates. Interest payments
----------------------
will be made at Maturity (with respect to the
principal then maturing) and on each Interest
Payment Date commencing with the first
Interest Payment Date following the Original
Issue Date; provided, however, the first
-------- -------
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
payment of interest on any Note originally
issued between a Regular Record Date and an
Interest Payment Date will occur on the
Interest Payment Date following the next
succeeding Regular Record Date.
Fixed Rate Notes. Interest payments on Fixed
----------------
Rate Notes (other than Original Issue Discount
Notes) will be made semiannually on April 10th
and October 10th of each year and at Maturity
with respect to the principal then maturing.
Floating Rate Notes. Interest payments on
-------------------
Floating Rate Notes will be made as specified
in the Floating Rate Note.
Acceptance and Rejection of Offers If agreed upon by any Agent and the Company,
from Solicitations as Agents: then such Agent acting solely as agent for the
Company and not as principal will solicit
purchases of the Notes. Each Agent will
communicate to the Company, orally or in
writing, each reasonable offer to purchase
Notes solicited by such Agent on an agency
basis, other than those offers rejected by
such Agent. Each Agent has the right, in its
discretion reasonably exercised, to reject any
proposed purchase of Notes, as a whole or in
part, and any such rejection shall not be a
breach of such Agent's agreement contained in
the Distribution Agreement. The Company has
the sole right to accept or reject any
proposed purchase of Notes, in whole or in
part, and any such rejection shall not be a
breach of the Company's agreement contained in
the Distribution Agreement. Each Agent has
agreed to make reasonable efforts to assist
the Company in obtaining performance by each
purchaser whose offer to purchase Notes has
been solicited by such Agent and accepted by
the Company.
Preparation of Pricing Supplement: If any offer to purchase a Note is accepted by
the Company, the Company will promptly
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
prepare a Pricing Supplement reflecting the
terms of such Note. Information to be
included in the Pricing Supplement shall
include:
1. the name of the Company;
2. the title of the Notes;
3. the date of the Pricing Supplement and the
date of the Prospectus to which the Pricing
Supplement relates;
4. the name of the Presenting Agent (as
defined below);
5. whether such Notes are being sold to the
Presenting Agent as principal or to an
investor or other purchaser through the
Presenting Agent acting as agent for the
Company;
6. with respect to Notes sold to the Presenting
Agent as principal, whether such Notes will be
resold by the Presenting Agent to investors and
other purchasers at (i) a fixed public offering
price of a specified percentage of their principal
amount or (ii) at varying prices related to
prevailing market prices at the time of resale to
be determined by the Presenting Agent;
7. with respect to Notes sold to an investor or other
purchaser through the Presenting Agent acting as
agent for the Company, whether such Notes will be
sold at (i) 100% of their principal amount or (ii)
a specified percentage of their principal amount;
8. the Presenting Agent's discount or
commission;
9. net proceeds to the Company;
10. the information with respect to the terms of the
Notes set forth below (whether or not the applicable
Note is a Book-Entry Note)
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
under "Procedures for Book-Entry Notes
Settlement Procedures," items (ii), (iii),
(vii), (viii) and (ix); and
11. any other terms of the Notes material to
investors or other purchasers of the Notes not
otherwise specified in the Prospectus.
The Company shall use its reasonable best
efforts to send such Pricing Supplement by
electronic mail, telecopy or overnight express
(for delivery by the close of business on the
applicable trade date, but in no event later
than noon, New York City time, on the Business
Day next following the trade date) to the
Agent that made or presented the offer to
purchase the applicable Note (the "Presenting
Agent") at the following address:
If to Merrill Lynch & Co.:
Tritech Services
40 Colonial Drive
Piscataway, New Jersey 08854
Attn: Prospectus Operations/Nachman
Kimerling
Tel: (908) 885-2758
Telecopy: (908) 885-2774/5/6
also, for record keeping purposes, please send
a copy to:
Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated
World Financial Center
North Tower, 10th Floor
New York, New York 10281-1310
Attn: MTN Product Management
Telephone: (212) 449-7476
Telecopy: (212) 449-2234
E-Mail Address: [email protected]
with a copy to:
Winthrop, Stimson, Putnam & Roberts
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
One Battery Park Plaza
New York, New York 10004
Attention: David P. Falck, Esq.
Telecopy: (212) 858-1500
E-Mail Address: [email protected]
If to Goldman, Sachs & Co.:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attn: Karen Robertson
27th Floor
Telephone: (212) 902-1482
Telecopy: (212) 902-0658
In each instance that a Pricing Supplement is
prepared, the Presenting Agent will provide a
copy of such Pricing Supplement to each
investor or purchaser of the relevant Notes or
its agent. Pursuant to Rule 434 ("Rule 434")
of the Securities Act of 1933, as amended, the
Pricing Supplement may be delivered separately
from the Prospectus. Outdated Pricing
Supplements (other than those retained for
files) will be destroyed.
Settlement: The receipt of immediately available funds by
the Company in payment for a Note and the
authentication and delivery of such Note
shall, with respect to such Note, constitute
"settlement." Offers accepted by the Company
will be settled in three Business Days, or at
such time as the purchaser, the applicable
Agent and the Company shall agree, pursuant to
the timetable for settlement set forth in
Parts II and III hereof under "Settlement
Procedures" with respect to Book-Entry Notes
and Certificated Notes, respectively (each
such date fixed for settlement is hereinafter
referred to as a "Settlement Date"). If
procedures A and B of the applicable
Settlement Procedures with respect to a
particular offer are not completed on or
before the time set forth under the
"Settlement Procedures Timetable," such offer
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
shall not be settled until the Business Day
following the completion of Settlement
Procedures A and B or such later date as the
purchaser and the Company shall agree.
In the event of a purchase of Notes by an
Agent as principal, appropriate settlement
details will be pursuant to the timetable for
settlement set forth in Parts II and III
hereof under "Settlement Procedures" with
respect to Book-Entry Notes and Certificated
Notes, respectively, or otherwise as agreed
between the Agent and the Company.
Procedure for Changing Rates or When a decision has been reached to change the
Other Variable Terms: interest rate or any other variable term on
any Notes being sold by the Company, the
Company will promptly advise the Agents by
facsimile transmission and such Agents will
forthwith suspend solicitation of offers to
purchase such Notes. The Agent or Agents will
telephone the Company with recommendations as
to the changed interest rates or other
variable terms. At such time as the Company
advises the Agents of the new interest rates
or other variable terms, such Agents may
resume solicitation of offers to purchase such
Notes. Until such time only "indications of
interest" may be recorded. Immediately after
acceptance by the Company of an offer to
purchase Notes at a new interest rate or new
variable term, the Company, the Presenting
Agent and the Trustee shall follow the
procedures set forth under the "Settlement
Procedures."
Suspension of Solicitation; Amendment or The Company may instruct the Agents to suspend
Supplement: solicitation of offers to purchase Notes at
any time. Each Agent receiving such
instructions will forthwith suspend
solicitation of offers to purchase Notes from
the Company until such time as the Company has
advised the Agents that solicitation of offers
to purchase may be resumed. If the Company
decides to amend or supplement any of the
Registration
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Statements (including incorporating any
documents by reference therein) or the
Prospectus (other than to change interest
rates or other variable terms with respect to
the offering of the Notes), it will promptly
advise each Agent and will furnish each Agent
and counsel to the Agents with copies of the
proposed amendment or supplement (including
any document proposed to be incorporated by
reference therein but excluding any Pricing
Supplements unless otherwise provided herein).
One copy of such filed document, along with a
copy of the cover letter sent to the
Commission, will be delivered, mailed,
telecopied or e-mailed to Merrill Lynch & Co.
at MTN Product Management, North Tower, World
Financial Center, 10th Floor, New York, New
York 10281-1310, Telecopy: (212) 449-2234,
E-Mail Address: [email protected] and to
Goldman, Sachs & Co. at Credit Department,
Credit Control-Medium Term Notes, 85 Broad
Street, New York, New York 10004, Telecopy:
(212) 902-3000. For record keeping purposes,
one copy of each such amendment or supplement
shall also be delivered, mailed, telecopied or
e-mailed to Winthrop, Stimson, Putnam &
Roberts, One Battery Park Plaza, New York, New
York 10004, Attention: David P. Falck, Esq.,
Telecopy: (212) 858-1500, E-Mail Address:
[email protected].
In the event that at the time the solicitation
of offers to purchase Notes from the Company
is suspended (other than to change interest
rates or other variable terms) there are any
offers to purchase Notes that have been
accepted by the Company that have not been
settled, the Company will promptly advise the
Agents and the Trustee whether such offers may
be settled and whether copies of the
Prospectus as theretofore amended and/or
supplemented as in effect at the time of the
suspension may be delivered in connection with
the settlement of such offers. The Company
will have the sole
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
responsibility for such decision and for any
arrangements that may be made in the event
that the Company determines that such offers
may not be settled or that copies of such
Prospectus may not be so delivered.
Delivery of Prospectus and Applicable
Pricing Supplement: A copy of the most recent Prospectus and the
applicable Pricing Supplement, which pursuant
to Rule 434 may be delivered separately from
the Prospectus, must accompany or precede the
earlier of (a) the written confirmation of a
sale sent to an investor or other purchaser or
his agent and (b) the delivery of Notes to an
investor or other purchaser or his agent.
Authenticity of Signatures: The Agents will have no obligation or
liability to the Company or the Trustee in
respect of the authenticity of the signature
of any officer, employee or agent of the
Company or the Trustee on any Note.
Documents Incorporated by Reference: The Company shall supply the Agents with an
adequate supply of all documents incorporated
by reference in the Registration Statements
and the Prospectus.
Business Day: "Business Day" means, unless otherwise
specified in the applicable Pricing
Supplement, any day other than a Saturday or
Sunday, or any other day on which banks in The
City of New York (and, with respect to LIBOR
Notes, is also a London Business Day), are
generally required or authorized by law or
executive order to close. "London Business
Day" means any day on which dealings in
deposits in U.S. dollars are transacted in the
London interbank market.
</TABLE>
PART II: PROCEDURES FOR BOOK-ENTRY NOTES
In connection with the qualification of Book-Entry Notes for eligibility in
the book-entry system maintained by DTC, the Trustee will perform the custodial,
document control and administrative functions described below, in accordance
with its respective obligations under a Letter of Representations from the
Company and the Trustee to DTC, dated April 27, 1999, and
12
<PAGE>
a Medium-Term Note Certificate Agreement, dated June 11, 1993, between the
Trustee and DTC (the "Certificate Agreement"), and its obligations as a
participant in DTC, including DTC's Same-Day Funds Settlement System ("SDFS").
<TABLE>
<S> <C>
Issuance: All Fixed Rate Notes issued as Book-Entry
Notes having the same Original Issue Date,
interest rate, Stated Maturity Date and
redemption and/or repayment terms
(collectively, the "Fixed Rate Terms") will be
represented initially by a single Global Note
and all Floating Rate Notes issued as
Book-Entry Notes having the same Original
Issue Date, Base Rate (which may be the
Commercial Paper Rate, the Treasury Rate,
LIBOR, the CD Rate, the Federal Funds Rate,
the Prime Rate or any other rate set forth in
the applicable Pricing Supplement by the
Company), Initial Interest Rate, Index
Maturity, Spread or Spread Multiplier, if any,
Minimum Interest Rate, if any, Maximum
Interest Rate, if any, Stated Maturity Date,
redemption and/or repayment terms, if any,
Initial Interest Reset Date, Interest Reset
Date(s) and Interest Determination Date(s)
(collectively, the "Floating Rate Terms") will
be represented initially by a single Global
Note.
For other variable terms with respect to the
Fixed Rate Notes and Floating Rate Notes, see
the Prospectus and the applicable Pricing
Supplement.
Identification: The Company has arranged with the CUSIP
Service Bureau of Standard & Poor's (the
"CUSIP Service Bureau") for the reservation of
one series of CUSIP numbers, which series
consists of approximately 900 CUSIP numbers
which have been reserved for and relating to
Book-Entry Notes and the Company has delivered
to the Trustee and DTC such list of such CUSIP
numbers. The Company will assign CUSIP
numbers to Book-Entry Notes as described below
under Settlement Procedure B.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
DTC will notify the CUSIP Service Bureau
periodically of the CUSIP numbers that the
Company has assigned to Book-Entry Notes. The
Trustee will notify the Company at any time
when fewer than 100 of the reserved CUSIP
numbers remain unassigned to Book-Entry Notes,
and, if it deems necessary, the Company will
reserve additional CUSIP numbers for
assignment to Book-Entry Notes. Upon
obtaining such additional CUSIP numbers, the
Company will deliver a list of such additional
numbers to the Trustee and DTC. Book-Entry
Notes having an aggregate principal amount in
excess of $200,000,000 and otherwise required
to be represented by the same Global Note will
instead be represented by two or more Global
Notes that shall all be assigned the same
CUSIP number.
Registration: Each Global Note will be registered in the
name of Cede & Co., as nominee for DTC, on the
register maintained by the Trustee under the
Indenture. The beneficial owner of a
Book-Entry Note (i.e., an owner of a
beneficial interest in a Global Note) (or one
or more indirect participants in DTC
designated by such owner) will designate one
or more participants in DTC (with respect to
such Book-Entry Note, the "Participants") to
act as agent for such beneficial owner in
connection with the book-entry system
maintained by DTC, and DTC will record in
book-entry form, in accordance with
instructions provided by such Participants, a
credit balance with respect to such Book-Entry
Note in the account of such Participants. The
ownership interest of such beneficial owner in
such Book-Entry Note will be recorded through
the records of such Participants or through
the separate records of such Participants and
one or more indirect participants in DTC.
Transfers: Transfers of beneficial interests in a Global
Note will be accomplished by book entries
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
made by DTC and, in turn, by Participants (and
in certain cases, one or more indirect
participants in DTC) acting on behalf of
beneficial transferors and transferees of such
Global Note.
Exchanges: The Trustee may deliver to DTC and the CUSIP
Service Bureau at any time a written notice
specifying (a) the CUSIP numbers of two or
more Global Notes outstanding on such date
that represent Book-Entry Notes having the
same Fixed Rate Terms or Floating Rate Terms,
as the case may be (but not the same Original
Issue Dates), and for which interest has been
paid to the same date; (b) a date, occurring
at least 30 days after such written notice is
delivered and at least 30 days before the next
Interest Payment Date for the related
Book-Entry Notes, on which such Global Notes
shall be exchanged for a single replacement
Global Note; and (c) a new CUSIP number,
obtained from the Company, to be assigned to
such replacement Global Note. Upon receipt of
such a notice, DTC will send to its
Participants (including the Trustee) a written
reorganization notice to the effect that such
exchange will occur on such date. Prior to
the specified exchange date, the Trustee will
deliver to the CUSIP Service Bureau written
notice setting forth such exchange date and
the new CUSIP number and stating that, as of
such exchange date, the CUSIP numbers of the
Global Notes to be exchanged will no longer be
valid. On the specified exchange date, the
Trustee will exchange such Global Notes for a
single Global Note bearing the new CUSIP
number and the CUSIP numbers of the exchanged
Global Notes will, in accordance with CUSIP
Service Bureau procedures, be cancelled and
not immediately reassigned. Notwithstanding
the foregoing, if the Global Notes to be
exchanged exceed $200,000,000 in aggregate
principal amount, one replacement Global Note
will be authenticated and issued to represent
$200,000,000 in aggregate principal
</TABLE>
15
<PAGE>
amount of the exchanged Global
Notes and an additional Global
Note or Notes will be
authenticated and issued to
represent any remaining
principal amount of such Global
Notes (see "Denominations"
below).
Denominations: Book-Entry Notes will be issued
in denominations of $1,000 and
integral multiples in excess
thereof of $1,000 unless
otherwise set forth in the
applicable Prospectus
Supplement. Global Notes will
be denominated in principal
amounts not in excess of
$200,000,000. If one or more
Book-Entry Notes having an
aggregate principal amount in
excess of $200,000,000 would,
but for the preceding sentence,
be represented by a single
Global Note, then one Global
Note will be issued to
represent $200,000,000
principal amount of such Book-
Entry Note or Notes and an
additional Global Note or Notes
will be issued to represent any
remaining principal amount of
such Book-Entry Note or Notes.
In such a case, each of the
Global Notes representing such
Book-Entry Note or Notes shall
be assigned the same CUSIP
number.
Payments of Principal, Premium, Payments of Interest Only.
-------------------------
if any, and Interest: Promptly after each Regular
Record Date, the Trustee will
deliver to the Company and DTC
a written notice specifying by
CUSIP number the amount of
interest to be paid on each
Book-Entry Note on the
following Interest Payment Date
(other than an Interest Payment
Date coinciding with Maturity)
and the total of such amounts.
DTC will confirm the amount
payable on each Book-Entry Note
on such Interest Payment Date
by reference to the daily bond
reports published by Standard &
Poor's. On such Interest
Payment Date, the Company will
pay to the Trustee in
immediately available funds,
and the Trustee in turn will
pay to DTC, such total amount
of interest due (other than at
Maturity), at the times and in
the manner set forth below
under "Manner of
16
<PAGE>
Payment."
Notice of Interest Rates.
------------------------
Promptly after each Interest
Determination Date for Floating
Rate Notes issued as Book-Entry
Notes, the Calculation Agent
will notify each of Moody's
Investors Service, Inc. and
Standard & Poor's of the
interest rates determined as of
such Interest Determination
Date.
Payments at Maturity. On or
--------------------
about the first Business Day of
each month, the Trustee will
deliver to the Company and DTC
a written list of principal,
interest and premium, if any,
to be paid on each Book-Entry
Note maturing or otherwise
becoming due in the following
month. The Trustee, the Company
and DTC will confirm the
amounts of such principal,
premium and interest payments
with respect to a Book-Entry
Note on or about the fifth
Business Day preceding the
Maturity of such Book-Entry
Note. At such Maturity, the
Company will pay to the Trustee
in immediately available funds,
and the Trustee in turn will
pay to DTC, the principal
amount of such Note, together
with interest and premium, if
any, due at such Maturity, at
the times and in the manner set
forth below under "Manner of
Payment." Promptly after
payment to DTC of the
principal, interest and
premium, if any, due at the
Maturity of such Book-Entry
Note, the Trustee will cancel
the Global Note representing
such Book-Entry Note and
deliver it to the Company with
an appropriate debit advice. On
the first Business Day of each
month, the Trustee will deliver
to the Company a written
statement indicating the total
principal amount of outstanding
Book-Entry Notes as of the
immediately preceding Business
Day.
Manner of Payment. The total
-----------------
amount of any principal,
premium, if any, and interest
due on Book-Entry Notes on any
Interest Payment Date or at
Maturity shall be paid by the
17
<PAGE>
Company to the Trustee in funds
available for use by the
Trustee no later than noon, New
York City time, on such date.
The Company will make such
payment on such Book-Entry
Notes by instructing the
Trustee to withdraw funds from
an account maintained by the
Company at the Trustee or by
making such payment to an
account specified by the
Trustee. The Company will
confirm such instructions in
writing to the Trustee. As soon
as possible thereafter, the
Trustee will pay by separate
wire transfer (using Fedwire
message entry instructions in a
form previously specified by
DTC) to an account at the
Federal Reserve Bank of New
York previously specified by
DTC, in funds available for
immediate use by DTC, each
payment of interest, principal
and premium, if any, due on a
Book-Entry Note on such date.
Thereafter on such date, DTC
will pay, in accordance with
its SDFS operating procedures
then in effect, such amounts in
funds available for immediate
use to the respective
Participants in whose names
such Book-Entry Notes are
recorded in the book-entry
system maintained by DTC.
Neither the Company nor the
Trustee shall have any
responsibility or liability for
the payment by DTC of the
principal of, premium, if any,
or interest on, the Book-Entry
Notes to such Participants.
Withholding Taxes. The amount
-----------------
of any taxes required under
applicable law to be withheld
from any interest payment on a
Book-Entry Note will be
determined and withheld by the
Participant, indirect
participant in DTC or other
Person responsible for
forwarding payments and
materials directly to the
beneficial owner of such Book-
Entry Note.
Settlement Procedures: Settlement Procedures with
regard to each Book-Entry Note
sold by an Agent, as agent of
the Company, or purchased by an
Agent, as principal, will be as
follows:
18
<PAGE>
A. The Presenting Agent will advise
the Company by telephone,
confirmed by facsimile, of the
following settlement information:
1. Taxpayer identification
number of the purchaser.
2. Principal amount.
3. Fixed Rate Notes:
(a) interest rate;
(b) interest payment
dates; and
(c) whether such Fixed Rate
Note is being issued as
a Discount Note and, if
so, the terms thereof.
Floating Rate Notes:
(a) base rate;
(b) initial interest rate;
(c) spread or spread
multiplier, if any;
(d) interest rate reset
dates;
(e) interest rate reset
period;
(f) interest payment dates;
(g) interest payment
period;
(h) index maturity;
(i) calculation agent;
(j) maximum interest rate,
if any;
(k) minimum interest rate,
if any;
(l) calculation date;
19
<PAGE>
(m) interest determination
dates; and
(n) whether such Floating
Rate Note is being
issued as a Discount
Note and, if so, the
terms thereof.
4. Price to public of such
Book-Entry Note (or whether
such Note is being offered
at varying prices relating
to prevailing market prices
at time of resale as
determined by the Presenting
Agent).
5. Trade Date.
6. Settlement Date (Original
Issue Date).
7. Stated Maturity Date.
8. Redemption provisions, if
any, including: Redemption
Commencement Date, Initial
Redemption Percentage and
Annual Redemption Percentage
Reduction.
9. Optional Repayment Date(s)
and repayment provisions, if
any.
10. Net proceeds to the
Company.
11. Presenting Agent's discount
or commission (determined
in accordance with Schedule
A to the Distribution
Agreement).
12. Name of Presenting Agent
(and whether such Note is
being sold to the
Presenting Agent as
principal or to an investor
or other purchaser through
the Presenting Agent acting
as agent for the Company).
13. Such other information
specified with respect to
such Note (whether by
Addendum or otherwise).
20
<PAGE>
B. The Company will assign a CUSIP
number to the Global Note
representing such Book-Entry
Note and then advise the Trustee
by facsimile transmission or
other electronic transmission of
the above settlement information
received from the Presenting
Agent, such CUSIP number and the
name of the Presenting Agent.
C. The Trustee will communicate to
DTC and the Presenting Agent
through DTC's Participant
Terminal System, a pending
deposit message specifying the
following settlement
information:
1. The information set forth in
Settlement Procedure A.
2. Identification numbers of
the participant accounts
maintained by DTC on behalf
of the Trustee and the
Presenting Agent.
3. Identification of the Global
Note as a Fixed Rate Note or
Floating Rate Note.
4. Initial Interest Payment
Date for such Global Note,
number of days by which such
date succeeds the related
record date for DTC purposes
(or, in the case of Floating
Rate Notes which reset daily
or weekly, the date five
calendar days preceding the
Interest Payment Date) and,
if then calculable, the
amount of interest payable
on such Interest Payment
Date (which amount shall
have been confirmed by the
Trustee).
5. CUSIP number of the Global
Note representing such Book-
Entry Note.
6. Whether such Global Note
represents any other Book-
Entry Notes.
21
<PAGE>
7. The Company or the Trustee
will advise the Presenting
Agent by telephone of the
CUSIP number of the Global
Note representing such Book-
Entry Note.
DTC will arrange for each
pending deposit message
described above to be
transmitted to Standard &
Poor's, which will use the
information in the message to
include certain terms of the
related Book-Entry Note in the
appropriate daily bond report
published by Standard & Poor's.
D. The Company will complete and
deliver to the Trustee a Global
Note representing such Book-
Entry Note in a form that has
been approved by authorized
officers of the Company pursuant
to the Indenture, the Agents and
the Trustee.
E. The Trustee will authenticate
the Global Note representing
such Book-Entry Note.
F. DTC will credit such Book-Entry
Note to the participant account
of the Trustee maintained by
DTC.
G. The Trustee will enter an SDFS
deliver order through DTC's
Participant Terminal System
instructing DTC (i) to debit
such Book-Entry Note to the
Trustee's participant account
and credit such Book-Entry Note
to the participant account of
the Presenting Agent maintained
by DTC and (ii) to debit the
settlement account of the
Presenting Agent and credit the
settlement account of the
Trustee maintained by DTC, in an
amount equal to the price of
such Book-Entry Note less such
Presenting Agent's discount or
commission. Any entry of such a
deliver order shall be deemed to
constitute a representation and
warranty by the Trustee
22
<PAGE>
to DTC that (i) the Global Note
representing such Book-Entry
Note has been issued and
authenticated and (ii) the
Trustee is holding such Global
Note pursuant to the Certificate
Agreement.
H. In the case of Book-Entry Notes
sold through the Presenting
Agent, as agent, the Presenting
Agent will enter an SDFS deliver
order through DTC's Participant
Terminal System instructing DTC
(i) to debit such Book-Entry
Note to the Presenting Agent's
participant account and credit
such Book-Entry Note to the
participant account of the
Participants maintained by DTC
and (ii) to debit the settlement
accounts of such Participants
and credit the settlement
account of the Presenting Agent
maintained by DTC in an amount
equal to the initial public
offering price of such Book-
Entry Note.
I. Transfers of funds in accordance
with SDFS deliver orders
described in Settlement
Procedures G and H will be
settled in accordance with SDFS
operating procedures in effect
on the Settlement Date.
J. Upon receipt of such funds, the
Trustee will credit to an
account of the Company
maintained at the Trustee or pay
to an account otherwise
specified by the Company funds
available for immediate use in
the amount transferred to the
Trustee in accordance with
Settlement Procedure G.
K. The Trustee will send a copy of
the Global Note by first class
mail to the Company together
with a statement setting forth
the total principal amount of
Notes of each series that have
been issued under the Indenture
(whether or not Outstanding) as
of the related Settlement Date,
the
23
<PAGE>
principal amount of Notes
Outstanding as of the related
Settlement Date after giving
effect to such transaction and
all other offers to purchase
Notes of which the Company has
advised the Trustee but that
have not yet been settled.
L. In the case of Book-Entry Notes
sold through the Presenting
Agent, as agent, the Presenting
Agent will confirm the purchase
of such Book-Entry Note to the
investor or other purchaser
either by transmitting to the
Participant with respect to such
Book-Entry Note a confirmation
order through DTC's Participant
Terminal System or by mailing a
written confirmation to such
investor or other purchaser.
Settlement Procedures Timetable: For offers to purchase Book-Entry
Notes accepted by the Company,
Settlement Procedures "A" through
"L" set forth above shall be
completed as soon as possible but
not later than the respective times
(New York City time) set forth
below:
Settlement
Procedure Time
--------- ----
A 11:00 a.m. on the
trade date or within
one hour following
the trade
B 12:00 noon on the
trade date or within
one hour following
the trade
C No later than the
close of business on
the trade date
D 3:00 p.m. on the
Business Day before
the Settlement Date
E 9:00 a.m. on
Settlement Date
F 10:00 a.m. on
Settlement Date
G-H No later than 2:00
p.m.
24
<PAGE>
on Settlement Date
I 4:00 p.m. on
Settlement Date
J-L 5:00 p.m. on
Settlement Date
If a sale is to be settled more than
one Business Day after the trade
date, Settlement Procedures A, B,
and C may, if necessary, be
completed at any time prior to the
specified times on the first
Business Day after such trade date.
In connection with a sale that is to
be settled more than one Business
Day after the trade date, if the
Initial Interest Rate for a Floating
Rate Note is not known at the time
that Settlement Procedure A is
completed, Settlement Procedures B
and C shall be completed as soon as
such rates have been determined, but
no later than noon and 2:00 p.m.,
New York City time, respectively, on
the second Business Day before the
Settlement Date. Settlement
Procedure I is subject to extension
in accordance with any extension of
Fedwire closing deadlines and in the
other events specified in the SDFS
operating procedures in effect on
the Settlement Date.
If settlement of a Book-Entry Note
is rescheduled or cancelled, the
Trustee will deliver to DTC, through
DTC's Participant Terminal System, a
cancellation message to such effect
by no later than 5:00 p.m., New York
City time, on the Business Day
immediately preceding the scheduled
Settlement Date.
Failure to Settle: If the Trustee fails to enter an
SDFS deliver order with respect to a
Book-Entry Note pursuant to
Settlement Procedure G, the Trustee
may deliver to DTC, through DTC's
Participant Terminal System, as soon
as practicable a withdrawal message
instructing DTC to debit such Book-
Entry Note to the participant
account of the Trustee maintained at
DTC. DTC will process the withdrawal
25
<PAGE>
message, provided that such
participant account contains a
principal amount of the Global Note
representing such Book-Entry Note
that is at least equal to the
principal amount to be debited. If
withdrawal messages are processed
with respect to all the Book-Entry
Notes represented by a Global Note,
the Trustee will mark such Global
Note "cancelled", make appropriate
entries in its records and send such
cancelled Global Note to the
Company. The CUSIP number assigned
to such Global Note shall, in
accordance with CUSIP Service Bureau
procedures, be cancelled and not
immediately reassigned. If
withdrawal messages are processed
with respect to a portion of the
Book-Entry Notes represented by a
Global Note, the Trustee will
exchange such Global Note for two
Global Notes, one of which shall
represent the Book-Entry Notes for
which withdrawal messages are
processed and shall be cancelled
immediately after issuance, and the
other of which shall represent the
other Book-Entry Notes previously
represented by the surrendered
Global Note and shall bear the CUSIP
number of the surrendered Global
Note. In the case of any Book-Entry
Note sold through the Presenting
Agent, as agent, if the purchase
price for any Book-Entry Note is not
timely paid to the Participants with
respect to such Book-Entry Note by
the beneficial purchaser thereof (or
a person, including an indirect
participant in DTC, acting on behalf
of such purchaser), such
Participants and, in turn, the
related Presenting Agent may enter
SDFS deliver orders through DTC's
Participant Terminal System
reversing the orders entered
pursuant to Settlement Procedures G
and H, respectively. Thereafter, the
Trustee will deliver the withdrawal
message and take the related actions
described in the preceding
paragraph. If such failure has
occurred for any reason other than
default by the applicable Presenting
Agent to perform its obligations
hereunder or under the Distribution
26
<PAGE>
Agreement, the Company will
reimburse such Presenting Agent on
an equitable basis for its loss of
the use of funds during the period
when the funds were credited to the
account of the Company.
Notwithstanding the foregoing, upon
any failure to settle with respect
to a Book-Entry Note, DTC may take
any actions in accordance with its
SDFS operating procedures then in
effect. In the event of a failure to
settle with respect to a Book-Entry
Note that was to have been
represented by a Global Note also
representing other Book-Entry Notes,
the Trustee will provide, in
accordance with Settlement
Procedures D and E, for the
authentication and issuance of a
Global Note representing such
remaining Book-Entry Notes and will
make appropriate entries in its
records.
PART III: PROCEDURES FOR CERTIFICATED NOTES
Denominations: Certificated Notes will be issued in
denominations of $1,000 and integral
multiples of $1,000 in excess
thereof unless otherwise indicated
in the applicable Pricing
Supplement.
Payments of Principal, Premium, Upon presentment and delivery of the
if any, and Interest: Certificated Note, the Trustee
upon receipt of immediately
available funds from the Company
will pay the principal amount of
each Certificated Note at Maturity
and premium, if any, and the final
installment of interest in
immediately available funds. All
interest payments on a Certificated
Note, other than interest due at
Maturity, will be made at the
Corporate Trust Office; provided,
however, that such payment of
interest may be made, at the option
of the Company by check to the
address of the person entitled
thereto as such address shall appear
in the Security Register.
Notwithstanding the foregoing,
holders of ten million dollars or
more in aggregate principal
27
<PAGE>
amount of Certificated Notes having
the same Interest Payment Dates
shall, at the option of the Company,
be entitled to receive payments of
interest (other than at Maturity) by
wire transfer of immediately
available funds if appropriate wire
transfer instructions have been
received in writing by the Trustee
not less than 15 days prior to the
applicable Interest Payment Date
(any such wire transfer instructions
received by the Trustee shall remain
in effect until revoked by such
Holder).
The Trustee will provide monthly to
the Company a list of the principal,
premium, if any, and interest to be
paid on Certificated Notes maturing
in the next succeeding month. The
Trustee will be responsible for
withholding taxes on interest paid
as required by applicable law, but
shall be relieved from any such
responsibility if it acts in good
faith and in reliance upon an
opinion of counsel.
Certificated Notes presented to the
Trustee at Maturity for payment will
be cancelled by the Trustee. All
cancelled Certificated Notes held by
the Trustee shall be destroyed, and
the Trustee shall furnish to the
Company a certificate with respect
to such destruction.
Settlement Procedures: Settlement Procedures with regard to
each Certificated Note purchased by
an Agent, as principal, or through
an Agent, as agent, shall be as
follows:
A. The Presenting Agent will advise
the Company by telephone,
confirmed by facsimile, of the
following settlement information
with regard to each Certificated
Note:
1. Exact name in which the
Certificated Note(s) is
(are) to be registered (the
"Registered Owner").
2. Exact address or addresses
of the
28
<PAGE>
Registered Owner for
delivery, notices and
payments of principal,
premium, if any, and
interest.
3. Taxpayer identification
number of the Registered
Owner.
4. Principal amount.
5. Authorized denomination.
6. Fixed Rate Notes:
(a) interest rate;
(b) interest payment dates;
and
(c) whether such Fixed Rate
Note is being issued as
a Discount Note and, if
so, the terms thereof.
Floating Rate Notes:
(a) base rate;
(b) initial interest rate;
(c) spread or spread
multiplier, if any;
(d) interest rate reset
dates;
(e) interest rate reset
period;
(f) interest payment dates;
(g) interest payment
period;
(h) index maturity;
(i) calculation agent;
(j) maximum interest rate,
if any;
(k) minimum interest rate,
if any;
(l) calculation date;
29
<PAGE>
(m) interest determination
dates; and
(n) whether such Floating
Rate Note is being
issued as a Discount
Note and, if so, the
terms thereof.
7. Price to public of such
Certificated Note (or
whether such Note is being
offered at varying prices
relating to prevailing
market prices at time of
resale as determined by the
Presenting Agent).
8. Trade Date.
9. Settlement Date (Original
Issue Date).
10. Stated Maturity Date.
11. Net proceeds to the
Company.
12. Presenting Agent's discount
or commission (determined
in accordance with Schedule
A to the Distribution
Agreement).
13. Redemption provisions, if
any, including: Redemption
Commencement Date, Initial
Redemption Percentage and
Annual Redemption
Percentage Reduction.
14. Optional Repayment Date(s)
and repayment provisions,
if any.
15. Name of Presenting Agent
(and whether such Note is
being sold to the
Presenting Agent as
principal or to an investor
or other purchaser through
the Presenting Agent acting
as agent for the Company).
16. Such other information
specified with respect to
such Note (whether by
Addendum or otherwise).
30
<PAGE>
B. After receiving such settlement
information from the Presenting
Agent, the Company will advise
the Trustee of the above
settlement information by
facsimile transmission confirmed
by telephone. The Company will
cause the Trustee to issue,
authenticate and deliver the
Certificated Notes.
C. The Trustee will complete the
preprinted 4-ply Certificated
Note packet containing the
following documents in forms
approved by the Company, the
Presenting Agent and the Trustee
consistent with the Indenture,
and will make three copies
thereof (herein called "Stub 1,"
"Stub 2" and "Stub 3"):
1. Certificated Note with the
Presenting Agent's
confirmation, if traded on
a principal basis, or the
Presenting Agent's customer
confirmation, if traded on
an agency basis.
2. Stub 1 - for Trustee.
3. Stub 2 - for Presenting
Agent.
4. Stub 3 - for the Company.
D. With respect to each trade, the
Trustee will deliver the
Certificated Notes and Stub 2
thereof to the Presenting Agent
at the following applicable
address: If to Merrill Lynch &
Co. to Merrill Lynch, Pierce,
Fenner & Smith Incorporated,
Merrill Lynch Money Markets
Clearance, 55 Water Street,
Concourse Level, N.S.C.C.
Window, New York, New York
10041, Attention: Al Mitchell,
and if to Goldman, Sachs & Co.
to Goldman, Sachs & Co., 85
Broad Street, New York, New York
10004, Michael Mosely, 6th
Floor. The Trustee will keep
Stub 1. The Presenting Agent
will acknowledge receipt of the
Certificated Note through a
broker's receipt and will
31
<PAGE>
keep Stub 2. Delivery of the
Certificated Note will be made
only against such acknowledgment
of receipt. Upon determination
that the Certificated Note has
been authorized, delivered and
completed as aforementioned, the
Presenting Agent will wire the
net proceeds of the Certificated
Note after deduction of its
applicable discount or
commission to the Company
pursuant to standard wire
instructions given by the
Company.
E. In the case of Certificated
Notes sold through the
Presenting Agent, as agent, the
Presenting Agent will deliver
the Certificated Note (with
confirmations), as well as a
copy of the Prospectus and the
applicable Pricing Supplement or
Supplements received from the
Trustee to the purchaser against
payment in immediately available
funds.
F. The Trustee will send Stub 3 to
the Company.
Settlement Procedures Timetable: For offers to purchase Certificated
Notes accepted by the Company,
Settlement Procedures "A" through
"F" set forth above shall be
completed as soon as possible
following the trade but not later
than the respective times (New York
City time) set forth below:
Settlement
Procedure Time
---------
A 11:00 a.m. on the
trade date or within
one hour following
the trade
B 12:00 noon on the
trade date or within
one hour following
the trade
32
<PAGE>
C-D 2:15 p.m. on
Settlement Date
E 3:00 p.m. on
Settlement Date
F 5:00 p.m. on
Settlement Date
Failure to Settle: In the case of Certificated Notes
sold through the Presenting Agent,
as agent, in the event that a
purchaser of a Certificated Note
from the Company either fails to
accept delivery of or make payment
for a Certificated Note on the
Settlement Date, the Presenting
Agent will forthwith notify the
Trustee and the Company by
telephone, confirmed in writing, and
return such Certificated Note and
related stub to the Trustee.
The Trustee, upon receipt of the
Certificated Note and related stub
from the Presenting Agent, will
immediately advise the Company and
the Company will promptly arrange to
credit the account of the Presenting
Agent in an amount of immediately
available funds equal to the amount
previously paid by such Presenting
Agent in settlement for such
Certificated Note. Such credits will
be made on the Settlement Date if
possible, and in any event not later
than the Business Day following the
Settlement Date; provided that the
Company has received notice on the
same day. If such failure has
occurred for any reason other than
failure by such Presenting Agent to
perform its obligations hereunder or
under the Distribution Agreement,
the Company will reimburse such
Presenting Agent on an equitable
basis for its loss of the use of
funds during the period when the
funds were credited to the account
of the Company. Immediately upon
receipt of the Certificated Note in
respect of which the failure
occurred, the Trustee will cancel
and destroy the Certificated Note
(and related stubs), make
appropriate entries in its records
to reflect the fact that the
Certificated Note was never issued,
and accordingly notify
33
<PAGE>
in writing the Company.
34
<PAGE>
ANNEX III
Accountants' Letter
-------------------
Pursuant to Section 4(j) and Section 6(d), as the case may be, of the
Distribution Agreement, the Company's independent certified public accountants
shall furnish letters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the applicable
published rules and regulations thereunder.
(ii) In their opinion, the consolidated financial statements and financial
statement schedules audited by them and incorporated by reference in the
Registration Statements or the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the Exchange
Act and the related published rules and regulations thereunder.
(iii) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below, a
reading of the latest available interim financial statements of the Company and
its subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements included
or incorporated by reference in the Prospectus, inquiries of officials of the
Company and its subsidiaries responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included or incorporated by reference in the Company's Quarterly Reports on
Form 10-Q incorporated by reference in the Prospectus do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the Exchange Act as it applies to Form 10-Q and the related
published rules and regulations thereunder or that any material
modifications should be made for them to be in conformity with generally
accepted accounting principles;
(B) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations thereunder
or the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
<PAGE>
(C) as of the date of the latest available financial statements
of the Company and at a subsequent date not more than five business days
prior to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock under the
Company's Dividend Reinvestment and Stock Purchase Plan, Employee Stock
Ownership Plan, Retirement Savings Plan, Stock Option and Incentive Plans
or other similar plans, and the incurrence of capital stock issuance
expenses) of the Company or in the preferred stock or other securities of
the Company's subsidiaries, or any increase in the consolidated long-term
debt of the Company and its subsidiaries or any decreases in consolidated
net assets of the Company and its subsidiaries or other items specified by
the Agents, or any increases in any items specified by the Agents, in each
case as compared with the amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus, except in each
case for changes, increases or decreases that the Prospectus discloses have
occurred or may occur or that are described in such letter; and
(D) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus ending
as of the date of the latest available financial statements of the Company
and at a subsequent date referred to in clause (C) there were any decreases
in consolidated revenues or operating profit or basic per share amounts of
consolidated net income of the Company or other items specified by the
Agents, or any increases in any items specified by the Agents, in each case
as compared with the comparable period of the preceding year and with any
other period of corresponding length specified by the Agents, except in
each case for increases or decreases that the Prospectus discloses have
occurred or may occur or that are described in such letter;
(v) In addition to the audit referred to in their report(s) included or
incorporated by reference in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
paragraphs (iii) and (iv) above, they have carried out certain specified
procedures, not constituting an audit in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and financial
information specified by the Agents that are derived from the general accounting
records of the Company and its subsidiaries, that appear in the Prospectus
(excluding documents incorporated by reference), or in Part II of, or in
exhibits and schedules to, any of the Registration Statements specified by the
Agents or in documents incorporated by reference in the Prospectus specified by
the Agents, and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its subsidiaries and
have found them to be in agreement.
All references in this Annex III to the Prospectus shall be deemed to
refer to the Prospectus (including the documents incorporated by reference
therein) as defined in the Distribution Agreement as of the Commencement Date
referred to in Section 6(d) thereof and to the Prospectus as amended or
supplemented (including the documents incorporated by reference therein) as of
the date of the amendment, supplement, incorporation or the Time of Delivery
relating to an agreement to purchase Securities as principal requiring the
delivery of such letter under Section 4(j) thereof.
2
<PAGE>
HEI Exhibit 4.1
- --------------------------------------------------------------------------------
HAWAIIAN ELECTRIC INDUSTRIES, INC.
TO
CITIBANK, N.A.
Trustee
_______________
SECOND SUPPLEMENTAL INDENTURE
Dated as of April 1, 1999
to
INDENTURE
Dated as of October 15, 1988
______________
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................1
ARTICLE ONE
DEFINITIONS
Section 1.01 Terms from the Indenture...................................2
Section 1.02 Definitions of New Terms...................................2
ARTICLE TWO
CREATION OF SERIES C NOTES
Section 2.01 Creation of the Series C Notes.............................3
Section 2.02 Particulars of the Series C Notes..........................3
ARTICLE THREE
ADDITIONAL COVENANT
Section 3.01 Additional Covenant for Series C Notes.....................7
Restrictions On Sales of HECO..............................7
ARTICLE FOUR
MISCELLANEOUS
Section 4.01 Counterparts................................................7
Section 4.02 Other Sections of Indenture not Affected....................7
Section 4.03 Severability................................................7
Section 4.04 Administrative Procedures...................................7
</TABLE>
EXHIBIT A FORM OF SERIES C NOTE--FIXED RATE
EXHIBIT B FORM OF SERIES C NOTE--FLOATING RATE
<PAGE>
SECOND SUPPLEMENTAL INDENTURE, dated as of April 1, 1999, between
Hawaiian Electric Industries, Inc., a corporation duly organized and existing
under the laws of the State of Hawaii (herein called the "Company"), having its
principal office at 900 Richards Street, Honolulu, Hawaii 96813, and Citibank,
N.A., a national banking association duly organized and existing under the laws
of the United States, as Trustee (herein called the "Trustee"), having its
principal corporate trust office at 111 Wall Street, New York, New York 10043.
RECITALS OF THE COMPANY
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture dated October 15, 1988 (herein called the "Original
Indenture"), to provide for the issuance from time to time of its unsecured
debt, notes or other evidences of indebtedness (in the Original Indenture and
herein called the "Securities"), to be issued in one or more series as in the
Original Indenture provided; and
WHEREAS, the Original Indenture, as the same hereby is or from time to
time in the future may be amended or supplemented by indentures supplemental
thereto, is hereinafter referred to as the "Indenture"; and
WHEREAS, under the Indenture, $60,000,000 aggregate principal amount
of the Company's Medium-Term Notes, Series A ("Series A Notes"), and
$244,000,000 aggregate principal amount of the Company's Medium-Term Notes,
Series B ("Series B Notes"), have been executed, authenticated, delivered and
issued by the Company; and
WHEREAS, Section 901 of the Indenture provides that without the
consent of any Holders under the Indenture, the Company and the Trustee may
enter into an indenture supplemental to the Indenture for, among other things,
the purpose of establishing the form or terms of the Securities of any series as
contemplated in Sections 201 and 301 of the Indenture, including, without
limitation, adding to the covenants of the Company for the benefit of the
Holders of all Securities under the Indenture; and
WHEREAS, the Company by action duly taken has authorized the issuance
of a series of Securities to be designated as "Medium-Term Notes, Series C" (the
"Series C Notes"), which series is limited in aggregate principal amount to
$300,000,000 and is subject to such provisions as are set forth in this Second
Supplemental Indenture to the Indenture; and
WHEREAS, the Company, in the exercise of the powers and authority
conferred upon and reserved to it under Section 901 of the Indenture and
pursuant to appropriate action of its Board of Directors or committees thereof,
has fully resolved and determined to make, execute and deliver to the Trustee a
Second Supplemental Indenture in the form hereof for the purposes herein
provided; and
WHEREAS, all conditions have been complied with, all actions have been
taken and all things have been done which are necessary to make the Series C
Notes, when executed by the Company and authenticated by or on behalf of the
Trustee, and when delivered as herein and
<PAGE>
in the Indenture provided, the valid obligations of the Company and to make this
Second Supplemental Indenture a valid and binding supplemental indenture.
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Series C Notes by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Series C Notes, as
follows:
ARTICLE ONE
DEFINITIONS
Section 1.01 Terms from the Indenture. For all purposes of this Second
------------------------
Supplemental Indenture, except as otherwise expressly provided or unless the
context otherwise requires:
(1) terms used herein in capitalized form and defined in the Original
Indenture shall have the meanings specified in the Original Indenture;
(2) the words "herein," "hereof" and "hereto" and other words of
similar import used in this Second Supplemental Indenture refer to this Second
Supplemental Indenture as a whole and not to any particular section or other
subdivision of this Second Supplemental Indenture.
Except as otherwise expressly provided or unless the context otherwise
requires, "Second Supplemental Indenture" means this instrument as originally
executed or, if amended or supplemented pursuant to the applicable provisions of
the Indenture, as so amended or supplemented.
Section 1.02 Definitions of New Terms. The following terms used herein
------------------------
shall have the following meanings in this Second Supplemental Indenture:
"Capital Stock" means, with respect to any Person, any and all
corporate stock, shares, interests, participations or other equivalents (however
designated) of corporate stock of such Person.
"HECO" shall mean Hawaiian Electric Company, Inc., a corporation duly
organized under the laws of the Kingdom of Hawaii and duly existing under the
laws of the State of Hawaii, and any surviving, resulting or transferee
corporation.
"Voting Shares" means the shares of Capital Stock of any Person of any
class or classes ordinarily having voting power for the election of directors of
such Person.
2
<PAGE>
"Wholly-Owned Subsidiary" means a Person 100% of whose Voting Shares
are at the time owned by the Company directly or indirectly through other
Wholly-Owned Subsidiaries.
ARTICLE TWO
CREATION OF SERIES C NOTES
Section 2.01 Creation of the Series C Notes. There is hereby created a
------------------------------
new series of Securities to be issued under the Indenture and this Second
Supplemental Indenture designated as "Medium-Term Notes, Series C" (the "Series
C Notes").
The Series C Notes shall constitute a single series of Securities
under the Indenture and shall be in the forms of Fixed Rate Note or Floating
Rate Note attached hereto as Exhibit A and Exhibit B, respectively.
Section 2.02 Particulars of the Series C Notes. In accordance with
---------------------------------
Section 301 of the Indenture, the Series C Notes shall have the following terms
(the numbered clauses set forth below corresponding to the numbered subsections
of said Section 301):
1. The title of the Notes of the series is "Medium-Term Notes, Series
C".
2. The limit upon the aggregate principal amount of the Series C Notes
which may be authenticated and delivered under the Indenture (except for Series
C Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Series C Notes pursuant to Section 304, 305,
306, 906 or 1107 of the Indenture) is $300,000,000. Subject to the foregoing,
the aggregate principal amount of the Series C Notes to be issued and sold from
time to time shall be as agreed to by an Agent and the Company as described in
the Distribution Agreement, dated April 27, 1999, among the Company and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman,
Sachs & Co. (the "1999 Distribution Agreement"). The Company will notify the
Trustee of such aggregate principal amount, as well as the other terms and
provisions thereof, in accordance with the Administrative Procedures (the
"Administrative Procedures") attached as Annex II to the 1999 Distribution
Agreement.
3. Interest payments in respect of Series C Notes will be in an amount
equal to the interest accrued from and including the immediately preceding
Interest Payment Date in respect of which interest has been paid or duly made
available for payment (or from and including the Original Issue Date (as defined
herein), if no interest has been paid or duly made available for payment) to but
excluding the applicable Interest Payment Date or Maturity, as the case may be.
Interest shall be payable with respect to a Series C Note to the Person in whose
name such Series C Note is registered at the close of business on the Regular
Record Date for each Interest Payment Date, provided, however, that interest
payable at Maturity will be payable to the person to whom principal shall be
payable. The first payment of interest on any Series C Note originally issued
between a Regular Record Date and the related Interest Payment Date will
3
<PAGE>
be made on the Interest Payment Date immediately following the next succeeding
Regular Record Date to the Holder on such next succeeding Regular Record Date.
4. The date on which the principal of each of the Series C Notes is
payable shall be any Business Day from nine months to thirty years from the date
of issuance agreed to and established on behalf of the Company by any two of the
President, any Vice President, the Treasurer, the Controller and any Assistant
Treasurer (the "Authorized Officers") from time to time pursuant to the 1999
Distribution Agreement and the Administrative Procedures and shall be set forth
in a related pricing supplement (each, a "Pricing Supplement") to the Prospectus
dated April 27, 1999 (the "Prospectus") relating to the Series C Notes and in
the Series C Notes.
5. Each of the Series C Notes shall bear interest either at a fixed
rate, in which event the attached form of Fixed Rate Note shall be utilized, or
at a floating rate, in which event the attached form of Floating Rate Note shall
be utilized. Unless otherwise specified in the applicable Floating Rate Note,
the floating rate of interest may be calculated by reference to the Commercial
Paper Rate, the Prime Rate, LIBOR, the Treasury Rate, the CD Rate or the Federal
Funds Rate, as set forth in the attached form of Floating Rate Note (each, a
"Base Rate"), plus or minus a "Spread" and/or multiplied by a Spread Multiplier,
in each case as and to the extent set forth in the applicable Floating Rate Note
and Pricing Supplement. The rate (fixed or floating) at which each of the Series
C Notes shall bear interest shall be determined and established by any two
Authorized Officers of the Company from time to time pursuant to the
Administrative Procedures and shall be set forth in a Pricing Supplement to the
Prospectus and in the applicable Series C Notes. Such rate shall also be the
rate at which interest shall accrue on any overdue principal and premium and (to
the extent that the payment of such interest shall be legally enforceable) on
any overdue installment of interest. Each interest-bearing Series C Note will
bear interest from the date of issuance of such Series C Note (the "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, in
each case as set forth in such Series C Note and the applicable Pricing
Supplement, until the principal thereof is paid or made available for payment.
Unless otherwise indicated in the applicable Series C Note and Pricing
Supplement, the "Regular Record Date" with respect to any Fixed Rate Note and
any Floating Rate Note shall be the date (whether or not a Business Day) 15
calendar days prior to the related Interest Payment Date.
Except as otherwise set forth in the Prospectus for the Series C
Notes, the applicable Pricing Supplement or the applicable Series C Note,
interest on the Series C Notes shall be payable, in the case of Fixed Rate
Notes, semi-annually on April 10 and October 10 in each year; in the case of
Floating Rate Notes which reset daily, weekly, or monthly, on the third
Wednesday of each month or on the third Wednesday of March, June, September and
December of each year (as specified in the applicable Pricing Supplement and in
such Floating Rate Note); in the case of Floating Rate Notes which reset
quarterly, on the third Wednesday of March, June, September and December of each
year; in the case of Floating Rate Notes which reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable Pricing
Supplement and in such Floating Rate Note; and in the case of Floating Rate
Notes which reset annually, on the third Wednesday of the month of each year
specified in the applicable Pricing Supplement and in such Floating Rate Note
(each, an "Interest Payment Date"); and in each case, at Maturity with respect
to the principal then maturing. If any Interest
4
<PAGE>
Payment Date or the Maturity of a Fixed Rate Note falls on a day that is not a
Business Day, the related payment of principal, premium, if any, and/or interest
need not be made on such day, but may be made on the next succeeding Business
Day as if made on the date such payment was due, and no interest will accrue on
the amount so payable for the period from and after such Interest Payment Date
or Maturity, as the case may be, to the date of such payment on the next
succeeding Business Day. If any Interest Payment Date or the Maturity of any
Floating Rate Note falls on a day that is not a Business Day, the related
payment of principal, premium, if any, and/or interest need not be made on such
day, but may be made on the next succeeding Business Day as if made on the date
such payment was due, and no interest will accrue on the amount so payable for
the period from and after such Interest Payment Date or Maturity, as the case
may be, to the date of such payment on the next succeeding Business Day;
provided, however, that if the Base Rate on a Floating Rate Note is LIBOR and
such next succeeding Business Day falls in the next succeeding calendar month,
such Interest Payment Date will be the immediately preceding day that is a
Business Day. As used herein, "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
Floating Rate Notes as to which LIBOR is an applicable Base Rate, is also a
London Business Day. As used herein, "London Business Day" means any day on
which dealings in deposits in United States dollars are transacted in the London
interbank market.
6. The place or places where the principal of (and premium, if any)
and interest on Series C Notes, if issued in certificated form, shall be payable
and where the Series C Notes, if issued in certificated form, are to be
surrendered for registration of transfer or exchange, shall be at the offices
and agencies of the Company maintained for that purpose in the Borough of
Manhattan in The City of New York, which shall be the Corporate Trust Office of
the Trustee, or at such other location selected by the Company, agreed to by the
Trustee and consistent with the Indenture (a "Place of Payment"). Payments of
the principal (and premium, if any) and interest due with respect to Series C
Notes issued in book-entry form will be made by the Company through the Trustee
to The Depository Trust Company, or other depositary selected by the Company,
consistent with procedures agreed to by the Company and such depositary.
Payments of the principal (and premium, if any) and interest due at Maturity
with respect to any Series C Note, if issued in certificated form, will be made
in immediately available funds upon presentation and surrender of such Series C
Note (and, in the case of any repayment on an Optional Repayment Date, upon
submission of a duly completed election form in accordance with the provisions
described below) at the Corporate Trust Office or other Place of Payment,
provided, however, that such Series C Note is presented to the Trustee or other
- -------- -------
Paying Agent in time for the Trustee or other Paying Agent to make such payments
in such funds in accordance with its normal procedures. Payments of interest
other than at Maturity with respect to such Series C Note will be made at the
Corporate Trust Office; provided, however, that the payment of such interest may
-------- -------
be made at the option of the Company by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
Notwithstanding the foregoing, a Holder of $10,000,000 or more in aggregate
principal amount of such Series C Notes, if issued in certificated form, 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
appropriate wire transfer instructions have been received in writing by the
Trustee not
5
<PAGE>
less than 15 calendar days prior to the applicable Interest Payment Date (any
such wire transfer instructions received by the Trustee shall remain in effect
until revoked by such Holder).
7. The Series C Notes are not redeemable by the Company prior to
Maturity unless otherwise specified pursuant to the Administrative Procedures
and set forth in the related Pricing Supplement to the Prospectus, and unless a
Redemption Commencement Date and an Initial Redemption Percentage are specified
in the Series C Notes. Such redemption of any Series C Note may be made in whole
or in part at the discretion of the Company, upon not less than 30 nor more than
60 calendar days' notice, provided that if such redemption could result in a
Series C Note remaining Outstanding in a denomination of less than the
applicable minimum denomination, such Series C Note shall be redeemed in whole.
The Series C Notes, if provided for in an applicable Pricing Supplement and in
the Series C Notes, will be subject to repayment at the option of the Holders
thereof, on not less than 30 nor more than 60 calendar days' notice, in
accordance with the terms of such Series C Notes on their respective optional
repayment date, if any, as agreed upon by the Company and the purchasers thereof
at the time of sale (each, an "Optional Repayment Date"). If no Optional
Repayment Date is indicated with respect to a Series C Note, such Note will not
be repayable at the option of the Holder thereof prior to its Stated Maturity.
8. Unless otherwise specified pursuant to the Administrative
Procedures and set forth in the related Pricing Supplement to the Prospectus,
there is no obligation of the Company to redeem or purchase the Series C Notes
pursuant to any sinking fund or analogous provision, or at the option of a
Holder thereof.
9. The Series C Notes will be denominated in, and payments of
principal, premium, if any, and interest, if any, in respect thereof will be
made in, United States dollars. Each Series C Note will be issued in fully
registered book-entry form or certificated form and the denominations in which
the Series C Notes shall be issuable are $1,000 and any amount in excess thereof
which is an integral multiple of $1,000.
10. No covenants, agreements or warranties, other than those set forth
in the Original Indenture and this Second Supplemental Indenture, shall apply to
the Series C Notes.
11. Section 403 of the Indenture shall apply to the Series C Notes.
12. Section 1101 of the Indenture shall apply to the Series C Notes.
13. Upon declaration of acceleration of the Maturity of the Series C
Notes pursuant to Section 502 of the Indenture, the entire principal amount of
the Series C Notes (other than Discount Notes) shall be payable.
6
<PAGE>
ARTICLE THREE
ADDITIONAL COVENANT
Section 3.01 Additional Covenant for Series C Notes. Subject to
--------------------------------------
Section 1010 of the Indenture, the following covenant shall be an additional
covenant so long as any Series C Notes are Outstanding:
Restrictions On Sales of HECO. The Company will not sell, transfer or
-----------------------------
otherwise dispose of, or permit HECO to issue, sell, transfer or otherwise
dispose of, other than to the Company or to a Wholly-Owned Subsidiary, Voting
Shares of HECO; provided, however, that this covenant shall not restrict
-------- -------
consolidations of HECO with or mergers of HECO with or into (i) the Company or
any Wholly-Owned Subsidiary or (ii) any other corporation if the corporation
formed by such consolidation or merger shall be a Wholly-Owned Subsidiary of the
Company.
ARTICLE FOUR
MISCELLANEOUS
Section 4.01 Counterparts. This instrument may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 4.02 Other Sections of Indenture not Affected. All Articles,
----------------------------------------
Sections and portions of Sections of the Original Indenture other than those
supplemented and amended as provided above are hereby ratified, confirmed and
continued in full force and effect in their entirety and are not hereby
supplemented or amended in any way.
Section 4.03 Severability. If any provisions of this Second
------------
Supplemental Indenture shall be invalid, inoperative or unenforceable as applied
in any particular case in any jurisdiction or jurisdictions or in all
jurisdictions, or in all cases because it conflicts with any other provision or
provisions hereof or any constitution or statute or rule of public policy, or
for any other reason, such circumstances shall not have the effect of rendering
the provisions in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatever.
Section 4.04 Administrative Procedures. The Trustee shall comply
-------------------------
with the Administrative Procedures, as they may be amended from time to time in
accordance with the 1999 Distribution Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date and year first above written.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
[CORPORATE SEAL]
By: /s/ Robert F. Mougeot
--------------------------------
Name: Robert F. Mougeot
Attest: Title: Financial Vice President
and Chief Financial Officer
- ---------------------------------
By: /s/ Constance H. Lau
-------------------------------
Name: Constance H. Lau
Title: Treasurer
CITIBANK, N.A., as Trustee
[CORPORATE SEAL]
By: /s/ F. Mills
Attest: -------------------------------
Name: F. Mills
Title: Senior Trust Officer
- -----------------------------------
8
<PAGE>
STATE OF HAWAII )
) ss.:
CITY & COUNTY OF HONOLULU )
On the 21st day of April, 1999, before me personally came Robert F.
Mougeot and Constance H. Lau, to me known, who, being by me duly sworn, do
depose and say that they are the Financial Vice President and Chief Financial
Officer and Treasurer of Hawaiian Electric Industries, Inc., one of the
corporations described in and which executed the foregoing instrument; that they
know the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation; and that they signed by their name thereto by
like authority.
/s/ Molly M. Egged
--------------------------------------
Molly M. Egged
Notary Public, State of Hawaii
My commission expires: 6/7/2001
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 27th day of April , 1999, before me personally came Florence
Mills, to me known, who, being by me duly sworn, did depose and say that she is
Senior Trust Officer of Citibank, N.A., one of the corporations described in and
which executed the foregoing instrument; that she knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
/s/ Nicole G. Dervan
--------------------------------------
Notary Public, State of New York
Nicole G. Dervan
Notary Public, State of New York
No. 01DE6003896
Qualified in New York County
Commission Expires March 9, 2000
<PAGE>
Exhibit A
---------
FORM OF FIXED RATE NOTE
(Except as otherwise indicated, the bracketed language
applies only to Notes held in book-entry form through DTC)
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY (THE "DEPOSITARY") TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
HAWAIIAN ELECTRIC INDUSTRIES, INC.
MEDIUM-TERM NOTE, SERIES C
(Fixed Rate)
CUSIP No. Principal Amount: $
FXR No. Stated Maturity Date:
Original Issue Date: Redemption Commencement Date:
Interest Rate: Initial Redemption Percentage:
Interest Payment Date(s): Annual Redemption Percentage Reduction:
[ ] Check if a Discount Note Other Provisions:
Issue Price:
Addendum Attached: [ ] Yes [ ] No
Optional Repayment Date(s):
<PAGE>
HAWAIIAN ELECTRIC INDUSTRIES, INC., a corporation duly organized and
existing under the laws of Hawaii (hereinafter called "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to
, or registered assigns, the principal sum of
DOLLARS
on the Stated Maturity Date specified above (except to the extent redeemed or
repaid prior to the Stated Maturity Date), and to pay interest thereon from the
Original Issue Date specified above or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, periodically on the
Interest Payment Date or Dates specified above, commencing with the first such
Interest Payment Date next succeeding the Original Issue Date specified above,
and on the Stated Maturity Date (or any Redemption Date or any Optional
Repayment Date with respect to which such option has been exercised, each such
Stated Maturity Date, Redemption Date and Optional Repayment Date being
hereinafter referred to as a "Maturity" with respect to the principal repayable
on such date), at the Interest Rate per annum set forth above, until the
principal hereof is paid or made available for payment, and at the Interest Rate
per annum set forth above on any overdue premium and (to the extent that the
payment of such interest shall be legally enforceable) on any overdue
installment of interest; provided, however, that if such Original Issue Date is
-------- -------
after the Regular Record Date and before the Interest Payment Date immediately
following such Regular Record Date, interest payments will commence on the
second Interest Payment Date following the Original Issue Date to the Holder of
this Note on the Regular Record Date with respect to such second Interest
Payment Date. Interest on this Note will be computed on the basis of a 360-day
year of twelve 30-day months.
Notwithstanding the foregoing, if an Addendum is attached hereto or
"Other Provisions" apply to this Note as specified above, this Note will be
subject to the terms set forth in such Addendum or such "Other Provisions."
Interest on this Note will accrue from and including the immediately
preceding Interest Payment Date 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) to, but
excluding, the applicable Interest Payment Date or Maturity, as the case may be.
If any Interest Payment Date or the Maturity of this Note falls on a day that is
not a Business Day, the related payment of principal, premium, if any, and/or
interest need not be made on such day, but may be made on the next succeeding
Business Day as if made on the date such payment was due, and no interest will
accrue on the amount so payable for the period from and after such Interest
Payment Date or Maturity, as the case may be, to the date of such payment on the
next succeeding Business Day. The interest so payable, and punctually paid or
duly made available for payment, on any Interest Payment Date will, as provided
in such Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for each Interest Payment Date,
2
<PAGE>
which date (whether or not a Business Day), shall be 15 calendar days next
preceding each such Interest Payment Date; provided, however, that interest
payable at Maturity will be payable to the Person to whom the principal hereof
will be payable. Any such interest not so punctually paid or duly provided for
will forthwith cease to be payable to the Holder on such Regular Record Date and
may either be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Notes not less than 10 calendar days
prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes of this series may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture. As used
herein, "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.
This Note is one of a duly authorized issue of securities of the
Company (herein called the "Securities", and the series thereof to which this
Note belongs being herein called the "Notes"), issued and to be issued in one or
more series under an Indenture dated as of October 15, 1988, as supplemented by
a Second Supplemental Indenture, dated as of April 1, 1999 (as so supplemented,
hereinafter called the "Indenture"), between the Company and Citibank, N.A., as
trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered. This Note is one of the series designated above.
The Notes of this series may be issued from time to time at varying maturities
(between nine months and thirty years from the Original Issue Date specified
above) and interest rates and in an aggregate principal amount up to
$300,000,000.
Payments of the principal (and premium, if any) and interest due with
respect to this Note, if issued in book-entry form, will be made by the Company
through the Trustee to The Depository Trust Company, or other depositary
selected by the Company, consistent with procedures agreed to by the Company and
such depositary. Payments of the principal (and premium, if any) and interest
due at Maturity with respect to this Note, if issued in certificated form, will
be made in immediately available funds upon presentation and surrender of such
Note (and, in the case of any repayment on an Optional Repayment Date, upon
submission of a duly completed election form in accordance with the provisions
described herein) at the Corporate Trust Office or the Trustee or other Paying
Agent, provided, however, that this Note is presented to the Trustee or other
-------- -------
Paying Agent in time for the Trustee or other Paying Agent to make such payments
in such funds in accordance with its normal procedures. Payments of interest
other than at Maturity with respect to this Note, if issued in certificated
form, will be made at the Corporate Trust Office; provided, however, that the
-------- -------
payment of such interest may be made at the option of the Company by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register. Notwithstanding the foregoing, a Holder of
$10,000,000 or more in aggregate principal amount of Notes issued in
certificated form and
3
<PAGE>
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 appropriate wire transfer instructions have been received in writing by
the Trustee not less than 15 calendar days prior to the applicable Interest
Payment Date (any such wire transfer instructions received by the Trustee to
remain in effect until revoked in writing by such Holder).
This Note will not be subject to any sinking fund and, unless
otherwise specified in this Note in accordance with the provisions of the
following two paragraphs, will not be redeemable or repayable prior to the
Stated Maturity Date.
If a Redemption Commencement Date and an Initial Redemption Percentage
are specified in this Note, this Note will be subject to redemption at the
option of the Company prior to the Stated Maturity Date on any date on or after
the Redemption Commencement Date specified in this Note, in whole or from time
to time in part in increments of $1,000 or the minimum authorized denomination
(provided that any remaining principal amount hereof will be at least $1,000 or
such minimum authorized denomination), at the Redemption Price together with
unpaid interest accrued thereon to the date fixed for redemption (each, a
"Redemption Date"), on notice given no less than 30 nor more than 60 calendar
days prior to the Redemption Date and in accordance with the provisions of the
Indenture. The "Redemption Price" will initially be the Initial Redemption
Percentage specified in this Note (as adjusted by the Annual Redemption
Percentage Reduction, if applicable) multiplied by the unpaid principal amount
of this Note to be redeemed. The Initial Redemption Percentage will decline at
each anniversary of the Redemption Commencement Date by the Annual Redemption
Percentage Reduction, if any, specified in this Note until the Redemption Price
is equal to 100% of the unpaid principal amount to be redeemed. In the event of
redemption of this Note in part only, a new Note of like tenor for the
unredeemed portion hereof and otherwise having the same terms as this Note will
be issued in the name of the Holder hereof upon the presentation and surrender
hereof.
If one or more Optional Repayment Dates are specified in this Note,
this Note will be subject to repayment by the Company at the option of the
Holder hereof prior to the Stated Maturity Date on the Optional Repayment
Date(s) specified in this Note, in whole or in part in increments of $1,000 or
the minimum authorized denomination (provided that any remaining principal
amount hereof will be at least $1,000 or such minimum authorized 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 fixed for repayment
(each, a "Repayment Date"). For this Note to be repaid, this Note must be
received, together with the form hereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its corporate trust office not less than 30
nor more than 60 calendar days prior to the Repayment Date. Exercise of such
repayment option by the Holder hereof will be irrevocable. In the event of
repayment of this Note in part only, a new Note of like tenor for the unrepaid
portion hereof and otherwise having the same terms as this Note will be issued
in the name of the Holder hereof upon the presentation and surrender hereof.
If this Note is a Discount Note as specified herein, the amount
payable to the Holder of this Note in the event of redemption, repayment or
acceleration of maturity of this Note will be equal to the sum of (i) the Issue
Price specified in this Note (increased by any
4
<PAGE>
accruals of the Discount) and, in the event of any redemption of this Note (if
applicable), multiplied by the Initial Redemption Percentage (as adjusted by the
Annual Redemption Percentage Reduction, if applicable) and (ii) any unpaid
interest on this Note accrued from the Original Issue Date to the Redemption
Date, Optional Repayment Date or date of acceleration of maturity, as the case
may be. The difference between the Issue Price and 100% of the principal amount
of this Note, if a Discount Note, is referred to herein as the "Discount."
For purposes of determining the amount of Discount that has accrued as
of any Redemption Date, Optional Repayment Date or date of acceleration of
maturity of this Note, such Discount will be accrued so as to cause the yield on
the Note to be constant. The constant yield will be calculated using a 30-day
month, 360-day year convention, a compounding period that, except for the
Initial Period, corresponds to the shortest period between Interest Payment
Dates (with ratable accruals within a compounding period), a coupon rate equal
to the initial interest rate applicable to this Note and an assumption that the
maturity of this Note will not be accelerated. If the period from the Original
Issue Date to the initial Interest Payment Date (the "Initial Period") is
shorter than the compounding period for this 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 in the preceding sentence.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of this Note and (b) certain restrictive covenants, in
each case upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Note.
If an Event of Default with respect to Notes of this series shall
occur and be continuing, the principal of the Notes of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the right of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, places and rate, and in the coin or
currency, herein prescribed.
5
<PAGE>
As provided in the Indenture and subject to certain limitations
therein and herein set forth, the transfer of this Note is registrable in the
Security Register upon surrender of this Note for registration of transfer at
the office or agency of the Company in any place where the principal of (and
premium, if any) and interest on this Note are payable duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes of this
series of like tenor, of authorized denominations and for the same aggregate
principal amount will be issued to the designated transferee or transferees.
Unless otherwise set forth above, the Notes of this series are
issuable only in registered form, without coupons, in minimum denominations of
$1,000 and any amount in excess thereof that is an integral multiple of $1,000.
As provided in the Indenture and subject to certain limitations therein and
herein set forth, Notes of this series are exchangeable for a like aggregate
principal amount of Notes of this series of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
This Note will for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
HAWAIIAN ELECTRIC INDUSTRIES, INC.
[CORPORATE SEAL]
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein
referred to in the within mentioned Indenture.
CITIBANK, N.A., as Trustee
By:
------------------------------------
Authorized Officer
7
<PAGE>
OPTION TO ELECT REPAYMENT
(For use only if Holder has option to elect repayment)
The undersigned hereby irrevocably request(s) and instruct(s) the
Company to repay this Note (or portion hereof specified below) pursuant to its
terms at a price equal to 100% of the principal amount to be repaid together
with unpaid accrued interest to the Optional Repayment Date, to the undersigned,
at __________________________________________________________________________
_____________________________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at the Corporate
Trust Office, ____________________________, New York, New York __________, or at
such other place or places of which the Company shall from time to time notify
the Holder of this Note, not less than 30 nor more than 60 calendar days prior
to an Optional Repayment Date, if any, specified in this Note, this Note with
this "Option to Elect Repayment" form duly completed.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be in increments of $1,000) which the
Holder elects to have repaid and specify the denomination or denominations
(which shall be $1,000 or an integral multiple of $1,000 in excess of $1,000) of
the Notes to be issued to the Holder for the portion of this Note not being
repaid (in the absence of any such specification, one such Note will be issued
for the portion not being repaid).
<TABLE>
<S> <C>
----------------------------------------------------
Principal Amount
to be Repaid: $________________ NOTICE: The signature(s) on this Option to Elect
Repayment must correspond with the name as specified
Denomination(s) of Note(s) To Be Issued in this Note in every particular, without alteration
for Portion of Note Not Repaid (if or enlargement or any change whatsoever.
applicable): $_______________
Date: ______________________
</TABLE>
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription specified in
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
UNIF GIFT MIN ACT -- .................Custodian...................
(Minor)
Under Uniform Gifts to Minors Act
.............................................
(State)
TEN ENT-- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above
list.
<PAGE>
-------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfers unto
Please Insert Social Security or Other
Identifying Number of-Assignee:
-------------------------------------------------
- -----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING ZIP CODE OF ASSIGNEE:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
the within Note and all rights hereunder, hereby irrevocably constituting and
appointing
_____________________________________________________________________________
attorney to transfer said Note on the books of the Company, with full power of
substitution in the premises.
Dated: _______________________________ ____________________________________
NOTICE: The signature to this assignment must correspond with the name as
specified in the within instrument in every particular, without alteration or
enlargement, or any change whatsoever.
<PAGE>
Exhibit B
---------
FORM OF FLOATING RATE NOTE
(Except as otherwise indicated, the bracketed language applies
only to Notes held in book-entry form through DTC)
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY (THE "DEPOSITARY") TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
HAWAIIAN ELECTRIC INDUSTRIES, INC.
MEDIUM-TERM NOTE, SERIES C
(Floating Rate)
CUSIP No.: Principal Amount: $
FLR No. Stated Maturity Date:
Original Issue Date: Interest Payment Date(s):
Base Rate(s): Interest Determination Date(s):
Spread (indicate Plus or Minus): Interest Reset Date(s):
Spread Multiplier: Initial Interest Reset Date:
Initial Interest Rate:
<PAGE>
Maximum Interest Rate: In LIBOR:
[ ] LIBOR Reuters
Minimum Interest Rate: [ ] LIBOR Telerate
[ ] Check if a Discount Note Calculation Agent (if other
Issue Price: than the Trustee):
Index Maturity: Optional Repayment Date(s):
Redemption Commencement Date: Other Provisions:
Initial Redemption Percentage: Addendum Attached: [ ] Yes [ ] No
Annual Redemption Percentage Reduction:
HAWAIIAN ELECTRIC INDUSTRIES, INC. a corporation duly organized and
existing under the laws of Hawaii (hereinafter called the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to
, or registered assigns, the principal sum of
DOLLARS
on the Stated Maturity Date specified above (except to the extent redeemed or
repaid prior to the Stated Maturity Date), and to pay interest thereon from the
Original Issue Date specified above or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, periodically on each
Interest Payment Date, commencing with the first such Interest Payment Date next
succeeding the Original Issue Date specified above, and on the Stated Maturity
Date (or any Redemption Date or any Optional Repayment Date with respect to
which such option has been exercised, each such Stated Maturity Date, Redemption
Date and Optional Repayment Date being hereinafter referred to as a "Maturity"
with respect to the principal repayable on such date), at the rate of interest
to be determined in accordance with the following provisions (the "Floating
Interest Rate"), until the principal hereof is paid or made available for
payment, and at the Floating Interest Rate on any overdue premium and (to the
extent that the payment of such interest shall be legally enforceable) on any
overdue installment of interest; provided, however, that if such Original Issue
-------- -------
Date is after a Regular Record Date and before the Interest Payment Date
immediately following such Regular Record Date, interest payments will commence
on the second Interest Payment Date following the Original Issue Date to the
Holder of this Note on the Regular Record Date with respect to such second
Interest Payment Date.
2
<PAGE>
Notwithstanding the foregoing, if an Addendum is attached hereto or
"Other Provisions" apply to this Note as specified above, this Note will be
subject to the terms set forth in such Addendum or such "Other Provisions."
Interest on this Note will accrue from and including the immediately
preceding Interest Payment Date 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) to, but
excluding, the applicable Interest Payment Date or Maturity, as the case may be
(the "Interest Period"). If any Interest Payment Date or the Maturity falls on
a day that is not a Business Day, the related payment of principal, premium, if
any, and/or interest need not be made on such day, but may be made on the next
succeeding Business Day as if made on the date such payment was due, and no
interest will accrue on the amount so payable for the period from and after such
Interest Payment Date or Maturity, as the case may be, to the date of such
payment on the next succeeding Interest Payment Date; provided, however, that if
the Base Rate is LIBOR and such next succeeding Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding day that is a Business Day. The interest so payable, and punctually
paid or duly made available for payment, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for each Interest Payment Date, which date (whether or not a
Business Day) shall be 15 calendar days next preceding such Interest Payment
Date; provided, however, that interest payable at Maturity will be payable to
the Person to whom the principal hereof will be payable. Any such interest not
so punctually paid or duly provided for will forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Notes not less than 10 calendar days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes of this series may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture. As used herein, "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 Notes as to which LIBOR is an applicable Base Rate,
is also a London Business Day. As used herein, "London Business Day" means any
day on which dealings in deposits in United States dollars are transacted in the
London interbank market.
This Note is one of a duly authorized issue of securities of the
Company (herein called the "Securities", and the series thereof to which this
Note belongs being herein called the "Notes"), issued and to be issued in one or
more series under an Indenture dated as of October 15, 1988, as supplemented by
a Second Supplemental Indenture dated as of April 1, 1999 (as so supplemented,
herein called the "Indenture"), between the Company and Citibank, N.A., as
trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of
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the Company, the Trustee and the Holders of the Notes and of the terms upon
which the Notes are, and are to be, authenticated and delivered. This Note is
one of the series designated above. The Notes of this series may be issued from
time to time at varying maturities (from nine months to thirty years from the
Original Issue Date specified above) and interest rates and in an aggregate
principal amount up to $300,000,000.
Payments of the principal (and premium, if any) and interest due with
respect to this Note, if issued in book-entry form, will be made by the Company
through the Trustee to The Depository Trust Company, or other depositary
selected by the Company, consistent with procedures agreed to by the Company and
such depositary. Payments of the principal (and premium, if any) and interest
due at Maturity with respect to this Note, if issued in certificated form, will
be made in immediately available funds upon presentation and surrender of such
Note (and, in the case of any repayment on an Optional Repayment Date, upon
submission of a duly completed election form in accordance with the provisions
described herein) at the Corporate Trust Office of the Trustee or other Place of
Payment, provided, however, that this Note is presented to the Trustee or other
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Paying Agent in time for the Trustee or other Paying Agent to make such payments
in such funds in accordance with its normal procedures. Payments of interest
other than at Maturity with respect to this Note, if issued in certificated
form, will be made at the Corporate Trust Office; provided, however, that the
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payment of such interest may be made at the option of the Company by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register. Notwithstanding the foregoing, a Holder of
$10,000,000 or more in aggregate principal amount of Notes issued in
certificated form and 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 appropriate wire transfer instructions have been
received in writing by the Trustee not less than 15 calendar days prior to the
applicable Interest Payment Date (any such wire transfer instructions received
by the Trustee to remain in effect until revoked in writing by such Holder).
This Note will not be subject to any sinking fund and, unless
otherwise specified in this Note in accordance with the provisions of the
following two paragraphs, will not be redeemable or repayable prior to the
Stated Maturity Date.
If a Redemption Commencement Date and an Initial Redemption Percentage
are specified in this Note, this Note will be subject to redemption at the
option of the Company prior to the Stated Maturity Date on any date on or after
the Redemption Commencement Date specified in this Note, in whole or from time
to time in part in increments of $1,000 or the minimum authorized denomination
(provided that any remaining principal amount hereof will be at least $1,000 or
such minimum authorized denomination), at the Redemption Price together with
unpaid interest accrued thereon to the date fixed for redemption (each, a
"Redemption Date"), on notice given no less than 30 nor more than 60 calendar
days prior to the Redemption Date and in accordance with the provisions of the
Indenture. The "Redemption Price" will initially be the Initial Redemption
Percentage specified in this Note (as adjusted by the Annual Redemption
Percentage Reduction, if applicable) multiplied by the unpaid principal amount
of this Note to be redeemed. The Initial Redemption Percentage will decline at
each anniversary of the Redemption Commencement Date by the Annual Redemption
Percentage Reduction, if any, specified in this Note until the Redemption Price
is equal to 100% of the unpaid principal
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amount to be redeemed. In the event of redemption of this Note in part only, a
new Note of like tenor for the unredeemed portion hereof and otherwise having
the same terms as this Note will be issued in the name of the Holder hereof upon
the presentation and surrender hereof.
If one or more Optional Repayment Dates are specified in this Note,
this Note will be subject to repayment by the Company at the option of the
Holder hereof prior to the Stated Maturity Date on the Optional Repayment
Date(s) specified in this Note, in whole or in part in increments of $1,000 or
the minimum authorized denomination (provided that any remaining principal
amount hereof will be at least $1,000 or such minimum authorized 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 fixed for repayment
(each, a "Repayment Date"). For this Note to be repaid, this Note must be
received, together with the form hereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its corporate trust office not less than 30
nor more than 60 calendar days prior to the Repayment Date. Exercise of such
repayment option by the Holder hereof will be irrevocable. In the event of
repayment of this Note in part only, a new Note of like tenor for the unrepaid
portion hereof and otherwise having the same terms as this Note will be issued
in the name of the Holder hereof upon the presentation and surrender hereof.
If this Note is a Discount Note as specified herein, the amount
payable to the Holder of this Note in the event of redemption, repayment or
acceleration of maturity of this Note will be equal to the sum of (i) the Issue
Price specified in this Note (increased by any accruals of the Discount) and, in
the event of any redemption of this Note (if applicable), multiplied by the
Initial Redemption Percentage (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) and (ii) any unpaid interest on this Note accrued from
the Original Issue Date to the Redemption Date, Optional Repayment Date or date
of acceleration of maturity, as the case may be. The difference between the
Issue Price and 100% of the principal amount of this Note, if a Discount Note,
is referred to herein as the "Discount."
For purposes of determining the amount of Discount that has accrued as
of any Redemption Date, Optional Repayment Date or date of acceleration of
maturity of this Note, such Discount will be accrued so as to cause the yield on
the Note to be constant. The constant yield will be calculated using a 30-day
month, 360-day year convention, a compounding period that, except for the
Initial Period, corresponds to the shortest period between Interest Payment
Dates (with ratable accruals within a compounding period), a coupon rate equal
to the initial interest rate applicable to this Note and an assumption that the
maturity of this Note will not be accelerated. If the period from the Original
Issue Date to the initial Interest Payment Date (the "Initial Period") is
shorter than the compounding period for this 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 in the preceding sentence.
Unless otherwise indicated herein, this Note will bear interest at a
rate determined by reference to an interest rate basis (the "Base Rate"), which
may be adjusted by a Spread and/or Spread Multiplier. The applicable Base Rate
may be: (a) the Commercial Paper Rate (if applicable, this Note being a
"Commercial Paper Rate Note"), (b) the Prime Rate (if applicable,
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this Note being a "Prime Rate Note"), (c) LIBOR (if applicable, this Note being
a "LIBOR Note"), (d) the Treasury Rate (if applicable, this Note being a
"Treasury Rate Note"), (e) the CD Rate (if applicable, this Note being a "CD
Rate Note"), (f) the Federal Funds Rate (if applicable, this Note being a
"Federal Funds Rate Note") or (g) such other Base Rate or interest rate formula
as is set forth herein. If the applicable Base Rate is LIBOR, this Note will
also specify the Designated LIBOR Page, as such term is defined below.
Unless otherwise specified herein, the interest rate with respect to
this 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), if any, specified herein to be added to or
subtracted from the Base Rate for this Note to calculate the interest rate for
this Note, and the "Spread Multiplier" is the percentage, if any, specified
herein to be multiplied by the Base Rate (or by the Base Rate increased or
decreased by the Spread) to calculate the interest rate for this Note. The
"Index Maturity" for this Note is the period to maturity of the instrument or
obligation from which the Base Rate is calculated.
Unless otherwise specified in this Note, the interest rate with
respect to each Base Rate will be determined in accordance with the applicable
provisions below. Except as set forth in this Note, the interest rate in effect
on each day shall be (i) 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 (ii) 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.
The rate of interest on this Note will be reset daily, weekly,
monthly, quarterly, semi-annually or annually (each, an "Interest Reset Date").
The Interest Reset Date will be, in the case of Notes that reset daily, each
Business Day; in the case of Notes (other than Treasury Rate Notes) which reset
weekly, the Wednesday of each week; in the case of Treasury Rate Notes which
reset weekly, the Tuesday of each week; in the case of Notes which reset
monthly, the third Wednesday of each month; in the case of Notes which reset
quarterly, the third Wednesday of March, June, September and December of each
year; in the case of Notes which reset semi-annually, the third Wednesday of two
months of each year as specified above; and in the case of Notes which reset
annually, the third Wednesday of one month of each year as specified above;
provided, however, that (a) the interest rate in effect from the Original Issue
- -------- -------
Date to the first Interest Reset Date with respect to a Note will be the Initial
Interest Rate (as set forth in this Note) and (b) the interest rate in effect
for the ten days immediately prior to Maturity will be that in effect on the
tenth day preceding such Maturity. If any Interest Reset Date for this Note
would otherwise be a day that is not a Business Day, such Interest Reset Date
will be postponed to the next succeeding day that is a Business Day, except that
in the case of a Note as to which LIBOR is an applicable Base Rate, if such
Business Day falls in the next succeeding calendar month, such Interest Reset
Date will be the immediately preceding Business Day.
Except as provided below, interest will be payable in the case of
Notes which reset: (i) daily, weekly or monthly, on the third Wednesday of each
month or on the third Wednesday of March, June, September and December of each
year, as specified above; (ii)
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quarterly, on the third Wednesday of March, June, September and December of each
year; (iii) semiannually, on the third Wednesday of the two months of each year
specified above; and (iv) annually, on the third Wednesday of the month of each
year specified above (each, an "Interest Payment Date") and, in each case, at
Maturity with respect to the principal repayable on such date.
The Interest Determination Date pertaining to an Interest Reset Date
for a Commercial Paper Rate Note (the "Commercial Paper Rate Interest
Determination Date"), for a Prime Rate Note (the "Prime Rate Interest
Determination Date"), for a CD Rate Note (the "CD Rate Interest Determination
Date") and for a Federal Funds Rate Note (the "Federal Funds Rate Interest
Determination Date") will be the second Business Day preceding such Interest
Reset Date. The Interest Determination Date for a LIBOR Note (the "LIBOR
Interest Determination Date") will be the second London Business Day preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a Treasury Rate Note (the "Treasury Interest
Determination Date") will be the day of the week in which such Interest Reset
Date falls on which day Treasury bills (as defined below) would normally be
auctioned by the U.S. Department of the Treasury. 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
Treasury Interest Determination Date 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.
The Interest Determination Date pertaining to a Note the interest rate of which
is determined by reference to two or more Base Rates will be the most recent
Business Day that is at least two Business Days prior to the applicable Interest
Reset Date for this Note on which each Base Rate is determinable. Each Base
Rate will be determined as of the applicable Interest Determination Date, and
the applicable interest rate will take effect on the applicable Interest Reset
Date.
Notwithstanding the other provisions herein, the daily Floating
Interest Rate hereon shall not be greater than the Maximum Interest Rate, if
any, or less than the Minimum Interest Rate, if any, specified in this Note and,
in addition, the Floating Interest Rate shall 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.
Except as otherwise provided herein, all percentages resulting from
any calculations on this Note 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
this Note will be rounded to the nearest cent (with one half cent being rounded
up).
Accrued interest is calculated by multiplying the principal amount of
this Note by an accrued interest factor. The interest factor is computed by
adding the interest factor calculated for each day in the Interest Period. The
interest factor (expressed as a decimal) for
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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 Notes for which the interest rate is determined by 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 above or in the Addendum hereto.
The Calculation Agent (which shall be the Trustee unless otherwise
specified above) shall calculate the Floating Interest Rate on this Note on or
before each Calculation Date and, upon request, provide to Holders the Floating
Interest Rate then in effect and, if calculated, to become in effect. The
Calculation Agent's determination of any Floating 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.
Unless otherwise provided in this Note, the Calculation Agent shall
determine each Base Rate in accordance with the following provisions:
Determination of Commercial Paper Rate
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 Commercial Paper Rate
Interest Determination Date next preceding such Interest Reset Date of the rate
for commercial paper having the Index Maturity specified above, 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 Commercial Paper Rate Interest
Determination Date of the rate for commercial paper of the Index Maturity
specified in this Note 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 an
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 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 Commercial Paper Rate 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
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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 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 = D x 360 x 100
-------------
360-(D x M)
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.
Determination of Prime Rate
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 Prime Rate 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 Prime Rate 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 Prime Rate Interest Determination Date. If fewer than four such rates
appear on the Reuters Screen USPRIME1 Page as of the applicable Prime Rate
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 Prime Rate 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 Prime Rate Interest Determination Date.
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Determination of LIBOR
"LIBOR" with respect to each Interest Reset Date will be determined by
the Calculation Agent on the Calculation Date in accordance with the following
provisions:
(i) With respect to a LIBOR Interest Determination Date, LIBOR will be
either: (a) if "LIBOR Reuters" is specified in this Note, 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 this Note, 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 LIBOR Interest Determination Date, or (b) if "LIBOR
Telerate" is specified in this Note or if neither "LIBOR Reuters" nor "LIBOR
Telerate" is specified in this Note as the method for calculating LIBOR, the
rate for deposits in U.S. dollars having the Index Maturity specified in this
Note, commencing on such Interest Reset Date, that appears on the Designated
LIBOR Page as of 11:00 A.M., London time, on such LIBOR 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 LIBOR Interest Determination Date will be determined in accordance with
the provisions described in subparagraph (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
offered rates appear than are required in subparagraph (i) above, the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market selected by the Calculation
Agent, in its discretion, to provide the Calculation Agent with its offered
quotation for deposits in U.S. dollars for the period of the Index Maturity
specified in this Note, 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 LIBOR 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
LIBOR Interest Determination Date will be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, then LIBOR on
such LIBOR Interest Determination Date will be the arithmetic mean of the rates
quoted at approximately 11:00 A.M., New York City time on such LIBOR 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 this Note 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 LIBOR
Interest Determination Date will be LIBOR in effect under the Note on such LIBOR
Interest Determination Date.
"Designated to LIBOR Page" means (a) if "LIBOR Reuters" is specified
in this Note, the display in the Reuter Monitor Money Rates Service (or any
successor service) on the page specified in this Note (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 this Note or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in this Note as the method for calculating LIBOR, the display on the
Dow Jones
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Telerate Service (or any successor service) on the page specified in this Note
(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.
Determination of Treasury Rate
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 Treasury Rate Interest Determination Date next
preceding such Interest Reset Date of direct obligations of the United States
("Treasury bills") having the Index Maturity specified in this Note 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 this Note 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 Treasury
Rate 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 Treasury
Rate 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 this Note. 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 Treasury Rate
Interest Determination Date.
Determination of CD Rate
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 CD Rate Interest Determination Date next preceding such Interest Reset
Date for negotiable United States dollar certificates of deposit having the
Index Maturity specified in this Note 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
CD Rate Interest Determination Date for negotiable United States dollar
certificates of deposit having the Index Maturity specified in this Note 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 CD Rate 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
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maturity closest to the Index Maturity specified in this Note 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
CD Rate Interest Determination Date.
Determination of Federal Funds Rate
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 Federal Funds 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 Federal Funds 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 Federal Funds Interest Determination
Date, for the last transaction in overnight United States federal funds arranged
by three leading brokers of United States 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 Federal
Funds Interest Determination Date.
The Indenture contains provisions to defeasance at any time of (a) the
entire indebtedness of this Note and (b) certain restrictive covenants, in each
case upon compliance by the Company with certain conditions set forth therein,
which provisions apply to this Note.
If an Event of Default with respect to Notes of this series shall
occur and be continuing, the principal of the Notes of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of 66-2/3% in principal amount of the Securities at the
time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding on behalf of the
Holders of all Securities of such series to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
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<PAGE>
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, places and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein and herein set forth, the transfer of this Note is registrable in the
Security Register upon surrender of this Note for registration of transfer at
the office or agency of the Company in any place where the principal of (and
premium, if any) and interest on this Note are payable duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or his
attorney, duly authorized in writing and thereupon one or more new notes of this
series and of like tenor, of authorized denominations and for the same aggregate
principal amount will be issued to the designated transferee or transferees.
Unless otherwise set forth above, the Notes of this series are
issuable only in registered form, without coupons, in minimum denominations of
$1,000 and any amount in excess thereof that is an integral multiple of $1,000.
As provided in the Indenture and subject to certain limitations therein and
herein set forth, Notes of this series are exchangeable for a like aggregate
principal amount of Notes of this series of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
Unless the certificate of authentication hereon has been executed by
the Trustee by manual signature, this Note shall not be entitled to any benefit
under the Indenture or be valid or obligatory for any purpose.
This Note will for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
HAWAIIAN ELECTRIC INDUSTRIES, INC.
[CORPORATE SEAL]
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
CITIBANK, N.A., as Trustee
By:
---------------------------------------
Authorized Officer
<PAGE>
OPTION TO ELECT REPAYMENT
(For use only if Holder has option to elect repayment)
The undersigned hereby irrevocably request(s) and instruct(s) the
Company to repay this Note (or portion hereof specified below) pursuant to its
terms at a price equal to 100% of the principal amount to be repaid together
with unpaid accrued interest to the Optional Repayment Date, to the undersigned,
at __________________________________________________________________________
_____________________________________________________________________________
(Please print or typewrite name and address of the undersigned)
For this Note to be repaid, the Trustee must receive at the Corporate
Trust Office, ____________________________, New York, New York __________, or at
such other place or places of which the Company shall from time to time notify
the Holder of this Note, not less than 30 nor more than 60 calendar days prior
to an Optional Repayment Date, if any, specified in this Note, with this "Option
to Elect Repayment" form duly completed.
If less than the entire principal amount of this Note is to be repaid,
specify the portion hereof (which shall be in increments of $1,000) which the
Holder elects to have repaid and specify the denomination or denominations
(which shall be $1,000 or an integral multiple of $1,000 in excess of $1,000) of
the Notes to be issued to the Holder for the portion of this Note not being
repaid (in the absence of any such specification, one such Note will be issued
for the portion not being repaid).
<TABLE>
<S> <C>
---------------------------------------------------
Principal Amount
to be Repaid: $_______________ NOTICE: The signature(s) on this Option to Elect
Repayment must correspond with the name as specified
Denomination(s) of Note(s) To Be Issued in this Note in every particular, without alteration
for Portion of Note Not Repaid (if or enlargement or any change whatsoever.
applicable): $_______________
Date: ______________________
</TABLE>
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription specified in
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
UNIF GIFT MIN ACT -- .............Custodian........................
(Minor)
Under Uniform Gifts to Minors Act
.............................................
(State)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above
list.
<PAGE>
-----------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfers unto
Please Insert Social Security or Other
Identifying Number of Assignee:
-------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING ZIP CODE OF ASSIGNEE:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
the within Note and all rights hereunder, hereby irrevocably constituting and
appointing
_______________________________________________________________________________
attorney to transfer said Note on the books of the Company, with full power of
substitution in the premises.
Dated: __________________
NOTICE: The signature to this assignment must correspond with the name as
specified in the within instrument in every particular, without alteration or
enlargement, or any change whatsoever.
<PAGE>
HEI Exhibit 12.1
----------------
Hawaiian Electric Industries, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, March 31,
----------------------------------- -------------------------------------
(dollars in thousands) 1999 (1) 1999 (2) 1998 (1) 1998 (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed charges
Total interest charges (3)..................... $36,642 $69,344 $34,646 $70,750
Interest component of rentals.................. 1,101 1,101 832 832
Pretax preferred stock dividend requirements
of subsidiaries............................... 992 992 2,489 2,489
Preferred securities distributions of
trust subsidiaries............................ 3,999 3,999 3,096 3,096
-------- -------- -------- --------
Total fixed charges............................ $42,734 $75,436 $41,063 $77,167
======== ======== ======== ========
Earnings
Pretax income from continuing operations....... $33,197 $33,197 $38,640 $38,640
Fixed charges, as shown........................ 42,734 75,436 41,063 77,167
Interest capitalized........................... (640) (640) (1,616) (1,616)
-------- -------- -------- --------
Earnings available for fixed charges........... $75,291 $107,993 $78,087 $114,191
======== ======== ======== ========
Ratio of earnings to fixed charges............. 1.76 1.43 1.90 1.48
======== ======== ======== ========
</TABLE>
(1) Excluding interest on ASB deposits.
(2) Including interest on ASB deposits.
(3) Interest on nonrecourse debt from leveraged leases is not included in total
interest charges nor in interest expense in HEI's consolidated statements
of income.
Note: Three months ended March 31, 1998 ratios have been restated to remove the
effects of discontinued operations.
<PAGE>
HECO Exhibit 12.2
-----------------
Hawaiian Electric Company, Inc. and subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------------------
(dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed charges
Total interest charges................................................. $12,343 $12,161
Interest component of rentals.......................................... 196 179
Pretax preferred stock dividend requirements of subsidiaries........... 399 1,020
Preferred securities distributions of trust subsidiaries............... 1,909 1,006
------------------ ------------------
Total fixed charges.................................................... $14,847 $14,366
================== ==================
Earnings
Income before preferred stock dividends of HECO........................ $17,450 $20,132
Income taxes (see note below).......................................... 10,620 13,016
Fixed charges, as shown................................................ 14,847 14,366
AFUDC for borrowed funds............................................... (640) (1,616)
------------------ ------------------
Earnings available for fixed charges................................... $42,277 $45,898
================== ==================
Ratio of earnings to fixed charges..................................... 2.85 3.19
================== ==================
Note:
Income taxes is comprised of the following
Income tax expense relating to operating income from
regulated activities............................................... $10,668 $13,002
Income tax expense (benefit) relating to income (loss) from
nonregulated activities............................................ (48) 14
------------------ ------------------
$10,620 $13,016
================== ==================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Hawaiian
Electric Industries, Inc. and subsidiaries' consolidated balance sheet as of
March 31, 1999 and consolidated statement of income for the three months ended
March 31, 1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000354707
<NAME> HAWAIIAN ELECTRIC INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 164,930
<SECURITIES> 1,960,663
<RECEIVABLES> 144,241
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,179,284
<DEPRECIATION> 1,091,533
<TOTAL-ASSETS> 8,038,674
<CURRENT-LIABILITIES> 0
<BONDS> 807,581
100,000
134,293
<COMMON> 663,471
<OTHER-SE> 166,057
<TOTAL-LIABILITY-AND-EQUITY> 8,038,674
<SALES> 0
<TOTAL-REVENUES> 352,247
<CGS> 0
<TOTAL-COSTS> 298,215
<OTHER-EXPENSES> 2,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,888
<INCOME-PRETAX> 33,197
<INCOME-TAX> 12,443
<INCOME-CONTINUING> 20,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,754
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.64
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE WAS RESTATED FOR DISCONTINUED OPERATIONS AND CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM HAWAIIAN ELECTRIC INDUSTRIES, INC. AND
SUBSIDIARIES' CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000354707
<NAME> HAWAIIAN ELECTRIC INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 211,921
<SECURITIES> 2,011,111
<RECEIVABLES> 152,385
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,027,386
<DEPRECIATION> 999,273
<TOTAL-ASSETS> 7,916,284
<CURRENT-LIABILITIES> 0
<BONDS> 849,998
83,370
148,293
<COMMON> 658,930
<OTHER-SE> 162,259
<TOTAL-LIABILITY-AND-EQUITY> 7,916,784
<SALES> 0
<TOTAL-REVENUES> 374,858
<CGS> 0
<TOTAL-COSTS> 318,397
<OTHER-EXPENSES> 212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,609
<INCOME-PRETAX> 38,640
<INCOME-TAX> 15,821
<INCOME-CONTINUING> 22,819
<DISCONTINUED> (596)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,223
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.69
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Hawaiian
Electric Company, Inc. and subsidiaries' consolidated balance sheet as of
March 31, 1999 and consolidated statement of income and cash flows for the three
months ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000046207
<NAME> HAWAIIAN ELECTRIC COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,936,785
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 159,612
<TOTAL-DEFERRED-CHARGES> 12,403
<OTHER-ASSETS> 146,348
<TOTAL-ASSETS> 2,255,148
<COMMON> 85,387
<CAPITAL-SURPLUS-PAID-IN> 294,933
<RETAINED-EARNINGS> 409,530
<TOTAL-COMMON-STOCKHOLDERS-EQ> 789,850
0
134,293
<LONG-TERM-DEBT-NET> 625,632
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 129,230
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 576,143
<TOT-CAPITALIZATION-AND-LIAB> 2,255,148
<GROSS-OPERATING-REVENUE> 236,625
<INCOME-TAX-EXPENSE> 10,668
<OTHER-OPERATING-EXPENSES> 196,747
<TOTAL-OPERATING-EXPENSES> 207,415
<OPERATING-INCOME-LOSS> 29,210
<OTHER-INCOME-NET> 2,110
<INCOME-BEFORE-INTEREST-EXPEN> 31,320
<TOTAL-INTEREST-EXPENSE> 13,870
<NET-INCOME> 17,450
369
<EARNINGS-AVAILABLE-FOR-COMM> 17,081
<COMMON-STOCK-DIVIDENDS> 13,387
<TOTAL-INTEREST-ON-BONDS> 41,123
<CASH-FLOW-OPERATIONS> 41,852
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
HEI Exhibit 99.1
[Hawaiian Electric Industries, Inc. Letterhead]
Schedule "D"
May 7, 1999
Ms. Carolyn Redden
Fidelity Investments Institutional
Operations Company, Inc.
300 Puritan Way -- MM3H
Marlborough, Massachusetts 01752-3078
Re: Hawaiian Electric Industries Retirement Savings Plan
Dear Ms. Redden:
This letter is sent to you in accordance with Section 7 (b) of the Trust
Agreement dated as of November 28, 1988 and amended December 22, 1989, January
1, 1994, March 15, 1994, February 1, 1996, April 1, 1996, April 1, 1997, June
13, 1997, February 27, 1998, May 4, 1998 and August 1, 1998 between Hawaiian
Electric Industries, Inc. and Fidelity Management Trust Company.
We hereby designate Brenda J. K. Lee and Julie C. Haraga as additional
individuals who may provide directions upon which Fidelity Management Trust
Company shall be fully protected in relying. The signatures of these
individuals are set forth on Attachment 1, and are certified to be such. You
may rely upon the designation and certification set forth in this letter until
we deliver to you written notice of the termination of authority of the
designated individuals.
In addition, we hereby authorize the removal of Natalie M. H. Taniguchi.
Very truly yours,
HAWAIIAN ELECTRIC INDUSTRIES, INC.
PENSION INVESTMENT COMMITTEE
By /s/ Peter C. Lewis
_______________________________
Peter C. Lewis
Member
By /s/ Constance H. Lau
_______________________________
Constance H. Lau
Secretary and Member
Attachment
<PAGE>
ATTACHMENT 1
Signature of Designated Individuals
/s/ Brenda J. K. Lee
_________________________________________
Brenda J. K. Lee
Director, Corporate Finance & Investments
Hawaiian Electric Industries, Inc.
/s/ Julie C. Haraga
_________________________________________
Julie C. Haraga
Corporate Finance & Investments Administrator
Hawaiian Electric Industries, Inc.
<PAGE>
HEI Exhibit 99.2
[Hawaiian Electric Industries, Inc. Letterhead]
Schedule "E"
May 7, 1999
Ms. Carolyn Redden
Fidelity Investments Institutional
Operations Company, Inc.
300 Puritan Way - MM3H
Marlborough, Massachusetts 01752-3078
Re: Hawaiian Electric Industries Retirement Savings Plan
Dear Ms. Redden:
This letter is sent to you in accordance with Section 7 (c) of the Trust
Agreement dated as of November 28, 1988 and amended December 22, 1989, January
1, 1994, March 15, 1994, February 1, 1996, April 1, 1996, April 1, 1997, June
13, 1997, February 27, 1998, May 4, 1998 and August 1, 1998 between Hawaiian
Electric Industries, Inc. and Fidelity Management Trust Company.
We hereby designate Brenda J. K. Lee and Julie C. Haraga as additional
individuals who may provide directions upon which Fidelity Management Trust
Company shall be fully protected in relying. The signatures of these
individuals are set forth on Attachment 1, and are certified to be such. You
may rely upon the designation and certification set forth in this letter until
we deliver to you written notice of the termination of authority of the
designated individuals.
In addition, we hereby authorize the removal of Natalie M. H. Taniguchi.
Very truly yours,
HAWAIIAN ELECTRIC INDUSTRIES, INC.
PENSION INVESTMENT COMMITTEE
By /s/ Peter C. Lewis
----------------------------
Peter C. Lewis
Member
By /s/ Constance H. Lau
----------------------------
Constance H. Lau
Secretary and Member
Attachment
<PAGE>
ATTACHMENT 1
Signature of Designated Individuals
/s/ Brenda J. K. Lee
- -----------------------------------------
Brenda J. K. Lee
Director, Corporate Finance & Investments
Hawaiian Electric Industries, Inc.
/s/ Julie C. Haraga
- -----------------------------------------
Julie C. Haraga
Corporate Finance & Investments Administrator
Hawaiian Electric Industries, Inc.
