-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzZP968F+8bIEqltqUku4ZEeFdLd7t4LP0iIyBLFQK+B8NLDEo6fhoMFfXZTpuEY LpZiOnQqxbQhlTv4PNdu0g== 0000898430-00-000737.txt : 20000313 0000898430-00-000737.hdr.sgml : 20000313 ACCESSION NUMBER: 0000898430-00-000737 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000425 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN ELECTRIC INDUSTRIES INC CENTRAL INDEX KEY: 0000354707 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 990208097 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 001-08503 FILM NUMBER: 566225 BUSINESS ADDRESS: STREET 1: 900 RICHARDS ST CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8085435662 MAIL ADDRESS: STREET 1: 900 RICHARDS STREET CITY: HONOLULU STATE: HI ZIP: 96813 DEF 14A 1 DEFINITIVE PROXY STATEMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 HAWAIIAN ELECTRIC INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) HAWAIIAN ELECTRIC INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- Notes: HAWAIIAN ELECTRIC INDUSTRIES, INC. . PO BOX 730 . HONOLULU, HI 96808-0730 [LOGO OF HEI] Robert F. Clarke Chairman, President and Chief Executive Officer March 10, 2000 Dear Fellow Stockholder: On behalf of the Board of Directors, it is once again my pleasure to invite you to attend the Annual Meeting of Stockholders of Hawaiian Electric Industries, Inc. (HEI). The meeting will be held on the Company's premises in Room 805 on the eighth floor of the Pacific Tower in Honolulu, Hawaii on April 25, 2000, at 9:30 a.m. A map showing the location of the meeting site appears on the last page of the Proxy Statement. The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement describe the items of business to be discussed during the meeting. In addition, we will review significant events of 1999 and their impact on you and your Company. Corporate officers will be available before and after the meeting to talk with you and answer any questions you may have. As a stockholder of HEI, it is important that your views be represented. Please help us obtain the quorum needed to conduct business at the meeting by promptly voting your shares. I join the management team of HEI in expressing our appreciation for your confidence and support. I look forward to seeing you at the Annual Meeting in Honolulu. Sincerely, /s/ Robert F. Clarke [LOGO OF RECYCLED PAPER] - -------------------------------------------------------------------------------- Hawaiian Electric Industries, Inc. 900 Richards Street [LOGO OF HEI] Honolulu, Hawaii 96813 - -------------------------------------------------------------------------------- Notice of Annual Meeting of Stockholders to be held April 25, 2000 To the Holders of Common Stock Hawaiian Electric Industries, Inc. will hold its 2000 Annual Meeting of Stockholders on Tuesday, April 25, 2000, at 9:30 a.m. in the Pacific Tower, 8th floor, Room 805, 1001 Bishop Street, Honolulu, Hawaii 96813. At the meeting we will: 1. Elect three Class I directors. 2. Elect the independent auditor of the Company. 3. Transact any other business properly brought before the meeting. Only stockholders who own stock at the close of business on February 16, 2000, can vote at the meeting. If your shares are registered in the name of a brokerage firm (street name) or trustee and you plan to attend the meeting, please bring a letter from the firm or trustee or other evidence of your beneficial ownership. All stockholders are urged to attend the meeting in person or by proxy. It is important that your shares be represented at the meeting, regardless of the size of your holding. Therefore, we urge you to vote your shares as soon as possible. Peter C. Lewis, Vice President-- Administration and Secretary Hawaiian Electric Industries, Inc. Honolulu, Hawaii March 10, 2000 TABLE OF CONTENTS
Page ---- Voting Information......................................................... 1 Purpose.................................................................. 1 Who Can Vote............................................................. 1 How You Can Vote......................................................... 1 Revocation of Proxies.................................................... 2 Required Votes........................................................... 2 Who Will Count the Votes................................................. 2 Shares Held in Street Name............................................... 2 Expenses of Solicitation................................................. 3 Proposals You May Vote On.................................................. 3 Election of Class I Directors............................................ 3 Election of Auditor...................................................... 3 Nominees for Class I Directors............................................. 4 Continuing Class II Directors.............................................. 5 Continuing Class III Directors............................................. 6 Board of Directors......................................................... 7 Corporate Governance..................................................... 7 Committees of the Board.................................................. 8 Recommendation for Director Nominee...................................... 9 Attendance at Meetings................................................... 9 Compensation of Directors................................................ 9 Nonemployee Director Retirement Plan..................................... 9 Indemnification and Limitation of Liability................................ 10 Security Ownership of Directors and Executive Officers..................... 11 Section 16(a) Beneficial Ownership Reporting Compliance.................... 11 Executive Management Compensation.......................................... 12 Summary Compensation Table............................................... 12 Option Grants in Last Fiscal Year ....................................... 13 Aggregated Option Exercises and Fiscal Year-End Option Values............ 14 Long-Term Incentive Plan (LTIP) Awards................................... 15 Pension Plans............................................................ 16 Change-in-Control Agreements ............................................ 18 Compensation Committee Report on Executive Compensation.................. 19 Stockholder Performance Graph............................................ 24 Indebtedness of Management................................................. 25 Transactions with Management and Directors................................. 26 Stockholder Proposals for 2001............................................. 26 Other Business............................................................. 27
Proxy Statement VOTING INFORMATION Purpose Hawaiian Electric Industries, Inc. is soliciting proxies for the Annual Meeting of Stockholders scheduled for April 25, 2000. The mailing address of the principal executive offices of the Company is P.O. Box 730, Honolulu, Hawaii 96808-0730. The approximate mailing date for this Proxy Statement, form of proxy and annual report to stockholders for the fiscal year ended December 31, 1999, is March 10, 2000. The annual report is not considered proxy soliciting material. Who Can Vote Stockholders of Common Stock at the close of business on February 16, 2000 (the record date), are entitled to vote. On February 16, 2000, 32,297,786 shares of Common Stock were outstanding. Each stockholder is entitled to one vote for each share held. Under the By-Laws of the Company, stockholders do not have cumulative voting rights in the election of directors. How You Can Vote You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or nominee. In most instances, you will be able to do this over the Internet, by telephone or by mail. If you vote over the Internet or by telephone, please follow the instructions included on your proxy card. If your shares are held in street name, please follow the voting instruction card included by your broker or nominee. If you vote by mail, sign and date your proxy and return it in the enclosed prepaid envelope. You can specify on your proxy whether your shares should be voted for all, some, or none of the nominees for director. You can also specify whether you approve, disapprove, or abstain from the proposal to elect the Company's independent auditor. If you return your signed proxy but do not mark the boxes showing how you wish to vote, we will vote your shares "FOR" the election of all nominees for director and "FOR" the election of the Company's independent auditor. You may also vote your shares by attending the meeting and voting in person. In addition, if you wish to give your proxy to someone other than the individuals listed on the enclosed proxy, cross out all three names and insert the name of another person to vote your shares at the meeting. Your share ownership is shown on the enclosed proxy, including your shares held in the Dividend Reinvestment and Stock Purchase Plan (DRIP) and the Hawaiian Electric Industries Retirement Savings Plan (HEIRS) (including shares held in the Hawaiian Electric Industries Stock Ownership Plan, formerly the Tax Reduction Act Stock Ownership Plan (TRASOP)). The respective 1 plan trustees will vote the shares of stock held in the Plans according to your directions. For both DRIP and HEIRS (excluding TRASOP), the respective trustees will vote all the shares of Common Stock for which they receive no voting instructions in the same proportion as they vote shares for which they receive instructions. The trustee cannot vote the shares in TRASOP for which it receives no voting instructions. Revocation of Proxies You can revoke your proxy at any time before the Annual Meeting in one of three ways: (1) notify the Secretary of the Company in writing; (2) return a properly signed, later-dated proxy; or (3) vote in person at the meeting. Required Votes A quorum is needed to transact business at the Annual Meeting. A majority of the outstanding shares present in person or represented by proxy constitutes a quorum. The affirmative vote of more than 50% of the quorum is required to elect the Class I directors and the Company's independent auditor. Abstentions are counted as "shares present" at the meeting in determining whether a quorum exists and have the effect of a vote against any proposal. Who Will Count the Votes Beacon Hill Partners, Inc. will act as tabulator for broker and bank proxies and Proxy Services Corporation will act as tabulator for the proxies of the other stockholders of record. Your identity and vote will not be disclosed to persons other than those acting as tabulators except as follows: (1)as required by law; (2) to verify the validity of proxies and the results of the voting in the case of a contested proxy solicitation; or (3)when you write a comment on the proxy form. Shares Held in Street Name If your shares are held in the name of a brokerage firm or trustee or other holder of record and you bring a letter from the holder of record or other evidence of your beneficial ownership, you are invited to attend the meeting. However, you may not vote at the meeting unless you obtain a legal proxy from the brokerage firm or trustee. Under New York Stock Exchange rules, your broker or nominee may vote your shares on routine matters (such as the election of directors and the independent auditor) if you do not give your broker or nominee specific instructions. A broker does not have discretionary voting power with respect to nonroutine proposals and cannot vote on these matters if you do not send the broker your instructions. This is referred to as a "broker nonvote" and will be considered as "shares present" at the meeting in determining whether a quorum exists. Broker nonvotes, if any, have the effect of a vote to withhold authority in connection with the election of directors and the effect of a vote against other proposals at the meeting. 2 Expenses of Solicitation The Company pays all expenses of the proxy solicitation. We hired Beacon Hill Partners, Inc. to assist in the distribution of proxy materials and solicitation of votes for $3,000 plus reasonable out-of-pocket expenses. In addition, we will reimburse brokerage firms and other custodians, nominees, and fiduciaries for their expenses to forward proxy and solicitation material to stockholders. PROPOSALS YOU MAY VOTE ON 1. Election of Class I Directors The Board of Directors currently consists of 12 individuals who are divided into three classes: Class I, Class II and Class III with the term of office of one class expiring each year. The three Class I nominees being proposed for election at this Annual Meeting are Robert F. Clarke, A. Maurice Myers and James K. Scott. Each of the nominees is currently a member of the Board of Directors and has consented to serve for a new three-year term expiring at the 2003 Annual Meeting. If a nominee is unable to stand for election, the proxy holders listed in the proxy may vote in their discretion for a suitable substitute. Terms for Class II Directors will expire in 2001 and for Class III directors in 2002. Detailed information on each nominee and director is provided on pages 4 to 6. YOUR BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE CLASS I DIRECTORS. 2. Election of Auditor The firm of KPMG LLP, independent certified public accountants, has been the auditor of the Company since 1981. The Board of Directors recommends the election of KPMG LLP as the auditor of the Company for fiscal year 2000 and thereafter until its successor is elected. Representatives of KPMG LLP will be present at the Annual Meeting and will be given the opportunity to make a statement and to respond to appropriate questions. YOUR BOARD RECOMMENDS THAT YOU VOTE FOR KPMG LLP AS AUDITOR OF THE COMPANY. 3 NOMINEES FOR CLASS I DIRECTORS Terms would end at the 2003 Annual Meeting. [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS HERE] HERE] HERE] Robert F. A. Maurice James K. Scott, Clarke Myers Ed.D. Age 57 Age 59 Age 48 Director Since Director Since Director Since 1989 1991 1995 Chairman, Chairman, President of president and president and Punahou chief execu- chief executive School. tive officer officer of Director of of the Company. Waste Hawaiian Chairman of Management, Electric the board of Inc. Company, Inc., Hawaiian (environmental Pacific and Electric services), Asian Affairs Company, Inc., Houston, Council, and American Texas, since Hawaii Public Savings Bank, November 1999. Television. F.S.B., and Chairman, President, HEI Power president and Hawaii Corp. chief Association of President and executive Independent director of officer of Schools. Hawaiian Yellow Trustee, the Electric Corporation College Board. Industries from April Member, Hawaii Charitable 1996 to Executives Foundation and November 1999. Council, Hycap President, Hawaiian Management, chief Educational Inc. Director operating Council, and of Aloha officer, and Young United Way. director of Presidents Chairman, America West Organization. Advisory Board Airlines, Inc. for the from 1994 to College of 1995. Business Director of Administration Pleasant at the Holidays and University of Cheap Tickets, Hawaii--Manoa. Inc. Member, Member, Oceanic Advisory Cablevision Council of Advisory Northwestern Board, Hawaii University Business Kellogg Roundtable, Transportation Council on School. Revenues for the State of Hawaii, and Air Force Civilian Advisory Council. Trustee, The Nature Conservancy of Hawaii, Straub Foundation, and Hawaii Pacific University. 4 CONTINUING CLASS II DIRECTORS Directors continuing in office with terms ending at the 2001 Annual Meeting. [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS HERE] HERE] HERE] HERE] HERE] Victor Hao T. Michael Diane J. Kelvin H. Jeffrey N. Li, S.J.D. May Plotts Taketa Watanabe Age 58 Age 53 Age 64 Age 45 Age 57 Director Director Director Director Director Since 1988 Since 1995 Since 1987 Since 1993 Since 1987 Co-chairman, Senior vice General President Partner in Asia Pacific president of partner of and chief the law firm Consulting the Company Mideast and executive of Watanabe, Group. Vice since Sep- China Trad- officer of Ing & president, tember 1995. ing Company, the Hawaii Kawashima. General Re- President, formerly Community Director of insurance chief execu- known as Foundation. Hawaiian Corporation. tive officer Hemmeter In- Vice presi- Electric Director of and director vestment dent and di- Company, Hawaiian of Hawaiian Company. rector of Inc., Electric In- Electric Director of the Asia Pa- American dustries Company, Hawaiian cific Re- Savings Charitable Inc. and Electric gion, The Bank, Foundation, chairman of Company, Nature Con- F.S.B., HEI HEI Power the boards Inc., Ameri- servancy Power Corp., Corp. Trust- of Maui can Savings from 1989 to Hawaiian ee, Japan- Electric Bank, 1998. Electric In- America In- Company, F.S.B., Director of dustries stitute of Limited and Hawaii HEI Power Charitable Management Hawaii Elec- Health Sys- Corp., Foundation, Science. tric Light tems Corpo- HISCO, Ltd., American Consulting Company, ration, and Classic Voy- Professor of Inc. since Plaza Club, Sustainable ages, First Law, Stan- September and Honolulu Forest Insurance ford Univer- 1995. From Country Resources, Company of sity. February 1992 Club. LLC. Hawaii, and to Au- Grace Pa- gust 1995, cific Corpo- senior vice ration. president of Member, Ad- Hawaiian visory Electric Board, Oce- Company, anic Cable- Inc. vision. Director of Trustee, Hawaiian Children's Electric In- Television dustries Workshop, Charitable Children and Foundation, Youth Foun- HEI Power dation of Corp., and the Philip- the Electric pines, The Power Re- Queen's search In- Health Sys- stitute. tem, and The Member, Boy Queen's Med- Scouts of ical Center. America- Chair, The Aloha Coun- Consuelo cil Execu- Zobel Alger tive Board Foundation and Japanese and The Na- Chamber of ture Conser- Commerce. vancy of Trustee, Hawaii. Academy of the Pacific. 5 CONTINUING CLASS III DIRECTORS Directors continuing in office with terms ending at the 2002 Annual Meeting. [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS [PHOTO APPEARS HERE] HERE] HERE] HERE] Don E. Richard Bill D. Oswald K. Carroll Henderson Mills Stender Age 58 Age 71 Age 48 Age 68 Director Director Director Director Since 1996 Since 1981 Since 1988 Since 1993 President, President Chairman of Real estate chief execu- and director the board consultant tive offi- of HSC, Inc. and chief since June cer, and di- (real estate executive 1999. Trust- rector of investment officer of ee, Oceanic Ca- and Bill Mills Kamehameha blevision. development) Development Schools/ Vice presi- and its and Invest- Bishop Estate dent of Time subsidiaries. ment Compa- from January Warner Ca- Director of ny, Inc. 1990 to May ble. Hawaiian Director, 1999. Director of Electric Grace Pa- Director of Pacific Company, cific Corpo- Hawaiian Guardian Inc., Hawaii ration. Electric In- Life and Electric Trustee, dustries American Red Light Hawaii Pa- Charitable Cross-- Company, cific Uni- Foundation, Hawaii Chap- Inc., versity, Grace Pacific ter. Secre- InterIsland St. Andrew's Corporation, tary-trea- Petroleum, Priory, and Hawaii Commu- surer and Inc., and The Nature nity Rein- director of Big Island Conservancy vestment the Hawaii Substance of Hawaii. Corp., Ameri- Cable Tele- Abuse Member, can Red vision Asso- Council. Board of Cross--Hawaii ciation. Secretary, Governors, Chapter, and Treasurer Hawaii Iolani March of and director Island School and Dimes Birth of Aloha Economic Hawaii Com- Defects Foun- United Way. Development munity Foun- dation--Chap- Past presi- Board. Vice dation. ter of the dent and di- president Pacific. rector of and trustee, Trustee, Cash Hawaii Na- Lyman House Assets Trust, ture Center. Memorial Hawaiian Tax- Chairman, Museum. Free Trust, Oceanic Ca- Pacific Capi- ble Founda- tal Funds, tion. Past and Kahi president, Mohala Boy Scouts (Sutter of America- Health Pacif- Aloha Coun- ic). Member, cil and The Board of Gov- 200 Club Ad- ernors, visory Iolani School Board. Mem- and East-West ber, Hawaii Center Foun- Business dation. Roundtable. 6 BOARD OF DIRECTORS Corporate Governance The management of the Company periodically reviews trends in corporate governance with the Board. In 1996, the Board of Directors adopted an annual process of evaluating the operations of the Board as a whole. Each director currently rates the following: . mechanics of Board meetings (length of meetings, number of meetings, adequacy of pre-meeting information, quality of presentations, communications between meetings); . meeting content/conduct (topics covered, amount of detail, climate for open debate, time for discussion); . Board organization/operation (size, mandatory retirement at age 72, committee structure, exposure and access to management, and skills, diversity and experience of directors); . Board practices (executive compensation, executive succession planning, selection of committee members, criteria for the selection and retention of directors, compensation of directors); and . overall performance of directors (understanding the business and strategies, doing their homework, asking good questions, sharing insights, attending meetings and keeping current on issues affecting the business). The Board also adopted an annual process for evaluating those directors whose terms expire at the next Annual Meeting. The directors evaluate themselves on various factors, including meeting preparation, attendance, participation at meetings, and knowledge of issues and trends affecting the Company. The evaluation forms for the Board as a whole and individual directors are then submitted to the Nominating and Corporate Governance Committee before directors are nominated for reelection to the Board. After reviewing the comments received, the Nominating and Corporate Governance Committee recommends to the Board any procedures and practices to be adopted to improve the operations of the Board. The Chairman of the Nominating and Corporate Governance Committee may meet with individual directors to discuss their performance. 7 Committees of the Board The Board of Directors has four standing committees: Audit, Compensation, Executive, and Nominating and Corporate Governance. The names of the members and the number of meetings held in 1999 are shown in the table below:
Nominating and Corporate Name Audit Compensation Executive Governance ------------------------------------------------------------------- Don E. Carroll X X ------------------------------------------------------------------- Robert F. Clarke* X ------------------------------------------------------------------- Richard Henderson X** X** ------------------------------------------------------------------- Victor Hao Li X ------------------------------------------------------------------- T. Michael May* ------------------------------------------------------------------- Bill D. Mills X ------------------------------------------------------------------- A. Maurice Myers X X ------------------------------------------------------------------- Diane J. Plotts X X** X ------------------------------------------------------------------- James K. Scott X ------------------------------------------------------------------- Oswald K. Stender X X ------------------------------------------------------------------- Kelvin H. Taketa X ------------------------------------------------------------------- Jeffrey N. Watanabe X X** ------------------------------------------------------------------- Number of Meetings in 1999 5 3 0 2
- -------- *Employee director **Committee chair The Audit Committee reviews the Company's auditing, accounting, financial reporting, and internal control functions. All members of the committee are nonemployee directors. The Compensation Committee reviews the current salary administration policies and compensation strategy for the Company. All members of the committee are nonemployee directors. Since 1991, the Compensation Committee has annually evaluated the performance of the Chairman. At least once a year, the Compensation Committee meets in executive session with the other nonemployee directors of the Board to discuss the Chairman's compensation and to evaluate the Chairman's performance. See pages 19 to 23 for the Compensation Committee Report on Executive Compensation. The Executive Committee possesses and exercises the authority of the Board as delegated by the Board and is responsible for considering and making recommendations to the Board regarding any questions concerning the business and affairs of the Company. The Committee is comprised of nonemployee directors and the President. The Nominating and Corporate Governance Committee reviews and recommends to the Board of Directors the slate of nominees to be submitted to the stockholders for election at the next Annual Meeting. All members of the committee are nonemployee directors. See page 7 for a discussion concerning the involvement of this Committee on matters relating to corporate governance. 8 Recommendation for Director Nominee You can recommend any person as a nominee for director of HEI by writing to the Nominating and Corporate Governance Committee, in care of the Secretary, Hawaiian Electric Industries, Inc., P. O. Box 730, Honolulu, Hawaii 96808-0730. Recommendations must be received by December 10, 2000 for consideration by the Committee for the 2001 Annual Meeting of Stockholders. The recommendation must include the nominee's qualifications and other relevant biographical information and confirmation of the nominee's consent to serve. Attendance at Meetings In 1999, there were ten regular monthly meetings and three special meetings of the Board of Directors. All directors attended at least 75% of the combined total meetings of the Board and Board committees on which they served. Compensation of Directors Nonemployee directors of the Company received the following compensation for their services as directors during 1999 (employee members of the Board of Directors receive no additional compensation for service as directors).
Compensation Amount - ------------ ---------- Annual HEI Common Stock Grant 300 shares(1) Annual Board Retainer $20,000(2) Board Attendance Fee (per meeting) 1,000(3) Committee Attendance Fee (per meeting) 1,000(3) Committee Attendance Fee for Committee Chair (per meeting) 2,000(3)
- ---------- (1) The Board of Directors adopted the 1999 Nonemployee Company Director Stock Grant Plan, whereby an annual 300-share stock grant is made to participating directors for the purpose of further aligning directors' and stockholders' interests in improving stockholder value. (2) Paid quarterly in cash installments. In order to receive the fourth quarter installment, directors are required to have attended at least 75% of the combined total of all Board meetings and all meetings of Board committees on which they serve. (3) In the case of multiple meetings on the same day, only one fee is paid. Nonemployee Director Retirement Plan The Nonemployee Director Retirement Plan (which was approved by the stockholders on April 17, 1990) provides certain retirement benefits to nonemployee directors of the Company or any subsidiary of the Company upon retirement from service as a director. The Plan provides an annual payment to each director who serves for at least 5 consecutive years and meets other requirements of the Plan in an amount equal to the annual retainer which was in effect in the year that the nonemployee director retired. The payments are for a period equal to the number of years of active service accumulated and terminate in the event of the director's death. At the meeting of the Board of Directors on December 17, 1996, the Board voted to terminate the Nonemployee Director Retirement Plan as described above, and pay the present value of the accrued retirement benefits to directors age 55 or younger or with 5 years of service or less as of April 22, 1997. 9 The retirement benefits for all other directors (Mr. Henderson, Mr. Myers and Ms. Plotts) were frozen as of December 31, 1996, and will be paid according to the terms of the Plan based on the $15,000 annual retainer in effect on December 31, 1996. The right of previously retired directors to receive benefits continues according to the Plan. INDEMNIFICATION AND LIMITATION OF LIABILITY The Company entered into Indemnity Agreements with each of its directors and executive officers as approved by stockholders at the 1989 Annual Meeting. The Indemnity Agreement provides for mandatory indemnification of the director or officer to the fullest extent permitted by law. This includes indemnification against all expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred. The Indemnity Agreement also provides for the mandatory payment of expenses incurred by the director or officer in defending a proceeding. However, these expenses must be repaid if it is later determined that the officer or director is not entitled to indemnification. The Indemnity Agreement excludes indemnification for: . proceedings initiated by the officer or director unless the Board of Directors determines indemnification to be appropriate; . amounts covered by insurance; . profits made from the purchase or sale of stock by a director or officer which are subject to the "short-swing profits" liability provisions of federal or state securities laws; . an action or omission by the officer or director determined to be willful misconduct or to have been knowingly fraudulent or deliberately dishonest; or . if an appropriate court determines that such indemnification is not permitted by law. At the 1990 Annual Meeting, the stockholders approved a proposal to amend the Restated Articles of Incorporation of the Company to add a new Article Fourteenth eliminating the personal liability of its directors for monetary damages to the fullest extent permitted by Hawaii law. 10 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table shows how many shares of HEI Common Stock were owned as of February 16, 2000 by each director, Named Executive Officer (as listed in the Summary Compensation Table on page 12) and by all directors and executive officers as a group. Amount of Common Stock and Nature of Beneficial Ownership
- ---------------------------------------------------------------------------------------------------------- Name of Individual Sole Voting or Shared Voting or Other Beneficial or Group Investment Power Investment Power(1) Ownership(2) Stock Options(3) Total - ----------------------------------------------------------------------------------------------------------- Nonemployee directors Don E. Carroll 2,488 2,488 Richard Henderson 2,742 2,742 Victor Hao Li 3,585 326 3,911 Bill D. Mills 4,528 5 4,533 A. Maurice Myers 5,077 5,077 Diane J. Plotts 2,490 2,490 James K. Scott 1,728 1,728 Oswald K. Stender 4,648 4,648 Kelvin H. Taketa 1,810 1,810 Jeffrey N. Watanabe 3,956 210 2 4,168 Employee directors and Named Executive Officers Robert F. Clarke 12,273 12,000 142,280 166,553 T. Michael May 6,118 34,744 40,862 Other Named Executive Officers Peter C. Lewis 2,744 340 15,686 18,770 Wayne K. Minami 1,968 8,315 34,061 44,344 Robert F. Mougeot 5,985 20,568 26,553 All directors and executive officers as a group (19 persons) 58,056 30,095 674 288,883 377,708(4)
- ---------- (1) Shares registered in name of the individual and spouse. (2) Shares owned by spouse, children or other relatives sharing the home of the director or officer in which the director or officer disclaims personal interest. (3) Stock options, including accompanying dividend equivalent shares, exercisable within 60 days after February 16, 2000, under the 1987 Stock Option and Incentive Plan (as amended and restated effective February 20, 1996). (4) The directors and executive officers of HEI as a group beneficially owned 1.17% of HEI Common Stock on February 16, 2000 and no director or officer owned more than .52% of such stock. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based on a review of forms filed by its reporting persons during the last fiscal year, the Company believes that they complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934. 11 EXECUTIVE MANAGEMENT COMPENSATION Summary Compensation Table The following summary compensation table shows the annual and long-term compensation of the chief executive officer and the four other most highly compensated executive officers of the Company and its subsidiaries serving during 1999. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation ---------------------------------------------------------- Awards Payouts ----------------- Securities Other Annual Underlying LTIP All Other Name and Principal Salary Bonus(1) Compensation Options(2) Payouts(3) Compensation(4) Position Year ($) ($) ($) (#) ($) ($) - ------------------------------------------------------------------------------------------------------ Robert F. Clarke 1999 $532,000 $427,349 $-0- 50,000 $ -- $28,503 Chairman, President & CEO 1998 490,000 138,237 -0- 20,000 107,973 24,192 1997 483,000 132,842 -0- 20,000 -0- 21,975 - ------------------------------------------------------------------------------------------------------ T. Michael May 1999 372,000 211,652 -0- 20,000 -- 14,400 Senior Vice President; 1998 325,000 92,425 -0- 12,000 55,973 11,612 President & CEO, HECO 1997 313,000 -0- -0- 12,000 -0- 10,333 - ------------------------------------------------------------------------------------------------------ Wayne K. Minami 1999 303,000 156,013 -0- 20,000 -- N/A President & CEO 1998 267,000 -0- -0- 10,000 21,114 N/A American Savings Bank, 1997 257,000 74,355 -0- 8,000 -0- N/A F.S.B. - ------------------------------------------------------------------------------------------------------ Robert F. Mougeot 1999 245,000 96,135 -0- 7,000 -- 13,126 Financial Vice President and 1998 238,000 39,077 -0- 5,000 38,750 11,750 Chief Financial Officer 1997 235,000 38,274 -0- 5,000 -0- 10,692 - ------------------------------------------------------------------------------------------------------ Peter C. Lewis 1999 209,000 77,804 -0- 5,000 -- 21,807 Vice President -- 1998 203,000 36,844 -0- 5,000 32,126 19,480 Administration and 1997 201,000 34,868 -0- 5,000 -0- 17,724 Secretary - ------------------------------------------------------------------------------------------------------
- ---------- (1) The Named Executive Officers are eligible for an incentive award under the Company's annual Executive Incentive Compensation Plan (EICP). EICP bonus payouts are reflected as compensation for the year earned. (2) Options granted for the three-year period 1997-1999 contained dividend equivalents as further described below under the heading Option Grants in Last Fiscal Year. (3) Long-Term Incentive Plan (LTIP) payouts are determined in the second quarter of each year for the three-year cycle ending on December 31 of the previous calendar year. If there is a payout, the amount is reflected as LTIP compensation in the table for the previous year for the Named Executive Officers. In 1998, no LTIP payouts were received for the 1995- 1997 performance cycle because none of the minimum threshold levels was achieved. In April 1999, LTIP payouts were made for the 1996-1998 performance cycle and are reflected as LTIP compensation in the table for 1998. The determination of whether there will be a payout under the 1997- 1999 LTIP will not be made until the second quarter of this year. 12 (4) Represents amounts accrued each year by the Company for certain preretirement death benefits provided to the Named Executive Officers, except Mr. Minami, as described in the Compensation Committee Report on pages 22 and 23 under the heading, "Other Compensation Plans." Option Grants in Last Fiscal Year The following table presents information on the nonqualified stock options which were granted to the five Named Executive Officers on April 26, 1999. The practice of granting stock options, which include dividend equivalent shares, has been followed each year since 1987. OPTION GRANTS IN LAST FISCAL YEAR
Number of Securities Percent of Grant Underlying Total Options Date Options Granted to Exercise Present Granted(1) Employees in Price Expiration Value(2) Name (#) Fiscal Year ($/share) Date ($) ---- ---------- ------------- --------- -------------- -------- Robert F. Clarke........ 20,000 9% $35.21 April 26, 2009 $159,000 Robert F. Clarke........ 10,000 4 36.00 April 26, 2009 75,500 Robert F. Clarke........ 10,000 4 38.00 April 26, 2009 65,900 Robert F. Clarke........ 10,000 4 40.00 April 26, 2009 57,100 T. Michael May.......... 20,000 9 35.21 April 26, 2009 159,000 Wayne K. Minami......... 20,000 9 35.21 April 26, 2009 159,000 Robert F. Mougeot....... 7,000 3 35.21 April 26, 2009 55,650 Peter C. Lewis.......... 5,000 2 35.21 April 26, 2009 39,750
- ---------- (1) For the 72,000 option shares granted with an exercise price of $35.21 per share and for each 10,000 option shares granted with exercise prices of $36.00 per share, $38.00 per share and $40.00 per share, to the Named Executive Officers, additional dividend equivalent shares are granted at no additional cost throughout the four-year vesting period (vesting in equal installments) which begins on the date of grant. Dividend equivalents are computed, as of each dividend record date, both with respect to the number of shares under the option and with respect to the number of dividend equivalent shares previously credited to the participant and not issued during the period prior to the dividend record date. Accelerated vesting is provided in the event a Change-in-Control occurs. No stock appreciation rights have been granted under the Company's stock option plans. (2) Based on a Binomial Option Pricing Model, which is a variation of the Black-Scholes Option Pricing Model. For the stock options granted on April 26, 1999, with a 10-year option period, an exercise price of $35.21, and with additional dividend equivalent shares granted for the first four years of the option, the Binomial Value adjusted for forfeiture risk is $7.95 per share. The following assumptions were used in the model: Stock Price: $35.21; Exercise Price: $35.21; Term: 10 years; Volatility: 0.1428; Interest Rate: 5.60%; and Dividend Yield: 6.65%. The following were the valuation results: Binomial Option Value: $3.40; Dividend Credit Value: $4.55; and Total Value $7.95. 13 The same assumptions except for exercise price were used for the following stock options. For the stock options granted on April 26, 1999, with an exercise price of $36.00, the following were the valuation results: Binomial Option Value: $3.15; Dividend Credit Value: $4.40; and Total Value $7.55. For the stock options granted on April 26, 1999, with an exercise price of $38.00, the following were the valuation results: Binomial Option Value: $2.61; Dividend Credit Value: $3.98; and Total Value $6.59. For the stock options granted on April 26, 1999, with an exercise price of $40.00, the following were the valuation results: Binomial Option Value: $2.16; Dividend Credit Value: $3.55; and Total Value $5.71. Aggregated Option Exercises and Fiscal Year-End Option Values The following table shows the stock options, including dividend equivalents, exercised by the Named Executive Officers in 1999. Also shown is the number of securities underlying unexercised options and the value of unexercised in the money options, including dividend equivalents, at the end of 1999. Under the Stock Option and Incentive Plan, dividend equivalents have been granted to each of the Named Executive Officers as part of the stock option grant, except for Mr. May's 1995 stock option grant and a one-time, premium-priced grant to Mr. Clarke in May 1992. Dividend equivalents permit a participant who exercises a stock option to obtain at no additional cost, in addition to the option shares, the amount of dividends declared on the number of shares of Common Stock with respect to which the option is exercised during the period between the grant and the exercise of the option. Dividend equivalents are computed, as of each dividend record date throughout the four-year vesting period (vesting in equal installments), which begins on the date of grant, both with respect to the number of shares underlying the option and with respect to the number of dividend equivalent shares previously credited to the Named Executive Officer and not issued during the period prior to the dividend record date. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Unexercised Value of Unexercised Options (Including In the Money Options Dividend Equivalents) (Including Dividend Equivalents) Dividend Value at Fiscal Year-End at Fiscal Year-End(1) Shares Equivalents Value Realized ---------------------- -------------------------------- Acquired Acquired Realized On Dividend Exercisable/ Exercisable/ On Exercise On Exercise On Options Equivalents Unexercisable Unexercisable Name (#) (#) ($) ($) (#) ($) - ---- ----------- ----------- ---------- ----------- ---------------------- -------------------------------- Robert F. Clarke.... -- -- $ -- $ -- 123,022/88,122 $116,986/8,129 T. Michael May...... -- -- -- -- 23,190/42,321 13,038/4,872 Wayne K. Minami..... -- -- -- -- 25,772/36,938 46,766/3,229 Robert F. Mougeot... -- -- -- -- 15,755/16,227 29,232/2,033 Peter C. Lewis...... -- -- -- -- 10,873/14,117 11,378/2,033
- --------- (1) Value based on closing price of $28.88 per share on the New York Stock Exchange on December 31, 1999. 14 Long-Term Incentive Plan (LTIP) Awards The table on page 16 lists the LTIP awards made to the Named Executive Officers during 1999. The table shows potential payments that are tied to the achievement of better than average performance over a three-year period (1999- 2001) relating to two separate goals for all the Named Executive Officers except Mr. May and Mr. Minami, who have a third goal in addition to the two goals listed immediately below. The two goals are (1) return on average common equity (weighted 60%), and (2) total return to shareholders (weighted 40%). The weighting of each goal applies to all the Named Executive Officers except Mr. May and Mr. Minami. The Company's performance for the return on average common equity goal is based on an internal goal. The Company's performance for the total return to shareholders goal is measured against the Edison Electric Institute Index of 100 Investor-Owned Electric Companies as of December 31, 2001 (Peer Group). This is the same Peer Group used for the Stockholder Performance Graph shown on page 24. However, the performance of the LTIP Peer Group is calculated on a noncapitalized weighted basis whereas the Stockholder Performance Graph Peer Group is calculated on a capitalized weighted basis. The LTIP uses a noncapitalized weighted basis so as not to give a disproportionate emphasis to the larger companies in the Edison Electric Institute Index. For Mr. May and Mr. Minami, the two goals set forth above are weighted (1) return on average common equity (30%), and (2) total return to shareholders (20%). Mr. May's third goal (weighted 50%) is based on a prorated percent of allowed return on average common equity for Hawaiian Electric Company, Inc. (consolidated) for the same three-year LTIP cycle. Mr. Minami's third goal (weighted 50%) is based on a return on average common equity for American Savings Bank, F.S.B. (ASB) for the same three-year LTIP cycle. The threshold for minimum awards with respect to the return on average common equity goal for the Company is 10.75%. The threshold minimum award with respect to the total return to shareholders will be earned if the Company's performance is at the 40th percentile of the Peer Group. Mr. May's threshold minimum for his third goal, which must be achieved in at least two out of three years during the LTIP cycle, is a prorated percent of allowed return on average common equity for Hawaiian Electric Company, Inc. (consolidated) of 90%. Mr. Minami's threshold minimum for his third goal, which must be achieved in at least two out of three years during the LTIP cycle, is a return on average common equity for ASB of 12%. Maximum awards with respect to the return on average common equity goal will be earned if the Company's return on average common equity is 12.5%. Maximum awards with respect to the total return to shareholders will be earned if the Company's performance is measured at the 70th percentile of the Peer Group. For Mr. May, the maximum award on his third goal will be earned if the prorated percent of allowed return on average common equity for Hawaiian Electric Company, Inc. (consolidated) equals or exceeds 100%. For Mr. Minami, the maximum award on his third goal will be earned if the return on average common equity for ASB equals or exceeds 16%. Earned awards are distributed in the form of 60% cash and 40% HEI Common Stock with the maximum award level for each Named Executive Officer ranging from 75% to 100% of the midpoint of the officer's salary grade range at the end of the three- year performance period. 15 LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts ------------------------------ Three-Year Minimum Performance Cycle Threshold(1) Target Maximum Name Ending Date ($) ($) ($) - ---- ----------------- ------------ -------- -------- Robert F. Clarke............... 12/31/01 $212,520 $428,260 $644,000 T. Michael May................. 12/31/01 100,250 200,500 300,750 Wayne K. Minami................ 12/31/01 91,500 183,000 274,500 Robert F. Mougeot.............. 12/31/01 69,000 138,000 207,000 Peter C. Lewis................. 12/31/01 57,250 114,500 171,750
- ---------- (1) Assumes meeting minimum threshold on all goals; however, if only one goal (weighted 40%) is met, the minimum threshold estimated future payout would be: Mr. Clarke -- $85,008; Mr. Mougeot -- $27,600; and Mr. Lewis -- $22,900. If only one goal (weighted 20%) is met, the minimum threshold estimated future payout would be $20,050 for Mr. May and $18,300 for Mr. Minami. There is no LTIP payout unless the minimum threshold is met on at least one of the goals. Pension Plans All regular employees (including the Named Executive Officers) are covered by noncontributory, qualified defined benefit pension plans. The plans provide retirement benefits at normal retirement (age 65), reduced early retirement benefits and death benefits. The Named Executive Officers except Mr. Minami participate in the Retirement Plan for Employees of HEI and Participating Subsidiaries (HEI Plan). Mr. Minami is a participant in the American Savings Bank Retirement Plan (ASB Plan). Mr. Clarke and Mr. May also participate in the HEI Supplemental Executive Retirement Plan (HEI SERP) and Mr. Minami also participates in the ASB Supplemental Retirement, Disability, and Death Benefit Plan (ASB SERP) (see pages 17 and 18). Some executives are affected by Internal Revenue Code limitations on qualified plan benefits. They are, therefore, also covered under the Hawaiian Electric Industries, Inc. Excess Benefit Plan (Excess Plan) and the Hawaiian Electric Industries, Inc. Excess Pay Supplemental Executive Retirement Plan (Excess Pay SERP), which are noncontributory, nonqualified plans. The following table shows estimated annual pension benefits payable at retirement under the HEI Plan, Excess Plan and Excess Pay SERP based on base salary that is covered under the three plans and years of service with the Company and all of its subsidiaries. PENSION PLAN TABLE
Years of Service ---------------------------------------------------- Remuneration 5 10 15 20 25 30 - ------------ ------- -------- -------- -------- -------- -------- $200,000................... $20,400 $ 40,800 $ 61,200 $ 81,600 $102,000 $122,400 250,000................... 25,500 51,000 76,500 102,000 127,500 153,000 300,000................... 30,600 61,200 91,800 122,400 153,000 183,600 350,000................... 35,700 71,400 107,100 142,800 178,500 214,200 400,000................... 40,800 81,600 122,400 163,200 204,000 244,800 450,000................... 45,900 91,800 137,700 183,600 229,500 275,400 500,000................... 51,000 102,000 153,000 204,000 255,000 306,000 550,000................... 56,100 112,200 168,300 224,400 280,500 336,600 600,000................... 61,200 122,400 183,600 244,800 306,000 367,200
16 The HEI Plan provides a monthly retirement pension for life. Benefits are determined by multiplying years of credited service and 2.04% (not to exceed 67%) times the participant's Final Average Compensation (average base salary for any consecutive 36 months that produces the highest monthly average). As of December 31, 1999, the Named Executive Officers had the following number of years of credited service under the HEI Plan: Mr. Clarke, 12 years; Mr. May, 7 years; Mr. Mougeot, 11 years; and Mr. Lewis, 31 years. Benefits under the ASB Plan are determined by multiplying years of credited service (not to exceed 35 years) and 1.5% times the participant's Final Average Compensation (average compensation for the highest five of the last ten years of credited service). As of December 31, 1999, Mr. Minami had 13 years of credited service under the ASB Plan. His estimated annual benefit payable in the form of a single life annuity projected to age 65 is $55,180 based on his current compensation level. Internal Revenue Code Section 415 limits the retirement benefit that a participant can receive from qualified retirement plans such as the HEI Plan and ASB Plan. The limit for 1999 is $130,000 per year at age 65. The Company adopted the Excess Plan to provide benefits that cannot be paid from the qualified plans due to this maximum limit, based on the same formula as the qualified plans. Internal Revenue Code Section 401(a) limits a participant's compensation that can be recognized under qualified retirement plans. The limit on the maximum compensation for 1999 under Section 401(a) is $160,000. The Company adopted the Excess Pay SERP to provide benefits that cannot be paid from the qualified plans due to the maximum compensation limit under Section 401(a), based on the same formula as the qualified plans. The Company also maintains two supplemental executive retirement plans (HEI SERP and ASB SERP) for certain executive officers. Mr. Clarke and Mr. May participate in the HEI SERP and Mr. Minami participates in the ASB SERP. Benefits under the HEI SERP and ASB SERP are in addition to qualified retirement benefits payable from the HEI Plan, the ASB Plan and Social Security. Under the HEI SERP, the executive is eligible to receive, at age 60, a benefit of up to 60% (depending on years of credited service) of the participant's average compensation, which includes amounts received under the annual Executive Incentive Compensation Plan (EICP), in the highest three out of the last five years of service. The benefit payable under the HEI SERP is reduced by the participant's primary Social Security benefit and the benefit payable from the HEI Plan, but in no event is it less than the benefit payable under the HEI Plan (before any Internal Revenue Code Section 415 and 401(a) reductions). The HEI SERP provides for reduced early retirement benefits at age 50 with 15 years of service or age 55 with five years of service, and survivor benefits in the form of an annuity in the event of the participant's death after becoming eligible for early retirement. The overall total retirement benefits payable to Mr. Clarke in the form of a straight life annuity projected to age 65 is $283,302, based on his current compensation level ($84,031 from the HEI Plan and $199,271 from the HEI SERP, with no amounts owing from the Excess Plan or the Excess Pay SERP). The overall total retirement benefits payable to Mr. May in the form of a straight life annuity projected to age 65 is $168,002 based on his current compensation level ($71,007 from the HEI Plan and $96,995 from the HEI SERP, with no amounts owing from the Excess Plan or the Excess Pay 17 SERP). As of December 31, 1999, Mr. Clarke had 12 years of credited service and Mr. May had 7 years of credited service under the HEI SERP. The ASB SERP provides a benefit at age 65 of up to 60% (depending upon years of credited service) of the participant's average compensation (including 50% of the amounts received under the EICP) in the highest five consecutive years out of the last ten years of service, reduced by the participant's primary Social Security benefit and the benefit payable from the ASB Plan, but in no event is it less than the benefit payable under the ASB Plan (before any Internal Revenue Code Section 415 and 401(a) reductions). The ASB SERP also provides for termination and survivor benefits in certain circumstances. The overall total retirement benefits payable to Mr. Minami in the form of a straight life annuity projected to age 65 is $178,688, based on his current compensation level ($55,180 from the ASB Plan and $123,508 from the ASB SERP). As of December 31, 1999, Mr. Minami had 13 years of credited service under the ASB SERP. Change-in-Control Agreements Since 1989, the Company has entered into Change-in-Control Agreements with certain executives, including the Named Executive Officers listed in the Summary Compensation Table, to encourage and ensure their continued attention and dedication to the performance of their assigned duties without distraction in the event of potentially disturbing circumstances arising from a change-in- control of the Company. Each Agreement provides that benefits, compensation and position responsibility of these officers will remain at existing levels for a period of two years following a "Change-in-Control," unless the "Expiration Date" of the Agreement has occurred. A "Change-in-Control" is defined to include a change- in-control required to be reported under the proxy rules in effect on the date of the Agreements, the acquisition by a person (as defined under the Securities Exchange Act of 1934) of 25% or more of the voting securities of the Company, or specified changes in the composition of the Board of Directors of the Company following a merger, tender offer or certain other corporate transactions. "Expiration Date" is defined as the earliest to occur of the following: (1)two years after a change-in-control; (2)termination of the executive's employment by the Company for "Cause" (as defined in the Agreement) or by the executive other than for "Good Reason" (as defined in the Agreement); (3)retirement; or (4)termination of the Agreement by the Company's Board of Directors, or termination of the executive's employment, prior to a change-in-control. If the employment of one of these executives is terminated after a change-in- control and prior to the expiration date, the Company is obligated to provide a lump sum severance equal to 2.99 times the executive's average W-2 earnings for the last five years (or such lesser period that the executive has been employed by the Company), subject to certain limitations. Based on W-2 earnings for the five most recent years (1995-1999), the lump sum severance would be as follows: Mr. Clarke -- $2,994,389; Mr. May -- $1,207,712; Mr. Minami -- $1,223,150; Mr. Mougeot -- $1,245,405; and Mr. Lewis -- $1,041,870. In the event of a change-in-control, all outstanding stock options would be accelerated and become immediately exercisable. 18 Compensation Committee Report on Executive Compensation Introduction The Compensation Committee of the Board, which is composed entirely of outside directors, makes decisions on executive compensation. The full Board approves all decisions by the Committee. The Committee has retained the services of an independent compensation consulting firm to assist the Committee in executive compensation matters. Executive Compensation Philosophy The Committee applies the following principles for the executive compensation program: . maintains a compensation program that is fair in a competitive marketplace; . provides compensation opportunities that relate pay with the Company's annual and long-term performance goals which support growth in stockholder value; . recognizes and rewards individual initiative and achievements; and . allows the Company to attract, retain, and motivate qualified executives who are critical to the Company's success. The Committee believes that stock ownership by management is beneficial in aligning management's and stockholders' interests in improving stockholder value. It, therefore, uses stock options and stock payouts in the compensation program for the executive officers with a goal of increasing their stock ownership over time. Executive Compensation Program The Company's executive compensation program includes: . base salary; . potential for an annual bonus based on overall Company financial and operational performance as well as individual performance; and . the opportunity to earn long-term cash and stock-based incentives which are intended to encourage the achievement of superior results over time and to align executive officer and stockholder interests. The second and third elements constitute the "at-risk" portion of the compensation program and are designed to link the interests of the executive with those of the stockholders. This means that total compensation for each executive may change significantly from year to year depending on the short- and long-term performance of the Company and its subsidiaries. Base Salary The Committee reviews salaries for executive officers in April of each year in consultation with the Committee's independent compensation consultant. The consultant examines the position 19 responsibilities of each officer at HEI and its subsidiaries against similar positions in similar organizations. All compensation references represent the fiftieth percentile or midpoint of pay practices found in similar organizations. Salaries for executive officers of the various companies are based on competitive references drawn from compensation surveys and are weighted as follows: . holding company -- other electric utilities (50%) and general industry (50%) . electric utilities -- other electric utilities (100%) . financial institution -- other financial institutions (100%) . international power producer -- private power producers (100%) Based on the information from these surveys, the consultant recommends a salary range for each executive officer position. The midpoint of the range approximates the fiftieth percentile of the survey data and the range has a spread of plus and minus 20% around this midpoint. Actual setting of an executive officer's base salary (except for Mr. Clarke) is based on Mr. Clarke's recommendation and the Committee's approval. Mr. Clarke's base salary is determined through the Committee's overall evaluation of his performance during the preceding year. This evaluation is subjective in nature and takes into account all aspects of his responsibilities at the discretion of the Committee. Based on the survey data provided by the consultant, the resulting salary range recommendation, and the Committee's overall evaluation of Mr. Clarke's performance during 1998, Mr. Clarke's base salary was raised from an annual rate of $490,000 to an annual rate of $552,500, effective May 1, 1999. The $62,500 increase placed Mr. Clarke's base salary at the 25th percentile of the relevant salary range. The other Named Executive Officers also received salary increases ranging from 4.2% to 21.5%. Annual Executive Incentive Compensation Plan Under the Executive Incentive Compensation Plan ("EICP"), annual incentive awards are granted upon the achievement of financial and nonfinancial performance measures established by the Committee in the early part of each calendar year. The measures are stated in terms of minimum, target and maximum goals. These measures, which may differ for individual Named Executive Officers, include: . earnings per share; . net income; . total return to shareholders measured against the Edison Electric Institute Index of 100 Investor-Owned Electric Companies (currently 83 companies) for the same period; . company (subsidiary) specific operational and strategic goals; . measurement of individual officer's actual administrative and general expenses against budgeted expenses established at the beginning of the year; and . individual officer's performance. 20 The EICP has a minimum financial performance threshold linked to earnings per share or net income (based on whether the measurement is at the Company or subsidiary level) which must be achieved before a bonus can be considered. The maximum awards under the EICP differ for each of the Named Executive Officers, currently ranging from a low of 53% to a high of 90% for Mr. Clarke based on the midpoint of the salary grade range at the end of the year for each officer. Each year the Committee establishes the minimum, target and maximum EICP potential award levels for the Named Executive Officers based on recommendations from the Committee's independent compensation consultant. The consultant bases its recommendations on an assessment of competitive practices from a cross-section of all industries, including some of the electric utility companies included in the Stockholder Performance Graph. Under the 1999 EICP, Mr. Clarke received a payout of $427,349 in early 2000. This resulted from achievement of (1) the earnings per share goal (weighted 70%) at the maximum level and (2) lower than forecast 1999 administrative and general expenses for the Company (weighted 10%) at a level slightly above target. There was no payout for the total return to stockholders goal (weighted 20%) since the Company's total return for 1999 was below the minimum threshold of the total return of the Edison Electric Institute Index of 100 Investor- Owned Electric Companies (Peer Group). The EICP award for Mr. Clarke was exclusively based on the foregoing measures. No further adjustment was made by the Committee. The other Named Executive Officers also received EICP awards under the 1999 EICP. Long-Term Incentive Plan The Company provides a long-term incentive plan ("LTIP") that is linked to the long-term financial performance of the Company. All awards under the LTIP are paid 60% in cash and 40% in HEI Common Stock. The LTIP goals are based on achieving financial criteria established by the Committee for a three-year period. A new performance period of three years starts each year. In April 1999, the Committee established the financial measures for the 1999-2001 cycle which included (1) return on average common equity (weighted 60%) and (2) total return to stockholders (weighted 40%). The Company's results on the return on average common equity is measured against an internal goal and the results on the total return to stockholders goal is measured against the Peer Group included in the Stockholder Performance Graph. The weighting of each goal applies to all the Named Executive Officers except Mr. May and Mr. Minami who have a third LTIP goal (weighted 50%) which is discussed in the Long-Term Incentive Plan ("LTIP") Awards section on page 15. The first two LTIP financial performance goals for the Named Executive Officers were selected by the Committee because they represented a meaningful method of supporting growth in stockholder value over time. The achievement of each of the goals is expressed in terms of minimum, target and maximum levels. The LTIP award levels for each of the Named Executive Officers are established by the Committee each year based on recommendations from the Committee's independent compensation consultant. The consultant bases its recommendations on an assessment of competitive practices from a cross-section of all industries, including some of the electric utility companies included in the Stockholder Performance Graph. These goals are covered in more detail in the discussion of the Long-Term Incentive Plan ("LTIP") Awards on page 15. 21 For the three-year cycle ended December 31, 1998, all of the Named Executive Officers received an LTIP payout for the return on average common equity goal, weighted 40% for the Named Executive Officers except Mr. May and Mr. Minami whose weighting for the goal was 20%. The Company's return on average common equity for the three-year cycle, excluding one-time charges and discontinued operations losses, was 11.35% compared to the average for the Peer Group of 10.53%. Mr. Clarke received a payout for this goal of $107,973 in April 1999. There was no payout for the total return to stockholders' goal because the Company's total return for the three-year cycle was below the average total return of the Peer Group. Stock Options The Committee can grant nonqualified stock options, incentive stock options, restricted stock, stock appreciation rights, and dividend equivalents based on the 1987 Stock Option and Incentive Plan of Hawaiian Electric Industries, Inc. (as amended and restated effective February 20, 1996), which was previously approved by the stockholders. To date, only nonqualified stock options and dividend equivalents have been issued under the Plan. Periodically, the Committee requests its independent compensation consultant to assess competitive practices with respect to stock option grants from a cross-section of all industries, including some of the electric utility companies included in the Stockholder Performance Graph. Based on this assessment, the consultant recommends a range of stock option grants for each Named Executive Officer. This range takes into account the fact that a portion of the officer's long- term incentive opportunity is delivered through participation in the LTIP. In granting stock options, the Committee takes into consideration the amount and value of current options outstanding. The grants are intended to retain the officers and to motivate them to improve long-term stock performance. Stock options are generally granted at average fair market value which is based on the average of the daily high and low sales prices of HEI Common Stock on the New York Stock Exchange during the calendar month preceding the date of grant. Stock options generally vest in equal installments over a four-year period. In 1999, the Compensation Committee granted Mr. Clarke a stock option award of 50,000 shares of HEI Common Stock plus dividend equivalents, as follows: 20,000 shares with an exercise price of $35.21 per share (average fair market value); 10,000 shares with an exercise price of $36.00 per share; 10,000 shares with an exercise price of $38.00 per share; and 10,000 shares with an exercise price of $40.00 per share. The award was based on the consultant's recommendation and the independent evaluation of an appropriate award level by the Committee. In this evaluation, the Committee took into account prior grants to Mr. Clarke and an overall subjective evaluation of his job performance. To receive the dividend equivalents which accrue only during the first four years following a stock option grant, Mr. Clarke must exercise the underlying stock option before the expiration of the ten-year period from the date the option was granted. Other Compensation Plans The Named Executive Officers participate in certain broad-based employee benefit plans and executive retirement and death benefits adopted by the Company. Other than the Hawaiian Electric Industries Retirement Savings Plan (which qualifies under Section 401(k) of the Internal Revenue Code), which offers HEI Common Stock as one of the investment options, benefits under these other plans are not tied to Company performance. 22 The Company provides additional retirement benefits which are discussed on pages 16 to 18 for the Named Executive Officers and certain other employees. In the event of death during active employment, the Company also provides all the Named Executive Officers (except Mr. Minami) and certain other employees $50,000 term life insurance plus an amount equal to two times the employee's salary on an after-tax basis at the date of death, paid by the Company to the employee's beneficiary. If the employee dies after retirement, this benefit is reduced to $20,000 term life insurance plus an amount equal to one times the employee's salary at retirement, also on an after-tax basis. For Mr. Minami, American Savings Bank provides term life insurance equal to one and one-half times his salary at the date of death in the event of death during active employment. Finally, the Committee reviewed the provisions of Section 162(m) of the Internal Revenue Code of 1986, as amended (IRC), relating to the $1 million deduction cap for executive salaries and believes that no compensation for the five highest paid named executives will be governed by this regulation during 2000. Compensation alternatives to comply with IRC 162(m) will be considered by the Committee at the appropriate time. SUBMITTED BY THE COMPENSATION COMMITTEE OF THE HEI BOARD OF DIRECTORS Diane J. Plotts, Chair Don E. Carroll Bill D. Mills A. Maurice Myers Oswald K. Stender 23 Stockholder Performance Graph The graph below compares the cumulative total stockholder return on HEI Common Stock against the cumulative total return of companies listed on Standard & Poor's 500 Stock Index and the Edison Electric Institute (EEl) Index of 100 Investor-Owned Electric Companies. The companies comprising the EEl Index serve 99% of the customers of the investor-owned electric utility industry. The graph is based on the market price of common stock for all companies at December 31 each year and assumes that $100 was invested on December 31, 1994 in HEI Common Stock and the common stock of all companies and that dividends were reinvested for all companies. Comparison of Five-Year Cumulative Total Return Among Hawaiian Electric Industries, Inc., S&P 500 Index, and Edison Electric Institute 100 Index 1994-1999 [PERFORMANCE GRAPH APPEARS HERE]
HAWAIIAN Measurement Period ELECTRIC S&P EEI (Fiscal Year Covered) INDS 500 INDEX 100 INDEX - ------------------- ---------- --------- ---------- Measurement Pt- DEC 94 $100 $100 $100 FYE Dec 95 $127.84 $137.58 $131.02 FYE Dec 96 $127.42 $169.17 $132.59 FYE Dec 97 $154.15 $225.60 $168.88 FYE Dec 98 $161.74 $290.08 $192.34 FYE Dec 99 $124.66 $351.12 $156.57
24 INDEBTEDNESS OF MANAGEMENT American Savings Bank, F.S.B. (ASB), a subsidiary of the Company, offers preferential rate loans to its directors and executive officers, as allowed by the amended Federal Reserve Act. Three ASB directors who are also directors of HEI (Mr. Clarke, Mr. Watanabe and Ms. Plotts) and two Named Executive Officers of the Company (Mr. Lewis and Mr. Minami), whose aggregate indebtedness to ASB exceeded $60,000 at any time during 1999, received preferential rate loans as shown below.
Largest Loan Loan Amount Average Amount Outstanding Interest Outstanding on Type of Rate During 1999 1/31/00 Transaction Charged(1) ----------- ----------- -------------- ---------- Robert F. Clarke.............. $946,574 $914,027 First Mortgage 5.0% Peter C. Lewis ............... 222,160 $196,469 First Mortgage 6.3% Wayne K. Minami............... 84,991 83,614 First Mortgage 5.0% Diane J. Plotts............... 298,796 294,415 First Mortgage 5.0% Jeffrey N. Watanabe........... 650,978 640,819 First Mortgage 5.0%
- ---------- (1) The first mortgage rate is based on ASB's policy for employees and directors using a formula of .50% above the cost of funds or .50% above the Applicable Federal Rate established by the Internal Revenue Service, whichever is greater. ASB made other loans, established lines of credit and issued credit cards to directors and executive officers of the Company, and to members of their immediate families. These loans and extensions of credit were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features. In addition to the above loans financed by ASB, T. Michael May (also a director of the Company) is currently indebted to Hawaiian Electric Company, Inc. in the amount of $100,000 for an employee relocation loan made to him in 1993. The loan is an interest only loan at an interest rate of 6.28%, with the unpaid principal and interest due on June 30, 2004 or sooner if Mr. May ceases to be an employee of Hawaiian Electric Company, Inc. Another Named Executive Officer, Robert F. Mougeot, was indebted in the amount of $165,000 for a loan made to him by the Company in 1989 to finance his purchase of the fee simple interest in his home. The loan was an interest only loan at an interest rate of 8.01%, with the entire principal balance of the loan due on March 1, 2004 or sooner if Mr. Mougeot ceased to be an employee of the Company. Full payment of the loan was made by Mr. Mougeot in 1999. 25 TRANSACTIONS WITH MANAGEMENT AND DIRECTORS The Board of Directors of HEI adopted a Plan of Disposition in September 1998 whereby Malama Pacific Corp. (MPC), a subsidiary of the Company, was declared a discontinued operation. Prior to that, MPC was engaged in real estate development activities. Two of MPC's subsidiaries were involved in partnerships with HSC, Inc. (HSC), a corporation in which director Richard Henderson and his family own, directly or indirectly, 76% of the stock. All of the transactions described below were negotiated on an arm's length basis and were approved by the disinterested members of the HEI Board. Sunrise Estates. Malama Development Corp. (Malama Development), a wholly owned subsidiary of MPC, and HSC were partners in a general partnership known as Sunrise Estates. The project consisted of 165 one-acre residential agricultural lots in Hilo, Hawaii. HSC was the managing partner of the partnership. The final lot was sold in 1999 and RSM, Inc., a subsidiary of HSC, was paid a sales commission of $3,625. Malama Development and HSC have each contributed $399,300 to the partnership. Each partner received distributions of $1,234,538. Malama Development and HSC shared equally in the profits and losses of the partnership. As of December 31, 1999, the project was sold out and the partnership was dissolved. Sunrise Estates II. Malama Elua Corp. (Malama Elua), a wholly owned subsidiary of MPC, and HSC were partners in a general partnership known as Sunrise Estates II which was formed to develop and market approximately 146 one-acre residential agricultural lots in Hilo, Hawaii, adjacent to the Sunrise Estates development. HSC purchased the property in June 1990 for $2.1 million. In 1991, the partnership purchased the development property from HSC at an agreed upon fair market value of $2.7 million, subject to a bank loan of $2.1 million. The valuation of the property interest transferred by HSC to the Sunrise Estates II partnership was negotiated and took into account HSC's incurred acquisition, carrying, and development costs as well as existing market conditions. HSC was the managing partner of the partnership. On June 15, 1998, MPC acquired the land loan made by First Hawaiian Bank to the partnership in the amount of $1,224,568. In 1999, MPC acquired title to the property in lieu of payment of the loan and the partnership was dissolved. As of December 31, 1999, Malama Elua and HSC had each contributed $1,968,123 to the partnership, and received distributions of $385. The partners shared equally in the losses of the partnership. MPC is actively marketing this property to builders and investors. Finally, director Jeffrey Watanabe is a partner in the law firm of Watanabe, Ing & Kawashima that performed legal services for the Company and certain of its subsidiaries during 1999. STOCKHOLDER PROPOSALS FOR 2001 Stockholder proposals intended to be presented at the next Annual Meeting must be received by the Company by November 12, 2000, for inclusion in the Proxy Statement and form of proxy for the 2001 Annual Meeting of Stockholders. Proposals should be sent to the attention of the Secretary of the Company. 26 OTHER BUSINESS The Company knows of no other business to be presented at the Annual Meeting, but if further matters do properly come before the meeting, the holders of your proxy will vote your stock in accordance with their best judgment. Additionally, HEI's advance notice by-law provision requires that any stockholder who wishes to properly present business before the Annual Meeting give notice to the Secretary of the Company no later than 60 days nor earlier than 90 days prior to the anniversary date of the preceding year's annual meeting. To be timely in the year 2001, such notice must be received by the Secretary of the Company no later than February 26, 2001 nor earlier than January 27, 2001. The notice must be in writing and state the reason and brief description of the business, the name and address of the stockholder, the number of shares of Common Stock owned by the stockholder, and any material interest of the stockholder in such business, and include a representation that the stockholder will present the business before the meeting in person or by proxy. Please vote your proxy as soon as possible to make certain that your shares will be counted at the meeting. If you attend the meeting, as we hope you will, you may vote your shares in person. By Order of the Board of Directors Peter C. Lewis, Vice President-- Administration and Secretary March 10, 2000 27 [MAP APPEARS HERE] HAWAIIAN ELECTRIC INDUSTRIES, INC. 900 Richards Street, Honolulu, Hawaii 96813 --- HEI --- P R O X Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 25, 2000, AT 9:30 A.M., IN THE PACIFIC TOWER, 8TH FLOOR, ROOM 805, 1001 BISHOP STREET, HONOLULU, HAWAII 96813. The undersigned hereby constitutes and appoints Robert F. Clarke, Richard Henderson and Jeffrey N. Watanabe and each of them the proxy of the undersigned, with full power of substitution, to vote all the Common Stock of the Company which the undersigned may be entitled to vote at the Annual Meeting of Stockholders to be held on April 25, 2000, or at any adjournment thereof. Said proxies are instructed to vote as indicated below. If no direction is indicated, said proxies will vote FOR all Nominees in Class I and FOR proposal 2. Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the meeting. The Board of Directors recommends a vote FOR the following proposals: 1. Election of Class I directors (term ending at the 2003 Annual Meeting) (Check one box only) [ ] To vote FOR ALL Nominees named below, check this box. [ ] To WITHHOLD AUTHORITY to vote for ALL Nominees named below, check this box. [ ] To withhold authority for any particular Nominee, strike a line through the Nominee's name listed below: NOMINEES: Robert F. Clarke A. Maurice Myers James K. Scott 2. Election of KPMG LLP as auditor (Check one box only) [ ] FOR [ ] AGAINST [ ] ABSTAIN (Please sign your name exactly as it appears at the top of this proxy. Joint owners should each sign personally. Attorney, Executor, Administrator, Trustee or Guardian should indicate full title. If address is incorrect, please give us the correct one.) _________________________________________ Dated___________________, 2000 Signature (no witness required) _________________________________________ Signature (if held jointly) ============================================ PLEASE COMPLETE AND RETURN ENTIRE PROXY ============================================ -----END PRIVACY-ENHANCED MESSAGE-----