-----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, E3mGX0eRFCSPBnAej3nLglnxNxoHGR/Gk5iU/fcBMy6rZ1Ti7864fpdxtaSvkSag FUGNtzW2fqwTqRiIT7dYYw== 0000898430-99-002017.txt : 19990513 0000898430-99-002017.hdr.sgml : 19990513 ACCESSION NUMBER: 0000898430-99-002017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-08503 FILM NUMBER: 99618450 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN ELECTRIC CO INC CENTRAL INDEX KEY: 0000046207 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 990040500 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04955 FILM NUMBER: 99618451 BUSINESS ADDRESS: STREET 1: 900 RICHARDS ST CITY: HONOLULU STATE: HI ZIP: 96813 BUSINESS PHONE: 8085437771 MAIL ADDRESS: STREET 1: 900 RICHARDS STREET CITY: HONOLULU STATE: HI ZIP: 96813 FORMER COMPANY: FORMER CONFORMED NAME: HAWAIIAN ELECTRIC CO LTD DATE OF NAME CHANGE: 19670212 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED 3/31/1999 =============================================================================== 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.
Class of Common Stock Outstanding May 7, 1999 - -------------------------------------------------------------------------------------------------------- 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)
=============================================================================== Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended March 31, 1999 INDEX
Page No. 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
i Hawaiian Electric Industries, Inc. and subsidiaries Hawaiian Electric Company, Inc. and subsidiaries Form 10-Q--Quarter ended March 31, 1999 GLOSSARY OF TERMS
Terms Definitions - ----- ----------- 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
ii GLOSSARY OF TERMS, continued
Terms Definitions - ----- ----------- 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.
iii GLOSSARY OF TERMS, continued
Terms Definitions - ----- ----------- 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.
iv 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 PART I - FINANCIAL INFORMATION - ------------------------------------------------------------------------------- Item 1. Financial statements - ----------------------------- Hawaiian Electric Industries, Inc. and subsidiaries Consolidated balance sheets (unaudited)
March 31, December 31, (in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- 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 ================== ===================
See accompanying notes to consolidated financial statements. 1 Hawaiian Electric Industries, Inc. and subsidiaries Consolidated statements of income (unaudited)
Three months ended March 31, (in thousands, except per share amounts and ------------------------------------- ratio of earnings to fixed charges) 1999 1998 - ----------------------------------------------------------------------------------------------------------------- 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 ============== =================
See accompanying notes to consolidated financial statements. 2 Hawaiian Electric Industries, Inc. and subsidiaries Consolidated statements of retained earnings (unaudited)
Three months ended March 31, ------------------------------------- (in thousands) 1999 1998 - ----------------------------------------------------------------------------------------------------------------- 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 ============== =================
See accompanying notes to consolidated financial statements. 3 Hawaiian Electric Industries, Inc. and subsidiaries Consolidated statements of cash flows (unaudited)
Three months ended March 31, ------------------------------ (in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------ 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 ==============================
See accompanying notes to consolidated financial statements. 4 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 (2) Segment financial information - ---------------------------------- Segment financial information was as follows:
Electric Savings Holding Elimi- ($ in thousands) utility bank Other companies nations Total - ---------------------------------------------------------------------------------------------- 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 =================================================================
* 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 (4) Savings bank subsidiary - ---------------------------- Selected consolidated financial information American Savings Bank, F.S.B. and subsidiaries Balance sheet data
March 31, December 31, (in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ Assets 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 ===================== ====================
American Savings Bank, F.S.B. and subsidiaries Income statement data
Three months ended March 31, ------------------------------------------------ (in thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- 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 ===================== =====================
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 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:
Three months ended March 31, --------------------------------------- (in thousands) 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- 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 ================= =================
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 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 (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:
Three months ended (in thousands) March 31, 1998 - ---------------------------------------------------------------------------------------------------------- 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) ==============================
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 Hawaiian Electric Company, Inc. and subsidiaries Consolidated balance sheets (unaudited)
March 31, December 31, (in thousands, except par value) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- 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.
11 Hawaiian Electric Company, Inc. and subsidiaries Consolidated statements of income (unaudited)
Three months ended March 31, ------------------------------------------ (in thousands, except for ratio of earnings to fixed charges) 1999 1998 - --------------------------------------------------------------------------------------------------------------------- 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 ================== ==================
Hawaiian Electric Company, Inc. and subsidiaries Consolidated statements of retained earnings (unaudited)
Three months ended March 31, ------------------------------------------ (in thousands) 1999 1998 - --------------------------------------------------------------------------------------------------------------------- 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.
12 Hawaiian Electric Company, Inc. and subsidiaries Consolidated statements of cash flows (unaudited)
Three months ended March 31, ------------------------------------------ (in thousands) 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities 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.
13 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:
Three months ended March 31, ----------------------------------------- (in thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Interest.............................................................. $4,459 $4,951 ================== ================== Income taxes.......................................................... $4,095 $ 296 ================== ==================
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 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 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 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 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 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 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 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 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:
Balance sheet data HELCO MECO ------------------------------------ ------------------------------------- March 31, December 31, March 31, December 31, (in thousands) 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- 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 =============== ================== =============== ==================
22
Income statement data HELCO MECO ------------------------------------------ ---------------------------------- Three months ended Three months ended March 31, March 31, ------------------------------------------ ---------------------------------- (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ 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
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 ---------------------------------
Three months ended March 31, -------------------------------------- (in thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- 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 ================ ================
23 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 - ----------------
Three months ended March 31, (in thousands, except per ------------------------------- % Primary reason(s) for share amounts) 1999 1998 change significant change* - ------------------------------------------------------------------------------------------------------------------------- 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
* 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 Following is a general discussion of the results of operations by business segment. Electric utility - ----------------
Three months ended March 31, (in thousands, except per -------------------------------------- % Primary reason(s) for significant barrel amounts) 1999 1998 change change - --------------------------------------------------------------------------------------------------------------------------------- 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)
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 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 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 Savings bank - ------------
Three months ended March 31, ------------------------------ % (in thousands) 1999 1998 change Primary reason(s) for significant change - ---------------------------------------------------------------------------------------------------------------------------------- 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
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
Three months ended March 31, ------------------------------------ (in thousands) 1999 1998 - ----------------------------------------------------------------------------------------------------------------- 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 =============== ===============
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 - -----
Three months ended March 31, --------------------------------------- % (in thousands) 1999 1998 change Primary reason(s) for significant change - ------------------------------------------------------------------------------------------------------------------------- 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
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 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 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 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 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:
(in millions) March 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------------------------------- 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% =============== ============= ============== =============
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 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:
(in millions) March 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------------------------ 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% ================ ============= =============== ============
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 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
March 31, December 31, % (in millions) 1999 1998 change - ------------------------------------------------------------------------------------------------------------------ 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 -
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 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:
(%) March 31, 1999 December 31, 1998 ----- -------------- ----------------- 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
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 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:
Shares of Common Stock --------------------------------------------------------------------------------------- Broker For Withheld Against Abstain nonvotes ------------- --------------- -------------- -------------- --------------- 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 --
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 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
Three months Years ended December 31, ended ------------------------------------------------------------------------------------------------- March 31, 1999 1998 1997 1996 1995 1994 - -------------------- ---------------- --------------- -------------- --------------- ---------------- 1.76 1.85 1.89 1.93 2.02 2.31 ==================== ================ =============== ============== =============== ================
Ratio of earnings to fixed charges including interest on ASB deposits
Three months Years ended December 31, ended ------------------------------------------------------------------------------------------------- March 31, 1999 1998 1997 1996 1995 1994 - -------------------- ---------------- --------------- -------------- --------------- ---------------- 1.43 1.47 1.58 1.56 1.60 1.73 ==================== ================ =============== ============== =============== ================
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
Three months Years ended December 31, ended ------------------------------------------------------------------------------------------------- March 31, 1999 1998 1997 1996 1995 1994 - -------------------- ---------------- --------------- -------------- --------------- ---------------- 2.85 3.33 3.26 3.58 3.46 3.47 ==================== ================ =============== ============== =============== ================
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 Item 6. Exhibits and reports on Form 8-K - ----------------------------------------- (a) Exhibits 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)
39 (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:
Dated Registrant/s Items reported - ---------------------------------------------------------------------------------------------------------------- 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)"
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 EX-1 2 DISTRIBUTION AGREEMENT 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 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 2 415 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 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 (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 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 6 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 7 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 8 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 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 10 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 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 -------- ------- 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 12 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, 13 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 -------- ------- 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 14 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 15 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 16 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; 17 (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; 18 (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 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 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 (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 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 (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 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 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 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 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:
============================================================================================ PERCENT OF PRINCIPAL MATURITY RANGES AMOUNT ============================================================================================ 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 - --------------------------------------------------------------------------------------------
28 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 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 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 ("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 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,
2 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
3 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.
4 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 -------- -------
5 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
6 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)
7 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: rich_wnek@ml.com with a copy to: Winthrop, Stimson, Putnam & Roberts
8 One Battery Park Plaza New York, New York 10004 Attention: David P. Falck, Esq. Telecopy: (212) 858-1500 E-Mail Address: falckd@winstim.com 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
9 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
10 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: rich_wnek@ml.com 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: falckd@winstim.com. 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
11 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.
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 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"). 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.
13 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
14 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
15 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 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 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 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 (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 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 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 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 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 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 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 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 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 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 (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 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 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 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 in writing the Company. 34 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; (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 EX-4.1 3 SECOND SUPPLEMENTAL INDENTURE DATED 4/1/1999 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 ______________ - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- 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
EXHIBIT A FORM OF SERIES C NOTE--FIXED RATE EXHIBIT B FORM OF SERIES C NOTE--FLOATING RATE 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 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 "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 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 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 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 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 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 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 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 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): 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 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 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 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 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 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 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). ---------------------------------------------------- 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: ______________________
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. ------------------------------------------- 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. 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: 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 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 3 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 -------- ------- 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 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 4 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, 5 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) 6 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 7 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 8 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. 9 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 10 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 11 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 12 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 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 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). --------------------------------------------------- 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: ______________________
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. ----------------------------------------------- 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. EX-12.1 4 [HEI] COMP. OF RATIO OF EARNINGS TO FIXED CHARGES HEI Exhibit 12.1 ---------------- Hawaiian Electric Industries, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Three months ended Three months ended March 31, March 31, ----------------------------------- ------------------------------------- (dollars in thousands) 1999 (1) 1999 (2) 1998 (1) 1998 (2) - ------------------------------------------------------------------------------------------------------------------------------- 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 ======== ======== ======== ========
(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. EX-12.2 5 [HECO] COMP. OF RATIO OF EARNINGS TO FIXED CHARGES HECO Exhibit 12.2 ----------------- Hawaiian Electric Company, Inc. and subsidiaries COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (unaudited)
Three months ended March 31, ------------------------------------------ (dollars in thousands) 1999 1998 - --------------------------------------------------------------------------------------------------------------------- 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 ================== ==================
EX-27.1 6 FDS [HEI]
5 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. 0000354707 HAWAIIAN ELECTRIC INDUSTRIES, INC. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 164,930 1,960,663 144,241 0 0 0 3,179,284 1,091,533 8,038,674 0 807,581 100,000 134,293 663,471 166,057 8,038,674 0 352,247 0 298,215 2,947 0 17,888 33,197 12,443 20,754 0 0 0 20,754 0.65 0.64
EX-27.1A 7 RESTATED FDS [HEI]
5 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. 0000354707 HAWAIIAN ELECTRIC INDUSTRIES, INC. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 211,921 2,011,111 152,385 0 0 0 3,027,386 999,273 7,916,284 0 849,998 83,370 148,293 658,930 162,259 7,916,784 0 374,858 0 318,397 212 0 17,609 38,640 15,821 22,819 (596) 0 0 22,223 0.70 0.69
EX-27.2 8 FDS [HECO]
UT 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. 0000046207 HAWAIIAN ELECTRIC COMPANY, INC. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 PER-BOOK 1,936,785 0 159,612 12,403 146,348 2,255,148 85,387 294,933 409,530 789,850 0 134,293 625,632 0 0 129,230 0 0 0 0 576,143 2,255,148 236,625 10,668 196,747 207,415 29,210 2,110 31,320 13,870 17,450 369 17,081 13,387 41,123 41,852 0 0
EX-99.1 9 LETTER RELATING TO SCHEDULE D FROM HEI PIC DATED 5/7/99 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 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. EX-99.2 10 LETTER RELATING TO SCHEDULE E FROM HEI PIC DATED 5/7/99 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 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. -----END PRIVACY-ENHANCED MESSAGE-----