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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantý | |||
Filed by a Party other than the Registranto | |||
Check the appropriate box: | |||
o | Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
ý | Definitive Proxy Statement | ||
o | Definitive Additional Materials | ||
o | Soliciting Material Pursuant to §240.14a-12 |
Hawaiian Electric Industries, Inc. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: |
HAWAIIAN ELECTRIC INDUSTRIES, INC. • PO BOX 730 • HONOLULU, HI 96808-0730
Constance H. Lau
President and
Chief Executive Officer
March 18, 200922, 2010
Dear Fellow Shareholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the Annual Meeting of Shareholders of Hawaiian Electric Industries, Inc. (HEI). The meeting will be held on HEI's premises in Room 805 on the eighth floor of the American Savings Bank Tower, inlocated at 1001 Bishop Street, Honolulu, Hawaii, on May 5, 2009,11, 2010, at 9:30 a.m., local time. A map showing the location of the meeting site appears on page 7279 of the Proxy Statement.
The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items of business to be conducted during the meeting. In addition, we will review significant events of 20082009 and their impact on you.you as a shareholder of HEI. HEI officers and Board members will be available before and after the meeting to talk with you and answer questions.
As a shareholder of HEI, it is important that your views be represented.Please help us obtain the quorum needed to conduct business at the meeting by promptly voting your shares.
The Board and management team of HEI would like to express their appreciation to you for your confidence and support. I look forward to seeing you at the Annual Meeting in Honolulu.
Sincerely,
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Hawaiian Electric Industries, Inc. 900 Richards Street Honolulu, Hawaii 96813 | ![]() | |
Date and Time | Tuesday, May | |
Place | American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii 96813. | |
Items of Business | 1. Elect | |
2. Ratify appointment of | ||
3. | ||
Annual Report | The | |
Proxy Voting | Shareholders of record may appoint proxies and vote their shares in one of four ways: | |
• Via the Internet | ||
• By telephone | ||
• By mail | ||
• In person | ||
Shareholders whose shares are held by a bank, broker or other financial intermediary | ||
Any proxy may be revoked in the manner described in the accompanying Proxy Statement. | ||
Attendance at Meeting | If your shares are registered in street name, please bring a letter from your bank or broker or provide other evidence of your beneficial ownership if you plan to attend the Annual Meeting. | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders Held on May | The |
By Order of the HEI Board of Directors. | ||||
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| Page | ||||
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About the Meeting | 1 | ||||
Who can attend the meeting? | 1 | ||||
What are shareholders being asked to vote on? | 1 | ||||
Voting Procedures | 1 | ||||
| 1 | ||||
Who is eligible to vote? | 2 | ||||
How many shares are outstanding and entitled to vote? | 2 | ||||
What constitutes a quorum? | 2 | ||||
How do shareholders vote? | 2 | ||||
How do shareholders vote if their shares are held in street name? | 3 | ||||
How do shareholders vote if their shares are held in the Dividend Reinvestment and Stock Purchase Plan, | 3 | ||||
Can shareholders change their vote? | 3 | ||||
How many votes are required? | 3 | ||||
Who will count the votes and are the votes confidential? | 4 | ||||
Could other matters be decided at the Annual Meeting? | 4 | ||||
What happens if the Annual Meeting is postponed or adjourned? | 4 | ||||
Proposals You May Vote On | 4 | ||||
Election of Class | 4 | ||||
Ratification of appointment of Independent Registered Public Accounting Firm | |||||
Approval | 5 | ||||
Equity compensation plan information | 15 | ||||
Nominees for Class | |||||
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Continuing Class III directors whose terms expire at the 2011 Annual Meeting | |||||
Continuing Class I directors whose terms expire at the 2012 Annual Meeting | 20 | ||||
Corporate Governance | |||||
What are HEI's governance policies and guidelines? | |||||
What is the Board's leadership structure? | 22 | ||||
What is the Board's role in risk oversight? | 23 | ||||
How does the Board select nominees for the Board? | |||||
Does the Board consider diversity in identifying nominees for the Board? | 25 | ||||
How can shareholders communicate with the directors? | |||||
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Who are the independent directors of the Board? | |||||
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Board of Directors | |||||
How often did the Board of Directors meet in | |||||
Did all directors attend last year's Annual Meeting? | |||||
Committees of the Board | |||||
What committees has the Board established and how often did they meet? | |||||
What are the primary functions of each of the four committees? | |||||
Compensation Committee Report | |||||
Compensation Discussion and Analysis | |||||
Who were the named executive officers for HEI in | |||||
Summary of Results | |||||
Executive Summary | |||||
Compensation Process | |||||
Who is responsible for determining appropriate executive compensation? | |||||
Can the Compensation Committee modify or terminate executive compensation programs? | |||||
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Page | |||||
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What is the role of executive officers in determining named executive officer compensation? |
How do HEI's compensation policies and practices relate to HEI's risk management? | 35 | ||||
Compensation Program | |||||
What are the objectives of HEI's executive compensation programs? | |||||
What is each element of executive compensation? | |||||
Why does HEI choose to pay each element? | |||||
How does HEI determine the amount for each element? | |||||
How does each element fit into HEI's overall compensation objectives? | |||||
Compensation Elements | |||||
What are the base salaries of the named executive officers? | |||||
What was HEI's | |||||
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What was HEI's | |||||
| |||||
What is HEI's 2008-2010 long-term incentive plan? | |||||
What is HEI's 2009-2011 long-term incentive plan? | |||||
How does HEI award stock | |||||
What retirement benefits do named executive officers have? | |||||
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Can named executive officers participate in nonqualified deferred compensation plans? | |||||
Do named executive officers have executive death benefits? | 51 | ||||
Do named executive officers have change-in-control agreements? | |||||
What | |||||
Executive Compensation | |||||
Summary Compensation Table | |||||
Grants of Plan-Based Awards | |||||
Outstanding Equity Awards at Fiscal Year-End | |||||
Option Exercises and Stock Vested | |||||
Pension Benefits | |||||
Nonqualified Deferred Compensation | |||||
Potential Payments Upon Termination or Change in Control | |||||
Director Compensation | |||||
How is director compensation determined? | |||||
Director Compensation Table | |||||
Stock Ownership Information | |||||
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Does HEI have stock ownership and retention guidelines for directors and officers? | |||||
Section 16(a) Beneficial Ownership Reporting Compliance | |||||
Other Relationships and Related Person Transactions | |||||
Does HEI have a written related person transaction policy? | |||||
Are there any family relationships between any HEI executive officer, director and nominee for director? | |||||
Are there any arrangements or understandings between any HEI director or director nominee and another person pursuant to which such director or director nominee was selected? | 73 | ||||
Are there any related person transactions with HEI or its subsidiaries? | |||||
Compensation Committee Interlocks and Insider Participation | |||||
Audit Committee Report | |||||
Other Information | |||||
How are proxies solicited and what is the cost? | |||||
What is the deadline for submitting a proposal for next year's Annual Meeting? | |||||
How can business matters be brought before the Annual | |||||
How can shareholders | |||||
What provisions has HEI made for "householding"? | |||||
Map | |||||
Appendix A — | A-1 | ||||
Appendix B — | |||||
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HEI is soliciting proxies for the Annual Meeting of Shareholders scheduled for May 5, 2009,11, 2010, at 9:30 a.m., local time, at the American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii. The mailing address of the principal executive offices of HEI is P. O.P.O. Box 730, Honolulu, Hawaii 96808-0730.
The approximate mailing date for this Proxy Statement, form of proxy and annual and summary reportsAnnual Report to shareholders for the fiscal year ended December 31, 2008,Shareholders is March 18, 2009.22, 2010. The annual report and summary report are2009 Annual Report to Shareholders accompanying this Proxy Statement is not considered proxy soliciting materials.material.
Attendance will be limited to:
If you own shares of HEI Common Stock in the name of a bank, brokerage firm or other holder of record, you must show proof of ownership. This may be in the form of a letter from the holder of record or a recent statement from the bank or broker showing ownership of HEI Common Stock.
Any person claiming to be an authorized representative of a shareholder must produce written evidence of the authorization.
What are shareholders being asked to vote on?
Information about the Notice of Internet Availability of Proxy MaterialsElectronic access to proxy materials
This year, instead of mailing a printed copy of ourHEI provides shareholders the option to access its proxy materials to each shareholder of record, HEI has decided to provide access to these materials in a fast and efficient manner via the Internet to certain shareholders.Internet. In keeping with our efforts to conserve natural resources, this method of delivery will reducereduces the amount of paper necessary to produce these materials as well as reduceand reduces the costs associated with the printing and mailing of these materials to shareholders. On March 18, 2009,22, 2010, a Notice of Internet Availability of Proxy Materials ("Notice")(Notice) will be mailed to certain shareholders and our proxy materials will be posted on the website referenced in the Notice (www.ViewMaterial.com/HEI). As more fully described in the Notice, these shareholders may choose to access our proxy materials on the website referred to in the Notice or may request to receive a printed set of our proxy materials. InThe Notice and website will provide information
addition, the Notice and website will provide information regarding how you mayto request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
If you currently receive our proxy materials in printed form and would like to receive them electronically in the future, please so indicate on the enclosed proxy, if voting by mail, or by following the instructions provided when using the telephone or Internet voting options described under "How do shareholders vote?" below.
Only shareholderspersons who own shares of record atHEI Common Stock as of the close of business on February 25, 2009March 3, 2010 (the proxy record date) are entitled to vote.
How many shares are outstanding and entitled to vote?
On February 25, 2009, 90,611,290March 3, 2010, 92,658,123 shares of HEI Common Stock were outstanding. Each shareholder is entitled to one vote for each share held. Under the Bylaws of HEI, shareholders do not have cumulative voting rights in the election of directors.
A quorum is needed to conduct business at the Annual Meeting. A majority of the shares of HEI Common Stock outstanding on March 3, 2010 and entitled to vote, and present in person or by proxy at the meetingAnnual Meeting, constitutes a quorum. Abstentions and broker nonvotesvotes of uninstructed shares on routine matters (such as ratification of the appointment of the independent registered public accounting firm) will be counted in the number of shares present in person or by proxy for purposes of determining a quorum. A broker nonvote occurs when a broker does not have discretionary voting power to vote on a specific matter (such as nonroutine proposals) and has not received voting instructions fromquorum established for one purpose will apply for all purposes at the beneficial owner.Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please take the time to vote. You may vote via the Internet, by touchtone telephone or by mail.mail before the Annual Meeting, or in person at the Annual Meeting. The Internet and telephone procedures are designed to authenticate your vote and confirm that your voting instructions are followed. If you vote via the Internet or by telephone, follow the instructions on the Notice or card you received by mail. Additionally, ifIf you vote by telephone, you will receive additional recorded instructions, orand if you vote via the Internet, you will receive additional instructions at the Internet website. You will need to have the control number on your Notice or proxy/voting instruction card, as applicable, available.
Shareholders who vote via the Internet or by telephone should not mail the proxy/voting instruction card.
on the enclosed proxy vote your shares at the meeting, cross out all three names and insert the name of another person to vote your shares at the meeting.
How do shareholders vote if their shares are held in street name?
If your shares are held in "street name" (that is, through a broker, trustee or other holder of record), you will receive a voting instruction card or other information from your broker or other holder of record seeking instruction as to how your shares should be voted. If no instructions are given,you do not provide such instruction, your broker or nominee may vote your shares at its discretion on your behalf on routine matters, (such as the election of directors, thebut not on nonroutine matters. The ratification of the appointment of HEI's independent registered public accounting firm is considered a routine matter. The election of directors and the amending and restatingapproval of the Restated Articles of Incorporation) under New York Stock Exchange rules.2010 Equity and Incentive Plan are considered nonroutine matters.
You may not vote shares held in "street name" at the Annual Meeting unless you obtain a legal proxy from your broker or holder of record.
How do shareholders vote if their shares are held in the Dividend Reinvestment and Stock Purchase Plan, or the HEI Retirement Savings Plan or the American Savings Bank 401(k) Plan?
If you own shares held in the Dividend Reinvestment and Stock Purchase Plan, or the HEI Retirement Savings Plan (including shares previously received under the Tax Reduction Act Stock Ownership Plan), or the American Savings Bank 401(k) Plan, the respective plan trustees will vote thethose shares of stock held in these Plans according to your directions. For both the Dividend Reinvestment and Stock Purchase Plan and the HEI Retirement Savings Plan,all of these plans, the respective trustees will vote all the shares of HEI Common Stock for which they receive no voting instructions in the same proportion as they vote shares for which they receive instruction.
Can shareholders change their vote?
If you execute and return a proxy,vote by any of the methods described above, you may revoke ityour proxy or vote at any time before the Annual Meeting in one of three ways:
If a quorum is present at the Annual Meeting, then:
such ratification. Abstentions and broker nonvotes will count in establishing a quorum, but will not otherwise affect the outcome of this matter.
Who will count the votes and are the votes confidential?
Corporate Election Services will act as tabulator for broker and bank proxies as well as thefor proxies of the other shareholders of record. Your identity and vote will not be disclosed to persons other than those acting as tabulators except as follows:except:
Could other matters be decided at the Annual Meeting?
HEI knows of no business to be presented at the 20092010 Annual Meeting other than the items set forth in this proxy statement.Proxy Statement. If other business is properly brought before the Annual Meeting, or any adjournment or postponement thereof, the persons named on the enclosed proxy will vote your stock in accordance with their best judgment, unless authority to do so is withheld by you in your proxy.
What happens if the Annual Meeting is postponed or adjourned?
If the Annual Meeting is postponed or adjourned, your proxy will still be good and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted at the Annual Meeting.
1. Election of Class III Directors
The Board of Directors currently consists of 12 directors divided into three classes with staggered terms so that one classterms. Ms. Plotts, a Class II director, will retire from the Board when her current term as a Class II director ends at the Annual Meeting. Concurrently with the retirement of directors must be electedMs. Plotts from the Board at eachthe Annual Meeting.Meeting, the authorized size of the Board will decrease from 12 to 11 directors.
The fourBoard proposes three Class III nominees being proposed for election at thisthe Annual Meeting are:Meeting:
Each nominee is currently a member of the Board and has consented to serve for the new term expiring at the 20122013 Annual Meeting.Meeting if elected. If a nominee is unable to stand for election, the proxy holders listed in the proxy may vote in their discretion for a suitable substitute.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES FOR CLASS I DIRECTOR.II DIRECTOR LISTED ABOVE.
Detailed information onInformation regarding the business experience and certain other directorships for each Class III nominee and on the Class III and III directorsdirector is provided on pages 8-10.16-21 together with a description of the
experience, qualifications, attributes and skills that led to the Board's conclusion that each of the nominees and directors should serve on the Board at the time of this Proxy Statement, in light of HEI's current business and structure.
2. Ratification of appointment of Independent Registered Public Accounting Firm
KPMG LLP, an independent registered public accounting firm, has beenOn February 26, 2010, the auditor of HEI since 1981. The Audit Committee selected KPMGengaged PricewaterhouseCoopers LLP as HEI's new independent registered public accounting firm for 2009.2010, subject to shareholder ratification. The Board, upon the recommendation of its Audit Committee, recommends the ratification of KPMGthe appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of HEI for fiscal year
2009 2010 and thereafter until its successor is appointed. KPMG LLP was HEI's independent registered public accounting firm for 2009 and has been the auditor of HEI since 1981. Representatives of KPMG LLP and PricewaterhouseCoopers LLP will be present at the Annual Meeting and each will be given the opportunity to make a statement and to respond to appropriate questions.
On February 23, 2010, the Audit Committee voted to dismiss KPMG LLP as HEI's independent registered public accounting firm, effective as of February 24, 2010. The company informed KPMG LLP of the decision and dismissed KPMG LLP on February 24, 2010. KPMG LLP's reports on HEI's consolidated financial statements as of and for the fiscal years ended December 31, 2009 and 2008 contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG LLP on the effectiveness of internal control over financial reporting as of December 31, 2009 and 2008 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2009 and 2008 and through February 24, 2010, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG LLP, would have caused it to make reference to the subject matter of the disagreements in connection with its reports for such years. During the fiscal years ended December 31, 2009 and 2008 and through February 24, 2010, there were no reportable events as defined in Item 304(a)(1)(v) of the Securities and Exchange Commission's Regulation S-K.
During the fiscal years ended December 31, 2009 and 2008 and through February 26, 2010, the date of engagement of PricewaterhouseCoopers LLP, neither HEI nor any person on its behalf has consulted with PricewaterhouseCoopers LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on HEI's consolidated financial statements, and no written report or oral advice was provided by PricewaterhouseCoopers LLP to HEI that PricewaterhouseCoopers LLP concluded was an important factor considered by HEI in reaching a decision as to the accounting, auditing, or financial reporting issue; or (ii) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of the Securities and Exchange Commission's Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of the Securities and Exchange Commission's Regulation S-K.
YOUR BOARD AND THE AUDIT COMMITTEE RECOMMEND THAT YOU VOTE FOR THE RATIFICATION OF KPMGTHE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR HEI.HEI FOR 2010.
3. Approval of 2010 Equity and Incentive Plan
HEI's Compensation Committee believes that the use of long-term incentives that reward selected employees of HEI or its affiliates whose contributions are essential to amendthe growth and restatesuccess of HEI's business best strengthens the commitment of such persons to HEI Restated Articlesand its affiliates, motivates such persons to faithfully and diligently perform their responsibilities and attracts and retains competent and
Table of IncorporationContents
dedicated persons whose efforts will result in the long-term growth and profitability of HEI. To that end, on February 11, 2010, the Board adopted the Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan (2010 Plan), subject to the approval of HEI's shareholders. The purpose of the 2010 Plan is to afford an incentive to regular full-time employees of HEI or any affiliate of HEI to continue as employees, to increase their efforts on behalf of HEI and to promote HEI's business, all in accordance with the Compensation Committee's philosophy set forth below. Subject to shareholder approval of the 2010 Plan, no new awards will be made under HEI's 1987 Stock Option and Incentive Plan, as amended from time to time (1987 Plan). The 1987 Plan will remain in effect with respect to awards previously made under such Plan. If shareholders do not approve the 2010 Plan, the 2010 Plan will have no effect and awards may continue to be granted under the 1987 Plan.
The 2010 Plan is being submitted to HEI's shareholders in order to ensure its compliance with Section 162(m) of the Internal Revenue Code (Section 162(m)) and the New York Stock Exchange (NYSE) listing standards concerning shareholder approval of equity compensation plans and the grant of incentive stock options. The NYSE listing standards provide that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto. The 2010 Plan is an equity compensation plan (i.e., a plan that provides for the delivery of HEI Common Stock to our employees as compensation for their services) and we are asking in this proposal for your approval of the 2010 Plan in compliance with the NYSE listing standards.
Section 162(m) denies a deduction by an employer for certain compensation in excess of $1,000,000 per year paid by a publicly held corporation to the following covered employees who are employed at the end of the corporation's taxable year: the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers (other than the Chief Executive Officer and the Chief Financial Officer) for whom compensation disclosure is required under the proxy rules. Certain compensation, including compensation based on the attainment of performance goals, is excluded from this deduction limit if certain requirements are met. Among the requirements for compensation to qualify for this exclusion is that the material terms pursuant to which the compensation is to be paid be disclosed to and approved by the shareholders in a separate vote prior to the payment of any such compensation, and that the plan be administered by "outside directors", as defined in Section 162(m). Accordingly, if the 2010 Plan is approved by shareholders and other conditions of Section 162(m) relating to the exclusion for performance-based compensation are satisfied, compensation paid to covered employees pursuant to the 2010 Plan will not be subject to the deduction limit of Section 162(m). We are asking in this proposal for your approval of the 2010 Plan and the performance goals that are applicable under the 2010 Plan where an award is intended to qualify as performance-based compensation under Section 162(m).
We are also seeking your approval so that we may use the 2010 Plan to grant incentive stock options (options that enjoy certain favorable tax treatment under Sections 421 and 422 of the Internal Revenue Code), if applicable.
The Board of Directors has approved, and recommends to shareholders that they approve, the Amended and Restated Articles of Incorporation of HEI in the form attached as Appendix B to this Proxy Statement. Thefollowing is a summary set forth below of the amendments that will be effected by approvalmaterial terms of this proposalthe 2010 Plan and is qualified in its entirety by reference to the full text of the Amended and Restated Articles of Incorporation,2010 Plan, which is incorporated herein by reference.attached as Appendix A to this Proxy Statement.
Purposes
HEI last restated its ArticlesThe purposes of Incorporation on December 16, 1987 (the "1987 Restated Articles"). Since that time, there have been three amendments to the 1987 Restated Articles recommended by the directors and approved by shareholders and one amendment to the 1987 Restated Articles that occurred by operation of law:2010 Plan are to:
(a) amended the first paragraph of Article Fourth to increase the amount of HEI Common Stock from 100,000,000 shares to 200,000,000 shares and (b) replaced the provisions of Section (b) of Article Sixth with a new provision recognizing the responsibility of the audit committee for the appointment, removal, compensation and oversight of HEI's independent registered public accounting firm.
The proposed Amended and Restated Articles of Incorporation, if approved by shareholders, will:
Administration of the 2010 Plan
The 2010 Plan will be included in amendedadministered by the Board or, if and restated articles of incorporation under Hawaii law, and thereby shorten and simplify HEI's articles of incorporation. These deletions are of (i) the preamble to the 1987 Restated Articles, (ii) information concerningextent the identityBoard does not administer the 2010 Plan, the Compensation Committee of the initial directors and officersBoard or a subcommittee of the corporation in Article Fifth and section (a) of Article Sixth of the 1987 Restated Articles, respectively, (iii) a provision in Article Fifth of the 1987 Restated Articles which permits a provisionCompensation Committee. Pursuant to be included in the HEI By-laws for filling temporary vacancies caused by the illness, absence from the Island of Oahu, or other disability of directors, (iv) information concerning the initial subscriber for HEI's shares that comprised Article Thirteenth of the 1987 Restated Articles and (v) the final paragraph of the 1987 Restated Articles relating to execution of the articles by the initial incorporators.
Change in Statutory Reference. As noted in the first bullet point above, the 1987 Restated Articles were amended in 1990 by the addition of a new Article Fourteenth, the first sentence of which provides:
The personal liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under Hawaii law, including, without limitation, to the fullest extent permissible under Section 415-48.5 of the Hawaii Revised Statutes, as amended from time to time.
Since Article Thirteenth of the 1987 Restated Articles has been eliminated as unnecessary historical information, the provision added as Article Fourteenth in 1990 is numbered Article Thirteenth in the proposed Amended and Restated Articles of Incorporation. Article Thirteenth differs from former Article Fourteenth in the 1987 Restated Articles only in that the statutory reference in Article Thirteenth is changed from Section 415-48.5 of the Hawaii Revised Statutes to Section 414-222 of the Hawaii Revised Statutes. Section 415-48.5 was the provision of the Hawaii Business Corporation Act (Chapter 415 of the Hawaii Revised Statutes) in effect in 1990 that related to the ability of a corporation to eliminate or limit the liability of directors by a provision to that effect in its articles of incorporation, and Section 414-222 is the counterpart provision in the current Hawaii Business Corporation Act (Chapter 414 of the Hawaii Revised Statutes), which became effective in July of 2001.
Even without changing the statutory reference, Section 414-222 would determine the extent to which a director's liability has been eliminated by HEI, since Section 414-222 is the statutory provision that currently governs the extent to which a director's liability can be eliminated or limited under Hawaii law. Section 414-222 permits a corporation to eliminate the personal liability of a director in a provision such as Article Thirteenth except for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the corporation or its shareholders, (3) a violation of Section 414-223 (which relates to the liability of a director for an unlawful dividend or other distribution, such as an unlawful share repurchase) and (4) an intentional violation of criminal law.
Elimination of the Series A Junior Participating Preferred Stock. HEI and Continental Stock Transfer & Trust Company, as Rights Agent, entered into a Rights Agreement, dated October 28, 1997, which was subsequently amended on May 7, 2003 and October 26, 2004. At the time the Rights Agreement was entered into and in accordance with its provisions, the Board authorized a series of 500,000 shares of Preferred Stock designated as Series A Junior Participating Preferred Stock and filed the resolution establishing the terms of this seriesthe 2010 Plan and subject to any restrictions on the authority delegated to it by the Board, the administrator will have the power and authority, without limitation, to:
No
All decisions made by the administrator pursuant to the Rights Agreement and, with expirationprovisions of the Rights Agreement, none2010 Plan will be final, conclusive and binding on all persons, including HEI and the participants.
Eligibility
Awards may be granted to any regular full-time employee of HEI or any of its affiliates who has been selected as an eligible participant by the administrator. Incentive stock options will be granted only to employees (including officers and directors who are plannedalso employees) of HEI or any of its 50% or more owned subsidiaries.
Shares Reserved for Issuance
The maximum number of shares of HEI Common Stock reserved for issuance under the 2010 Plan will be 4,000,000 shares, subject to adjustment for certain transactions, provided that shares that are issued in connection with all awards other than options and share appreciation rights or awards whose vesting, exercisability or payment is subject to the attainment of performance goals will be counted against the 4,000,000 limit described above as four shares of HEI Common Stock for every share of HEI Common Stock that is issued in connection with such award. The shares may be authorized but unissued HEI Common Stock or shares that have been or may be reacquired by HEI in the open market, in private transactions or otherwise. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award otherwise terminates or expires without a distribution of
shares to a participant, the shares with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for awards under the 2010 Plan. If any award (other than a share appreciation right) is settled in part or in full in cash, the shares settled in cash will again be available for issuance in connection with future awards granted under the 2010 Plan. Notwithstanding the foregoing, shares surrendered or withheld as payment of either the exercise price of an award granted under the 2010 Plan (including shares otherwise underlying an award of a share appreciation right that are retained by HEI to account for the grant price of such share appreciation right) and/or withholding taxes in respect of such an award will no longer be available for grant under the 2010 Plan. All shares may be made subject to awards of incentive stock options.
To the extent required to comply with the requirements of Section 162(m), the aggregate number of shares subject to awards (other than other cash-based awards) awarded to any one participant during any calendar year may not, subject to certain equitable adjustments as provided in the 2010 Plan, exceed 100,000 shares, and the maximum value of the aggregate payment that any participant may receive with respect to other cash-based awards in any calendar year is $2,000,000.
The closing price per share of HEI Common Stock on the New York Stock Exchange on March 3, 2010 was $20.66.
Types of Awards
The 2010 Plan provides for the grant of stock options (including incentive stock options), share appreciation rights, restricted shares, deferred shares, performance shares, other share-based awards and other cash-based awards.
Options. The grant of each option will be memorialized in an award agreement, containing such terms and conditions as the administrator will determine. The administrator will have sole and complete authority to determine the participants to whom options will be granted under the 2010 Plan, the number of shares to be issued. Becausesubject to options and the terms and conditions of options (including whether the option is an incentive stock option), provided that the exercise price of each option may not be less than 100% of the fair market value (as defined in the 2010 Plan) of the underlying HEI Common Stock on the date of grant. If a participant owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Internal Revenue Code) more than 10% of the combined voting power of all classes of stock of HEI or of any of its subsidiaries and an incentive stock option is granted to such participant, the exercise price of such an incentive stock option (to the extent required at the time of grant by the Internal Revenue Code) will be no less than 110% of the fair market value of the HEI Common Stock on the date such incentive stock option is granted. The term of any option granted under the 2010 Plan may not exceed 10 years, provided, however, that if an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Internal Revenue Code) more than 10% of the combined voting power of all classes of stock of HEI or of any of its subsidiaries and an incentive stock option is granted to such employee, the term of such incentive stock option (to the extent required by the Internal Revenue Code at the time of grant) will be no more than 5 years from the date of grant. Notwithstanding the foregoing, the administrator will have the authority to accelerate the exercisability of any outstanding option at such time and under such circumstances as the administrator, in its sole discretion, deems appropriate.
Options may be exercised in whole or in part by giving written notice of exercise to HEI specifying the number of shares to be purchased, accompanied by payment in full of the aggregate exercise price of the shares so purchased in cash or its equivalent. As determined by the administrator, in its sole discretion, payment for any options in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the administrator (including the withholding of shares otherwise issuable upon exercise), (ii) in the form of unrestricted shares already
resolution establishingowned by the participant subject to certain conditions, (iii) any other form of consideration approved by the administrator and permitted by applicable law or (iv) any combination of the foregoing. A participant will have no rights to dividends or any other rights of a shareholder with respect to the shares subject to an option until the participant has given written notice of exercise, paid in full for such shares and satisfied the requirements of the 2010 Plan, and the shares are delivered to the participant.
To the extent that the aggregate fair market value (as defined in the 2010 Plan) of shares of HEI Common Stock with respect to which incentive stock options granted to a participant under the 2010 Plan and all other option plans of HEI or of any subsidiary of HEI become exercisable for the first time by the participant during any calendar year exceeds $100,000 (as determined in accordance with Section 422(d) of the Internal Revenue Code), the portion of such incentive stock options in excess of $100,000 will be treated as a nonqualified stock option.
Share Appreciation Rights. Share appreciation rights may be granted either alone (Free Standing Rights) or in conjunction with all or part of any option granted under the 2010 Plan (Related Rights). Subject to Section 409A of the Internal Revenue Code, in the case of nonqualified stock options, Related Rights may be granted either at or after the time of the grant of such option. In the case of an incentive stock option, Related Rights may be granted only at the time of the grant of the incentive stock option. The administrator will determine the participants to whom, and the time or times at which, grants of share appreciation rights will be made, the number of shares to be awarded, the price per share and all other conditions of share appreciation rights. Share appreciation rights will contain such additional terms and conditions, not inconsistent with the terms of the Series A Junior Participating Preferred Stock is considered part of HEI's Articles of Incorporation, however, elimination of this series of preferred stock requires shareholder approval. By approving2010 Plan, as the proposed Amended and Restated Articles of Incorporation, which makeadministrator will deem desirable, as set forth in an award agreement. Notwithstanding the foregoing, no referenceRelated Right may be granted for more shares than are subject to the Seriesoption to which it relates and any share appreciation right must be granted with an exercise price not less than the fair market value of the underlying HEI Common Stock on the date of grant.
A Junior Participating Preferred Stock, shareholdersparticipant will have no rights to dividends or any other rights of a shareholder with respect to the shares subject to a share appreciation right until the participant has given written notice of its exercise, paid in full for such shares and satisfied the requirements of the 2010 Plan, and the shares are delivered to the participant.
Upon the exercise of a Free Standing Right, the participant will be approvingentitled to receive up to, but not more than, that number of shares equal in value to the eliminationexcess of the Seriesfair market value as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of shares in respect of which the Free Standing Right is being exercised.
Share appreciation rights that are Related Rights will be exercisable only at such time or times and to the extent that the options to which they relate are exercisable. A Junior PreferredRelated Right granted in connection with an incentive stock option will be exercisable only if and when the fair market value (as defined in the 2010 Plan) of shares of the HEI Common Stock effectivesubject to the incentive stock option exceeds the exercise price of such option. A Related Right may be exercised by a participant by surrendering the applicable portion of the related option, upon filingwhich the Amendedparticipant will be entitled to receive up to, but not more than, that number of shares equal in value to the excess of the fair market value as of the date of exercise over the exercise price specified in the related option multiplied by the number of shares in respect of which the Related Right is being exercised. Options which have been so surrendered, in whole or in part, will no longer be exercisable to the extent the Related Rights have been so exercised.
The administrator may determine to settle the exercise of a share appreciation right in cash in lieu of shares (or in any combination of shares and Restated Articlescash). The term of Incorporationeach Related Right will be the term of the option to which it relates, and no share appreciation right will be exercisable more than 10 years after the date such right is granted.
Restricted Shares, Deferred Shares and Performance Shares. The grant of each award of restricted shares, deferred shares and performance shares will be memorialized in an award agreement, containing such terms and conditions as the administrator will determine. The administrator will have sole and complete authority to determine the participants to whom awards of restricted shares, deferred shares and performance shares will be granted under the 2010 Plan, the number of shares to be subject to the awards and the terms and conditions of the awards, including whether the vesting of such an award will be restricted by time or subject to the attainment of one or more performance goals (as described below). The restricted shares, deferred shares and performance shares will be subject to restrictions and conditions pursuant to the 2010 Plan and as determined by the administrator at the time of grant or, subject to Section 409A of the Internal Revenue Code, at a later time. The administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals; provided, however, that this sentence will not apply to any award which is intended to qualify as "performance-based compensation" under Section 162(m). Except as provided in the applicable award agreement, the participant will generally have the rights of a shareholder of HEI with respect to restricted shares or performance shares during the restricted period. The participant will generally not have the rights of a shareholder with respect to shares subject to deferred shares during the restricted period; provided, however, that, subject to Section 409A of the Internal Revenue Code, an amount equal to dividends declared during the restricted period with respect to the number of shares covered by deferred shares will, unless otherwise set forth in the applicable award agreement, be paid to the participant at the same time as dividends are paid to HEI's shareholders generally, provided that the participant is then providing services to HEI or any affiliate of HEI.
Other Share-Based or Cash-Based Awards. The administrator is authorized to grant awards to participants in the form of other share-based awards or other cash-based awards, as deemed by the administrator to be consistent with the Hawaii Departmentpurposes of Commercethe 2010 Plan and Consumer Affairs.as evidenced by an award agreement. The administrator will determine the terms and conditions of such awards, consistent with the terms of the 2010 Plan, at the date of grant or thereafter, including any performance goals and performance periods.
Performance Goals
Under the 2010 Plan, the administrator has the authority to determine that vesting or payment of an award will be subject to the attainment of one or more performance goals. The performance goals may include any combination of, or a specified increase or decrease of, one or more of the following over a specified period:
Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of HEI or its affiliates, or a division or strategic business unit of HEI, or may be applied to the performance of HEI relative to a market index, a group of other companies or a combination thereof, all as determined by the administrator. The performance goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). Each of the foregoing performance goals will be determined in accordance with generally accepted accounting principles and will be subject to certification by the administrator, provided that the administrator will have the authority to make equitable adjustments to the performance goals in recognition of unusual or nonrecurring events affecting HEI or any of its affiliates or the financial statements of HEI or any of its affiliates, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, in any case to the extent such adjustment does not cause a loss of deduction under Section 162(m).
Termination of Employment
Unless the applicable award agreement provides otherwise, in the event that the employment of a participant with HEI or any of its affiliates terminates for any reason other than cause, retirement, disability (each such term as defined in the 2010 Plan) or death, the participant's options and share appreciation rights:
The one-year period described above will be extended to three years after the date of such termination in the event of the participant's death during such one-year period.
Unless the applicable award agreement provides otherwise, in the event that the employment of a participant with HEI and all of its affiliates terminates on account of retirement, disability or death, the participant's options and share appreciation rights, to the extent that they were exercisable at the time of such termination, will become fully vested and will remain exercisable until the date that is three years after such termination, on which date they will expire. In the event of the termination of a
participant's employment for cause, all outstanding options and share appreciation rights granted to such participant will expire at the commencement of business on the date of such termination.
In the event of the termination of employment with HEI and all of its affiliates of a participant who has been granted one or more Related Rights, such rights will be exercisable at such time or times and subject to such terms and conditions as set forth in the related options.
The rights of participants granted restricted shares, deferred shares or performance shares upon termination of employment with HEI or any affiliate thereof during the restricted period will be set forth in the applicable award agreement.
Notwithstanding the foregoing, no option or share appreciation right will be exercisable after the expiration of its term.
Effect of a Change in Control
Except as otherwise provided in an award agreement or in an individual agreement between a participant and HEI, in the event of a change in control of HEI (as defined in the 2010 Plan), the surviving entity or acquiring entity (or the surviving or acquiring entity's parent company) will assume all awards outstanding under the 2010 Plan or will substitute for them with similar awards. Any such assumed or substituted award will provide that, if the participant's employment with HEI or an affiliate of HEI (or any successor) is terminated within 24 months following the change in control by HEI or an affiliate without cause or by the participant with good reason (as defined in the 2010 Plan), the award will become fully vested and exercisable and all restrictions on such awards will immediately lapse (with all performance goals or other vesting criteria deemed achieved at 100% of target levels), and each such award that is an option or share appreciation right will remain exercisable for not less than one year following such termination of employment.
To the extent the surviving entity (or acquiring entity or parent company, as the case may be) refuses to assume or substitute for outstanding awards:
Transferability of Awards
Unless otherwise determined by the administrator or provided in an award agreement, awards will not be transferable by a participant except by will or the laws of descent and distribution and will be exercisable during the lifetime of a participant only by such participant or his guardian or legal representative.
Amendment or Termination of the 2010 Plan
The Board may amend, alter or terminate the 2010 Plan, or amend an award, at any time, but no amendment, alteration or termination may be made that would impair the rights of a participant under any award without such participant's consent. Shareholder approval is required for any amendment that would increase the total number of shares (unless pursuant to an equitable adjustment as set forth in
the 2010 Plan), materially increase plan benefits, materially alter eligibility provisions or extend the maximum option term under the plan, or as otherwise required by law or applicable rule.
In addition, the administrator may not reduce the exercise price of an outstanding option or share appreciation right by amending its terms or by canceling such award in exchange for cash or the grant of a new award without first obtaining approval from the shareholders of HEI.
Term of the 2010 Plan
No awards may be made after the ten-year anniversary of the date on which shareholders approve the 2010 Plan but awards made before such tenth anniversary may extend beyond the tenth anniversary date.
The benefits to be derived under the 2010 Plan by participants cannot be determined, since the ultimate value of awards under the 2010 Plan depends on several factors, including the market value of HEI Common Stock, and future grants under the 2010 Plan will be made at the sole discretion of the administrator, based on a variety of considerations.
Certain Federal Income Tax Consequences
The following discussion of certain relevant federal income tax effects applicable to stock options and share appreciation rights granted under the 2010 Plan is a summary only, and reference is made to the Internal Revenue Code and the applicable regulations and rulings thereunder for a complete statement of all relevant federal tax provisions.
Options
With respect to nonqualified stock options, the grantee will recognize no income upon grant of the option, and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of option exercise over the amount paid by the grantee for the shares. Upon a subsequent disposition of the shares received under the option, the grantee generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition.
In general, no taxable income is realized by a grantee upon the grant of an incentive stock option. If shares are issued to a grantee (option shares) pursuant to the exercise of an incentive stock option granted under the 2010 Plan and the grantee does not dispose of the option shares within the two-year period after the date of grant or within one year after the receipt of such option shares by the grantee (disqualifying disposition), then, generally (i) the grantee will not realize ordinary income upon exercise and (ii) upon sale of such option shares, any amount realized in excess of the exercise price paid for the option shares will be taxed to such grantee as capital gain (or loss). The amount by which the fair market value of the HEI Common Stock on the exercise date of an incentive stock option exceeds the purchase price generally will constitute an item which increases the grantee's "alternative minimum taxable income" (as defined in the Internal Revenue Code).
If option shares acquired upon the exercise of an incentive stock option are disposed of in a disqualifying disposition, the grantee generally would include in ordinary income in the year of disposition an amount equal to the excess of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on the disposition of the option shares) over the exercise price paid for the option shares.
Subject to certain exceptions, an option generally will not be treated as an incentive stock option if it is exercised more than three months following termination of employment. If an incentive stock
option is exercised at a time when it no longer qualifies as an incentive stock option, such option will be treated as a nonqualified stock option as discussed above.
In general, HEI will receive an income tax deduction at the same time and in the same amount as the employee recognizes ordinary income.
Share Appreciation Rights
The recipient of a grant of share appreciation rights will not realize taxable income and HEI will not be entitled to a deduction with respect to such grant on the date of such grant. Upon the exercise of a share appreciation right, the recipient will realize ordinary income equal to the fair market value of any shares received at the time of exercise. In general, HEI will be entitled to a corresponding deduction, equal to the amount of income realized.
Section 409A of the Internal Revenue Code
The American Jobs Creation Act of 2004 added Section 409A to the Internal Revenue Code (Section 409A), which imposes restrictions on "nonqualified deferred compensation" (as defined in Section 409A). Section 409A generally applies to amounts deferred after December 31, 2004. Generally, options and share appreciation rights with an exercise price at least equal to the fair market value of the underlying stock on the date of grant and restricted stock will not be considered deferred compensation if such awards do not include any other feature providing for the deferral of compensation. Failure to follow the provisions of Section 409A can result in taxation to the grantee of a 20% additional income tax and interest on the taxable amount and, depending on the state, additional state taxes. It is intended that payments and benefits under the 2010 Plan comply with or be exempt from Section 409A. If taxes or penalties under Section 409A are imposed on a grantee in connection with the 2010 Plan, such grantee will be solely responsible and liable for the satisfaction of all such taxes and penalties, and neither HEI nor any affiliate will have any obligation to indemnify or otherwise hold the grantee (or any beneficiary) harmless from any or all of such taxes or penalties.
Under the NYSE listing standards, the 2010 Plan will be approved if a majority of the votes cast are in favor of such approval, so long as the total votes cast represent more than 50% of all shares entitled to vote. Abstentions will be considered votes cast and will have the same effect as voting against the proposal. Broker nonvotes will have no effect on the outcome of the vote on the 2010 Plan.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDED2010 EQUITY AND RESTATED ARTICLES OF INCORPORATION.INCENTIVE PLAN.
Nominees for Class I directors whose terms expire at the 2012 Annual Meeting
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ContinuingEquity compensation plan information
Information as of December 31, 2009 about HEI Common Stock that may be issued upon the exercise of awards granted under all of the company's equity compensation plans was as follows:
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by shareholders | 432,677 | $ | 19.73 | 4,099,071 | ||||||
Equity compensation plans not approved by shareholders | — | — | — | |||||||
Total | 432,677 | $ | 19.73 | 4,099,071 | ||||||
Nominees for Class II directors whose terms expire at the 20102013 Annual Meeting
![]() | Thomas B. Fargo, age 61, director since 2005 Business experience and other public company and HEI affiliate directorships since 2005 • Operating Executive Board Member, J.F. Lehman & Company (private equity firm), since 2008 • Owner, Fargo Associates, LLC (defense and homeland/national security consultancy), since 2005 • Chief Executive Officer, Hawaii Superferry, Inc. (interisland ferry), 2008-2009 • President, Trex Enterprises Corporation (defense research and development firm), 2005-2008 • Commander, U.S. Pacific Command, 2002-2005 • Director since 2008 and Audit Committee Member, Northrop Grumman Corporation • Director, Hawaiian Holdings, Inc., 2005-2008 • Director since 2005 and Audit Committee Member, Hawaiian Electric Company, Inc. (HEI subsidiary) | |
Skills and qualifications for HEI Board service • Extensive knowledge of the U.S. military, a major customer of HEI's electric utility subsidiary. | ||
• Leadership, strategic planning and financial and nonfinancial risk assessment skills developed over 39 years of leading 9 organizations ranging in size from 130 to 300,000 people and managing budgets up to $8 billion. | ||
• Experience with corporate governance, including audit, compensation and governance committees, from service on several public and private company boards. |
![]() | Kelvin H. Taketa, age 55, director since 1993 Nominating and Corporate Governance Committee Chair Business experience and other public company and HEI affiliate directorships since 2005 • President and Chief Executive Officer, Hawaii • Director, | |
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![]() | • Executive management experience with responsibility for overseeing more than $405 million in charitable assets as President and Chief Executive Officer of the Hawaii Community Foundation. | |
• Proficiency in risk assessment, strategic planning and organizational leadership as well as marketing and public relations obtained from his current position at the Hawaii Community Foundation | ||
• Knowledge of corporate and nonprofit governance issues gained from his prior service as a director for Grove Farm Company, Inc., |
![]() | Jeffrey N. Watanabe Business experience and other public company and HEI affiliate directorships since 2005 • Managing Partner, Watanabe Ing & Komeiji LLP, • Director since 2003 and Compensation and Corporate Governance Committee Member, Alexander & Baldwin, Inc. • Director • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), from 1999-2006 and since 2008 • Broad business, legal, corporate governance and leadership experience from serving as Managing Partner of the law firm he founded, advising clients on a variety of business and legal matters for 35 years and from serving on a dozen public and private company and nonprofit boards and committees, including his current service on the Compensation and Corporate Governance Committees for Alexander & Baldwin, Inc. | |
• Specific experience with strategic planning from providing strategic counsel to local business clients and prospective investors from the continental United States and the Asia Pacific region for 25 years of his law practice. | ||
• Experience in public utility regulation from practicing law before the Hawaii Public Utilities Commission, which regulates HEI's utility subsidiaries. |
Class II director whose term will expire at the 2010 Annual Meeting
![]() | Diane J. Plotts, age 74, director since 1987 Audit Committee Chair and Compensation and Executive Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • Independent business advisor since 2000 • Director since 1996 and Audit Committee Chair, American Savings Bank, F.S.B. • 35 years of executive leadership, financial oversight, risk management and strategic planning experience from serving as General Partner and Director of Hemmeter Investment Company. | |
• Bank and corporate governance experience from serving as a | ||
• Fluency in organizational governance matters and boardroom dynamics from serving on a variety of nonprofit boards, including the University of Hawaii |
Continuing Class III directors whose terms expire at the 2011 Annual Meeting
![]() | Don E. Carroll Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • Retired Chairman, • Director since 2004 and Audit Committee Member, American Savings Bank, F.S.B. (HEI subsidiary) • 38 years of executive and finance management experience as President and Vice President, Finance of | |
• Experience with financial institutions and executive compensation and compensation program oversight from | ||
• In-depth knowledge and familiarity with issues facing HEI and its banking subsidiary gained from 14 years of service as a director for HEI and 6 years of service as a director for American Savings Bank, F.S.B. |
![]() | Richard W. Gushman, II, age 64, director since 2007 Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • President and Owner, DGM Group (real estate development firm), since 1973 • Managing Partner, Summit Financial Resources (financial services company), since 1994 • Director since 2002 and Audit Committee Member, American Savings Bank, F.S.B. (HEI subsidiary) • Demonstrated business leadership and financial management skills gained from executive management, financial stewardship and corporate governance leadership roles as chief executive officer of DGM Group for 37 years and Managing Partner of Summit Financial Resources for 16 years. | |
• Extensive experience in governance, board leadership and financial oversight from serving on a variety of corporate, advisory and community organization boards and in financial stewardship roles, including his current service as a director of James Campbell Company LLC and as a member of the state of Hawaii Department of Hawaiian Home Lands and the Office of Hawaiian Affairs Advisory Boards. | ||
• Valuable entrepreneurial and hands-on perspective and experience from having grown the real estate development practice he started in 1973 into the DGM Group. |
![]() | Victor H. Li, S.J.D., age 68, director since 1988 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • Co-Chairman, Asia Pacific Consulting Group (Pacific region trade consultancy), since 1992 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2004 • Thoughtful leadership and consensus-building skills and marketing and strategic planning experience acquired through his current position for the last 18 years as Co-Chairman of the Asia Pacific Consulting Group, and his former position for 10 years as chief executive for the East-West Center. | |
• Long-term knowledge and understanding of HEI's operations and strategic goals after 20 years on the Board. | ||
• Prior energy and public company board experience from serving as a director at Grumman Corporation and AES China Generating Co. Ltd. |
![]() | Barry K. Taniguchi, age 63, director since 2004 Audit Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • President and Chief Executive Officer, KTA Super Stores (grocery store chain), since 1989 • President, K. Taniguchi Ltd. (real estate lessor), since 1989 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2002 • Director since 2001 and Audit Committee Chair, Hawaiian Electric Company, Inc. (HEI subsidiary) • Director, Hawaii Electric Light Company, Inc. (HEI subsidiary), 1997-2009 • Director, Maui Electric Company, Limited (HEI subsidiary), 2006-2009 | |
Skills and qualifications for HEI Board service • Current knowledge of and experience with the business community on the island of Hawaii, which is served by one of HEI's utility subsidiaries, Hawaii Electric Light Company, Inc., from serving in his current chief executive officer positions for the last 23 years. | ||
• Accounting and auditing knowledge and experience gained from obtaining a public accounting certification and working as an auditor and as a controller. | ||
• Extensive board experience and leadership roles in community and civic organizations, including from his current service on the boards of Hawaii Employers Mutual Insurance Company and Hawaii Community Foundation and as Chair of the Hawaii Island Economic Development Board. |
Continuing Class I directors whose terms expire at the 2012 Annual Meeting
![]() | Shirley J. Daniel, Ph.D., C.P.A., age 56, director since 2002 Audit Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • Professor of Accountancy, Shidler College of Business, University of Hawaii at Manoa, since 1995 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2004 • Current expertise in accounting, auditing and corporate governance from teaching courses on these subjects at the Shidler College of Business. | |
• Business and leadership experience from her current service as Director for the Pacific Asian Management Institute and Center for International Business Education and Research and from her prior service as Managing Director for the Pacific Asian Center for Entrepreneurship and E-Business. | ||
• Prior experience in accounting and auditing from being a licensed certified public accountant and from working as an auditor and audit manager with the international accounting firm Arthur Young & Company (currently Ernst & Young LLP). |
![]() | Constance H. Lau, age 58, director 2001-2004 and since 2006 Executive Committee Member Current and prior positions with the company • President and Chief Executive Officer and Director, HEI, since 2006 • Chairman of the Board, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2006 • Chairman of the Board and Chief Executive Officer, American Savings Bank, F.S.B. (HEI subsidiary), since 2008 • Chairman of the Board, President and Chief Executive Officer, American Savings Bank, F.S.B., | |
• President and Chief Executive Officer and Director, • Senior Executive Vice President and Chief Operating Officer and Director, American Savings Bank, F.S.B., 1999-2001 | ||
• Treasurer, HEI, 1989-1999 | ||
• Financial Vice President and Treasurer, HEI Power Corp. (former HEI subsidiary), 1997-1999 | ||
• Treasurer, Hawaiian Electric Company, Inc. | ||
• Assistant Corporate Counsel, Hawaiian Electric Company, Inc., | ||
Other public company directorships since 2005 • Director since 2004 and Audit Committee Member, Alexander & Baldwin, Inc. | ||
Skills and qualifications for HEI Board service • Intimate understanding of the | ||
• Familiarity with current management and corporate governance practices from her current service as a director and Audit Committee member for Alexander & Baldwin, Inc. and as a director of AEGIS Insurance Services, Inc. | ||
• Experience with financial oversight and expansive knowledge of the Hawaii business community and the local communities that compose the company's customer bases from serving as a director or investment committee chairperson for various local industry, business development and educational organizations. |
![]() ![]() | A. Maurice Myers, age 69, director since 1991 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • Chief Executive Officer and Director, POS Hawaii LLC (provider of point-of-sale business systems for restaurants and retailers), since 2009 • Chief Executive Officer and Director, Wine Country Kitchens LLC (manufacturer of gourmet food products), since 2007 • Chairman, Chief Executive Officer and President, Waste Management, Inc. (waste and environmental services provider), 1999-2004 • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), 2004-2006 and since 2009 • 20 years of public company executive and board leadership experience as Chairman, Chief Executive Officer and President | |
![]() | Yellow Corporation, President of America West Airlines and Chief Executive Officer and President of | |
• Practiced skills in risk assessment, strategic planning, financial oversight, customer and public relations and marketing exercised in leading successful restructuring efforts at Waste Management, Yellow Corporation and America West Airlines. | ||
• Diverse business experience and public and private company board experience, including from his prior service as a director and Compensation Committee Chair for Tesoro Corporation and as a director for BIS Industries Limited and Cheap Tickets. |
![]() | James K. Scott, Ed.D., age 58, director since Audit and Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since 2005 • President, Punahou School (K-12 independent school), since 1994 • Director, • Recognized leadership and executive management skills as President of • 25 years of experience developing and executing strategic plans as the chief executive at two independent schools, including overseeing fundraising programs and admissions/marketing functions. | |
• Governance and board leadership experience from his current positions as Chair of the Secondary School Admission Test Board, director and former Chair of the Hawaii |
What are HEI's governance policies and guidelines?
In 2008,2009, the Board and management continued to review and monitor corporate governance trends and best practices to comply with the corporate governance requirements of the New York Stock Exchange, Listed Company Manual andregulations of the Securities and Exchange Commission regulations.and rules and regulations of the Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation and Office of Thrift Supervision applicable to HEI as a bank holding company. As part of an annual review, the HEI Categorical Standards of Director Independence (see Appendix B), Corporate Governance Guidelines Revised Code of Conduct (which includes the code of ethics for the HEI Chief Executive Officer, Financial Vice President and Controller), and charters for the Audit, Compensation, Executive and Nominating and Corporate Governance Committees were reviewed and revised as deemed appropriate by the Board. Current copiesThese documents, and HEI's Corporate Code of these documents may be foundConduct, are available on HEI's website at www.hei.comwww.hei.com.
What is the Board's leadership structure?
Mr. Watanabe has served as the nonexecutive Chairman of the Board since 2006, upon the retirement of former HEI Chairman, President and Chief Executive Officer, Robert F. Clarke. Also since that time, Ms. Lau has served as HEI's President and Chief Executive Officer and has been the only employee director on the Board. Prior to Mr. Watanabe becoming Chairman, the Board had an independent lead director.
Mr. Watanabe has served on the Board since 1987, but has never been employed by HEI or any HEI subsidiary. The Board has determined that he is independent. Among the many skills and qualifications that Mr. Watanabe brings to the Board, the Board considered (i) his extensive experience in corporate and nonprofit governance from serving on other public company, private company and nonprofit boards; (ii) his reputation for effective consensus and relationship building and business and community leadership, including leadership of his former law firm, and (iii) his willingness and dedication to committing the hard work and time necessary to successfully lead the Board.
As HEI's Chairman, Mr. Watanabe's key responsibilities are to:
The Board's Corporate Governance Guidelines provide that if the Chairman and Chief Executive Officer positions are held by the same individual, or if the Board determines that the Chairman is not independent, the independent directors should designate an independent director to serve as Lead Director. If a Lead Director is designated, the Lead Director's responsibilities would be to: (i) preside at Board and shareholder meetings when the Chairman is not present, (ii) preside at executive sessions
of the independent directors, (iii) facilitate communication between the independent directors and the Chairman or the Board as a whole, (iv) call meetings of the nonmanagement or independent directors in printexecutive session, (v) participate in approving meeting agendas, schedules and materials for the Board, and (vi) perform other functions described in the Corporate Governance Guidelines or as determined by the Board from time to time.
The Board believes that its current leadership structure, which provides for an independent nonemployee Chairman, or an independent Lead Director if the Chairman is not independent, is appropriate and effective in light of HEI's current operations, strategic plans and overall corporate governance structure for several reasons. First, the Board believes that having an independent Chairman or Lead Director has been important in establishing a tone at the top for both the Board and the company that encourages constructive expression of views that may differ from those of senior management. Second, the Board believes that the presence of an independent Chairman or Lead Director, particularly at this time of growing government and investor scrutiny of public and financial company boards, demonstrates the Board's desire to inspire confidence in the company's regulators and shareholders that the Board is committed to serving the best interests of the company and its shareholders and not the best interests of management. Third, the Board recognizes that the company has an uncommon corporate governance structure in that the boards of its two primary operating subsidiaries are also composed mostly of nonemployee directors and that the HEI Chairman plays an important leadership role at these subsidiary boards. For instance, in addition to chairing executive sessions of the nonemployee directors and attending meetings of the audit committees of these subsidiary boards, the Chairman leads each subsidiary board in conducting its annual performance evaluation and assists communications between each of these boards and management of the respective subsidiary company and among members of each subsidiary board.
What is the Board's role in risk oversight?
HEI is a holding company that operates principally through its electric public utility and bank subsidiaries. At the holding company and subsidiary levels, the company faces a variety of risks, including operational risks, regulatory and legal compliance risks, credit and interest rate risks, competitive risks and liquidity risks. Developing and implementing strategies to manage these risks is the responsibility of management, and that responsibility is carried out by assignments of responsibility to various officers and other employees of the company under the direction of HEI's Chief Financial Officer, who also serves as HEI's chief risk officer. The role of the Board is to oversee the management of these risks.
The Board's specific risk oversight functions are as follows:
the Board's ongoing risk oversight, HEI's chief risk officer is responsible for providing regular reports to the Board and Audit Committee on the condition of those risks, any shareholderchanges to the risk catalog or management's assessment of those risks, and any other risk management matters that the Board may request from time to time. The Board and Audit Committee also receive reports from the company's internal auditor evaluating the effectiveness of management's implementation of the approved ERM system.
The Board believes that risk oversight is one of the areas in which having an independent Chairman or Lead Director is especially important in order to ensure that views that may differ from those of management are expressed. Since the HEI Chairman attends the meetings of the Board, the subsidiary boards and their respective committees, the HEI Chairman is also in a unique position to assist with communications regarding risk oversight and risk management among the Board and its committees, between the subsidiary boards and their respective committees and between directors and management.
How does the Board select nominees for the Board?
The Nominating and Corporate Governance Committee considersof the Board assists the Board in identifying and evaluating persons for nomination or re-nomination for Board service. To identify qualified candidates for Board membership, the committee may consider persons suggested by its members and other Board members, as well as by management and shareholders. The Committeeshareholders or may retain a third-party search firm to help identify candidates from time to time.
Among the qualifications considered in the Nominating and Corporate Governance Committee's assessment of a proposed candidate are knowledge, experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, and absence of conflicts of interest.potentially qualified candidates. The Committee believes that the Board should reflect a diversity of experience, gender, ethnicity, and age. The Committee also considers other relevant factors as it deems appropriate including, but not limited to, current composition of the Board, balance of independent and non-independent directors, and need for financial expertise.
Once candidates are identified, the Nominating and Corporate Governance Committee may review publicly available information to assess whether the candidate should be considered further. If the Committee determines that the candidate warrants further consideration, the Chairman of the Committee or another member of the Committee will contact the person and, if the person indicates a willingness to be considered for service on the Board, the candidate will be asked to provide information such as accomplishments and qualifications and one or more interviews may be conducted. The Committee members may contact one or more references provided by the candidate or other members of the business community who may have first-hand knowledge of the candidate's qualifications and accomplishments. Thecommittee's evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.
Once a person is identified as a potential director candidate, the committee may review publicly available information to assess whether the candidate should be further considered. If so, a committee member or designated representative for the committee will contact the person. If the person is willing to be considered for nomination, the person is asked to provide additional information regarding his or her background, his or her specific skills, experience and qualifications for Board service, and any direct or indirect relationships with the company. In addition, one or more interviews may be conducted with committee and Board members and committee members may contact one or more references provided by the candidate or others who would have first-hand knowledge of the candidate's qualifications.
In evaluating the qualifications of all candidates (including incumbent directors) for nomination or re-nomination, the committee considers:
The Board considers the recommendations of the Nominating and Corporate Governance Committee and then makes the final decision whether to approve and extend an invitation to a candidate to join the Board upon appointment or election, subject to any approvals required by law, rule or regulation.
Does the Board consider diversity in identifying nominees for the Board?
In assisting the Board to identify qualified candidates to serve on the Board, the Nominating and Corporate Governance Committee considers the gender and racial minority diversity of the candidate. The Board believes it functions most effectively with members who collectively possess a range of substantive expertise, skills and experience in areas that are relevant to leading the company in
accordance with the Board's fiduciary responsibilities. The Board also believes that having a board composed of members who can collectively contribute a range of perspectives, including perspectives that may arise from being female or a racial minority, improves the quality of the Board's deliberations and decisions because it enables the Board to view issues from a variety of angles and thus more richly and completely. As the company's operations and strategic plans and the Board's composition may evolve over time, the Nominating and Corporate Governance Committee is charged with identifying and assessing the appropriate mix of knowledge areas, qualifications and personal attributes contributed by Board members that will bring the most strategic and decision-making advantage to the company.
With operations almost exclusively in the state of Hawaii, it is natural and advantageous that our Board be composed primarily of members who live and work in the state and have firsthand knowledge of and experience with our customer base and political and regulatory environment. Since a large pool of potential candidates for Board membership come from this state, the Board benefits from the unique racial diversity that exists in Hawaii. Of twelve Board members, six members (or 50%) are Caucasian, five members (or 42%) are Asian American and one member (or 8%) is Caucasian, Asian American and native Hawaiian. Three Board members (or 25%) are female.
The Board also recognizes that, due to Hawaii's geographic isolation from the continental United States and the comparatively small number of public companies, banks and regulated utilities in Hawaii, the Board also benefits from having directors who have gained business experience at companies located in the continental United States because those Board members can and have contributed valuable information about experiences they have had working at or serving on the boards of other public companies and companies in similar industries, which also contributes to the breadth of perspectives on the Board.
How can shareholders communicate with the directors?
Shareholders and all interestedInterested parties, may contact (1) any member of the Board, including the nonemployee Chairman of the Board and any employee director or (2) the nonemployee directors as a group, by mail. Toshareholders, desiring to communicate with the Board, any individual director or anythe nonmanagement or independent directors as a group of directors, correspondence should be addressedregarding matters pertaining to the Boardbusiness or any such individual or group by either name or title. All suchoperations of HEI may address their correspondence should be sent in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P. O.P.O. Box 730, Honolulu, HI 96808-0730. The mail will be forwarded, unopened,HEI Corporate Secretary may review, sort and summarize all such correspondence in order to facilitate communications to the named individualBoard. In addition, the HEI Corporate Secretary has the discretion to handle any director or, in the casecommunication that is an ordinary course of a group,business matter, including routine questions, complaints, comments and related communications that can appropriately be handled by management. Directors may at any time request copies of all correspondence addressed to the Chairmanthem. The charter of the Board.HEI Audit Committee, which is available at www.hei.com, sets forth procedures for submitting complaints or concerns regarding financial statement disclosures, accounting, internal accounting controls or auditing matters on a confidential, anonymous basis.
How doesDoes the Board evaluate itself?
The Board followsconducts an annual process of evaluating the operationsevaluation to determine whether it and effectivenessits committees are functioning effectively. In addition, each director annually evaluates his or her performance as a director and members of the Board as a whole, as well as self-evaluations by individual directors up for election. In reviewingAudit, Compensation and Nominating and Corporate Governance Committees annually evaluate the Board as
a whole, directors evaluate and comment on board structure, meetings, responsibilities, performance of directors and relationship between the Board and management. Directors who are nominees for reelection evaluate their own individual meeting preparation, participation in meetings, contributions to the group, knowledge of the issues and concerns of HEI and understanding of the role of the Board in the governance of HEI.each committee on which he or she serves. The Board and self-evaluation forms are submitted toevaluation process is overseen by the Nominating and Corporate Governance Committee, for its review, after whichin consultation with the Committee recommends to the Board any procedures and practices to be adopted to improve the operationsChairman. The chairperson of the Board. The Chairman of theNominating and Corporate Governance Committee or the nonemployee Chairman of the Board may meet with individual directors to discuss their performance, as he or she deems appropriate.
As required by the New York Stock Exchange corporate governance listing standards, the Audit, Compensation, and Nominating and Corporate Governance Committees developed a process for self-evaluation whereby committee members reviewed and evaluated their respective committee charters and committee meetings. The Audit Committee also reviewed and evaluated its duties and responsibilities, its relationships with management and the internal and external auditors and the qualificationsTable of its members, including financial expertise.Contents
Who are the independent directors of the Board?
Under HEI's Corporate Governance Guidelines, a majority of Board members must qualify as independent under the listing standards of the New York Stock Exchange (NYSE) and any additional requirements as determined by the Board from time to time.
The Nominating and Corporate Governance Committee and the Board considers all relevant factsconsidered the information below, which was provided by the directors and/or HEI or its subsidiaries, concerning relationships between (i) HEI or its subsidiaries and circumstances in making a determination(ii) the director, the director's immediate family members (as defined by NYSE) or entities with which any of independence.
Inthe directors or immediate family members have certain affiliations. Based on its annual reviewsconsideration of director independence,the relationships described below and the recommendations of the Nominating and Corporate Governance Committee, the Board affirmatively determined that withall of the exceptionnonemployee directors of Constance H.HEI (Messrs. Carroll, Fargo, Gushman, Li, Myers, Scott, Taketa, Taniguchi, Watanabe and Mses. Daniel and Plotts) are independent. The remaining director, Ms. Lau, HEI's President and Chief Executive Officer, who is the only employee director of HEI, each director, nominee for director,HEI.
ability to negotiate rates or other terms, the Board determined that these relationships do not impair the independence of these directors.
None of the relationships described above exceeded the applicable thresholds in HEI's categorical standards for director independence or were determined by the Board to be a direct or indirect material relationship that would impair a nonemployee director's independence.
What otherDoes the Board practices does HEI have?meet in executive session without management present?
The nonemployee directors meet regularly in executive sessions without management present. In 2008,2009, these sessions were chaired by Jeffrey N.Mr. Watanabe, who is the Chairman of the Board.Board and an independent nonemployee director. Mr. Watanabe may request that other nonemployee directors chair the executive sessions.
Information related to issues to be considered at a Board or Committee meeting and other materials are distributed, to the extent practical, to the directors in advance of the meeting to allow for review prior to the meeting.
How often did the Board of Directors meet in 2008?2009?
In 2008,2009, there were seventeennine regular meetings and twoone special meetingsmeeting of the Board of Directors. All directors attended at least 75% of the combined total number of meetings of the Board and Board committees on which they served (during the periods they served).served.
Did all directors attend last year's Annual Meeting?
All members of the Board of Directorsdirectors attended the 2008 Annual Meeting2009 annual meeting of Shareholders.shareholders. HEI encourages theall directors to attend each year's Annual Meetingannual meeting of Shareholders.shareholders.
What committees has the Board established and how often did they meet?
The Board of Directors has four standing committees: Audit, Compensation, Executive and Nominating and Corporate Governance. Members of these committees are generally appointed annually by the Board, taking into consideration the recommendation of the Nominating and Corporate Governance Committee. The names of thetable below shows current committee members are shown on the table below. In addition, the table below also showsand the number of meetings of each committee held in 2008.2009.
Name | Audit | Compensation | Executive | Nominating and Corporate Governance | |||||
---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | X | ||||||||
Shirley J. Daniel | X | ||||||||
Thomas B. Fargo (1) | X | X | (4) | ||||||
Richard W. Gushman, II | X | ||||||||
Constance H. Lau (2) | X | ||||||||
Victor H. Li | X | ||||||||
Bill D. Mills (3) | X | ||||||||
A. Maurice Myers | X | ||||||||
Diane J. Plotts | X | (4) | X | X | |||||
James K. Scott | X | X | |||||||
Kelvin H. Taketa | X | (4) | |||||||
Barry K. Taniguchi | X | ||||||||
Jeffrey N. Watanabe | X | (4) | |||||||
Number of Meetings in 2008 | 4 | 8 | 0 | 6 | |||||
Name | Audit | Compensation | Executive | Nominating and Corporate Governance | |||||
---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | X | ||||||||
Shirley J. Daniel | X | ||||||||
Thomas B. Fargo | X | X | (2) | ||||||
Richard W. Gushman, II | X | ||||||||
Constance H. Lau (1) | X | ||||||||
Victor H. Li | X | ||||||||
A. Maurice Myers | X | ||||||||
Diane J. Plotts | X | (2) | X | X | |||||
James K. Scott | X | X | |||||||
Kelvin H. Taketa | X | (2) | |||||||
Barry K. Taniguchi | X | ||||||||
Jeffrey N. Watanabe | X | (2) | |||||||
Number of Meetings in 2009 | 4 | 4 | 0 | 4 | |||||
What are the primary functions of each of the four committees?
• Audit Committee
The Audit Committeeprimary functions of HEI's standing committees are described below. Each committee operates and acts under a written charter, which was adopted andcharters that are approved by the Board and may be foundavailable on HEI's website at www.hei.comwww.hei.com. Each of the Audit, Compensation and Nominating and Corporate Governance Committees may form subcommittees of its members and delegate authority to its subcommittees.
Audit Committee
The Audit Committee is available in print to any shareholder who requests it. The Committee provides independent and objective oversight ofresponsible for overseeing (1) HEI's (1) financial reporting processes and internal controls, (2) the performance of HEI's internal auditor, (3) risk assessment and risk management policies set by management and (4) the Corporate Code of Conduct compliance program for HEI and its subsidiaries. In addition, the committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm performingthat audits of HEI's consolidated financial statements (3) internal controls, (4) risk assessment and risk management policies set by managementmaintains procedures for receiving and (5) oversight of relatedreviewing confidential
person transactionsreports to the committee of officers. Thepotential accounting and auditing concerns. See "Audit Committee also reviews and approves or disapproves related person transactionsReport" below for officers and reviews and resolves complaints from any employee regarding accounting, internal controls or auditing matters.additional information about the Audit Committee.
All Audit Committee members of the Committee are independent directors as independence for audit committee members is defined in the listing standards of the New York Stock Exchange. Admiral Fargo, a member ofand qualified to serve on the committee is also a member of the audit committee of Northrop Grumman Corporation, a publicly traded company. See pages 68-69 forpursuant to NYSE and SEC requirements and the Audit Committee Report.meets the other applicable requirements of the Securities Exchange Act of 1934. None of the Audit Committee members serve on the audit committees of more than two other public companies.
• Compensation Committee
The responsibilities of the Compensation Committee operates and acts under a written charter, which was adopted and approved byinclude (1) overseeing the Board and may be found on HEI's website at www.hei.com and is available in print to any shareholder who requests it. The Committee oversees HEI's employee and director compensation and employee benefit plans and practices, including its executive compensation plans and programs for employees, executives and nonemployee directors of HEI and its subsidiaries, including equity and incentive plans, (2) reviewing the extent to which risks that may arise from the company's compensation policies and equity-based plans.practices, if any, may have a material adverse effect on the company and recommending changes to address any such risks and (3) assessing the independence of any compensation consultant involved in determining or recommending director or executive compensation. See "Compensation Discussion and Analysis—Compensation Process," pages 19-20,Process" and "Other Relationships and Related Person Transactions—Compensation Committee Interlocks and Insider Participation" below for additional discussion of the role ofinformation about the Compensation Committee, including the scope of the authority, the extent to which it may delegate authority and any role of the compensation consultant or executive officers in the compensation process.Committee.
TheAll Compensation Committee consists of three or more directors as determined from time to time by the Board. Each member of the Committee ismembers are independent and qualified to serve on the Committeecommittee pursuant to theNYSE requirements of the New York Stock Exchange. At least a majority of the members of the Committee qualifiesand also qualify as "nonemployee directors" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. The Committee may form subcommitteesAt least a majority of itsthe members and delegate its authority to the subcommittee. The Nonemployee Director Subcommittee of the Compensation Committee qualifies as "nonemployee directors" as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934. The Compensation Committee has theformed and delegated authority to a Nonemployee Director Subcommittee to make equity grants on behalf of the Committee.committee.
See Compensation Committee Interlocks and Insider Participation on page 67.
• Executive Committee
The Executive Committee operatesmay exercise the power and acts under a written charter, which was adopted and approved byauthority of the Board and may be found on HEI's website at www.hei.com andwhen it appears to its members that action is available in print to any shareholder who requests it. The Committee is authorized to act on matters brought before it whennecessary and a meeting of the full Board is impractical. It may also consider any other mattermatters concerning HEI that may arise from time to time.time between Board meetings. The Committeecommittee is currently comprisedcomposed of the Chairman of the Board, who chairs the committee, the Audit Committee Chairperson and the HEI President and Chief Executive Officer and one additional independent director.Officer.
• Nominating and Corporate Governance Committee
The functions of the Nominating and Corporate Governance Committee operates and acts under a written charter, which was adopted and approved by the Board and may be found on HEI's website at www.hei.com and is available in print to any shareholder who requests it. All members of the Committee are independent directors as defined in the listing standards of the New York Stock Exchange. Its functions include (1) reviewingevaluating the background and qualifications of potential nominees for the boardBoard and for the boards of directors of HEI and its subsidiary companies presented by shareholders, directors and management,HEI's subsidiaries, (2) recommending to the Board the slate ofdirector nominees to be submitted to shareholders for election at the next Annual Meeting,annual meeting, (3) assessing the independence of directors and nominees, (4) recommending the slate of executive officers to be appointed by the Board and subsidiary boards, (5) advising the Board with respect to matters of Board and committee composition and procedures, (4)(6) overseeing the annual evaluation of the Board (5) reviewing nonemployee director related person transactions and (6) overseeing(7) making recommendations to the Board and the boards of HEI's subsidiaries regarding corporate governance matters generally.
and board succession planning matters. See "Corporate Governance" above for additional information regarding the section onactivities of the Nominating and Corporate Governance on pages 11-12 for a discussion concerning the involvement of this Committee on matters relating to corporate governance.Committee.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that follows. Based on that review and discussion, the Compensation Committee recommended andto the Board concurred, that the Compensation Discussion and Analysis be included in this proxy statement.Proxy Statement.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THETHE HEI BOARD OF DIRECTORS
Thomas B. Fargo, ChairmanChairperson
Don E. Carroll
Victor H. Li
A. Maurice Myers
Diane J. Plotts
Compensation Discussion and Analysis
Who were the named executive officers for HEI in 2008?2009?
For 2008,2009, the named executive officers of HEI were:
In 20062009, HEI and 2007, HEI, Hawaiian Electric Companyits subsidiaries continued to aggressively pursue initiatives to improve operating and American Savings Bank did not meet their respective minimum financial thresholdsperformance in order to be in a better position to weather the economic downturn and no annual executive incentive bonuses were paid to executives at HEI, Hawaiian Electric Company or American Savings Bank. Forgrow earnings and improve capital efficiency as conditions improve.
long-term performance periods (2003 - 2005, 2004 - 2006,result, the utilities were able to substantially offset the negative impact of lower than expected revenues. Simultaneously, the utilities executed the first steps in carrying out their roles in the Hawaii Clean Energy Initiative, a landmark multi-year agreement with the state of Hawaii aimed at achieving among the most aggressive clean energy goals in the nation and 2005 - 2007), no HEI (holding company) long-term incentive goals were achieved and no HEI long-term incentive awards were paid to HEI executives (although Ms. Lau did receive long-term incentive awardsa sustainable, clean energy future for subsidiary bank goals that were set when she was American Savings Bank President and Chief Executive Officer).
In 2008, HEI successfully achieved its annual and long-term incentive goals. HEI's stock price and total returns outperformed manythe state. As a result of its utility peers. The utility regained financial strength primarily due tothese efforts in 2009, Hawaiian Electric Company received further interim rate relief in its 2009 test year rate case for Hawaiian Electric Companyrecovery of costs for a new biodiesel generating station on February 19, 2010, and on the same date, received approval of the joint proposal with the Consumer Advocate for a new method of setting electric rates called "decoupling", which will help the utility to be financially viable while it assists in the last quarter of 2007. On October 20, 2008, Hawaiian Electric Companyimplementing state policy to reduce Hawaii's dependence on oil.
In 2009, HEI's consolidated net income was $83 million, or $0.91 per share. However, excluding the $19.3 million, or $0.21 per share, loss from the nonrecurring liquidation of private-issue mortgage-related securities at the bank, HEI's adjusted consolidated net income was $102.3 million, or $1.12 per share. Despite the economic headwinds faced by HEI and all businesses generally in 2009, HEI was able to preserve earnings, maintain its dividend, achieve a positive total return to shareholders in 2009 and, at the same time, continue to move forward on these results,key strategic initiatives, positioning it for improved performance and shareholder value creation in the Compensation Committee decided to award incentives to each of the named executive officers as detailed below.near future.
Executive Summary of Significant Changes
The Compensation Committee has the responsibility for recommending therecommends total compensation programprograms for executives of HEI and its subsidiaries, subject to the approval of the Board. In 2008,2009, the Compensation Committee held eightfour meetings to approve the overall executive compensation program design. The Committeecommittee held lengthy discussions, with and without management present, regarding best pay practices and trends. TheIn 2009, the Compensation Committee substantially revampedrevised HEI's executive compensation programs to comply with new regulations, to establish leadingincorporate best practices and to align executive compensation more directly with shareholder interests. The primary purpose of the changes was to make HEI's executive compensation more performance based.performance-based.
The following are some of the major revisions made to the executive compensation programs in 2008:
supplemental pension benefit, the pension Ms. Lau will earn under the HEI Excess Pay Plan is more in line with what other employees and executives receive upon retirement and thus provides for a more equitable compensation program.
The following are some of the major revisions that will be made to the executive programs in 2009:
participants for increases in share value and to better align executive incentives with shareholder interests.
HEI has either eliminated or restricted the use of tax gross-ups to named executive officers. There are no gross-ups in the change-in-control agreements given to the named executive officers and aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code. There are no tax gross-ups allowed on club membership initiation or membership fees. Tax gross-ups of death benefits have been restricted to the executives who participated in the applicable plan prior to September 9, 2009. Relocation and temporary housing expenses of Messrs. Ajello and Rosenblum were grossed up for taxes up to a certain limit to the extent the gross-ups were within the allowance for such expenses under their offers of employment. This is a common practice for executive relocation policies and was a condition of their recruitment.
The Compensation Committee has the responsibility for recommending therecommends total compensation programprograms for HEI and its subsidiaries, subject to the approval of the Board. The Committeecommittee has authority to retain or terminate(or terminate) the services of consultants and advisors to provide advice to the Committee.committee. The Committeecommittee approves, modifies or rejects its consultants', advisors' or management's recommendations regarding executive compensation programs, including incentive compensation and equity-based plans. The Committeecommittee may delegate authority to a subcommittee of no fewer than two members of the Committeecommittee to determine matters such as equity compensation. The Board approves the actions of the Committee,committee and, where the executive works at a subsidiary of HEI, the actions of the Committeecommittee are also approved by the subsidiary board.
The Board conducts an evaluation of the performance of the HEI President and Chief Executive Officer including her performance, in light of corporate goals and objectives relevant to her compensation. The Compensation Committee, with the assistance of its independent compensation consultant, recommends an executive compensation package for the HEI President and Chief Executive Officer based on the Board's evaluation. The independent directors of the Board approve the compensation of the HEI President and Chief Executive Officer.
The Compensation Committee reserves the right to amend, suspend or terminate any incentive programsprogram or any other executive compensation program.program, or any individual executive's participation in such programs. The Committeecommittee can exercise its discretion to reduce or increase (except to the extent an award or payout is intended to satisfy the requirements offor deductibility under Section 162(m) of the Internal Revenue Code) increase the size of any award or payout. In 2009, no portion of any bonus or long-term incentive compensation paid by HEI or any of its subsidiaries was nondeductible under Section 162(m).
In making its compensation determinations, the Compensation Committee will consider financial, accounting and tax consequences, if appropriate. For instance, the Committeecommittee may determine that there should not be any incentive payout that would otherwise result solely from a new way of accounting for a financial measure. The Committee will also consider tax consequences if appropriate. For instance,As another example, the Committeecommittee will take into account tax deductibility in establishing executive compensation, but it reserves the right to award compensation even when not deductible if it is reasonable and appropriate.
In 2007, the Compensation Committee approved, and the Board ratified, an executive compensation recovery policy for the recoupment of performance-based awards paid to executives who are found to be personally responsible for fraud, gross negligence, or intentional misconduct that causes
HEI or any of its operating subsidiaries to restate all or a portion of its financial statements. The amount to be recovered from the executive will be the amount by which the performance-based award exceeded the amount that would have been payable to the executive had the financial statements been initially filed as restated, or any other amount (including, but not limited to, the entire award) that the Committee shall determine, but in no event will the amount to be recovered by HEI be less than the amount required to be repaid or recovered as a matter of law. The Committee has the discretion to determine whether HEI shall effect any such recovery (i) by seeking repayment from the executive, (ii) by reducing any other amount payable under any compensatory plan or program maintained by HEI, (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards, or (iv) by any combination of the foregoing. In addition, HEI may dismiss an executive found to be personally responsible for the fraud, gross negligence, or intentional misconduct or take such other action to enforce the executive's obligations to HEI as it may deem appropriate based on the particular circumstances of the situation.
WhatWho is the role ofcompensation consultant and what is the compensation consultant?consultant's role?
The Compensation Committee's independent compensation consultant isuntil December 2009 was Towers Perrin.Watson (formerly Towers Perrin). The Committee engagescommittee engaged Towers PerrinWatson to provide the Committee with advice and data with respect to compensation benchmarking and market practices. Towers Perrin worksWatson worked with the Compensation Committee Chairman and Committee members in recommendingto develop recommendations to the Board regarding executive compensation initiatives and proposed changes.
In 2008,During the fourth quarter of 2009, the Compensation Committee engaged Towers Perrinconducted a request for proposal process to provideevaluate compensation consultants for future work, including a comprehensive review of HEI'sthe compensation and benefit policies and practices for executives. This review included HEI's peer group, compensation philosophy, compensation levels, incentive and stock plan design,of the named executive officers and other compensation components. The Committee authorized these projects to ensure that all of HEI's compensation and benefit programs align with its strategies, to enhance linkage of rewards to results that support shareholder value, to ensure fairness in the administration of plans, to simplify programs to drive greater understanding, to maintain the competitiveness of the program, and to manage costs within HEI's financial resources.
Towers Perrin does not provide any other services to HEI and its subsidiaries other than the compensation services described above. Actuarial services tosenior executives at HEI, American Savings Bank and Hawaiian Electric Company. As a result of the selection evaluation process, Frederic W. Cook & Co., Inc. (Fred Cook & Co.) was retained in December 2009 as the Compensation Committee's independent compensation consultant, to provide information, analyses and advice regarding executive compensation.
In 2009, Towers Watson also performed some nonexecutive compensation consulting services for Hawaiian Electric Company, which value did not exceed $120,000. As part of the terms of its engagement, Fred Cook & Co. is not permitted to perform any services at the direction of the management of HEI or its subsidiaries. All services by Fred Cook & Co. are provided by Watson Wyatt Worldwide.at the direction of the Compensation Committee.
In February 2010, Fred Cook & Co. concluded an executive compensation review on behalf of the Compensation Committee. The results of this review are discussed below.
With the permission of the Compensation Committee, in 2008, the2009, HEI President and Chief Executive Officer, the HEI Senior Vice President-General Counsel and Chief Administrative Officer, the American Savings Bank President and other executives discussed with Towers Watson and provided perspectives to, Towers Perrin regardingFred Cook & Co. HEI's compensation philosophy and the methodology and metrics for computing executive incentives. Human resources and finance and other personnel provided data in response to the requests of the Compensation Committee'sCommittee, Towers Watson and Towers Perrin's requests.Fred Cook & Co.
Although the HEI President and Chief Executive Officer is a director on the HEI Board, she did not participate in any Board decisions impacting her own compensation. In April 2008,February 2009, Ms. Lau recommended to the Compensation Committee a base salary increasesincrease effective March 2, 2009 for her direct reports: Mr. May, Mr. Harada,Richardson in recognition of his expanded job responsibilities as HEI's Chief Administrative Officer that were effective December 8, 2008.
HEI has an Enterprise Risk Management function that is principally responsible for identifying and managing risk across the holding company and its two operating companies, and for reporting high risk areas to the boards of directors and designated board committees. As a result, all HEI directors, including those who serve on the Compensation Committee, are aware of the risks which could have a material adverse effect on HEI. The Board (through its Compensation Committee) has assessed these risks and, with advice of its independent compensation consultant, has established HEI's compensation policies and practices and the specific executive compensation program described in this Compensation Discussion and Analysis. The Board and the Compensation Committee have concluded that the executive compensation program does not encourage unnecessary or excessive risk-taking.
HEI's compensation policies and practices are designed to encourage executive management to maximize value for shareholders, while considering its key stakeholders, including customers, employees and regulators, and to discourage decisions that introduce risks that may have a material adverse effect on HEI. The executive compensation program is structured to pay for performance and align the executive officers' interests with shareholder interests, as well as encourage executives to focus on profitability, efficient use of capital, earnings growth and stock price appreciation in both the short and long terms. Because the executive officers are in a position to directly influence HEI's performance, compensation for executive officers involves a significant portion of pay that is "at risk" and tied directly to HEI performance—namely, the annual incentive bonus plan and the value of long-term equity-based incentives.
In structuring the incentive compensation plans and setting the particular goals, targets and metrics for awards under those plans, the Compensation Committee incorporates the following elements and practices to encourage consistent leadership and appropriate and prudent decision-making among the named executive officers in a manner that requires cooperation and execution without taking unnecessary or excessive risks:
The following are the primary objectives of HEI's compensation programs:
To meet the compensation objectives described above, the compensation for named executive officers includes the following elements:
Why does HEI choose to pay each element?
HEI uses peer company comparisons to determine the amount of each element of executive compensation. Peer companies are companies which, in the aggregate, are similar in business focus, financial scope and valuation, provide similar products and services and are sources for talented employees. Peer companies are selected by the Compensation Committee's independent compensation consultant and are reviewed by the Compensation Committee. The resulting peer companies are used as a reference in determining appropriate pay levels and mix of pay components.
Peer companies for HEI and its subsidiaries should reflect HEI's diverse businesses. HEI is a Hawaii-based holding company with a unique blend of two regulated operating subsidiaries, a bank and electric utilities. HEI supplies power to 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company and its subsidiaries, Hawaii Electric Light Company Inc. and Maui Electric Company,
Limited,Company, and provides a wide range of financial services to individuals and businesses through American Savings Bank, one of the state's largest financial institutions based on asset size. Among the objectives of the HEI compensation program are to provide differentiated reward strategies among HEI and its operating bank and utility subsidiaries to align with specific business needs and talent markets and to reward performance relative to strategic plans that support shareholder value.
With the assistance of its compensation consultant, the Compensation Committee targets total compensation and each component at the median of relevant peers. The actual awards are differentiated based upon the performance of HEI and its operating subsidiaries and the individual's contribution. At more senior levels in the organization, a greater emphasis is placed upon the performance-based incentives and the actual compensation received under these plans is determined by the results of HEI and the operating subsidiaries and increases in shareholder value. Above median incentives may be given to individual executives for superior performance.
Peer companies are comprised of companies that, in aggregate, are similar in business focus, financial scope and valuation, are product and service competitors, provide sources for talent, and are similar with respect to cost-of-labor and cost-of-living. The peers also include companies that compete for talent in the same geographic area. The resulting2009
In early 2009, Towers Watson conducted a peer companies are used as a reference in determining appropriate pay levels and mix of pay components.
Because HEI is a Hawaii-based holding company with a unique blend of two regulated operating subsidiaries, a bank and electric utilities, the peer groups for holding company and operating unit executives differ. Towers Perrin conducted its 2008 peergroup selection by considering companies within a range of one-half to two times the size, based on assets, of HEI, Hawaiian Electric Company or American Savings Bank, or Hawaiian Electric Company, eliminating companies that had three-year total shareholder returns that were significantly negative.
The following were the HEI peer group companies for Hawaiian Electric Company executives, Towers Perrin reviewed electric utilities and multi-utilities with $1.0 to $4.2 billion in revenues, 1,070 to 4,300 employees, and a return on average common equity greater than 5%. To screen peer companies for HEI executives, Towers Perrin reviewed electric utilities, multi-utilities, commercial banks, thrifts and mortgage finance companies with $1.25 to $5 billion in revenues, 1,700 to 7,040 employees, and a market cap of $1.0 to $4.2 billion. Not all peers met all of the criteria.2009:
Banking/Financial Services Peers | Utility Peers* | |
---|---|---|
Bank of Hawaii | Allegheny Energy | |
Central Pacific Financial | Alliant Energy | |
Citizens Republic Bancorp | Ameren | |
City National Bank | Entergy | |
CVB Financial | Great Plains Energy | |
F.N.B. | Mirant | |
Old National Bancorp | Northeast Utilities | |
Pacific Capital Bancorp | NSTAR | |
Park National | OGE Energy | |
Prosperity Bancshares | Pinnacle West Capital | |
SVB Financial Group | PNM Resources | |
Trustmark | Portland General Electric | |
Umpqua Holdings | PPL | |
Washington Federal | Puget Energy | |
Questar | ||
Sempra Energy | ||
Sierra Pacific Resources | ||
TECO Energy | ||
Vectren | ||
Wisconsin Energy |
The following are the American Saving Bank peer group companies:
The following arewere the Hawaiian Electric Company peer group companies:companies in 2009:
Utility Peers* | ||
---|---|---|
Allegheny Energy | Portland General Electric | |
Alliant Energy | PPL | |
Ameren | Puget Energy | |
Aquila | Questar | |
Avista | San Diego Gas & Electric | |
Entergy | Sierra Pacific Resources | |
Great Plains Energy | TECO Energy | |
Mirant | UIL Holdings | |
Northeast Utilities | UniSource Energy | |
NSTAR | Vectren | |
OGE Energy | Westar Energy | |
Pinnacle West Capital | Wisconsin Energy | |
PNM Resources |
The following arewere the HEIAmerican Savings Bank peer group companies:companies in 2009:
Banking/Financial | ||||
---|---|---|---|---|
Bank of Hawaii | Old National Bancorp | |||
Central Pacific Financial | Pacific Capital Bancorp | |||
Citizens Republic Bancorp | Park National | |||
City National Bank | Prosperity Bancshares | |||
CVB Financial | Sterling Bancshares | |||
First Financial Bankshares | SVB Financial Group | |||
F.N.B. | ||||
Frontier Financial | Umpqua Holdings | |||
Glacier Bancorp | Washington Federal | |||
NBT Bancorp | Westamerica Bancorporation |
Peer companies in 2010
As part of an enterprise-wide review of executive compensation in February 2010, Fred Cook & Co. conducted a peer group selection and compensation comparison in which the compensationsame utility peer data is reviewed in the next compensation assessment.
The following are the HEI and Hawaiian Electric Company peer group companies in 2010:
Utility Peers | ||
---|---|---|
Allegheny Energy | Pinnacle West Capital | |
Alliant Energy | PNM Resources | |
Great Plains Energy | Portland General Electric | |
Mirant | Questar | |
Northeast Utilities | TECO Energy | |
NSTAR | Vectren | |
NV Energy | Wisconsin Energy | |
OGE Energy |
The following are the American Savings Bank peer group companies in 2010:
Banking Peers | ||
---|---|---|
1st Source | Great Southern Bancorp | |
BancFirst | Hancock | |
Bank of Hawaii | IBERIABANK | |
Bank of the Ozarks | Independent Bank | |
City Holding Company | NBT Bancorp | |
Community Bank System | Oriental Financial Group | |
CVB Financial | Park National | |
Dime Community Bancshares | Prosperity Bancshares | |
First Financial Bankshares | Republic Bancorp | |
FirstMerit | United Bankshares | |
Flushing Financial | Westamerica Bancorporation | |
Glacier Bancorp |
With the assistance of its compensation consultant, the Compensation Committee reviews each compensation element.element to determine whether it fits into HEI's overall compensation objectives. The committee also requests that, at least annually, management prepare, and the consultant review, tally sheets on each executive officer to determine how each executive's elements of pay, such as base salary, annual incentives, benefits and long-term incentives, compared to executives in functionally comparable positions at peer companies. The Compensation Committee uses this information to consider whether any element should be reduced or increased or whether the mix of elements should be changed.
The Compensation Committee also reviewed internal equity amongstamong the top executivesnamed executive officers when developing pay recommendations. The Compensation Committee believes that the comparative compensation among the named executive officers is fair, considering job scope, experience, value to the organization and duties relative to the other named executive officers: Constance H. Lau holds multiple positions, as (i) President and Chief Executive Officer of HEI, (ii) Chairman of the Boards of Hawaiian Electric Company and American Savings Bank, and (iii) Chief Executive Officer of American Savings Bank. Her compensation reflects her leadership of a publicly traded mid-cap holding company and her responsibilities for guiding two diverse and regulated operating subsidiaries. Curtis Y. Harada, the HEI Vice President, Controller, and Chief Accounting Officer, was the certifying officer responsible for overseeing the financial performance of the holding company for eleven months of 2008. Chester A. Richardson is HEI Senior Vice President-General Counsel and Chief Administrative Officer and his compensation is commensurate with that role. The compensation of T. Michael May, former President and Chief Executive Officer of Hawaiian Electric Company who retired on December 31, 2008, and Timothy K. Schools, President of American Savings Bank, reflects their roles as heads of HEI's major operating subsidiaries.officers.
In April 2008, the Board evaluated Ms. Lau's performance for the prior year and the Compensation Committee recommended to the Board a salary increase taking into consideration the Board's evaluation. Also, in April 2008, Ms. Lau recommended to the Compensation CommitteeThe base salary increases for Mr. May, Mr. Harada, and Mr. Richardson. After considering these recommendations, the following salary increasessalaries for the named executive officers effective May 1, 2008,are set forth in the 2009 Summary Compensation Table below.
In February 2009, the named executive officers agreed to waive the merit increases, which were in the budget approved by the Board:
Name | % Base Salary Increase | $ Base Salary Increase | Base Salary, Effective May 1, 2008 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | 3.5 | % | $ | 25,800 | $ | 771,800 | ||||
Eric K. Yeaman (2) | — | — | 414,000 430,000 | (HEI) (HECO) | ||||||
Curtis Y. Harada (3) | 3.2 | % | 6,600 | 215,600 | ||||||
Chester A. Richardson (4) | 3.7 | % | 11,400 | 321,400 | ||||||
T. Michael May (5) | 3.0 | % | 17,900 | 615,900 | ||||||
Timothy K. Schools (6) | — | — | 550,000 |
Mr. Harada did not receive any salary adjustment in 2009, but did receive a bonus for the partial month that he served as HEI Controller and Acting Financial Vice President, Treasurer and Chief Financial Officer from February 1, 2008 to January 25, 2009. Mr. Harada receivedat a $15,000 monthly bonus for every month he served as Acting HEI Financial Vice President, Treasurer and Chief Financial Officer,rate of $15,000 while retaining his role and compensation as HEI Controller.Controller and Chief Accounting Officer. The bonus for Mr. Harada was based on the increased responsibilities in his new role. Having served 11 months in the role as Acting HEI Financial Vice President, Treasurer and Chief Financial Officer in 2008, his bonus in 2008 was $165,000 in addition to his annualized base salary of $215,600. On December 8, 2008, Mr. Harada was promoted to HEI Vice President, Controller and Chief Accounting Officer. Effective January 26, 2009, James A. Ajello joined HEI as Senior Financial Vice President, Treasurer and Chief Financial Officer.
Base salaries for the named executive officers, excluding salary adjustments for executives who assume additional responsibilities as has Mr. Richardson, will be frozen inHEI until January 25, 2009. The salary structure (cost of living adjustments to the executive salary grades) will also be frozen in 2009.
HEI's annual incentive plan is otherwise known as the Executive Incentive Compensation Plan (EICP).Plan. The following were the award ranges, shown as a percentage of theannual base salary, midpoint (the middle salary level in a salary range for a particular job grade or position), that the Compensation Committee approved in February 2009 for the 20082009 annual incentive plan:
Name | Minimum | Target | Maximum | 2008 salary midpoint | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 42.5 | % | 85 | % | 170 | % | $ | 776,000 | |||||
Eric K. Yeaman (1) | 25.0 | % | 50 | % | 100 | % | 405,000 441,000 | (HEI) (HECO) | |||||
Curtis Y. Harada | 20.0 | % | 40 | % | 80 | % | 213,000 | ||||||
Chester A. Richardson | 22.5 | % | 45 | % | 90 | % | 334,000 | ||||||
T. Michael May | 30.0 | % | 60 | % | 120 | % | 581,000 | ||||||
Timothy K. Schools (2) | 30.0 | % | 60 | % | 120 | % | 468,000 532,000 | (COO) (President) |
In March 2008, the Compensation Committee set the following minimum financial thresholds that had to be met in order for the 2008 annual incentive awards to be paid:
* Unless otherwise specified throughout this proxy statement, a reference to utility goals means utility consolidated goals, which include Hawaiian Electric Company and its subsidiaries Maui Electric Company, Limited and Hawaii Electric Light Company, Inc.
In setting these award levels, the Compensation Committee recognized that adjustments would be appropriate in measuring whether these thresholds, as well as specific individual thresholds set for the named executive officers and others, had been met in the event that American Savings Bank implemented the restructuring of its balance sheet that was then under consideration. The restructuring, while beneficial to both the bank and HEI, was expected to entail an adverse impact on 2008 earnings, significantly downsize the assets of the bank, and also reduce the bank's equity, making possible a return of capital to HEI.
At its meeting on February 20, 2009, the Compensation Committee considered the effects of American Savings Bank's balance sheet restructuring, which was substantially completed in June of 2008, in its determination of annual incentive awards for 2008 performance. The restructuring was successful in that it allowed the bank to reduce the size of its balance sheet by approximately $1.1 billion, while enabling it to maintain its earnings power on a lower capital base. This allowed American Savings Bank to return $54.7 million of capital to HEI, which was used in part to pay down HEI's short-term borrowings. However, to achieve these benefits, American Savings Bank recognized an after-tax loss of $11.6 million on the sale of $1.3 billion of mortgage related securities and incurred an after-tax loss of $24 million on the early repayment of $1.2 billion of interest bearing liabilities, for a total charge of $35.6 million after-tax to 2008 earnings at American Savings Bank and HEI.
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 42.5 | % | 85 | % | 170 | % | ||||
James A. Ajello | 25.0 | % | 50 | % | 100 | % | ||||
Curtis Y. Harada | 20.0 | % | 40 | % | 80 | % | ||||
Chester A. Richardson | 25.0 | % | 50 | % | 100 | % | ||||
Richard M. Rosenblum | 30.0 | % | 60 | % | 120 | % | ||||
Timothy K. Schools | 40.0 | % | 80 | % | 160 | % |
The Compensation Committee determined, consistent with its March 2008 determination, that the $35.6 million charge to earnings resulting from the balance sheet restructuring should be excluded to arrive at adjusted earnings for 2008 to be used in determining whether the overall and individual thresholds had been met for 2008. Excluding this charge, HEI's adjusted earnings for 2008 were $125.9 million and ASB's adjusted earnings were $53.4 million. Using these adjusted net income figures for purposes of determining whether thresholds were met, HEI's adjusted earnings per share were $1.49 and American Savings Bank's return on assets (one of the individual metrics described below) was 0.875%. These results exceeded the corresponding general and individual HEI and American Savings Bank thresholds, as shown in the table below.
In addition to the minimum thresholds on the respective company annual incentive programs, the Compensation Committee established minimum thresholds for each of the financial and other operational goals designed to align management decisions with shareholder value. The following table below lists the named executive officer performance metrics, weightings, minimum thresholds and target goals, actual/adjusted results achieved, and payouts for the 2008 annual incentive compensation plan:
Name | Weight | Performance Metric | Minimum Threshold (1) | Target Goal | Actual/Adjusted Results | Award | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 40 | % | HEI Earnings Per Share | $1.26 per share | $1.47 per share | $1.49 per share (2) | $ 290,224 | ||||||
30 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 395,760 | |||||||
30 | % | Bank Return on Assets | — | 0.693% | 0.875% (2) | 395,760 | |||||||
100 | % | $1,081,744 | |||||||||||
Eric K. Yeaman | 35 | % | Utility Net Income | $90.2 million | $100.2 million | — | |||||||
35 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | — | ||||||||
10 | % | Preferred Energy Future | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget | — | ||||||||
10 | % | Expand Renewable Generation | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget | — | ||||||||
10 | % | Execute Regulatory Strategy | Implement by August 2008 | Implement by July 2008 | — | ||||||||
100 | % | — | |||||||||||
Name | Weight | Performance Metric | Minimum Threshold (1) | Target Goal | Actual/Adjusted Results | Award | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Curtis Y. Harada | 40 | % | HEI Earnings Per Share | $1.26 per share | $1.47 per share | $1.49 per share (2) | $ 37,488 | ||||||
30 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 51,120 | |||||||
30 | % | Bank Return on Assets | — | 0.693% | 0.875% (2) | 51,120 | |||||||
100 | % | $ 139,728 | |||||||||||
Chester A. Richardson | 40 | % | HEI Earnings Per Share | $1.26 per share | $1.47 per share | $1.49 per share (2) | $ 66,132 | ||||||
30 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 90,180 | |||||||
30 | % | Bank Return on Assets | — | 0.693% | 0.875% (2) | 90,180 | |||||||
100 | % | $ 246,492 | |||||||||||
T. Michael May | 35 | % | Utility Net Income | $90.2 million | $100.2 million | $92.0 million | $ 71,833 | ||||||
35 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 244,020 | |||||||
10 | % | Preferred Energy Future | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget | Not met | 0 | |||||||
10 | % | Expand Renewable Generation | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget | Achieved at target | 34,860 | |||||||
10 | % | Execute Regulatory Strategy | Implement by August 2008 | Implement by July 2008 | Achieved at target | 34,860 | |||||||
100 | % | $385,573 | |||||||||||
Name | Weight | Performance Metric | Minimum Threshold (1) | Target Goal | Actual/Adjusted Results | Award | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Timothy K. Schools | 35 | % | Bank Net Income | — | $48.1 million | $53.4 million (2) | $221,340 | ||||||
35 | % | Bank Return on Assets | — | 0.693% | 0.875% (2) | 221,340 | |||||||
10 | % | Achieve regulatory compliance | — | Meet or exceed standards of well-managed peers | Achieved Maximum results | 63,240 | |||||||
7.5 | % | Consumer Average Loan Balance (including home equity loans and excluding education loans growth) | $11.5 million | $12.8 million | $36.9 million | 47,430 | |||||||
7.5 | % | Business banking average loan balance growth | $2.9 million | $3.2 million | $5.8 million | 47,430 | |||||||
5 | % | Successfully improve Consumer/Business Banking Processing turn time | Meet minimum goal | Meet assigned goal | Achieved Maximum results | 31,620 | |||||||
100 | % | $632,400 | |||||||||||
The abovemaximum goals were set by the Compensation Committee and approved by the Board in 2008 because they were believed to provide the necessary incentives to align executive compensation with shareholder value. Each target goal was based on the budget. The minimum performance reflected what the Compensation Committee believed to be investors' minimum expectations relative to other investment opportunities and the maximum goal provided greater upside potential for out-performance stretch goals. Each goal was aligned with HEI's or the operating company's strategic plan and determined by the Compensation Committee to be sufficiently difficult to be worthy of a bonus.
The HEI executives had the heaviest weighting on earnings per share, which is a general measure of public company performance. The other two measures for HEI executives, utility free cash flow and bank return on assets, are operating measures of subsidiary financial success, which drives HEI performance. Excluding the impact of the bank's previously-disclosed balance sheet restructuring charge of $35.6 million or 42 cents per share, adjusted 2008 earnings at HEI were $125.9 million or $1.49 earnings per share, which was above the target goal. HEI's focus on improved operating performance and financial flexibility helped HEI to continue to post improved results in a year of unprecedented corporate failures, depressed economic conditions, frozen credit markets and a volatile equity market. HEI initiated strategic initiatives during 2008 at both its operating businesses and realized the benefits from those initiatives. Hawaiian Electric Company achieved a negative $17.1 million in utility free cash flow, which was above the maximum goal. The utility free cash flow for 2008 was due to higher net cash from operating activities resulting from lower than budgeted fuel oil costs, as well as scheduling of major capital projects. American Savings Bank also achieved a return on assets of 0.875%, excluding the restructuring charge to net income, which was above the maximum goal. American Savings Bank's
balance sheet restructuring reduced the size of the bank's balance sheet by approximately $1.1 billion, while enabling the bank to maintain its earnings power on a lower capital base. The bank was able to maintain its core earnings in the face of a very challenging economic environment. The balance sheet restructuring positioned the bank to deal with the challenges ahead by improving its profitability measures, capital position and liquidity, while enabling the bank to dividend excess capital to HEI. In addition, the bank's efforts on improving efficiency helped buffer financial performance from deteriorating market conditions. Consequently, at its meeting on February 20, 2009, the Compensation Committee awarded Ms. Lau $1,081,744, Mr. Harada $139,728, and Mr. Richardson $246,492 in annual incentives.
Mr. May's goals were focused on the utility. The two heaviest weightings for Mr. May's annual bonus were on utility net income and free cash flow, which were the key drivers of the utility's financial success in 2008; his other goals, based on facilitation of a preferred energy future to expand renewable generation and the execution of a regulatory strategy, were to reward successful execution of operational strategies. The preferred energy future goal involved Hawaiian Electric Company's progress on renewable fuels, such as biodiesel. In order for this goal to be achieved at the target level, Hawaiian Electric Company was required to successfully reach project milestones and submit all required filings with the Hawaii Public Utilities Commission for these activities. The expand renewable generation goal included activities to develop a comprehensive plan and assess strategies that would increase the utility's resources of renewable energy. In order for this goal to be achieved at the target level, Hawaiian Electric Company was required to issue a 100 megawatt renewable energy request for proposal, complete a wind integration study, and perform an assessment of wind integration mitigation strategies. The regulatory strategy execution goal involved the timely execution of Hawaiian Electric Company's rate case filing with the Hawaii Public Utilities Commission to support the financial health of the utility as it makes critical investments in infrastructure to support reliable service for customers and prepares for increased renewable energy production. Because the utility met its goals for net income and free cash flow, its expand renewable generation goal and its regulatory strategy goal, the Compensation Committee at its meeting on February 20, 2009, awarded Mr. May $385,573 in annual incentives.
The Compensation Committee approved the terms of a letter agreement entered into on June 13, 2008, in which Hawaiian Electric Company agreed that if the incentive award for 2008 performance under the annual incentive compensation plan was less than the amount Mr. May would receive if his 2008 goals were achieved at his target levels, then Hawaiian Electric Company would make up that shortfall with an additional payment to Mr. May, in consideration of Mr. May's many years of service with the utility. Because Mr. May's actual annual incentive bonus for 2008 of $385,573 was greater than his potential target bonus of $348,600, no additional discretionary bonus was required to be paid by Hawaiian Electric Company to Mr. May.
Mr. Schools' goals were focused on American Savings Bank. The two heaviest weightings for Mr. Schools' annual incentive were on bank net income and return on assets, which were the key drivers of the bank's financial success in 2008; his other goals were based on bank operational strategies to strengthen regulatory compliance, improve consumer average loan balances, encourage business banking average loan balance growth and successfully improve consumer/business banking turnover time. American Savings Bank had at or above maximum performance for each of Mr. Schools' goals in 2008. Consequently, at its meeting on February 20, 2009, the Compensation Committee awarded Mr. Schools $632,400 in annual incentives.
The 2008 grants of annual incentive awards specific to the named executive officers are summarized in the 2008 Grants of Plan-Based Awards and related notes on page 47.
The Compensation Committee substantially revamped HEI's 2009 annual executive incentive compensation plan as a result of Towers Perrin's executive compensation review of practices at peer companies and to provide a competitive program that aligns with current company strategies. The 2009 annual executive incentive compensation plan provides greater emphasis on differentiated reward strategies by company/business unit. The program will encourage HEI executives to focus on results that drive consolidated shareholder value rather than roll-up subsidiary results; encourage American Savings Bank executives to focus on performance improvement; and encourage Hawaiian Electric Company executives to focus on successful rate relief, the Hawaii Clean Energy Initiative and other utility metrics. In 2008, there was a minimum threshold for the entire annual incentive plan in order for awards to be made under the plan, as well as minimum thresholds for applicable metrics. In 2009, each metric will have its own threshold and there will not be an overall plan threshold.
The Committee decided to simplify the program to drive greater understanding of performance measurement and plans. HEI executive goals are limited to two corporate financial measures to maintain focus of the holding company executives on these key metrics. On February 20, 2009, the Compensation Committee established the following performance metrics for the following named executive officers for the 2009 annual incentive plan:
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | |||||
---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada | 60 | % | HEI Return on Average Common Equity | 7.1% | 7.9% | ||||
Chester A. Richardson | 40 | % | HEI Net Income | $101.5 million | $112.8 million | ||||
100 | % | ||||||||
Timothy K. Schools | 100 | % | Bank Return on Assets | 0.85% | 0.95% |
There are no 2009compensation plan. Unless otherwise specified throughout this Proxy Statement, a reference to utility goals for Mr. May, who retired on December 31, 2008, or for Mr. Yeaman, whose resignation was effective on June 12, 2008. Mr. Ajellomeans consolidated goals of the utilities, which include Hawaiian Electric Company and Mr. Rosenblum are also participants in the 2009 annual incentive plan.
HEI has return on average common equityits subsidiaries, Maui Electric Company and net income as its annual incentive compensation goals in 2009 because these are basic measures of financial success at HEI and for its shareholders. American Savings Bank is using a single profitability measure of return on assets in 2009, consistent with the need for the bank to focus on efficient use of assets to generate satisfactory returns. Traditionally, banks have measured returns relative to assets as a primary profitability measure. Banks make loans and take in deposits and the difference between the interest income received on loans, interest expense paid on deposits, less credit and other expenses, is their profit. Since most income is from the balance sheet, the balance sheet is an appropriate benchmark to use in comparing profitability from different banks or different business lines within a bank. Return on assets (net income divided by total average assets) is a simple and widely used benchmark.Hawaii Electric Light Company.
In setting Mr. Schools' goals, the Compensation Committee determined to exclude one-time charges such as severance and lease buyouts in light of American Savings Bank's aggressive performance improvement project to reduce its cost structure and improve its efficiency, profitability and go-forward earnings. In addition, in light of the recent unprecedented volatility, illiquidity, uncertainty and unusually low asset valuations in the capital markets and in the banking industry, the Committeecommittee excluded the impact of other-than-temporary impairment charges and goodwill impairment charges and related impacts. The Committee,committee, however, retained the discretion to reduce any such award if the resulting payout iswas not in the best interest of American Savings BankHEI and exclude any gain from the sale of securities for which other-than-temporary impairment is excluded in any current or future bonus calculations.its shareholders. In setting HEI executives' goals for the Committeeother named executive officers, the committee also determined that any adjustments made at American
made at American Savings Bank and Hawaiian Electric Company would also be applied for purposes of calculating HEI metrics.
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Curtis Y. Harada | 60 | % | HEI Return on Average Common Equity | 7.1% | 7.9% | 8.7% | |||||
Chester A. Richardson | 40 | % | HEI Net Income | $101.5 million | $112.8 million | $124.1 million | |||||
100 | % | ||||||||||
Richard M. Rosenblum | 30 | % | HEI Net Income | $101.5 million | $112.8 million | $124.1 million | |||||
20 | % | HEI Return on Average Common Equity | 7.1% | 7.9% | 8.7% | ||||||
20 | % | Utility Net Income | $76.1 million | $84.5 million | $93.0 million | ||||||
10 | % | Utility Safety (Total Cases Incident Rate) | 4.65 | 4.25 | 3.88 | ||||||
10 | % | Hawaii Clean Energy Initiatives (HCEI) (including Big Wind) | Meet minimum project milestones | Meet target project milestones | Meet maximum project milestones | ||||||
10 | % | HECO Customer Satisfaction | 76.6% | 78.2% | 82.0% | ||||||
100 | % | ||||||||||
Timothy K. Schools | 100 | % | Bank Return on Assets | 0.850% | 0.950% | 1.050% |
The proposed 2009 annual award will be determined as a percentage of base salary, instead of salary midpoint, which allows for awards to better reflect individual contribution. At its meeting on February 20, 2009,above goals were set by the Compensation Committee and approved by the following award rangesBoard in 2009 because they were believed to provide the necessary incentives to properly align executive compensation with shareholder value. HEI's goals of net income and return on average common equity are determined on a consolidated basis, and are thus impacted by the results from the bank and utility operating subsidiaries.
Given the deterioration in the mainland housing market in 2009, and with further declines in the value of its private-issue mortgage-related securities expected, American Savings Bank sold $225 million of those securities in the fourth quarter of 2009 for a realized loss of $19.3 million net of tax. In determining the named executive officers, shown2009 annual incentive (and 2007-2009 long-term incentive) plan awards, the Compensation Committee viewed the loss resulting from the sale as a percentagethe equivalent of salary,the acceleration of future other-than-temporary impairment losses, which were an allowed authorized exclusion set by the Compensation Committee in establishing the goals and metrics for the 2009 annual incentive plan:plan in February 2009. The Compensation Committee, taking into account HEI's financial strategy (including the focus on improving the fundamental earnings power of its subsidiaries), thus concluded that the realized loss from the sale of those securities should be excluded for purposes of determining whether the 2009 compensation measures had been achieved.
Name | Minimum | Target | Maximum | 2009 estimated salary | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 42.5 | % | 85 | % | 170 | % | $ | 771,800 | |||||
Curtis Y. Harada | 20 | % | 40 | % | 80 | % | 215,600 | ||||||
Chester A. Richardson (1) | 25 | % | 50 | % | 100 | % | 344,400 | ||||||
Timothy K. Schools | 40 | % | 80 | % | 160 | % | 550,000 |
HEI's adjusted net income, after excluding from HEI consolidated net income the bank's realized loss from the sale of the private-issue mortgage-related securities ($19.3 million net of tax) and other approved exclusions ($12.6 million net of tax) for other-than-temporary impairment losses, lease buyouts and severance costs, was $114.9 million, which exceeds the 2009 target income of $112.8 million, and its adjusted return on common equity was 8.0%, which exceeds the 2009 target of 7.1%. As a result of the $31.9 million in exclusions, named executive officers Ms. Lau and Messrs. Ajello, Harada and Richardson received awards between the target and maximum level. Without the exclusion for the losses from the sale of private-issue mortgage-related securities, the HEI return on common equity and HEI net income goals would have been below minimum level. Ms. Lau voluntarily waived payment of the annual 2009 bonus to align with shareholders and help the company transition under the dividend earn-out strategy toward improved long-term fundamental performance and generation of shareholder value. Mr. Richardson'sRosenblum's bonus was impacted in part by the exclusions because half of his goals were based on HEI goals, with the other half being based on utility goals.
After excluding the bank's realized loss from the sale of the private-issue mortgage-related securities and other approved exclusions from earnings, the bank's return on assets was 1.05%, which was at the maximum level for that performance metric. While the Compensation Committee concluded that it was appropriate to recognize the hard work performed in 2009 by American Savings Bank executives in pursuing the bank's aggressive performance improvement project, it also weighed the fact that, without excluding the realized securities losses, the bank's return on assets would be at a level below the minimum threshold for an annual incentive award. Accordingly, rather than allowing executives of American Savings Bank to achieve the maximum bonus level under the 2009 annual incentive award, if any, will be proratedplan based on two monthsall the exclusions, the Compensation Committee exercised its discretion under the Plan to reduce the awards to the level of awards payable for performance at his HEI Vice President-General Counsel salary120% of target, which was approximately the level of achievement that would have been reflected in HEI's results if the exclusions were taken into account. As a result of this analysis, Mr. Schools received an award based on performance at a level between the target and 10 monthsmaximum levels, instead of at his HEI Senior Vice President-General Counselthe maximum level.
In 2009, the utility met the following annual incentive goals:
future of increasing renewable energy. In 2009, Hawaiian Electric Company met its Big Wind/Renewables Integration project milestone at the target level.
As a result of achieving these goals, the following 2009 annual incentive awards were paid to the named executive officers in February 2010:
Name | Payout | |||
---|---|---|---|---|
Constance H. Lau | $ | 0 | * | |
James A. Ajello | $ | 223,889 | ||
Curtis Y. Harada | $ | 99,119 | ||
Chester A. Richardson | $ | 197,916 | ||
Richard M. Rosenblum | $ | 322,289 | ||
Timothy K. Schools | $ | 528,000 |
* Ms. Lau voluntarily waived her $753,999 payout and did not receive any annual incentive award payment for 2009.
What was HEI's 2006-20082007-2009 long-term incentive plan and were there any payouts under this plan?
HEI's three-year performance incentive plan is otherwise known as the Long-Term Incentive Plan (LTIP).and provides awards measured over rolling three-year performance periods. In 2006,2007, the Compensation Committee approved the following award ranges, shown as a percentage of the salary midpoint (the middle salary level in a salary range for the 2006-2008 long-term incentive plana particular job grade or position), for the following individuals who are currently HEI named executive officers:
Name | Minimum | Target | Maximum | 2008 salary midpoint | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | 65 | % | 130 | % | 260 | % | $ | 641,000 776,000 | (ASB) (HEI) | ||||
Eric K. Yeaman (2) | 30 | % | 60 | % | 130 | % | 405,000 441,000 | (HEI) (HECO) | |||||
Curtis Y. Harada | 20 | % | 40 | % | 80 | % | 213,000 | ||||||
T. Michael May | 40 | % | 80 | % | 170 | % | 581,000 |
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 65 | % | 130 | % | 260 | % | ||||
Curtis Y. Harada | 20 | % | 40 | % | 80 | % |
Messrs. Ajello, Richardson, Rosenblum and Chief Executive Officer grade and 32 months at her HEI President and Chief Executive Officer grade.
Mr. Richardson and Mr. Schools did not participate in the 2006-2008 long term2007-2009 long-term incentive plan because they became employed by Hawaiian Electric Industries and American Savings Bank, respectively, midway throughat their respective companies after the start of this performance period.
Based on the Compensation Committee's view that achievement of these goals would enhance shareholder value during this performance period, HEI executives had three long-term goals: a total shareholder return goal based on performance at HEI, a return on average common equity goal at
American Savings Bank, The table below shows the performance metrics, weightings, minimum threshold and a return on average common equity goal at Hawaiian Electric Company (consolidated). Mr. May had a Total Shareholder Return goal, but with a lesser weighting than HEI holding company executives, since his primary focus was on improving utility financial metrics, such as utility return on average common equitytarget and average annual utility net income.
After threemaximum goals for the 2007-2009 long-term incentive performance periods (2003-2005, 2004-2006, 2005-2007) where no HEI (holding company) long-term incentive goals were achieved and no HEI long-term incentive awards were paid to HEIplan. The executives (long-term incentive awards were paid to subsidiary executives forlisted below shared the achievement of subsidiary goals during these performance periods), HEI executives received a long-term incentive award for the 2006-2008 performance period. The long-term incentive award for this performance period was paid out 60% in cash and 40% in HEI Common Stock based on the stock value as of the time of the award. The stock component aligns executives' interests with shareholders.same goals.
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Actual Results | Payout | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 40 | % | Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 38.5th percentile of the Edison Electric Institute Index (1), (2) | $ | 281,951 | |||||||
30 | % | Bank Return on Average Common Equity | 10.39% | 11.23% | 9.89% (3) | — | |||||||||
30 | % | Utility Return on Average Common Equity | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 12th percentile of the Edison Electric Institute Index (1), (2) | — | |||||||||
100 | % | $ | 281,951 | ||||||||||||
Eric K. Yeaman | 40 | % | Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 38.5th percentile of the Edison Electric Institute Index (1), (2) | — | ||||||||
30 | % | Bank Return on Average Common Equity | 10.39% | 11.23% | 9.89% (3) | — | |||||||||
30 | % | Utility Return on Average Common Equity | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 12th percentile of the Edison Electric Institute Index (1), (2) | — | |||||||||
100 | % | — | |||||||||||||
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Actual Results | Payout | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Curtis Y. Harada | 40 | % | Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 38.5th percentile of the Edison Electric Institute Index (1), (2) | $ | 24,282 | |||||||
30 | % | Bank Return on Average Common Equity | 10.39% | 11.23% | 9.89% (3) | — | |||||||||
30 | % | Utility Return on Average Common Equity | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 12th percentile of the Edison Electric Institute Index (1), (2) | — | |||||||||
100 | % | $ | 24,282 | ||||||||||||
T. Michael May | 40 | % | Utility Return on Average Common Equity | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 12th percentile of the Edison Electric Institute Index (1), (2) | — | ||||||||
40 | % | Utility Net Income | $89.465 million | $99.405 million | $73.0 million | — | |||||||||
20 | % | Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 38.5th percentile of the Edison Electric Institute Index (1), (2) | 66,234 | |||||||||
100 | % | $ | 66,234 | ||||||||||||
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada | 40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 70th percentile of the Edison Electric Institute Index (1) | |||||
15 | % | Utility Modified Free Cash Flow | $28.852 million | $32.058 million | $35.263 million | ||||||
15 | % | Utility Return on Average Common Equity | 80% of consolidated allowed return on equity | 90% of consolidated allowed return on equity | 100% of consolidated allowed return on equity | ||||||
15 | % | Bank Net Income | $58.371 million | $64.856 million | $71.342 million | ||||||
15 | % | Bank Return on Assets | 0.862% | 0.958% | 1.054% | ||||||
100 | % | ||||||||||
andbased on total return to shareholders. In 2008,2009, the following companies were in the three-year Edison Electric Institute Index:
Allegheny Energy Alliant Energy Ameren American Electric Power Avista Black Hills Centerpoint Energy Central Vermont Public Service CH Energy CLECO CMS Energy Consolidated Edison Constellation Energy Group Dominion DPL DTE Energy Duke Energy | Edison International El Paso Electric | The Empire District Electric Entergy Exelon First Energy FPL Group Great Plains Energy Hawaiian Electric Industries Integrys Energy Group Maine and Maritimes MDU Resources Group MGE Energy Northeast Utilities NSTAR NV Energy OGE Energy Otter Tail Pepco Holdings | PG&E Pinnacle West Capital PNM Resources Portland General Electric PPL Progress Energy Public Service Enterprise Group Scana Sempra Energy Southern TECO Energy UIL Holdings UniSource Energy Unitil Vectren Westar Energy Wisconsin Energy Xcel Energy | |||
The above goals were set by the Compensation Committee and approved by the Board in 20062007, because they were believed to provide the necessary incentives to align executive compensation with shareholder value. The minimum performance levels reflected what the Compensation Committee believed to be investors' minimum expectations relative to other investment opportunities and the maximum goal provided greater upside potential for out-performanceperformance stretch goals. Each goal was aligned with HEI's or the operating company's strategic plan and determined by the Compensation Committee to be sufficiently difficult to be worthy of a bonus.
The only goalgoals met in the 2006-20082007-2009 long-term performanceincentive plan waswere the minimum goal for HEI Total Return to Shareholders. Consequently, at its meetingShareholders, which was in the 35th percentile for this period, and the American Savings Bank Return on Assets, which slightly exceeded the minimum goal. The American Savings Bank Return on Assets was 0.875% after allowed exclusions. A better Total Return to Shareholders and increased American Savings Bank Return on Assets benefits shareholders of HEI, employees and customers by increasing the overall financial strength of the HEI enterprise. Because of the achievement of these goals, in February 20, 2009,2010, the HEI Compensation Committee awarded Ms. Lau $281,951, Mr. Harada $24,282, and Mr. May $66,234approved the following long-term incentive awards under the 2007-2009 long-term incentive plan for the named executive officers who were in long-term incentives,the plan, payable 60% in cash and 40% in shares of HEI Common Stock.Stock based on the market value of the stock as of the time of the approval of the award:
Name | Payout | |||
---|---|---|---|---|
Constance H. Lau | $ | 338,106 | ||
Curtis Y. Harada | $ | 28,555 |
What is In February 2010, Fred Cook & Co. found that HEI's 2007-2009total target direct compensation (target annual cash plus 2009 long-term incentive plan?
awards) is at the 25th percentile for the named executive officers.
HEI's 2007-2009 long-term incentive plan was explained in its 2007 proxy statement.
InHEI's 2008-2010 long-term incentive plan was explained in the proxy statement for HEI's 2008 annual meeting of shareholders.
The Compensation Committee modified the design of the long-term incentive plan from the 2008-2010 performance period for the 2009-2011 performance period based on company strategy and recommendations of Towers Watson after its executive compensation review. Except for Mr. Schools, the 2009-2011 long-term incentive plan generally will be paid 60% in cash and 40% in shares of HEI Common Stock with a value determined at the beginning of the performance period, instead of at the time of the payment of the award. By determining share award levels as of the beginning of the performance period, the awards under the plan have a stronger linkage to improvements in shareholder value. Mr. Schools' 2009-2011 long-term incentive award will be granted in cash to link his incentive compensation solely with the performance of the bank.
At its meeting on February 2008,20, 2009, the Compensation Committee approved the following long-term incentive award levelsgoals for the 2008-20102009-2011 long-term incentive plan performance period for each of the participating named executive officers if the following incentive performance goals for that period are met:officers:
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | |||||
---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada Chester A. Richardson | 40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | ||||
15 | % | Utility Free Cash Flow | ($24.1 million) | ($13.0 million) | |||||
15 | % | Utility Ratemaking Return on Average Common Equity vs. Allowed Return | 90% of consolidated allowed rate of return on equity less 50 basis points | 95% of consolidated allowed rate of return on equity less 50 basis points | |||||
15 | % | Bank Net Income | $55.277 million | $57.053 million | |||||
15 | % | Bank Return on Assets | 0.789% | 0.816% | |||||
100 | % | ||||||||
T. Michael May Eric K. Yeaman | 50 | % | Utility Free Cash Flow | ($24.1 million) | ($13.0 million) | ||||
30 | % | Utility Ratemaking Return on Average Common Equity vs. Allowed Return | 90% of consolidated allowed rate of return on equity less 50 basis points | 95% of consolidated allowed rate of return on equity less 50 basis points | |||||
20 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | |||||
100 | % | ||||||||
Timothy K. Schools | 40 | % | Bank Net Income | $55.277 million | $57.053 million | ||||
30 | % | Bank Return on Assets | 0.789% | 0.816% | |||||
30 | % | Bank Efficiency Ratio | 65.47% | 64.83% | |||||
100 | % | ||||||||
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Curtis Y. Harada Chester A. Richardson | 60 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 70th percentile of the Edison Electric Institute Index | |||||
40 | % | HEI Return on Average Common Equity | 9.1% | 10.1% | 11.1% | ||||||
100 | % | ||||||||||
Richard M. Rosenblum | 60 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 70th percentile of the Edison Electric Institute Index | |||||
20 | % | HEI Return on Average Common Equity | 9.1% | 10.1% | 11.1% | ||||||
20 | % | Utility Return on Average Common Equity | 90% of consolidated allowed return on equity | 95% of consolidated allowed return on equity | 100% of consolidated allowed return on equity | ||||||
100 | % | ||||||||||
Timothy K. Schools | 70 | % | Bank Return on Assets | 1.0% | 1.1% | 1.2% | |||||
30 | % | Bank Net Income | $51-54 million | $56-59 million | $61-65 million | ||||||
100 | % | ||||||||||
The metrics used in this programCompensation Committee chose the above goals to encourage long-term achievement of HEI earnings and enhancement of shareholder value. Shareholders, customers and employees all benefit when these goals are met.
Noninterest Expense (excluding amortization of intangible assets)Net interest income + noninterest income
The Committee also determinedassuring that the financial impacts (gain and/or loss), if any,utility can attract capital at a reasonable cost to keep the cost of restructuring American Savings Bank's balance sheet in order to return capital to HEI (e.g., sale of investment securities, extinguishment of wholesale funding, sale of merchant services divisions) shall be excluded in calculating net income and return on assetsreasonable for purposes of determining performance under the 2008-2010 long-term incentive plan.
The following are the award levels for these incentives:
Name | Minimum | Target | Maximum | Super Maximum | 2010 projected salary midpoint of position grade (5) | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 65 | % | 130 | % | 260 | % | — | $ | 815,000 | |||||||||
Eric K. Yeaman (1) | 30 | % | 60 | % | 130 | % | — | 426,000 463,000 | (HEI) (HECO) | |||||||||
Curtis Y. Harada | 20 | % | 40 | % | 80 | % | — | 224,000 | ||||||||||
Chester A. Richardson (2) | 30 | % | 60 | % | 120 | % | — | 351,000 | ||||||||||
T. Michael May (3) | 40 | % | 80 | % | 170 | % | — | 581,000 | ||||||||||
Timothy K. Schools (4) | 40 | % | 80 | % | 100 | % | 175 | % | 482,000 559,000 | (COO) (President) |
In addition to the minimum, target and maximum levels, the American Savings Bank 2008-2010 long-term incentive plan has a fourth level, a super maximum level. Mr. Schools' estimated future payout under level four would be $974,507. This added level was done for this performance period to focus Mr. Schools and the other American Savings Bank executives on achieving the highest established goals, namely $68 million net income (a 42% increase over 2008 budget), 1.0% return on assets (26 basis points increase over 2008 budget), and a 61% efficiency ratio (832 basis point increase over 2008 budget). This fourth level was established for American Savings Bank executives in recognition for the extraordinary work that needs to be achieved by the bank in a short period to improve its performance.
In addition to the basic long-term incentive plan, the Compensation Committee also approved supplemental long-term incentive award levels for the 2008-2010 period for each named executive officer so that HEI's long-term incentive program would be even more performance-based. Rather than providing restricted stock awards at the levels given in 2007, the Committee reduced the restricted stock awards given to the named executive officers and provided an additional supplemental long-term incentive opportunity, using the same goals, metrics, and exclusion as in the 2008-2010 long-term incentive plan. Payment of any awards that may be made under this supplemental 2008-2010 long-term incentive program will be paid in a combination of 50% cash and 50% stock (versus 60% cash and
40% stock for the basic long-term incentive plan) to promote greater stock ownership and alignment with shareholder interests. The following are the award levels for these supplemental incentives:
Name | Minimum | Target | Maximum | 2010 projected salary midpoint of position grade (5) | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 13.5 | % | 27.0 | % | 54.0 | % | $ | 815,000 | |||||||
Eric K. Yeaman (1) | 7.5 | % | 15.0 | % | 32.5 | % | 426,000 463,000 | (HEI) (HECO) | |||||||
Curtis Y. Harada | 6.5 | % | 10.0 | % | 20.0 | % | 224,000 | ||||||||
Chester A. Richardson (2) | 6.5 | % | 10.0 | % | 20.0 | % | 351,000 | ||||||||
T. Michael May (3) | 9.0 | % | 18.0 | % | 38.0 | % | 581,000 | ||||||||
Timothy K. Schools (4) | 10.0 | % | 20.0 | % | 42.0 | % | 482,000 559,000 | (COO) (President) |
The 2008-2010 grant of long term incentive and supplemental long term incentive awards specific to the named executive officers are summarized in the 2008 Grants of Plan-Based Awards and related notes on page 47.
The Compensation Committee substantially modified the long-term incentive program for 2009-2011 based on company strategy and recommendations of Towers Perrin after its executive compensation review. The 2009-2011 long-term incentive plan generally will be paid 60% in cash and 40% in stock units with a value determined at the beginning of the performance period. By determining share award levels as of the beginning of the performance period, the awards under the plan have a stronger linkage to improvements in shareholder value. Any award for Mr. Schools, as President of American Savings Bank, will be granted in cash to align his incentive compensation solely with the performance of the bank.
At its meeting on February 20, 2009, the Compensation Committee approved the following long-term incentive performance metrics for the 2009-2011 period for each of the named executive officers:
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | |||||
---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada Chester A. Richardson | 60 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | ||||
40 | % | HEI Return on Average Common Equity | 9.1% | 10.1% | |||||
100 | % | ||||||||
Timothy K. Schools | 70 | % | Bank Return on Assets | 1.0% | 1.1% | ||||
30 | % | Bank Net Income | $51 - $54 million | $56 - $59 million | |||||
100 | % | ||||||||
Mr. Ajello and Mr. Rosenblum are also participants in the 2009-2011 long-term incentive plan.
The Compensation Committee approved the HEI metrics because they simplify the program and align performance measurement with the scope of the role and responsibilities of these executive officers. Mr. Schools' long-term metrics, bank return on assets and bank net income, focus performance on the key bank value drivers. In setting Mr. Schools' goals, the Compensation Committee determined to exclude one-time charges such as severance and lease buyouts in light of American Savings Bank's aggressive performance improvement project to reduce its cost structure and improve its efficiency, profitability and go-forward earnings. In addition, in light of the unprecedented volatility, illiquidity, uncertainty and unusually low asset valuations in the capital markets and in the banking industry, the Compensation Committee excluded the impact of other-than-temporary impairment charges and goodwill impairment charges and related impacts. The Compensation Committee, however, retained the discretion to reduce any such award if the resulting payout is not in the best interest of American Savings BankHEI and exclude any gain from the sale of securities for which other-than-temporary impairment is excluded in any current or future bonus calculations. its shareholders.
From a historical perspective, payouts are not easy to achieve nor are they guaranteed under the long-term incentive plan. In the 2009-2011 horizon, HEI faces tough external challenges in the performance period. Extraordinary leadership on the part of the named executive officers will be needed to achieve the long-term strategic objectives required for incentive payouts. The utility is focused on implementing the Hawaii Clean Energy Initiative agreement and increasing its portfolio of renewable resources, which requires major capital investments over the next several years, and which in turn requires timely filing and regulatory approval in utility rate cases and other important dockets. The bank is focused on reducing expenses and providing a reasonable return on assets and net income in the face of the economic downturn. The Compensation Committee believes that the long-term incentive targets are challenging and that if HEI is successful in achieving these goals, shareholder value is expected to increase.
The Compensation Committee established the following award ranges for the 2009-2011 long-term incentive plan, shown as a percentage of actual annual base salaries on January 1, 2009, for the following named executive officers:
Name | Minimum | Target | Maximum | January 1, 2009 Annual Salary | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 70 | % | 140 | % | 280 | % | $ | 771,800 | |||||
Curtis Y. Harada | 27.5 | % | 55 | % | 110 | % | 215,600 | ||||||
Chester A. Richardson | 35 | % | 70 | % | 140 | % | 321,400 | ||||||
Timothy K. Schools | 50 | % | 100 | % | 200 | % | 550,000 |
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 70.0 | % | 140 | % | 280 | % | ||||
James A. Ajello (1) | 40.0 | % | 80 | % | 160 | % | ||||
Curtis Y. Harada | 27.5 | % | 55 | % | 110 | % | ||||
Chester A. Richardson | 35.0 | % | 70 | % | 140 | % | ||||
Richard M. Rosenblum | 45.0 | % | 90 | % | 180 | % | ||||
Timothy K. Schools | 50.0 | % | 100 | % | 200 | % |
HEI provides stock awards to executives to strengthen the linkage of executive compensation with improvement in shareholder value. Thevalue and promote executive retention.
Long-term incentive awards
Except for Mr. Schools, as described in the paragraph below, long-term incentive awards described above are performance-based and generallyin 2009 through 2011 were or will be paid at least partially in stock. Stockthe form of stock as follows:
Since 2006, HEI has been utilizing grantsperiod, rather than a number of restricted stock to provideshares determined by the dollar value of the award divided by the market price of the shares at payout, encourages even greater alignment of executives with ownership of HEI shares. Quarterly dividends on the restricted stock shares are paid in cashshareholder interests and will appropriately incentivize and reward executives to the executives during the vesting period. The primary purpose of restricted stock awards is retention. Any executive who terminates employment from HEI or its operating subsidiaries prior to four years will forfeit the restricted shares, unless the executive is involuntarily terminated without cause or the termination follows a change in control.
At its meeting held on April 15, 2008,For Mr. Schools, the Compensation Committee revised HEI's equity programdetermined that any long-term incentive awards earned for the 2008-2010 and 2009-2011 performance periods will be paid fully in cash, so these awards are linked solely to make it more performance-based. The Committee transferred the value of halfperformance of the shares of restricted stock historically awardedbank.
Annual equity awards
Executives are eligible to named executive officers to a new supplemental performance-based long-term incentive plan (described above) so that an approximately equivalent value is paid to participants ifreceive annual equity awards as determined by the target goals are achieved. This structure provides for an increased value to be awarded if maximum performance goals are achieved, but also a lower value if minimum performance goals are achieved or no award if performance falls shortCompensation Committee. The intent of the minimum goals. Forannual equity awards program is to encourage executive retention by providing for equity compensation based on staying at the other halfcompany for a specified period of the shares of restricted stock, the Committee continued HEI's practice of awarding the restricted shares on a four-year cliff-vesting basis to retain key executives. Under the revised equity program, on April 15, 2008, Ms. Lau was granted 8,000 restricted shares, Mr. Yeaman 2,500 shares, Mr. Harada 1,000 restricted shares, Mr. Richardson 1,500 restricted shares, Mr. May 4,000 restricted shares, and Mr. Schools 4,000 restricted shares. These restricted shares will vest for each executive officer who remains with HEI or its operating subsidiaries four years from the date of grant. By resigning from Hawaiian Electric Company on June 12, 2008 and retiring from Hawaiian Electric Company on December 31, 2008, respectively, within the four-year vesting period, Mr. Yeaman and Mr. May forfeited the restricted shares they received in 2006, 2007, and 2008.time.
For theIn 2009, equity program, restricted stock units were granted instead of restricted stock awards.to the named executive officers, except Mr. Schools. With restricted stock units, no stock is issued or outstanding until the actual release of the shares at vesting. Dividend equivalents will accrue during the vesting period and be payable upon vesting four years from the date of grant. Restricted stock units will allow prorata vesting upon an executive's retirement, death or disability, while discouraging voluntary departures prior to retirement. Unlike previous years, the distribution of equity awards at HEI and its operating subsidiaries in 2009 will be limited. Mr. Schools has 100% of his long-term incentive paid in cash, instead of receiving restricted stock units, to focus his rewards on the performance of the bank.
At its meeting on February 20, 2009, the Compensation Committed awarded annual restricted stock units as follows:
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vesting. The restricted stock units vest four years after the grant date, except that pro-rata vesting applies upon an executive's retirement, death or disability. The restricted stock units accrue dividend equivalents until vested. The 2009 grant of restricted stock unit awards specific to the named executive officers are summarized in the 2009 Grants of Plan-Based Awards table and related notes below.
Ms. Lau's restricted stock unit award total was determined after review of grants made to chief executive officers at peer companies and in consideration of her future loss in pension value by the freezing ofunder the HEI Supplemental Executive Retirement Plan.
Equity award vesting periods
The unvested value from the long-term incentive award is paid in cashplan and not in stock to align his compensation to American Savings Bank performance.
The 2008 grant of restricted stock awards specificunits is about twice the annual grant values, which the Compensation Committee views as sufficient for retention purposes. The cliff vesting of the restricted stock units ensures unvested value extends out four years with no pro-rata vesting before the vesting period ends except when the participant's termination is due to the named executive officers are summarized in the 2008 Grants of Plan-Based Awards and related notes on page 47.retirement, death or disability.
HEI provides retirement benefits to all eligible employees, including the named executive officers, through qualified retirement plansthe tax-qualified HEI Retirement Plan as a means of providing financial security in recognition of their years of service. NonqualifiedAdditional retirement benefits are also provided to certain executives, including the named executive officers. Theofficers through the nonqualified HEI Excess Pay Plan, is a nonqualified retirement plan thatwhich provides the portion of benefits that cannot be paid from the qualified plansplan due to Internal Revenue Code limits applicablelimits.
Mr. Schools participates in the American Savings Bank 401(k) Plan, a qualified defined contribution retirement plan that enables eligible employees to save for retirement on a tax-deferred basis. The plan allows eligible American Savings Bank employees to elect to reduce their salary in return for a tax-deferred contribution to their account in the plan. American Savings Bank provides matching contributions to the accounts of eligible employees of American Savings Bank on a dollar-for-dollar basis up to 4% of eligible compensation, subject to the Internal Revenue Service limit on the amount of annual compensation that can be used for calculating benefits under qualified retirement plans. Until December 31, 2008, HEI and American Savings Bank also provided certain named executive officers additional pension benefits through nonqualified supplemental executive retirement plans that allowed all or partprovides discretionary, nonelective profit sharing contributions to the accounts of their annual bonuses to be included in the final average compensation upon which their pension benefits were determined. These nonqualified supplemental executive retirement plans were frozen effective December 31, 2008. The Compensation Committee decided to freeze these plans becauseeligible employees of the expense of maintaining these benefits, the recognition of current economic times, and in light of what it considered to be best practices.American Savings Bank. In deciding to freeze these plans, the Compensation Committee concluded that the inclusion of annual incentive compensation in addition to base salary in the calculation of these supplemental pension benefits, while competitive at the time the plans were enacted, was not consistent with HEI's philosophy to emphasize performance-based rewards driven by results that support growth in shareholder value. The primary remaining nonqualified retirement plan that HEI named executive officers, except for2009, Mr. Schools can participate in isreceived matching contributions for the HEI Excess Pay Plan, which determines pension benefits on base salary2009 plan year and does not include annual bonuses.a 4% profit sharing contribution for the 2008 plan year.
The HEI Excess Pay Plan, HEI Supplemental Executive Retirement Plan, ASB Supplemental Executive Retirement, Disability, and Death Benefit Plan, HEI Executives' Deferred Compensation Plan, HEI Non-Employee Directors' Deferred Compensation Plan, and American Savings Bank Select Deferred Compensation Plan were amended and restated effective January 1, 2009, to comply with final regulations under Section 409A of the Internal Revenue Code. Benefits paid from all these plans to "specified employees" (to the extent not grandfathered, as described in Section 409A) on account of separation from service must be delayed until at least six months after the specified employee's separation from service. The plans were also amended so that a participant will forfeit all benefits if terminated for cause, defined as a violation of the HEI Corporate Code of Conduct, which governs HEI and its affiliated companies. Retirement benefits under these plans specific to the named executive officers as of December 31, 2009 are discussed in further detail in the 2009 Pension Benefits table and related notes on pages 50-53.below.
Do named executive officers have executive death benefits?
HEI provides HEI and Hawaiian Electric Company executives with death benefits payable to their beneficiaries under the Executive Death Benefit Plan of HEI and Participating Subsidiaries. These benefits are provided for the welfare of an executive's beneficiaries in the traumatic event of an executive's death before or after retirement. Death benefits are discussed in further detail in the Pension Benefits table and related notes on pages 50-53.
HEI provides named executive officers with the opportunity to participate in deferred compensation plans tothat allow executivesthem to defer compensation and the resulting tax liability.
plan that will allow employer matching contributions on certain contributions to the plan and profit sharing contributions for plan years beginning January 1, 2010. These matching and profit sharing contributions would be in an amount that would have been made to the named executive officer's American Savings Bank 401(k) Plan account if not for certain tax limits. Since Mr. Schools did not elect to defer compensation to the plan for the 2010 plan year, no matching contributions will be made for that year. If a profit sharing contribution is made to the American Savings Bank 401(k) Plan for the 2010 plan year, he will receive a profit sharing contribution in his American Savings Bank Select Deferred Compensation Plan account during 2011 based on his 2010 compensation in excess of the IRS dollar limits.
Deferred compensation benefits under these plans specific to the named executive officers in 2009 are discussed in further detail in the 20082009 Nonqualified Deferred Compensation table and related notes on page 54.below.
The Executive Death Benefit Plan of HEI and Participating Subsidiaries, which provided death benefits to an executive's beneficiaries in the event of an executive's death while employed or after retirement, was closed to new participants, effective September 9, 2009. These death benefits were provided to beneficiaries of named executive officers. In addition, the benefits of participants who were employees as of such date were frozen (i.e., the plan was amended to foreclose any increase in death benefits that would occur due to salary increases after September 9, 2009). The death benefits under this frozen plan are grossed up in recognition that life insurance is normally tax-exempt. However, freezing the plan reduces the amount of gross-up benefits that will be required in the future. Death benefits are discussed in further detail in the 2009 Pension Benefits table and related notes below.
Change-in-control agreements can be an appropriate tool to recruit executives as an expected part of the compensation package, to encourage the continued attention of key executives to the performance of their assigned duties without distraction in the event of a potential change in control and to assist in retaining key executives. Change-in-control agreements can also protect against executive flight during a transaction when key executives might, in the absence of the agreement, accept employment with competitors.
In 2008, withrecommending the assistanceterms of Towers Perrin and HEI's external legal counsel,executive change-in-control agreements to the Board, the Compensation Committee substantially revamped HEI's change-in-control agreements for certain HEI and subsidiary executives. The Committee replaced the old agreements with new versions designed to be consistent with best practices and to varyvaries the severance multiplier amongstamong executives, taking into account the executive's expected role in a potential transaction, value to the organization service to HEI, and fairness. The change-in-control agreements are double trigger, which means that the executives receive severance payments only if there is both a change in control and they lose their jobs as a result. The Compensation Committee provided cash lump sum severance multipliers of three times for Ms. Lau and Mr. Schools, two times for Mr.Messrs. Ajello, Richardson and Rosenblum and one time for Mr. Harada. The multiplier is applied to the sum of the executive's annual base salary and annual bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three fiscal years). The severance benefits are subject to a release of claims by the executive.
The newchange-in-control agreements have initial terms of two years following execution. Theyand are automatically renewed for onean additional year on each anniversary unless 90 days notice of nonrenewal is provided by either party, so that the protected period is at least one year upon nonrenewal. The agreements remain in effect for two years following a change in control. The change-in-control agreements define a change in control to mean essentially a change in ownership of HEI, ora substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following a consummation of a merger, tender offer or similar transaction. Mr. Schools' agreementThe change-in-control agreements for Messrs. Rosenblum and Schools also definesdefine a change in control as essentially a change in ownership of American Savings Bank. Mr. Schools has other agreements that involve triggers upon a change in control at American Savings Bank. Mr. Schools was given these agreements in consideration of the volatility of the financial institution environment. Mr. May's change-in-control agreement terminated upon his retirement on December 31, 2008. Mr. Yeaman's change-in-control agreement terminated when he resigned from Hawaiian Electric Company on June 12, 2008. Change in control
and American Savings Bank, respectively. Change-in-control benefits specific to the named executive officers are discussed in further detail in the Potential Payments upon Termination or Change in Control section and related notes on pages 55-59.below.
HEI provides certain limited perquisitesother compensation to the named executive officers because they are commonly provided to business executives in Hawaii, such as club memberships primarily for the purpose of business entertainment, or as necessary to recruit executives, such as relocation expenses or extra weeks of vacation, or because of legacy programs that have since been discontinued, such as the Compensation Committee believes are appropriate in lightelectricity discount and preferential loans.
In 2009, each of their positions and value to the organization. During 2008, the named executive officers were eligiblehad a club membership for the primary purpose of business parking, club memberships, and voluntary annual physical exams.entertainment expected of executives in their positions. Mr. Rosenblum's initiation fee was not grossed up for taxes pursuant to a change in policy. Ms. Lau Mr. Yeaman, Mr. May and Mr. Schools were eligible for reimbursement for their spouses' travel expenses when their spouses accompanied them to meetings where spouse attendance was required or expected for business purposes. Hawaiian Electric Company executives Mr. May and Mr. Yeaman were also eligible to receive a car and gas allowance for business and personal use. As Chairman of the Board of Hawaiian Electric Company, Ms. Lau is eligible to receiveRosenblum each received a residential electricity discount, which iswas available to all qualifying Hawaiian Electric Company employees and retirees.retirees until this benefit was eliminated in August 2009. Ms. Lau and Mr. Schools are eligiblecontinued to receivehave preferential rate loans, which were availableare no longer offered to all qualifying American Savings Bank employees and certain former employees in 2008. These loans will no longer be offered to new American Savings Bank employees, including executives effective JanuaryJuly 1, 2009. Existing loans will be grandfathered. New named executive officers Mr. Richardson
HEI has eliminated all tax gross-up practices where possible, particularly with respect to nonbusiness-related perquisites. HEI may, from time to time, reimburse for business-related expenses and Mr. Schools,only where reasonable. For example, in the recruitment of Messrs. Ajello and Rosenblum, who joined HEI and American Savings Bank,Hawaiian Electric Company, respectively, in 2007,2009, other compensation was negotiated. They were also eligible for reimbursement in 2008each reimbursed for relocation and temporary housing expenses pursuant toin connection with their moves from the U.S. mainland to Hawaii. These expenses, which were deemed reasonable by HEI, were grossed up for taxes to a certain dollar limit, a common practice for executives relocating to Hawaii, and were a condition of each executive's recruitment. Mr. Ajello was also reimbursed for his real estate fees and expenses incurred in the sale of his home on the U.S. mainland. Messrs. Ajello and Rosenblum each received a signing bonus upon being hired by HEI and Hawaiian Electric Company, respectively, subject to monthly pro-rata reimbursement in the event of a voluntary termination or termination for cause prior to the completion of 36 months of service. As part of their employment offers, Messrs. Ajello and Rosenblum also were extended special 3-year declining severance agreements that provide that, in the event their employment is terminated without cause on or before the third anniversary of the date of their hire, they will be paid a declining portion of their annual base salary and any target annual bonus amount, depending on the length of their service. Such severance agreements are not uncommon when hiring experienced executives, especially from the mainland, who may have difficulty in finding other employment if their job is terminated within months of their hire and relocation. In order to recruit Mr. Rosenblum, an experienced utility executive, Hawaiian Electric Company agreed to give Mr. Rosenblum a credit of two years age and service for purposes of calculating his retirement benefits under the HEI Excess Pay Plan, which was estimated to increase the annual cost of the HEI Excess Pay Plan by approximately $38,000. Mr. Rosenblum also received 10 days of sick leave as part of his offer, which is more than what new employees would receive. Messrs. Richardson and Mr. Schools, alsowho were eligible forhired in 2007, and Messrs. Ajello and Rosenblum, who were hired in 2009, each received four weeks of vacation, two weeks more than other employeesvacation.
For purposes of retention of Mr. Schools, who is instrumental to the success of the bank's performance improvement project, American Savings Bank agreed to purchase his residence in Honolulu on or before the earlier of June 30, 2011 or his termination as an employee of American Savings Bank, provided that Mr. Schools remains employed at their respective companies with similar years of service, so that they would have vacation benefits similar to officersAmerican Savings Bank in similar positions outsidehis current capacity through December 31, 2010 or such earlier date as the company may determine in its sole discretion and becausehe is not terminated for cause. If such purchase were to occur, American Savings Bank would pay Mr. Schools his original purchase price of $3.635 million for the heavy workloads that both carry. Perquisites andresidence less normal selling costs borne by the seller (including brokers' commissions). This agreement does not apply if Mr. Schools remains in Hawaii for any reason other compensation plans specific to the named executive officers are discussed in further detail in the Summary Compensation Table and related notes on pages 44-46.than his employment at American Savings Bank.
The following summary compensation table below shows the base salary, annual incentive bonus, grant date fair value of stock awards,and option awards, non-equity incentive compensation, change in pension value and nonqualified deferred compensation earnings and all other compensation and benefits earned by the named executive officers during 2006, 2007, 2008 and 20082009 (as applicable).
2009 SUMMARY COMPENSATION TABLE
Name and 2008 Principal Positions | Year | Salary ($) | Bonus ($) (1) | Stock Awards ($) (2) | Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) (4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) | All Other Compensation ($) (6) | Total ($) | |||||||||||||||||||
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Constance H. Lau | 2008 2007 2006 | 763,200 736,000 680,667 | — — — | 338,896 273,540 143,202 | 50,583 84,562 144,312 | 1,363,695 67,245 191,449 | 1,302,489 499,747 2,500,135 | 40,727 51,326 41,555 | 3,859,590 1,712,420 3,701,320 | |||||||||||||||||||
Eric K. Yeaman* | 2008 2007 2006 | 194,890 398,575 382,333 | — — — | 75,691 55,267 63,240 | 57,537 90,896 113,021 | — — — | — 69,220 44,141 | — 18,277 16,606 | 328,118 632,235 619,341 | |||||||||||||||||||
Curtis Y. Harada** | 2008 2007 2006 | 213,400 196,655 190,300 | 165,000 — — | 30,276 22,107 9,239 | 10,117 16,490 25,362 | 164,010 — — | 239,884 88,455 90,298 | 555 15,570 15,896 | 823,242 339,277 331,095 | |||||||||||||||||||
Chester A. Richardson*** | 2008 | 317,600 | — | 21,188 | — | 246,492 | 89,487 | 125,768 | 800,535 | |||||||||||||||||||
T. Michael May**** | 2008 2007 2006 | 609,933 590,650 571,334 | 100,000 — — | 121,105 88,427 36,955 | 50,583 84,562 144,312 | 451,807 — — | 207,934 — 389,129 | 24,754 28,757 21,317 | 1,566,116 792,396 1,163,047 | |||||||||||||||||||
Timothy K. Schools***** | 2008 | 541,667 | — | 32,125 | — | 632,400 | 19,682 | 87,339 | 1,313,213 | |||||||||||||||||||
Name and 2009 Principal Positions | Year | Salary ($) | Bonus ($) (1) | Grant- Date Fair Value of Stock Awards ($) (2) | Grant- Date Fair Value of Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) (4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) | All Other Compensation ($) (6) | Total ($) | ||||||||||||||||||||
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Constance H. Lau | 2009 | 771,800 | — | 921,483 | — | 338,106 | 774,297 | 34,049 | 2,839,735 | ||||||||||||||||||||
HEI President and Chief | 2008 | 763,200 | — | 197,640 | — | 1,363,695 | 1,394,006 | 40,727 | 3,759,268 | ||||||||||||||||||||
Executive Officer | 2007 | 736,000 | — | 416,320 | — | 67,245 | 475,042 | 51,326 | 1,745,933 | ||||||||||||||||||||
James A. Ajello* | 2009 | 389,583 | 250,000 | 255,509 | — | 223,889 | 157,041 | 209,912 | 1,485,934 | ||||||||||||||||||||
HEI Senior Financial Vice | |||||||||||||||||||||||||||||
Curtis Y. Harada** | 2009 | 215,600 | 11,250 | 62,303 | — | 127,674 | 171,340 | — | 588,167 | ||||||||||||||||||||
HEI Controller and Acting | 2008 | 213,400 | 165,000 | 24,705 | — | 164,010 | 239,884 | 555 | 807,554 | ||||||||||||||||||||
Financial Vice President, | 2007 | 196,655 | — | 52,040 | — | — | 88,455 | 15,570 | 352,720 | ||||||||||||||||||||
Chester A. Richardson*** | 2009 | 344,400 | — | 112,316 | — | 197,916 | 119,845 | 15,111 | 789,588 | ||||||||||||||||||||
HEI Senior Vice President, | 2008 | 317,600 | — | 37,058 | — | 246,492 | 89,487 | 125,768 | 816,405 | ||||||||||||||||||||
Richard M. Rosenblum**** | 2009 | 580,000 | 250,000 | 348,916 | — | 322,289 | 435,513 | 149,881 | 2,086,599 | ||||||||||||||||||||
Hawaiian Electric Company | |||||||||||||||||||||||||||||
Timothy K. Schools***** | 2009 | 550,000 | — | — | — | 528,000 | 85 | 73,121 | 1,151,206 | ||||||||||||||||||||
American Savings Bank President | 2008 | 541,667 | — | 98,820 | — | 632,400 | 19,682 | 87,339 | 1,379,908 | ||||||||||||||||||||
in connection with his promotion from HEI Vice President, General Counsel to HEI Senior Vice President, General Counsel and Chief Administrative Officer in December 2008. He became HEI Senior Vice President, General Counsel, Secretary and Chief Administrative Officer in September 2009.
2009. Mr. Harada received a $15,000 monthly bonus for every month he served as HEI Acting HEI Financial Vice President, Treasurer and Chief Financial Officer. HavingHe served 11 monthsthree-fourths of a month in that role during 2008, his2009 and received a bonus was $165,000.
2007 and are not included in the change in pension value above. For a further discussion of these plans, see the Pension Benefits table and related notes on pages 50-53 and Nonqualified Deferred Compensation table and notes on page 54.
| Perquisites and Other Personal Benefits | | | | |||||||||||||||||||
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Name | Relocation Expenses ($) | Temporary Housing ($) | Preferential Mortgage Loan Interest ($) | Other ($) | Tax Gross-Ups ($) | Contributions to Defined Contribution Plans ($) | Total All Other Compensation ($) | ||||||||||||||||
Constance H. Lau | — | — | 26,506 | 7,543 | — | — | 34,049 | ||||||||||||||||
James A. Ajello | 108,138 | 30,000 | — | 22,954 | 48,820 | — | 209,912 | ||||||||||||||||
Curtis Y. Harada | — | — | — | — | — | — | — | ||||||||||||||||
Chester A. Richardson | — | — | — | 15,111 | — | — | 15,111 | ||||||||||||||||
Richard M. Rosenblum | 94,431 | 19,749 | — | 24,620 | 11,081 | — | 149,881 | ||||||||||||||||
Timothy K. Schools | — | — | 29,080 | 25,041 | — | 19,000 | 73,121 |
Additional narrative disclosure about salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings and other compensation can be found in the Compensation Discussion and Analysis on pages 16-43 and the discussions under Executive Compensation on pages 44-59.above.
The following table relates tobelow shows awards that may be made to the named executive officers in 2008 under the 2009 annual incentive plan tied tofor 2009 performance for 2008 and under the 2009-2011 long-term incentive plan tied tofor performance over the 2008-20102009-2011 period. Also shown are the restricted stock unit awards granted under the 1987 Stock Option and Incentive Plan in 2008.2009.
20082009 GRANTS OF PLAN-BASED AWARDS
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| | | | | | | | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | | | ||||||||||||||||||||
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| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Option Awards: Number of Securities Underlying Options (#) | | |||||||||||||||||||||||||
| | Grant Date Fair Value of Stock and Option Awards ($) (4) | ||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||
Constance H. Lau | 2/20/09 EICP | 328,015 | 656,030 | 1,312,060 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 324,156 | 648,312 | 1,296,624 | 12,723 | 25,446 | 50,893 | — | — | 335,500 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 34,500 | — | 585,983 | |||||||||||||||||||||
James A. Ajello | 2/20/09 EICP | 97,396 | 194,792 | 389,583 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 99,167 | 198,333 | 396,667 | 3,892 | 7,785 | 15,569 | — | — | 102,644 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 9,000 | — | 152,865 | |||||||||||||||||||||
Curtis Y. Harada | 2/20/09 EICP | 43,120 | 86,240 | 172,480 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 35,574 | 71,148 | 142,296 | 1,396 | 2,793 | 5,585 | — | — | 36,825 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 1,500 | — | 25,478 | |||||||||||||||||||||
Chester A. Richardson | 2/20/09 EICP | 86,100 | 172,200 | 344,400 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 67,494 | 134,988 | 269,976 | 2,649 | 5,298 | 10,597 | — | — | 69,853 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 2,500 | — | 42,463 | |||||||||||||||||||||
Richard M. Rosenblum | 2/20/09 EICP | 174,000 | 348,000 | 696,000 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 156,600 | 313,200 | 626,400 | 6,147 | 12,293 | 24,586 | — | — | 162,081 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 11,000 | — | 186,835 | |||||||||||||||||||||
Timothy K. Schools | 2/20/09 EICP | 220,000 | 440,000 | 880,000 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 275,000 | 550,000 | 1,100,000 | — | — | — | — | — | — |
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT 20082009 FISCAL YEAR-END
| Option Awards (1) | Stock Awards (2) | |||||||||||||||||||||||||||||
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| | | | | | | | | Equity Incentive Plan Awards | ||||||||||||||||||||||
| | | | | | | | | Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) | Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) | |||||||||||||||||||||
| | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | | | |||||||||||||||||||||||
| | Number of Securities Underlying Unexercised Options | | | Shares or Units of Stock That Have Not Vested | ||||||||||||||||||||||||||
| | Option Exercise Price ($) | Option Expira- tion Date | ||||||||||||||||||||||||||||
Name | Grant Year | Exer- ciseable (#) | Unexer- ciseable (#) | Number (#) | Market Value ($) (3) | ||||||||||||||||||||||||||
Constance H. Lau | 2000 | 40,000 | — | — | 14.74 | 4/24/10 | — | — | — | — | |||||||||||||||||||||
2000 DE | 11,172 | — | — | — | 4/24/10 | — | — | — | — | ||||||||||||||||||||||
2001 | 40,000 | — | — | 17.96 | 4/23/11 | — | — | — | — | ||||||||||||||||||||||
2001 DE | 9,409 | — | — | — | 4/23/11 | — | — | — | — | ||||||||||||||||||||||
2002 | 50,000 | — | — | 21.68 | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2002 DE | 7,985 | — | — | — | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2003 | 50,000 | — | — | 20.49 | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2003 DE | 4,790 | — | — | — | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2004 | 50,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2004 DE | 2,549 | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | — | 50,000 | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | — | 2,523 | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 31,000 | 686,340 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 16,000 | 354,240 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 8,000 | 177,120 | — | — | ||||||||||||||||||||||
Total | 265,905 | 52,523 | — | 55,000 | 1,217,700 | — | — | ||||||||||||||||||||||||
Eric K. Yeaman | Total | — | — | — | — | — | — | — | |||||||||||||||||||||||
Curtis Y. Harada | 2004 | 10,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | |||||||||||||||||||||
2004 DE | 139 | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | — | 10,000 | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | — | 505 | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 2,000 | 44,280 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 2,000 | 44,280 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 1,000 | 22,140 | — | — | ||||||||||||||||||||||
Total | 10,139 | 10,505 | — | 5,000 | 110,700 | — | — | ||||||||||||||||||||||||
Chester A. Richardson | 2007 | — | — | — | — | — | 3,000 | 66,420 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 1,500 | 33,210 | — | — | ||||||||||||||||||||||
Total | — | — | — | 4,500 | 99,630 | — | — | ||||||||||||||||||||||||
T. Michael May | 2002 | 40,000 | — | — | 21.68 | 4/22/12 | — | — | — | — | |||||||||||||||||||||
2002 DE | 6,388 | — | — | — | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2004 | 50,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2004 DE | 2,549 | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | 50,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | 2,523 | — | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 8,000 | 177,120 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 8,000 | 177,120 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 4,000 | 88,560 | — | — | ||||||||||||||||||||||
Total | 151,460 | — | — | 20,000 | 442,800 | — | — | ||||||||||||||||||||||||
Timothy K. Schools | 2007 | — | — | — | — | — | 3,000 | 66,420 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 4,000 | 88,560 | — | — | ||||||||||||||||||||||
Total | — | — | — | 7,000 | 154,980 | — | — |
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | Equity Incentive Plan Awards | ||||||||||||||||||||||
| | | | | | | | | | Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) (3) | |||||||||||||||||||||
| | | | | | | | | Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (2) | ||||||||||||||||||||||
| | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | | | |||||||||||||||||||||||
| | Number of Securities Underlying Unexercised Options | | | Shares or Units of Stock That Have Not Vested (1) | ||||||||||||||||||||||||||
| | Option Exercise Price ($) | Option Expira- tion Date | ||||||||||||||||||||||||||||
Name | Grant Year | Exer- ciseable (#) | Unexer- ciseable (#) | Number (#) | Market Value ($) (3) | ||||||||||||||||||||||||||
Constance H. Lau | 2000 | 40,000 | — | — | 14.74 | 4/24/10 | — | — | — | — | |||||||||||||||||||||
2000 DE | 11,172 | — | — | — | 4/24/10 | — | — | — | — | ||||||||||||||||||||||
2001 | 40,000 | — | — | 17.96 | 4/23/11 | — | — | — | — | ||||||||||||||||||||||
2001 DE | 9,409 | — | — | — | 4/23/11 | — | — | — | — | ||||||||||||||||||||||
2002 | 50,000 | — | — | 21.68 | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2002 DE | 7,985 | — | — | — | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2003 | 50,000 | — | — | 20.49 | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2003 DE | 4,790 | — | — | — | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2004 | 50,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2004 DE | 1,831 | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | 50,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | 1,136 | — | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 31,000 | 647,900 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 16,000 | 334,400 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 8,000 | 167,200 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 34,500 | 721,050 | 12,723 | 265,911 | ||||||||||||||||||||||
Total | 316,323 | — | — | — | — | 89,500 | 1,870,550 | 12,723 | 265,911 | ||||||||||||||||||||||
James A. Ajello | 2009 | — | — | — | — | — | 9,000 | 188,100 | 3,892 | 81,343 | |||||||||||||||||||||
Total | — | — | — | 9,000 | 188,100 | 3,892 | 81,343 | ||||||||||||||||||||||||
Curtis Y. Harada | 2004 | 10,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | |||||||||||||||||||||
2004 DE | — | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | 10,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | 227 | — | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 2,000 | 41,800 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 2,000 | 41,800 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 1,000 | 20,900 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 1,500 | 31,350 | 1,396 | 29,176 | ||||||||||||||||||||||
Total | 20,227 | — | — | — | — | 6,500 | 135,850 | 1,396 | 29,176 | ||||||||||||||||||||||
Chester A. Richardson | 2007 | — | — | — | — | — | 3,000 | 62,700 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 1,500 | 31,350 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 2,500 | 52,250 | 2,649 | 55,364 | ||||||||||||||||||||||
Total | — | — | — | — | — | 7,000 | 146,300 | 2,649 | 55,364 | ||||||||||||||||||||||
Richard M. Rosenblum | 2009 | — | — | — | — | — | 11,000 | 229,900 | 6,147 | 128,472 | |||||||||||||||||||||
Total | — | — | — | — | — | 11,000 | 229,900 | 6,147 | 128,472 | ||||||||||||||||||||||
Timothy K. Schools | 2007 | — | — | — | — | — | 3,000 | 62,700 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 4,000 | 83,600 | — | — | ||||||||||||||||||||||
Total | — | — | — | — | — | 7,000 | 146,300 | — | — |
All information presented has been adjusted for the 2-for-1 stock split in June 2004.
Option Exercises and Stock Vested
2008 2009 OPTION EXERCISES AND STOCK VESTED
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) (1) | Value Realized on Exercise ($) (2) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||
Constance H. Lau | 43,876 | 559,504 | — | — | |||||||||
Eric K. Yeaman | 25,564 | 267,466 | — | — | |||||||||
Curtis Y. Harada | 12,291 | 71,854 | — | — | |||||||||
T. Michael May | 55,452 | 444,281 | — | — | |||||||||
Timothy K. Schools | — | — | — | — | |||||||||
Chester A. Richardson | — | — | — | — |
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) (1) | Value Realized on Exercise ($) (1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||
Constance H. Lau | 633 | 8,628 | — | — | |||||||||
James A. Ajello | — | — | — | — | |||||||||
Curtis Y. Harada | 127 | 1,726 | — | — | |||||||||
Chester A. Richardson | — | — | — | — | |||||||||
Richard M. Rosenblum | — | — | — | — | |||||||||
Timothy K. Schools | — | — | — | — |
The table below shows the present value as of December 31, 20082009 of accumulated benefits for each of the named executive officers and the number of years of service credited to each such executive under the applicable pension plan and executive death benefit plan, determined using the interest rate, mortality rate and other assumptions set outdescribed below, which are consistent with those used in HEI's financial statements. (Seestatements (see Note 8 to HEI's Notes to Consolidated Financial Statements under Item 8 of HEI's Form 10-K forin the year ended December 31, 2008.)HEI 2009 Annual Report to Shareholders):
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) (6) | Payments During the Last Fiscal Year ($) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | HEI Retirement Plan (1) | 17.8 | 903,978 | — | ||||||||
American Savings Bank Retirement Plan (1) | 6.4 | 125,432 | — | |||||||||
HEI Supplemental Executive Retirement Plan (2) | 24.3 | 5,719,769 | — | |||||||||
HEI Executive Death Benefit (3) | — | 310,876 | — | |||||||||
Eric K. Yeaman | HEI Retirement Plan (1) | 5.3 | 52,700 | — | ||||||||
HEI Supplemental Executive Retirement Plan (2) | 5.3 | 40,637 | — | |||||||||
HEI Executive Death Benefit (3) | — | — | — | |||||||||
Curtis Y. Harada | HEI Retirement Plan (1) | 19.4 | 662,407 | — | ||||||||
HEI Excess Pay Plan (4) | 19.4 | 182,069 | — | |||||||||
HEI Executive Death Benefit (3) | — | 75,444 | — | |||||||||
Chester A. Richardson | HEI Retirement Plan (1) | 1.3 | 77,275 | — | ||||||||
HEI Excess Pay Plan (4) | 1.3 | 28,436 | ||||||||||
HEI Executive Death Benefit (3) | — | 42,618 | — | |||||||||
T. Michael May | HEI Retirement Plan (1) | 16.9 | 964,889 | — | ||||||||
HEI Supplemental Executive Retirement Plan (2) | 16.9 | 1,958,024 | — | |||||||||
HEI Executive Death Benefit (3) | — | 366,387 | — | |||||||||
Timothy K. Schools | American Savings Bank Supplemental Executive Retirement, Disability, and Death Benefit Plan (5) | 1.5 | 19,682 | — |
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) (6) | Payments During the Last Fiscal Year ($) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | HEI Retirement Plan (1) | 18.8 | 1,070,866 | — | ||||||||
American Savings Bank Retirement Plan (1) | 6.4 | 136,397 | — | |||||||||
HEI Supplemental Executive Retirement Plan (2) | 24.3 | 6,109,300 | — | |||||||||
HEI Excess Pay Plan (3) | 1.0 | 187,580 | — | |||||||||
HEI Executive Death Benefit (4) | — | 330,209 | ||||||||||
James A. Ajello | HEI Retirement Plan (1) | 0.9 | 68,841 | — | ||||||||
HEI Excess Pay Plan (3) | 0.9 | 50,670 | — | |||||||||
HEI Executive Death Benefit (4) | — | 37,530 | — | |||||||||
Curtis Y. Harada | HEI Retirement Plan (1) | 20.4 | 789,034 | — | ||||||||
HEI Excess Pay Plan (3) | 20.4 | 222,307 | — | |||||||||
HEI Executive Death Benefit (4) | — | 79,919 | — | |||||||||
Chester A. Richardson | HEI Retirement Plan (1) | 2.3 | 133,365 | — | ||||||||
HEI Excess Pay Plan (3) | 2.3 | 50,805 | ||||||||||
HEI Executive Death Benefit (4) | — | 84,004 | — | |||||||||
Richard M. Rosenblum | HEI Retirement Plan (1) | 1.0 | 68,199 | — | ||||||||
HEI Excess Pay Plan (3) | 3.0 | 308,367 | — | |||||||||
HEI Executive Death Benefit (4) | — | 58,947 | — | |||||||||
Timothy K. Schools | American Savings Bank Supplemental Executive Retirement, Disability, and Death Benefit Plan (5) | 1.5 | — | 19,767 |
retirement benefit is reduced by an applicable percentage, which ranges from 30% for early retirement at age 50 to 1% at age 59. Accrued or earned benefits are not reduced for eligible employees who
retire at age 60 and above. Ms. Lau and Mr. Harada are eligible for early retirement benefits under the HEI Retirement Plan. Mr. Yeaman resigned from Hawaiian Electric Company on June 12, 2008, with a vested benefit payable at age 65 or upon meeting theMessrs. Ajello, Richardson and Rosenblum are not eligible for early retirement provisions of the plan at age 55. Mr. Richardson will become vested upon completion of five years of service. Mr. May retired on December 31, 2008, at age 62, and accordingly his accrued benefits were not reduced.
On December 11, 2007,under the HEI Board adopted an amendment to freeze futureRetirement Plan and have no vested interest in the amounts reported above.
Future benefit accruals for all participants under the American Savings Bank Retirement Plan were frozen effective December 31, 2007. Credited service and compensation after December 31, 2007 will not be recognized in calculating retirement benefits under the American Savings Bank Retirement Plan. Normal retirement benefits under the frozen American Savings Bank Retirement Plan are calculated based on a formula of 1.5% × Credited Service to December 31, 2007 (maximum 35 years) × Final Average Compensation at December 31, 2007 (averaged over the highest paying five consecutive calendar years out of the last ten calendar years prior to 2008). Compensation is primarily gross earnings but excludes commissions, stock options and other equity compensation, long-term incentive plan payments, deferrals to and distributions from the American Savings Bank Select Deferred Compensation Plan and other "fringe benefits" as defined in the American Savings Bank Retirement Plan. Early retirement benefits are available for participants who meet the age and service requirements at ages 55-64, with a minimum of 10 years of service. Early retirement benefits are reduced for participants who retire prior to age 65, based on the participant's age at the early retirement date. The accrued normal retirement benefit is reduced by an applicable percentage which ranges from 59.8% for early retirement at age 55 to 2% at age 64. Ms. Lau is a participant in the frozen American Savings Bank Retirement Plan. At the time of her promotion to HEI President and Chief Executive Officer on May 2, 2006, her credited service under the American Savings Bank Retirement Plan was frozen and she resumed participation in the HEI Retirement Plan. Ms. Lau is eligible for early retirement under the American Savings Bank Retirement Plan. Mr. Schools was not a participant in the plan at the time it was frozen and is not entitled to any benefits under this plan.
to pay income taxes on the grossed up benefit amount.amount as an equivalent to the exempt status of death benefits paid from a life insurance policy. The Executive Death Benefit Plan of HEI and Participating Subsidiaries was amended effective September 9, 2009 to not accept new participants and freeze the benefit for existing participants. Under the amendment, death benefits including the grossed up amount will be paid based on salaries as of September 9, 2009. Benefits payable to the beneficiaries of Ms. Lau Mr.and Messrs. Ajello, Harada, Richardson and Mr. RichardsonRosenblum are entitledequal to two times the respective executive's base salary as of September 9, 2009 if they diethe executive dies while actively employed, or if the executive has become disabled dieand dies prior to age 65. Mr. Yeaman is no longer eligible to receive benefits under this plan since he terminated prior to becoming eligible for early retirement. Mr. May's beneficiaries are entitled to a death benefit equal to Mr. May's base salary at his retirement (grossed up for taxes) upon his death.
Methodology:The benefitspresent values are calculated as of December 31, 20082009 based on the credited service and pay of the named executive officer as of such date.date (or the date of benefit freeze, if earlier).
Assumptions:
named executive officers other than Mr. Schools) is 6.625% for retirement benefits and 6.5% for executive death benefits as of December 31, 2008.2009. The discount rate used in the present value calculation (forfor Mr. Schools)Schools is the minimum present value segment rates under IRCInternal Revenue Code Section 417(e)(3) for the 2009 plan year which is based on a September look backlook-back month.
unreduced pension benefits would be payable, but no earlier than attained age as of December 31, 2008.2009. Mr. Schools' present value of pension benefits was valued as the equivalent cash-out amount of his frozen accrued normal retirement benefit payable under the terms of the plan.
Mr. Rosenblum was granted an additional two years of service and two years added to his age to be applied in the calculation of his benefit under the HEI Excess Pay Plan.
Nonqualified Deferred Compensation
20082009 NONQUALIFIED DEFERRED COMPENSATION
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings/(Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | — | — | (91,517 | ) | — | 165,216 | ||||||||||
Eric K. Yeaman | — | — | — | — | — | |||||||||||
Curtis Y. Harada | — | — | — | — | — | |||||||||||
Chester A. Richardson | — | — | — | — | — | |||||||||||
T. Michael May | — | — | — | — | — | |||||||||||
Timothy K. Schools | — | — | — | — | — |
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings/ (Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | — | — | 51,323 | — | 216,539 | |||||||||||
James A. Ajello | — | — | — | — | — | |||||||||||
Curtis Y. Harada | — | — | — | — | — | |||||||||||
Chester A. Richardson | — | — | — | — | — | |||||||||||
Richard M. Rosenblum | — | — | — | — | — | |||||||||||
Timothy K. Schools | — | — | — | — | — |
Potential Payments Upon Termination or Change in Control
The table below reflectsshows the amount of potential payments to each named executive officer in the event of retirement, voluntary termination, termination for cause, termination without cause and a qualifying termination following a change in control, assuming termination occurred on December 31, 2008 (except in the case of Mr. Yeaman and Mr. May, for whom the amounts are only those actually payable by reason of their resignation and retirement, respectively, during 2008).2009. The amounts listed below are estimates (except in the case of Mr. Yeaman and Mr. May);estimates; actual amounts to be paid would depend on the actual date of termination and circumstances existing at that time. The amounts shown below for payments made upon a qualifying termination of employment after a change in control relate towere estimated in accordance with the individualterms of the current change-in-control agreements effective January 1, 2009 as if they had beena change in effectcontrol occurred on December 31, 2008.2009.
2009 TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
Name/ Benefit Plan or Program | Retirement on 12/31/08 ($) (1) | Voluntary Termination on 12/31/08 ($) (2) | Termination for Cause on 12/31/08 ($) (3) | Termination without Cause on 12/31/08 ($) (4) | Qualifying Termination after Change in Control on 12/31/08 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 1,114,650 | — | — | — | — | |||||||||||
Stock Appreciation Rights (8) | — | — | — | — | — | |||||||||||
Restricted Stock (9) | — | — | — | 637,881 | — | |||||||||||
Preferential mortgage interest rate (10) | 26,966 | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 4,674,385 | |||||||||||
TOTAL | 1,141,616 | — | — | 637,881 | 4,674,385 | |||||||||||
Eric K. Yeaman | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Stock Appreciation Rights (8) | — | — | — | — | — | |||||||||||
Restricted Stock (9) | — | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | — | |||||||||||
TOTAL | — | — | — | — | — | |||||||||||
Curtis Y. Harada | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 95,201 | — | — | — | — | |||||||||||
Stock Appreciation Rights (8) | — | — | — | — | — | |||||||||||
Restricted Stock (9) | — | — | — | 52,201 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 810,215 | |||||||||||
TOTAL | 95,201 | — | — | 52,201 | 810,215 | |||||||||||
Name/ Benefit Plan or Program | Retirement on 12/31/09 ($) (1) | Voluntary Termination on 12/31/09 ($) (2) | Termination for Cause on 12/31/09 ($) (3) | Termination without Cause on 12/31/09 ($) (4) | Qualifying Termination after Change in Control on 12/31/09 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 1,118,454 | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | 180,263 | — | — | 886,224 | — | |||||||||||
Preferential Mortgage Loan Interest (9) | 26,506 | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 4,918,593 | |||||||||||
TOTAL | 1,325,223 | — | — | 886,224 | 4,918,593 | |||||||||||
James A. Ajello | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | — | — | |||||||||||
Special Severance Payment (10) | — | — | — | 604,814 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 1,899,684 | |||||||||||
TOTAL | — | — | — | 604,814 | 1,899,684 | |||||||||||
Curtis Y. Harada | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 106,639 | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | 7,838 | — | — | 75,189 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 925,035 | |||||||||||
TOTAL | 114,477 | — | — | 75,189 | 925,035 | |||||||||||
Name/ Benefit Plan or Program | Retirement on 12/31/08 ($) (1) | Voluntary Termination on 12/31/08 ($) (2) | Termination for Cause on 12/31/08 ($) (3) | Termination without Cause on 12/31/08 ($) (4) | Qualifying Termination after Change in Control on 12/31/08 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chester A. Richardson | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 81,900 | — | — | — | — | |||||||||||
Stock Appreciation Rights (8) | — | — | — | — | — | |||||||||||
Restricted Stock (9) | — | — | — | 26,067 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 986,676 | |||||||||||
TOTAL | 81,900 | — | — | 26,067 | 986,676 | |||||||||||
T. Michael May | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 516,600 | — | — | — | — | |||||||||||
Stock Appreciation Rights (8) | — | — | — | — | — | |||||||||||
Restricted Stock (9) | — | — | — | 208,806 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | — | |||||||||||
TOTAL | 516,600 | — | — | 208,806 | — | |||||||||||
Timothy K. Schools | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 185,763 | — | — | — | — | |||||||||||
Stock Appreciation Rights (8) | — | — | — | — | — | |||||||||||
Restricted Stock (9) | — | — | — | 35,869 | — | |||||||||||
Preferential mortgage interest rate (10) | 29,080 | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,890,556 | |||||||||||
TOTAL | 214,843 | — | — | 35,869 | 2,890,556 | |||||||||||
Name/ Benefit Plan or Program | Retirement on 12/31/09 ($) (1) | Voluntary Termination on 12/31/09 ($) (2) | Termination for Cause on 12/31/09 ($) (3) | Termination without Cause on 12/31/09 ($) (4) | Qualifying Termination after Change in Control on 12/31/09 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chester A. Richardson | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | 47,198 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 1,075,688 | |||||||||||
TOTAL | — | — | — | 47,198 | 1,075,688 | |||||||||||
Richard M. Rosenblum | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | — | — | |||||||||||
Special Severance Payment (10) | — | — | — | 825,378 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,700,000 | |||||||||||
TOTAL | — | — | — | 825,378 | 2,700,000 | |||||||||||
Timothy K. Schools (10) | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | 69,513 | — | |||||||||||
Preferential Mortgage Loan Interest | — | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,278,598 | |||||||||||
TOTAL | — | — | — | 69,513 | 2,278,598 | |||||||||||
Note: All stock-based award amounts were valued using the 20082009 year-end closing price of HEI Common Stock of $22.14$20.90 per share. Other benefits that are available to all employees on a non-discriminatorynondiscriminatory basis and perquisites aggregating less than $10,000 in value have not been listed.
which will remain after April 7, 2009) and unvested restricted stock would be forfeited as well.incentive plans. The executive's participation in the change-in-control agreement would also end and the executive's benefit from the nonqualified retirement plans would be forfeited.
Mr. Rosenblum's change-in-control agreement defines "change in control" to also mean a sale of Hawaiian Electric Company or a similar transaction. There are no gross-ups in the change-in-control agreements given to the named executive officers and aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code. The change-in-control agreements are also double trigger, meaning that severance payments are made only if a change in control occurs and the named executive officer also loses his or her job under the qualifying circumstances described in his or her change-in-control agreement. Ms. Lau and Mr. Schools each have a lump sum severance multiplier of three times, Mr.Messrs. Ajello, Richardson hasand Rosenblum have a lump sum severance multiplier of two times and Mr. Harada has a lump sum severance multiplier of one time applied to the sum of the executive's base salary and annual bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three years). Mr. Yeaman's change-in-control agreement terminated when he resigned from Hawaiian Electric Company on June 12, 2008. Mr. May's change-in-control agreement terminated upon his retirement on December 31, 2008.
In addition, executives would receive continued life, disability, dental, accident and health insurance benefits for the severance period (the number of years equal to the applicable severance multiplier). Executives would receive a lump sum payment equal to the present value of the additional benefit the executives would have earned under their respective retirement and savings plans during the severance period. Executives would also receive the greater of current target or actual projected short- and long-term incentive bonuses, prorated if termination occurs during the first half of the applicable performance period and the full aggregate value if termination occurs after the end of the first half of the applicable performance period. Any unvested restricted stock and restricted stock units will become vested and free of restrictions upon a change in control. For all of the HEI named executive officers except Mr. Schools, additional age and service credit is received for the severance period for purposes of determining retiree welfare benefit eligibility; however, American Savings Bank does not have a post-retirement medical benefits plan and Mr. Schools will not participate in this benefit. Executives would receive financial, tax planning and outplacement services, capped at 15% of annual base salary. Payment would generally be delayed for six months following termination of employment to the extent required to avoid an additional tax under Section 409A of the Internal Revenue Code. Interest would accrue during the six-month delay period at the prevailing six-month certificate of deposit rate and payments would be set aside during that period in a grantor ("rabbi") trust.
Other benefits are provided to the executives upon a change in control under the 1987 Stock Option and Incentive Plan, as amended and restated, effective May 6, 2008, as described below. All such severance and benefit payments under the change-in-control agreements are limited to the maximum amount deductible under Section 280G
of the Internal Revenue Code, and to the extent necessary to make such payments deductible, the severance and benefit payments may be reduced.
Mr. Schools' agreement also defines a change in control as a change in ownership of American Savings Bank. At its meeting on October 30, 2007, the same date when the Committee approved
Mr. Schools' compensation upon his promotion to President of American Savings Bank, the Compensation Committee determined that Mr. Schools need not repay any portion of his $400,000 signing bonus if there was a change in control at American Savings Bank (and he lost his employment as a result thereof) within four years from the date of commencement of his employment on July 15, 2007. Additionally, at its meeting on January 14, 2008, the Compensation Committee determined that if American Savings Bank was sold in 2008 and if Mr. Schools' employment with American Savings Bank was terminated within 12 months as a result of the sale, necessitating his return to the mainland, then HEI would purchase Mr. Schools' residence in Hawaii for the same closing price at which Mr. Schools acquired the house in 2007, namely, $3.635 million, but only after Mr. Schools listed the house for sale and attempted for at least six months to sell it. HEI would also pay for: (a) the realtor commission expense in selling the house (at£ 6%); and (b) the cost of relocating Mr. Schools and his family back to the mainland (not to exceed $75,000 in total exclusive of realtor commission). The January 14, 2008 agreement to purchase Mr. Schools' house terminated on December 31, 2008.
The amount that is shown in the table is the intrinsic ("spread") value of the vested award. The stock appreciation rights had no intrinsic value as of December 31, 2008 because the exercise price was greater than the 2008 year-end closing price.
employment is terminated after their second anniversary and on or before their third anniversary of employment, they will receive 6 months of salary and any target annual bonus. Any limitations on the amount of severance under the plan would not apply. After their third year of employment, they will be eligible for severance under the standard terms of the Severance Pay Plan.
For purposes of retention of Mr. Schools, American Savings Bank agreed to purchase his residence in Honolulu on or before the earlier of June 30, 2011 or his termination as an employee of American Savings Bank, provided that he remains employed at American Savings Bank in his current capacity through December 31, 2010 or such earlier date as the company may determine in its sole discretion; and he is not terminated for cause. If such purchase were to occur, American Savings Bank would pay Mr. Schools his original purchase price of $3.635 million for the residence less normal selling costs borne by the seller (including brokers' commissions). This agreement does not apply if Mr. Schools remains in Hawaii for any reason other than his employment at American Savings Bank.
How is director compensation determined?
The Board believes that a competitive package is necessary to attract and retain individuals with the talentexperience, skills and qualifications needed for the challenging role of serving as a director of a publicly traded company with a unique blend of highly regulated industries. The Board chooses to compensate nonemployee directors using a mix of cash and HEI Common Stock to allow for an appropriate level of compensation for services, including a level of stock awards that will align the interests of directors with HEI shareholders. Only nonemployee directors are compensated for their service as directors. Ms. Lau, who is the only employee director, does not receive separate or additional compensation for serving as a director.
The Compensation Committee has the responsibility for recommendingrecommends nonemployee director compensation to the Board. In 2007, the Committeecommittee asked Towers PerrinWatson to conduct a review of HEI's nonemployee director compensation practices. Towers PerrinWatson assessed the structure of HEI's nonemployee director compensation program and its value compared to competitive market practices of financial services and utility peer companies, similar to those used in its executive compensation review. The 2007 analysis took into consideration the duties and scope of role and responsibilities of the corporatedirectors, especially in light of HEI's unique business and subsidiary board members, in addition to the HEI regulatory structure. The Compensation Committee reviewed the analysis in determining its recommendations to the Board concerning the appropriate nonemployee director compensation, including cash retainers, stock awards and meeting fees. In its meeting on May 3, 2007, the Board approved the Compensation Committee's recommendations on nonemployee director compensation. Although Ms. Lau is a member of the HEI Board, she doesdid not participate in the determination of nonemployee director compensation. There were no increases to the standard director retainer or meeting fees in 2009.
Retainer
The following is the annual retainer schedule for nonemployee directors of HEI and subsidiary companies paid in quarterly installments. Nonemployee directors of HEI who also serve on Board committees, or as directors on subsidiary company boards and committees, receive additional fees for service on such boards or committeecommittees as indicated below.
HEI Nonexecutive Chairman of the Board | $ | 250,000 | ||
HEI Director | 40,000 | |||
HEI Audit Committee Chairman | 15,000 | |||
HEI Compensation Committee Chairman | 10,000 | |||
HEI Nominating and Corporate Governance Chairman | 5,000 | |||
HEI Audit Committee Member | 6,000 | |||
HEI Compensation Committee Member | 4,000 | |||
HEI Nominating and Corporate Governance Member | 4,000 | |||
American Savings Bank Director | 25,000 | |||
Hawaiian Electric Company Director | 25,000 | |||
American Savings Bank Audit Committee Chairman | 12,500 | |||
Hawaiian Electric Company Audit Committee Chairman | 10,000 | |||
American Savings Bank Audit Committee Member | 5,000 | |||
Hawaiian Electric Company Audit Committee Member | 4,000 |
HEI Nonexecutive Chairman of the Board | $ | 250,000 | ||
HEI Director | 40,000 | |||
HEI Audit Committee Chair | 15,000 | |||
HEI Compensation Committee Chair | 10,000 | |||
HEI Nominating and Corporate Governance Committee Chair | 5,000 | |||
HEI Audit Committee Member | 6,000 | |||
HEI Compensation Committee Member | 4,000 | |||
HEI Nominating and Corporate Governance Committee Member | 4,000 | |||
American Savings Bank Director | 25,000 | |||
Hawaiian Electric Company Director | 25,000 | |||
American Savings Bank Audit Committee Chair | 12,500 | |||
Hawaiian Electric Company Audit Committee Chair | 10,000 | |||
American Savings Bank Audit Committee Member | 5,000 | |||
Hawaiian Electric Company Audit Committee Member | 4,000 |
Meeting Fees
In January 2008, the Board approved the Compensation Committee's recommendation to revise the compensation of nonemployeeNonemployee directors of HEI serving on the Boards of Hawaii Electric Light Company and Maui Electric Company, both subsidiaries of Hawaiian Electric Company, from an annual retainer of $8,000its subsidiary boards and committees are also entitled to a perearn meeting fee schedule as indicated below:
| ||
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Nonemployee directors on the American Savings Bank Compliance Committee received a meeting fee of $1,000fees for each meeting attended. The American Savings Bank Compliance Committee was dissolved in January 2009.
In addition,attended after the Board has also approved the following additional meeting fee schedule earned by a director per extra meeting, after attending the following minimum number of committee meetings during the calendar year:specified below.
HEI Audit Committee Member | $1,250 per meeting after 8 meetings | |
American Savings Bank Audit Committee Member | $1,000 per meeting after 8 meetings | |
Hawaiian Electric Company Audit Committee Member | $750 per meeting after 8 meetings | |
HEI Nominating and Corporate Governance Committee Member | $500 per meeting after 6 meetings | |
HEI Compensation Committee Member | $500 per meeting after 6 meetings |
Table Until January 2009, nonemployee directors on the American Savings Bank Compliance Committee were entitled to receive a meeting fee of Contents$1,000 for each meeting attended. The American Savings Bank Compliance Committee was dissolved in January 2009 and did not hold any meetings in 2009.
Until June 2009, nonemployee directors of HEI who served on the boards of Hawaii Electric Light Company and Maui Electric Company, which are both Hawaiian Electric Company subsidiaries, were entitled to a meeting fee of $500 for each meeting attended. Mr. Taniguchi was the only nonemployee director of HEI who served on these subsidiary boards. He resigned from these boards in June 2009. The members of these subsidiary boards are now composed entirely of officers of HEI and/or its subsidiaries, who are not compensated for their service as directors.
Stock Awards
For 2008,2009, each HEI nonemployee director received 1,800 shares of HEI Common Stock, which is granted annually for the purpose of further aligning directors' and shareholders' interests. Stock grants to existingnonemployee directors are made duringannually on the quarterlast business day in June.
Table of HEI's annual meeting.Contents
Retirement Benefit. At its meetingPursuant to the termination of the HEI Nonemployee Director Plan on December 17, 1996, the Board voted to terminate the Nonemployee Director Retirement Plan, which had been approved by the shareholders on April 17, 1990. Pursuant to the terms of the termination, the right of previously retired directors continue to receive benefits continues in accordance with the terms of the Nonemployee Director Retirement Plan as in effect at termination, and the present value of the accrued benefit of directors age 55 or younger or with 5 years of service or less as of April 22, 1997 has been paid out. The retirement benefit for all other directors who had been participating in the Nonemployee Director Retirement Plan (Mr. Myers and Ms. Plotts) was frozen as of December 31, 1996, and will be paid upon retirement of the director.plan. Upon their retirement from service as a director, Mr. Myers and Ms. Plotts will eachare eligible to receive benefits from the plan in an annual amount paid quarterly, of $15,000, (their annual retainer in effect at December 31, 1996)paid quarterly, for a period equal to the number of years of their active service through December 31, 1996 (7 years for Mr. Myers and 10 years for Ms. Plotts). UponAll benefits payable under the plan, whether commenced or not, cease upon the death of the director, whether retired or not, HEI's obligation to make payments ceases. As of December 31, 2008, the present value of Mr. Myers' and Ms. Plotts' accumulated benefit was $53,165 and $98,090, respectively.nonemployee director.
Deferred Compensation. Nonemployee directors may elect to participate in the HEI Nonemployee Directors' Deferred Compensation Plan, as amended and restated, effective January 1, 2009, which allows any nonemployee director to defer compensation from HEI for service as a director. The plan allows for either lump sum or installment distributions upon the retirement of the director. Upon the death of the director, the balance of the deferred account will be distributed in a lump sum to a designated beneficiary. Mr. Mills, who retired from the Board on July 9, 2008, was the only participant in the plan in 2008, although he did not make any deferral elections in 2008. The annual earnings on the plan are credited by HEI based upon the American Savings Bank three-year certificate of deposit rate established on January 1 of each year. As of December 31, 2008, Mr. Mills' deferred compensation balance was $59,231. Mr. Mills elected to receive a lump sum distribution upon his retirement and was paid his full balance in January 2009.
Perquisites—Discounted Fees and Services.Preferential Rate Loans. The Board approvedUnder a recommendation of the Nominating and Corporate Governance Committee in 2006 that, effective June 30, 2006, new preferential rate loans not be extended to any nonemployee director of American Savings Bank (includingprogram for American Savings Bank directors who are also nonemployeethat has been discontinued since June 30, 2006, certain HEI directors of HEI). Existingwere eligible to receive preferential rate mortgage loans to nonemployeebecause they were American Savings Bank directors as of June 30, 2006at the time. When this program was discontinued, their existing loans were grandfathered. The preferential rateInformation regarding the grandfathered loans provided to nonemployee directors that exceeded $120,000 in the aggregate at any time during 2008 are describedMessrs. Gushman, Li and Watanabe and Mses. Daniel and Plotts is included under "Other Relationships and Related Person Transactions—Are there any related person transactions with HEI or its subsidiaries?" on pages 66-67 and are reflectedbelow. The loan to Dr. Li was fully repaid in the Director Compensation Table under All Other Compensation on page 62. American Savings Bank continues to offer grandfathered preferential employee rate loans to its executive officers and employees who were employed prior to January 1, 2009, as allowed by the amended Federal Reserve Act.February 2009.
Other Perquisites.Perquisites—Health Benefits. Directors, at their election and at their cost, may participate in the group employee medical, vision and dental plans generally made available to HEI, Hawaiian Electric Company or American Savings Bank employees. Mr. Gushman participates in this program, but, since he pays all of the premiums, no aggregate incremental cost is attributed to HEI.
HEI directors who are also nonemployee directors of American Savings Bank may receive other free services such as personal checking and traveler's checks, safe deposit boxes, notary services and
stop payment services. American Savings Bank directors may also receive these services if they qualify as Private Banking customers. These services are made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectability or present other unfavorable features.
The following directortable below shows compensation table shows the compensation ofto the HEI Board of Directors for 2008:nonemployee directors in 2009.
20082009 DIRECTOR COMPENSATION TABLE
Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (3) | All Other Compensation ($) (4) | Total ($) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 75,000 | 44,640 | — | — | — | — | 119,640 | |||||||||||||||
Shirley J. Daniel | 71,000 | 44,640 | — | — | — | 27,920 | 143,560 | |||||||||||||||
Thomas B. Fargo | 84,000 | 44,640 | — | — | — | — | 128,640 | |||||||||||||||
Richard W. Gushman, II | 72,667 | 44,640 | — | — | — | 63,392 | 180,699 | |||||||||||||||
Victor H. Li | 69,500 | 44,640 | — | — | — | 8,292 | 122,432 | |||||||||||||||
Bill D. Mills (5) | 25,333 | 44,640 | — | — | — | — | 69,973 | |||||||||||||||
A. Maurice Myers | 45,000 | 44,640 | — | — | 1,542 | — | 91,182 | |||||||||||||||
Diane J. Plotts | 100,500 | 44,640 | — | — | 3,922 | 13,623 | 162,685 | |||||||||||||||
James K. Scott | 70,834 | 44,640 | — | — | — | — | 115,474 | |||||||||||||||
Kelvin H. Taketa | 70,000 | 44,640 | — | — | — | — | 114,640 | |||||||||||||||
Barry K. Taniguchi | 109,000 | 44,640 | — | — | — | — | 153,640 | |||||||||||||||
Jeffrey N. Watanabe | 340,833 | 44,640 | — | — | — | 20,589 | 406,062 |
Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (4) | Total ($) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 74,000 | 34,236 | — | — | — | — | 108,236 | |||||||||||||||
Shirley J. Daniel | 71,000 | 34,236 | — | — | — | 27,797 | 133,033 | |||||||||||||||
Thomas B. Fargo | 85,000 | 34,236 | — | — | — | — | 119,236 | |||||||||||||||
Richard W. Gushman, II | 74,000 | 34,236 | — | — | — | 62,869 | 171,105 | |||||||||||||||
Victor H. Li | 69,000 | 34,236 | — | — | — | — | 103,236 | |||||||||||||||
A. Maurice Myers | 54,417 | 34,236 | — | — | 3,970 | (3) | — | 92,623 | ||||||||||||||
Diane J. Plotts | 96,500 | 34,236 | — | — | — | (3) | 13,453 | 144,189 | ||||||||||||||
James K. Scott | 75,000 | 34,236 | — | — | — | — | 109,236 | |||||||||||||||
Kelvin H. Taketa | 70,000 | 34,236 | — | — | — | — | 104,236 | |||||||||||||||
Barry K. Taniguchi | 107,000 | 34,236 | — | — | — | — | 141,236 | |||||||||||||||
Jeffrey N. Watanabe | 345,000 | 34,236 | — | — | — | 20,288 | 399,524 |
Details ofThe table below shows cash retainers paid to HEI nonemployee directors in 2009 for each board and committee (including subsidiary boards and committees) on which each director served in 2009 and for service are noted below:as the nonexecutive HEI Chairman in 2009.
Name | HEI Board Retainer ($) | HEI Comm. Retainer ($) | HEI Chairman of the Board Retainer ($) | HECO Board Retainer ($) | HECO Audit Comm. Retainer ($) | HELCO Board Fee ($) | MECO Board Fee ($) | ASB Board Retainer ($) | ASB Audit Comm. Retainer ($) | ASB Compliance Comm. Meeting Fee | Additional Meeting Fees ($) (1) | Total ($) | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 40,000 | 4,000 | — | — | — | — | — | 25,000 | 5,000 | — | 1,000 | 75,000 | |||||||||||||||||||||||||
Shirley J. Daniel | 40,000 | 6,000 | — | — | — | — | — | 25,000 | — | — | — | 71,000 | |||||||||||||||||||||||||
Thomas B. Fargo | 40,000 | 14,000 | — | 25,000 | 4,000 | — | — | — | — | — | 1,000 | 84,000 | |||||||||||||||||||||||||
Richard W. Gushman | 40,000 | 2,667 | — | — | — | — | — | 25,000 | 5,000 | — | — | 72,667 | |||||||||||||||||||||||||
Victor H. Li | 40,000 | 4,000 | — | — | — | — | — | 25,000 | — | — | 500 | 69,500 | |||||||||||||||||||||||||
Bill D. Mills | 20,000 | 5,333 | — | — | — | — | — | — | — | — | — | 25,333 | |||||||||||||||||||||||||
A. Maurice Myers | 40,000 | 4,000 | — | — | — | — | — | — | — | — | 1,000 | 45,000 | |||||||||||||||||||||||||
Diane J. Plotts | 40,000 | 19,000 | — | — | — | — | — | 25,000 | 12,500 | 3,000 | 1,000 | 100,500 | |||||||||||||||||||||||||
James K. Scott (3) | 40,000 | 10,000 | — | 4,167 | — | — | — | 16,667 | — | — | — | 70,834 | |||||||||||||||||||||||||
Kelvin H. Taketa | 40,000 | 5,000 | — | 25,000 | — | — | — | — | — | — | — | 70,000 | |||||||||||||||||||||||||
Barry K. Taniguchi | 40,000 | 6,000 | — | 25,000 | 10,000 | 1,500 | 1,500 | 25,000 | — | — | — | 109,000 | |||||||||||||||||||||||||
Jeffrey N. Watanabe (2) | 40,000 | — | 250,000 | 20,833 | — | — | — | 25,000 | 5,000 | — | — | 340,833 |
Name | HEI Board Retainer ($) | HEI Comm. Retainer ($) | HEI Chairman of the Board Retainer ($) | HECO Board Retainer ($) | HECO Audit Comm. Retainer ($) | HELCO Board Meeting Fee ($) | MECO Board Meeting Fee ($) | ASB Board Retainer ($) | ASB Audit Comm. Retainer ($) | Total (1) ($) | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 40,000 | 4,000 | — | — | — | — | — | 25,000 | 5,000 | 74,000 | |||||||||||||||||||||
Shirley J. Daniel | 40,000 | 6,000 | — | — | — | — | — | 25,000 | — | 71,000 | |||||||||||||||||||||
Thomas B. Fargo | 40,000 | 16,000 | — | 25,000 | 4,000 | — | — | — | — | 85,000 | |||||||||||||||||||||
Richard W. Gushman | 40,000 | 4,000 | — | — | — | — | — | 25,000 | 5,000 | 74,000 | |||||||||||||||||||||
Victor H. Li | 40,000 | 4,000 | — | — | — | — | — | 25,000 | — | 69,000 | |||||||||||||||||||||
A. Maurice Myers (2) | 40,000 | 4,000 | — | 10,417 | — | — | — | — | — | 54,417 | |||||||||||||||||||||
Diane J. Plotts | 40,000 | 19,000 | — | — | — | — | — | 25,000 | 12,500 | 96,500 | |||||||||||||||||||||
James K. Scott | 40,000 | 10,000 | — | — | — | — | — | 25,000 | — | 75,000 | |||||||||||||||||||||
Kelvin H. Taketa | 40,000 | 5,000 | — | 25,000 | — | — | — | — | — | 70,000 | |||||||||||||||||||||
Barry K. Taniguchi | 40,000 | 6,000 | — | 25,000 | 10,000 | 500 | 500 | 25,000 | — | 107,000 | |||||||||||||||||||||
Jeffrey N. Watanabe | 40,000 | — | 250,000 | 25,000 | — | — | — | 25,000 | 5,000 | 345,000 |
How much stock do HEI's directors and executive officers own?Security Ownership of Certain Beneficial Owners
The following table below shows how manythe number of shares of HEI Common Stock were beneficially owned as of February 20, 20098, 2010 (or such other date as indicated below) by (a) each person known by HEI to own beneficially more than five percent of the outstanding shares of HEI Common Stock, (b) each director, nominee for director and named executive officer (as listed in the 2009 Summary Compensation Table on pages 44-46)above and by(c) all directors and executive officers as a group, based in part on information furnished by the respective individuals.shareholders. No HEI directors, executive officers or named executive officers own any shares of Preferred Stock of HEI's wholly owned subsidiary, Hawaiian Electric Company.
Amount of Common Stock and Nature of Beneficial Ownership of HEI Common Stock
Name of Individual or Group | Sole Voting or Investment Power (1) | Shared Voting or Investment Power (2) | Other Beneficial Ownership (3) | Stock Options/ Restricted Stock Units (4) | Total (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Nonemployee directors | ||||||||||||||||
Don E. Carroll | 15,985 | 15,985 | ||||||||||||||
Shirley J. Daniel | 12,935 | 12,935 | ||||||||||||||
Thomas B. Fargo | 9,468 | 9,468 | ||||||||||||||
Richard W. Gushman, II | 10,688 | 10,688 | ||||||||||||||
Victor H. Li | 2,626 | 11,204 | 507 | 14,337 | ||||||||||||
A. Maurice Myers | 31,016 | 4,281 | 35,297 | |||||||||||||
Diane J. Plotts | 16,880 | 16,880 | ||||||||||||||
James K. Scott | 19,633 | 19,633 | ||||||||||||||
Kelvin H. Taketa | 15,021 | 15,021 | ||||||||||||||
Barry K. Taniguchi | 21,608 | 21,608 | ||||||||||||||
Jeffrey N. Watanabe | 22,501 | 4 | 22,505 | |||||||||||||
Employee director and Named Executive Officer | ||||||||||||||||
Constance H. Lau | 149,513 | 6,680 | 215,511 | 371,704 | ||||||||||||
Other Named Executive Officers | ||||||||||||||||
Curtis Y. Harada | 12,602 | 93 | 12,695 | |||||||||||||
T. Michael May (6) | 38,071 | 46,387 | 84,458 | |||||||||||||
Chester A. Richardson | 4,500 | 4,500 | ||||||||||||||
Timothy K. Schools | 7,000 | 7,000 | ||||||||||||||
Eric K. Yeaman (6) | 0 | |||||||||||||||
All directors and executive officers as a group (17 persons) (5) | 330,468 | 37,093 | 7,191 | 215,604 | 590,356 | |||||||||||
Name of Individual or Group | Sole Voting or Investment Power (2) | Shared Voting or Investment Power (3) | Other Beneficial Ownership (4) | Stock Options/ Restricted Stock Units (5) | Total | Percent of Class | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BlackRock, Inc. (1) | 4,800,957 | — | — | — | 4,800,957 | 5.22 | % | ||||||||||||
Nonemployee directors | |||||||||||||||||||
Don E. Carroll | 24,330 | — | — | — | 24,330 | * | |||||||||||||
Shirley J. Daniel | 14,735 | — | — | — | 14,735 | * | |||||||||||||
Thomas B. Fargo | 12,067 | — | — | — | 12,067 | * | |||||||||||||
Richard W. Gushman, II | 13,383 | — | — | — | 13,383 | * | |||||||||||||
Victor H. Li | 4,051 | 11,204 | 536 | — | 15,791 | * | |||||||||||||
A. Maurice Myers | 37,419 | — | — | — | 37,419 | * | |||||||||||||
Diane J. Plotts | 18,680 | — | — | — | 18,680 | * | |||||||||||||
James K. Scott | 19,869 | — | — | — | 19,869 | * | |||||||||||||
Kelvin H. Taketa | 17,704 | — | — | — | 17,704 | * | |||||||||||||
Barry K. Taniguchi | — | 22,627 | — | — | 22,627 | * | |||||||||||||
Jeffrey N. Watanabe | 34,456 | — | 4 | — | 34,460 | * | |||||||||||||
Employee director and Named Executive Officer | |||||||||||||||||||
Constance H. Lau | 177,292 | — | 7,202 | 224,136 | 408,630 | * | |||||||||||||
Other Named Executive Officers | |||||||||||||||||||
James A. Ajello | — | — | — | — | — | * | |||||||||||||
Curtis Y. Harada | 5,602 | — | — | 469 | 6,071 | * | |||||||||||||
Chester A. Richardson | 7,554 | — | — | — | 7,554 | * | |||||||||||||
Richard M. Rosenblum | 700 | — | — | — | 700 | * | |||||||||||||
Timothy K. Schools | 7,000 | — | — | — | 7,000 | * | |||||||||||||
All directors and executive officers as a group (16 persons) (5) | 389,240 | 33,831 | 7,742 | 224,136 | 654,949 | * | |||||||||||||
Does anyone own more than 5% of HEI's stock?
No person is known to HEI to be the beneficial owner of more than 5% of the outstanding HEI Common Stock.
Does HEI have stock ownership and retention guidelines for directors and officers?
In 2003, the Board adopted stock ownership and retention guidelines for HEIHEI's directors, executive officers and directors, which went into effect on January 1, 2004.controller. Each officer and director subject to the guidelines has five years to achieve the level of required stock ownership. Stock ownership is measured onuntil January 1 of eachthe year based onfollowing the average closing price of HEI common stock on all trading daysfifth anniversary of the previous calendar year. Aslater of January 1, 2009, each(i) amendment to the guidelines affecting his or her specified level of the directors and officersstock ownership or (ii) his or her first becoming subject to the guidelines metto achieve the specified level of stock ownership requirements, except for those directors and officers who were appointed after 2003 and still have time to meet the guidelines: Admiral Fargo, who has until January 1, 2011, and Mr. Gushman,
Mr. Richardson and Mr. Schools, who have until January 1, 2013, to meet the guidelines. At its meeting on January 26,(compliance date). In 2009, the HEI Board amendedincreased the policy to increase thespecified level of stock ownership guidelines for the HEI President and Chief Executive Officer to five times (from two and a half times) her base salary insalary. For other directors and officers, stock within five years from the date the policy was amended in keeping with peers and what the Compensation Committee believes to be best practices. Theownership guideline targets are as follows:are: (1) HEI President and Chief Executive Officer—5 times base salary; (2) other named executive officers of HEI—1.5 times base salary; (3) members of the Board of Directors of HEI—5 times annual cash retainer; and (4) Chairman of the Board—1 times Chairman's annual cash retainer.retainer, (2) other directors—5 times annual Board and Board committee cash retainer and (3) other officers subject to the guidelines—1.5 times annual base salary. As of January 1, 2010, each director who has reached his or her initial compliance date had achieved his or her stock ownership target. Admiral Fargo will reach his initial compliance date on January 1, 2011. Messrs. Gushman and Richardson will reach their initial compliance dates on January 1, 2013. Mr. Schools will reach his initial compliance date on January 1, 2014. Ms. Lau and Messrs. Ajello, Rosenblum and Kostecki (who is HEI's controller) will reach their initial compliance dates on January 1, 2015.
Prior to his or her initial compliance date, directors and officers subject to the stock ownership and retention guidelines must observe the following stock retention requirements: (i) HEI directors must retain all shares received under their annual stock retainer and (ii) HEI and subsidiary officers subject to the guidelines must retain all shares received in payout under the Long-Term Incentive Plan and 20% of shares received through the exercise of nonqualified stock options or stock appreciation rights or through the vesting of restricted stock or restricted stock units. The Compensation Committee has the authority to approve temporary hardship exceptions to these retention requirements.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires HEI's executive officers, controller, directors and persons who own more than ten percent of a registered class of HEI's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Such reporting persons are also required by SEC regulations to furnish HEI with copies of all Section 16(a) forms they file. Based solely on aits review of such forms filed by its reportingprovided to it, or written representations from some of those persons during the last fiscal year,that no Forms 5 were required from such persons, HEI believes that the reportingits executive officers, controller, directors and persons who own more than ten percent of a registered class of HEI's equity securities complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 for 2009, except for Mr. Taniguchi and Mr. Mills (who has since retired from the Board),Carroll, who eachinadvertently failed inadvertently to report one transaction in a timely fashion, and Mr. Taketa, who inadvertently failed to report two transactions that occurred on the same date in a timely fashion. Each of these reports has now been filed.
Other Relationships and Related Person Transactions
Does HEI have a written related person transaction policy?
The Board of Directors has adopted a written related person transaction policy that is separate from HEI's Corporate Code of Conduct. The related person transaction policy is specific to transactions between the company and related persons such as executive officers and directors, and their immediate family members or entities with which they are affiliated in which the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. Under the policy, the Board, acting through the Nominating and Corporate Governance Committee, will approve a related person transaction involving a director if the Board determines in advance that the transaction is not inconsistent with the best interest of HEI and its shareholders. The Board, acting through the Audit Committee, will approve a related person transaction involving an officer if the Board determines in advance that the transaction is not in violation of HEI's Corporate Code of Conduct.
Are there any family relationships between any HEI executive officer, director and nominee for director?
There are no family relationships between any HEI executive officer, director andor nominee for director.
Are there any arrangements or understandings between any HEI director or director nominee and another person pursuant to which such director or director nominee was selected?
There are no such arrangements or understandings.
Are there any related person transactions with HEI or its subsidiaries?
HEI's banking subsidiary, American Savings Bank, offers grandfatheredno longer extends preferential employee rate loans to its executive officersdirectors and employees who were employed prior to January 1, 2009, as allowed by the amended Federal Reserve Act. The Board approved a recommendation of the Nominating and Corporate Governance Committee that effectiveemployees. Effective June 30, 2006, new preferential rate loans not bethat had already been extended to any nonemployee director ofcertain American Savings Bank. ExistingBank directors who are also HEI directors were grandfathered and no future preferential rate loans to directors are allowed. Effective July 1, 2009, preferential rate loans that had already been extended to employees were grandfathered and no future preferential rate loans to employees are allowed.
nonemployee American Savings Bank directors as of June 30, 2006 were grandfathered. Preferential The table below shows the grandfathered preferential rate loans that exceeded $120,000to the directors and officers listed below. Each loan was made in accordance with Regulation O of the aggregate at any time during 2008 are shown below:Federal Reserve Board regarding loans to insiders. Dr. Li fully repaid his loan in February 2009.
Name | Largest Principal Amount Outstanding During 2008 | Principal Amount Outstanding on 1/31/09 | Amount of Principal Paid in 2008 | Amount of Interest Paid in 2008 | Type of Transaction | Average Interest Rate Charged (1) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shirley J. Daniel | 1,436,682 | 1,405,218 | 28,995 | 56,940 | First Mortgage | 4.000% | ||||||||||||
Richard W. Gushman, II | 1,782,268 | 1,731,038 | 47,225 | 57,224 | First Mortgage | 3.250% | ||||||||||||
Constance H. Lau | 775,502 | 750,122 | 23,402 | 20,077 | First Mortgage | 2.625% | ||||||||||||
Constance H. Lau | 33,259 | 29,769 | 3,217 | 994 | Second Mortgage | 3.125% | ||||||||||||
Constance H. Lau | 3,271 | 0 | 8,866 | 0 | Credit Card | 12.000% | ||||||||||||
Victor H. Li | 334,321 | 325,181 | 8,427 | 9,914 | First Mortgage | 3.000% | ||||||||||||
Diane J. Plotts | 422,396 | 408,748 | 12,584 | 10,937 | First Mortgage | 2.625% | ||||||||||||
Timothy K. Schools | 2,908,000 | 2,908,000 | 0 | (2) | 185,385 | First Mortgage | 6.375% | |||||||||||
Jeffrey N. Watanabe | 521,725 | 501,732 | 18,425 | 19,250 | First Mortgage | 3.750% |
Name | Largest Principal Amount Outstanding During 2009 | Principal Amount Outstanding on 2/15/10 | Amount of Principal Paid in 2009 | Amount of Interest Paid in 2009 | Type of Transaction | Average Interest Rate Charged (1) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shirley J. Daniel | 1,405,218 | 1,372,363 | 30,177 | 55,758 | First Mortgage | 4.000% | ||||||||||||
Richard W. Gushman, II | 1,731,038 | 1,677,974 | 48,783 | 55,667 | First Mortgage | 3.250% | ||||||||||||
Constance H. Lau | 750,122 | 724,011 | 24,024 | 19,455 | First Mortgage | 2.625% | ||||||||||||
Constance H. Lau | 29,769 | 26,160 | 3,319 | 892 | Second Mortgage | 3.125% | ||||||||||||
Victor H. Li | 324,465 | 0 | 325,181 | 1,133 | First Mortgage | 3.000% | ||||||||||||
Diane J. Plotts | 408,748 | 294,708 | 12,918 | 10,603 | First Mortgage | 2.625% | ||||||||||||
Timothy K. Schools | 2,908,000 | 2,908,000 | 0 | (2) | 185,385 | First Mortgage | 6.375% | |||||||||||
Jeffrey N. Watanabe | 501,732 | 480,913 | 19,128 | 18,547 | First Mortgage | 3.750% |
American Savings Bank has made other loans established linesand extensions of credit and issued credit cards to directors and executive officers, of HEI, and to members of their immediate families.families and entities with which the foregoing are affiliated. These loans and extensions of credit were made in the ordinary course of business were madeand on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectabilitycollectibility or present other unfavorable features.
Until February 2010, American Savings Bank leased commercial space for one of its branches from Finance Enterprises, Ltd. and one of its wholly owned subsidiaries. Ms. Lau's husband, Russell J. Lau, is President, Chief Executive Officer and Director of Finance Enterprises, Ltd. and also owns an equity interest in that entity. Ms. Lau's father-in-law, Daniel B.T. Lau, is Chairman of the Board and Secretary of Finance Enterprises, Ltd. and also indirectly owns an equity interest in that entity through a family limited partnership (of which Ms. Lau is not a partner). The lease initially commenced in 1995 with other parties and the lessor and lessee obligations were subsequently assumed by Finance Enterprises, Ltd. and its wholly owned subsidiary jointly in 1996 and by American Savings Bank in 1997, until ownership of the property was transferred in February 2010 to an entity unaffiliated with Finance Enterprises, Ltd. or HEI or any of its subsidiaries. The assumption of the lease by American Savings Bank in 1997 occurred prior to the adoption of our related person transaction policy and has since been ratified by the Audit Committee. The transferee of the leased property and American Savings Bank continue to be party to the lease. Annual rent is approximately $224,000 and the lease is scheduled to expire in October 2010, subject to an option to extend the lease for five more years.
Compensation Committee Interlocks and Insider Participation
Don E. Carroll, Thomas B. Fargo, Victor H. Li, Bill D. Mills, A. Maurice Myers and Diane J. Plotts were members of the HEI Compensation Committee for all or part of 2008. Mr. Mills wasduring 2009. Admiral Fargo served as Compensation Committee Chairman from January 1, 2008 to May 6, 2008. He retired from the Board on July 9, 2008. Admiral Fargo was appointed Compensation Committee Chairman on May 6, 2008.Chairperson.
VictorDr. Li and DianeMs. Plotts are members ofreceived the HEI Board and Compensation Committee and are also members of the American Savings Bank Board. As members of the American Savings Bank Board, they have received preferential rate loans as described above. Dr. Li fully repaid his loan in February 2009.
The Audit Committee is responsible for providing independent, objective oversight of HEI's accounting functions and internal controls. It operates and acts under a written charter, which was adopted and approved by the Committeecommittee and the HEI Board of Directors. The Board has determined that the five directors of the Audit Committee meet the independence and other qualification requirements of the New York Stock Exchange Listed Company Manual and applicable securities laws. Ms. Plotts, Dr. Daniel and Mr. Taniguchi have been determined by the Board of Directors to be the "audit committee financial experts" on the Audit Committee. In addition, the Audit Committee has standby arrangements withauthority to retain its own independent legal counsel and accounting advisors.advisers at HEI's expense.
The Audit Committee oversees HEI's financial process on behalf ofassists the Board of Directors.Directors with its financial and risk oversight responsibilities. Management has the primary responsibility for HEI's consolidated financial statements and reporting process, including the systems of internal control. The independent registered public accounting firm has the responsibility for the independent audit of the consolidated financial statements and for expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles.
In connection with these responsibilities, the Audit Committee held four regular meetings in 2008.2009. In these meetings with management and KPMG LLP, HEI's independent registered public accounting firm for 2009, the Committee'scommittee's review and discussion included the audited consolidated financial statements, audit plan and quality/adequacy of internal controls. The Committeecommittee believes that management maintains effective systems of internal control that result in fairly presented consolidated financial statements. Discussions with KPMG LLP included the matters required by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, which incorporates information regarding the scope and results of the audit.
Independent Registered Public Accounting Firm's Independence
KPMG LLP provided the Audit Committee with written disclosures and a letter regarding its independence from management as required by professional standards and other regulatory requirements, including applicable requirements of the Public Company Accounting Oversight Board. Based on its review of the disclosure statements and discussions with KPMG LLP, the Audit Committee satisfied itself as to the independence of the external auditor.
Auditors' Fees
The following table sets forth the fees paid or payable to KPMG LLP relating to the audit of the 20082009 consolidated financial statements and fees for other professional services billed in 20082009 with comparative amounts for 2007:2008:
| 2008 | 2007 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fees | % | Fees | % | |||||||||
Audit fees (principally consisted of fees associated with the audit of HEI's, HECO's and ASB's consolidated financial statements and internal control over financial reporting (SOX 404), quarterly reviews, issuances of letters to underwriters, accounting consultations on matters reflected in the financial statements, statutory audits, review of registration statements, and issuance of consents) | $ | 2,080,000 | 95.5 | $ | 2,011,500 | 93.0 | |||||||
Audit-related fees (principally consisted of fees associated with the audit of the financial statements of certain employee benefit plans) | 64,400 | 3.0 | 60,300 | 2.8 | |||||||||
Tax fees (tax compliance services with respect to Federal and State taxes) | 32,500 | 1.5 | 90,500 | 4.2 | |||||||||
All other fees | — | — | — | — | |||||||||
$ | 2,176,900 | 100.0 | $ | 2,162,300 | 100.0 | ||||||||
| 2009 | 2008 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fees | % | Fees | % | |||||||||
Audit fees (principally consisted of fees associated with the audit of HEI's, Hawaiian Electric Company's and American Savings Bank's consolidated financial statements and internal control over financial reporting (Sarbanes-Oxley Act of 2002, Section 404), quarterly reviews, issuances of letters to underwriters, statutory audits, review of registration statements and issuance of consents) | $ | 1,652,000 | 94.3 | $ | 2,080,000 | 95.5 | |||||||
Audit-related fees (principally consisted of fees associated with the audit of the financial statements of certain employee benefit plans) | 82,000 | 4.7 | 64,400 | 3.0 | |||||||||
Tax fees (tax compliance services with respect to federal and state taxes) | 17,713 | 1.0 | 32,500 | 1.5 | |||||||||
All other fees | — | — | — | — | |||||||||
$ | 1,751,713 | 100.0 | $ | 2,176,900 | 100.0 | ||||||||
All of the foregoing amounts were preapproved.pre-approved.
ThePursuant to its charter, the Audit Committee pursuant to the terms of its charter, approvespre-approves all audit and permitted nonaudit services to be performed by the independent registered public accounting firm. In addition, theThe Audit Committee's preapproval policies and procedures for nonaudit services proposedCommittee may delegate this responsibility to be performed by HEI's independent registered public accounting firm are initiated by departmental requests for nonaudit services, which are reviewed by senior management and, once found by management to be acceptable, are sentone or more of its members, provided that such member or members report any such pre-approvals to the full Audit Committee for approval via unanimous written consent or at a meeting of the Audit Committee.its next regularly scheduled meeting. In addition, the Audit Committee reviewed the professional fees billed by KPMG LLP and determined that the provision of nonaudit services was compatible with the maintenance of the auditors' independence.
Based on its reviews and discussions with management and KPMG LLP described above and review of theirKPMG's representations and disclosures, the Audit Committee recommended to the Board of Directors that theHEI's audited consolidated financial statements be included in HEI's 2008 Annual Report on2009 Form 10-K.
SUBMITTED BY THE
AUDIT COMMITTEE
OF THE
HEI BOARD OF DIRECTORS
Diane J. Plotts, ChairmanChairperson
Shirley J. Daniel
Thomas B. Fargo
James K. Scott
Barry K. Taniguchi
How are proxies solicited and what is the cost?
HEI will solicit proxies by mail, telephone or other means of communication.communication and will bear the cost of such solicitation. We have engaged Laurel Hill Advisory Group to assist in the distribution of proxy materials and solicitation of proxies (including by telephone) from shareholders at a cost of $6,500$7,500 plus reasonable expenses for such services. In addition, Laurel Hill may also solicit proxies by telephone, for which we will reimburse their expenses. We will also reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of our Common Stock.
What is the deadline for submitting a proposal for next year's Annual Meeting?
Shareholders who want to have a proposal included in the Proxy Statementproxy statement and form of proxy for the 2010 Annual Meeting2011 annual meeting of Shareholdersshareholders must notify the Corporate Secretary of HEI in writing. The proposal must be received by November 18, 2009.22, 2010.
How can business matters be brought before the Annual Meeting and how will they be voted?Meeting?
Shareholders who wantwish to properly present business before the Annual Meeting must giveprovide a written notice to the Corporate Secretary of HEIthat is received no later than 60 days nor earlier than 90 days prior to the anniversary date of the preceding year's annual meeting.
To be timely infor the year 2010,2011 annual meeting of shareholders, notice must be received by the Corporate Secretary of HEI no later than March 6, 201012, 2011 and no earlier than February 4, 2010.10, 2011. The notice must be in writing and stateinclude, as to each matter the reason andshareholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder, (iii) the number of shares of HEI Common Stock that are owned by the shareholder, (iv) a description of all arrangements or understandings between the shareholder and any other person or persons (including their names) in connection with the proposal of such business by the shareholder and any material interest of the shareholder in such business and include(v) a representation that the shareholder will present the business before the meetingintends to appear in person or by proxy.proxy at the annual meeting to bring such business before the meeting.
How can shareholders make recommendations for directorrecommend or propose persons as nominees or nominate a candidate for election?to serve on the Board?
You canShareholders may recommend any person as a director of HEIto serve on the Board by writing to the Nominating and Corporate Governance Committee by writing to that Committee in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P. O.P.O. Box 730, Honolulu, Hawaii 96808-0730. Recommendations must be received by November 30, 200922, 2010 for consideration by the Nominating and Corporate Governance Committee for the 2010 Annual Meeting2011 annual meeting of Shareholders.shareholders. The recommendation must include the nominee's qualifications to be(a) a director of HEIresume and other relevant biographical information regarding the person's skills and confirmation ofqualifications to serve on the Board, (b) the nominee's consent to serve. In addition,serve as a shareholder nominating any person for electiondirector and (c) the number of shares of HEI Common Stock owned by the shareholder.
Shareholders may propose persons as nominees to serve on the Board by providing a written notice to the board at the annual meeting must provide noticeCorporate Secretary that is received no later than March 6, 201012, 2011 and no earlier than February 4, 2010.10, 2011. The notice must be in writinginclude:
Section 14 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder; and
A written consent of each proposed nominee to being a nominee and to serve as a director if elected must be accompanied by a written confirmation ofalso accompany the nominee's consent to serve.notice.
What provisions has HEI made for "householding"?
As permitted by rules of the Securities and Exchange Commission, HEI has adopted a procedure referred to as "householding," under which only one annual report to shareholders will be delivered to shareholders sharing the same address, unless contrary instructions are received. Householding reduces the volume of duplicate information received at your household, and the cost to HEI of preparing and mailing duplicate materials.materials and the environmental burden of excess paper usage. Certain shareholder accounts at a householded address will continue to receive separate proxy statements and proxy cards. Dividend payments and account statements are not
affected. Householding will continue until you are notified otherwise or until you notify us that you wish to receive a separate annual report. You will be removed from the householding program within 30 days ofafter receipt of your notice. If you wish to discontinue householding of the annual report to shareholders, you may notify us by calling us at (808) 532-5841 or toll free at (866) 672-5841 or (808) 532-5841 between 7:30 a.m.– and 3:0030 p.m., Hawaii Standard Time. You may also discontinue householding by writing to us at the following address —address: Hawaiian Electric Industries, Inc. Shareholder Services, P.O. Box 730, Honolulu, Hawaii 96808-0730, or e-mailby e-mailing us at invest@hei.com.
If you hold your shares in "street name," please contact your bank, broker or other holder of record to request information about householding.
* * *
If other business is properly brought before the Annual Meeting, or at any adjournment thereof, the persons named on the enclosed proxy will vote your stock in accordance with their best judgment. HEI knows of no other business to be presented at the 2009 Annual Meeting.
Please vote your proxy as soon as possible to make certainensure that your shares will be counted at the meeting.Annual Meeting.
Senior Vice Chief Administrative Officer |
March 18, 200922, 2010
HAWAIIAN ELECTRIC INDUSTRIES, INC.
2010 EQUITY AND INCENTIVE PLAN
The name of this Plan is the Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan (the "Plan"). The purpose of the Plan is to provide an additional incentive to selected employees of the Company or its Affiliates whose contributions are essential to the growth and success of the Company's business, in order to strengthen the commitment of such persons to the Company and its Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing.
As of the Effective Date, no new awards shall be made under the Company's 1987 Stock Option and Incentive Plan, as amended from time to time.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) "Administrator" means the Board, or, if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 3 hereof.
(b) "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. An entity shall be deemed an Affiliate of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(c) "Award" means any Option, Share Appreciation Right, Restricted Share, Deferred Share, Performance Share, Other Share-Based Award or Other Cash-Based Award granted under the Plan.
(d) "Award Agreement" means any written agreement, contract or other instrument or document evidencing an Award.
(e) "Bylaws" mean the amended and restated bylaws of the Company, as may be amended and/or restated from time to time.
(f) "Beneficial Owner" (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act.
(g) "Board" means the Board of Directors of the Company.
(h) "Cause" shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define "Cause," Cause shall mean (i) the refusal or neglect of the Participant to perform substantially his or her employment-related duties, (ii) the Participant's personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) the Participant's indictment for, conviction of or entering a plea of guilty ornolo contendere to a crime constituting a felony or his or her willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment which in no way adversely affects the Company and its Subsidiaries or their reputation or the ability of the Participant to perform his or her employment-related duties or to represent the Company or any Subsidiary of the Company that employs such Participant), (iv) the Participant's failure to reasonably cooperate, following a request to do so by the
Company, in any internal or governmental investigation of the Company or any of its Subsidiaries or (v) the Participant's material breach of any written covenant or agreement with the Company or any of its Subsidiaries not to disclose any information pertaining to the Company or such Subsidiary or not to compete or interfere with the Company or such Subsidiary.
(i) "Certificate of Incorporation" means the amended and restated certificate of incorporation of the Company, as may be further amended and/or restated from time to time.
(j) "Change in Capitalization" means any (i) merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase or other reorganization or corporate transaction or event, (ii) dividend (whether in the form of cash, Common Stock or other property), stock split or reverse stock split, (iii) combination or exchange of shares, (iv) other change in corporate structure or (v) declaration of a special dividend (including a cash dividend) or other distribution, which, in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 6 hereof is appropriate.
(k) "Change in Control" shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes (other than in connection with a transaction described in Paragraph (iii) below) the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or any of its Affiliates) representing more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or
(ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including without limitation a consent solicitation, relating to the election of directors of the Company) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority thereof; or
(iii) consummation of a merger or consolidation of the Company or any Subsidiary of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete liquidation of the Company; or
(v) there is consummated an agreement for the sale, disposition or long-term lease by the Company of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred (1) by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same proportionate ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of the Company as constituted immediately prior to such transaction or series of transactions, or (2) with respect to any Award subject to Section 409A of the Code, unless the applicable event also constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code and regulations thereunder.
(l) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
(m) "Committee" means any committee the Board may appoint to administer the Plan or a subcommittee thereof. Subject to the discretion of the Board, the Committee shall be composed entirely of individuals who meet the qualifications of an "outside director" within the meaning of Section 162(m) of the Code, a "non-employee director" within the meaning of Rule 16b-3 and any other qualifications required by the applicable stock exchange on which the Common Stock is traded. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee. Except as otherwise provided in the Certificate of Incorporation or Bylaws, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting at which a quorum is duly constituted or unanimous written consent of the Committee's members.
(n) "Common Stock" means the common stock, no par value per share, of the Company.
(o) "Company" means Hawaiian Electric Industries, Inc. (or any successor corporation, except as the term "Company" is used in the definition of "Change in Control" above).
(p) "Covered Employee" shall have the meaning set forth in Section 162(m) of the Code.
(q) "Deferred Shares" means the right granted pursuant to Section 10 hereof to receive Shares at the end of a specified deferral period or periods and/or upon attainment of specified performance objectives.
(r) "Disability" means, with respect to any Participant, that such Participant (i) as determined by the Administrator in its sole discretion, is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or an Affiliate thereof.
(s) "Effective Date" means the date as of which this Plan is approved by the shareholders of the Company.
(t) "Eligible Recipient" means any regular full-time employee of the Company or any Affiliate of the Company who has been selected as an eligible participant by the Administrator.
(u) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(v) "Exercise Price" means, with respect to any Award under which the holder may purchase Shares, the per share price at which a holder of such Award granted hereunder may purchase Shares issuable upon exercise of such Award.
(w) "Fair Market Value" means, as of any given date, with respect to any Awards granted hereunder: (i) the closing sale price of a share of Common Stock on such date on the national
securities exchange on which the Company's equity securities are principally listed or traded, or, if on such date no trade was conducted, the most recent preceding date on which there was such a trade; (ii) if the shares of Common Stock are then traded in an over-the-counter market, the average of the closing bid and asked prices for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market; (iii) the fair market value of a share of Common Stock as determined in accordance with a method prescribed in the applicable Award Agreement; or (iv) the fair market value of a share of Common Stock as otherwise determined by the Administrator in the good faith exercise of its discretion and, as required, in compliance with Section 409A of the Code.
(x) "Free Standing Rights" shall have the meaning as set forth in Section 9 hereof.
(y) "Good Reason" means any material reduction in the Participant's annual base compensation (except a reduction pursuant to across-the-board reductions that similarly affect all similarly situated employees of the Company or any Affiliate, as applicable).
(z) "Incentive Stock Option" or "ISO" means any Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code.
(aa) "Non-Qualified Stock Option" or "NQSO" means any Option that is not an Incentive Stock Option, including any Option that provides (as of the time such Option is granted) that it will not be treated as an Incentive Stock Option.
(bb) "Option" means an option to purchase shares of Common Stock granted pursuant to Section 8 hereof. An Option may be either an ISO or an NQSO.
(cc) "Other Cash-Based Award" means a cash Award granted to a Participant under Section 11 hereof, including cash awarded as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan.
(dd) "Other Share-Based Award" means a right or other interest granted to a Participant under the Plan that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Stock, including, but not limited to, unrestricted Shares, restricted stock units, dividend equivalents or performance units, each of which may be subject to the attainment of Performance Goals or a period of continued employment or other terms or conditions as permitted under the Plan.
(ee) "Participant" means any Eligible Recipient selected by the Administrator, pursuant to the Administrator's authority provided for in Section 3 hereof, to receive grants of Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be.
(ff) "Performance Goals" means performance goals based on one or more of the following criteria: (i) total return to shareholders; (ii) earnings per share of Common Stock; (iii) net income (before or after taxes); (iv) earnings before all or any interest, taxes, depreciation and/or amortization ("EBIT", "EBITA", or "EBITDA"); (v) gross revenue; (vi) return on assets; (vii) market share; (viii) cost reduction goals; (ix) earnings from continuing operations, levels of expense, cost or liability; (x) performance against operational budgets; (xi) a Participant's individual operational project goals; (xii) return on average common equity; (xiii) individual performance goals; (xiv) free cash flow; (xv) modified free cash flow (net income plus depreciation and amortization less net capital expenditures); (xvi) shareholder value added; (xvii) pre-tax, pre-provision income; (xviii) efficiency ratio; (xix) net charge offs; and (xx) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase
or decrease in the particular criteria, and may be applied to one or more of the Company or Affiliate thereof, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). Each of the foregoing Performance Goals shall be determined in accordance with generally accepted accounting principles and shall be subject to certification by the Committee;provided, that the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Affiliate thereof or the financial statements of the Company or any Affiliate thereof, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, in any case to the extent such adjustment does not cause a loss of deduction under Section 162(m) of the Code.
(gg) "Performance Shares" means Shares that are subject to restrictions that lapse upon the attainment of specified performance objectives and that are granted pursuant to Section 10 hereof.
(hh) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any Subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(ii) "Plan" shall have the meaning as set forth in Section 1 hereof.
(jj) "Related Rights" shall have the meaning as set forth in Section 9 hereof.
(kk) "Restricted Period" means any such period as may be set by the Administrator commencing on the date of grant of an Award, subject to the provisions of the Plan and the applicable Award Agreement, during which the Participant shall not be permitted to sell, transfer, pledge or assign shares subject to such Award granted under the Plan;provided,however, that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals, the Participant's termination of employment with the Company or any of its Affiliates, the Participant's death or Disability, or the occurrence of a Change in Control.
(ll) "Restricted Shares" means Shares granted pursuant to Section 10 hereof subject to certain restrictions that lapse at the end of a specified period or periods.
(mm) "Retirement" means a termination of a Participant's employment, other than for Cause, on or after the attainment of age fifty-five (55) with at least five (5) years of continuous employment.
(nn) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time.
(oo) "Shares" means shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any successor (pursuant to a merger, consolidation or other reorganization) security.
(pp) "Share Appreciation Right" means the right pursuant to an Award granted under Section 9 hereof to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Shares covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.
(qq) "Subsidiary" means, with respect to any Person, as of any date of determination, any other Person as to which such first Person owns or otherwise controls, directly or indirectly, more than fifty percent (50%) of the voting shares or other similar interests or a sole general partner interest or managing member or similar interest of such other Person. An entity shall be deemed a Subsidiary of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(a) The Plan shall be administered by the Administrator and shall be administered in accordance with the requirements of Section 162(m) of the Code (but only to the extent necessary and desirable to maintain qualification of awards under the Plan under Section 162(m) of the Code) and, to the extent applicable, Rule 16b-3. The Plan is intended to comply, and shall be administered in a manner that is intended to comply, with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that an Award, issuance and/or payment is subject to Section 409A of the Code, it shall be awarded and/or issued or paid in a manner that will comply with Section 409A of the Code, including any applicable regulations or guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto.
(b) Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority delegated to it by the Board, shall have the power and authority, without limitation:
(1) to select those Eligible Recipients who shall be Participants;
(2) to determine whether and to what extent Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares, Other Share-Based Awards, Other Cash-Based Awards or a combination of any of the foregoing, are to be granted hereunder to Participants;
(3) to determine the number of Shares to be covered by each Award granted hereunder;
(4) to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder (including, but not limited to, (i) the restrictions applicable to Restricted Shares or Deferred Shares and the conditions under which restrictions applicable to such Restricted Shares or Deferred Shares shall lapse, (ii) the Performance Goals or other performance related objectives and periods applicable to Performance Shares, (iii) the Exercise Price of each Award, (iv) the vesting schedule applicable to each Award, (v) the number of Shares subject to each Award and (vi) subject to the requirements of Section 409A of the Code (to the extent applicable), any amendments to the terms and conditions of outstanding Awards, including, but not limited to, extending the exercise period of such Awards and accelerating the vesting schedule of such Awards);
(5) to permit a Participant to elect to defer receipt of all or any portion of the cash or shares of Common Stock that are payable under an Award and provide that such deferred amount shall be credited with an interest rate or such other rate of return as shall be specified by the Administrator, all on such terms and conditions as may be established by the Administrator; provided, however, that any such election and deferral shall comply with the requirements of Section 409A of the Code;
(6) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares or Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing granted hereunder;
(7) to determine the Fair Market Value;
(8) to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination of the Participant's employment for purposes of Awards granted under the Plan;
(9) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and
(10) to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan and to exercise all powers and authorities either specifically granted under the Plan or necessary and advisable in the administration of the Plan.
(c) All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employee of the Company or any Subsidiary thereof acting on behalf of the Board or the Committee, shall be personally liable for any action, omission, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company and of any Subsidiary thereof acting on their behalf shall, to the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.
Section 4. Shares Reserved for Issuance Under the Plan.
(a) Subject to subsection (b) below and Section 6 hereof, the number of shares of Common Stock that are reserved and available for issuance pursuant to Awards granted under the Plan is 4,000,000 shares. Shares of Common Stock that are issued in connection with all Awards other than Options and Share Appreciation Rights or Awards whose vesting, exercisability or payment is subject to the attainment of Performance Goals shall be counted against the 4,000,000 limit described above as four shares of Common Stock for every share of Common Stock that is issued in connection with such Award. Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise.
(b) If any Shares subject to an Award are forfeited, cancelled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of shares to the Participant, the Shares with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan. If any Award (other than a Share Appreciation Right) is settled in part or in full in cash, the Shares settled in cash shall again be available for issuance in connection with future Awards granted under the Plan. Notwithstanding the foregoing, Shares surrendered or withheld as payment of either the exercise price of an Award granted hereunder (including Shares otherwise underlying an Award of a Share Appreciation Right that are retained by the Company to account for the grant price of such Share Appreciation Right) and/or withholding taxes in respect of such an Award shall no longer be available for grant under the Plan.
(c) All Shares may be made subject to Awards of ISOs.
Section 5. Overall Award Limitations; Section 162(m) of the Code
(a) To the extent required to comply with the requirements of Section 162(m) of the Code, the aggregate number of Shares subject to Awards (other than Other Cash-Based Awards) awarded to any one Participant during any calendar year may not, subject to adjustment as provided in Section 6 hereof, exceed 100,000 Shares.
(b) To the extent required to comply with the requirements of Section 162(m) of the Code, the maximum value of the aggregate payment that any Participant may receive with respect to Other Cash-Based Awards pursuant to Section 11 hereof in any calendar year is $2,000,000.
(c) To the extent that the Plan is subject to Section 162(m) of the Code, no payment shall be made to a Participant who is likely to be a Covered Employee prior to the certification by the Committee that the Performance Goals (if any) have been attained.
Section 6. Equitable Adjustments.
In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made, in each case, as may be determined by the Administrator, in its sole discretion, in (i) the aggregate number of shares of Common Stock reserved for issuance under the Plan and the maximum number of Shares that may be subject to Awards granted to any Participant in any calendar or fiscal year, (ii) the kind, number and Exercise Price subject to outstanding Options and Share Appreciation Rights granted under the Plan, and (iii) the kind, number and purchase price of Shares subject to outstanding Restricted Shares, Deferred Shares, Performance Shares or Other Share-Based Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion,provided,however, that any fractional shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. No such adjustment shall be made that would cause any Award that is or could be subject to Section 409A of the Code to fail to comply with the requirements of such section, and with respect to ISOs, any adjustment shall be made in accordance with the provisions of Section 424(h) of the Code and any regulations or guidance promulgated thereunder. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Award granted hereunder in exchange for payment in cash or other property having an aggregate Fair Market Value of the Shares covered by such Award, reduced by the aggregate Exercise Price or purchase price thereof, if any. Any Awards with an aggregate exercise price (or aggregate base in the case of a Share Appreciation Right) or part thereof canceled that is greater than the aggregate Fair Market Value of the shares of Common Stock subject to the Award or part thereof canceled, may be cancelled for no consideration. The Administrator's determinations pursuant to this Section 6 shall be final, binding and conclusive.
The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. Awards may be granted to Eligible Recipients;provided,however, that ISOs shall be granted only to employees (including officers and directors who are also employees) of the Company or any of its Subsidiaries.
(a) General. The grant of each Option shall be memorialized in an Award Agreement, containing such terms and conditions as the Administrator shall determine, in its sole discretion, including among other things the Exercise Price of the Option, the term of the Option, provisions regarding exercisability of the Option, and whether the Option granted thereunder is an ISO or an NQSO. The provisions of each Option need not be the same with respect to each Participant. More
than one Option may be granted to the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in this Section 8 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable and set forth in the applicable Award Agreement.
(b) Exercise Price. The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the exercise price of an Option be less than one hundred percent (100%) of the Fair Market Value of the Common Stock on the date of grant. If a Participant owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or of any of its Subsidiaries and an Incentive Stock Option is granted to such Participant, the Exercise Price of such Incentive Stock Option (to the extent required at the time of grant by the Code) shall be no less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date such Incentive Stock Option is granted.
(c) Option Term. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten (10) years after the date such Option is granted;provided,however, that if an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or of any of its Subsidiaries and an Incentive Stock Option is granted to such employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the date of grant. Each Option's term is subject to earlier expiration pursuant to the applicable provisions in the Plan and the Award Agreement. Notwithstanding the foregoing, the Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate.
(d) Exercisability. Each Option shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of preestablished corporate performance goals, as shall be determined by the Administrator in the applicable Award Agreement. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. Notwithstanding anything to the contrary contained herein, an Option may not be exercised for a fraction of a share.
(e) Method of Exercise. Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, with respect to any Option or category of Options, payment in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the Administrator (including the withholding of Shares otherwise issuable upon exercise), (ii) in the form of unrestricted Shares already owned by the Participant which, in the case of unrestricted Shares acquired upon exercise of an Option, (x) have been owned by the Participant for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved by the Administrator and permitted by applicable law or (iv) any combination of the foregoing.
(f) Rights as Shareholder. A Participant shall have no rights to dividends or any other rights of a shareholder with respect to the Shares subject to an Option until the Participant has given written notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 15 hereof, and the Shares are delivered to the Participant.
(g) Termination of Employment.
(1) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is one year after such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The one year period described in this Section 8(g)(1) shall be extended to three (3) years after the date of such termination in the event of the Participant's death during such one year period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof shall terminate on account of the Retirement, Disability, or death of the Participant, Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall become fully vested as to all Shares covered thereby and shall remain exercisable until the date that is three (3) years after such termination, on which date they shall expire. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination.
(h) Other Change in Employment Status. An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant, in the discretion of the Administrator.
(i) Annual Limit on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of shares of Common Stock with respect to which Incentive Stock Options granted to a Participant under this Plan and all other option plans of the Company or of any Subsidiary of the Company become exercisable for the first time by the Participant during any calendar year exceeds $100,000 (as determined in accordance with Section 422(d) of the Code), the portion of such Incentive Stock Options in excess of $100,000 shall be treated as Non-Qualified Stock Options.
Section 9. Share Appreciation Rights.
(a) General. Share Appreciation Rights may be granted either alone ("Free Standing Rights") or in conjunction with all or part of any Option granted under the Plan ("Related Rights"). Subject to Section 409A of the Code, in the case of a Non-Qualified Stock Option, Related Rights may be granted either at or after the time of the grant of such Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, grants of Share Appreciation Rights shall be made, the number of Shares to be awarded, the price per Share, and all other conditions of Share Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more Shares than are subject to the Option to which it relates and any Share Appreciation Right must be granted with an Exercise Price not less than the Fair Market Value of Common Stock on the date of grant. The provisions of Share Appreciation Rights need not be the same with respect to each Participant. Share Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in this Section 9 and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable, as set forth in the applicable Award Agreement.
(b) Awards; Rights as Shareholder. The grant of each Share Appreciation Right shall be memorialized in an Award Agreement, containing such terms and conditions as the Administrator shall determine, in its sole discretion. A Participant shall have no rights to dividends or any other rights of a shareholder with respect to the Shares subject to a Share Appreciation Right until the Participant has given written notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 15 hereof, and the Shares are delivered to the Participant.
(c) Exercisability.
(1) Share Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2) Share Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of Section 8 hereof and this Section 9;provided,however, that a Related Right granted in connection with an Incentive Stock Option shall be exercisable only if and when the Fair Market Value of the Common Stock subject to the Incentive Stock Option exceeds the Exercise Price of such Option.
(d) Payment Upon Exercise.
(1) Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of Shares in respect of which the Free Standing Right is being exercised, with the Administrator having the right to determine the form of payment.
(2) A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Shares in respect of which the Related Right is being exercised, with the Administrator having the right to determine the form of payment. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised.
(3) Notwithstanding the foregoing, the Administrator may determine to settle the exercise of a Share Appreciation Right in cash (or in any combination of Shares and cash).
(e) Termination of Employment.
(1) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof (who has been granted one or more Free Standing Rights) shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Free Standing Rights granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is one year after such termination, on which date they shall expire, and (B) Free Standing Rights granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The one year period described in this Section 9(e)(1) shall be extended to three (3) years after the date of such termination in the event of the Participant's death during such one year period. Notwithstanding the foregoing, no Free Standing Right shall be exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof (who has been granted one or more Free Standing Rights) shall terminate on account of the Retirement, Disability, or death of the Participant, Free Standing Rights granted to such Participant, to the extent that they were exercisable at the time of such termination, shall become fully vested as to all Shares covered thereby and shall remain exercisable until the date that is three (3) years after such termination, on which date they shall expire. Notwithstanding the foregoing, no Free Standing Right shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for Cause, all outstanding Free Standing Rights granted to such Participant shall expire at the commencement of business on the date of such termination.
(4) In the event of the termination of employment with the Company and all Affiliates thereof of a Participant who has been granted one or more Related Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Options.
(f) Term.
(1) The term of each Free Standing Right shall be fixed by the Administrator, but no Free Standing Right shall be exercisable more than ten (10) years after the date such right is granted.
(2) The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more than ten (10) years after the date such right is granted.
Section 10. Restricted Shares, Deferred Shares and Performance Shares.
(a) General. Restricted Shares, Deferred Shares or Performance Shares may be issued either alone or in addition to other awards granted under the Plan. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Shares, Deferred Shares or Performance Shares shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Shares, Deferred Shares or Performance Shares; the Restricted Period, if any, applicable to Restricted Shares, Deferred Shares or Performance Shares; the Performance Goals and/or other performance related objectives (if any) applicable to Restricted Shares, Deferred Shares or Performance Shares; and all other conditions of the Restricted Shares, Deferred Shares and Performance Shares. If the restrictions, performance objectives and/or conditions established by the Administrator are not attained, a Participant shall forfeit his or her Restricted Shares, Deferred Shares or Performance Shares in accordance with the terms of the grant. The provisions of the Restricted Shares, Deferred Shares or Performance Shares need not be the same with respect to each Participant.
(b) Awards and Certificates. The grant of each Award of Restricted Shares, Deferred Shares or Performance Shares shall be memorialized in an Award Agreement, containing such terms and conditions as the Administrator shall determine, in its sole discretion. Except as otherwise provided below in Section 10(c), (i) each Participant who is granted an Award of Restricted Shares or Performance Shares may, in the Company's sole discretion, be issued a stock certificate in respect of such Restricted Shares or Performance Shares; and (ii) any such certificate so issued shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award.
The Company may require that the stock certificates, if any, evidencing Restricted Shares or Performance Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares or Performance
Shares, the Participant shall have delivered a stock power, endorsed in blank, relating to the Shares covered by such Award.
With respect to Deferred Shares, at the expiration of the Restricted Period, stock certificates in respect of such Deferred Shares may, in the Company's sole discretion, be delivered to the Participant, or his legal representative, in a number equal to the number of Shares covered by the Deferred Shares Award.
Notwithstanding anything in the Plan to the contrary, any Restricted Shares, Deferred Shares (at the expiration of the Restricted Period) or Performance Shares (whether before or after any vesting conditions have been satisfied) may, in the Company's sole discretion, be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form.
Further, notwithstanding anything in the Plan to the contrary, with respect to Deferred Shares, at the expiration of the Restricted Period, Shares shall promptly be issued (either in certificated or uncertificated form) to the Participant, unless otherwise deferred in accordance with procedures established by the Company in accordance with Section 409A of the Code, and such issuance shall in any event be made within such period as is required to avoid the imposition of a tax under Section 409A of the Code.
(c) Restrictions and Conditions. The Restricted Shares, Deferred Shares and Performance Shares granted pursuant to this Section 10 shall be subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Administrator at the time of grant or, subject to Section 409A of the Code, thereafter:
(1) The Administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals, the Participant's termination of employment with the Company or any Affiliate thereof, or the Participant's death or Disability;provided,however, that this sentence shall not apply to any Award which is intended to qualify as "performance-based compensation" under Section 162(m) of the Code. Notwithstanding the foregoing, upon a Change in Control, the outstanding Awards shall be subject to Section 12 hereof.
(2) Except as provided in Section 16 hereof or in the Award Agreement, the Participant shall generally have the rights of a shareholder of the Company with respect to Restricted Shares or Performance Shares during the Restricted Period. The Participant shall generally not have the rights of a shareholder with respect to Shares subject to Deferred Shares during the Restricted Period;provided,however, that, subject to Section 409A of the Code, an amount equal to dividends declared during the Restricted Period with respect to the number of Shares covered by Deferred Shares shall, unless otherwise set forth in an Award Agreement, be paid to the Participant at the same time as dividends are paid to the Company's shareholders generally, provided that the Participant is then providing services to the Company or any Affiliate of the Company. Certificates for Shares of unrestricted Common Stock may, in the Company's sole discretion, be delivered to the Participant only after the Restricted Period has expired without forfeiture in respect of such Restricted Shares, Deferred Shares or Performance Shares, except as the Administrator, in its sole discretion, shall otherwise determine.
(3) The rights of Participants granted Restricted Shares, Deferred Shares or Performance Shares upon termination of employment with the Company or any Affiliate thereof during the Restricted Period shall be set forth in the Award Agreement.
Section 11. Other Share-Based or Cash-Based Awards.
(a) The Administrator is authorized to grant Awards to Participants in the form of Other Share-Based Awards or Other Cash-Based Awards, as deemed by the Administrator to be consistent with the purposes of the Plan and as evidenced by an Award Agreement. The Administrator shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including any Performance Goals and performance periods. Common Stock or other securities or property delivered pursuant to an Award in the nature of a purchase right granted under this Section 11 shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, Shares, other Awards, notes or other property, as the Administrator shall determine, subject to any required corporate action.
(b) The Committee may establish other rules applicable to the Other Share-Based Awards and the Other Cash-Based Awards as it may determine in its discretion.
Section 12. Change in Control; Termination in Connection with a Change in Control.
(a) Except as otherwise provided in an Award Agreement or in an individual agreement between a Participant and the Company, in the event of a Change in Control, the surviving entity or acquiring entity (or the surviving or acquiring entity's parent company) shall assume all Awards outstanding under the Plan or shall substitute similar awards for Awards outstanding under the Plan. Notwithstanding the foregoing, to the extent the surviving entity (or acquiring entity or parent company, as the case may be) refuses to assume outstanding Awards or to substitute an equivalent award or right therefor (as determined by the Administrator in its sole discretion), all such outstanding Awards shall become fully vested and exercisable and all restrictions on such Awards shall immediately lapse (with all performance goals or other vesting criteria deemed achieved at one hundred percent (100%) of target levels) and, with respect to Options and Share Appreciation Rights, the Participant in the discretion of the Administrator (i) shall have the right to exercise such Awards for a period of time determined by the Administrator or (ii) shall be entitled to receive an amount in cash equal to the excess (if any) of (A) the product of (x) the number of Shares subject to such Awards and (y) the per Share consideration paid as of the date of the occurrence of the Change in Control for the Shares pursuant to the Change in Control, less (B) the aggregate exercise price of such Awards, and all Awards not assumed or continued, or for which an equivalent award or right is not substituted therefor, shall terminate upon the Change in Control.
(b) Except as otherwise provided in an Award Agreement or in an individual agreement between a Participant and the Company, any Award that is assumed or for which a substitution is made in accordance with subsection (a) above shall provide that, if the Participant's employment with the Company or an Affiliate thereof (or any successor) is terminated within twenty-four (24) months following the Change in Control by the Company or Affiliate without Cause or by the Participant with Good Reason, the Award shall become fully vested and exercisable and all restrictions on such Awards shall immediately lapse (with all performance goals or other vesting criteria deemed achieved at one hundred percent (100%) of target levels), and each such Award that is an Option or Share Appreciation Right shall remain exercisable for not less than one (1) year following such termination of employment.
Section 13. Amendment and Termination.
The Board may amend, alter or terminate the Plan, but no amendment, alteration, or termination shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant's consent, or that without the approval of the Company's shareholders would, (i) except as provided in Section 6 hereof, increase the total number of Shares, (ii) materially increase benefits provided under the Plan, (iii) materially alter the eligibility provisions of the Plan, or
(iv) extend the maximum option term under Section 8(c) hereof. Unless the Board determines otherwise, the Board shall obtain approval of the Company's shareholders for any amendment that would require such approval in order to satisfy the requirements of Sections 162(m) or 422 of the Code or Rule 16b-3, any rules of the stock exchange on which the Common Stock is traded or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 6 hereof and the immediately preceding sentence, no such amendment shall impair the rights of any Participant without his or her consent;provided,however, that the Administrator may not reduce the Exercise Price of an outstanding Option or Share Appreciation Right by amending the terms of such Option or Share Appreciation Right or by canceling such Option or Share Appreciation Right in exchange for cash or the grant of a new Award without first obtaining approval from the shareholders of the Company.
Section 14. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
Section 15. Withholding Taxes.
Each Participant shall, no later than the date as of which the value of an Award first becomes includible in the gross income of such Participant for federal and/or state income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the Award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant. Whenever cash is to be paid pursuant to an award granted hereunder, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever Shares are to be delivered pursuant to an Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any related federal, state and local taxes to be withheld and applied to the tax obligations. With the approval of the Administrator, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery of Shares or by delivering already owned unrestricted shares of Common Stock, in each case, having a value not exceeding the federal, state and local taxes to be withheld and applied to the tax obligations. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the Shares to be delivered pursuant to an Award. The Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by law, to satisfy its withholding obligation with respect to any Option or other Award.
Section 16. Transfer of Awards.
Unless otherwise determined by the Administrator or provided in an Award Agreement, Awards shall not be transferable by a Participant except by will or the laws of descent and distribution and shall be exercisable during the lifetime of a Participant only by such Participant or his guardian or legal representative. Any purported transfer of an Award or any economic benefit or interest therein in violation of the Plan or an Award Agreement shall be null and voidab initio, and shall not create any obligation or liability of the Company, and any person purportedly acquiring any Award or any economic benefit or interest therein transferred in violation of the Plan or an Award Agreement shall not be entitled to be recognized as a holder of such Shares.
Section 17. Continued Employment.
The adoption of the Plan shall not confer upon any Eligible Recipient any right to continued employment with the Company or any Affiliate thereof, as the case may be, nor shall it interfere in any way with the right of the Company or any Affiliate thereof to terminate the employment of any of its Eligible Recipients at any time.
Section 18. Effective Date; Shareholder Approval.
The Plan was adopted by the Board on February 11, 2010, and shall become effective without further action on the date as of which this Plan is approved by the shareholders of the Company. The grant of any Award hereunder shall be contingent upon shareholder approval of the Plan being obtained within twelve (12) months before or after the date the Board adopts the Plan.
No Award shall be granted pursuant to the Plan on or after the tenth (10th) anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.
Section 20. Section 409A of the Code.
The intent of the parties is that payments and benefits under the Plan comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the "short-term deferral period" as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or upon the Participant's death, if earlier). Notwithstanding any provision to the contrary in this Plan, no payment or distribution under this Plan that constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of a Participant's termination of employment will be made to such Participant unless such Participant's termination of employment constitutes a "separation from service" (as such term is defined in Section 409A of the Code). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitutes deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code.
The Plan shall be governed by and construed in accordance with the laws of the State of Hawaii, without giving effect to principles of conflicts of law of such state.
AMENDED AND RESTATEDARTICLES OF INCORPORATIONOFHAWAIIAN ELECTRIC INDUSTRIES, INC.
First:
The name of said corporation shall be
"HAWAIIAN ELECTRIC INDUSTRIES, INC."
Second:
The principal office of the corporation shall be located at 900 Richards Street, Honolulu, Hawaii, 96813 and the corporation may have such other offices within or without the State of Hawaii as the nature of its business shall require.
Third:
The purposes of the corporation, itself or achieved through subsidiary corporations, shall be:
The foregoing clauses shall each be construed as purposes and powers and the matters expressed in each clause or any part of any clause shall be in no wise limited by reference to or inference from any other clause or any other part of the same clause but shall be regarded as independent purposes and powers and the enumeration of specific purposes and powers shall not be construed to limit or restrict in any manner the meaning of the general purposes and powers of the corporation nor shall the expression of one thing be deemed to exclude another, although it be of like nature not expressed.
Fourth:
The amount of the capital stock of the corporation shall be two hundred million (200,000,000) shares of Common Stock without par value and ten million (10,000,000) shares of Preferred Stock without par value.
The corporation shall also have the power from time to time to issue two or more classes of stock with the preferences, voting powers, restrictions and qualifications thereof fixed in the resolutions authorizing the issue thereof and to provide that the par value of the shares of one class may be the same as or different from the par value of the capital stock of any other class or classes. The corporation shall have similar powers with respect to two or more issues of stock within the same class.
The Board of Directors is authorized to provide for the issuance from time to time of authorized but unissued shares of stock of any class of the corporation and to approve and determine the consideration for which such shares shall be issued, and to divide the authorized and unissued shares of stock of any class into series and to issue any such series, and to fix the terms, preferences, voting powers, restrictions and qualifications of any class or any series of any class. The Board of Directors is authorized to provide for the issuance of any other securities of the corporation upon terms fixed by the Board of Directors, including but not limited to the determination of the consideration for the issuance thereof.
No holder of the shares of stock of any class shall have any preemptive or preferential right of subscription for or to purchase any shares of any class of stock or other securities of the corporation, whether now or hereafter authorized, other than such right or rights, if any, and upon such terms and at such price as the Board of Directors, in its discretion, from time to time may determine, and the Board of Directors may issue shares of stock of any class or other securities without offering the same in whole or in part to the stockholders of the corporation.
The Board of Directors is authorized to provide for the issuance from time to time of authorized but unissued shares of stock of any class or any series of any class, as and for a stock dividend or dividends on shares of the same class or series or any other class or any other series of any class. The Board of Directors is authorized to determine whether the stock of any class or any series of any class shall be exchangeable for or convertible into shares of the same class or series or any other class or any other series of any class, or cash, indebtedness, securities or other property, and to determine the terms and conditions and the limitations, if any, upon which the stock of any class or any series of any class shall be so exchangeable or convertible.
Fifth:
There shall be a board of directors of the corporation to consist of not less than five nor more than eighteen members, who shall be elected or appointed at such times, in such manner, and for such terms as may be prescribed by the By-laws, which also may provide for the removal of directors and the filling of vacancies and may contain provisions that the remaining members of the board of directors, although less than a majority thereof, may, by the affirmative vote of the majority of such remaining members, fill vacancies in the board. The directors need not be stockholders of the corporation. The board of directors shall have full power to control and direct the business and affairs of the corporation, subject, however, to instructions by the stockholders and to any limitations which may be set forth in statutory provisions and in these Articles of Incorporation and in any resolutions authorizing the issuance of shares of preferred stock, and in the By-laws of the corporation. The board of directors of the corporation, without the approval of the stockholders of the corporation, or of any percentage thereof, may authorize the borrowing of money or the incurring of debts, even though as a result thereof the amount of the corporation's indebtedness may exceed its capital stock. The board of directors, without the approval of the stockholders of the corporation, or of any percentage thereof, may authorize the making of donations referred to in subparagraph (m) of Article Third.
Sixth:
Seventh:
The corporation shall have power to sue and be sued, by said corporate name; to make and use a common seal, and to alter the same at pleasure; to hold, purchase, lease and convey, either absolutely or by way of mortgage, such real and personal property, including therein its own shares, or shares in other corporations and such franchises as the purposes of the corporation shall require and to mortgage the same to secure any debt of the corporation; to appoint such officers and agents as the business of the corporation shall from time to time require and to make such By-laws for the management of its property, the election and removal of its officers, the regulation of its affairs, and the transfer of its stock as the business of the corporation shall from time to time require.
Eighth:
The board of directors in the name of the corporation shall have power at any time or from time to time to make or to delegate to any officer or officers the power to make contracts with any person, firm, corporation, association or organization, employing, engaging or appointing such person, firm, corporation, association or organization as agent of the corporation or as manager of the business and affairs of the corporation, to perform duties and services and to exercise powers and authority in behalf of the corporation, including ministerial, executive, discretionary and/or managerial powers, subject, however, to the supervision of the board of directors. Any such contract shall run for such period of time and shall contain such terms and provisions with respect to the duties, services, powers and authority to be performed and exercised by such agent or manager and with respect to the compensation to be given to such agent or manager therefor, and otherwise, as the board of directors may determine.
Ninth:
have been known to the board of directors authorizing or approving the same, or to a majority thereof. Any director of the corporation who is pecuniarily or otherwise interested in or is a director or officer or member of such other corporation or any such firm, association or other organization, may be counted in determining a quorum of any meeting of the board of directors which shall authorize or approve any such contract, transaction or act, and may vote thereon with like force and effect as if the director were in no way interested therein. Neither any director nor officer of the corporation, being so interested in any such contract, transaction, or act of the corporation which shall be approved by the board of directors of the corporation, nor any corporation, firm, association, or other organization in which such director or officer may be interested, shall be liable or accountable to the corporation, or to any stockholder thereof, for any loss incurred by the corporation pursuant to or by reason of such contract, transaction, or act, or for any gain received by any such other party pursuant thereto or by reason thereof.
Tenth:
Service of process against the corporation may be made upon the president, secretary, or treasurer of the corporation.
Eleventh:
The corporation shall have succession and corporate existence in perpetuity and become a body corporate under the name and style of HAWAIIAN ELECTRIC INDUSTRIES, INC. and shall have all the powers and rights and be subject to all of the liabilities provided by law for incorporated companies and shall have all the benefits of all general laws hereafter enacted in regard to corporations. All of the property of the corporation shall be liable for the just debts thereof, but no holder of or subscriber for shares of the capital stock of the corporation shall as such be individually liable beyond the amount, if any, which may be due upon the share or shares of capital stock held or subscribed for by him.
Twelfth:
corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article.
Thirteenth:
The personal liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under Hawaii law, including, without limitation, to the fullest extent permissible under Section 414-222 of the Hawaii Revised Statutes, as amended from time to time. No repeal or amendment of this Article directly or by adoption of an inconsistent provision of these Restated Articles of Incorporation will be effective with respect to the liability of a director for acts or omissions occurring prior to such repeal or amendment.
These Amended and Restated Articles of Incorporation supersede the original articles of incorporation and all restatements thereof and amendments thereto.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCEAdopted September 13, 2004Amended as of November 16, 2009
"Immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares such person's home.
References to "the company" mean Hawaiian Electric Industries, Inc. and its consolidated subsidiaries.
If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 3200, Pittsburgh, PA 15230, so that your shares may be represented at the Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card.
v Please fold and detach card at perforation before mailing. vIMPORTANT NOTICE REGARDING THE AVAILABILITY OF
Said proxies are instructed to vote as indicated below.If no direction is indicated, said proxies will votePROXY MATERIALS FOR all Nominees and FOR proposals 2 and 3.Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the meeting.THE HAWAIIAN ELECTRIC INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 11, 2010
Notice of Annual Meeting of Shareholders
WHEN AND WHERE IS THE SHAREHOLDERS MEETING?
The 2010 Annual Meeting of Shareholders of Hawaiian Electric Industries, Inc. (HEI) will be held in Room 805 on the eighth floor of the American Savings Bank Tower in Honolulu, Hawaii on May 11, 2010, at 9:30 a.m., local time.
WHAT IS BEING VOTED ON AT THE SHAREHOLDERS MEETING?
WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?
The Board of Directors recommends a vote FOR all of the Nomineesnominees and FOR proposals 2 and 3.
HOW CAN I GET A COMPLETE SET OF PROXY MATERIAL?
This is not a proxy card. If you wish to cast your vote on a traditional proxy card, you must request a paper copy of the proxy material by following the instructions below.
This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.
The following proxy materials can be viewed at: www.ViewMaterial.com/HEI
If you want to receive a paper or e-mail copy of Directorsthese documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed below on or before April 27, 2010 to facilitate timely delivery.
You may request a paper or e-mail copy of the proxy materials listed above and/or all proxy materials for future annual meetings of shareholders by following the instructions below. You will be asked to provide the control number (located by the arrow in the box below).
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PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE
To vote your Hawaiian Electric Industries, Inc. shares, you can attend the HEI Annual Meeting of Shareholders and vote in person or you can: | ||||||
Go to www.ViewMaterial.com/HEI | ||||||
2. | Click on the icon to vote your shares. | |||||
3. | Enter the 11 digit Control Number (located by the arrow in the box above). | |||||
4. | Follow the simple instructions to record your vote. | |||||
You will be able to vote until 11:59 p.m. EST on May 10, 2010. | ||||||
VOTE BY TELEPHONE | ||||||
Have your proxy card available when you call theToll-Free number 1-888-693-8683using a touch-tone telephone and follow the simple instructions presented to record your vote. | ||||||
VOTE BY INTERNET | ||||||
Have your proxy card available when you access the websitewww.cesvote.comand follow the simple instructions presented to record your vote. | ||||||
VOTE BY MAIL | ||||||
Please mark, sign and date your proxy card and return it in thepostage-paid envelope provided or return it to: Corporate Election Services, PO Box |
Vote by Telephone CallToll-Freeusing a touch-tone telephone: 1-888-693-8683 | Vote by Internet Access the Website and cast your vote: www.cesvote.com | Vote by Mail Return your proxy in the postage-paid envelope provided. |
Vote 24 hours a day, 7 days a week.
week until May 10, 2010 11:59 P.M. EST.
If you vote by telephone or Internet, please do not send your proxy by mail.
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v Please fold and detach card at perforation before mailing. v
![]() | Please fold and detach card at perforation before mailing. | ![]() |
HAWAIIAN ELECTRIC INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 5, 2009,11, 2010, AT 9:30 A.M., IN THE AMERICAN SAVINGS BANK TOWER, 8TH FLOOR, ROOM 805, 1001 BISHOP STREET, HONOLULU, HAWAII 96813.
The undersigned hereby constitutes and appoints Constance H. Lau, Diane J. PlottsChester A. Richardson and Jeffrey N. Watanabe and each of them the proxy of the undersigned, with full power of substitution, to vote all the Common Stock of the CompanyHawaiian Electric Industries, Inc. which the undersigned may be entitled to vote at the Annual Meeting of Shareholders to be held on May 5, 2009,11, 2010 or at any adjournment or postponement thereof.
Date: | ||||||
Signature(s) | ||||||
Signature(s) | ||||||
(Please sign your name exactly as it appears on this proxy. Joint owners should each sign personally. Attorney, Executor, Administrator, Trustee or Guardian, should indicate full title. If address is incorrect, please give us the correct one.) |
YOUR VOTE IS IMPORTANT
If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so that your shares may be represented at the Annual Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card.
![]() | Please fold and detach card at perforation before mailing. | ![]() |
HAWAIIAN ELECTRIC INDUSTRIES, INC. | PROXY |
The proxies named on the reverse side of this card are instructed to vote as indicated below.If no direction is indicated, said proxies will vote FOR all Nominees and FOR proposals 2 and 3. Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the Annual Meeting or at any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR all of the Nominees and FOR proposals 2 and 3.
1. | Elect three Class II directors for a three-year term expiring at the 2013 Annual Meeting of Shareholders | |||||||||||||||
Nominees: | (1) | Thomas B. Fargo | (2) | Kelvin H. Taketa | (3) | Jeffrey N. Watanabe | ||||||||||
o | FOR all nominees listed above (except as marked to the contrary below) | o | WITHHOLD authority to vote for all nominees listed above | |||||||||||||
To withhold authority to vote for any individual nominee, write that nominee's name or number on the line below. | ||||||||||||||||
2. | Ratify the appointment of PricewaterhouseCoopers LLP as HEI's independent registered public accounting firm for 2010 | |||||||||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||||||||
3. | Approve the 2010 Equity and Incentive Plan | |||||||||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||||||||
o | Please check this box if you consent to access future Annual Reports and Proxy Statements via the Internet. |
PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE