AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1997
REGISTRATION NO. 333-
333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HAWAIIAN ELECTRIC COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER OF INCORPORATION OR
ORGANIZATION)
HAWAII 99-0040500
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
900 RICHARDS STREET, HONOLULU, HAWAII 96813 (808) 543-5662
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
HECO CAPITAL TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER OF INCORPORATION OR
ORGANIZATION)
DELAWARE 52-6834193
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
C/O THE BANK OF NEW YORK, 101 BARCLAY STREET 21W, NEW YORK, NEW YORK 10286
ATTENTION: CORPORATE TRUST TRUSTEE ADMINISTRATION, (212) 815-5084
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES)
PAUL A. OYER
FINANCIAL VICE PRESIDENT AND TREASURER
HAWAIIAN ELECTRIC COMPANY, INC.
900 RICHARDS STREET, HONOLULU, HAWAII 96813 (808) 543-5641
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
DAVID J. REBER, ESQ. DAVID P. FALCK, ESQ.
GOODSILL ANDERSON QUINN & STIFEL WINTHROP, STIMSON, PUTNAM & ROBERTS
1099 ALAKEA STREET ONE BATTERY PARK PLAZA
HONOLULU, HI 96813 NEW YORK, NY 10004
(808) 547-5600 (212) 858-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b)under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
(Calculation of Registration Fee on following page)
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1)(2) PRICE(1)(2) FEE
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Preferred Securities of
HECO Capital Trust I
("QUIPS")................. (3) (3) (3) N/A
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HECO Junior Subordinated
Deferrable Interest
Debentures ("QUIDS")...... (3)(4) (3)(4) (3)(4) N/A
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HECO Guarantee with respect
to Preferred Securities of
HECO Capital Trust I...... (5) (5) (5) N/A
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HECO Guarantees of
debentures of its wholly-
owned subsidiaries........ (5) (5) (5) N/A
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Total.................. $50,000,000(3) 100% $50,000,000(3) $15,152
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Exclusive of accrued distributions, dividends and interest (if any).
(3) In no event will the aggregate initial public offering price of the
securities issued under this Registration Statement exceed $50,000,000,
exclusive of accrued distributions, dividends and interest (if any).
Junior Subordinated Deferrable Interest Debentures (the "QUIDS") will be
issued and sold by HECO and its subsidiaries to HECO Capital Trust I (the
"Trust") in an aggregate principal amount corresponding to the aggregate
stated liquidation preference of the Preferred Securities (the "QUIPS")
and Common Securities of the Trust. HECO QUIDS (including HECO QUIDS
issued to the Trust in exchange for subsidiary QUIDS) may later be
distributed for no additional consideration to the holders of the QUIPS
upon a dissolution of the Trust and the distribution of the assets
thereof.
(4) The HECO QUIDS and the subsidiary QUIDS will be purchased by the Trust
with the proceeds of the sale of the QUIPS, together with the proceeds
received from HECO in respect of the Common Securities to be issued by the
Trust to HECO. No separate consideration will be received for such QUIDS.
(5) No separate consideration will be received for the HECO Guarantees.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 30, 1997
2,000,000 PREFERRED SECURITIES
HECO CAPITAL TRUST I
% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES, SERIES 1997 (QUIPS SM)*
(LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT HECO CAPITAL TRUST I HAS FUNDS AS SET FORTH HEREIN BY
HAWAIIAN ELECTRIC COMPANY, INC.
The % Cumulative Quarterly Income Preferred Securities, Series 1997 (the
"QUIPS") offered hereby represent preferred undivided beneficial interests in
the assets of HECO Capital Trust I, a trust created under the laws of the State
of Delaware (the "Trust"). Hawaiian Electric Company, Inc., a Hawaii
corporation ("HECO"), will be the owner of all of the beneficial interests
represented by common securities of the Trust (the "Common Securities"). The
preferred interests represented by the QUIPS will have a preference under
certain circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the trust interests represented by
the Common Securities. See "Description of QUIPS--Subordination of Common
Securities." The Bank of
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE QUIPS.
Application will be made to list the QUIPS on the New York Stock Exchange,
Inc. (the "New York Stock Exchange"), subject to official notice of issuance.
If approved for listing, trading on the New York Stock Exchange is expected to
commence within the 30-day period after the initial delivery of the QUIPS. See
"Underwriting."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE COMMISSION(1) TRUST(2)(3)
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Per QUIPS.......................... $25.00 (2) $25.00
Total.............................. $50,000,000 (2) $50,000,000
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(1) The Trust and HECO have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(2) In view of the fact that the proceeds of the sale of the QUIPS will be used
to purchase the QUIDS of HECO and its subsidiaries, the Underwriting
Agreement provides that HECO will pay to the Underwriters, as compensation
("Underwriters' Compensation") for their arranging the investment therein
of such proceeds, $ per QUIPS (or $ in the aggregate). See
"Underwriting."
(3) Expenses of the offering, which are payable by HECO, are estimated to be
$330,000.
-----------
The QUIPS offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
QUIPS will be ready for delivery in book-entry form only through the facilities
of The Depository Trust Company ("DTC") in New York, New York, on or about
February , 1997, against payment therefor in immediately available funds.
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* QUIPS and QUIDS are servicemarks of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC.
The date of this Prospectus is February , 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE QUIPS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
(Continued from previous page)
New York is the property trustee of the Trust (the "Property Trustee"). The
Trust exists for the sole purpose of issuing the QUIPS and the Common
Securities and concurrently investing the proceeds thereof in % Junior
Subordinated Deferrable Interest Debentures, Series 1997 (collectively, the
"QUIDS"SM), to be issued by HECO and its subsidiaries, Maui Electric Company,
Limited ("MECO") and Hawaii Electric Light Company, Inc. ("HELCO" and,
together with HECO and MECO, the "Companies" and each, a "Company"), in the
principal amounts of $31,546,400 for HECO (the "HECO QUIDS"), $10,000,000 for
MECO (the "MECO QUIDS") and $10,000,000 for HELCO (the "HELCO QUIDS"). HECO
will fully and unconditionally guarantee, on a subordinated basis, the
obligations of MECO and HELCO under the MECO QUIDS and the HELCO QUIDS,
respectively (the "Subsidiary Guarantees"). See "Description of Subsidiary
Guarantees." The obligations of HECO under the Subsidiary Guarantees will be
subordinate and junior in right of payment to all Senior Debt (as defined
herein) of HECO. The Companies have agreed in an Agreement as to Expenses and
Liabilities (the "Expense Agreement") to provide funds to the Trust as needed
to pay obligations of the Trust to parties other than the Holders of the
QUIPS. Each of the Companies will be obligated under the Expense Agreement to
pay its share of such expenses pro rata based on the proportionate amount of
its QUIDS held by the Trust, and the respective obligations of MECO and HELCO
under the Expense Agreement will be fully and unconditionally guaranteed by
HECO. The QUIDS of each of the Companies will have terms corresponding in all
material respects to the terms of the QUIPS and will be unsecured and
subordinate and junior in right of payment to all Senior Debt of each of the
respective Companies. See "Description of QUIDS--Subordination." The QUIDS
will mature on February , 2027, which maturity may at any time (including
upon a distribution of Distributable HECO QUIDS (as defined herein) as
described below) be shortened to a date not earlier than February , 2002, or
extended to a date not later than February , 2046, if, in each case, certain
conditions are met. The QUIDS will be the sole assets of the Trust, and
payments under the QUIDS and the Expense Agreement will be the sole revenues
of the Trust.
Holders of the QUIPS will be entitled to receive preferential cumulative
cash distributions accumulating from the date of original issuance and payable
quarterly in arrears on the last day of March, June, September and December of
each year, commencing March 31, 1997, at the annual rate of % of the
liquidation preference of $25 per QUIPS (the "Distributions"). Payment of
Distributions and payments of the amounts payable on the liquidation or
redemption of the QUIPS, in each case to the extent of funds held by the
Trust, are each irrevocably guaranteed by HECO (the "Trust Guarantee"), as
described herein. See "Description of Trust Guarantee." The obligations of
HECO under the Trust Guarantee will be subordinate and junior in right of
payment to all Senior Debt of HECO.
Each of the Companies has the right to defer payment of interest on its
respective QUIDS at any time or from time to time for a period (including any
extensions thereof) not exceeding 20 consecutive quarters with respect to each
deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity (as defined herein) of the QUIDS.
Upon the termination of any such Extension Period and the payment of all
amounts then due on any Interest Payment Date (as defined herein), the
deferring Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the QUIDS are so
deferred by any of the Companies, distributions on the QUIPS will also be
deferred to the same extent as interest payments are being deferred and each
of the deferring Companies and, if such deferring Company is MECO or HELCO,
HECO will not be permitted, subject to certain exceptions set forth herein, to
declare or pay
2
any cash distributions with respect to its capital stock or debt securities
that rank pari passu with or junior to the QUIDS so deferred. During an
Extension Period, interest on the QUIDS will continue to accrue (and the amount
of Distributions to which Holders of the QUIPS are entitled but do not receive
will accumulate additional Distributions) at the rate of % per annum,
compounded quarterly, and Holders of QUIPS will be required to accrue interest
income for United States federal income tax purposes. See "Description of
QUIPS--Distributions," "Description of QUIDS--Option to Extend Interest Payment
Period" and "Certain Federal Income Tax Consequences--Stated Interest and
Original Issue Discount."
HECO has, through the HECO QUIDS, the Subsidiary Guarantees, the Trust
Guarantee, the Trust Agreement (as defined herein), the HECO Indenture (as
defined herein) and the Expense Agreement, taken together, fully, irrevocably
and unconditionally guaranteed, on a subordinated basis, all of the Trust's
obligations under the QUIPS. The Trust Guarantee guarantees the payment of
Distributions and payments on liquidation or redemption of the QUIPS, but only
in each case to the extent of funds held by the Trust. If HECO does not make
payments on the QUIDS (whether as a result of its failure to make interest
payments on the HECO QUIDS or its failure to make payments under the applicable
Subsidiary Guarantee in the event that MECO or HELCO fails to make interest
payments on its QUIDS), the Trust will have insufficient funds to pay
Distributions on the QUIPS. The Trust Guarantee does not cover payment of
Distributions when the Trust does not have sufficient funds to pay such
Distributions. See "Description of Trust Guarantee." In such event, a Holder of
QUIPS may institute a legal proceeding directly against the defaulting Company
(and against HECO as guarantor if the defaulting Company is MECO or HELCO) to
enforce payment of such Distributions to such Holder. The obligations of HECO
under the Trust Guarantee, the HECO QUIDS, the HECO Indenture, the Subsidiary
Guarantees and the Expense Agreement are subordinate and junior in right of
payment to all of HECO's Senior Debt.
The QUIPS are subject to mandatory redemption, in whole or in part, upon
repayment of the QUIDS at maturity or their earlier redemption in an amount
equal to the amount of related QUIDS maturing or being redeemed at a redemption
price equal to the aggregate liquidation preference of such QUIPS plus
accumulated and unpaid Distributions thereon to the date of redemption (the
"Redemption Price"). The QUIDS of each Company are redeemable prior to maturity
(i) at the option of each of the respective Companies on or after February ,
2002, in whole at any time or in part from time to time, at a redemption price
equal to the accrued and unpaid interest on the QUIDS so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof (the "QUIDS
Redemption Price") or (ii) at the option of HECO at any time, in whole (but not
in part), upon the occurrence and continuation of a Special Event (as defined
herein), at the QUIDS Redemption Price, subject, in each case, to the further
conditions described under "Description of QUIDS--Redemption."
Upon the occurrence and continuation of a Special Event, HECO may direct the
Property Trustee to dissolve the Trust and, after satisfaction of creditors of
the Trust as provided by applicable law, cause QUIDS to be distributed to the
Holders of the QUIPS in liquidation of the Trust and in lieu of any cash
distribution. In order to effect such a distribution, HECO will issue to the
Trust additional % Junior Subordinated Deferrable Interest Debentures in the
aggregate principal amount of the MECO QUIDS and HELCO QUIDS then held by the
Trust (the "Substituted HECO QUIDS") and having the same terms as the HECO
QUIDS in exchange for the MECO QUIDS and HELCO QUIDS (the "Exchange"), which
MECO QUIDS and HELCO QUIDS shall thereafter represent obligations of MECO and
HELCO to HECO. The Trust will then distribute the HECO QUIDS and the
Substituted HECO QUIDS (collectively, the "Distributable HECO QUIDS") to the
Holders of the QUIPS. Under current United States federal income tax law, the
Exchange would likely be treated as a taxable exchange with respect to each
such Holder's pro rata share of the MECO QUIDS and the HELCO QUIDS for United
States federal income tax purposes and such Holder would recognize gain or loss
as described under "Certain Federal Income Tax Consequences--Distribution of
QUIDS to Holders of QUIPS." See "Description of QUIPS--Redemption or Exchange--
Special Event Redemption or
3
Distribution of QUIDS" and "Description of QUIDS--Distribution of QUIDS;
Exchange of Substituted HECO QUIDS for MECO and HELCO QUIDS." The
Distributable HECO QUIDS may also be distributed to Holders of the QUIPS under
certain other circumstances as described below. See "Description of QUIPS--
Liquidation Value; Liquidation Distribution Upon Dissolution."
The HECO QUIDS, the HECO Indenture, the Trust Guarantee, the Expense
Agreement and the Subsidiary Guarantees are subordinate and junior in right of
payment to all Senior Debt of HECO. The MECO QUIDS and HELCO QUIDS, and the
obligations of MECO and HELCO under the Expense Agreement, are subordinate and
junior in right of payment to all of their respective Senior Debt. As of
September 30, 1996, the principal portion of the Senior Debt of HECO, MECO and
HELCO was approximately $518.7 million (exclusive of contingent amounts under
HECO's guarantees of the obligations of its subsidiaries), $113.3 million and
$94.5 million, respectively. In addition, since HECO receives interest and
dividends from MECO and HELCO, and certain of the operating assets of the
Companies are owned by MECO and HELCO, the HECO QUIDS will be effectively
subordinated to all existing and future liabilities of HECO's subsidiaries.
Accordingly, Holders of HECO QUIDS (and the Substituted HECO QUIDS, if issued)
should look only to the assets of HECO for payments thereon. See "Description
of QUIDS--Subordination." The terms of the QUIDS place no limitation on the
amount of Senior Debt that may be incurred by any of the Companies.
In the event of the dissolution of the Trust, after satisfaction of the
creditors of the Trust as provided by applicable law, the Holders of the QUIPS
will be entitled to receive a liquidation preference of $25 per QUIPS plus
accumulated and unpaid Distributions thereon to the date of payment, which may
be in the form of a distribution of a Like Amount (as defined herein) in
Distributable HECO QUIDS, subject to certain exceptions. See "Description of
QUIPS--Liquidation Value; Liquidation Distribution Upon Dissolution."
Application will be made to list the QUIPS, subject to official notice of
issuance, on the New York Stock Exchange. If Distributable HECO QUIDS are
distributed to the Holders of QUIPS upon the liquidation of the Trust, HECO
will use its best efforts to list the Distributable HECO QUIDS on the New York
Stock Exchange or such other stock exchanges, if any, on which the QUIPS are
then listed.
The QUIPS will be represented by a global certificate registered in the name
of DTC or its nominee. Beneficial interests in the QUIPS will be shown on, and
transfers thereof will be effected only through, records maintained by
Participants (as defined herein) in DTC. Except as described herein, QUIPS in
certificated form will not be issued in exchange for the global certificate.
See "Description of QUIPS--Book-Entry Issuance."
4
AVAILABLE INFORMATION
HECO and its parent corporation, Hawaiian Electric Industries, Inc. ("HEI"),
are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith file
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"), which may be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at the Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Chicago Regional Office, Suite 1400, Citicorp Center, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can be obtained by mail at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. If available, such reports and other
information may also be accessed through the Commission's electronic data
gathering, analysis and retrieval system ("EDGAR") via electronic means,
including the Commission's Web Site on the Internet (http://www.sec.gov). Such
reports, proxy statements and other information may also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, and the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104, on which exchanges HEI's common stock is listed.
The Companies and the Trust have filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus constitutes a part of the Registration Statement and omits, in
accordance with the rules and regulations of the Commission, certain of the
information contained in the Registration Statement. Reference is hereby made
to the Registration Statement and the exhibits and the financial statements,
notes and schedules filed as a part thereof or incorporated by reference
therein for further information with respect to the Companies, the Trust and
the securities offered hereby. Statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
where a copy of such document has been filed as an exhibit to the Registration
Statement or otherwise has been filed with the Commission, reference is made
to the copy so filed. Each such statement is qualified in its entirety by such
reference.
No separate financial statements of the Trust have been included herein. The
Companies and the Trust do not consider that such financial statements for the
Trust would be material to Holders of the QUIPS because the Trust is a newly
formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any
activity other than holding as trust assets the QUIDS and issuing the QUIPS
and Common Securities. See "HECO Capital Trust I," "Description of QUIPS,"
"Description of QUIDS," "Description of Trust Guarantee" and "Description of
Subsidiary Guarantees."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission (File No. 1-4955) by HECO
pursuant to Section 13 of the Exchange Act are hereby incorporated by
reference in this Prospectus insofar as such documents relate to the
Companies: (a) Annual Report on Form 10-K for the fiscal year ended December
31, 1995, as amended by Form 10-K/A dated April 30, 1996; (b) Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996; and (c) Current Reports on Form 8-K dated April 30, 1996,
January 3, 1997 and January 27, 1997.
Each document filed by HECO with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of securities made by
this Prospectus shall be deemed to be incorporated herein by reference
5
and to be a part hereof from the date of filing such document insofar as such
document relates to the Companies. Any statement contained in this Prospectus,
or in a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein (each, an "Incorporated Document"), shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein or therein
(or in any other subsequently filed Incorporated Document) modifies or
supersedes such statement. Such incorporation by reference shall not be deemed
to specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of the Registration Statement or this Prospectus.
Certain information contained in this Prospectus summarizes, is based upon
or refers to information and financial statements contained in one or more of
the Incorporated Documents. Accordingly, such information contained herein is
qualified in its entirety by reference to such Incorporated Documents and
should be read in conjunction therewith.
HECO WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM A COPY OF THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY AND ALL OF THE INCORPORATED DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH
DOCUMENTS). SUCH REQUESTS SHOULD BE DIRECTED TO: TREASURER, HAWAIIAN ELECTRIC
COMPANY, INC., P. O. BOX 2750, HONOLULU, HAWAII 96840-0001, TELEPHONE NUMBER
(808) 543-7360.
6
RISK FACTORS
Prospective purchasers of the QUIPS should consider carefully the risk
factors set forth below, as well as all other information contained or
incorporated by reference in this Prospectus, in evaluating an investment in
the QUIPS. To the extent any of the information contained or incorporated by
reference in this Prospectus constitutes a "forward-looking statement" as
defined in Section 27A(i)(1) of the Securities Act, the risk factors set forth
below are meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the forward-
looking statement.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE TRUST GUARANTEE, THE QUIDS AND
THE SUBSIDIARY GUARANTEES
The obligations of HECO under the Trust Guarantee and the Subsidiary
Guarantees (collectively, the "Guarantees") issued by HECO for the benefit of
the Holders of QUIPS are unsecured and rank subordinate and junior in right of
payment to all Senior Debt of HECO. The obligations of each of the Companies
under its respective QUIDS are subordinate and junior in right of payment to
all Senior Debt of such Company. At September 30, 1996, the principal portion
of the Senior Debt of HECO (exclusive of contingent amounts under HECO's
guarantees of the obligations of its subsidiaries), MECO and HELCO was
approximately $518.7 million, $113.3 million and $94.5 million, respectively.
HECO receives interest and dividends from MECO and HELCO. Accordingly, the
HECO QUIDS (and the Substituted HECO QUIDS, if issued) and the Guarantees will
be effectively subordinated to all existing and future liabilities of HECO's
subsidiaries, and Holders of QUIDS should look only to the assets of HECO for
payments on the HECO QUIDS (and the Substituted HECO QUIDS, if issued) and the
Guarantees. Neither the Indentures pursuant to which the QUIDS will be issued,
nor the Trust Agreement, the Trust Guarantee or the Subsidiary Guarantees,
places any limitation on the amount of secured or unsecured debt, including
Senior Debt, that may be incurred by any of the Companies. See "Description of
QUIDS--Subordination," "Description of Trust Guarantee--Status of the Trust
Guarantee" and "Description of Subsidiary Guarantees."
The ability of the Trust to pay amounts due on the QUIPS is solely dependent
upon the Companies making payments on the QUIDS as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
Each of the Companies has the right under the respective indenture pursuant
to which its QUIDS will be issued to defer the payment of interest on its
respective QUIDS at any time or from time to time for a period (including any
extensions thereof) not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the QUIDS. As a consequence of any such deferral, quarterly
Distributions on the QUIPS and the Common Securities by the Trust will be
deferred in a corresponding amount (and the amount of Distributions to which
Holders of the QUIPS and the Common Securities are entitled but do not receive
will accumulate additional Distributions thereon at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions)
during any such Extension Period. Unless all three of the Companies defer the
payment of interest on their QUIDS for the same Extension Period, Holders will
receive partial Distributions in the corresponding amounts not deferred.
During any such Extension Period, each of the deferring Companies and, if
such deferring Company is MECO or HELCO, HECO may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of its capital stock, (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any of its debt securities (including other junior subordinated
deferrable interest debentures of such Company that rank pari passu with or
junior in interest to the QUIDS on which payment is being deferred or make
7
any guarantee payments with respect to any guarantee issued by such Company if
such guarantee ranks pari passu with or junior in interest to the QUIDS on
which payment is being deferred (other than (a) dividends or distributions in
shares of, or options, warrants or rights to subscribe for or purchase shares
of, its common stock and exchanges or conversions of common stock of one class
for common stock of another class, (b) payments by HECO under the Guarantees
(or any other guarantee by HECO with respect to any securities of any of its
subsidiaries, provided that the proceeds from the issuance of such securities
were used to purchase junior subordinated deferrable interest debentures Issued
by any of the Companies), and (c) purchases by a Company of its common stock
required to prevent the loss or secure the renewal or reinstatement of any
government license or franchise held by HECO or any of its subsidiaries). Prior
to the termination of any such Extension Period, the deferring Company may
further extend the interest payment period, provided that no Extension Period
may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the
QUIDS. Upon the termination of any Extension Period and the payment of all
amounts then due on any Interest Payment Date, the deferring Company may elect
to begin a new Extension Period subject to the above requirements. See
"Description of QUIPS--Distributions" and "Description of QUIDS--Option to
Extend Interest Payment Period."
Should an Extension Period occur, each Holder of QUIPS (even if it uses the
cash method of accounting for United States federal income tax purposes) will
be required to accrue income (in the form of original issue discount for United
States federal income tax purposes in respect of its allocable share of the
deferred interest on the QUIDS of the deferring Company. As a result, a Holder
of QUIPS will include such income in gross income for United States federal
income tax purposes in advance of the receipt of cash, and will not receive the
cash related to such income from the Trust if such Holder disposes of the QUIPS
prior to the record date for any Distribution Date (as defined herein). See
"Certain Federal Income Tax Consequences--Stated Interest and Original Issue
Discount" and "--Sales or Redemption of QUIPS."
None of the Companies has a current intention of exercising its right to
defer payments of interest by extending the interest payment period on its
respective QUIDS. Moreover, because of the consequences of exercising such
right, including a prohibition on the payment of dividends with respect to a
deferring Company's capital stock, each of the Companies believes that the
likelihood of such exercise is remote. However, should any of the Companies
elect to exercise such right in the future, the market price of the QUIPS is
likely to be affected. A Holder that disposes of its QUIPS during an Extension
Period, therefore, might not receive the same return on its investment as a
Holder that continues to hold its QUIPS. In addition, as a result of the
existence of a right to defer interest payments, the market price of the QUIPS
(which represent preferred undivided beneficial interests in the QUIDS) may be
more volatile than the market prices of other securities which do not contain
such right.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION; TAXABLE EXCHANGES; POSSIBLE TAX LAW
CHANGES
Upon the occurrence and continuation of a Special Event, the Companies, at
the direction of HECO, have the right to redeem the QUIDS in whole (but not in
part) at the QUIDS Redemption Price within 90 days following the occurrence of
such Special Event and thereby cause a mandatory redemption of the QUIPS and
Common Securities. Under current United States federal income tax law, such a
redemption of the QUIPS would constitute a taxable event to the Holders
thereof. See "Certain Federal Income Tax Consequences--Sales or Redemption of
QUIPS."
In addition, HECO has the right, upon the occurrence and continuation of a
Special Event, to direct the Property Trustee to dissolve the Trust and, in
connection therewith, after satisfaction of creditors of the Trust, if any, to
issue Substituted HECO QUIDS in exchange for the MECO QUIDS and the HELCO QUIDS
(the "Exchange") and then cause the Distributable HECO QUIDS to be distributed
to
8
the Holders of QUIPS on a pro rata basis in liquidation of such Holders'
interests in the Trust. Under current United States federal income tax law,
although the distribution of the Distributable HECO QUIDS upon the dissolution
of the Trust would not be a taxable exchange to Holders of the QUIPS for United
States federal income tax purposes, the Exchange of the MECO QUIDS and the
HELCO QUIDS for the Substituted HECO QUIDS would likely be treated as such a
taxable exchange to Holders of the QUIPS. As a result of such taxable exchange,
each Holder would recognize gain or loss as described under "Certain Federal
Income Tax Consequences--Distribution of QUIDS to Holders of QUIPS." In
addition, if the Trust were characterized for United States federal income tax
purposes as an association taxable as a corporation at the time of dissolution,
or if there were a change in law or legal interpretation, or upon the
occurrence of certain other circumstances, the distribution of the
Distributable HECO QUIDS could be a taxable exchange to Holders of QUIPS. See
"Certain Federal Income Tax Consequences--Distribution of QUIDS to Holders of
QUIPS."
Because Holders of QUIPS may receive Distributable HECO QUIDS on dissolution
of the Trust, prospective purchasers of QUIPS are also making an investment
decision with regard to the Distributable HECO QUIDS and should carefully
review all the information regarding the QUIDS contained herein. See
"Description of QUIPS--Redemption or Exchange--Special Event Redemption or
Distribution of QUIDS" and "Description of QUIDS."
A "Special Event" means a Tax Event or an Investment Company Event. A "Tax
Event" means the receipt by the Trust of an opinion of counsel, rendered by a
law firm having a recognized federal and state tax and securities practice, to
the effect that, as a result of a Tax Action (as defined herein), there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date thereof, subject to United States federal income tax with respect to
income received or accrued on the QUIDS, (ii) interest payable by any of the
Companies on its respective QUIDS is not, or within 90 days of the date thereof
will not be, deductible by such Company, in whole or in part, for United States
federal income tax purposes, or (iii) the Trust is, or will be within 90 days
of the date thereof, subject to more than a de minimis amount of other taxes,
duties or other governmental charges. A "Tax Action" includes (a) any amendment
to or change (including any announced prospective change) in the laws (or any
regulations thereunder) of the United States, or of any State or the District
of Columbia, or of any political subdivision or taxing authority thereof or
therein, (b) any judicial decision interpreting, applying or clarifying such
laws or regulations or (c) any administrative pronouncement or action that
represents an official position (including a clarification of an official
position) of the governmental authority or regulatory body making such
administrative pronouncement or taking such action, in each such case that
occurs on or after the date of original issuance of the QUIPS. "Investment
Company Event" means the receipt by the Trust of an opinion of counsel,
rendered by a law firm having a recognized federal securities practice, to the
effect that, as a result of the occurrence of a change in law or regulation or
a change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), there is more than an insubstantial risk that the Trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), which Change in 1940 Act Law becomes effective on or after the date of
original issuance of the QUIPS.
On March 19, 1996, President Clinton proposed legislation (the "Bill") that
would, among other things, generally deny a deduction for United States federal
income tax purposes for interest on a corporate debt instrument with a maximum
weighted average maturity of more than 40 years. The Bill would also generally
deny a deduction for interest on a corporate debt instrument with a maximum
term of more than 20 years that was not shown as indebtedness on the separate
balance sheet of the issuer or, where the instrument was issued to a related
party (other than a corporation), where the holder or some other related party
issued a related instrument that was not shown as indebtedness on the issuer's
consolidated balance sheet. For purposes of determining the weighted average
maturity
9
or the term of an instrument, any right to extend would be treated as
exercised. The above-described provisions of the Bill were proposed to be
effective generally for instruments issued on or after December 7, 1995. If
either provision were to apply to the QUIDS, the Companies would be unable to
deduct interest on the QUIDS. However, on March 29, 1996, Senate Finance
Committee Chairman William V. Roth and House Ways and Means Committee Chairman
Bill Archer issued a joint statement (the "Joint Statement") indicating their
intent that the effective date of the President's legislative proposals,
including the Bill, if enacted, would be no earlier than the date of
appropriate Congressional action. In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives
Sam M. Gibbons and Charles B. Rangel wrote letters to the Treasury Department
concurring with the view expressed in the Joint Statement (the "Democrat
Letters"). If the principles contained in the Joint Statement and the Democrat
Letters were followed and the Bill were enacted, the Bill would not apply to
the QUIDS. The Companies believe that, under current law, they will be able to
deduct interest on the QUIDS. There can be no assurance, however, that current
or future legislative or administrative proposals or final legislation will
not affect the ability of the Companies to deduct interest on the QUIDS. Such
a change would give rise to a Tax Event, which would permit the Companies to
cause a redemption of the QUIPS or a distribution of Distributable HECO QUIDS
upon dissolution of the Trust upon receiving an opinion of counsel, as
described more fully under "Description of QUIPS--Redemption or Exchange--
Special Event Redemption or Distribution of QUIDS." Such a tax law change
would not alter the United States federal income tax consequences of the
purchase, ownership and disposition of QUIPS. See "Certain Federal Income Tax
Consequences."
MARKET PRICE
There can be no assurance as to the market prices for QUIPS or for the
Distributable HECO QUIDS that may be distributed in exchange for QUIPS if a
dissolution of the Trust occurs. Accordingly, the QUIPS that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary
market, or the Distributable HECO QUIDS that a Holder of QUIPS may receive on
dissolution of the Trust, may trade at a discount to the price that the
investor paid to purchase the QUIPS offered hereby.
RIGHTS UNDER THE TRUST GUARANTEE; LIMITATION OF FUNDS AVAILABLE TO THE TRUST
The Trust Guarantee will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Bank of New
York will act as the indenture trustee under the Trust Guarantee (the "Trust
Guarantee Trustee") for the purposes of compliance with the Trust Indenture
Act and will hold the Trust Guarantee for the benefit of the Holders of the
QUIPS. The Bank of New York will also act as Debenture Trustee for the QUIDS
and as Property Trustee under the Trust Agreement, and the Delaware affiliate
of the Property Trustee will act as the Delaware Trustee under the Trust
Agreement. The Trust Guarantee guarantees to the Holders of the QUIPS the
following payments, to the extent not paid by the Trust: (i) any accumulated
and unpaid Distributions required to be paid on the QUIPS, to the extent that
the Trust has funds on hand available therefor at such time, (ii) the
Redemption Price with respect to any QUIPS called for redemption, to the
extent that the Trust has funds on hand available therefor at such time, and
(iii) upon a voluntary or involuntary dissolution, winding-up or liquidation
of the Trust (unless the Distributable HECO QUIDS are distributed to Holders
of the QUIPS), the lesser of (a) the aggregate of the liquidation preference
and all accumulated and unpaid Distributions to the date of payment to the
extent that the Trust has funds on hand available therefor at such time and
(b) the amount of assets of the Trust remaining available for distribution to
Holders of the QUIPS in liquidation of the Trust. The Holders of not less than
a majority in aggregate liquidation amount of the QUIPS have the right to
waive any default by HECO on any of its payment obligations under the Trust
Guarantee, and to direct the time, method and place of conducting any
proceeding for any remedy available to the Trust Guarantee Trustee in respect
of the Trust Guarantee
10
or to direct the exercise of any trust power conferred upon the Trust
Guarantee Trustee under the Trust Guarantee. Any Holder of the QUIPS may
institute a proceeding directly against HECO to enforce its rights under the
Trust Guarantee without first instituting a proceeding against the Trust, the
Trust Guarantee Trustee or any other person or entity.
If HECO were to default on its obligation to pay amounts payable under the
HECO QUIDS, or if MECO or HELCO were to default on their obligations to pay
amounts payable under their respective QUIDS and HECO were to default on its
related obligation to make such payments under the Subsidiary Guarantees, the
Trust would lack funds for the payment of Distributions or amounts payable
upon redemption of the QUIPS or otherwise, and, in such event, Holders of the
QUIPS would not be able to rely upon the Trust Guarantee for payment of such
amounts. Instead, in the event a Debenture Event of Default (as defined
herein) shall have occurred and be continuing and such event is attributable
to the failure of one or more of the Companies to pay interest on or principal
of the QUIDS on the payment date on which such payment is due and payable
(and, in the case of such default by either or both of MECO and HELCO, the
failure of HECO to make such payment under the Subsidiary Guarantees), then a
Holder of QUIPS may directly institute a proceeding against each defaulting
Company (including HECO as guarantor) for enforcement of payment to such
Holder of the interest on or principal of such QUIDS having a principal amount
equal to the aggregate liquidation preference of the QUIPS of such Holder (a
"Direct Action"). In connection with such Direct Action, the defaulting
Company will be subrogated to the rights of such Holder of QUIPS to the extent
of any payment made by such Company to such Holder of QUIPS in such Direct
Action. Unless Distributable HECO QUIDS are distributed to the Holders of the
QUIPS, such Holders will not be able to exercise directly any other remedy
available to holders of QUIDS or assert directly any other rights in respect
of the QUIDS. See "Description of QUIPS--Enforcement of Certain Rights by
Holders of QUIPS," "Description of QUIDS--Debenture Events of Default,"
"Description of Trust Guarantee" and "Description of Subsidiary Guarantees."
The Trust Agreement provides that each Holder of QUIPS by acceptance thereof
agrees to the provisions of the Trust Guarantee and the Indentures.
LIMITED VOTING RIGHTS
Holders of QUIPS will generally have limited voting rights relating only to
the modification of the QUIPS and the dissolution, winding-up or liquidation
of the Trust. Holders of QUIPS will not be entitled to vote to appoint, remove
or replace the Property Trustee or the Delaware Trustee, which voting rights
are vested exclusively in HECO as the Holder of the Common Securities except
upon the occurrence of certain events described herein. The Administrative
Trustees (as defined herein) and HECO may amend the Trust Agreement without
the consent of Holders of QUIPS to ensure that the Trust will be classified
for United States federal income tax purposes as a grantor trust and that the
Trust will not be required to register as an "investment company" under the
Investment Company Act, even if such action adversely affects the interests of
such Holders. See "Description of QUIPS--Removal of Trustees" and "--Voting
Rights; Amendment of the Trust Agreement."
TRADING CHARACTERISTICS OF THE QUIPS
The QUIPS constitute a new issue of securities with no established trading
market. While HECO will apply to list the QUIPS on the New York Stock
Exchange, a minimum of 400 beneficial holders and 1,000,000 outstanding
securities is required for listing a new class of securities on the New York
Stock Exchange. Accordingly, no assurance can be given as to the liquidity of
or the development and maintenance of trading markets for the QUIPS. If
approved for listing, the QUIPS may trade at prices that do not fully reflect
the value of accrued but unpaid interest with respect to the underlying QUIDS.
A Holder of QUIPS that disposes of its QUIPS between record dates for any
Distribution Dates will nevertheless be required to include in income as
ordinary income an amount equal to the accrued but unpaid interest on the
QUIDS through the date of disposition. Such Holder will recognize a capital
loss to the extent the selling price (which may not fully reflect the value of
accrued but unpaid interest) is
11
less than its adjusted tax basis. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes. See "Certain Federal Income Tax Consequences--
Sales or Redemption of QUIPS."
CAPITAL AND OTHER EXPENDITURES
The Companies anticipate that they will continue to make substantial capital
expenditures in the future. They also may make acquisitions, some of which may
be significant, and the funding for which may be generated, in whole or in
part, from the incurrence of indebtedness. The incurrence of indebtedness to
fund capital expenditures or acquisitions (or the assumption of indebtedness
in connection with such acquisitions), which in each case could be senior to
the QUIPS and the QUIDS, could result in a downgrading of HECO's credit
rating, and, as a result, have an adverse effect upon the market value of the
QUIPS and the QUIDS.
HECO CAPITAL TRUST I
HECO Capital Trust I is a statutory business trust created under the
Delaware Business Trust Act, as amended (the "Trust Act"), pursuant to (i) the
trust agreement executed by HECO, as Depositor, The Bank of New York, as
Property Trustee, and The Bank of New York (Delaware), as the Delaware
Trustee, and the three Administrative Trustees named therein (collectively,
the "Trustees"), and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on December 31, 1996. The Administrative Trustees
are individuals who are officers of HECO. The trust agreement will be amended
and restated in its entirety (as so amended and restated, the "Trust
Agreement") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Trust's business and
affairs are conducted by the Trustees. The Bank of New York, as Property
Trustee, will act as sole indenture trustee under the Trust Agreement for
purposes of compliance with the Trust Indenture Act. The Bank of New York will
also act as trustee under the Guarantees and the Indentures. See "Description
of QUIDS," "Description of Trust Guarantee" and "Description of Subsidiary
Guarantees." HECO, as the holder of the Common Securities, or the Holders of a
majority in liquidation preference of the QUIPS if any Debenture Event of
Default has occurred and is continuing, will be entitled to appoint, remove or
replace the Property Trustee and/or the Delaware Trustee. In no event will the
Holders of the QUIPS have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in HECO, as
the holder of the Common Securities. The duties and obligations of each
Trustee are governed by the Trust Agreement. HECO will pay all fees and
expenses related to the Trust and the offering of the QUIPS and will pay,
directly or indirectly, all ongoing costs, expenses and liabilities of the
Trust. The principal executive office of the Trust is c/o The Bank of New
York, 101 Barclay Street 21W, New York, New York 10286, Attention: Corporate
Trust Trustee Administration. Inquiries concerning the Trust may also be
directed to HECO at 900 Richards Street, Honolulu, Hawaii 96813, telephone
number (808) 543-7360.
The Trust exists for the exclusive purposes of (i) issuing and selling the
QUIPS and the Common Securities, (ii) using the proceeds from the sale of
QUIPS and the Common Securities to acquire QUIDS issued by the Companies and
(iii) engaging in only those other activities necessary, convenient or
incidental thereto. Accordingly, the QUIDS will be the sole assets of the
Trust, and payments under the QUIDS and the Expense Agreement will be the sole
revenues of the Trust. All of the Common Securities will be owned by HECO. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata with the QUIPS, except that upon the occurrence and continuance of an
event of default under the Trust Agreement resulting from a Debenture Event of
Default, the rights of HECO as Holder of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or
otherwise will be subordinated to the rights of the Holders of the QUIPS. See
"Description of QUIPS--Subordination of Common Securities." HECO will acquire
the Common Securities in an aggregate liquidation amount equal to 3% of the
total capital of the Trust. The Trust has a term of 55 years, but may
terminate earlier as provided in the Trust Agreement.
12
HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES
HECO, a Hawaii corporation, was incorporated under the laws of the Kingdom
of Hawaii on October 13, 1891, and became a wholly-owned subsidiary of
Hawaiian Electric Industries, Inc. ("HEI"), a Hawaii corporation, as a result
of a corporate reorganization completed on July 1, 1983. HECO's principal
business and executive offices are located at 900 Richards Street, Honolulu,
Hawaii 96813-2956, and its telephone number is (808) 543-7771.
HECO owns all of the common stock of MECO, acquired in 1968, and HELCO,
acquired in 1970. MECO was incorporated under the laws of the Territory of
Hawaii on April 28, 1921, and its principal business and executive offices are
located at 210 West Kamehameha Avenue, Kahului, Hawaii 96732-2253, and its
telephone number is (808) 871-2300. HELCO was incorporated under the laws of
the Republic of Hawaii on December 5, 1894, and its principal business and
executive offices are located at 1200 Kilauea Avenue, Hilo, Hawaii 96720-4295,
and its telephone number is (808) 969-0121.
The Companies are regulated operating electric public utilities engaged in
the production, purchase, transmission, distribution and sale of electricity
on the islands of Oahu; Maui, Lanai and Molokai; and Hawaii, respectively.
These five islands had a combined population estimated at 1,130,000 as of July
1, 1995, or approximately 95 percent of the State's total population, and a
service area of approximately 5,766 square miles. The Companies do not provide
electric public utility service on the island of Kauai. The principal
communities served include Honolulu (on Oahu), Wailuku and Kahului (on Maui)
and Hilo and Kona (on Hawaii). The service areas also include numerous
suburban communities, resorts, U.S. Armed Forces installations and
agricultural operations.
The Companies provide the only electric public utility service on the
islands they serve. The following table sets forth the number of electric
customer accounts as of December 31, 1993, 1994 and 1995 and the related
electric sales revenues by Company for each of the years then ended:
1993 1994 1995
----------------------- ----------------------- -----------------------
CUSTOMER ELECTRIC SALES CUSTOMER ELECTRIC SALES CUSTOMER ELECTRIC SALES
ACCOUNTS REVENUES ACCOUNTS REVENUES ACCOUNTS REVENUES
-------- -------------- -------- -------------- -------- --------------
(DOLLARS IN THOUSANDS)
HECO.................... 263,478 $644,029 264,992 $652,442 269,307 $712,380
MECO.................... 51,064 113,018 52,483 119,805 53,339 127,284
HELCO................... 56,556 112,968 58,017 128,259 58,515 135,110
------- -------- ------- -------- ------- --------
371,098 $870,015 375,492 $900,506 381,161 $974,774
======= ======== ======= ======== ======= ========
Revenues from the sale of electricity in 1995 were from the following types
of customers in the proportions shown:
HECO MECO HELCO TOTAL
---- ---- ----- -----
Residential............................................ 31% 36% 41% 33%
Commercial............................................. 31 34 38 32
Large light and power.................................. 37 29 20 34
Other.................................................. 1 1 1 1
--- --- --- ---
100% 100% 100% 100%
=== === === ===
13
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information should be read in
conjunction with HECO's consolidated financial statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included in the Incorporated Documents. The
consolidated Income Statement and Operating Data for each of the years in the
three-year period ended December 31, 1995, are derived from, and are qualified
by reference to, the audited consolidated financial statements included in the
Incorporated Documents. The consolidated Income Statement and Operating Data
for the nine months ended September 30, 1995 and 1996, and the Capitalization
Data as of September 30, 1996, are derived from unaudited consolidated
financial statements included in the Incorporated Documents, which, in the
opinion of management, include all material adjustments, consisting only of
normal recurring adjustments, unless otherwise noted, necessary for a fair
presentation of HECO's consolidated financial position as of September 30,
1996 and results of operations for the nine-month periods ended September 30,
1995 and 1996. The results of operations for the nine months ended September
30, 1996 may not necessarily be indicative of the results to be expected for
the full fiscal year. The historical results are not necessarily indicative of
the results of operations to be expected in the future.
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER BARREL
AMOUNTS)
INCOME STATEMENT AND OPERATING
DATA:
Operating Revenues............... $874,010 $907,308 $981,990 $733,945 $791,146
-------- -------- -------- -------- --------
Operating Expenses:
Fuel Oil........................ 213,285 186,717 207,001 154,658 181,739
Purchased Power................. 258,723 271,636 276,364 204,993 212,674
Other Operating Expenses........ 323,917 361,643 395,903 294,319 312,628
-------- -------- -------- -------- --------
Total Operating Expenses........ 795,925 819,996 879,268 653,970 707,041
-------- -------- -------- -------- --------
Operating Income................. $ 78,085 $ 87,312 $102,722 $ 79,975 $ 84,105
======== ======== ======== ======== ========
Allowance for Equity Funds Used
During Construction............. $ 6,973 $ 9,064 $ 10,202 $ 7,575 $ 7,197
Income Before Interest and Other
Charges(1)...................... $ 89,641 $102,105 $119,047 $ 92,201 $ 97,238
Allowance for Borrowed Funds Used
During Construction............. $ 3,869 $ 4,043 $ 5,112 $ 3,832 $ 3,602
Income Before Preferred Stock
Dividends of HECO(2)............ $ 56,126 $ 65,961 $ 77,023 $ 61,267 $ 64,167
Average Fuel Oil Cost Per
Barrel.......................... $ 21.09 $ 18.92 $ 20.47 $ 20.57 $ 23.35
Kilowatthour Sales (Millions).... 8,325 8,593 8,806 6,507 6,735
AS OF SEPTEMBER 30, 1996 AS ADJUSTED(4)
--------------------------- ---------------------------
(DOLLARS IN (% OF TOTAL (DOLLARS IN (% OF TOTAL
THOUSANDS) CAPITALIZATION) THOUSANDS) CAPITALIZATION)
----------- --------------- ----------- ---------------
CAPITALIZATION DATA:
Short-Term Debt......... $ 137,906 9.0% $ 14,406 0.9%
Long-Term Debt
(including $43 million
due within one
year)(3)............... 588,660 38.4 632,160 41.2
Company-Obligated Trust
Preferred Securities... -- -- 50,000 3.3
Preferred Stock with
Mandatory Redemption
Requirements (including
sinking fund
requirements due within
one year).............. 39,255 2.6 39,255 2.6
Preferred Stock without
Mandatory Redemption
Requirements........... 48,293 3.1 48,293 3.1
Common Stock Equity..... 719,094 46.9 749,094 48.9
---------- ----- ---------- -----
Total Capitalization... $1,533,208 100.0% $1,533,208 100.0%
========== ===== ========== =====
- -------
(1) Income Before Interest and Other Charges includes Operating Income plus
the Allowance for Equity Funds Used During Construction and nonoperating
income.
(2) Income Before Preferred Stock Dividends of HECO includes Income Before
Interest and Other Charges, less interest (reduced by Allowance for
Borrowed Funds Used During Construction), amortization of net bond premium
and expense and preferred stock dividends of the HECO subsidiaries.
(3) The Department of Budget and Finance of the State of Hawaii (the
"Department") was authorized by the Hawaii Legislature in 1994 to issue up
to $170 million of Special Purpose Revenue Bonds and to loan the proceeds
to HECO and its subsidiaries by December 31, 1997. Special Purpose Revenue
Bonds in the aggregate principal amount of $125 million were sold during
1996 pursuant to this authorization. Long-Term Debt will increase from
time to time as the proceeds from the sale of the bonds issued during
1996, together with undrawn proceeds as of September 30, 1996 of
approximately $0.8 million from previously-issued revenue bonds, are drawn
down.
(4) Includes only adjustments to reflect approximately $43.5 million in
drawdowns made prior to December 31, 1996 from the proceeds of Special
Purpose Revenue Bonds, $30 million in proceeds from HECO's sale of Common
Stock to HEI in December 1996, and the proceeds of the QUIPS offered
hereby, and the application of the proceeds from all such transactions in
satisfaction of Short-Term Debt.
14
The following table summarizes certain unaudited financial information for
HECO consolidated and for MECO and HELCO, individually.
HECO CONSOLIDATED MECO HELCO
-------------------------- -------------------------- --------------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1995 1996 1995 1996
------------ ------------- ------------ ------------- ------------ -------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Current assets.......... $ 153,072 $ 169,676 $ 27,161 $ 28,216 $ 23,485 $ 25,667
Noncurrent assets....... 1,863,211 1,944,132 306,191 348,685 368,785 382,167
---------- ---------- -------- -------- -------- --------
$2,016,283 $2,113,808 $333,352 $376,901 $392,270 $407,834
========== ========== ======== ======== ======== ========
Common stock equity..... $ 696,905 $ 719,094 $126,458 $130,026 $136,930 $138,186
Cumulative preferred
stock
Not subject to
mandatory redemption.. 48,293 48,293 8,000 8,000 10,000 10,000
Subject to mandatory
redemption............ 39,955 37,460 6,055 5,960 7,500 7,500
Current liabilities..... 309,637 323,188 57,551 76,941 64,233 68,536
Noncurrent liabilities.. 921,493 985,773 135,288 155,974 173,607 183,612
---------- ---------- -------- -------- -------- --------
$2,016,283 $2,113,808 $333,352 $376,901 $392,270 $407,834
========== ========== ======== ======== ======== ========
NINE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------- --------------------------
1995 1996 1995 1996 1995 1996
------------ ------------- ------------ ------------- ------------ -------------
(IN THOUSANDS)
INCOME STATEMENT DATA:
Operating revenues...... $ 733,945 $ 791,146 $ 95,270 $106,943 $101,183 $112,809
Operating income........ $ 79,975 $ 84,105 $ 12,296 $ 12,575 $ 11,969 $ 11,969
Net income for common
stock.................. $ 58,159 $ 61,266 $ 8,409 $ 10,803 $ 9,642 $ 7,725
CAPITAL EXPENDITURE PROGRAMS AND FINANCING REQUIREMENTS
CAPITAL EXPENDITURE PROGRAMS
Capital expenditures include the costs of projects which are required to
meet expected load growth, to improve reliability, and to replace and upgrade
existing equipment. Capital expenditures requiring the use of cash totaled
approximately $184.7 million in 1995, of which $104.0 million was attributable
to HECO, $45.3 million to MECO and $35.4 million to HELCO. Approximately 68%
of the total 1995 capital expenditures was for transmission and distribution
projects and approximately 32% was for generation and general plant projects.
Cash contributions in aid of construction received in 1995 totaled $10.4
million.
The Companies' current consolidated forecast of net capital expenditures,
which excludes the allowance for funds used during construction ("AFUDC") and
capital expenditures funded by third-party contributions in aid of
construction, for the five-year period 1997 through 2001 is approximately $711
million. Approximately 65% of forecast gross capital expenditures, including
AFUDC and third-party contributions in aid of construction, is for
transmission and distribution projects, with the remaining 35% primarily for
generation projects.
Capital expenditure estimates and the timing of construction projects are
reviewed periodically by management and may change significantly as a result
of many considerations, including changes in economic conditions, changes in
forecasts of kilowatthour sales and peak load, the availability of purchased
power, the availability of generating sites and transmission and distribution
corridors, the ability to obtain adequate and timely rate relief, escalations
in construction costs, demand side management programs and requirements of
environmental and other regulatory and permitting authorities.
15
FINANCING REQUIREMENTS
The Companies' consolidated requirements for funds in the years 1997 through
2001, including net capital expenditures, debt retirements (exclusive of
reductions in levels of short-term borrowings) and sinking fund requirements,
are currently estimated to total $768 million. HECO's consolidated internal
sources, after payment of common stock and preferred stock dividends, are
currently expected to provide approximately 75% of the $768 million in total
requirements, with debt and equity financing providing the remaining
requirements. HECO currently estimates that it will require approximately $23
million in new common equity, in addition to retained earnings, over the five-
year period 1997 through 2001. The PUC must approve issuances of long-term
debt and equity for HECO, MECO and HELCO, including the QUIPS offered hereby.
RATIOS OF EARNINGS TO FIXED CHARGES AND TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth HECO's consolidated ratios of earnings to
fixed charges, and to combined fixed charges and preferred stock dividends,
for the periods indicated:
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ------ ------
Ratio of Earnings to Fixed Charges..... 2.82 3.03 3.25 3.47 3.46 3.66 3.67
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends............................. 2.54 2.73 2.90 3.12 3.17 3.33 3.37
In computing the Ratio of Earnings to Fixed Charges, earnings represent
Income Before Preferred Stock Dividends of HECO (reduced by Allowance for
Borrowed Funds Used During Construction) plus federal and state income taxes
and fixed charges. Fixed charges consist of interest on all indebtedness
(without reduction for the Allowance for Borrowed Funds Used During
Construction) plus amortization of net bond premium and expense, pre-tax
preferred stock dividend requirements of MECO and HELCO, and the estimated
interest component of rentals. In computing the Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends, pre-tax preferred stock dividend
requirements of HECO are added to fixed charges.
USE OF PROCEEDS
All of the proceeds from the sale of QUIPS and the Common Securities will be
invested by the Trust in QUIDS. The proceeds from the sale to the Trust of the
QUIDS will be used by each Company to repay short-term borrowings and for
general corporate purposes. Until so utilized, the net proceeds may be
invested in income producing securities.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated into HECO's
consolidated financial statements, with the QUIPS treated as minority interest
and shown in HECO's consolidated balance sheet as "Company-Obligated Trust
Preferred Securities." The financial statement footnotes of HECO will describe
the terms of the applicable securities and reflect that the sole assets of the
Trust will consist of the QUIDS. It is expected that all future reports filed
by HECO under the Exchange Act will present information regarding the Trust
and other similar arrangements (if any) in the manner described above. In
addition, if Staff Accounting Bulletin 53 treatment is sought, a footnote to
HECO's
16
audited consolidated financial statements will be added to reflect that (i)
the Common Securities of the Trust are wholly-owned by HECO, (ii) the sole
assets of the Trust are the QUIDS, specifying principal amount, interest rate
and maturity date of the QUIDS held and (iii) the Guarantees, when taken
together with HECO's obligations under its QUIDS and its obligations under the
Trust Agreement and the Expense Agreement, effectively provide a full and
unconditional guarantee, on a subordinated basis, of amounts due on the QUIPS.
See "Selected Consolidated Financial Information."
DESCRIPTION OF QUIPS
The QUIPS will be created pursuant to the terms of the Trust Agreement. The
following summary of certain provisions of the QUIPS and the Trust Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Trust Agreement, including
the definitions therein of certain terms, and the Trust Indenture Act.
Wherever particular defined terms of the Trust Agreement (as supplemented or
amended from time to time) are referred to herein, such defined terms are
incorporated herein by reference. The form of the Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees on behalf of the
Trust will issue the QUIPS and the Common Securities. The QUIPS will rank pari
passu, and payments will be made thereon pro rata based on aggregate
liquidation preference amounts, with the Common Securities of the Trust,
except that the QUIPS will be entitled to a preference in certain
circumstances with respect to Distributions and amounts payable on redemption
or liquidation over the Common Securities. See "--Subordination of Common
Securities."
The QUIPS will represent preferred undivided beneficial interests in the
assets of the Trust, and will be entitled to other benefits as described in
the Trust Agreement. The QUIDS will be the only assets of the Trust. Legal
title to the QUIDS will be held by the Property Trustee in trust for the
benefit of the Holders of the QUIPS and Common Securities. The Trust Guarantee
will be a guarantee on a subordinated basis with respect to the QUIPS but will
not guarantee payment of Distributions or amounts payable on redemption or
liquidation of the QUIPS when the Trust does not have funds on hand available
to make such payments. See "Description of Trust Guarantee."
DISTRIBUTIONS
Distributions on each QUIPS will be payable at the annual rate of % of
the stated liquidation preference of $25, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year. Distributions
will accumulate from February , 1997, the date of original issuance. The
first Distribution payment date for the QUIPS will be March 31, 1997. The
amount of Distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the QUIPS is not a Business Day, then payment of
the Distributions payable on such date will be made on the next succeeding day
that is a Business Day (and without any additional Distributions or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable (each date
on which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in the City of
New York are authorized or required by law or executive order to remain closed
or a day on which the principal corporate trust office of the Property Trustee
or the Debenture Trustee (as defined herein) is closed for business.
17
So long as no Event of Default under its Indenture has occurred and is
continuing, each of the Companies has the right under its Indenture to elect
to defer the payment of interest on its respective QUIDS at any time or from
time to time for a period (including any extensions thereof) not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the QUIDS. As a
consequence of any such deferral, quarterly Distributions on the QUIPS in a
corresponding amount will be deferred by the Trust during any such Extension
Period. Unless all three of the Companies defer the payment of interest on
their QUIDS for the same Extension Period, Holders will receive partial
Distributions in the corresponding amounts not deferred. Distributions to
which Holders of the QUIPS are entitled but do not receive will accumulate
additional Distributions thereon at the rate per annum of % thereof,
compounded quarterly from the relevant payment date for such Distributions.
The term "Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, each of the deferring
Companies and, if such deferring Company is MECO or HELCO, HECO may not (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its capital
stock, (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities (including other junior
subordinated deferrable interest debentures of such Company) that rank pari
passu with or junior in interest to the QUIDS on which payment is being
deferred or (iii) make any guarantee payments with respect to any guarantee
issued by such Company if such guarantee ranks pari passu with or junior in
interest to the QUIDS on which payment is being deferred (other than (a)
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, its common stock and exchanges or
conversions of common stock of one class for common stock of another class,
(b) payments by HECO under the Trust Guarantee (or under any other guarantee
by HECO with respect to any securities of any of its subsidiaries, provided
that the proceeds from the issuance of such securities were used to purchase
junior subordinated deferrable interest debentures issued by any of the
Companies) and the Subsidiary Guarantees, and (c) purchases of its common
stock required to prevent the loss or secure the renewal or reinstatement of
any government license or franchise held by it). Prior to the termination of
any such Extension Period, the deferring Company may further extend the
interest payment period, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the QUIDS. Upon
the termination of any such Extension Period and the payment of all amounts
then due on any Interest Payment Date, the deferring Company may elect to
begin a new Extension Period. See "Description of QUIDS--Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences--Stated
Interest and Original Issue Discount."
None of the Companies has a current intention of exercising its right to
defer payments of interest on its QUIDS by extending the interest payment
period on such QUIDS. Moreover, because of the consequences of exercising such
right, including a prohibition on the payment of dividends with respect to a
deferring Company's capital stock, each of the Companies believes that the
likelihood of such exercise is remote.
The revenues of the Trust available for distribution to Holders of the QUIPS
will be limited to payments under the QUIDS (in which the Trust will invest
the proceeds from the issuance and sale of the QUIPS and the Common
Securities) and payments under the Expense Agreement. See "Description of
QUIDS." If all of the Companies do not make interest payments on the QUIDS,
the Property Trustee will not have sufficient funds available to pay full
Distributions on the QUIPS. The payment of Distributions (if and to the extent
the Trust has funds legally available for the payment of such Distributions
and cash sufficient to make such payments) is guaranteed by HECO on a
subordinated basis as set forth herein under "Description of Trust Guarantee."
Distributions on the QUIPS will be payable to the Holders thereof as they
appear on the register of the Trust on the relevant record dates, which, as
long as the QUIPS remain in book-entry form, will be one Business Day prior to
the relevant Distribution Date. Subject to any applicable laws and regulations
and the provisions of the Trust Agreement, each such payment will be made as
described
18
under "--Book-Entry Issuance." In the event any QUIPS are not in book-entry
form, the relevant record date for such QUIPS shall be the date that is 15
days prior to the relevant Distribution Date and payments shall be made as
described under "--Payment and Paying Agency."
REDEMPTION OR EXCHANGE
MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part,
of any QUIDS, whether at maturity or upon earlier redemption as provided in
any Indenture, the proceeds from such repayment or redemption shall be applied
by the Property Trustee to redeem a Like Amount (as defined below) of the
QUIPS and the Common Securities, upon not less than 30 nor more than 60 days
notice, at the Redemption Price, which is equal to the aggregate liquidation
preference of the QUIPS and Common Securities to be redeemed plus accumulated
and unpaid Distributions thereon to the date of redemption (the "Redemption
Date"). See "Description of QUIDS--Redemption."
Each of the Companies will have the right to redeem its QUIDS on or after
February , 2002, in whole at any time or in part from time to time, subject
to the conditions described under "Description of QUIDS--Redemption," at the
QUIDS Redemption Price, which is equal to the accrued and unpaid interest on
the QUIDS so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof (the " QUIDS Redemption Price"). In addition, the
Companies, at the direction of HECO, will have the right to redeem the QUIDS
at any time, in whole (but not in part), upon the occurrence of a Tax Event or
an Investment Company Event (each, as defined below, a "Special Event") and
subject to the further conditions described under "Description of QUIDS--
Redemption," at the QUIDS Redemption Price.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF QUIDS. If a Special Event in
respect of the QUIPS and Common Securities shall occur and be continuing, (i)
the Companies, at the direction of HECO, have the right to redeem the QUIDS in
whole (but not in part) at the QUIDS Redemption Price, and thereby cause a
mandatory redemption of the QUIPS and Common Securities in whole (but not in
part) at the Redemption Price, within 90 days following the occurrence of such
Special Event, or (ii) HECO may direct the Property Trustee to dissolve the
Trust and, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law and the Exchange of Substituted HECO QUIDS for the
MECO QUIDS and the HELCO QUIDS, cause the Distributable HECO QUIDS to be
distributed to the Holders of the QUIPS and Common Securities in liquidation
of the Trust. Under current United States federal income tax law, although the
distribution of the Distributable HECO QUIDS upon the dissolution of the Trust
would not be a taxable exchange to Holders of the QUIPS for United States
federal income tax purposes, the Exchange of the MECO QUIDS and the HELCO
QUIDS for the Substituted HECO QUIDS would likely be treated as such a taxable
exchange. As a result of such taxable exchange, each holder would recognize
gain or loss as described under "Certain Federal Income Tax Consequences--
Distribution of QUIDS to Holders of QUIPS." In addition, if the Trust is
characterized for United States federal income tax purposes as an association
taxable as a corporation at the time of dissolution or if there is a change in
law or legal interpretation, or upon the occurrence of certain other
circumstances, the distribution of the Distributable HECO QUIDS could be a
taxable exchange to Holders of the QUIPS. See "Certain Federal Income Tax
Consequences--Distribution of QUIDS to Holders of QUIPS." If HECO does not
elect either option described above, the QUIPS will remain outstanding and, in
the event a Tax Event has occurred and is continuing, Additional Sums (as
defined below) may be payable on the QUIDS.
EXTENSION OR SHORTENING OF MATURITY OF QUIDS. HECO shall have the right to
extend or shorten the maturity of all of the QUIDS at any time (including the
maturity of the Distributable HECO QUIDS at the time that HECO exercises its
right to elect to dissolve the Trust and cause such QUIDS to be distributed to
the Holders of such QUIPS and Common Securities in liquidation of the Trust or
any time thereafter), provided that it can shorten or extend the maturity only
if certain conditions are met at the time such election is made and at the
time of such shortening or extension as described under "Description of
QUIDS--General."
19
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Trust on the
outstanding QUIPS and Common Securities of the Trust shall not be reduced as a
result of any additional taxes, duties and other governmental charges to which
the Trust has become subject.
"Investment Company Event" means the receipt by HECO or the Trust of an
opinion of counsel, rendered by a law firm having a recognized federal
securities practice, to the effect that, as a result of the occurrence of a
change in law or regulation or a change (including a prospective change) in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act
Law"), there is more than an insubstantial risk that the Trust is or will be
considered an "investment company" that is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes effective on or
after the date of original issuance of the QUIPS.
"Like Amount" means (i) with respect to payment of Distributions, the
aggregate amount thereof allocated 3% to the Common Securities and 97% to the
QUIPS, (ii) with respect to a redemption of the QUIPS, QUIPS and Common
Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of QUIDS to be contemporaneously redeemed in
accordance with the Indentures allocated 3% to the Common Securities and 97%
to the QUIPS and the proceeds of which will be used to pay the Redemption
Price of such QUIPS and to redeem such Common Securities, and (iii) with
respect to a distribution of Distributable HECO QUIDS to Holders of QUIPS and
Common Securities in connection with a dissolution or liquidation of the
Trust, Distributable HECO QUIDS having a principal amount equal to the
Liquidation Amount of the QUIPS and the Common Securities of the Holder to
whom such QUIDS are distributed. "Liquidation Amount" means the stated amount
of $25 per QUIPS and Common Security.
"Tax Event" means the receipt by HECO or the Trust of an opinion of counsel,
rendered by a law firm having a recognized federal and state tax and
securities practice, to the effect that, as a result of a Tax Action, there is
more than an insubstantial risk that (i) the Trust is, or will be within 90
days of the date of such opinion, subject to United States federal income tax
with respect to income received or accrued on the QUIDS, (ii) interest payable
by any of the Companies on its respective QUIDS is not, or within 90 days of
the date of such opinion will not be, deductible by such Company, in whole or
in part, for United States federal income tax purposes, or (iii) the Trust is,
or will be within 90 days of the date of such opinion, subject to more than a
de minimis amount of other taxes, duties or other governmental charges. A "Tax
Action" includes (a) any amendment to or change (including any announced
prospective change) in the laws (or any regulations thereunder) of the United
States, or of any State or the District of Columbia, or of any political
subdivision or taxing authority thereof or therein, (b) any judicial decision
interpreting, applying or clarifying such laws or regulations or (c) any
administrative pronouncement or action that represents an official position
(including a clarification of an official position) of the governmental
authority or regulatory body making such administrative pronouncement or
taking such action, in each such case that occurs on or after the date of
original issuance of the QUIPS.
After the liquidation date fixed for any distribution of Distributable HECO
QUIDS for QUIPS, (i) the QUIPS will no longer be deemed to be outstanding,
(ii) DTC or its nominee, as the record Holder of the QUIPS, will receive a
registered global certificate or certificates representing such QUIDS to be
delivered upon such distribution and (iii) any certificates representing the
QUIPS not held by DTC or its nominee will be deemed to represent such QUIDS
having a principal amount equal to the stated liquidation preference of such
QUIPS, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on the QUIPS, until such certificates are
presented to the Administrative Trustees or their agent for transfer or
reissuance.
20
There can be no assurance as to the market prices for the QUIPS or the
Distributable HECO QUIDS that may be distributed in exchange for QUIPS if a
dissolution and liquidation of the Trust were to occur. Accordingly, the QUIPS
that an investor may purchase, or the Distributable HECO QUIDS that the
Holders of the QUIPS may receive on dissolution and liquidation of the Trust,
may trade at a discount to the price that the investor paid to purchase the
QUIPS offered hereby.
REDEMPTION PROCEDURES
QUIPS redeemed on each Redemption Date shall be redeemed at the Redemption
Price with the applicable proceeds from the contemporaneous redemption of the
QUIDS. Redemptions of the QUIPS shall be made and the Redemption Price shall
be payable on each Redemption Date only to the extent that the Trust has funds
on hand available for the payment thereof. See also "--Subordination of Common
Securities."
If the Trust gives a notice of redemption in respect of any of the QUIPS,
then, by 12:00 noon, New York City time, on the Redemption Date, to the extent
funds are available therefor, the Property Trustee will deposit irrevocably
with DTC funds sufficient to pay the Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
Holders of such QUIPS. See "--Book-Entry Issuance." If such QUIPS are no
longer in book-entry form, the Trust, to the extent funds are available, will
irrevocably deposit with the paying agent for the QUIPS funds sufficient to
pay the Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the Holders thereof
upon surrender of their certificates evidencing such QUIPS. Notwithstanding
the foregoing, Distributions payable on or prior to the Redemption Date for
any QUIPS called for redemption shall be payable to the Holders of such QUIPS
on the relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit, all rights of the Holders of such QUIPS so called
for redemption will cease, except the right of the Holders of such QUIPS to
receive the Redemption Price, but without interest on such Redemption Price,
and such QUIPS will cease to be outstanding. In the event that any date fixed
for redemption of QUIPS is not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next succeeding day which is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date fixed for
redemption. In the event that payment of the Redemption Price in respect of
QUIPS called for redemption is improperly withheld or refused and not paid
either by the Trust or by HECO pursuant to the Trust Guarantee, Distributions
on such QUIPS will continue to accumulate at the then applicable rate, from
the Redemption Date originally established by the Trust for such QUIPS to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable laws (including, without limitation, United States
federal securities laws), HECO or its subsidiaries may at any time and from
time to time purchase outstanding QUIPS by tender, in the open market or by
private agreement.
Payment of the Redemption Price and any distribution of Distributable HECO
QUIDS to Holders of QUIPS shall be made to the applicable record Holders
thereof as they appear on the register for such QUIPS on the relevant record
date, which shall be one Business Day prior to the relevant Redemption Date or
liquidation date, as applicable; provided, however, that in the event that any
QUIPS are not in book-entry form, the relevant record date for such QUIPS
shall be the date that is 15 days prior to the Redemption Date or liquidation
date, as applicable.
If less than all of the QUIPS and Common Securities issued by the Trust are
to be redeemed on a Redemption Date, then a Like Amount of QUIPS and Common
Securities shall be redeemed. If the
21
QUIPS continue to be in book-entry form at the time of such redemption, the
QUIPS to be redeemed will be redeemed in accordance with the procedures of
DTC. If at such time the QUIPS are not in book-entry form, the particular
QUIPS to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Property Trustee from the outstanding QUIPS not
previously called for redemption, by lot or by such method as the Property
Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to $25 or an integral multiple of
$25 in excess thereof) of the liquidation preference of QUIPS of a
denomination larger than $25. The Property Trustee shall promptly notify the
Trust registrar in writing of the QUIPS selected for redemption and, in the
case of any QUIPS selected for partial redemption, the liquidation preference
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of QUIPS
shall relate, in the case of any QUIPS redeemed or to be redeemed only in
part, to the portion of the aggregate liquidation preference of QUIPS which
has been or is to be redeemed.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the QUIPS and
Common Securities, as applicable, shall be made in Like Amount; provided,
however, that if on any Distribution Date or Redemption Date a Debenture Event
of Default shall have occurred and be continuing, no payment of any
Distribution on, or Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition
of the Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding QUIPS for all
Distribution periods terminating on or prior thereto, or in the case of
payment of the Redemption Price the full amount of such Redemption Price on
all of the outstanding QUIPS then called for redemption, shall have been made
or provided for, and all funds available to the Property Trustee shall first
be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the QUIPS then due and payable.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, HECO, as holder of the Common Securities, will
be deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effect of all such Events of
Default with respect to the QUIPS have been cured, waived or otherwise
eliminated. Until any such Events of Default under the Trust Agreement with
respect to the QUIPS have been so cured, waived or otherwise eliminated, the
Property Trustee shall act solely on behalf of the Holders of the QUIPS and
not on behalf of HECO as Holder of the Common Securities, and only the Holders
of the QUIPS will have the right to direct the Property Trustee to act on
their behalf.
LIQUIDATION VALUE; LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the QUIPS in the event of any liquidation of the Trust
is $25 per QUIPS plus accumulated and unpaid Distributions, which under
certain circumstances may be in the form of a distribution in Like Amount of
Distributable HECO QUIDS.
Pursuant to the Trust Agreement, the Trust shall automatically dissolve upon
expiration of its term and shall dissolve on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of HECO; (ii) the
distribution of a Like Amount of Distributable HECO QUIDS to the Holders of
the QUIPS and Common Securities upon the occurrence of a Special Event; (iii)
the redemption of all of the QUIPS and Common Securities as described under
"--Redemption or Exchange;" and (iv) the entry by a court of competent
jurisdiction of an order for the dissolution of the Trust.
22
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, the Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
Holders of the QUIPS and Common Securities a Like Amount of the Distributable
HECO QUIDS, unless such distribution is determined by the Property Trustee not
to be practical, in which event such Holders will be entitled to receive out
of the assets of the Trust available for distribution to Holders, after
satisfaction of liabilities to creditors of the Trust as provided by
applicable law, an amount equal to, in the case of Holders of QUIPS, the
aggregate of the liquidation preference thereof plus accumulated and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the QUIPS shall be paid pro rata to the Holders thereof based on
their aggregate liquidation preferences. HECO, as Holder of the Common
Securities, will be entitled to receive distributions upon any such
liquidation in Like Amount with the Holders of the QUIPS, except that if a
Debenture Event of Default has occurred and is continuing, the QUIPS shall
have a priority over the Common Securities in the right to receive such
Liquidation Distributions. See "--Subordination of Common Securities."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the QUIPS (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under any of the
Indentures (see "Description of QUIDS--Debenture Events of Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any QUIPS or Common Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustees in the Trust Agreement (other than
a covenant or warranty a default in the performance of which or the breach
of which is dealt with in clause (ii) or (iii) above), and continuation of
such default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the defaulting Trustee or Trustees by
the Holders of at least 25% in aggregate liquidation preference of the
outstanding QUIPS, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by HECO to appoint a
successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Event of Default actually known
to the Property Trustee, the Property Trustee shall transmit notice of such
Event of Default to the Holders of the QUIPS, the Administrative Trustees and
HECO, as Depositor, unless such Event of Default shall have been cured or
waived. HECO, as Depositor, and the Administrative Trustees are required to
file annually with the Property Trustee a certificate as to whether or not
they are in compliance with all the conditions and covenants applicable to
them under the Trust Agreement.
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If a Debenture Event of Default has occurred and is continuing, the QUIPS
shall have a preference over the Common Securities upon dissolution of the
Trust as described above. See "--Liquidation Value; Liquidation Distribution
Upon Dissolution."
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF QUIPS
If an Event of Default has occurred and is continuing, then the Holders of
QUIPS would rely on the enforcement by the Debenture Trustee of its rights as
a Holder of the QUIDS against the respective Companies. Notwithstanding the
foregoing, if an Event of Default has occurred and is continuing and such
event is attributable to the failure of one or more of the Companies to pay
principal of or interest on the related QUIDS on the date such principal or
interest is otherwise payable (or in the case of redemption, on the Redemption
Date), then a Holder of QUIPS may institute a Direct Action against the
defaulting Company for enforcement of payment to such Holder of the principal
of or interest on the related QUIDS having a principal amount equal to the
aggregate liquidation preference of the QUIPS of such Holder after the
respective due date specified in the QUIDS. In connection with such Direct
Action, the defaulting Company (or HECO, as guarantor) will be subrogated to
the rights of such Holder of QUIPS under the Trust Agreement to the extent of
any payment made by such Company (or by HECO, as guarantor) to such Holder of
QUIPS in such Direct Action.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Trustee may be removed at any time by the Holder of the Common Securities.
If a Debenture Event of Default has occurred and is continuing, the Property
Trustee and the Delaware Trustee may be removed at such time by the Holders of
a majority in Liquidation Amount of the outstanding QUIPS. In no event will
the Holders of the QUIPS have the right to vote to appoint, remove or replace
the Administrative Trustees, which voting rights are vested exclusively in
HECO as the Holder of the Common Securities. No resignation or removal of a
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property
may at the time be located, HECO, as the Holder of the Common Securities, and
the Administrative Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or
any part of the Trust's property, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to
make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any entity into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
entity succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Trust
Agreement, provided such corporation shall be otherwise qualified and
eligible.
24
MERGER, CONSOLIDATION, AMALGAMATION OR REPLACEMENT OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below or as otherwise set forth in the Trust Agreement. The Trust
may, at the request of HECO, with the consent of the Administrative Trustees
and without the consent of the Holders of the QUIPS, merge with or into,
consolidate, amalgamate, be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as
such under the laws of any State; provided that (i) such successor entity
either (a) expressly assumes all of the obligations of the Trust with respect
to the QUIPS or (b) substitutes for the QUIPS other securities having
substantially the same terms as the QUIPS (the "Successor Securities") so long
as the Successor Securities rank the same as the QUIPS rank in priority with
respect to distributions and payments upon liquidation, redemption and
otherwise, (ii) HECO expressly appoints a trustee of such successor entity
possessing substantially the same powers and duties as the Property Trustee as
the Holder of the QUIDS, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the QUIPS are then
listed, if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the QUIPS (including any
Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the Holders of the QUIPS (including any
Successor Securities) in any material respect, (vi) such successor entity has
a purpose substantially identical to that of the Trust, (vii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer, or
lease, HECO has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the Holders of the QUIPS
(including any Successor Securities) in any material respect and (b) following
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Trust nor such successor entity will be required to
register as an "investment company" under the Investment Company Act, and
(viii) HECO or any permitted successor or assignee owns all of the Common
Securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent
provided by the Trust Guarantee. Notwithstanding the foregoing, the Trust
shall not, except with the consent of Holders of 100% in aggregate liquidation
preference of the QUIPS, consolidate, amalgamate, merge with or into, be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Trust or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Trust Guarantee--
Amendments and Assignment," and except as otherwise required by law and the
Trust Agreement, the Holders of the QUIPS will have no voting rights.
The Trust Agreement may be amended from time to time by HECO and the
Trustees, without the consent of the Holders of the QUIPS (i) to cure any
ambiguity, to correct or supplement any provisions in the Trust Agreement that
may be inconsistent with any other provision, or to include any other
provisions with respect to matters or questions arising under the Trust
Agreement that shall not be inconsistent with the other provisions of the
Trust Agreement, or (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as shall be necessary to ensure that the Trust
will be classified for United States federal income tax purposes as a grantor
trust at all times that any QUIPS
25
and Common Securities are outstanding or to ensure that the Trust will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (i) above, such action
shall not adversely affect in any respect the interests of any Holder of QUIPS
or Common Securities, and any amendments of such Trust Agreement shall become
effective when notice thereof is given to the Holders of QUIPS and Common
Securities. The Trust Agreement may be amended by the Trustees and HECO with
(i) the consent of Holders representing not less than a majority (based upon
Liquidation Amounts) of the outstanding QUIPS and Common Securities and (ii)
receipt by the Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Trustees in accordance
with such amendment will not affect the Trust's status as a grantor trust for
United States federal income tax purposes or the Trust's exemption from the
status of an "investment company" under the Investment Company Act; provided,
that without the consent of each Holder of QUIPS and Common Securities, the
Trust Agreement may not be amended to (i) change the amount or timing of any
Distribution on the QUIPS and Common Securities or otherwise adversely affect
the amount of any Distribution required to be made in respect of the QUIPS and
Common Securities as of a specified date or (ii) restrict the right of a
Holder of QUIPS and Common Securities to institute suit for the enforcement of
any such payment on or after such date.
So long as any QUIDS are held by the Property Trustee, the Trustees shall
not (i) direct the time, method and place of conducting any proceeding for any
remedy available to the Debenture Trustee or executing any trust or power
conferred on the Property Trustee with respect to the QUIDS, (ii) waive any
past default that is waiveable under the applicable Indenture, (iii) exercise
any right to rescind or annul a declaration that the principal of all the
QUIDS shall be due and payable or (iv) consent to any amendment, modification
or termination of the applicable Indenture or the QUIDS issued thereunder,
where such consent shall be required, without, in each case, obtaining the
prior approval of the Holders of a majority in aggregate liquidation
preference of all outstanding QUIPS; provided, however, that where a consent
under the applicable Indenture would require the consent of each Holder of
QUIDS issued thereunder affected thereby, no such consent shall be given by
the Property Trustee without the prior consent of each Holder of the QUIPS.
The Trustees shall not revoke any action previously authorized or approved by
a vote of the Holders of the QUIPS except by subsequent vote of the Holders of
the QUIPS. The Property Trustee shall notify each Holder of record of the
QUIPS of any notice of default with respect to the QUIDS. In addition to
obtaining the foregoing approvals of the Holders of the QUIPS, prior to taking
any of the foregoing actions, the Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be
classified as a corporation for United States federal income tax purposes on
account of such action.
Any required approval of Holders of QUIPS may be given at a meeting of
Holders of QUIPS convened for such purpose or pursuant to written consent. The
Property Trustee will cause a notice of any meeting at which Holders of QUIPS
are entitled to vote, or of any matter upon which action by written consent of
such Holders is to be taken, to be given to each Holder of record of QUIPS in
the manner set forth in the Trust Agreement.
No vote or consent of the Holders of QUIPS will be required for the Trust to
redeem and cancel the QUIPS in accordance with the Trust Agreement.
Notwithstanding that Holders of QUIPS are entitled to vote or consent under
any of the circumstances described above, any of the QUIPS that are owned by
the Companies, the Trustees or any affiliate of the Companies or any Trustee,
shall, for purposes of such vote or consent, be treated as if they were not
outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the QUIPS shall be made to DTC, which shall credit
the relevant accounts at DTC on the applicable Distribution Dates or, if any
QUIPS are not held by DTC, such payments shall
26
be made by check mailed by the paying agent (the "Paying Agent") to the
address of the Holder entitled thereto as such address shall appear on the
Register maintained by the Property Trustee. The initial Paying Agent shall be
the Property Trustee and any co-paying agent may be chosen by the Property
Trustee which is acceptable to the Administrative Trustees and HECO. In the
event that the Property Trustee shall no longer be the Paying Agent, the
Administrative Trustees shall appoint a successor (which shall be a bank or
trust company acceptable to the Administrative Trustees and HECO) to act as
Paying Agent. The Paying Agent shall be permitted to resign as Paying Agent
upon 30 days' written notice to HECO and, if the Paying Agent is not then the
Property Trustee, to the Property Trustee.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for all of the QUIPS. The QUIPS will
be issued only as fully-registered securities registered in the name of Cede &
Co. (DTC's nominee). One or more fully-registered global certificates will be
issued, representing in the aggregate the total number of the QUIPS, and will
be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain custodial relationships with Direct Participants, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of QUIPS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the QUIPS on DTC's records. The
ownership interest of each actual purchaser of each QUIPS ("Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmations
providing details of the transactions, as well as periodic statements of their
holdings, from the Direct or Indirect Participants through which the
Beneficial Owners purchased QUIPS. Transfers of ownership interests in the
QUIPS are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in QUIPS, except in the
event that use of the book-entry system for the QUIPS is discontinued. The
laws of some states may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a Global QUIDS.
DTC has no knowledge of the actual Beneficial Owners of the QUIPS; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such QUIPS are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
27
Redemption notices will be sent to Cede & Co. as the registered Holder of
the QUIPS. If less than all of the QUIPS are being redeemed, DTC's current
practice is to determine by lot the amount of the interest of each Direct
Participant to be redeemed.
Although voting with respect to the QUIPS is limited to the Holders of
record of the QUIPS, in those instances in which a vote is required, neither
DTC nor Cede & Co. will itself consent or vote with respect to QUIPS. Under
its usual procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to
the Property Trustee as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts such QUIPS are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners, and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners,
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Distribution payments on the QUIPS will be made by the Property Trustee to
DTC. DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payments on
such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Participant and not of DTC, the Property Trustee, the
Trust or the Companies, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of Distributions to DTC is the
responsibility of the Property Trustee, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to the QUIPS at any time by giving reasonable notice to the Property
Trustee and HECO. In the event that a successor securities depositary is not
obtained, definitive QUIPS certificates representing such QUIPS are required
to be printed and delivered. HECO, at its option, may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor
depositary). After a Debenture Event of Default, the Holders of a majority in
liquidation preference of QUIPS may determine to discontinue the system of
book-entry transfers through DTC. In any such event, definitive certificates
representing the QUIPS will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust and the Companies believe to be
accurate, but the Trust and the Companies assume no responsibility for the
accuracy thereof. Neither the Trust nor the Companies has any responsibility
for the performance by DTC or its Participants of their respective obligations
as described herein or under the rules and procedures governing their
respective operations.
REGISTRAR AND TRANSFER AGENT
If the QUIPS no longer remain in book-entry form, the Property Trustee will
act as registrar and transfer agent for the QUIPS.
Registration of transfers of QUIPS will be effected without charge by or on
behalf of the Trust, but upon payment of any tax or other governmental charges
that may be imposed in connection with any transfer or exchange. The Trust
will not be required to register or cause to be registered the transfer of
QUIPS after such QUIPS have been called for redemption or during the period
from 15 days before mailing of notice of redemption and ending on such notice
date.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the Trust Agreement at the request of any Holder of QUIPS
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action or construe ambiguous provisions in the
Trust Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which Holders of QUIPS are entitled
under the Trust Agreement to vote, then the Property Trustee shall take such
action as is directed by HECO and if not so directed, shall take such action
as it deems advisable and in the best interests of the Holders of the QUIPS
and the Common Securities and will have no liability except for its own bad
faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that it will not be deemed
to be an "investment company" required to be registered under the Investment
Company Act, or be classified as an association taxable as a corporation for
United States federal income tax purposes, or become subject to any state or
local tax, and so that the QUIDS will be treated as indebtedness of the
respective Companies for United States federal income tax purposes. In this
connection, each of the Companies and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust or the Trust Agreement, that the Companies (or any of
them) and the Administrative Trustees determine in their discretion to be
necessary or desirable for such purposes, as long as such action does not
materially adversely affect the interests of the Holders of the QUIPS;
provided, however, that HECO and the Trustees may amend the Trust Agreement,
without the consent of the Holders of the QUIPS and even if such amendment
would adversely affect the interests of such Holders, as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust and will not be required to register as an
"investment company" under the Investment Company Act. See "--Voting Rights;
Amendment of the Trust Agreement."
Holders of the QUIPS have no preemptive or similar rights.
The Trust may not borrow money or issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF QUIDS
The QUIDS of each of the Companies are to be issued under the respective
Junior Subordinated Indenture of such Company, as supplemented from time to
time (as so supplemented, the "HECO Indenture," the "MECO Indenture" and the
"HELCO Indenture," respectively, and, collectively, the "Indentures"), between
each such Company and The Bank of New York, as trustee (the "Debenture
Trustee"). Except in instances where certain elections must be made by all
Companies at the direction of HECO under all of the Indentures, and the
provisions providing for the Exchange and as otherwise described below, the
provisions of the Indentures are substantially similar in all material
respects. This summary of certain terms and provisions of the QUIDS and the
Indentures does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Indentures, the form of which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a
part, and to the Trust Indenture Act. Whenever particular defined terms of the
Indentures are referred to herein, such defined terms are incorporated herein
by reference. Unless the content otherwise requires, the term QUIDS includes
the Substituted HECO QUIDS.
29
GENERAL
Concurrently with the issuance of the QUIPS, the Trust will invest the
proceeds thereof and the consideration paid by HECO for the Common Securities
in the QUIDS. The QUIDS will bear interest at the annual rate of % of the
principal amount thereof from the date of original issuance, payable quarterly
in arrears on March 31, June 30, September 30 and December 31 of each year
(each, an "Interest Payment Date"), commencing March 31, 1997, to the person
in whose name each QUIDS is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment
Date. It is anticipated that, until the liquidation, if any, of the Trust,
each QUIDS will be held in the name of the Property Trustee in trust for the
benefit of the Holders of the QUIPS. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the QUIDS
is not a Business Day, then payment of the interest payable on such date will
be made on the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable.
Accrued interest that is not paid on the applicable Interest Payment Date will
bear additional interest on the amount thereof (to the extent permitted by
law) at the rate per annum of % thereof, compounded quarterly. The term
"interest" as used herein shall include quarterly interest payments, interest
on quarterly interest payments not paid on the applicable Interest Payment
Date and Additional Sums (as defined below), as applicable.
The QUIDS will be issued by each of the Companies under the applicable
Indenture. The QUIDS will mature on February , 2027, which maturity may be
shortened or extended at any time at the election of HECO (which election
shall apply to the MECO QUIDS and the HELCO QUIDS, as well as the HECO QUIDS
or, if issued, all of the Distributable HECO QUIDS) for one or more periods,
but in no event to a date earlier than February , 2002 or to a date later
than February , 2046 (such maturity date, as it may be shortened or
extended, the "Stated Maturity"), provided that at the time such election is
made and at the time of any such shortening or extension (i) none of the
Companies is in bankruptcy, otherwise insolvent or in liquidation, (ii) none
of the Companies is in default in the payment of any interest or principal on
the QUIDS, (iii) the Trust is not in arrears on payments of Distributions on
the QUIPS and no deferred Distributions are accumulated and (iv) the QUIDS are
rated not less than BBB- by Standard & Poor's or Baa3 by Moody's Investors
Service, Inc., or the equivalent by any other nationally recognized
statistical rating organization.
The QUIDS of each Company will be unsecured and will rank junior and be
subordinate in right of payments to all Senior Debt (as defined below) of the
respective issuing Company and will rank pari passu with any other series of
junior subordinated deferrable interest debentures issued by that Company.
Since HECO receives dividends and interest payments from MECO and HELCO, and
since certain of the operating assets of the Companies are owned by MECO and
HELCO, the HECO QUIDS will also be effectively subordinated to all existing
and future liabilities of MECO and HELCO. The Indentures do not limit the
incurrence or issuance of other secured or unsecured debt of the applicable
Company, whether thereunder or under any existing or other indenture that such
Company may enter into in the future or otherwise. See "--Subordination."
30
ADDITIONAL SUMS
If the Trust is required to pay any additional taxes, duties or other
governmental charges ("Additional Sums"), each of the Companies will pay as
additional amounts on its respective QUIDS its proportionate share of such
amounts as shall be required so that the Distributions payable by the Trust
shall not be reduced as a result of any such additional taxes, duties or other
governmental charges, subject to the conditions described under "Description
of QUIPS--Redemption or Exchange--Special Event Redemption or Distribution of
QUIDS."
DENOMINATIONS, REGISTRATION AND TRANSFER
The QUIDS will be issuable only in registered form without coupons in
denominations of $25 and any integral multiple thereof. QUIDS will be
exchangeable for other QUIDS issued by the same Company, of any authorized
denominations, of a like aggregate principal amount, having the same date of
original issuance and Stated Maturity and bearing the same interest rate.
QUIDS may be presented for exchange as provided above, and may be presented
for registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the appropriate securities registrar or at the office of any transfer agent
designated by the respective Companies for such purpose, without service
charge and upon payment of any taxes and other governmental charges as
described in the applicable Indenture. Each of the Companies will appoint the
Debenture Trustee as the initial securities registrar and transfer agent under
the applicable Indenture. Each of the Companies may at any time rescind the
designation of any such securities registrar or transfer agent or approve a
change in the location through which any such securities registrar or transfer
agent acts, provided that such Company maintains a transfer agent in each
Place of Payment for such QUIDS. Each of the Companies may at any time
designate additional transfer agents with respect to its respective QUIDS.
In the event of any redemption, neither any of the Companies nor the
securities registrar shall be required to (i) issue, register the transfer of
or exchange the respective QUIDS of such Company during a period beginning at
the opening of business 15 days before the day of mailing of notice of
redemption of any QUIDS and ending at the close of business on the day of
mailing of the relevant notice of redemption or (ii) transfer or exchange any
QUIDS so selected for redemption, except, in the case of any QUIDS being
redeemed in part, any portion thereof not to be redeemed.
GLOBAL QUIDS
The QUIDS may be issued in whole or in part in the form of one or more
Global QUIDS that will be deposited with, or on behalf of, a depositary (the
"Depositary"). Global QUIDS may be issued only in fully registered form and in
either temporary or permanent form. Unless and until it is exchanged in whole
or in part for the individual QUIDS represented thereby, a Global QUIDS may
not be transferred except as a whole by the Depositary for such Global QUIDS
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by the Depositary or any
nominee to a successor Depositary or any nominee of such successor. HECO
anticipates that the following provisions will generally apply to depositary
arrangements.
Upon the issuance of a Global QUIDS and the deposit of such Global QUIDS
with or on behalf of the Depositary, the Depositary for such Global QUIDS or
its nominee will credit on its book-entry registration and transfer system the
respective principal amounts of the individual QUIDS represented by such
Global QUIDS to the accounts of persons that have accounts with such
Depositary ("Participants"). Such accounts shall be designated by the dealers,
underwriters or agents with respect to such QUIDS. Ownership of beneficial
interests in a Global QUIDS will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
such Global QUIDS will be shown on, and the transfer of that ownership will be
effected only through, records
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maintained by the applicable Depositary or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability to transfer
beneficial interests in a Global QUIDS.
So long as the Depositary for a Global QUIDS, or its nominee, is the
registered owner of such Global QUIDS, such Depositary or such nominee, as the
case may be, will be considered the sole owner or Holder of the QUIDS
represented by such Global QUIDS for all purposes under the Indenture
governing such QUIDS. Except as provided below, owners of beneficial interests
in a Global QUIDS will not be entitled to have any of the individual QUIDS of
the series represented by such Global QUIDS registered in their names, will
not receive or be entitled to receive physical delivery of any such QUIDS in
definitive form and will not be considered the owners or Holders thereof under
the applicable Indenture.
Payments of principal of and premium, if any, and interest on individual
QUIDS represented by a Global QUIDS registered in the name of a Depositary or
its nominee will be made to the Depositary or its nominee, as the case may be,
as the registered owner of the Global QUIDS representing such QUIDS. None of
the Companies, the Debenture Trustee, any Paying Agent or the Securities
Registrar for such QUIDS will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Global QUIDS representing such QUIDS or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Companies expect that the Depositary for the QUIDS or its nominee, upon
receipt of any payment of principal, premium, if any, or interest in respect
of a permanent Global QUIDS representing any of such QUIDS, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of such Global QUIDS
representing such QUIDS as shown on the records of such Depositary or its
nominee. The Companies also expect that payments by Participants to owners of
beneficial interests in such Global QUIDS held through such Participants will
be governed by standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in bearer form or
registered in "street name." Such payments will be the responsibility of such
Participants.
A Global QUIDS shall be exchangeable for QUIDS registered in the names of
persons other than the Depositary or its nominee only if (i) the Depositary
notifies the Companies that it is unwilling or unable to continue as a
depositary for such Global QUIDS and no successor depositary shall have been
appointed, or if at any time the Depositary ceases to be a clearing agency
registered under the Exchange Act at a time when the Depositary is required to
be so registered to act as such depositary, (ii) HECO in its sole discretion
on behalf of the Companies determines that such Global QUIDS shall be so
exchangeable, or (iii) there shall have occurred and be continuing an Event of
Default with respect to such Global QUIDS. Any Global QUIDS that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
definitive certificates registered in such names as the Depositary shall
direct. It is expected that such instructions will be based upon directions
received by the Depositary from its Participants with respect to ownership of
beneficial interests in such Global QUIDS. In the event that QUIDS are issued
in definitive form, such QUIDS will be in denominations of $25 and integral
multiples thereof and may be transferred or exchanged at the offices described
below.
Payments on QUIDS represented by a Global QUIDS will be made to the
Depositary, as the depositary for the QUIDS. In the event QUIDS are issued in
definitive form, principal and interest will be payable, the transfer of the
QUIDS will be registrable, and QUIDS will be exchangeable for QUIDS of other
denominations of a like aggregate principal amount, at the corporate office of
the Debenture Trustee in New York, New York, or at the offices of any Paying
Agent or Transfer Agent appointed by
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the applicable Company, provided that payment of interest may be made at the
option of each Company by check mailed to the address of the persons entitled
thereto or by wire transfer. In addition, if the QUIDS are issued in
certificated form, the record dates for payment of interest will be the 15th
day of the last month of each calendar quarter (the "Regular Record Date").
PAYMENT AND PAYING AGENTS
During the period that QUIDS are not held by a Depositary, payment of
principal of and premium, if any, and any interest on QUIDS will be made at
the office of the Debenture Trustee in the City of New York or at the office
of such Paying Agent or Paying Agents as the Companies may designate from time
to time, except that at the option of the Companies payment of any interest
may be made (i) by check mailed to the address of the person entitled thereto
as such address shall appear in the Securities Register or (ii) by transfer to
an account maintained by the person entitled thereto as specified in the
Securities Register, provided that proper transfer instructions have been
received by the Regular Record Date. Payment of any such interest on QUIDS
will be made to the person in whose name such QUIDS is registered at the close
of business on the Regular Record Date for such interest, except in the case
of Defaulted Interest. The Companies may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent; however, the
Companies will at all times be required to maintain a Paying Agent in each
place of payment for the QUIDS.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by HECO in trust, for the payment of the principal of and premium, if
any, or interest on any QUIDS and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall, at
the request of HECO, be repaid to HECO and the Holder of such QUIDS shall
thereafter look, as a general unsecured creditor, only to HECO for payment
thereof.
REDEMPTION
The QUIDS are redeemable prior to maturity (i) at the option of each of the
respective Companies on or after February , 2002, in whole at any time or
in part from time to time, at the QUIDS Redemption Price or (ii) at the option
of HECO on behalf of the Companies at any time in whole (but not in part),
upon the occurrence and continuation of a Special Event, at the QUIDS
Redemption Price. QUIDS will not be subject to any sinking fund. QUIDS in
denominations larger than $25 may be redeemed in part but only in integral
multiples of $25.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of QUIDS to be redeemed at
its registered address. Unless HECO defaults in payment of the redemption
price, on and after the redemption date interest ceases to accrue on such
QUIDS or portions thereof called for redemption.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under an Indenture has occurred and is
continuing, each Company has the right under the applicable Indenture to defer
the payment of interest at any time or from time to time for a period
(including any extensions thereof) not exceeding 20 consecutive quarters with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the QUIDS. At the end of such Extension Period,
the deferring Company must pay all interest then accrued and unpaid (together
with interest thereon at the annual rate of %, compounded quarterly, to the
extent permitted by applicable law). During an Extension Period, interest will
continue to accrue and beneficial owners of QUIDS (or beneficial owners of
QUIPS) will be required to accrue interest income for United States federal
income tax purposes. See "Description of QUIPS--Distributions" and "Certain
Federal Income Tax Consequences--Stated Interest and Original Issue Discount."
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During an Extension Period, the deferring Company will not be permitted,
subject to certain exceptions set forth herein, to declare or pay any cash
distributions with respect to its capital stock or debt securities that rank
pari passu with or junior to the QUIDS so deferred as described under "--
Certain Covenants."
CERTAIN COVENANTS
Each of the Companies will covenant in its Indenture that if and so long as
(i) the Trust is the Holder of all such QUIDS, (ii) a Tax Event has occurred
and is continuing and (iii) such Company has elected, and has not revoked such
election, to pay Additional Sums in respect of the QUIPS and Common
Securities, such Company will pay to the Trust such Additional Sums. Each
Company will also covenant, as to such QUIDS, that it will not (i) declare or
pay any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of such Company's capital stock or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities (including other junior subordinated
deferrable interest debentures of such Company) that rank pari passu with or
junior in interest to such QUIDS or (iii) make any guarantee payments with
respect to any guarantee issued by such Company if such guarantee ranks pari
passu with or junior in interest to such QUIDS (other than (a) dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase shares of, its common stock and exchanges or conversions of common
stock of one class for common stock of another class, (b) payments by HECO
under the Trust Guarantee (or under any other guarantee by HECO with respect
to any securities of its subsidiaries, provided that the proceeds from the
issuance of such securities were applied to purchase junior subordinated
deferrable interest debentures of such subsidiary) and the Subsidiary
Guarantees and (c) purchases by a Company of its common stock required to
prevent the loss or secure the renewal or reinstatement of any government
license or franchise held by HECO or any of its subsidiaries) if at such time
(A) there shall have occurred any event of which such Company has actual
knowledge that (1) with the giving of notice or the lapse of time, or both,
would constitute a Debenture Event of Default with respect to such QUIDS and
(2) in respect of which such Company shall not have taken reasonable steps to
cure, (B) HECO shall be in default with respect to its payment of any
obligations under the Trust Guarantee or (C) such Company shall have given
notice of its election of an Extension Period as provided in the applicable
Indenture with respect to such QUIDS and shall not have rescinded such notice,
or such Extension Period, or any extension thereof, shall be continuing. HECO
will also covenant (i) to maintain directly or indirectly 100% ownership of
the Common Securities of the Trust, provided that certain successors which are
permitted pursuant to such Indenture may succeed to HECO's ownership of the
Common Securities, (ii) not to voluntarily dissolve, wind-up or liquidate the
Trust, except (a) in connection with a distribution of Distributable HECO
QUIDS to the Holders of the QUIPS in liquidation of the Trust or (b) in
connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement, and (iii) to use its reasonable efforts, consistent with
the terms and provisions of the Trust Agreement, to cause the Trust to remain
classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes.
MODIFICATION OF INDENTURE
From time to time any of the Companies and the Debenture Trustee may,
without the consent of the Holders of the QUIDS of such Company, amend, waive
or supplement the applicable Indenture for specified purposes, including,
among other things, curing ambiguities, defects or inconsistencies (provided
that any such action does not adversely affect the interest of the Holders of
such QUIDS or the Holders of the QUIPS so long as they remain outstanding) and
qualifying, or maintaining the qualification of, such Indenture under the
Trust Indenture Act. Each Indenture contains provisions
34
permitting the applicable Company and the Debenture Trustee, with the consent
of the Holders of not less than a majority in principal amount of the
outstanding QUIDS issued thereunder, to modify such Indenture in a manner
affecting the rights of the Holders of such QUIDS; provided that no such
modification may, without the consent of the Holder of each outstanding QUIDS
so affected, (i) change the stated maturity of QUIDS, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon (except such change or extension as is contemplated hereby) or (ii)
reduce the percentage of principal amount of QUIDS, the Holders of which are
required to consent to any such modification of such Indenture, provided that
so long as any of the QUIPS remain outstanding, no such modification may be
made that adversely affects the Holders of such QUIPS and no termination of
the Indenture may occur, and no waiver of any Debenture Event of Default or
compliance with any covenant under such Indenture may be effective, without
the prior consent of the Holders of at least a majority of the aggregate
liquidation preference of such QUIPS unless and until the principal of the
QUIDS and all accrued and unpaid interest thereon have been paid in full and
certain other conditions are satisfied.
In addition, each of the Companies and the Debenture Trustee may execute,
without the consent of any Holder of QUIDS, any supplemental Indenture for the
purpose of creating any new series of junior subordinated deferrable interest
debentures.
DEBENTURE EVENTS OF DEFAULT
Each Indenture provides that any one or more of the following described
events with respect to the QUIDS issued thereunder that has occurred and is
continuing constitutes a "Debenture Event of Default" with respect to such
QUIDS:
(i) failure for 30 days to pay any interest on such series of such QUIDS,
when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal or premium, if any, on such QUIDS when
due whether at maturity, upon redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in such Indenture for 90 days after written notice to
the applicable Company from the Debenture Trustee or the Holders of at
least 25% in aggregate principal amount of such outstanding QUIDS (provided
that such 90-day period shall be automatically extended if corrective
action is initiated by the applicable Company within such period and is
being diligently pursued); or
(iv) certain events in bankruptcy, insolvency or reorganization of HECO
or, if such Indenture is the MECO or the HELCO Indenture, of MECO or HELCO,
respectively.
The Holders of a majority in aggregate outstanding principal amount of QUIDS
issued under any Indenture have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture Trustee
under such Indenture. The Debenture Trustee or the Holders of not less than
25% in aggregate outstanding principal amount of such QUIDS may declare the
principal due and payable immediately upon a Debenture Event of Default, and
should the Debenture Trustee or such Holders of such QUIDS fail to make such
declaration, the Holders of at least 25% in aggregate liquidation preference
of the QUIPS shall have such right. The Holders of a majority in aggregate
outstanding principal amount of such QUIDS may annul such declaration and
waive the default if the default (other than the non-payment of the principal
of such QUIDS which has become due solely by such acceleration) has been cured
and a sum sufficient to pay all matured installments of interest and principal
due otherwise than by acceleration has been deposited with the Debenture
Trustee, and should the Holders of such QUIDS fail to annul such declaration
and waive such default, the Holders of a majority in aggregate liquidation
preference of the QUIPS shall have such right.
35
The Holders of a majority in aggregate outstanding principal amount of the
QUIDS issued under any Indenture may, on behalf of the Holders of all such
QUIDS, waive any past default under such Indenture, except a default in the
payment of principal or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee)
or a default in respect of a covenant or provision which under such Indenture
cannot be modified or amended without the consent of the Holder of each of
such outstanding QUIDS, and should the Holders of such QUIDS fail to annul
such declaration and waive such default, the Holders of a majority in
aggregate liquidation preference of the QUIPS shall have such right. Each of
the Companies is required to file annually with the Debenture Trustee a
certificate as to whether or not such Company is in compliance with all the
conditions and covenants applicable to it under such Indenture.
In case a Debenture Event of Default shall occur and be continuing as to
QUIDS issued under any Indenture, the Property Trustee will have the right to
declare the principal of and the interest on such QUIDS and any other amounts
payable under such Indenture, to be forthwith due and payable and to enforce
its other rights as a creditor with respect to such QUIDS.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF QUIPS
If a Debenture Event of Default has occurred and is continuing under any
Indenture and such event is attributable to the failure of the respective
Company to pay interest or principal on its QUIDS issued thereunder on the
date such interest or principal is otherwise payable, a Holder of QUIPS may
institute a Direct Action for payment after the respective due date specified
in such QUIDS. The Indentures may not be amended to remove the foregoing right
to bring a Direct Action without the prior written consent of the Holders of
all of the QUIPS. Notwithstanding any payment made to such Holder of QUIPS in
connection with a Direct Action, the respective Company shall remain obligated
to pay the principal of or interest on the QUIDS held by the Trust or the
Property Trustee and shall be subrogated to the rights of the Holder of such
QUIPS with respect to payments on the QUIPS to the extent of any payments made
by such Company to such Holder in any Direct Action. The Holders of QUIPS will
not be able to exercise directly any other remedy available to the Holders of
the QUIDS.
The Holders of the QUIPS would not be able to exercise directly any remedies
other than those set forth in the preceding paragraph available to the Holders
of the QUIDS unless the Property Trustee or the Debenture Trustee, acting for
the benefit of the Property Trustee, fails to do so for 60 days. In such
event, the Holders of at least 25% in aggregate liquidation preference of the
outstanding QUIPS will have such right to institute proceedings.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
Each Indenture provides that the applicable Company shall not consolidate
with or merge into any other entity or convey, transfer or lease its
properties and assets substantially as an entirety to any entity, and no
entity shall consolidate with or merge into such Company or convey, transfer
or lease its properties and assets substantially as an entirety to such
Company, unless (i) in case such Company consolidates with or merges into
another entity, or conveys, transfers or leases its properties and assets
substantially as an entirety to any entity, the successor entity is organized
under the laws of the United States or any state or the District of Columbia,
and such successor entity expressly assumes such Company's obligations on the
QUIDS issued under such Indenture; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
happened and be continuing; (iii) such transaction is permitted under the
Trust Agreement or Trust Guarantee and does not give rise to any breach or
violation of the Trust Agreement or Trust Guarantee, and (iv) certain other
conditions as prescribed in such Indenture are met.
36
The general provisions of the Indentures do not afford Holders of the QUIDS
protection in the event of a highly leveraged or other transaction involving
the Companies, or in the event of a change in control thereof, that may
adversely affect Holders of the QUIDS.
SATISFACTION AND DISCHARGE
Each Indenture provides that when, among other things, all QUIDS issued
thereunder not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at their
Stated Maturity within one year, and the applicable Company deposits or causes
to be deposited with the Debenture Trustee trust funds, in trust, for the
purpose and in an amount in the currency or currencies in which the QUIDS are
payable sufficient to pay and discharge the entire indebtedness on such QUIDS
not previously delivered to the Debenture Trustee for cancellation, for the
principal and interest to the date of the deposit or to the Stated Maturity,
as the case may be, then such Indenture will cease to be of further effect
(except as to such Company's obligations to pay all other sums due pursuant to
such Indenture and to provide the officers' certificates and opinions of
counsel described therein), and such Company will be deemed to have satisfied
and discharged such Indenture.
DISTRIBUTION OF QUIDS; EXCHANGE OF SUBSTITUTED HECO QUIDS FOR MECO AND HELCO
QUIDS
Under certain circumstances involving the dissolution of the Trust,
Distributable HECO QUIDS may be distributed to the Holders of the QUIPS in
liquidation of the Trust after satisfaction of liabilities to creditors of the
Trust as provided by applicable law. If distributed to Holders of QUIPS in
liquidation, such QUIDS will initially be issued in the form of one or more
global securities and DTC, or any successor depositary for the QUIPS, will act
as depositary for such QUIDS. It is anticipated that the depositary
arrangements for such QUIDS would be substantially identical to those in
effect for the QUIPS. If such QUIDS are distributed to the Holders of QUIPS
upon the liquidation of the Trust, HECO will use its best efforts to list the
Distributable HECO QUIDS on the New York Stock Exchange or such other stock
exchanges, if any, on which the QUIPS are then listed. There can be no
assurance as to the market price of any such QUIDS that may be distributed to
the Holders of QUIPS. For a description of DTC and the terms of the depositary
matters, see "Description of QUIPS--Book-Entry Issuance."
In order to effect a distribution of QUIDS to Holders of the QUIPS in
liquidation of the Trust, HECO will issue to the Trust Substituted HECO QUIDS
in exchange for the MECO QUIDS and the HELCO QUIDS in the aggregate principal
amount of such MECO QUIDS and HELCO QUIDS, and the Substituted HECO QUIDS,
along with the HECO QUIDS, will thereupon be distributed to the Holders of the
QUIPS. Thereafter, the MECO QUIDS and HELCO QUIDS shall be held by HECO as the
record Holder thereof, and the Subsidiary Guarantees shall be released and
discharged.
SUBORDINATION
In each Indenture, the applicable Company has covenanted and agreed that any
QUIDS issued thereunder will be subordinate and junior in right of payment to
all Senior Debt of such Company to the extent provided in such Indenture. Upon
any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of such Company, the Holders of Senior Debt of each such
Company will first be entitled to receive payment in full of principal of and
premium, if any, and interest, if any, on such Senior Debt before the Property
Trustee, on behalf of the Holders of the QUIPS (or, in the case of
Distributable HECO QUIDS distributed to the Holders of the QUIPS, such
Holders), will be entitled to receive or retain any payment in respect of the
principal of and premium, if any, or interest, if any, on the QUIDS.
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In the event of the acceleration of the maturity of any QUIDS of any of the
Companies, the Holders of all Senior Debt of such Company outstanding at the
time of such acceleration will first be entitled to receive payment in full of
all amounts due thereon (including any amounts due upon acceleration) before
the Holders of such QUIDS will be entitled to receive or retain any payment in
respect of the principal of or premium, if any, or interest, if any, on such
QUIDS.
No payments on account of principal or interest, if any, in respect of the
QUIDS of any of the Companies may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt of such
Company, or an event of default with respect to any such Senior Debt resulting
in the acceleration of the maturity thereof, or if any judicial proceeding
shall be pending with respect to any such default.
"Debt" means with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent, (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such person; (iv) every obligation of such person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
person; and (vi) every obligation of the type referred to in clauses (i)
through (v) above of another person and all dividends of another person the
payment of which, in either case, such person has guaranteed or is responsible
or liable, directly or indirectly, as obligor or otherwise.
"Senior Debt" means with respect to any of the Companies the principal of
(and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating
to such Company whether or not such claim for post-petition interest is
allowed in such proceeding), on Debt, whether incurred on or prior to the date
of the Indenture of such Company or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not superior in right of
payment to the QUIDS or to other Debt which is pari passu with, or
subordinated to, the QUIDS; provided, however, that Senior Debt shall not be
deemed to include (i) any Debt of such Company which, when incurred and
without respect to any election under Section 1111 (b) of the Bankruptcy Code,
was without recourse to such Company, (ii) any Debt of such Company to any of
its subsidiaries, (iii) Debt to any employee of such Company, (iv) any
liability for taxes, and (v) indebtedness or monetary obligations to trade
creditors or assumed by such Company or any of its subsidiaries in the
ordinary course of business in connection with the obtaining of materials or
services.
Certain of the operating assets of HECO and its consolidated subsidiaries
are owned by MECO and HELCO. Accordingly, the HECO QUIDS and the Substituted
HECO QUIDS will be effectively subordinated to all existing and future
liabilities of HECO's subsidiaries. Holders of Distributable HECO QUIDS should
look only to the assets of HECO for payments of principal of and premium, if
any, and interest thereon.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by any of the Companies. The electric public utility
business is capital intensive, and the Companies anticipate that from time to
time they will incur substantial additional indebtedness constituting Senior
Debt.
GOVERNING LAW
The Indenture and the QUIDS will be governed by, and construed in accordance
with, the internal laws of the State of New York.
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INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any Holder of QUIDS, unless offered reasonable
indemnity by such Holder against the costs, expenses and liabilities which
might be incurred thereby. The Debenture Trustee is not required to expend or
risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF TRUST GUARANTEE
The Trust Guarantee will be executed and delivered by HECO concurrently with
the issuance by the Trust of its QUIPS for the benefit of the Holders from
time to time of such QUIPS. The Bank of New York will act as indenture trustee
("Trust Guarantee Trustee") under the Trust Guarantee for the purposes of
compliance with the Trust Indenture Act and the Trust Guarantee will be
qualified as an Indenture under the Trust Indenture Act. This summary of
certain provisions of the Trust Guarantee does not purport to be complete and
is subject to, and qualified in its entirety by reference to, all of the
provisions of the Trust Guarantee, including the definitions therein of
certain terms, and the Trust Indenture Act. The form of the Trust Guarantee
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Trust Guarantee Trustee will hold the Trust
Guarantee for the benefit of the Holders of the QUIPS.
GENERAL
HECO will irrevocably agree to pay in full on a subordinated basis, to the
extent set forth herein, the Guarantee Payments (as defined below) to the
Holders of the QUIPS, as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert, other than the
defense of payment. The following payments with respect to the QUIPS, to the
extent not paid by or on behalf of the Trust (the "Guarantee Payments"), will
be subject to the Trust Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on such QUIPS, to the extent that the Trust
has funds on hand available therefor at such time, (ii) the Redemption Price
with respect to any QUIPS called for redemption to the extent the Trust has
funds on hand available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Trust (unless the
Distributable HECO QUIDS are distributed to Holders of QUIPS), the lesser of
(a) the Liquidation Distribution and (b) the amount of assets of the Trust
remaining available for distribution to Holders of QUIPS. HECO's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by HECO to the Holders of the QUIPS or by causing the Trust to pay
such amounts to such Holders.
The Trust Guarantee will be an irrevocable guarantee on a subordinated basis
of the Trust's obligations under the QUIPS, but will apply only to the extent
that the Trust has funds sufficient to make such payments, and is not a
guarantee of collection.
If any of the Companies do not make interest payments on the QUIDS held by
the Trust, the Trust will not be able to pay Distributions on the QUIPS and
will not have funds legally available therefor. Each Trust Guarantee will rank
subordinate and junior in right of payment to all Senior Debt of HECO. See "--
Status of the Trust Guarantee." Certain of the operating assets of HECO and
its consolidated subsidiaries are owned by such subsidiaries. In addition,
HECO receives interest and dividends from such subsidiaries. Accordingly,
HECO's obligations under the Trust Guarantee will be effectively subordinated
to all existing and future liabilities of MECO and HELCO, and claimants should
look only to the assets of HECO for payments thereunder.
39
HECO has, through the Trust Guarantee, the Trust Agreement, the HECO QUIDS,
the Subsidiary Guarantees, the HECO Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Trust's
obligations under the QUIPS. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the QUIPS. See "Relationship Among the QUIPS, the
QUIDS and the Guarantees."
STATUS OF THE TRUST GUARANTEE
The Trust Guarantee will constitute an unsecured obligation of HECO and will
rank subordinate and junior in right of payment to all Senior Debt of HECO.
The Trust Guarantee will rank pari passu with all similar guarantees issued
by HECO in the future. The Trust Guarantee will constitute a guarantee of
payment and not of collection (i.e., the guaranteed party may institute a
legal proceeding directly against HECO to enforce its rights under the Trust
Guarantee without first instituting a legal proceeding against any other
person or entity). The Trust Guarantee will be held for the benefit of the
Holders of the QUIPS. The Trust Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Trust
or upon distribution to the Holders of the QUIPS of the Distributable HECO
QUIDS. The Trust Guarantee does not place a limitation on the amount of
additional Senior Debt that may be incurred or issued by any of the Companies.
The electric public utility business is capital intensive and for this and
other reasons the Companies anticipate that from time to time they will incur
substantial additional indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of Holders of the QUIPS (in which case no vote will be required),
the Trust Guarantee may not be amended without the prior approval of the
Holders of not less than a majority of the aggregate liquidation preference of
the outstanding QUIPS. The manner of obtaining any such approval will be as
set forth under "Description of QUIPS--Voting Rights; Amendment of the Trust
Agreement." All guarantees and agreements contained in the Trust Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
HECO and shall inure to the benefit of the Holders of the related QUIPS then
outstanding.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the failure of
HECO to perform any of its payment or other obligations thereunder. The
Holders of not less than a majority in aggregate Liquidation Amount of the
QUIPS have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trust Guarantee Trustee in respect
of the Trust Guarantee or to direct the exercise of any trust or power
conferred upon the Trust Guarantee Trustee under the Trust Guarantee.
Any Holder of the QUIPS may institute a legal proceeding directly against
HECO to enforce its rights under the Trust Guarantee without first instituting
a legal proceeding against the Trust, the Trust Guarantee Trustee or any other
person or entity.
HECO, as guarantor, is required to file annually with the Trust Guarantee
Trustee a certificate as to whether or not HECO is in compliance with all the
conditions and covenants applicable to it under the Trust Guarantee.
40
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Trust Guarantee Trustee, other than during the occurrence and
continuance of a default by HECO in performance of the Trust Guarantee,
undertakes to perform only such duties as are specifically set forth in the
Trust Guarantee and, after default with respect to the Trust Guarantee, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Trust Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any Holder of any
QUIPS unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate and be of no further force and effect
upon full payment of the Redemption Price of the QUIPS, upon full payment of
the amounts payable upon liquidation of the Trust or upon distribution of the
Distributable HECO QUIDS to the Holders of the QUIPS. The Trust Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder of QUIPS must restore payment of any sums paid under such
QUIPS or the Trust Guarantee.
GOVERNING LAW
The Trust Guarantee will be governed by, and construed in accordance with,
the internal laws of the State of New York.
THE EXPENSE AGREEMENT
In the Expense Agreement entered into by each of the Companies, the
Companies will irrevocably and unconditionally guarantee to each person or
entity to whom the Trust becomes indebted or liable, the full payment of any
costs, expenses or liabilities of the Trust, other than obligations of the
Trust to pay to the Holders of any QUIPS or other similar interests in the
Trust the amounts due such Holders pursuant to the terms of the QUIPS or such
other similar interests, as the case may be. Each Company is obligated to
contribute its share of any such payments pro rata based on the aggregate
principal amount of its respective QUIDS, and HECO has fully, irrevocably and
unconditionally agreed to pay the amounts owed by MECO and HELCO under the
Expense Agreement if either or both of them fail to make such payments when
due.
DESCRIPTION OF SUBSIDIARY GUARANTEES
The MECO Indenture and the HELCO Indenture will each include a full,
unconditional and irrevocable HECO guarantee, on a subordinated basis, of all
payments in respect of the MECO QUIDS and the HELCO QUIDS (the "Subsidiary
Guarantees"). The Subsidiary Guarantees do not require HECO to pay any
interest payments deferred by MECO or HELCO during a valid Extension Period.
The Subsidiary Guarantees will be enforceable regardless of any defense, right
of set-off or counterclaim that HECO may have or assert.
HECO's obligations under the Subsidiary Guarantees will constitute unsecured
obligations of HECO and will rank subordinate and junior to all other existing
liabilities of HECO and will rank pari passu with the most senior preferred
stock (if any) issued from time to time by HECO and with any guarantee now or
hereafter entered into by HECO in respect of any preferred security of any
affiliate of HECO. Accordingly, the rights of the holders of MECO QUIDS and
HELCO QUIDS to receive payments under the Subsidiary Guarantees will be
subject to the rights of the holders of any obligations that are senior in
priority to the obligations under the Subsidiary Guarantees. Furthermore, the
holders of HECO obligations that are senior to the obligations under the
Subsidiary Guarantees (including, but not limited to, obligations constituting
senior indebtedness of HECO) will be entitled to the same rights upon payment
default or dissolution, liquidation and reorganization in respect of the
Subsidiary Guarantees that inure to the holders of senior indebtedness of HECO
as against the
41
Holders of HECO QUIDS. The terms of the MECO QUIDS and HELCO QUIDS provide
that each Holder, by acceptance thereof, agrees to the subordination
provisions and other terms of the Subsidiary Guarantees.
Each of the Subsidiary Guarantees will terminate and be of no further force
or effect upon payment in full of the QUIDS Redemption Price of the MECO QUIDS
and the HELCO QUIDS, respectively, upon payment in full of the Redemption
Price of the QUIPS, upon payment in full of the amounts payable upon
liquidation of the Trust or upon distribution of the Distributable HECO QUIDS
to the Holders of the QUIPS; provided, however, that each of the Subsidiary
Guarantees will continue to be effective or will be reinstated, as the case
may be, if at any time any Holder of QUIPS or Distributable HECO QUIDS must
restore payment of any sums paid under the QUIPS, the Distributable HECO QUIDS
or the applicable Subsidiary Guarantee.
RELATIONSHIP AMONG THE QUIPS,
THE QUIDS AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Taken together, HECO's obligations under the HECO QUIDS, the HECO Indenture,
the Subsidiary Guarantees, the Trust Agreement, the Expense Agreement and the
Trust Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of distributions and other amounts due on
the QUIPS. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Trust's obligations under
the QUIPS. Payments of Distributions and other amounts due on the QUIPS (to
the extent the Trust has funds available for the payment of such Distributions
and other amounts) are irrevocably guaranteed by HECO as and to the extent set
forth under "Description of Trust Guarantee." If and to the extent that HECO
does not make payments on the HECO QUIDS, or if MECO or HELCO does not make
payments on the MECO QUIDS or the HELCO QUIDS, as the case may be, and HECO
does not make payments under the Subsidiary Guarantees, the Trust will not pay
Distributions or other amounts due on the QUIPS. The Trust Guarantee does not
cover payment of Distributions when the Trust does not have sufficient funds
to pay such Distributions. In such event, a Holder of QUIPS may institute a
Direct Action against any of the Companies which has failed to make payment,
and against HECO on its Subsidiary Guarantees if MECO or HELCO has failed to
make payment, to enforce payment of such Distributions to such Holder after
the respective due dates. The obligations of HECO under the HECO QUIDS, the
Trust Guarantee, the Expense Agreement and the Subsidiary Guarantees are
subordinate and junior in right of payment to all Senior Debt of HECO.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
QUIDS, such payments will be sufficient to cover Distributions and other
payments due on the QUIPS, primarily because (i) the aggregate principal
amount of the QUIDS will be equal to the sum of the aggregate stated
liquidation amount of the QUIPS and Common Securities; (ii) the interest rate
and interest and other payment dates on the QUIDS will match the Distribution
rate and Distribution and other payment dates for the QUIPS; (iii) the
Companies shall pay under the Expense Agreement for all and any costs,
expenses and liabilities of the Trust except the Trust's obligations to
Holders of the QUIPS under the QUIPS; and (iv) the Trust Agreement further
provides that the Trust will not engage in any activity that is not consistent
with the limited purposes of the Trust.
ENFORCEMENT RIGHTS OF HOLDERS OF QUIPS
A Holder of any QUIPS may institute a legal proceeding directly against HECO
to enforce its rights under the Trust Guarantee without first instituting a
legal proceeding against the Trust Guarantee Trustee, the Trust or any other
person or entity.
42
A default or event of default under any Senior Debt of any of the Companies
will not constitute a default or Event of Default under the Indenture of such
Company. However, in the event of payment defaults under, or acceleration of,
Senior Debt of such Company, the subordination provisions of each Indenture
provide that no payments may be made in respect of the QUIDS issued thereunder
until such Senior Debt has been paid in full or any payment default thereunder
has been cured or waived. Failure to make required payments on any such QUIDS
would constitute an Event of Default under such Indenture.
LIMITED PURPOSE OF TRUST
The QUIPS evidence a beneficial interest in the Trust, and the Trust exists
for the sole purpose of issuing the QUIPS and Common Securities and investing
the proceeds thereof in QUIDS. A principal difference between the rights of a
Holder of a QUIPS and a Holder of a QUIDS is that a Holder of a QUIDS is
entitled to receive from the applicable Company (or from HECO under the
Subsidiary Guarantees) the principal amount of and interest accrued on QUIDS
held, while a Holder of QUIPS is entitled to receive Distributions from the
Trust (or from HECO under the Trust Guarantee) if and to the extent the Trust
has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Trust not involving a distribution of the Distributable HECO QUIDS, the
Holders of the QUIPS will be entitled to receive, out of assets held by the
Trust, the Liquidation Distribution in cash. See "Description of QUIPS--
Liquidation Value; Liquidation Distribution Upon Dissolution." Upon any
voluntary or involuntary liquidation or bankruptcy of any of the Companies,
the Property Trustee, as Holder of the QUIDS of such Company, would be a
subordinated creditor of such Company, subordinated in right of payment to all
Senior Debt of such Company, but entitled to receive payment in full of
principal and interest before any stockholders of such Company receive
payments or distributions. Since HECO is the guarantor under the Trust
Guarantee and the Subsidiary Guarantees and is obligated (either directly or
as guarantor) under the Expense Agreement to pay for all costs, expenses and
liabilities of the Trust (other than the Trust's obligations to the Holders of
the QUIPS), the positions of a Holder of QUIPS and a Holder of QUIDS relative
to other creditors and to stockholders of HECO in the event of liquidation or
bankruptcy of HECO would be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of QUIPS. This summary
only addresses the tax consequences to a person that acquires QUIPS on their
original issue at their original offering price and that is (i) an individual
citizen or resident of the United States, (ii) a corporation or partnership
organized in or under the laws of the United States or any state thereof or
the District of Columbia or (iii) an estate or trust the income of which is
subject to United States federal income tax regardless of source (a "United
States Person"). This summary does not address all tax consequences that may
be applicable to a United States Person that is a beneficial owner of QUIPS,
nor does it address the tax consequences to (i) persons that are not United
States Persons, (ii) persons that may be subject to special treatment under
United States federal income tax law, such as banks, insurance companies,
thrift institutions, regulated investment companies, real estate investment
trusts, tax-exempt organizations and dealers in securities or currencies,
(iii) persons that will hold QUIPS as part of a position in a "straddle" or as
part of a "hedging," "conversion" or other integrated investment transaction
for federal income tax purposes, (iv) persons whose functional currency is not
the United States dollar or (v) persons that do not hold QUIPS as capital
assets.
43
The statements of law and legal conclusions set forth in this summary
constitute the opinion of Goodsill Anderson Quinn & Stifel, counsel to HECO
and the Trust. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations, Internal Revenue Service
rulings and pronouncements and judicial decisions now in effect, all of which
are subject to change at any time. Such changes may be applied retroactively
in a manner that could cause the tax consequences to vary substantially from
the consequences described below, possibly adversely affecting a beneficial
owner of QUIPS. In particular, legislation has been proposed that could
adversely affect HECO's ability to deduct interest on the QUIDS, which may in
turn permit HECO to cause a redemption of the QUIPS or a dissolution of the
Trust and a distribution of Distributable HECO QUIDS. See "--Possible Tax Law
Changes." The authorities on which this summary is based are subject to
various interpretations and it is therefore possible that the United States
federal income tax treatment of the purchase, ownership and disposition of
QUIPS may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL
TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF QUIPS, AS WELL
AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE TRUST
Under current law and assuming compliance with the terms of the Trust
Agreement and certain other documents, the Trust will be classified as a
grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes. As a result, each beneficial owner of
QUIPS (a "Security Holder") will be treated as owning an undivided beneficial
interest in the QUIDS. Accordingly, each Security Holder will be required to
include in its gross income its pro rata share of any original issue discount
("OID") accrued with respect to the QUIDS whether or not cash is actually
distributed to the Security Holders. See "--Stated Interest and Original Issue
Discount." No amount included in income of Security Holders with respect to
the QUIPS will be eligible for the dividends-received deduction.
STATED INTEREST AND ORIGINAL ISSUE DISCOUNT
Under new Treasury Regulations applicable to debt instruments issued on or
after August 13, 1996, generally, stated interest on a debt instrument will
give rise to OID unless the likelihood of late payment or nonpayment is a
"remote contingency." Under each of the Indentures, the applicable Company has
the right to defer the payment of interest on its QUIDS at any time or from
time to time for a period (including any extensions thereof) not exceeding 20
consecutive quarters with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of such QUIDS. Each of
the Companies believes that the likelihood of it exercising its option to
defer payments of interest is remote because exercising the option would,
among other things, prevent such Company from declaring dividends on its
capital stock. Accordingly, the Companies believe that the QUIDS should be
considered as issued without OID and, therefore, except as set forth below,
stated interest on the QUIDS will generally be taxable to a Security Holder as
ordinary income at the time it is paid or accrued in accordance with the
Security Holder's method of accounting for United States federal income tax
consequences.
Notwithstanding the foregoing, should any Company elect an Extension Period,
such Company's QUIDS would at that time be treated as having been reissued
with OID. Consequently, Security Holders (even if they used the cash method of
accounting for United States federal income tax purposes) would be required to
include OID in income on an economic accrual basis with respect to such QUIDS
during such Extension Period and thereafter for as long as such QUIDS remain
outstanding. The amount of OID that would accrue in any quarterly period would
approximately equal
44
the amount of interest that accrues in that quarterly period at the stated
interest rate. Stated interest on the QUIDS of any of the Companies with
respect to which such Company had not exercised its right to defer payments of
interest would continue to be taxable to a Security Holder at the time it was
paid or accrued in accordance with such Security Holder's method of accounting
for United States federal income tax purposes. A Security Holder that disposed
of QUIPS before the record date for any Distribution Date following an
Extension Period would include interest in gross income as it accrued on QUIDS
but would not receive any interest payments related thereto from the Trust.
DISTRIBUTION OF QUIDS TO HOLDERS OF QUIPS
Under current United States federal income tax law, the Exchange of the MECO
QUIDS and the HELCO QUIDS for the Substituted HECO QUIDS would likely be
treated as a taxable exchange for United States federal income tax purposes
with respect to a Security Holder's pro rata share of MECO QUIDS and HELCO
QUIDS. As a result, each Security Holder would recognize gain or loss in an
amount equal to the difference between (i) the fair market value of such
Security Holder's pro rata share of the Substituted HECO QUIDS received by the
Trust in exchange for MECO QUIDS and HELCO QUIDS prior to such distribution
and (ii) such Security Holder's adjusted tax basis in its pro rata share of
MECO QUIDS and HELCO QUIDS exchanged therefor. Under current United States
federal income tax law, the Exchange would not be a taxable exchange with
respect to a Security Holder's pro rata share of HECO QUIDS and such Security
Holder would not recognize any gain or loss with respect thereto. See
"Description of QUIPS--Redemption or Exchange--Special Event Redemption or
Distribution of QUIDS" and "Description of QUIDS--Distribution of QUIDS;
Exchange of Substituted HECO QUIDS for MECO and HELCO QUIDS."
Upon the distribution of the Distributable HECO QUIDS to the Security
Holders, each Security Holder would receive directly its pro rata share
thereof previously held indirectly through the Trust and, with respect to such
Security Holder's pro rata share of HECO QUIDS (but not Substituted HECO
QUIDS), would have a holding period and aggregate adjusted tax basis in HECO
QUIDS equal to the holding period and aggregate adjusted tax basis such
Security Holder had in its pro rata share of HECO QUIDS before such
distribution. Under current United States federal income tax law, the
distribution of the Distributable HECO QUIDS upon the dissolution of the Trust
would not be a taxable exchange to Holders of the QUIPS for United States
federal income tax purposes. If, however, the Trust were characterized for
United States federal income tax purposes as an association taxable as a
corporation at the time of dissolution, or if there were a change in law or
legal interpretation, or upon the occurrence of certain other circumstances,
the distribution of the Distributable HECO QUIDS could be a taxable exchange
to Holders of the QUIPS. See "Description of QUIPS--Redemption or Exchange--
Special Event Redemption or Distribution of QUIDS" and "Description of QUIDS--
Distribution of QUIDS; Exchange of Substituted HECO QUIDS for MECO and HELCO
QUIDS."
Following such a distribution, a Security Holder would generally include in
gross income interest in respect of the Distributable HECO QUIDS received in
the manner described under "Stated Interest and Original Issue Discount,"
except that the Substituted HECO QUIDS may be treated as having been issued
either with OID or at a premium, depending on their fair market value at the
time of the Exchange. Issuance of the Distributable HECO QUIDS with OID or at
a premium could significantly change the amounts of interest income included
in gross income by a Security Holder in taxable years following distribution,
as well as the amount of any gain or loss recognized by a Security Holder upon
a subsequent disposition of Distributable HECO QUIDS. It is not possible to
predict the precise tax consequences to a Security Holder in this regard, and
Security Holders should consult their own tax advisors as to such
consequences.
45
SALES OR REDEMPTION OF QUIPS
Gain or loss will be recognized by a Security Holder on a sale of QUIPS
(including a redemption for cash) in an amount equal to the difference between
the amount realized (which, for this purpose, will exclude amounts
attributable to accrued interest not previously included in income as interest
or OID) and the Security Holder's adjusted tax basis in the QUIPS sold or
redeemed. The tax basis of a Security Holder in its QUIPS would be increased
by any OID included in income and decreased by any subsequent payments of
interest. Gain or loss recognized by a Security Holder on QUIPS held for more
than one year will generally be taxable as long-term capital gain or loss.
The QUIPS may trade at a price that does not fully reflect the value of
accrued but unpaid interest with respect to the underlying QUIDS. A Security
Holder that disposes of its QUIPS between record dates for payments of
Distributions will nevertheless be required to include in income as ordinary
income accrued but unpaid interest on the QUIDS through the date of
disposition. Such Security Holder will recognize a capital loss on the
disposition of its QUIPS to the extent the selling price (which may not fully
reflect the value of accrued but unpaid interest) is less than the Security
Holder's adjusted tax basis in the QUIPS. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest or OID paid or accrued on the QUIPS held of record by
United States Persons (other than corporations and other exempt Security
Holders) will be reported annually to the Internal Revenue Service. It is
anticipated that such interest or OID will be reported to holders on Form 1099
and delivered by January 31 following each calendar year. "Backup" withholding
at a rate of 31% will apply to payments of interest to non-exempt United
States Persons unless the Security Holder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of QUIPS to or through the
United States office of a broker is subject to information reporting and
backup withholding unless the Holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a Security Holder under the backup withholding
rules will be allowed as a refund or a credit against such Security Holder's
United States federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, President Clinton proposed legislation (the "Bill") that
would, among other things, generally deny a deduction for interest on a
corporate debt instrument with a maximum weighted average maturity of more
than 40 years. The Bill would also generally deny a deduction for interest on
a corporate debt instrument with a maximum term of more than 20 years that was
not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument was issued to a related party (other than a corporation),
where the holder or some other related party issued a related instrument that
was not shown as indebtedness on the issuer's consolidated balance sheet. For
purposes of determining the weighted average maturity or the term of an
instrument, any right to extend would be treated as exercised. The above-
described provisions of the Bill were proposed to be effective generally for
instruments issued on or after December 7, 1995. If either provision were to
apply to the QUIDS, the Companies would be unable to deduct interest on the
QUIDS. However, on March 29, 1996, Senate Finance Committee Chairman William
V. Roth and House Ways and Means Committee Chairman Bill Archer issued a joint
statement (the "Joint Statement") indicating their intent that the effective
date of the President's legislative proposals,
46
including the Bill, if enacted, would be no earlier than the date of
appropriate Congressional action. In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives
Sam M. Gibbons and Charles B. Rangel wrote letters to the Treasury Department
concurring with the view expressed in the Joint Statement (the "Democrat
Letters"). If the principles contained in the Joint Statement and the Democrat
Letters were followed and the Bill were enacted, the Bill would not apply to
the QUIDS. The Companies believe that, under current law, they will be able to
deduct interest on the QUIDS. There can be no assurance, however, that current
or future legislative or administrative proposals or final legislation will
not affect the ability of the Companies to deduct interest on the QUIDS. Such
a change would give rise to a Tax Event, which would permit the Companies to
cause a redemption of the QUIPS or a distribution of Distributable HECO QUIDS
upon dissolution of the Trust upon receiving an opinion of counsel, as
described more fully under "Description of QUIPS--Redemption or Exchange--
Special Event Redemption or Distribution of QUIDS." Such a tax law change
would not alter the United States federal income tax consequences of the
purchase, ownership and disposition of QUIPS.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
HECO and the Trust have agreed that the Trust will sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co. and Dean Witter Reynolds Inc. are acting as representatives, has
severally agreed to purchase from the Trust, the respective number of QUIPS
set forth opposite its name below:
NUMBER OF
UNDERWRITER QUIPS
----------- ---------
Goldman, Sachs & Co. ..............................................
Dean Witter Reynolds Inc. .........................................
---------
Total............................................................ 2,000,000
=========
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters are committed to take and pay for all such QUIPS offered
hereby, if any are taken.
The Underwriters propose to offer the QUIPS in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per QUIPS. The Underwriters may allow, and such dealers may
reallow, a concession not to exceed $ per QUIPS to certain brokers and
dealers. After the QUIPS are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the
representatives.
In view of the fact that the proceeds from the sale of the QUIPS will be
used to purchase the QUIDS of HECO and its subsidiaries, the Underwriting
Agreement provides that HECO will pay as Underwriters' Compensation for the
Underwriters' arranging the investment therein of such proceeds an amount of
$ per QUIPS for the accounts of the several Underwriters.
HECO and the Trust have agreed that, during the period beginning from the
date of the Underwriting Agreement and continuing to and including the earlier
of (i) the termination of trading restrictions on the QUIPS, as determined by
the Underwriters, and (ii) 30 days after the closing date, they will not, and
HECO will cause MECO and HELCO to not, offer, sell, contract to sell or
otherwise dispose of any QUIPS, any other beneficial interests in the assets
of the Trust, or any preferred securities or any other securities of the Trust
or the Companies which are substantially similar to the
47
QUIPS, including any guarantee of such securities, or any securities
convertible into or exchangeable for or representing the right to receive
securities, preferred securities or any such substantially similar securities
of either the Trust or the Companies, without the prior written consent of the
representatives of the Underwriters, except for the QUIPS offered in
connection with this offering.
Prior to this offering, there has been no public market for the QUIPS.
Application will be made to list the QUIPS on the New York Stock Exchange,
subject to official notice of issuance. The representatives of the
Underwriters have advised HECO that they intend to make a market in the QUIPS
prior to commencement of trading on the New York Stock Exchange, but are not
obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market
for the QUIPS.
HECO and the Trust have agreed to indemnify the several Underwriters against
and contribute toward certain liabilities, including liabilities under the
Securities Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to HECO and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
LEGAL OPINIONS
Certain matters of Delaware law relating to the legality of the QUIPS, the
validity of the Trust Agreement and the creation of the Trust will be passed
upon by Richards, Layton & Finger, special Delaware counsel to the Companies
and the Trust. The legality of the Trust Guarantee, the Subsidiary Guarantees
and the QUIDS will be passed upon for the Companies by Goodsill Anderson Quinn
& Stifel, Honolulu, Hawaii, and for the Underwriters by Winthrop, Stimson,
Putnam & Roberts, New York, New York. Certain matters relating to United
States federal income tax considerations will be passed upon for the Companies
by Goodsill Anderson Quinn & Stifel.
EXPERTS
The consolidated financial statements and schedule of HECO and its
subsidiaries as of December 31, 1995 and 1994, and for each of the years in
the three year period ended December 31, 1995, which financial statements and
schedule have been incorporated by reference and included, respectively, in
HECO's Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
as amended by Form 10-K/A dated April 30, 1996, which is incorporated by
reference herein, have been incorporated by reference herein in reliance upon
the reports of KPMG Peat Marwick LLP, independent certified public
accountants, also incorporated by reference herein, and upon the authority of
said firm as experts in auditing and accounting.
48
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DE-
SCRIBED IN THIS PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITA-
TION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF HAWAIIAN ELECTRIC COMPANY, INC., ITS SUB-
SIDIARIES OR THE TRUST SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
PAGE
----
Available Information.................................................... 5
Incorporation of Certain Information
by Reference............................................................ 5
Risk Factors............................................................. 7
HECO Capital Trust I..................................................... 12
Hawaiian Electric Company, Inc. and Subsidiaries......................... 13
Selected Consolidated Financial Information.............................. 14
Capital Expenditure Programs and Financing Requirements.................. 15
Ratios of Earnings to Fixed Charges and to Combined Fixed Charges and
Preferred Stock Dividends............................................... 16
Use of Proceeds.......................................................... 16
Accounting Treatment..................................................... 16
Description of QUIPS..................................................... 17
Description of QUIDS..................................................... 29
Description of Trust Guarantee........................................... 39
Description of Subsidiary Guarantees..................................... 41
Relationship Among the QUIPS, the QUIDS and the Guarantees............... 42
Certain Federal Income Tax Consequences.................................. 43
Underwriting............................................................. 47
Legal Opinions........................................................... 48
Experts.................................................................. 48
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2,000,000 PREFERRED SECURITIES
HECO CAPITAL TRUST I
% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES, SERIES 1997 (QUIPS /SM/)
GUARANTEED TO THE EXTENT HECO CAPITAL TRUST I HAS FUNDS AS SET FORTH HEREIN BY
HAWAIIAN ELECTRIC COMPANY, INC.
GOLDMAN, SACHS & CO.
DEAN WITTER REYNOLDS INC.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than Underwriters' Compensation, are:
Filing Fee for Registration Statement................................ $ 15,152
Legal Fees and Expenses*............................................. 100,000
Accounting Fees and Expenses*........................................ 50,000
Blue Sky Fees and Expenses*.......................................... 10,000
Printing and Engraving Fees*......................................... 40,000
Fees and Expenses of Registrars, Transfer Agents, Paying Agents and
Trustees*........................................................... 15,000
Fees of rating agencies*............................................. 35,000
Listing Fees*........................................................ 30,000
Miscellaneous*....................................................... 34,848
--------
Total*............................................................. $330,000
========
- --------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
HECO's Articles of Incorporation, as amended, provide that, subject to
certain exceptions, HECO shall indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding to which such person is a party or is
threatened to be made a party by reason of being or having been a director,
officer, employee or agent of HECO, provided that such person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of HECO and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. With
respect to an action brought by or in the right of HECO, in which such person
is adjudged to be liable for negligence or misconduct in the performance of
that person's duty to HECO, indemnification may be made only to the extent
deemed fair and reasonable in view of all the circumstances of the case by the
court in which the action was brought or any other court having jurisdiction.
A similar indemnity in the Restated Articles of Incorporation of Hawaiian
Electric Industries, Inc. ("HEI"), HECO's parent corporation, is extended to
persons serving at the request of HEI as a director, officer employee or agent
of another enterprise, which could include HECO. The indemnification
provisions in the Articles of Incorporation were authorized at the time of
their adoption by the applicable provisions of the Hawaii Revised Statutes,
and substantially similar authorizing provisions are currently set forth in
Section 415-5 of the Hawaii Revised Statutes.
At HEI's annual meeting of stockholders held on April 18, 1989, the
stockholders adopted a proposal authorizing HEI to enter into written
indemnity agreements with its officers and directors, including in their
capacities as officers and directors of subsidiaries of HEI. Pursuant to such
authority, HEI has entered into agreements of indemnity with certain of its
officers and directors. The agreements provide for mandatory indemnification
of certain officers and directors, some of whom are officers and directors of
HECO, to the fullest extent authorized or permitted by law, which could among
other things protect certain officers and directors of HECO from certain
liabilities under the Securities Act of 1933. Indemnification under the
agreements may be provided without a prior determination that an officer or
director acted in good faith or in the best interests of HEI, and without
prior court approval provide for
II-1
indemnification against expenses (including attorneys' fees), judgments, fines
and settlement amounts in connection with any action by or in the right of
HEI.
Under a directors' and officers' liability insurance policy, directors and
officers are insured against certain liabilities, including certain
liabilities under the Securities Act of 1933.
The Trust Agreement of the Trust provides that no Trustee, affiliate of any
Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives or agents of any Trustee, or any employee or agent
of the Trust or its affiliates (each an "Indemnified Person") shall be liable,
responsible or accountable in damages or otherwise to the Trust or any
employee or agent of the Trust or its affiliates for any loss, damage or claim
incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by the Trust Agreement or by law, except
that an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence (or, in the
case of the Property Trustee, negligence) or willful misconduct with respect
to such acts or omissions. The Trust Agreement also provides that to the
fullest extent permitted by applicable law, HECO shall indemnify and hold
harmless each Indemnified Person from and against any loss, damage or claim
incurred by such Indemnified Person by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of the Trust and
in a manner such Indemnified Person reasonably believed to be within the scope
of authority conferred on such Indemnified Person by the Trust Agreement,
except that no Indemnified Person shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by such Indemnified Person by
reason of gross negligence (or, in the case of the Property Trustee,
negligence) or willful misconduct with respect to such acts of omissions. The
Trust Agreement further provides that, to the fullest extent permitted by
applicable law, expenses (including legal fees) incurred by an Indemnified
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Trust prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by or an undertaking by
or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified for
the underlying cause of action as authorized by the Trust Agreement.
ITEM 16. EXHIBITS.
*1 Form of Underwriting Agreement for offering of QUIPS.
4(a) Certificate of Trust of HECO Capital Trust I.
4(b) Trust Agreement for HECO Capital Trust I.
*4(c) Form of Amended and Restated Trust Agreement to be used in
connection with the issuance of QUIPS by HECO Capital Trust I.
*4(d) Form of Junior Subordinated Indenture with The Bank of New York, as
Trustee, to be used in connection with issuance of QUIDS
(including form of Subsidiary Guarantee).
*4(e) Form of QUIPS for issuance by HECO Capital Trust I (included in
Exhibit 4(c)).
*4(f) Form of QUIDS for issuance by HECO (included in Exhibit 4(d)).
*4(g) Form of QUIPS Guarantee for issuance by HECO.
*4(h) Form of the Subsidiary Guarantees for issuance by HECO (included in
Exhibit 4(d)).
*4(i) Form of Expense Agreement.
*5(a) Opinion of Goodsill Anderson Quinn & Stifel
*5(b) Opinion of Richards, Layton & Finger
*8 Tax Opinion of Goodsill Anderson Quinn & Stifel
12(a) Computation of Ratio of Earnings to Fixed Charges. (1)
*12(b) Computation of Ratio of Earnings to Combined Fixed Charges and
Dividends on Preferred Stock.
*23(a) Consent of KPMG Peat Marwick LLP.
II-2
*23(b) Consent of Goodsill Anderson Quinn & Stifel as to opinion (included
in Exhibit 5(a)).
*23(c) Consent of Richards, Layton & Finger as to opinion (included in
Exhibit 5(b)).
*23(d) Consent of Goodsill Anderson Quinn & Stifel as to opinion re tax
matters (included in Exhibit 8).
24(a) Powers of Attorney for HECO and HECO officers and directors.
24(b) Power of Attorney for HECO Capital Trust I (included in Exhibit
4(b)).
*25(a) Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the HECO Junior
Subordinated Indenture.
*25(b) Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the MECO Junior
Subordinated Indenture with respect to the related Subsidiary
Guarantee.
*25(c) Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the HELCO
Junior Subordinated Indenture with respect to the related
Subsidiary Guarantee.
*25(d) Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the Trust
Guarantee.
*25(e) Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the Trust
Agreement of HECO Capital Trust I.
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* To be filed by amendment.
(1) Incorporated by reference to Exhibit 12.2 of HECO's Quarterly Report on
Form 10Q for the quarter ended September 30, 1996.
ITEM 17. UNDERTAKINGS.
Each of the undersigned registrants hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of HECO's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
(3) That, for the purposes of determining any liability under the
Securities Act of 1933:
(i) The information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(ii) Each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
each registrant pursuant to the provisions described under Item 15 above, or
otherwise, each registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by a registrant of expenses incurred or paid by a director, officer or
controlling person of a registrant in the successful defense of any action,
suit or proceeding) is asserted by such
II-3
director, officer or controlling person in connection with the securities
being registered, the respective registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, HAWAIIAN
ELECTRIC COMPANY, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE
THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY AND COUNTY OF HONOLULU,
STATE OF HAWAII, ON THE 30TH DAY OF JANUARY, 1997.
Hawaiian Electric Company, Inc.
/s/ Paul A. Oyer
By: _________________________________
Paul A. Oyer
Financial Vice President
and Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THEIR
CAPACITIES WITH HAWAIIAN ELECTRIC COMPANY, INC. AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
T. Michael May* President and January 30, 1997
- ------------------------------------- Director (Chief
T. MICHAEL MAY Executive Officer)
Paul A. Oyer* Financial Vice January 30, 1997
- ------------------------------------- President and
PAUL A. OYER Treasurer
(Principal
Financial Officer)
Ernest T. Shiraki* Controller January 30, 1997
- ------------------------------------- (Principal
ERNEST T. SHIRAKI Accounting Officer)
Robert F. Clarke* Chairman of the January 30, 1997
- ------------------------------------- Board and Director
ROBERT F. CLARKE
Edwin L. Carter* Director January 30, 1997
- -------------------------------------
EDWIN L. CARTER
Richard Henderson* Director January 30, 1997
- -------------------------------------
RICHARD HENDERSON
Diane J. Plotts* Director January 30, 1997
- -------------------------------------
DIANE J. PLOTTS
Paul C. Yuen Director January 30, 1997
- -------------------------------------
PAUL C. YUEN
/s/ Paul A. Oyer
*By__________________________________
PAUL A. OYER
For himself and as Attorney-In-Fact
for the above mentioned officers
and directors
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, HECO CAPITAL
TRUST I HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-3 TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HONOLULU, STATE OF HAWAII, ON JANUARY 30, 1997.
HECO Capital Trust I
By:
Hawaiian Electric Company, Inc.,
as Depositor
/s/ Paul A. Oyer
By: _________________________________
Paul A. Oyer
Financial Vice President and
Treasurer
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