UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
  FORM 10-Q
 
ý       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
  OR
o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as
 
Commission
 
I.R.S. Employer
Specified in Its Charter
 
File Number
 
Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
 
1-8503
 
99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.
 
1-4955
 
99-0040500
State of Hawaii
(State or other jurisdiction of incorporation or organization)
 
Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900, Honolulu, Hawaii  96813
Hawaiian Electric Company, Inc. – 900 Richards Street, Honolulu, Hawaii  96813
(Address of principal executive offices and zip code)
 
Hawaiian Electric Industries, Inc. – (808) 543-5662
Hawaiian Electric Company, Inc. – (808) 543-7771
(Registrant’s telephone number, including area code) 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Hawaiian Electric Industries, Inc. Yes x  No o
 
Hawaiian Electric Company, Inc. Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Hawaiian Electric Industries, Inc. Yes x  No o
 
Hawaiian Electric Company, Inc. Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Hawaiian Electric Industries, Inc.
 
Large accelerated filer   x
 
Hawaiian Electric Company, Inc.
 
Large accelerated filer o
 
 
Accelerated filer o
 
 
 
Accelerated filer o
 
 
Non-accelerated filer o
 
 
 
Non-accelerated filer   x
 
 
(Do not check if a smaller reporting company)
 
 
 
(Do not check if a smaller reporting company)
 
 
Smaller reporting company o
 
 
 
Smaller reporting company o
 
 
Emerging growth company o
 
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Hawaiian Electric Industries, Inc. o
 
Hawaiian Electric Company, Inc. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Hawaiian Electric Industries, Inc. Yes o  No x
 
Hawaiian Electric Company, Inc. Yes o  No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
Class of Common Stock
 
Outstanding July 27, 2017
Hawaiian Electric Industries, Inc. (Without Par Value)
 
108,785,486 Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)
 
16,019,785 Shares (not publicly traded)
Hawaiian Electric Industries, Inc. (HEI) is the sole holder of Hawaiian Electric Company, Inc. (Hawaiian Electric) common stock.
This combined Form 10-Q is separately filed by HEI and Hawaiian Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to Hawaiian Electric is also attributed to HEI.


Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended June 30, 2017
 
TABLE OF CONTENTS
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i


Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended June 30, 2017
GLOSSARY OF TERMS
Terms
 
Definitions
AES Hawaii
 
AES Hawaii, Inc.
AFUDC
 
Allowance for funds used during construction
AOCI
 
Accumulated other comprehensive income/(loss)
ASB
 
American Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii, Inc.
ASB Hawaii
 
ASB Hawaii, Inc. (formerly American Savings Holdings, Inc.), a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
ASU
 
Accounting Standards Update
CIP CT-1
 
Campbell Industrial Park 110 MW combustion turbine No. 1
Company
 
Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; HEI Properties, Inc. (dissolved in 2015 and wound up in 2017); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.).
Consumer Advocate
 
Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
CBRE
 
Community-based renewable energy
DER
 
Distributed energy resources
D&O
 
Decision and order from the PUC
DG
 
Distributed generation
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOH
 
Department of Health of the State of Hawaii
DRIP
 
HEI Dividend Reinvestment and Stock Purchase Plan
DSM
 
Demand-side management
ECAC
 
Energy cost adjustment clause
EIP
 
2010 Equity and Incentive Plan, as amended and restated
EPA
 
Environmental Protection Agency — federal
EPS
 
Earnings per share
ERP/EAM
 
Enterprise Resource Planning/Enterprise Asset Management
EVE
 
Economic value of equity
Exchange Act
 
Securities Exchange Act of 1934
FASB
 
Financial Accounting Standards Board
FDIC
 
Federal Deposit Insurance Corporation
federal
 
U.S. Government
FHLB
 
Federal Home Loan Bank
FHLMC
 
Federal Home Loan Mortgage Corporation
FNMA
 
Federal National Mortgage Association
FRB
 
Federal Reserve Board
GAAP
 
Accounting principles generally accepted in the United States of America

ii
GLOSSARY OF TERMS, continued

Terms
 
Definitions
GNMA
 
Government National Mortgage Association
Hawaii Electric Light
 
Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
Hawaiian Electric
 
Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, HECO Capital Trust III (unconsolidated financing subsidiary), Renewable Hawaii, Inc. and Uluwehiokama Biofuels Corp.
HEP
 
Hamakua Energy Partners, L.P., successor in interest to Encogen Hawaii, L.P.
HEI
 
Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc., HEI Properties, Inc. (dissolved in 2015 and wound up in 2017) and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSP
 
Hawaiian Electric Industries Retirement Savings Plan
HELOC
 
Home equity line of credit
HPOWER
 
City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP
 
Independent power producer
Kalaeloa
 
Kalaeloa Partners, L.P.
KWH
 
Kilowatthour/s (as applicable)
LNG
 
Liquefied natural gas
LTIP
 
Long-term incentive plan
Maui Electric
 
Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
Merger
 
As provided in the Merger Agreement (see below), merger of NEE Acquisition Sub II, Inc. with and into HEI, with HEI surviving, and then merger of HEI with and into NEE Acquisition Sub I, LLC, with NEE Acquisition Sub I, LLC surviving as a wholly owned subsidiary of NextEra Energy, Inc.
Merger Agreement
 
Agreement and Plan of Merger by and among HEI, NextEra Energy, Inc., NEE Acquisition Sub II, Inc. and NEE Acquisition Sub I, LLC, dated December 3, 2014 and terminated July 16, 2016
MPIR
 
Major Project Interim Recovery
MW
 
Megawatt/s (as applicable)
NEE
 
NextEra Energy, Inc.
NEM
 
Net energy metering
NII
 
Net interest income
NPBC
 
Net periodic benefit costs
NPPC
 
Net periodic pension costs
O&M
 
Other operation and maintenance
OCC
 
Office of the Comptroller of the Currency
OPEB
 
Postretirement benefits other than pensions
PPA
 
Power purchase agreement
PPAC
 
Purchased power adjustment clause
PSIPs
 
Power Supply Improvement Plans
PUC
 
Public Utilities Commission of the State of Hawaii
PV
 
Photovoltaic
RAM
 
Rate adjustment mechanism
RBA
 
Revenue balancing account
RFP
 
Request for proposals
ROACE
 
Return on average common equity
RORB
 
Return on rate base
RPS
 
Renewable portfolio standards
SEC
 
Securities and Exchange Commission
See
 
Means the referenced material is incorporated by reference
Spin-Off
 
The previously planned distribution to HEI shareholders of all of the common stock of ASB Hawaii immediately prior to the Merger, which was terminated
TDR
 
Troubled debt restructuring
Trust III
 
HECO Capital Trust III
Utilities
 
Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIE
 
Variable interest entity
 

iii


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking statements are not guarantees of future performance.
Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:
•
international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; and the potential impacts of global developments (including global economic conditions and uncertainties; the effects of the United Kingdom’s referendum to withdraw from the European Union; unrest; the conflict in Syria; the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; terrorist acts by ISIS or others; potential conflict or crisis with North Korea; and potential pandemics);
•
the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling, monetary policy and policy and regulation changes advanced or proposed by President Trump and his administration;
•
weather and natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the potential effects of climate change, such as more severe storms and rising sea levels), including their impact on the Company's and Utilities' operations and the economy;
•
the timing and extent of changes in interest rates and the shape of the yield curve;
•
the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the cost of such financings, if available;
•
the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale;
•
changes in laws, regulations, market conditions and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;
•
the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated;
•
increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);
•
the impacts of the termination of the Merger with NextEra Energy, Inc. (NEE) and the resulting loss of NEE’s resources, expertise and support (e.g., financial and technological), including potentially higher costs and longer lead times to increase levels of renewable energy and to complete projects like Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) and smart grids, and a higher cost of capital;
•
the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet renewable portfolio standards (RPS) goals and the impacts of implementation of the renewable energy proposals on future costs of electricity;
•
the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans (PSIPs), Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC in April 2014, its April 2014 inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC;
•
capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management (DSM), distributed generation (DG), combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;
•
fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs);
•
the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;
•
the impact of fuel price volatility on customer satisfaction and political and regulatory support for the Utilities;


iv


•
the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;
•
the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities' electric systems and as customers reduce their energy usage;
•
the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);
•
the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;
•
the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements;
•
new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors;
•
new technological developments, such as the commercial development of energy storage and microgrids, that could affect the operations of the Utilities;
•
cyber security risks and the potential for cyber incidents, including potential incidents at HEI, ASB and the Utilities (including at ASB branches and electric utility plants) and incidents at data processing centers they use, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls;
•
federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
•
developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;
•
discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;
•
decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);
•
decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS);
•
potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);
•
the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by RAMs;
•
the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);
•
changes in accounting principles applicable to HEI, the Utilities and ASB, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting and the effects of potentially required consolidation of variable interest entities (VIEs) or required capital lease accounting for PPAs with IPPs;
•
changes by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and the results of financing efforts;
•
faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;
•
changes in ASB’s loan portfolio credit profile and asset quality which may increase or decrease the required level of provision for loan losses, allowance for loan losses and charge-offs;
•
changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;
•
the final outcome of tax positions taken by HEI, the Utilities and ASB;
•
the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits); and
•
other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission (SEC).
Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.

v

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands, except per share amounts)
 
2017
 
2016
 
2017
 
2016
Revenues
 
 

 
 

 
 

 
 

Electric utility
 
$
556,875

 
$
495,395

 
$
1,075,486

 
$
977,447

Bank
 
75,329

 
70,749

 
148,185

 
139,589

Other
 
77

 
100

 
172

 
168

Total revenues
 
632,281

 
566,244

 
1,223,843

 
1,117,204

Expenses
 
 

 
 

 
 

 
 

Electric utility
 
501,828

 
424,709

 
971,501

 
851,435

Bank
 
50,533

 
50,525

 
99,229

 
99,771

Other
 
4,024

 
5,555

 
9,355

 
11,692

Total expenses
 
556,385

 
480,789

 
1,080,085

 
962,898

Operating income (loss)
 
 

 
 

 
 

 
 

Electric utility
 
55,047

 
70,686

 
103,985

 
126,012

Bank
 
24,796

 
20,224

 
48,956

 
39,818

Other
 
(3,947
)
 
(5,455
)
 
(9,183
)
 
(11,524
)
Total operating income
 
75,896

 
85,455

 
143,758

 
154,306

Interest expense, net—other than on deposit liabilities and other bank borrowings
 
(20,440
)
 
(17,301
)
 
(40,008
)
 
(37,427
)
Allowance for borrowed funds used during construction
 
1,143

 
760

 
2,032

 
1,422

Allowance for equity funds used during construction
 
3,027

 
1,997

 
5,426

 
3,736

Income before income taxes
 
59,626

 
70,911

 
111,208

 
122,037

Income taxes
 
20,492

 
26,310

 
37,408

 
44,611

Net income
 
39,134

 
44,601

 
73,800

 
77,426

Preferred stock dividends of subsidiaries
 
473

 
473

 
946

 
946

Net income for common stock
 
$
38,661

 
$
44,128

 
$
72,854

 
$
76,480

Basic earnings per common share
 
$
0.36

 
$
0.41

 
$
0.67

 
$
0.71

Diluted earnings per common share
 
$
0.36

 
$
0.41

 
$
0.67

 
$
0.71

Dividends declared per common share
 
$
0.31

 
$
0.31

 
$
0.62

 
$
0.62

Weighted-average number of common shares outstanding
 
108,750

 
107,962

 
108,712

 
107,791

Net effect of potentially dilutive shares
 
47

 
171

 
157

 
187

Weighted-average shares assuming dilution
 
108,797

 
108,133

 
108,869

 
107,978

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


1


Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
2017
 
2016
 
2017
 
2016
Net income for common stock
 
$
38,661

 
$
44,128

 
$
72,854

 
$
76,480

Other comprehensive income (loss), net of taxes:
 
 

 
 

 
 

 
 

Net unrealized gains on available-for-sale investment securities:
 
 

 
 

 
 

 
 

Net unrealized gains on available-for-sale investment securities arising during the period, net of taxes of $1,334, $1,925, $1,482 and $6,830, respectively
 
2,021

 
2,916

 
2,244

 
10,344

Reclassification adjustment for net realized gains included in net income, net of taxes of nil, $238, nil and $238, respectively
 
—

 
(360
)
 
—

 
(360
)
Derivatives qualifying as cash flow hedges:
 
 

 
 

 
 

 
 

Effective portion of foreign currency hedge net unrealized gains (losses) arising during the period, net of (taxes) benefits of nil, $475, nil and ($163), respectively
 
—

 
(745
)
 
—

 
257

Reclassification adjustment to net income, net of tax benefits of nil, nil, $289 and $35, respectively
 
—

 
—

 
454

 
54

Retirement benefit plans:
 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $2,508, $2,362, $5,010 and $4,619, respectively
 
3,930

 
3,698

 
7,851

 
7,236

Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $2,281, $2,166, $4,582 and $4,218, respectively
 
(3,581
)
 
(3,401
)
 
(7,194
)
 
(6,623
)
Other comprehensive income, net of taxes
 
2,370

 
2,108

 
3,355

 
10,908

Comprehensive income attributable to Hawaiian Electric Industries, Inc.
 
$
41,031

 
$
46,236

 
$
76,209

 
$
87,388

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

2


Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)  
(dollars in thousands)
 
June 30, 2017
 
December 31, 2016
Assets
 
 

 
 

Cash and cash equivalents
 
$
210,381

 
$
278,452

Accounts receivable and unbilled revenues, net
 
249,539

 
237,950

Available-for-sale investment securities, at fair value
 
1,302,886

 
1,105,182

Stock in Federal Home Loan Bank, at cost
 
11,706

 
11,218

Loans receivable held for investment, net
 
4,688,278

 
4,683,160

Loans held for sale, at lower of cost or fair value
 
5,261

 
18,817

Property, plant and equipment, net of accumulated depreciation of $2,508,291 and $2,444,348 at June 30, 2017 and December 31, 2016, respectively
 
4,726,524

 
4,603,465

Regulatory assets
 
938,277

 
957,451

Other
 
478,763

 
447,621

Goodwill
 
82,190

 
82,190

Total assets
 
$
12,693,805

 
$
12,425,506

Liabilities and shareholders’ equity
 
 

 
 

Liabilities
 
 

 
 

Accounts payable
 
$
194,755

 
$
143,279

Interest and dividends payable
 
22,124

 
25,225

Deposit liabilities
 
5,724,386

 
5,548,929

Short-term borrowings—other than bank
 
49,789

 
—

Other bank borrowings
 
188,130

 
192,618

Long-term debt, net—other than bank
 
1,618,647

 
1,619,019

Deferred income taxes
 
750,413

 
728,806

Regulatory liabilities
 
431,630

 
410,693

Contributions in aid of construction
 
543,204

 
543,525

Defined benefit pension and other postretirement benefit plans liability
 
626,795

 
638,854

Other
 
434,610

 
473,512

Total liabilities
 
10,584,483

 
10,324,460

Preferred stock of subsidiaries - not subject to mandatory redemption
 
34,293

 
34,293

Commitments and contingencies (Notes 3 and 4)
 


 


Shareholders’ equity
 
 

 
 

Preferred stock, no par value, authorized 10,000,000 shares; issued: none
 
—

 
—

Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 108,785,486 shares and 108,583,413 shares at June 30, 2017 and December 31, 2016, respectively
 
1,660,403

 
1,660,910

Retained earnings
 
444,400

 
438,972

Accumulated other comprehensive loss, net of tax benefits
 
(29,774
)
 
(33,129
)
Total shareholders’ equity
 
2,075,029

 
2,066,753

Total liabilities and shareholders’ equity
 
$
12,693,805

 
$
12,425,506

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)  
 
 
Common stock
 
Retained
 
Accumulated
other
comprehensive
 
 
(in thousands)
 
Shares
 
Amount
 
Earnings
 
income (loss)
 
Total
Balance, December 31, 2016
 
108,583

 
$
1,660,910

 
$
438,972

 
$
(33,129
)
 
$
2,066,753

Net income for common stock
 
—

 
—

 
72,854

 
—

 
72,854

Other comprehensive income, net of taxes
 
—

 
—

 
—

 
3,355

 
3,355

Issuance of common stock, net of expenses
 
202

 
(507
)
 
—

 
—

 
(507
)
Common stock dividends
 
—

 
—

 
(67,426
)
 
—

 
(67,426
)
Balance, June 30, 2017
 
108,785

 
$
1,660,403

 
$
444,400

 
$
(29,774
)
 
$
2,075,029

Balance, December 31, 2015
 
107,460

 
$
1,629,136

 
$
324,766

 
$
(26,262
)
 
$
1,927,640

Net income for common stock
 
—

 
—

 
76,480

 
—

 
76,480

Other comprehensive income, net of taxes
 
—

 
—

 
—

 
10,908

 
10,908

Issuance of common stock, net of expenses
 
727

 
18,002

 
—

 
—

 
18,002

Common stock dividends
 
—

 
—

 
(66,848
)
 
—

 
(66,848
)
Balance, June 30, 2016
 
108,187

 
$
1,647,138

 
$
334,398

 
$
(15,354
)
 
$
1,966,182

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


4


Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
 
 
Six months ended June 30
(in thousands)
 
2017
 
2016
Cash flows from operating activities
 
 

 
 

Net income
 
$
73,800

 
$
77,426

Adjustments to reconcile net income to net cash provided by operating activities
 
 

 
 

Depreciation of property, plant and equipment
 
100,062

 
97,148

Other amortization
 
6,101

 
4,840

Provision for loan losses
 
6,741

 
9,519

Loans receivable originated and purchased, held for sale
 
(69,595
)
 
(98,004
)
Proceeds from sale of loans receivable, held for sale
 
79,944

 
98,457

Deferred income taxes
 
17,047

 
21,738

Share-based compensation expense
 
3,285

 
2,011

Allowance for equity funds used during construction
 
(5,426
)
 
(3,736
)
Other
 
246

 
2,982

Changes in assets and liabilities
 
 

 
 

Decrease (increase) in accounts receivable and unbilled revenues, net
 
(12,394
)
 
12,894

Decrease (increase) in fuel oil stock
 
(5,962
)
 
9,644

Decrease (increase) in regulatory assets
 
8,179

 
(11,752
)
Increase in accounts, interest and dividends payable
 
55,451

 
20,837

Change in prepaid and accrued income taxes, tax credits and utility revenue taxes
 
(37,954
)
 
622

Increase in defined benefit pension and other postretirement benefit plans liability
 
420

 
95

Change in other assets and liabilities
 
(33,922
)
 
(18,878
)
Net cash provided by operating activities
 
186,023

 
225,843

Cash flows from investing activities
 
 

 
 

Available-for-sale investment securities purchased
 
(295,510
)
 
(176,598
)
Principal repayments on available-for-sale investment securities
 
99,663

 
102,716

Proceeds from sale of available-for-sale investment securities
 
—

 
16,423

Purchase of stock from Federal Home Loan Bank
 
(2,868
)
 
(2,773
)
Redemption of stock from Federal Home Loan Bank
 
2,380

 
2,233

Net increase in loans held for investment
 
(20,326
)
 
(155,930
)
Proceeds from sale of commercial loans
 
13,493

 
14,105

Proceeds from sale of real estate acquired in settlement of loans
 
185

 
553

Capital expenditures
 
(222,246
)
 
(203,631
)
Contributions in aid of construction
 
17,571

 
16,810

Other
 
8,216

 
1,106

Net cash used in investing activities
 
(399,442
)
 
(384,986
)
Cash flows from financing activities
 
 

 
 

Net increase in deposit liabilities
 
175,457

 
206,949

Net increase in short-term borrowings with original maturities of three months or less
 
49,789

 
12,922

Net increase (decrease) in retail repurchase agreements
 
9,048

 
(27,158
)
Proceeds from other bank borrowings
 
59,500

 
55,835

Repayments of other bank borrowings
 
(73,034
)
 
(84,369
)
Proceeds from issuance of long-term debt
 
265,000

 
75,000

Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds
 
(265,000
)
 
(75,000
)
Withheld shares for employee taxes on vested share-based compensation
 
(3,787
)
 
(2,345
)
Net proceeds from issuance of common stock
 
—

 
7,668

Common stock dividends
 
(67,426
)
 
(55,591
)
Preferred stock dividends of subsidiaries
 
(946
)
 
(946
)
Other
 
(3,253
)
 
2,908

Net cash provided by financing activities
 
145,348

 
115,873

Net decrease in cash and cash equivalents
 
(68,071
)
 
(43,270
)
Cash and cash equivalents, beginning of period
 
278,452

 
300,478

Cash and cash equivalents, end of period
 
$
210,381

 
$
257,208


The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
2017
 
2016
 
2017
 
2016
Revenues
 
$
556,875

 
$
495,395

 
$
1,075,486

 
$
977,447

Expenses
 
 

 
 

 
 

 
 

Fuel oil
 
141,259

 
91,899

 
285,529

 
205,639

Purchased power
 
153,067

 
139,058

 
280,191

 
254,917

Other operation and maintenance
 
106,374

 
99,563

 
206,614

 
203,471

Depreciation
 
48,156

 
46,760

 
96,372

 
93,541

Taxes, other than income taxes
 
52,972

 
47,429

 
102,795

 
93,867

Total expenses
 
501,828

 
424,709

 
971,501

 
851,435

Operating income
 
55,047

 
70,686

 
103,985

 
126,012

Allowance for equity funds used during construction
 
3,027

 
1,997

 
5,426

 
3,736

Interest expense and other charges, net
 
(18,214
)
 
(15,103
)
 
(35,718
)
 
(32,411
)
Allowance for borrowed funds used during construction
 
1,143

 
760

 
2,032

 
1,422

Income before income taxes
 
41,003

 
58,340

 
75,725

 
98,759

Income taxes
 
14,860

 
21,984

 
27,618

 
36,537

Net income
 
26,143

 
36,356

 
48,107

 
62,222

Preferred stock dividends of subsidiaries
 
229

 
229

 
458

 
458

Net income attributable to Hawaiian Electric
 
25,914

 
36,127

 
47,649

 
61,764

Preferred stock dividends of Hawaiian Electric
 
270

 
270

 
540

 
540

Net income for common stock
 
$
25,644

 
$
35,857

 
$
47,109

 
$
61,224

The accompanying notes are an integral part of these condensed consolidated financial statements.
HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
2017
 
2016
 
2017
 
2016
Net income for common stock
 
$
25,644

 
$
35,857

 
$
47,109

 
$
61,224

Other comprehensive income (loss), net of taxes:
 
 

 
 

 
 

 
 

Derivatives qualifying as cash flow hedges:
 
 
 
 
 
 
 
 
Effective portion of foreign currency hedge net unrealized gains (losses) arising during the period, net of (taxes) benefits of nil, $475, nil and ($163), respectively
 
—

 
(745
)
 
—

 
257

Reclassification adjustment to net income, net of tax benefits of nil, nil, $289 and nil, respectively
 
—

 
—

 
454

 
—

Retirement benefit plans:
 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $2,306, $2,160, $4,610 and $4,221, respectively
 
3,621

 
3,391

 
7,239

 
6,627

Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $2,281, $2,166, $4,582 and $4,218, respectively
 
(3,581
)
 
(3,401
)
 
(7,194
)
 
(6,623
)
Other comprehensive income (loss), net of taxes
 
40

 
(755
)
 
499

 
261

Comprehensive income attributable to Hawaiian Electric Company, Inc.
 
$
25,684

 
$
35,102

 
$
47,608

 
$
61,485


The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands, except par value)
 
June 30, 2017

 
December 31, 2016

Assets
 
 

 
 

Property, plant and equipment
 
 
 
 
Utility property, plant and equipment
 
 

 
 

Land
 
$
53,178

 
$
53,153

Plant and equipment
 
6,711,418

 
6,605,732

Less accumulated depreciation
 
(2,430,097
)
 
(2,369,282
)
Construction in progress
 
272,438

 
211,742

Utility property, plant and equipment, net
 
4,606,937

 
4,501,345

Nonutility property, plant and equipment, less accumulated depreciation of $1,233 as of June 30, 2017 and $1,232 as of December 31, 2016
 
7,410

 
7,407

Total property, plant and equipment, net
 
4,614,347

 
4,508,752

Current assets
 
 

 
 

Cash and cash equivalents
 
42,582

 
74,286

Customer accounts receivable, net
 
126,161

 
123,688

Accrued unbilled revenues, net
 
103,596

 
91,693

Other accounts receivable, net
 
3,684

 
5,233

Fuel oil stock, at average cost
 
72,392

 
66,430

Materials and supplies, at average cost
 
57,099

 
53,679

Prepayments and other
 
36,340

 
23,100

Regulatory assets
 
74,167

 
66,032

Total current assets
 
516,021

 
504,141

Other long-term assets
 
 

 
 

Regulatory assets
 
864,110

 
891,419

Unamortized debt expense
 
690

 
208

Other
 
75,987

 
70,908

Total other long-term assets
 
940,787

 
962,535

Total assets
 
$
6,071,155

 
$
5,975,428

Capitalization and liabilities
 
 

 
 

Capitalization
 
 

 
 

Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 16,019,785 shares at June 30, 2017 and December 31, 2016)
 
$
106,818

 
$
106,818

Premium on capital stock
 
601,486

 
601,491

Retained earnings
 
1,095,025

 
1,091,800

Accumulated other comprehensive income (loss), net of taxes
 
177

 
(322
)
Common stock equity
 
1,803,506

 
1,799,787

Cumulative preferred stock — not subject to mandatory redemption
 
34,293

 
34,293

Long-term debt, net
 
1,318,845

 
1,319,260

Total capitalization
 
3,156,644

 
3,153,340

Commitments and contingencies (Note 3)
 


 


Current liabilities
 
 

 
 

Short-term borrowings from non-affiliates
 
43,990

 
—

Accounts payable
 
162,375

 
117,814

Interest and preferred dividends payable
 
19,497

 
22,838

Taxes accrued
 
142,263

 
172,730

Regulatory liabilities
 
2,883

 
3,762

Other
 
53,140

 
55,221

Total current liabilities
 
424,148

 
372,365

Deferred credits and other liabilities
 
 

 
 

Deferred income taxes
 
759,972

 
733,659

Regulatory liabilities
 
428,747

 
406,931

Unamortized tax credits
 
91,386

 
88,961

Defined benefit pension and other postretirement benefit plans liability
 
587,718

 
599,726

Other
 
79,336

 
76,921

Total deferred credits and other liabilities
 
1,947,159

 
1,906,198

Contributions in aid of construction
 
543,204

 
543,525

Total capitalization and liabilities
 
$
6,071,155

 
$
5,975,428

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited)
 
 
 
Common stock
 
Premium
on
capital
 
Retained
 
Accumulated
other
comprehensive
 
 
(in thousands)
 
Shares
 
Amount
 
stock
 
earnings
 
income (loss)
 
Total
Balance, December 31, 2016
 
16,020

 
$
106,818

 
$
601,491

 
$
1,091,800

 
$
(322
)
 
$
1,799,787

Net income for common stock
 
—

 
—

 
—

 
47,109

 
—

 
47,109

Other comprehensive income, net of taxes
 
—

 
—

 
—

 
—

 
499

 
499

Common stock dividends
 
—

 
—

 
—

 
(43,884
)
 
—

 
(43,884
)
Common stock issuance expenses
 
—

 
—

 
(5
)
 
—

 
—

 
(5
)
Balance, June 30, 2017
 
16,020

 
$
106,818

 
$
601,486

 
$
1,095,025

 
$
177

 
$
1,803,506

Balance, December 31, 2015
 
15,805

 
$
105,388

 
$
578,930

 
$
1,043,082

 
$
925

 
$
1,728,325

Net income for common stock
 
—

 
—

 
—

 
61,224

 
—

 
61,224

Other comprehensive income, net of taxes
 
—

 
—

 
—

 
—

 
261

 
261

Common stock dividends
 
—

 
—

 
—

 
(46,800
)
 
—

 
(46,800
)
Common stock issuance expenses
 
—

 
—

 
(4
)
 
—

 
—

 
(4
)
Balance, June 30, 2016
 
15,805

 
$
105,388

 
$
578,926

 
$
1,057,506

 
$
1,186

 
$
1,743,006

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


8


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)  
 
 
Six months ended June 30
(in thousands)
 
2017
 
2016
Cash flows from operating activities
 
 

 
 

Net income
 
$
48,107


$
62,222

Adjustments to reconcile net income to net cash provided by operating activities
 
 


 

Depreciation of property, plant and equipment
 
96,372


93,541

Other amortization
 
4,262


3,793

Deferred income taxes
 
23,599


32,118

Allowance for equity funds used during construction
 
(5,426
)

(3,736
)
Other
 
1,615

 
2,982

Changes in assets and liabilities
 
 


 

Decrease (increase) in accounts receivable
 
(1,729
)

16,682

Increase in accrued unbilled revenues
 
(11,903
)

(3,215
)
Decrease (increase) in fuel oil stock
 
(5,962
)

9,644

Increase in materials and supplies
 
(3,420
)

(2,482
)
Decrease (increase) in regulatory assets
 
8,179


(677
)
Increase in accounts payable
 
51,637


23,427

Change in prepaid and accrued income taxes, tax credits and revenue taxes
 
(40,910
)

(28,192
)
Increase in defined benefit pension and other postretirement benefit plans liability
 
302


237

Change in other assets and liabilities
 
(14,047
)

(12,220
)
Net cash provided by operating activities
 
150,676


194,124

Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(202,080
)
 
(197,332
)
Contributions in aid of construction
 
17,571

 
16,810

Other
 
6,250

 
331

Net cash used in investing activities
 
(178,259
)
 
(180,191
)
Cash flows from financing activities
 
 

 
 

Common stock dividends
 
(43,884
)
 
(46,800
)
Preferred stock dividends of Hawaiian Electric and subsidiaries
 
(998
)
 
(998
)
Proceeds from issuance of special purpose revenue bonds
 
265,000

 
—

Funds transferred for redemption of special purpose revenue bonds
 
(265,000
)
 
—

Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less
 
43,990

 
36,995

Other
 
(3,229
)
 
—

Net cash used in financing activities
 
(4,121
)
 
(10,803
)
Net increase (decrease) in cash and cash equivalents
 
(31,704
)
 
3,130

Cash and cash equivalents, beginning of period
 
74,286

 
24,449

Cash and cash equivalents, end of period
 
$
42,582

 
$
27,579


The accompanying notes are an integral part of these condensed consolidated financial statements.


9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1 · Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited condensed consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric’s Form 10-K for the year ended December 31, 2016 .
In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of June 30, 2017 and December 31, 2016 , the results of their operations for the three and six months ended June 30, 2017 and 2016 and their cash flows for the six months ended June 30, 2017 and 2016 . All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.
Recent accounting pronouncements.
Revenues from contracts with customers .  In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance in ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should:  (1) identify the contract/s with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when, or as, the entity satisfies a performance obligation. ASU No. 2014-09 also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
As of June 30, 2017 , the Company has identified its revenue streams from, and performance obligations related to, contracts with customers and has performed an analysis of these revenue streams for the impacts of Topic 606. The majority of the revenue subject to Topic 606 is the Utilities’ electric sales revenue and the Company and Hawaiian Electric do not expect a material impact on the timing or pattern of revenue recognition upon adoption of ASU No. 2014-09. The Company and Hawaiian Electric expect changes to the presentation and disclosure of revenues. The Company plans to adopt ASU No. 2014-09 (and subsequently issued revenue-related ASUs, as applicable) in the first quarter of 2018 using the modified retrospective approach. The Company continues to monitor developments in industry-specific application guidance and evaluate further impacts of Topic 606.
Financial instruments .  In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which, among other things:
•
Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
•
Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
•
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables).
•
Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
The Company plans to adopt ASU No. 2016-01 in the first quarter of 2018 and expects changes to disclosures, but otherwise believes the impact of adoption will not be material to the Company’s and Hawaiian Electric’s consolidated financial statements.

10


Leases . In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires that lessees recognize a liability to make lease payments (the lease liability) and a right-of-use asset, representing its right to use the underlying asset for the lease term, for all leases (except short-term leases) at the commencement date.  For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election and recognize lease expense for such leases generally on a straight-line basis over the lease term. For finance leases, a lessee is required to recognize interest on the lease liability separately from amortization of the right-of-use asset in the condensed consolidated statement of income. For operating leases, a lessee is required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.
The Company plans to adopt ASU No. 2016-02 in the first quarter of 2019 and has not yet determined the method or impact of adoption.
Stock compensation .  In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based payment transactions.
The Company adopted ASU No. 2016-09 in the first quarter of 2017. From January 1, 2017, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. From January 1, 2017, no excess tax benefits or deficiencies are included in determining the assumed proceeds under the treasury stock method of calculating diluted EPS. As of January 1, 2017, HEI adopted an accounting policy to account for forfeitures when they occur.
From January 1, 2017, HEI retrospectively applied the cashflow guidance for taxes paid (equivalent to the value of withheld shares for tax withholding purposes) and excess tax benefits. Excess tax benefits will be classified along with other income tax cash flows as an operating activity and the cash payments made to taxing authorities on the employees’ behalf for withheld shares are classified as financing activities on the HEI unaudited condensed consolidated statements of cash flows for all periods that are presented.
Credit Losses . In June 2016, the FASB issued ASU No. 2016-13, “ Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ,” which is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations . ASU No. 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date (based on historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale (AFS) debt securities and purchased financial assets with credit deterioration. The other-than-temporary impairment model of accounting for credit losses on AFS debt securities will be replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The length of time the fair value of an AFS debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. The AFS debt security model will also require the use of an allowance to record the estimated losses (and subsequent recoveries). The accounting for the initial recognition of the estimated expected credit losses for purchased financial assets with credit deterioration would be recognized through an allowance for credit losses with an offset to the cost basis of the related financial asset at acquisition (i.e., there is no impact to net income at initial recognition).
The Company plans to adopt ASU No. 2016-13 in the first quarter of 2020 and has not yet determined the impact of adoption.
Cash Flows . In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on eight specific cash flow issues - debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle.
The Company plans to adopt ASU No. 2016-15 in the first quarter of 2018 using a retrospective transition method and has not yet determined the impact of adoption.
Restricted cash .  In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

11


The Company plans to adopt ASU No. 2016-18 in the first quarter of 2018 using a retrospective transition method and believes the impact of adoption will not be material to the Company’s and Hawaiian Electric’s consolidated statements of cash flows.
Goodwill impairment . In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Prior to the adoption of ASU No. 2017-04, an entity was required to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an entity compared the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeded its fair value, the entity performed Step 2 and compared the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit exceeded the implied fair value of that goodwill would then be recorded. ASU No. 2017-04 removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value. ASU No. 2017-04 does not amend the optional qualitative assessment of goodwill impairment.
The Company plans to adopt ASU No. 2017-04 prospectively in the fourth quarter of 2017 and believes the impact of adoption will not be material to the Company’s and Hawaiian Electric’s consolidated financial statements.
Net periodic pension cost and net periodic postretirement benefit cost . In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic postretirement benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization under GAAP, when applicable.
The Company plans to adopt ASU No. 2017-07 in the first quarter of 2018 and has not yet determined the impact of adoption.

12


2 · Segment financial information
(in thousands) 
 
Electric utility
 
Bank
 
Other
 
Total
Three months ended June 30, 2017
 
 

 
 

 
 

 
 

Revenues from external customers
 
$
556,836

 
$
75,329

 
$
116

 
$
632,281

Intersegment revenues (eliminations)
 
39

 
—

 
(39
)
 
—

Revenues
 
$
556,875

 
$
75,329

 
$
77

 
$
632,281

Income (loss) before income taxes
 
$
41,003

 
$
24,796

 
$
(6,173
)
 
$
59,626

Income taxes (benefit)
 
14,860

 
8,063

 
(2,431
)
 
20,492

Net income (loss)
 
26,143

 
16,733

 
(3,742
)
 
39,134

Preferred stock dividends of subsidiaries
 
499

 
—

 
(26
)
 
473

Net income (loss) for common stock
 
$
25,644

 
$
16,733

 
$
(3,716
)
 
$
38,661

Six months ended June 30, 2017
 
 

 
 

 
 

 
 

Revenues from external customers
 
$
1,075,402

 
$
148,185

 
$
256

 
$
1,223,843

Intersegment revenues (eliminations)
 
84

 
—

 
(84
)
 
—

Revenues
 
$
1,075,486

 
$
148,185

 
$
172

 
$
1,223,843

Income (loss) before income taxes
 
$
75,725

 
$
48,956

 
$
(13,473
)
 
$
111,208

Income taxes (benefit)
 
27,618

 
16,410

 
(6,620
)
 
37,408

Net income (loss)
 
48,107

 
32,546

 
(6,853
)
 
73,800

Preferred stock dividends of subsidiaries
 
998

 
—

 
(52
)
 
946

Net income (loss) for common stock
 
$
47,109

 
$
32,546

 
$
(6,801
)
 
$
72,854

Total assets (at June 30, 2017)
 
$
6,071,155

 
$
6,610,877

 
$
11,773

 
$
12,693,805

Three months ended June 30, 2016
 
 

 
 

 
 

 
 

Revenues from external customers
 
$
495,349

 
$
70,749

 
$
146

 
$
566,244

Intersegment revenues (eliminations)
 
46

 
—

 
(46
)
 
—

Revenues
 
$
495,395

 
$
70,749

 
$
100

 
$
566,244

Income (loss) before income taxes
 
$
58,340

 
$
20,224

 
$
(7,653
)
 
$
70,911

Income taxes (benefit)
 
21,984

 
6,939

 
(2,613
)
 
26,310

Net income (loss)
 
36,356

 
13,285

 
(5,040
)
 
44,601

Preferred stock dividends of subsidiaries
 
499

 
—

 
(26
)
 
473

Net income (loss) for common stock
 
$
35,857

 
$
13,285

 
$
(5,014
)
 
$
44,128

Six months ended June 30, 2016
 
 

 
 

 
 

 
 

Revenues from external customers
 
$
977,394

 
$
139,589

 
$
221

 
$
1,117,204

Intersegment revenues (eliminations)
 
53

 
—

 
(53
)
 
—

Revenues
 
$
977,447

 
$
139,589

 
$
168

 
$
1,117,204

Income (loss) before income taxes
 
$
98,759

 
$
39,818

 
$
(16,540
)
 
$
122,037

Income taxes (benefit)
 
36,537

 
13,860

 
(5,786
)
 
44,611

Net income (loss)
 
62,222

 
25,958

 
(10,754
)
 
77,426

Preferred stock dividends of subsidiaries
 
998

 
—

 
(52
)
 
946

Net income (loss) for common stock
 
$
61,224

 
$
25,958

 
$
(10,702
)
 
$
76,480

Total assets (at December 31, 2016)
 
$
5,975,428

 
$
6,421,357

 
$
28,721

 
$
12,425,506

 
Intercompany electricity sales of the Utilities to the bank and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by the Utilities and the profit on such sales is nominal.
Bank fees that ASB charges the Utilities and “other” segments are not eliminated because those segments would pay fees to another financial institution if they were to bank with another institution and the profit on such fees is nominal.

13


3 · Electric utility segment
Revenue taxes. The Utilities’ revenues include amounts for the recovery of various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the period the related revenues are recognized. However, the Utilities’ revenue tax payments to the taxing authorities in the period are based on the prior year’s billed revenues (in the case of public service company taxes and PUC fees) or on the current year’s cash collections from electric sales (in the case of franchise taxes). The Utilities included in the second quarters of 2017 and 2016 and six months ended June 30, 2017 and 2016 approximately $50 million , $44 million , $96 million and $87 million , respectively, of revenue taxes in “revenues” and in “taxes, other than income taxes” expense, in the unaudited condensed consolidated statements of income.
Unconsolidated variable interest entities.
HECO Capital Trust III .   HECO Capital Trust III (Trust III) was created and exists for the exclusive purposes of (i) issuing in March 2004 2,000,000 6.50% Cumulative Quarterly Income Preferred Securities, Series 2004 (2004 Trust Preferred Securities) ( $50 million aggregate liquidation preference) to the public and trust common securities ( $1.5 million aggregate liquidation preference) to Hawaiian Electric, (ii) investing the proceeds of these trust securities in 2004 Debentures issued by Hawaiian Electric in the principal amount of $31.5 million and issued by Hawaii Electric Light and Maui Electric each in the principal amount of $10 million , (iii) making distributions on these trust securities and (iv) engaging in only those other activities necessary or incidental thereto. The 2004 Trust Preferred Securities are mandatorily redeemable at the maturity of the underlying debt on March 18, 2034, which maturity may be extended to no later than March 18, 2053; and are currently redeemable at the issuer’s option without premium. The 2004 Debentures, together with the obligations of the Utilities under an expense agreement and Hawaiian Electric’s obligations under its trust guarantee and its guarantee of the obligations of Hawaii Electric Light and Maui Electric under their respective debentures, are the sole assets of Trust III. Taken together, Hawaiian Electric’s obligations under the Hawaiian Electric debentures, the Hawaiian Electric indenture, the subsidiary guarantees, the trust agreement, the expense agreement and trust guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of amounts due on the Trust Preferred Securities. Trust III has at all times been an unconsolidated subsidiary of Hawaiian Electric. Since Hawaiian Electric, as the holder of 100% of the trust common securities, does not absorb the majority of the variability of Trust III, Hawaiian Electric is not the primary beneficiary and does not consolidate Trust III in accordance with accounting rules on the consolidation of VIEs. Trust III’s balance sheets as of June 30, 2017 and December 31, 2016 each consisted of $51.5 million of 2004 Debentures; $50.0 million of 2004 Trust Preferred Securities; and $1.5 million of trust common securities. Trust III’s income statements for the six months ended June 30, 2017 consisted of $1.7 million of interest income received from the 2004 Debentures; $1.6 million of distributions to holders of the Trust Preferred Securities; and $50,000 of common dividends on the trust common securities to Hawaiian Electric. As long as the 2004 Trust Preferred Securities are outstanding, Hawaiian Electric is not entitled to receive any funds from Trust III other than pro-rata distributions, subject to certain subordination provisions, on the trust common securities. In the event of a default by Hawaiian Electric in the performance of its obligations under the 2004 Debentures or under its Guarantees, or in the event any of the Utilities elect to defer payment of interest on any of their respective 2004 Debentures, then Hawaiian Electric will be subject to a number of restrictions, including a prohibition on the payment of dividends on its common stock.
Power purchase agreements .   As of June 30, 2017 , the Utilities had five power purchase agreements (PPAs) for firm capacity and other PPAs with independent power producers (IPPs) and Schedule Q providers (e.g., customers with cogeneration and/or power production facilities who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs.
Some of the IPPs provided sufficient information for Hawaiian Electric to determine that the IPP was not a VIE, or was either a “business” or “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. Other IPPs declined to provide the information necessary for Hawaiian Electric to determine the applicability of accounting standards for VIEs. Since 2004, Hawaiian Electric has continued its efforts to obtain from the other IPPs the information necessary to make the determinations required under accounting standards for VIEs. In each year from 2005 to 2016, the Utilities sent letters to the identified IPPs requesting the required information. All of these IPPs declined to provide the necessary information, except that Kalaeloa Partners, L.P. (Kalaeloa) later agreed to provide the information pursuant to the amendments to its PPA (see below). During the negotiations of an amendment to the PPA with AES Hawaii, Inc. (AES Hawaii), management determined that Hawaiian Electric was not the primary beneficiary of AES Hawaii under the existing PPA and consolidation was not required (see below). Management has concluded that the consolidation of two entities owning wind farms was not required as Hawaii Electric Light and Maui Electric do not have variable interests in the entities because the PPAs do not require them to absorb any variability of the entities. If the requested information is ultimately received from the remaining IPPs, a possible outcome of future analyses of such information is the consolidation of one or more of such IPPs in the unaudited condensed consolidated financial statements. The consolidation of any significant IPP could have a material effect on the unaudited condensed consolidated financial statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such

14


losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs.
Pursuant to the current accounting standards for VIEs, Hawaiian Electric is deemed to have a variable interest in Kalaeloa and AES Hawaii by reason of the provisions of Hawaiian Electric’s PPA with Kalaeloa and AES Hawaii, respectively. However, management has concluded that Hawaiian Electric is not the primary beneficiary of Kalaeloa or AES Hawaii because Hawaiian Electric does not have the power to direct the activities that most significantly impact Kalaeloa’s and AES Hawaii’s economic performance nor the obligation to absorb Kalaeloa’s or AES Hawaii’s expected losses, if any, that could potentially be significant to Kalaeloa or AES Hawaii. Thus, Hawaiian Electric has not consolidated Kalaeloa or AES Hawaii in its unaudited condensed consolidated financial statements.
Commitments and contingencies.
Contingencies . The Utilities are subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, the Utilities cannot rule out the possibility that such outcomes could have a material effect on the results of operations or liquidity for a particular reporting period in the future.
Power purchase agreements .   As of June 30, 2017 , purchases from all IPPs were as follows:
 
 
Three months ended June 30
 
Six months ended June 30
(in millions)
 
2017
 
2016
 
2017
 
2016
Kalaeloa
 
$
48

 
$
36

 
$
88

 
$
65

AES Hawaii
 
35

 
36

 
64

 
74

HPOWER
 
16

 
17

 
33

 
33

Puna Geothermal Venture
 
10

 
5

 
18

 
12

HEP
 
10

 
4

 
17

 
15

Other IPPs 1
 
34

 
41

 
60

 
56

Total IPPs
 
$
153

 
$
139

 
$
280

 
$
255

 
1  
Includes wind power, solar power, feed-in tariff projects and other PPAs.
Kalaeloa Partners, L.P.   In October 1988, Hawaiian Electric entered into a PPA with Kalaeloa, subsequently approved by the PUC, which provided that Hawaiian Electric would purchase 180 megawatts (MW) of firm capacity for a period of 25 years beginning in May 1991. In October 2004, Hawaiian Electric and Kalaeloa entered into amendments to the PPA, subsequently approved by the PUC, which together effectively increased the firm capacity from 180 MW to 208 MW. The energy payments that Hawaiian Electric makes to Kalaeloa include: (1) a fuel component, with a fuel price adjustment based on the cost of low sulfur fuel oil, (2) a fuel additives cost component and (3) a non-fuel component, with an adjustment based on changes in the Gross National Product Implicit Price Deflator. The capacity payments that Hawaiian Electric makes to Kalaeloa are fixed in accordance with the PPA. Kalaeloa also has a steam delivery cogeneration contract with another customer, the term of which coincides with the PPA. The facility has been certified by the Federal Energy Regulatory Commission as a Qualifying Facility under the Public Utility Regulatory Policies Act of 1978.
Hawaiian Electric and Kalaeloa are in negotiations to address the PPA term that ended on May 23, 2016. On August 1, 2016, Hawaiian Electric and Kalaeloa entered into an agreement that neither party will give written notice of termination of the Kalaeloa PPA prior to October 31, 2017. The PPA automatically extends on a month-to-month basis as long as the parties are still negotiating in good faith. The month-to-month term extensions shall end 60 days after either party notifies the other in writing that negotiations have terminated.
AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amendment No. 2) for a period of 30 years beginning September 1992, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. In August 2012, Hawaiian Electric filed an application with the PUC seeking an exemption from the PUC’s Competitive Bidding Framework to negotiate an amendment to the PPA to purchase 186 MW of firm capacity, and amend the energy pricing formula in the PPA. The PUC approved the exemption in April 2013, but Hawaiian Electric and AES Hawaii were not able to reach an agreement on the amendment. In June 2015, AES Hawaii filed an arbitration demand regarding a dispute about whether Hawaiian Electric was obligated to buy up to 9 MW of additional capacity based on a 1992 letter. Hawaiian Electric responded to the arbitration demand and in October 2015, AES Hawaii and Hawaiian Electric entered into a Settlement Agreement to stay the arbitration proceeding. The Settlement Agreement included certain conditions precedent which, if satisfied, would have released the parties from the claims under the arbitration proceeding. Among the conditions precedent was the successful negotiation and PUC approval of an amendment to the existing PPA.

15


In November 2015, Hawaiian Electric entered into Amendment No. 3 for which PUC approval was requested and subsequently denied in January 2017. Approval of Amendment No. 3 would have satisfied the final condition for effectiveness of the Settlement Agreement and resolved AES Hawaii's claims. Following the PUC's decision, the parties agreed to extend the stay of the arbitration proceeding, while settlement discussions continue.
Hu Honua Bioenergy, LLC. In May 2012, Hawaii Electric Light signed a PPA, which the PUC approved in December 2013, with Hu Honua Bioenergy, LLC (Hu Honua) for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a facility on the island of Hawaii. Per the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016. However, Hu Honua encountered construction delays, failed to meet its obligations under the PPA and failed to provide adequate assurances that it could perform or had the financial means to perform. Hawaii Electric Light terminated the PPA on March 1, 2016. On November 30, 2016, Hu Honua filed a civil complaint in the United States District Court for the District of Hawaii that included claims purportedly arising out of the termination of Hu Honua’s PPA. On May 26, 2017, Hawaii Electric Light and Hu Honua entered into a settlement agreement that will settle all claims related to the termination of the original PPA. The settlement agreement was contingent on the PUC’s approval of an amended and restated PPA between Hawaii Electric Light and Hu Honua dated May 5, 2017. In July 2017, the PUC approved the amended and restated PPA. Hu Honua is expected to be on-line by the end of 2018.
Utility projects .   Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, or if PUC imposed caps on project costs are expected to be exceeded, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.
Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) Implementation Project. The Utilities submitted their Enterprise Information System Roadmap to the PUC in June 2014 and refiled an application for an ERP/EAM Implementation Project in July 2014 with an estimated cost of $82.4 million . In 2015, the PUC denied the request of the Utilities to defer the costs of the ERP software purchased in 2012 and these costs were written off in the third quarter of 2015.
On August 11, 2016, the PUC approved the Utilities’ request to commence the ERP/EAM Implementation Project, subject to certain conditions, including a $77.6 million cap on cost recovery as well as a requirement that the Utilities pass onto customers a minimum of $244 million in savings associated with the system over its 12 -year service life. The decision and order (D&O) approved the deferral of certain project costs and allowed the accrual of allowance for funds used during construction (AFUDC), but limited the AFUDC rate to 1.75% . Pursuant to the D&O and subsequent orders, the Utilities are required to file a bottom-up, low-level analysis of the project’s benefits; performance metrics and tracking mechanism for passing the project’s benefits on to customers by September 2017; and monthly reports on the status and costs of the project.
On March 31, 2017, the Utilities filed their proposed methods of passing on to customers the estimated monetary savings attributable to the project. These proposed methods continue to be reviewed by the PUC and Consumer Advocate. The ERP/EAM Implementation Project is on schedule. The project is expected to go live by October 1, 2018. As of June 30, 2017, the Project incurred costs of $14.0 million of which $2.5 million were charged to other operation and maintenance (O&M) expense, $1.1 million relate to capital costs and $10.4 million are deferred costs.
Schofield Generating Station Project. In August 2012, the PUC approved a waiver from the competitive bidding framework to allow Hawaiian Electric to negotiate with the U.S. Army for the construction of a 50 MW utility owned and operated firm, renewable and dispatchable generation facility at Schofield Barracks. In September 2015, the PUC approved Hawaiian Electric’s application to expend $167 million for the project. In approving the project, the PUC placed a cost cap of $167 million for the project, stated 90% of the cap is allowed for cost recovery through cost recovery mechanisms other than base rates, and stated the $167 million cap will be adjusted downward due to any reduction in the cost of the engine contract due to a reduction in the foreign exchange rate. Hawaiian Electric was required to take all necessary steps to lock in the lowest possible exchange rate. On January 5, 2016, Hawaiian Electric executed window forward contracts, which lowered the cost of the engine contract by $9.7 million , resulting in a revised project cost cap of $157.3 million . Hawaiian Electric has received all of the major permits for the project, including a 35 year site lease from the U.S. Army. Construction of the facility began in October 2016, and the facility is expected to be placed in service in the second quarter of 2018. Project costs incurred as of June 30, 2017 amounted to $87.8 million . The project costs have been included for recovery in the 2017 test year rate case.
West Loch PV Project. In July 2016, Hawaiian Electric announced plans to build, own and operate a utility-owned, grid-tied 20 -MW (ac) solar facility in conjunction with the Department of the Navy at a Navy/Air Force joint base. In June 2017, the PUC approved the expenditure of funds for the project, including Hawaiian Electric’s proposed project cost cap of $67 million and a performance guarantee to provide energy at 9.56 cents /KWH or less. Project costs incurred as of June 30, 2017 amounted to $0.4 million .

16


In approving the project, the PUC agreed the project is eligible for recovery of costs offset by related net benefits under the Major Project Interim Recovery (MPIR) guidelines (see “Decoupling” section below for MPIR guidelines). The PUC established a procedural schedule for Hawaiian Electric to provide supplemental materials to support meeting the MPIR guidelines for recovery of costs accompanied by system performance guarantee and cost savings sharing mechanisms and for the Consumer Advocate to review and comment on the information filed.  This is first instance in which the PUC is considering a request for recovery pursuant to the MPIR Guidelines.
Hamakua Energy Partners, L.P. (HEP) Asset Purchase Agreement . Hawaii Electric Light has been purchasing up to 60 MW (net) of firm capacity from HEP under a PPA that expires on December 30, 2030. The HEP plant currently contributes about 23% of the island of Hawaii’s generating capacity. In December 2015, Hawaii Electric Light entered into an agreement, subject to PUC approval, to acquire the assets of HEP for approximately $84.5 million . On May 4, 2017, the PUC denied Hawaii Electric Light’s application for approval of the Asset Purchase Agreement (APA) on the grounds that customer benefits were not sufficiently demonstrated to justify the purchase and in July 2017, Hawaii Electric Light and HEP terminated the APA.
Hawaiian Telcom . The Utilities each have separate agreements for the joint ownership and maintenance of utility poles with Hawaiian Telcom, Inc. (Hawaiian Telcom), the respective county or counties in which each utility operates and other third parties, such as the State of Hawaii. The agreements set forth various circumstances requiring pole removal/installation/replacement and the sharing of costs among the joint pole owners. The agreements allow for the cost of work done by one joint pole owner to be shared by the other joint pole owners based on the apportionment of costs in the agreements. The Utilities have maintained, replaced and installed the majority of the jointly-owned poles in each of the respective service territories, and have billed the other joint pole owners for their respective share of the costs. The counties and the State have been reimbursing the Utilities for their share of the costs. However, Hawaiian Telcom has been delinquent in reimbursing the Utilities for its share of the costs.
Hawaiian Electric has initiated a dispute resolution process to collect the unpaid amounts from Hawaiian Telcom as specified by the joint pole agreement. For Hawaii Electric Light, the agreement does not specify an alternative dispute resolution process, and thus a complaint for payment was filed with the Circuit Court in June 2016. Maui Electric has not yet commenced any legal action to recover the delinquent amounts. As of June 30, 2017 , total receivables under the joint pole agreement, including interest, from Hawaiian Telcom are $22.1 million ( $14.8 million at Hawaiian Electric, $6.0 million at Hawaii Electric Light, and $1.3 million at Maui Electric). Management expects to prevail on these claims but has reserved for the accrued interest of $4.9 million on the receivables.
Environmental regulation .  The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances.
Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases into the environment associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.
Former Molokai Electric Company generation site .  In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. Although Maui Electric never operated at the Site or owned the Site property, after discussions with the EPA and the Hawaii Department of Health (DOH), Maui Electric agreed to undertake additional investigations at the Site and an adjacent parcel that Molokai Electric Company had used for equipment storage (the Adjacent Parcel) to determine the extent of environmental contamination. A 2011 assessment by a Maui Electric contractor of the Adjacent Parcel identified environmental impacts, including elevated polychlorinated biphenyls (PCBs) in the subsurface soils. In cooperation with the DOH and EPA, Maui Electric is further investigating the Site and the Adjacent Parcel to determine the extent of impacts of PCBs, residual fuel oils and other subsurface contaminants. Maui Electric has a reserve balance of $3.5 million as of June 30, 2017 , representing the probable and reasonably estimated cost to complete the additional investigation and estimated cleanup costs at the Site and the Adjacent Parcel; however, final costs of remediation will depend on the results of continued investigation.
Pearl Harbor sediment study . In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is a Potentially Responsible Party responsible for cleanup of PCB contamination in sediment in the area offshore of the Waiau Power Plant as part of the Pearl Harbor Superfund Site. The Navy has also requested that Hawaiian Electric reimburse the costs incurred by the Navy to investigate the area. The Navy has completed a remedial investigation and a feasibility study (FS) for the remediation of contaminated sediment at several locations in Pearl Harbor and issued its Final

17


FS Report on June 29, 2015. On February 2, 2016, the Navy released the Proposed Plan for Pearl Harbor Sediment Remediation and Hawaiian Electric submitted comments. The extent of the contamination, the appropriate remedial measures to address it and Hawaiian Electric’s potential responsibility for any associated costs have not been determined.
On March 23, 2015, Hawaiian Electric received a letter from the EPA requesting that Hawaiian Electric submit a work plan to assess potential sources and extent of PCB contamination onshore at the Waiau Power Plant. Hawaiian Electric submitted a sampling and analysis (SAP) work plan to the EPA and the DOH. Onshore sampling at the Waiau Power Plant was completed in two phases in December 2015 and June 2016. The extent of the onshore contamination, the appropriate remedial measures to address it and any associated costs have not yet been determined.
As of June 30, 2017 , the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $4.9 million . The reserve represents the probable and reasonably estimable cost to complete the onshore and offshore investigations and the remediation of PCB contamination in the offshore sediment. The final remediation costs will depend on the results of the onshore investigation and assessment of potential source control requirements, as well as the further investigation of contaminated sediment offshore from the Waiau Power Plant.
Regulatory proceedings
April 2014 regulatory orders. In April 2014, the PUC issued four orders that collectively address certain key policy, resource planning and operational issues for the Utilities. The Utilities addressed these orders as follows:
Integrated Resource Planning . The PUC did not accept the Utilities’ Integrated Resource Plan and Action Plans submission, and, in lieu of an approved plan, has commenced other initiatives to enable resource planning. The PUC directed each of Hawaiian Electric and Maui Electric to file their respective Power Supply Improvement Plans (PSIPs), which they did in August 2014. The PUC also provided its inclinations on the future of Hawaii’s electric utilities in an exhibit to the order. The exhibit provides the PUC’s perspectives on the vision, business strategies and regulatory policy changes required to align the Utilities' business model with customers’ interests and the state’s public policy goals.
Reliability Standards Working Group . The PUC ordered the Utilities to take timely actions intended to lower energy costs, improve system reliability and address emerging challenges to integrate additional renewable energy. In addition to the PSIPs mentioned above, the PUC ordered certain filing requirements, including a Distributed Generation Interconnection Plan, which the Utilities filed in August 2014.
The PUC also stated it would be opening new dockets to address (1) reliability standards, (2) the technical, economic and policy issues associated with distributed energy resources (DER) and (3) the Hawaii electricity reliability administrator, which is a third party position which the legislature has authorized the PUC to create by contract to provide support for the PUC in developing and periodically updating local grid reliability standards and procedures and interconnection requirements and overseeing grid access and operation. The PUC has not yet opened new dockets to address the first and third topics above. To address DER, the second topic, the PUC opened an investigative proceeding on August 21, 2014 (see “DER Investigative Proceeding” below).
Policy Statement and Order Regarding Demand Response Programs . The PUC provided guidance concerning the objectives and goals for demand response programs, and ordered the Utilities to develop an integrated Demand Response (DR) Portfolio Plan that will enhance system operations and reduce costs to customers. The Utilities’ Plan was filed in July 2014. Subsequently, the Utilities submitted status updates and an update and supplemental report to the Plan. In July 2015, the PUC issued an order appointing a special adviser to guide, monitor and review the Utility’s Plan design and implementation. In December 2015, the Utilities filed applications with the PUC (1) for approval of their proposed DR Portfolio Tariff Structure, Reporting Schedule and Cost Recovery of Program Costs and (2) for approval to defer and recover certain computer software and software development costs for a DR Management System through the Renewable Energy Infrastructure Program (REIP) Surcharge. The Utilities filed an updated DR Portfolio Plan in February 2017. In May 2017, the Utilities filed their reply to the statements of position submitted by the other parties and are awaiting a PUC decision.
In the DR Management System proceeding, the parties filed statements of position in December 2016 and are awaiting a PUC decision.
Review of PSIPs . Collectively, the PUC's April 2014 resource planning orders confirm the energy policy and operational priorities that will guide the Utilities' strategies and plans going forward.
In August 2014, the Utilities filed proposed PSIPs with the PUC, as required by the PUC orders issued in April 2014. Updated PSIPs were filed in April 2016, pursuant to an order issued by the PUC in November 2015 which included the PUC’s observations and concerns, and comments provided by parties and participants. The Updated PSIPs provided plans to achieve 100% renewable energy using a diverse mix of energy resources by 2045. Under these plans, the Utilities support sustainable

18


growth of private rooftop solar, expand use of energy storage systems, empower customers by developing smart grids and offer new products and services to customers (e.g., community solar, microgrids and voluntary “demand response” programs). In December 2016, the Utilities filed a PSIP Update Report as ordered by the PUC. The updated plans describe greater and faster expansion of the Utilities’ renewable energy portfolio than in the plans filed in April 2016, and emphasize work that is in progress or planned over the next five years on each of the five islands the Utilities serve. The plans include the continued growth of private rooftop solar and describe the grid and generation modernization work needed to reliably integrate an estimated total of 165,000 private systems by 2030, more than double today’s total of 79,000 , and additional grid-scale renewable energy resources.
On July 14, 2017, the PUC accepted the Utilities’ PSIP December 2016 Update Report and closed the proceeding. In its order, the PUC provided guidance regarding the implementation of the Utilities’ near-term action plan and future planning activities, requiring the Utilities to file a report that details an updated resource planning approach and schedule by March 1, 2018. The PUC order stated that it intends to use the PSIPs in conjunction with its evaluation of specific filings for approval of capital and other projects.
DER investigative proceedin g. In March 2015, the PUC issued an order to address DER issues.
On June 29, 2015, the Utilities submitted their final Statement of Position in the DER proceeding, which included:
(1)
new pricing provisions for future private rooftop photovoltaic (PV) systems,
(2)
technical standards for advanced inverters,
(3)
new options for customers including battery-equipped private rooftop PV systems,
(4)
a pilot time-of-use rate,
(5)
an improved method of calculating the amount of private rooftop PV that can be safely installed, and
(6)
a streamlined and standardized PV application process.
On October 12, 2015, the PUC issued a D&O establishing DER reforms that: (1) promote rapid adoption of the next generation of solar PV and other distributed energy technologies; (2) encourage more competitive pricing of distributed energy resource systems; (3) lower overall energy supply costs for all customers; and (4) help to manage DER in terms of each island’s limited grid capacity.
The D&O capped the Utilities Net Energy Metering (NEM) programs at “existing” levels (i.e., for existing NEM customers and customers who already applied and were waiting for approval), closed their NEM programs to new participants, and approved new options for customers to interconnect DER to their electric grids, including Self Supply and Grid Supply tariff options.  The PUC placed caps on the availability of the Grid Supply program.  The Self Supply Program is designed for customers who do not export to the grid.
In June 2016, the PUC approved the Utilities Advanced Inverter Test Plan and the Utilities submitted the results of the testing to the PUC.
Pursuant to a PUC order, in October 2016, the Utilities submitted tariffs for a Residential Interim Time of Use program, which is limited to 2 years and 5,000 customers. The primary objective is to encourage more efficient use of the electric system and enable more cost-effective integration of renewable energy by shifting customer load from the system’s higher cost, peak demand period to the mid-day period when relatively inexpensive renewable resources are abundant.
The DER Phase 2 of this proceeding is focused on further developing competitive markets for distributed energy resources, including storage. On December 9, 2016, the PUC issued an order, establishing the statement of issues and procedural schedule to govern Phase 2 of this proceeding. Technical track issues, including DER integration analyses and revisions to interconnection standards, will be addressed before the end of 2017. More complex market issues will be addressed in late 2018.
Pursuant to PUC order, in January and February 2017, the Utilities and various DER parties submitted tariff proposals and stipulations to modify existing interim DER option and proposals, and interconnection standards to facilitate or enable interim DER options, as well as provided comments and reply comments on such tariff proposals.
In May 2017, the PUC issued a D&O that approved the parties’ stipulations filed in January and February 2017.  This D&O also instructed the development of smart export proposals and Customer Self-Supply revisions, directed working groups to collaborate to discuss Phase 2 issues, and modified the procedural schedule.  In compliance with the D&O, the Utilities are meeting regularly with the DER parties in various working groups, and preparing for the next upcoming filing on technical track issues on August 7, 2017.

19


Decoupling . Decoupling is a regulatory model that is intended to facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. The decoupling model implemented in Hawaii delinks revenues from sales and includes annual rate adjustments. The decoupling mechanism has three components: (1) a sales decoupling component via a revenue balancing account (RBA), (2) a revenue escalation component via a rate adjustment mechanism (RAM) and (3) an earnings sharing mechanism, which would provide for a reduction of revenues between rate cases in the event the utility exceeds the return on average common equity (ROACE) allowed in its most recent rate case. Decoupling provides for more timely cost recovery and earning on investments.
For the RAM years 2014 - 2016, Hawaiian Electric was allowed to record RAM revenue beginning on January 1 and to bill such amounts from June 1 of the applicable year through May 31 of the following year (current accrual method). Subsequent to 2016, Hawaiian Electric reverted to the RAM provisions initially approved in March 2011—i.e., RAM is both accrued and billed from June 1 of each year through May 31 of the following year.
2015 decoupling order . On March 31, 2015, the PUC issued an Order (the 2015 Decoupling Order) that modified the RAM portion of the decoupling mechanism to be capped at the lesser of the RAM revenue adjustment as then determined (based on an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes) and a RAM revenue adjustment calculated based on the cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). The 2015 Decoupling Order provided a specific basis for calculating the target revenues until the next rate case, at which time the target revenues will reset. The triennial rate case cycle required under the decoupling mechanism continues to serve as the maximum period between the filing of general rate cases.
The RAM Cap impacted the Utilities' recovery of capital investments as follows:
•
Hawaiian Electric's RAM revenues were limited to the RAM Cap in 2015, 2016 and 2017.
•
Maui Electric's RAM revenues were limited to the RAM Cap in 2015 and 2016; however, the 2017 RAM revenues were below the RAM Cap.
•
Hawaii Electric Light’s RAM revenues were below the RAM Cap in 2015, 2016 and 2017.
2017 decoupling order . On April 27, 2017, the PUC issued an Order (the 2017 Decoupling Order) that requires the establishment of specific performance incentive mechanisms and provides guidelines for interim recovery of revenues to support major projects placed in service between general rate cases.
On May 30, 2017, the Utilities filed their proposed initial tariffs to implement conventional stand-alone performance incentive mechanisms. The performance incentive mechanisms to be established are:
•
Service reliability performance standards to include: 1) System Average Interruption Duration Index based on the average customer interruption time and 2) System Average Interruption Frequency Index based on the average number of customer interruptions. Target performance for each is based on each utilities’ historical 10 year average performance with a dead band of one standard deviation. The maximum penalty for each is 20 basis points applied to the common equity share of the rate base approved in the last rate case for each company. However, the maximum penalty for the initial implementation of the approved PIMs would be the 20 basis points applied to the common equity share of rate base used to determine the 2016 RAM Revenue Adjustment (or approximately $3 million for each of the standards in total for the three utilities). The maximum penalty will be updated upon issuance of an interim or final order in a rate case for each company and will remain constant in interim periods. These performance standards have penalties only.
•
Call Center Performance based on utility call center percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a dead band of 3% above and below the target. The maximum penalty or incentive is 8 basis points applied to the common equity share of the rate base approved in the last rate case for each company, except for the initial implementation which will be 8 basis points applied to the common equity share of rate base used to determine the 2016 RAM Revenue Adjustment (or approximately $1.2 million penalty or incentive in total for the three utilities).
The 2017 Decoupling Order also established guidelines for MPIR. Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $2.5 million ), including but not restricted to renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for net costs of approved eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case and all costs that are allowed to be recovered through the MPIR adjustment mechanism shall be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff.

20


In the 2017 Decoupling Order, the PUC indicated that in pending and subsequent rate cases, the PUC intends to require all fuel expenses and purchased energy expenses be recovered through an appropriately modified energy cost adjustment mechanism rather than through base rates, and will consider adopting processes to periodically reset fuel efficiency measures embedded in the energy cost adjustment mechanism to account for changes in the generating system.
Annual decoupling filings . On March 31, 2017, the Utilities submitted to the PUC, their annual decoupling filings for tariffed rates that will be effective from June 1, 2017, through May 31, 2018. On May 22, 2017, Maui Electric amended its annual decoupling filing to update and revise certain cost information. The net annual incremental amounts proposed to be collected (refunded), as revised for Maui Electric, were as follows:
($ in millions)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
2017 Annual incremental RAM adjusted revenues
 
$
12.7

 
$
3.2

 
$
1.6

Annual change in accrued earnings sharing credits
 
$
—

 
$
—

 
$
—

Annual change in accrued RBA balance as of December 31, 2016 (and associated revenue taxes) (refunded)
 
$
(2.4
)
 
$
(2.5
)
 
$
(0.2
)
Net annual incremental amount to be collected under the tariffs
 
$
10.3

 
$
0.7

 
$
1.4

Impact on typical residential customer monthly bill (in dollars) *
 
$
0.60

 
$
0.15

 
$
0.79

* Based on a 500 kilowatthour (KWH) bill for Hawaiian Electric, Maui Electric, and Hawaii Electric Light. The bill impact for Lanai and Molokai customers is expected to be an increase of $ 0.63 , based on a 400 KWH bill.
On May 31, 2017, the PUC approved the annual decoupling filings for Hawaiian Electric and Hawaii Electric Light, and as amended on May 22, 2017, for Maui Electric, which went into effect on June 1, 2017.
Hawaiian Electric consolidated 2014 test year abbreviated and 2017 test year rate cases . On December 23, 2016, the PUC issued an order consolidating the Hawaiian Electric filings for the 2014 test year abbreviated rate case and the 2017 test year rate case. The order also found and concluded that Hawaiian Electric's abbreviated 2014 rate case filing did not comply with: (1) the Mandatory Triennial Rate Case Cycle requirement in the decoupling order that Hawaiian Electric file an application for a general rate case every three years and (2) the requirement that Hawaiian Electric file its 2014 calendar test year rate case application by June 27, 2014. The order then stated that: “[T]he determination and disposition of any rates, accounts, adjustment mechanisms, and practices that would have been subject to review in the context of a 2014 test year rate case proceeding are subject to appropriate adjustment based on evidence and findings in the consolidated rate case proceeding.”
On January 4, 2017, Hawaiian Electric filed a motion for clarification and/or partial reconsideration of the PUC’s order. On March 14, 2017, the PUC issued an order to address Hawaiian Electric’s motion, stating that the PUC is not initiating an investigation/enforcement proceeding against Hawaiian Electric regarding its compliance with the decoupling order, and the transfer and consolidation of Hawaiian Electric’s 2014 abbreviated rate case with the 2017 rate case is intended to ensure that ratepayers receive the attendant benefits of Hawaiian Electric’s decision to voluntarily forgo a general rate increase in base rates for its mandated 2014 test year. As directed, on April 12, 2017, Hawaiian Electric filed a supplement to its 2017 rate case filing, addressing the items raised in the order and explaining why Hawaiian Electric’s forgoing of a general rate increase in the 2014 test year should not result in any further adjustments to Hawaiian Electric’s revenue requirement in the 2017 test year.
On April 26, 2017, the PUC issued an Order regarding the supplement to Hawaiian Electric’s 2017 rate case filing, requesting updated pension and OPEB regulatory asset and liability schedules, by May 12, 2017, to reflect the use of the 2014 net periodic pension cost (NPPC) and net periodic benefits costs (NPBC) for the pension and OPEB tracking mechanisms and with amortization of such regulatory assets and liabilities beginning May 1, 2015. On May 12, 2017, Hawaiian Electric filed these schedules and on May 31, 2017, supplemented its May 12, 2017 filing to show the cumulative impact of the 2015-2017 change in employee benefits transferred to capital as a result of the change in the amortization of the pension and OPEB regulatory assets and liabilities.
On June 28, 2017, the PUC issued an order designating the filing date of Hawaiian Electric’s completed rate case application to be May 31, 2017, rather than December 16, 2016, the date of the filing of Hawaiian Electric’s rate case application. The revised date of the completed application coincided with the date that Hawaiian Electric filed supplemental pension-related information described above. On July 28, 2017, the PUC issued a procedural schedule with an interim D&O tentatively scheduled for December 15, 2017, and an evidentiary hearing in early March 2018.
Condensed consolidating financial information. Hawaiian Electric is not required to provide separate financial statements or other disclosures concerning Hawaii Electric Light and Maui Electric to holders of the 2004 Debentures issued by Hawaii Electric Light and Maui Electric to Trust III since all of their voting capital stock is owned, and their obligations with respect to these

21


securities have been fully and unconditionally guaranteed, on a subordinated basis, by Hawaiian Electric. Consolidating information is provided below for Hawaiian Electric and each of its subsidiaries for the periods ended and as of the dates indicated.
Hawaiian Electric also unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric, (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder and (c) relating to the trust preferred securities of Trust III. Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend, redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is unable to make such payments.

22


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income (unaudited)
Three months ended June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other subsidiaries
 
Consolidating adjustments
 
Hawaiian Electric
Consolidated
Revenues
 
$
394,414

 
81,710

 
80,765

 
—

 
(14
)
 
$
556,875

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Fuel oil
 
99,814

 
14,475

 
26,970

 
—

 
—

 
141,259

Purchased power
 
116,458

 
23,482

 
13,127

 
—

 
—

 
153,067

Other operation and maintenance
 
70,961

 
17,558

 
17,855

 
—

 
—

 
106,374

Depreciation
 
32,723

 
9,686

 
5,747

 
—

 
—

 
48,156

Taxes, other than income taxes
 
37,619

 
7,702

 
7,651

 
—

 
—

 
52,972

   Total expenses
 
357,575

 
72,903

 
71,350

 
—

 
—

 
501,828

Operating income
 
36,839

 
8,807

 
9,415

 
—

 
(14
)
 
55,047

Allowance for equity funds used during construction
 
2,659

 
134

 
234

 
—

 
—

 
3,027

Equity in earnings of subsidiaries
 
7,936

 
—

 
—

 
—

 
(7,936
)
 
—

Interest expense and other charges, net
 
(12,562
)
 
(2,996
)
 
(2,670
)
 
—

 
14

 
(18,214
)
Allowance for borrowed funds used during construction
 
988

 
55

 
100

 
—

 
—

 
1,143

Income before income taxes
 
35,860

 
6,000

 
7,079

 
—

 
(7,936
)
 
41,003

Income taxes
 
9,946

 
2,235

 
2,679

 
—

 
—

 
14,860

Net income
 
25,914

 
3,765

 
4,400

 
—

 
(7,936
)
 
26,143

Preferred stock dividends of subsidiaries
 
—

 
133

 
96

 
—

 
—

 
229

Net income attributable to Hawaiian Electric
 
25,914

 
3,632

 
4,304

 
—

 
(7,936
)
 
25,914

Preferred stock dividends of Hawaiian Electric
 
270

 
—

 
—

 
—

 
—

 
270

Net income for common stock
 
$
25,644

 
3,632

 
4,304

 
—

 
(7,936
)
 
$
25,644


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income (unaudited)
Three months ended June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Net income for common stock
 
$
25,644

 
3,632

 
4,304

 
—

 
(7,936
)
 
$
25,644

Other comprehensive income (loss), net of taxes:
 
 

 
 

 
 

 
 

 
 

 
 

Derivatives qualified as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment to net income, net of tax benefits
 
—

 
—

 
—

 
—

 
—

 
—

Retirement benefit plans:
 
 

 
 

 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits
 
3,621

 
449

 
344

 
—

 
(793
)
 
3,621

Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes
 
(3,581
)
 
(448
)
 
(343
)
 
—

 
791

 
(3,581
)
Other comprehensive income (loss), net of taxes
 
40

 
1

 
1

 
—

 
(2
)
 
40

Comprehensive income attributable to common shareholder
 
$
25,684

 
3,633

 
4,305

 
—

 
(7,938
)
 
$
25,684


23


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income (unaudited)
Three months ended June 30, 2016

(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other subsidiaries
 
Consolidating adjustments
 
Hawaiian Electric
Consolidated
Revenues
 
$
347,010

 
73,652

 
74,758

 
—

 
(25
)
 
$
495,395

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Fuel oil
 
62,234

 
11,748

 
17,917

 
—

 
—

 
91,899

Purchased power
 
103,062

 
19,360

 
16,636

 
—

 
—

 
139,058

Other operation and maintenance
 
68,197

 
15,116

 
16,250

 
—

 
—

 
99,563

Depreciation
 
31,522

 
9,449

 
5,789

 
—

 
—

 
46,760

Taxes, other than income taxes
 
33,414

 
6,905

 
7,110

 
—

 
—

 
47,429

   Total expenses
 
298,429

 
62,578

 
63,702

 
—

 
—

 
424,709

Operating income
 
48,581

 
11,074

 
11,056

 
—

 
(25
)
 
70,686

Allowance for equity funds used during construction
 
1,559

 
206

 
232

 
—

 
—

 
1,997

Equity in earnings of subsidiaries
 
10,883

 
—

 
—

 
—

 
(10,883
)
 
—

Interest expense and other charges, net
 
(10,345
)
 
(2,669
)
 
(2,114
)
 
—

 
25

 
(15,103
)
Allowance for borrowed funds used during construction
 
587

 
79

 
94

 
—

 
—

 
760

Income before income taxes
 
51,265

 
8,690

 
9,268

 
—

 
(10,883
)
 
58,340

Income taxes
 
15,138

 
3,337

 
3,509

 
—

 
—

 
21,984

Net income
 
36,127

 
5,353

 
5,759

 
—

 
(10,883
)
 
36,356

Preferred stock dividends of subsidiaries
 
—

 
133

 
96

 
—

 
—

 
229

Net income attributable to Hawaiian Electric
 
36,127

 
5,220

 
5,663

 
—

 
(10,883
)
 
36,127

Preferred stock dividends of Hawaiian Electric
 
270

 
—

 
—

 
—

 
—

 
270

Net income for common stock
 
$
35,857

 
5,220

 
5,663

 
—

 
(10,883
)
 
$
35,857


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income (unaudited)
Three months ended June 30, 2016
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries 
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Net income   for common stock
 
$
35,857

 
5,220

 
5,663

 
—

 
(10,883
)
 
$
35,857

Other comprehensive income (loss), net of taxes:
 
 

 
 

 
 

 
 

 
 

 
 

Derivatives qualified as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Effective portion of foreign currency hedge net unrealized loss, net of tax benefits
 
(745
)
 
—

 
—

 
—

 
—

 
(745
)
Retirement benefit plans:
 
 

 
 

 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits
 
3,391

 
401

 
357

 
—

 
(758
)
 
3,391

Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes
 
(3,401
)
 
(402
)
 
(359
)
 
—

 
761

 
(3,401
)
Other comprehensive income (loss), net of taxes
 
(755
)
 
(1
)
 
(2
)
 
—

 
3

 
(755
)
Comprehensive income attributable to common shareholder
 
$
35,102

 
5,219

 
5,661

 
—

 
(10,880
)
 
$
35,102


24


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income (unaudited)
Six months ended June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other subsidiaries
 
Consolidating adjustments
 
Hawaiian Electric
Consolidated
Revenues
 
$
757,257

 
160,692

 
157,558

 
—

 
(21
)
 
$
1,075,486

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Fuel oil
 
197,815

 
31,732

 
55,982

 
—

 
—

 
285,529

Purchased power
 
216,605

 
42,071

 
21,515

 
—

 
—

 
280,191

Other operation and maintenance
 
138,239

 
33,074

 
35,301

 
—

 
—

 
206,614

Depreciation
 
65,445

 
19,371

 
11,556

 
—

 
—

 
96,372

Taxes, other than income taxes
 
72,659

 
15,152

 
14,984

 
—

 
—

 
102,795

   Total expenses
 
690,763

 
141,400

 
139,338

 
—

 
—

 
971,501

Operating income
 
66,494

 
19,292

 
18,220

 
—

 
(21
)
 
103,985

Allowance for equity funds used during construction
 
4,715

 
249

 
462

 
—

 
—

 
5,426

Equity in earnings of subsidiaries
 
16,539

 
—

 
—

 
—

 
(16,539
)
 
—

Interest expense and other charges, net
 
(24,619
)
 
(6,000
)
 
(5,120
)
 
—

 
21

 
(35,718
)
Allowance for borrowed funds used during construction
 
1,737

 
100

 
195

 
—

 
—

 
2,032

Income before income taxes
 
64,866

 
13,641

 
13,757

 
—

 
(16,539
)
 
75,725

Income taxes
 
17,217

 
5,158

 
5,243

 
—

 
—

 
27,618

Net income
 
47,649

 
8,483

 
8,514

 
—

 
(16,539
)
 
48,107

Preferred stock dividends of subsidiaries
 
—

 
267

 
191

 
—

 
—

 
458

Net income attributable to Hawaiian Electric
 
47,649

 
8,216

 
8,323

 
—

 
(16,539
)
 
47,649

Preferred stock dividends of Hawaiian Electric
 
540

 
—

 
—

 
—

 
—

 
540

Net income for common stock
 
$
47,109

 
8,216

 
8,323

 
—

 
(16,539
)
 
$
47,109


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income (unaudited)
Six months ended June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Net income for common stock
 
$
47,109

 
8,216

 
8,323

 
—

 
(16,539
)
 
$
47,109

Other comprehensive income (loss), net of taxes:
 
 

 
 

 
 

 
 

 
 

 
 

Derivatives qualifying as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Reclassification adjustment to net income, net of tax benefits
 
454

 
—

 
—

 
—

 
—

 
454

Retirement benefit plans:
 
 

 
 

 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits
 
7,239

 
952

 
810

 
—

 
(1,762
)
 
7,239

Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes
 
(7,194
)
 
(951
)
 
(810
)
 
—

 
1,761

 
(7,194
)
Other comprehensive income (loss), net of taxes
 
499

 
1

 
—

 
—

 
(1
)
 
499

Comprehensive income attributable to common shareholder
 
$
47,608

 
8,217

 
8,323

 
—

 
(16,540
)
 
$
47,608


25


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income (unaudited)
Six months ended June 30, 2016
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other subsidiaries
 
Consolidating adjustments
 
Hawaiian Electric
Consolidated
Revenues
 
$
684,185

 
146,835

 
146,464

 
—

 
(37
)
 
$
977,447

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Fuel oil
 
136,319

 
26,122

 
43,198

 
—

 
—

 
205,639

Purchased power
 
194,979

 
36,157

 
23,781

 
—

 
—

 
254,917

Other operation and maintenance
 
137,755

 
31,557

 
34,159

 
—

 
—

 
203,471

Depreciation
 
63,044

 
18,898

 
11,599

 
—

 
—

 
93,541

Taxes, other than income taxes
 
66,098

 
13,796

 
13,973

 
—

 
—

 
93,867

   Total expenses
 
598,195

 
126,530

 
126,710

 
—

 
—

 
851,435

Operating income
 
85,990

 
20,305

 
19,754

 
—

 
(37
)
 
126,012

Allowance for equity funds used during construction
 
2,965

 
333

 
438

 
—

 
—

 
3,736

Equity in earnings of subsidiaries
 
18,812

 
—

 
—

 
—

 
(18,812
)
 
—

Interest expense and other charges, net
 
(22,210
)
 
(5,634
)
 
(4,604
)
 
—

 
37

 
(32,411
)
Allowance for borrowed funds used during construction
 
1,116

 
128

 
178

 
—

 
—

 
1,422

Income before income taxes
 
86,673

 
15,132

 
15,766

 
—

 
(18,812
)
 
98,759

Income taxes
 
24,909

 
5,683

 
5,945

 
—

 
—

 
36,537

Net income
 
61,764

 
9,449

 
9,821

 
—

 
(18,812
)
 
62,222

Preferred stock dividends of subsidiaries
 
—

 
267

 
191

 
—

 
—

 
458

Net income attributable to Hawaiian Electric
 
61,764

 
9,182

 
9,630

 
—

 
(18,812
)
 
61,764

Preferred stock dividends of Hawaiian Electric
 
540

 
—

 
—

 
—

 
—

 
540

Net income for common stock
 
$
61,224

 
9,182

 
9,630

 
—

 
(18,812
)
 
$
61,224


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income (unaudited)
Six months ended June 30, 2016
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries 
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Net income   for common stock
 
$
61,224

 
9,182

 
9,630

 
—

 
(18,812
)
 
$
61,224

Other comprehensive income, net of taxes:
 
 

 
 

 
 

 
 

 
 

 
 

Derivatives qualifying as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Effective portion of foreign currency hedge net unrealized gain, net of taxes
 
257

 
—

 
—

 
—

 
—

 
257

Retirement benefit plans:
 
 

 
 

 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits
 
6,627

 
859

 
775

 
—

 
(1,634
)
 
6,627

Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes
 
(6,623
)
 
(860
)
 
(777
)
 
—

 
1,637

 
(6,623
)
Other comprehensive income, net of taxes
 
261

 
(1
)
 
(2
)
 
—

 
3

 
261

Comprehensive income attributable to common shareholder
 
$
61,485

 
9,181

 
9,628

 
—

 
(18,809
)
 
$
61,485


26


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet (unaudited)
June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consoli-
dating
adjustments
 
Hawaiian Electric
Consolidated
Assets
 
 

 
 

 
 

 
 

 
 

 
 

Property, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
Utility property, plant and equipment
 
 

 
 

 
 

 
 

 
 

 
 

Land
 
$
43,971

 
6,191

 
3,016

 
—

 
—

 
$
53,178

Plant and equipment
 
4,318,460

 
1,267,529

 
1,125,429

 
—

 
—

 
6,711,418

Less accumulated depreciation
 
(1,423,042
)
 
(518,266
)
 
(488,789
)
 
—

 
—

 
(2,430,097
)
Construction in progress
 
232,965

 
16,734

 
22,739

 
—

 
—

 
272,438

Utility property, plant and equipment, net
 
3,172,354

 
772,188

 
662,395

 
—

 
—

 
4,606,937

Nonutility property, plant and equipment, less accumulated depreciation
 
5,763

 
115

 
1,532

 
—

 
—

 
7,410

Total property, plant and equipment, net
 
3,178,117

 
772,303

 
663,927

 
—

 
—

 
4,614,347

Investment in wholly owned subsidiaries, at equity
 
553,764

 
—

 
—

 
—

 
(553,764
)
 
—

Current assets
 
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
29,988

 
7,104

 
5,389

 
101

 
—

 
42,582

Advances to affiliates
 
—

 
4,100

 
1,000

 
—

 
(5,100
)
 
—

Customer accounts receivable, net
 
88,614

 
18,847

 
18,700

 
—

 
—

 
126,161

Accrued unbilled revenues, net
 
74,640

 
14,166

 
14,790

 
—

 
—

 
103,596

Other accounts receivable, net
 
9,707

 
2,471

 
1,042

 
—

 
(9,536
)
 
3,684

Fuel oil stock, at average cost
 
51,489

 
8,135

 
12,768

 
—

 
—

 
72,392

Materials and supplies, at average cost
 
30,716

 
8,852

 
17,531

 
—

 
—

 
57,099

Prepayments and other
 
25,695

 
7,294

 
3,602

 
—

 
(251
)
 
36,340

Regulatory assets
 
65,891

 
3,981

 
4,295

 
—

 
—

 
74,167

Total current assets
 
376,740

 
74,950

 
79,117

 
101

 
(14,887
)
 
516,021

Other long-term assets
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory assets
 
638,480

 
119,108

 
106,522

 
—

 
—

 
864,110

Unamortized debt expense
 
497

 
84

 
109

 
—

 
—

 
690

Other
 
48,164

 
13,778

 
14,045

 
—

 
—

 
75,987

Total other long-term assets
 
687,141

 
132,970

 
120,676

 
—

 
—

 
940,787

Total assets
 
$
4,795,762

 
980,223

 
863,720

 
101

 
(568,651
)
 
$
6,071,155

Capitalization and liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Capitalization
 
 

 
 

 
 

 
 

 
 

 
 

Common stock equity
 
$
1,803,506

 
291,760

 
261,903

 
101

 
(553,764
)
 
$
1,803,506

Cumulative preferred stock—not subject to mandatory redemption
 
22,293

 
7,000

 
5,000

 
—

 
—

 
34,293

Long-term debt, net
 
915,208

 
213,677

 
189,960

 
—

 
—

 
1,318,845

Total capitalization
 
2,741,007

 
512,437

 
456,863

 
101

 
(553,764
)
 
3,156,644

Current liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Short-term borrowings from non-affiliates
 
43,990

 
—

 
—

 
—

 
—

 
43,990

Short-term borrowings from affiliate
 
5,100

 
—

 
—

 
—

 
(5,100
)
 
—

Accounts payable
 
123,986

 
19,796

 
18,593

 
—

 
—

 
162,375

Interest and preferred dividends payable
 
13,584

 
3,806

 
2,113

 
—

 
(6
)
 
19,497

Taxes accrued
 
98,156

 
23,394

 
20,964

 
—

 
(251
)
 
142,263

Regulatory liabilities
 
126

 
713

 
2,044

 
—

 
—

 
2,883

Other
 
38,964

 
8,920

 
14,786

 
—

 
(9,530
)
 
53,140

Total current liabilities
 
323,906

 
56,629

 
58,500

 
—

 
(14,887
)
 
424,148

Deferred credits and other liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Deferred income taxes
 
542,109

 
111,616

 
106,023

 
—

 
224

 
759,972

Regulatory liabilities
 
297,006

 
98,844

 
32,897

 
—

 
—

 
428,747

Unamortized tax credits
 
59,537

 
16,246

 
15,603

 
—

 
—

 
91,386

Defined benefit pension and other postretirement benefit plans liability
 
435,614

 
73,246

 
78,858

 
—

 
—

 
587,718

Other
 
49,798

 
13,803

 
15,959

 
—

 
(224
)
 
79,336

Total deferred credits and other liabilities
 
1,384,064

 
313,755

 
249,340

 
—

 
—

 
1,947,159

Contributions in aid of construction
 
346,785

 
97,402

 
99,017

 
—

 
—

 
543,204

Total capitalization and liabilities
 
$
4,795,762

 
980,223

 
863,720

 
101

 
(568,651
)
 
$
6,071,155


27


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet (unaudited)
December 31, 2016
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consoli-
dating
adjustments
 
Hawaiian Electric
Consolidated
Assets
 
 

 
 

 
 

 
 

 
 

 
 

Property, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
Utility property, plant and equipment
 
 

 
 

 
 

 
 

 
 

 
 

Land
 
$
43,956

 
6,181

 
3,016

 
—

 
—

 
$
53,153

Plant and equipment
 
4,241,060

 
1,255,185

 
1,109,487

 
—

 
—

 
6,605,732

Less accumulated depreciation
 
(1,382,972
)
 
(507,666
)
 
(478,644
)
 
—

 
—

 
(2,369,282
)
Construction in progress
 
180,194

 
12,510

 
19,038

 
—

 
—

 
211,742

Utility property, plant and equipment, net
 
3,082,238

 
766,210

 
652,897

 
—

 
—

 
4,501,345

Nonutility property, plant and equipment, less accumulated depreciation
 
5,760

 
115

 
1,532

 
—

 
—

 
7,407

Total property, plant and equipment, net
 
3,087,998

 
766,325

 
654,429

 
—

 
—

 
4,508,752

Investment in wholly owned subsidiaries,   at equity
 
550,946

 
—

 
—

 
—

 
(550,946
)
 
—

Current assets
 
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
61,388

 
10,749

 
2,048

 
101

 
—

 
74,286

Advances to affiliates
 
—

 
3,500

 
10,000

 
—

 
(13,500
)
 
—

Customer accounts receivable, net
 
86,373

 
20,055

 
17,260

 
—

 
—

 
123,688

Accrued unbilled revenues, net
 
65,821

 
13,564

 
12,308

 
—

 
—

 
91,693

Other accounts receivable, net
 
7,652

 
2,445

 
1,416

 
—

 
(6,280
)
 
5,233

Fuel oil stock, at average cost
 
47,239

 
8,229

 
10,962

 
—

 
—

 
66,430

Materials and supplies, at average cost
 
29,928

 
7,380

 
16,371

 
—

 
—

 
53,679

Prepayments and other
 
16,502

 
5,352

 
2,179

 
—

 
(933
)
 
23,100

Regulatory assets
 
60,185

 
3,483

 
2,364

 
—

 
—

 
66,032

Total current assets
 
375,088

 
74,757

 
74,908

 
101

 
(20,713
)
 
504,141

Other long-term assets
 
 

 
 

 
 

 
 

 
 

 
 

Regulatory assets
 
662,232

 
120,863

 
108,324

 
—

 
—

 
891,419

Unamortized debt expense
 
151

 
23

 
34

 
—

 
—

 
208

Other
 
43,743

 
13,573

 
13,592

 
—

 
—

 
70,908

Total other long-term assets
 
706,126

 
134,459

 
121,950

 
—

 
—

 
962,535

Total assets
 
$
4,720,158

 
975,541

 
851,287

 
101

 
(571,659
)
 
$
5,975,428

Capitalization and liabilities
 
 

 
 

 
 

 
 

 
 

 
 

Capitalization
 
 

 
 

 
 

 
 

 
 

 
 

Common stock equity
 
$
1,799,787

 
291,291

 
259,554

 
101

 
(550,946
)
 
$
1,799,787

Cumulative preferred stock—not subject to mandatory redemption
 
22,293

 
7,000

 
5,000

 
—

 
—

 
34,293

Long-term debt, net
 
915,437

 
213,703

 
190,120

 
—

 
—

 
1,319,260

Total capitalization
 
2,737,517

 
511,994

 
454,674

 
101

 
(550,946
)
 
3,153,340

Current liabilities
 
 

 
 

 
 

 
 

 
 

 
 
Short-term borrowings from affiliate
 
13,500

 
—

 
—

 
—

 
(13,500
)
 
—

Accounts payable
 
86,369

 
18,126

 
13,319

 
—

 
—

 
117,814

Interest and preferred dividends payable
 
15,761

 
4,206

 
2,882

 
—

 
(11
)
 
22,838

Taxes accrued
 
120,176

 
28,100

 
25,387

 
—

 
(933
)
 
172,730

Regulatory liabilities
 
—

 
2,219

 
1,543

 
—

 
—

 
3,762

Other
 
41,352

 
7,637

 
12,501

 
—

 
(6,269
)
 
55,221

Total current liabilities
 
277,158

 
60,288

 
55,632

 
—

 
(20,713
)
 
372,365

Deferred credits and other liabilities
 
 

 
 

 
 

 
 

 
 

 
 
Deferred income taxes
 
524,433

 
108,052

 
100,911

 
—

 
263

 
733,659

Regulatory liabilities
 
281,112

 
93,974

 
31,845

 
—

 
—

 
406,931

Unamortized tax credits
 
57,844

 
15,994

 
15,123

 
—

 
—

 
88,961

Defined benefit pension and other postretirement benefit plans liability
 
444,458

 
75,005

 
80,263

 
—

 
—

 
599,726

Other
 
49,191

 
13,024

 
14,969

 
—

 
(263
)
 
76,921

Total deferred credits and other liabilities
 
1,357,038

 
306,049

 
243,111

 
—

 
—

 
1,906,198

Contributions in aid of construction
 
348,445

 
97,210

 
97,870

 
—

 
—

 
543,525

Total capitalization and liabilities
 
$
4,720,158

 
975,541

 
851,287

 
101

 
(571,659
)
 
$
5,975,428


28


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity (unaudited)
Six months ended June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Balance, December 31, 2016
 
$
1,799,787

 
291,291

 
259,554

 
101

 
(550,946
)
 
$
1,799,787

Net income for common stock
 
47,109

 
8,216

 
8,323

 
—

 
(16,539
)
 
47,109

Other comprehensive income, net of taxes
 
499

 
1

 
—

 
—

 
(1
)
 
499

Common stock dividends
 
(43,884
)
 
(7,748
)
 
(5,973
)
 
—

 
13,721

 
(43,884
)
Common stock issuance expenses
 
(5
)
 
—

 
(1
)
 
—

 
1

 
(5
)
Balance, June 30, 2017
 
$
1,803,506

 
291,760

 
261,903

 
101

 
(553,764
)
 
$
1,803,506

 
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity (unaudited)
Six months ended June 30, 2016  
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Balance, December 31, 2015
 
$
1,728,325

 
292,702

 
263,725

 
101

 
(556,528
)
 
$
1,728,325

Net income for common stock
 
61,224

 
9,182

 
9,630

 
—

 
(18,812
)
 
61,224

Other comprehensive income (loss), net of taxes
 
261

 
(1
)
 
(2
)
 
—

 
3

 
261

Common stock dividends
 
(46,800
)
 
(6,604
)
 
(6,530
)
 
—

 
13,134

 
(46,800
)
Common stock issuance expenses
 
(4
)
 
(4
)
 
—

 
—

 
4

 
(4
)
Balance, June 30, 2016
 
$
1,743,006

 
295,275

 
266,823

 
101

 
(562,199
)
 
$
1,743,006


29


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows (unaudited)
Six months ended June 30, 2017
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Cash flows from operating activities
 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
47,649

 
8,483

 
8,514

 
—

 
(16,539
)
 
$
48,107

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

 
 

 
 

 
 

 
 
Equity in earnings of subsidiaries
 
(16,589
)
 
—

 
—

 
—

 
16,539

 
(50
)
Common stock dividends received from subsidiaries
 
13,771

 
—

 
—

 
—

 
(13,721
)
 
50

Depreciation of property, plant and equipment
 
65,445

 
19,371

 
11,556

 
—

 
—

 
96,372

Other amortization
 
1,875

 
905

 
1,482

 
—

 
—

 
4,262

Deferred income taxes
 
15,060

 
3,590

 
4,988

 
—

 
(39
)
 
23,599

Allowance for equity funds used during construction
 
(4,715
)
 
(249
)
 
(462
)
 
—

 
—

 
(5,426
)
Other
 
1,089

 
699

 
(173
)
 
—

 
—

 
1,615

Changes in assets and liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

Decrease (increase) in accounts receivable
 
(5,100
)
 
1,182

 
(1,067
)
 
—

 
3,256

 
(1,729
)
Increase in accrued unbilled revenues
 
(8,819
)
 
(602
)
 
(2,482
)
 
—

 
—

 
(11,903
)
Decrease (increase) in fuel oil stock
 
(4,250
)
 
94

 
(1,806
)
 
—

 
—

 
(5,962
)
Increase in materials and supplies
 
(788
)
 
(1,472
)
 
(1,160
)
 
—

 
—

 
(3,420
)
Decrease (increase) in regulatory assets
 
11,378

 
(1,575
)
 
(1,624
)
 
—

 
—

 
8,179

Increase in accounts payable
 
39,954

 
3,291

 
8,392

 
—

 
—

 
51,637

Change in prepaid and accrued income taxes, tax credits and revenue taxes
 
(29,430
)
 
(6,290
)
 
(4,725
)
 
—

 
(465
)
 
(40,910
)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability
 
355

 
26

 
(79
)
 
—

 
—

 
302

Change in other assets and liabilities
 
(12,727
)
 
129

 
1,807

 
—

 
(3,256
)
 
(14,047
)
Net cash provided by operating activities
 
114,158

 
27,582

 
23,161

 
—

 
(14,225
)
 
150,676

Cash flows from investing activities
 
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures
 
(153,554
)
 
(24,744
)
 
(23,782
)
 
—

 
—

 
(202,080
)
Contributions in aid of construction
 
14,078

 
1,870

 
1,623

 
—

 
—

 
17,571

Other
 
4,820

 
619

 
307

 
—

 
504

 
6,250

Advances from affiliates
 
—

 
(600
)
 
9,000

 
—

 
(8,400
)
 
—

Net cash used in investing activities
 
(134,656
)
 
(22,855
)
 
(12,852
)
 
—

 
(7,896
)
 
(178,259
)
Cash flows from financing activities
 
 

 
 

 
 

 
 

 
 

 
 

Common stock dividends
 
(43,884
)
 
(7,748
)
 
(5,973
)
 
—

 
13,721

 
(43,884
)
Preferred stock dividends of Hawaiian Electric and subsidiaries
 
(540
)
 
(267
)
 
(191
)
 
—

 
—

 
(998
)
Proceeds from issuance of special purpose revenue bonds
 
162,000

 
28,000

 
75,000

 
—

 


 
265,000

Funds transferred for redemption of special purpose revenue bonds
 
(162,000
)
 
(28,000
)
 
(75,000
)
 
—

 
—

 
(265,000
)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less
 
35,590

 
—

 
—

 
—

 
8,400

 
43,990

Other
 
(2,068
)
 
(357
)
 
(804
)
 
—

 
—

 
(3,229
)
Net cash used in financing activities
 
(10,902
)
 
(8,372
)
 
(6,968
)
 
—

 
22,121

 
(4,121
)
Net increase (decrease) in cash and cash equivalents
 
(31,400
)
 
(3,645
)
 
3,341

 
—

 
—

 
(31,704
)
Cash and cash equivalents, beginning of period
 
61,388

 
10,749

 
2,048

 
101

 
—

 
74,286

Cash and cash equivalents, end of period
 
$
29,988

 
7,104

 
5,389

 
101

 
—

 
$
42,582


30


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows (unaudited)
Six months ended June 30, 2016
(in thousands)
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Other
subsidiaries
 
Consolidating
adjustments
 
Hawaiian Electric
Consolidated
Cash flows from operating activities
 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
61,764

 
9,449

 
9,821

 
—

 
(18,812
)
 
$
62,222

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

 
 

 
 

 
 

 
 

Equity in earnings of subsidiaries
 
(18,862
)
 
—

 
—

 
—

 
18,812

 
(50
)
Common stock dividends received from subsidiaries
 
13,184

 
—

 
—

 
—

 
(13,134
)
 
50

Depreciation of property, plant and equipment
 
63,044

 
18,898

 
11,599

 
—

 
—

 
93,541

Other amortization
 
1,919

 
911

 
963

 
—

 
—

 
3,793

Deferred income taxes
 
23,954

 
2,538

 
5,623

 
—

 
3

 
32,118

Allowance for equity funds used during construction
 
(2,965
)
 
(333
)
 
(438
)
 
—

 
—

 
(3,736
)
Other
 
1,383

 
1,611

 
(12
)
 
—

 
—

 
2,982

Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Decrease in accounts receivable
 
14,177

 
2,007

 
729

 
—

 
(231
)
 
16,682

Decrease (increase) in accrued unbilled revenues
 
(2,941
)
 
634

 
(908
)
 
—

 
—

 
(3,215
)
Decrease in fuel oil stock
 
6,015

 
924

 
2,705

 
—

 
—

 
9,644

Increase in materials and supplies
 
(1,748
)
 
(708
)
 
(26
)
 
—

 
—

 
(2,482
)
Decrease (increase) in regulatory assets
 
(3,974
)
 
2,138

 
1,159

 
—

 
—

 
(677
)
Increase in accounts payable
 
17,150

 
208

 
6,069

 
—

 
—

 
23,427

Change in prepaid and accrued income taxes, tax credits and revenue taxes
 
(21,371
)
 
(192
)
 
(6,626
)
 
—

 
(3
)
 
(28,192
)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability
 
299

 
27

 
(89
)
 
—

 
—

 
237

Change in other assets and liabilities
 
(11,803
)
 
11

 
(659
)
 
—

 
231

 
(12,220
)
Net cash provided by operating activities
 
139,225

 
38,123

 
29,910

 
—

 
(13,134
)
 
194,124

Cash flows from investing activities
 
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures
 
(152,283
)
 
(27,436
)
 
(17,613
)
 
—

 
—

 
(197,332
)
Contributions in aid of construction
 
12,824

 
1,605

 
2,381

 
—

 
—

 
16,810

Other
 
132

 
169

 
30

 
—

 
—

 
331

Advances from affiliates
 
—

 
(3,000
)
 
(11,000
)
 
—

 
14,000

 
—

Net cash used in investing activities
 
(139,327
)
 
(28,662
)
 
(26,202
)
 
—

 
14,000

 
(180,191
)
Cash flows from financing activities
 
 

 
 

 
 

 
 

 
 

 
 
Common stock dividends
 
(46,800
)
 
(6,604
)
 
(6,530
)
 
—

 
13,134

 
(46,800
)
Preferred stock dividends of Hawaiian Electric and subsidiaries
 
(540
)
 
(267
)
 
(191
)
 
—

 
—

 
(998
)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less
 
50,995

 
—

 
—

 
—

 
(14,000
)
 
36,995

Other
 
8

 
(8
)
 
—

 
—

 
—

 
—

Net cash provided by (used in) financing activities
 
3,663

 
(6,879
)
 
(6,721
)
 
—

 
(866
)
 
(10,803
)
Net increase (decrease) in cash and cash equivalents
 
3,561

 
2,582

 
(3,013
)
 
—

 
—

 
3,130

Cash and cash equivalents, beginning of period
 
16,281

 
2,682

 
5,385

 
101

 
—

 
24,449

Cash and cash equivalents, end of period
 
$
19,842

 
5,264

 
2,372

 
101

 
—

 
$
27,579




31


4 · Bank segment
Selected financial information
American Savings Bank, F.S.B.
Statements of Income Data (unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
2017
 
2016
 
2017
 
2016
Interest and dividend income
 
 

 
 

 
 

 
 

Interest and fees on loans
 
$
52,317

 
$
49,690

 
$
103,059

 
$
98,127

Interest and dividends on investment securities
 
6,763

 
4,443

 
13,743

 
9,460

Total interest and dividend income
 
59,080

 
54,133

 
116,802

 
107,587

Interest expense
 
 

 
 

 
 

 
 

Interest on deposit liabilities
 
2,311

 
1,691

 
4,414

 
3,283

Interest on other borrowings
 
824

 
1,467

 
1,640

 
2,952

Total interest expense
 
3,135

 
3,158

 
6,054

 
6,235

Net interest income
 
55,945

 
50,975

 
110,748

 
101,352

Provision for loan losses
 
2,834

 
4,753

 
6,741

 
9,519

Net interest income after provision for loan losses
 
53,111

 
46,222

 
104,007

 
91,833

Noninterest income
 
 

 
 

 
 

 
 

Fees from other financial services
 
5,810

 
5,701

 
11,420

 
11,200

Fee income on deposit liabilities
 
5,565

 
5,262

 
10,993

 
10,418

Fee income on other financial products
 
1,971

 
2,207

 
3,837

 
4,412

Bank-owned life insurance
 
1,925

 
1,006

 
2,908

 
2,004

Mortgage banking income
 
587

 
1,554

 
1,376

 
2,749

Gains on sale of investment securities, net
 
—

 
598

 
—

 
598

Other income, net
 
391

 
288

 
849

 
621

Total noninterest income
 
16,249

 
16,616

 
31,383

 
32,002

Noninterest expense
 
 

 
 

 
 

 
 

Compensation and employee benefits
 
24,742

 
21,919

 
47,979

 
44,353

Occupancy
 
4,185

 
4,115

 
8,339

 
8,253

Data processing
 
3,207

 
3,277

 
6,487

 
6,449

Services
 
2,766

 
2,755

 
5,126

 
5,666

Equipment
 
1,771

 
1,771

 
3,519

 
3,434

Office supplies, printing and postage
 
1,527

 
1,583

 
3,062

 
2,948

Marketing
 
839

 
899

 
1,356

 
1,760

FDIC insurance
 
822

 
913

 
1,550

 
1,797

Other expense
 
4,705

 
5,382

 
9,016

 
9,357

Total noninterest expense
 
44,564

 
42,614

 
86,434

 
84,017

Income before income taxes
 
24,796

 
20,224

 
48,956

 
39,818

Income taxes
 
8,063

 
6,939

 
16,410

 
13,860

Net income
 
$
16,733

 
$
13,285

 
$
32,546

 
$
25,958



32


American Savings Bank, F.S.B.
Statements of Comprehensive Income Data (unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
2017
 
2016
 
2017
 
2016
Net income
 
$
16,733

 
$
13,285

 
$
32,546

 
$
25,958

Other comprehensive income, net of taxes:
 
 

 
 

 
 

 
 

Net unrealized gains on available-for-sale investment securities:
 
 

 
 

 
 

 
 

Net unrealized gains on available-for-sale investment securities arising during the period, net of taxes of $1,334, $1,925, $1,482 and $6,830, respectively
 
2,021

 
2,915

 
2,244

 
10,344

Reclassification adjustment for net realized gains included in net income, net of taxes of nil, $238, nil and $238, respectively
 
—

 
(360
)
 
—

 
(360
)
Retirement benefit plans:
 
 

 
 

 
 

 
 

Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $133, $140, $537 and $277, respectively
 
202

 
211

 
814

 
419

Other comprehensive income, net of taxes
 
2,223

 
2,766

 
3,058

 
10,403

Comprehensive income
 
$
18,956

 
$
16,051

 
$
35,604

 
$
36,361


33


American Savings Bank, F.S.B.
Balance Sheets Data (unaudited)
(in thousands)
 
June 30, 2017
 
December 31, 2016
Assets
 
 

 
 

 
 

 
 

Cash and due from banks
 
 

 
$
128,609

 
 

 
$
137,083

Interest-bearing deposits
 
 
 
37,049

 
 
 
52,128

Restricted cash
 
 
 
—

 
 
 
1,764

Available-for-sale investment securities, at fair value
 
 

 
1,302,886

 
 

 
1,105,182

Stock in Federal Home Loan Bank, at cost
 
 

 
11,706

 
 

 
11,218

Loans receivable held for investment
 
 

 
4,744,634

 
 

 
4,738,693

Allowance for loan losses
 
 

 
(56,356
)
 
 

 
(55,533
)
Net loans
 
 

 
4,688,278

 
 

 
4,683,160

Loans held for sale, at lower of cost or fair value
 
 

 
5,261

 
 

 
18,817

Other
 
 

 
354,898

 
 

 
329,815

Goodwill
 
 

 
82,190

 
 

 
82,190

Total assets
 
 

 
$
6,610,877

 
 

 
$
6,421,357

 
 
 
 
 
 
 
 
 
Liabilities and shareholder’s equity
 
 

 
 

 
 

 
 

Deposit liabilities—noninterest-bearing
 
 

 
$
1,694,150

 
 

 
$
1,639,051

Deposit liabilities—interest-bearing
 
 

 
4,030,236

 
 

 
3,909,878

Other borrowings
 
 

 
188,130

 
 

 
192,618

Other
 
 

 
101,974

 
 

 
101,635

Total liabilities
 
 

 
6,014,490

 
 

 
5,843,182

Commitments and contingencies
 
 

 


 
 

 


Common stock
 
 

 
1

 
 

 
1

Additional paid in capital
 
 
 
344,062

 
 
 
342,704

Retained earnings
 
 

 
271,739

 
 

 
257,943

Accumulated other comprehensive loss, net of tax benefits
 
 

 
 

 
 

 
 

Net unrealized losses on securities
 
$
(5,687
)
 
 

 
$
(7,931
)
 
 

Retirement benefit plans
 
(13,728
)
 
(19,415
)
 
(14,542
)
 
(22,473
)
Total shareholder’s equity
 
 

 
596,387

 
 

 
578,175

Total liabilities and shareholder’s equity
 
 

 
$
6,610,877

 
 

 
$
6,421,357

 
 
 
 
 
 
 
 
 
Other assets
 
 

 
 

 
 

 
 

Bank-owned life insurance
 
 

 
$
146,122

 
 

 
$
143,197

Premises and equipment, net
 
 

 
108,158

 
 

 
90,570

Prepaid expenses
 
 

 
4,632

 
 

 
3,348

Accrued interest receivable
 
 

 
16,949

 
 

 
16,824

Mortgage-servicing rights
 
 

 
9,181

 
 

 
9,373

Low-income housing equity investments
 
 
 
48,596

 
 
 
47,081

Real estate acquired in settlement of loans, net
 
 

 
1,554

 
 

 
1,189

Other
 
 

 
19,706

 
 

 
18,233

 
 
 

 
$
354,898

 
 

 
$
329,815

Other liabilities
 
 

 
 

 
 

 
 

Accrued expenses
 
 

 
$
34,451

 
 

 
$
36,754

Federal and state income taxes payable
 
 

 
6,336

 
 

 
4,728

Cashier’s checks
 
 

 
24,191

 
 

 
24,156

Advance payments by borrowers
 
 

 
10,334

 
 

 
10,335

Other
 
 

 
26,662

 
 

 
25,662

 
 
 

 
$
101,974

 
 

 
$
101,635

    
 

34


Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.
Other borrowings consisted of securities sold under agreements to repurchase and advances from the Federal Home Loan Bank (FHLB) of $88 million and $100 million , respectively, as of June 30, 2017 and $93 million and $100 million , respectively, as of December 31, 2016 .
Available-for-sale investment securities.   The major components of investment securities were as follows:
 
 
Amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Estimated fair
value
 
Gross unrealized losses
 
 
 
 
 
 
Less than 12 months
 
12 months or longer
(dollars in thousands)
 
 
 
 
 
Number of issues
 
Fair 
value
 
Amount
 
Number of issues
 
Fair 
value
 
Amount
June 30, 2017
 
 

 
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agency obligations
 
$
187,289

 
$
947

 
$
(1,653
)
 
$
186,583

 
16

 
$
104,417

 
$
(1,532
)
 
1

 
$
3,186

 
$
(121
)
Mortgage-related securities- FNMA, FHLMC and GNMA
 
1,109,613

 
2,202

 
(10,939
)
 
1,100,876

 
98

 
759,643

 
(9,658
)
 
13

 
43,296

 
(1,281
)
Mortgage revenue bond
 
15,427

 
—

 
—

 
15,427

 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
1,312,329

 
$
3,149

 
$
(12,592
)
 
$
1,302,886

 
114

 
$
864,060

 
$
(11,190
)
 
14

 
$
46,482

 
$
(1,402
)
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agency obligations
 
$
193,515

 
$
920

 
$
(2,154
)
 
$
192,281

 
18

 
$
123,475

 
$
(2,010
)
 
1

 
$
3,485

 
$
(144
)
Mortgage-related securities- FNMA, FHLMC and GNMA
 
909,408

 
1,742

 
(13,676
)
 
897,474

 
88

 
709,655

 
(12,143
)
 
13

 
47,485

 
(1,533
)
Mortgage revenue bond
 
15,427

 
—

 
—

 
15,427

 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
1,118,350

 
$
2,662

 
$
(15,830
)
 
$
1,105,182

 
106

 
$
833,130

 
$
(14,153
)
 
14

 
$
50,970

 
$
(1,677
)
ASB does not believe that the investment securities that were in an unrealized loss position at June 30, 2017 , represent an other-than-temporary impairment (OTTI). Total gross unrealized losses were primarily attributable to rising interest rates relative to when the investment securities were purchased and not due to the credit quality of the investment securities. The contractual cash flows of the U.S. Treasury, federal agency obligations and mortgage-related securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB did not recognize OTTI for the quarters and six month periods ended June 30, 2017 and 2016.
U.S. Treasury, federal agency obligations, and the mortgage revenue bond have contractual terms to maturity. Mortgage-related securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.
The contractual maturities of available-for-sale investment securities were as follows:
June 30, 2017
 
Amortized cost
 
Fair value
(in thousands)
 
 
 
 
Due in one year or less
 
$
9,992

 
$
9,993

Due after one year through five years
 
77,151

 
77,307

Due after five years through ten years
 
85,724

 
85,258

Due after ten years
 
29,849

 
29,452

 
 
202,716

 
202,010

Mortgage-related securities-FNMA, FHLMC and GNMA
 
1,109,613

 
1,100,876

Total available-for-sale securities
 
$
1,312,329

 
$
1,302,886

Proceeds and gross realized gains from the sale of available-for-sale investment securities were $16.4 million and $0.6 million , respectively, for the three and six months ended June 30, 2016. Gross realized losses recognized during the three and

35


six months ended June 30, 2016 were no t material. No available-for-sale investment securities were sold during the three and six month periods ended June 30, 2017.
Loans receivable. The components of loans receivable were summarized as follows:
 
June 30, 2017
 
December 31, 2016
(in thousands)
 

 
 

Real estate:
 

 
 

Residential 1-4 family
$
2,061,549

 
$
2,048,051

Commercial real estate
808,900

 
800,395

Home equity line of credit
883,135

 
863,163

Residential land
16,009

 
18,889

Commercial construction
116,548

 
126,768

Residential construction
10,759

 
16,080

Total real estate
3,896,900

 
3,873,346

Commercial
649,657

 
692,051

Consumer
201,199

 
178,222

Total loans
4,747,756

 
4,743,619

Less: Deferred fees and discounts
(3,122
)
 
(4,926
)
          Allowance for loan losses
(56,356
)
 
(55,533
)
Total loans, net
$
4,688,278

 
$
4,683,160

ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential properties, the loan-to-value ratio may not exceed 80% of the lower of the appraised value or purchase price at origination. ASB is subject to the risk that the insurance company cannot satisfy the bank's claim on policies.

36


Allowance for loan losses.   The allowance for loan losses (balances and changes) and financing receivables were as follows:
(in thousands)
 
Residential
1-4 family
 
Commercial real
estate
 
Home
equity line of credit
 
Residential land
 
Commercial construction
 
Residential construction
 
Commercial loans
 
Consumer loans
 
Unallo-cated
 
Total
Three months ended June 30, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
2,781

 
$
16,504

 
$
5,417

 
$
1,479

 
$
7,257

 
$
11

 
$
14,902

 
$
7,646

 
$
—

 
$
55,997

Charge-offs
 
—

 
—

 
—

 
(92
)
 
—

 
—

 
(752
)
 
(2,390
)
 
—

 
(3,234
)
Recoveries
 
49

 
—

 
39

 
15

 
—

 
—

 
299

 
357

 
—

 
759

Provision
 
300

 
2,336

 
71

 
(138
)
 
(2,551
)
 
(2
)
 
103

 
2,715

 
—

 
2,834

Ending balance
 
$
3,130

 
$
18,840

 
$
5,527

 
$
1,264

 
$
4,706

 
$
9

 
$
14,552

 
$
8,328

 
$
—

 
$
56,356

Three months ended June 30, 2016
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
4,593

 
$
11,806

 
$
7,172

 
$
1,740

 
$
6,164

 
$
12

 
$
16,991

 
$
3,848

 
$
—

 
$
52,326

Charge-offs
 
(15
)
 
—

 
—

 
—

 
—

 
—

 
(962
)
 
(1,528
)
 
—

 
(2,505
)
Recoveries
 
35

 
—

 
16

 
16

 
—

 
—

 
425

 
265

 
—

 
757

Provision
 
(229
)
 
1,755

 
648

 
(67
)
 
829

 
—

 
631

 
1,186

 
—

 
4,753

Ending balance
 
$
4,384

 
$
13,561

 
$
7,836

 
$
1,689

 
$
6,993

 
$
12

 
$
17,085

 
$
3,771

 
$
—

 
$
55,331

Six months ended June 30, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
2,873

 
$
16,004

 
$
5,039

 
$
1,738

 
$
6,449

 
$
12

 
$
16,618

 
$
6,800

 
$
—

 
$
55,533

Charge-offs
 
(6
)
 
—

 
(14
)
 
(92
)
 
—

 
—

 
(2,262
)
 
(5,200
)
 
—

 
(7,574
)
Recoveries
 
58

 
—

 
130

 
218

 
—

 
—

 
596

 
654

 
—

 
1,656

Provision
 
205

 
2,836

 
372

 
(600
)
 
(1,743
)
 
(3
)
 
(400
)
 
6,074

 
—

 
6,741

Ending balance
 
$
3,130

 
$
18,840

 
$
5,527

 
$
1,264

 
$
4,706

 
$
9

 
$
14,552

 
$
8,328

 
$
—

 
$
56,356

June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
1,332

 
$
73

 
$
275

 
$
480

 
$
—

 
$
—

 
$
939

 
$
30

 
 
 
$
3,129

Ending balance: collectively evaluated for impairment
 
$
1,798

 
$
18,767

 
$
5,252

 
$
784

 
$
4,706

 
$
9

 
$
13,613

 
$
8,298

 
$
—

 
$
53,227

Financing Receivables:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
2,061,549

 
$
808,900

 
$
883,135

 
$
16,009

 
$
116,548

 
$
10,759

 
$
649,657

 
$
201,199

 
 
 
$
4,747,756

Ending balance: individually evaluated for impairment
 
$
19,188

 
$
1,289

 
$
6,684

 
$
2,589

 
$
—

 
$
—

 
$
4,283

 
$
68

 
 
 
$
34,101

Ending balance: collectively evaluated for impairment
 
$
2,042,361

 
$
807,611

 
$
876,451

 
$
13,420

 
$
116,548

 
$
10,759

 
$
645,374

 
$
201,131

 
 
 
$
4,713,655

Six months ended June 30, 2016
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for loan losses:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Beginning balance
 
$
4,186

 
$
11,342

 
$
7,260

 
$
1,671

 
$
4,461

 
$
13

 
$
17,208

 
$
3,897

 
$
—

 
$
50,038

Charge-offs
 
(60
)
 
—

 
—

 
—

 
—

 
—

 
(2,305
)
 
(3,098
)
 
—

 
(5,463
)
Recoveries
 
52

 
—

 
31

 
119

 
—

 
—

 
560

 
475

 
—

 
1,237

Provision
 
206

 
2,219

 
545

 
(101
)
 
2,532

 
(1
)
 
1,622

 
2,497

 
—

 
9,519

Ending balance
 
$
4,384

 
$
13,561

 
$
7,836

 
$
1,689

 
$
6,993

 
$
12

 
$
17,085

 
$
3,771

 
$
—

 
$
55,331

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
1,352

 
$
80

 
$
215

 
$
789

 
$
—

 
$
—

 
$
1,641

 
$
6

 
 
 
$
4,083

Ending balance: collectively evaluated for impairment
 
$
1,521

 
$
15,924

 
$
4,824

 
$
949

 
$
6,449

 
$
12

 
$
14,977

 
$
6,794

 
$
—

 
$
51,450

Financing Receivables:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending balance
 
$
2,048,051

 
$
800,395

 
$
863,163

 
$
18,889

 
$
126,768

 
$
16,080

 
$
692,051

 
$
178,222

 
 
 
$
4,743,619

Ending balance: individually evaluated for impairment
 
$
19,854

 
$
1,569

 
$
6,158

 
$
3,629

 
$
—

 
$
—

 
$
20,539

 
$
10

 
 
 
$
51,759

Ending balance: collectively evaluated for impairment
 
$
2,028,197

 
$
798,826

 
$
857,005

 
$
15,260

 
$
126,768

 
$
16,080

 
$
671,512

 
$
178,212

 
 
 
$
4,691,860

Credit quality .   ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.

37


Each loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications:  Pass, Special Mention, Substandard, Doubtful and Loss. The AQR is a function of the probability of default model rating, the loss given default and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt.  Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the Bank may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.
The credit risk profile by internally assigned grade for loans was as follows:
 
 
June 30, 2017
 
December 31, 2016
(in thousands)
 
Commercial
real estate
 
Commercial
construction
 
Commercial
 
Commercial
real estate
 
Commercial
construction
 
Commercial
Grade:
 
 

 
 

 
 

 
 

 
 

 
 

Pass
 
$
660,015

 
$
92,069

 
$
602,903

 
$
701,657

 
$
102,955

 
$
614,139

Special mention
 
95,656

 
22,500

 
19,429

 
65,541

 
—

 
25,229

Substandard
 
53,229

 
1,979

 
27,325

 
33,197

 
23,813

 
52,683

Doubtful
 
—

 
—

 
—

 
—

 
—

 
—

Loss
 
—

 
—

 
—

 
—

 
—

 
—

Total
 
$
808,900

 
$
116,548

 
$
649,657

 
$
800,395

 
$
126,768

 
$
692,051


The credit risk profile based on payment activity for loans was as follows:
(in thousands)
 
30-59
days
past due
 
60-89
days
past due
 
Greater
than
90 days
 
Total
past due
 
Current
 
Total
financing
receivables
 
Recorded
investment>
90 days and
accruing
June 30, 2017
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
2,308

 
$
2,694

 
$
5,411

 
$
10,413

 
$
2,051,136

 
$
2,061,549

 
$
—

Commercial real estate
 
—

 
—

 
—

 
—

 
808,900

 
808,900

 
—

Home equity line of credit
 
502

 
494

 
1,516

 
2,512

 
880,623

 
883,135

 
—

Residential land
 
—

 
—

 
305

 
305

 
15,704

 
16,009

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
116,548

 
116,548

 
—

Residential construction
 
—

 
—

 
—

 
—

 
10,759

 
10,759

 
—

Commercial
 
1,486

 
614

 
1,096

 
3,196

 
646,461

 
649,657

 
—

Consumer
 
2,266

 
1,305

 
863

 
4,434

 
196,765

 
201,199

 
—

Total loans
 
$
6,562

 
$
5,107

 
$
9,191

 
$
20,860

 
$
4,726,896

 
$
4,747,756

 
$
—

December 31, 2016
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
5,467

 
$
2,338

 
$
3,505

 
$
11,310

 
$
2,036,741

 
$
2,048,051

 
$
—

Commercial real estate
 
2,416

 
—

 
—

 
2,416

 
797,979

 
800,395

 
—

Home equity line of credit
 
1,263

 
381

 
1,342

 
2,986

 
860,177

 
863,163

 
—

Residential land
 
—

 
—

 
255

 
255

 
18,634

 
18,889

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
126,768

 
126,768

 
—

Residential construction
 
—

 
—

 
—

 
—

 
16,080

 
16,080

 
—

Commercial
 
413

 
510

 
1,303

 
2,226

 
689,825

 
692,051

 
—

Consumer
 
1,945

 
1,001

 
963

 
3,909

 
174,313

 
178,222

 
—

Total loans
 
$
11,504

 
$
4,230

 
$
7,368

 
$
23,102

 
$
4,720,517

 
$
4,743,619

 
$
—



38


The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due and TDR loans was as follows:
(in thousands)
 
June 30, 2017
 
December 31, 2016
Real estate:
 
 

 
 

Residential 1-4 family
 
$
12,270

 
$
11,154

Commercial real estate
 
—

 
223

Home equity line of credit
 
4,306

 
3,080

Residential land
 
915

 
878

Commercial construction
 
—

 
—

Residential construction
 
—

 
—

Commercial
 
1,972

 
6,708

Consumer
 
1,501

 
1,282

  Total nonaccrual loans
 
$
20,964

 
$
23,325

Real estate:
 
 
 
 
Residential 1-4 family
 
$
—

 
$
—

Commercial real estate
 
—

 
—

Home equity line of credit
 
—

 
—

Residential land
 
—

 
—

Commercial construction
 
—

 
—

Residential construction
 
—

 
—

Commercial
 
—

 
—

Consumer
 
—

 
—

     Total accruing loans 90 days or more past due
 
$
—

 
$
—

Real estate:
 
 
 
 
Residential 1-4 family
 
$
13,112

 
$
14,450

Commercial real estate
 
1,289

 
1,346

Home equity line of credit
 
4,548

 
4,934

Residential land
 
1,674

 
2,751

Commercial construction
 
—

 
—

Residential construction
 
—

 
—

Commercial
 
2,692

 
14,146

Consumer
 
68

 
10

     Total troubled debt restructured loans not included above
 
$
23,383

 
$
37,637



39


The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
 
 
June 30, 2017
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
(in thousands)
 
Recorded
investment
 
Unpaid
principal
balance
 
Related
Allowance
 
Average
recorded
investment
 
Interest
income
recognized*
 
Average
recorded
investment
 
Interest
income
recognized*
With no related allowance recorded
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
9,364

 
$
9,963

 
$
—

 
$
9,304

 
$
76

 
$
9,429

 
$
160

Commercial real estate
 
—

 
—

 
—

 
143

 
11

 
182

 
11

Home equity line of credit
 
2,287

 
2,707

 
—

 
2,401

 
51

 
2,203

 
65

Residential land
 
1,249

 
1,788

 
—

 
1,075

 
8

 
1,016

 
34

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
1,592

 
4,267

 
—

 
1,949

 
2

 
3,428

 
8

Consumer
 
—

 
—

 
—

 
1

 
—

 
—

 
—

 
 
$
14,492

 
$
18,725

 
$
—

 
$
14,873

 
$
148

 
$
16,258

 
$
278

With an allowance recorded
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
9,824

 
$
10,027

 
$
1,332

 
$
10,054

 
$
117

 
$
10,051

 
$
236

Commercial real estate
 
1,289

 
1,289

 
73

 
1,292

 
14

 
1,296

 
28

Home equity line of credit
 
4,397

 
4,425

 
275

 
4,372

 
47

 
4,467

 
96

Residential land
 
1,340

 
1,340

 
480

 
1,532

 
24

 
1,804

 
61

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
2,691

 
2,691

 
939

 
2,562

 
68

 
4,915

 
469

Consumer
 
68

 
68

 
30

 
68

 
1

 
49

 
1

 
 
$
19,609

 
$
19,840

 
$
3,129

 
$
19,880

 
$
271

 
$
22,582

 
$
891

Total
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
19,188

 
$
19,990

 
$
1,332

 
$
19,358

 
$
193

 
$
19,480

 
$
396

Commercial real estate
 
1,289

 
1,289

 
73

 
1,435

 
25

 
1,478

 
39

Home equity line of credit
 
6,684

 
7,132

 
275

 
6,773

 
98

 
6,670

 
161

Residential land
 
2,589

 
3,128

 
480

 
2,607

 
32

 
2,820

 
95

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
4,283

 
6,958

 
939

 
4,511

 
70

 
8,343

 
477

Consumer
 
68

 
68

 
30

 
69

 
1

 
49

 
1

 
 
$
34,101

 
$
38,565

 
$
3,129

 
$
34,753

 
$
419

 
$
38,840

 
$
1,169



40


 
 
December 31, 2016
 
Three months ended June 30, 2016
 
Six months ended June 30, 2016
(in thousands)
 
Recorded
investment
 
Unpaid
principal
balance
 
Related
allowance
 
Average
recorded
investment
 
Interest
income
recognized*
 
Average
recorded
investment
 
Interest
income
recognized*
With no related allowance recorded
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
9,571

 
$
10,400

 
$
—

 
$
10,672

 
$
152

 
$
10,532

 
$
203

Commercial real estate
 
223

 
228

 
—

 
1,152

 
—

 
1,163

 
—

Home equity line of credit
 
1,500

 
1,900

 
—

 
1,038

 
9

 
943

 
9

Residential land
 
1,218

 
1,803

 
—

 
1,484

 
15

 
1,537

 
31

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
6,299

 
8,869

 
—

 
8,369

 
7

 
5,818

 
13

Consumer
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
$
18,811

 
$
23,200

 
$
—

 
$
22,715

 
$
183

 
$
19,993

 
$
256

With an allowance recorded
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
10,283

 
$
10,486

 
$
1,352

 
$
11,982

 
$
115

 
$
12,000

 
$
237

Commercial real estate
 
1,346

 
1,346

 
80

 
2,519

 
—

 
1,686

 
—

Home equity line of credit
 
4,658

 
4,712

 
215

 
3,299

 
28

 
3,122

 
55

Residential land
 
2,411

 
2,411

 
789

 
2,977

 
54

 
3,177

 
121

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
14,240

 
14,240

 
1,641

 
16,821

 
180

 
16,896

 
210

Consumer
 
10

 
10

 
6

 
12

 
—

 
12

 
—

 
 
$
32,948

 
$
33,205

 
$
4,083

 
$
37,610

 
$
377

 
$
36,893

 
$
623

Total
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Real estate:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
19,854

 
$
20,886

 
$
1,352

 
$
22,654

 
$
267

 
$
22,532

 
$
440

Commercial real estate
 
1,569

 
1,574

 
80

 
3,671

 
—

 
2,849

 
—

Home equity line of credit
 
6,158

 
6,612

 
215

 
4,337

 
37

 
4,065

 
64

Residential land
 
3,629

 
4,214

 
789

 
4,461

 
69

 
4,714

 
152

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
20,539

 
23,109

 
1,641

 
25,190

 
187

 
22,714

 
223

Consumer
 
10

 
10

 
6

 
12

 
—

 
12

 
—

 
 
$
51,759

 
$
56,405

 
$
4,083

 
$
60,325

 
$
560

 
$
56,886

 
$
879

*
Since loan was classified as impaired.
 
Troubled debt restructurings.   A loan modification is deemed to be a troubled debt restructuring (TDR) when ASB grants a concession it would not otherwise consider were it not for the borrower’s financial difficulty. When a borrower experiencing financial difficulty fails to make a required payment on a loan or is in imminent default, ASB takes a number of steps to improve the collectibility of the loan and maximize the likelihood of full repayment. At times, ASB may modify or restructure a loan to help a distressed borrower improve its financial position to eventually be able to fully repay the loan, provided the borrower has demonstrated both the willingness and the ability to fulfill the modified terms. TDR loans are considered an alternative to foreclosure or liquidation with the goal of minimizing losses to ASB and maximizing recovery.
ASB may consider various types of concessions in granting a TDR including maturity date extensions, extended amortization of principal, temporary deferral of principal payments and temporary interest rate reductions. ASB rarely grants

41


principal forgiveness in its TDR modifications. Residential loan modifications generally involve interest rate reduction, extending the amortization period, or capitalizing certain delinquent amounts owed not to exceed the original loan balance. Land loans at origination are typically structured as a three -year term, interest-only monthly payment with a balloon payment due at maturity. Land loan TDR modifications typically involve extending the maturity date up to five years and converting the payments from interest-only to principal and interest monthly, at the same or higher interest rate. Commercial loan modifications generally involve extensions of maturity dates, extending the amortization period and temporary deferral or reduction of principal payments. ASB generally does not reduce the interest rate on commercial loan TDR modifications. Occasionally, additional collateral and/or guaranties are obtained.
All TDR loans are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the allowance for loan losses based on the appropriate method of measuring impairment:  (1) present value of expected future cash flows discounted at the loan’s effective original contractual rate, (2) fair value of collateral less cost to sell or (3) observable market price. The financial impact of the calculated impairment amount is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for loan losses.
Loan modifications that occurred during the second quarters and first six months of 2017 and 2016 and the impact on the allowance for loan losses were as follows:
 
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
 
 
Number of contracts
 
Outstanding recorded 
investment 1
 
Net increase in allowance
 
Number of contracts
 
Outstanding recorded 
investment 1
 
Net increase in allowance
(dollars in thousands)
 
 
Pre-modification
 
Post-modification
 
(as of period end)
 
 
Pre-modification
 
Post-modification
 
(as of period end)
Troubled debt restructurings
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
Real estate:
 
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 
Residential 1-4 family
 
2

 
$
360

 
$
360

 
$
—

 
5

 
$
872

 
$
880

 
$
45

Commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Home equity line of credit
 
5

 
298

 
298

 
59

 
13

 
524

 
510

 
93

Residential land
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
—

 
—

 
—

 
—

 
1

 
342

 
342

 
—

Consumer
 
—

 
—

 
—

 
—

 
1

 
59

 
59

 
27

 
 
7

 
$
658

 
$
658

 
$
59

 
20

 
$
1,797

 
$
1,791

 
$
165

 
 
Three months ended June 30, 2016
 
Six months ended June 30, 2016
 
 
Number of contracts
 
Outstanding recorded 
investment 1
 
Net increase in allowance
 
Number of contracts
 
Outstanding recorded 
investment 1
 
Net increase in allowance
(dollars in thousands)
 
 
Pre-modification
 
Post-modification
 
(as of period end)
 
 
Pre-modification
 
Post-modification
 
(as of period end)
Troubled debt restructurings
 
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 
Real estate:
 
 

 
 

 
 

 
 
 
 
 
 

 
 

 
 
Residential 1-4 family
 
5

 
$
891

 
$
885

 
$
98

 
9

 
$
1,988

 
$
2,100

 
$
259

Commercial real estate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Home equity line of credit
 
8

 
768

 
768

 
181

 
18

 
1,437

 
1,437

 
255

Residential land
 
1

 
120

 
121

 
—

 
1

 
120

 
121

 
—

Commercial construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Residential construction
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Commercial
 
5

 
457

 
457

 
145

 
8

 
16,657

 
16,657

 
670

Consumer
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
19

 
$
2,236

 
$
2,231

 
$
424

 
36

 
$
20,202

 
$
20,315

 
$
1,184

1
The reported balances include loans that became TDR during the period, and were fully paid-off, charged-off, or sold prior to period end.

42


Loans modified in TDRs that experienced a payment default of 90 days or more during the second quarters and first six months of 2017 and 2016, and for which the payment of default occurred within one year of the modification, were as follows:
 
 
Three months ended June 30, 2017
 
Six months ended June 30, 2017
(dollars in thousands)
 
Number of contracts
 
Recorded investment
 
Number of contracts
 
Recorded investment
Troubled debt restructurings that
 subsequently defaulted
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 

 
 
 
 

Residential 1-4 family
 
1
 
$
222

 
2
 
$
523

Commercial real estate
 
—
 
—

 
—
 
—

Home equity line of credit
 
—
 
—

 
—
 
—

Residential land
 
—
 
—

 
—
 
—

Commercial construction
 
—
 
—

 
—
 
—

Residential construction
 
—
 
—

 
—
 
—

Commercial
 
—
 
—

 
—
 
—

Consumer
 
—
 
—

 
—
 
—

 
 
1
 
$
222

 
2
 
$
523

 
 
Three months ended June 30, 2016
 
Six months ended June 30, 2016
(dollars in thousands)
 
Number of contracts
 
Recorded investment
 
Number of contracts
 
Recorded investment
Troubled debt restructurings that
 subsequently defaulted
 
 
 
 
 
 
 
 
Real estate:
 
 
 
 

 
 
 
 

Residential 1-4 family
 
—
 
$
—

 
1
 
$
488

Commercial real estate
 
—
 
—

 
—
 
—

Home equity line of credit
 
—
 
—

 
—
 
—

Residential land
 
—
 
—

 
—
 
—

Commercial construction
 
—
 
—

 
—
 
—

Residential construction
 
—
 
—

 
—
 
—

Commercial
 
1
 
26

 
1
 
26

Consumer
 
—
 
—

 
—
 
—

 
 
1
 
$
26

 
2
 
$
514

If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil and $2.6 million at June 30, 2017 and December 31, 2016, respectively.
The Company had $4.6 million and $3.6 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2017 and December 31, 2016, respectively.
Mortgage servicing rights . In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold.
ASB received proceeds from the sale of residential mortgages of $39.3 million and $58.1 million for the three months ended June 30, 2017 and 2016 and $79.9 million and $98.5 million for the six months ended June 30, 2017 and 2016, respectively, and recognized gains on such sales of $0.6 million and $1.5 million for the three months ended June 30, 2017 and 2016 and $1.4 million and $2.7 million for the six months ended June 30, 2017 and 2016, respectively.
There were no repurchased mortgage loans for the three and six months ended June 30, 2017 and 2016. The repurchase reserve was $0.1 million as of June 30, 2017 and 2016.
Mortgage servicing fees, a component of other income, net, were $0.7 million for both the three months ended June 30, 2017 and 2016 and $1.5 million and $1.4 million for the six months ended June 30, 2017 and 2016, respectively.

43


Changes in the carrying value of mortgage servicing rights were as follows:
(in thousands)
 
Gross
carrying amount 1
 
Accumulated amortization 1
 
Valuation allowance
 
Net
carrying amount
June 30, 2017
 
$
18,069

 
$
(8,888
)
 
$
—

 
$
9,181

December 31, 2016
 
17,271

 
(7,898
)
 
—

 
9,373

1 Reflects the impact of loans paid in full.

Changes related to mortgage servicing rights were as follows:
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
2017
 
2016
 
2017
 
2016
Mortgage servicing rights
 
 
 
 
 
 
 
 
Beginning balance
 
$
9,294

 
$
8,857

 
$
9,373

 
$
8,884

Amount capitalized
 
362

 
665

 
798

 
1,120

Amortization
 
(475
)
 
(506
)
 
(990
)
 
(988
)
Other-than-temporary impairment
 
—

 
—

 
—

 
—

Carrying amount before valuation allowance
 
9,181

 
9,016

 
9,181

 
9,016

Valuation allowance for mortgage servicing rights
 
 
 
 
 
 
 
 
Beginning balance
 
—

 
—

 
—

 
—

Provision (recovery)
 
—

 
—

 
—

 
—

Other-than-temporary impairment
 
—

 
—

 
—

 
—

Ending balance
 
—

 
—

 
—

 
—

Net carrying value of mortgage servicing rights
 
$
9,181

 
$
9,016

 
$
9,181

 
$
9,016

ASB capitalizes mortgage servicing rights acquired through either the purchase or upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the mortgage servicing rights to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the mortgage servicing rights. ASB’s MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type such as fixed-rate 15 and 30 year mortgages and note rate in bands of 50 to 100 basis points. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Changes in mortgage interest rates impact the value of ASB’s mortgage servicing rights. Rising interest rates typically result in slower prepayment speeds in the loans being serviced for others, which increases the value of mortgage servicing rights, whereas declining interest rates typically result in faster prepayment speeds which decrease the value of mortgage servicing rights and increase the amortization of the mortgage servicing rights. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others.
ASB uses a present value cash flow model using techniques described above to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.
Key assumptions used in estimating the fair value of ASB’s mortgage servicing rights used in the impairment analysis were as follows:
(dollars in thousands)
 
June 30, 2017

 
December 31, 2016

Unpaid principal balance
 
$
1,208,404

 
$
1,188,380

Weighted average note rate
 
3.95
%
 
3.96
%
Weighted average discount rate
 
10.0
%
 
9.4
%
Weighted average prepayment speed
 
8.8
%
 
8.5
%

44


The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:
(dollars in thousands)
 
June 30, 2017

 
December 31, 2016

Prepayment rate:
 
 
 
 
  25 basis points adverse rate change
 
$
(939
)
 
$
(567
)
  50 basis points adverse rate change
 
(2,048
)
 
(1,154
)
Discount rate:
 
 
 
 
  25 basis points adverse rate change
 
(115
)
 
(128
)
  50 basis points adverse rate change
 
(227
)
 
(254
)

The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.
Other borrowings.   Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the balance sheet. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:
(in millions)
 
Gross amount of
recognized liabilities
 
Gross amount offset in
the Balance Sheet
 
Net amount of liabilities presented
in the Balance Sheet
Repurchase agreements
 
 
 
 
 
 
June 30, 2017
 
$88
 
$—
 
$88
December 31, 2016
 
93
 
—
 
93
 
 
Gross amount not offset in the Balance Sheet
(in millions)
 
 Net amount of liabilities presented
in the Balance Sheet
 
Financial
instruments
 
Cash
collateral
pledged
June 30, 2017
 
 

 
 

 
 

Financial institution
 
$
—

 
$
—

 
$
—

Government entities
 
—

 
—

 
—

Commercial account holders
 
88

 
120

 
—

Total
 
$
88

 
$
120

 
$
—

December 31, 2016
 
 

 
 

 
 

Financial institution
 
$
—

 
$
—

 
$
—

Government entities
 
14

 
15

 
—

Commercial account holders
 
79

 
101

 
—

Total
 
$
93

 
$
116

 
$
—

The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the consolidated balance sheets. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.
Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.
ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose

45


ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.
ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.
Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
The notional amount and fair value of ASB’s derivative financial instruments were as follows:
 
 
June 30, 2017
 
December 31, 2016
(in thousands)
 
Notional amount
 
Fair value
 
Notional amount
 
Fair value
Interest rate lock commitments
 
$
22,737

 
$
126

 
$
25,883

 
$
421

Forward commitments
 
22,925

 
88

 
30,813

 
(177
)
ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:
Derivative Financial Instruments Not Designated as Hedging Instruments 1
 
June 30, 2017
 
December 31, 2016
(in thousands)
 
 Asset derivatives
 
 Liability
derivatives
 
 Asset derivatives
 
 Liability
derivatives
Interest rate lock commitments
 
$
142

 
$
16

 
$
445

 
$
24

Forward commitments
 
88

 
—

 
8

 
185

 
 
$
230

 
$
16

 
$
453

 
$
209

1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.
The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:
Derivative Financial Instruments Not Designated as Hedging Instruments
 
Location of net gains (losses) recognized in the Statement of Income
 
Three months ended June 30
 
Six months ended June 30
(in thousands)
 
 
2017
 
2016
 
2017
 
2016
Interest rate lock commitments
 
Mortgage banking income
 
$
(191
)
 
$
140

 
$
(295
)
 
$
411

Forward commitments
 
Mortgage banking income
 
192

 
(74
)
 
265

 
(237
)
 
 
 
 
$
1

 
$
66

 
$
(30
)
 
$
174

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $14.3 million and $14.0 million at June 30, 2017 and December 31, 2016 , respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of June 30, 2017 , ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.
Contingencies.   ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.
5 · Credit agreements and long-term debt
Credit agreements. HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of eight financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Facilities), effective July 3, 2017, to

46


amend and restate their respective previously existing revolving unsecured credit agreements. The $150 million HEI Facility extended the term of the facility to June 30, 2022. The $200 million Hawaiian Electric Facility has an initial term that expires on June 29, 2018, but its term will extend to June 30, 2022, if and when approved by the PUC during the initial term. As of June 30, 2017 and December 31, 2016, no amounts were outstanding under the previously existing facilities.
The Facilities will be maintained to support each company’s respective short-term commercial paper program, but may be drawn on to meet each company’s respective working capital needs and general corporate purposes.
Changes in long-term debt. On June 29, 2017, the Department of Budget and Finance of the State of Hawaii (Department) for the benefit of the Utilities, issued, at par:
 
Refunding Series 2017A Special Purpose Revenue Bonds
Refunding Series 2017B Special Purpose Revenue Bonds
Aggregate principal amount
$125 million
$140 million
Fixed coupon interest rate
3.10%
4.00%
Maturity date
May 1, 2026
March 1, 2037
Department loaned the proceeds to:
 
 
Hawaiian Electric
$62 million
$100 million
Hawaii Electric Light
$8 million
$20 million
Maui Electric
$55 million
$20 million

Proceeds from the sale were applied to redeem at par bonds previously issued by the Department for the benefit of the Utilities:
 
Refunding Series 2007B Special Purpose Revenue Bonds
Series 2007A Special Purpose Revenue Bonds
Aggregate principal amount
$125 million
$140 million
Fixed coupon interest rate
4.60%
4.65%
Maturity date
May 1, 2026
March 1, 2037
6 · Shareholders’ equity
Accumulated other comprehensive income/(loss) .   Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:
 
HEI Consolidated
 
Hawaiian Electric Consolidated
 (in thousands)
 Net unrealized gains (losses) on securities
 
 Unrealized gains (losses) on derivatives
 
Retirement benefit plans
 
AOCI
 
Unrealized gains (losses) on derivatives
 
Retirement benefit plans
 
AOCI
Balance, December 31, 2016
$
(7,931
)
 
$
(454
)
 
$
(24,744
)
 
$
(33,129
)
 
$
(454
)
 
$
132

 
$
(322
)
Current period other comprehensive income
2,244

 
454

 
657

 
3,355

 
454

 
45

 
499

Balance, June 30, 2017
$
(5,687
)
 
$
—

 
$
(24,087
)
 
$
(29,774
)
 
$
—

 
$
177

 
$
177

Balance, December 31, 2015
$
(1,872
)
 
$
(54
)
 
$
(24,336
)
 
$
(26,262
)
 
$
—

 
$
925

 
$
925

Current period other comprehensive income
9,984

 
311

 
613

 
10,908

 
257

 
4

 
261

Balance, June 30, 2016
$
8,112

 
$
257

 
$
(23,723
)
 
$
(15,354
)
 
$
257

 
$
929

 
$
1,186


47


Reclassifications out of AOCI were as follows:
 
 
Amount reclassified from AOCI
 
Amount reclassified from AOCI
 
 
 
 
Three months ended June 30
 
Six months ended June 30
 
Affected line item in the
(in thousands)
 
2017
 
2016
 
2017
 
2016
 
 Statements of Income / Balance Sheets
HEI consolidated
 
 
 
 
 
 
 
 
 
 
Net realized gains on securities included in net income
 
$
—

 
$
(360
)
 
$
—

 
$
(360
)
 
Revenues-bank (net gains on sales of securities)
Derivatives qualifying as cash flow hedges:
 
 

 
 

 
 

 
 

 
 
Window forward contracts
 
—

 
—

 
454

 
—

 
Construction in progress-electric utilities (losses on window forward contracts - see Note 3 for additional details)
Interest rate contracts (settled in 2011)
 
—

 
—

 
—

 
54

 
Interest expense
Retirement benefit plans:
 
 

 
 

 
 

 
 

 
 
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost
 
3,930

 
3,698

 
7,851

 
7,236

 
See Note 7 for additional details
Impact of D&Os of the PUC included in regulatory assets
 
(3,581
)
 
(3,401
)
 
(7,194
)
 
(6,623
)
 
See Note 7 for additional details
Total reclassifications
 
$
349

 
$
(63
)
 
$
1,111

 
$
307

 
 
Hawaiian Electric consolidated
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
Window forward contracts
 
$
—

 
$
—

 
$
454

 
$
—

 
Construction in progress (losses on window forward contracts - see Note 3 for additional details)
Retirement benefit plans:
 
 
 
 

 
 
 
 

 
 
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost
 
3,621

 
3,391

 
7,239

 
6,627

 
See Note 7 for additional details
Impact of D&Os of the PUC included in regulatory assets
 
(3,581
)
 
(3,401
)
 
(7,194
)
 
(6,623
)
 
See Note 7 for additional details
Total reclassifications
 
$
40

 
$
(10
)
 
$
499

 
$
4

 
 


48


7 · Retirement benefits
Defined benefit pension and other postretirement benefit plans information.  For the first six months of 2017 , the Company contributed $33 million (nearly all by the Utilities) to its pension and other postretirement benefit plans, compared to $33 million ( $32 million by the Utilities) in the first six months of 2016 . The Company’s current estimate of contributions to its pension and other postretirement benefit plans in 2017 is $67 million ( $66 million by the Utilities, $ 1 million by HEI and nil by ASB), compared to $65 million ($ 64 million by the Utilities, $1 million by HEI and nil by ASB) in 2016 . In addition, the Company expects to pay directly $2 million ( $1 million by the Utilities) of benefits in 2017 , compared to $2 million ($ 1 million by the Utilities) paid in 2016 .
The components of NPPC and NPBC for HEI consolidated and Hawaiian Electric consolidated were as follows:
 
 
Three months ended June 30
 
Six months ended June 30
 
 
Pension benefits
 
Other benefits
 
Pension benefits
 
Other benefits
(in thousands)
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
HEI consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
15,870

 
$
14,913

 
$
847

 
$
832

 
$
32,364

 
$
30,304

 
$
1,687

 
$
1,668

Interest cost
 
20,361

 
20,481

 
2,315

 
2,363

 
40,577

 
40,758

 
4,726

 
4,837

Expected return on plan assets
 
(25,646
)
 
(24,616
)
 
(3,104
)
 
(3,091
)
 
(51,367
)
 
(49,280
)
 
(6,170
)
 
(6,143
)
Amortization of net prior service gain
 
(13
)
 
(14
)
 
(448
)
 
(448
)
 
(27
)
 
(28
)
 
(897
)
 
(896
)
Amortization of net actuarial loss
 
6,707

 
6,408

 
199

 
116

 
13,220

 
12,377

 
565

 
403

Net periodic pension/benefit cost
 
17,279

 
17,172

 
(191
)
 
(228
)
 
34,767

 
34,131

 
(89
)
 
(131
)
Impact of PUC D&Os
 
(4,867
)
 
(4,765
)
 
527

 
483

 
(10,023
)
 
(8,811
)
 
673

 
672

Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)
 
$
12,412

 
$
12,407

 
$
336

 
$
255

 
$
24,744

 
$
25,320

 
$
584

 
$
541

Hawaiian Electric consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
15,436

 
$
14,465

 
$
841

 
$
820

 
$
31,530

 
$
29,398

 
$
1,676

 
$
1,642

Interest cost
 
18,726

 
18,801

 
2,231

 
2,280

 
37,315

 
37,404

 
4,558

 
4,669

Expected return on plan assets
 
(23,935
)
 
(22,885
)
 
(3,056
)
 
(3,046
)
 
(47,946
)
 
(45,817
)
 
(6,073
)
 
(6,049
)
Amortization of net prior service loss (gain)
 
2

 
3

 
(451
)
 
(451
)
 
4

 
7

 
(902
)
 
(902
)
Amortization of net actuarial loss
 
6,190

 
5,885

 
192

 
113

 
12,196

 
11,346

 
551

 
397

Net periodic pension/benefit cost
 
16,419

 
16,269

 
(243
)
 
(284
)
 
33,099

 
32,338

 
(190
)
 
(243
)
Impact of PUC D&Os
 
(4,867
)
 
(4,765
)
 
527

 
483

 
(10,023
)
 
(8,811
)
 
673

 
672

Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)
 
$
11,552

 
$
11,504

 
$
284

 
$
199

 
$
23,076

 
$
23,527

 
$
483

 
$
429

HEI consolidated recorded retirement benefits expense of $17 million ($ 15 million by the Utilities) and $18 million ( $16 million by the Utilities) in the first six months of 2017 and 2016 , respectively, and charged the remaining net periodic benefit cost primarily to electric utility plant.
The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, these retirement benefit costs that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will be amortized over 5 years beginning with the issuance of the PUC’s D&O in the respective utility’s next rate case.
Defined contribution plans information.   For the first six months of 2017 and 2016 , the Company’s expenses for its defined contribution pension plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $3.3 million and $2.8 million , respectively, and cash contributions were $4.0 million and $3.7 million , respectively. For the first six months of 2017 and 2016 , the Utilities’ expenses for its defined contribution pension plan under the HEIRSP were $ 1.0 million and $0.8 million , respectively, and cash contributions were $ 1.0 million and $0.8 million , respectively.

49


8 · Share-based compensation
Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares was added to the shares available for issuance under these programs.
As of June 30, 2017 , approximately 3.3 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated 0.4 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).
Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of June 30, 2017 , there were 85,428 shares remaining available for future issuance under the 2011 Director Plan.
Share-based compensation expense and the related income tax benefit were as follows:
 
 
Three months ended June 30
 
Six months ended June 30
(in millions)
 
2017
 
2016
 
2017
 
2016
HEI consolidated
 
 
 
 
 
 
 
 
Share-based compensation expense 1
 
$
2.2

 
$
1.0

 
$
3.3

 
$
2.0

Income tax benefit
 
0.8

 
0.4

 
1.2

 
0.7

Hawaiian Electric consolidated
 
 
 
 
 
 
 
 
Share-based compensation expense 1
 
0.7

 
0.3

 
1.1

 
0.6

Income tax benefit
 
0.3

 
0.1

 
0.4

 
0.2

1  
For the three months and six months ended June 30, 2017 and 2016, the Company has not capitalized any share-based compensation.

Stock awards. No nonemployee director stock grants were awarded from January 1 to June 30, 2016. Nonemployee director awards totaling $0.2 million were paid in cash in July 2016. HEI granted HEI common stock to nonemployee directors of HEI, Hawaiian Electric and ASB under the 2011 Director Plan as follows:
 
 
Three months ended June 30
 
Six months ended June 30
($ in millions)
 
2017
 
2016
 
2017
 
2016
Shares granted
 
35,000

 
—

 
35,770

 
—

Fair value
 
$
1.1

 
$
—

 
$
1.2

 
$
—

Income tax benefit
 
0.4

 
—

 
0.5

 
—

The number of shares issued to nonemployee directors of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI Common Stock on the grant date.
Restricted stock units.   Information about HEI’s grants of restricted stock units was as follows:
 
Three months ended June 30
 
Six months ended June 30
 
2017
 
2016
 
2017
 
2016
 
Shares
 
(1)
 
Shares
 
(1)
 
Shares
 
(1)
 
Shares
 
(1)
Outstanding, beginning of period
236,036

 
$
31.42

 
226,537

 
$
29.59

 
220,683

 
$
29.57

 
210,634

 
$
28.82

Granted
896


33.06

 
—

 
—

 
97,873


33.47

 
94,282


29.90

Vested
(7,370
)
 
29.17

 
(785
)
 
27.88

 
(88,994
)
 
28.88

 
(79,164
)
 
27.91

Forfeited
(23,079
)
 
31.50

 
—

 
—

 
(23,079
)
 
31.50

 
—

 
—

Outstanding, end of period
206,483

 
$
31.50

 
225,752

 
$
29.59

 
206,483

 
$
31.50

 
225,752

 
$
29.59

Total weighted-average grant-date fair value of shares granted ($ millions)
$
—

 
 
 
$
—

 
 
 
$
3.3

 
 
 
$
2.8

 
 
(1)
Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

50


For the first six months of 2017 and 2016 , total restricted stock units that vested and related dividends had a fair value of $3.3 million and $2.6 million , respectively, and the related tax benefits were $1.2 million and $0.9 million , respectively.
As of June 30, 2017 , there was $5.4 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.8 years .
Long-term incentive plan payable in stock.   The 2017-2019 long-term incentive plan (LTIP) provides for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the three -year period. The other performance condition goals relate to EPS growth, return on average common equity (ROACE) and ASB’s efficiency ratio. The 2015-2017 and 2016-2018 LTIPs provide for performance awards payable in cash, and thus are not included in the tables below.
LTIP linked to TSR .  Information about HEI’s LTIP grants linked to TSR was as follows:
 
Three months ended June 30
 
Six months ended June 30
 
2017
 
2016
 
2017
 
2016
 
Shares
 
(1)
 
Shares
 
(1)
 
Shares
 
(1)
 
Shares
 
(1)
Outstanding, beginning of period
36,971

 
$
39.51

 
83,947

 
$
22.95

 
83,106

 
$
22.95

 
162,500

 
$
27.66

Granted (target level)
233

 
39.51

 
—

 
—

 
37,204

 
39.51

 
—


—

Vested (issued or unissued and cancelled)
—

 
—

 
—

 
—

 
(83,106
)
 
22.95

 
(78,553
)
 
32.69

Forfeited
(3,434
)
 
39.51

 
—

 
—

 
(3,434
)
 
39.51

 
—

 
—

Outstanding, end of period
33,770

 
$
39.51

 
83,947

 
$
22.95

 
33,770

 
$
39.51

 
83,947

 
$
22.95

Total weighted-average grant-date fair value of shares granted ($ millions)
$
—

 
 
 
$
—

 
 
 
$
1.5

 
 
 
$
—

 
 
(1)
Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.
The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and estimated future stock volatility and dividends of HEI and its peers over the remaining three -year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three -year historic stock volatility, and the annual dividend yield assumptions were based on dividend yields calculated on the basis of daily stock prices over the same three -year historical period.
The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:
 
 
2017

Risk-free interest rate
 
1.46
%
Expected life in years
 
3

Expected volatility
 
20.1
%
Range of expected volatility for Peer Group
 
15.4% to 26.0%

Grant date fair value (per share)
 
$39.51
For the six months ended June 30, 2017 , total vested LTIP awards linked to TSR and related dividends had a fair value of $1.9 million and the related tax benefits were $0.7 million . For the six months ended June 30, 2016 , all vested shares in the table above were unissued and cancelled (i.e., lapsed) because the TSR goal was not met.
As of June 30, 2017 , there was $1.1 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of 2.5 years .

51


LTIP awards linked to other performance conditions .   Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:
 
Three months ended June 30
 
Six months ended June 30
 
2017
 
2016
 
2017
 
2016
 
Shares
 
(1)
 
Shares
 
(1)
 
Shares
 
(1)
 
Shares
 
(1)
Outstanding, beginning of period
147,888

 
$
33.48

 
113,550

 
$
25.18

 
109,816

 
$
25.18

 
222,647

 
$
26.02

Granted (target level)
930

 
32.58

 
—


—

 
148,818

 
33.47

 
—


—

Vested (issued)
—

 
—

 
—

 
—

 
(109,816
)
 
25.18

 
(109,097
)
 
26.89

Forfeited
(13,740
)
 
33.48

 
—

 
—

 
(13,740
)
 
33.48

 
—

 
—

Outstanding, end of period
135,078

 
$
33.47

 
113,550

 
$
25.18

 
135,078

 
$
33.47

 
113,550

 
$
25.18

Total weighted-average grant-date fair value of shares granted (at target performance levels) ($ millions)
$
—

 
 
 
$
—

 
 
 
$
5.0

 
 
 
$
—

 
 
(1)
Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For the six months ended June 30, 2017 and 2016 , total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $4.2 million and $3.6 million and the related tax benefits were $1.6 million and $1.4 million , respectively.
As of June 30, 2017 , there was $3.8 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 2.5 years .
9 · Income taxes
        The Company’s ETRs (combined federal and state income tax rates) for the second quarters of 2017 and 2016 were 34% and 37% , respectively, and for the first six months of 2017 and 2016 were 34% and 37% , respectively. The ETR was lower for the three months and six months ended June 30, 2017 compared to the same periods in 2016 due in part to 2016 nondeductible merger- and spin-off-related expenses. Also, in the first quarter of 2017, the Company recognized excess tax benefits on share-based compensation after the adoption of ASU No. 2016-09.
        Hawaiian Electric’s ETRs for the second quarters of 2017 and 2016 were 36% and 38% , respectively, and for the first six months of 2017 and 2016 were 36% and 37% , respectively. The lower ETR was due in part to the recognition of excess tax benefits on share-based compensation after the adoption of ASU No. 2016-09.
Recent tax developments. The extension of bonus depreciation under the “Protecting Americans from Tax Hikes (PATH) Act of 2015” continues to be the most significant recent tax change. The PATH Act provides 50% bonus depreciation through 2017, phases down the percentage to 40% in 2018 and 30% in 2019 and then terminates bonus depreciation thereafter. Tax depreciation is expected to increase by approximately $120 million in 2017 due to bonus depreciation, which has the effect of increasing accumulated deferred tax liabilities. However, the rate of growth of accumulated deferred tax liabilities is decreasing over time as book depreciation “catches up” with the tax depreciation taken in the past.

52


10 · Cash flows
Six months ended June 30
 
2017
 
2016
(in millions)
 
 
 
 
Supplemental disclosures of cash flow information
 
 

 
 

HEI consolidated
 
 
 
 
Interest paid to non-affiliates
 
$
46

 
$
43

Income taxes paid (including refundable credits)
 
21

 
14

Income taxes refunded (including refundable credits)
 
—

 
45

Hawaiian Electric consolidated
 
 
 
 
Interest paid to non-affiliates
 
36

 
31

Income taxes paid (including refundable credits)
 
8

 
—

Income taxes refunded (including refundable credits)
 
—

 
20

Supplemental disclosures of noncash activities
 
 

 
 

HEI consolidated
 
 
 
 
Common stock dividends reinvested in HEI common stock (financing) 1
 
—

 
11

Loans transferred from held for investment to held for sale (investing)
 
9

 
—

Common stock issued (gross) for director and executive/management compensation (financing) 2
 
11

 
6

HEI consolidated and Hawaiian Electric consolidated
 
 
 
 
Electric utility property, plant and equipment
 
 
 
 
Estimated fair value of noncash contributions in aid of construction (investing)
 
2

 
8

Change in unpaid invoices and accruals for capital expenditures (investing)
 
(7
)
 
(32
)
1 The amounts shown represent common stock dividends reinvested in HEI common stock under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP) in noncash transactions.
2 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld to satisfy statutory tax liabilities.
11 · Fair value measurements
Fair value estimates are estimates of the price that would be received to sell an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value estimates are generally determined based on assumptions that market participants would use in pricing the asset or liability and are based on market data obtained from independent sources. However, in certain cases, the Company and the Utilities use their own assumptions based on the best information available in the circumstances. These valuations are estimates at a specific point in time, based on relevant market information, information about the financial instrument and judgments regarding future expected loss experience, economic conditions, risk characteristics of various financial instruments and other factors. These estimates do not reflect any premium or discount that could result if the Company or the Utilities were to sell its entire holdings of a particular financial instrument at one time. Because no active trading market exists for a portion of the Company’s and the Utilities’ financial instruments, fair value estimates cannot be determined with precision. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses could have a significant effect on fair value estimates but have not been considered in making such estimates.
The Company and the Utilities group their financial assets measured at fair value in three levels outlined as follows:
Level 1:                 Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available.
 
Level 2:                 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.
 
Level 3:                 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow

53


methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. For instruments classified in Level 1 and 2 where inputs are primarily based upon observable market data, there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more significant due to the lack of observable market data.
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan impairments for certain loans and goodwill.
Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value:
Short-term borrowings—other than bank .   The carrying amount of short-term borrowings approximated fair value because of the short maturity of these instruments.
Investment securities . The fair value of ASB’s investment securities is determined quarterly through pricing obtained from independent third-party pricing services or from brokers not affiliated with the trade. Non-binding broker quotes are infrequent and generally occur for new securities that are settled close to the month-end pricing date. The third-party pricing vendors ASB uses for pricing its securities are reputable firms that provide pricing services on a global basis and have processes in place to ensure quality and control. The third-party pricing services use a variety of methods to determine the fair value of securities that fall under Level 2 of the ASB’s fair value measurement hierarchy. Among the considerations are quoted prices for similar securities in an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic prepayment speeds, and other observable market factors.
To enhance the robustness of the pricing process, ASB will on a quarterly basis compare its standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by ASB and a challenge to the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable characteristics of the security. In all cases, the fair value used will have been independently determined by a third-party pricing vendor or non-affiliated broker and not by ASB.
The fair value of the mortgage revenue bond is estimated using a discounted cash flow model to calculate the present value of future principal and interest payments and, therefore is classified within Level 3 of the valuation hierarchy.
Loans held for sale . Loans carried at the lower of cost or market are valued using market observable pricing inputs, which are derived from third party loan sales and securitizations and, therefore, are classified within Level 2 of the valuation hierarchy. ASB transferred $6.1 million of loans receivable out of Level 3 into Level 2 due to changes in the observability of significant inputs during the six months ended June 30, 2017 . The related gain from the fair value adjustment of loans sold was not material in the three and six months ended June 30, 2017.
Loans held for investment . Fair value of loans held for investment is derived using a discounted cash flow approach which includes an evaluation of the underlying loan characteristics. The valuation model uses loan characteristics which includes product type, maturity dates and the underlying interest rate of the portfolio. This information is input into the valuation models along with various forecast valuation assumptions including prepayment forecasts, to determine the discount rate. These assumptions are derived from internal and third party sources. Noting the valuation is derived from model-based techniques, ASB includes loans held for investment within Level 3 of the valuation hierarchy.
Impaired loans . At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Fair value is determined primarily by using an income, cost or market approach and is normally provided through appraisals. Impaired loans carried at fair value generally receive specific allocations within the allowance for loan losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Generally, impaired loans are evaluated quarterly for additional impairment and adjusted accordingly.

54


Real estate acquired in settlement of loans . Foreclosed assets are carried at fair value (less estimated costs to sell) and are generally based upon appraisals or independent market prices that are periodically updated subsequent to classification as real estate owned. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. ASB estimates the fair value of collateral-dependent loans and real estate owned using the sales comparison approach.
Mortgage servicing rights . Mortgage servicing rights (MSRs) are capitalized at fair value based on market data at the time of sale and accounted for in subsequent periods at the lower of amortized cost or fair value. Mortgage servicing rights are evaluated for impairment at each reporting date. ASB's MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type and note rate. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in "Revenues - bank" in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. ASB compares the fair value of MSRs to an estimated value calculated by an independent third-party. The third-party relies on both published and unpublished sources of market related assumptions and their own experience and expertise to arrive at a value. ASB uses the third-party value only to assess the reasonableness of its own estimate.
Time deposits . The fair value of fixed-maturity certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.
Other borrowings . For fixed-rate advances and repurchase agreements, fair value is estimated using quantitative discounted cash flow models that require the use of interest rate inputs that are currently offered for advances and repurchase agreements of similar remaining maturities. The majority of market inputs are actively quoted and can be validated through external sources, including broker market transactions and third party pricing services.
Long-term debt—other than bank .  Fair value of long-term debt of HEI and the Utilities was obtained from third-party financial services providers based on the current rates offered for debt of the same or similar remaining maturities and from discounting the future cash flows using the current rates offered for debt of the same or similar remaining maturities.
Interest rate lock commitments (IRLCs) . The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. IRLCs are classified as Level 2 measurements.
Forward sales commitments . To be announced (TBA) mortgage-backed securities forward commitments are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are determined using quoted prices in the market place that are observable and are classified as Level 2 measurements.
Window forward contracts . The estimated fair value of the Utilities’ window forward contracts was obtained from a third-party financial services provider based on the effective exchange rate offered for the foreign currency denominated transaction. Window forward contracts are classified as Level 2 measurements.
The following table presents the carrying or notional amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments. For stock in Federal Home Loan Bank, the carrying amount is a reasonable estimate of fair value because it can only be redeemed at par. For bank-owned life insurance, the carrying amount is the cash surrender value of the insurance policies, which is a reasonable estimate of fair value. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings and money market deposits, the carrying amount is a reasonable estimate of fair value as these liabilities have no stated maturity.

55


 
 
 
 
Estimated fair value
 
 
Carrying or notional amount
 
Quoted prices in
active markets
for identical assets
 
Significant
 other observable
 inputs
 
Significant
unobservable
inputs
 
 
(in thousands)
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
June 30, 2017
 
 

 
 

 
 

 
 

 
 

Financial assets
 
 

 
 

 
 

 
 

 
 

HEI consolidated
 
 
 
 
 
 
 
 
 
 
Available-for-sale investment securities
 
$
1,302,886

 
$
—

 
$
1,287,459

 
$
15,427

 
$
1,302,886

Stock in Federal Home Loan Bank
 
11,706

 
—

 
11,706

 
—

 
11,706

Loans receivable, net
 
4,693,539

 
—

 
5,261

 
4,836,804

 
4,842,065

Mortgage servicing rights
 
9,181

 
—

 
—

 
12,270

 
12,270

Bank-owned life insurance
 
146,122

 
—

 
146,122

 
—

 
146,122

Derivative assets
 
58,120

 
47

 
798

 
—

 
845

Hawaiian Electric consolidated
 
 
 
 
 
 
 
 
 
 
Derivative assets-window forward contracts
 
15,995

 
—

 
615

 
—

 
615

Financial liabilities
 
 

 
 

 
 

 
 

 
 
HEI consolidated
 
 
 
 
 
 
 
 
 
 
Deposit liabilities
 
5,724,386

 
—

 
5,721,882

 
—

 
5,721,882

Short-term borrowings—other than bank
 
49,789

 
—

 
49,789

 
—

 
49,789

Other bank borrowings
 
188,130

 
—

 
188,513

 
—

 
188,513

Long-term debt, net—other than bank
 
1,618,647

 
—

 
1,740,479

 
—

 
1,740,479

   Derivative liabilities
 
8,263

 
—

 
246

 
—

 
246

Hawaiian Electric consolidated
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
 
43,990

 
—

 
43,990

 
—

 
43,990

Long-term debt, net
 
1,318,845

 
—

 
1,434,528

 
—

 
1,434,528

Derivative liabilities-window forward contracts
 
4,726

 
—

 
230

 
—

 
230

December 31, 2016
 
 

 
 

 
 

 
 

 
 

Financial assets
 
 

 
 

 
 

 
 

 
 

HEI consolidated
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
13,085

 
$
—

 
$
13,085

 
$
—

 
$
13,085

Available-for-sale investment securities
 
1,105,182

 
—

 
1,089,755

 
15,427

 
1,105,182

Stock in Federal Home Loan Bank
 
11,218

 
—

 
11,218

 
—

 
11,218

Loans receivable, net
 
4,701,977

 
—

 
13,333

 
4,839,493

 
4,852,826

Mortgage servicing rights
 
9,373

 
—

 
—

 
13,216

 
13,216

Bank-owned life insurance
 
143,197

 
—

 
143,197

 
—

 
143,197

Derivative assets
 
23,578

 
—

 
453

 
—

 
453

Financial liabilities
 
 

 
 

 
 

 
 

 
 
HEI consolidated
 
 
 
 
 
 
 
 
 
 
Deposit liabilities
 
5,548,929

 
—

 
5,546,644

 
—

 
5,546,644

Short-term borrowings—other than bank
 
—

 
—

 
—

 
—

 
—

Other bank borrowings
 
192,618

 
—

 
193,991

 
—

 
193,991

Long-term debt, net—other than bank
 
1,619,019

 
—

 
1,704,717

 
—

 
1,704,717

Derivative liabilities
 
53,852

 
129

 
823

 
—

 
952

Hawaiian Electric consolidated
 
 
 
 
 
 
 
 
 
 
Long-term debt, net
 
1,319,260

 
—

 
1,399,490

 
—

 
1,399,490

Derivative liabilities-window forward contracts
 
20,734

 
—

 
743

 
—

 
743



56


Fair value measurements on a recurring basis.  Assets and liabilities measured at fair value on a recurring basis were as follows:
 
 
June 30, 2017
 
December 31, 2016
 
 
Fair value measurements using
 
Fair value measurements using
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Money market funds (“other” segment)
 
$
—

 
$
—

 
$
—

 
$
—

 
$
13,085

 
$
—

Available-for-sale investment securities (bank segment)
 
 

 
 

 
 

 
 

 
 

 
 

Mortgage-related securities-FNMA, FHLMC and GNMA
 
$
—

 
$
1,100,876

 
$
—

 
$
—

 
$
897,474

 
$
—

U.S. Treasury and federal agency obligations
 
—

 
186,583

 
—

 
—

 
192,281

 
—

Mortgage revenue bond
 
—

 
—

 
15,427

 
—

 
—

 
15,427

 
 
$
—

 
$
1,287,459

 
$
15,427

 
$
—

 
$
1,089,755

 
$
15,427

Derivative assets
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate lock commitments (bank segment)  1
 
$
—

 
$
142

 
$
—

 
$
—

 
$
445

 
$
—

Forward commitments (bank segment)  1
 
47

 
41

 
—

 
—

 
8

 
—

Window forward contract (electric utility segment) 2
 
—

 
615

 
—

 
—

 
—

 
—

 
 
$
47

 
$
798

 
$
—

 
$
—

 
$
453

 
$
—

Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate lock commitments (bank segment) 1
 
$
—

 
$
16

 
$
—

 
$
—

 
$
24

 
$
—

Forward commitments (bank segment) 1
 
—

 
—

 
—

 
129

 
56

 
—

Window forward contracts (electric utility segment) 2
 
—

 
230

 
—

 
—

 
743

 
—

 
 
$
—

 
$
246

 
$
—

 
$
129

 
$
823

 
$
—

1   Derivatives are carried at fair value with changes in value reflected in the balance sheet in other assets or other liabilities and included in mortgage banking income.
2 Derivatives are included in noncurrent regulatory assets and/or liabilities in the balance sheets.
There were no transfers of financial assets and liabilities between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2017 .
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
 
 
Three months ended June 30
 
 
Six months ended June 30
 
Mortgage revenue bond
 
2017
2016
 
2017
2016
(in thousands)
 
 
 
 
 
 
Beginning balance
 
$
15,427

$
—

 
$
15,427

$
—

Principal payments received
 
—

—

 
—

—

Purchases
 
—

—

 
—

—

Unrealized gain (loss) included in other comprehensive income
 
—

—

 
—

—

Ending balance
 
$
15,427

$
—

 
$
15,427

$
—

ASB holds one mortgage revenue bond issued by the Department of Budget and Finance of the State of Hawaii. The Company estimates the fair value by using a discounted cash flow model to calculate the present value of estimated future principal and interest payments. The unobservable input used in the fair value measurement is the weighted average discount rate. As of June 30, 2017 , the weighted average discount rate was 2.820% which was derived by incorporating a credit spread over the one month LIBOR rate. Significant increases (decreases) in the weighted average discount rate could result in a significantly lower (higher) fair value measurement.
Fair value measurements on a nonrecurring basis.   Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. The carrying value of assets measured at fair value on a nonrecurring basis were as follows:

57


 
 
 
 
Fair value measurements
(in thousands) 
 
Balance
 
Level 1
 
Level 2
 
Level 3
June 30, 2017
 
 
 
 
 
 
 
 
Loans
 
$
1,258

 
$
—

 
$
—

 
$
1,258

December 31, 2016
 
 
 
 
 
 
 
 
Loans
 
2,767

 
—

 
—

 
2,767

Real estate acquired in settlement of loans
 
1,189

 
—

 
—

 
1,189

For six months ended June 30, 2017 and 2016 , there were no adjustments to fair value for ASB’s loans held for sale.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis:
 
 
 
 
 
 
 
 
Significant unobservable
 input value (1)
($ in thousands)
 
Fair value
 
Valuation technique
 
Significant unobservable input
 
Range
 
Weighted
Average
June 30, 2017
 
 
 
 
 
 
 
 
 
 
Residential loan
 
$
448

 
Fair value of collateral
 
Appraised value less 7% selling cost
 
 
 
N/A (2)
Commercial loan
 
810

 
Sales price
 
Sales price
 
 
 
N/A (2)
Total loans
 
$
1,258

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
Residential loans
 
$
2,468

 
Sales price
 
Sales price
 
95-100%
 
97%
Residential loans
 
287

 
Fair value of property or collateral
 
Appraised value less 7% selling cost
 
42-65%
 
61%
Home equity lines of credit
 
12

 
Fair value of property or collateral
 
Appraised value less 7% selling cost
 
 
 
N/A (2)
Total loans
 
$
2,767

 
 
 
 
 
 
 
 
Real estate acquired in settlement of loans
 
$
1,189

 
Fair value of property or collateral
 
Appraised value less 7% selling cost
 
100%
 
100%
(1) Represent percent of outstanding principal balance.
(2) N/A - Not applicable. There is one loan in each fair value measurement type.
Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value measurements.

12 · Termination of proposed merger and other matters
On December 3, 2014, HEI, NextEra Energy, Inc. (NEE) and two subsidiaries of NEE entered into an Agreement and Plan of Merger (the Merger Agreement), under which Hawaiian Electric was to become a subsidiary of NEE. The Merger Agreement contemplated that, prior to the Merger, HEI would distribute to its shareholders all of the common stock of ASB Hawaii, Inc. (ASB Hawaii), the parent company of ASB (such distribution referred to as the Spin-Off).
The closing of the Merger was subject to various conditions, including receipt of regulatory approval from the PUC. In July 2016: (1) the PUC dismissed NEE and Hawaiian Electric’s application requesting approval of the proposed Merger, (2) NEE terminated the Merger Agreement and (3) pursuant to the terms of the Merger Agreement, NEE paid HEI a $90 million termination fee and $5 million for the reimbursement of expenses associated with the transaction. In 2016, the Company recognized $60 million of net income ( $2 million of net loss in each of the first and second quarters and $64 million of net income in the third quarter), comprised of the termination fee ( $55 million ), reimbursements of expenses from NEE and insurance ( $3 million ), and additional tax benefits on the previously non-tax-deductible merger- and Spin-Off-related expenses incurred through June 30, 2016 ( $8 million ), less merger- and Spin-Off-related expenses incurred in 2016 ( $6 million ) (all net of tax impacts). The Spin-Off of ASB Hawaii was cancelled as it was cross-conditioned on the merger consummation.
In May 2016, the Utilities had filed an application for approval of an liquefied natural gas (LNG) supply and transport agreement and LNG-related capital equipment, which application was conditioned on the PUC’s approval of the proposed Merger. Subsequently, the Utilities terminated the LNG agreement and withdrew the application. In 2016, Hawaiian Electric

58


recognized expenses related to the terminated LNG agreement of $1 million , net of tax benefits, in each of the first and second quarters.
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion updates “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HEI’s and Hawaiian Electric’s 2016 Form 10-K and should be read in conjunction with such discussion and the 2016 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI’s and Hawaiian Electric’s 2016 Form 10-K, as well as the quarterly (as of and for the three and six months ended June 30, 2017) financial statements and notes thereto included in this Form 10-Q.
HEI consolidated
RESULTS OF OPERATIONS
(in thousands, except per
 
Three months ended June 30
 
%
 
 
share amounts)
 
2017
 
2016
 
change
 
Primary reason(s)*
Revenues
 
$
632,281

 
$
566,244

 
12

 
Increases for the electric utility and bank segments
Operating income
 
75,896

 
85,455

 
(11
)
 
Decrease for the electric utility segment, partly offset by an increase at the bank segment and lower losses for the “other” segment
Net income for common stock
 
38,661

 
44,128

 
(12
)
 
Lower net income for the electric utility segment, partly offset by higher net income at the bank segment and lower net loss for the “other” segment
Basic earnings per common share
 
$
0.36

 
$
0.41

 
(12
)
 
Lower net income and the impact of higher weighted average shares outstanding
Weighted-average number of common shares outstanding
 
108,750

 
107,962

 
1

 
Issuances of shares under the HEI Dividend Reinvestment and Stock Purchase Plan and other plans

(in thousands, except per
 
Six months ended June 30
 
%
 
 
share amounts)
 
2017
 
2016
 
change
 
Primary reason(s)*
Revenues
 
$
1,223,843

 
$
1,117,204

 
10

 
Increases for the electric utility and bank segments
Operating income
 
143,758

 
154,306

 
(7
)
 
Decrease for the electric utility segment, partly offset by an increase at the bank segment and lower losses for the “other” segment
Net income for common stock
 
72,854

 
76,480

 
(5
)
 
Lower net income for the electric utility segment, partly offset by higher net income at the bank segment and lower net loss for the “other” segment
Basic earnings per common share
 
$
0.67

 
$
0.71

 
(6
)
 
Lower net income and the impact of higher weighted average shares outstanding
Weighted-average number of common shares outstanding
 
108,712

 
107,791

 
1

 
Issuances of shares under the HEI Dividend Reinvestment and Stock Purchase Plan and other plans

* 
Also, see segment discussions which follow.
HEI’s consolidated ROACE was 12.1% for the twelve months ended June 30, 2017 and 8.8% for the twelve months ended June 30, 2016 . The higher ROACE for the twelve months ended June 30, 2017 was largely due to the merger termination fee received in July 2016.
Dividends.   The payout ratios for the first six months of 2017 and full year 2016 were 93% and 54%, respectively. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation, including but not limited to the Company’s results of operations, the long-term prospects for the Company and current and expected future economic conditions.

59


Economic conditions.
Note: The statistical data in this section is from public third-party sources that management believes to be reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic Research Organization, U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local newspapers).
Hawaii’s tourism industry, a significant driver of Hawaii’s economy, ended the first half of 2017 with continued strong growth. Visitor expenditures increased 8.7% and arrivals increased 4.3% compared to the same time period in 2016. Looking ahead, the Hawaii Tourism Authority expects scheduled nonstop seats to Hawaii for the third quarter of 2017 to increase by 3.7% over the third quarter of 2016 driven primarily by an increase in seats from the East Coast and Japan.
Hawaii’s unemployment rate remained relatively stable at 2.7% in June 2017, lower than the state’s 3.1% rate in June 2016 and the June 2017 national unemployment rate of 4.4%.
Hawaii real estate activity, as indicated by the home resale market, experienced growth in median sales prices in 2017. Median sales prices for single family residential homes and condominiums on Oahu through June 2017 were higher by 3.2% and 3.6%, respectively, over the same time period in 2016. The number of closed sales for both single family residential homes and condominiums through June of 2017 were also up compared to same time period of 2016 by 4.4% and 6.0%, respectively.
Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. Following steady price increases through 2016, the price of crude oil has remained relatively stable through the first five months of 2017.
At its June 2017 meeting, the Federal Open Market Committee (FOMC) again increased the federal funds rate target. The FOMC raised the target range of “0.75% to 1%” to “1.0% to 1.25%”. The FOMC has indicated a slipping in the inflation rate to 1.4% is temporary and is expected to rebound to the FOMC target of 2%.
Overall, Hawaii’s economy is expected to be buoyed by a strong tourism industry. Risks remain stemming from geopolitical uncertainty and its impact on tourism and from the impact of the financial markets on real estate development and sales.
“Other” segment.
 
 
Three months ended June 30
 
Six months ended June 30
 
 
(in thousands)
 
2017
 
2016
 
2017
 
2016
 
Primary reason(s)
Revenues
 
$
77

 
$
100

 
$
172

 
$
168

 
 
Operating loss
 
(3,947
)
 
(5,455
)
 
(9,183
)
 
(11,524
)
 
Second quarter and first six months of 2016 merger and spin-off-related expenses (see below), partly offset by higher other administrative and general expenses in the second quarter and first six months of 2017
Net loss
 
(3,716
)
 
(5,014
)
 
(6,801
)
 
(10,702
)
 
Lower operating loss, lower interest expense (first six months) and higher tax benefits (first six months) (due to non-deductibility of certain merger- and spin-off-related expenses in the first six months of 2016 and the recognition of excess tax benefits on share-based compensation after the adoption of ASU No. 2016-09 on January 1, 2017)
The “other” business segment includes results of the stand-alone corporate operations of HEI and ASB Hawaii, Inc. (ASBH), both holding companies; HEI Properties, Inc., a company which held passive, venture capital investments (all of which have been sold or abandoned prior to its dissolution in December 2015 and final winding up in June 2017); and The Old Oahu Tug Service, Inc., a maritime freight transportation company that ceased operations in 1999, but has remaining employee benefit payments; as well as eliminations of intercompany transactions. Expenses recorded at HEI related to the previously proposed merger with NEE and spin-off of ASBH amounted to $2.0 million and $3.5 million for the second quarter and six months ended June 30, 2016, respectively. See Note 12 , “Termination of proposed merger and other matters.”


60


FINANCIAL CONDITION
Liquidity and capital resources.   The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, commercial paper and bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements for the foreseeable future.
The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:
(dollars in millions)
 
June 30, 2017
 
December 31, 2016
Short-term borrowings—other than bank
 
$
50

 
1
%
 
$
—

 
—
%
Long-term debt, net—other than bank
 
1,619

 
43

 
1,619

 
43

Preferred stock of subsidiaries
 
34

 
1

 
34

 
1

Common stock equity
 
2,075

 
55

 
2,067

 
56

 
 
$
3,778

 
100
%
 
$
3,720

 
100
%
HEI’s short-term borrowings and HEI’s line of credit facility were as follows:
 
 
Average balance
 
Balance
(in millions) 
 
Six months ended June 30, 2017
 
June 30, 2017
 
December 31, 2016
Short-term borrowings 1
 
 

 
 

 
 

Commercial paper
 
$
1

 
$
6

 
$
—

Line of credit draws
 
—

 
—

 
—

Undrawn capacity under HEI’s line of credit facility
 
 
 
150

 
150

 
1     This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s external short-term borrowings during the first six months of 2017 was $6.0 million. As of July 27, 2017 , HEI had $7.3 million of outstanding commercial paper, and its line of credit facility was undrawn.
HEI has a $150 million line of credit facility. See Note 5 of the Condensed Consolidated Financial Statements.
From December 7, 2016 to date, HEI satisfied the share purchase requirements of the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), HEIRSP and ASB 401(k) Plan through open market purchases of its common stock rather than through new issuances.
In December 2014, HEI filed an omnibus registration statement to register an indeterminate amount of debt and equity securities.
For the first six months of 2017, net cash provided by operating activities of HEI consolidated was $186 million . Net cash used by investing activities for the same period was $399 million, primarily due to Hawaiian Electric’s consolidated capital expenditures and ASB’s purchases of investment securities and net increase in loans held for investment, partly offset by ASB’s receipt of repayments from investment securities, proceeds from the sale of commercial loans and Hawaiian Electric’s contributions in aid of construction. Net cash provided by financing activities during this period was $145 million as a result of several factors, including increases in short-term borrowings and ASB’s deposit liabilities, proceeds from other bank borrowings and net increases in ASB’s retail purchase agreements, partly offset by the payment of common stock dividends and repayments of other bank borrowings. Also included in cash provided by financing activities were proceeds from the issuance of special purpose revenue bonds (SPRBs), which were offset by the transfer of funds to a trustee for the redemption of previously issued SPRBs. Other than capital contributions from their parent company, intercompany services (and related intercompany payables and receivables), Hawaiian Electric’s periodic short-term borrowings from HEI (and related interest) and the payment of dividends to HEI, the electric utility and bank segments are largely autonomous in their operating, investing and financing activities. (See the electric utility and bank segments’ discussions of their cash flows in their respective “Financial condition—Liquidity and capital resources” sections below.) During the first six months of 2017, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $44 million and $19 million, respectively.

61


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company’s results of operations and financial condition can be affected by numerous factors, many of which are beyond the Company’s control and could cause future results of operations to differ materially from historical results. For information about certain of these factors, see pages 47, 62 to 64, and 73 to 75 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2016 Form 10-K.
Additional factors that may affect future results and financial condition are described on pages iv and v under “Cautionary Note Regarding Forward-Looking Statements.”
MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES
In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.
In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.
For information about these material estimates and critical accounting policies, see pages 48 to 49, 64 to 65, and 75 to 78 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2016 Form 10-K.

62


Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.
Electric utility
RESULTS OF OPERATIONS
Results.
Three months ended June 30
 
Increase
 
 
2017
 
2016
 
(decrease)
 
(dollars in millions, except per barrel amounts)
$
557

 
$
495

 
$
62

 
 
 
Revenues.  Net increase largely due to:
 
 
 
 
 
 
$
55

 
higher fuel oil prices 1
 
 
 
 
 
 
11

 
higher purchased power energy costs 2
 
 
 
 
 
 
(8
)
 
lower RAM revenues due to expiration of 2013 settlement agreement that allowed the accrual of RAM revenues on January 1 (vs. June 1) for years 2014 to 2016 at Hawaiian Electric
 
 
 
 
 
 
3

 
higher PPAC revenues
 
 
 
 
 
 
2

 
higher RAM revenues
 
 
 
 
 
 
(3
)
 
lower KWH generated
141

 
92

 
49

 
 
 
Fuel oil expense.  Increase due to higher fuel oil prices
153

 
139

 
14

 
 
 
Purchased power expense.  Increase due to higher fuel oil prices
106

 
100

 
6

 
 
 
Operation and maintenance expenses . Net increase due to:
 
 
 
 
 
 
1

 
higher overhaul costs due to timing
 
 
 
 
 
 
1

 
ERP project costs commencing in 2017
 
 
 
 
 
 
1

 
higher maintenance costs
 
 
 
 
 
 
1

 
Grid modernization consultant costs
 
 
 
 
 
 
1

 
write off of portion of deferred Geothermal RFP costs
 
 
 
 
 
 
1

 
Property damage reserve for customer claim in 2017
 
 
 
 
 
 
(1
)
 
LNG consulting costs incurred in 2016 to negotiate an LNG contract that was subsequently terminated following HEI/NextEra merger termination
101

 
94

 
7

 
 
 
Other expenses.  Increase due to higher revenue taxes from higher revenue, coupled with higher depreciation expense for plant investments in 2016
55

 
71

 
(16
)
 
 
 
Operating income. Decrease due to lower RAM revenues and higher O&M and depreciation expenses
26

 
36

 
(10
)
 
 
 
Net income for common stock.  Decrease due to lower operating income, partially offset by resulting lower income taxes.
 
 
 
 
 
 
 
 
 
2,150

 
2,156

 
(6
)
 
 
 
Kilowatthour sales (millions) 4
1,278

 
1,257

 
21

 
 
 
Cooling degree days (Oahu)
$
69.86

 
$
44.98

 
$
24.88

 
 
 
Average fuel oil cost per barrel 1


63


Six months ended June 30
 
Increase
 
 
2017
 
2016
 
(decrease)
 
(dollars in millions, except per barrel amounts)
$
1,075

 
$
977

 
$
98

 
 
 
Revenues.  Net increase largely due to:
 
 
 
 
 
 
$
90

 
higher fuel oil prices 1
 
 
 
 
 
 
33

 
higher purchased power energy costs 2
 
 
 
 
 
 
(20
)
 
lower RAM revenues due to expiration of 2013 settlement agreement that allowed the accrual of RAM revenues on January 1 (vs. June 1) for years 2014 to 2016 at Hawaiian Electric
 
 
 
 
 
 
3

 
higher RAM revenues
 
 
 
 
 
 
(2
)
 
lower PPAC revenues
 
 
 
 
 
 
(3
)
 
lower KWH purchased
 
 
 
 
 
 
(2
)
 
lower KWH generated
286

 
206

 
80

 
 
 
Fuel oil expense.  Increase due to higher fuel oil prices
280

 
255

 
25

 
 
 
Purchased power expense.  Increase due to higher fuel oil prices
207

 
203

 
4

 
 
 
Operation and maintenance expenses . Net increase due to:
 
 
 
 
 
 
2

 
higher overhaul costs due to timing
 
 
 
 
 
 
2

 
ERP project costs commencing in 2017
 
 
 
 
 
 
2

 
higher maintenance costs

 
 
 
 
 
 
1

 
Grid modernization consultant costs

 
 
 
 
 
 
1

 
write off of portion of deferred Geothermal RFP costs

 
 
 
 
 
 
1

 
Property damage reserve for customer claim in 2017

 
 
 
 
 
 
1

 
additional reserves for environmental costs in 2017 3
 
 
 
 
 
 
(4
)
 
PSIP consulting costs incurred in 2016, in order to complete the PSIP update in April 2016
 
 
 
 
 
 
(3
)
 
LNG consulting costs incurred in 2016 to negotiate an LNG contract that was subsequently terminated following HEI/NextEra merger termination
199

 
187

 
12

 
 
 
Other expenses.  Increase due to higher revenue taxes from higher revenue, coupled with higher depreciation expense for plant investments in 2016
104

 
126

 
(22
)
 
 
 
Operating income. Decrease due to lower RAM revenues and higher O&M and depreciation expenses
47

 
61

 
(14
)
 
 
 
Net income for common stock.  Decrease due to lower operating income, partially offset by resulting lower income taxes.
 
 
 
 
 
 
 
 
 
4,188

 
4,241

 
(53
)
 
 
 
Kilowatthour sales (millions) 4
2,162

 
2,141

 
21

 
 
 
Cooling degree days (Oahu)
$
67.78

 
$
49.05

 
$
18.73

 
 
 
Average fuel oil cost per barrel 1
460,858

 
458,893

 
1,965

 
 
 
Customer accounts (end of period)
1
The rate schedules of the electric utilities currently contain energy cost adjustment clauses (ECACs) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.
2
The rate schedules of the electric utilities currently contain purchase power adjustment clauses (PPAC) through which changes in purchase power expenses (except purchased energy costs) are passed on to customers.
3
Increase reserve for additional costs for investigation of PCB contamination onshore and offshore of Waiau Power Plant
4
KWH sales were lower when compared to the same quarter in the prior year due largely to continued energy efficiency and conservation efforts by customers and increasing levels of private customer-sited renewable generation.
Hawaiian Electric’s consolidated ROACE was 7.2 % for the twelve months ended June 30, 2017 , and 8.0% for the twelve months ended June 30, 2016 .
The Utilities’ consolidated KWH sales have declined each year since 2007. Based on expectations of additional customer renewable self-generation and energy-efficiency installations, the Utilities’ full year 2017 KWH sales are expected to be below the 2016 level.

64


The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of June 30, 2017 amounted to $4 billion, of which approximately 25% related to production PPE, 66% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 11% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission. See “Adequacy of supply” below.
See “Economic conditions” in the “HEI Consolidated” section above.
Executive overview and strategy.  The Utilities provide electricity on all the principal islands in the state other than Kauai and operate five separate grids. The Utilities’ mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a modern, flexible and dynamic electric grid that enables an optimal mix of distributed energy resources (such as private rooftop solar), demand response and grid-scale resources to achieve the statutory goal of 100% renewable energy by 2045.
Transition to renewable energy.  The Utilities are committed to assisting the State of Hawaii in achieving its Renewable Portfolio Standard goal of 100% renewable energy by 2045. Hawaii’s Renewable Portfolio Standards (RPS) law was revised in the 2015 Legislature and requires electric utilities to meet an RPS of 15%, 30%, 40%, 70% and 100% by December 31, 2015, 2020, 2030, 2040 and 2045, respectively. Energy savings resulting from demand-side management (DSM) energy efficiency programs and solar water heating do not count toward these RPS. The Utilities have been successful in adding significant amounts of renewable energy resources to their electric systems and exceeded the 2015 RPS goal. The Utilities' RPS for 2016 was about 26% and on its way to achieving the 2020 RPS goal of 30%. The Utilities led the nation in 2016 and 2015 in the percentage of its customers who have installed PV systems. (See "Developments in renewable energy efforts” below).
In 2014, Hawaiian Electric, Hawaii Electric Light and Maui Electric filed proposed Power Supply Improvement Plans (PSIPs) with the PUC, as required by PUC orders issued in April 2014. Updated PSIPs were filed in April 2016 providing plans to achieve 100% renewable energy using a diverse mix of energy resources by 2045. Under these plans, the Utilities will support sustainable growth of private rooftop solar, expand use of energy storage systems, empower customers by developing smart grids and offer new products and services to customers (e.g., community solar, microgrids and voluntary “demand response” programs). In December 2016, the Utilities filed a PSIP Update Report as ordered by the PUC. The updated plans describe greater and faster expansion of the Utilities’ renewable energy portfolio than in the plans filed in April 2016, and emphasize work that is in progress or planned over the next five years on each of the five islands the Utilities serve. The plans include the continued growth of private rooftop solar and describe the grid and generation modernization work needed to reliably integrate an estimated total of 165,000 private systems by 2030, more than double today’s total of 79,000, and additional grid-scale renewable energy resources. The Utilities already have the highest percentage of customers using private rooftop solar of any utility in the U.S. and customer-sited resources are seen as a key contributor to the growth of the renewable portfolio on every island. In addition, the plans forecast the addition of 360 MW of grid-scale solar and 157 MW of grid-scale wind, with 32 MW derived from community-based renewable energy (CBRE). The plans also include 115 MW from Demand Response (DR) programs, which can shift customer use of electricity to times when more renewable energy is available, potentially making room to add even more renewable resources. Unlike the April 2016 updated PSIPs, the December 2016 update does not include the use of LNG to generate power in the near-term or the Kahe 3x1 Combined Cycle Plant. While LNG remains a potential lower-cost bridge fuel to be evaluated, the Utilities’ priority is to continue replacing fossil fuel generation with renewables over the next five years as federal tax incentives for renewables begin to phase out. An interisland cable is not in the near-term plan, which states that its costs and benefits should continue to be evaluated. In July 2017, the PUC accepted the Utilities’ PSIP December 2016 Update Report and closed the proceeding. See “April 2014 regulatory orders” in Note 3 of the Condensed Consolidated Financial Statements.
On October 1, 2015, Hawaiian Electric, Hawaii Electric Light and Maui Electric filed a proposed CBRE program and tariff with the PUC that would allow customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. In November 2015, the PUC suspended the tariff submittal and opened an investigatory docket. In February 2017, the PUC issued a proposed CBRE Program Framework and a Proposed Model Tariff Language, which significantly increased the scope of the program. Under the proposed CBRE Program Framework, the CBRE program will utilize a phased approach. The Program Framework proposes a Phase 1 with an 80 MW capacity statewide with 73 MW allocated to the Utilities' service territories. During Tranche A of the CBRE Phase 1 Program, the Utilities' primary role is to serve as the program administrator. In Tranche B, the Utilities are allowed to develop 9 MW in the service territories, 75% of the capacity is reserved for low-to-moderate income subscribers. In March 2017, the Utilities submitted comments to the Program Framework, which identified certain concerns should the proposed CBRE Program Framework be adopted and requested a technical conference before a decision is issued. In June 2017, a technical conference with the PUC was completed with the Utilities, the Consumer Advocate and industry stakeholders. The Utilities are awaiting the PUC’s decision on the CBRE program.
After launching a smart grid customer engagement plan during the second quarter of 2014, Hawaiian Electric replaced approximately 5,200 residential and commercial meters with smart meters, 160 direct load control switches, fault circuit

65


indicators and remote controlled switches in selected areas across Oahu as part of the Smart Grid Initial Phase implementation. Also under the Initial Phase a grid efficiency measure called Volt/Var Optimization (or Conservation Voltage Reduction) was enabled, customer energy portals were launched and are available for customer use and a PrePay Application was launched. The Initial Phase implementation was completed in 2015. The smart grid provides benefits such as customer tools to manage their electric bills, potentially shortening outages and enabling the Utilities to integrate more low-cost renewable energy, like wind and solar, which will reduce Hawaii’s dependence on imported oil.
In March 2016, the Utilities sought PUC approval to commit funds for an expansion of the smart grid project. The proposed smart grid project was estimated to cost $340 million and to be implemented over 5 years. On January 4, 2017, the PUC issued an order dismissing the application without prejudice and directing the Utilities to submit a Grid Modernization Strategy.
The PUC indicated that the overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater DER and renewable energy integration. On June 30, 2017, the Utilities filed an initial draft of the Grid Modernization Strategy. The draft strategy describes how new technology will help triple private rooftop solar and make use of rapidly evolving products including storage and advanced inverters. The first segment of the modernization is estimated at about $205 million over six years. The Utilities will continue to get feedback from customers and stakeholders as they refine the strategy for the final filing due on August 29, 2017.
Decoupling. See "Decoupling" in Note  3 of the Condensed Consolidated Financial Statements for a discussion of changes to the RAM component of decoupling.
As part of decoupling, the Utilities also track their rate-making ROACEs as calculated under the earnings sharing mechanism, which includes only items considered in establishing rates. At year-end, each utility's rate-making ROACE is compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. Annual earnings of a utility over and above the ROACE allowed by the PUC are shared between the utility and its ratepayers on a tiered basis. Results for 2016 and 2015 did not trigger the earnings sharing mechanism for the Utilities. For 2014, the earnings sharing mechanism was triggered for Maui Electric, and Maui Electric credited $0.5 million to its customers for their portion of the earnings sharing during the period between June 2015 to May 2016. Earnings sharing credits are included in the annual decoupling filing for the following year.
Regulated Returns. Actual and PUC-allowed (as of June 30, 2017 ) returns were as follows:
%
 
Return on rate base (RORB)*
 
ROACE**
 
Rate-making ROACE***
Twelve months ended June 30, 2017
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
 
Hawaiian Electric
 
Hawaii Electric Light
 
Maui Electric
Utility returns
 
6.77

 
6.71

 
6.83

 
7.25

 
6.91

 
7.50

 
7.99

 
7.54

 
7.96

PUC-allowed returns
 
8.11

 
8.31

 
7.34

 
10.00

 
10.00

 
9.00

 
10.00

 
10.00

 
9.00

Difference
 
(1.34
)
 
(1.60
)
 
(0.51
)
 
(2.75
)
 
(3.09
)
 
(1.50
)
 
(2.01
)
 
(2.46
)
 
(1.04
)
*      Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates.
**    Recorded net income divided by average common equity.
***  ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation.
The gap between PUC-allowed ROACEs and the ROACEs actually achieved is primarily due to: the consistent exclusion of certain expenses from rates, the recognition of annual RAM revenues on June 1 annually rather than on January 1, the low RBA interest rate (currently a short-term debt rate rather than the actual cost of capital), O&M increases and return on capital additions since the last rate case in excess of indexed escalations, and the portion of the pension regulatory asset not earning a return due to pension contributions and pension costs in excess of the pension amount in rates.
The PUC approved a two-year special medical needs pilot program, which will provide residential customers who depend on life support a discounted non-fuel energy charge. The program will be effective from April 1, 2017 to March 31, 2019, with a maximum savings of $20 per month per participant and limited to 2,000 participants. The discount will not be reflected as part of the target adjusted revenues in the RBA Provision.
Most recent rate proceedings.   Unless otherwise agreed or ordered, each electric utility is currently required by PUC order to initiate a rate proceeding every third year (on a staggered basis) to allow the PUC and the Consumer Advocate to regularly evaluate decoupling and to allow the utility to request electric rate increases to cover rising operating costs and the cost of plant and equipment, including the cost of new capital projects to maintain and improve service reliability. The PUC may grant an interim increase within 10 to 11 months following the filing of an application, but there is no guarantee of such an interim increase and interim amounts collected are refundable, with interest, to the extent they exceed the amount approved in the

66


PUC’s final D&O. The timing and amount of any final increase is determined at the discretion of the PUC. The adoption of revenue, expense, rate base and cost of capital amounts (including the ROACE and RORB) for purposes of an interim rate increase does not commit the PUC to accept any such amounts in its final D&O.
Test year
(dollars in millions)
 
Date
(filed/
implemented)
 
Amount
 
% over 
rates in 
effect
 
ROACE
(%)
 
RORB
(%)
 
Rate
 base
 
Common
equity
%
 
Stipulated 
agreement 
reached with
Consumer
Advocate
Hawaiian Electric
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
2011  (1)
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Request
 
7/30/10
 
$
113.5

 
6.6

 
10.75

 
8.54

 
$
1,569

 
56.29

 
Yes
Interim increase
 
7/26/11
 
53.2

 
3.1

 
10.00

 
8.11

 
1,354

 
56.29

 
 
Interim increase (adjusted)
 
4/2/12
 
58.2

 
3.4

 
10.00

 
8.11

 
1,385

 
56.29

 
 
Interim increase (adjusted)
 
5/21/12
 
58.8

 
3.4

 
10.00

 
8.11

 
1,386

 
56.29

 
 
Final increase
 
9/1/12
 
58.1

 
3.4

 
10.00

 
8.11

 
1,386

 
56.29

 
 
2014 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Request
 
6/27/14
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 (3)
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Request
 
12/16/16
 
$
106.4

 
6.9

 
10.60

 
8.28

 
$
2,002

 
57.36

 
 
Hawaii Electric Light
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
2010  (4)
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Request
 
12/9/09
 
$
20.9

 
6.0

 
10.75

 
8.73

 
$
487

 
55.91

 
Yes
Interim increase
 
1/14/11
 
6.0

 
1.7

 
10.50

 
8.59

 
465

 
55.91

 
 
Interim increase (adjusted)
 
1/1/12
 
5.2

 
1.5

 
10.50

 
8.59

 
465

 
55.91

 
 
Final increase
 
4/9/12
 
4.5

 
1.3

 
10.00

 
8.31

 
465

 
55.91

 
 
2013  (5)
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Request
 
8/16/12
 
$
19.8

 
4.2

 
10.25

 
8.30

 
$
455

 
57.05

 
 
Closed
 
3/27/13
 
 

 
 

 
 

 
 

 
 

 
 

 
 
2016 (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Request
 
9/19/16
 
$
19.3

 
6.5

 
10.60

 
8.44

 
$
479

 
57.12

 
Yes
Statements of Probable Entitlement  (which will be superceded by any PUC interim D&O)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hawaii Electric Light
 
7/21/17
 
11.1

 
3.8

 
9.75

 
7.94

 
482

 
56.69

 
 
Consumer Advocate
 
7/21/17
 
9.9

 
3.4

 
9.5

 
7.8

 
482

 
56.69

 
 
Maui Electric
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
2012  (7)
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 
Request
 
7/22/11
 
$
27.5

 
6.7

 
11.00

 
8.72

 
$
393

 
56.85

 
Yes
Interim increase
 
6/1/12
 
13.1

 
3.2

 
10.00

 
7.91

 
393

 
56.86

 
 
Final increase
 
8/1/13
 
5.3

 
1.3

 
9.00

 
7.34

 
393

 
56.86

 
 
2015  (8)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Request
 
12/30/14
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018  (9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note:  The “Request Date” reflects the application filing date for the rate proceeding. All other line items reflect the effective dates of the revised schedules and tariffs as a result of PUC-approved increases.
(1)   Hawaiian Electric filed a request with the PUC for a general rate increase of $113.5 million, based on depreciation rates and methodology as proposed by Hawaiian Electric in a separate depreciation proceeding. Hawaiian Electric’s request was primarily to pay for major capital projects and higher O&M costs to maintain and improve service reliability and to recover the costs for several proposed programs to help reduce Hawaii’s dependence on imported oil, and to further increase reliability and fuel security.
The $53.2 million, $58.2 million and $58.8 million interim increases, and the $58.1 million final increase, include the $15 million in annual revenues that were being recovered through the decoupling RAM prior to the first interim increase.
(2)   See “Hawaiian Electric 2014 test year rate case” below.
(3)   See “Hawaiian Electric 2017 test year rate case” below.

67


(4)
Hawaii Electric Light’s request was primarily to cover investments for system upgrade projects, two major transmission line upgrades and increasing O&M expenses. On February 8, 2012, the PUC issued a final D&O, which reflected the approval of decoupling and cost-recovery mechanisms, and on February 21, 2012, Hawaii Electric Light filed its revised tariffs to reflect the increase in rates. On April 4, 2012, the PUC issued an order approving the revised tariffs, which became effective April 9, 2012. Hawaii Electric Light implemented the decoupling mechanism and began tracking the target revenues and actual recorded revenues via a revenue balancing account. Hawaii Electric Light also reset the heat rates and implemented heat rate deadbands and the PPAC, which provides a surcharge mechanism that more closely aligns cost recovery with costs incurred. The revised tariffs reflect a lower increase in annual revenue requirement compared to the interim increase due to factors that became effective concurrently with the revised tariffs (lower depreciation rates and lower ROACE) and, therefore, no refund to customers was required.
(5)   Hawaii Electric Light’s request was to pay for O&M expenses and additional investments in plant and equipment required to maintain and improve system reliability and to cover the increased costs to support the integration of more renewable energy generation. As a result of a 2013 agreement with the Consumer Advocate, which was approved by the PUC in March 2013, the rate case was withdrawn and the docket was closed.
(6)
Parties settled on all issues except whether the stipulated ROACE of 9.75% should be reduced by up to 25 basis points for the impact of decoupling. Hawaii Electric Light’s position is that the ROACE that should be used to calculate the interim increase is 9.75% and the Consumer Advocate’s position is that the ROACE that should be used to calculate the interim should be 9.50%. Parties filed separate statement of probable entitlement. The table shows each party’s proposed interim revenue increase based on their respective proposed ROACE. See also “Hawaii Electric Light 2016 test year rate case” below.
(7)   Maui Electric’s request was to pay for O&M expenses and additional investments in plant and equipment required to maintain and improve system reliability and to cover the increased costs to support the integration of more renewable energy generation. The final D&O approved an increase in annual revenue of $5.3 million, which was $7.8 million less than the interim increase in annual revenues that had been in effect since June 1, 2012. Maui Electric refunded to customers approximately $9.7 million (which included interest accrued) between September 2013 and early November 2013.
(8)
See “Maui Electric 2015 test year rate case” below.
(9)
See “Maui Electric 2018 test year rate case” below.
Hawaiian Electric 2014 test year rate case .  On June 27, 2014, Hawaiian Electric submitted an abbreviated rate case filing (abbreviated filing), stating that it intends to forgo the opportunity to seek a general rate increase in base rates and, if approved, this filing would result in no change in base rates. Hawaiian Electric stated that it is foregoing a rate increase request in recognition that its customers are already in a challenging high electricity bill environment, and further explained its view that the abbreviated filing satisfies the obligation to file a general rate case under the three-year cycle established by the PUC in the decoupling final D&O.
On December 27, 2016, the PUC issued an order consolidating the filings for this rate case with the Hawaiian Electric 2017 test year rate case and closed the docket.
See “Hawaiian Electric consolidated 2014 test year abbreviated and 2017 test year cases” in Note  3 of the Condensed Consolidated Financial Statements.
Maui Electric 2015 test year rate case .  On December 30, 2014, Maui Electric filed its abbreviated 2015 test year rate case filing. In recognition that its customers have been enduring a high bill environment, Maui Electric proposed no change to its base rates, thereby forgoing the opportunity to seek a general rate increase. Maui Electric stated that, if it were to seek an increase in base rates, its requested increase in revenue, based on its revenue requirement for a normalized 2015 test year, would have been $11.6 million, or 2.8%, over revenues at current effective rates with estimated 2015 RAM revenues. The indicated normalized 2015 test year revenue requirement is based on an estimated cost of common equity of 10.75%.
Management cannot predict whether the PUC will accept this abbreviated filing to satisfy Maui Electric’s obligation to file a rate case in 2015, whether additional material will be required to be submitted, whether Maui Electric will be required to proceed with a traditional rate proceeding or whether the rate case will be consolidated into the 2018 rate case filing.
Hawaii Electric Light 2016 test year rate case . On September 19, 2016, Hawaii Electric Light filed an application with the PUC for a general rate increase of $19.3 million over revenues at current effective rates (for a 6.5% increase in revenues), based on an 8.44% rate of return (which incorporates a return on equity of 10.60%). The last rate increase in base rates for Hawaii Electric Light was in January 2011. The $19.3 million requested is to cover higher operating costs (including expanded vegetation management focusing on albizia tree removal and increased pension costs) and system upgrades to increase reliability, improve customer service and integrate more renewable energy. As part of this case, Hawaii Electric Light is also taking steps towards innovative ratemaking by proposing implementation of performance based regulation (PBR) mechanisms to measure and link certain revenues to its performance in areas of customer service, reliability and communication relating to the private rooftop solar interconnection process. Hawaii Electric Light proposed an expansion of the range of fuel usage efficiencies under which fuel costs would be fully passed through to customers, and an additional trigger that would allow a re-establishment of fuel usage efficiency targets under certain conditions. In addition, Hawaii Electric Light proposed an equal sharing of fuel expenses outside the fuel usage efficiency target range.

68


The PUC held public hearings for this rate case in December 2016. On April 13, 2017, the PUC issued an order allowing the County of Hawaii to participate in the proceeding and denying the motions to intervene of two other parties.
On April 28, 2017, the Consumer Advocate filed its testimony in the proceeding, recommending an increase of $2.7 million over revenues at current effective rates (for a 0.9% increase in revenues), based on a 7.29% rate of return (which incorporates a return on equity of 8.75%). On May 25, 2017, the County of Hawaii filed its testimony in the proceeding, recommending reforms in rate design in an effort to support both renewable resources and the financial viability of the transmission and distribution infrastructure that is needed to support those resources.
On June 23, 2017, Hawaii Electric Light filed its rebuttal testimonies, proposing an increase of $16.0 million over revenues at current effective rates based on a rate of return of 8.42% and a return on equity of 10.6%.
On July 11, 2017, Hawaii Electric Light and the Consumer Advocate filed a Stipulated Settlement Letter, which documented agreements reached with the Consumer Advocate on all of the issues in the proceeding, except for the narrowed rate of ROACE issue of whether the stipulated ROACE should be reduced from 9.75% (by up to 25 basis points) based solely on the impact of decoupling, considering current circumstances and relevant precedents. The Parties agree that this narrowed issue is to be addressed through the submission of opening and closing briefs, without the need for an evidentiary hearing on the ROACE issue. On July 14, 2017, the PUC issued a letter canceling previously scheduled evidentiary hearings. On July 21, 2017, the Parties filed separate statements of probable entitlement, proposing the amount of interim revenue increase according to their respective proposed ROACE. See table above. According to State law, an interim D&O should be issued by August 21, 2017.
Hawaiian Electric 2017 test year rate case . On December 16, 2016, Hawaiian Electric filed an application with the PUC for a general rate increase of $106.4 million over revenues at current effective rates (for a 6.9% increase in revenues), for a 2017 test year. The request is based on an 8.28% rate of return (which incorporates a return on equity of 10.6% and a capital structure that includes a 57.4% common equity capitalization) on a $2.0 billion rate base. The $106.4 million request is primarily to pay for operating costs and for system upgrades to increase reliability, improve customer service and integrate more renewable energy. The application is also proposing a step adjustment to increase base rates by an additional $20.6 million when the Schofield Generation Station is placed in service, which is expected in the second quarter of 2018. As in Hawaii Electric Light’s rate increase application filed in September 2016, Hawaiian Electric’s application is taking steps toward innovative ratemaking by proposing implementation of PBR mechanisms related to its performance in areas of customer service, reliability and communication relating to the private rooftop solar interconnection process. Hawaiian Electric proposed an expansion of the range of fuel usage efficiencies under which fuel costs would be fully passed through to customers, and an additional trigger that would allow a re-establishment of fuel usage efficiency targets under certain conditions. On February 22, 2017, the PUC held public hearings for this rate case. On June 28, 2017, the PUC issued an order denying motions to intervene but allowing limited participant status to six organizations. The procedural schedule for this rate case includes an interim D&O tentatively scheduled for December 15, 2017 and an evidentiary hearing in early March 2018.
See “Hawaiian Electric consolidated 2014 test year abbreviated and 2017 test year cases” in Note  3 of the Condensed Consolidated Financial Statements.
Maui Electric 2018 test year rate case . On June 9, 2017, Maui Electric filed a notice of intent with the PUC to file a general rate case application by December 30, 2017 for a 2018 test year. The rate case filing is required to satisfy the obligation to file a general rate case under the three-year rate case cycle established by the PUC in the final D&O in the decoupling proceeding.
Performance-based regulation .  In the Hawaii Electric Light 2016 test year rate case, and the Hawaiian Electric 2017 test year rate case, the Utilities recommended that a separate investigatory docket be opened to evaluate PBR on a broader scale that can be implemented across the Utilities, and to fully develop a comprehensive PBR Framework.  PBR refers to different ways in which regulators have modified their regulatory approach in an attempt to strengthen financial incentives for Utilities to achieve desired outcomes.  In the its April 27, 2017 order in the Decoupling Investigative proceeding, the PUC stated that it would initiate a separate investigative docket to examine a full range of Performance Incentive Mechanism and PBR options.
Depreciation docket .  In December 2016, the Utilities filed an application with the PUC for approval of changes in the depreciation and amortization rates and amortization period for contributions in aid of construction (CIAC).  The application requests that the effective date of implementation of the change in depreciation and amortization rates and revised CIAC amortization period, as recommended by the 2015 Book Depreciation Study, coincide with the effective date of interim base rates (that include the increased expenses resulting from the new depreciation and amortization rates and change in CIAC amortization period) to be established in each of the Utilities’ next general rate cases or the effective date of the decoupling RBA Rate Adjustment that incorporates the new depreciation and amortization rates fo r each utility, whichever is sooner.

69


Developments in renewable energy efforts .  Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Condensed Consolidated Financial Statements and the following:
•
In December 2013, Hawaiian Electric requested PUC approval for a waiver of the Na Pua Makani Power Partners, LLC’s (NPM) proposed 24-MW wind farm located in the Kahuku area on Oahu from the competitive bidding process and the PPA for Renewable As-Available Energy dated October 3, 2013 between Hawaiian Electric and NPM for the proposed 24-MW wind farm. In December 2014, the PUC approved both the waiver request and the PPA. On September 15, 2016, Hawaiian Electric filed the Amended and Restated PPA, dated August 12, 2016, which reflects the completion of the interconnection requirements study, including, among other things, amendments related to the final design of the facility, scope of work, cost, schedule and reporting milestones. The PUC conducted a public hearing on February 2, 2017, regarding the request for PUC approval to construct an overhead 46 sub-transmission line to accommodate the interconnection of the NPM wind farm. This project is expected to be placed into service by August 31, 2019.
•
In July 2015, the PUC approved the PPA for the 27.6 MW Waianae Solar project that is being developed by Eurus Energy America. The project achieved commercial operations in January 2017 and is now the largest solar project in Hawaii.
•
In July 2015, Maui Electric signed two PPAs, with Kuia Solar and South Maui Renewable Resources (which subsequently assigned its PPA to SSA Solar of HI 2, LLC and SSA Solar of HI 3, LLC, respectively), each for a 2.87-MW solar facility. In February 2016, the PUC approved both PPAs, subject to certain conditions and modifications. The guaranteed commercial operations date for the facilities was December 31, 2016, however both projects are experiencing delays and are expected to be completed by the end of the fourth quarter in 2017.   
•
In September 2015, the PUC approved Hawaiian Electric’s 2-year biodiesel supply contract with Pacific Biodiesel Technologies, LLC (PBT) to supply 2 million to 3 million gallons of biodiesel at Campbell Industrial Park combustion turbine No. 1 (CIP CT-1) and the Honolulu International Airport Emergency Power Facility beginning in November 2015. The PBT contract is set to expire on November 2, 2018. PBT also has a spot buy contract with Hawaiian Electric to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was recently extended through June 2018. REG Marketing & Logistics Group, LLC has a contingency supply contract with Hawaiian Electric to also supply biodiesel to CIP CT-1 in the event PBT is not able to supply necessary quantities. This contingency contract has been extended to November 2018, and will continue with no volume purchase requirements.
•
On April 28, 2017 Hawaiian Electric issued a Biofuel Supply Request for Proposal for 3.1 million gallons of biofuel per year for three years, to commence as early as November 2018 to be used as fuel for power generation at Hawaiian Electric’s Schofield Generating Station, the Honolulu International Airport Emergency Power Facility and any other generating unit on Oahu, as necessary.
•
On May 5, 2016, Maui Electric filed a request for the PUC to open a docket and assign an Independent Observer to oversee the Maui Electric Dispatchable Firm Generation Request for Proposals. The solicitation intends to seek approximately 20 MW of new renewable generation capacity and approximately 20 MW of fuel flexible firm generation resources on the island of Maui by 2022.
•
On June 6, 2016, Hawaiian Electric filed a request for the PUC to open a docket and assign an Independent Observer to oversee the Hawaiian Electric Renewable Energy Request for Proposals. The solicitation intends to seek new renewable energy generation on the island of Oahu to be placed into service by the end of 2020, consistent with the Five-Year Action Plan proposed in the PSIP Update Report.
•
The Utilities began accepting energy from feed-in tariff projects in 2011. As of June 30, 2017 , there were 30 MW, 3 MW and 4 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.
•
As of June 30, 2017 , there were approximately 325 MW, 75 MW and 86 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely NEM, Customer Grid Supply and Customer Self Supply. As of June 30, 2017, an estimated 27% of single family homes on the islands the Utilities serve have installed private rooftop solar systems, and an estimated 29% of single family homes have installed, or have been approved to install, private rooftop solar systems. As of June 30, 2017, approximately 16% of the Utilities' total customers have solar systems.    
•
On January 5, 2017, Hawaiian Electric issued an Onshore Wind Expression of Interest requesting expressions of interest from independent power producers that are capable of developing utility scale onshore wind projects that are eligible to capture the federal Investment Tax Credit for Large Wind on the island of Oahu. Responses have been accepted and are being evaluated.

70


•
On January 6, 2017, Hawaii Electric Light and Maui Electric requested the PUC to open dockets to allow them to seek proposals for new renewable energy generation on the islands of Hawaii, Maui, Molokai, and Lanai.
•
On December 12, 2016, the Utilities issued a request for information asking interested landowners to provide information about properties on Oahu, Hawaii Island, Maui, Molokai and Lanai available for utility-scale renewable energy projects or for growing biofuel feedstock. Responses have been accepted and are being evaluated.
•
Hawaiian Electric had PPAs to purchase solar energy with three affiliates of SunEdison. In February 2016, as a result of the project entities missing contract milestones, Hawaiian Electric terminated the original PPAs for the three projects. SunEdison filed Chapter 11 bankruptcy proceedings and during those proceedings, the three SunEdison affiliates were acquired by an affiliate of NRG Energy, Inc. (NRG). Hawaiian Electric then negotiated with NRG and its newly acquired affiliates and has entered into amended and restated PPAs for solar energy on Oahu with Waipio PV, LLC for 45.9 MW, Lanikuhana Solar, LLC for 14.7 MW and Kawailoa Solar, LLC for 49.0 MW. On July 27, 2017, the PUC approved the three NRG PPAs, subject to modifications and conditions. The three projects are expected to be in service by the end of 2019.
Adequacy of supply.
Hawaiian Electric . In January 2017, Hawaiian Electric filed its 2017 Adequacy of Supply (AOS) letter, which indicated that based on its October 2016 sales and peak forecast for the 2017 - 2021 time period, Hawaiian Electric's generation capacity will be sufficient to meet reasonably expected demands for service and provide reasonable reserves for emergencies through 2018, but may have shortfalls in meeting the Utilities’ generating system reliability guideline. The calculated reliability guideline shortfalls are relatively small and Hawaiian Electric can implement mitigation measures.
In accordance to its planning criteria, Hawaiian Electric deactivated two fossil fuel generating units from active service at its Honolulu Power Plant in January 2014 and anticipates deactivating two additional fossil fuel units at its Waiau Power Plant in the 2022 timeframe. Hawaiian Electric acquired new firm capacity with the commissioning of the State of Hawaii Department of Transportation’s emergency power facility in June 2017. Hawaiian Electric is proceeding with a future firm capacity addition with the U.S. Department of the Army for a utility owned and operated renewable, dispatchable, including black start capabilities, generation security project on federal lands, which is expected to be in service in the second quarter of 2018. Hawaiian Electric is continuing negotiations with firm capacity IPPs on Oahu. On August 1, 2016, Hawaiian Electric and Kalaeloa entered into an agreement that neither party will give written notice of termination of the Kalaeloa PPA prior to October 31, 2017. The PPA with AES Hawaii is scheduled to expire in 2022. 
Hawaii Electric Light . In January 2017, Hawaii Electric Light filed its 2017 AOS letter, which indicated that Hawaii Electric Light’s generation capacity through 2019 is sufficient to meet reasonably expected demands for service and provide for reasonable reserves for emergencies. Additional generation from other renewable resources could be added in the 2018-2025 timeframe.
Maui Electric . In January 2017, Maui Electric filed its 2017 AOS letter, which indicated that Maui Electric’s generation capacity for the islands of Lanai and Molokai for the next three years is sufficiently large to meet all reasonably expected demands for service and provide reasonable reserves for emergencies. The 2017 AOS letter also indicated that without the peak reduction benefits of demand response but with the equivalent firm capacity value of wind generation, Maui Electric expects to have a small reserve capacity shortfall from 2017 to 2022 on the island of Maui. Maui Electric is evaluating several measures to mitigate the anticipated reserve capacity shortfall.  Maui Electric anticipates needing a significant amount of additional firm capacity on Maui in the 2022 timeframe after the planned retirement of the Kahului Power Plant.
In February 2014, Maui Electric deactivated two fossil fuel generating units, with a combined rating of 11.4 MW-net, at its Kahului Power Plant. Due to various system conditions including lack of wind generation, approaching storms and scheduled and unscheduled outages of generating units, transmission lines and independent power producers, the two deactivated units at Kahului Power Plant were reactivated for several days in 2015 and 2016. Due to the frequency of reactivations of Kahului Units 1 and 2 to meet system requirements, these units were removed from deactivated status and designated as reactivated in September 2016. Considering the time needed to acquire replacement firm generating capacity, Maui Electric now anticipates the retirement of all generating units at the Kahului Power Plant, which have a combined rating of 32.3 MW, in the 2022 timeframe. A capacity planning analysis is in progress to better define generating needs and timing. Maui Electric plans to issue one or more RFPs for energy storage, demand response and firm generating capacity, and to make system improvements needed to ensure reliability and voltage support in this timeframe. In May 2016, Maui Electric requested that the PUC open a new docket for Maui Electric’s competitive bidding process for additional firm capacity resources. In September 2016, Maui Electric submitted an application to purchase and install three temporary mobile distributed generation diesel engines to address increasing reserve capacity shortfalls on the island of Maui, but in February 2017 Maui Electric requested the PUC to suspend the proceeding until the progress in the demand response programs and the DR portfolio proceeding can be further evaluated.

71


Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. See “Recent tax developments” in Note 9 of the Condensed Consolidated Financial Statements. Also, in recent years, legislative, regulatory and governmental activities related to the environment, including proposals and rulemaking under the Clean Air Act and Clean Water Act (CWA), have increased significantly.
Clean Water Act Section 316(b) . On August 14, 2014, the EPA published in the Federal Register the final regulations required by section 316(b) of the CWA designed to protect aquatic organisms from adverse impacts associated with existing power plant cooling water intake structures. The regulations were effective October 14, 2014 and apply to the cooling water systems for the steam generating units at three of Hawaiian Electric’s power plants on the island of Oahu. The regulations prescribe a process, including a number of required site-specific studies, for states to develop facility-specific entrainment and impingement controls to be incorporated in each facility’s National Pollutant Discharge Elimination System permit. Hawaiian Electric submitted the final site specific studies for the Honolulu and Waiau power plants to the DOH in December 2016, and the final site specific study for Kahe will be submitted to the DOH no later than October 2017. Hawaiian Electric will work with the DOH to identify the appropriate compliance methods for the 316(b) rule.
Mercury Air Toxics Standards . On February 16, 2012, the EPA published the final rule establishing the National Emission Standards for Hazardous Air Pollutants for fossil-fuel fired steam electrical generating units (EGUs) in the Federal Register. The final rule, known as the Mercury and Air Toxics Standards (MATS), applies to the 14 EGUs at Hawaiian Electric’s power plants. MATS established the Maximum Achievable Control Technology standards for the control of hazardous air pollutants emissions from new and existing EGUs. Hawaiian Electric initially selected a MATS compliance strategy based on switching to lower emission fuels, but has since continued developing and refining its emission control strategy. Hawaiian Electric’s liquid oil-fired steam generating units that are subject to the MATS limits are able to comply with the new standards without a significant fuel switch in combination with a suite of operational changes.
Hawaiian Electric has proceeded with the implementation of its MATS Compliance Plan and has met all compliance requirements to date.
PUC Commissioner.   On May 19, 2017, the Governor appointed James Griffin as an interim PUC Commissioner, subject to Senate confirmation. Mr. Griffin was a researcher and a faculty member at the Hawaii Natural Energy Institute at the University of Hawaii at Manoa. He also previously served as Chief of Policy and Research at the PUC.
FINANCIAL CONDITION
Liquidity and capital resources.   Management believes that Hawaiian Electric’s ability, and that of its subsidiaries, to generate cash, both internally from operations and externally from issuances of equity and debt securities and commercial paper and draws on lines of credit, is adequate to maintain sufficient liquidity to fund their respective capital expenditures and investments and to cover debt, retirement benefits and other cash requirements in the foreseeable future.
Hawaiian Electric’s consolidated capital structure was as follows:
(dollars in millions)
 
June 30, 2017
 
December 31, 2016
Short-term borrowings
 
$
44

 
1
%
 
$
—

 
—
%
Long-term debt, net
 
1,319

 
41

 
1,319

 
42

Preferred stock
 
34

 
1

 
34

 
1

Common stock equity
 
1,804

 
57

 
1,800

 
57

 
 
$
3,201

 
100
%
 
$
3,153

 
100
%
 

72


Information about Hawaiian Electric’s short-term borrowings (other than from Hawaii Electric Light and Maui Electric) and Hawaiian Electric’s line of credit facility were as follows:
 
 
Average balance
 
Balance
(in millions)
 
Six months ended June 30, 2017
 
June 30, 2017
 
December 31, 2016
Short-term borrowings 1
 
 

 
 

 
 

Commercial paper
 
$
3

 
$
44

 
$
—

Line of credit draws
 
—

 
—

 
—

Borrowings from HEI
 
—

 
—

 
—

Undrawn capacity under line of credit facility
 
 
 
200

 
200

 
1    The maximum amount of external short-term borrowings by Hawaiian Electric during the first six months of 2017 was $44 million. As of June 30, 2017 , Hawaiian Electric had short-term borrowings from Hawaii Electric Light and Maui Electric of $4.1 million and $1.0 million, respectively. As of July 27, 2017 , Hawaiian Electric had $33 million of outstanding commercial paper, no draws under its line of credit facility and no borrowings from HEI. Also, as of July 27, 2017 , Hawaiian Electric had short-term borrowings from Hawaii Electric Light and Maui Electric of $6.6 million and $4.5 million, respectively, which intercompany borrowings are eliminated in consolidation.
Hawaiian Electric has a $200 million line of credit facility. See Note 5 of the Condensed Consolidated Financial Statements.
In May 2015, up to $80 million of SPRBs ($70 million for Hawaiian Electric, $2.5 million for Hawaii Electric Light and $7.5 million for Maui Electric) were authorized by the Hawaii legislature for issuance, with PUC approval, prior to June 30, 2020 to finance the Utilities’ capital improvement programs.
On April 28, 2017, Hawaiian Electric, Hawaii Electric Light and Maui Electric received PUC approval to issue unsecured obligations bearing taxable interest and/or refunding SPRBs with principal amounts totaling up to $252 million, $88 million and $75 million, respectively, to refinance three series of outstanding revenue bonds. The approval is limited to 2017, and an expedited approval procedure will apply for refinancings during January 2018 through December 2020. Pursuant to this approval, on June 29, 2017, the Department issued, at par, Refunding Series 2017A SPRBs in the aggregate principal amount of $125 million with a maturity of May 1, 2026 and Refunding Series 2017B SPRBs in the aggregate principal amount of $140 million with a maturity of March 1, 2037. See Note 5 of the Condensed Consolidated Financial Statements.
On January 26, 2017, Hawaiian Electric, Hawaii Electric Light and Maui Electric obtained PUC approval to issue, on or before December 31, 2017, unsecured obligations bearing taxable interest (Hawaiian Electric up to $100 million, Hawaii Electric Light up to $10 million and Maui Electric up to $30 million), with the proceeds expected to be used, as applicable, to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures and/or to reimburse funds used for payment of capital expenditures.
In March 2017 and amended in April 2017, the Utilities requested PUC approval to issue and sell each utility’s common stock through December 31, 2021 (Hawaiian Electric’s sale/s to HEI of up to $150 million and Hawaii Electric Light’s and Maui Electric’s sale/s to Hawaiian Electric of up to $10 million each) and the purchase of Hawaii Electric Light and Maui Electric common stock by Hawaiian Electric through December 31, 2021.
Cash flows . The following table reflects the changes in cash flows for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 :
 
Six months ended June 30,
 
 
(in thousands)
2017
 
2016
 
Change
Net cash provided by operating activities
$
150,676

 
$
194,124

 
$
(43,448
)
Net cash used in investing activities
(178,259
)
 
(180,191
)
 
1,932

Net cash used in financing activities
(4,121
)
 
(10,803
)
 
6,682

Net cash provided by operating activities. Cash flows from operating activities generally relate to the amount and timing of cash received from customers and payments made to third parties. Using the indirect method of determining cash flows from operating activities, noncash expense items such as depreciation and amortization, as well as changes in certain assets and liabilities, are added to (or deducted from) net income.
The decrease in net cash provided by operating activities was impacted by the following:
•
Lower cash from an increase in accounts receivable due to timing and increase in fuel prices.

73


•
Lower cash from an increase in fuel oil stock due to higher fuel prices.
•
Lower cash from an increase in unbilled revenues due to higher fuel prices.
•
Lower cash from refund of federal income taxes based on bonus depreciation enacted in the fourth quarter of 2015 that was subsequently received in 2016 (similar treatment was not granted in the fourth quarter of 2016).
And partially offset by an increase in net cash from operating activities provided by the following:
•
Higher cash from an increase in accounts payable due to higher fuel prices.
Net cash used in investing activities. The increase in net cash used in investing activities was driven primarily by a capital goods tax credit, partially offset by an increase in capital expenditures related to construction activities.
Net cash used in financing activities. Financing activities provide supplemental cash for both day-to-day operations and capital requirements as needed. The decrease in net cash used in financing activities primarily reflect higher proceeds from short-term borrowings.
2017 forecast capital expenditures . For 2017, the Utilities forecast $420 million of net capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental regulations, unforeseen delays in permitting and timing of PUC decisions. Proceeds from the issuance of equity and long-term debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents are expected to provide the forecasted $420 million needed for the net capital expenditures in 2017 as well as to pay down commercial paper or other short-term borrowings, fund any unanticipated expenditures not included in the 2017 forecast such as increases in the costs or acceleration of the construction of capital projects, unanticipated capital expenditures that may be required by new environmental laws and regulations, unbudgeted acquisitions or investments in new businesses and significant increases in retirement benefit funding requirements.


74


Bank
 
 
Three months ended June 30
 
Increase
 
 
(in millions)
 
2017
 
2016
 
(decrease)
 
Primary reason(s)
Interest income
 
$
59

 
$
54

 
$
5

 
The increase in interest income was the result of higher average earning asset balances and an increase in yields on earning assets. ASB’s average loan portfolio balance for the three months ended June 30, 2017 increased by $24 million compared to the same period in 2016 as average consumer, commercial real estate and home equity lines of credit balances increased by $60 million, $50 million and $21 million, respectively. The growth in these loan portfolios was reflective of ASB’s portfolio mix target and loan growth strategy. The average commercial loan balance decreased by $99 million primarily due to a decrease in the syndicated national credit loan portfolio. The yield on earning assets increased by 7 basis points due to a shift in the mix of the loan portfolio with the growth in the commercial real estate and consumer loan portfolios, which resulted in an increase in loan portfolio yields of 19 basis points and repricing of adjustable rate commercial loans with the increase in the interest rate environment. The average investment securities portfolio balance increased by $389 million due to the use of excess liquidity to purchase investments. The yield on the investment securities portfolio increased by 14 basis points as new investment purchase yields were higher due to the increase in short-term interest rates.
Noninterest income
 
16

 
17

 
(1
)
 
Noninterest income decreased slightly for the three months ended June 30, 2017 compared to noninterest income for the three months ended June 30, 2016 due to lower mortgage banking income partly offset by higher bank owned life insurance income. Prior year’s noninterest income included gains on sales of securities with no similar sales in 2017.
Revenues
 
75

 
71

 
4

 
 
Interest expense
 
3

 
3

 
—

 
Interest expense was flat for the three months ended June 30, 2017 compared to the same period in 2016 as higher interest expense from the growth in term certificates was offset by lower interest expense on other borrowings as a result of lower repurchase agreements. Average deposit balances for the three months ended June 30, 2017 increased by $487 million compared to the same period in 2016 due to an increase in core deposits and term certificates of $327 million and $160 million, respectively. Other borrowings decreased by $84 million primarily due to a decrease in repurchase agreements. The interest-bearing liability rate decreased by 2 basis points.
Provision for loan losses
 
3

 
5

 
(2
)
 
The provision for loan losses decreased by $1.9 million for the three months ended June 30, 2017 compared to the provision for loan losses for the three months ended June 30, 2016. The provision for loan losses for 2017 was primarily due to increased loan loss reserves for the consumer loan portfolio. The provision for loan losses for 2016 was primarily due to increased reserves for growth in the loan portfolio, additional loan loss reserves for the consumer loan portfolio and loan loss reserves for commercial loans due to downgrades of specific commercial credits. Delinquency rates have decreased from 0.49% at June 30, 2016 to 0.44% at June 30, 2017. The annualized net charge-off ratio for the three months ended June 30, 2017 was 0.21% compared to an annualized net charge-off ratio of 0.15% for the same period in 2016. The increase in net charge-offs were due to an increase in consumer loan portfolio charge-offs as a result of ASB’s strategic expansion of its unsecured consumer loan product offering with risk-based pricing.
Noninterest expense
 
45

 
43

 
2

 
The increase in noninterest expense for the three months ended June 30, 2017 compared to the same period in 2016 was primarily due to higher compensation and employee benefits expenses as a result of higher performance-based compensation costs and higher employee benefit costs. Prior year’s noninterest expense included costs related to the replacement and upgrade of the electronic banking platform.
Expenses
 
51

 
51

 
—

 
 
Operating income
 
24

 
20

 
4

 
Higher net interest income and lower provision for loan losses was partly offset by higher noninterest expenses and lower noninterest income.
Net income
 
17

 
13

 
4

 
 


75


 
 
Six months ended June 30
 
Increase
 
 
(in millions)
 
2017
 
2016
 
(decrease)
 
Primary reason(s)
Interest income
 
$
117

 
$
108

 
$
9

 
The increase in interest income was the result of higher average earning asset balances and an increase in yields on earning assets. ASB’s average loan portfolio balance for the six months ended June 30, 2017 increased by $60 million compared to the same period in 2016 as average commercial real estate, consumer and home equity lines of credit balances increased by $76 million, $60 million and $19 million, respectively. The growth in these loan portfolios was reflective of ASB’s portfolio mix target and loan growth strategy. The average commercial loan balance decreased by $89 million primarily due to a decrease in the syndicated national credit loan portfolio. The yield on earning assets increased by 6 basis points due to a shift in the mix of the loan portfolio with the growth in the commercial real estate and consumer loan portfolios, which resulted in an increase in loan portfolio yields of 16 basis points and repricing of adjustable rate commercial loans with the increase in the interest rate environment. The average investment securities portfolio balance increased by $347 million due to the use of excess liquidity to purchase investments. The yield on the investment securities portfolio increased by 10 basis points as new investment purchase yields were higher due to the increase in short-term interest rates.
Noninterest income
 
31

 
32

 
(1
)
 
Noninterest income decreased slightly for the six months ended June 30, 2017 compared to noninterest income for the six months ended June 30, 2016 due to lower mortgage banking income partly offset by higher bank-owned life insurance income.
Revenues
 
148

 
140

 
8

 
 
Interest expense
 
6

 
6

 
—

 
Interest expense was flat for the six months ended June 30, 2017 compared to the same period in 2016 as higher interest expense from the growth in term certificates was offset by lower interest expense on other borrowings as a result of lower repurchase agreements. Average deposit balances for the six months ended June 30, 2017 increased by $511 million compared to the same period in 2016 due to an increase in core deposits and term certificates of $350 million and $161 million, respectively. Other borrowings decreased by $100 million primarily due to a decrease in repurchase agreements. The interest-bearing liability rate decreased by 3 basis points.
Provision for loan losses
 
7

 
10

 
(3
)
 
The provision for loan losses decreased by $2.8 million for the six months ended June 30, 2017 compared to the provision for loan losses for the six months ended June 30, 2016. The provision for loan losses for 2017 was primarily due to increased loan loss reserves for the consumer loan portfolio and additional loan loss reserves for the commercial real estate loan portfolio due to the downgrade of a commercial real estate relationship. The provision for loan losses for 2016 was primarily due to increased reserves for growth in the loan portfolio, additional loan loss reserves for the consumer loan portfolio and loan loss reserves for commercial loans due to downgrades of specific commercial credits. Delinquency rates have decreased from 0.49% at June 30, 2016 to 0.44% at June 30, 2017. The annualized net charge-off ratio for the six months ended June 30, 2017 was 0.25% compared to an annualized net charge-off ratio of 0.18% for the same period in 2016. The increase in net charge-offs were due to an increase in consumer loan portfolio charge-offs as a result of ASB’s strategic expansion of its unsecured consumer loan product offering with risk-based pricing.
Noninterest expense
 
86

 
84

 
2

 
The increase in noninterest expense for the six months ended June 30, 2017 compared to the same period in 2016 was primarily due to higher compensation and employee benefits expenses as a result of higher performance-based compensation costs and higher employee benefit costs. Prior year’s noninterest expense included costs related to the replacement and upgrade of the electronic banking platform.
Expenses
 
99

 
100

 
(1
)
 
 
Operating income
 
49

 
40

 
9

 
Higher net interest income and lower provision for loan losses was partly offset by higher noninterest expenses and lower noninterest income.
Net income
 
33

 
26

 
7

 
 

                         See Note 4 of the Condensed Consolidated Financial Statements and “Economic conditions” in the “HEI Consolidated” section above.
                        ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.

76


                        ASB’s return on average assets, return on average equity and net interest margin were as follows:
 
 
Three months ended June 30
 
Six months ended June 30
(percent)
 
2017
 
2016
 
2017
 
2016
Return on average assets
 
1.02

 
0.86

 
1.00

 
0.85

Return on average equity
 
11.25

 
9.22

 
11.04

 
9.06

Net interest margin
 
3.68

 
3.58

 
3.68

 
3.60

Average balance sheet and net interest margin.   The following tables provide a summary of average balances including major categories of interest-earning assets and interest-bearing liabilities:
 
 
Three months ended June 30
 
 
2017
 
2016
(dollars in thousands)
 
Average
balance
 
Interest 1  
income/
expense
 
Yield/
rate (%)
 
Average
balance
 
Interest 1
  income/
expense
 
Yield/
rate (%)
Assets:
 
 

 
 

 
 

 
 

 
 

 
 

Interest-earning deposits
 
$
46,507

 
$
121

 
1.03

 
$
64,821

 
$
81

 
0.49

FHLB stock
 
11,759

 
57

 
1.96

 
11,284

 
44

 
1.58

Available-for-sale investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
1,267,945

 
6,481

 
2.04

 
894,684

 
4,318

 
1.93

Non-taxable
 
15,427

 
160

 
4.11

 
—

 
—

 
—

Total available-for-sale investment securities
 
1,283,372

 
6,641

 
2.07

 
894,684

 
4,318

 
1.93

Loans
 
 
 
 
 
 
 
 
 
 
 
 
Residential 1-4 family
 
2,070,450

 
22,163

 
4.28

 
2,075,255

 
22,201

 
4.28

Commercial real estate
 
917,019

 
9,722

 
4.21

 
867,266

 
8,716

 
4.01

Home equity line of credit
 
877,462

 
7,248

 
3.31

 
856,960

 
6,989

 
3.28

Residential land
 
16,111

 
217

 
5.38

 
18,758

 
285

 
6.08

Commercial
 
663,200

 
7,090

 
4.27

 
762,247

 
7,595

 
3.99

Consumer
 
202,914

 
5,877

 
11.62

 
142,955

 
3,904

 
10.98

Total loans 2,3
 
4,747,156

 
52,317

 
4.40

 
4,723,441

 
49,690

 
4.21

Total interest-earning assets 2
 
6,088,794

 
59,136

 
3.88

 
5,694,230

 
54,133

 
3.81

Allowance for loan losses
 
(56,715
)
 
 

 
 

 
(52,749
)
 
 

 
 

Non-interest-earning assets
 
534,581

 
 

 
 

 
503,617

 
 

 
 

Total assets
 
$
6,566,660

 
 

 
 

 
$
6,145,098

 
 

 
 

Liabilities and shareholder’s equity:
 
 

 
 

 
 

 
 

 
 

 
 

Savings
 
$
2,274,832

 
$
386

 
0.07

 
$
2,099,422

 
$
343

 
0.07

Interest-bearing checking
 
908,864

 
59

 
0.03

 
834,821

 
42

 
0.02

Money market
 
146,962

 
45

 
0.12

 
165,433

 
52

 
0.13

Time certificates
 
679,866

 
1,821

 
1.07

 
520,151

 
1,254

 
0.97

Total interest-bearing deposits
 
4,010,524

 
2,311

 
0.23

 
3,619,827

 
1,691

 
0.19

Advances from Federal Home Loan Bank
 
101,335

 
788

 
3.08

 
101,648

 
785

 
3.06

Securities sold under agreements to repurchase
 
95,740

 
36

 
0.15

 
179,559

 
682

 
1.51

Total interest-bearing liabilities
 
4,207,599

 
3,135

 
0.30

 
3,901,034

 
3,158

 
0.32

Non-interest bearing liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

Deposits
 
1,664,592

 
 

 
 

 
1,568,725

 
 

 
 

Other
 
99,710

 
 

 
 

 
98,678

 
 

 
 

Shareholder’s equity
 
594,759

 
 

 
 

 
576,661

 
 

 
 

Total liabilities and shareholder’s equity
 
$
6,566,660

 
 

 
 

 
$
6,145,098

 
 

 
 

Net interest income
 
 

 
$
56,001

 
 

 
 

 
$
50,975

 
 

Net interest margin (%) 4
 
 

 
 

 
3.68

 
 

 
 

 
3.58



77


 
 
Six months ended June 30
 
 
2017
 
2016
(dollars in thousands)
 
Average
balance
 
Interest 1  
income/
expense
 
Yield/
rate (%)
 
Average
balance
 
Interest 1
  income/
expense
 
Yield/
rate (%)
Assets:
 
 

 
 

 
 

 
 

 
 

 
 

Interest-earning deposits
 
$
69,421

 
$
307

 
0.88

 
$
72,070

 
$
180

 
0.49

FHLB stock
 
11,498

 
105

 
1.85

 
11,031

 
88

 
1.61

Available-for-sale investment securities
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
1,206,272

 
13,130

 
2.18

 
874,542

 
9,192

 
2.10

Non-taxable
 
15,427

 
310

 
4.00

 
—

 
—

 
—

Total available-for-sale investment securities
 
1,221,699

 
13,440

 
2.20

 
874,542

 
9,192

 
2.10

Loans
 
 
 
 
 
 
 
 
 
 
 
 
Residential 1-4 family
 
2,071,931

 
43,789

 
4.23

 
2,075,890

 
44,521

 
4.29

Commercial real estate
 
913,940

 
19,134

 
4.18

 
837,837

 
16,880

 
4.02

Home equity line of credit
 
872,973

 
14,364

 
3.32

 
854,145

 
13,854

 
3.26

Residential land
 
17,057

 
495

 
5.80

 
18,482

 
561

 
6.07

Commercial
 
666,741

 
14,245

 
4.30

 
755,510

 
14,967

 
3.96

Consumer
 
195,158

 
11,032

 
11.40

 
135,572

 
7,344

 
10.89

Total loans 2,3
 
4,737,800

 
103,059

 
4.36

 
4,677,436

 
98,127

 
4.20

Total interest-earning assets 2
 
6,040,418

 
116,911

 
3.88

 
5,635,079

 
107,587

 
3.82

Allowance for loan losses
 
(56,477
)
 
 

 
 

 
(51,599
)
 
 

 
 

Non-interest-earning assets
 
527,302

 
 

 
 

 
500,412

 
 

 
 

Total assets
 
$
6,511,243

 
 

 
 

 
$
6,083,892

 
 

 
 

Liabilities and shareholder’s equity:
 
 

 
 

 
 

 
 

 
 

 
 

Savings
 
$
2,261,549

 
$
760

 
0.07

 
$
2,073,790

 
$
676

 
0.07

Interest-bearing checking
 
897,346

 
114

 
0.03

 
828,345

 
84

 
0.02

Money market
 
151,293

 
92

 
0.12

 
166,338

 
105

 
0.13

Time certificates
 
670,717

 
3,448

 
1.04

 
509,884

 
2,418

 
0.95

Total interest-bearing deposits
 
3,980,905

 
4,414

 
0.22

 
3,578,357

 
3,283

 
0.18

Advances from Federal Home Loan Bank
 
100,671

 
1,563

 
3.09

 
101,854

 
1,571

 
3.05

Securities sold under agreements to repurchase
 
94,713

 
77

 
0.16

 
193,296

 
1,381

 
1.42

Total interest-bearing liabilities
 
4,176,289

 
6,054

 
0.29

 
3,873,507

 
6,235

 
0.32

Non-interest bearing liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

Deposits
 
1,646,275

 
 

 
 

 
1,537,660

 
 

 
 

Other
 
98,875

 
 

 
 

 
99,427

 
 

 
 

Shareholder’s equity
 
589,804

 
 

 
 

 
573,298

 
 

 
 

Total liabilities and shareholder’s equity
 
$
6,511,243

 
 

 
 

 
$
6,083,892

 
 

 
 

Net interest income
 
 

 
$
110,857

 
 

 
 

 
$
101,352

 
 

Net interest margin (%) 4
 
 

 
 

 
3.68

 
 

 
 

 
3.60

1     
Interest income includes taxable equivalent basis adjustments, based upon a federal statutory tax rate of 35%, of $0.06 million and nil for the three months ended June 30, 2017 and 2016, respectively and $0.1 million and nil for the six months ended June 30, 2017 and 2016, respectively.
2 Includes loans held for sale, at lower of cost or fair value.  
3     
Includes recognition of deferred loan fees of $0.6 million and $0.7 million for the three months ended June 30, 2017 and 2016 and $1.1 million and $1.5 million for the six months ended June 30, 2017 and 2016, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans.
4    
Defined as net interest income as a percentage of average total interest-earning assets.
Earning assets, costing liabilities and other factors.   Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets over a period of several years. These conditions have begun to moderate with the interest rate increases in the past year which resulted in an increase in ASB’s net interest income and net interest margin.
                        Loan originations and mortgage-related securities are ASB’s primary earning assets.

78


                        Loan portfolio .   ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. The composition of ASB’s loans receivable was as follows:
 
 
June 30, 2017
 
December 31, 2016
(dollars in thousands)
 
Balance
 
% of total
 
Balance
 
% of total
Real estate:
 
 

 
 

 
 

 
 

Residential 1-4 family
 
$
2,061,549

 
43.4

 
$
2,048,051

 
43.2

Commercial real estate
 
808,900

 
17.1

 
800,395

 
16.9

Home equity line of credit
 
883,135

 
18.6

 
863,163

 
18.2

Residential land
 
16,009

 
0.3

 
18,889

 
0.4

Commercial construction
 
116,548

 
2.5

 
126,768

 
2.7

Residential construction
 
10,759

 
0.2

 
16,080

 
0.3

Total real estate, net
 
3,896,900

 
82.1

 
3,873,346

 
81.7

Commercial
 
649,657

 
13.7

 
692,051

 
14.6

Consumer
 
201,199

 
4.2

 
178,222

 
3.7

 
 
4,747,756

 
100.0

 
4,743,619

 
100.0

Less: Deferred fees and discounts
 
(3,122
)
 
 

 
(4,926
)
 
 

Allowance for loan losses
 
(56,356
)
 
 

 
(55,533
)
 
 

Total loans, net
 
$
4,688,278

 
 

 
$
4,683,160

 
 

Home equity — key credit statistics . Attention has been given by regulators and rating agencies to the potential for increased exposure to credit losses associated with home equity lines of credit (HELOC) that were originated during the period of rapid home price appreciation between 2003 and 2007 as they have reached, or are starting to reach, the end of their 10-year, interest only payment periods. Once the interest only payment period has ended, payments are reset to include principal repayments along with interest. ASB does not have a large exposure to HELOCs originated between 2003 and 2007. Nearly all of the HELOC originations prior to 2008 consisted of amortizing equity lines that have structured principal payments during the draw period. These older equity lines represent 2% of the portfolio and are included in the amortizing balances identified in the loan portfolio table below .
 
 
June 30, 2017
 
December 31, 2016
Outstanding balance of home equity loans (in thousands)
 
$
883,135

 
$
863,163

Percent of portfolio in first lien position
 
46.2
 %
 
45.1
%
Annualized net charge-off (recovery) ratio
 
(0.03
)%
 
0.01
%
Delinquency ratio
 
0.28
 %
 
0.35
%
 
 
 
 
 
 
End of draw period – interest only
 
Current
June 30, 2017
 
Total
 
Interest only
 
2017-2018
 
2019-2021
 
Thereafter
 
amortizing
Outstanding balance (in thousands)
 
$
883,135

 
$
701,709

 
$
62,453

 
$
101,546

 
$
537,710

 
$
181,426

% of total
 
100
%
 
79
%
 
7
%
 
11
%
 
61
%
 
21
%
 
                        The HELOC portfolio comprised 19% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year period, after which time the HELOC outstanding balance converts to a fully amortizing variable rate term loan with a 20-year amortization period. This product type comprises 79% of the total HELOC portfolio and is the current product offering. Borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully amortizing fixed rate loan with level principal and interest payments. As of June 30, 2017 , approximately 19% of the portfolio balances were amortizing loans under the Fixed Rate Loan Option.
Loan portfolio risk elements .   See Note 4 of the Condensed Consolidated Financial Statements.

79


Available-for-sale investment securities .   ASB’s investment portfolio was comprised as follows:
 
 
June 30, 2017
 
December 31, 2016
(dollars in thousands)
 
Balance
 
% of total
 
Balance
 
% of total
U.S. Treasury and federal agency obligations
 
$
186,583

 
14
%
 
$
192,281

 
18
%
Mortgage-related securities — FNMA, FHLMC and GNMA
 
1,100,876

 
85

 
897,474

 
81

Mortgage revenue bond
 
15,427

 
1

 
15,427

 
1

Total available-for-sale investment securities
 
$
1,302,886

 
100
%
 
$
1,105,182

 
100
%
Principal and interest on mortgage-related securities issued by Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and Government National Mortgage Association (GNMA) are guaranteed by the issuer and, in the case of GNMA, backed by the full faith and credit of the U.S. government.
Deposits and other borrowings .   Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. Deposit retention and growth will remain challenging in the current environment due to competition for deposits and the low level of short-term interest rates. Advances from the FHLB of Des Moines and securities sold under agreements to repurchase continue to be additional sources of funds. As of June 30, 2017 and December 31, 2016, ASB’s costing liabilities consisted of 97% deposits and 3% other borrowings. The weighted average cost of deposits for the first six months of 2017 and 2016 was 0.16% and 0.13%, respectively.
Federal Home Loan Bank of Des Moines . As of June 30, 2017 and December 31, 2016, ASB had $100 million of advances outstanding at the FHLB of Des Moines. As of June 30, 2017 , the unused borrowing capacity with the FHLB of Des Moines was $1.8 billion. The FHLB of Des Moines will continue to be a source of liquidity for ASB.
Other factors .   Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities.
As of June 30, 2017 , ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $5.7 million compared to an unrealized loss, net of taxes, of $7.9 million at December 31, 2016. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.
During the first six months of 2017, ASB recorded a provision for loan losses of $6.7 million primarily due to increased loan loss reserves for the consumer loan portfolio and additional loan loss reserves for the commercial real estate loan portfolio due to the downgrade of a commercial real estate relationship. During the first six months of 2016, ASB recorded a provision for loan losses of $9.5 million primarily due to increased reserves for growth in the loan portfolio, additional loan loss reserves for the consumer loan portfolio and loan loss reserves for commercial loans due to downgrades of specific commercial credits. Financial stress on ASB’s customers may result in higher levels of delinquencies and losses.
 
 
Six months ended June 30
 
Year ended
December 31,
(in thousands)
 
2017
 
2016
 
2016
Allowance for loan losses, January 1
 
$
55,533

 
$
50,038

 
$
50,038

Provision for loan losses
 
6,741

 
9,519

 
16,763

Less: net charge-offs
 
5,918

 
4,226

 
11,268

Allowance for loan losses, end of period
 
$
56,356

 
$
55,331

 
$
55,533

Ratio of net charge-offs during the period to average loans outstanding (annualized)
 
0.25
%
 
0.18
%
 
0.24
%
We maintain a reserve for credit losses that consists of two components, the allowance for loan losses and a reserve for unfunded loan commitments (unfunded reserve). The level of the reserve for unfunded loan commitments is adjusted by recording an expense or recovery in other noninterest expense. As of June 30, 2017 and December 31, 2016, the reserve for unfunded loan commitments was $1.7 million and $1.8 million, respectively.     
Legislation and regulation.   ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.”

80


Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) .   Regulation of the financial services industry, including regulation of HEI, ASB Hawaii and ASB, has changed and will continue to change as a result of the enactment of the Dodd-Frank Act, which became law in July 2010. Importantly for HEI, ASB Hawaii and ASB, under the Dodd-Frank Act all of the functions of the Office of Thrift Supervision transferred on July 21, 2011 to the OCC, the FDIC, the FRB and the Consumer Financial Protection Bureau (Bureau). Supervision and regulation of HEI and ASB Hawaii, as thrift holding companies, moved to the FRB, and supervision and regulation of ASB, as a federally chartered savings bank, moved to the OCC. While the laws and regulations applicable to HEI and ASB did not generally change, the applicable laws and regulations are being interpreted, and new and amended regulations may be adopted, by the FRB, the OCC and the Bureau. In addition, HEI will continue to be required to serve as a source of strength to ASB in the event of its financial distress. The Dodd-Frank Act also imposed new restrictions on the ability of a savings bank to pay dividends should it fail to remain a qualified thrift lender.
More stringent affiliate transaction rules now apply to ASB in the securities lending, repurchase agreement and derivatives areas. Standards were raised with respect to the ability of ASB to merge with or acquire another institution. In reviewing a potential merger or acquisition, the approving federal agency will need to consider the extent to which the proposed transaction will result in “greater or more concentrated risks to the stability of the U.S. banking or financial system.”
The Dodd-Frank Act established the Bureau. It has authority to prohibit practices it finds to be unfair, deceptive or abusive, and it may also issue rules requiring specified disclosures and the use of new model forms. On January 10, 2013, the Bureau issued the Ability-to-Repay rule which closed for comment on February 25, 2013. For mortgages, among other things, (i) potential borrowers have to supply financial information, and lenders must verify it, (ii) to qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan and (iii) lenders have to determine the consumer’s ability to repay both the principal and the interest over the long term - not just during an introductory period when the rate may be lower.
ASB may also be subject to new state regulation because of a provision in the Dodd-Frank Act that acknowledges that a federal savings bank may be subject to state regulation and allows federal law to preempt a state consumer financial law on a “case by case” basis only when (1) the state law would have a discriminatory effect on the bank compared to that on a bank chartered in that state, (2) the state law prevents or significantly interferes with a bank’s exercise of its power or (3) the state law is preempted by another federal law.
The Dodd-Frank Act also adopts a number of provisions that impact the mortgage industry, including the imposition of new specific duties on the part of mortgage originators (such as ASB) to act in the best interests of consumers and to take steps to ensure that consumers will have the capability to repay loans they may obtain, as well as provisions imposing new disclosure requirements and requiring appraisal reforms.
Also, the Dodd-Frank Act directs the Bureau to publish rules and forms that combine certain disclosures that consumers receive in connection with applying for and closing on a mortgage loan under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Consistent with this requirement, the Bureau amended Regulation X (Real Estate Settlement Procedures Act) and Regulation Z (Truth in Lending) to establish new disclosure requirements and forms in Regulation Z for most closed-end consumer credit transactions secured by real property. In addition to combining the existing disclosure requirements and implementing new requirements, the final rule provides extensive guidance regarding compliance with those requirements. This rule was effective October 3, 2015.
The “Durbin Amendment” to the Dodd-Frank Act required the FRB to issue rules to ensure that debit card interchange fees are “reasonable and proportional” to the processing costs incurred. In June 2011, the FRB issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. Under the final rule, effective October 1, 2011, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is 21-24 cents, depending on certain components. Financial institutions and their affiliates that have less than $10 billion in assets are exempt from this Amendment; however, on July 1, 2013, ASB became non-exempt as the consolidated assets of HEI exceeded $10 billion. The debit card interchange fees received by ASB have been lower as a result of the application of this Amendment.
Final Capital Rules .  On July 2, 2013, the FRB finalized its rule implementing the Basel III regulatory capital framework. The final rule would apply to banking organizations of all sizes and types regulated by the FRB and the OCC, except bank holding companies subject to the FRB’s Small Bank Holding Company Policy Statement and Savings & Loan Holding Companies (SLHCs) substantially engaged in insurance underwriting or commercial activities. HEI currently meets the requirements of the exemption as a top-tier grandfathered unitary SLHC that derived, as of June 30 of the previous calendar year, either 50% or more of its total consolidated assets or 50% or more of its total revenues on an enterprise-wide basis (calculated under GAAP) from activities that are not financial in nature pursuant to Section 4(k) of the Bank Holding Company Act. The FRB is temporarily excluding these SLHCs from the final rule while it considers a proposal relating to capital and other requirements for SLHC intermediate holding companies (such as ASB Hawaii). The FRB indicated that it would release a proposal on intermediate holding companies that would specify the criteria for establishing and transferring activities to intermediate holding

81


companies and propose to apply the FRB’s capital requirements to such intermediate holding companies. The FRB has not yet issued such a proposal, or a proposal on how to apply the Basel III capital rules to SLHCs that are substantially engaged in commercial or insurance underwriting activities, such as grandfathered unitary SLHCs like HEI.
Pursuant to the final rule and consistent with the proposals, all banking organizations, including covered holding companies, would initially be subject to the following minimum regulatory capital requirements: a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8% of risk-weighted assets and a tier 1 leverage ratio of 4%, and these requirements would increase in subsequent years. In order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers, the final rule requires a banking organization to hold a buffer of common equity tier 1 capital above its minimum capital requirements in an amount greater than 2.5% of total risk-weighted assets (capital conservation buffer). In addition, a countercyclical capital buffer would expand the capital conservation buffer by up to 2.5% of a banking organization’s total risk-weighted assets for advanced approaches banking organizations. The final rule would establish qualification criteria for common equity, additional tier 1 and tier 2 capital instruments that help to ensure their ability to absorb losses. All banking organizations would be required to calculate risk-weighted assets under the standardized approach, which harmonizes the banking agencies’ calculation of risk-weighted assets and address shortcomings in capital requirements identified by the agencies. The phased-in effective dates of the capital requirements under the final rule are:
Minimum Capital Requirements
Effective dates
 
1/1/2015
 
1/1/2016
 
1/1/2017
 
1/1/2018
 
1/1/2019
Capital conservation buffer
 
 

 
0.625
%
 
1.25
%
 
1.875
%
 
2.50
%
Common equity Tier-1 ratio + conservation buffer
 
4.50
%
 
5.125
%
 
5.75
%
 
6.375
%
 
7.00
%
Tier-1 capital ratio + conservation buffer
 
6.00
%
 
6.625
%
 
7.25
%
 
7.875
%
 
8.50
%
Total capital ratio + conservation buffer
 
8.00
%
 
8.625
%
 
9.25
%
 
9.875
%
 
10.50
%
Tier-1 leverage ratio
 
4.00
%
 
4.00
%
 
4.00
%
 
4.00
%
 
4.00
%
Countercyclical capital buffer — not applicable to ASB
 
 

 
0.625
%
 
1.25
%
 
1.875
%
 
2.50
%
The final rule was effective January 1, 2015 for ASB. As of June 30, 2017 , ASB met the new capital requirements with a Common equity Tier-1 ratio of 12.4%, a Tier-1 capital ratio of 12.4%, a Total capital ratio of 13.7% and a Tier-1 leverage ratio of 8.5%.
Subject to the timing and final outcome of the FRB’s SLHC intermediate holding company proposal, HEI anticipates that the capital requirements in the final rule will eventually be effective for HEI or ASB Hawaii as well. If the fully phased-in capital requirements were currently applicable to HEI, management believes HEI would satisfy the capital requirements, including the fully phased-in capital conservation buffer. Management cannot predict what final rule the FRB may adopt concerning intermediate holding companies or their impact on ASB Hawaii, if any.
Military Lending Act. The Department of Defense (DOD) amended its regulation that implements the Military Lending Act (MLA), which became effective on October 3, 2016. The DOD amended its regulation primarily for the purpose of extending the protections of the MLA to a broader range of closed-end and open-end credit products. It initially applied to three narrowly-defined “consumer credit” products: closed-end payday loans; closed-end auto title loans; and closed-end tax refund anticipation loans. The DOD revised the scope of the definition of ‘‘consumer credit’’ to be generally consistent with the credit products that have been subject to the requirements of the Regulation Z, namely: credit offered or extended to a covered borrower primarily for personal, family or household purposes and that is (i) subject to a finance charge or (ii) payable by a written agreement in more than four installments.
Additionally, the DOD elected to exercise its discretion by generally requiring any fees for credit insurance products or for credit-related ancillary products to be included in the Military Annual Percentage Rate. The DOD also modified the disclosures that a creditor must provide to a covered borrower and implemented the enforcement provisions of the MLA. ASB has modified certain products, practices and associated training to conform to these changes.
Overtime Rules. The Secretary of Labor updated the overtime regulations of the Fair Labor Standards Act to simplify and modernize them. The Department of Labor issued final rules that will raise the salary threshold indicating eligibility from $455/week to $913/week ($47,476 per year), and update automatically the salary threshold every three years, based on wage growth over time, increasing predictability. The final rule was to become effective on December 1, 2016. In late-November 2016 however, the U.S. District Court in the Eastern District of Texas granted a nationwide preliminary injunction that blocked the final rule, saying the Department of Labor's rule exceeds the authority the agency was delegated by Congress. Despite this block, ASB modified its salaries in the fourth quarter of 2016 such that it is in voluntary compliance with the final rule.
Arbitration Agreements. Pursuant to section 1028(b) of the Dodd-Frank Act, on July 19, 2017, the Bureau issued a final rule to regulate arbitration agreements in contracts for specified consumer financial product and services. First, the final rule prohibits

82


covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action concerning the covered consumer financial product or service. Second, the final rule requires covered providers that are involved in arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the Bureau and also to submit specified court records. This regulation is effective September 18, 2017. ASB is currently evaluating the impact of this final rule on its affected agreements.
FINANCIAL CONDITION
Liquidity and capital resources.
(dollars in millions)
 
June 30, 2017
 
December 31, 2016
 
% change
Total assets
 
$
6,611

 
$
6,421

 
3

Available-for-sale investment securities
 
1,303

 
1,105

 
18

Loans receivable held for investment, net
 
4,688

 
4,683

 
—

Deposit liabilities
 
5,724

 
5,549

 
3

Other bank borrowings
 
188

 
193

 
(3
)
As of June 30, 2017 , ASB was one of Hawaii’s largest financial institutions based on assets of $6.6 billion  and deposits of $5.7 billion .
As of June 30, 2017 , ASB’s unused FHLB borrowing capacity was approximately $1.8 billion. As of June 30, 2017 , ASB had commitments to borrowers for loans and unused lines and letters of credit of $1.8 billion. As of June 30, 2017, the Company did not have commitments to lend to borrowers whose loan terms have been modified in troubled debt restructurings. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.
For the six months ended June 30, 2017 , net cash provided by ASB’s operating activities was $46 million. Net cash used during the same period by ASB’s investing activities was $221 million, primarily due to purchases of investment securities of $296 million, a net increase in loans receivable of $20 million and additions to premises and equipment of $20 million, partly offset by receipt of repayments from investment securities of $100 million, proceeds from the sale of commercial loans of $13 million and a decrease in restricted cash of $2 million. Net cash provided by financing activities during this period was $152 million, primarily due to increases in deposit liabilities of $175 million and a net increase in retail repurchase agreements of $9 million, partly offset by repayments of securities sold under agreements to repurchase of $14 million and $19 million in common stock dividends to HEI (through ASB Hawaii).
For the six months ended June 30, 2016, net cash provided by ASB’s operating activities was $25 million. Net cash used during the same period by ASB’s investing activities was $205 million, primarily due to purchases of investment securities of $177 million, a net increase in loans receivable of $156 million and additions to premises and equipment of $6 million, partly offset by receipt of repayments and calls of investment securities of $103 million, proceeds from the sale of investment securities of $16 million and proceeds from the sale of commercial loans of $14 million. Net cash provided by financing activities during this period was $134 million, primarily due to increases in deposit liabilities of $207 million, partly offset by a net decrease in retail repurchase agreements of $27 million, maturities of securities sold under agreements to repurchase of $29 million and $18 million in common stock dividends to HEI (through ASB Hawaii).
ASB believes that maintaining a satisfactory regulatory capital position provides a basis for public confidence, affords protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for growth. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of June 30, 2017 , ASB was well-capitalized (minimum ratio requirements noted in parentheses) with a Common equity Tier-1 ratio of 12.4% (6.5%), a Tier-1 capital ratio of 12.4% (8.0%), a Total capital ratio of 13.7% (10.0%) and a Tier-1 leverage ratio of 8.5% (5.0%). As of December 31, 2016, ASB was well-capitalized with a common equity Tier-1 ratio of 12.2%, Tier-1 capital ratio of 12.2%, a Total capital ratio of 13.4% and a Tier-1 leverage ratio of 8.6%. All dividends are subject to review by the OCC and FRB and receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to declare and pay to HEI (through ASB Hawaii).

83


Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company considers interest-rate risk (a non-trading market risk) to be a very significant market risk for ASB as it could potentially have a significant effect on the Company’s results of operations, financial condition and liquidity. For additional quantitative and qualitative information about the Company’s market risks, see HEI’s and Hawaiian Electric’s Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of HEI’s 2016 Form 10-K (pages 79 to 81).
ASB’s interest-rate risk sensitivity measures as of June 30, 2017 and December 31, 2016 constitute “forward-looking statements” and were as follows:
Change in interest rates
 
Change in NII
(gradual change in interest rates)
 
Change in EVE
(instantaneous change in interest rates)
(basis points)
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
+300
 
2.6
%
 
1.9
%
 
(7.6
)%
 
(8.0
)%
+200
 
1.7

 
0.8

 
(4.1
)
 
(4.6
)
+100
 
0.8

 
—

 
(1.1
)
 
(1.6
)
-100
 
(1.4
)
 
(0.5
)
 
(3.5
)
 
(1.6
)
Management believes that ASB’s interest rate risk position as of June 30, 2017 represents a reasonable level of risk. The NII profile under the rising interest rate scenarios was more asset sensitive for all rate increases as of June 30, 2017 compared to December 31, 2016. Interest income increased due to the growth of the investment portfolio and higher income from the commercial and HELOC loan portfolios due to an increase in the short-term LIBOR and prime rates. In addition, the repricing assumptions of certain commercial loans were updated, which resulted in a net increase in NII.
ASB’s base EVE increased to $1.12 billion as of June 30, 2017 , compared to $1.09 billion as of December 31, 2016, due to the growth and mix of the balance sheet. The growth of the investment portfolio was funded with the increase in core deposits. The upward shift in short term rates resulted in the market valuation of assets exceeding the valuation of liabilities.
EVE sensitivity to rising rates declined as of June 30, 2017 compared to December 31, 2016. During the first half of the year, the purchase of intermediate-termed duration investment securities was funded by longer duration core deposits, resulting in a net decrease in EVE sensitivity.
The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance changes and pricing strategies, and should not be relied upon as indicative of actual results. To the extent market conditions and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the simulation results. Furthermore, NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent management’s views of future market movements, the level of future earnings or the timing of any changes in earnings within the twelve month analysis horizon. The actual impact of changes in interest rates on NII will depend on the magnitude and speed with which rates change, actual changes in ASB’s balance sheet and management’s responses to the changes in interest rates.
Item 4. Controls and Procedures
HEI:
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

84


An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by the report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Hawaiian Electric:
Disclosure Controls and Procedures
Hawaiian Electric maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by Hawaiian Electric in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to Hawaiian Electric’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of Hawaiian Electric’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Hawaiian Electric’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including Hawaiian Electric’s Chief Executive Officer and Chief Financial Officer, concluded that Hawaiian Electric’s disclosure controls and procedures were effective, as of the end of the period covered by the report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of 2017 that have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial reporting.
PART II - OTHER INFORMATION

Item 1. Legal Proceedings
The descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in HEI’s and Hawaiian Electric’s 2016 Form 10-K (see “Part I. Item 3. Legal Proceedings” and proceedings referred to therein) and this Form 10-Q (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 3 and 4 of the Condensed Consolidated Financial Statements) are incorporated by reference in this Item 1. With regard to any pending legal proceeding, alternative dispute resolution, such as mediation or settlement, may be pursued where appropriate, with such efforts typically maintained in confidence unless and until a resolution is achieved. Certain HEI subsidiaries (including Hawaiian Electric and its subsidiaries and ASB) may also be involved in ordinary routine PUC proceedings, environmental proceedings and litigation incidental to their respective businesses.
Item 1A. Risk Factors
For information about Risk Factors, see pages 25 to 35 of HEI’s and Hawaiian Electric’s 2016 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and the Condensed Consolidated Financial Statements herein. Also, see “Cautionary Note Regarding Forward-Looking Statements” on pages iv and v herein.

85


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of HEI common shares were made during the second quarter to satisfy the requirements of certain plans as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Period*
 

Total Number of Shares Purchased **
 
 
Average
Price Paid
per Share **
 
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 to 30, 2017
 
39,114

 
$33.51
 
—
 
NA
May 1 to 31, 2017
 
33,303

 
$32.87
 
—
 
NA
June 1 to 30, 2017
 
193,655

 
$33.64
 
—
 
NA
NA Not applicable.
* Trades (total number of shares purchased) are reflected in the month in which the order is placed.
** The purchases were made to satisfy the requirements of the DRIP, the HEIRSP and the ASB 401(k) Plan for shares purchased for cash or by the reinvestment of dividends by participants under those plans and none of the purchases were made under publicly announced repurchase plans or programs. Average prices per share are calculated exclusive of any commissions payable to the brokers making the purchases for the DRIP, the HEIRSP and the ASB 401(k) Plan. Of the “Total number of shares purchased,” all of the 39,114 shares, 23,773 of the 33,303 shares and 168,855 of the 193,655 shares were purchased for the DRIP; none of the 39,114 shares, 8,800 of the 33,303 shares and 21,300 of the 193,655 shares were purchased for the HEIRSP; and the remainder was purchased for the ASB 401(k) Plan. The repurchased shares were issued for the accounts of the participants under registration statements registering the shares issued under these plans.

Item 5. Other Information
A.             Ratio of earnings to fixed charges .
 
 
Six months ended June 30
 
Years ended December 31
 
 
2017
 
2016
 
2016
 
2015
 
2014
 
2013
 
2012
HEI and Subsidiaries
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Excluding interest on ASB deposits
 
3.31

 
3.64

 
5.05

 
3.68

 
3.80

 
3.55

 
3.30

Including interest on ASB deposits
 
3.11

 
3.46

 
4.75

 
3.54

 
3.65

 
3.42

 
3.15

Hawaiian Electric and Subsidiaries
 
2.90

 
3.76

 
4.11

 
3.97

 
4.04

 
3.72

 
3.37

 
See HEI Exhibit 12.1 and Hawaiian Electric Exhibit 12.2.

86


Item 6. Exhibits
 
HEI Exhibit.10.1
 
Second Amended and Restated Credit Agreement, dated as of June 30, 2017, among HEI, as Borrower, the Lenders Party Thereto and Wells Fargo Bank, National Association, as Syndication Agent, and Bank of America, N.A., MUFG Union Bank, N.A., Barclays Bank PLC, U.S. Bank National Association and Bank of Hawaii as Co-Documentation Agents, and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank, and JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners
 
 
 
HEI Exhibit 12.1
 
Hawaiian Electric Industries, Inc. and Subsidiaries
Computation of ratio of earnings to fixed charges, six months ended June 30, 2017 and 2016 and years ended December 31, 2016, 2015, 2014, 2013 and 2012
 
 
 
HEI Exhibit 31.1
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer)
 
 
 
HEI Exhibit 31.2
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Gregory C. Hazelton (HEI Chief Financial Officer)
 
 
 
HEI Exhibit 32.1
 
HEI Certification Pursuant to 18 U.S.C. Section 1350
 
 
 
HEI Exhibit 101.INS
 
XBRL Instance Document
 
 
 
HEI Exhibit 101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
HEI Exhibit 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
HEI Exhibit 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
HEI Exhibit 101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
HEI Exhibit 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
Hawaiian Electric Exhibit 2
 
Termination Agreement, dated July 14, 2017, by and among Hamakua Energy Partners, L.P. and Hamakua Land Partnership, L.L.P. and Hawaii Electric Light Company, Inc.
 
 
 
Hawaiian Electric Exhibit 10.2
 
Second Amended and Restated Credit Agreement, dated as of June 30, 2017, among Hawaiian Electric Company, Inc., as Borrower, the Lenders Party Hereto and Wells Fargo Bank, National Association, as Syndication Agent, and Bank of America, N.A., MUFG Union Bank, N.A., Barclays Bank PLC, U.S. Bank National Association and Bank of Hawaii as Co-Documentation Agents, and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank, and JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Book Runners
 
 
 
Hawaiian Electric Exhibit 12.2
 
Hawaiian Electric Company, Inc. and Subsidiaries
Computation of ratio of earnings to fixed charges, six months ended June 30, 2017 and 2016 and years ended December 31, 2016, 2015, 2014, 2013 and 2012
 
 
 
Hawaiian Electric Exhibit 31.3
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Alan M. Oshima (Hawaiian Electric Chief Executive Officer)
 
 
 
Hawaiian Electric Exhibit 31.4
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer)
 
 
 
Hawaiian Electric Exhibit 32.2
 
Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350

87

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof.
 
HAWAIIAN ELECTRIC INDUSTRIES, INC.
 
HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant)
 
(Registrant)
 
 
 
 
 
 
By
/s/ Constance H. Lau
 
By
/s/ Alan M. Oshima
 
Constance H. Lau
 
 
Alan M. Oshima
 
President and Chief Executive Officer
 
 
President and Chief Executive Officer
 
(Principal Executive Officer of HEI)
 
 
(Principal Executive Officer of Hawaiian Electric)
 
 
 
 
 
 
By
/s/ Gregory C. Hazelton
 
By
/s/ Tayne S. Y. Sekimura
 
Gregory C. Hazelton
 
 
Tayne S. Y. Sekimura
 
Executive Vice President and
 
 
Senior Vice President
 
Chief Financial Officer
 
 
and Chief Financial Officer
 
(Principal Financial and Accounting
 
 
(Principal Financial Officer of Hawaiian Electric)
 
Officer of HEI)
 
 
 
 
 
 
 
 
Date: August 3, 2017
 
Date: August 3, 2017


88


Hawaiian Electric Exhibit 2

TERMINATION AGREEMENT

This Termination Agreement, dated as of July 14, 2017 (this “ Termination Agreement ”), is entered into by and among HAMAKUA ENERGY PARTNERS, L.P., a Hawai‘i limited partnership (“ HEP ”) and HAMAKUA LAND PARTNERSHIP, L.L.P., a Hawai‘i limited liability partnership (“ HLP ”), and HAWAI‘I ELECTRIC LIGHT COMPANY, INC., a Hawai‘i corporation (“ HELCO ”). HEP, HLP and HELCO each are referred to herein individually as a “ Party ” and collectively as the “ Parties ”.
WHEREAS, the Parties have heretofore entered into the Asset Purchase Agreement dated as of December 21, 2015 (the " APA "); and
WHEREAS, the Parties now wish to terminate the APA by mutual agreement in accordance with Section 8.1(a) thereof.
NOW, THEREFORE, in consideration of the agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
1. Termination of APA . The APA is hereby terminated for all purposes and, notwithstanding any provision of the APA to the contrary including without limitation Section 8.2 of the APA, the APA is no longer of any force or effect except that the Parties shall continue to be bound by the provisions of Article IX of the APA.

2. Mutual Release . Each of the Parties, for good and valuable consideration, the receipt of which is hereby acknowledged, absolutely, unconditionally and forever releases and discharges each other Party from any claims, rights, demands, covenants, agreements, contracts, duties, obligations, responsibilities, representations, warranties, promises, liabilities, damages, expenses, costs and causes of action or potential claims, known or unknown, in each case arising under or related to the APA or any of the transactions contemplated thereby.

3. Counterparts; Electronic Signatures . This Termination Agreement may be executed in one or more counterparts, each of which shall constitute an original but all of which, taken together, shall constitute but one agreement. Signatures to this Termination Agreement may be delivered by facsimile or transmitted electronically (including by portable document format) and shall be deemed originals for all purposes.

4. Governing Law . This Termination Agreement shall be governed by, and construed in accordance with, the law of the State of New York.



[The remainder of this page intentionally left blank]






IN WITNESS WHEREOF, the Parties have caused this Termination Agreement to be duly executed and delivered as of the date set forth above.
 
HAMAKUA ENERGY PARTNERS, L.P.
 
By: /s/ Daniel R. Revers        
Name: Daniel R. Revers
Title: Representative of BR Landing, LLC, Its General Partner
 
By: /s/ Christine Miller          
Name: Christine Miller
Title: Representative of BR Hamakua, LLC, Its General Partner

    

 
HAMAKUA LAND PARTNERSHIP, L.L.P.
 
By: /s/ Daniel R. Revers       
Name: Daniel R. Revers
Title: Representative of BR Landing, LLC, Its Partner
 
By: /s/ Christine Miller       
Name: Christine Miller
Title: Representative of BR Landing, LLC, Its Partner






[Signature Page to Termination Agreement]




 
HAWAI'I ELECTRIC LIGHT COMPANY, INC.
 
By: /s/ Jay Ignacio      
Name: Jay Ignacio
Title: President
 
By: /s/ Susan A. Li        
Name: Susan A. Li
Title: Vice President and Secretary




[Signature Page to Termination Agreement]


HEI Exhibit 10.1

EXECUTION COPY


J.P.Morgan

SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of June 30, 2017
among
HAWAIIAN ELECTRIC INDUSTRIES, INC.,
as Borrower
The Lenders Party Hereto
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Syndication Agent
and
BANK OF AMERICA, N.A., MUFG UNION BANK, N.A., BARCLAYS BANK PLC,
U.S. BANK NATIONAL ASSOCIATION AND BANK OF HAWAII
as Co-Documentation Agents
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent, Swingline Lender and Issuing Bank
_____________
JPMORGAN CHASE BANK, N.A. and WELLS FARGO SECURITIES, LLC,
as Joint Lead Arrangers and Joint Book Runners




 
TABLE OF CONTENTS
 
ARTICLE 1.
DEFINITIONS
1
 
Section 1.01
Defined Terms
1
 
Section 1.02
Terms Generally
22
 
Section 1.03
Accounting Terms; GAAP
22
 
Section 1.04
Amendment and Restatement of the Existing Credit Agreement
23
 
 
 
 
 
ARTICLE 2.
THE CREDITS
23
 
Section 2.01
Commitments
24
 
Section 2.02
Loans and Borrowings
24
 
Section 2.03
Requests for Borrowings
25
 
Section 2.04
Funding of Borrowings
25
 
Section 2.05
Termination, Reduction and Increase of Commitments
26
 
Section 2.06
Repayment of Loans; Evidence of Debt
27
 
Section 2.07
Prepayment of Loans
28
 
Section 2.08
Payments Generally; Pro Rata Treatment; Sharing of Setoffs
29
 
Section 2.09
Letter of Credit Sub-Facility
31
 
Section 2.10
Letter of Credit Participation and Funding Commitments
32
 
Section 2.11
Absolute Obligation with Respect to Letter of Credit Payments;
 
 
 
Cash Collateral; Replacement of Issuing Bank
33
 
Section 2.12
Defaulting Lenders
34
 
Section 2.13
Swingline Loans
36
 
Section 2.14
Extension of Commitment Termination Date
37
 
 
 
 
 
ARTICLE 3.
INTEREST, FEES, YIELD PROTECTION, ETC,
39
 
Section 3.01
Interest
39
 
Section 3.02
Interest Elections
40
 
Section 3.03
Fees
41
 
Section 3.04
Alternate Rate of Interest
42
 
Section 3.05
Increased Costs; Illegality
42
 
Section 3.06
Break Funding Payments
44
 
Section 3.07
Taxes
45
 
Section 3.08
Mitigation Obligations; Replacement of Lenders
48
 
 
 
 
 
ARTICLE 4.
REPRESENTATION AND WARRANTIES
48
 
Section 4.01
Organization; Powers
49
 
Section 4.02
Authorization; Enforceability
49
 
Section 4.03
Governmental Approvals; No Conflicts
49
 
Section 4.04
Financial Condition; No Material Adverse Effect
49
 
Section 4.05
Properties
50
 
Section 4.06
Litigation and Environmental Matters
50
 
Section 4.07
Compliance with Laws and Agreements
50
 
Section 4.08
Regulated Entities
51
 
Section 4.09
Taxes
51
 
Section 4.10
ERISA
51
 
Section 4.11
Disclosure
51
 

i




 
 
 
Section 4.12
Subsidiaries
51

 
Section 4.13
Federal Reserve Regulations
52

 
Section 4.14
Rankings
52

 
Section 4.15
Solvency
52

 
Section 4.16
Anti-Corruption Laws and Sanctions
52

 
Section 4.17
EEA Financial Institutions
52

 
ARTICLE 5.
CONDITIONS
52

 
Section 5.01
Effective Date
52

 
Section 5.02
Each Credit Event
53

 
ARTICLE 6.
AFFIRMATIVE COVENANTS
54

 
Section 6.01
Financial Statements and Other Information
54

 
Section 6.02
Notice of Material Events
55

 
Section 6.03
Existence; Conduct of Business
56

 
Section 6.04
Payment of Obligations
56

 
Section 6.05
Maintenance of Properties; Insurance
56

 
Section 6.06
Books and Records; Inspection Rights
56

 
Section 6.07
Compliance with Laws
57

 
Section 6.08
Use of Proceeds
57

 
ARTICLE 7.
NEGATIVE COVENANTS
57

 
Section 7.01
Liens
57

 
Section 7.02
Sale of Assets; Consolidation; Merger; Sale and Leaseback
60

 
Section 7.03
Restrictive Agreements
60

 
Section 7.04
Transactions with Affiliates
61

 
Section 7.05
Capitalization Ratio
61

 
ARTICLE 8.
EVENTS OF DEFAULT
61

 
ARTICLE 9.
THE ADMINISTRATIVE AGENT
64

 
Section 9.01
Appointment
64

 
Section 9.02
Individual Capacity
64

 
Section 9.03
Exculpatory Provisions
64

 
Section 9.04
Reliance by Administrative Agent
65

 
Section 9.05
Performance of Duties
65

 
Section 9.06
Resignation; Successors
65

 
Section 9.07
Non-Reliance by Credit Parties
65

 
Section 9.08
Agents
66

 
ARTICLE 10.
MISCELLANEOUS
66

 
Section 10.1
Notices
66

 
Section 10.2
Waivers; Amendments
69

 
Section 10.3
Expenses; Indemnity; Damage Waiver
70

 
Section 10.4
Successor and Assigns
72

 
Section 10.5
Survival
75

 




ii




 
 
 
 
 
 
Section 10.6
Counterparts; Integration; Effectiveness; Electronic Execution
76
 
Section 10.7
Severability
76
 
Section 10.8
Right of Setoff
76
 
Section 10.9
Governing Law; Jurisdiction; Consent to Service of Process
77
 
Section 10.10
WAIVER OF TRIAL JURY
77
 
Section 10.11
Headings
78
 
Section 10.12
Confidentiality
78
 
Section 10.13
Interest Rate Limitation
79
 
Section 10.14
No Third Parties Benefited
79
 
Section 10.15
USA PATRIOT Act Notice
79
 
Section 10.16
No Fiduciary Duty
79
 
Section 10.17
Acknowledgment and Consent to Bail-In Action
80
 
 
 
 
 
SCHEDULES:
 
 
 
 
 
Schedule 1.01
Capitalization
 
Schedule 1.01
Consolidated Funded Debt
 
Schedule 1.01
Funded Debt
 
Schedule 2.01
Commitments
 
Schedule 2.09
Existing Letters of Credit
 
Schedule 4.12
Subsidiaries
 
Schedule 7.01
Existing Liens
 
Schedule 7.03
Existing Restrictions
 
 
 
 
EXHIBITS:
 
 
 
 
 
Exhibit A
Form of Assignment and Acceptance
 
Exhibit B-1
Form of Opinion of Pillsbury Winthrop Shaw Pittman LLP
 
Exhibit B-2
Form of Opinion of Kurt K. Murao, Esq., Vice President-Legal
 
 
& Administration and Corporate Secretary of the Borrower
 
Exhibit C
Form of Note
 
Exhibit D
Form of Borrowing Request
 
Exhibit E
Form of Letter of Credit Request
 
Exhibit F
Form of Increase Request
 
Exhibit G
Form of Interest Election Request
 









iii




iii


iv





SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 30, 2017 (this “ Agreement ”), among HAWAIIAN ELECTRIC INDUSTRIES, INC., as Borrower, the Lenders party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent, Swingline Lender and Issuing Bank.
WHEREAS, the Borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, are currently party to the Amended and Restated Credit Agreement, dated as of April 2, 2014 (as amended, supplemented or otherwise modified prior to the date hereof, the “ Existing Credit Agreement ”).
WHEREAS, the Borrower, the Lenders, the Departing Lenders (as hereafter defined) and the Administrative Agent have agreed (a) to enter into this Agreement in order to (i) amend and restate the Existing Credit Agreement in its entirety; (ii) extend the maturity date in respect of the existing revolving credit facility under the Existing Credit Agreement; (iii) re-evidence the obligations of the Borrower under the Existing Credit Agreement, which shall be repayable in accordance with the terms of this Agreement; and (iv) amend and restate the terms and conditions under which the Lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Borrower and (b) that each Departing Lender shall cease to be a party to the Existing Credit Agreement as evidenced by its execution and delivery of its Departing Lender Signature Page.
WHEREAS, it is the intent of the parties hereto that this Agreement not constitute a novation of the obligations and liabilities of the parties under the Existing Credit Agreement or be deemed to evidence or constitute full repayment of such obligations and liabilities, but that this Agreement amend and restate in its entirety the Existing Credit Agreement and re-evidence the obligations and liabilities of the Borrower outstanding thereunder, which shall be payable in accordance with the terms hereof.
WHEREAS, it is also the intent of the Borrower to confirm that all obligations under the applicable “Loan Documents” (as referred to and defined in the Existing Credit Agreement) shall continue in full force and effect as modified or restated by the Loan Documents (as referred to and defined herein) and that, from and after the Effective Date, all references to the “Credit Agreement” contained in any such existing “Loan Documents” shall be deemed to refer to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree that the Existing Credit Agreement is hereby amended and restated as follows:
ARTICLE 1.
DEFINITIONS
Section 1.01      Defined Terms
As used in this Agreement, the following terms have the meanings specified below:
“ ABR Loan ” or “ ABR Borrowing ”, when used in reference to any Loan or Borrowing, refers to such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Alternate Base Rate.
“ Additional Commitment Lender ” is defined in Section 2.14(d).
“ Adjusted LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

1





  
“ Administrative Agent ” means JPMCB, in its capacity as administrative agent for the Lenders hereunder, or any successor thereto in such capacity.
“ Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“ Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“ Agent Party ” has the meaning assigned to such term in Section 10.01(d).
“ Aggregate Credit Exposure ” means, at any time, the sum at such time of (a) the outstanding principal balance of the Revolving Loans of all Lenders, plus (b) the Aggregate Letter of Credit Exposure, plus (c) the Swingline Exposure.
“ Aggregate Letter of Credit Commitments ” means, at any time, the sum at such time of the Letter of Credit Commitments of all Lenders.
“ Aggregate Letter of Credit Exposure ” means, at any time, the sum at such time of the Letter of Credit Exposure of all of the Lenders.
“ Aggregate Revolving Commitments ” means, at any time, the sum at such time of the Revolving Commitments of all Lenders. The initial amount of the Aggregate Revolving Commitments is $150,000,000.
“ Alternate Base Rate ” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the sum of NYFRB Rate in effect on such day plus 1/2 of 1% per annum and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1% per annum, provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Rate (or if the LIBO Rate if not available for such one month Interest Period, the Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively.
“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“ Applicable Margin ” means with respect to: (a) any Eurodollar Borrowings and any Letters of Credit, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Eurodollar Margin” and adjacent to such Pricing Level, (b) any ABR Borrowings, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “ABR Margin” and adjacent to such Pricing Level and (c) with respect to the commitment fee payable under Section 3.03(a), at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Commitment Fee Rate” and adjacent to such Pricing Level, in each case, subject to the provisos set forth below:

2






Pricing Level
Issuer Ratings (S&P/Moody’s/Fitch)
Commitment Fee Rate
Eurodollar Margin
ABR
Margin
I
(A-/A3/A-) or higher
0.15%
1.00%
0.00%
II
(BBB+/Baa1/BBB+)
0.175%
1.25%
0.25%
III
(BBB/Baa2/BBB)
0.20%
1.375%
0.375%
IV
(BBB-/Baa3/BBB-)
0.25%
1.50%
0.50%
V
(BB+/Ba1/BB+) or lower
0.30%
1.75%
0.75%

For purposes hereof:
(A) when the Borrower has Issuer Ratings from all three of S&P, Moody’s and Fitch: (i) if two or three of the three Issuer Ratings are in the same Pricing Level, such Pricing Level shall apply and (ii) if each of the three Issuer Ratings are in different Pricing Levels, the Issuer Ratings corresponding to the highest and the lowest Pricing Levels shall be disregarded and the Pricing Level shall be determined by reference to the Pricing Level which corresponds to the remaining Issuer Rating;
(B) when the Borrower has Issuer Ratings from only two of S&P, Moody’s and Fitch: (i) if both of the two Issuer Ratings are in the same Pricing Level, such Pricing Level shall apply and (ii) if the two Issuer Ratings are split-rated (x) by one Pricing Level, the Pricing Level shall be determined by the higher of the two ( e.g. , an Issuer Rating of BBB-/Baa2 results in Pricing Level III) or (y) by more than one Pricing Level, the Pricing Level shall be determined by the Pricing Level one below the Pricing Level which corresponds to the higher Issuer Rating ( e.g. , an Issuer Rating of BBB-/Baa1 results in Pricing Level III and an Issuer Rating of BBB+/Baa3 results in Pricing Level III);
(C) when the Borrower has an Issuer Rating from only one of S&P, Moody’s and Fitch: the Pricing Level shall be determined by reference to the Pricing Level immediately below the Pricing Level which corresponds to the one Issuer Rating in effect (provided that if the one Issuer Rating in effect corresponds to Pricing Level V, then Pricing Level V shall apply); and
(D) when the Borrower does not have an Issuer Rating from any of S&P, Moody’s or Fitch: Pricing Level V shall apply.
If the Issuer Ratings established or deemed to have been established by S&P, Moody’s and Fitch shall be changed (other than as a result of a change in the rating system of S&P, Moody’s or Fitch), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Administrative Agent and the Lenders pursuant to this Agreement or otherwise. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P, Moody’s or Fitch shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Administrative Agent (in consultation with the Lenders) shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Margin shall be determined by reference to the rating most recently in effect prior to such change or cessation.
“ Applicable Percentage ” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitments; provided that, in the case of Section 2.12 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the

3





percentage of the total Commitments (disregarding any Defaulting Lender’s Commitments) represented by such Lender’s Commitments. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments and to any Lender’s status as a Defaulting Lender at the time of such determination.
“ Approved Fund ” means, with respect to any Lender, any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business that is administered or managed by (a) such Lender or (b) an Affiliate of such Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Lender and an assignee (with the consent of each party whose consent is required by Section 10.04), and accepted by the Administrative Agent, substantially in the form of Exhibit A or any other form approved by the Administrative Agent.
“ Availability Period ” means the period from and including the Effective Date to (but excluding) the Commitment Termination Date.
“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ Bankruptcy Code ” means the United States Bankruptcy Code of 1978, as amended.
“ Board ” means the Board of Governors of the Federal Reserve System of the United States of America.
“ Borrower ” means Hawaiian Electric Industries, Inc., a Hawaii corporation.
“ Borrowing ” means (a) Revolving Loans of the same Type made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
“ Borrowing Request ” means a request by the Borrower for a Borrowing in accordance with Section 2.03 in substantially the form annexed hereto as Exhibit D .
“ Business Day ” means any day other than a Saturday, Sunday or a day when banks are authorized by law to close in New York, New York or Honolulu, Hawaii or, when used with reference to a Eurodollar Loan, in London, England.
“ Capital Lease Obligations ” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP,

4





provided however, no power purchase agreement with an independent power producer or a power producer which is not an Affiliate of the Borrower shall constitute a Capital Lease Obligation.
“ Capitalization ” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) Funded Debt, (b) preferred stock and (c) Common Stock Equity. The Borrower’s Capitalization as of December 31, 2016 is annexed hereto as Schedule 1.01 (Capitalization); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Capitalization on or for any subsequent date of determination.
“ Capitalization Ratio ” means, at any date of determination, the ratio of (a) Funded Debt to (b) Capitalization.
“ Change in Control ” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the Effective Date) of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; and (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower, nor (ii) appointed by directors so nominated.
“ Change in Law ” means the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) the making or issuance of any request, rules, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided however , that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall (except to the extent the same are merely proposed and not in effect) in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.
“ Class ”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.
“ Commitments ” means the Revolving Commitments and the Letter of Credit Commitments.
“ Commitment Percentage ” means, as to any Lender in respect of such Lender’s Commitments and its obligations with respect to Loans and Letters of Credit, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments (or, if no Commitments then exist, the percentage equal to such Lender’s Revolving Commitment and

5





Letter of Credit Commitment on the last day upon which Commitments did exist divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments, on such day).
“ Commitment Termination Date ” means the earliest of (a) June 30, 2022, subject to extension (in the case of each Lender consenting thereto) as provided in Section 2.14, (b) the date on which the Commitments are terminated in whole pursuant to Section 2.05 , and (c) the date the Commitments are terminated in whole pursuant to Article 8.
“ Common Stock Equity ” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“ Communications ” has the meaning assigned to such term in Section 10.01(d).
“ Consolidated Capitalization ” means, at any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Funded Debt, (b) preferred stock of the Borrower and its Subsidiaries and (c) Consolidated Common Stock Equity.
“ Consolidated Common Stock Equity ” means, at any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“ Consolidated Funded Debt ” means, at any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) net long-term debt, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness and Indebtedness under this Agreement or the Hawaiian Electric Credit Agreement), net of cash collateral or other funds on deposit with trustees and unamortized discounts and expenses in respect of such bonds, debentures, notes and obligations, that is due one year or more from the date of the relevant balance sheet on which such debt is included, (b) net long-term debt (as so defined) due within one year, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness and Indebtedness under this Agreement or the Hawaiian Electric Credit Agreement) that is due within one year from the date of the relevant balance sheet on which such long-term debt is included and (c) short-term borrowings, including Purchase Money Indebtedness, as included on and defined in the relevant balance sheet; provided, however, no Indebtedness of independent power producers, or other power producers which are not Affiliates of the Borrower, included on a balance sheet of the Borrower by reason of the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810 (formerly referred to as FASB Interpretation No. 46 (revised December

6





2003)) shall constitute Consolidated Funded Debt. A schedule of Consolidated Funded Debt as of December 31, 2016 is annexed hereto as Schedule 1.01 (Consolidated Funded Debt); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Funded Debt on or for any subsequent date of determination.
“ Consolidated Net Worth ” means, as of the date of any determination thereof, the sum of the Consolidated Common Stock Equity and preferred stock of the Borrower and its Subsidiaries.
“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms “Controlling” and “Controlled” have meanings correlative thereto.
“ Credit Exposure ” means, with respect to any Lender as of any date, the sum as of such date of (a) the outstanding principal balance of such Lender’s Revolving Loans, plus (b) such Lender’s Letter of Credit Exposure, plus (c) such Lender’s Swingline Exposure.
“ Credit Parties ” means the Administrative Agent, the Issuing Bank, the Swingline Lender and the Lenders.
“ Current SEC Reports ” means (a) the Annual Report of the Borrower to the SEC on Form 10K for the fiscal year ended December 31, 2016, (b) the Quarterly Report of the Borrower to the SEC on Form 10-Q for the fiscal quarter ended March 31, 2017 and (c) any current reports of the Borrower to the SEC on Form 8K filed prior to the Effective Date.
“ Default ” means any event or condition which constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“ Defaulting Lender ” means any Lender, as reasonably determined by the Administrative Agent, that has (a) failed to fund any portion of its Revolving Loans or participations in Letters of Credit or Swingline Loans within three (3) Business Days of the date required to be funded by it hereunder unless such failure to fund is based on such Lender’s good faith determination that the conditions precedent to such funding under this Agreement have not been satisfied or waived and such Lender has notified the Administrative Agent in writing of such determination, (b) notified the Borrower, the Administrative Agent, the Swingline Lender, the Issuing Bank or any other Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three (3) Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Revolving Loans and participations in then outstanding Letters of Credit or Swingline Loans (provided that any such Lender shall cease to be a Defaulting Lender under this clause (c) upon receipt of such confirmation by the Administrative Agent), (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three (3) Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or has a parent company that has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or (ii) become the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver,

7





conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment; provided , that a Lender shall not become a Defaulting Lender solely as the result of (x) the acquisition or maintenance of an ownership interest in such Lender or a Person controlling such Lender or (y) the exercise of control over a Lender or a Person controlling such Lender, in each case, by a Governmental Authority or an instrumentality thereof.
“ Departing Lender ” means each lender under the Existing Credit Agreement that executes and delivers to the Administrative Agent a Departing Lender Signature Page.
“ Departing Lender Signature Page ” means each signature page to this Agreement on which it is indicated that the Departing Lender executing the same shall cease to be a party to the Existing Credit Agreement on the Effective Date.
“ Disclosed Matters ” means the matters (a) disclosed in the current and periodic reports filed by the Borrower from time to time with the SEC pursuant to the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, or (b) disclosed by the Borrower to the Lenders (either directly or indirectly through the Administrative Agent) in writing.
“ Dollars ” or “ $ ” refers to lawful money of the United States of America.
“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ Effective Date ” means the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 10.02).
“ Electronic Signature ” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“ Electronic System ” means any electronic system, including e-mail, e-fax, Intralinks ® , ClearPar ® and any other Internet or extranet-based site, whether such electronic system is owned,

8





operated or hosted by the Administrative Agent and the Issuing Bank and any of its respective Related Parties or any other Person, providing for access to data protected by passcodes or other security system.
“ Eligible Assignee ” means (a) a Credit Party (other than a Defaulting Lender); (b) an Affiliate of a Credit Party; (c) an Approved Fund; and (d) any other financial institution approved by (i) the Administrative Agent, (ii) the Issuing Bank, (iii) the Swingline Lender and (iv) unless a Default has occurred under Article 8(a), Article 8(i) or Article 8(j), and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided, however, that none of the Borrower nor any Subsidiary or Affiliate of the Borrower, nor any natural person, nor any company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof, shall qualify as an Eligible Assignee under this definition.
“ Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release into the environment of any Hazardous Material or to health and safety matters concerning Hazardous Materials.
“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment, or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“ Equity Interest ” shall mean (a) shares of capital stock and any other equity security that confers on a person or entity the right to receive a share of the profits and losses of, or distribution of assets of, the issuing company and (b) all warrants, options or other rights to acquire any Equity Interest described in clause (a) of this definition.
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Borrower or any Subsidiary, is treated with the Borrower as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated with the Borrower as a single employer under Section 414(b), (c), (m) or (o) of the Code.
“ ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30‑day notice period is waived); (b) the failure with respect to any Plan to pay the “minimum required contribution” (as defined in Section 430 of the Code or Section 303 of ERISA), unless waived; (c) the incurrence by the Borrower or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (d) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to

9





terminate any Plan or Plans or to appoint a trustee to administer any Plan; (e) the incurrence by the Borrower or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Multiemployer Plan; or (f) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent, within the meaning of Title IV of ERISA.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“ Eurodollar Loan ” or “ Eurodollar Borrowing ”, when used in reference to any Revolving Loan or Borrowing, refers to whether such Revolving Loan, or the Revolving Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. For the avoidance of doubt, a Revolving Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Eurodollar Loan.
“ Event of Default ” has the meaning assigned to such term in Article 8.
“ Excluded Taxes ” means any of the following Taxes imposed on or with respect to a Credit Party or required to be withheld and deducted from a payment to a Credit Party on account of any obligation of the Borrower under any Loan Document: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profit Taxes, in each case, (i) imposed as a result of such Person being organized under the laws of, or having its principal office or applicable lending office is located in the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b)  in the case of a Lender, any U.S. federal withholding tax that is imposed on amounts payable to or for the account of to such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in a Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 3.08(b)) or (ii) such Lender changes its lending office, except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.07, (d) Taxes attributable to such Person’s failure to comply with Section 3.07(f) and (e) any U.S. federal withholding taxes imposed under FATCA.
“ Existing Commitment Termination Date ” is defined in Section 2.14(a).
“ Existing Credit Agreement ” is defined in the recitals hereof.
“ Existing Letters of Credit ” is defined in Section 2.09(a).
“ Existing Loans ” is defined in Section 2.01.
“ Extending Lender ” is defined in Section 2.14(b).
“ Extension Date ” is defined in Section 2.14(a).

10






“ FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“ Federal Funds Rate ” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions (as determined in such manner as the NYFRB shall set forth on its public website from time to time) and published on the next succeeding Business Day by the NYFRB as the federal funds rate; provided that if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“ Financial Officer ” means the Executive Vice President and Chief Financial Officer, the Treasurer, and the Controller of the Borrower and persons performing similar responsibilities regardless of title. The Financial Officers as of the date of this Agreement are Gregory C. Hazelton, Clifford H. Chen and Jennifer B. Loo, and replacement or additional Financial Officers may be identified to the Administrative Agent from time to time in a writing signed by the President and Secretary of the Borrower.
“ Fitch ” means Fitch Ratings, Inc., or its successors.
“ Foreign Lender ” means any Lender that is not a U.S. Person.
“ Funded Debt ” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) net long-term debt, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness and Indebtedness under this Agreement), net of cash collateral or other funds on deposit with trustees and unamortized discounts and expenses in respect of such bonds, debentures, notes and obligations, that is due one year or more from the date of the relevant balance sheet on which such debt is included, (b) net long-term debt (as so defined) due within one year, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness and Indebtedness under this Agreement) that is due within one year from the date of the relevant balance sheet on which such long-term debt is included and (c) short-term borrowings, including Purchase Money Indebtedness, as included on and defined in the relevant balance sheet; provided, however, no Indebtedness of independent power producers, or other power producers which are not Affiliates of the Borrower, included on a balance sheet of the Borrower by reason of the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810 (formerly referred to as FASB Interpretation No. 46 (revised December 2003)) shall constitute Funded Debt. A schedule of Funded Debt as of December 31, 2016 is annexed hereto as Schedule 1.01 (Funded Debt); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Funded Debt on or for any subsequent date of determination.
“ GAAP ” means generally accepted accounting principles in the United States of America.
“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive,

11





legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including the Hawaii Public Utilities Commission, the SEC and the Federal Energy Regulatory Commission.
“ Guarantee ” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect,
(a)      to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof,
(b)      to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof,
(c)      to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or
(d)      as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation;
provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. The term “ Guaranteed ” has a meaning correlative thereto.
“ Hawaiian Electric ” means Hawaiian Electric Company, Inc., a Hawaii corporation.
“ Hawaiian Electric Cash Manager ” means, to the extent having received a legally valid delegation of authority from the Borrower with respect to borrowings and investments to be made by the Borrower and its Subsidiaries, the Cash Management Administrator of Hawaiian Electric, the Treasury Analyst of Hawaiian Electric, or the Securities Administrator of Hawaiian Electric, or any other person having received such authority; it being understood and agreed that (i) such person need not be a Financial Officer or an employee of the Borrower, and (ii) the Administrative Agent shall be entitled to rely on telephonic notice received from the Hawaiian Electric Cash Manager for all purposes of Sections 2.03, 2.07(e), 2.13 and 3.02(b).
“ Hawaiian Electric Credit Agreement ” means the Second Amended and Restated Credit Agreement, dated the date hereof, among Hawaiian Electric, the lenders party thereto, and JPMCB, as Administrative Agent, as amended, modified, supplemented, replaced or refinanced from time to time.
“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum

12





distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“ Hedging Agreement ” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
“ Impacted Interest Period ” has the meaning assigned to such term in the definition of “LIBO Rate”.
“ Increase Request ” means a request by the Borrower for an increase of the total Commitments in accordance with Section 2.05(d).
“ Indebtedness ” of any Person means, without duplication,
(a)      all obligations of such Person for borrowed money,
(b)      all obligations of such Person evidenced by bonds, debentures, notes or similar instruments,
(c)      all obligations of such Person upon which interest charges are customarily paid,
(d)      all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person,
(e)      all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business),
(f)      all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed,
(g)      all Guarantees by such Person of Indebtedness of others,
(h)      all Capital Lease Obligations of such Person,
(i)      all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, and
(j)      all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances.
The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. Indebtedness of the Borrower or any Subsidiary shall not include deposit liabilities, securities sold pursuant to agreements to repurchase or advances from the Federal Home Loan Bank.

13






“ Indemnified Taxes ” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“ Indemnitee ” has the meaning assigned to such term in Section 10.03(b).
“ Information ” has the meaning assigned to such term in Section 10.12.
“ Insolvent ” means, with reference to any Person, (a) such Person’s debts are greater than all of such Person’s property, at a fair valuation (as determined in the good faith judgment of such Person), exclusive of (i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such Person’s creditors, and (ii) property that may be exempted from property of the estate under Section 522 of the Bankruptcy Code, or (b) such Person is generally not paying its debts as they become due or is unable to pay its debts as they become due.
“ Interest Election Request ” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 3.02 and substantially in the form annexed hereto as Exhibit G .
“ Interest Payment Date ” means (a) with respect to the accrued interest on any ABR Loan (other than a Swingline Loan), the first Business Day of each January, April, July and October and the Commitment Termination Date, (b) with respect to the accrued interest on any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Revolving Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Commitment Termination Date and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid and the Commitment Termination Date.
“ Interest Period ” means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“ Interpolated Rate ” means, at any time, the rate per annum determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBOR Screen Rate for the longest period (for which the LIBOR Screen Rate is available) that is shorter than the Impacted Interest Period and (b) the LIBOR Screen Rate for the shortest period (for which the LIBOR Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.

14






“ Issuer Ratings ” means the Borrower’s corporate issuer ratings from any of S&P, Moody’s and Fitch.
“ Issuing Bank ” means JPMCB in its capacity as issuer of the Letters of Credit, or any successor thereto in such capacity as provided in Section 2.1(c).
“ JPMCB ” means JPMorgan Chase Bank, N.A., a national banking association.
“ Lead Arranger ” means each of JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC in its capacity as joint lead arranger and joint book runner for the credit facility evidenced by this Agreement.
“ Lender Notice Date ” is defined in Section 2.14(b).
“ Lenders ” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to Section 2.05(d) or pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender.
“ Letter of Credit ” has the meaning assigned to such term in Section 2.09.
“ Letter of Credit Commitment ” means the commitment of the Issuing Bank to issue Letters of Credit having an aggregate outstanding face amount up to $10,000,000 and the commitment of each Lender to participate in the Letter of Credit Exposure as set forth in Section 2.10 in the maximum amount set forth in Schedule 2.01 under the heading “Letter of Credit Commitment” or in an Assignment and Acceptance Agreement or other documents pursuant to which it became a Lender, as such amount may be reduced from time to time in accordance herewith.
“ Letter of Credit Exposure ” means, at any time, (a) in respect of all the Lenders, the sum at such time, without duplication, of (i) the aggregate undrawn face amount of the outstanding Letters of Credit, (ii) the aggregate amount of unpaid drafts drawn on all Letters of Credit, and (iii) the aggregate unpaid Reimbursement Obligations (after giving effect to any Loans made on such date to pay any such Reimbursement Obligations), and (b) in respect of any Lender, an amount equal to such Lender’s Commitment Percentage multiplied by the amount determined under clause (i) of this definition.
“ Letter of Credit Fee ” has the meaning assigned to such term in Section 3.03(b).
“ Letter of Credit Request ” means, a request by the Borrower for the issuance of a Letter of Credit in the form of Exhibit E.
“ LIBO Rate ” means, with respect to any Eurodollar Borrowing for any applicable Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for Dollars for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen or, in the event such rate does not appear on either of such Reuters pages, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate as shall be selected by the Administrative Agent from time to time in its reasonable discretion (in each case the “ LIBOR

15





Screen Rate ”) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, if the LIBOR Screen Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement; provided , further , that if a LIBOR Screen Rate shall not be available at such time for such Interest Period (the “ Impacted Interest Period ”), then the LIBO Rate for such Interest Period shall be the Interpolated Rate; provided, that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement. It is understood and agreed that all of the terms and conditions of this definition of “LIBO Rate” shall be subject to Section 3.04.
“ LIBOR Screen Rate ” has the meaning assigned to such term in the definition of “LIBO Rate”.
“ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“ Loan Documents ” means this Agreement, the Notes, the Reimbursement Agreements and, if applicable, any Hedging Agreement between the Borrower and any Lender.
“ Loans ” means the Revolving Loans and Swingline Loans made by the Lenders to the Borrower pursuant to this Agreement.
“ Margin Stock ” has the meaning assigned to such term in Regulation U.
“ Material Adverse Effect ” means a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the rights and remedies of the Administrative Agent and the Lenders thereunder.
“ Material Indebtedness ” means all Indebtedness of the Borrower (other than Indebtedness under the Loan Documents) or obligations in respect of one or more Hedging Agreements in an aggregate principal amount exceeding $50,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower would be required to pay if such Hedging Agreement were terminated at such time.
“ Material Subsidiary Indebtedness ” means all Indebtedness of any Significant Subsidiaries or obligations of any Significant Subsidiary in respect of one or more Hedging Agreements in an aggregate principal amount exceeding $50,000,000. For purposes of determining Material Subsidiary Indebtedness, the “principal amount” of the obligations of any Significant Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Significant Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.
“ Material Subsidiary Indebtedness Event ” means;
(a)      any Significant Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Subsidiary Indebtedness, when

16





and as the same shall become due and payable and after the expiration of any applicable grace period; or
(b)      any event or condition occurs that results in any Material Subsidiary Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Subsidiary Indebtedness or any trustee or agent on its or their behalf to cause any Material Subsidiary Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity, provided , that no Material Subsidiary Indebtedness Event shall be deemed to have occurred under this definition as a result of (i) any notice of voluntary prepayment delivered by any Significant Subsidiary with respect to any Indebtedness, (ii) any voluntary sale of assets by any Significant Subsidiary as a result of which any Indebtedness secured by such assets is required to be prepaid or (iii) the exercise of any contractual right to cause the prepayment of such Material Subsidiary Indebtedness (other than the exercise of a remedy for an event of default under the applicable contract or agreement).
“ Moody’s ” means Moody’s Investors Service, Inc., or its successors
“ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“ Non-Extending Lender ” is defined in Section 2.14(b).
“ Notes ” means, with respect to each Lender, a promissory note evidencing such Lender’s Loans payable to such Lender (or, if required by such Lender, to such Lender and its registered assigns) substantially in the form of Exhibit C .
“ NYFRB ” means the Federal Reserve Bank of New York.
“ NYFRB Rate ” means, for any day, the greater of (a) the Federal Funds Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m., New York City time, on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided , further , that if any of the aforesaid rates shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“ OFAC ” means the Office of Foreign Assets Control of the U.S. Department of Treasury.
“ OFAC Sanctions ” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by OFAC.
“ Other Connection Taxes ” means, with respect to any Credit Party, Taxes imposed as a result of a present or former connection between such Credit Party and the jurisdiction imposing such Tax (other than connections arising from such Credit Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

17






“ Other Taxes ” means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, the Loan Documents, other than Excluded Taxes.
“ Overnight Bank Funding Rate ” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate (from and after such date as the NYFRB shall commence to publish such composite rate).
“ Participant ” has the meaning assigned to such term in Section 10.04(g).
“ Participant Register ” has the meaning assigned to such term in Section 10.04(g).
“ PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“ Permitted Investments ” means, at any time, investments as allowed in accordance with the HEI Cash Management Investment Guidelines dated December 13, 2010, as disclosed to the Administrative Agent prior to the Effective Date and as the same may be amended from time to time with the written consent of the Administrative Agent, such written consent not to be unreasonably delayed or withheld.
“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“ Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower, any Subsidiary or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“ Platform ” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.
“ Pricing Level I ” means at any time the Borrower’s Issuer Rating is (a) A- or higher by S&P, (b) A3 or higher by Moody’s or (c) A- or higher by Fitch.
“ Pricing Level II ” means at any time the Borrower’s Issuer Rating is (a) BBB+ or higher by S&P, (b) Baa1 or higher by Moody’s or (c) BBB+ or higher by Fitch, and Pricing Level I is not applicable.
“ Pricing Level III ” means at any time the Borrower’s Issuer Rating is (a) BBB or higher by S&P, (b) Baa2 or higher by Moody’s or (c) BBB or higher by Fitch, and Pricing Levels I and II are not applicable.
“ Pricing Level IV ” means at any time the Borrower’s Issuer Rating is (a) BBB- or higher by S&P, (b) Baa3 or higher by Moody’s or (c) BBB- or higher by Fitch, and Pricing Levels I, II and III are not applicable.

18





“ Pricing Level V ” means at any time the Borrower’s Issuer Rating is (a) less than or equal to BB+ by S&P, (b) less than or equal to Ba1 by Moody’s or (c) less than or equal to BB+ by Fitch.
“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by JPMCB as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. The Prime Rate is not intended to be lowest rate of interest charged by JPMCB in connection with extensions of credit to borrowers.
“ Purchase Money Indebtedness ” means Indebtedness of the Borrower that is incurred to finance part or all of (but not more than) the purchase price of a tangible asset; provided that (a) the Borrower did not at any time prior to such purchase have any interest in such asset other than an option to purchase, a security interest, or an interest as lessee under an operating lease and (b) such Indebtedness is incurred at the time of, or within 90 days after, such purchase.
“ Register ” has the meaning assigned to such term in Section 10.04(e).
“ Regulation D ” means Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation T ” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation U ” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation X ” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Reimbursement Agreement ” has the meaning assigned to such term in Section 2.09(b).
“ Reimbursement Obligation ” means the obligation of the Borrower to reimburse the Issuing Bank for amounts drawn under a Letter of Credit.
“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, and employees of such Person and such Person’s Affiliates.
“ Required Lenders ” means, subject to Section 2.12, at any time (a) prior to the Commitment Termination Date, Lenders having Commitments greater than 50% of the total Commitments and (b) on or after the Commitment Termination Date, Lenders having Credit Exposure greater than or equal to 50% of the Aggregate Credit Exposure (or, if there are no Revolving Loans then outstanding and no Letter of Credit Exposure or Swingline Exposure, Lenders having Commitments greater than or equal to 50% of the total of all Commitments immediately prior to the termination of the Commitments); provided that for purposes of declaring the Loans to be due and payable pursuant to Article 8 , and for all purposes after the Loans become due and payable pursuant to Article 8 , then, as to each Lender, clause (a) of the definition of Swingline Exposure shall only be applicable for purposes of determining its Credit Exposure to the extent such Lender shall have funded its participation in the outstanding Swingline Loans.

19






“ Restricted Payment ” means, with respect to any Person, (a) any dividend or other distribution (whether in cash, securities or other property) by such entity with respect to any Equity Interests of such Person, (b) any payment (whether cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interest, and (c) any payment of principal, interest or premium or any purchase, redemption, retirement, acquisition or defeasance with respect to any subordinated debt of such Person.
“ Revolving Commitment ” means, with respect to each Lender, the commitment of such Lender during the Availability Period to make Revolving Loans and to acquire participations in Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be reduced or increased from time to time pursuant to Section 2.05 or pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender’s Revolving Commitment is set forth on Schedule 2.01 , or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable.
“ Revolving Credit Exposure ” means, with respect to any Lender at any time, the aggregate outstanding principal amount of such Lender’s Revolving Loans and Swingline Exposure at such time.
“ Revolving Loans ” means the revolving loans referred to in Section 2.01 and made pursuant to Article 2, other than, for the avoidance of doubt, Swingline Loans.
“ Sanctioned Country ” means, at any time, a country, region or territory which itself is the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
“ Sanctioned Person ” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC or the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses.
“ Sanctions ” means, collectively, OFAC Sanctions and U.S. Department of State Sanctions.
“ SEC ” means the United States Securities and Exchange Commission.
“ SEC Reports ” means the reports filed by the Borrower with the SEC pursuant to the Securities Exchange Act of 1934, as amended.
“ S&P ” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, or its successors.
“ Significant Subsidiary ” means each of Hawaiian Electric, American Savings Bank, F.S.B., ASB Hawaii, Inc. and any other Subsidiary having 15% or more of the total assets, or 15% or more of the total operating income, of the Borrower and its Subsidiaries on a consolidated basis, in either case as the consolidated total assets and consolidated total operating income of the Borrower and its Subsidiaries are reflected in the most recent annual or quarterly report filed by the Borrower with the SEC.

20






“ Statutory Reserve Rate ” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D). Such reserve percentages shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“ subsidiary ” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
“ Subsidiary ” means any subsidiary of the Borrower and any subsidiary of a Subsidiary of the Borrower.
“ Swingline Exposure ” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be the sum of (a) its Applicable Percentage of the total Swingline Exposure at such time other than with respect to any Swingline Loans made by such Lender in its capacity as a Swingline Lender and (b) the aggregate principal amount of all Swingline Loans made by such Lender as a Swingline Lender outstanding at such time (less the amount of participations funded by the other Lenders in such Swingline Loans).
“ Swingline Lender ” means JPMCB, in its capacity as lender of Swingline Loans hereunder.
“ Swingline Loan ” means a loan made pursuant to Section 2.13.
“ Taxes ” means any and all current or future taxes, levies, imposts, duties, deductions, fees, assessments, charges or withholdings imposed by any Governmental Authority.
“ Transactions ” means (a) the execution, delivery and performance by the Borrower of each Loan Document to which it is a party, (b) the borrowing of the Loans, and (c) the use of the proceeds of the Loans.
“ Type ”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. For the avoidance of doubt, a Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate Base Rate

21





shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Eurodollar Loan.
“ U.S. Department of State Sanctions ” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by the U.S. Department of State.
“ U.S. Person ” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
“ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“ Withholding Agent ” means the Borrower and the Administrative Agent.
“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
Section 1.02      Terms Generally
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, and (f) any reference herein to any law, rule, regulation or treaty shall, unless otherwise specified, refer to such law, rule, regulation, or treaty as amended, restated, supplemented or otherwise modified from time to time.
Section 1.03      Accounting Terms; GAAP
Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time, provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall

22





have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Unless the context otherwise requires, any reference to a fiscal period shall refer to the relevant fiscal period of the Borrower. Notwithstanding any other provision contained herein, (i) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (x) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein and (y) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof and (ii) Indebtedness included in the financial covenant set forth in Section 7.05 shall exclude any liability to make lease payments for all leases included on a balance sheet of the Borrower by reason of the application of FASB Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).
Section 1.04      Amendment and Restatement of the Existing Credit Agreement
The parties to this Agreement agree that, upon (i) the execution and delivery by each of the parties hereto of this Agreement and (ii) satisfaction of the conditions set forth in Section 5.01, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement. This Agreement is not intended to and shall not constitute a novation. All Revolving Loans made and obligations incurred under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as Revolving Loans and obligations under (and, as of the Effective Date, shall be governed by the terms of) this Agreement and the other Loan Documents. Without limiting the foregoing, upon the effectiveness hereof: (a) all references in the “Loan Documents” (as defined in the Existing Credit Agreement) to the “Administrative Agent”, the “Credit Agreement” and the “Loan Documents” shall be deemed to refer to the Administrative Agent, this Agreement and the Loan Documents, (b) the Existing Letters of Credit which remain outstanding on the Effective Date shall continue as Letters of Credit under (and, as of the Effective Date, shall be governed by the terms of) this Agreement, (c) all obligations of the Borrower owing to any Lender or any Affiliate of any Lender under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as obligations under this Agreement and the other Loan Documents, (d) the Administrative Agent shall make such reallocations, sales, assignments or other relevant actions in respect of each Lender’s credit exposure under the Existing Credit Agreement as are necessary in order that each such Lender’s Revolving Credit Exposure and outstanding Revolving Loans hereunder reflect such Lender’s Applicable Percentage of the outstanding aggregate Revolving Exposures on the Effective Date, (e) the Existing Loans (as defined in Section 2.01) of each Departing Lender shall be repaid in full (accompanied by any accrued and unpaid interest and fees thereon), each Departing Lender’s “Commitments” under the Existing Credit Agreement shall be terminated and each Departing Lender shall not be a Lender hereunder and (f) the Borrower hereby agrees to compensate each Lender (including each Departing Lender) for any and all losses, costs and expenses incurred by such Lender in connection with the sale and assignment of any Eurodollar Loans (including the “Eurodollar Loans” under the Existing Credit Agreement) and such reallocation described above, in each case on the terms and in the manner set forth in Section 3.06 hereof.
ARTICLE 2.
THE CREDITS

23






Section 2.01      Commitments
Prior to the Effective Date, certain loans were previously made to the Borrower under the Existing Credit Agreement which remain outstanding as of the date of this Agreement (such outstanding loans being hereinafter referred to as the “ Existing Loans ”). Subject to the terms and conditions set forth in this Agreement, the Borrower and each of the Lenders agree that on the Effective Date but subject to the satisfaction of the conditions precedent set forth in Section 5.01 and the reallocation and other transactions described in Section 1.04, the Existing Loans shall, as of the Effective Date, be reevidenced as Revolving Loans under this Agreement and the terms of the Existing Loans shall be restated in their entirety and shall be evidenced by this Agreement. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result (after giving effect to any application of proceeds of such Borrowing to any Swingline Loans outstanding pursuant to Section 2.06(a)) in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the Aggregate Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
Section 2.02      Loans and Borrowings
(a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Revolving Commitments. The failure of any Lender to make any Revolving Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Commitments of the Lenders are several, and no Lender shall be responsible for any other Lender’s failure to make Revolving Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.13.
(b) Subject to Section 3.04, each Revolving Loan shall be an ABR Loan or a Eurodollar Loan, as the Borrower may request in accordance herewith (including Section 3.02). Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurodollar Loan (and any ABR Loan, the interest on which is determined pursuant to clause (c) of the definition of Alternate Base Rate) by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 3.05, 3.06 and 3.07 shall apply to such Affiliate to the same extent as to such Lender), provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and neither such Lender nor such Affiliate shall be entitled to any amounts payable under Sections 3.05 or 3.07 solely in respect of increased costs or taxes resulting from such exercise and existing at the time of such exercise.
(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000. At the time that each ABR Borrowing (other than a Swingline Loan) is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000, provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time, provided that there shall not at any time be more than a total of fifteen Eurodollar Borrowings outstanding.

24





(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Eurodollar Borrowing if the Interest Period requested with respect thereto would end after the Commitment Termination Date.

Section 2.03      Requests for Borrowings
To request a Borrowing (other than a Swingline Loan, requests for which are governed by Section 2.13), the Borrower shall notify the Administrative Agent of such request by telephone, which may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, (a) in the case of a Eurodollar Borrowing, not later than 3:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 2:00 p.m., New York City time on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable (except as otherwise provided in Section 3.04) and shall be confirmed promptly by hand delivery or facsimile transmission to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the President of the Borrower or a Financial Officer. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i)      the aggregate amount of the requested Borrowing;
(ii)      the date of such Borrowing, which shall be a Business Day;
(iii)      whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv)      in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v)      the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Revolving Loan to be made as part of the requested Borrowing.
Section 2.04      Funding of Borrowings
(a) Each Lender shall make each Revolving Loan to be made by it hereunder on the proposed date thereof solely by wire transfer of immediately available funds by 3:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Swingline Loans shall be made as provided in Section 2.13. Subject to Section 5.02, the Administrative Agent will make the proceeds of such Loans available to the Borrower by promptly crediting or otherwise transferring the amounts so received, in like funds, to an account of the Borrower designated by the Borrower in the applicable Borrowing Request.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Revolving Loan that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may

25





assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent by 3:00 p.m., New York City time, for a Eurodollar Borrowing or by 4:00 p.m., New York City time, for an ABR Borrowing on the applicable day, then such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount was made available by the Administrative Agent to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, or (ii) in the case of the Borrower, the interest rate that would be otherwise applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Revolving Loan included in such Borrowing. Such payment by the Borrower shall be without prejudice to its rights against each Lender who fails to fund its share of any Borrowing.

Section 2.05      Termination, Reduction and Increase of Commitments
(a) Unless previously terminated, the Revolving Commitments and the Letter of Credit Commitments shall terminate on the Commitment Termination Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Commitments, provided that (i) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.07 and/or any concurrent cash collateralization of the Letter of Credit Exposure, (x) the Aggregate Credit Exposure would exceed the Aggregate Revolving Commitments, (y) the total Revolving Credit Exposures of all of the Lenders would exceed the Aggregate Revolving Commitments or (z) the Aggregate Letter of Credit Exposure would exceed the Aggregate Letter of Credit Commitments, and (ii) each such reduction shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least two Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided, that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments hereunder shall be permanent but without prejudice to the rights of the Borrower under paragraph (d) below. Each reduction of the Commitments hereunder shall be made ratably among the Lenders in accordance with their respective Commitments.
(d) Provided that immediately before and after giving effect thereto, no Default shall or would exist and be continuing and the conditions set forth in Section 5.02 have been satisfied or waived, the Borrower may at any time and from time to time, on or before the Commitment Termination Date referred to in clause (a) of the definition thereof, request any one or more of the Lenders to increase (such decision to be within the sole and absolute discretion of such Lender)

26





its Revolving Commitment and Letter of Credit Commitment, and/or any other Eligible Assignee reasonably satisfactory to the Administrative Agent and the Borrower, to provide a new Revolving Commitment and a new Letter of Credit Commitment, by submitting an Increase Request in the form of Exhibit F (an “ Increase Request ”), duly executed by the Borrower and each such Lender or Eligible Assignee, as the case may be. Thereupon, the Administrative Agent shall execute such Increase Request and deliver a copy thereof to the Borrower and each such Lender or Eligible Assignee, as the case may be.
Upon execution and delivery of such Increase Request, (i) in the case of each such Lender, such Lender’s Revolving Commitment shall be increased to the amount set forth in such Increase Request, (ii) in the case of each such Eligible Assignee, such Eligible Assignee shall become a party hereto and shall for all purposes of the Loan Documents be deemed a “Lender” with a Revolving Commitment in the amount set forth in such Increase Request, and (iii) the Borrower shall contemporaneously therewith execute and deliver to the Administrative Agent a Note or Notes for each such Eligible Assignee providing a new Revolving Commitment and for such existing Lender increasing its Revolving Commitment provided, however, that:
(i) immediately after giving effect thereto, the Aggregate Revolving Commitments shall not have been increased pursuant to this subsection (d) to an amount greater than the sum of (x) $200,000,000 plus (y) the amount of the Revolving Commitment of each Lender that becomes a Defaulting Lender;
(ii) each such increase shall be in an amount not less than $5,000,000 or such amount plus an integral multiple of $1,000,000;
(iii) the Revolving Commitments shall not be increased on more than three occasions;
(iv) the Administrative Agent shall have received documents (including, without limitation, one or more opinions of counsel) consistent with those delivered on the Effective Date as to the corporate power and authority of the Borrower to borrow hereunder after giving effect to such increase;
(v) if Loans shall be outstanding immediately after giving effect to such increase, the Lenders shall, upon the acceptance of the Increase Request by, and at the direction of, the Administrative Agent, make appropriate adjustments among themselves so that the amount of Revolving Credit Exposures from any of the Lenders under this Agreement are allocated among the Lenders according to their Commitment Percentages after giving effect to the increase in the Aggregate Revolving Commitments (it being understood and agreed that any reallocation made pursuant to this clause (v) shall require the Borrower to make payment pursuant to Section 3.06 with respect to any affected Eurodollar Loans); and
(vi) each such Eligible Assignee shall have delivered to the Administrative Agent and the Borrower an Administrative Questionnaire and all forms, if any, that are required to be delivered by such Eligible Assignee pursuant to Section 3.07(e).
Section 2.06      Repayment of Loans; Evidence of Debt
(a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan

27





on the Commitment Termination Date and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Commitment Termination Date and the date that is the 21 st Business Day after such Swingline Loan is made; provided that on each date that a Revolving Loan is made, the Borrower shall repay all Swingline Loans then outstanding and the proceeds of any such Borrowing shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type and Class thereof and, if applicable, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall, to the extent not inconsistent with any entries made in any Note, be prima facie evidence of the existence and amounts of the obligations recorded therein except for clearly demonstrated error; provided , that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) The Loans of each Lender and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be evidenced by one or more Notes payable to such Lender (or its registered assigns).
Section 2.07      Prepayment of Loans
(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b) In the event of any partial reduction or termination of the Commitments, then (i) at or prior to the date of such reduction or termination, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Credit Exposures after giving effect thereto, and (ii) if such sum would exceed the Aggregate Revolving Commitments after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, prepay Revolving Borrowings, and/or cash collateralize the Letter of Credit Exposure, in an amount sufficient to eliminate such excess.
(c) Mandatory Prepayments .
(i) The Borrower shall immediately prepay the Loans, by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments.
(ii) Simultaneously with each reduction or termination of the Revolving Commitments, (1) in the event that the Aggregate Letter of Credit Commitments shall

28





exceed the Aggregate Revolving Commitments as so reduced or terminated, the Aggregate Letter of Credit Commitments shall be automatically reduced, and/or the Letter of Credit Exposure shall be cash collateralized, by an amount equal to such excess, and (2) the Borrower shall prepay the Loans by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments as so reduced or terminated.
(d) Simultaneously with each prepayment of a Loan, the Borrower shall, if and to the extent required by Section 3.01(d), prepay all accrued interest on the amount prepaid through the date of prepayment.
(e) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone, which may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager (confirmed by facsimile transmission executed by the President of the Borrower or a Financial Officer) of any prepayment under Section 2.07(a) (i) in the case of prepayment of a Eurodollar Borrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing (other than a Swingline Loan), not later than 2:00 p.m., New York City time, on the Business Day of the prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m., New York City time, on the Business Day of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided, that if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments contemplated by Section 2.05(c), then such notice of prepayment may also be conditional and may be revoked if such notice of termination is revoked in accordance with Section 2.05(c). Promptly following receipt of any such notice relating to a prepayment of a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing under Section 2.07(a) shall, be in an integral multiple of $1,000,000 and not less than $1,000,000. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest if and to the extent required by Section 3.01.
Section 2.08      Payments Generally; Pro Rata Treatment; Sharing of Setoffs
(a) The Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 3.05, 3.06, 3.07 or 10.03, or otherwise) prior to 3:00 p.m., New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its office at 10 South Dearborn Street, Chicago, Illinois, 60603, or such other office as to which the Administrative Agent may notify the other parties hereto, except payments to be made directly to the Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 3.03(b) (with respect to the fronting fee and other amounts payable to the Issuing Bank), 3.03(c), 3.05, 3.06, 3.07, 3.08, 10.03 and 10.04 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. In the event the Administrative Agent has not in fact made available to each Lender its share of the applicable payment within one Business Day of the receipt thereof, then the Administrative Agent agrees to pay to the applicable Lender forthwith on demand its share of

29





such payment with interest thereon for each day, from and including the second Business Day after such payment was received by the Administrative Agent but excluding the date of payment by the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment of accrued interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.
(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal of Loans, interest, fees and commissions then due hereunder, such funds shall be applied (i) first, towards payment of interest, fees and commissions then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and commissions then due to such parties, and (ii) second, towards payment of principal of Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal of Loans then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of, or interest on, any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of, and accrued interest on, their respective Loans, provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the applicable Credit Parties hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to such Credit Parties the amount due. In such event, if the Borrower has not in fact made such payment, then each such Credit Party severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Credit Party with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e) If any Credit Party shall fail to make any payment required to be made by it pursuant to Section 2.04(b), then the Administrative Agent may, in its discretion (notwithstanding

30





any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Credit Party to satisfy such Credit Party’s obligations under such Section until all such unsatisfied obligations are fully paid.
Section 2.09      Letter of Credit Sub-Facility
(a) Subject to the terms and conditions of this Agreement, the Issuing Bank agrees, in reliance on the agreement of the other Lenders set forth in Section 2.10, to issue standby or documentary letters of credit (the “ Letters of Credit ”; each, individually, a “ Letter of Credit ”) during the Availability Period for the account of the Borrower, provided that immediately after the issuance of each Letter of Credit (i) the Letter of Credit Exposure of each Lender (whether or not the conditions for drawing under any Letter of Credit have or may be satisfied) would not exceed its Letter of Credit Commitment, (ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving Commitments and (iii) each Lender’s Revolving Credit Exposure would not exceed such Lender’s Commitment. Notwithstanding the foregoing, the letters of credit identified on Schedule 2.09 (the “ Existing Letters of Credit ”) shall be deemed to be “Letters of Credit” issued on the Effective Date for all purposes of the Loan Documents. Each Letter of Credit issued pursuant to this Section shall have an expiration date which shall be not later than the earlier of (i) twelve months after the date of issuance thereof and (ii) five Business Days before the Commitment Termination Date referred to in clause (a) of the definition thereof, provided that any Letter of Credit with a twelve-month tenor may provide for the periodic and/or successive renewals or extensions thereof for additional twelve-month periods not expiring after the date referred to in clause (ii) above. No Letter of Credit shall be issued if the Administrative Agent, or the Required Lenders by notice to the Administrative Agent no later than 1:00 P.M. New York City time one Business Day prior to the requested date of issuance of such Letter of Credit, shall have determined that any condition set forth in Section 5.01 or 5.02 has not been satisfied. Notwithstanding anything herein to the contrary, the Issuing Bank shall have no obligation hereunder to issue, and shall not issue, any Letter of Credit the proceeds of which would be made available to any Person (i) to fund any activity or business of or with any Sanctioned Person, or in any country or territory that, at the time of such funding, is the subject of any OFAC Sanctions or (ii) in any manner that would result in a violation of any OFAC Sanctions by any party to this Agreement.
(b) Each Letter of Credit shall be issued for the account of the Borrower in support of an obligation of the Borrower or a Subsidiary in favor of a beneficiary who has requested the issuance of such Letter of Credit as a condition to a transaction entered into in connection with the Borrower’s or such Subsidiary’s ordinary course of business. The Borrower shall give the Administrative Agent a Letter of Credit Request for the issuance of each Letter of Credit by 2:00 P.M. New York City time, two (2) Business Days prior to the requested date of issuance. If requested by the Issuing Bank, each Letter of Credit Request shall be accompanied by the Issuing Bank’s standard application and agreement for standby letters of credit (each, a “ Reimbursement Agreement ”) executed by the President of the Borrower or a Financial Officer, and shall specify (i) the beneficiary of such Letter of Credit and the obligations of the Borrower or such Subsidiary in respect of which such Letter of Credit is to be issued, (ii) the Borrower’s proposal as to the conditions under which a drawing may be made under such Letter of Credit and the documentation to be required in respect thereof, (iii) the maximum amount to be available under such Letter of Credit, and (iv) the requested dates of issuance and expiration. Upon receipt of such Letter of Credit Request from the Borrower, the Administrative Agent shall promptly notify the Issuing Bank and each other Lender thereof. Each Letter of Credit shall be in form and substance reasonably satisfactory to the Issuing Bank, with such provisions with respect to the conditions under which a drawing may be made thereunder and the documentation required in

31





respect of such drawing as the Issuing Bank shall reasonably require. Each Letter of Credit shall be used solely for the purposes described therein. The Issuing Bank shall, on the proposed date of issuance and subject to the terms and conditions of the Reimbursement Agreement, if any, and to the other terms and conditions of this Agreement, issue the requested Letter of Credit.
(c) Each payment by the Issuing Bank of a draft drawn under a Letter of Credit shall give rise to an obligation on the part of the Borrower to reimburse the Issuing Bank by 3:00 P.M. New York City time two Business Days after the date of such payment together with interest on the amount of such payment from the date such payment was made by the Issuing Bank; provided that, if the amount of the draft drawn under such Letter of Credit is not less than $1,000,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.13 that such payment be financed with an ABR Loan in an equivalent amount of such draft drawn under such Letter of Credit and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Loan.
Section 2.10      Letter of Credit Participation and Funding Commitments
(a) Each Lender hereby unconditionally, irrevocably and severally (and not jointly) for itself only and without any notice to or the taking of any action by such Lender, takes an undivided participating interest in the obligations of the Issuing Bank under and in connection with each Letter of Credit in an amount equal to such Lender’s Commitment Percentage of the amount of such Letter of Credit. Each Lender shall be liable to the Issuing Bank for its Commitment Percentage of the unreimbursed amount of any draft drawn and honored under each Letter of Credit. Each Lender shall also be liable for an amount equal to the product of its Commitment Percentage and any amounts paid by the Borrower that are subsequently rescinded or avoided, or must otherwise be restored or returned. Such liabilities shall be unconditional and without regard to the occurrence of any Default or Event of Default or the compliance by the Borrower with any of its obligations under the Loan Documents.
(b) The Issuing Bank will promptly notify the Administrative Agent, and the Administrative Agent will promptly notify the Borrower and each Lender (which notice shall be promptly confirmed in writing) of the date and the amount of any draft presented under any Letter of Credit with respect to which full reimbursement of payment is not made by the Borrower as provided in Section 2.09(c), and forthwith upon receipt of such notice, such Lender (other than the Issuing Bank in its capacity as a Lender) shall make available to the Administrative Agent for the account of the Issuing Bank its Commitment Percentage of the amount of such unreimbursed draft at the office of the Administrative Agent specified in Section 10.01, in lawful money of the United States and in immediately available funds, before 4:00 p.m., New York City time, on the day such notice was given by the Administrative Agent, if the relevant notice was given by the Administrative Agent at or prior to 1:00 p.m., New York City time, on such day, and before 12:00 noon, New York City time, on the next Business Day, if the relevant notice was given by the Administrative Agent after 1:00 p.m., New York City time, on such day. The Administrative Agent shall distribute the payments made by each Lender (other than the Issuing Bank in its capacity as a Lender) pursuant to the immediately preceding sentence to the Issuing Bank promptly upon receipt thereof in like funds as received. In the event the Administrative Agent has not in fact made available to the Issuing Bank such payment within one Business Day of the receipt thereof, then the Administrative Agent agrees to pay to the Issuing Bank forthwith on demand such payment with interest thereon for each day, from and including the second Business Day after such payment was received by the Administrative Agent but excluding the date of payment by the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank

32





compensation. Each Lender shall indemnify and hold harmless the Administrative Agent and the Issuing Bank from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses of counsel to the Issuing Bank as the issuer of the relevant Letter of Credit) resulting from any failure on the part of such Lender to provide, or from any delay in providing, the Administrative Agent with such Lender’s Commitment Percentage of the amount of any payment made by the Issuing Bank under a Letter of Credit in accordance with this subsection (b) (except in respect of losses, liabilities or other obligations suffered by the Issuing Bank resulting from the gross negligence or willful misconduct of the Issuing Bank). If a Lender does not make available to the Administrative Agent when due such Lender’s Commitment Percentage of any unreimbursed payment made by the Issuing Bank under a Letter of Credit (other than payments made by the Issuing Bank by reason of its gross negligence or willful misconduct), such Lender shall be required to pay interest to the Administrative Agent for the account of the Issuing Bank on such Lender’s Commitment Percentage of such payment at a rate of interest per annum equal to the Federal Funds Rate for the first three days after the due date of such payment until the date such payment is received by the Administrative Agent and the Federal Funds Rate plus 2% thereafter.
(c) Whenever the Administrative Agent is reimbursed by the Borrower, for the account of the Issuing Bank, for any payment under a Letter of Credit and such payment relates to an amount previously paid by a Lender in respect of its Commitment Percentage of the amount of such payment under such Letter of Credit, the Administrative Agent (or the Issuing Bank, to the extent that the Administrative Agent has paid the same to the Issuing Bank) will pay over such payment to such Lender before 4:00 p.m., New York City time, on the day such payment from the Borrower is received, if such payment is received at or prior to 2:00 p.m., New York City time, on such day, or before 12:00 noon, New York City time, on the next succeeding Business Day, if such payment from the Borrower is received after 2:00 p.m., New York City time, on such day.
Section 2.11      Absolute Obligation With Respect to Letter of Credit Payments; Cash Collateral; Replacement of Issuing Bank
(a) The Borrower’s obligation to reimburse the Administrative Agent for the account of the Issuing Bank in respect of a Letter of Credit for each payment under or in respect of such Letter of Credit shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the beneficiary of such Letter of Credit, the Administrative Agent, the Issuing Bank, as issuer of such Letter of Credit, any Lender or any other Person, including, without limitation, (i) any defense based on the failure of any drawing to conform to the terms of such Letter of Credit, (ii) any drawing document proving to be forged, fraudulent or invalid in any respect, (iii) the legality, validity, regularity or enforceability of such Letter of Credit or this Agreement, (iv) any payment by the Issuing Bank under a Letter of Credit against presentment of a draft or other document that does not comply with the terms of such Letter of Credit or (v) any other event or circumstance that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder; provided, that, with respect to any Letter of Credit, the foregoing shall not relieve the Issuing Bank of any liability it may have to the Borrower for any actual damages sustained by the Borrower arising from a wrongful payment under such Letter of Credit made as a result of the Issuing Bank’s gross negligence or willful misconduct.

33






(b) If any Event of Default shall occur and be continuing, the Borrower shall within one Business Day from the time it receives a demand therefor from the Administrative Agent pursuant to Article 8, deposit in an account with the Administrative Agent, for the benefit of the Lenders, an amount in cash equal to one hundred percent (100%) of the Aggregate Letter of Credit Exposure as of such date. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Reimbursement Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. The Administrative Agent shall invest such deposits in Permitted Investments and interest or profits on such investments shall accumulate in such account. The moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for Reimbursement Obligations, and (ii) be held for the satisfaction of the Reimbursement Obligations of the Borrower.
(c) (A) The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank, it being understood and agreed that such parties shall not unreasonably delay or withhold their consent to any such agreement. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 3.03(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
(B) Subject to the appointment and acceptance of a successor Issuing Bank, the Issuing Bank may resign as the Issuing Bank at any time upon thirty days’ prior written notice to the Administrative Agent, the Borrower and the Lenders, in which case, the Issuing Bank shall be replaced in accordance with Section 2.11(c)(A) above.
Section 2.12      Defaulting Lenders
Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 3.03(a);
(b) the Commitments and Credit Exposure of such Defaulting Lender shall not be included in determining whether all Lenders or the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, modification or waiver pursuant to Section 10.02); provided that, except as otherwise provided in Section 10.02, (i) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender and (ii) any amendment or modification that increases, or extends the maturity of, such Defaulting Lender’s Commitment or reduces the principal amount of, or rate of

34





interest on, any Loan made by such Defaulting Lender, shall require the consent of such Defaulting Lender;
(c) if any Swingline Exposure or Letter of Credit Exposure exists at the time a Lender becomes a Defaulting Lender then:
(i) all or any part of such Swingline Exposure and such Letter of Credit Exposure (other than the portion of such Swingline Exposure referred to in clause (b) in the definition of such term) shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent (x) the sum of all non-Defaulting Lenders’ Credit Exposures plus such Defaulting Lender’s Swingline Exposure and Letter of Credit Exposure does not exceed the total of all non-Defaulting Lenders’ Commitments and (y) the conditions set forth in Section 5.02 are satisfied at such time;
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within two (2) Business Days following notice by the Administrative Agent (x)  first , prepay such Defaulting Lender’s Swingline Exposure and (y)  second , cash collateralize such Defaulting Lender’s Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.11(b) for so long as such Letter of Credit Exposure is outstanding;
(iii) if the Borrower cash collateralizes any portion of such Defaulting Lender’s Letter of Credit Exposure pursuant to this Section 2.12(c), the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 3.03(b) with respect to such Defaulting Lender’s Letter of Credit Exposure during the period such Defaulting Lender’s Letter of Credit Exposure is cash collateralized;
(iv) if the Letter of Credit Exposure of the non-Defaulting Lenders is reallocated pursuant to this Section 2.12(c), then the fees payable to the Lenders pursuant to Sections 3.03(a) and 3.03(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; or
(v) if any Defaulting Lender’s Letter of Credit Exposure is neither cash collateralized nor reallocated pursuant to this Section 2.12(c), then, without prejudice to any rights or remedies of the Issuing Bank or any Lender hereunder, all letter of credit fees payable under Section 3.03(b) with respect to such Defaulting Lender’s Letter of Credit Exposure shall be payable to the Issuing Bank until such Letter of Credit Exposure is cash collateralized and/or reallocated; and
(d) if and so long as any Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.12(c), and participating interests in any such newly made Swingline Loan or newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.12(c)(i) (and Defaulting Lenders shall not participate therein).

35





In the event that the Administrative Agent, the Borrower, the Swingline Lender and the Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Swingline Exposure and Letter of Credit Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitments and on such date such Lender shall purchase at par such of the Revolving Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Revolving Loans in accordance with its Applicable Percentage, and all cash collateral and accrued interest thereon held by the Administrative Agent or the Issuing Bank shall be returned to the Borrower forthwith.
Section 2.13      Swingline Loans (a) Subject to the terms and conditions set forth herein, the Swingline Lender may in its sole discretion make Swingline Loans in Dollars to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $15,000,000, (ii) the Swingline Lender’s Revolving Credit Exposure exceeding its Commitment or (iii) the sum of the total Revolving Credit Exposures exceeding the Aggregate Revolving Commitments; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone, which notification may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, not later than 1:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan and shall be confirmed promptly by facsimile transmission to the Administrative Agent signed by the President of the Borrower or a Financial Officer. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to an account of the Borrower with the Administrative Agent designated for such purpose (or, in the case of a Swingline Loan made to finance the reimbursement of a Letter of Credit Disbursement as provided in Section 2.09(c), by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Administrative Agent require the Lenders to acquire participations in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, promptly upon receipt of such notice from the Administrative Agent (and in any event, if such notice is received by 12:00 noon, New York City time, on a Business Day, no later than 5:00 p.m., New York City time, on such Business Day and if received after 12:00 noon, New York City time, on a Business Day, no later than 10:00 a.m., New York City time, on the immediately succeeding Business Day), to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation

36





under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.04 with respect to Loans made by such Lender (and Section 2.04 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.
(d) The Swingline Lender may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Swingline Lender and the successor Swingline Lender. The Administrative Agent shall notify the Lenders of any such replacement of the Swingline Lender. At the time any such replacement shall become effective, the Borrower shall pay all unpaid interest accrued for the account of the replaced Swingline Lender pursuant to Section 3.01(a). From and after the effective date of any such replacement, (i) the successor Swingline Lender shall have all the rights and obligations of the replaced Swingline Lender under this Agreement with respect to Swingline Loans made thereafter and (ii) references herein to the term “Swingline Lender” shall be deemed to refer to such successor or to any previous Swingline Lender, or to such successor and all previous Swingline Lenders, as the context shall require. After the replacement of a Swingline Lender hereunder, the replaced Swingline Lender shall remain a party hereto and shall continue to have all the rights and obligations of a Swingline Lender under this Agreement with respect to Swingline Loans made by it prior to its replacement, but shall not be required to make additional Swingline Loans.
(e) Subject to the appointment and acceptance of a successor Swingline Lender, the Swingline Lender may resign as a Swingline Lender at any time upon thirty (30) days’ prior written notice to the Administrative Agent, the Borrower and the Lenders, in which case, such Swingline Lender shall be replaced in accordance with Section 2.13(d) above.
Section 2.14. Extension of Commitment Termination Date .
(a) Requests for Extension . The Borrower may, by notice to the Administrative Agent (who shall promptly notify the Lenders) not earlier than 90 days and not later than 30 days prior to each anniversary of the date of this Agreement (each such anniversary date, an “ Extension Date ”), request that each Lender extend such Lender’s Commitment Termination Date to the date that is one year after the Commitment Termination Date then in effect for such Lender (the “ Existing Commitment Termination Date ”).
(b) Lender Elections to Extend . Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not later than the date that is 15 days after the date on which the Administrative Agent received the Borrower’s extension request (the “ Lender Notice Date ”), advise the Administrative Agent whether or not such Lender agrees

37





to such extension (each Lender that determines to so extend its Commitment Termination Date, an “ Extending Lender ”). Each Lender that determines not to so extend its Commitment Termination Date (a “ Non-Extending Lender ”) shall notify the Administrative Agent of such fact promptly after such determination (but in any event no later than the Lender Notice Date), and any Lender that does not so advise the Administrative Agent on or before the Lender Notice Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to so agree, and it is understood and agreed that no Lender shall have any obligation whatsoever to agree to any request made by the Borrower for extension of the Commitment Termination Date.
(c) Notification by Administrative Agent . The Administrative Agent shall notify the Borrower of each Lender’s determination under this Section no later than the date that is 15 days prior to the applicable Extension Date (or, if such date is not a Business Day, on the next preceding Business Day).
(d) Additional Commitment Lenders . The Borrower shall have the right, but shall not be obligated, on or before the applicable Commitment Termination Date for any Non-Extending Lender to replace such Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more financial institutions that each qualify as an Eligible Assignee (each, an “ Additional Commitment Lender ”) approved by the Administrative Agent in accordance with the procedures provided in Section 3.08(b), each of which Additional Commitment Lenders shall have entered into an Assignment and Acceptance (in accordance with and subject to the restrictions contained in Section 10.04, with the Borrower or replacement Lender obligated to pay any applicable processing or recordation fee) with such Non-Extending Lender, pursuant to which such Additional Commitment Lenders shall, effective on or before the applicable Commitment Termination Date for such Non-Extending Lender, assume a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date). The Administrative Agent may effect such amendments to this Agreement as are reasonably necessary to provide for any such extensions with the consent of the Borrower but without the consent of any other Lenders.
(e) Minimum Extension Requirement . If (and only if) the total of the Commitments of the Lenders that have agreed to extend their Commitment Termination Date and the new or increased Commitments of any Additional Commitment Lenders is more than 50% of the aggregate amount of the Commitments in effect immediately prior to the applicable Extension Date, then, effective as of the applicable Extension Date, the Commitment Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date that is one year after the Existing Commitment Termination Date (except that, if such date is not a Business Day, such Commitment Termination Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement and shall be bound by the provisions of this Agreement as a Lender hereunder and shall have the obligations of a Lender hereunder.
(f) Conditions to Effectiveness of Extension . Notwithstanding the foregoing, (x) no more than two (2) extensions of the Commitment Termination Date shall be permitted hereunder and (y) any extension of any Commitment Termination Date pursuant to this Section 2.14 shall not be effective with respect to any Extending Lender unless:
(i) no Default shall have occurred and be continuing on the applicable Extension Date and immediately after giving effect thereto;

38





(ii) the representations and warranties of the Borrower set forth in Article 4 of this Agreement are true and correct in all material respects on and as of the applicable Extension Date and after giving effect thereto, except to the extent such representations and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; and
(iii) the Administrative Agent shall have received a certificate from the Borrower signed by a Financial Officer of the Borrower (A) certifying the accuracy of the foregoing clauses (i) and (ii) and (B) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such extension.
(g) Commitment Termination Date for Non-Extending Lenders . On the Commitment Termination Date of each Non-Extending Lender, (i) the Commitment of each Non-Extending Lender shall automatically terminate and (ii) the Borrower shall repay such Non-Extending Lender in accordance with Section 2.06 (and shall pay to such Non-Extending Lender all of the other obligations owing to it under this Agreement) and after giving effect thereto shall prepay any Revolving Loans outstanding on such date (and pay any additional amounts required pursuant to Section 3.06) to the extent necessary to keep outstanding Revolving Loans ratable with any revised Applicable Percentages of the respective Lenders effective as of such date, and the Administrative Agent shall administer any necessary reallocation of the Revolving Credit Exposures (without regard to any minimum borrowing, pro rata borrowing and/or pro rata payment requirements contained elsewhere in this Agreement).
(h) Conflicting Provisions . This Section shall supersede any provisions in Section 2.08 or Section 10.02 to the contrary.
ARTICLE 3.
INTEREST, FEES, YIELD PROTECTION, ETC.
Section 3.01      Interest
(a) ABR Loans (including each Swingline Loan) and unpaid Reimbursement Obligations shall bear interest at the Alternate Base Rate plus the Applicable Margin.
(b) Eurodollar Borrowings shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c) Notwithstanding the foregoing, if any principal of and interest on any Loan or Reimbursement Obligation or any fee or other amount payable by the Borrower hereunder is not paid when due and after the expiration of any applicable grace period, then all such amounts shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of principal of any Loan or Reimbursement Obligation, 2% plus the rate otherwise applicable to such Loan or Reimbursement Obligation as provided in the preceding paragraphs of this Section, or (ii) in the case of any other amount, 2% plus the Alternate Base Rate.
(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment (other than a prepayment of an ABR Loan before the end of the Availability Period), and (iii) in the event of any conversion of any Eurodollar Loan prior to the

39





end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day) in the period in question. The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent in accordance with the provisions of this Agreement, and such determination shall be conclusive absent clearly demonstrable error.
Section 3.02      Interest Elections
(a) Any Borrowing on the Effective Date shall be of ABR Loans. Thereafter, each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably (subject to the provisions of Section 2.12) among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone, which may be made by the President of the Borrower, a Financial Officer or by the Hawaiian Electric Cash Manager, by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable, except as otherwise provided in Section 3.04, and shall be confirmed promptly by hand delivery or facsimile transmission to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the President of the Borrower or a Financial Officer.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

40





(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued beyond the current Interest Period as a Eurodollar Borrowing, and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 3.03      Fees
(a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender, a commitment fee, which shall accrue at a rate per annum equal to the Applicable Margin on the average daily amount of the unused Revolving Commitment of such Lender during the period from and including the date on which this Agreement shall have become effective in accordance with Section 10.06 to but excluding the date on which such Revolving Commitment terminates. For purposes of calculating the commitment fee, Swingline Exposure shall not be considered usage of the Revolving Commitment of any Lender. Accrued commitment fees shall be payable in arrears on the first Business Day of January, April, July and October of each year and on the Commitment Termination Date, commencing on the first such date to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a fee (the “ Letter of Credit Fee ”) with respect to each Letter of Credit, payable quarterly in arrears during the period from and including the date of issuance thereof to and including the expiration or cancellation date thereof (a) on the first Business Day of each January, April, July and October of each year, (b) upon such expiration or cancellation date and (c) on the Commitment Termination Date, at a rate per annum equal to the Applicable Margin on Eurodollar Borrowings on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations). The Borrower also agrees to pay to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations) attributable to Letters of Credit issued by the Issuing Bank during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any Letter of Credit Exposure, payable quarterly in arrears on the first Business Day of January, April, July and October of each year, as well as the Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment, renewal or extension of any Letter of Credit or processing of

41





drawings thereunder. The Letter of Credit Fee and the fronting fees described above shall be calculated for the actual number of days elapsed (including the first day but excluding the last day) during the period in question on the basis of a year of 365 or 366 days, as applicable.
(c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees and other amounts payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.
(d) All commitment fees shall be computed on the basis of a year of 365 or 366 days, as applicable, and shall be payable for the actual number of days elapsed (including the first day but excluding the last day) during the period in question.
(e) All fees and other amounts payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of commitment fees, to the Lenders. Fees and other amounts paid shall not be refundable under any circumstances other than clearly demonstrable error.
Section 3.04      Alternate Rate of Interest
If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive and binding absent clearly demonstrable error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or facsimile transmission as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. Notwithstanding the foregoing, if the Borrower shall have submitted a Borrowing Request with respect to a Eurodollar Borrowing and the Administrative Agent shall have notified the Borrower in accordance with the preceding sentence that such Borrowing will be made as an ABR Borrowing, the Borrower shall have the right, prior to the time by which it would have had to submit a Borrowing Request for an ABR Borrowing to be made on the same date, to withdraw such Borrowing Request.
Section 3.05      Increased Costs; Illegality
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended

42





by, any Credit Party (except any such reserve requirement reflected in the Adjusted LIBO Rate);
(ii) impose on any Credit Party or the London interbank market any other condition affecting this Agreement, any Eurodollar Loans made by such Credit Party or any participation therein; or
(iii) subject the Administrative Agent or any Credit Party to any Taxes (other than (A) Indemnified Taxes and (B) Excluded Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to the Administrative Agent or such Credit Party of making, continuing, converting into or maintaining any Loan hereunder (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by the Administrative Agent or such Credit Party hereunder (whether of principal, interest or otherwise), then the Borrower will, upon request by the Administrative Agent or such Credit Party, pay to the Administrative Agent or such Credit Party such additional amount or amounts as will compensate the Administrative Agent or such Credit Party for such additional costs incurred or reduction suffered.
(b) If any Credit Party determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Credit Party’s capital or on the capital of such Credit Party’s holding company, if any, as a consequence of this Agreement or the Loans made by such Credit Party to a level below that which such Credit Party or such Credit Party’s holding company could have achieved but for such Change in Law (taking into consideration such Credit Party’s policies and the policies of such Credit Party’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Credit Party such additional amount or amounts as will compensate such Credit Party or such Credit Party’s holding company for any such reduction suffered.
(c) A certificate of a Credit Party setting forth the amount or amounts necessary to compensate such Credit Party or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section including reasonably detailed supporting information shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error, it being understood that the Borrower’s obligations payable to any Credit Party pursuant to this clause (c) will be reasonably determined by such Credit Party (which determination shall be made in good faith (and not on an arbitrary or capricious basis) and consistent with similarly situated customers of such Credit Party under agreements having provisions similar to this Section 3.05 after consideration of such factors as such Credit Party then reasonably determines to be relevant). The Borrower shall pay such Credit Party the amount shown as due on any such certificate within 30 days after receipt thereof unless the Borrower is asserting in good faith that there is clearly demonstrable error in such certificate.
(d) Failure or delay on the part of any Credit Party to demand compensation pursuant to this Section shall not constitute a waiver of such Credit Party’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Credit Party pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Credit Party notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Credit Party’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is

43





retroactive, then the 90 day period referred to above shall be extended to include the period of retroactive effect thereof but not to exceed a period of 365 days.
(e) Notwithstanding any other provision of this Agreement, if, after the date of this Agreement, any Change in Law shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing, as applicable, for an additional Interest Period shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such for an additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as applicable), unless such declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans, as of the effective date of such notice as provided in the last sentence of this paragraph.
In the event any Lender shall exercise its rights under (i) or (ii) of this paragraph, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans, as applicable. For purposes of this paragraph, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.
Section 3.06      Break Funding Payments
In the event of (a) the payment or prepayment (voluntary or otherwise) of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount reasonably determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for Dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error. The Borrower shall pay such

44





Lender the amount shown as due on any such certificate within 15 days after receipt thereof unless there is clearly demonstrable error in any such certificate.
Section 3.07      Taxes
(a) Except as required by applicable law, any and all payments by or on account of any obligation of the Borrower hereunder and under any other Loan Document shall be made free and clear of and without deduction for any Taxes, provided that, if the Withholding Agent is required by applicable law (as determined in the good faith discretion of the applicable Withholding Agent) to deduct or withhold any Taxes from such payments, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Credit Party receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b) In addition (but without duplication) the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify each Credit Party, within 30 days after written demand therefor, for the full amount of any Indemnified Taxes paid by such Credit Party on or with respect to any payment by or on account of any obligation of the Borrower under the Loan Documents (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) and, unless caused by the gross negligence or willful misconduct of such Credit Party, any penalties, interest and reasonable out-of-pocket expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Credit Party, or by the Administrative Agent on its own behalf or on behalf of a Credit Party, including, if available, reasonably detailed supporting information, shall be delivered to and be binding on the Borrower absent clearly demonstrable error. If any Credit Party receives a refund in respect of any Indemnified Taxes for which such Credit Party has received payment from the Borrower hereunder, it shall promptly notify the Borrower of such refund and shall promptly upon receipt repay such refund to the Borrower, net of all out-of-pocket expenses of such Credit Party and without interest (other than interest paid by the relevant Governmental Authority, if applicable); provided that the Borrower, upon the request of such Credit Party, agrees to return such refund (plus penalties, interest or other charges) to such Credit Party in the event such Credit Party is required to repay such refund. Nothing contained in this Section shall prohibit the Borrower from contesting or seeking a refund of any Indemnified Taxes after payment thereof has been made in accordance with this Section and each Credit Party shall take such steps as the Borrower shall reasonably request to assist the Borrower in contesting or seeking a refund of any Indemnified Taxes. Notwithstanding anything to the contrary in this paragraph (c), in no event will any Credit Party be required to pay any amount to the Borrower pursuant to this paragraph (c) the payment of which would place such Credit Party in a less favorable net after-Tax position than such Credit Party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This Section shall not be construed to require any Credit Party to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to either the Borrower or any other Person.

45





(d) As soon as practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) Each Credit Party shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Credit Party (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Credit Party’s failure to comply with the provisions of Section 10.04(g) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Credit Party, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Credit Party by the Administrative Agent shall be conclusive absent manifest error. Each Credit Party hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Credit Party under any Loan Document or otherwise payable by the Administrative Agent to the Credit Party from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) (i) Any Credit Party that is entitled to an exemption from or reduction of withholding tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Credit Party, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Credit Party is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.07(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Credit Party’s reasonable judgment such completion, execution or submission would subject such Credit Party to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Credit Party.
(ii) Without limiting the generality of the foregoing,
(A) any Credit Party that is a “United States” Person under the Code shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Credit Party becomes a Credit Party under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), an executed IRS Form W-9 certifying that such Credit Party is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Credit Party under this

46





Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, an executed IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2) an executed IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “ U.S. Tax Compliance Certificate ”) and (y) an executed IRS Form W-8BEN or IRS Form W-8BEN-E; or
(4) to the extent a Foreign Lender is not the beneficial owner, an executed IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Credit Party under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Credit Party under any Loan Document would be subject to U.S. federal withholding tax imposed by FATCA if such Credit Party were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Credit Party shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Credit Party has complied with such Credit Party’s obligations under FATCA or to determine the amount to deduct and withhold from such

47





payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Credit Party agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g) For purposes of this Section 3.07, the terms “Lender” and “Credit Party” both include the Issuing Bank.

Section 3.08      Mitigation Obligations; Replacement of Lenders
(a) If any Lender requests compensation under Section 3.05, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.07, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans (or any participation therein) hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.05 or 3.07, as applicable, in the future, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 3.05, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.07, or if any Lender becomes a Defaulting Lender, or if any Lender has failed to consent to a proposed amendment, waiver, discharge or termination that under Section 10.02 requires the consent of all the Lenders and with respect to which the Required Lenders shall have granted their consent, then the Borrower may, at its sole expense and effort, upon notice to such Lender, the Issuing Bank, the Swingline Lender and the Administrative Agent, require such Lender to assign, and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement and each other Loan Document to an Eligible Assignee that shall assume such obligations; provided that (i) the Borrower shall have received the prior written consents of the Issuing Bank, the Swingline Lender and the Administrative Agent, which consents shall not unreasonably be delayed or withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (iii) in the case of any such assignment resulting from a claim for compensation under Section 3.05 or payments required to be made pursuant to Section 3.07, such assignment will result in a reduction in such compensation or payments and (iv) in the case of any such assignment resulting from the failure to provide a consent, the assignee shall have given such consent and, as a result of such assignment and any contemporaneous assignments and consents, the applicable amendment, waiver, discharge or termination can be effected. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES

48






The Borrower represents and warrants to the Credit Parties that:
Section 4.01      Organization; Powers
The Borrower and each of its Significant Subsidiaries (other than American Savings Bank, F.S.B.) is duly and validly organized and existing in good standing under the laws of its jurisdiction of organization, formation or charter (it being understood that Hawaiian Electric was originally organized under the laws of the Kingdom of Hawaii, Hawaii Electric Light Company, Inc. was originally organized under the laws of the Republic of Hawaii and Maui Electric Company, Limited was originally organized under the laws of the Territory of Hawaii) and is in good standing and duly licensed or qualified to transact business in each other jurisdiction where failure to so qualify would have a Material Adverse Effect. American Savings Bank, F.S.B. is chartered under the laws of the United States of America to transact the business of a federal savings bank and its charter is in full force and effect. The Borrower has full power to execute, deliver and perform this Agreement and the Notes and to borrow hereunder. The Borrower’s execution and performance of this Agreement and the Notes, and each borrowing hereunder have been duly authorized by all necessary corporate action and do not and, as of the time of each borrowing will not, violate any provision of law or of its articles of incorporation or bylaws, or result in the breach of or constitute a default under or require any consent under any indenture or other material agreement or material instrument to which the Borrower is a party or by which the Borrower or its property is bound or affected.
Section 4.02      Authorization; Enforceability
Each Loan Document has been (or, at the time executed by the Borrower, will have been) duly executed and delivered by the Borrower and constitutes (or at such time will constitute) a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 4.03      Governmental Approvals; No Conflicts
All consents or approvals of any state or federal agency or authority, if any, required in order to permit the Borrower to enter into this Agreement and to borrow hereunder, have been obtained and remain in full force and effect and the Transactions (a) do not require any other consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Significant Subsidiaries or any applicable order, rule or regulation of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon the Borrower or any of its Significant Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Significant Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Significant Subsidiaries.
Section 4.04      Financial Condition; No Material Adverse Effect
(a) The Current SEC Reports include (in clause (a) of the definition thereof) the consolidated balance sheets of the Borrower and its Subsidiaries as of the last day of the fiscal year ended December 31, 2016, and the related consolidated statements of income, retained earnings and cash flows (or changes in financial position, as the case may be) for such fiscal year,

49





which consolidated financial statements for fiscal year ended December 31, 2016 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Such financial statements present fairly, in all material respects, the financial position of the Borrower and its Subsidiaries as of the respective dates of such balance sheets and results of their operations and cash flows (or changes in financial position) for the periods covered by such statements of income, retained earnings and cash flows (or changes in financial position), in accordance with GAAP.
(b) As of the Effective Date, except as set forth in the Current SEC Reports, since December 31, 2016, there has been no change or development that has had or would reasonably be expected to have a Material Adverse Effect.
Section 4.05      Properties
(a) Each of the Borrower and its Significant Subsidiaries has good title to, or valid license or leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere in any material respect with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.
(b) Each of the Borrower and its Significant Subsidiaries owns, or is entitled to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and, to the knowledge of the Borrower, the use thereof by the Borrower and its Significant Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
Section 4.06      Litigation and Environmental Matters
(a) Except as heretofore disclosed to the Administrative Agent and the Lenders in the financial statements and accompanying notes referenced in Section 4.04(a) or in the Current SEC Reports, as of the Effective Date there are no suits or proceedings pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Significant Subsidiaries which have had or could reasonably be expected to have a Material Adverse Effect.
(b) Since the date of this Agreement, except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Significant Subsidiaries (i) have failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) have become subject to any Environmental Liability, or (iii) have received notice of any claim with respect to any Environmental Liability.
Section 4.07      Compliance with Laws and Agreements
The Borrower and each of its Significant Subsidiaries is in compliance in all material respects with all laws, regulations and order of any Governmental Authority applicable to it or its property and all indentures and material agreements binding upon the Borrower or its Significant Subsidiaries, except (a) as disclosed in the Disclosed Matters and (b) where the failure to do so would not reasonably be expected to have a Material Adverse Effect.

50





  
Section 4.08      Regulated Entities
The Borrower is not an “investment company” nor is it “controlled” by an “investment company”, in each case within the meaning of the Investment Company Act of 1940, as amended.
Section 4.09      Taxes
The Borrower has timely filed (or validly extended) or caused to be filed (or validly extended) all material tax returns and reports required to have been filed and has paid or caused to be paid all taxes required to have been paid by it, except (a) taxes that are being contested in good faith by appropriate proceedings and for which the Borrower has set aside on its books, to the extent required by GAAP, adequate reserves or (b) to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect.
Section 4.10      ERISA
No ERISA Event has occurred that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect.
Section 4.11      Disclosure
To the knowledge of the Borrower, the financial statements referred to in Section 4.04(a) do not, nor does this Agreement, nor any written statement furnished by the Borrower to the Administrative Agent or the Lenders pursuant to or in connection with this Agreement (including the June 13, 2017 “Lenders’ Presentation” prepared in connection with the confidential information memorandum for the primary market syndication of this Agreement, other than the Section contained therein and entitled “Transaction Overview”), when taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein or herein not misleading in light of the circumstances under which it was made; provided , that the foregoing is hereby qualified to the extent of any projections or other “forward-looking statements”, which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions; and provided , further , that any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements; it being expressly understood and agreed that (i) forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning the Borrower and its Subsidiaries or Affiliates, the performance of the industries in which they do business and economic and market factors, among other things, and (ii) such forward-looking statements are not guarantees of future performance. As of the Effective Date, there is no fact known to the Borrower which has had or would reasonably be expected to have a Material Adverse Effect which has not been disclosed herein or in the Current SEC Reports.
Section 4.12      Subsidiaries
Schedule 4.12 sets forth the name of, and the ownership interest of the Borrower in, each Subsidiary, as of the Effective Date.

51





  
Section 4.13      Federal Reserve Regulations
(a) After the application of the proceeds of any Loan, not more than 25% of the value of the assets of the Borrower will consist of or be represented by Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the regulations of the Board, including Regulation T, U or X.
Section 4.14      Rankings
The obligations of the Borrower to the Lenders under this Agreement and the other Loan Documents will rank senior to, or pari passu with, other unsecured Indebtedness of the Borrower.
Section 4.15      Solvency
Immediately after the consummation of the Transactions and after the incurrence of any Borrowing or the issuance of any Letter of Credit, the Borrower and its Subsidiaries taken as a whole are not and will not be Insolvent.
Section 4.16      Anti-Corruption Laws and Sanctions
For purposes of this Section 4.16, “knowledge” as to the Borrower means the actual knowledge of the President, CEO, any Executive Vice President, General Counsel (or other chief legal officer) or Financial Officer of the Borrower. The Borrower and/or its Significant Subsidiaries have implemented and maintain in effect policies and/or procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and to ensure compliance by the Borrower and its Subsidiaries and the respective officers and employees of the Borrower and its Subsidiaries with applicable OFAC Sanctions. The Borrower and its Subsidiaries, and to the knowledge of the Borrower, their respective officers, employees, directors and agents, are in compliance with Anti-Corruption Laws and OFAC Sanctions in all material respects. The Borrower and its Subsidiaries are in compliance with applicable U.S. Department of State Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower, any of their respective directors, officers or employees, or (b)  to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds by the Borrower or its Subsidiaries will violate Anti-Corruption Laws or applicable Sanctions.
Section 4.17      EEA Financial Institutions.
The Borrower is not an EEA Financial Institution.
ARTICLE 5.
CONDITIONS
Section 5.01      Effective Date
The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied or waived in accordance with Section 10.02 (it being understood and agreed that any of the following instruments, agreements, certificates, opinions, or other documents may be delivered or furnished by delivering or furnishing a facsimile transmission or other electronic image thereof followed by the delivery of an original or an originally executed counterpart thereof):

52





 
(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party, or (ii) written evidence satisfactory to the Administrative Agent that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a Note for each Lender signed on behalf of the Borrower.
(c) The Administrative Agent shall have received a favorable written opinion (addressed to the Credit Parties and dated the Effective Date) from (i) Pillsbury Winthrop Shaw Pittman LLP substantially in the form of Exhibit B-1 and (ii)  Kurt K. Murao, Esq., Vice President - Legal & Administration and Corporate Secretary of the Borrower, substantially in the form of Exhibit B-2 , in each case covering such other matters relating to the Borrower, the Loan Documents or the Transactions as the Administrative Agent shall reasonably request. The Borrower hereby requests such counsels to deliver such opinions.
(d) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(e) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President of the Borrower or a Financial Officer, confirming compliance, as of the Effective Date, with the conditions set forth in Section 5.02.
(f) The Administrative Agent shall have received payment of all fees required to be paid, and all reasonably incurred and duly documented expenses which are otherwise required to be reimbursed, in each case for which invoices with appropriate supporting documentation have been presented at least two (2) Business Days prior to the Effective Date.
(g) The Administrative Agent shall have received evidence reasonably satisfactory to it that all material governmental and third party approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the Transactions shall have been obtained and be in full force and effect (it being understood and agreed that, as related to the increase of the Revolving Commitment contemplated by Section 2.05(d), the foregoing approvals may not have been applied for, and/or may not have been received, on or as of the Effective Date).
The Administrative Agent shall notify the Borrower and the Credit Parties of the Effective Date, and such notice shall be conclusive and binding.
Section 5.02      Each Credit Event
The obligation of each Lender to make a Loan on the occasion of any Borrowing and of the Issuing Bank to issue any Letter of Credit is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower set forth in Article 4 of this Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of this Agreement) shall be true and correct in all material respects on and as of the date of such Borrowing or issuance of such Letter of Credit, except to the extent such representations and

53





warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.
(b) At the time of and immediately after giving effect to such Borrowing or issuance of such Letter of Credit, no Default shall have occurred and be continuing.
(c) No Material Subsidiary Indebtedness Event shall have occurred and be continuing.
Each request for a Loan or issuance of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this Section.
ARTICLE 6.
AFFIRMATIVE COVENANTS
Until the Commitments and all Letters of Credit shall have expired or been terminated, in each case, without any pending draw, and the principal of and interest on all Loans, all Reimbursement Obligations and all fees and other amounts (other than contingent liability obligations) payable under the Loan Documents shall have been paid in full, the Borrower covenants and agrees with the Lenders that:
Section 6.01      Financial Statements and Other Information
The Borrower will furnish to the Administrative Agent sufficient copies for each Lender of the following (it being agreed that the obligation of the Borrower to furnish the financial statements, reports, information and documents referred to below (other than the certificate referred to in clause (c) below) may be satisfied by the Borrower’s delivery to, or filing such statements, reports, information and documents with, the SEC via the EDGAR filing system (or any successor system thereto)):
(a) within 120 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, cash flows and retained earnings as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent registered public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, cash flows and retained earnings as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of the President of the Borrower or a Financial Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of the President of the Borrower or of a Financial Officer (i) certifying as to whether a Default has occurred and is continuing and, if a Default has occurred and is

54





continuing, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 7.05, and (iii) stating whether any material change in GAAP or in the application thereof has occurred since the later to occur of (x) the date of the audited financial statements referred to in Section 4.04 and (y) the date of the last certificate furnished pursuant to this Section 6.01(c), and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;
(d) promptly after the same become publicly available, and as the Administrative Agent or any Lender may reasonably request, copies of all periodic and other reports, proxy statements and other materials filed under the Securities Exchange Act of 1934 or any successor statute by the Borrower or any Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of the functions of the SEC, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be, as the Administrative Agent or any Lender may reasonably request;
(e) promptly after the same becomes publicly available, notice of any change in the Borrower’s Issuer Ratings, which notice may be satisfied if the information is included in the Disclosed Matters; and
(f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may reasonably request, provided that the Borrower shall not be required to furnish information relating to American Savings Bank, F.S.B. if such disclosure may, in the Borrower’s reasonable judgment, compromise or adversely affect American Savings Bank, F.S.B.’s competitive position in relation to the Administrative Agent and the Lenders.
Section 6.02      Notices of Material Events
The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following (provided, however, that the obligation of the Borrower to provide such notice shall be deemed satisfied if the same is promptly included in the Disclosed Matters):
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Significant Subsidiary (other than actions, suits or proceedings in the ordinary course of business or before the Public Utilities Commission or tax audits) that would reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower and its Significant Subsidiaries in an aggregate amount exceeding 25% of the projected benefit obligations under all Plans.
(d) any other material event that is required to be disclosed by the Borrower on Form 8K to the SEC.

55





  
At the request of the Administrative Agent, a Financial Officer or other executive officer of the Borrower will provide a statement setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
Section 6.03      Existence; Conduct of Business
The Borrower will do or cause to be done, and will cause each of its Significant Subsidiaries to do or cause to be done, all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business, provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.02 or any merger or consolidation of a Significant Subsidiary into the Borrower or another Significant Subsidiary of the Borrower or the transfer of assets by any Significant Subsidiary to the Borrower or another Significant Subsidiary of the Borrower followed by the liquidation of dissolution of such Significant Subsidiary.
Section 6.04      Payment of Obligations
The Borrower will pay its obligations, including its Tax liabilities, that, if not paid, would reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) if required by GAAP, the Borrower has set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (c) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect.
Section 6.05      Maintenance of Properties; Insurance
(a) The Borrower will keep and maintain, and will cause each of its Significant Subsidiaries to keep and maintain, all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, provided , however , that nothing shall prevent the Borrower or a Significant Subsidiary, as appropriate, from discontinuing the operation or maintenance of any property if such discontinuance is, in the judgment of the Borrower or such Significant Subsidiary, desirable in the conduct of the business of the Borrower or such Significant Subsidiary.
(b) The Borrower will maintain, or cause to be maintained, and will cause each of its Significant Subsidiaries to maintain, or cause to be maintained, with reputable insurance companies, so long as such insurance is available on commercially reasonable terms (including appropriate deductibles, self-insurance, exclusions and limitations), insurance in such amounts and against such risks as the Borrower and its Significant Subsidiaries have customarily maintained.
Section 6.06      Books and Records; Inspection Rights
The Borrower will maintain and cause each of its Significant Subsidiaries to maintain, accurate and proper accounting records and books in accordance with GAAP, and provide the Administrative Agent and the Lenders, subject to the provisions of Section 10.12, with access to such books and accounting records at the request of the Administrative Agent and the Lenders made for a legitimate business purpose related to the Transactions during the Borrower’s normal business hours and to discuss its affairs, finances and condition with its Financial Officers, all at such reasonable times with reasonable advance notice and as often as reasonably requested; provided, however, that the Borrower shall not be required to disclose to the Administrative Agent, the Issuing Bank, or any Lender information relating to

56





American Savings Bank, F.S.B. if such disclosure may, in the Borrower’s reasonable judgment, compromise or adversely affect American Savings Bank, F.S.B.’s competitive position in relation to the Administrative Agent, the Issuing Bank, or any Lender.
Section 6.07      Compliance with Laws
The Borrower will comply, and will cause each of its Significant Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders of any Governmental Authority, a breach of which would reasonably be expected to have a Material Adverse Effect, except where contested in good faith and, if applicable, by proper proceedings. The Borrower will, and/or will cause each of its Significant Subsidiaries to, maintain in effect and enforce policies and/or procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable OFAC Sanctions.
Section 6.08      Use of Proceeds
The Borrower will use the proceeds of the Loans only for lawful purposes of the Borrower and its Subsidiaries not inconsistent with or limited by the terms hereof, including, without limitation, to provide liquidity back-up for the issuance of commercial paper, loans to Subsidiaries, working capital and general corporate purposes of the Borrower, all to the extent the Borrower is legally permitted to use such proceeds for such purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of any of the regulations of the Board, including Regulations T, U and X. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
ARTICLE 7.
NEGATIVE COVENANTS
Until the Commitments and all Letters of Credit shall have expired or been terminated, in each case, without any pending draw, and the principal of and interest on all Loans, all Reimbursement Obligations and all fees and other amounts (other than contingent liability obligations) payable under the Loan Documents shall have been paid in full, or unless the Required Lenders otherwise consent in writing, the Borrower covenants and agrees with the Lenders that:
Section 7.01      Liens
The Borrower will not incur, create, assume or permit to exist any Lien on the capital stock of or other ownership interests in Hawaiian Electric Company, Inc., American Savings Bank, F.S.B. or any other Significant Subsidiary or any Lien on any of its other assets, now or hereafter owned, without effectively providing concurrently therewith to equally and ratably secure the obligations of Borrower under this Agreement, except:
(a) Liens securing the payment of Indebtedness of the Borrower to a state, territory or possession of the United States or any political subdivision thereof issued in a transaction in which such state, territory, possession or political subdivision issued obligations the interest on which is excludable from gross income by the holders thereof pursuant to the provisions of

57





Section 103 of the Code (or similar provisions), as in effect at the time of the issuance of such obligations, and Indebtedness to the issuer of a letter of credit or a letter of guaranty to support any such obligations to the extent the Borrower or any Subsidiary is required to reimburse such issuer for drawings under such letter of credit or letter of guaranty with respect to the principal of or interest on such obligations;
(b) deposits under workmen’s compensation, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, statutory obligations, surety or appeal bonds, or indemnity, performance or other similar bonds, in the ordinary course of business;
(c) Liens imposed by law, such as carriers’, warehousemen’s or mechanics’ liens, incurred in good faith in the ordinary course of business and securing obligations that are not yet due or that are being contested in good faith by appropriate proceedings, and Liens arising out of judgments or awards not exceeding $50,000,000 in the aggregate with respect to which appeals are being prosecuted, execution pending such appeals having been effectively stayed;
(d) the right reserved to, or vested in, any municipality or public authority by the terms of any right, power, franchise, grant, license, or permit, or by any provision of law, to purchase or recapture or designate a purchaser of any property;
(e) any Lien securing a tax, assessment or other governmental charge or levy or the claim of a materialman, mechanic, carrier, warehouseman or landlord for labor, materials, supplies or rentals incurred in the ordinary course of business;
(f) any Lien existing on (i) any property or asset at the time such property or asset is acquired by the Borrower (including acquisition by merger or consolidation), but only if and so long as (1) such Lien was not created in contemplation of such property or asset being acquired, (2) such Lien is and will remain confined to the property or asset subject to it at the time such property or asset is acquired and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof and (3) such Lien secures only the obligation secured thereby at the time such property or asset is acquired;
(g) any Lien in existence on the Effective Date to the extent set forth on Schedule 7.01 , but only, in the case of each such Lien, to the extent it secures an obligation outstanding on the Effective Date to the extent set forth on such Schedule, and extensions, renewals and refinancings of such obligations that do not increase the outstanding principal amount thereof (other than for accrued interest and transactional fees and expenses of such extension, renewal or refinancing);
(h) any Lien securing Purchase Money Indebtedness, or to secure payment of all or any part of the cost of construction of improvements as they are incurred or within 270 days thereafter, but only if, in the case of each such Lien, (i) such Lien shall at all times be confined solely to the property or asset the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof and (ii) such Lien attached to such property or asset within 270 days of the acquisition or improvement of such property or asset;

58





(i) easements, reservations, rights-of-way, restrictions, survey exceptions and other similar encumbrances as to real property which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not materially interfere with the conduct of the business of the Borrower or any Significant Subsidiary conducted at the property subject thereto;
(j) licenses, leases and subleases of property owned or leased by the Borrower or any Significant Subsidiary not interfering with the ordinary conduct of the business of the Borrower and the Significant Subsidiaries;
(k) Liens securing obligations, neither assumed by the Borrower or any Significant Subsidiary nor on account of which the Borrower or any Significant Subsidiary customarily pays interest, upon real estate or under which the Borrower or any Significant Subsidiary has a right-of-way, easement, franchise or other servitude or of which the Borrower or any Significant Subsidiary is the lessee of the whole thereof or any interest therein for the purpose of locating transmission and distribution lines and related support structures, pipe lines, substations, measuring stations, tanks, pumping or delivery equipment or similar equipment;
(l) Liens arising by virtue of any statutory or common law or contractual provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a depository institution;
(m) any Lien constituting a renewal, extension or replacement of a Lien permitted under clause (f), (g) or (h) of this Section 7.01, but only if (i) at the time such Lien is granted and immediately after giving effect thereto, no Default or Event of Default would exist and be continuing, (ii) such Lien is limited to all or a part of the property or asset that was subject to the Lien so renewed, extended or replaced and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof, (iii) the principal amount of the obligations secured by such Lien does not exceed the principal amount of the obligations secured by the Lien so renewed, extended or replaced, together with reasonable out-of-pocket expenses and accrued interest with respect to the obligations so renewed, extended or replaced, and (iv) the obligations secured by such Lien bear interest at a rate per annum not exceeding the rate borne by the obligations secured by the Lien so renewed, extended or replaced except for any increase that, in the reasonable opinion of the Borrower, is commercially reasonable at the time of such increase;
(n) Liens securing Indebtedness or other obligations of the Borrower or any Significant Subsidiary; provided , that at the time any such Indebtedness or other monetary obligation is incurred (and after giving effect to the concurrent repayment of any Indebtedness or other monetary obligations with the proceeds thereof), the aggregate principal amount of all Indebtedness and other monetary obligations then secured pursuant to this clause (n) does not exceed 15% of Consolidated Net Worth;
(o) any Lien on any capital stock of any corporation which is registered in the name of Borrower or otherwise owned by or held for the benefit of the Borrower (other than, in either case, the capital stock of any Significant Subsidiary) which may constitute Margin Stock; or
(p) any Lien on property arising in connection with any defeasance, covenant defeasance or in substance defeasance of any Indebtedness pursuant to an express contractual provision with respect thereto or GAAP.

59






Section 7.02      Sale of Assets; Consolidation; Merger; Sale and Leaseback
The Borrower will not,
(a) sell, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to any Person;
(b) consolidate with or merge into any other corporation (other than a merger of a Subsidiary into, or a consolidation of a Subsidiary with, the Borrower), or acquire all or substantially all the properties and assets of any Person unless:
(i) in the case of a merger or consolidation with the Borrower, the Borrower is the surviving corporation; and
(ii) after giving effect to any merger or consolidation or acquisition, the Borrower is in pro forma compliance with Section 7.05; and
(iii) no Default or Event of Default exists or results therefrom and is continuing; and
(iv) the aggregate consideration paid in connection with any such acquisition (including the aggregate amount of all indebtedness assumed) shall not exceed an amount equal to 25% of the Consolidated Capitalization of the Borrower and its Subsidiaries immediately prior to such acquisition); and
(v) the Administrative Agent shall have received prior to the consummation of any such merger, consolidation or acquisition, a certificate executed by a Financial Officer as to each of the matters described in clause (i)-(iv);
(c) enter into any arrangement, directly or indirectly, with any Person whereby the Borrower shall sell or transfer and lease back any portion of its property, real, personal or mixed, and used and useful in its business, whether now owned or hereafter acquired, which constitutes a material portion of the total property of the Borrower; or
(d) sell, assign, transfer, or otherwise dispose of the common stock of or other ownership interests ordinarily entitled to vote in the election of directors of any Significant Subsidiary, other than directors’ qualifying shares.
Section 7.03      Restrictive Agreements
The Borrower will not, and will not permit any Significant Subsidiary to, enter into, incur, permit to exist, directly or indirectly any agreement or arrangement that prohibits, restricts or imposes any condition upon the ability of any Significant Subsidiary to (a) make any Restricted Payments or to repay any Indebtedness owed to the Borrower, (b) make loans or advances to the Borrower or (c) transfer any of its property or assets to the Borrower, provided that the foregoing shall not apply to restrictions and conditions (i) imposed by law or regulation or by any regulatory agency, body or authority including under agreements with regulatory agencies, bodies, or authorities (ii) contained in or otherwise permitted by this Agreement or the Hawaiian Electric Credit Agreement, (iii) existing on the Effective Date identified on Schedule 7.03 hereto and amendments and modifications thereto, so long as such amendments or modifications do not materially expand the scope of any such restriction or condition, (iv) resulting from pledges of assets by American Savings Bank, F.S.B. to other financial institutions in

60





connection with its banking operations, or (v) that are entered into, incurred or permitted to exist following the date hereof that are not materially more expansive in scope than the restrictions and conditions referred to in this Section 7.03.
Section 7.04      Transactions with Affiliates
Except as specifically permitted by this Agreement, the Borrower will not sell, transfer, lease or otherwise dispose of (including pursuant to a merger) any property or assets to, or purchase, lease or otherwise acquire (including pursuant to a merger) any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except at prices and on terms and conditions not materially less favorable to the Borrower than could be obtained on an arms-length basis from unrelated third parties, provided that this Section shall not apply to any transaction that is otherwise permitted under this Article 7.
Section 7.05      Capitalization Ratio
The Borrower will not permit its Capitalization Ratio to exceed 0.50 to 1.00 as of the end of any fiscal quarter or fiscal year end.
ARTICLE 8.
EVENTS OF DEFAULT
If any of the following events (“ Events of Default ”) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee, commission or any other amount (other than an amount referred to in clause (a) of this Article) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days;
(c) any representation or warranty made or deemed made by or on behalf of the Borrower in or pursuant to this Agreement or any amendment or modification hereof or thereof or any waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to any Loan Document or any amendment or modification hereof or thereof or any waiver hereunder or thereunder, shall prove to have been incorrect in any material respect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 6.03 (with respect to the Borrower’s existence), 6.08, 7.02, 7.03 or 7.05;
(e) (1)      the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 6.02 and such failure shall continue unremedied for a period of 10 days after a Financial Officer of the Borrower shall have obtained knowledge thereof;
(2)      the Borrower shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document to which it is a party (other than those specified in clause (a), (b), (d) or (e)(1) of this Article), and such failure shall continue

61





unremedied for a period of 30 days after the Borrower shall have received notice thereof from the Administrative Agent;
(f) the Borrower shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable and after the expiration of any applicable grace period;
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that then enables or permits the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity, provided , that no Event of Default shall occur under this paragraph (g) as a result of (i) any notice of voluntary prepayment delivered by the Borrower with respect to any Indebtedness, (ii) any voluntary sale of assets by the Borrower as a result of which any Indebtedness secured by such assets is required to be prepaid or (iii) the exercise of any contractual right to cause the prepayment of such Material Indebtedness (other than the exercise of a remedy for an event of default under the applicable contract or agreement);
(h) any event or condition occurs that results in any Material Subsidiary Indebtedness becoming due prior to its scheduled maturity or that requires the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity, provided , that no Event of Default shall occur under this paragraph (h) as a result of (i) any notice of voluntary prepayment delivered by any Significant Subsidiary with respect to any Indebtedness, (ii) any voluntary sale of assets by any Significant Subsidiary as a result of which any Material Subsidiary Indebtedness secured by such assets is required to be prepaid or (iii) the exercise of any contractual right to cause the prepayment of such Material Subsidiary Indebtedness (other than the exercise of a remedy for an event of default under the applicable contract or agreement);
(i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Significant Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Significant Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue un-dismissed or un-stayed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered and continues un-stayed for 30 days;
(j) the Borrower or any Significant Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Significant Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing;
(k) the Borrower or any Significant Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;

62





 
(l) one or more judgments for the payment of money in an aggregate amount in excess of $50,000,000 (net of any amount covered by insurance) shall be rendered against the Borrower or any Significant Subsidiary or any combination thereof and the same is not appealed, satisfied, vacated, suspended, discharged or stayed pending appeal within 60 days after entry of such judgment or is not satisfied or discharged within 30 days after the expiration of any such stay;
(m) an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower and its Significant Subsidiaries in an aggregate amount exceeding 25% of the projected benefit obligations under all Plans;
(n) this Agreement or any other material Loan Document shall cease, for any reason (other than as a result of an act or omission by a Credit Party), to be valid and binding and enforceable against the Borrower in any material respect, or the Borrower shall so assert in writing or shall disavow any of its obligations thereunder;
(o) any Significant Subsidiary shall fail to pay its Tax liabilities, that, if not paid, would reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default and such failure shall continue for more than 30 days, except where (i) the validity or amount thereof is being contested in good faith and, if applicable, by appropriate proceedings, (ii) such Significant Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (iii) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect;
(p) American Savings Bank, F.S.B. shall fail to (a) be deemed “well capitalized” as defined by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, or any successor, (b) have at all times a leverage ratio of not less than 5%, (c) have at all times a Tier-1 risked based capital ratio of not less than 6% or (d) have at all times a total risk-based capital ratio of not less than 10%; or
(q) a Change in Control shall occur;
then, and in every such event (other than an event described in clause (i) or (j) of this Article with respect to the Borrower), and at any time thereafter during the continuance of such event, the Administrative Agent shall (at the request of the Required Lenders) or may (with the consent of the Required Lenders), in each case by notice to the Borrower, take any of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued under the Loan Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, and (iii) demand cash collateralization of the Letter of Credit Exposure; and in case of any event described in clause (i) or (j) of this Article with respect to the Borrower, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued under the Loan Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required

63





Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity.
ARTICLE 9.
THE ADMINISTRATIVE AGENT
Section 9.01      Appointment
Each Credit Party hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article 9 are solely for the benefit of the Administrative Agent and the Lenders (including the Swingline Lender and the Issuing Bank), and the Borrower shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
Section 9.02      Individual Capacity
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.
Section 9.03      Exculpatory Provisions
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, or any of the Subsidiaries that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own gross negligence or willful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Credit Party (and, promptly after its receipt of any such notice, it shall give each Credit Party and the Borrower notice thereof), and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set

64





forth herein or therein, (iv) the validity, enforceability, effectiveness or genuineness hereof or thereof or any other agreement, instrument or other document, or (v) the satisfaction of any condition set forth in Article 5 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, or its counsel.
Section 9.04      Reliance by Administrative Agent
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be internal or external counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
Section 9.05      Performance of Duties
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent, provided that no such delegation shall serve as a release of the Administrative Agent or waiver by the Borrower of any rights hereunder. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
Section 9.06      Resignation; Successors
Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Credit Parties and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent shall, in consultation with the Borrower, on behalf of the Credit Parties, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.
Section 9.07      Non-Reliance by Credit Parties
Each Credit Party acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Credit Party further represents that it is engaged in making, acquiring or holding commercial loans in the

65





ordinary course of its business and has, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by this Agreement or any other Credit Party or their respective Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Credit Party, and to make, acquire or hold Loans hereunder. Each Credit Party shall, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by this Agreement or any amendment thereof or any other Credit Party and their respective Related Parties and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to which it will continue as a lender or assign or otherwise transfer its rights, interests and obligations hereunder.
Section 9.08      Agents
None of the Persons identified on the cover page of this Agreement or in the preamble to this Agreement as a “syndication agent”, “co-documentation agent”, “lead arranger”, “co-arranger”, or “book manager” shall have any right, power, obligation, liability, responsibility or duty to any other Person under this Agreement, any of the other Loan Documents or otherwise, other than JPMCB in its capacity as Administrative Agent, JPMCB in its capacity as Issuing Bank and Swingline Lender, and each Lender in its capacity as a Lender. Without limiting the foregoing, none of such Persons so identified shall have or be deemed to have any fiduciary relationship with any other Person but such Persons shall have the benefit of the provisions of Section 9.02.
ARTICLE 10.
MISCELLANEOUS
Section 10.01      Notices
(a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile transmission, as follows:
 
(i) if to the Borrower:

Hawaiian Electric Industries, Inc.
1001 Bishop Street, Suite 2900 (if by hand delivery or overnight courier)
Honolulu, Hawaii 96813

P.O. Box 730 (if by mail)
Honolulu, Hawaii 96808-0730
Attention: Greg Hazelton, Executive Vice President and Chief Financial Officer
Telephone No.: 808-543-5870
Facsimile No.: 808-203-1988

(ii) if to the Administrative Agent:

66





JPMorgan Chase Bank, N.A.
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Telephone No.: 312-385-7055
Facsimile No.: 844-490-5663
Email: Jpm.agency.cri@jpmorgan.com

with a copy to:
JPMorgan Chase Bank, N.A.
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Telephone No.: 310-860-7256
Facsimile No.: 310-860-7110

(iii) if to the Issuing Bank:

JPMorgan Chase Bank, N.A.
Global Trade Services
300 South Riverside Plaza
Chicago, IL 60606-0236
Attention: Standby LC Unit
Email: GTS.Client.Services@JPMChase.com
Telephone No.: 312-954-1941
Facsimile No.: 312-233-2266

(iv) if to the Swingline Lender:

JPMorgan Chase Bank, N.A.
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Telephone No.: 312-385-7055
Facsimile No.: 844-490-5663
Email: Jpm.agency.cri@jpmorgan.com

(v) if to any other Credit Party, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Electronic Systems, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).

67






(b) Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by using Electronic Systems pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
(d) Electronic Systems .
(i) The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.
(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Borrower, any Lender, the Issuing Bank or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Communications through an Electronic System. “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section, including through an Electronic System.

68





  
Section 10.02      Waivers; Amendments
(a) No failure or delay by any Credit Party in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders, provided that no such agreement shall:
(i) increase the Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount of any Loan or Reimbursement Obligations, or reduce the rate of interest thereon (other than the imposition of additional interest under Section 3.01(c)), or reduce any fees or other amounts payable under the Loan Documents, without the written consent of each Lender directly affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees or other amounts payable under the Loan Documents, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Credit Party directly affected thereby,
(iv) change any provision hereof in a manner that would alter the pro rata sharing of payments required by any Loan Document, without the written consent of each Credit Party, or
(v) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender,
and provided , further , that no such agreement shall amend, modify or otherwise affect the rights or duties of (A) the Administrative Agent hereunder without the prior written consent of the Administrative Agent, (B) the Issuing Bank hereunder without the prior written consent of the Issuing Bank and (C) the Swingline Lender hereunder without the prior written consent of the Swingline Lender (it being understood that any change to Section 2.12 shall require the consent of the Administrative Agent, the Issuing Bank and the Swingline Lender). Notwithstanding the foregoing, no consent with respect to any amendment, waiver or other modification of this Agreement shall be required of any Defaulting Lender,

69





except with respect to any amendment, waiver or other modification referred to in clause (i), (ii) or (iii) of the first proviso of this paragraph and then only in the event such Defaulting Lender shall be directly affected by such amendment, waiver or other modification.
(c) Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (x) to add one or more credit facilities to this Agreement and to permit extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Loans and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Lenders.
(d) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender directly affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “ Non-Consenting Lender ”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) an Eligible Assignee shall agree, as of such date, to purchase for cash the Loans and other obligations due to the Non-Consenting Lender pursuant to an Assignment and Acceptance and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 10.04, and (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 3.05 and 3.07, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 3.06 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.
(e) Notwithstanding anything to the contrary herein the Administrative Agent may, with the consent of the Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.
Section 10.03      Expenses; Indemnity; Damage Waiver
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Lead Arrangers, including the reasonable and duly documented fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions of any Loan Document (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all reasonable out-of-pocket expenses incurred by any Credit Party, including the reasonable fees, charges and disbursements of a single counsel for the Administrative Agent and a single counsel for the other Credit Parties, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with and during any workout, restructuring or negotiations in respect of the Loans and the Letters of Credit.

70





 
(b) The Borrower shall indemnify each Credit Party and each Related Party thereof (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties to the Loan Documents of their respective obligations hereunder and thereunder or the consummation of the Transactions or any other transactions contemplated hereby or thereby, (ii) any Loan or the use of the proceeds thereof, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of the Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by the Borrower or its equity holders, Affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of (or a breach in bad faith by such Indemnitee of its express obligations under any Loan Document) such Indemnitee, (B) arise out of a claim brought by the Borrower against an Indemnitee for a breach which is finally determined by a final and nonappealable judgment to have constituted a bad faith breach of such Indemnitee’s obligations under this Agreement or (C) relate to Taxes, other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.
(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as applicable, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.
(d) To the extent permitted by applicable law, each party hereto agrees that it will not assert, and hereby waives, any claim against any Indemnitee or the Borrower, as the case may be, (i) for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet) (except, in the case of a claim against an Indemnitee, to the extent of direct or actual damages as are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee) or (ii) on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Loan Document or any agreement, instrument or other document contemplated hereby or thereby, the Transactions or any Loan or the use of the proceeds thereof; provided that nothing contained in this sentence shall limit the Borrower’s indemnification obligations to Indemnitees in respect of claims made by third parties as set forth in Section 10.03(b).
(e) All amounts due under this Section shall be payable promptly, but in any event no later than 30 days, after written demand therefor, accompanied by proper supporting

71





documentation, and without prejudice to the Borrower’s right to contest the amount or the validity of any claim for payment.
Section 10.04      Successors and Assigns
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Credit Party (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each Credit Party) any legal or equitable right, remedy or claim under or by reason of any Loan Document.
(b) Each Lender may, and, so long as no Default shall have occurred and be continuing, if demanded by the Borrower pursuant to 3.08(b) upon at least five Business Days’ notice to such Lender, the Issuing Bank, the Swingline Lender and the Administrative Agent will, assign to one or more Eligible Assignees all or a portion of such Lender’s rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments, the Loans (including, for the purposes of this Section 10.04(b), participations in Letters of Credit and Swingline Loans) owing to it and the Note held by it); provided , however , that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of any or all facilities (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Acceptance, as of the Trade Date), (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of all of a Lender’s rights and obligations under this Agreement, the aggregate amount of the Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 (or such lesser amount as shall be approved by the Administrative Agent and, unless a Default has occurred and is continuing under Section 8(a), Section 8(i) or Section 8(j) or unless an Event of Default has occurred and is continuing, the Borrower (provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice thereof)), (iii) each partial assignment shall be made as an assignment of a proportionate part of all of the assigning Lender’s rights and obligations under this Agreement with respect to the Class of Loans or the Commitments assigned, (iv) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender, such assignment shall be approved, so long as no Default has occurred and is continuing under Section 8(a), Section 8(i) or Section 8(j) and no Event of Default has occurred and is continuing at the time of effectiveness of such assignment, by the Borrower (such approval not to be unreasonably withheld or delayed), (v) each such assignment shall be to an Eligible Assignee, (vi) each assignment must be approved (such approvals not to be unreasonably withheld or delayed) by the Administrative Agent, the Swingline Lender and the Issuing Bank unless the Person that is proposed is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee), (vii) each such assignment made as a result of a demand by the Borrower pursuant to this Section 10.04(b) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and

72





obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (viii) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 10.04(b) unless and until such Lender shall have received one or more payments from the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Borrowing owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, and (ix) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, (x) an Assignment and Acceptance or (y) to the extent applicable, an agreement incorporating an Assignment and Acceptance by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Acceptance are participants, together with any Note subject to such assignment and (except in the case of any such assignment by a Lender to an Affiliate or Approved Fund of such Lender) a processing and recordation fee of $3,500; provided , however , that for each such assignment made as a result of a demand by the Borrower pursuant to Section 3.08, the Borrower or such assignee shall pay to the Administrative Agent the applicable processing and recordation fee.
(c) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender or the Issuing Bank, as the case may be, hereunder and (ii) the Lender or the Issuing Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 3.05, 3.07 and 10.03 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender’s or the Issuing Bank’s rights and obligations under this Agreement, such Lender or the Issuing Bank shall cease to be a party hereto).
(d) By executing and delivering an Assignment and Acceptance, each Credit Party assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Credit Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Credit Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by this Agreement, such assigning Credit Party or any other Credit Party and their respective Related Parties and based on such documents and information as it shall deem appropriate at the time, continue to make its

73





own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to Administrative Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender or the Issuing Bank, as the case may be.
(e) The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain at its address referred to in Section 10.01 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Credit Parties and their Commitments under each facility of, and principal amount (and stated interest) of the Loans owing under each facility to, each Credit Party from time to time (the “ Register ”). The entries in the Register shall be conclusive and binding for all purposes, absent clearly demonstrable error, and the Borrower, the Administrative Agent and the other Credit Parties may treat each Person whose name is recorded in the Register as a Credit Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or the Administrative Agent or any other Credit Party at any reasonable time and from time to time upon reasonable prior notice.
(f) Upon its receipt of (x) an Assignment and Acceptance executed by an assigning Credit Party and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Acceptance by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Acceptance are participants, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note a new Note to such Eligible Assignee in an amount equal to the Commitment assumed by it under each facility pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a Commitment hereunder under such facility, a new Note to such assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit C hereto.
(g) Each Credit Party may sell participations to one or more Persons (other than the Borrower or any of its Affiliates) (each, a “ Participant ”) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Loans (including such Lender’s participations in Reimbursement Obligations and Swingline Loans) owing to it and the Note (if any) held by it); provided , however , that (i) such Credit Party’s obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged, (ii) such Credit Party shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Credit Party shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Credit Parties shall continue to deal solely and directly with such Credit Party in connection with such Credit Party’s rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any

74





amendment or waiver of any provision of any Loan Document, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Borrowings or Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Borrowings or Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. The Borrower agrees that each participant shall be entitled to the benefits of Sections 3.05, 3.06, 3.07 and 10.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. Each Lender that sells a participation agrees, at the Borrower's request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.08(b) with respect to any Participant. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such participant agrees to be subject to Section 2.08(c) and Section 10.12 as though it were a Lender. A participant shall not be entitled to receive any greater payment under Section 3.05 or 3.07 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant. Each Credit Party that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “ Participant Register ”); provided that no Credit Party shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Credit Party shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(h) Any Credit Party may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Credit Party by or on behalf of the Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing to preserve the confidentiality of any confidential Information received by it from such Credit Party in accordance with Section 10.12 to the same extent as if it were a Credit Party.
(i) Notwithstanding anything to the contrary contained herein, any Lender may at any time pledge or assign a security interest in all or any portion of its rights under the Loan Documents to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest, provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations under the Loan Documents or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 10.05      Survival
All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this

75





Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of any Loan Document and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Credit Party may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under the Loan Documents is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 3.05, 3.06, 3.07 and 10.03 and Article 9 shall survive and remain in full force and effect regardless of the repayment of the Loans and the termination of the Commitments or the termination of this Agreement or any provision hereof.
Section 10.06      Counterparts; Integration; Effectiveness; Electronic Execution
This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent or Issuing Bank constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective on the Effective Date, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission, e-mailed.pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 10.07      Severability
In the event any one or more of the provisions contained in this Agreement is held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 10.08      Right of Setoff
If an Event of Default shall have occurred and be continuing, each of the Lenders and their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by it to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by it, irrespective of whether or not it shall have made any demand

76





under this Agreement and although such obligations may be unmatured. The rights of each of the Lenders and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that it may have.
Section 10.09      Governing Law; Jurisdiction; Consent to Service of Process
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflict of laws.
(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in the Borough of Manhattan, and of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any other Credit Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower, or any of its property, in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
Section 10.10      WAIVER OF JURY TRIAL
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

77






Section 10.11      Headings
Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
Section 10.12      Confidentiality
Each of the Credit Parties agrees to maintain the confidentiality of the Information (as defined below) and not to use Information in violation of law, except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, provided that each such Person agrees to maintain the confidentiality of such information on the terms set forth in this Section, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or, (ii) becomes available to such Credit Party on a nonconfidential basis from a source other than the Borrower and without breach of this Agreement; provided , however , that, unless prohibited by applicable law, a Credit Party will provide prior notice to the Borrower of such Credit Party’s intention to disclose Information pursuant to clause (c) above or to disclose Information pursuant to clause (e) above in connection with any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder. For the purposes of this Section, “ Information ” means all information received from the Borrower relating to the Borrower or its business, including, without limitation, information received from the Borrower or any of its Related Parties pursuant to Section 6.01(f), 6.02 and 6.06 of this Agreement, other than any such information that is available to any Credit Party on a nonconfidential basis prior to disclosure by the Borrower and other than information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN THE IMMEDIATELY PRECEDING PARAGRAPH FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC

78





INFORMATION ABOUT THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.
Section 10.13      Interest Rate Limitation
Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the “ charges ”), shall exceed the maximum lawful rate (the “ maximum rate ”) that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all of the charges payable in respect thereof, shall be limited to the maximum rate and, to the extent lawful, the interest and the charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated, and the interest and the charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the maximum rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by such Lender.
Section 10.14      No Third Parties Benefited
This Agreement is made and entered into for the sole protection and legal benefit of the Borrower, the Administrative Agent, the Issuing Bank and the Lenders, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. Neither the Administrative Agent nor the Issuing Bank nor any Lender shall have any obligation to any Person not a party to this Agreement or other Loan Documents.
Section 10.15      USA PATRIOT Act Notice
Each of the Administrative Agent and each Lender hereby notifies the Borrower that, pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ PATRIOT Act ”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Administrative Agent and such Lender to identify the Borrower in accordance with the Patriot Act.
Section 10.16      No Fiduciary Duty
The Administrative Agent, each Lender and their Affiliates (collectively, solely for purposes of this paragraph, the “Lender Parties”), may have economic interests that conflict with those of the Borrower, its stockholders and/or its affiliates. The Borrower agrees that nothing in the Loan Documents or otherwise will be deemed to create an advisory, fiduciary or agency relationship or fiduciary or other implied duty between any Lender Party, on the one hand, and the Borrower, its stockholders or its affiliates, on the other. The Borrower acknowledges and agrees that (i) the transactions contemplated by the Loan Documents (including the exercise of rights and remedies hereunder and thereunder) are arm’s-length commercial transactions between the Lender Parties, on the one hand, and the Borrower, on the other, and (ii) in connection therewith and with the process leading thereto, (x) no Lender Party has assumed an advisory or fiduciary responsibility in favor of the Borrower, its stockholders or its affiliates

79





with respect to the transactions contemplated hereby (or the exercise of rights or remedies with respect thereto) or the process leading thereto (irrespective of whether any Lender Party has advised, is currently advising or will advise the Borrower, its stockholders or its Affiliates on other matters) or any other obligation to the Borrower except the obligations expressly set forth in the Loan Documents and (y) each Lender Party is acting solely as principal and not as the agent or fiduciary of the Borrower, its management, stockholders, creditors or any other Person. The Borrower acknowledges and agrees that the Borrower has consulted its own legal and financial advisors to the extent it deemed appropriate and that it is responsible for making its own independent judgment with respect to such transactions and the process leading thereto. The Borrower agrees that it will not claim that any Lender Party has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Borrower, in connection with such transaction or the process leading thereto and, to the fullest extent permitted by law, hereby waives and releases any claims that it may have against any Lender Party with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
Section 10.17      Acknowledgment and Consent to Bail-In Action. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
[Signature Pages to Follow]



80





IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 
HAWAIIAN ELECTRIC INDUSTRIES, INC.,
as the Borrower

 
By: /s/ Gregory C. Hazelton     
Name: Gregory C. Hazelton
Title: Executive Vice President and
           Chief Financial Officer
 
By: /s/ Clifford H. Chen     
Name: Clifford H. Chen
Title: Treasurer


Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.




 
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent, as Issuing Bank, as
Swingline Lender and as a Lender
 
By:     /s/ Ling Li     
Name: Ling Li
Title: Executive Director

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.







 
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Syndication Agent and as a Lender

 
By:     /s/ Keith Luettel     
Name: Keith Luettel
Title: Director




Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.





 
BANK OF AMERICA, N.A.,
as Co-Documentation Agent and as a Lender

 
By:      /s/ Jim McCary     
Name: Jim McCary
Title: Vice President



Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.







 
MUFG UNION BANK, N.A.,
as a Co-Documentation Agent and as a Lender

 
By: /s/ Robert MacFarlane
Name: Robert MacFarlane
Title: Director



Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.





 
BARCLAYS BANK PLC,
as a Co-Documentation Agent and as a Lender
 
By: /s/ Christopher Aitkin
Name: Christopher Aitkin
Title: Assistant Vice President

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.






 
U.S. BANK NATIONAL ASSOCIATION,
as Co-Documentation Agent and as a Lender

 
By:     /s/ Holland H. Williams
Name: Holland H. Williams
Title: Vice President



Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.






 
BANK OF HAWAII,
as Co-Documentation Agent and as a Lender
 
By: /s/   John McKenna
Name: John McKenna
Title: Senior Vice President

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.






 
THE BANK OF NEW YORK MELLON,
as a Lender
 
By: /s/ Mark W. Rogers
Name: Mark W. Rogers
Title: Vice President

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.






 
The undersigned Departing Lender hereby acknowledges and agrees that, from and after the Effective Date, it is no longer a party to the Existing Credit Agreement or any of the Loan Documents executed in connection therewith and will not be a party to this Agreement.
MORGAN STANLEY BANK, N.A., as a Departing Lender

 
By: /s/ Pat Layton
Name: Pat Layton
Title: Authorized Signatory

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.





 
The undersigned Departing Lender hereby acknowledges and agrees that, from and after the Effective Date, it is no longer a party to the Existing Credit Agreement or any of the Loan Documents executed in connection therewith and will not be a party to this Agreement.
ROYAL BANK OF CANADA,
 as a Departing Lender
 
By: /s/ Eric D. Koppelson
Name: Eric D. Koppelson
Title: Authorized Signatory


Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.




SCHEDULE 1.01


Hawaiian Electric Industries, Inc.

Funded Debt and Capitalization
(in thousands)

December 31, 2016
Unconsolidated
Consolidated
Funded Debt:
 
 
Notes payable to subsidiaries
$
5,373

—

Short-term borrowings-other than bank
—

—

Long-term debt, net-other than bank
299,759

1,619,019

Total Funded Debt *
$
305,132

$
1,619,019

 
 
 
Capitalization:
 
 
Funded Debt
$
305,132

$
1,619,019

Noncontrolling interest: Cumulative preferred stock of subsidiaries-not subject to mandatory redemption
—

34,293

Common stock equity **
2,099,882

2,099,882

Total capitalization
$
2,405,014

$
3,753,194


*
Excludes deposit liabilities, securities sold under agreements to repurchase and advances from Federal Home Loan Bank of Seattle.
** Excludes accumulated other comprehensive loss of $33,129,000.







Schedule 2.01
(HEI Second Amended and Restated Credit Agreement)
Lender
Revolving Commitment
Letter of
Credit
Commitment
JPMorgan Chase Bank, N.A.
$24,642,857.15
$1,642,857.15
Wells Fargo Bank, National Association
$24,642,857.15
$1,642,857.15
Bank of America, N.A.
$17,142,857.14
$1,142,857.14
MUFG Union Bank, N.A.
$17,142,857.14
$1,142,857.14
Barclays Bank PLC
$17,142,857.14
$1,142,857.14
U.S. Bank National Association
$17,142,857.14
$1,142,857.14
Bank of Hawaii
$17,142,857.14
$1,142,857.14
The Bank of New York Mellon
$15,000,000.00
$1,000,000.00
Total
$150,000,000.00
$10,000,000.00





SCHEDULE 2.09
HAWAIIAN ELECTRIC INDUSTRIES, INC.
EXISTING LETTERS OF CREDIT

None.




HEI412.JPG




SCHEDULE 7.01

HAWAIIAN ELECTRIC INDUSTRIES, INC.

EXISTING LIENS



None.




SCHEDULE 7.03

HAWAIIAN ELECTRIC INDUSTRIES, INC.

EXISTING RESTRICTIONS


Pursuant to Section 7.03 of the Credit Agreement, the following restrictions and conditions exist on June 30, 2017:

1.
Hawaiian Electric Company, Inc. (“Hawaiian Electric”), Maui Electric Company, Ltd. (“Maui Electric”) and Hawaii Electric Light Company, Inc. (“Hawaii Electric Light”) are subject to restrictive covenants in connection with the offer and sale in March 2004 of Cumulative Quarterly Income Preferred Securities, as disclosed in the Registration Statements on Form S-3, Regis. Nos. 333-111073, 333-111073-01, 333-111073-02 and 333-111073-03 filed with the Securities and Exchange Commission (“SEC”), which descriptions are incorporated herein by reference.

2.
Hawaiian Electric, Maui Electric and Hawaii Electric Light are subject to restrictive covenants in connection with their cumulative preferred stock financings to the effect that, until dividends have been paid or declared or set apart for payment on all shares of the respective company’s cumulative preferred stock, (a) no distributions on the respective company’s common stock or any future class of stock except cumulative preferred stock shall be made and (b) the respective company shall not purchase or otherwise acquire any of the respective company’s common stock or any future class of stock except cumulative preferred stock. In the event of liquidation, dissolution, receivership, bankruptcy, disincorporation or winding up of the affairs of the respective company, cumulative preferred stockholders are entitled to the par value of their shares and accrued and unpaid dividends, before any distribution is made to holders of the respective company’s common stock or any future class of stock except cumulative preferred stock.

3.
Hawaiian Electric is subject to restrictive covenants in connection with its cumulative preferred stock financings to the effect that, as long as any shares of the respective series of cumulative preferred stock are outstanding, Hawaiian Electric shall not affect the merger or consolidation of Hawaiian Electric, or sell, lease or exchange all or substantially all of the property and assets of Hawaiian Electric without first obtaining the consent in writing of the holders of at least 75% of each of the respective outstanding series of cumulative preferred stock, provided that said consent shall not be required to make a mortgage, pledge, assignment or transfer of all or any part of its assets as security for any obligation or liability of any kind or nature.

4. Hawaiian Electric, Maui Electric and Hawaii Electric Light are subject to restrictive covenants in connection with their special purpose revenue bonds which contain provisions to the effect that Hawaiian Electric, Maui Electric and Hawaii Electric Light shall not dissolve or otherwise dispose of all or substantially all its assets, and will not consolidate with or merge into another



entity or permit other entities to consolidate with or merge into it, unless certain specific requirements are met.

5.
Hawaiian Electric, Maui Electric and Hawaii Electric Light are subject to restrictive covenants in connection with their note purchase agreements dated as of April 19, 2012, October 3, 2013 and October 15, 2015 and Hawaiian Electric’s note purchase agreements dated as of September 13, 2012 and December 15, 2016 (together the “Note Agreements”), pursuant to which several series of unsecured notes were issued in private placements. The Note Agreements contain affirmative and negative restrictions, including a negative covenant that Hawaiian Electric will not permit the ratio of any Significant Subsidiaries’ Consolidated Subsidiary Funded Debt to its Capitalization exceed a specified level, and this restriction could operate indirectly to restrict the ability of Significant Subsidiaries to make Restricted Payments (as defined in Section 1.01 of the Credit Agreement) to Hawaiian Electric. Hawaiian Electric also entered into three similar note purchase agreements of the same April 19, 2012, October 3, 2013 and October 15, 2015 dates under which it is a “Guarantor” of Maui Electric (in three such agreements) and a Guarantor of Hawaii Electric Light (in three other such agreements). Each of these agreements contains similar negative covenants relating to Maui Electric and Hawaii Electric Light (as well as Hawaiian Electric) relating to their respective Consolidated Subsidiary Funded Debt to Capitalization ratios and those of their respective Significant Subsidiaries. The affirmative and negative restrictions are disclosed in the Current Reports on Form 8-K filed with the SEC on April 23, 2012, September 14, 2012, October 7, 2013, October 16, 2015 and December 19, 2016, which descriptions are incorporated herein by reference.








EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
Assignment and Acceptance Agreement (as the same may be amended, supplemented or otherwise modified from time to time, this “ Assignment and Acceptance Agreement ”), dated as of 20__ by and between [ NAME OF ASSIGNOR ], a Lender under the Credit Agreement referred to below (the “ Assignor ”), and [ NAME OF ASSIGNEE ] (the “ Assignee ”).
R E C I T A L S
A.
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017, among Hawaiian Electric Industries, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Issuing Bank and Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.
B.
Pursuant to the Credit Agreement and subject to the limitations set forth therein the Credit Parties agreed to make the Revolving Loans and participate in the Letter of Credit sub-facility under the terms and conditions therein set forth.
C.
The amount of the Assignor’s Revolving Commitment and Letter of Credit Commitment (without giving effect to the assignment effected hereby or to other assignments thereof which have not yet become effective) is specified in Item 1 of Schedule 1 hereto. The outstanding principal amount of the Assignor’s Revolving Loans without giving effect to the assignment effected hereby or to other assignments thereof which have not yet become effective, is specified in Item 2 of Schedule 1 hereto.
D.
The Assignor wishes to sell and assign to the Assignee, and the Assignee wishes to purchase and assume from the Assignor, (i) the portion of the Assignor’s rights and obligations under the Loan Documents, including its Revolving Commitment and Letter of Credit Commitment specified in Item 3 of Schedule 1 hereto (collectively, the “ Assigned Commitment ”)[, and (ii) the portion of the Assignor’s Revolving Loans specified in Item 4 of Schedule 1 hereto (the “ Assigned Loans ”)].
The parties agree as follows:
a.
Assignment
Subject to the terms and conditions set forth herein and in the Credit Agreement, the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse, on the date hereof, [(i) all right, title and interest of the Assignor in and to the Assigned Loans, and (ii)] all rights and obligations of the Assignor under the Loan Documents with respect to the Assigned Commitment. [As full consideration for the sale of the Assigned Loans, the Assignee shall pay to the Assignor on the date hereof an amount equal to the principal amount of the Assigned Loans or such other amount as shall be agreed upon by the Assignor and the Assignee (the “ Purchase Price ”), and the [Assignor/Assignee] shall pay the fee payable to the Administrative Agent pursuant to Section 10.04(b) of the Credit Agreement] [The [Assignor/Assignee] shall pay the fee payable to the Administrative Agent pursuant to Section 10.04(b) of the Credit Agreement].

A-1






b.
Representations and Warranties
i.
Each of the Assignor and the Assignee represents and warrants to the other that (i) it has full power and legal right to execute and deliver this Assignment and Acceptance Agreement and to perform the provisions of this Assignment and Acceptance Agreement; (ii) the execution, delivery and performance of this Assignment and Acceptance Agreement have been authorized by all action, corporate or otherwise, and do not violate any provisions of its organizational documents or any contractual obligations or requirement of law binding on it; and (iii) this Assignment and Acceptance Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. The Assignor further represents that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor.
ii.
The Assignee represents and warrants to the Assignor (i) it is an “accredited investor” within the meaning of Regulation D of the SEC, as amended, and (ii) it has, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by the Credit Agreement, the Assignor and their respective Related Parties, and based on such documents and information as it has deemed appropriate, made its own evaluation of, and investigation into, the business, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries and made its own decision to enter into this Assignment and Acceptance Agreement.
c.
Effect of Assignment.
i.
Upon the effective date hereof, (i) the Administrative Agent shall record the assignment contemplated hereby, (ii) the Assignee, unless already a Lender, shall become a Lender, with all the rights and obligations as a Lender under the Credit Agreement, and (iii) the Assignor, to the extent of the assignment provided for herein, shall be released from its obligations under the Loan Documents, with respect to the [Assigned Loans and] Assigned Commitment.
ii.
The Assignee hereby appoints and authorizes the Administrative Agent to take such action, on and after the date hereof, as agent on its behalf and to exercise such powers under the Loan Documents as are delegated

A-2





to such Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto.
iii.
From and after the effective date hereof, the Credit Parties and the Borrower shall make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee. The Assignor and the Assignee shall make all appropriate adjustments directly between themselves with respect to amounts under the Loan Documents which accrued prior to the date hereof and which were paid thereafter.
d.
Method of Payment
All payments to be made either to the Assignor or the Assignee by the other hereunder shall be made by wire transfer in immediately available funds to the account designated by the Assignor or the Assignee, as the case may be.
e.
Notices
All notices, requests and demands to or upon the Assignee in connection with this Assignment and Acceptance Agreement and the Loan Documents are to be sent or delivered to the place set forth adjacent to its name on the signature page(s) hereof.
f.
Miscellaneous
i.
For purposes of this Assignment and Acceptance Agreement, all calculations and determinations with respect to [the Assigned Loans,] the Assigned Commitment and all other similar calculations and determinations, shall be made and shall be deemed to be made as of the commencement of business on the date of such calculation or determination, as the case may be.
ii.
Section headings have been inserted herein for convenience only and shall not be construed to be a part hereof.
iii.
This Assignment and Acceptance Agreement embodies the entire agreement and understanding between the Assignor and the Assignee with respect to the subject matter hereof and supersedes all other prior arrangements and understandings between the Assignor and the Assignee with respect to the subject matter hereof.
iv.
This Assignment and Acceptance Agreement may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement. It shall not be

A-3





necessary in making proof of this Assignment and Acceptance Agreement to produce or account for more than one counterpart signed by the party to be charged. Acceptance and adoption of the terms of this Assignment and Acceptance Agreement by the Assignee and the Assignor by Electronic Signature or delivery of an executed counterpart of a signature page of this Assignment and Acceptance Agreement by any Electronic System shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance Agreement.
v.
Every provision of this Assignment and Acceptance Agreement is intended to be severable, and if any term or provision hereof shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions hereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction.
vi.
This Assignment and Acceptance Agreement shall be binding upon and inure to the benefit of the Assignor and the Assignee and their respective successors and permitted assigns, except that neither party may assign or transfer any of its rights or obligations hereunder (i) without the prior written consent of the other party, and (ii) in contravention of the Credit Agreement.
vii.
This Assignment and Acceptance Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the law of the State of New York without regard to principles of conflict of laws.
viii.
This Assignment and Acceptance Agreement shall become effective on the date it has been executed by the Assignor, the Assignee, the Administrative Agent, if a Revolving Commitment is being assigned, the Issuing Bank and the Swingline Lender and, unless a Default under Section 8(a), 8(i), or 8(j) of the Credit Agreement, or an Event of Default, has occurred and is continuing, the Borrower.
ix.
The Assignee agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Related Parties or their respective securities) will be made available and who may receive

A-4





such information in accordance with the Assignee’s compliance procedures and applicable laws, including federal and state securities laws.
[Signature Pages To Follow]

A-5






IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
 
[ NAME OF ASSIGNOR ], as Assignor
 
 
 
 
 
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
 
 
 
Address for notices
[ NAME OF ASSIGNEE ], as Assignee
 
 
_______________________________________
By:________________________________________
_______________________________________
Name:______________________________________
_______________________________________
Title:_______________________________________
Attention: ___________________________
 
 
 
 
 
Telephone: (___) ____-_______
 
Facsimile: (___) ____-_______
 
 
 
Consented to and  Accepted this __ day:
 
of _________, ____
 
 
 
 
 
JPMORGAN CHASE BANK, N.A., as
 
[Administrative Agent, Swingline Lender and Issuing Bank] 1
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 

[Assignment and Acceptance Agreement]





_____________________________________  
1 Delete if consent is not required by Section 10.04(b) of the Credit Agreement.


A-6






[ Consented to and] 2 Accepted this __ day:
of _________, ____

HAWAIIAN ELECTRIC INDUSTRIES, INC.
 
 
 
 
 
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
 
 
 
 
 
 
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
 
 

[Assignment and Acceptance Agreement]











_____________________________________  
2 Delete if consent is not required by Section 10.04(b) of the Credit Agreement.

A-7





SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT,
dated as of _____ ___, 20__,
between [NAME OF ASSIGNOR], as Assignor
and
[NAME OF ASSIGNEE], as Assignee,
relating to the
Second Amended and Restated Credit Agreement, dated as of June [___], 2017,
by and among
Hawaiian Electric Industries, Inc.,
the Lenders party thereto
and
JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank
Item 1.
Amount of Assignor’s Aggregate Commitment*:
 
 
 
 
(a) Revolving Commitment
 
 
(b) Letter of Credit Commitment
$_________
 
 
 
Item 2.
Outstanding principal balance/amount of the Assignor’s Revolving Loans * :
 
 
 
 
(a) Revolving Loans consisting of:
$_________
 
 
 
 
ABR Borrowing
$_________
 
Eurodollar Borrowing
$_________
 
 
 
Item 3.
Amount of Revolving Commitment and/or Letter of Credit Commitment being assigned:
 
 
 
 
(a) Revolving Commitment
$_________
 
(b) Letter of Credit Commitment
$_________
 
 
 
Item 4.
Outstanding principal balance/amount of the Revolving Loans being assigned:
 
 
 
 
(a) Revolving Loans consisting of:
$_________
 
 
 
 
ABR Borrowing
$_________
 
Eurodollar Borrowing
$_________

_____________________________________  
* Without giving effect to the assignment contemplated hereby or to other assignments which have not yet become effective.


A-8





EXHIBIT B-1
FORM OF OPINION LETTER OF PILLSBURY WINTHROP SHAW PITTMAN LLP
[ATTACHED]



B-1-1





pillsbury
Pillsbury Winthrop Shaw Pittman LLP
1540 Broadway | New York, NY 10036‑4039 | tel 212.858.1000 | fax 212.858.1500

June 30, 2017


JPMorgan Chase Bank, N.A., as Administrative Agent,
and the Lenders referred to in the
Credit Agreement (as defined below)
10 South Dearborn Street
Chicago, IL 60603

Re:
Legal opinion letter regarding Hawaiian Electric Industries, Inc. Second Amended and Restated Credit Agreement dated as of June 30, 2017
Ladies and Gentlemen:
We have acted as special counsel to Hawaiian Electric Industries, Inc., a Hawaii corporation (the “Company”), in connection with the negotiation, execution and delivery of the Second Amended and Restated Credit Agreement dated as of June 30, 2017 (the “Credit Agreement”), among the Borrower, the lenders party thereto (collectively, the “Lenders” and each, a “Lender”), the agents party thereto, and JPMorgan Chase Bank, N.A., a national banking association, as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not otherwise defined shall have the respective meanings given such terms in the Credit Agreement. This opinion is rendered to you pursuant to Section 5.01(c)(i) of the Credit Agreement.
In preparing this letter, we have reviewed the following documents:
(1) the Credit Agreement; and
(2) the Notes dated the date hereof.
The documents described in (1) - (2) above are individually referred to as a “Document” and collectively as the “Documents.”
Subject to the assumptions, qualifications and other limitations set forth below, it is our opinion that:
1.    The Credit Agreement constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms. Each Note issued on the date hereof by the Borrower will, upon disbursement of the loan evidenced by



such Note, constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms.
2. The execution and delivery by the Company of the Documents, and the performance by the Company of its obligations under the Documents, do not and will not (a) violate any order, decision, judgment or decree listed on Annex 1 hereto that is applicable to the Company or any of its properties (and which are those orders, decisions, judgments and decrees that the Company has asked us to review in connection with this letter), or (b) violate the Covered Law (as defined below).
3. Under the Covered Law, no Governmental Approval or Governmental Registration is required to have been obtained or made by the Company for the valid execution and delivery by it of the Documents, to borrow money under the Credit Agreement, and to perform its obligations under the Documents, except, in each case, for actions or filings required in connection with the ordinary course conduct by the Borrower of its business and ownership or operation by the Borrower of its assets.
4. The Company is not required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940.
In rendering our opinions, we have (a) without independent verification, relied, with respect to factual matters, statements and conclusions, on certificates, notifications and statements, whether written or oral, of governmental officials and individuals identified to us as officers and representatives of the Company and on the representations made by the Company in the Documents and (b) reviewed originals, or copies of such agreements, documents and records as we have considered relevant and necessary as a basis for our opinions. We note that, as counsel to the Company, we do not represent it generally and there may be facts relating to the Company of which we have no knowledge.
We have assumed (a) as to factual matters, the accuracy and completeness of all certificates, agreements, documents, records and other materials submitted to us; (b) the authenticity of original certificates, agreements, documents, records and other materials submitted to us; (c) the conformity with the originals of any copies submitted to us; (d) the genuineness of all signatures; (e) the legal capacity of all natural persons; (f) that each Document constitutes the valid, legally binding and enforceable agreement of the parties thereto under all applicable law (other than, in the case of the Company, the Covered Law of the State); (g) that the Company (i) is duly organized, validly existing and in good standing under the law of its jurisdiction of organization, (ii) has the power to execute and deliver, and to perform its obligations under, the Documents (iii) has duly taken or caused to be taken all necessary action to authorize the execution, delivery and performance by it of such Documents and (iv) has duly executed and delivered such Documents; (h) that the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Documents to which it is a party do not and will not (i) breach or violate (A) its Articles of Incorporation or Bylaws, (B) any agreement or instrument to which the Company or any of its affiliates is a party or by which the Company or any of its affiliates or any of their respective properties may be bound, (C) any authorization, consent, approval or license

2


(or the like) of, or exemption (or the like) from, any governmental unit, agency, commission, department or other authority granted to or otherwise applicable to the Company or any of its affiliates or any of their respective properties (each a “Governmental Approval”), (D) any registration or filing (or the like) with, or report or notice (or the like) to, any governmental unit, agency, commission, department or other authority made by or otherwise applicable to the Company or any of its affiliates or any of their respective properties (each a “Governmental Registration”), (E) any order, decision, judgment or decree that may be applicable to the Company or any of its affiliates or any of their respective properties (other than the orders, decisions, judgments and decrees that are the subject of our opinion expressed in clause (c) or our opinion in paragraph 2(a)), (F) any law (other than the Covered Law), or (ii) require any Governmental Approval or any Governmental Registration (other than the Governmental Approvals and Governmental Registrations that are the subject of our opinion expressed in paragraph 3; (j) that there are no agreements, understandings or negotiations between the parties not set forth in the Documents that would modify the terms thereof or the rights and obligations of the parties thereunder; and (k) for purposes of our opinion in paragraph 1 as it relates to the choice-of-law provisions in the Documents, that the choice of law of the State as the governing law of the Documents would not result in a violation of an important public policy of another state or country having greater contacts with the transactions contemplated by the agreement than the State (as defined below).
Our opinions are subject to and limited by the effect of (a) applicable bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, receivership, conservatorship, arrangement, moratorium and other similar laws affecting and relating to the rights of creditors generally; (b) general equitable principles; (c) requirements of reasonableness, good faith, fair dealing and materiality; (d) Article 9 of the Uniform Commercial Code regarding restrictions on assignment or transfer of rights or the creation, attachment, perfection or enforcement of security interests; and (e) additionally in the case of (i) indemnities, a requirement that facts, known to the indemnitee but not the indemnitor, in existence at the time the indemnity becomes effective that would entitle the indemnitee to indemnification be disclosed to the indemnitor, and a requirement that an indemnity provision will not be read to impose obligations upon indemnitors which are neither disclosed at the time of its execution nor reasonably within the scope of its terms and overall intention of the parties at the time of its making, (ii) waivers, Sections 9-602 and 9-603 of the Uniform Commercial Code, and (iii) indemnities, waivers and exculpatory provisions, public policy.
We express no opinion with respect to (a) provisions of the Documents that provide for cumulative remedies, (ii) rules of evidence or quantum of proof, (iii) consent to jurisdiction and waiver of inconvenient forum, insofar as such provisions relate to federal courts (except as to the personal jurisdiction thereof, (iv) forum selection, (v) waiver of jury trial, insofar as such provision is sought to be enforced in a federal court and (vi) choice of venue (i.e., requiring actions to be commenced in a particular court in a particular jurisdiction).

3



We express no opinion as to the law of any jurisdiction other than the law of the State of New York (the “State”) , and the federal law of the United States of America, and in each case, only such law that a lawyer exercising customary professional diligence would reasonably be expected to recognize as being applicable to transactions of the type reflected in the Documents and excluding (i) any law that is part of a regulatory regime applicable to specific assets or businesses of any party to any of the Documents and (ii) the statutes and ordinances, the administrative decisions, and the rules and regulations of counties, towns, municipalities and special political subdivisions (the law so addressed by this letter, the “ Covered Law ”).
This letter speaks only as of the date hereof. We have no responsibility or obligation to update this letter or to take into account changes in law or facts or any other development of which we may later become aware.
This letter is delivered by us as counsel for the Company solely for your benefit in connection with the transaction referred to herein and may not be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person or entity without our prior written consent. At your request, we hereby consent to reliance hereon by any future assignee of your interest in the loans under the Credit Agreement pursuant to an assignment that is made and consented to in accordance with the express provisions of Section 10.04 of the Credit Agreement, on the condition and the understanding that (i) any such reliance by a future assignee must be actual and reasonable under the circumstances, (ii) we have no responsibility or obligation to consider the applicability or correctness of this letter to any person or entity other than its named addressee or addressees or at any time other than as of the date hereof, and (iii) any such assignee may rely on this letter to no greater extent than you may as of the date hereof but any such assignee also is subject to any changes or developments up to the time it acquires its interest, that may adversely affect the opinions and matters referred to in this letter.
Very truly yours,


4


ANNEX I
None



EXHIBIT B-2
FORM OF OPINION LETTER OF KURT K. MURAO, ESQ., VICE PRESIDENT - LEGAL & ADMINISTRATION AND CORPORATE SECRETARY OF THE BORROWER
[ATTACHED]


B-2-1





MURAOLHA01.JPG

JPMorgan Chase Bank, N.A., as Administrative Agent,
and the Lenders referred to in the
Credit Agreement (as defined below)
10 South Dearborn Street
Chicago, IL 60603
Re: Hawaiian Electric Industries, Inc.
Ladies and Gentlemen:
I am the Vice President - Legal & Administration and Corporate Secretary of Hawaiian Electric Industries, Inc., a Hawaii corporation (the “ Borrower ”), and, as such, I have acted as in‑house counsel in connection with the Second Amended and Restated Credit Agreement dated as of June 30, 2017 (the “ Credit Agreement ”), among the Borrower, the lenders party thereto (collectively, the “ Lenders ” and each, a “ Lender ”), the agents party thereto, and JPMorgan Chase Bank, N.A., a national banking association, as Administrative Agent (the “ Administrative Agent ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings given such terms in the Credit Agreement. This opinion is rendered to you pursuant to Section 5.01(c)(ii) of the Credit Agreement.
In connection with this opinion, I have examined (or caused others on my behalf to examine) originals or copies of the following documents:
(i)      the Credit Agreement;
(ii)      the Notes;
(iii)      the Amended and Restated Articles of Incorporation (the “ Borrower’s Charter ”) of the Borrower, as filed with the Director of Commerce and Consumer Affairs for the State of Hawaii;
(iv)      the Amended and Restated By-Laws of the Borrower (the “ Borrower’s By-Laws ”; and, together with the Borrower’s Charter, the “ Governing Documents ”);
(v)      the Certificate of the Secretary of the Borrower, as of the date hereof (the “ Secretary’s Certificate ”), as to certain actions taken by the Board of Directors of the Borrower on November 2, 2011 and as to the titles, incumbency, and specimen signatures of certain officers of the Borrower; and
(vi)      a Certificate of Good Standing issued by the Director of the Department of Commerce and Consumer Affairs of the State of Hawaii.
The documents specified in subparagraphs (i) and (ii) above are referred to herein, collectively, as the “ Loan Documents ”. In rendering this opinion, I have obtained such certificates and other information from public and government officials and from officers and employees of the Borrower, and have also examined (or caused others on my behalf to examine) such documents and corporate and other records as

1


I have considered necessary or appropriate for the purposes of this opinion.
Based on the foregoing and subject to the other qualifications, assumptions and limitations stated herein and as limited thereby, and after examination of such matters of law as I have deemed relevant, I am of the opinion that:
1.      The Borrower has been duly incorporated under the laws of the State of Hawaii and is validly existing as a corporation in good standing under the laws of the State of Hawaii. To my knowledge, the Borrower does not itself conduct any business or own or lease any property in any jurisdiction outside the State of Hawaii that would require it to qualify to do business as a foreign corporation and where the failure to be so qualified would reasonably be expected to result in a material adverse effect on the consolidated financial position of the Borrower.
2.      The Borrower has the corporate power and authority to carry on its business as now conducted.
3.      The execution and delivery by the Borrower of the Loan Documents, and the performance by the Borrower of its obligations under the Loan Documents, are within the Borrower’s corporate powers and have been duly authorized by all requisite corporate action on the part of the Borrower. The Borrower has duly executed and delivered each of the Loan Documents.
4.      Each of the Loan Documents constitutes a valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting creditors’ rights, by general equitable principles (regardless of whether considered in a proceeding in equity or at law), and by an implied covenant of reasonableness, good faith and fair dealing.
5.      The execution and delivery by the Borrower of each of the Loan Documents and the consummation of the transactions contemplated thereby and compliance by the Borrower with the provisions thereof (i) will not conflict with or result in a breach or default (or give rise to any right of termination, cancellation or acceleration) under any of the provisions of the Borrower’s Governing Documents or any indenture or other material agreement or other material instrument binding upon the Borrower, except for such conflict, breach or default as to which requisite waivers or consents have been obtained, (ii) will not violate any law, statute, rule or regulation, or any judgment, order, writ, injunction or decree of any court or other tribunal, applicable to the Borrower or any of its properties or assets which in my experience, without having made any special investigations as to the applicability of any specific law, rule or regulation, are normally applicable to transactions of the type contemplated by the Loan Documents, and (iii) will not result in the creation or imposition of any Lien on any asset of the Borrower. No consent or approval by, or any notification of or filing with, any court, public body or authority is required to be obtained or effected by the Borrower in connection with the execution, delivery and performance by the Borrower of its obligations under each of the Loan Documents or the consummation by the Borrower of the transactions contemplated thereby.
6.      To my knowledge, there is no action, suit or proceeding pending against the Borrower or any of its assets before any court or arbitrator or any governmental body, agency or official which would reasonably be expected to have a material adverse effect on the consolidated financial position of the Borrower, except for any actions, suits or proceedings referred to in the

2


Current SEC Reports, or which in any manner draws into question the validity of the Loan Documents.
7.      The Company is not required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940.
The foregoing opinions are subject to the following qualifications:
(a)      I am a member of the Bar of the State of Hawaii and I do not hold myself out as an expert on the laws of any jurisdiction other than the State of Hawaii and the federal laws of the United States. This opinion is limited in all respects to matters governed by the laws of the State of Hawaii and the federal laws of the United States of America. I express no opinion concerning compliance with the laws or regulations of any other jurisdiction or jurisdictions, or as to the validity, meaning or effect of any act or document under the laws of any other jurisdiction or jurisdictions.
(b)      I have relied as to matters of fact upon representations and warranties of the Borrower in the Loan Documents and upon certificates and representations of officers and employees of the Borrower and upon certificates of public and government officials as to matters set forth therein. My opinion in paragraph 1 as to the good standing of the Borrower is based solely on the Certificate of Good Standing of the Borrower attached to the Secretary’s Certificate.
(c)      I have assumed the genuineness of all signatures (other than the signatures of the officers of the Borrower), the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies (and the authenticity of the originals of such documents), the accuracy and completeness of all corporate records (which includes stock ownership records) made available to me by Borrower and the capacity of each party executing a document (other than Borrower) to so execute such document.
(d)      Whenever an opinion expressed herein is qualified by the phrase “to my knowledge,” “known to me,” or “nothing has come to my attention” or other phrase of similar import, such phrase is intended to mean the actual knowledge of information by the lawyers in my law department who have been principally involved in drafting the Loan Documents, but does not include other information that might be revealed if there were to be undertaken a canvass of all lawyers in the Borrower’s law department, a general search of all files or any other type of independent investigation.
This opinion is based on the laws and regulations as in effect on the date hereof and facts as I understand them as of the date hereof. I am not assuming any obligation, and do not undertake, to revise, update or supplement this opinion after the date hereof notwithstanding any change in applicable law or regulation or interpretation thereof, any amendment, supplement, modification or rescission of any document examined or relied on in connection herewith, or any change in the facts, after the date hereof.
You may rely upon this opinion only for the purpose served by the provision in the Credit Agreement cited in the initial paragraph of this opinion letter in response to which it has been delivered. Without my written consent: (i) no Person other than you may rely on this opinion letter for any purpose; (ii) this opinion letter may not be cited or quoted in any financial statement, prospectus, private placement memorandum or other similar document; (iii) this opinion letter may not be cited or quoted in any other document or communication which might encourage reliance upon this opinion letter by any Person or for any purpose excluded by the restrictions in this paragraph; and (iv) copies of this opinion letter may not be furnished to anyone for purposes of encouraging such reliance. At your request, I hereby consent to reliance hereon by any future assignee of your interest in the loans under the Credit Agreement pursuant to an assignment that is made and consented to in accordance with the express provisions of Section 10.04

3


of the Credit Agreement, on the condition and the understanding that (i) any such reliance by a future assignee must be actual and reasonable under the circumstances, (ii) I have no responsibility or obligation to consider the applicability or correctness of this letter to any person or entity other than its named addressee or addressees or at any time other than as of the date hereof, and (iii) any such assignee may rely on this letter to no greater extent than you may as of the date hereof but any such assignee also is subject to any changes or developments up to the time it acquires its interest, that may adversely affect the opinions and matters referred to in this letter.
Very truly yours,
/s/ Kurt K. Murao


4


EXHIBIT C
FORM OF NOTE
$________________New York, New York
June [___], 2017
For value received, the undersigned, HAWAIIAN ELECTRIC INDUSTRIES, INC., a Hawaii corporation (the “ Borrower ”), hereby promises to pay to [NAME OF LENDER] (the “ Lender ”) or its registered assigns, at the office of the Administrative Agent (hereinafter defined) located at 10 South Dearborn Street, Chicago, Illinois 60603 or at such other place as the Administrative Agent may designate in writing from time to time, the principal sum of __________ DOLLARS ($____________) or, if less, the outstanding principal balance of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement (hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in the Credit Agreement. The Borrower also promises to pay interest on the unpaid principal balance hereof for the period such balance is outstanding, and all other amounts due under this Note, at said office of the Administrative Agent, in like money, at the rates of interest as provided in the Credit Agreement, on the date(s) and in the manner provided in the Credit Agreement.
The date and amount of each type of Loan made by the Lender to the Borrower under the Credit Agreement, and each payment of principal thereof, shall be recorded by the Lender on its books and endorsed by the Lender on Schedule I attached hereto or any continuation thereof; and in the absence of clearly demonstrated error, such Schedule shall constitute prima facie evidence thereof. No failure on the part of the Lender to make, or mistake by the Lender in making, any notation as provided in this paragraph shall in any way affect any Loan or the rights or obligations of the Lender or the Borrower with respect thereto.
This Note evidences the Loan(s) made by the Lender and referred to in the Second Amended and Restated Credit Agreement dated as of June [___], 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) by and among the Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Swingline Lender, Issuing Bank and Administrative Agent (the “ Administrative Agent ”) and is subject to and shall be construed in accordance with the provisions of the Credit Agreement and is entitled to the benefits and security set forth in the Loan Documents. All capitalized terms not defined herein shall have the meanings given to them in the Credit Agreement.
The Borrower shall be entitled to borrow, repay, prepay in whole or in part and reborrow the Loan(s) hereunder pursuant to the terms and conditions of the Credit Agreement.
The Borrower promises to pay, on demand, interest at the default rate pursuant to Section 3.01(c) of the Credit Agreement, from the expiration of any applicable grace period, on any overdue principal and, to the extent permitted by applicable law, overdue interest. The Credit Agreement also provides for the acceleration of the maturity of principal upon the occurrence of certain Events of Default and for prepayments on the terms and conditions specified in the Credit Agreement.
The Borrower waives diligence, presentment, demand, notice of dishonor, protest and any other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except to the extent that notice is specifically required under the Credit Agreement. The nonexercise by the holder of this Note of any of its rights hereunder in any particular instance shall not

C-1





constitute a waiver thereof in that or any subsequent instance. Unless and until an Assignment and Acceptance effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by the Administrative Agent and recorded in the Register as provided in the Credit Agreement, the Borrower and the Administrative Agent shall be entitled to deem and treat the Lender and the owner and holder of this Note and the Loan evidenced hereby.
This Note shall be governed by, and interpreted and construed in accordance with, the laws of the State of New York without regard to principles of conflict of laws.
THE BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO, UNDER OR IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). THE BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY CREDIT PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH CREDIT PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.
[signature page follows]

C-2





IN WITNESS WHEREOF , the Borrower has duly executed this Note the day and year first above written.
HAWAIIAN ELECTRIC COMPANY, INC.

By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     
[Signature Page to Note]





C-3





SCHEDULE I TO NOTE
DATE
AMOUNT OF LOAN
TYPE OF LOAN (EURODOLLAR OR ALTERNATE BASE RATE)
INTEREST RATE
INTEREST PERIOD
AMOUNT PAID
NOTATION MADE BY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


C-4





EXHIBIT D
FORM OF BORROWING REQUEST
_________, 20___
VIA HAND DELIVERY, FACSIMILE OR ELECTRONIC DELIVERY
JPMorgan Chase Bank, N.A., as Administrative Agent
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Facsimile No.: 888-292-9533

Copy to:
JPMorgan Chase Bank, N.A., as Administrative Agent
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Facsimile No.: 310-860-7110

Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [___], 2017 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Hawaiian Electric Industries, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as swingline lender, issuing bank and administrative agent (the “ Administrative Agent ”). Capitalized terms used herein which are not defined herein are used as defined in the Credit Agreement.
(i) Pursuant to Section 2.03 of the Credit Agreement, the Borrower hereby gives notice of its intention to borrow Revolving Loans in an aggregate principal amount of $______ on _____, 20___ (a Business Day), which Borrowing shall consist of the following Borrowings:

Type of Borrowing (Eurodollar or ABR Borrowing)
Amount
Initial Interest Period for Eurodollar Borrowing
 
$___________
__ month[s]

(ii) The location and account to which funds are to be disbursed is the following:
Hawaiian Electric Industries, Inc.
Account # ________________     
_________________________     
_________________________     
_________________________     
    

D-1






(iii) The Borrower hereby certifies that on the date hereof and on the Borrowing Date set forth above, and immediately after giving effect to the Borrowings requested hereby, no Default has or shall have occurred and be continuing.
(iv) The Borrower hereby certifies as follows, that on the date hereof and on the Borrowing Date set forth above: (A) the representations and warranties contained in the Credit Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of the Credit Agreement) are true and correct in all material respects, in each case with the same effect as though such representations and warranties had been made on the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date) and (B) no Material Subsidiary Indebtedness Event has or shall have occurred and be continuing.
[remainder of page intentionally left blank]


D-2







IN WITNESS WHEREOF , the Borrower has duly executed this Borrowing Request as of the date and year first written above.
Very truly yours,
HAWAIIAN ELECTRIC INDUSTRIES, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     





D-3





EXHIBIT E
FORM OF LETTER OF CREDIT REQUEST
_____, 20___
VIA HAND DELIVERY, FACSIMILE OR ELECTRONIC DELIVERY
JPMorgan Chase Bank, N.A., as Issuing Bank
Global Trade Services
300 South Riverside Plaza
Chicago, IL 60606-0236
Attention: Standby LC Unit
Email: GTS.Client.Services@JPMChase.com
Facsimile No.: 312-233-2266

JPMorgan Chase Bank, N.A., as Administrative Agent
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Facsimile No.: 888-292-9533

Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among Hawaiian Electric Industries, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as swingline lender, issuing bank and administrative agent (the “ Administrative Agent ”). Capitalized terms used herein which are not defined herein are used as defined in the Credit Agreement.
1. Pursuant to Section 2.09 of the Credit Agreement, the Borrower hereby requests that the Issuing Bank issue the Letter of Credit on _____, 20__ (the “ Issuance Date ”), in accordance with the information annexed hereto (attached additional sheets if necessary).
2. The Borrower hereby certifies that on the date hereof and on the Issuance Date set forth above, and immediately after giving effect to the issuance of the Letter(s) of Credit requested hereby no Default has or shall have occurred and be continuing.
3. The Borrower hereby certifies as follows, that on the date hereof and on the Issuance Date set forth above: (A) the representations and warranties contained in the Credit Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of the Credit Agreement) are true and correct in all material respects, in each case with the same effect as though such representations and warranties had been made on the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date) and (B) no Material Subsidiary Indebtedness Event has or shall have occurred and be continuing.
[ remainder of page intentionally left blank ]



E-1





IN WITNESS WHEREOF , the Borrower has duly executed this Letter of Credit Request as of the date and year first written above.
Very truly yours,
HAWAIIAN ELECTRIC INDUSTRIES, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     











E-2





LETTER OF CREDIT INFORMATION
1.
Name of Beneficiary:___________________________________________________________________     
2.
Address of Beneficiary to which Letter of Credit will be sent:
____________________________________________________________________________________
3.      Obligations in respect of which the Letter of Credit is to be issued:
____________________________________________________________________________________
4.
Conditions under which a drawing may be made (specify any documentation required to be delivered with any drawing request):
____________________________________________________________________________________
____________________________________________________________________________________
5.
Maximum amount to be available under such Letter of Credit: $_________.
6.
Requested date of issuance: _______, 20___.
7.
Requested date of expiration: ______, 20___.




EXHIBIT F
FORM OF INCREASE REQUEST
INCREASE REQUEST, dated and effective as of _______, 20___, to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017, by and among Hawaiian Electric Industries, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank (as the same may be further amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.
1. [Pursuant to Section 2.05(d) of the Credit Agreement, the Borrower hereby proposes to increase (the “ Revolving Increase ”) the Aggregate Revolving Commitment from $ to $ .
2. Each of the following Lenders has been invited by the Borrower, and is ready, willing and able to increase its Revolving Commitment as follows:
Name of Lender
Commitment Amount (after giving effect to the Revolving Increase)
 
$____________________

3. Each of the following proposed financial institutions (each, a “ Proposed Institution , and collectively, ” Proposed Institutions ”) has been invited by the Borrower, and is ready, willing and able to become a “Lender” and assume a Revolving Commitment under the Credit Agreement as follows:

Name of Proposed Institution
Commitment Amount
 
$____________________

4. The proposed effective date for the Revolving Increase is _____, 20___.]
5. The Borrower hereby represents and warrants to the Administrative Agent, each undersigned Lender and each such Proposed Institution that immediately before and after giving effect to the Increase no Default shall or would exist and be continuing and immediately after giving effect thereto, the Aggregate Revolving Commitments shall not have been increased pursuant to Section 2.05(d) to an amount which is greater than the sum of (x) $200,000,000 plus (y) the amount of the Revolving Commitment of each Lender that becomes a Defaulting Lender.
6. Pursuant to Section 2.05(d) of the Credit Agreement, by execution and delivery of this Increase Request, together with the satisfaction of all of the other requirements set forth in Section 2.05, each undersigned Lender and Proposed Institution shall have, on and as of the effective date of the Revolving Increase, a Revolving Commitment equal to the amount set forth above next to its name and in the event it is a Proposed Institution, shall be, and shall be deemed to be, a “Lender” under, and as such term is defined in, the Credit Agreement.



F-1





IN WITNESS WHEREOF , the parties hereto have caused this Increase Request to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     
_________________________________,
as Lender
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

[Proposed Institution]

By: _________________________________         
Name: ______________________________     
Title: _______________________________     

Agreed and Consented to:
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent and Issuing Bank
By: _________________________________         
Name: ______________________________     
Title: _______________________________     
    






F-2






EXHIBIT G
FORM OF INTEREST ELECTION REQUEST
[_____], 20[___]
VIA HAND DELIVERY, FACSIMILE OR ELECTRONIC DELIVERY
JPMorgan Chase Bank, N.A., as Administrative Agent
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Facsimile No.: 888-292-9533

Copy to:
JPMorgan Chase Bank, N.A., as Administrative Agent
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Facsimile No.: 310-860-7110

Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [___], 2017 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among Hawaiian Electric Industries, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Swingline Lender, Issuing Bank and Administrative Agent (the “ Administrative Agent ”). Capitalized terms used herein which are not defined herein are used as defined in the Credit Agreement.
Pursuant to Section 3.02 of the Credit Agreement, the Borrower hereby gives notice of its request to convert and/or continue Borrowings as set forth below:
(a) [effective on _____, 20___, to continue $_________ in principal amount of presently outstanding Eurodollar Borrowings having an Interest Period that expires on _____, 20___ to new Eurodollar Borrowings that have an Interest Period of ______ month[s];]
(b) [effective on _____, 20___, to convert $_________ in principal amount of presently outstanding Eurodollar Borrowings having an Interest Period that expires on _____, 20___, to new ABR Borrowings;]
(c) [effective on _____, 20___, to convert $__________ in principal amount of presently outstanding ABR Borrowings to new Eurodollar Borrowings having an Interest Period of _____ month[s].]
[ remainder of page intentionally left blank ]


G-1





IN WITNESS WHEREOF , the Borrower has duly executed this Interest Election Request as of the date and year first written above.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     

[Signature page to Notice of Conversion]




G-2



Hawaiian Electric Exhibit 10.2

EXECUTION COPY

J.P.Morgan

SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of June 30, 2017
among
HAWAIIAN ELECTRIC COMPANY, INC.,
as Borrower
The Lenders Party Hereto
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Syndication Agent
and
BANK OF AMERICA, N.A., MUFG UNION BANK, N.A., BARCLAYS BANK PLC,
U.S. BANK NATIONAL ASSOCIATION AND BANK OF HAWAII
as Co-Documentation Agents
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent, Swingline Lender and Issuing Bank
_____________
JPMORGAN CHASE BANK, N.A. and WELLS FARGO SECURITIES, LLC,
as Joint Lead Arrangers and Joint Book Runners




Table of Contents
ARTICLE 1.
DEFINITIONS
1

Section 1.01
Defined Terms
1

Section 1.02
Terms Generally
22

Section 1.03
Accounting Terms; GAAP
22

Section 1.04
Amendment and Restatement of the Existing Credit Agreement
23

ARTICLE 2.
THE CREDITS
23

Section 2.01
Commitments
23

Section 2.02
Loans and Borrowings
24

Section 2.03
Requests for Borrowings
24

Section 2.04
Funding of Borrowings
25

Section 2.05
Termination, Reduction and Increase of Commitments
26

Section 2.06
Repayment of Loans; Evidence of Debt
27

Section 2.07
Prepayment of Loans
28

Section 2.08
Payments Generally; Pro Rata Treatment; Sharing of Setoffs
29

Section 2.09
Letter of Credit Sub-Facility
31

Section 2.10
Letter of Credit Participation and Funding Commitments
32

Section 2.11
Absolute Obligation With Respect to Letter of Credit Payments; Cash Collateral; Replacement of Issuing Bank
33

Section 2.12
Defaulting Lenders
34

Section 2.13
Swingline Loans
36

Section 2.14
Extension of Commitment Termination Date
37

ARTICLE 3.
INTEREST, FEES, YIELD PROTECTION, ETC
39

Section 3.01
Interest
39

Section 3.02
Interest Elections
40

Section 3.03
Fees
41

Section 3.04
Alternate Rate of Interest
42

Section 3.05
Increased Costs; Illegality
42

Section 3.06
Break Funding Payments
44

Section 3.07
Taxes
45

Section 3.08
Mitigation Obligations; Replacement of Lenders
48

ARTICLE 4.
REPRESENATIONS AND WARRANTIES
49

Section 4.01
Organizations; Powers
49

Section 4.02
Authorization; Enforceability
49

Section 4.03
Governmental Approvals; No Conflicts
49

Section 4.04
Financial Condition; No Material Adverse Effect
49

Section 4.05
Properties
50

Section 4.06
Litigation and Environmental Matters
50

Section 4.07
Compliance with Laws and Agreements
50

Section 4.08
Regulated Entities
51

Section 4.09
Taxes
51

Section 4.10
ERISA
51

Section 4.11
Disclosure
51

Section 4.12
Subsidiaries
51

Section 4.13
Federal Reserve Regulations
52

Section 4.14
Rankings
52

Section 4.15
Solvency
52

Section 4.16
Anti-Corruption Laws and Sanctions
52

 
 
 

i

 
 
 
 
 
 
Section 4.17
EEA Financial Institutions
52

ARTICLE 5.
CONDITIONS
52

Section 5.01
Effective Date
52

Section 5.01
Each Credit Event
53

ARTICLE 6.
AFFIRMATIVE COVENANTS
54

Section 6.01
Financial Statements and Other Information
54

Section 6.02
Notices of Material Events
55

Section 6.03
Existence; Conduct of Business
56

Section 6.04
Payment of Obligations
56

Section 6.05
Maintenance of Properties; Insurance
56

Section 6.06
Books and Records; Inspection Rights
56

Section 6.07
Compliance with Laws
57

Section 6.08
Use of Proceeds
57

ARTICLE 7.
NEGATIVE COVENANTS
57

Section 7.01
Liens
57

Section 7.02
Sale of Assets; Consolidation; Merger
59

Section 7.03
Restrictive Agreements
60

Section 7.04
Transactions with Affiliates
60

Section 7.05
Consolidated Capitalization Ratio
61

Section 7.06
Guaranties
61

ARTICLE 8.
EVENTS OF DEFAULT
61

ARTICLE 9.
THE ADMINISTRATIVE AGENT
63

Section 9.01
Appointment
63

Section 9.02
Individual Capacity
64

Section 9.03
Exculpatory Provisions
64

Section 9.04
Reliance by Administrative Agent
64

Section 9.05
Performance of Duties
65

Section 9.06
Resignation; Successors
65

Section 9.07
Non-Reliance by Credit Parties
65

Section 9.08
Agents
66

ARTICLE 10.
MISCELLANEOUS
66

Section 10.01
Notices
66

Section 10.02
Waivers; Amendments
68

Section 10.03
Expenses; Indemnity; Damage Waiver
70

Section 10.04
Successors and Assigns
71

Section 10.05
Survival
75

Section 10.06
Counterparts; Integration; Effectiveness; Electronic Execution
76

Section 10.07
Severability
76

Section 10.08
Right of Setoff
76

Section 10.09
Governing Law; Jurisdiction; Consent to Service of Process
76

Section 10.10
WAIVER OF JURY TRIAL
77

Section 10.11
Headings
77

Section 10.12
Confidentiality
78

Section 10.13
Interest Rate Limitation
79

Section 10.14
No Third Parties Benefited
79

Section 10.15
USA PATRIOT Act Notice
79

Section 10.16
No Fiduciary Duty
79

Section 10.17
Acknowledgment and Consent to Bail-In Action
80


ii


SCHEDULES:
 
 
 
Schedule 1.01
 
Consolidated Capitalization
Schedule 1.01
 
Consolidated Funded Debt
Schedule 1.01
 
Consolidated Subsidiary Funded Debt
Schedule 2.01
 
Commitments
Schedule 2.09
 
Existing Letters of Credit
Schedule 4.12
 
Subsidiaries
Schedule 7.01
 
Existing Liens
Schedule 7.03
 
Existing Restrictions
EXHIBITS:
 
 
Exhibit A
 
Form of Assignment and Acceptance
Exhibit B-1
 
Form of Opinion of Pillsbury Winthrop Shaw Pittman LLP
Exhibit B-2
 
Form of Opinion of Susan A. Li, Senior Vice President, General Counsel, Chief Compliance & Administrative Officer & Corporate Secretary of the Borrower
Exhibit C
 
Form of Note
Exhibit D
 
Form of Borrowing Request
Exhibit E
 
Form of Letter of Credit Request
Exhibit F
 
Form of Increase Request
Exhibit G
 
Form of Interest Election Request



iii


SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 30, 2017 (this “ Agreement ”), among HAWAIIAN ELECTRIC COMPANY, INC., as Borrower, the Lenders party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent, Swingline Lender and Issuing Bank.
WHEREAS, the Borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, are currently party to the Amended and Restated Credit Agreement, dated as of April 2, 2014 (as amended, supplemented or otherwise modified prior to the date hereof, the “ Existing Credit Agreement ”).
WHEREAS, the Borrower, the Lenders, the Departing Lenders (as hereafter defined) and the Administrative Agent have agreed (a) to enter into this Agreement in order to (i) amend and restate the Existing Credit Agreement in its entirety; (ii) extend the maturity date in respect of the existing revolving credit facility under the Existing Credit Agreement; (iii) re-evidence the obligations of the Borrower under the Existing Credit Agreement, which shall be repayable in accordance with the terms of this Agreement; and (iv) amend and restate the terms and conditions under which the Lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Borrower and (b) that each Departing Lender shall cease to be a party to the Existing Credit Agreement as evidenced by its execution and delivery of its Departing Lender Signature Page.ase
WHEREAS, it is the intent of the parties hereto that this Agreement not constitute a novation of the obligations and liabilities of the parties under the Existing Credit Agreement or be deemed to evidence or constitute full repayment of such obligations and liabilities, but that this Agreement amend and restate in its entirety the Existing Credit Agreement and re-evidence the obligations and liabilities of the Borrower outstanding thereunder, which shall be payable in accordance with the terms hereof.
WHEREAS, it is also the intent of the Borrower to confirm that all obligations under the applicable “Loan Documents” (as referred to and defined in the Existing Credit Agreement) shall continue in full force and effect as modified or restated by the Loan Documents (as referred to and defined herein) and that, from and after the Effective Date, all references to the “Credit Agreement” contained in any such existing “Loan Documents” shall be deemed to refer to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree that the Existing Credit Agreement is hereby amended and restated as follows:
ARTICLE 1.
DEFINITIONS
Section 1.01      Defined Terms
As used in this Agreement, the following terms have the meanings specified below:
“ ABR Loan ” or “ ABR Borrowing ”, when used in reference to any Loan or Borrowing, refers to such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Alternate Base Rate.
“ Additional Commitment Lender ” is defined in Section 2.14(d).
“ Adjusted LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

1



“ Administrative Agent ” means JPMCB, in its capacity as administrative agent for the Lenders hereunder, or any successor thereto in such capacity.
“ Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“ Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“ Agent Party ” has the meaning assigned to such term in Section 10.01(d).
“ Aggregate Credit Exposure ” means, at any time, the sum at such time of (a) the outstanding principal balance of the Revolving Loans of all Lenders, plus (b) the Aggregate Letter of Credit Exposure, plus (c) the Swingline Exposure.
“ Aggregate Letter of Credit Commitments ” means, at any time, the sum at such time of the Letter of Credit Commitments of all Lenders.
“ Aggregate Letter of Credit Exposure ” means, at any time, the sum at such time of the Letter of Credit Exposure of all of the Lenders.
“ Aggregate Revolving Commitments ” means, at any time, the sum at such time of the Revolving Commitments of all Lenders. The initial amount of the Aggregate Revolving Commitments is $200,000,000.
“ Alternate Base Rate ” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the sum of NYFRB Rate in effect on such day plus 1/2 of 1% per annum and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1% per annum, provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Rate (or if the LIBO Rate if not available for such one month Interest Period, the Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively.
“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“ Applicable Margin ” means with respect to: (a) any Eurodollar Borrowings and any Letters of Credit, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Eurodollar Margin” and adjacent to such Pricing Level, (b) any ABR Borrowings, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “ABR Margin” and adjacent to such Pricing Level and (c) with respect to the commitment fee payable under Section 3.03(a), at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Commitment Fee Rate” and adjacent to such Pricing Level, in each case, subject to the provisos set forth below:

2


Pricing Level
Issuer Ratings (S&P/Moody’s/Fitch)
Commitment
Fee Rate
Eurodollar
Margin
ABR
Margin
I
(A-/A3/A-) or higher
0.15%
1.00%
0.00%
II
(BBB+/Baa1/BBB+)
0.175%
1.25%
0.25%
III
(BBB/Baa2/BBB)
0.20%
1.375%
0.375%
IV
(BBB-/Baa3/BBB-)
0.25%
1.50%
0.50%
V
(BB+/Ba1/BB+) or lower
0.30%
1.75%
0.75%

For purposes hereof:
(A) when the Borrower has Issuer Ratings from all three of S&P, Moody’s and Fitch: (i) if two or three of the three Issuer Ratings are in the same Pricing Level, such Pricing Level shall apply and (ii) if each of the three Issuer Ratings are in different Pricing Levels, the Issuer Ratings corresponding to the highest and the lowest Pricing Levels shall be disregarded and the Pricing Level shall be determined by reference to the Pricing Level which corresponds to the remaining Issuer Rating;
(B) when the Borrower has Issuer Ratings from only two of S&P, Moody’s and Fitch: (i) if both of the two Issuer Ratings are in the same Pricing Level, such Pricing Level shall apply and (ii) if the two Issuer Ratings are split-rated (x) by one Pricing Level, the Pricing Level shall be determined by the higher of the two ( e.g. , an Issuer Rating of BBB-/Baa2 results in Pricing Level III) or (y) by more than one Pricing Level, the Pricing Level shall be determined by the Pricing Level one below the Pricing Level which corresponds to the higher Issuer Rating ( e.g. , an Issuer Rating of BBB-/Baa1 results in Pricing Level III and an Issuer Rating of BBB+/Baa3 results in Pricing Level III);
(C) when the Borrower has an Issuer Rating from only one of S&P, Moody’s and Fitch: the Pricing Level shall be determined by reference to the Pricing Level immediately below the Pricing Level which corresponds to the one Issuer Rating in effect (provided that if the one Issuer Rating in effect corresponds to Pricing Level V, then Pricing Level V shall apply); and
(D) when the Borrower does not have an Issuer Rating from any of S&P, Moody’s or Fitch: Pricing Level V shall apply.
If the Issuer Ratings established or deemed to have been established by S&P, Moody’s and Fitch shall be changed (other than as a result of a change in the rating system of S&P, Moody’s or Fitch), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Administrative Agent and the Lenders pursuant to this Agreement or otherwise. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P, Moody’s or Fitch shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Administrative Agent (in consultation with the Lenders) shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Margin shall be determined by reference to the rating most recently in effect prior to such change or cessation.
“ Applicable Percentage ” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitments; provided that, in the case of

3


Section 2.12 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitments) represented by such Lender’s Commitments. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments and to any Lender’s status as a Defaulting Lender at the time of such determination.
“ Approved Fund ” means, with respect to any Lender, any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business that is administered or managed by (a) such Lender or (b) an Affiliate of such Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“ Assignment and Acceptance ” means an assignment and acceptance entered into by a Lender and an assignee (with the consent of each party whose consent is required by Section 10.04), and accepted by the Administrative Agent, substantially in the form of Exhibit A or any other form approved by the Administrative Agent.
“ Availability Period ” means the period from and including the Effective Date to (but excluding) the Commitment Termination Date.
“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ Bankruptcy Code ” means the United States Bankruptcy Code of 1978, as amended.
“ Board ” means the Board of Governors of the Federal Reserve System of the United States of America.
“ Borrower ” means Hawaiian Electric Company, Inc., a Hawaii corporation.
“ Borrowing ” means (a) Revolving Loans of the same Type made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
“ Borrowing Request ” means a request by the Borrower for a Borrowing in accordance with Section 2.03 in substantially the form annexed hereto as Exhibit D.
“ Business Day ” means any day other than a Saturday, Sunday or a day when banks are authorized by law to close in New York, New York or Honolulu, Hawaii or, when used with reference to a Eurodollar Loan, in London, England.
“ Capital Lease Obligations ” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of

4


such obligations shall be the capitalized amount thereof determined in accordance with GAAP, provided however, no power purchase agreement with an independent power producer or a power producer which is not an Affiliate of the Borrower shall constitute a Capital Lease Obligation.
“ Change in Control ” means the Borrower is not a wholly-owned subsidiary of HEI.
“ Change in Law ” means the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) the making or issuance of any request, rules, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided however , that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall (except to the extent the same are merely proposed and not in effect) in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.
“ Class ”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time.
“ Commitments ” means the Revolving Commitments and the Letter of Credit Commitments.
“ Commitment Percentage ” means, as to any Lender in respect of such Lender’s Commitments and its obligations with respect to Loans and Letters of Credit, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments (or, if no Commitments then exist, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment on the last day upon which Commitments did exist divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments, on such day).
“ Commitment Termination Date ” means the earliest of (a) June 29, 2018, subject to automatic extension to the date, and upon satisfaction of the conditions, set forth in Section 2.05(a) and subject to extension (in the case of each Lender consenting thereto) as provided in Section 2.14, (b) the date on which the Commitments are terminated in whole pursuant to Section 2.05 and (c) the date the Commitments are terminated in whole pursuant to Article 8.
“ Common Stock Equity ” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made

5


directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“ Communications ” has the meaning assigned to such term in Section 10.01(d).
“ Consolidated Capitalization ” means, at any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Funded Debt, (b) preferred stock of the Borrower and its Subsidiaries and (c) Consolidated Common Stock Equity. The Borrower’s Consolidated Capitalization as of December 31, 2016 is annexed hereto as Schedule 1.01 (Consolidated Capitalization); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Capitalization on or for any subsequent date of determination.
“ Consolidated Capitalization Ratio ” means, at any date of determination, the ratio of (a) Consolidated Common Stock Equity to (b) Consolidated Capitalization.
“ Consolidated Common Stock Equity ” means, at any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and(d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“ Consolidated Funded Debt ” means, at any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) net long-term debt, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness and Indebtedness under this Agreement), net of cash collateral or other funds on deposit with trustees and unamortized discounts and expenses in respect of such bonds, debentures, notes and obligations, that is due one year or more from the date of the relevant balance sheet on which such debt is included, (b) net long-term debt (as so defined) due within one year, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations, Purchase Money Indebtedness and Indebtedness under this Agreement) that is due within one year from the date of the relevant balance sheet on which such long-term debt is included and (c) short-term borrowings, including Purchase Money Indebtedness, as included on and defined in the relevant balance sheet; provided, however, no Indebtedness of independent power producers, or other power producers which are not Affiliates of the Borrower, included on a balance sheet of the Borrower by reason of the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810 (formerly referred to as FASB Interpretation No. 46 (revised December 2003)) shall constitute Consolidated Funded Debt. A schedule of Consolidated Funded Debt as of December 31, 2016 is annexed hereto as Schedule 1.01 (Consolidated Funded Debt); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Funded Debt on or for any subsequent date of determination.
“ Consolidated Subsidiary Capitalization ” means, at any date of determination with respect to any Subsidiary of the Borrower on a consolidated basis, the sum of (a) Consolidated

6


Subsidiary Funded Debt, (b) preferred stock of such Subsidiary and (c) Consolidated Subsidiary Common Stock Equity.
“ Consolidated Subsidiary Common Stock Equity ” means, at any date of determination with respect to any Subsidiary of the Borrower on a consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“ Consolidated Subsidiary Funded Debt ” means, at any date of determination, with respect to any Subsidiary of the Borrower on a consolidated basis, the sum of (a) net long-term debt, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations and Purchase Money Indebtedness), net of funds on deposit with trustees and unamortized discounts and expenses in respect of such bonds, debentures, notes and obligations, that is due one year or more from the date of the relevant balance sheet on which such debt is included, (b) net long-term debt (as so defined) due within one year, defined as the portion of outstanding bonds, debentures, notes and similar debt obligations (including Capital Lease Obligations and Purchase Money Indebtedness) that is due within one year from the date of the relevant balance sheet on which such long-term debt is included and (c) short-term borrowings, including Purchase Money Indebtedness, as included on and defined in the relevant balance sheet; provided, however, no Indebtedness of independent power producers, or other power producers which are not Affiliates of the Borrower, included on a balance sheet of the Borrower by reason of the application of Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 810 (formerly referred to as FASB Interpretation No. 46 (revised December 2003)), shall constitute Consolidated Subsidiary Funded Debt. A schedule of Consolidated Subsidiary Funded Debt as of December 31, 2016 is annexed hereto as Schedule 1.01 (Consolidated Subsidiary Funded Debt); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Subsidiary Funded Debt on or for any subsequent date of determination.
“ Consolidated Subsidiary Funded Debt to Capitalization Ratio ” means, at any date of determination with respect to any Significant Subsidiary of the Borrower, the ratio of (a) such Significant Subsidiary’s Consolidated Subsidiary Funded Debt to (b) its Consolidated Subsidiary Capitalization.
“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms “Controlling” and “Controlled” have meanings correlative thereto.
“ Credit Exposure ” means, with respect to any Lender as of any date, the sum as of such date of (a) the outstanding principal balance of such Lender’s Revolving Loans, plus (b) such Lender’s Letter of Credit Exposure, plus (c) such Lender’s Swingline Exposure.
“ Credit Parties ” means the Administrative Agent, the Issuing Bank, the Swingline Lender and the Lenders.

7



“ Current SEC Reports ” means (a) the Annual Report of the Borrower to the SEC on Form 10K for the fiscal year ended December 31, 2016, (b) the Quarterly Report of the Borrower to the SEC on Form 10-Q for the fiscal quarter ended March 31, 2017 and (c) any current reports of the Borrower to the SEC on Form 8K filed prior to the Effective Date.
“ Default ” means any event or condition which constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“ Defaulting Lender ” means any Lender, as reasonably determined by the Administrative Agent, that has (a) failed to fund any portion of its Revolving Loans or participations in Letters of Credit or Swingline Loans within three (3) Business Days of the date required to be funded by it hereunder unless such failure to fund is based on such Lender’s good faith determination that the conditions precedent to such funding under this Agreement have not been satisfied or waived and such Lender has notified the Administrative Agent in writing of such determination, (b) notified the Borrower, the Administrative Agent, the Swingline Lender, the Issuing Bank or any other Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three (3) Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Revolving Loans and participations in then outstanding Letters of Credit or Swingline Loans (provided that any such Lender shall cease to be a Defaulting Lender under this clause (c) upon receipt of such confirmation by the Administrative Agent), (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three (3) Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or has a parent company that has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or (ii) become the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment; provided , that a Lender shall not become a Defaulting Lender solely as the result of (x) the acquisition or maintenance of an ownership interest in such Lender or a Person controlling such Lender or (y) the exercise of control over a Lender or a Person controlling such Lender, in each case, by a Governmental Authority or an instrumentality thereof.
“ Departing Lender ” means each lender under the Existing Credit Agreement that executes and delivers to the Administrative Agent a Departing Lender Signature Page.
“ Departing Lender Signature Page ” means each signature page to this Agreement on which it is indicated that the Departing Lender executing the same shall cease to be a party to the Existing Credit Agreement on the Effective Date.

8



“ Disclosed Matters ” means the matters (a) disclosed in the current and periodic reports filed by the Borrower from time to time with the SEC pursuant to the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, or (b) disclosed by the Borrower to the Lenders (either directly or indirectly through the Administrative Agent) in writing.
“ Dollars ” or “ $ ” refers to lawful money of the United States of America.
“ EEA Financial Institution ” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ Effective Date ” means the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 10.02).
“ Electronic Signature ” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“ Electronic System ” means any electronic system, including e-mail, e-fax, Intralinks ® , ClearPar ® and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent and the Issuing Bank and any of its respective Related Parties or any other Person, providing for access to data protected by passcodes or other security system.
“ Eligible Assignee ” means (a) a Credit Party (other than a Defaulting Lender); (b) an Affiliate of a Credit Party; (c) an Approved Fund; and (d) any other financial institution approved by (i) the Administrative Agent, (ii) the Issuing Bank, (iii) the Swingline Lender and (iv) unless a Default has occurred under Article 8(a), Article 8(h) or Article 8(i), and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided, however, that none of the Borrower nor any Subsidiary or Affiliate of the Borrower, nor any natural person, nor any company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof, shall qualify as an Eligible Assignee under this definition.
“ Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release into the environment of any Hazardous Material or to health and safety matters concerning Hazardous Materials.

9



“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment, or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“ Equity Interest ” shall mean (a) shares of capital stock and any other equity security that confers on a person or entity the right to receive a share of the profits and losses of, or distribution of assets of, the issuing company and (b) all warrants, options or other rights to acquire any Equity Interest described in clause (a) of this definition.
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Borrower or any Subsidiary, is treated with the Borrower as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated with the Borrower as a single employer under Section 414(b), (c), (m) or (o) of the Code.
“ ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the failure with respect to any Plan to pay the “minimum required contribution” (as defined in Section 430 of the Code or Section 303 of ERISA), unless waived; (c) the incurrence by the Borrower or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (d) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (e) the incurrence by the Borrower or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Multiemployer Plan; or (f) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent, within the meaning of Title IV of ERISA.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“ Eurodollar Loan ” or “ Eurodollar Borrowing ”, when used in reference to any Revolving Loan or Borrowing, refers to whether such Revolving Loan, or the Revolving Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. For the avoidance of doubt, a Revolving Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Eurodollar Loan.
“ Event of Default ” has the meaning assigned to such term in Article 8.

10



“ Excluded Taxes ” means any of the following Taxes imposed on or with respect to a Credit Party or required to be withheld and deducted from a payment to a Credit Party on account of any obligation of the Borrower under any Loan Document: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profit Taxes, in each case, (i) imposed as a result of such Person being organized under the laws of, or having its principal office or applicable lending office is located in the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b)  in the case of a Lender, any U.S. federal withholding tax that is imposed on amounts payable to or for the account of to such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in a Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 3.08(b)) or (ii) such Lender changes its lending office, except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.07, (d) Taxes attributable to such Person’s failure to comply with Section 3.07(f) and (e) any U.S. federal withholding taxes imposed under FATCA.
“ Existing Commitment Termination Date ” is defined in Section 2.14(a).
“ Existing Credit Agreement ” is defined in the recitals hereof.
“ Existing Letters of Credit ” is defined in Section 2.09(a).
“ Existing Loans ” is defined in Section 2.01.
“ Extending Lender ” is defined in Section 2.14(b).
“ Extension Date ” is defined in Section 2.14(a).
“ FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“ Federal Funds Rate ” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions (as determined in such manner as the NYFRB shall set forth on its public website from time to time) and published on the next succeeding Business Day by the NYFRB as the federal funds rate; provided that if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“ Financial Officer ” means the Senior Vice President and Chief Financial Officer, the Treasurer or the Controller of the Borrower and persons performing similar responsibilities regardless of title. The Financial Officers as of the date of this Agreement are Tayne S. Y. Sekimura, Lorie Ann Nagata and Patsy H. Nanbu, and replacement or additional Financial Officers may be identified to the Administrative Agent from time to time in a writing signed by the President and Secretary of Borrower.
“ Fitch ” means Fitch Ratings, Inc., or its successors.

11



“ Foreign Lender ” means any Lender that is not a U.S. Person.
“ GAAP ” means generally accepted accounting principles in the United States of America.
“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including the Hawaii Public Utilities Commission, the SEC and the Federal Energy Regulatory Commission.
“ Guarantee ” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect,
(a)      to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof,
(b)      to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof,
(c)      to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or
(d)      as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation;
provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. The term “ Guaranteed ” has a meaning correlative thereto.
“ Hawaii Electric Light ” means Hawaii Electric Light Company, Inc., a Hawaii corporation.
“ Hawaiian Electric Cash Manager ” means, to the extent having received a legally valid delegation of authority from the Borrower with respect to borrowings and investments to be made by the Borrower and its Subsidiaries, the Cash Management Administrator of the Borrower, the Treasury Analyst of the Borrower, or the Securities Administrator of the Borrower, or any other person having received such authority; it being understood and agreed that (i) such person need not be a Financial Officer, and (ii) the Administrative Agent shall be entitled to rely on telephonic

12


notice received from the Hawaiian Electric Cash Manager for all purposes of Sections 2.03, 2.07(e), 2.13 and 3.02(b).
“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“ Hedging Agreement ” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
“ HEI ” means Hawaiian Electric Industries, Inc., a Hawaii corporation.
“ Impacted Interest Period ” has the meaning assigned to such term in the definition of “LIBO Rate”.
“ Increase Request ” means a request by the Borrower for an increase of the total Commitments in accordance with Section 2.05(d).
“ Indebtedness ” of any Person means, without duplication,
(a)      all obligations of such Person for borrowed money,
(b)      all obligations of such Person evidenced by bonds, debentures, notes or similar instruments,
(c)      all obligations of such Person upon which interest charges are customarily paid,
(d)      all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person,
(e)      all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business),
(f)      all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed,
(g)      all Guarantees by such Person of Indebtedness of others,
(h)      all Capital Lease Obligations of such Person,
(i)      all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, and
(j)      all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances.

13



The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“ Indemnified Taxes ” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“ Indemnitee ” has the meaning assigned to such term in Section 10.03(b).
“ Information ” has the meaning assigned to such term in Section 10.12.
“ Insolvent ” means, with reference to any Person, (a) such Person’s debts are greater than all of such Person’s property, at a fair valuation (as determined in the good faith judgment of such Person), exclusive of (i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such Person’s creditors, and (ii) property that may be exempted from property of the estate under Section 522 of the Bankruptcy Code, or (b) such Person is generally not paying its debts as they become due or is unable to pay its debts as they become due.
“ Interest Election Request ” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 3.02 and substantially in the form annexed hereto as Exhibit G.
“ Interest Payment Date ” means (a) with respect to the accrued interest on any ABR Loan (other than a Swingline Loan), the first Business Day of each January, April, July and October and the Commitment Termination Date, (b) with respect to the accrued interest on any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Revolving Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Commitment Termination Date and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid and the Commitment Termination Date.
“ Interest Period ” means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“ Interpolated Rate ” means, at any time, the rate per annum determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the

14


LIBOR Screen Rate for the longest period (for which the LIBOR Screen Rate is available) that is shorter than the Impacted Interest Period and (b) the LIBOR Screen Rate for the shortest period (for which the LIBOR Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.
“ Issuer Ratings ” means the Borrower’s corporate issuer ratings from any of S&P, Moody’s and Fitch.
“ Issuing Bank ” means JPMCB in its capacity as issuer of the Letters of Credit, or any successor thereto in such capacity as provided in Section 2.1(c).
“ JPMCB ” means JPMorgan Chase Bank, N.A., a national banking association.
“ Lead Arranger ” means each of JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC in its capacity as joint lead arranger and joint book runner for the credit facility evidenced by this Agreement.
“ Lender Notice Date ” is defined in Section 2.14(b).
“ Lenders ” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to Section 2.05(d) or pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender.
“ Letter of Credit ” has the meaning assigned to such term in Section 2.09.
“ Letter of Credit Commitment ” means the commitment of the Issuing Bank to issue Letters of Credit having an aggregate outstanding face amount up to $25,000,000 and the commitment of each Lender to participate in the Letter of Credit Exposure as set forth in Section 2.10 in the maximum amount set forth in Schedule 2.01 under the heading “Letter of Credit Commitment” or in an Assignment and Acceptance Agreement or other documents pursuant to which it became a Lender, as such amount may be reduced from time to time in accordance herewith.
“ Letter of Credit Exposure ” means, at any time, (a) in respect of all the Lenders, the sum at such time, without duplication, of (i) the aggregate undrawn face amount of the outstanding Letters of Credit, (ii) the aggregate amount of unpaid drafts drawn on all Letters of Credit, and (iii) the aggregate unpaid Reimbursement Obligations (after giving effect to any Loans made on such date to pay any such Reimbursement Obligations), and (b) in respect of any Lender, an amount equal to such Lender’s Commitment Percentage multiplied by the amount determined under clause (i) of this definition.
“ Letter of Credit Fee ” has the meaning assigned to such term in Section 3.03(b).
“ Letter of Credit Request ” means, a request by the Borrower for the issuance of a Letter of Credit in the form of Exhibit E.
“ LIBO Rate ” means, with respect to any Eurodollar Borrowing for any applicable Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for Dollars

15


for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen or, in the event such rate does not appear on either of such Reuters pages, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate as shall be selected by the Administrative Agent from time to time in its reasonable discretion (in each case the “ LIBOR Screen Rate ”) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, if the LIBOR Screen Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement; provided , further , that if a LIBOR Screen Rate shall not be available at such time for such Interest Period (the “ Impacted Interest Period ”), then the LIBO Rate for such Interest Period shall be the Interpolated Rate; provided, that, if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement. It is understood and agreed that all of the terms and conditions of this definition of “LIBO Rate” shall be subject to Section 3.04.
“ LIBOR Screen Rate ” has the meaning assigned to such term in the definition of “LIBO Rate”.
“ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“ Loan Documents ” means this Agreement, the Notes, the Reimbursement Agreements and, if applicable, any Hedging Agreement between the Borrower and any Lender.
“ Loans ” means the Revolving Loans and Swingline Loans made by the Lenders to the Borrower pursuant to this Agreement.
“ Margin Stock ” has the meaning assigned to such term in Regulation U.
“ Material Adverse Effect ” means a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the rights and remedies of the Administrative Agent and the Lenders thereunder.
“ Material Indebtedness ” means all Indebtedness of the Borrower and any Significant Subsidiary (other than Indebtedness under the Loan Documents) or obligations in respect of one or more Hedging Agreements in an aggregate principal amount exceeding $50,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower and any Significant Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Significant Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.
“ Maui Electric ” means Maui Electric Company, Limited, a Hawaii corporation.
“ Moody’s ” means Moody’s Investors Service, Inc., or its successors
“ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

16



“ Non-Extending Lender ” is defined in Section 2.14(b).
“ Notes ” means, with respect to each Lender, a promissory note evidencing such Lender’s Loans payable to such Lender (or, if required by such Lender, to such Lender and its registered assigns) substantially in the form of Exhibit C .
“ NYFRB ” means the Federal Reserve Bank of New York.
“ NYFRB Rate ” means, for any day, the greater of (a) the Federal Funds Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m., New York City time, on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided , further , that if any of the aforesaid rates shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“ OFAC ” means the Office of Foreign Assets Control of the U.S. Department of Treasury.
“ OFAC Sanctions ” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by OFAC.
“ Other Connection Taxes ” means, with respect to any Credit Party, Taxes imposed as a result of a present or former connection between such Credit Party and the jurisdiction imposing such Tax (other than connections arising from such Credit Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“ Other Taxes ” means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, the Loan Documents, other than Excluded Taxes.
“ Overnight Bank Funding Rate ” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate (from and after such date as the NYFRB shall commence to publish such composite rate).
“ Participant ” has the meaning assigned to such term in Section 10.04(g).
“ Participant Register ” has the meaning assigned to such term in Section 10.04(g).
“ PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“ Permitted Investments ” means, at any time, investments as allowed in accordance with the Hawaiian Electric Cash Management Investment Guidelines dated August 2, 2011, as disclosed to the Administrative Agent prior to the Effective Date and as the same may be

17


amended from time to time with the written consent of the Administrative Agent, such written consent not to be unreasonably delayed or withheld.
“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“ Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower, any Subsidiary or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“ Platform ” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.
“ Pricing Level I ” means at any time the Borrower’s Issuer Rating is (a) A- or higher by S&P, (b) A3 or higher by Moody’s or (c) A- or higher by Fitch.
“ Pricing Level II ” means at any time the Borrower’s Issuer Rating is (a) BBB+ or higher by S&P, (b) Baa1 or higher by Moody’s or (c) BBB+ or higher by Fitch, and Pricing Level I is not applicable.
“ Pricing Level III ” means at any time the Borrower’s Issuer Rating is (a) BBB or higher by S&P, (b) Baa2 or higher by Moody’s or (c) BBB or higher by Fitch, and Pricing Levels I and II are not applicable.
“ Pricing Level IV ” means at any time the Borrower’s Issuer Rating is (a) BBB- or higher by S&P, (b) Baa3 or higher by Moody’s or (c) BBB- or higher by Fitch, and Pricing Levels I, II and III are not applicable.
“ Pricing Level V ” means at any time the Borrower’s Issuer Rating is (a) less than or equal to BB+ by S&P, (b) less than or equal to Ba1 by Moody’s or (c) less than or equal to BB+ by Fitch.
“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by JPMCB as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. The Prime Rate is not intended to be lowest rate of interest charged by JPMCB in connection with extensions of credit to borrowers.
“ PUC ” means the Public Utilities Commission of the State of Hawaii.
“ Purchase Money Indebtedness ” means Indebtedness of the Borrower or any Subsidiary that is incurred to finance part or all of (but not more than) the purchase price of a tangible asset; provided that (a) the Borrower or such Subsidiary did not at any time prior to such purchase have any interest in such asset other than an option to purchase, a security interest, or an interest as lessee under an operating lease and (b) such Indebtedness is incurred at the time of, or within 90 days after, such purchase.
“ Register ” has the meaning assigned to such term in Section 10.04(e).

18



“ Regulation D ” means Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation T ” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation U ” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Regulation X ” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“ Reimbursement Agreement ” has the meaning assigned to such term in Section 2.09(b).
“ Reimbursement Obligation ” means the obligation of the Borrower to reimburse the Issuing Bank for amounts drawn under a Letter of Credit.
“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, and employees of such Person and such Person’s Affiliates.
“ Required Lenders ” means, subject to Section 2.12, at any time (a) prior to the Commitment Termination Date, Lenders having Commitments greater than 50% of the total Commitments and (b) on or after the Commitment Termination Date, Lenders having Credit Exposure greater than or equal to 50% of the Aggregate Credit Exposure (or, if there are no Revolving Loans then outstanding and no Letter of Credit Exposure or Swingline Exposure, Lenders having Commitments greater than or equal to 50% of the total of all Commitments immediately prior to the termination of the Commitments); provided that for purposes of declaring the Loans to be due and payable pursuant to Article 8 , and for all purposes after the Loans become due and payable pursuant to Article 8 , then, as to each Lender, clause (a) of the definition of Swingline Exposure shall only be applicable for purposes of determining its Credit Exposure to the extent such Lender shall have funded its participation in the outstanding Swingline Loans.
“ Restricted Payment ” means, with respect to any Person, (a) any dividend or other distribution (whether in cash, securities or other property) by such entity with respect to any Equity Interests of such Person, (b) any payment (whether cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interest, and (c) any payment of principal, interest or premium or any purchase, redemption, retirement, acquisition or defeasance with respect to any subordinated debt of such Person.
“ Revolving Commitment ” means, with respect to each Lender, the commitment of such Lender during the Availability Period to make Revolving Loans and to acquire participations in Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be reduced or increased from time to time pursuant to Section 2.05 or pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender’s Revolving Commitment is set forth on Schedule 2.01 , or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable.

19



“ Revolving Credit Exposure ” means, with respect to any Lender at any time, the aggregate outstanding principal amount of such Lender’s Revolving Loans and Swingline Exposure at such time.
“ Revolving Loans ” means the revolving loans referred to in Section 2.01 and made pursuant to Article 2, other than, for the avoidance of doubt, Swingline Loans.
“ Sanctioned Country ” means, at any time, a country, region or territory which itself is the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba, Iran, North Korea, Sudan and Syria).
“ Sanctioned Person ” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC or the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses.
“ Sanctions ” means, collectively, OFAC Sanctions and U.S. Department of State Sanctions.
“ SEC ” means the United States Securities and Exchange Commission.
“ SEC Reports ” means the reports filed by the Borrower with the SEC pursuant to the Securities Exchange Act of 1934, as amended.
“ S&P ” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, or its successors.
“ Significant Subsidiary ” means each of Maui Electric, Hawaii Electric Light and any other Subsidiary having 15% or more of the total assets, or 15% or more of the total operating income, of the Borrower and its Subsidiaries on a consolidated basis, in either case as the consolidated total assets and consolidated total operating income of the Borrower and its Subsidiaries are reflected in the most recent annual or quarterly report filed by the Borrower with the SEC.
“ Statutory Reserve Rate ” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D). Such reserve percentages shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“ subsidiary ” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity

20


(a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
“ Subsidiary ” means any subsidiary of the Borrower and any subsidiary of a Subsidiary of the Borrower.
“ Subsidiary Indebtedness ” has the meaning assigned to such term in Section 7.06.
“ Swingline Exposure ” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be the sum of (a) its Applicable Percentage of the total Swingline Exposure at such time other than with respect to any Swingline Loans made by such Lender in its capacity as a Swingline Lender and (b) the aggregate principal amount of all Swingline Loans made by such Lender as a Swingline Lender outstanding at such time (less the amount of participations funded by the other Lenders in such Swingline Loans).
“ Swingline Lender ” means JPMCB, in its capacity as lender of Swingline Loans hereunder.
“ Swingline Loan ” means a loan made pursuant to Section 2.13.
“ Taxes ” means any and all current or future taxes, levies, imposts, duties, deductions, fees, assessments, charges or withholdings imposed by any Governmental Authority.
“ Transactions ” means (a) the execution, delivery and performance by the Borrower of each Loan Document to which it is a party, (b) the borrowing of the Loans, and (c) the use of the proceeds of the Loans.
“ Type ”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. For the avoidance of doubt, a Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Eurodollar Loan.
“ U.S. Department of State Sanctions ” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by the U.S. Department of State.
“ U.S. Person ” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
“ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“ Withholding Agent ” means the Borrower and the Administrative Agent.

21



“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
Section 1.02      Terms Generally
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, and (f) any reference herein to any law, rule, regulation or treaty shall, unless otherwise specified, refer to such law, rule, regulation, or treaty as amended, restated, supplemented or otherwise modified from time to time.
Section 1.03      Accounting Terms; GAAP
Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time, provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Unless the context otherwise requires, any reference to a fiscal period shall refer to the relevant fiscal period of the Borrower. Notwithstanding any other provision contained herein, (i) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (x) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein and (y) without giving effect to any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof and (ii) Indebtedness included in the financial covenant set forth in Section 7.05 shall exclude any liability to make lease payments for all leases included on a balance sheet of the Borrower by reason of the application of FASB Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).

22


Section 1.04      Amendment and Restatement of the Existing Credit Agreement
The parties to this Agreement agree that, upon (i) the execution and delivery by each of the parties hereto of this Agreement and (ii) satisfaction of the conditions set forth in Section 5.01, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement. This Agreement is not intended to and shall not constitute a novation. All Revolving Loans made and obligations incurred under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as Revolving Loans and obligations under (and, as of the Effective Date, shall be governed by the terms of) this Agreement and the other Loan Documents. Without limiting the foregoing, upon the effectiveness hereof: (a) all references in the “Loan Documents” (as defined in the Existing Credit Agreement) to the “Administrative Agent”, the “Credit Agreement” and the “Loan Documents” shall be deemed to refer to the Administrative Agent, this Agreement and the Loan Documents, (b) the Existing Letters of Credit which remain outstanding on the Effective Date shall continue as Letters of Credit under (and, as of the Effective Date, shall be governed by the terms of) this Agreement, (c) all obligations of the Borrower owing to any Lender or any Affiliate of any Lender under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as obligations under this Agreement and the other Loan Documents, (d) the Administrative Agent shall make such reallocations, sales, assignments or other relevant actions in respect of each Lender’s credit exposure under the Existing Credit Agreement as are necessary in order that each such Lender’s Revolving Credit Exposure and outstanding Revolving Loans hereunder reflect such Lender’s Applicable Percentage of the outstanding aggregate Revolving Exposures on the Effective Date, (e) the Existing Loans (as defined in Section 2.01) of each Departing Lender shall be repaid in full (accompanied by any accrued and unpaid interest and fees thereon), each Departing Lender’s “Commitments” under the Existing Credit Agreement shall be terminated and each Departing Lender shall not be a Lender hereunder and (f) the Borrower hereby agrees to compensate each Lender (including each Departing Lender) for any and all losses, costs and expenses incurred by such Lender in connection with the sale and assignment of any Eurodollar Loans (including the “Eurodollar Loans” under the Existing Credit Agreement) and such reallocation described above, in each case on the terms and in the manner set forth in Section 3.06 hereof.
ARTICLE 2.
THE CREDITS
Section 2.01      Commitments
Prior to the Effective Date, certain loans were previously made to the Borrower under the Existing Credit Agreement which remain outstanding as of the date of this Agreement (such outstanding loans being hereinafter referred to as the “ Existing Loans ”). Subject to the terms and conditions set forth in this Agreement, the Borrower and each of the Lenders agree that on the Effective Date but subject to the satisfaction of the conditions precedent set forth in Section 5.01 and the reallocation and other transactions described in Section 1.04, the Existing Loans shall, as of the Effective Date, be reevidenced as Revolving Loans under this Agreement and the terms of the Existing Loans shall be restated in their entirety and shall be evidenced by this Agreement. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result (after giving effect to any application of proceeds of such Borrowing to any Swingline Loans outstanding pursuant to Section 2.06(a)) in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the Aggregate Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.

23


 
Section 2.02      Loans and Borrowings
(a)      Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Revolving Commitments. The failure of any Lender to make any Revolving Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Commitments of the Lenders are several, and no Lender shall be responsible for any other Lender’s failure to make Revolving Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.13.
(b)      Subject to Section 3.04, each Revolving Loan shall be an ABR Loan or a Eurodollar Loan, as the Borrower may request in accordance herewith (including Section 3.02). Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurodollar Loan (and any ABR Loan, the interest on which is determined pursuant to clause (c) of the definition of Alternate Base Rate) by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 3.05, 3.06 and 3.07 shall apply to such Affiliate to the same extent as to such Lender), provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and neither such Lender nor such Affiliate shall be entitled to any amounts payable under Sections 3.05 or 3.07 solely in respect of increased costs or taxes resulting from such exercise and existing at the time of such exercise.
(c)      At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000. At the time that each ABR Borrowing (other than a Swingline Loan) is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000, provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time, provided that there shall not at any time be more than a total of fifteen Eurodollar Borrowings outstanding.
(d)      Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Eurodollar Borrowing if the Interest Period requested with respect thereto would end after the Commitment Termination Date.
Section 2.03      Requests for Borrowings
To request a Borrowing (other than a Swingline Loan, requests for which are governed by Section 2.13), the Borrower shall notify the Administrative Agent of such request by telephone, which may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, (a) in the case of a Eurodollar Borrowing, not later than 3:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 2:00 p.m., New York City time on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable (except as otherwise provided in Section 3.04) and shall be confirmed promptly by hand delivery or facsimile transmission to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the President of the Borrower or a Financial Officer. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i)      the aggregate amount of the requested Borrowing;

24



(ii)      the date of such Borrowing, which shall be a Business Day;
(iii)      whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv)      in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v)      the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Revolving Loan to be made as part of the requested Borrowing.
Section 2.04      Funding of Borrowings
(a)      Each Lender shall make each Revolving Loan to be made by it hereunder on the proposed date thereof solely by wire transfer of immediately available funds by 3:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Swingline Loans shall be made as provided in Section 2.13. Subject to Section 5.02, the Administrative Agent will make the proceeds of such Loans available to the Borrower by promptly crediting or otherwise transferring the amounts so received, in like funds, to an account of the Borrower designated by the Borrower in the applicable Borrowing Request.
(b)      Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Revolving Loan that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent by 3:00 p.m., New York City time, for a Eurodollar Borrowing or by 4:00 p.m., New York City time, for an ABR Borrowing on the applicable day, then such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount was made available by the Administrative Agent to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, or (ii) in the case of the Borrower, the interest rate that would be otherwise applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Revolving Loan included in such Borrowing. Such payment by the Borrower shall be without prejudice to its rights against each Lender who fails to fund its share of any Borrowing.

25



Section 2.05      Termination, Reduction and Increase of Commitments
(a)      Unless previously terminated, the Revolving Commitments and the Letter of Credit Commitments shall terminate on the Commitment Termination Date; provided however, upon delivery to the Administrative Agent of a copy of an order or approval issued by the PUC, certified by a Financial Officer to be true and complete, which is final and not subject to review or appeal, that approves the extension of the date set forth in clause (a) of the definition of Commitment Termination Date, then the date set forth in clause (a) of the definition of Commitment Termination Date shall be automatically extended to the latest date permitted by such order or approval but in no event later than June 30, 2022.
(b)      The Borrower may at any time terminate, or from time to time reduce, the Commitments, provided that (i) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.07 and/or any concurrent cash collateralization of the Letter of Credit Exposure, (x) the Aggregate Credit Exposure would exceed the Aggregate Revolving Commitments, (y) the total Revolving Credit Exposures of all of the Lenders would exceed the Aggregate Revolving Commitments or (z) the Aggregate Letter of Credit Exposure would exceed the Aggregate Letter of Credit Commitments, and (ii) each such reduction shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000.
(c)      The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least two Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided, that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments hereunder shall be permanent but without prejudice to the rights of the Borrower under paragraph (d) below. Each reduction of the Commitments hereunder shall be made ratably among the Lenders in accordance with their respective Commitments.
(d)      Provided that immediately before and after giving effect thereto, no Default shall or would exist and be continuing and the conditions set forth in Section 5.02 have been satisfied or waived, the Borrower may at any time and from time to time, on or before the Commitment Termination Date referred to in clause (a) of the definition thereof (including after giving effect to any extension thereof pursuant to Section 2.05(a)), request any one or more of the Lenders to increase (such decision to be within the sole and absolute discretion of such Lender) its Revolving Commitment and Letter of Credit Commitment, and/or any other Eligible Assignee reasonably satisfactory to the Administrative Agent and the Borrower, to provide a new Revolving Commitment and a new Letter of Credit Commitment, by submitting an Increase Request in the form of Exhibit F (an “ Increase Request ”), duly executed by the Borrower and each such Lender or Eligible Assignee, as the case may be. Thereupon, the Administrative Agent shall execute such Increase Request and deliver a copy thereof to the Borrower and each such Lender or Eligible Assignee, as the case may be.
Upon execution and delivery of such Increase Request, (i) in the case of each such Lender, such Lender’s Revolving Commitment shall be increased to the amount set forth in such Increase

26


Request, (ii) in the case of each such Eligible Assignee, such Eligible Assignee shall become a party hereto and shall for all purposes of the Loan Documents be deemed a “Lender” with a Revolving Commitment in the amount set forth in such Increase Request, and (iii) the Borrower shall contemporaneously therewith execute and deliver to the Administrative Agent a Note or Notes for each such Eligible Assignee providing a new Revolving Commitment and for such existing Lender increasing its Revolving Commitment provided, however, that:
(i)      immediately after giving effect thereto, the Aggregate Revolving Commitments shall not have been increased pursuant to this subsection (d) to an amount greater than the sum of (x) $275,000,000 plus (y) the amount of the Revolving Commitment of each Lender that becomes a Defaulting Lender;
(ii)      each such increase shall be in an amount not less than $5,000,000 or such amount plus an integral multiple of $1,000,000;
(iii)      the Revolving Commitments shall not be increased on more than three occasions;
(iv)      the Administrative Agent shall have received documents (including, without limitation, one or more opinions of counsel) consistent with those delivered on the Effective Date as to the corporate power and authority of the Borrower to borrow hereunder after giving effect to such increase;
(v)      if Loans shall be outstanding immediately after giving effect to such increase, the Lenders shall, upon the acceptance of the Increase Request by, and at the direction of, the Administrative Agent, make appropriate adjustments among themselves so that the amount of Revolving Credit Exposures from any of the Lenders under this Agreement are allocated among the Lenders according to their Commitment Percentages after giving effect to the increase in the Aggregate Revolving Commitments (it being understood and agreed that any reallocation made pursuant to this clause (v) shall require the Borrower to make payment pursuant to Section 3.06 with respect to any affected Eurodollar Loans);
(vi)      each such Eligible Assignee shall have delivered to the Administrative Agent and the Borrower an Administrative Questionnaire and all forms, if any, that are required to be delivered by such Eligible Assignee pursuant to Section 3.07(e); and
(vii)      the Administrative Agent shall have received (1) a copy of an order or approval issued by the PUC, certified by a Financial Officer to be true and complete, which is final and not subject to review or appeal, that authorizes the Borrower to obtain any increase in the Commitments requested by the Borrower and (2) a certificate of a Financial Officer attaching thereto resolutions of the Board of Directors of the Borrower authorizing any increase of the Commitments requested by the Borrower.
Section 2.06      Repayment of Loans; Evidence of Debt
(a)      The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Commitment Termination Date and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Commitment Termination Date and the date that is the 21 st Business Day after such Swingline Loan is made; provided that on each date that a

27


Revolving Loan is made, the Borrower shall repay all Swingline Loans then outstanding and the proceeds of any such Borrowing shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.
(b)      Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c)      The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type and Class thereof and, if applicable, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d)      The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall, to the extent not inconsistent with any entries made in any Note, be prima facie evidence of the existence and amounts of the obligations recorded therein except for clearly demonstrated error; provided , that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e)      The Loans of each Lender and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be evidenced by one or more Notes payable to such Lender (or its registered assigns).
Section 2.07      Prepayment of Loans
(a)      The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b)      In the event of any partial reduction or termination of the Commitments, then (i) at or prior to the date of such reduction or termination, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Credit Exposures after giving effect thereto, and (ii) if such sum would exceed the Aggregate Revolving Commitments after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, prepay Revolving Borrowings, and/or cash collateralize the Letter of Credit Exposure, in an amount sufficient to eliminate such excess.
(c)      Mandatory Prepayments .
(i)      The Borrower shall immediately prepay the Loans, by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments.
(ii)      Simultaneously with each reduction or termination of the Revolving Commitments, (1) in the event that the Aggregate Letter of Credit Commitments shall exceed the Aggregate Revolving Commitments as so reduced or terminated, the Aggregate Letter of Credit Commitments shall be automatically reduced, and/or the Letter of Credit Exposure shall be cash collateralized, by an amount equal to such excess,

28


and (2) the Borrower shall prepay the Loans by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments as so reduced or terminated.
(d)      Simultaneously with each prepayment of a Loan, the Borrower shall, if and to the extent required by Section 3.01(d), prepay all accrued interest on the amount prepaid through the date of prepayment.
(e)      The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone, which may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager (confirmed by facsimile transmission executed by the President of the Borrower or a Financial Officer) of any prepayment under Section 2.07(a) (i) in the case of prepayment of a Eurodollar Borrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing (other than a Swingline Loan), not later than 2:00 p.m., New York City time, on the Business Day of the prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m., New York City time, on the Business Day of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided, that if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments contemplated by Section 2.05(c), then such notice of prepayment may also be conditional and may be revoked if such notice of termination is revoked in accordance with Section 2.05(c). Promptly following receipt of any such notice relating to a prepayment of a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing under Section 2.07(a) shall, be in an integral multiple of $1,000,000 and not less than $1,000,000. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest if and to the extent required by Section 3.01.
Section 2.08      Payments Generally; Pro Rata Treatment; Sharing of Setoffs
(a)      The Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 3.05, 3.06, 3.07 or 10.03, or otherwise) prior to 3:00 p.m., New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its office at 10 South Dearborn Street, Chicago, Illinois, 60603, or such other office as to which the Administrative Agent may notify the other parties hereto, except payments to be made directly to the Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 3.03(b) (with respect to the fronting fee and other amounts payable to the Issuing Bank), 3.03(c), 3.05, 3.06, 3.07, 3.08, 10.03 and 10.04 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. In the event the Administrative Agent has not in fact made available to each Lender its share of the applicable payment within one Business Day of the receipt thereof, then the Administrative Agent agrees to pay to the applicable Lender forthwith on demand its share of such payment with interest thereon for each day, from and including the second Business Day after such payment was received by the Administrative Agent but excluding the date of payment by the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum

29


determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment of accrued interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.
(b)      If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal of Loans, interest, fees and commissions then due hereunder, such funds shall be applied (i) first, towards payment of interest, fees and commissions then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and commissions then due to such parties, and (ii) second, towards payment of principal of Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal of Loans then due to such parties.
(c)      If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of, or interest on, any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of, and accrued interest on, their respective Loans, provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d)      Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the applicable Credit Parties hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to such Credit Parties the amount due. In such event, if the Borrower has not in fact made such payment, then each such Credit Party severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Credit Party with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e)      If any Credit Party shall fail to make any payment required to be made by it pursuant to Section 2.04(b), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Credit Party to satisfy such Credit Party’s obligations under such Section until all such unsatisfied obligations are fully paid.

30



Section 2.09      Letter of Credit Sub-Facility
(a)      Subject to the terms and conditions of this Agreement, the Issuing Bank agrees, in reliance on the agreement of the other Lenders set forth in Section 2.10, to issue standby or documentary letters of credit (the “ Letters of Credit ”; each, individually, a “ Letter of Credit ”) during the Availability Period for the account of the Borrower, provided that immediately after the issuance of each Letter of Credit (i) the Letter of Credit Exposure of each Lender (whether or not the conditions for drawing under any Letter of Credit have or may be satisfied) would not exceed its Letter of Credit Commitment, (ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving Commitments and (iii) each Lender’s Revolving Credit Exposure would not exceed such Lender’s Commitment. Notwithstanding the foregoing, the letters of credit identified on Schedule 2.09 (the “ Existing Letters of Credit ”) shall be deemed to be “Letters of Credit” issued on the Effective Date for all purposes of the Loan Documents. Each Letter of Credit issued pursuant to this Section shall have an expiration date which shall be not later than the earlier of (i) three hundred sixty-four days after the date of issuance thereof and (ii) five Business Days before the Commitment Termination Date referred to in clause (a) of the definition thereof, including any extension thereof contemplated by Section 2.05(a), provided that any Letter of Credit with a three hundred sixty-four day tenor may provide for the periodic and/or successive renewals or extensions thereof for additional periods expiring prior to the earlier to occur of (x) three hundred sixty-four days after the date of such renewal or extension and (y) date referred to in clause (ii) above. No Letter of Credit shall be issued if the Administrative Agent, or the Required Lenders by notice to the Administrative Agent no later than 1:00 p.m. New York City time one Business Day prior to the requested date of issuance of such Letter of Credit, shall have determined that any condition set forth in Section 5.01 or 5.02 has not been satisfied. Notwithstanding anything herein to the contrary, the Issuing Bank shall have no obligation hereunder to issue, and shall not issue, any Letter of Credit the proceeds of which would be made available to any Person (i) to fund any activity or business of or with any Sanctioned Person, or in any country or territory that, at the time of such funding, is the subject of any OFAC Sanctions or (ii) in any manner that would result in a violation of any OFAC Sanctions by any party to this Agreement.
(b)      Each Letter of Credit shall be issued for the account of the Borrower in support of an obligation of the Borrower or a Subsidiary in favor of a beneficiary who has requested the issuance of such Letter of Credit as a condition to a transaction entered into in connection with the Borrower’s or such Subsidiary’s ordinary course of business. The Borrower shall give the Administrative Agent a Letter of Credit Request for the issuance of each Letter of Credit by 2:00 p.m. New York City time, two (2) Business Days prior to the requested date of issuance. If requested by the Issuing Bank, each Letter of Credit Request shall be accompanied by the Issuing Bank’s standard application and agreement for standby or documentary letters of credit, as applicable (each, a “ Reimbursement Agreement ”) executed by the President of the Borrower or a Financial Officer, and shall specify (i) the beneficiary of such Letter of Credit and the obligations of the Borrower or such Subsidiary in respect of which such Letter of Credit is to be issued, (ii) the Borrower’s proposal as to the conditions under which a drawing may be made under such Letter of Credit and the documentation to be required in respect thereof, (iii) the maximum amount to be available under such Letter of Credit, and (iv) the requested dates of issuance and expiration. Upon receipt of such Letter of Credit Request from the Borrower, the Administrative Agent shall promptly notify the Issuing Bank and each other Lender thereof. Each Letter of Credit shall be in form and substance reasonably satisfactory to the Issuing Bank, with such provisions with respect to the conditions under which a drawing may be made thereunder and the documentation required in respect of such drawing as the Issuing Bank shall reasonably require. Each Letter of Credit shall be used solely for the purposes described therein. The Issuing Bank

31


shall, on the proposed date of issuance and subject to the terms and conditions of the Reimbursement Agreement, if any, and to the other terms and conditions of this Agreement, issue the requested Letter of Credit.
(c)      Each payment by the Issuing Bank of a draft drawn under a Letter of Credit shall give rise to an obligation on the part of the Borrower to reimburse the Issuing Bank by 3:00 P.M. New York City time two Business Days after the date of such payment together with interest on the amount of such payment from the date such payment was made by the Issuing Bank; provided that, if the amount of the draft drawn under such Letter of Credit is not less than $1,000,000, the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.13 that such payment be financed with an ABR Loan in an equivalent amount of such draft drawn under such Letter of Credit and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Loan.
Section 2.10      Letter of Credit Participation and Funding Commitments
(a)      Each Lender hereby unconditionally, irrevocably and severally (and not jointly) for itself only and without any notice to or the taking of any action by such Lender, takes an undivided participating interest in the obligations of the Issuing Bank under and in connection with each Letter of Credit in an amount equal to such Lender’s Commitment Percentage of the amount of such Letter of Credit. Each Lender shall be liable to the Issuing Bank for its Commitment Percentage of the unreimbursed amount of any draft drawn and honored under each Letter of Credit. Each Lender shall also be liable for an amount equal to the product of its Commitment Percentage and any amounts paid by the Borrower that are subsequently rescinded or avoided, or must otherwise be restored or returned. Such liabilities shall be unconditional and without regard to the occurrence of any Default or Event of Default or the compliance by the Borrower with any of its obligations under the Loan Documents.
(b)      The Issuing Bank will promptly notify the Administrative Agent, and the Administrative Agent will promptly notify the Borrower and each Lender (which notice shall be promptly confirmed in writing) of the date and the amount of any draft presented under any Letter of Credit with respect to which full reimbursement of payment is not made by the Borrower as provided in Section 2.09(c), and forthwith upon receipt of such notice, such Lender (other than the Issuing Bank in its capacity as a Lender) shall make available to the Administrative Agent for the account of the Issuing Bank its Commitment Percentage of the amount of such unreimbursed draft at the office of the Administrative Agent specified in Section 10.01, in lawful money of the United States and in immediately available funds, before 4:00 p.m., New York City time, on the day such notice was given by the Administrative Agent, if the relevant notice was given by the Administrative Agent at or prior to 1:00 p.m., New York City time, on such day, and before 12:00 noon, New York City time, on the next Business Day, if the relevant notice was given by the Administrative Agent after 1:00 p.m., New York City time, on such day. The Administrative Agent shall distribute the payments made by each Lender (other than the Issuing Bank in its capacity as a Lender) pursuant to the immediately preceding sentence to the Issuing Bank promptly upon receipt thereof in like funds as received. In the event the Administrative Agent has not in fact made available to the Issuing Bank such payment within one Business Day of the receipt thereof, then the Administrative Agent agrees to pay to the Issuing Bank forthwith on demand such payment with interest thereon for each day, from and including the second Business Day after such payment was received by the Administrative Agent but excluding the date of payment by the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. Each Lender shall indemnify and hold harmless the Administrative Agent and the

32


Issuing Bank from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses of counsel to the Issuing Bank as the issuer of the relevant Letter of Credit) resulting from any failure on the part of such Lender to provide, or from any delay in providing, the Administrative Agent with such Lender’s Commitment Percentage of the amount of any payment made by the Issuing Bank under a Letter of Credit in accordance with this subsection (b) (except in respect of losses, liabilities or other obligations suffered by the Issuing Bank resulting from the gross negligence or willful misconduct of the Issuing Bank). If a Lender does not make available to the Administrative Agent when due such Lender’s Commitment Percentage of any unreimbursed payment made by the Issuing Bank under a Letter of Credit (other than payments made by the Issuing Bank by reason of its gross negligence or willful misconduct), such Lender shall be required to pay interest to the Administrative Agent for the account of the Issuing Bank on such Lender’s Commitment Percentage of such payment at a rate of interest per annum equal to the Federal Funds Rate for the first three days after the due date of such payment until the date such payment is received by the Administrative Agent and the Federal Funds Rate plus 2% thereafter.
(c)      Whenever the Administrative Agent is reimbursed by the Borrower, for the account of the Issuing Bank, for any payment under a Letter of Credit and such payment relates to an amount previously paid by a Lender in respect of its Commitment Percentage of the amount of such payment under such Letter of Credit, the Administrative Agent (or the Issuing Bank, to the extent that the Administrative Agent has paid the same to the Issuing Bank) will pay over such payment to such Lender before 4:00 p.m., New York City time, on the day such payment from the Borrower is received, if such payment is received at or prior to 2:00 p.m., New York City time, on such day, or before 12:00 noon, New York City time, on the next succeeding Business Day, if such payment from the Borrower is received after 2:00 p.m., New York City time, on such day.
Section 2.11      Absolute Obligation With Respect to Letter of Credit Payments; Cash Collateral; Replacement of Issuing Bank
(a)      The Borrower’s obligation to reimburse the Administrative Agent for the account of the Issuing Bank in respect of a Letter of Credit for each payment under or in respect of such Letter of Credit shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the beneficiary of such Letter of Credit, the Administrative Agent, the Issuing Bank, as issuer of such Letter of Credit, any Lender or any other Person, including, without limitation, (i) any defense based on the failure of any drawing to conform to the terms of such Letter of Credit, (ii) any drawing document proving to be forged, fraudulent or invalid in any respect, (iii) the legality, validity, regularity or enforceability of such Letter of Credit or this Agreement, (iv) any payment by the Issuing Bank under a Letter of Credit against presentment of a draft or other document that does not comply with the terms of such Letter of Credit or (v) any other event or circumstance that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder; provided, that, with respect to any Letter of Credit, the foregoing shall not relieve the Issuing Bank of any liability it may have to the Borrower for any actual damages sustained by the Borrower arising from a wrongful payment under such Letter of Credit made as a result of the Issuing Bank’s gross negligence or willful misconduct.
(b)      If any Event of Default shall occur and be continuing, the Borrower shall within one Business Day from the time it receives a demand therefor from the Administrative Agent

33


pursuant to Article 8, deposit in an account with the Administrative Agent, for the benefit of the Lenders, an amount in cash equal to one hundred percent (100%) of the Aggregate Letter of Credit Exposure as of such date. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Reimbursement Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. The Administrative Agent shall invest such deposits in Permitted Investments and interest or profits on such investments shall accumulate in such account. The moneys in such account shall (i) automatically be applied by the Administrative Agent to reimburse the Issuing Bank for Reimbursement Obligations, and (ii) be held for the satisfaction of the Reimbursement Obligations of the Borrower.
(c)      (A) The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank, it being understood and agreed that such parties shall not unreasonably delay or withhold their consent to any such agreement. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 3.03(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
(B) Subject to the appointment and acceptance of a successor Issuing Bank, the Issuing Bank may resign as the Issuing Bank at any time upon thirty days’ prior written notice to the Administrative Agent, the Borrower and the Lenders, in which case, the Issuing Bank shall be replaced in accordance with Section 2.11(c)(A) above.
Section 2.12      Defaulting Lenders
Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a)      fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 3.03(a);
(b)      the Commitments and Credit Exposure of such Defaulting Lender shall not be included in determining whether all Lenders or the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, modification or waiver pursuant to Section 10.02); provided that, except as otherwise provided in Section 10.02, (i) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender and (ii) any amendment or modification that increases, or extends the maturity of, such Defaulting Lender’s Commitment or reduces the principal amount of, or rate of interest on, any Loan made by such Defaulting Lender, shall require the consent of such Defaulting Lender;

34



(c)      if any Swingline Exposure or Letter of Credit Exposure exists at the time a Lender becomes a Defaulting Lender then:
(i)      all or any part of such Swingline Exposure and such Letter of Credit Exposure (other than the portion of such Swingline Exposure referred to in clause (b) in the definition of such term) shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent (x) the sum of all non-Defaulting Lenders’ Credit Exposures plus such Defaulting Lender’s Swingline Exposure and Letter of Credit Exposure does not exceed the total of all non-Defaulting Lenders’ Commitments and (y) the conditions set forth in Section 5.02 are satisfied at such time;
(ii)      if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within two (2) Business Days following notice by the Administrative Agent (x)  first , prepay such Defaulting Lender’s Swingline Exposure and (y)  second , cash collateralize such Defaulting Lender’s Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.11(b) for so long as such Letter of Credit Exposure is outstanding;
(iii)      if the Borrower cash collateralizes any portion of such Defaulting Lender’s Letter of Credit Exposure pursuant to this Section 2.12(c), the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 3.03(b) with respect to such Defaulting Lender’s Letter of Credit Exposure during the period such Defaulting Lender’s Letter of Credit Exposure is cash collateralized;
(iv)      if the Letter of Credit Exposure of the non-Defaulting Lenders is reallocated pursuant to this Section 2.12(c), then the fees payable to the Lenders pursuant to Sections 3.03(a) and 3.03(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; or
(v)      if any Defaulting Lender’s Letter of Credit Exposure is neither cash collateralized nor reallocated pursuant to this Section 2.12(c), then, without prejudice to any rights or remedies of the Issuing Bank or any Lender hereunder, all letter of credit fees payable under Section 3.03(b) with respect to such Defaulting Lender’s Letter of Credit Exposure shall be payable to the Issuing Bank until such Letter of Credit Exposure is cash collateralized and/or reallocated; and
(d)      if and so long as any Lender is a Defaulting Lender, the Swingline Lender shall not be required to fund any Swingline Loan and the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.12(c), and participating interests in any such newly made Swingline Loan or newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.12(c)(i) (and Defaulting Lenders shall not participate therein).
In the event that the Administrative Agent, the Borrower, the Swingline Lender and the Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Swingline Exposure and Letter of Credit Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitments and on

35


such date such Lender shall purchase at par such of the Revolving Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Revolving Loans in accordance with its Applicable Percentage, and all cash collateral and accrued interest thereon held by the Administrative Agent or the Issuing Bank shall be returned to the Borrower forthwith.
Section 2.13      Swingline Loans . (a) Subject to the terms and conditions set forth herein, the Swingline Lender may in its sole discretion make Swingline Loans in Dollars to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $20,000,000, (ii) the Swingline Lender’s Revolving Credit Exposure exceeding its Commitment or (iii) the sum of the total Revolving Credit Exposures exceeding the Aggregate Revolving Commitments; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
(b)      To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone, which notification may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, not later than 1:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan and shall be confirmed promptly by facsimile transmission to the Administrative Agent signed by the President of the Borrower or a Financial Officer. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to an account of the Borrower with the Administrative Agent designated for such purpose (or, in the case of a Swingline Loan made to finance the reimbursement of a Letter of Credit Disbursement as provided in Section 2.09(c), by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c)      The Swingline Lender may by written notice given to the Administrative Agent require the Lenders to acquire participations in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, promptly upon receipt of such notice from the Administrative Agent (and in any event, if such notice is received by 12:00 noon, New York City time, on a Business Day, no later than 5:00 p.m., New York City time, on such Business Day and if received after 12:00 noon, New York City time, on a Business Day, no later than 10:00 a.m., New York City time, on the immediately succeeding Business Day), to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.04 with respect to Loans made by such Lender (and Section 2.04 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the

36


Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.
(d)      The Swingline Lender may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Swingline Lender and the successor Swingline Lender. The Administrative Agent shall notify the Lenders of any such replacement of the Swingline Lender. At the time any such replacement shall become effective, the Borrower shall pay all unpaid interest accrued for the account of the replaced Swingline Lender pursuant to Section 3.01(a). From and after the effective date of any such replacement, (i) the successor Swingline Lender shall have all the rights and obligations of the replaced Swingline Lender under this Agreement with respect to Swingline Loans made thereafter and (ii) references herein to the term “Swingline Lender” shall be deemed to refer to such successor or to any previous Swingline Lender, or to such successor and all previous Swingline Lenders, as the context shall require. After the replacement of a Swingline Lender hereunder, the replaced Swingline Lender shall remain a party hereto and shall continue to have all the rights and obligations of a Swingline Lender under this Agreement with respect to Swingline Loans made by it prior to its replacement, but shall not be required to make additional Swingline Loans.
(e)      Subject to the appointment and acceptance of a successor Swingline Lender, the Swingline Lender may resign as a Swingline Lender at any time upon thirty (30) days’ prior written notice to the Administrative Agent, the Borrower and the Lenders, in which case, such Swingline Lender shall be replaced in accordance with Section 2.13(d) above.
Section 2.14. Extension of Commitment Termination Date .
(a)      Requests for Extension . The Borrower may, by notice to the Administrative Agent (who shall promptly notify the Lenders) not earlier than 90 days and not later than 30 days prior to each anniversary of the date of this Agreement (each such anniversary date, an “ Extension Date ”), request that each Lender extend such Lender’s Commitment Termination Date to the date that is one year after the Commitment Termination Date then in effect for such Lender (the “ Existing Commitment Termination Date ”).
(b)      Lender Elections to Extend . Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not later than the date that is 15 days after the date on which the Administrative Agent received the Borrower’s extension request (the “ Lender Notice Date ”), advise the Administrative Agent whether or not such Lender agrees to such extension (each Lender that determines to so extend its Commitment Termination Date, an “ Extending Lender ”). Each Lender that determines not to so extend its Commitment Termination Date (a “ Non-Extending Lender ”) shall notify the Administrative Agent of such fact promptly after such determination (but in any event no later than the Lender Notice Date), and

37


any Lender that does not so advise the Administrative Agent on or before the Lender Notice Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to so agree, and it is understood and agreed that no Lender shall have any obligation whatsoever to agree to any request made by the Borrower for extension of the Commitment Termination Date.
(c)      Notification by Administrative Agent . The Administrative Agent shall notify the Borrower of each Lender’s determination under this Section no later than the date that is 15 days prior to the applicable Extension Date (or, if such date is not a Business Day, on the next preceding Business Day).
(d)      Additional Commitment Lenders . The Borrower shall have the right, but shall not be obligated, on or before the applicable Commitment Termination Date for any Non-Extending Lender to replace such Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more financial institutions that each qualify as an Eligible Assignee (each, an “ Additional Commitment Lender ”) approved by the Administrative Agent in accordance with the procedures provided in Section 3.08(b), each of which Additional Commitment Lenders shall have entered into an Assignment and Acceptance (in accordance with and subject to the restrictions contained in Section 10.04, with the Borrower or replacement Lender obligated to pay any applicable processing or recordation fee) with such Non-Extending Lender, pursuant to which such Additional Commitment Lenders shall, effective on or before the applicable Commitment Termination Date for such Non-Extending Lender, assume a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date). The Administrative Agent may effect such amendments to this Agreement as are reasonably necessary to provide for any such extensions with the consent of the Borrower but without the consent of any other Lenders.
(e)      Minimum Extension Requirement . If (and only if) the total of the Commitments of the Lenders that have agreed to extend their Commitment Termination Date and the new or increased Commitments of any Additional Commitment Lenders is more than 50% of the aggregate amount of the Commitments in effect immediately prior to the applicable Extension Date, then, effective as of the applicable Extension Date, the Commitment Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date that is one year after the Existing Commitment Termination Date (except that, if such date is not a Business Day, such Commitment Termination Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement and shall be bound by the provisions of this Agreement as a Lender hereunder and shall have the obligations of a Lender hereunder.
(f)      Conditions to Effectiveness of Extension . Notwithstanding the foregoing, (x) no more than two (2) extensions of the Commitment Termination Date shall be permitted hereunder and (y) any extension of any Commitment Termination Date pursuant to this Section 2.14 shall not be effective with respect to any Extending Lender unless:
(i)      no Default shall have occurred and be continuing on the applicable Extension Date and immediately after giving effect thereto;
(ii)      the representations and warranties of the Borrower set forth in Article 4 of this Agreement are true and correct in all material respects on and as of the applicable Extension Date and after giving effect thereto, except to the extent such representations

38


and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; and
(iii)      the Administrative Agent shall have received a certificate from the Borrower signed by a Financial Officer of the Borrower (A) certifying the accuracy of the foregoing clauses (i) and (ii), (B) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such extension and (C) attaching a copy of an order or approval issued by the PUC, certified to be true and complete, which is final and not subject to review or appeal, that approves the extension.
(g)      Commitment Termination Date for Non-Extending Lenders . On the Commitment Termination Date of each Non-Extending Lender, (i) the Commitment of each Non-Extending Lender shall automatically terminate and (ii) the Borrower shall repay such Non-Extending Lender in accordance with Section 2.06 (and shall pay to such Non-Extending Lender all of the other obligations owing to it under this Agreement) and after giving effect thereto shall prepay any Revolving Loans outstanding on such date (and pay any additional amounts required pursuant to Section 3.06) to the extent necessary to keep outstanding Revolving Loans ratable with any revised Applicable Percentages of the respective Lenders effective as of such date, and the Administrative Agent shall administer any necessary reallocation of the Revolving Credit Exposures (without regard to any minimum borrowing, pro rata borrowing and/or pro rata payment requirements contained elsewhere in this Agreement).
(h)      Conflicting Provisions . This Section shall supersede any provisions in Section 2.08 or Section 10.02 to the contrary.
ARTICLE 3.
INTEREST, FEES, YIELD PROTECTION, ETC.
Section 3.01      Interest
(a)      ABR Loans (including each Swingline Loan) and unpaid Reimbursement Obligations shall bear interest at the Alternate Base Rate plus the Applicable Margin.
(b)      Eurodollar Borrowings shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c)      Notwithstanding the foregoing, if any principal of and interest on any Loan or Reimbursement Obligation or any fee or other amount payable by the Borrower hereunder is not paid when due and after the expiration of any applicable grace period, then all such amounts shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of principal of any Loan or Reimbursement Obligation, 2% plus the rate otherwise applicable to such Loan or Reimbursement Obligation as provided in the preceding paragraphs of this Section, or (ii) in the case of any other amount, 2% plus the Alternate Base Rate.
(d)      Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment (other than a prepayment of an ABR Loan before the end of the Availability Period), and (iii) in the event of any conversion of any Eurodollar Loan prior to the

39


end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(e)      All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day) in the period in question. The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent in accordance with the provisions of this Agreement, and such determination shall be conclusive absent clearly demonstrable error.
Section 3.02      Interest Elections
(a)      Any Borrowing on the Effective Date shall be of ABR Loans. Thereafter, each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably (subject to the provisions of Section 2.12) among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b)      To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone, which may be made by the President of the Borrower, a Financial Officer or by the Hawaiian Electric Cash Manager, by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable, except as otherwise provided in Section 3.04, and shall be confirmed promptly by hand delivery or facsimile transmission to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the President of the Borrower or a Financial Officer.
(c)      Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i)      the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing);
(ii)      the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii)      whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

40



(iv)      if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d)      Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e)      If the Borrower fails to deliver a timely Interest Election Request prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued beyond the current Interest Period as a Eurodollar Borrowing, and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 3.03      Fees
(a)      The Borrower agrees to pay to the Administrative Agent for the account of each Lender, a commitment fee, which shall accrue at a rate per annum equal to the Applicable Margin on the average daily amount of the unused Revolving Commitment of such Lender during the period from and including the date on which this Agreement shall have become effective in accordance with Section 10.06 to but excluding the date on which such Revolving Commitment terminates. For purposes of calculating the commitment fee, Swingline Exposure shall not be considered usage of the Revolving Commitment of any Lender. Accrued commitment fees shall be payable in arrears on the first Business Day of January, April, July and October of each year and on the Commitment Termination Date, commencing on the first such date to occur after the date hereof.
(b)      The Borrower agrees to pay to the Administrative Agent for the account of each Lender a fee (the “ Letter of Credit Fee ”) with respect to each Letter of Credit, payable quarterly in arrears during the period from and including the date of issuance thereof to and including the expiration or cancellation date thereof (a) on the first Business Day of each January, April, July and October of each year, (b) upon such expiration or cancellation date and (c) on the Commitment Termination Date, at a rate per annum equal to the Applicable Margin on Eurodollar Borrowings on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations). The Borrower also agrees to pay to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations) attributable to Letters of Credit issued by the Issuing Bank during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any Letter of Credit Exposure, payable quarterly in arrears on the first Business Day of January, April, July and October of each year, as well as the Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment, renewal or extension of any Letter of Credit or processing of

41


drawings thereunder. The Letter of Credit Fee and the fronting fees described above shall be calculated for the actual number of days elapsed (including the first day but excluding the last day) during the period in question on the basis of a year of 365 or 366 days, as applicable.
(c)      The Borrower agrees to pay to the Administrative Agent, for its own account, fees and other amounts payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.
(d)      All commitment fees shall be computed on the basis of a year of 365 or 366 days, as applicable, and shall be payable for the actual number of days elapsed (including the first day but excluding the last day) during the period in question.
(e)      All fees and other amounts payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of commitment fees, to the Lenders. Fees and other amounts paid shall not be refundable under any circumstances other than clearly demonstrable error.
Section 3.04      Alternate Rate of Interest
If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(a)      the Administrative Agent determines (which determination shall be conclusive and binding absent clearly demonstrable error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or
(b)      the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or facsimile transmission as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. Notwithstanding the foregoing, if the Borrower shall have submitted a Borrowing Request with respect to a Eurodollar Borrowing and the Administrative Agent shall have notified the Borrower in accordance with the preceding sentence that such Borrowing will be made as an ABR Borrowing, the Borrower shall have the right, prior to the time by which it would have had to submit a Borrowing Request for an ABR Borrowing to be made on the same date, to withdraw such Borrowing Request.
Section 3.05      Increased Costs; Illegality
(a)      If any Change in Law shall:
(i)      impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended

42


by, any Credit Party (except any such reserve requirement reflected in the Adjusted LIBO Rate);
(ii)      impose on any Credit Party or the London interbank market any other condition affecting this Agreement, any Eurodollar Loans made by such Credit Party or any participation therein; or
(iii)      subject the Administrative Agent or any Credit Party to any Taxes (other than (A) Indemnified Taxes and (B) Excluded Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to the Administrative Agent or such Credit Party of making, continuing, converting into or maintaining any Loan hereunder (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by the Administrative Agent or such Credit Party hereunder (whether of principal, interest or otherwise), then the Borrower will, upon request by the Administrative Agent or such Credit Party, pay to the Administrative Agent or such Credit Party such additional amount or amounts as will compensate the Administrative Agent or such Credit Party for such additional costs incurred or reduction suffered.
(b)      If any Credit Party determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Credit Party’s capital or on the capital of such Credit Party’s holding company, if any, as a consequence of this Agreement or the Loans made by such Credit Party to a level below that which such Credit Party or such Credit Party’s holding company could have achieved but for such Change in Law (taking into consideration such Credit Party’s policies and the policies of such Credit Party’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Credit Party such additional amount or amounts as will compensate such Credit Party or such Credit Party’s holding company for any such reduction suffered.
(c)      A certificate of a Credit Party setting forth the amount or amounts necessary to compensate such Credit Party or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section including reasonably detailed supporting information shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error, it being understood that the Borrower’s obligations payable to any Credit Party pursuant to this clause (c) will be reasonably determined by such Credit Party (which determination shall be made in good faith (and not on an arbitrary or capricious basis) and consistent with similarly situated customers of such Credit Party under agreements having provisions similar to this Section 3.05 after consideration of such factors as such Credit Party then reasonably determines to be relevant). The Borrower shall pay such Credit Party the amount shown as due on any such certificate within 30 days after receipt thereof unless the Borrower is asserting in good faith that there is clearly demonstrable error in such certificate.
(d)      Failure or delay on the part of any Credit Party to demand compensation pursuant to this Section shall not constitute a waiver of such Credit Party’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Credit Party pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Credit Party notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Credit Party’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is

43


retroactive, then the 90 day period referred to above shall be extended to include the period of retroactive effect thereof but not to exceed a period of 365 days.
(e)      Notwithstanding any other provision of this Agreement, if, after the date of this Agreement, any Change in Law shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent:
(i)      such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans), whereupon any request for a Eurodollar Borrowing or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing, as applicable, for an additional Interest Period shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such for an additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as applicable), unless such declaration shall be subsequently withdrawn; and
(ii)      such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans, as of the effective date of such notice as provided in the last sentence of this paragraph.
In the event any Lender shall exercise its rights under (i) or (ii) of this paragraph, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans, as applicable. For purposes of this paragraph, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.
Section 3.06      Break Funding Payments
In the event of (a) the payment or prepayment (voluntary or otherwise) of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount reasonably determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for Dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error. The Borrower shall pay such

44


Lender the amount shown as due on any such certificate within 15 days after receipt thereof unless there is clearly demonstrable error in any such certificate.
Section 3.07      Taxes
(a)      Except as required by applicable law, any and all payments by or on account of any obligation of the Borrower hereunder and under any other Loan Document shall be made free and clear of and without deduction for any Taxes, provided that, if the Withholding Agent is required by applicable law (as determined in the good faith discretion of the applicable Withholding Agent) to deduct or withhold any Taxes from such payments, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Credit Party receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b)      In addition (but without duplication) the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c)      The Borrower shall indemnify each Credit Party, within 30 days after written demand therefor, for the full amount of any Indemnified Taxes paid by such Credit Party on or with respect to any payment by or on account of any obligation of the Borrower under the Loan Documents (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) and, unless caused by the gross negligence or willful misconduct of such Credit Party, any penalties, interest and reasonable out-of-pocket expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Credit Party, or by the Administrative Agent on its own behalf or on behalf of a Credit Party, including, if available, reasonably detailed supporting information, shall be delivered to and be binding on the Borrower absent clearly demonstrable error. If any Credit Party receives a refund in respect of any Indemnified Taxes for which such Credit Party has received payment from the Borrower hereunder, it shall promptly notify the Borrower of such refund and shall promptly upon receipt repay such refund to the Borrower, net of all out-of-pocket expenses of such Credit Party and without interest (other than interest paid by the relevant Governmental Authority, if applicable); provided that the Borrower, upon the request of such Credit Party, agrees to return such refund (plus penalties, interest or other charges) to such Credit Party in the event such Credit Party is required to repay such refund. Nothing contained in this Section shall prohibit the Borrower from contesting or seeking a refund of any Indemnified Taxes after payment thereof has been made in accordance with this Section and each Credit Party shall take such steps as the Borrower shall reasonably request to assist the Borrower in contesting or seeking a refund of any Indemnified Taxes. Notwithstanding anything to the contrary in this paragraph (c), in no event will any Credit Party be required to pay any amount to the Borrower pursuant to this paragraph (c) the payment of which would place such Credit Party in a less favorable net after-Tax position than such Credit Party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This Section shall not be construed to require any Credit Party to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to either the Borrower or any other Person.

45



(d)      As soon as practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e)      Each Credit Party shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Credit Party (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Credit Party’s failure to comply with the provisions of Section 10.04(g) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Credit Party, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Credit Party by the Administrative Agent shall be conclusive absent manifest error. Each Credit Party hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Credit Party under any Loan Document or otherwise payable by the Administrative Agent to the Credit Party from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f)      (i) Any Credit Party that is entitled to an exemption from or reduction of withholding tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Credit Party, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Credit Party is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.07(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Credit Party’s reasonable judgment such completion, execution or submission would subject such Credit Party to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Credit Party.
(ii)      Without limiting the generality of the foregoing,
(A) any Credit Party that is a “United States” Person under the Code shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Credit Party becomes a Credit Party under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), an executed IRS Form W-9 certifying that such Credit Party is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Credit Party under this

46


Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, an executed IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2) an executed IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “ U.S. Tax Compliance Certificate ”) and (y) an executed IRS Form W-8BEN or IRS Form W-8BEN-E; or
(4) to the extent a Foreign Lender is not the beneficial owner, an executed IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Credit Party under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Credit Party under any Loan Document would be subject to U.S. federal withholding tax imposed by FATCA if such Credit Party were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Credit Party shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Credit Party has complied with such Credit Party’s obligations under FATCA or to determine the amount to deduct and withhold from such

47


payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Credit Party agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g)      For purposes of this Section 3.07, the terms “Lender” and “Credit Party” both include the Issuing Bank.
Section 3.08      Mitigation Obligations; Replacement of Lenders
(a)      If any Lender requests compensation under Section 3.05, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.07, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans (or any participation therein) hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.05 or 3.07, as applicable, in the future, and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b)      If any Lender requests compensation under Section 3.05, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.07, or if any Lender becomes a Defaulting Lender, or if any Lender has failed to consent to a proposed amendment, waiver, discharge or termination that under Section 10.02 requires the consent of all the Lenders and with respect to which the Required Lenders shall have granted their consent, then the Borrower may, at its sole expense and effort, upon notice to such Lender, the Issuing Bank, the Swingline Lender and the Administrative Agent, require such Lender to assign, and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement and each other Loan Document to an Eligible Assignee that shall assume such obligations; provided that (i) the Borrower shall have received the prior written consents of the Issuing Bank, the Swingline Lender and the Administrative Agent, which consents shall not unreasonably be delayed or withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts), (iii) in the case of any such assignment resulting from a claim for compensation under Section 3.05 or payments required to be made pursuant to Section 3.07, such assignment will result in a reduction in such compensation or payments and (iv) in the case of any such assignment resulting from the failure to provide a consent, the assignee shall have given such consent and, as a result of such assignment and any contemporaneous assignments and consents, the applicable amendment, waiver, discharge or termination can be effected. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

48



ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Credit Parties that:
Section 4.01      Organization; Powers
The Borrower and each of its Significant Subsidiaries is duly and validly organized and existing in good standing under the laws of its jurisdiction of organization, formation or charter (it being understood that the Borrower was originally organized under the laws of the Kingdom of Hawaii, Hawaii Electric Light was organized under the laws of the Republic of Hawaii and Maui Electric was organized under the laws of the Territory of Hawaii) and is in good standing and duly licensed or qualified to transact business in each other jurisdiction where failure to so qualify would have a Material Adverse Effect. The Borrower has full power to execute, deliver and perform this Agreement and the Notes and to borrow hereunder. The Borrower’s execution and performance of this Agreement and the Notes, and each borrowing hereunder have been duly authorized by all necessary corporate action and do not and, as of the time of each borrowing will not, violate any provision of law or of its articles of incorporation or bylaws, or result in the breach of or constitute a default under or require any consent under any indenture or other material agreement or material instrument to which the Borrower is a party or by which the Borrower or its property is bound or affected.
Section 4.02      Authorization; Enforceability
Each Loan Document has been (or, at the time executed by the Borrower, will have been) duly executed and delivered by the Borrower and constitutes (or at such time will constitute) a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 4.03      Governmental Approvals; No Conflicts
All consents or approvals of any state or federal agency or authority, if any, required in order to permit the Borrower to enter into this Agreement and to borrow hereunder, have been obtained and remain in full force and effect and the Transactions (a) do not require any other consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except for the approval expected to be sought by the Borrower which is described in Section 2.05(a), (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Significant Subsidiaries or any applicable order, rule or regulation of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon the Borrower or any of its Significant Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Significant Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Significant Subsidiaries.
Section 4.04      Financial Condition; No Material Adverse Effect
(a)      The Current SEC Reports include (in clause (a) of the definition thereof) the consolidated balance sheets of the Borrower and its Subsidiaries as of the last day of the fiscal year ended December 31, 2016, and the related consolidated statements of income, retained earnings and cash flows (or changes in financial position, as the case may be) for such fiscal year,

49


which consolidated financial statements for fiscal year ended December 31, 2016 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Such financial statements present fairly, in all material respects, the financial position of the Borrower and its Subsidiaries as of the respective dates of such balance sheets and results of their operations and cash flows (or changes in financial position) for the periods covered by such statements of income, retained earnings and cash flows (or changes in financial position), in accordance with GAAP.
(b)      As of the Effective Date, except as set forth in the Current SEC Reports, since December 31, 2016, there has been no change or development that has had or would reasonably be expected to have a Material Adverse Effect.
Section 4.05      Properties
(a)      Each of the Borrower and its Significant Subsidiaries has good title to, or valid license or leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere in any material respect with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.
(b)      Each of the Borrower and its Significant Subsidiaries owns, or is entitled to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and, to the knowledge of the Borrower, the use thereof by the Borrower and its Significant Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
Section 4.06      Litigation and Environmental Matters
(a)      Except as heretofore disclosed to the Administrative Agent and the Lenders in the financial statements and accompanying notes referenced in Section 4.04(a) or in the Current SEC Reports, as of the Effective Date there are no suits or proceedings pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Significant Subsidiaries which have had or could reasonably be expected to have a Material Adverse Effect.
(b)      Since the date of this Agreement, except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Significant Subsidiaries (i) have failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) have become subject to any Environmental Liability, or (iii) have received notice of any claim with respect to any Environmental Liability.
Section 4.07      Compliance with Laws and Agreements
The Borrower and each of its Significant Subsidiaries is in compliance in all material respects with all laws, regulations and order of any Governmental Authority applicable to it or its property and all indentures and material agreements binding upon the Borrower or its Significant Subsidiaries, except (a) as disclosed in the Disclosed Matters and (b) where the failure to do so would not reasonably be expected to have a Material Adverse Effect.

50



Section 4.08      Regulated Entities
The Borrower is not an “investment company” nor is it “controlled” by an “investment company”, in each case within the meaning of the Investment Company Act of 1940, as amended.
Section 4.09      Taxes
The Borrower has and each of its Significant Subsidiaries has timely filed (or validly extended) or caused to be filed (or validly extended) all material tax returns and reports required to have been filed and has paid or caused to be paid all taxes required to have been paid by it, except (a) taxes that are being contested in good faith by appropriate proceedings and for which the Borrower has set aside on its books, to the extent required by GAAP, adequate reserves or (b) to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect.
Section 4.10      ERISA
No ERISA Event has occurred that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect.
Section 4.11      Disclosure
To the knowledge of the Borrower, the financial statements referred to in Section 4.04(a) do not, nor does this Agreement, nor any written statement furnished by the Borrower to the Administrative Agent or the Lenders pursuant to or in connection with this Agreement (including the June 13, 2017 “Lenders’ Presentation” prepared in connection with the confidential information memorandum for the primary market syndication of this Agreement, other than the Section contained therein and entitled “Transaction Overview”), when taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein or herein not misleading in light of the circumstances under which it was made; provided , that the foregoing is hereby qualified to the extent of any projections or other “forward-looking statements”, which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions; and provided , further , that any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements; it being expressly understood and agreed that (i) forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning the Borrower and its Subsidiaries or Affiliates, the performance of the industries in which they do business and economic and market factors, among other things, and (ii) such forward-looking statements are not guarantees of future performance. As of the Effective Date, there is no fact known to the Borrower which has had or would reasonably be expected to have a Material Adverse Effect which has not been disclosed herein or in the Current SEC Reports.
Section 4.12      Subsidiaries
Schedule 4.12 sets forth the name of, and the ownership interest of the Borrower in, each Subsidiary, as of the Effective Date.

51



Section 4.13      Federal Reserve Regulations
(a)      After the application of the proceeds of any Loan, not more than 25% of the value of the assets of the Borrower will consist of or be represented by Margin Stock.
(b)      No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the regulations of the Board, including Regulation T, U or X.
Section 4.14      Rankings
The obligations of the Borrower to the Lenders under this Agreement and the other Loan Documents will rank senior to, or pari passu with, other unsecured Indebtedness of the Borrower.
Section 4.15      Solvency
Immediately after the consummation of the Transactions and after the incurrence of any Borrowing or the issuance of any Letter of Credit, the Borrower and its Subsidiaries taken as a whole are not and will not be Insolvent.
Section 4.16      Anti-Corruption Laws and Sanctions
For purposes of this Section 4.16, “knowledge” as to the Borrower means the actual knowledge of the President, CEO, any Executive Vice President, General Counsel (or other chief legal officer) or Financial Officer of the Borrower. The Borrower and/or its Significant Subsidiaries have implemented and maintain in effect policies and/or procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and to ensure compliance by the Borrower and its Subsidiaries and the respective officers and employees of the Borrower and its Subsidiaries with applicable OFAC Sanctions. The Borrower and its Subsidiaries, and to the knowledge of the Borrower, their respective officers, employees, directors and agents, are in compliance with Anti-Corruption Laws and OFAC Sanctions in all material respects. The Borrower and its Subsidiaries are in compliance with applicable U.S. Department of State Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or to the knowledge of the Borrower, any of their respective directors, officers or employees, or (b)  to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds by the Borrower or its Subsidiaries will violate Anti-Corruption Laws or applicable Sanctions.
Section 4.17      EEA Financial Institutions.
The Borrower is not an EEA Financial Institution.
ARTICLE 5.
CONDITIONS
Section 5.01      Effective Date
The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied or waived in accordance with Section 10.02 (it being understood and agreed that any of the following instruments, agreements, certificates, opinions, or other documents may be delivered or furnished by delivering or furnishing a facsimile transmission or other electronic image thereof followed by the delivery of an original or an originally executed counterpart thereof):

52



(a)      The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party, or (ii) written evidence satisfactory to the Administrative Agent that such party has signed a counterpart of this Agreement.
(b)      The Administrative Agent shall have received a Note for each Lender signed on behalf of the Borrower.
(c)      The Administrative Agent shall have received a favorable written opinion (addressed to the Credit Parties and dated the Effective Date) from (i) Pillsbury Winthrop Shaw Pittman LLP substantially in the form of Exhibit B-1 and (ii) Susan A. Li, Esq., Senior Vice President, General Counsel, Chief Compliance & Administrative Officer & Corporate Secretary of the Borrower, substantially in the form of Exhibit B-2 , in each case covering such other matters relating to the Borrower, the Loan Documents or the Transactions as the Administrative Agent shall reasonably request. The Borrower hereby requests such counsels to deliver such opinions.
(d)      The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(e)      The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President of the Borrower or a Financial Officer, confirming compliance, as of the Effective Date, with the conditions set forth in Section 5.02.
(f)      The Administrative Agent shall have received payment of all fees required to be paid, and all reasonably incurred and duly documented expenses which are otherwise required to be reimbursed, in each case for which invoices with appropriate supporting documentation have been presented at least two (2) Business Days prior to the Effective Date.
(g)      The Administrative Agent shall have received evidence reasonably satisfactory to it that all material governmental and third party approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the Transactions shall have been obtained and be in full force and effect (it being understood and agreed that, as related to (i) the increase of the Revolving Commitment contemplated by Section 2.05(d) and (ii) the extension of the Commitment Termination Date contemplated by Section 2.05(a), the foregoing approvals may not have been applied for, and/or may not have been received, on or as of the Effective Date).
The Administrative Agent shall notify the Borrower and the Credit Parties of the Effective Date, and such notice shall be conclusive and binding.
Section 5.02      Each Credit Event
The obligation of each Lender to make a Loan on the occasion of any Borrowing and of the Issuing Bank to issue any Letter of Credit is subject to the satisfaction of the following conditions:
(a)      The representations and warranties of the Borrower set forth in Article 4 of this Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of this Agreement) shall be true and correct in all material respects on and as of the date of such

53


Borrowing or issuance of such Letter of Credit, except to the extent such representations and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.
(b)      At the time of and immediately after giving effect to such Borrowing or issuance of such Letter of Credit, no Default shall have occurred and be continuing.
Each request for a Loan or issuance of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE 6.
AFFIRMATIVE COVENANTS
Until the Commitments and all Letters of Credit shall have expired or been terminated, in each case, without any pending draw, and the principal of and interest on all Loans, all Reimbursement Obligations and all fees and other amounts (other than contingent liability obligations) payable under the Loan Documents shall have been paid in full, the Borrower covenants and agrees with the Lenders that:
Section 6.01      Financial Statements and Other Information
The Borrower will furnish to the Administrative Agent sufficient copies for each Lender of the following (it being agreed that the obligation of the Borrower to furnish the financial statements, reports, information and documents referred to below (other than the certificate referred to in clause (c) below) may be satisfied by the Borrower’s delivery to, or filing such statements, reports, information and documents with, the SEC via the EDGAR filing system (or any successor system thereto)):
(a)      within 120 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, cash flows and retained earnings as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent registered public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b)      within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, cash flows and retained earnings as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of the President of the Borrower or a Financial Officer as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(c)      concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of the President of the Borrower or of a Financial Officer (i) certifying as to whether a Default has occurred and is continuing and, if a Default has occurred and is continuing, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with

54


Sections 7.05 and 7.06, and (iii) stating whether any material change in GAAP or in the application thereof has occurred since the later to occur of (x) the date of the audited financial statements referred to in Section 4.04 and (y) the date of the last certificate furnished pursuant to this Section 6.01(c), and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate;
(d)      promptly after the same become publicly available, and as the Administrative Agent or any Lender may reasonably request, copies of all periodic and other reports, proxy statements and other materials filed under the Securities Exchange Act of 1934 or any successor statute by the Borrower or any Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of the functions of the SEC, or with any national securities exchange, as the case may be, as the Administrative Agent or any Lender may reasonably request;
(e)      promptly after the same becomes publicly available, notice of any change in the Borrower’s Issuer Ratings, which notice may be satisfied if the information is included in the Disclosed Matters; and
(f)      promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may reasonably request.
Section 6.02      Notices of Material Events
The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following (provided, however, that the obligation of the Borrower to provide such notice shall be deemed satisfied if the same is promptly included in the Disclosed Matters):
(a)      the occurrence of any Default;
(b)      the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Significant Subsidiary (other than actions, suits or proceedings in the ordinary course of business or before the Public Utilities Commission or tax audits) that would reasonably be expected to result in a Material Adverse Effect;
(c)      the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower and its Significant Subsidiaries in an aggregate amount exceeding 25% of the projected benefit obligations under all Plans.
(d)      any other material event that is required to be disclosed by the Borrower on Form 8K to the SEC.
At the request of the Administrative Agent, a Financial Officer or other executive officer of the Borrower will provide a statement setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

55



Section 6.03      Existence; Conduct of Business
The Borrower will do or cause to be done, and will cause each of its Significant Subsidiaries to do or cause to be done, all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business, provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.02 or any merger or consolidation of a Significant Subsidiary into the Borrower or another Significant Subsidiary of the Borrower or the transfer of assets by any Significant Subsidiary to the Borrower or another Significant Subsidiary of the Borrower followed by the liquidation of dissolution of such Significant Subsidiary.
Section 6.04      Payment of Obligations
The Borrower will pay, and will cause each of its Significant Subsidiaries to pay, its obligations, including its Tax liabilities, that, if not paid, would reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) if required by GAAP, the Borrower or such Significant Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (c) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect.
Section 6.05      Maintenance of Properties; Insurance
(a)      The Borrower will keep and maintain, and will cause each of its Significant Subsidiaries to keep and maintain, all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, provided , however , that nothing shall prevent the Borrower or a Significant Subsidiary, as appropriate, from discontinuing the operation or maintenance of any property if such discontinuance is, in the judgment of the Borrower or such Significant Subsidiary, desirable in the conduct of the business of the Borrower or such Significant Subsidiary.
(b)      The Borrower will maintain, or cause to be maintained, and will cause each of its Significant Subsidiaries to maintain, or cause to be maintained, with reputable insurance companies, so long as such insurance is available on commercially reasonable terms (including appropriate deductibles, self-insurance, exclusions and limitations), insurance in such amounts and against such risks as the Borrower and its Significant Subsidiaries have customarily maintained.
Section 6.06      Books and Records; Inspection Rights
The Borrower will maintain and cause each of its Significant Subsidiaries to maintain, accurate and proper accounting records and books in accordance with GAAP, and provide the Administrative Agent and the Lenders, subject to the provisions of Section 10.12, with access to such books and accounting records at the request of the Administrative Agent and the Lenders made for a legitimate business purpose related to the Transactions during the Borrower’s normal business hours and to discuss its affairs, finances and condition with its Financial Officers, all at such reasonable times with reasonable advance notice and as often as reasonably requested.

56



Section 6.07      Compliance with Laws
The Borrower will comply, and will cause each of its Significant Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders of any Governmental Authority, a breach of which would reasonably be expected to have a Material Adverse Effect, except where contested in good faith and, if applicable, by proper proceedings. The Borrower will, and/or will cause each of its Significant Subsidiaries to, maintain in effect and enforce policies and/or procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable OFAC Sanctions.
Section 6.08      Use of Proceeds
The Borrower will use the proceeds of the Loans only for lawful purposes of the Borrower and its Subsidiaries not inconsistent with or limited by the terms hereof, including, without limitation, to provide liquidity back-up for the issuance of commercial paper, capital expenditures, loans to Subsidiaries, working capital and general corporate purposes of the Borrower, all to the extent the Borrower is legally permitted to use such proceeds for such purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of any of the regulations of the Board, including Regulations T, U and X. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
ARTICLE 7.
NEGATIVE COVENANTS
Until the Commitments and all Letters of Credit shall have expired or been terminated, in each case, without any pending draw, and the principal of and interest on all Loans, all Reimbursement Obligations and all fees and other amounts (other than contingent liability obligations) payable under the Loan Documents shall have been paid in full, or unless the Required Lenders otherwise consent in writing, the Borrower covenants and agrees with the Lenders that:
Section 7.01      Liens
The Borrower will not, and will not permit any Significant Subsidiary to, incur, create, assume or permit to exist any Lien on the capital stock of or other ownership interests in any Significant Subsidiary or any Lien on all or substantially all of its other assets, now or hereafter owned, without effectively providing concurrently therewith to equally and ratably secure the obligations of Borrower under this Agreement, except:
(a)      Liens securing the payment of Indebtedness of the Borrower or any Subsidiary to a state, territory or possession of the United States or any political subdivision thereof issued in a transaction in which such state, territory, possession or political subdivision issued obligations the interest on which is excludable from gross income by the holders thereof pursuant to the provisions of Section 103 of the Code (or similar provisions), as in effect at the time of the issuance of such obligations, and Indebtedness to the issuer of a letter of credit or a letter of guaranty to support any such obligations to the extent the Borrower or any Significant Subsidiary

57


is required to reimburse such issuer for drawings under such letter of credit or letter of guaranty with respect to the principal of or interest on such obligations;
(b)      deposits under workmen’s compensation, unemployment insurance and social security laws, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases, statutory obligations, surety or appeal bonds, or indemnity, performance or other similar bonds, in the ordinary course of business;
(c)      Liens imposed by law, such as carriers’, warehousemen’s or mechanics’ liens, incurred in good faith in the ordinary course of business and securing obligations that are not yet due or that are being contested in good faith by appropriate proceedings, and Liens arising out of judgments or awards not exceeding $50,000,000 in the aggregate with respect to which appeals are being prosecuted, execution pending such appeals having been effectively stayed;
(d)      the right reserved to, or vested in, any municipality or public authority by the terms of any right, power, franchise, grant, license, or permit, or by any provision of law, to purchase or recapture or designate a purchaser of any property;
(e)      any Lien securing a tax, assessment or other governmental charge or levy or the claim of a materialman, mechanic, carrier, warehouseman or landlord for labor, materials, supplies or rentals incurred in the ordinary course of business;
(f)      any Lien existing on (i) any property or asset at the time such property or asset is acquired by the Borrower or any Significant Subsidiary (including acquisition by merger or consolidation), but only if and so long as (1) such Lien was not created in contemplation of such property or asset being acquired, (2) such Lien is and will remain confined to the property or asset subject to it at the time such property or asset is acquired and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof and (3) such Lien secures only the obligation secured thereby at the time such property or asset is acquired;
(g)      any Lien in existence on the Effective Date to the extent set forth on Schedule 7.01 , but only, in the case of each such Lien, to the extent it secures an obligation outstanding on the Effective Date to the extent set forth on such Schedule, and extensions, renewals and refinancings of such obligations that do not increase the outstanding principal amount thereof (other than for accrued interest and transactional fees and expenses of such extension, renewal or refinancing);
(h)      any Lien securing Purchase Money Indebtedness, or to secure payment of all or any part of the cost of construction of improvements as they are incurred or within 270 days thereafter, but only if, in the case of each such Lien, (i) such Lien shall at all times be confined solely to the property or asset the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof and (ii) such Lien attached to such property or asset within 270 days of the acquisition or improvement of such property or asset;
(i)      easements, reservations, rights-of-way, restrictions, survey exceptions and other similar encumbrances as to real property which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not materially interfere with the

58


conduct of the business of the Borrower or any Significant Subsidiary conducted at the property subject thereto;
(j)      licenses, leases and subleases of property owned or leased by the Borrower or any Significant Subsidiary not interfering with the ordinary conduct of the business of the Borrower and the Significant Subsidiaries;
(k)      Liens securing obligations, neither assumed by the Borrower or any Significant Subsidiary nor on account of which the Borrower or any Significant Subsidiary customarily pays interest, upon real estate or under which the Borrower or any Significant Subsidiary has a right-of-way, easement, franchise or other servitude or of which the Borrower or any Significant Subsidiary is the lessee of the whole thereof or any interest therein for the purpose of locating transmission and distribution lines and related support structures, pipe lines, substations, measuring stations, tanks, pumping or delivery equipment or similar equipment;
(l)      Liens arising by virtue of any statutory or common law or contractual provision relating to banker’s liens, rights of setoff or similar rights as to deposit accounts or other funds maintained with a depository institution;
(m)      any Lien constituting a renewal, extension or replacement of a Lien permitted under clause (f), (g) or (h) of this Section 7.01, but only if (i) at the time such Lien is granted and immediately after giving effect thereto, no Default or Event of Default would exist and be continuing, (ii) such Lien is limited to all or a part of the property or asset that was subject to the Lien so renewed, extended or replaced and to improvements thereafter erected on or attached to such property or asset or any property or asset acquired in substitution or replacement thereof, (iii) the principal amount of the obligations secured by such Lien does not exceed the principal amount of the obligations secured by the Lien so renewed, extended or replaced, together with reasonable out-of-pocket expenses and accrued interest with respect to the obligations so renewed, extended or replaced, and (iv) the obligations secured by such Lien bear interest at a rate per annum not exceeding the rate borne by the obligations secured by the Lien so renewed, extended or replaced except for any increase that, in the reasonable opinion of the Borrower, is commercially reasonable at the time of such increase;
(n)      Liens securing Indebtedness or other obligations of the Borrower or any Significant Subsidiary; provided , that at the time any such Indebtedness or other monetary obligation is incurred (and after giving effect to the concurrent repayment of any Indebtedness or other monetary obligations with the proceeds thereof), the aggregate principal amount of all Indebtedness and other monetary obligations then secured pursuant to this clause (n) does not exceed 15% of Consolidated Capitalization;
(o)      any Lien on any capital stock of any corporation which is registered in the name of Borrower or otherwise owned by or held for the benefit of the Borrower (other than, in either case, the capital stock of any Significant Subsidiary) which may constitute Margin Stock; or
(p)      any Lien on property arising in connection with any defeasance, covenant defeasance or in substance defeasance of any Indebtedness pursuant to an express contractual provision with respect thereto or GAAP.
Section 7.02      Sale of Assets; Consolidation; Merger
The Borrower will not and will not permit any Significant Subsidiary to,

59



(a)      sell, lease, transfer or otherwise dispose of all or substantially all of its properties and assets to any Person;
(b)      consolidate with or merge into any other corporation (other than a merger of a Subsidiary into, or a consolidation of a Subsidiary with, the Borrower), or acquire all or substantially all the properties and assets of any Person unless:
(i)      in the case of a merger or consolidation with the Borrower, the Borrower is the surviving corporation; and
(ii)      after giving effect to any merger or consolidation or acquisition, the Borrower is in pro forma compliance with Section 7.05;
(iii)      no Default or Event of Default exists or results therefrom and is continuing; and
(iv)      the Administrative Agent shall have received prior to the consummation of any such merger, consolidation or acquisition, a certificate executed by a Financial Officer as to each of the matters described in clause (i)-(iii); or
(c)      sell, assign, transfer, or otherwise dispose of the common stock of or other ownership interests ordinarily entitled to vote in the election of directors of any Significant Subsidiary, other than directors’ qualifying shares.
Section 7.03      Restrictive Agreements
The Borrower will not, and will not permit any Significant Subsidiary to, enter into, incur, permit to exist, directly or indirectly any agreement or arrangement that prohibits, restricts or imposes any condition upon the ability of any Significant Subsidiary to (a) make any Restricted Payments or to repay any Indebtedness owed to the Borrower, (b) make loans or advances to the Borrower or (c) transfer any of its property or assets to the Borrower, provided that the foregoing shall not apply to restrictions and conditions (i) imposed by law or regulation or by any regulatory agency, body or authority including under agreements with regulatory agencies, bodies, or authorities (ii) contained in or otherwise permitted by this Agreement, (iii) existing on the Effective Date identified on Schedule 7.03 hereto, and amendments and modifications thereto, so long as such amendments or modifications do not materially expand the scope of any such restriction or condition, or (iv) that are entered into, incurred or permitted to exist following the date hereof that are not materially more expansive in scope than the restrictions and conditions referred to in this Section 7.03.
Section 7.04      Transactions with Affiliates
Except as specifically permitted by this Agreement, the Borrower will not, and will not permit any of its Significant Subsidiaries to, sell, transfer, lease or otherwise dispose of (including pursuant to a merger) any property or assets to, or purchase, lease or otherwise acquire (including pursuant to a merger) any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except at prices and on terms and conditions not materially less favorable to the Borrower or such Significant Subsidiary than could be obtained on an arms-length basis from unrelated third parties, provided that this Section shall not apply to any transaction that is otherwise permitted under this Article 7.

60



Section 7.05      Consolidated Capitalization Ratio
The Borrower will not permit its Consolidated Capitalization Ratio to be less than 0.35 to 1.00 as of the end of any fiscal quarter or fiscal year end.
Section 7.06      Guaranties
The Borrower will not and will not permit any of its Significant Subsidiaries to, incur, create or assume any Guarantee of Indebtedness of any of the Borrower’s direct or indirect electric utility Subsidiaries (“ Subsidiary Indebtedness ”) if after the incurrence of such Subsidiary Indebtedness the Consolidated Subsidiary Funded Debt to Capitalization Ratio of such Significant Subsidiary would exceed 0.65 to 1.00.
ARTICLE 8.
EVENTS OF DEFAULT
If any of the following events (“ Events of Default ”) shall occur:
(a)      the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b)      the Borrower shall fail to pay any interest on any Loan or any fee, commission or any other amount (other than an amount referred to in clause (a) of this Article) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days;
(c)      any representation or warranty made or deemed made by or on behalf of the Borrower in or pursuant to this Agreement or any amendment or modification hereof or thereof or any waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to any Loan Document or any amendment or modification hereof or thereof or any waiver hereunder or thereunder, shall prove to have been incorrect in any material respect when made or deemed made;
(d)      the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Sections 6.03 (with respect to the Borrower’s existence), 6.08, 7.02, 7.03, 7.05, or 7.06;
(e)      (1)      the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 6.02 and such failure shall continue unremedied for a period of 10 days after a Financial Officer of the Borrower shall have obtained knowledge thereof;
(2)      the Borrower shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document to which it is a party (other than those specified in clause (a), (b), (d) or (e)(1) of this Article), and such failure shall continue unremedied for a period of 30 days after the Borrower shall have received notice thereof from the Administrative Agent;
(f)      the Borrower, both Maui Electric and Hawaii Electric Light, or any other Significant Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable and after the expiration of any applicable grace period;

61



(g)      any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that then enables or permits the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity, provided , that no Event of Default shall occur under this paragraph (g) as a result of (i) any notice of voluntary prepayment delivered by the Borrower or Significant Subsidiary with respect to any Indebtedness, (ii) any voluntary sale of assets by the Borrower or Significant Subsidiary as a result of which any Indebtedness secured by such assets is required to be prepaid or (iii) the exercise of any contractual right to cause the prepayment of such Material Indebtedness (other than the exercise of a remedy for an event of default under the applicable contract or agreement);
(h)      an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower, both Maui Electric and Hawaii Electric Light, or any other Significant Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower, both Maui Electric and Hawaii Electric Light, or any other Significant Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue un-dismissed or un-stayed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered and continues un-stayed for 30 days;
(i)      the Borrower, both Maui Electric and Hawaii Electric Light or any other Significant Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower, both Maui Electric and Hawaii Electric Light or any other Significant Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing;
(j)      the Borrower, both Maui Electric and Hawaii Electric Light, or any other Significant Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;
(k)      one or more judgments for the payment of money in an aggregate amount in excess of $50,000,000 (net of any amount covered by insurance) shall be rendered against the Borrower or any Significant Subsidiary or any combination thereof and the same is not appealed, satisfied, vacated, suspended, discharged or stayed pending appeal within 60 days after entry of such judgment or is not satisfied or discharged within 30 days after the expiration of any such stay;
(l)      an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower and its Significant Subsidiaries in an aggregate amount exceeding 25% of the projected benefit obligations under all Plans;

62



(m)      this Agreement or any other material Loan Document shall cease, for any reason (other than as a result of an act or omission by a Credit Party), to be valid and binding and enforceable against the Borrower in any material respect, or the Borrower shall so assert in writing or shall disavow any of its obligations thereunder;
(n)      any Significant Subsidiary shall fail to pay its Tax liabilities, that, if not paid, would reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default and such failure shall continue for more than 30 days, except where (i) the validity or amount thereof is being contested in good faith and, if applicable, by appropriate proceedings, (ii) such Significant Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP, and (iii) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect; or
(o)      a Change in Control shall occur;
then, and in every such event (other than an event described in clause (h) or (i) of this Article with respect to the Borrower), and at any time thereafter during the continuance of such event, the Administrative Agent shall (at the request of the Required Lenders) or may (with the consent of the Required Lenders), in each case by notice to the Borrower, take any of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued under the Loan Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, and (iii) demand cash collateralization of the Letter of Credit Exposure; and in case of any event described in clause (h) or (i) of this Article with respect to the Borrower, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued under the Loan Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity.
ARTICLE 9.
THE ADMINISTRATIVE AGENT
Section 9.01      Appointment
Each Credit Party hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article 9 are solely for the benefit of the Administrative Agent and the Lenders (including the Swingline Lender and the Issuing Bank), and the Borrower shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” as used herein or in any other Loan Documents (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.

63



Section 9.02      Individual Capacity
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.
Section 9.03      Exculpatory Provisions
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, or any of the Subsidiaries that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own gross negligence or willful misconduct as determined by a final nonappealable judgment of a court of competent jurisdiction. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Credit Party (and, promptly after its receipt of any such notice, it shall give each Credit Party and the Borrower notice thereof), and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein, (iv) the validity, enforceability, effectiveness or genuineness hereof or thereof or any other agreement, instrument or other document, or (v) the satisfaction of any condition set forth in Article 5 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, or its counsel.
Section 9.04      Reliance by Administrative Agent
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be internal or external counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

64



Section 9.05      Performance of Duties
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent, provided that no such delegation shall serve as a release of the Administrative Agent or waiver by the Borrower of any rights hereunder. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
Section 9.06      Resignation; Successors
Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Credit Parties and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent shall, in consultation with the Borrower, on behalf of the Credit Parties, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.
Section 9.07      Non-Reliance by Credit Parties
Each Credit Party acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Credit Party further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by this Agreement or any other Credit Party or their respective Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Credit Party, and to make, acquire or hold Loans hereunder. Each Credit Party shall, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by this Agreement or any amendment thereof or any other Credit Party and their respective Related Parties and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to which it will continue as a lender or assign or otherwise transfer its rights, interests and obligations hereunder.

65



Section 9.08      Agents
None of the Persons identified on the cover page of this Agreement or in the preamble to this Agreement as a “syndication agent”, “co-documentation agent”, “lead arranger”, “co arranger”, or “book manager” shall have any right, power, obligation, liability, responsibility or duty to any other Person under this Agreement, any of the other Loan Documents or otherwise, other than JPMCB in its capacity as Administrative Agent, JPMCB in its capacity as Issuing Bank and Swingline Lender, and each Lender in its capacity as a Lender. Without limiting the foregoing, none of such Persons so identified shall have or be deemed to have any fiduciary relationship with any other Person but such Persons shall have the benefit of the provisions of Section 9.02.
ARTICLE 10.
MISCELLANEOUS
Section 10.01      Notices
(a)      Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile transmission, as follows:
(i)      if to the Borrower:
Hawaiian Electric Company, Inc.
900 Richards Street (if by hand delivery or overnight courier)
Honolulu, Hawaii 96813

P.O. Box 2750 (if by mail)
Honolulu, Hawaii 96840-0001
Attention: Ms. Tayne S.Y. Sekimura
Senior Vice President and Chief Financial Officer
Telephone No.: 808-543-7840
Facsimile No.: 808-203-1176

(ii)      if to the Administrative Agent:

JPMorgan Chase Bank, N.A.
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Telephone No.: 312-385-7055
Facsimile No.: 844-490-5663
Email: Jpm.agency.cri@jpmorgan.com

66



with a copy to:

JPMorgan Chase Bank, N.A.
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Telephone No.: 310-860-7256
Facsimile No.: 310-860-7110

(iii)      if to the Issuing Bank:

JPMorgan Chase Bank, N.A.
Global Trade Services
300 South Riverside Plaza
Chicago, IL 60606-0236
Attention: Standby LC Unit
Email: GTS.Client.Services@JPMChase.com
Telephone No.: 312-954-1941
Facsimile No.: 312-233-2266

(iv)      if to the Swingline Lender:

JPMorgan Chase Bank, N.A.
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Telephone No.: 312-385-7055
Facsimile No.: 844-490-5663
Email: Jpm.agency.cri@jpmorgan.com

(v)      if to any other Credit Party, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Electronic Systems, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b)      Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by using Electronic Systems pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

67



Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c)      Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
(d)      Electronic Systems .
(i)      The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.
(ii)      Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to the Borrower, any Lender, the Issuing Bank or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Communications through an Electronic System. “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section, including through an Electronic System.
Section 10.02      Waivers; Amendments
(a)      No failure or delay by any Credit Party in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall in

68


any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.
(b)      Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders, provided that no such agreement shall:
(i)      increase the Commitment of any Lender without the written consent of such Lender,
(ii)      reduce the principal amount of any Loan or Reimbursement Obligations, or reduce the rate of interest thereon (other than the imposition of additional interest under Section 3.01(c)), or reduce any fees or other amounts payable under the Loan Documents, without the written consent of each Lender directly affected thereby,
(iii)      postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees or other amounts payable under the Loan Documents, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Credit Party directly affected thereby,
(iv)      change any provision hereof in a manner that would alter the pro rata sharing of payments required by any Loan Document, without the written consent of each Credit Party, or
(v)      change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender,
and provided , further , that no such agreement shall amend, modify or otherwise affect the rights or duties of (A) the Administrative Agent hereunder without the prior written consent of the Administrative Agent, (B) the Issuing Bank hereunder without the prior written consent of the Issuing Bank and (C) the Swingline Lender hereunder without the prior written consent of the Swingline Lender (it being understood that any change to Section 2.12 shall require the consent of the Administrative Agent, the Issuing Bank and the Swingline Lender). Notwithstanding the foregoing, no consent with respect to any amendment, waiver or other modification of this Agreement shall be required of any Defaulting Lender, except with respect to any amendment, waiver or other modification referred to in clause (i), (ii) or (iii) of the first proviso of this paragraph and then only in the event such Defaulting Lender shall be directly affected by such amendment, waiver or other modification.
(c)      Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (x) to add one or more credit facilities to this Agreement and to permit extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other

69


Loan Documents with the Loans and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Lenders.
(d)      If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender directly affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “ Non-Consenting Lender ”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) an Eligible Assignee shall agree, as of such date, to purchase for cash the Loans and other obligations due to the Non-Consenting Lender pursuant to an Assignment and Acceptance and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 10.04, and (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 3.05 and 3.07, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 3.06 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.
(e)      Notwithstanding anything to the contrary herein the Administrative Agent may, with the consent of the Borrower only, amend, modify or supplement this Agreement or any of the other Loan Documents to cure any ambiguity, omission, mistake, defect or inconsistency.
Section 10.03      Expenses; Indemnity; Damage Waiver
(a)      The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Lead Arrangers, including the reasonable and duly documented fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions of any Loan Document (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all reasonable out-of-pocket expenses incurred by any Credit Party, including the reasonable fees, charges and disbursements of a single counsel for the Administrative Agent and a single counsel for the other Credit Parties, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with and during any workout, restructuring or negotiations in respect of the Loans and the Letters of Credit.
(b)      The Borrower shall indemnify each Credit Party and each Related Party thereof (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties to the Loan Documents of their respective obligations hereunder and thereunder or the consummation of the Transactions or any other transactions contemplated hereby or thereby, (ii) any Loan or the use of the proceeds thereof,

70


(iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of the Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by the Borrower or its equity holders, Affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of (or a breach in bad faith by such Indemnitee of its express obligations under any Loan Document) such Indemnitee, (B) arise out of a claim brought by the Borrower against an Indemnitee for a breach which is finally determined by a final and nonappealable judgment to have constituted a bad faith breach of such Indemnitee’s obligations under this Agreement or (C) relate to Taxes, other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.
(c)      To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as applicable, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.
(d)      To the extent permitted by applicable law, each party hereto agrees that it will not assert, and hereby waives, any claim against any Indemnitee or the Borrower, as the case may be, (i) for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet) (except, in the case of a claim against an Indemnitee, to the extent of direct or actual damages as are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee) or (ii) on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Loan Document or any agreement, instrument or other document contemplated hereby or thereby, the Transactions or any Loan or the use of the proceeds thereof; provided that nothing contained in this sentence shall limit the Borrower’s indemnification obligations to Indemnitees in respect of claims made by third parties as set forth in Section 10.03(b).
(e)      All amounts due under this Section shall be payable promptly, but in any event no later than 30 days, after written demand therefor, accompanied by proper supporting documentation, and without prejudice to the Borrower’s right to contest the amount or the validity of any claim for payment.
Section 10.04      Successors and Assigns
(a)      The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Credit Party (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or

71


implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each Credit Party) any legal or equitable right, remedy or claim under or by reason of any Loan Document.
(b)      Each Lender may, and, so long as no Default shall have occurred and be continuing, if demanded by the Borrower pursuant to 3.08(b) upon at least five Business Days’ notice to such Lender, the Issuing Bank, the Swingline Lender and the Administrative Agent will, assign to one or more Eligible Assignees all or a portion of such Lender’s rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitments, the Loans (including, for the purposes of this Section 10.04(b), participations in Letters of Credit and Swingline Loans) owing to it and the Note held by it); provided , however , that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of any or all facilities (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Acceptance, as of the Trade Date), (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of all of a Lender’s rights and obligations under this Agreement, the aggregate amount of the Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 (or such lesser amount as shall be approved by the Administrative Agent and, unless a Default has occurred and is continuing under Section 8(a), Section 8(h) or Section 8(i) or unless an Event of Default has occurred and is continuing, the Borrower (provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice thereof)), (iii) each partial assignment shall be made as an assignment of a proportionate part of all of the assigning Lender’s rights and obligations under this Agreement with respect to the Class of Loans or the Commitments assigned, (iv) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender, such assignment shall be approved, so long as no Default has occurred and is continuing under Section 8(a), Section 8(h) or Section 8(i) and no Event of Default has occurred and is continuing at the time of effectiveness of such assignment, by the Borrower (such approval not to be unreasonably withheld or delayed), (v) each such assignment shall be to an Eligible Assignee, (vi) each assignment must be approved (such approvals not to be unreasonably withheld or delayed) by the Administrative Agent, the Swingline Lender and the Issuing Bank unless the Person that is proposed is itself a Lender (whether or not the proposed assignee would otherwise qualify as an Eligible Assignee), (vii) each such assignment made as a result of a demand by the Borrower pursuant to this Section 10.04(b) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (viii) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 10.04(b) unless and until such Lender shall have received one or more payments from the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Borrowing owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, and (ix) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and

72


recording in the Register, (x) an Assignment and Acceptance or (y) to the extent applicable, an agreement incorporating an Assignment and Acceptance by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Acceptance are participants, together with any Note subject to such assignment and (except in the case of any such assignment by a Lender to an Affiliate or Approved Fund of such Lender) a processing and recordation fee of $3,500; provided , however , that for each such assignment made as a result of a demand by the Borrower pursuant to Section 3.08, the Borrower or such assignee shall pay to the Administrative Agent the applicable processing and recordation fee.
(c)      Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender or the Issuing Bank, as the case may be, hereunder and (ii) the Lender or the Issuing Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 3.05, 3.07 and 10.03 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender’s or the Issuing Bank’s rights and obligations under this Agreement, such Lender or the Issuing Bank shall cease to be a party hereto).
(d)      By executing and delivering an Assignment and Acceptance, each Credit Party assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Credit Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Credit Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by this Agreement, such assigning Credit Party or any other Credit Party and their respective Related Parties and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to Administrative Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender or the Issuing Bank, as the case may be.

73



(e)      The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain at its address referred to in Section 10.01 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Credit Parties and their Commitments under each facility of, and principal amount (and stated interest) of the Loans owing under each facility to, each Credit Party from time to time (the “Register” ). The entries in the Register shall be conclusive and binding for all purposes, absent clearly demonstrable error, and the Borrower, the Administrative Agent and the other Credit Parties may treat each Person whose name is recorded in the Register as a Credit Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or the Administrative Agent or any other Credit Party at any reasonable time and from time to time upon reasonable prior notice.
(f)      Upon its receipt of (x) an Assignment and Acceptance executed by an assigning Credit Party and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Acceptance by reference pursuant to a Platform as to which the Administrative Agent and the parties to the Assignment and Acceptance are participants, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note a new Note to such Eligible Assignee in an amount equal to the Commitment assumed by it under each facility pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a Commitment hereunder under such facility, a new Note to such assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit C hereto.
(g)      Each Credit Party may sell participations to one or more Persons (other than the Borrower or any of its Affiliates) (each, a “ Participant ”) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Loans (including such Lender’s participations in Reimbursement Obligations and Swingline Loans) owing to it and the Note (if any) held by it); provided , however , that (i) such Credit Party’s obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged, (ii) such Credit Party shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Credit Party shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Credit Parties shall continue to deal solely and directly with such Credit Party in connection with such Credit Party’s rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Borrowings or Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Borrowings or Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. The Borrower agrees that each participant shall be entitled to the benefits of Sections 3.05, 3.06, 3.07 and 10.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. Each Lender that sells a participation agrees, at the

74


Borrower's request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.08(b) with respect to any Participant. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such participant agrees to be subject to Section 2.08(c) and Section 10.12 as though it were a Lender. A participant shall not be entitled to receive any greater payment under Section 3.05 or 3.07 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant. Each Credit Party that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “ Participant Register ”); provided that no Credit Party shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Credit Party shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(h)      Any Credit Party may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Credit Party by or on behalf of the Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing to preserve the confidentiality of any confidential Information received by it from such Credit Party in accordance with Section 10.12 to the same extent as if it were a Credit Party.
(i)      Notwithstanding anything to the contrary contained herein, any Lender may at any time pledge or assign a security interest in all or any portion of its rights under the Loan Documents to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest, provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations under the Loan Documents or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 10.05      Survival
All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of any Loan Document and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Credit Party may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under the Loan Documents is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 3.05, 3.06, 3.07 and 10.03 and Article 9 shall survive and remain in full force

75


and effect regardless of the repayment of the Loans and the termination of the Commitments or the termination of this Agreement or any provision hereof.
Section 10.06      Counterparts; Integration; Effectiveness; Electronic Execution
This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent or Issuing Bank constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective on the Effective Date, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile transmission, e-mailed.pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 10.07      Severability
In the event any one or more of the provisions contained in this Agreement is held to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 10.08      Right of Setoff
If an Event of Default shall have occurred and be continuing, each of the Lenders and their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by it to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by it, irrespective of whether or not it shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each of the Lenders and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that it may have.
Section 10.09      Governing Law; Jurisdiction; Consent to Service of Process
(a)      This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflict of laws.

76



(b)      The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in the Borough of Manhattan, and of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any other Credit Party may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower, or any of its property, in the courts of any jurisdiction.
(c)      The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)      Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
Section 10.10      WAIVER OF JURY TRIAL
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.11      Headings
Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

77



Section 10.12      Confidentiality
Each of the Credit Parties agrees to maintain the confidentiality of the Information (as defined below) and not to use Information in violation of law, except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, provided that each such Person agrees to maintain the confidentiality of such information on the terms set forth in this Section, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or, (ii) becomes available to such Credit Party on a nonconfidential basis from a source other than the Borrower and without breach of this Agreement; provided , however , that, unless prohibited by applicable law, a Credit Party will provide prior notice to the Borrower of such Credit Party’s intention to disclose Information pursuant to clause (c) above or to disclose Information pursuant to clause (e) above in connection with any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder. For the purposes of this Section, “ Information ” means all information received from the Borrower relating to the Borrower or its business, including, without limitation, information received from the Borrower or any of its Related Parties pursuant to Section 6.01(f), 6.02 and 6.06 of this Agreement, other than any such information that is available to any Credit Party on a nonconfidential basis prior to disclosure by the Borrower and other than information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN THE IMMEDIATELY PRECEDING PARAGRAPH FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

78



Section 10.13      Interest Rate Limitation
Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the “ charges ”), shall exceed the maximum lawful rate (the “ maximum rate ”) that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all of the charges payable in respect thereof, shall be limited to the maximum rate and, to the extent lawful, the interest and the charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated, and the interest and the charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the maximum rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by such Lender.
Section 10.14      No Third Parties Benefited
This Agreement is made and entered into for the sole protection and legal benefit of the Borrower, the Administrative Agent, the Issuing Bank and the Lenders, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. Neither the Administrative Agent nor the Issuing Bank nor any Lender shall have any obligation to any Person not a party to this Agreement or other Loan Documents.
Section 10.15      USA PATRIOT Act Notice
Each of the Administrative Agent and each Lender hereby notifies the Borrower that, pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “PATRIOT Act” ), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Administrative Agent and such Lender to identify the Borrower in accordance with the Patriot Act.
Section 10.16      No Fiduciary Duty
The Administrative Agent, each Lender and their Affiliates (collectively, solely for purposes of this paragraph, the “Lender Parties”), may have economic interests that conflict with those of the Borrower, its stockholders and/or its affiliates. The Borrower agrees that nothing in the Loan Documents or otherwise will be deemed to create an advisory, fiduciary or agency relationship or fiduciary or other implied duty between any Lender Party, on the one hand, and the Borrower, its stockholders or its affiliates, on the other. The Borrower acknowledges and agrees that (i) the transactions contemplated by the Loan Documents (including the exercise of rights and remedies hereunder and thereunder) are arm’s-length commercial transactions between the Lender Parties, on the one hand, and the Borrower, on the other, and (ii) in connection therewith and with the process leading thereto, (x) no Lender Party has assumed an advisory or fiduciary responsibility in favor of the Borrower, its stockholders or its affiliates with respect to the transactions contemplated hereby (or the exercise of rights or remedies with respect thereto) or the process leading thereto (irrespective of whether any Lender Party has advised, is currently advising or will advise the Borrower, its stockholders or its Affiliates on other matters) or any other obligation to the Borrower except the obligations expressly set forth in the Loan Documents and (y) each Lender Party is acting solely as principal and not as the agent or fiduciary of the Borrower, its management, stockholders, creditors or any other Person. The Borrower acknowledges and agrees that the Borrower has consulted its own legal and financial advisors to the extent it deemed appropriate and

79


that it is responsible for making its own independent judgment with respect to such transactions and the process leading thereto. The Borrower agrees that it will not claim that any Lender Party has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Borrower, in connection with such transaction or the process leading thereto and, to the fullest extent permitted by law, hereby waives and releases any claims that it may have against any Lender Party with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
Section 10.17      Acknowledgment and Consent to Bail-In Action.
Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)      the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b)      the effects of any Bail-In Action on any such liability, including, if applicable:
(i)      a reduction in full or in part or cancellation of any such liability;
(ii)      a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii)      the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
[Signature Pages to Follow]







80


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 
HAWAIIAN ELECTRIC COMPANY, INC.,
as the Borrower

 
By: /s/ Tayne S.Y. Sekimura     
Name: Tayne S.Y. Sekimura
Title: Senior Vice President and
           Chief Financial Officer
 
By: /s/ Lorie Ann Nagata     
Name: Lorie Ann Nagata
Title: Treasurer


Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.




 
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent, as Issuing Bank, as
Swingline Lender and as a Lender
 
By:     /s/ Ling Li     
Name: Ling Li
Title: Executive Director

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.







 
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Syndication Agent and as a Lender

 
By:     /s/ Keith Luettel     
Name: Keith Luettel
Title: Director




Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.





 
BANK OF AMERICA, N.A.,
as Co-Documentation Agent and as a Lender

 
By:      /s/ Jim McCary     
Name: Jim McCary
Title: Vice President



Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.







 
MUFG UNION BANK, N.A.,
as a Co-Documentation Agent and as a Lender

 
By: /s/ Robert MacFarlane
Name: Robert MacFarlane
Title: Director



Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.





 
BARCLAYS BANK PLC,
as a Co-Documentation Agent and as a Lender
 
By: /s/ Christopher Aitkin
Name: Christopher Aitkin
Title: Assistant Vice President

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.






 
U.S. BANK NATIONAL ASSOCIATION,
as Co-Documentation Agent and as a Lender

 
By:     /s/ Holland H. Williams
Name: Holland H. Williams
Title: Vice President



Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.






 
BANK OF HAWAII,
as Co-Documentation Agent and as a Lender
 
By: /s/   John McKenna
Name: John McKenna
Title: Senior Vice President

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.






 
THE BANK OF NEW YORK MELLON,
as a Lender
 
By: /s/ Mark W. Rogers
Name: Mark W. Rogers
Title: Vice President

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.






 
The undersigned Departing Lender hereby acknowledges and agrees that, from and after the Effective Date, it is no longer a party to the Existing Credit Agreement or any of the Loan Documents executed in connection therewith and will not be a party to this Agreement.
MORGAN STANLEY BANK, N.A., as a Departing Lender

 
By: /s/ Pat Layton
Name: Pat Layton
Title: Authorized Signatory

Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.





 
The undersigned Departing Lender hereby acknowledges and agrees that, from and after the Effective Date, it is no longer a party to the Existing Credit Agreement or any of the Loan Documents executed in connection therewith and will not be a party to this Agreement.
ROYAL BANK OF CANADA, as a Departing Lender
 
By: /s/ Eric D. Koppelson
Name: Eric D. Koppelson
Title: Authorized Signatory


Signature Page to Second Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.




SCHEDULE 1.01
Hawaiian Electric Company, Inc.
Consolidated Capitalization, Consolidated Funded Debt and
Consolidated Subsidiary Funded Debt

AS OF DECEMBER 31, 2016
($thousands)
HECO
 
HELCO
 
MECO
 
RHI
 
UBC
 
Eliminations
 
CONSOLIDATED
 
ST borrowings from non-affiliates
—

 
—

 
—

 
—

 
—

 
 
 
—

 
ST borrow between HECO, HELCO, MECO, RHI, UBC
13,500

 
—

 
—

 
—

 
—

 
(13,500
)
 
—

 
ST borrowings from HEI
—

 
—

 
—

 
—

 
—

 
 
 
—

 
Capital lease obligations, including current portion
—

 
—

 
—

 
—

 
—

 
 
 
—

 
Purchase money indebtedness
—

 
—

 
—

 
—

 
—

 
 
 
—

 
Borrowings under Syndicated Credit Agreement
—

 
—

 
—

 
—

 
—

 
 
 
—

 
Revenue bonds, including current portion
289,879

 
92,310

 
76,643

 
—

 
—

 
 
 
458,832

 
 
Less funds on deposit with trustees
—

 
—

 
—

 
—

 
—

 
—

 
 
Less unamortized discount
—

 
—

 
—

 
—

 
—

 
—

 
Other long-term debt - unsecured
594,547

 
111,572

 
103,656

 
—

 
—

 
—

 
809,775

 
 (QUIDS), including current portion
31,011

 
9,822

 
9,821

 
—

 
—

 
—

 
50,654

 
 
Funded debt
928,937

 
213,704

 
190,120

 
—

 
—

 
(13,500
)
 
1,319,260

(2)
 
 
 
 
(3)
 
(3)
 
 
 
 
 
 
 
Cumulative preferred stock - not subject to mandatory redemption
22,293

 
     7,000
 
     5,000
 
—

 
—

 
—

 
34,293

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
106,818

 
24,133

 
16,876

 
781

 
585

 
(42,375
)
 
106,818

 
Premium and/or expense on common & preferred stock
601,491

 
102,851

 
93,352

 
—

 
—

 
(196,203
)
 
601,491

 
Retained earnings
1,091,800

 
164,291

 
149,141

 
(704
)
 
(561
)
 
(312,167
)
 
1,091,800

 
 
Common stock equity (a)
1,800,109

 
291,275

 
259,369

 
77

 
24

 
(550,745
)
 
1,800,109

 
 

Capitalization (a)
2,751,339

 
511,979

 
454,489

 
77

 
24

 
(564,245
)
 
3,153,662

(1)
Notes:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Consolidated Capitalization
 
 
 
 
 
 
(2)
Consolidated Funded Debt
 
 
 
 
 
 
(3)
Consolidated Subsidiary Funded Debt, individually
 
 
 
 
(a)
Excludes AOCI Income (Loss)
 
 
 
 
 
 









Schedule 2.01
(Hawaiian Electric Second Amended and Restated Credit Agreement)
Lender
Revolving Commitment
Letter of
Credit
Commitment
JPMorgan Chase Bank, N.A.
$32,857,142.85
$4,107,142.85
Wells Fargo Bank, National Association
$32,857,142.85
$4,107,142.85
Bank of America, N.A.
$22,857,142.86
$2,857,142.86
MUFG Union Bank, N.A.
$22,857,142.86
$2,857,142.86
Barclays Bank PLC
$22,857,142.86
$2,857,142.86
U.S. Bank National Association
$22,857,142.86
$2,857,142.86
Bank of Hawaii
$22,857,142.86
$2,857,142.86
The Bank of New York Mellon
$20,000,000.00
$2,500,000.00
Total
$200,000,000.00
$25,000,000.00





SCHEDULE 2.09
HAWAIIAN ELECTRIC COMPANY, INC.
EXISTING LETTERS OF CREDIT

None.

2


HECOORG.JPG


3


SCHEDULE 7.01
EXISTING LIENS
Debtor
Secured Party
Jurisdiction
UCC File Number  
UCC File Date
Collateral Description
Hawaiian Electric Company, Inc.
Bank of New York Mellon Trust Company
 
A-58270880
12/15/2015
Certain rights as provided in that certain Trust Indenture dated as of 12/1/2015 by and between the Department of Budget and Finance of the State of Hawaii and the Trustee
Hawaii Electric Light Company, Inc.
Bank of the West (secured party) & Pure Health Solutions, Inc. (assignor)
Hawaii
A-44840919
4/11/2012
Rental Agreement dtd 3/15/2012 (PWLR) -
remaining balance $0.00
Hawaii Electric Light Company, Inc.
First Partners Bank (secured party) & Central Leasing Corporation (additional secured party)
Hawaii
A-49240672
6/25/2013
Equipment Schedule “A” dted 12/20/12 to a Master Lease Agreement (Homeplug Native Assembly & Long Pin Meter Interface Cable) -
remaining balance $4,581.72
Hawaii Electric Light Company, Inc.
Bank of New York Mellon Trust Company
 
A-58270881
12/15/2015
Certain rights as provided in that certain Trust Indenture dated as of 12/1/2015 by and between the Department of Budget and Finance of the State of Hawaii and the Trustee
 
 
 
 
 
 







4



Maui Electric Company, Ltd.
Bank of New York Mellon Trust Company
 
A-58270882
12/15/2015
Certain rights as provided in that certain Trust Indenture dated as of 12/1/2015 by and between the Department of Budget and Finance of the State of Hawaii and the Trustee

5


SCHEDULE 7.03

HAWAIIAN ELECTRIC COMPANY, INC.
EXISTING RESTRICTIONS

Pursuant to Section 7.03 of the Credit Agreement, the following restrictions and conditions exist on June 30, 2017:

1.
Hawaiian Electric Company, Inc. (“Hawaiian Electric”), Maui Electric Company, Ltd. (“Maui Electric”) and Hawaii Electric Light Company, Inc. (“Hawaii Electric Light”) are subject to restrictive covenants in connection with the offer and sale in March 2004 of Cumulative Quarterly Income Preferred Securities, as disclosed in the Registration Statements on Form S-3, Regis. Nos. 333-111073, 333-111073-01, 333-111073-02 and 333-111073-03 filed with the Securities and Exchange Commission (“SEC”), which descriptions are incorporated herein by reference.

2.
Hawaiian Electric, Maui Electric and Hawaii Electric Light are subject to restrictive covenants in connection with their cumulative preferred stock financings to the effect that, until dividends have been paid or declared or set apart for payment on all shares of the respective company’s cumulative preferred stock, (a) no distributions on the respective company’s common stock or any future class of stock except cumulative preferred stock shall be made and (b) the respective company shall not purchase or otherwise acquire any of the respective company’s common stock or any future class of stock except cumulative preferred stock. In the event of liquidation, dissolution, receivership, bankruptcy, disincorporation or winding up of the affairs of the respective company, cumulative preferred stockholders are entitled to the par value of their shares and accrued and unpaid dividends, before any distribution is made to holders of the respective company’s common stock or any future class of stock except cumulative preferred stock.

3.
Hawaiian Electric is subject to restrictive covenants in connection with its cumulative preferred stock financings to the effect that, as long as any shares of the respective series of cumulative preferred stock are outstanding, Hawaiian Electric shall not affect the merger or consolidation of Hawaiian Electric, or sell, lease or exchange all or substantially all of the property and assets of Hawaiian Electric without first obtaining the consent in writing of the holders of at least 75% of each of the respective outstanding series of cumulative preferred stock, provided that said consent shall not be required to make a mortgage, pledge, assignment or transfer of all or any part of its assets as security for any obligation or liability of any kind or nature.

4. Hawaiian Electric, Maui Electric and Hawaii Electric Light are subject to restrictive covenants in connection with their special purpose revenue bonds which contain provisions to the effect that Hawaiian Electric, Maui Electric and Hawaii Electric Light shall not dissolve or otherwise dispose of all or substantially all its assets, and will not

6


consolidate with or merge into another entity or permit other entities to consolidate with or merge into it, unless certain specific requirements are met.

5.
Hawaiian Electric, Maui Electric and Hawaii Electric Light are subject to restrictive covenants in connection with their note purchase agreements dated as of April 19, 2012, October 3, 2013 and October 15, 2015 and Hawaiian Electric’s note purchase agreements dated as of September 13, 2012 and December 15, 2016 (together the “Note Agreements”), pursuant to which several series of unsecured notes were issued in private placements. The Note Agreements contain affirmative and negative restrictions, including a negative covenant that Hawaiian Electric will not permit the ratio of any Significant Subsidiaries’ Consolidated Subsidiary Funded Debt to its Capitalization exceed a specified level, and this restriction could operate indirectly to restrict the ability of Significant Subsidiaries to make Restricted Payments (as defined in Section 1.01 of the Credit Agreement) to Hawaiian Electric. Hawaiian Electric also entered into three similar note purchase agreements of the same April 19, 2012, October 3, 2013 and October 15, 2015 dates under which it is a “Guarantor” of Maui Electric (in three such agreements) and a Guarantor of Hawaii Electric Light (in three other such agreements). Each of these agreements contains similar negative covenants relating to Maui Electric and Hawaii Electric Light (as well as Hawaiian Electric) relating to their respective Consolidated Subsidiary Funded Debt to Capitalization ratios and those of their respective Significant Subsidiaries. The affirmative and negative restrictions are disclosed in the Current Reports on Form 8-K filed with the SEC on April 23, 2012, September 14, 2012, October 7, 2013, October 16, 2015 and December 19, 2016, which descriptions are incorporated herein by reference.




7



EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
Assignment and Acceptance Agreement (as the same may be amended, supplemented or otherwise modified from time to time, this “ Assignment and Acceptance Agreement ”), dated as of 20__ by and between [ NAME OF ASSIGNOR ], a Lender under the Credit Agreement referred to below (the “ Assignor ”), and [ NAME OF ASSIGNEE ] (the “ Assignee ”).
R E C I T A L S
A.
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017, among Hawaiian Electric Company, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Issuing Bank and Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.
B.
Pursuant to the Credit Agreement and subject to the limitations set forth therein the Credit Parties agreed to make the Revolving Loans and participate in the Letter of Credit sub-facility under the terms and conditions therein set forth.
C.
The amount of the Assignor’s Revolving Commitment and Letter of Credit Commitment (without giving effect to the assignment effected hereby or to other assignments thereof which have not yet become effective) is specified in Item 1 of Schedule 1 hereto. The outstanding principal amount of the Assignor’s Revolving Loans without giving effect to the assignment effected hereby or to other assignments thereof which have not yet become effective, is specified in Item 2 of Schedule 1 hereto.
D.
The Assignor wishes to sell and assign to the Assignee, and the Assignee wishes to purchase and assume from the Assignor, (i) the portion of the Assignor’s rights and obligations under the Loan Documents, including its Revolving Commitment and Letter of Credit Commitment specified in Item 3 of Schedule 1 hereto (collectively, the “ Assigned Commitment ”)[, and (ii) the portion of the Assignor’s Revolving Loans specified in Item 4 of Schedule 1 hereto (the “ Assigned Loans ”)].
The parties agree as follows:
1. Assignment
Subject to the terms and conditions set forth herein and in the Credit Agreement, the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse, on the date hereof, [(i) all right, title and interest of the Assignor in and to the Assigned Loans, and (ii)] all rights and obligations of the Assignor under the Loan Documents with respect to the Assigned Commitment. [As full consideration for the sale of the Assigned Loans, the Assignee shall pay to the Assignor on the date hereof an amount equal to the principal amount of the Assigned Loans or such other amount as shall be agreed upon by the Assignor and the Assignee (the “ Purchase Price ”), and the [Assignor/Assignee] shall pay the fee payable to the Administrative Agent pursuant to Section 10.04(b) of the Credit Agreement] [The [Assignor/Assignee] shall pay the fee payable to the Administrative Agent pursuant to Section 10.04(b) of the Credit Agreement].
2. Representations and Warranties

A-1



(a)  Each of the Assignor and the Assignee represents and warrants to the other that (i) it has full power and legal right to execute and deliver this Assignment and Acceptance Agreement and to perform the provisions of this Assignment and Acceptance Agreement; (ii) the execution, delivery and performance of this Assignment and Acceptance Agreement have been authorized by all action, corporate or otherwise, and do not violate any provisions of its organizational documents or any contractual obligations or requirement of law binding on it; and (iii) this Assignment and Acceptance Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. The Assignor further represents that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor.
(b)  The Assignee represents and warrants to the Assignor (i) it is an “accredited investor” within the meaning of Regulation D of the SEC, as amended, and (ii) it has, independently and without reliance upon the Administrative Agent, any arranger of the credit facilities evidenced by the Credit Agreement, the Assignor and their respective Related Parties, and based on such documents and information as it has deemed appropriate, made its own evaluation of, and investigation into, the business, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries and made its own decision to enter into this Assignment and Acceptance Agreement.
3. Effect of Assignment.
(a)  Upon the effective date hereof, (i) the Administrative Agent shall record the assignment contemplated hereby, (ii) the Assignee, unless already a Lender, shall become a Lender, with all the rights and obligations as a Lender under the Credit Agreement, and (iii) the Assignor, to the extent of the assignment provided for herein, shall be released from its obligations under the Loan Documents, with respect to the [Assigned Loans and] Assigned Commitment.
(b)  The Assignee hereby appoints and authorizes the Administrative Agent to take such action, on and after the date hereof, as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to such Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto.
(c)  From and after the effective date hereof, the Credit Parties and the Borrower shall make all payments in respect of the interest assigned hereby (including payments of principal, interest, fees and other amounts) to the Assignee. The Assignor and the Assignee shall make all appropriate adjustments directly between themselves with respect to amounts under the Loan Documents which accrued prior to the date hereof and which were paid thereafter.
4. Method of Payment
All payments to be made either to the Assignor or the Assignee by the other hereunder shall be made by wire transfer in immediately available funds to the account designated by the Assignor or the Assignee, as the case may be.
5. Notices
All notices, requests and demands to or upon the Assignee in connection with this Assignment and Acceptance Agreement and the Loan Documents are to be sent or delivered to the place set forth adjacent to its name on the signature page(s) hereof.

A-2



6. Miscellaneous
(a)  For purposes of this Assignment and Acceptance Agreement, all calculations and determinations with respect to [the Assigned Loans,] the Assigned Commitment and all other similar calculations and determinations, shall be made and shall be deemed to be made as of the commencement of business on the date of such calculation or determination, as the case may be.
(b)  Section headings have been inserted herein for convenience only and shall not be construed to be a part hereof.
(c)  This Assignment and Acceptance Agreement embodies the entire agreement and understanding between the Assignor and the Assignee with respect to the subject matter hereof and supersedes all other prior arrangements and understandings between the Assignor and the Assignee with respect to the subject matter hereof.
(d)  This Assignment and Acceptance Agreement may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same agreement. It shall not be necessary in making proof of this Assignment and Acceptance Agreement to produce or account for more than one counterpart signed by the party to be charged. Acceptance and adoption of the terms of this Assignment and Acceptance Agreement by the Assignee and the Assignor by Electronic Signature or delivery of an executed counterpart of a signature page of this Assignment and Acceptance Agreement by any Electronic System shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance Agreement.
(e)  Every provision of this Assignment and Acceptance Agreement is intended to be severable, and if any term or provision hereof shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions hereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction.
(f)  This Assignment and Acceptance Agreement shall be binding upon and inure to the benefit of the Assignor and the Assignee and their respective successors and permitted assigns, except that neither party may assign or transfer any of its rights or obligations hereunder (i) without the prior written consent of the other party, and (ii) in contravention of the Credit Agreement.
(g)  This Assignment and Acceptance Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the law of the State of New York without regard to principles of conflict of laws.
(h)  This Assignment and Acceptance Agreement shall become effective on the date it has been executed by the Assignor, the Assignee, the Administrative Agent, if a Revolving Commitment is being assigned, the Issuing Bank and the Swingline Lender and, unless a Default under Section 8(a), 8(h) or 8(i) of the Credit Agreement, or an Event of Default, has occurred and is continuing, the Borrower.
(i) The Assignee agrees to deliver to the Administrative Agent a completed Administrative Questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about

A-3


the Borrower and its Related Parties or their respective securities) will be made available and who may receive such information in accordance with the Assignee’s compliance procedures and applicable laws, including federal and state securities laws.
[Signature Pages To Follow]

A-4




IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
 
[ NAME OF ASSIGNOR ], as Assignor
 
 
 
 
 
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
 
 
 
Address for notices
[ NAME OF ASSIGNEE ], as Assignee
 
 
_______________________________________
By:________________________________________
_______________________________________
Name:______________________________________
_______________________________________
Title:_______________________________________
Attention: ___________________________
 
 
 
 
 
Telephone: (___) ____-_______
 
Facsimile: (___) ____-_______
 
 
 
Consented to and  Accepted this __ day:
 
of _________, ____
 
 
 
 
 
JPMORGAN CHASE BANK, N.A., as
 
[Administrative Agent, Swingline Lender and Issuing Bank] 1
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 

[Assignment and Acceptance Agreement]




_____________________________________  
1 Delete if consent is not required by Section 10.04(b) of the Credit Agreement.


A-5



[ Consented to and] 2 Accepted this __ day:
of _________, ____

HAWAIIAN ELECTRIC COMPANY, INC.
 
 
 
 
 
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
 
 
 
 
 
 
By:________________________________________
 
Name:______________________________________
 
Title:_______________________________________
 
 
 

[Assignment and Acceptance Agreement]











_____________________________________  
2 Delete if consent is not required by Section 10.04(b) of the Credit Agreement.



A-6



SCHEDULE 1
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT,
dated as of _____ ___, 20__,
between [NAME OF ASSIGNOR], as Assignor
and
[NAME OF ASSIGNEE], as Assignee,
relating to the
Second Amended and Restated Credit Agreement, dated as of June [___], 2017,
by and among
Hawaiian Electric Company, Inc.,
the Lenders party thereto
and
JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank
Item 1.
Amount of Assignor’s Aggregate Commitment*:
 
 
 
 
(a) Revolving Commitment
 
 
(b) Letter of Credit Commitment
$_________
 
 
 
Item 2.
Outstanding principal balance/amount of the Assignor’s Revolving Loans * :
 
 
 
 
(a) Revolving Loans consisting of:
$_________
 
 
 
 
ABR Borrowing
$_________
 
Eurodollar Borrowing
$_________
 
 
 
Item 3.
Amount of Revolving Commitment and/or Letter of Credit Commitment being assigned:
 
 
 
 
(a) Revolving Commitment
$_________
 
(b) Letter of Credit Commitment
$_________
 
 
 
Item 4.
Outstanding principal balance/amount of the Revolving Loans being assigned:
 
 
 
 
(a) Revolving Loans consisting of:
$_________
 
 
 
 
ABR Borrowing
$_________
 
Eurodollar Borrowing
$_________

_____________________________________  
* Without giving effect to the assignment contemplated hereby or to other assignments which have not yet become effective.


A-7


EXHIBIT B-1
FORM OF OPINION LETTER OF PILLSBURY WINTHROP SHAW PITTMAN LLP
[ATTACHED]


B-1-1


pillsbury
Pillsbury Winthrop Shaw Pittman LLP
1540 Broadway | New York, NY 10036‑4039 | tel 212.858.1000 | fax 212.858.1500

June 30, 2017


JPMorgan Chase Bank, N.A., as Administrative Agent,
and the Lenders referred to in the
Credit Agreement (as defined below)
10 South Dearborn Street
Chicago, IL 60603

Re:
Legal opinion letter regarding Hawaiian Electric Company, Inc. Second Amended and Restated Credit Agreement dated as of June 30, 2017
Ladies and Gentlemen:
We have acted as special counsel to Hawaiian Electric Company, Inc., a Hawaii corporation (the “Company”), in connection with the negotiation, execution and delivery of the Second Amended and Restated Credit Agreement dated as of June 30, 2017 (the “Credit Agreement”), among the Borrower, the lenders party thereto (collectively, the “Lenders” and each, a “Lender”), the agents party thereto, and JPMorgan Chase Bank, N.A., a national banking association, as Administrative Agent (the “Administrative Agent”). Capitalized terms used herein and not otherwise defined shall have the respective meanings given such terms in the Credit Agreement. This opinion is rendered to you pursuant to Section 5.01(c)(i) of the Credit Agreement.
In preparing this letter, we have reviewed the following documents:
1. the Credit Agreement; and
2. the Notes dated the date hereof.
The documents described in (1) - (2) above are individually referred to as a “Document” and collectively as the “Documents.”
Subject to the assumptions, qualifications and other limitations set forth below, it is our opinion that:
1.    The Credit Agreement constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms. Each Note issued on the date hereof by the Borrower will, upon disbursement of the loan evidenced by such Note, constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms.





2. The execution and delivery by the Company of the Documents, and the performance by the Company of its obligations under the Documents, do not and will not (a) violate any order, decision, judgment or decree listed on Annex 1 hereto that is applicable to the Company or any of its properties (and which are those orders, decisions, judgments and decrees that the Company has asked us to review in connection with this letter), or (b) violate the Covered Law (as defined below).
3. Under the Covered Law, no Governmental Approval or Governmental Registration is required to have been obtained or made by the Company for the valid execution and delivery by it of the Documents, to borrow money under the Credit Agreement, and to perform its obligations under the Documents, except, in each case, for actions or filings required in connection with the ordinary course conduct by the Borrower of its business and ownership or operation by the Borrower of its assets.
4. The Company is not required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940.
In rendering our opinions, we have (a) without independent verification, relied, with respect to factual matters, statements and conclusions, on certificates, notifications and statements, whether written or oral, of governmental officials and individuals identified to us as officers and representatives of the Company and on the representations made by the Company in the Documents and (b) reviewed originals, or copies of such agreements, documents and records as we have considered relevant and necessary as a basis for our opinions. We note that, as counsel to the Company, we do not represent it generally and there may be facts relating to the Company of which we have no knowledge.
We have assumed (a) as to factual matters, the accuracy and completeness of all certificates, agreements, documents, records and other materials submitted to us; (b) the authenticity of original certificates, agreements, documents, records and other materials submitted to us; (c) the conformity with the originals of any copies submitted to us; (d) the genuineness of all signatures; (e) the legal capacity of all natural persons; (f) that each Document constitutes the valid, legally binding and enforceable agreement of the parties thereto under all applicable law (other than, in the case of the Company, the Covered Law of the State); (g) that the Company (i) is duly organized, validly existing and in good standing under the law of its jurisdiction of organization, (ii) has the power to execute and deliver, and to perform its obligations under, the Documents (iii) has duly taken or caused to be taken all necessary action to authorize the execution, delivery and performance by it of such Documents and (iv) has duly executed and delivered such Documents; (h) that the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Documents to which it is a party do not and will not (i) breach or violate (A) its Articles of Incorporation or Bylaws, (B) any agreement or instrument to which the Company or any of its affiliates is a party or by which the Company or any of its affiliates or any of their respective properties may be bound, (C) any authorization, consent, approval or license (or the like) of, or exemption (or the like) from, any governmental unit, agency, commission, department or other authority granted to or otherwise applicable to the Company or any of its affiliates or any of their respective properties (each a “Governmental Approval”), (D) any registration or filing (or the like) with, or report or notice (or the like) to, any governmental

-2


unit, agency, commission, department or other authority made by or otherwise applicable to the Company or any of its affiliates or any of their respective properties (each a “Governmental Registration”), (E) any order, decision, judgment or decree that may be applicable to the Company or any of its affiliates or any of their respective properties (other than the orders, decisions, judgments and decrees that are the subject of our opinion expressed in clause (c) or our opinion in paragraph 2(a)), (F) any law (other than the Covered Law), or (ii) require any Governmental Approval or any Governmental Registration (other than the Governmental Approvals and Governmental Registrations that are the subject of our opinion expressed in paragraph 3; (j) that there are no agreements, understandings or negotiations between the parties not set forth in the Documents that would modify the terms thereof or the rights and obligations of the parties thereunder; and (k) for purposes of our opinion in paragraph 1 as it relates to the choice-of-law provisions in the Documents, that the choice of law of the State as the governing law of the Documents would not result in a violation of an important public policy of another state or country having greater contacts with the transactions contemplated by the agreement than the State (as defined below).
Our opinions are subject to and limited by the effect of (a) applicable bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, receivership, conservatorship, arrangement, moratorium and other similar laws affecting and relating to the rights of creditors generally; (b) general equitable principles; (c) requirements of reasonableness, good faith, fair dealing and materiality; (d) Article 9 of the Uniform Commercial Code regarding restrictions on assignment or transfer of rights or the creation, attachment, perfection or enforcement of security interests; and (e) additionally in the case of (i) indemnities, a requirement that facts, known to the indemnitee but not the indemnitor, in existence at the time the indemnity becomes effective that would entitle the indemnitee to indemnification be disclosed to the indemnitor, and a requirement that an indemnity provision will not be read to impose obligations upon indemnitors which are neither disclosed at the time of its execution nor reasonably within the scope of its terms and overall intention of the parties at the time of its making, (ii) waivers, Sections 9-602 and 9-603 of the Uniform Commercial Code, and (iii) indemnities, waivers and exculpatory provisions, public policy.
We express no opinion with respect to (a) provisions of the Documents that provide for cumulative remedies, (ii) rules of evidence or quantum of proof, (iii) consent to jurisdiction and waiver of inconvenient forum, insofar as such provisions relate to federal courts (except as to the personal jurisdiction thereof, (iv) forum selection, (v) waiver of jury trial, insofar as such provision is sought to be enforced in a federal court and (vi) choice of venue (i.e., requiring actions to be commenced in a particular court in a particular jurisdiction).
We express no opinion as to the law of any jurisdiction other than the law of the State of New York (the “State”) , and the federal law of the United States of America, and in each case, only such law that a lawyer exercising customary professional diligence would reasonably be expected to recognize as being applicable to transactions of the type reflected in the Documents and excluding (i) any law that is part of a regulatory regime applicable to

-3


specific assets or businesses of any party to any of the Documents and (ii) the statutes and ordinances, the administrative decisions, and the rules and regulations of counties, towns, municipalities and special political subdivisions (the law so addressed by this letter, the “ Covered Law ”).
This letter speaks only as of the date hereof. We have no responsibility or obligation to update this letter or to take into account changes in law or facts or any other development of which we may later become aware.
This letter is delivered by us as counsel for the Company solely for your benefit in connection with the transaction referred to herein and may not be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person or entity without our prior written consent. At your request, we hereby consent to reliance hereon by any future assignee of your interest in the loans under the Credit Agreement pursuant to an assignment that is made and consented to in accordance with the express provisions of Section 10.04 of the Credit Agreement, on the condition and the understanding that (i) any such reliance by a future assignee must be actual and reasonable under the circumstances, (ii) we have no responsibility or obligation to consider the applicability or correctness of this letter to any person or entity other than its named addressee or addressees or at any time other than as of the date hereof, and (iii) any such assignee may rely on this letter to no greater extent than you may as of the date hereof but any such assignee also is subject to any changes or developments up to the time it acquires its interest, that may adversely affect the opinions and matters referred to in this letter.
Very truly yours,


-4


ANNEX I
None



EXHIBIT B-2
FORM OF OPINION LETTER OF SUSAN A. LI, ESQ., SENIOR VICE PRESIDENT, GENERAL COUNSEL, CHIEF COMPLIANCE & ADMINISTRATIVE OFFICER & CORPORATE SECRETARY OF THE BORROWER
[ATTACHED]

B-2-1


SLHEADER.JPG June 30, 2017
JPMorgan Chase Bank, N.A., as Administrative Agent,
and the Lenders referred to in the
Credit Agreement (as defined below)
10 South Dearborn Street
Chicago, IL 60603

Re: Hawaiian Electric Company, Inc.
Ladies and Gentlemen:
I am the Senior Vice President, General Counsel, Chief Compliance & Administrative Officer & Corporate Secretary of Hawaiian Electric Company, Inc., a Hawaii corporation (the “ Borrower ”), and, as such, I have acted as in-house counsel to the Borrower in connection with the Second Amended and Restated Credit Agreement dated as of June 30, 2017 (the “ Credit Agreement ”), among the Borrower, the lenders party thereto (collectively, the “ Lenders ” and each, a “ Lender ”), the agents party thereto, and JPMorgan Chase Bank, N.A., a national banking association, as Administrative Agent (the “ Administrative Agent ”). Capitalized terms used herein and not otherwise defined shall have the respective meanings given such terms in the Credit Agreement. This opinion is rendered to you pursuant to Section 5.01(c)(ii) of the Credit Agreement.
In connection with this opinion, I have examined originals or copies of the following documents:
(i) the Credit Agreement;
(ii) the Notes;
(iii) the Amended Articles of Incorporation, as amended (the “ Borrower’s Charter ”) of the Borrower, as filed with the Director of Commerce and Consumer Affairs for the State of Hawaii;
(iv) the Amended and Restated By-Laws of the Borrower (the “ Borrower’s By-Laws ”; and, together with the Borrower’s Charter, the “ Governing Documents ”);
(v) the Certificate of the Secretary of the Borrower, as of the date hereof (the “ Secretary’s Certificate ”), as to certain actions taken by the Board of Directors of the Borrower on November 2, 2011 as to the titles, incumbency, and specimen signatures of certain officers of the Borrower; and
(vi) a Certificate of Good Standing issued by the Director of the Department of Commerce and Consumer Affairs of the State of Hawaii. SLFOOTERA02.JPG



The documents specified in subparagraphs (i) and (ii) above are referred to herein, collectively, as the “ Loan Documents ”. In rendering this opinion, I have obtained such certificates and other information from public and government officials and from officers and employees of the Borrower, and have also examined such documents and corporate and other records as I have considered necessary or appropriate for the purposes of this opinion.
Based on the foregoing and subject to the other qualifications, assumptions and limitations stated herein and as limited thereby, and after examination of such matters of law as I have deemed relevant, I am of the opinion that:
1.      The Borrower has been duly incorporated under the laws of the Kingdom of Hawaii and is validly existing as a corporation in good standing under the laws of the State of Hawaii. To my knowledge, the Borrower does not itself conduct any business or own or lease any property in any jurisdiction outside the State of Hawaii that would require it to qualify to do business as a foreign corporation and where the failure to be so qualified would reasonably be expected to result in a material adverse effect on the consolidated financial position of the Borrower.
2.      The Borrower has the corporate power and authority to carry on its business as now conducted.
3.      The execution and delivery by the Borrower of the Loan Documents, and the performance by the Borrower of its obligations under the Loan Documents, are within the Borrower’s corporate powers and have been duly authorized by all requisite corporate action on the part of the Borrower. The Borrower has duly executed and delivered each of the Loan Documents.
4.      Each of the Loan Documents constitutes a valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws affecting creditors’ rights, by general equitable principles (regardless of whether considered in a proceeding in equity or at law), and by an implied covenant of reasonableness, good faith and fair dealing.
5.      The execution and delivery by the Borrower of each of the Loan Documents and the consummation of the transactions contemplated thereby and compliance by the Borrower with the provisions thereof (i) will not conflict with or result in a breach or default (or give rise to any right of termination, cancellation or acceleration) under any of the provisions of the Borrower’s Governing Documents or any indenture or other material agreement or other material instrument binding upon the Borrower, except for such conflict, breach or default as to which requisite waivers or consents have been obtained, (ii) will not violate any law, statute, rule or regulation, or any judgment, order, writ, injunction or decree of any court or other tribunal, applicable to the Borrower or any of its properties or assets which in my experience, without having made any special investigations as to the applicability of any specific law, rule or regulation, are normally applicable to transactions of the type contemplated by the Loan Documents, and (iii) will not result in the creation or imposition of any Lien on any asset of the Borrower. No consent or approval by, or any notification of or filing with, any court, public body or authority is required to be obtained or effected by the Borrower in connection with the execution, delivery and performance by the Borrower of its obligations under each of the Loan Documents or the consummation by the Borrower of the transactions contemplated thereby, except for the requisite approval of the Public




SLFOOTERA03.JPG



Utilities Commission of the State of Hawaii referred to in Section 2.05 of the Credit Agreement in order to extend the term of the Credit Agreement to more than 364 days.
6.      To my knowledge, there is no action, suit or proceeding pending against, the Borrower or any of its assets before any court or arbitrator or any governmental body, agency or official which would reasonably be expected to have a material adverse effect on the consolidated financial position of the Borrower, except for any actions, suits or proceedings referred to in the Current SEC Reports, or which in any manner draws into question the validity of the Loan Documents.
7.      The Company is not required to be registered as an “investment company” within the meaning of the Investment Company Act of 1940.
The foregoing opinions are subject to the following qualifications:
(a)      I am a member of the Bar of the State of Hawaii and I do not hold myself out as an expert on the laws of any jurisdiction other than the State of Hawaii and the federal laws of the United States. This opinion is limited in all respects to matters governed by the laws of the State of Hawaii and the federal laws of the United States of America. I express no opinion concerning compliance with the laws or regulations of any other jurisdiction or jurisdictions, or as to the validity, meaning or effect of any act or document under the laws of any other jurisdiction or jurisdictions. My opinion with regard to the validity, binding nature and enforceability of each of the Loan Documents is based upon the assumptions that the laws of the State of New York govern the Loan Documents and that the laws of the State of Hawaii are the same in all relevant respects as the laws of the State of New York, and I give no opinion with respect to the enforceability of the Loan Documents to the extent that the laws of the State of New York differ from the laws of the State of Hawaii.
(b)      I have relied as to matters of fact upon representations and warranties of the Borrower in the Loan Documents and upon certificates and representations of officers and employees of the Borrower and upon certificates of public and government officials as to matters set forth therein. My opinion in paragraph 1 as to the good standing of the Borrower is based solely on the Certificate of Good Standing of the Borrower attached to the Secretary’s Certificate.
(c)      I have assumed the genuineness of all signatures (other than the signatures of the officers of the Borrower), the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies (and the authenticity of the originals of such documents), the accuracy and completeness of all corporate records (which includes stock ownership records) made available to me by Borrower and the capacity of each party executing a document (other than Borrower) to so execute such document.
(d)      My opinion is subject to the qualification that enforcement of any waiver and release or limitation of liability provisions in any of the Loan Documents may be limited to the extent such provisions are contrary to public policy or principles of equity under Hawaii jurisprudence, but such policy and equitable limitations do not, in my opinion, render the Loan Documents invalid as a whole or preclude the judicial enforcement of the obligation of the Borrower to repay the principal, together with interest thereon (to the extent not deemed a penalty) as provided in the Loan Documents.



SLFOOTERA04.JPG




(e)      The remedies of specific performance, injunction and other forms of equitable relief may not be available as to the provisions contained in any of the Loan Documents to the extent they are subject to equitable defenses and the discretion of the court before which the proceedings therefor may be brought.
(f)      I express no opinion as to the validity, binding effect or enforceability of any provision of any of the Loan Documents (i) which requires further agreement by the parties or expressly or impliedly permits any party to take discretionary action which is arbitrary, unreasonable or capricious, or would violate any implied covenant of good faith or would be commercially unreasonable, whether or not such action is permitted according to the specific terms of any of the Loan Documents, or (ii) regarding remedies available to any party for violations or breaches which are determined by a court to be nonmaterial or without substantial adverse effect upon the ability of the obligor to perform its material obligations thereunder.
(g)      My opinion is subject to the qualification that any requirement in any of the Loan Documents specifying that provisions thereof may only be waived in writing may not be binding or enforceable to the extent that a non-executory oral agreement has been created modifying any provision in the Loan Documents or an implied agreement by trade practice or course of conduct has been created allowing a waiver.
(h)      I express no opinion as to the validity, binding effect or enforceability of provisions specifying certain remedies or that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, and/or that the election of a particular remedy does not preclude recourse to one or more others.
(i)      My opinion is subject to (i) limitations on the legality, validity, binding effect or enforceability of provisions which a court may find unconscionable, and (ii) limitations on the legality, validity, binding effect or enforceability of agreements to indemnify, defend or hold harmless when the event giving rise to the obligations thereunder are caused, in whole or in part, by the actions, omissions, or negligence of the indemnitee thereunder or when the enforcement of any such agreements is against public policy.
(j)      Whenever an opinion expressed herein is qualified by the phrase “to my knowledge,” “known to me,” or “nothing has come to my attention” or other phrase of similar import, such phrase is intended to mean the actual knowledge of information by the lawyers in my law department who have been principally involved in drafting the Loan Documents, but does not include other information that might be revealed if there were to be undertaken a canvass of all lawyers in the Borrower’s law department, a general search of all files or any other type of independent investigation.
This opinion is based on the laws and regulations as in effect on the date hereof and facts as I understand them as of the date hereof. I am not assuming any obligation, and do not undertake, to revise, update or supplement this opinion after the date hereof notwithstanding any change in applicable law or regulation or interpretation thereof, any amendment, supplement, modification or rescission of any document examined or relied on in connection herewith, or any change in the facts, after the date hereof.
You may rely upon this opinion only for the purpose served by the provision in the Credit Agreement cited in the initial paragraph of this opinion letter in response to which it has been delivered. Without my written consent: (i) no Person other than you may rely on this opinion letter for any purpose; (ii) this

SLFOOTERA05.JPG




opinion letter may not be cited or quoted in any financial statement, prospectus, private placement memorandum or other similar document; (iii) this opinion letter may not be cited or quoted in any other document or communication which might encourage reliance upon this opinion letter by any Person or for any purpose excluded by the restrictions in this paragraph; and (iv) copies of this opinion letter may not be furnished to anyone for purposes of encouraging such reliance. At your request, I hereby consent to reliance hereon by any future assignee of your interest in the loans under the Credit Agreement pursuant to an assignment that is made and consented to in accordance with the express provisions of Section 10.04 of the Credit Agreement, on the condition and the understanding that (i) any such reliance by a future assignee must be actual and reasonable under the circumstances, (ii) I have no responsibility or obligation to consider the applicability or correctness of this letter to any person or entity other than its named addressee or addressees or at any time other than as of the date hereof, and (iii) any such assignee may rely on this letter to no greater extent than you may as of the date hereof but any such assignee also is subject to any changes or developments up to the time it acquires its interest, that may adversely affect the opinions and matters referred to in this letter.
Very truly yours,




/s/ Susan A. Li
Senior Vice President, General Counsel,
Chief Compliance & Administrative Officer
and Corporate Secretary














SLFOOTERA05.JPG



EXHIBIT C
FORM OF NOTE
$_______________New York, New York
June [__], 2017
For value received, the undersigned, HAWAIIAN ELECTRIC COMPANY, INC., a Hawaii corporation (the “ Borrower ”), hereby promises to pay to [NAME OF LENDER] (the “ Lender ”) or its registered assigns, at the office of the Administrative Agent (hereinafter defined) located at 10 South Dearborn Street, Chicago, Illinois 60603 or at such other place as the Administrative Agent may designate in writing from time to time, the principal sum of ____________ DOLLARS ($_________) or, if less, the outstanding principal balance of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement (hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in the Credit Agreement. The Borrower also promises to pay interest on the unpaid principal balance hereof for the period such balance is outstanding, and all other amounts due under this Note, at said office of the Administrative Agent, in like money, at the rates of interest as provided in the Credit Agreement, on the date(s) and in the manner provided in the Credit Agreement.
The date and amount of each type of Loan made by the Lender to the Borrower under the Credit Agreement, and each payment of principal thereof, shall be recorded by the Lender on its books and endorsed by the Lender on Schedule I attached hereto or any continuation thereof; and in the absence of clearly demonstrated error, such Schedule shall constitute prima facie evidence thereof. No failure on the part of the Lender to make, or mistake by the Lender in making, any notation as provided in this paragraph shall in any way affect any Loan or the rights or obligations of the Lender or the Borrower with respect thereto.
This Note evidences the Loan(s) made by the Lender and referred to in the Second Amended and Restated Credit Agreement dated as of June [__], 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) by and among the Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Swingline Lender, Issuing Bank and Administrative Agent (the “ Administrative Agent ”) and is subject to and shall be construed in accordance with the provisions of the Credit Agreement and is entitled to the benefits and security set forth in the Loan Documents. All capitalized terms not defined herein shall have the meanings given to them in the Credit Agreement.
The Borrower shall be entitled to borrow, repay, prepay in whole or in part and reborrow the Loan(s) hereunder pursuant to the terms and conditions of the Credit Agreement.
The Borrower promises to pay, on demand, interest at the default rate pursuant to Section 3.01(c) of the Credit Agreement, from the expiration of any applicable grace period, on any overdue principal and, to the extent permitted by applicable law, overdue interest. The Credit Agreement also provides for the acceleration of the maturity of principal upon the occurrence of certain Events of Default and for prepayments on the terms and conditions specified in the Credit Agreement.
The Borrower waives diligence, presentment, demand, notice of dishonor, protest and any other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except to the extent that notice is specifically required under the Credit Agreement. The nonexercise by the holder of this Note of any of its rights hereunder in any particular instance shall not

C-1


constitute a waiver thereof in that or any subsequent instance. Unless and until an Assignment and Acceptance effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by the Administrative Agent and recorded in the Register as provided in the Credit Agreement, the Borrower and the Administrative Agent shall be entitled to deem and treat the Lender and the owner and holder of this Note and the Loan evidenced hereby.
This Note shall be governed by, and interpreted and construed in accordance with, the laws of the State of New York without regard to principles of conflict of laws.
THE BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO, UNDER OR IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). THE BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY CREDIT PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH CREDIT PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.
[signature page follows]



C-2


IN WITNESS WHEREOF , the Borrower has duly executed this Note the day and year first above written.
HAWAIIAN ELECTRIC COMPANY, INC.

By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     
[Signature Page to Note]





C-3


SCHEDULE I TO NOTE
DATE
AMOUNT OF LOAN
TYPE OF LOAN (EURODOLLAR OR ALTERNATE BASE RATE)
INTEREST RATE
INTEREST PERIOD
AMOUNT PAID
NOTATION MADE BY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


C-4


EXHIBIT D
FORM OF BORROWING REQUEST
_________, 20___
VIA HAND DELIVERY, FACSIMILE OR ELECTRONIC DELIVERY

JPMorgan Chase Bank, N.A., as Administrative Agent
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Facsimile No.: 888-292-9533

Copy to:

JPMorgan Chase Bank, N.A., as Administrative Agent
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Facsimile No.: 310-860-7110

Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), among Hawaiian Electric Company, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as swingline lender, issuing bank and administrative agent (the “ Administrative Agent ”). Capitalized terms used herein which are not defined herein are used as defined in the Credit Agreement.
(i) Pursuant to Section 2.03 of the Credit Agreement, the Borrower hereby gives notice of its intention to borrow Revolving Loans in an aggregate principal amount of $______ on _____, 20___ (a Business Day), which Borrowing shall consist of the following Borrowings:
Type of Borrowing (Eurodollar or ABR Borrowing)
Amount
Initial Interest Period for Eurodollar Borrowing
 
$___________
__ month[s]

(ii) The location and account to which funds are to be disbursed is the following:
Hawaiian Electric Company, Inc.
Account # ________________     
_________________________     
_________________________     
_________________________     
    
(iii) The Borrower hereby certifies that on the date hereof and on the Borrowing Date set forth above, and immediately after giving effect to the Borrowings requested hereby, no Default has or shall have occurred and be continuing.

D-1


(iv) The Borrower hereby certifies as follows, that on the date hereof and on the Borrowing Date set forth above: the representations and warranties contained in the Credit Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of the Credit Agreement) are true and correct in all material respects, in each case with the same effect as though such representations and warranties had been made on the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date).
[remainder of page intentionally left blank]

D-2




IN WITNESS WHEREOF , the Borrower has duly executed this Borrowing Request as of the date and year first written above.
 
Very truly yours,
HAWAIIAN ELECTRIC COMPANY, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     





D-3


EXHIBIT E
FORM OF LETTER OF CREDIT REQUEST
_____, 20___
VIA HAND DELIVERY, FACSIMILE OR ELECTRONIC DELIVERY
JPMorgan Chase Bank, N.A., as Issuing Bank
Global Trade Services
300 South Riverside Plaza
Chicago, IL 60606-0236
Attention: Standby LC Unit
Email: GTS.Client.Services@JPMChase.com
Facsimile No.: 312-233-2266

JPMorgan Chase Bank, N.A., as Administrative Agent
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Facsimile No.: 888-292-9533

Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among Hawaiian Electric Company, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as swingline lender, issuing bank and administrative agent (the “ Administrative Agent ”). Capitalized terms used herein which are not defined herein are used as defined in the Credit Agreement.
Pursuant to Section 2.09 of the Credit Agreement, the Borrower hereby requests that the Issuing Bank issue the Letter of Credit on _____, 20___ (the “ Issuance Date ”), in accordance with the information annexed hereto (attached additional sheets if necessary).
The Borrower hereby certifies that on the date hereof and on the Issuance Date set forth above, and immediately after giving effect to the issuance of the Letter(s) of Credit requested hereby no Default has or shall have occurred and be continuing.
The Borrower hereby certifies as follows, that on the date hereof and on the Issuance Date set forth above: the representations and warranties contained in the Credit Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of the Credit Agreement) are true and correct in all material respects, in each case with the same effect as though such representations and warranties had been made on the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct in all material respects on and as of such earlier date).
[remainder of page intentionally left blank]



E-1


IN WITNESS WHEREOF , the Borrower has duly executed this Letter of Credit Request as of the date and year first written above.

Very truly yours,
HAWAIIAN ELECTRIC COMPANY, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     











E-2


LETTER OF CREDIT INFORMATION
1.      Name of Beneficiary:___________________________________________________________________     
2.
Address of Beneficiary to which Letter of Credit will be sent:
____________________________________________________________________________________
3.      Obligations in respect of which the Letter of Credit is to be issued:
____________________________________________________________________________________
4.
Conditions under which a drawing may be made (specify any documentation required to be delivered with any drawing request):
____________________________________________________________________________________
____________________________________________________________________________________
5.      Maximum amount to be available under such Letter of Credit: $_________.
6.      Requested date of issuance: _______, 20___.
7.      Requested date of expiration: ______, 20___.





EXHIBIT F
FORM OF INCREASE REQUEST
INCREASE REQUEST, dated and effective as of _______, 20___, to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017, by and among Hawaiian Electric Company, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank (as the same may be further amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.
1. [Pursuant to Section 2.05(d) of the Credit Agreement, the Borrower hereby proposes to increase (the “ Revolving Increase ”) the Aggregate Revolving Commitment from $ to $ .
2. Each of the following Lenders has been invited by the Borrower, and is ready, willing and able to increase its Revolving Commitment as follows:
Name of Lender
Commitment Amount (after giving effect to the Revolving Increase)
 
$____________________

3. Each of the following proposed financial institutions (each, a “ Proposed Institution , and collectively, “ Proposed Institutions ”) has been invited by the Borrower, and is ready, willing and able to become a “Lender” and assume a Revolving Commitment under the Credit Agreement as follows:

Name of Proposed Institution
Commitment Amount
 
$____________________

4. The proposed effective date for the Revolving Increase is _____, 20___.]
5. The Borrower hereby represents and warrants to the Administrative Agent, each undersigned Lender and each such Proposed Institution that immediately before and after giving effect to the Increase no Default shall or would exist and be continuing and immediately after giving effect thereto, the Aggregate Revolving Commitments shall not have been increased pursuant to Section 2.05(d) to an amount which is greater than the sum of (x) $275,000,000 plus (y) the amount of the Revolving Commitment of each Lender that becomes a Defaulting Lender.
6. Pursuant to Section 2.05(d) of the Credit Agreement, by execution and delivery of this Increase Request, together with the satisfaction of all of the other requirements set forth in Section 2.05, each undersigned Lender and Proposed Institution shall have, on and as of the effective date of the Revolving Increase, a Revolving Commitment equal to the amount set forth above next to its name and in the event it is a Proposed Institution, shall be, and shall be deemed to be, a “Lender” under, and as such term is defined in, the Credit Agreement.




F-1


IN WITNESS WHEREOF , the parties hereto have caused this Increase Request to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

HAWAIIAN ELECTRIC COMPANY, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     
_________________________________,
as Lender
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

[Proposed Institution]

By: _________________________________         
Name: ______________________________     
Title: _______________________________     

Agreed and Consented to:
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent and Issuing Bank
By: _________________________________         
Name: ______________________________     
Title: _______________________________     
    




F-2



EXHIBIT G
FORM OF INTEREST ELECTION REQUEST
_____, 20___
VIA HAND DELIVERY, FACSIMILE OR ELECTRONIC DELIVERY
JPMorgan Chase Bank, N.A., as Administrative Agent
10 South Dearborn, Floor 7 th  
IL1-0010
Chicago, IL 60603-2003
Attention: Leonida Mischke
Facsimile No.: 888-292-9533

with a copy to:

JPMorgan Chase Bank, N.A., as Administrative Agent
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Facsimile No.: 310-860-7110

Ladies and Gentlemen:

Reference is made to the Second Amended and Restated Credit Agreement, dated as of June [__], 2017 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”), by and among Hawaiian Electric Company, Inc., a Hawaii corporation (the “ Borrower ”), the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Swingline Lender, Issuing Bank and Administrative Agent (the “ Administrative Agent ”). Capitalized terms used herein which are not defined herein are used as defined in the Credit Agreement.
Pursuant to Section 3.02 of the Credit Agreement, the Borrower hereby gives notice of its request to convert and/or continue Borrowings as set forth below:
(a) [effective on _____, 20___, to continue $_________ in principal amount of presently outstanding Eurodollar Borrowings having an Interest Period that expires on _____, 20___ to new Eurodollar Borrowings that have an Interest Period of ______ month[s];]
(b) [effective on _____, 20___, to convert $_________ in principal amount of presently outstanding Eurodollar Borrowings having an Interest Period that expires on _____, 20___, to new ABR Borrowings;]
(c) [effective on _____, 20___, to convert $__________ in principal amount of presently outstanding ABR Borrowings to new Eurodollar Borrowings having an Interest Period of _____ month[s].]
[remainder of page intentionally left blank]



G-1


IN WITNESS WHEREOF , the Borrower has duly executed this Interest Election Request as of the date and year first written above.

HAWAIIAN ELECTRIC COMPANY, INC.
By: _________________________________         
Name: ______________________________     
Title: _______________________________         

By: _________________________________         
Name: ______________________________     
Title: _______________________________     

[Signature page to Notice of Conversion]




G-2



HEI Exhibit 12.1 (page 1 of 2)
 
Hawaiian Electric Industries, Inc. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
 
Six months ended June 30
 
2017 (1)
 
2017 (2)
 
2016 (1)
 
2016 (2)
(dollars in thousands)
 
 
 
 
 
 
 
 
Fixed charges
 
 

 
 

 
 

 
 

Total interest charges
 
$
41,939

 
$
46,353

 
$
40,681

 
$
43,964

Interest component of rentals
 
3,263

 
3,263

 
3,069

 
3,069

Pretax preferred stock dividend requirements of subsidiaries
 
1,426

 
1,426

 
1,491

 
1,491

Total fixed charges
 
$
46,628

 
$
51,042

 
$
45,241

 
$
48,524

Earnings
 
 

 
 

 
 

 
 

Pretax income from continuing operations
 
$
110,262

 
$
110,262

 
$
121,091

 
$
121,091

Fixed charges, as shown
 
46,628

 
51,042

 
45,241

 
48,524

Interest capitalized
 
(2,323
)
 
(2,323
)
 
(1,724
)
 
(1,724
)
Earnings available for fixed charges
 
$
154,567

 
$
158,981

 
$
164,608

 
$
167,891

Ratio of earnings to fixed charges
 
3.31

 
3.11

 
3.64

 
3.46

 
Years ended December 31
 
2016 (1)
 
2016 (2)
 
2015 (1)
 
2015 (2)
 
2014 (1)
 
2014 (2)
(dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Fixed charges
 
 

 
 

 
 

 
 

 
 

 
 

Total interest charges
 
$
81,974

 
$
89,141

 
$
83,936

 
$
89,284

 
$
83,458

 
$
88,535

Interest component of rentals
 
6,200

 
6,200

 
6,065

 
6,065

 
6,366

 
6,366

Pretax preferred stock dividend requirements of subsidiaries
 
2,825

 
2,825

 
2,977

 
2,977

 
2,952

 
2,952

Total fixed charges
 
$
90,999

 
$
98,166

 
$
92,978

 
$
98,326

 
$
92,776

 
$
97,853

Earnings
 
 

 
 

 
 

 
 

 
 

 
 

Pretax income from continuing operations
 
$
371,951

 
$
371,951

 
$
252,898

 
$
252,898

 
$
263,708

 
$
263,708

Fixed charges, as shown
 
90,999

 
98,166

 
92,978

 
98,326

 
92,776

 
97,853

Interest capitalized
 
(3,727
)
 
(3,727
)
 
(3,265
)
 
(3,265
)
 
(3,954
)
 
(3,954
)
Earnings available for fixed charges
 
$
459,223

 
$
466,390

 
$
342,611

 
$
347,959

 
$
352,530

 
$
357,607

Ratio of earnings to fixed charges
 
5.05

 
4.75

 
3.68

 
3.54

 
3.80

 
3.65

 
See notes on page 2 of 2.




HEI Exhibit 12.1 (page 2 of 2)
 
Hawaiian Electric Industries, Inc. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
 
(continued)
 
Years ended December 31
 
2013 (1)
 
2013 (2)
 
2012 (1)
 
2012 (2)
(dollars in thousands)
 
 
 
 
 
 
 
 
Fixed charges
 
 

 
 

 
 

 
 

Total interest charges
 
$
85,315

 
$
90,407

 
$
83,020

 
$
89,443

Interest component of rentals
 
6,345

 
6,345

 
6,493

 
6,493

Pretax preferred stock dividend requirements of subsidiaries
 
2,886

 
2,886

 
2,943

 
2,943

Total fixed charges
 
$
94,546

 
$
99,638

 
$
92,456

 
$
98,879

Earnings
 
 

 
 

 
 

 
 

Pretax income from continuing operations
 
$
247,946

 
$
247,946

 
$
217,064

 
$
217,064

Fixed charges, as shown
 
94,546

 
99,638

 
92,456

 
98,879

Interest capitalized
 
(7,097
)
 
(7,097
)
 
(4,355
)
 
(4,355
)
Earnings available for fixed charges
 
$
335,395

 
$
340,487

 
$
305,165

 
$
311,588

Ratio of earnings to fixed charges
 
3.55

 
3.42

 
3.30

 
3.15


(1)
Excluding interest on ASB deposits.

(2)
Including interest on ASB deposits.


For purposes of calculating the ratio of earnings to fixed charges, “earnings” represent the sum of (i) pretax income from continuing operations (before adjustment for undistributed income or loss from equity investees) and (ii) fixed charges (as hereinafter defined, but excluding capitalized interest). “Fixed charges” are calculated both excluding and including interest on ASB’s deposits during the applicable periods and represent the sum of (i) interest, whether capitalized or expensed, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the estimate of the interest within rental expense and (iv) the non-intercompany preferred stock dividend requirements of HEI’s subsidiaries, increased to an amount representing the pretax earnings required to cover such dividend requirements.




Hawaiian Electric Exhibit 12.2
 
Hawaiian Electric Company, Inc. and Subsidiaries
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
 
 
 
Six months ended June 30
 
Years ended December 31
(dollars in thousands)
 
2017
 
2016
 
2016
 
2015
 
2014
 
2013
 
2012
Fixed charges
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Total interest charges
 
$
36,010

 
$
32,713

 
$
67,407

 
$
67,178

 
$
66,132

 
$
64,130

 
$
62,056

Interest component of rentals
 
1,752

 
1,545

 
3,249

 
3,060

 
3,244

 
2,793

 
2,690

Pretax preferred stock dividend requirements of subsidiaries
 
720

 
726

 
1,453

 
1,443

 
1,444

 
1,421

 
1,467

Total fixed charges
 
$
38,482

 
$
34,984

 
$
72,109

 
$
71,681

 
$
70,820

 
$
68,344

 
$
66,213

Earnings
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income attributable to Hawaiian Electric
 
$
47,649

 
$
61,764

 
$
143,397

 
$
136,794

 
$
138,721

 
$
124,009

 
$
100,356

Fixed charges, as shown
 
38,482

 
34,984

 
72,109

 
71,681

 
70,820

 
68,344

 
66,213

Income taxes
 
27,618

 
36,537

 
84,801

 
79,422

 
80,725

 
69,117

 
61,048

Interest capitalized
 
(2,323
)
 
(1,724
)
 
(3,727
)
 
(3,265
)
 
(3,954
)
 
(7,097
)
 
(4,355
)
Earnings available for fixed charges
 
$
111,426

 
$
131,561

 
$
296,580

 
$
284,632

 
$
286,312

 
$
254,373

 
$
223,262

Ratio of earnings to fixed charges
 
2.90

 
3.76

 
4.11

 
3.97

 
4.04

 
3.72

 
3.37

 
For purposes of calculating the ratio of earnings to fixed charges, “earnings” represent the sum of (i) pretax income before preferred stock dividends of Hawaiian Electric and before adjustment for undistributed income or loss from equity investees and (ii) fixed charges (as hereinafter defined, but excluding interest capitalized). “Fixed charges” represent the sum of (i) interest, whether capitalized or expensed, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the estimate of the interest within rental expense and (iv) the preferred stock dividend requirements of Hawaii Electric Light and Maui Electric, increased to an amount representing the pretax earnings required to cover such dividend requirements.




HEI Exhibit 31.1
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer)
 
I, Constance H. Lau, certify that:
 
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2017 of Hawaiian Electric Industries, Inc. (“registrant”);
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 3, 2017
 
 
/s/ Constance H. Lau
 
Constance H. Lau
 
President and Chief Executive Officer
 





HEI Exhibit 31.2
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Gregory C. Hazelton (HEI Chief Financial Officer)
 
I, Gregory C. Hazelton, certify that:
 
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2017 of Hawaiian Electric Industries, Inc. (“registrant”);
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 3, 2017
 
 
/s/ Gregory C. Hazelton
 
Gregory C. Hazelton
 
Executive Vice President and Chief Financial Officer
 





Hawaiian Electric Exhibit 31.3
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Alan M. Oshima
(Hawaiian Electric Chief Executive Officer)
 
I, Alan M. Oshima, certify that:
 
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2017 of Hawaiian Electric Company, Inc. (“registrant”);
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 3, 2017
 
 
/s/ Alan M. Oshima
 
Alan M. Oshima
 
President and Chief Executive Officer




Hawaiian Electric Exhibit 31.4
 
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer)
 
I, Tayne S. Y. Sekimura, certify that:
 
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2017 of Hawaiian Electric Company, Inc. (“registrant”);
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: August 3, 2017
 
 
/s/ Tayne S. Y. Sekimura
 
Tayne S. Y. Sekimura
 
Senior Vice President and Chief Financial Officer
 




HEI Exhibit 32.1
 
Hawaiian Electric Industries, Inc.
 
Certification Pursuant to
18 U.S.C. Section 1350
 
In connection with the Quarterly Report of Hawaiian Electric Industries, Inc. (HEI) on Form 10-Q for the quarter ended June 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the Report), we, Constance H. Lau and Gregory C. Hazelton, Chief Executive Officer and Chief Financial Officer, respectively, of HEI, certify, pursuant to 18 U.S.C. Section 1350, that to the best of our knowledge:
 
(1)   The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and
 
(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HEI and its subsidiaries as of, and for, the periods presented in this report.
 
Date: August 3, 2017
 
/s/ Constance H. Lau
Constance H. Lau
President and Chief Executive Officer
 
/s/ Gregory C. Hazelton
Gregory C. Hazelton
Executive Vice President and Chief Financial Officer
 
A signed original of this written statement has been provided to HEI and will be retained by HEI and furnished to the Securities and Exchange Commission or its staff upon request.
 





Hawaiian Electric Exhibit 32.2
 
Hawaiian Electric Company, Inc.
 
Certification Pursuant to
18 U.S.C. Section 1350
 
In connection with the Quarterly Report of Hawaiian Electric Company, Inc. (Hawaiian Electric) on Form 10-Q for the quarter ended June 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the Hawaiian Electric Report), we, Alan M. Oshima and Tayne S. Y. Sekimura, Chief Executive Officer and Chief Financial Officer, respectively, of Hawaiian Electric, certify, pursuant to 18 U.S.C. Section 1350, that to the best of our knowledge:
 
(1)   The Hawaiian Electric Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and
 
(2)   The Hawaiian Electric information contained in the Hawaiian Electric Report fairly presents, in all material respects, the financial condition and results of operations of Hawaiian Electric and its subsidiaries as of, and for, the periods presented in this report. 
 
Date: August 3, 2017
 
/s/ Alan M. Oshima
Alan M. Oshima
President and Chief Executive Officer
 
/s/ Tayne S. Y. Sekimura
Tayne S. Y. Sekimura
Senior Vice President and Chief Financial Officer
 
A signed original of this written statement has been provided to Hawaiian Electric and will be retained by Hawaiian Electric and furnished to the Securities and Exchange Commission or its staff upon request.