SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the
Securities Exchange Act of 1934
(Amendment No. )
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14(a)-12
Northwest Natural Gas Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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[COMPANY LOGO]
[GRAPHIC OMITTED]
220 N.W. SECOND AVENUE
PORTLAND, OR 97209
April 19, 2002
To the Shareholders of Northwest Natural Gas Company:
We cordially invite you to attend the 2002 Annual Meeting of Shareholders of
Northwest Natural Gas Company (the Company), which will be held in the Lloyd
Center Ballroom of the DoubleTree Hotel-Portland-Lloyd Center, 1000 N.E.
Multnomah Street, Portland, Oregon, on Thursday, May 23, 2002, commencing at
2:00 p.m. Pacific Daylight Time. We look forward to greeting as many of our
shareholders as are able to be with us.
At the meeting you will be asked to consider and vote upon (1) the election of
two directors; (2) the amendment and reapproval of the Restated Stock Option
Plan; and (3) the election of independent auditors. Your Board of Directors
unanimously recommends that you vote FOR proposals 1, 2 and 3.
In connection with the meeting, we enclose a notice of the meeting, a proxy
statement and a proxy card. Detailed information relating to the Company's
activities and operating performance is contained in our 2001 Annual Report,
which is also enclosed.
Whether or not you plan to attend, please vote your shares in one of three ways:
via Internet, telephone or mail. Instructions regarding Internet and telephone
voting are included on the proxy card. If you elect to vote by mail, please
sign, date and return the proxy card in the enclosed postage-paid envelope. Your
proxy may be revoked at any time before it is exercised in the manner set forth
in the proxy statement.
Sincerely,
/s/Richard G. Reiten
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Richard G. Reiten
Chairman and Chief Executive Officer
NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
NOTICE OF 2002 ANNUAL MEETING OF SHAREHOLDERS
Portland, Oregon, April 19, 2002
To the Shareholders:
The 2002 Annual Meeting of Shareholders of Northwest Natural Gas Company
will be held in the Lloyd Center Ballroom of the DoubleTree Hotel-Portland-Lloyd
Center, 1000 N.E. Multnomah Street, Portland, Oregon, on Thursday, May 23, 2002,
at 2:00 p.m., Pacific Daylight Time, for the following purposes:
(1) to elect two Class III directors to a term of three years;
(2) to amend and reapprove the Restated Stock Option Plan;
(3) to elect independent auditors for the year 2002; and
(4) to transact such other business as may properly come before the meeting or
any adjournment thereof.
Holders of Common Stock of record at the close of business on April 4,
2002 are entitled to vote upon all matters properly submitted to shareholder
vote at the meeting.
The Board of Directors of the Company is soliciting the proxies of all
holders of the Common Stock who may be unable to attend the meeting in person.
These proxies also will instruct the relevant fiduciary under the Company's
Dividend Reinvestment and Stock Purchase Plan, its Retirement K Savings Plan or
its Employee Stock Purchase Plan to vote any shares held for shareholders'
benefit under those Plans, as indicated on the proxies. A proxy and a stamped
return envelope are enclosed herewith for your use. No postage is needed if
mailed in the United States.
YOUR VOTE IS VERY IMPORTANT TO US.
WE URGE YOU TO VOTE BY PROMPTLY MARKING, SIGNING, DATING AND RETURNING THE
ENCLOSED PROXY CARD, OR BY GRANTING A PROXY BY TELEPHONE OR THE INTERNET IN
ACCORDANCE WITH THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD, AS SOON AS
POSSIBLE. YOUR PROMPT VOTE WILL SAVE THE COMPANY THE ADDITIONAL EXPENSE OF
FURTHER REQUESTS TO ENSURE THE PRESENCE OF A QUORUM. YOU MAY VOTE IN PERSON AT
THE MEETING WHETHER OR NOT YOU PREVIOUSLY HAVE RETURNED YOUR PROXY.
By Order of the Board of Directors,
/s/C.J. Rue
Secretary
NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
2002 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2002
PROXY STATEMENT
The Board of Directors of Northwest Natural Gas Company is soliciting the
proxies of all holders of the Common Stock who may be unable to attend in person
the Annual Meeting of Shareholders to be held in the Lloyd Center Ballroom of
the DoubleTree Hotel-Portland-Lloyd Center, 1000 N.E. Multnomah Street,
Portland, Oregon, on Thursday, May 23, 2002, at 2:00 p.m., Pacific Daylight
Time. The Company requests that you sign and return the enclosed proxy promptly.
Alternatively, you may grant your proxy by telephone or the Internet.
The Company's Annual Report for the fiscal year ended December 31, 2001,
including audited financial statements, has been mailed to all shareholders.
This proxy statement and the accompanying proxy card are being mailed to
shareholders commencing April 19, 2002.
The close of business on April 4, 2002 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting.
VOTING BY PROXY AND HOW TO REVOKE YOUR PROXY
You may vote your shares either in person or by duly authorized proxy. You
may use the proxy card accompanying this proxy statement if you are unable to
attend the meeting in person or you wish to have your shares voted by proxy even
if you do attend the meeting. If you are a registered shareholder, you may vote
by telephone, Internet or mail, or you may vote your shares in person at the
meeting. To vote:
BY TELEPHONE (DO NOT RETURN YOUR PROXY CARD)
o On a touch-tone telephone, call the toll-free number indicated on
your proxy card. Telephone voting is available 24 hours a day, 7
days a week, until 11:59 p.m. Eastern Daylight Time on May 22,
2002.
o Enter your control number indicated on your proxy card.
o Follow the simple recorded instructions.
BY INTERNET (DO NOT RETURN YOUR PROXY CARD)
o Go to the Web site indicated on your proxy card. Internet voting
is available 24 hours a day, 7 days a week, until 11:59 p.m.
Eastern Daylight Time on May 22, 2002.
o Enter your control number indicated on your proxy card.
o Follow the simple instructions.
BY MAIL
o Mark your choice on your proxy card. If you properly execute your
proxy card but do not specify your choice, your shares will be
voted "FOR" Proposals 1, 2 and 3, as recommended by the Company's
Board of Directors.
o Date and sign your proxy card.
o Mail your proxy card in the enclosed postage-paid envelope. If
your envelope is misplaced, send your proxy card to Northwest
Natural Gas Company, One Pacific Square, 220 N.W. Second Avenue,
Portland, Oregon 97209, Attention: Shareholder Services.
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You may revoke your proxy at any time before the proxy is exercised (1) by
delivering a written notice of revocation, (2) by filing with the corporate
secretary a subsequently dated, properly executed proxy, (3) by voting after the
date of the proxy by telephone or Internet, or (4) by attending the meeting and
voting in person. Your attendance at the meeting, by itself, will not constitute
a revocation of a proxy. You should address any written notices of proxy
revocation to:
Northwest Natural Gas Company
220 NW Second Ave.
Portland, OR 97209
Attention: Corporate Secretary
If your shares are held in nominee or street name by a bank or broker, you
should follow the directions on the instruction form you receive from your bank
or broker as to how to vote, change your vote, or revoke your proxy.
If an adjournment of the meeting occurs, it will have no effect on the
ability of shareholders of record as of the record date to exercise their voting
rights or to revoke any previously delivered proxies.
VOTING SECURITIES OF THE COMPANY
The 25,297,764 shares of Common Stock outstanding on March 15, 2002 were
held by 10,270 shareholders residing in 50 states, the District of Columbia,
Guam, Puerto Rico and a number of foreign countries.
Each holder of Common Stock of record at the close of business on April 4,
2002 will be entitled to one vote for each share of Common Stock so held on all
matters properly submitted at the meeting. Such holder will be entitled to
cumulative voting for directors; that is, to cast as many votes for one
candidate as shall equal the number of shares held of record multiplied by the
number of directors to be elected, or to distribute such number of votes among
any number of the candidates.
A majority of the shares of Common Stock outstanding at the close of
business on April 4, 2002 must be represented at the meeting, in person or by
proxy, to constitute a quorum for the transaction of business.
The holders of Preferred Stock do not participate in the election of
directors unless Preferred dividends are in arrears (none are in arrears). The
holders of the Preference Stock do not participate in the election of directors.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. YOU ARE
URGED, REGARDLESS OF THE NUMBER OF SHARES HELD, TO SIGN AND RETURN YOUR PROXY.
ALTERNATIVELY, YOU MAY GRANT YOUR PROXY BY TELEPHONE OR THE INTERNET AS
DESCRIBED ABOVE.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's Restated Articles of Incorporation provide that the Board of
Directors be comprised of not less than nine nor more than thirteen directors,
with the exact number of directors to be determined by the Board. The Board has
fixed the number of directors at twelve. However, the number of directors will
be reduced to ten upon the retirement, at the conclusion of this year's Annual
Meeting, of Mr. Benjamin R. Whiteley, who has served on the Board since 1989 and
who has reached the mandatory retirement age for Board service. In addition, Ms.
Mary Arnstad, who has served as a director since 1992, will not stand for
re-election to the Board. The Restated Articles also provide that the Board of
Directors be divided into three classes and that the number of directors in each
class be as nearly equal in number as possible.
Members of each class are elected to serve a three-year term with the
terms of office of each class ending in successive years. The term of Class III
directors expires with this year's Annual
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Meeting. Messrs. Thomas E. Dewey, Jr. and Richard G. Reiten are nominees for
election to the Board as Class III directors to serve until the 2005 Annual
Meeting or until their successors have been duly elected and qualified. Both of
these nominees were elected by the shareholders at the 1999 Annual Meeting. In
case either of the nominees should become unavailable for election for any
reason, the persons named in the proxy will have discretionary authority to vote
for a substitute. Management knows of no reason why either of the nominees would
be unable to serve if elected.
VOTE REQUIRED
Under Oregon law, if a quorum of shareholders is present at the Annual
Meeting, the two nominees who receive the greatest number of votes cast at the
meeting shall be elected directors. Abstentions and broker non-votes are counted
for purposes of determining whether a quorum exists at the Annual Meeting but
are not counted and have no effect on the results of the vote for directors.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF THE NOMINEES LISTED BELOW.
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INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
CLASS III
(FOR A THREE-YEAR TERM ENDING 2005)
THOMAS E. DEWEY, JR.
[PICTURE] Member, McFarland Dewey & Co., LLC, New York, New York
Age: 69
Director since: 1986
Board Committees: Finance (Chairman), Audit
Since 1989, Mr. Dewey has been a general partner (now member) in the
investment banking firm of McFarland Dewey & Co., LLC (formerly, McFarland Dewey
& Co.), which provides clients with independent financial advice, including
advice on corporate financial strategies and recapitalization proposals. He is
also a director of Genelabs Technologies, Inc., a trustee of The Scripps
Research Institute and Chairman Emeritus of Lenox Hill Hospital. Mr. Dewey is a
graduate of Princeton University and the Harvard Business School.
RICHARD G. REITEN
[PICTURE] Chairman and Chief Executive Officer of the Company, Portland,
Oregon
Age: 62
Director since: 1996
Board Committee: Executive
Mr. Reiten joined the Company as President and Chief Operating Officer and
was elected to the Board effective March 1, 1996. He was elected President and
Chief Executive Officer effective January 1, 1997, was appointed to the
additional position of Chairman of the Board in September 2000 and relinquished
the position of President in May 2001. Prior to joining the Company, from 1992
through 1995, Mr. Reiten served as President and Chief Operating Officer of
Portland General Electric Company (PGE) after serving as President of PGE's
parent company, Portland General Corporation (PGC), from 1989 through 1992. He
also served as a director of PGC from 1983 to 1987 and from 1990 to 1995 when he
retired from PGE. He is a director of U.S. Bancorp, The Regence Group and
Building Materials Holding Corporation. He serves on the boards of the American
Gas Association, American Electric and Gas Insurance Services, the United Way
and The Nature Conservancy of Oregon. He is a past General Chairman of the
United Way campaign for Portland and a past Chairman of both the Portland
Metropolitan Chamber of Commerce and the Association for Portland Progress. Mr.
Reiten is a graduate of the University of Washington and the executive and board
of directors programs at the Stanford Business School.
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MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS I
(TERM ENDING 2003)
RANDALL C. PAPE
[PICTURE] President and Chief Executive Officer, The Pape Group, Inc.,
Eugene, Oregon
Age: 51
Director since: 1996
Board Committees: Environmental Policy, Organization and
Executive Compensation, Pension (Chairman), Retirement (Chairman)
Since 1981, Mr. Pape has served as President, Chief Executive Officer
and a director of The Pape Group, Inc., a holding company for Pape Bros.,
Inc., Flightcraft, Inc., Hyster Sales Company, Ditch Witch Northwest,
Industrial Finance Co. and Pape Properties, Inc. He also is President, CEO
and a director of Liberty Financial Group, a holding company for LibertyBank
SB, EcoSort LLC, and Sanipac, Inc., and a partner in Pape Investment Company.
Mr. Pape is a director of Obie Media Corporation and a former director and
past president of Mt. Bachelor, Inc. He serves as a Commissioner to the
Oregon Department of Transportation, is a trustee and past chairman of the
University of Oregon Foundation, and also serves on the Oregon Business
Council and as a trustee for The Nature Conservancy of Oregon. He earned a
Bachelor of Science degree in Finance from the University of Oregon.
ROBERT L. RIDGLEY
[PICTURE] Retired Chairman of the Board of the Company, Portland, Oregon
Age: 68
Director since: 1984
Board Committees: Executive, Pension, Retirement, Finance,
Environmental Policy
Mr. Ridgley served as President and Chief Executive Officer of the Company
from 1985 until 1996 when he became Chairman of the Board and CEO. He retired as
CEO in 1996 and as Chairman of the Board in 1999. He is a director of Kaiser
Foundation Hospitals and the Kaiser Foundation Health Plan, and is a past
Chairman of the Oregon Business Council, the American Gas Association, the
Pacific Coast Gas Association and the Portland Area Chamber of Commerce. Mr.
Ridgley serves as an officer of the New Mexico Chapter of The Nature
Conservancy, as a trustee of the Oregon Health Sciences Foundation, and chairs
the Development Council for the Casey Eye Institute. He is a graduate of Cornell
University and the Harvard Law School.
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DWIGHT A. SANGREY
[PICTURE] Business Development Consultant, Portland, Oregon
Age: 61
Director since: 1992
Board Committees: Environmental Policy (Chairman), Audit
Mr. Sangrey works in the development of new businesses, primarily in
health care, engineering and information technologies. He has served as CEO
of Santa Fe Technologies, Inc. and Fraction Biologics, LLC, and from 1988
until 1994 was President of the Oregon Graduate Institute of Science &
Technology (OGI), and was Professor of Environmental Science and Engineering
at OGI until 1995. He is a managing director of Golder Associates Inc., and
a board member of Znomics Inc., Santa Fe Technologies, Inc., AirAdvice, Inc.,
the Oregon Health Assessment Project and Pacific University, and also serves
on several national education and science policy committees. Mr. Sangrey is
a graduate of Lafayette College, the University of Massachusetts and Cornell
University.
RICHARD L. WOOLWORTH
[PICTURE] Chairman and Chief Executive Officer, The Regence Group,
Portland, Oregon
Age: 60
Director since: 2000
Board Committees: Audit, Finance
Mr. Woolworth has served since 1995 as Chairman and CEO of The Regence
Group, the largest affiliation of Blue Cross and/or Blue Shield companies in the
western United States. With more than $5.3 billion in revenues, the Regence
health plans have some three million members in Oregon, Washington, Utah and
Idaho. He is also board chairman of Regence BlueCross BlueShield of Oregon and
Regence HMO Oregon, a director of the Columbia Mutual Funds, and chairman of the
Oregon Business Council. He is immediate past chair of the National Blue Cross
and Blue Shield Association, and past chairman of the Portland Chamber of
Commerce and regional fund drives for the United Way and the Juvenile Diabetes
Foundation. Mr. Woolworth is a certified public accountant and a graduate of
Lewis and Clark College in Portland.
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CLASS II
(TERM ENDING IN 2004)
TOD R. HAMACHEK
[PICTURE] Chairman and Chief Executive Officer, Penwest Pharmaceuticals
Company
Patterson, New York
Age: 56
Director since: 1986
Board Committees: Pension, Retirement, Organization and Executive
Compensation (Chairman)
Mr. Hamachek has served as Chairman and Chief Executive Officer of Penwest
Pharmaceuticals Company since October 1997. Penwest, which was spun off from
Penford Corporation in 1998, is engaged in the research, development and
commercialization of novel drug delivery products and technologies. From 1985
until 1998, Mr. Hamachek served as President and Chief Executive Officer of
Penford Corporation, a diversified producer of specialty paper, food starches
and pharmaceutical ingredients. He is a director of Penwest, The Seattle Times
Company and The Blethen Corporation (the majority owner of The Seattle Times
Company). He is a graduate of Williams College and the Harvard Business School.
WAYNE D. KUNI
[PICTURE] Chairman, Kuni Enterprises, Beaverton, Oregon
Age: 71
Director since: 1980
Board Committees: Executive, Audit (Chairman), Finance,
Organization and Executive Compensation
Mr. Kuni is the founder, Chairman and principal shareholder of Kuni
Enterprises, which owns Cadillac, Lexus, BMW and other automobile dealerships in
Oregon, Washington, Colorado and California. He is a past President of the
Oregon Automobile Dealers Association, the Portland Chamber of Commerce and the
Arlington Club. He serves on the Board of Keller Enterprises and formerly served
on the Board of Trustees of the Oregon Health Sciences Foundation. He is
Chairman Emeritus of the Board of Governors of the Portland Shriners Hospital.
Mr. Kuni is a graduate in business administration from Kettering University,
Flint, Michigan.
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MELODY C. TEPPOLA
[PICTURE] Managing Partner, National Builders Hardware Company, Portland,
Oregon
Age: 59
Director since: 1987
Board Committees: Executive, Pension, Retirement, Environmental
Policy
Ms. Teppola has been associated with National Builders Hardware Company, a
regional and national distributor of builders hardware, woodworking machinery
and decorative plumbing, since 1965, and a managing partner since 1975. Her
community activities have focused on art, education and advocacy for women and
children. She is a member of the Marquam Hill Steering Committee of the Oregon
Health Sciences University, the Public Art Advisory Committee of the Regional
Arts and Culture Council and the Advisory Board of the Port of Portland Mentor
Program. She also serves as a director of the Bonnie Bronson Fund of the Oregon
Community Foundation and the Portland Metropolitan Chamber of Commerce. Ms.
Teppola is a Mills College graduate.
RUSSELL F. TROMLEY
[PICTURE] President and Chief Executive Officer, Tromley Industrial
Holdings, Inc., Tualatin, Oregon
Age: 62
Director since: 1994
Board Committees: Audit, Finance
Mr. Tromley has served as President and Chief Executive Officer of Tromley
Industrial Holdings, Inc., since its formation in 1990. Tromley Industrial
Holdings is involved in nonferrous metals alloying and distribution, the
manufacture and sale of equipment for the foundry and steel industry, industrial
equipment leasing and industrial and retail business property investments. Mr.
Tromley is a past President of the Casting Industry Suppliers Association and of
the Arlington Club, and is a non-lawyer arbitrator for, and a member of the
House of Delegates of, the Oregon State Bar Association. He is a founding
director of The Bank of the Northwest, and also serves as a director of the
Evans Scholars Foundation and the Western Golf Association. Mr. Tromley attended
the University of Washington and the Harvard Business School.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES:
There are seven standing committees of the Board: the Audit,
Retirement, Pension, Organization and Executive Compensation, Environmental
Policy, Finance and Executive Committees.
The Audit Committee is comprised of directors Arnstad, Dewey, Kuni,
Sangrey, Tromley and Woolworth, each of whom is an outside director. The
Committee approves the work program of the Company's internal audit staff and
reviews the corporate audit and other internal accounting control matters with
the independent certified public accountants elected by the shareholders. It
reports regularly to the Board. The Committee held four meetings during 2001.
The Retirement Committee and the Pension Committee oversee the
administration of the Company's two defined benefit plans, the Retirement Plan
for Non-Bargaining Unit Employees and the Retirement Plan for Bargaining Unit
Employees. The Retirement Committee consists of directors Hamachek, Pape,
Ridgley and Teppola. These directors, together with a representative chosen by
the bargaining unit members, also constitute the Pension Committee. The two
Committees met five times during 2001.
The Organization and Executive Compensation Committee, which is comprised
of directors Hamachek, Kuni, Pape and Whiteley, each of whom is an outside
director, reviews the performance of executive officers, considers executive
compensation survey data in making recommendations to the Board relating to the
Company's executive compensation program and benefit plans and administers the
Restated Stock Option Plan and the Long-Term Incentive Plan. This Committee also
makes recommendations to the Board on organization and executive succession
matters. Four meetings of this Committee were held during 2001.
The Environmental Policy Committee develops and recommends to the Board
appropriate environmental policies and advises the Board concerning the status
of the Company's compliance with environmental regulations. The Committee is
comprised of directors Arnstad, Pape, Ridgley, Sangrey and Teppola. This
Committee held two meetings in 2001.
The Finance Committee is responsible for reviewing strategies and making
recommendations to the Board with respect to the Company's financing programs,
financial policy matters and material regulatory issues. The Committee consists
of directors Dewey, Kuni, Ridgley, Tromley and Woolworth. The Committee held
three meetings in 2001.
The Executive Committee is empowered, during intervals between Board
meetings, to exercise all of the authority of the Board in the management of the
Company, except as otherwise may be provided by law. This Committee has been
assigned the responsibility of recommending to the Board of Directors nominees
for election as directors. Shareholders' suggestions for director-nominees may
be submitted to the Secretary of the Company for consideration by the Executive
Committee. The Company's Restated Articles of Incorporation provide that no
person, except those nominated by the Board, shall be eligible for election as a
director at any annual or special meeting of shareholders unless a written
request that his or her name be placed in nomination, together with the written
consent of the nominee, shall be received from a shareholder of record entitled
to vote at such election by the Secretary of the Company on or before the later
of (a) the thirtieth day prior to the date fixed for the meeting, or (b) the
tenth day after the mailing of the notice of that meeting. This Committee, which
is comprised of directors Kuni, Reiten, Ridgley, Teppola and Whiteley, held one
meeting in 2001.
In 1994, the Board created the position of Lead Director and elected Mr.
Whiteley to the position. The Lead Director consults with the Chief Executive
Officer on Board organization matters, including the selection of committee
members and chairs. The Lead Director also chairs meetings of the Executive
Committee and regularly scheduled meetings of outside directors, which are held
at least twice each year, and coordinates the periodic evaluation by outside
directors of the Board's performance.
Directors who are not employees of the Company receive an annual retainer
of $10,000, a fee of $1,000 for each Board meeting attended and a fee of $800
for each Committee meeting attended. In
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addition, a $3,000 annual retainer is paid to each Committee chair, except the
chair of the Executive Committee/Lead Director who is paid $2,000 per month for
his services in these capacities.
During 2001, there were eight meetings of the Company's Board. No director
attended fewer than 75 percent of the total meetings of the Company's Board or
committees on which he or she served.
DIRECTORS DEFERRED COMPENSATION PLAN
Directors may elect to defer the receipt of all or a part of their
directors' fees under the Company's Directors Deferred Compensation Plan. At the
director's election, deferred amounts may be credited to either a "cash account"
or a Company "stock account." If deferred amounts are credited to stock
accounts, such accounts are credited with a number of shares based on the
purchase price of Common Stock on the next purchase date under the Company's
Dividend Reinvestment and Stock Purchase Plan, and such accounts are credited
with additional shares based on the deemed reinvestment of dividends. Cash
accounts are credited quarterly with interest at a rate equal to Moody's Average
Corporate Bond Yield plus two percentage points. The crediting rate is subject
to a six percent minimum rate. The rate is adjusted quarterly. At the election
of the participant, deferred balances in the stock and/or cash accounts are
payable after termination of Board service in a lump sum, in installments over a
period not to exceed ten years, or in a combination of lump sum and
installments.
The Company's obligations under the Plan are unfunded and benefits will be
paid either from the general funds of the Company or from the Umbrella Trust for
Directors which has been established for this Plan. With respect to the cash
accounts, the Company has purchased life insurance policies on the lives of the
participants, the proceeds from which will be used to reimburse the Company for
the payment of cash benefits from the Plan. This insurance is designed so that,
if the assumptions made as to mortality experience, policy dividends and other
factors are realized, insurance policy proceeds paid to the Company will be at
least equal to all the premium payments and cash benefits paid under the Plan.
The cost of any one individual participant cannot be properly allocated or
determined because of overall Plan assumptions. In addition, the Company has
contributed cash and Common Stock to the trustee of the Umbrella Trust such that
the Umbrella Trust holds the number of shares of Common Stock equal to the
number of shares credited to all directors' stock accounts. Shares so held will
be used to fund the Company's obligation to pay out the stock accounts.
The Company may from time to time transfer other assets to the trustee of
the Umbrella Trust to hold in trust for the benefit of Plan participants. The
Company's obligations under the Plan are not limited to trust assets, and Plan
participants will have a claim against the Company for any payments not made by
the trustee. The Company instructs the trustee as to the investment of the
trust's assets and the trustee's fees and expenses are paid by the Company.
Upon the occurrence of certain events, such as a change in control of the
Company, termination of the Plan or the failure by the Company to provide the
trust with adequate funds to pay current benefits, the Company may be required
under the terms of the trust to contribute to the trust annually the amount by
which the present value of all benefits payable under the Plan exceeds the value
of the trust's assets.
NON-EMPLOYEE DIRECTORS STOCK COMPENSATION PLAN
Non-employee directors of the Company are awarded approximately $50,000
worth of the Company's Common Stock upon joining the Board pursuant to the
Company's Non-Employee Directors Stock Compensation Plan. These initial awards
vest in monthly installments over the five calendar years following the award.
On January 1 of each year thereafter, non-employee directors are awarded an
additional $10,000 of Common Stock which vests in monthly installments in the
fifth year following the award (after the previous award has fully vested). All
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awards vest immediately upon a change in control of the Company. Unvested shares
are forfeited if the recipient ceases to be a director. The shares awarded are
purchased in the open market by the Company at the time of award. Directors may
elect to defer unvested shares into their stock accounts under the Directors
Deferred Compensation Plan. Certificates representing a director's vested shares
are not delivered to the director until after the director leaves the Board.
DIRECTORS RETIREMENT BENEFIT
On January 1, 1998, in connection with the termination of a prior
retirement benefit for directors and in lieu of that benefit, the Company
credited a number of shares of Company Common Stock to a stock account under the
Directors Deferred Compensation Plan for each then current director. If such a
director retires from the Board at age 72 or older with 10 or more years of
service as a director or if the director earlier dies or becomes disabled or if
there is an earlier change in control of the Company, the Company is obligated
to deliver to the director (or to his or her beneficiary) the number of shares
credited to the account, plus an additional number of shares based on reinvested
dividends credited to the account over time. Concurrently with the creation of
the stock accounts, the Company contributed to the Umbrella Trust for Directors
a number of shares of the Company's Common Stock equal to the number of shares
credited to directors' accounts. Such stock is held in the Umbrella Trust and
will be used to fund the Company's obligation to pay out the stock accounts. The
number of shares of Common Stock in the retirement benefit stock account of each
such director at December 31, 2001 was: Mary Arnstad, 586; Thomas E. Dewey, Jr.,
1,887; Tod R. Hamachek, 724; Wayne D. Kuni, 2,213; Randall C. Pape, 546; Richard
G. Reiten, 1,199; Robert L. Ridgley, 1,746; Dwight A. Sangrey, 1,114; Melody C.
Teppola, 896; Russell F. Tromley, 1,114; and Benjamin R. Whiteley, 2,403.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports of ownership and
changes in ownership of Company Common Stock with the Securities and Exchange
Commission. The Company is required to disclose in this proxy statement any late
or missed filings of those reports made by its directors and executive officers
during 2001. Based solely upon a review of the copies of such reports furnished
to it and written representations that no other such reports were required, the
Company believes that during 2001 all directors and executive officers timely
filed all such required reports.
11
BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to beneficial
ownership of the Company's Common Stock as of February 28, 2002 by all directors
and nominees, each of the executive officers named in the Summary Compensation
Table on page 13 and all directors and executive officers as a group.
PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER NUMBER OF SHARES1 COMMON STOCK
------------------------ ----------------- -----------------------
Bruce R. DeBolt 36,738 2 *
Thomas E. Dewey, Jr. 6,851 3 *
Mark S. Dodson 23,027 4 *
Lea Anne Doolittle 3,559 5 *
Tod R. Hamachek 12,780 6 *
Wayne D. Kuni 17,786 7 *
Michael S. McCoy 39,670 8 *
Randall C. Pape 10,583 9 *
Richard G. Reiten 104,848 10 *
Robert L. Ridgley 25,222 11 *
Dwight A. Sangrey 7,558 12 *
Melody C. Teppola 8,241 13 *
Russell F. Tromley 9,677 14 *
Richard L. Woolworth 4,426 15 *
All directors and officers 346,939 16 1.4
as a group (17 in number)
* The total for each individual is less than 1.0 percent.
1 Unless otherwise indicated, beneficial ownership includes both sole voting
power and sole investment power.
2 Includes 10,858 shares held jointly with his wife, 17,791 shares which Mr.
DeBolt has the right to acquire within 60 days through the exercise of
options under the Restated Stock Option Plan (Restated SOP), 4,500 shares
of restricted stock which will vest over the period 2005 through 2007 and
170 shares held indirectly under the Retirement K Savings Plan (RKSP).
3 Includes 1,287 shares subject to forfeiture under the Non-Employee
Directors Stock Compensation Plan (NEDSCP) and 3,900 shares credited to a
stock account under the Directors Deferred Compensation Plan (DDCP).
4 Includes 10,000 shares which Mr. Dodson has the right to acquire within 60
days through the exercise of options under the Restated SOP and 94 shares
held indirectly under the RKSP.
5 Includes 14 shares credited to a stock account under the Executive
Deferred Compensation Plan (EDCP), 74 shares held indirectly under the
RKSP and 3,400 shares which Ms. Doolittle has the right to acquire within
60 days through the exercise of options under the Restated SOP.
6 Includes 1,902 shares subject to forfeiture under the NEDSCP and 7,790
shares credited to a stock account under the DDCP.
7 Includes 442 shares subject to forfeiture under the NEDSCP, 2,386 shares
held in trust, and 5,363 shares credited to a stock account under the
DDCP.
8 Consists of 11,820 shares held indirectly by Mr. McCoy under the RKSP,
10,350 shares held jointly with his wife and 17,500 shares which Mr. McCoy
has the right to acquire within 60 days through the exercise of options
under the Restated SOP.
9 Includes 1,902 shares subject to forfeiture under the NEDSCP and 5,522
shares credited to a stock account under the DDCP.
10 Includes 17,984 shares held indirectly by Mr. Reiten under the RKSP,
72,500 shares which Mr. Reiten has the right to acquire within 60 days
through the exercise of options under the Restated SOP and 1,938 shares
credited to stock accounts under the DDCP and the EDCP.
11 Includes 1,675 shares subject to forfeiture under the NEDSCP and 3,911
shares credited to a stock account under the DDCP.
12 Includes 1,691 shares subject to forfeiture under the NEDSCP and 3,164
shares credited to a stock account under the DDCP.
13 Includes 1,902 shares subject to forfeiture under the NEDSCP, 2,361 shares
held in trust, and 2,897 shares credited to a stock account under the
DDCP.
14 Includes 1,902 shares subject to forfeiture under the NEDSCP, 3,118 shares
credited to a stock account under the DDCP, 24 shares held by Mr.
Tromley's wife in an Individual Retirement Account and 4 shares
representing his wife's proportionate interest in shares held by an
investment club of which she is a member.
15 Includes 2,007 shares subject to forfeiture under the NEDSCP and 2,648
shares credited to a stock account under the DDCP.
16 Includes 35,967 shares of which 8,216 shares are held jointly with spouse
or other relative, 443 shares are held as custodian for minor children,
5,171 shares are held indirectly under the RKSP and 19,900 shares which
the executive officers not named above have the right to acquire within 60
days through the exercise of options under the Restated SOP.
12
EXECUTIVE COMPENSATION
Shown below is information concerning the annual and other compensation
for services in all capacities to the Company for the years ended December 31,
2001, 2000, and 1999, of those persons who were, during 2001 and at December 31,
2001 (i) the chief executive officer and (ii) the other four most highly
compensated executive officers of the Company (the Named Executive Officers):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ --------------------------------
OTHER ALL
NAME AND ANNUAL RESTRICTED SECURITIES OTHER
PRINCIPAL COMPEN- STOCK UNDERLYING COMPEN-
POSITION YEAR SALARY BONUS SATION1 AWARD2 OPTIONS SATION3
-----------------------------------------------------------------------------------------------------------------------------
Richard G. Reiten 2001 $446,668 $250,000 $5,538 $ 0 0 $53,625
Chairman and Chief 2000 426,174 236,500 2,520 0 15,000 12,533
Executive Officer 1999 405,004 190,500 9,300 0 0 7,900
Mark S. Dodson 2001 222,745 106,700 0 0 0 13,136
President, Chief 2000 188,340 72,100 0 0 7,500 5,106
Operating Officer 1999 179,175 62,800 0 0 0 3,500
and General Counsel
Michael S. McCoy 2001 222,501 87,800 322 0 0 22,145
Executive Vice 2000 212,540 79,000 0 0 7,500 5,625
President 1999 197,504 69,300 692 0 0 3,700
Bruce R. DeBolt 2001 222,501 83,400 0 108,305 0 31,141
Senior Vice 2000 213,838 79,900 0 0 7,500 5,803
President and 1999 206,504 71,300 785 0 0 4,030
Chief Financial
Officer
Lea Anne Doolittle 2001 145,000 40,800 0 0 0 5,432
Vice President 2000 24,410 0 0 0 5,000 27,200
(became an officer 1999 - - - - - -
on 10/30/00)
1 All amounts shown for the Named Executive Officers represent the employee portion of the Medicare Hospital Insurance
Tax liability paid by the Company on the present value increase in those years of their benefits under the Executive
Supplemental Retirement Income Plan, together with an additional payment relating to income tax payable by such
officers in respect of the payments made by the Company.
2 The aggregate number of shares of restricted stock at December 31, 2001 was 4,500 shares with a market value of
$114,750. Dividends are paid on all shares of restricted stock.
3 Amounts for the year 2001 include Company matching amounts contributed or accrued for the year 2001 for the Named
Executive Officers under the Company's Executive Deferred Compensation Plan ($15,395 for Mr. Reiten, $8,281 for Mr.
Dodson, $9,045 for Mr. McCoy, $3,972 for Mr. DeBolt and $424 for Ms. Doolittle) and its Retirement K Savings Plan
($5,100 each for Messrs. Reiten and DeBolt, $564 for Mr. Dodson, $0 for Mr. McCoy and $4,742 for Ms. Doolittle).
Amounts for 2001 also include above-market interest credited to the Executive Deferred Compensation Plan accounts of
the Named Executive Officers as follows: $33,130 for Mr. Reiten, $4,291 for Mr. Dodson, $13,100 for Mr. McCoy, $22,069
for Mr. DeBolt, and $266 for Ms. Doolittle.
13
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers listed in
the Summary Compensation Table during 2001.
LONG-TERM INCENTIVE PLAN - AWARDS IN 2001
No long-term incentive plan awards were granted to the Named Executive
Officers listed in the Summary Compensation Table in 2001.
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
Shown below is information with respect to options to purchase shares of
the Company's Common Stock exercised in 2001 and unexercised options granted
under the Restated Stock Option Plan to the Named Executive Officers and held by
them at December 31, 2001.
NO. OF NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE DECEMBER 31, 2001 AT DECEMBER 31, 2001
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE1 EXERCISABLE2 UNEXERCISABLE1
---- ----------- -------- ----------- -------------- ------------ --------------
Richard G. Reiten 0 $ 0 67,500 10,000 $ 266,700 $ 52,500
Mark S. Dodson 0 0 7,500 5,000 13,125 26,250
Michael S. McCoy 0 0 15,000 5,000 170,025 26,250
Bruce R. DeBolt 0 0 15,491 5,000 85,712 26,250
Lea Anne Doolittle 0 0 1,700 3,300 4,463 8,663
1 Unexercisable options are those options that have not vested. Of the options shown, a portion became exercisable
on January 1, 2002 and the remainder will become exercisable on January 1, 2003.
2 Represents the difference between the option exercise prices for in-the-money options and the closing price of
$25.50 for the Company's Common Stock as quoted on the New York Stock Exchange on December 31, 2001 times the
number of options. Options granted to Named Executive Officers in 1998 were not in-the-money at year-end 2001.
14
REPORT OF THE ORGANIZATION AND EXECUTIVE COMPENSATION COMMITTEE
ON
EXECUTIVE MANAGEMENT COMPENSATION
EXECUTIVE COMPENSATION PRINCIPLES
The Company's executive compensation program is administered by the
Organization and Executive Compensation Committee of the Board of Directors (the
Committee) which is comprised of directors Hamachek, Kuni, Pape and Whiteley,
each of whom is an outside director. The program is designed to attract,
motivate and retain talented executives critical to the achievement of the
Company's long-term business strategy, its annual goals and objectives, the
enhancement of shareholder value, and the implementation of corporate values.
The program seeks to do this by:
o Tieing a portion of each executive's total compensation opportunity to the
achievement of previously-established annual performance goals.
o Aligning executives' long-term interests with those of the Company's
shareholders by encouraging ownership of the Company's Common Stock.
o Providing total compensation, including base salary and incentive
compensation, which is competitive with that of other energy service and
industrial companies of comparable size and circumstances.
EXECUTIVE COMPENSATION COMPONENTS
There are three primary components of the Company's executive compensation
program - annual base salary, annual incentive cash bonuses and long-term stock
incentives.
BASE SALARIES
Base salaries paid to executives are established by the Board of Directors
upon the recommendation of the Committee based, in part, on market salary
analyses prepared by the Company's independent compensation consultant. These
analyses include salary data for comparable executive positions of energy
service and industrial companies of approximately the same size in terms of
total revenues located throughout the United States. The energy services portion
of the analysis includes data from the American Gas Association executive
compensation survey, which includes substantially the same companies that
comprise the EdwardJones Natural Gas Distribution Index appearing on the
performance graph (page 18). The Committee uses this information as a guide to
establish base salaries that are competitive with those paid to executives in
similar positions in comparable companies. Generally, it is the Committee's
policy to target executives' base salaries at a level equivalent to the 50th
percentile for base salaries for comparable positions included in the
consultant's analyses. Each executive's targeted salary level may be adjusted,
at the discretion of the Committee, on the basis of such executive's performance
and potential, as well as changes in duties and responsibilities. Executives'
salaries are reviewed by the Committee annually.
EXECUTIVE ANNUAL INCENTIVE PLAN
The Company's Executive Annual Incentive Plan is intended to advance the
interests of the Company and its shareholders by means of an incentive cash
bonus program which will motivate key executives to achieve previously-
established annual performance goals. The amounts to be paid if these goals
should be achieved or exceeded, when added to base salaries, are intended to
place the Company's executives' compensation at between the 50th and 75th
percentiles of total cash compensation for comparable positions included in the
consultant's analyses.
Participation in the Executive Annual Incentive Plan currently is limited
to eight executive
15
officers and three top managers selected by the Board. The payment of awards
under this Plan is contingent upon meeting predetermined individual and Company
performance goals.
At the beginning of each year, weighted performance goals are established.
At year-end, performance is measured against these goals. The results are
considered by the Committee in determining the amounts, if any, to be awarded.
The amounts of these awards are based on a formula which reflects an
allocation between Company and individual performance criteria. The allocation
depends upon each executive's ability to influence corporate performance.
Depending upon position, performance and the other factors considered by the
Committee, an executive can earn from 25% to 50% of base salary if the
prescribed Company and individual performance goals are met, or up to 37.5% to
75% of base salary if these goals are exceeded.
Performance goals established for 2001 focused on strengthening the
Company's financial position. These included the achievement of: (1) net income
in an amount which the Committee determined would demonstrate above average
performance; (2) a weighted average ranking for return on equity over a two-year
period which would exceed a base level among a peer group of other gas
utilities; and (3) several operating goals related to return on new residential
customers, customer satisfaction improvement, market share and productivity in
serving customers. In combination, these goals measured the Company's
performance in terms of its overall profitability, its financial performance,
the reduction of costs and the achievement of greater efficiency. In determining
the awards, the Committee used a performance matrix which accorded 50% to net
income and 25% to each of the other two goals. The grant of any award for 2001
was conditioned upon the Company's 2001 net income exceeding a percentage of the
target designated in advance by the Board and being sufficient to cover the
payment of all dividends.
LONG-TERM INCENTIVES
The long-term portion of the Company's executive compensation program
consists of two components: stock options and performance shares. Stock options
incent executives to increase the Company's Common Stock price performance,
thereby aligning their interests with those of the other common shareholders.
The Company typically makes stock option grants under the Restated Stock
Option Plan every two years, rather than annually. No options were granted to
the Named Executive Officers in 2001. When grants are made, the number of
options granted is based upon a combination of competitive expected value for
the stock option component and the Committee's judgment as to how many options
will provide meaningful incentives to executives. In determining the number of
options to be granted, the Committee takes into consideration the number of
shares available for grant under the Plan, the number of options previously
granted and the number of shares then owned by each Named Executive Officer in
relation to a targeted objective for stock ownership by executives.
The performance share component of the executive's long-term compensation
program was added in 2000, following an evaluation of the competitiveness of the
long-term incentive opportunities provided to executives. As a result of this
evaluation, the Committee determined that the long-term incentive opportunity
previously provided was significantly less than competitive. Therefore, the
Committee decided to add a new performance share long-term incentive to the
Company's executive compensation program typically consisting of annual awards
payable in Company stock based on the Company's financial performance over
three-year performance cycles. The initial awards granted by the Committee in
late 2000 included both the standard awards based on a three-year performance
cycle and one-time awards based on a two-year performance cycle. The performance
measure used to determine incentive awards for both cycles is the Company's
average return on equity during the period covered by the award in relation to
pre-established targeted objectives. No additional awards were granted in 2001.
16
CEO COMPENSATION
Compensation paid to Richard G. Reiten for the year 2001, as Chairman and
Chief Executive Officer, consisted of his base salary and an incentive bonus.
Mr. Reiten's 2001 compensation reflects a 4.7% increase in his base salary
effective as of March 1, 2001, which was deemed by the Committee and the Board
to be appropriate to maintain the competitiveness of his base salary. His
compensation also reflects a cash bonus of $250,000 under the Executive Annual
Incentive Plan. The award of the bonus for 2001, which is equal to 56.0% of Mr.
Reiten's 2001 base salary, was based upon the achievement of the corporate
performance goals as described above under the "Executive Annual Incentive Plan"
and upon the Committee's evaluation of Mr. Reiten's performance in relation to
the achievement of pre-established individual performance goals. For 2001, the
Company reported earnings of $1.88 a diluted share and net income applicable to
common stock of $47.8 million. These 2001 results exceeded the financial
performance goals established for the year. For 2001, the Company's return on
equity of 10.4% ranked 13th among 16 comparable companies. Combined with the
return on equity in 2000, the Company's weighted two-year ranking for return on
equity was 12th within this group. The Committee determined that the
achievements made with respect to these corporate performance goals, together
with Mr. Reiten's overall accomplishments for the year, warranted the bonus
awarded to Mr. Reiten for 2001.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
Code), generally limits to $1 million per person the amount that the Company may
deduct for compensation paid in any year to any individual who, on the last day
of the taxable year, is its chief executive officer or is among its four highest
compensated officers (other than the chief executive officer). Certain
exceptions to this limitation apply to so-called "performance-based
compensation." The Company does not expect the sum of the base salary, annual
cash incentive bonus and other relevant compensation paid to any executive
officer to exceed $1 million in any year. In the event that in the future the
Company determines that an executive's annual compensation may approach or
exceed this limitation, it will consider the use of this exception to the
limitation under Code Section 162(m) as it has in the case of stock options and
long-term incentive awards as described below.
It is the Company's policy generally to grant options that meet the
requirements of the Code and the regulations thereunder so that any such
compensation recognized by an optionee will be fully deductible
performance-based compensation. The shareholders have previously approved and
reapproved the Restated Stock Option Plan to comply with the performance-based
compensation requirements of Code Section 162(m) so that compensation received
on the exercise of options granted under this Plan would not be subject to the
$1 million limitation. The Restated Stock Option Plan as it is proposed to be
amended will continue to meet the requirements of the performance-based
compensation regulations (see Proposal 2, below). In 1996, the Committee
determined that option grants would henceforth generally be Non-Statutory Stock
Options for which the Company will receive a tax deduction upon exercise.
The performance share long-term incentive awards granted by the Company
are also intended to meet the "performance-based compensation" requirements of
the Code and regulations so that any compensation paid under those awards will
be fully deductible.
Respectfully submitted on February 28, 2002 by the Organization and
Executive Compensation Committee of the Board of Directors:
Tod R. Hamachek, Chair Randall C. Pape
Wayne D. Kuni Benjamin R. Whiteley
17
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the annual percentage change in
the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return of the S&P SmallCap 600 Index (S&P SmallCap 600) and
the EdwardJones Natural Gas Distribution Index (NGDI) for the period of five
years commencing December 31, 1996 and ended December 31, 2001.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Based on $100 invested on 12/31/96
$240
NW NATURAL
$220
$200 S&P SmallCap 600
$180 EdwardJones NGDI*
$160
GRAPH OMITTED
$140
$120
$100
$80
1996 1997 1998 1999 2000 2001
NW NATURAL $100.00 $135.50 $118.29 $105.40 $134.59 $136.48
S&P SmallCap 600 $100.00 $124.53 $121.93 $135.96 $150.94 $159.59
EdwardJones NGDI $100.00 $129.90 $139.38 $134.23 $167.92 $164.22
*Total return assumes reinvestment of dividends at the end of the month during
which they were paid.
**EdwardJones Natural Gas Distribution Index is comprised of the following
companies: AGL Resources Inc., Atmos Energy Corp., Cascade Natural Gas Corp.,
Delta Natural Gas Co. Inc., Energy West Inc., EnergySouth Inc., Laclede Group
Inc., New Jersey Resources, Northwest Natural Gas Co., Peoples Energy Corp.,
Piedmont Natural Gas Co., RGC Resources Inc., South Jersey Industries, Southern
Union Co., and WGL Holdings Inc.
18
PENSION PLANS
The following table shows the estimated annual retirement benefit payable
upon retirement at age 65 as a straight life annuity (net of Social Security
offset) to the Company's executive officers under the Company's defined benefit
plans: the qualified Retirement Plan for Non-Bargaining Unit Employees, the
Executive Deferred Compensation Plan supplemental benefit and the Executive
Supplemental Retirement Income Plan (ESRIP). Optional forms of payment,
including joint and survivor forms, are available, subject to an actuarial
adjustment in the amount of payment.
PENSION PLAN TABLE
COMPENSATION YEARS OF SERVICE
--------------- ----------------------------------------------------
10 15 20 25 or more
-- -- -- ----------
$ 150,000 $ 45,000 $ 77,600 $ 81,300 $ 85,100
200,000 66,700 110,100 115,100 120,100
250,000 88,300 142,600 148,800 155,100
300,000 110,000 175,100 182,600 190,100
350,000 131,600 207,600 216,300 225,100
400,000 153,300 240,100 250,100 260,100
450,000 174,900 272,600 283,800 295,100
500,000 196,600 305,100 317,600 330,100
550,000 218,200 337,600 351,300 365,100
600,000 239,900 370,100 385,100 400,100
650,000 261,500 402,600 418,800 435,100
700,000 283,200 435,100 452,600 470,100
For purposes of the ESRIP, "compensation" consists of the average of the
annual salary and bonus paid to a plan participant by the Company for the
highest three compensation years in the last 10 years prior to retirement.
The credited years of service under the ESRIP for Messrs. Reiten, Dodson,
McCoy, DeBolt, and Ms. Doolittle are 14 years, 4 years, 32 years, 22 years and 1
year, respectively. For purposes of the ESRIP, Mr. Reiten was granted an
additional 8 years of past service credit which are included in years of service
shown. A participant who becomes entitled to severance benefits under his or her
executive severance agreement in connection with a change in control of the
Company will receive three additional years of service credit for ESRIP
purposes.
ESRIP benefits are 50% vested after five years of service and become
vested for an additional 10% for each additional year of service until fully
vested after 10 years of service. A participant who becomes entitled to
severance benefits under his or her executive severance agreement in connection
with a change in control of the Company will be fully vested regardless of years
of service.
19
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors (Committee) is responsible
for providing independent, objective oversight of the Company's accounting
functions, financial reporting and internal controls. The Committee is composed
of independent directors, and acts under a written charter first adopted and
approved by the Board on May 25, 2000. Each of the members of the Committee is
independent as defined by New York Stock Exchange listing standards.
The Committee, in accordance with its written charter, assists the Board
in fulfilling its responsibility for oversight of the quality and integrity of
the Company's accounting, auditing, and financial reporting practices. During
fiscal 2001, the Committee chair, or his designee, as representative of the
Committee, discussed the interim financial information contained in each
Quarterly Report on Form 10-Q with the Chief Financial Officer, the Controller,
and the independent accountants prior to its filing with the Securities and
Exchange Commission (SEC).
In fulfilling its responsibilities, the Committee has reviewed and
discussed the audited financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 with the Company's
management and the independent accountants. As part of its review, the Committee
discussed the Company's accounting policies and matters of judgment and
estimates used in the preparation of the financial statements included in the
Company's 2001 Annual Report on Form 10-K. In addition, the Committee discussed
with the independent accountants those matters required to be discussed by
Statement on Auditing Standards No. 61, Communications with Audit Committees.
Management is responsible for the financial statements and the reporting
process, including the system of internal controls. The independent accountants
are responsible for expressing an opinion as to whether the financial statements
are presented fairly, in all material respects, in conformity with accounting
principles generally accepted in the United States.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent accountants a formal written
statement describing all relationships and non-audit services between the
independent accountants and the Company that might bear on the accountants'
independence consistent with Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In this regard, the Committee
considered whether or not the provision of non-audit services by the independent
accountants for the year 2001 is compatible with maintaining the independence of
the firm. The Committee also discussed with the independent accountants any
relationships that may impact their objectivity and independence and satisfied
itself as to the accountants' independence. The Committee also discussed with
management, the internal auditors and the independent accountants the quality
and adequacy of the Company's internal controls, and the organization,
responsibilities, budget and staffing of the internal audit function. The
Committee reviewed with both the independent and the internal auditors their
respective audit plans, audit scopes, and identification of audit risks.
The Committee, in reliance on the reviews and discussions referred to
above, recommended to the Board of Directors (and the Board has approved) that
the audited financial statements be included in Northwest Natural Gas Company's
Annual Report on SEC Form 10-K for the year ended December 31, 2001, for filing
with the Securities and Exchange Commission.
Respectfully submitted on February 28, 2002 by the Audit Committee of the
Board of Directors:
Wayne D. Kuni, Chair Dwight A. Sangrey
Mary Arnstad Russell F. Tromley
Thomas E. Dewey, Jr. Richard L. Woolworth
20
PROPOSAL 2 - PROPOSED AMENDMENT AND REAPPROVAL OF THE RESTATED STOCK OPTION
PLAN
In 1985, the Board of Directors adopted and the shareholders approved the
Company's 1985 Stock Option Plan (the Plan). In 1995, the Board of Directors
adopted and the shareholders approved an amendment to increase to 800,000 the
number of shares of the Company's Common Stock available for issuance under the
Plan. As a result of the Company's 3-for-2 stock dividend in 1996, there are now
a total of 1,200,000 shares of the Company's Common Stock that have been
reserved for issuance under the Plan. In February 2002, the Board of Directors
adopted certain amendments to the Plan and renamed it the "Restated Stock Option
Plan."
The purpose of the Plan is to enable the Company to attract and retain
experienced and able employees and to provide incentives to them to exert their
best efforts for the Company and its shareholders. In order to continue to
provide incentives to current and potential future employees and to expand the
class of employees eligible to receive the incentives, the Board of Directors
adopted several amendments to the Plan in February 2002 that are subject to
shareholder approval.
The Board of Directors proposes that the shareholders approve the
following amendments to the Plan.
Increase in Number of Shares Available. The Board of Directors has adopted
an amendment to the Plan, subject to shareholder approval, to increase the
number of shares available under the Plan from 1,200,000 to 2,400,000. As of
February 28, 2002, options to purchase 521,741 shares were outstanding under the
Plan and 222,000 shares were available for future option grants. While the Board
of Directors believes the shares remaining available for option grants under the
Plan are adequate to meet the Company's short-term needs, the Board also
believes an increase is necessary to accommodate the Company's long-term
compensation objectives which include broadening the base of employees eligible
for stock option grants. See "Eligibility."
Eligibility. The Board of Directors has adopted an amendment to the Plan,
subject to shareholder approval, to change the eligibility requirements to
receive options under the Plan. Currently, options may be granted only to
officers and other key employees of the Company who perform services of special
importance to the Company in the management, operation and development of its
business. The proposed amendment would allow option grants to all employees of
the Company, or any parent or subsidiary of the Company. Expanding the class of
employees eligible to receive option grants will allow the Company to provide
incentives to non-management employees to exert their best efforts for the
Company and its shareholders. Shareholder approval of the class of employees
eligible to receive options under the Plan is required for continued compliance
with the performance-based compensation regulations under Section 162(m) of the
Code. See "Tax Consequences."
Per-Employee Limit on Option Grants. The Board of Directors has adopted an
amendment, subject to shareholder approval, to increase the annual per-employee
limit on option grants under the Plan from 75,000 to 200,000 shares. The Board
of Directors believes the increase is consistent with industry standards and is
necessary to continue to attract and retain qualified employees. Shareholder
approval of the annual per-employee limit is required for continued compliance
with the performance-based compensation regulations under Section 162(m) of the
Code. See "Tax Consequences."
SUMMARY OF RESTATED STOCK OPTION PLAN
The material terms of the Plan as proposed to be amended are described
below and a complete copy of the Plan, marked to show the proposed amendments,
is attached to this proxy statement as Appendix A. The following description is
qualified in its entirety by reference to Appendix A. All capitalized terms have
the meaning set forth in the Plan.
21
ADMINISTRATION
The Board of Directors has delegated authority to administer the Plan to
the Organization and Executive Compensation Committee of the Board of Directors
(the Committee) which consists of four "outside directors," as defined in the
regulations under Section 162(m) of the Code. The Committee also has authority
to adopt rules and regulations relating to administration of the Plan and to
interpret provisions of the Plan. All determinations of the Committee are
conclusive. Only the Board of Directors may amend or terminate the Plan.
ELIGIBILITY
All employees, including directors who are employees, of the Company or
any subsidiary or parent of the Company are eligible for option grants under the
Plan. No members of the Committee are eligible for option grants under the Plan.
SHARES AVAILABLE
Subject to the provisions of the Plan regarding adjustments for changes in
capital structure, no more than 2,400,000 shares of authorized but unissued or
reacquired Common Stock may be issued under the Plan. Any shares of Common Stock
subject to an option that are not issued before the expiration of the option
will again be available for award under the Plan.
CHANGES IN CAPITAL STRUCTURE
The Plan provides that if the outstanding shares of Common Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of any reorganization, stock split or certain other transactions,
appropriate adjustment shall be made by the Committee in the number and kind of
shares for the purchase of which options may be granted under the Plan and in
all other share amounts set forth in the Plan.
STOCK OPTIONS
Subject to the limitations described below, the Committee determines the
employees to whom options are granted, the option price, the period of each
option, the time or times at which options may be exercised, whether the option
is an Incentive Stock Option or a Non-Statutory Stock Option, and any other term
of the option grant. No employee may be granted options for more than 200,000
shares of Common Stock in any fiscal year. No monetary consideration is received
by the Company for the granting of options.
Incentive Stock Options. The Plan authorizes the Committee to grant
Incentive Stock Options, as defined under Section 422 of the Code, subject to
the following: (1) the option price per share may not be less than the fair
market value of the Common Stock when the option is granted and if the optionee
owns stock possessing more than 10% of the combined voting power of the Company,
the option price may not be less than 110% of the fair market value of the
Common Stock when the option is granted; (2) the term of the option may not
exceed ten years, or five years for 10% shareholders; and (3) the aggregate fair
market value (determined on the date of grant) of shares for which Incentive
Stock Options become exercisable for the first time by an optionee in any
calendar year may not exceed $100,000.
Non-Statutory Stock Options. The Committee may also grant Non-Statutory
Stock Options. The option price may not be less than the fair market value of
the Common Stock when the option is granted. The term of the option may not
exceed ten years plus seven days.
22
AMENDMENT OR TERMINATION
The Board of Directors may alter, amend, suspend or terminate the Plan at
any time but may not, without shareholder approval, adopt any alteration or
amendment that would: (1) increase the total number of shares of Common Stock
that may be purchased under the Plan, except for adjustments for changes in the
capital structure of the Company; (2) change the minimum option price; (3)
increase the maximum option period; or (4) materially modify the requirements
for eligibility for participation in the Plan. Unless earlier terminated by the
Board of Directors, the Plan will continue in effect until options have been
granted and exercised with respect to all shares reserved for the Plan, except
that no Incentive Stock Options may be granted under the Plan after February 28,
2012.
TAX CONSEQUENCES
The principal federal tax consequences to participants and the Company of
the grant and exercise of Incentive Stock Options and Non-Statutory Stock
Options under the Plan are summarized below.
Incentive Stock Options. Under federal income tax law currently in effect,
an optionee recognizes no income upon grant or exercise of an Incentive Stock
Option. Federal income tax upon any gain resulting from exercise of an Incentive
Stock Option is deferred until the optioned shares are sold by the optionee. The
gain resulting from the exercise of an Incentive Stock Option is included in the
alternative minimum taxable income of the optionee, however, and may, under
certain conditions, give rise to alternative minimum tax liability.
If an optionee exercises an Incentive Stock Option and does not dispose of
any of the optioned shares within two years following the date of grant and
within one year following the date of exercise, then any gain upon subsequent
disposition will be treated as long-term capital gain for federal income tax
purposes. If an optionee disposes of shares acquired upon exercise of an
Incentive Stock Option before the expiration of either the one-year or the
two-year holding period (makes a "disqualifying disposition"), any amount
realized will be taxable for federal income tax purposes as ordinary income in
the year of such disqualifying disposition to the extent that the lesser of the
fair market value of the shares on the exercise date or the fair market value of
the shares on the date of disposition exceeds the exercise price.
The Company will not be allowed any deduction for federal income tax
purposes either at the time of the grant or exercise of an Incentive Stock
Option. Upon any disqualifying disposition by an optionee, the Company will
generally be entitled to a deduction to the extent the optionee realizes
ordinary income.
Non-Statutory Stock Options. Under federal income tax law presently in
effect, no income is realized by the grantee of a Non-Statutory Stock Option
until the option is exercised. At the time of exercise of a Non-Statutory Stock
Option, the optionee will realize ordinary income, and the Company will
generally be entitled to a deduction, in the amount by which the market value of
the shares subject to the option at the time of exercise exceeds the exercise
price. Upon the sale of shares acquired upon exercise of a Non-Statutory Stock
Option, the excess of the amount realized from the sale over the market value of
the shares on the date of exercise will be treated as a gain from the sale of a
capital asset.
Deductibility of Compensation. Section 162(m) of the Code limits to
$1,000,000 per person the amount that the Company may deduct for compensation
paid to certain of its most highly compensated officers in any year. Under
Internal Revenue Service regulations, compensation received through the exercise
of an option is not subject to the $1,000,000 limit if the option and the Plan
meet certain requirements. One requirement is shareholder approval at least once
every five years of the class of employees eligible to receive grants and the
per-employee limits on the number of shares with respect to which options may be
granted, each as proposed in this proxy statement. Other requirements are that
the option be granted by a committee of at least two
23
outside directors and that the exercise price of the option be not less than the
fair market value of the Common Stock on the date of grant. The Company believes
that if this proposal is approved by shareholders, compensation received on
exercise of options granted under the Plan in compliance with all of the above
requirements will be exempt from the $1,000,000 deduction limit.
PLAN BENEFITS
As set forth in the table captioned "Option Grants In Last Fiscal Year"
above, during 2001 no stock options were granted to the Named Executive Officers
listed in the Summary Compensation Table, and no stock options were granted
during 2001 to the Company's other executive officers. Stock options were
granted in 2001 to two employees of the Company to purchase a total of 15,000
shares of the Company's Common Stock at an exercise price of $24.91 per share.
The number of options to be granted in the future to the Company's executive
officers and to other employees is not determinable at this time. On February
28, 2002, the closing price on the New York Stock Exchange of the Company's
Common Stock was $26.34 per share.
VOTE REQUIRED
Approval of the Plan amendments by the shareholders will require the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company present, or represented by proxy, and entitled to vote on the matter
at the Annual Meeting. Abstentions have the effect of "no" votes in determining
whether the amendments are approved. Broker non-votes are counted for purposes
of determining whether a quorum exists at the Annual Meeting but are not counted
and have no effect on the results of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 3 - ELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has recommended that
PricewaterhouseCoopers LLP, independent certified public accountants, be
retained as independent auditors of the Company for the year 2002, and that this
firm be elected by the shareholders at the Annual Meeting. A representative of
PricewaterhouseCoopers LLP will be present at the Annual Meeting of Shareholders
and will be provided with the opportunity to make a statement and to respond to
appropriate questions. In case PricewaterhouseCoopers LLP is not elected, the
Board of Directors will select another independent certified public accounting
firm to serve as independent auditors of the Company.
AUDIT FEES
PricewaterhouseCoopers' fees and expenses for the fiscal year 2001 audit
and the review of Forms 10-Q totaled $143,200, of which the aggregate amount of
$107,400 had been billed through December 31, 2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
PricewaterhouseCoopers LLP did not render any services related to
financial information systems design and implementation during the year ended
December 31, 2001.
PORTLAND GENERAL ELECTRIC COMPANY ACQUISITION
PricewaterhouseCoopers LLP's fees and expenses for services related to the
proposed acquisition
24
of PGE during 2001 totaled $759,000. These fees included $675,000 for assistance
provided by PricewaterhouseCoopers LLP in connection with the Company's due
diligence investigation of PGE.
ALL OTHER FEES
Aggregate fees and expenses billed for all other services rendered by
PricewaterhouseCoopers LLP for the year ended December 31, 2001 totaled
$104,600. These fees and expenses included amounts paid for audits of the
Company's retirement plans, tax compliance work, services related to the
issuance of securities and other special projects.
VOTE REQUIRED
Under Oregon law, if a quorum of shareholders is present at the Annual
Meeting, the election of PricewaterhouseCoopers LLP as independent auditors will
require that the votes cast in favor of this Proposal at the Annual Meeting
exceed the votes cast against the Proposal. Abstentions and broker non-votes are
counted for purposes of determining whether a quorum exists at the Annual
Meeting but are not counted and have no effect on the results of the vote for
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE YEAR
2002.
OTHER MATTERS
The management does not know of any other matters to be presented at the
Annual Meeting. If other matters should be properly presented at the meeting,
the persons named in the accompanying proxy will vote the shares represented by
such proxy with respect to such matters in accordance with their best judgment.
EXECUTIVE SEVERANCE AGREEMENTS
The Board of Directors has approved the Company's entry into severance
agreements with each executive officer of the Company, including all of the
Named Executive Officers. These agreements generally provide for the payment,
upon the termination of the employee's employment by the Company without cause
or by the employee for "good reason" (as defined in the severance agreement)
within two years following a change in control of the Company, of an amount
equal to two or three times the sum of the employee's annual salary and average
bonus for the last three years, and also provide for the three-year continuation
of life and health insurance benefits. In addition, if any payments to the
employee are subject to the excise tax on "parachute payments," the Company will
make an additional payment to the employee such that the employee will receive
net benefits as if no excise tax were payable. If such additional payments are
required, the Company will not be able to deduct such additional payments for
federal income tax purposes and also will be denied such a deduction for some or
all of the other payments made pursuant to the agreement and its other plans and
policies. Each employee is obligated under the severance agreement to remain in
the employ of the Company for a period of 270 days following a "potential change
in control" (as defined in the severance agreements). All of the executive
officers have executed the severance agreements.
EMPLOYMENT AGREEMENTS
On November 2, 1995, the Company entered into an employment agreement with
Mr. Reiten for a term extending until February 28, 2003. Under this agreement,
the Company recognized eight years of past service for purposes of the ESRIP.
Accordingly, Mr. Reiten is treated under the
25
ESRIP as if he had commenced employment with the Company on February 28, 1988
and will be vested and eligible for supplemental retirement benefits at 65% of
final annual compensation upon retirement on or after February 28, 2003. As
amended on September 24, 1998, the agreement also provides that Mr. Reiten will
be vested and eligible under the ESRIP for supplemental retirement benefits at
65% of final annual compensation with no reduction in benefits based on early
retirement if he (a) dies or becomes disabled, (b) is terminated other than for
cause, or (c) becomes entitled to severance benefits under his executive
severance agreement in connection with a change in control of the Company.
On July 2, 1997, the Company entered into an employment agreement with Mr.
Dodson for a term extending until December 31, 2002, with an option for Mr.
Dodson to renew for an additional term through December 31, 2007. Under this
agreement, the Company modified the service requirements applicable to Mr.
Dodson for purposes of the ESRIP. Accordingly, Mr. Dodson will be vested and
eligible under the ESRIP for supplemental retirement benefits at 32.5% of final
annual compensation upon retirement on or after December 31, 2002 and 65% of
final annual compensation upon retirement on or after December 31, 2007. The
agreement also provides that Mr. Dodson will be vested and eligible under the
ESRIP for supplemental retirement benefits at 65% of final annual compensation
with no reduction in benefits based on early retirement if he (a) becomes
disabled, (b) dies after December 31, 2002, (c) is terminated other than for
cause, or (d) becomes entitled to severance benefits under his executive
severance agreement in connection with a change in control of the Company.
On October 20, 2000, the Company entered into an employment agreement with
Ms. Doolittle providing for her employment as vice president of human resources,
effective October 30, 2000, at an annual salary of $140,000. The agreement also
provided that she would (a) be paid a signing bonus of $27,200, (b) be granted
options on 5,000 shares of the Company's Common Stock under the Restated Stock
Option Plan, and (c) be eligible to participate in the executive benefit
programs that are made available to other officers.
2003 ANNUAL MEETING OF SHAREHOLDERS
The 2003 Annual Meeting of Shareholders is scheduled to be held in
Portland, Oregon on Thursday, May 22, 2003. Specific proposals of common
shareholders intended to be presented at this meeting must comply with the
requirements of the Securities Exchange Act of 1934 and be received by the
Secretary of the Company for inclusion in its 2003 proxy materials by December
23, 2002.
The Securities and Exchange Commission's proxy rules allow the Company to
use discretionary voting authority to vote on a matter coming before an annual
meeting of shareholders which is not included in the Company's proxy statement,
if the Company does not have notice of the matter at least 45 days before the
date on which the Company first mailed its proxy materials for the prior year's
annual meeting of shareholders. In addition, discretionary voting authority may
generally also be used if the Company receives timely notice of such matter (as
described in the preceding sentence) and if, in the proxy statement, the Company
describes the nature of such matter and how the Company intends to exercise its
discretion to vote on such matter. Accordingly, for the 2003 Annual Meeting of
Shareholders any such notice must be submitted to the Secretary of the Company
on or before March 5, 2003.
SOLICITATION OF PROXIES
Proxies may be solicited on behalf of the Board of Directors by regular
employees in person or by mail, telephone, the Internet or facsimile
transmission. The Company will reimburse brokers or other persons holding stock
in their names or in the names of their nominees for their reasonable expenses
incurred in forwarding proxies and proxy materials to the beneficial owners
26
of such shares. All solicitation costs will be borne by the Company. The Company
has retained Georgeson Shareholder Communications Inc. to assist in the
solicitation of proxies from banks, brokers and nominees at a fee of $2,500 plus
reasonable out-of-pocket expenses.
If you are unable to be present at the Annual Meeting in person, please
mark, date, sign and mail the enclosed proxy, or, alternatively, grant your
proxy by telephone or the Internet, so that the business of the meeting can be
transacted.
By Order of the Board of Directors,
/s/ C. J. Rue
Portland, Oregon C. J. Rue
April 19, 2002 Secretary
27
APPENDIX A
NORTHWEST NATURAL GAS COMPANY
RESTATED STOCK OPTION PLAN
(as amended as of May 23, 2002)1
1. PURPOSE. The purpose of this Restated Stock Option Plan, formerly
referred to as the 1985 Stock Option Plan (the "Plan"), is to enable Northwest
Natural Gas Company (the "Company") to attract and retain experienced and able
employees and to provide additional incentive to these employees to exert their
best efforts for the Company and its shareholders.
2. SHARES SUBJECT TO THE PLAN. Except as provided in paragraph 10, the
total number of shares of the Company's Common Stock, $3-1/6 par value per share
("Common Stock"), covered by all options granted under the Plan shall not exceed
[1,200,000] 2,400,000 authorized but unissued or reacquired shares. If any
=========
option under the Plan expires or is cancelled or terminated and is unexercised
in whole or in part, the shares allocable to the unexercised portion shall again
become available for options under the Plan.
3. DURATION OF THE PLAN. The Plan shall continue until options have
been granted and exercised with respect to all of the shares available for the
Plan under paragraph 2 (subject to any adjustments under paragraph 10), unless
sooner terminated by action of the Board of Directors. The Board of Directors
has the right to suspend or terminate the Plan at any time except with respect
to then outstanding options.
4. ADMINISTRATION.
4.1 BOARD OF DIRECTORS. The Plan shall be administered by the Board
of Directors, which shall determine and designate from time to time the
employees to whom options shall be granted and the number of shares, option
price, the period of each option, the time or times at which options may be
exercised, and any other term of the grant, all of which shall be set forth in
an option agreement between the Company and the optionee. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt rules
and regulations relating to administration of the Plan, and the interpretation
and construction of the provisions of the Plan by the Board of Directors shall
be final and conclusive.
4.2 COMMITTEE. The Board of Directors may delegate to any committee
of the Board of Directors (the "Committee") any or all authority for
administration of the Plan. Members of the Committee are not eligible to receive
an option pursuant to the Plan while on the Committee. If a Committee is
appointed, all references to the Board of Directors in the Plan shall mean and
relate to the Committee except (i) as otherwise provided by the Board of
Directors and (ii) that only the Board of Directors may terminate or amend the
Plan as provided in paragraphs 3 and 11.
-------------------------
1 Proposed amendments are shown as bracketed, struck-through deletions and
bold, double-underlined insertions.
A-1
5. ELIGIBILITY; GRANTS.
5.1 ELIGIBILITY. Options may be granted under the Plan only to
officers and other [key] employees (including employees who are directors) of
the Company OR ANY PARENT OR SUBSIDIARY OF THE COMPANY [who, in the judgment of
==========================================
the Board of Directors, will perform services of special importance to the
Company in the management, operation, and development of its business].
5.2 GRANTS. Options granted under the Plan may be Incentive Stock
Options as defined in ss.422 of the Internal Revenue Code of 1986, as amended
("IRC"), or Non-Statutory Stock Options. A Non-Statutory Stock Option means an
option other than an Incentive Stock Option. The Board of Directors has the sole
discretion to determine which options shall be Incentive Stock Options and which
options shall be Non-Statutory Stock Options, and, at the time of grant, it
shall specifically designate each option granted under the Plan as an Incentive
Stock Option or a Non-Statutory Stock Option. In the case of Incentive Stock
Options, all terms shall be consistent with the requirements of the IRC and
applicable regulations. No Incentive Stock Option may be granted under the Plan
on or after the tenth anniversary of the last action by the Board of Directors
approving an increase in the number of shares available for issuance under the
Plan, which action was subsequently approved within 12 months by the
shareholders.
6. LIMITATION ON AMOUNT OF GRANTS. No employee may be granted
options under the Plan for more than [75,000] 200,000 shares of Common Stock
=======
in any fiscal year.
7. OPTION PRICE. The option price per share under each option granted
under the Plan shall be determined by the Board of Directors, but the option
price for an Incentive Stock Option and a Non-Statutory Stock Option shall be
not less than 100 percent of the fair market value of the shares covered by the
option on the date the option is granted. Except as otherwise expressly
provided, for purposes of the Plan, the fair market value shall be deemed to be
the closing sales price for the Common Stock as reported by the New York Stock
Exchange and published in the Wall Street Journal for the day preceding the date
of grant, or such other fair market value of the Common Stock as determined by
the Board of Directors of the Company.
8. DURATION OF OPTIONS. Each option granted under the Plan shall
continue in effect for the period fixed by the Board of Directors, except that
no Incentive Stock Option shall be exercisable after the expiration of 10 years
from the date it is granted and no Non-Statutory Stock Option shall be
exercisable after the expiration of 10 years plus seven days from the date it is
granted.
9. NONASSIGNABILITY. Except as otherwise provided by the Board of
Directors, each option granted under the Plan by its terms shall be
nonassignable and nontransferable by the optionee except by will or by the laws
of descent and distribution of the state or country of the optionee's domicile
at the time of death, and each option by its terms shall be exercisable during
the optionee's lifetime only by the optionee.
10. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason of any reorganization, merger, consolidation, plan of
exchange, recapitalization, reclassification, stock split-up, combination of
shares, or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares for the purchase of
which options may be granted under the Plan and in all other share amounts set
forth in the Plan. Any such adjustment made by the Board of Directors shall be
conclusive.
11. AMENDMENT OF PLAN. The Board of Directors may at any time and from
time to time modify or amend the Plan in such respects as it deems advisable
because of changes in the law while the Plan is in effect or for any other
reason. After the Plan has been approved by the
A-2
shareholders and except as provided in the applicable option agreement, however,
no change in an option already granted to an employee shall be made without the
written consent of such employee. Furthermore, unless approved at an annual
meeting or a special meeting by a vote of shareholders in accordance with Oregon
law, no amendment or change shall be made in the Plan (a) increasing the total
number of shares which may be purchased under the Plan, (b) changing the minimum
purchase price specified in the Plan, (c) increasing the maximum option period,
or (d) materially modifying the requirements for eligibility for participation
in the Plan.
12. APPROVALS. The obligations of the Company under the Plan are subject
to the approval of the Oregon Public Utility Commission, the Washington
Utilities and Transportation Commission, and such other state and federal
authorities or agencies with jurisdiction in the matter. The Company will use
its best efforts to take steps required by state or federal law or applicable
regulations, including rules and regulations of the Securities and Exchange
Commission and any stock exchange on which the Company's shares may then be
listed, in connection with the granting of any option under the Plan, the
issuance or sale of any shares purchased on exercise of any option under the
Plan, or the listing of such shares on said exchange. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver shares
of Common Stock under the Plan if the Company is advised by its legal counsel
that such issuance or delivery would violate applicable state or federal laws.
The Company shall not be obligated to register shares issuable on exercise of
options under the Securities Act of 1933.
13. EMPLOYMENT RIGHTS. Nothing in the Plan or any option granted
pursuant to the Plan shall confer on any optionee any right to be continued in
the employment of the Company or to interfere in any way with the right of the
Company by whom such optionee is employed to terminate such optionee's
employment at any time, with or without cause.
A-3
[PROXY CARD]
--------------------------------
VOTE BY TELEPHONE
--------------------------------
Have your proxy card available
[COMPANY LOGO] NW Natural when you call the TOLL-FREE
[GRAPHIC OMITTED] 220 N.W. SECOND AVENUE NUMBER 1-800-542-1160 using a
PORTLAND, OR 97209 touch-tone telephone. You will
be prompted to enter your
Control Number. Please follow
the simple prompts that will be
presented to you to record your
vote.
--------------------------------
VOTE BY INTERNET
--------------------------------
Have your proxy card available
when you access the website
HTTP://WWW.VOTEFAST.COM. You
will be prompted to enter your
Control Number. Please follow
the simple prompts that will be
presented to you to record your
vote.
--------------------------------
VOTE BY MAIL
--------------------------------
Please mark, sign and date your
proxy card and return it in the
postage-paid envelope provided
or return it to: Corporate
Election Services, P. O. Box
1150, Pittsburgh, PA 15230-1150.
-----------------------------------------------------------------------------------------
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call TOLL-FREE using a Access the WEBSITE and Return your proxy
Touch-Tone phone: Cast your vote: in the POSTAGE-PAID
1-800-542-1160 HTTP://WWW.VOTEFAST.COM envelope provided
-----------------------------------------------------------------------------------------
VOTE 24 HOURS A DAY, 7 DAYS A WEEK!
YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 11:59 P.M. EASTERN
DAYLIGHT TIME ON MAY 22, 2002 TO BE COUNTED IN THE FINAL TABULATION.
============================================================
YOUR CONTROL NUMBER IS:
============================================================
PROXY MUST BE SIGNED AND DATED BELOW.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] NW NATURAL REVOCABLE PROXY
[COMPANY LOGO]
This proxy when properly executed will be voted in the manner directed herein by
the shareholder whose signature appears below. IF NO DIRECTION IS MADE, THE
PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
PROPOSAL 1. Vote on Directors |_| FOR ALL To withhold an individual nominee, mark
Class III Nominees: (01) Thomas E. Dewey, Jr. |_| WITHHOLD ALL "FOR All Except" and write the nominee's
(02) Richard G. Reiten |_| FOR ALL EXCEPT name on the line below.
---------------------------------------------------
PROPOSAL 2. To amend and reapprove the Restated Stock Option Plan |_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL 3. Election of PricewaterhouseCoopers LLP as Auditors
for 2002 |_| FOR |_| AGAINST |_| ABSTAIN
|_| PLEASE MARK THIS BOX IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
_________________________________________________________
Signature(s)
_________________________________________________________
Signature(s)
When signing as attorney-in-fact, executor, administrator,
trustee, guardian or officer of a corporation, please give
full title as such. On joint accounts, each owner should
sign.
Date:_______________________________________________, 2002
Please fold and detach card at perforation before mailing.
------------------------------------------------------------------------------------------------------------------------------------
[GRAPHIC OMITTED] NW NATURAL REVOCABLE PROXY
[COMPANY LOGO]
NORTHWEST NATURAL GAS COMPANY
PROXY FOR 2002 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wayne D. Kuni, Richard G. Reiten and Robert L.
Ridgley and each or any of them, the proxy or proxies, with power of
substitution and with authorization to vote all of the common shares of the
undersigned at the annual meeting of shareholders of Northwest Natural Gas
Company to be held on Thursday, May 23, 2002, and at all adjournments thereof,
(i) as designated on the reverse of this card and, (ii) at their discretion,
upon any and all other matters which properly may be brought before such meeting
or any adjournment thereof.
If shares of the Company's Common Stock are held for the account of the
undersigned under the Company's Dividend Reinvestment and Stock Purchase Plan,
its Retirement K Savings Plan or its Employee Stock Purchase Plan, then the
undersigned hereby directs the respective fiduciary of each applicable plan to
vote all shares of Northwest Natural Gas Company Common Stock in the
undersigned's name and/or account under such Plan in accordance with the
instructions given herein, at the 2002 Annual Meeting and at any adjournments or
postponements thereof, on all matters properly brought before such meeting or
any adjournment thereof, including but not limited to the matters set forth on
the reverse side.
The Company will provide reasonable accommodation for a disability. If you need
an accommodation, please contact the Company at (503) 226-4211 ext. 3411 at
least 72 hours before the meeting.
PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND
MAIL WITHOUT DELAY IN THE ENCLOSED ENVELOPE.