Filed pursuant to Rule 424(b)(2)
Registration No. 333-100326
PROSPECTUS
$150,000,000
[GRAPHIC OMITTED]NW NATURAL
NORTHWEST NATURAL GAS COMPANY
SECURED MEDIUM-TERM NOTES, SERIES B
(SERIES OF FIRST MORTGAGE BONDS)
AND
UNSECURED MEDIUM-TERM NOTES, SERIES B
Northwest Natural Gas Company (NW Natural) intends to offer from time to
time up to $150,000,000 in principal amount of its secured medium-term notes and
unsecured medium-term notes. The secured medium-term notes will be secured by a
mortgage that constitutes a first mortgage lien on certain gas properties owned
from time to time by NW Natural. The unsecured medium-term notes will consist of
notes or other unsecured evidences of indebtedness. We will refer to the secured
medium-term notes and unsecured medium-term notes in this prospectus
collectively as the Medium-Term Notes.
The Medium-Term Notes will be offered on terms to be decided at the time of
sale. NW Natural will provide specific terms of the Medium-Term Notes, including
their offering prices, interest rates and maturities, in pricing supplements to
this prospectus. The pricing supplements may also add, update or change
information contained in this prospectus. You should read this prospectus and
any pricing supplement carefully before you invest.
The Medium-Term Notes will not be listed on any securities exchange. There
can be no assurance that there will be a secondary market for the Medium-Term
Notes or liquidity on the secondary market if one develops.
NW Natural may offer the Medium-Term Notes directly or through
underwriters, agents or dealers. The pricing supplements will describe the terms
of any particular plan of distribution, including any underwriting arrangements.
The "Plan of Distribution" section on page 13 of this prospectus also provides
more information on this topic.
NW Natural may sell the Medium-Term Notes to the agents as principals for
resale at varying or fixed offering prices or through the agents as agents using
their reasonable best efforts on NW Natural's behalf. Unless otherwise specified
in the pricing supplement, the price to the public for the Medium-Term Notes
will be 100% of the principal amount. If NW Natural sells all of the Medium-Term
Notes, it expects to receive proceeds of between $149,812,500 and $148,875,000
after paying the agents' discounts and commissions of between $187,500 and
$1,125,000 and before deducting expenses payable by NW Natural. NW Natural may
also sell the Medium-Term Notes directly to investors without the assistance of
the agents (whether acting as principal or as agent).
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
January 15, 2003
MERRILL LYNCH & CO.
UBS WARBURG
BANC ONE CAPITAL MARKETS, INC.
U.S. BANCORP PIPER JAFFRAY INC.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN
THIS PROSPECTUS. NW NATURAL HAS NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. NW NATURAL IS NOT MAKING AN OFFER OF THE MEDIUM-TERM
NOTES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE ON THE FRONT COVER HEREOF.
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION...........................................1
FORWARD-LOOKING STATEMENTS....................................................1
NW NATURAL....................................................................1
USE OF PROCEEDS...............................................................2
RATIO OF EARNINGS TO FIXED CHARGES............................................2
BOOK-ENTRY SYSTEM.............................................................2
DESCRIPTION OF THE SECURED NOTES..............................................3
DESCRIPTION OF THE UNSECURED NOTES...........................................10
PLAN OF DISTRIBUTION.........................................................15
EXPERTS......................................................................16
LEGALITY.....................................................................17
WHERE YOU CAN FIND MORE INFORMATION
NW Natural files annual, quarterly and special reports and other
information with the Securities and Exchange Commission (SEC). Reports, proxy
statements and other information filed by NW Natural can be read and copied at
the public reference facilities of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You can obtain additional
information about the Public Reference Room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains a Web site (http://www.sec.gov) that
contains reports, proxy statements and other information filed electronically by
NW Natural. NW Natural also maintains a Web site (http://www.nwnatural.com).
Information contained on NW Natural's Web site does not constitute part of this
prospectus.
NW Natural's common stock is listed on the New York Stock Exchange
under the symbol "NWN", and information concerning NW Natural can also be
inspected at the office of that exchange located at 20 Broad Street, New York,
New York 10005.
The SEC allows NW Natural to "incorporate by reference" the information
that NW Natural files with the SEC, which means that NW Natural may, in this
prospectus, disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this prospectus. NW Natural is incorporating by reference the documents listed
below and any future filings NW Natural makes with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange
Act), until NW Natural sells all of the Medium-Term Notes described in this
prospectus. Information that NW Natural files in the future with the SEC will
automatically update and supersede this information.
o NW Natural's Annual Report on Form 10-K for the year ended December
31, 2001.
o NW Natural's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 2002.
o NW Natural's Current Reports on Form 8-K filed March 1, 2002,
May 20, 2002 and October 9, 2002.
You may request a copy of these documents, at no cost to you, by
writing or calling Shareholder Services, Northwest Natural Gas Company, One
Pacific Square, 220 N.W. Second Avenue, Portland, Oregon 97209, telephone
503-226-4211.
FORWARD-LOOKING STATEMENTS
This document does, and the documents incorporated herein by reference
may, contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (Securities Act), and Section 21E of the
Exchange Act. Although NW Natural believes these statements are based on
reasonable assumptions, no assurance can be given that actual results will not
differ from those in the forward-looking statements contained herein and in the
incorporated documents. The forward-looking statements contained herein and in
the incorporated documents may be affected by various uncertainties. For a
discussion of factors which may affect forward-looking statements contained
herein and in the incorporated documents, see NW Natural's most recent Annual
Report on Form 10-K and its most recent Quarterly Report on Form 10-Q.
NW NATURAL
NW Natural is principally engaged in the distribution of natural gas to
customers in western Oregon and southwestern Washington, including the Portland
metropolitan area. NW Natural and its predecessors have supplied gas service to
the public since 1859. NW Natural's executive offices are located at One Pacific
Square, 220 N.W. Second Avenue, Portland, Oregon 97209. Its telephone number is
503-226-4211.
USE OF PROCEEDS
The net proceeds to be received by NW Natural from the sale of the
Medium-Term Notes will be added to the general funds of NW Natural and used for
corporate purposes, primarily to fund, in part, NW Natural's ongoing utility
construction program.
NW Natural expects its utility construction expenditures in 2003 to
aggregate $147 million, and in the five-year period, 2003-2007, to aggregate
between $500 million and $600 million.
It is estimated that 60% of the funds required for utility purposes
during the 2003-2007 period will be internally generated and that the balance,
as well as substantially all of the funds required for the refunding of maturing
and higher-cost debt and preferred stock, will be raised through the sale of
equity and debt securities, including the Medium-Term Notes, in such amounts and
at such times as NW Natural's cash requirements and market conditions shall
determine. Approximately $20 million of debt securities will mature in 2003.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges, calculated according to the
rules set forth under the Securities Act, for the following periods were:
NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
2002 2001 2000 1999 1998 1997
------------ --------- ---------- ---------- --------- --------
2.46 3.14 3.14 3.12 2.20 2.99
Earnings consist of net income to which has been added taxes on income
and fixed charges. Fixed charges consist of interest on all indebtedness,
amortization of debt expense and discount or premium, and the estimated interest
portion of rentals charged to income.
BOOK-ENTRY SYSTEM
The Medium-Term Notes will trade through The Depository Trust Company
("DTC"). The Medium-Term Notes will be represented by a global certificate and
registered in the name of Cede & Co., DTC's nominee.
DTC is a New York clearing corporation and a clearing agency registered
under Section 17A of the Exchange Act. DTC holds securities for its
participants. DTC facilitates settlement of securities transactions among its
participants through electronic computerized book-entry changes in the
participants' accounts. This eliminates the need for physical movement of
securities certificates. The participants include securities brokers and
dealers, banks, trust companies and clearing corporations. DTC is owned by a
number of its participants and by the New York Stock Exchange, Inc., the
American Stock Exchange LLC, and the National Association of Securities Dealers,
Inc. Others who maintain a custodial relationship with a participant can use the
DTC system. The rules that apply to DTC and those using its systems are on file
with the SEC.
Purchases of the Medium-Term Notes within the DTC system must be made
through participants, which will receive a credit for the Medium-Term Notes on
DTC's records. The beneficial ownership interest of each purchaser will be
recorded on the participants' records. Beneficial owners will not receive
written confirmation from DTC of their purchases, but beneficial owners should
receive written confirmations of the transactions, as well as periodic
statements of their holdings, from the participants through which they purchased
the Medium-Term Notes. Beneficial owners will not receive certificates for their
Medium-Term Notes, unless use of the book-entry system for the Medium-Term Notes
is discontinued.
To facilitate subsequent transfers, all Medium-Term Notes deposited by
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of the Medium-Term Notes with DTC and their registration in the name
of Cede & Co. effects no change in beneficial ownership. DTC has no knowledge of
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the actual beneficial owners of the Medium-Term Notes. DTC's records reflect
only the identity of the participants to whose accounts such Medium-Term Notes
are credited. These participants may or may not be the beneficial owners.
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to participants,
and by participants to beneficial owners, will be governed by arrangements among
them.
Redemption notices will be sent to DTC. If less than all of the
Medium-Term Notes are being redeemed, DTC's practice is to determine by lot the
amount of Medium-Term Notes of each participant to be redeemed.
Neither DTC nor Cede & Co. will itself consent or vote with respect to
Medium-Term Notes. Under its usual procedures, DTC would mail an omnibus proxy
to NW Natural as soon as possible after the record date. The omnibus proxy
assigns the consenting or voting rights of Cede & Co. to those participants to
whose accounts the Medium-Term Notes are credited on the record date. NW Natural
believes that these arrangements will enable the beneficial owners to exercise
rights equivalent in substance to the rights that can be directly exercised by a
registered holder of the Medium-Term Notes.
Payments of redemption proceeds, principal of, and interest on the
Medium-Term Notes will be made to Cede & Co., or such other nominee as may be
requested by DTC. DTC's practice is to credit participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on that payment date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices. Payments will be the
responsibility of participants and not of DTC, the Corporate Trustee (as defined
below), or NW Natural. Payment of redemption proceeds, principal and interest to
DTC is the responsibility of NW Natural. Disbursement of payments to
participants is the responsibility of DTC, and disbursement of payments to the
beneficial owners is the responsibility of participants.
Except as provided in this prospectus, a beneficial owner will not be
entitled to receive physical delivery of the Medium-Term Notes. Accordingly,
each beneficial owner must rely on the procedures of DTC to exercise any rights
under the Medium-Term Notes.
DTC may discontinue providing its services as securities depository
with respect to the Medium-Term Notes at any time by giving reasonable notice to
NW Natural. In the event no successor securities depository is obtained,
certificates for the Medium-Term Notes will be printed and delivered to the
beneficial owners. If NW Natural decides to discontinue use of the DTC system of
book-entry transfers, certificates for the Medium-Term Notes will be printed and
delivered to the beneficial owners.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that NW Natural believes to be reliable,
but NW Natural does not take responsibility for the accuracy of this
information.
DESCRIPTION OF THE SECURED NOTES
GENERAL
The secured notes, which are a series of NW Natural's First Mortgage
Bonds ("Bonds"), are to be issued under NW Natural's Mortgage and Deed of Trust,
dated as of July 1, 1946, to Deutsche Bank Trust Company Americas (formerly
known as Bankers Trust Company)(the "Corporate Trustee") and Stanley Burg
(successor to R.G. Page and J.C. Kennedy), as trustees (together, "Mortgage
Trustees"), as supplemented by twenty supplemental indentures, all of which are
collectively referred to as the "Mortgage".
Material terms of the secured notes are summarized below. The Mortgage
was filed with the SEC and you should read the Mortgage for provisions that may
be important to you. The statements in this "Description of the Secured Notes"
concerning the secured notes and the Mortgage make use of terms defined in the
Mortgage and are qualified in their entirety by express reference to the cited
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sections and articles. They may be changed with respect to any secured note by
the applicable pricing supplement, which should be read in conjunction with this
description.
The secured notes will be offered on a continuing basis and each
secured note will mature on such date, not less than nine months or more than 30
years from its date of issue, as selected by the purchaser and agreed to by NW
Natural.
The pricing supplement relating to each secured note will set forth the
principal amount, interest rate, interest payment dates, record dates, issue
price and agent's commission or discount, original issue and maturity dates,
redemption or repayment provisions, if any, and other material terms of such
secured note.
INTEREST
Unless otherwise specified in the pricing supplement relating to any
secured note, interest on such secured note will be payable semi-annually in
arrears on June 1 and December 1 of each year and at maturity.
Unless otherwise specified in the pricing supplement relating to any
secured note, interest payable on any interest payment date for any secured note
will be paid to the person in whose name such secured note is registered on the
record date with respect to such interest payment date, which shall be the May
15 or November 15 (whether or not a business day), as the case may be,
immediately preceding such interest payment date; provided that, (i) if the
original issue date of any secured note is after a record date and before the
corresponding interest payment date, such secured note shall bear interest from
the original issue date, but payment of interest shall commence on the second
interest payment date following the original issue date, and (ii) interest
payable on the maturity date will be paid to the person to whom the principal
thereof is paid.
Unless otherwise indicated in the applicable pricing supplement,
interest on the secured notes will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
FORM, EXCHANGE AND PAYMENT
The secured notes will be issued in fully registered form in
denominations of $1,000 or any amount in excess thereof that is an integral
multiple of $1,000. The secured notes will be exchangeable at the office of
Deutsche Bank Trust Company Americas in New York City, without charge other than
taxes or other governmental charges incident thereto. Principal, premium, if
any, and interest will be payable at such office. (See Twentieth Supplemental
Indenture, Section 1.01.) However, if the secured notes are held by DTC or its
nominee, owners of beneficial interests in the secured notes will not be
entitled to have any individual secured notes registered in their names, and
transfers of beneficial interests and payments of principal, premium, if any,
and interest will be made as described herein under "Book-Entry System".
REDEMPTION
Optional Redemption at Fixed Redemption Prices
To the extent, if any, provided in the pricing supplement relating to
any secured note, such secured note will be redeemable, on 30 days' notice, in
whole or in part, at any time on or after the initial redemption date, if any,
fixed at the time of sale and set forth in the applicable pricing supplement. On
or after the initial redemption date, such secured note will be redeemable in
whole or in part, at the option of NW Natural, at a redemption price determined
in accordance with the following paragraph or as described in the related
pricing supplement, plus accrued interest to the redemption date.
Unless otherwise specified in the pricing supplement relating to any
secured note, the redemption price for each secured note subject to redemption
shall, for the twelve-month period commencing on the initial redemption date, be
equal to a certain percentage of the principal amount of such secured note and
thereafter, shall decline for the twelve-month period commencing on each
anniversary of the initial redemption date by a percentage of the principal
amount ("Reduction Percentage") until the redemption price shall be 100% of the
principal amount. The initial redemption date and price and any Reduction
4
Percentage with respect to each secured note subject to redemption will be fixed
at the time of sale and set forth in the applicable pricing supplement.
If so specified in the pricing supplement relating to any secured note,
NW Natural may not, prior to the redemption limitation date, if any, set forth
in such pricing supplement, redeem such secured note as described above as a
part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an effective interest cost to
NW Natural (calculated in accordance with generally accepted financial practice)
of less than the effective interest cost to NW Natural (similarly calculated) of
such secured note.
Optional Redemption at Make-Whole Redemption Price
To the extent, if any, provided in the pricing supplement relating to
any secured note, such secured note will be redeemable, on 30 days' notice, in
whole or in part, at the option of NW Natural, at any time, at a redemption
price equal to the greater of (i) 100% of the principal amount thereof and (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon (exclusive of interest accrued to the date of redemption)
discounted to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus the Make-Whole
Spread, plus, in each case, accrued interest to the redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity or interpolated
yield (on a day count basis) of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
"Make-Whole Spread" means the amount, expressed as a percentage, fixed
at the time of sale and set forth in the applicable pricing supplement.
"Comparable Treasury Issue" means the United States Treasury security
or securities selected by an Independent Investment Banker as having an actual
or interpolated maturity comparable to the remaining term of the secured notes
to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of a comparable maturity to the remaining term of such secured
notes.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by NW Natural.
"Comparable Treasury Price" means, with respect to any redemption date,
(A) the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Independent Investment Banker obtains fewer than four
such Reference Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker by such
Reference Treasury Dealer at 3:30 p.m. New York time on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means each of the investment banking firms
or their affiliates which are primary U.S. Government securities dealers and
which are appointed by NW Natural as Reference Treasury Dealers, and their
respective successors; provided, however, that NW Natural shall appoint at least
five Reference Treasury Dealers, and if, at the time of any determination of the
Treasury Rate, there shall be less than five Reference Treasury Dealers which
are, or whose affiliates are, primary U.S. Government securities dealers in the
United States (each a "Primary Treasury Dealer"), then NW Natural shall appoint
one or more additional investment banking firms which are, or whose affiliates
are, Primary Treasury Dealers as Reference Treasury Dealers.
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Redemption - General
If, at the time the notice of redemption shall be given, the redemption
money has not been deposited with the Corporate Trustee, the redemption may be
made subject to the receipt of such money before the redemption date, and such
notice shall be of no effect unless such money is so received.
Unless otherwise indicated in the applicable pricing supplement, the
secured notes will not be subject to any sinking fund.
REPAYMENT AT OPTION OF HOLDER
To the extent, if any, provided in the pricing supplement relating to
any secured note, such secured note will be repayable by NW Natural at the
option of the registered holder thereof on the date specified in such pricing
supplement ("Repayment Date"), at a price equal to a percentage of the principal
amount of such secured note specified in such pricing supplement ("Repayment
Price"), plus accrued interest to the date of repayment.
For any secured note to be repaid, NW Natural must receive such secured
note at its office or agency in the Borough of Manhattan, The City of New York
(currently, the office of the Corporate Trustee), within the period ("Election
Period") commencing at the opening of business and ending at the close of
business on the dates specified in the pricing supplement relating to such
secured note (provided that, if the last day of the Election Period shall not be
a business day, the Election Period shall end at the close of business on the
next succeeding business day), together with the form entitled "Option to Elect
Repayment" on the reverse of, or otherwise accompanying, such secured note duly
completed. Any such election so received by NW Natural within such Election
Period shall be irrevocable.
The repayment option may be exercised by the registered holder of a
secured note for less than the entire principal amount of such secured note,
provided that the principal amount to be repaid is equal to $1,000 or an
integral multiple of $1,000. All questions as to the validity, eligibility
(including time of receipt) and acceptance of any secured note for repayment
will be determined by the Corporate Trustee, whose determination will be final
and binding.
So long as DTC or DTC's nominee is the registered holder of the secured
notes, DTC or such nominee will be the only entity that can exercise the
repayment option, and repayment will be made in accordance with DTC's repayment
procedures in effect at the time. See "Book-Entry System." In order to ensure
that DTC or its nominee will timely exercise a repayment option with respect to
a particular beneficial interest in the secured notes, the beneficial owner of
such interest must instruct the broker or other participant through which it
holds such interest to notify DTC of its election to exercise the repayment
option. In addition, the beneficial owner must effect delivery of such interest
at the time such notice of election is given to DTC by causing the broker or
other participant through which it holds such interest to transfer such interest
on DTC's records to the Corporate Trustee. Different firms have different
deadlines for accepting instructions from their customers and, accordingly, each
beneficial owner of secured notes should consult the broker or other participant
through which it holds an interest in the secured notes in order to ascertain
the deadline by which such instruction must be given in order for timely notice
to be delivered to DTC.
PROVISIONS FOR MAINTENANCE OF PROPERTY
While the Mortgage contains provisions for the maintenance of the
Mortgaged and Pledged Property, the Mortgage does not permit redemption of Bonds
pursuant to these provisions.
SECURITY
The secured notes together with all other Bonds issued or to be issued
under the Mortgage will be secured by the Mortgage, which constitutes a first
mortgage lien on certain gas utility properties owned from time to time by NW
Natural (except as stated below), subject to Excepted Encumbrances, including
minor defects and irregularities customarily found in properties of similar size
and character.
6
There are excepted from the lien:
(1) cash and securities,
(2) certain equipment, apparatus, materials or supplies,
(3) aircraft, automobiles and other vehicles,
(4) receivables, contracts, leases and operating agreements,
(5) timber, minerals, mineral rights and royalties, and
(6) all Natural Gas and Oil Production Property.
The Mortgage contains provisions that impose the lien of the Mortgage
on property acquired by NW Natural after the date of Mortgage, other than the
excepted property described above and subject to pre-existing liens. However, if
NW Natural consolidates, merges or sells substantially all of its assets to
another corporation, the lien created by the Mortgage will generally not cover
the property of the successor corporation, other than the property it acquires
from NW Natural and improvements, extensions, additions, renewals and
replacements of that property. (See Mortgage, Article XVI.)
The Mortgage provides that the Mortgage Trustees shall have a lien upon
the mortgaged property, prior to that of the Bonds, for the payment of their
reasonable compensation and expenses and for indemnity against certain
liabilities. This lien takes priority over the lien securing the Bonds. (See
Mortgage, Section 96.)
ISSUANCE OF ADDITIONAL BONDS
Bonds may be issued from time to time on the basis of:
(1) 60% of property additions, after adjustments to offset
retirements (See "Modification of the Mortgage -- Issuance of
Additional Bonds" below),
(2) the retirement of Bonds or qualified lien bonds, or
(3) the deposit of cash.
With certain exceptions in the case of (2) above, the issuance of Bonds must
meet an earnings test. The adjusted net earnings before income taxes for 12
consecutive months out of the preceding 15 months must be at least twice the
annual interest requirements on all Bonds at the time outstanding, including the
additional issue, and all indebtedness of prior rank.
Property additions generally include gas, electric, steam or hot water
property or gas by-product property acquired after March 31, 1946, but may not
include securities, airplanes, automobiles or other vehicles, or natural gas
transmission lines or Natural Gas and Oil Production Property. As of September
30, 2002, approximately $383 million of property additions were available for
use as the basis for the issuance of Bonds. As of September 30, 2002,
approximately $148 million of retired Bonds were available for use as the basis
for the issuance of Bonds.
The Mortgage contains certain restrictions upon the issuance of Bonds
against property subject to liens.
The secured notes will be issued against property additions and/or
retired Bonds.
(See Mortgage, Sections 4-7, 20-30 and 46, and Third Supplemental
Indenture, Sections 3 and 4.)
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RELEASE AND SUBSTITUTION OF PROPERTY
Property may be released on the basis of:
(1) the deposit of cash or, to a limited extent, purchase money
mortgages,
(2) property additions, or
(3) the waiver of the right to issue Bonds on the basis of retired
Bonds,
in each case without applying any earnings test.
Cash so deposited and cash deposited as the basis for the issuance of additional
Bonds may be withdrawn upon the bases stated in (2) and (3) above without
applying any earnings test. When property released is not funded property,
property additions used to effect the release may again, in certain cases,
become available as credits under the Mortgage, and the waiver of the right to
issue Bonds to effect the release may, in certain cases, cease to be effective
as such a waiver. Similar provisions are in effect as to cash proceeds of such
property. The Mortgage contains special provisions with respect to qualified
lien bonds pledged and the disposition of moneys received on pledged prior lien
bonds. (See Mortgage, Sections 5, 31, 32, 37, 46 to 50, 59 to 61, 100 and 118.)
SATISFACTION AND DISCHARGE OF MORTGAGE
The lien of the Mortgage may be canceled and discharged whenever all
indebtedness secured by the Mortgage has been paid. Bonds, or any portion of the
principal amount thereof, will, prior to the maturity thereof, be deemed to have
been paid for purposes of satisfying the lien of the Mortgage and shall not be
deemed to be outstanding for any other purpose of the Mortgage if there shall
have been deposited with the Corporate Trustee either:
(1) moneys in the necessary amount, or
(2) (a) direct obligations of the government of the United States
of America, or
(b) obligations guaranteed by the government of the United
States of America, or
(c) securities that are backed by obligations of the
government of the United States of America as
collateral under an arrangement by which the interest
and principal payments on the collateral generally
flow immediately through to the holder of the
security,
which in any case are not subject to redemption prior to
maturity by any one other than the holders, the principal of
and the interest on which when due, and without any regard to
reinvestment thereof, shall be sufficient to pay when due the
principal of, premium, if any, and interest due and to become
due on said Bonds or portions thereof on the redemption date
or maturity date thereof, as the case may be. (See Mortgage,
Section 106 and Thirteenth Supplemental Indenture, Section
3.02.)
DEFAULTS AND NOTICE THEREOF
Defaults are:
(1) default in payment of principal,
(2) default for 60 days in payment of interest or of installments of
funds for retirement of Bonds,
(3) certain defaults with respect to qualified lien bonds,
(4) certain events in bankruptcy, insolvency or reorganization, and
(5) default for 90 days after notice in the case of a breach of
certain other covenants.
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The Mortgage Trustees may withhold notice of default (except in payment of
principal, interest or any fund for the retirement of Bonds) if they think it is
in the interest of the bondholders. (See Mortgage, Sections 65 and 66.)
Holders of 25% of the Bonds may declare the principal and the interest
due on default, but a majority may annul such declaration if such default has
been cured. No holder of Bonds may enforce the lien of the Mortgage without
giving the Mortgage Trustees written notice of a default and unless holders of
25% of the Bonds have requested the Mortgage Trustees to act and offered them
reasonable opportunity to act and the Mortgage Trustees have failed to act. The
Mortgage Trustees are not required to risk their funds or incur personal
liability if there is reasonable ground for believing that the repayment is not
reasonably assured. Holders of a majority of the Bonds may direct the time,
method and place of conducting any proceedings for any remedy available to the
Mortgage Trustees, or exercising any trust or power conferred upon the Mortgage
Trustees, but the Mortgage Trustees are not required to follow such direction if
not sufficiently indemnified for expenditures. (See Mortgage, Sections 67, 71,
80 and 94.)
EVIDENCE TO BE FURNISHED TO THE MORTGAGE TRUSTEES
Compliance with Mortgage provisions is evidenced by written statements
of NW Natural's officers or persons selected by NW Natural. In certain major
matters the accountant, engineer, appraiser or other expert must be independent.
Various certificates and other papers, including an annual certificate with
reference to compliance with the terms of the Mortgage and absence of defaults,
are required to be filed annually and upon the occurrence of certain events.
(See Mortgage, Sections 38 and 41-46.)
MODIFICATION OF THE MORTGAGE
The rights of the bondholders may be modified with the consent of
holders of 70% of the Bonds and, if less than all series of Bonds are affected,
the consent also of holders of 70% of Bonds of each series affected. NW Natural
has the right, without any consent or other action by holders of any outstanding
series of Bonds, to substitute 662/3% for 70%. In general, no modification of
the terms of payment of principal and interest, affecting the lien of the
Mortgage or reducing the percentage required for modification (except as
provided above) will be effective against any bondholder without his consent.
(See Mortgage, Article XIX and Ninth Supplemental Indenture, Section 6.)
NW Natural has the right to amend the Mortgage, without any consent or
other action by holders of any outstanding series of Bonds in the following
respects:
Release and Substitution of Property
To permit the release of property at the lesser of its cost or its fair
value at the time that such property became funded property, rather than at its
fair value at the time of its release; and to facilitate the release of unfunded
property. (See Mortgage, Sections 3, 59 and 60 and Eighteenth Supplemental
Indenture, Section 2.03.)
Issuance of Additional Bonds
To clarify that:
(1) for purposes of determining annual interest requirements,
interest on Bonds or other indebtedness bearing interest at a
variable interest rate shall be computed at the average of the
interest rates borne by such Bonds or other indebtedness
during the period of calculation or, if such Bonds or other
indebtedness shall have been issued after such period or shall
be the subject of pending applications, interest shall be
computed at the initial rate borne upon issuance, and
(2) no extraordinary items shall be included in operating expenses
or deducted from revenues or other income in calculating
adjusted net earnings (see Mortgage, Section 7); and to revise
the basis for the issuance of additional Bonds from 60% of
property additions, after adjustments to offset retirements,
to 70%.
9
(See Mortgage, Sections 25, 26, 59 and 61 and Eighteenth
Supplemental Indenture, Sections 2.01 and 2.02.)
THE CORPORATE TRUSTEE
Deutsche Bank Trust Company Americas also serves as the Indenture
Trustee under the Indenture under which the unsecured notes are issued.
DESCRIPTION OF THE UNSECURED NOTES
GENERAL
The unsecured notes are to be issued under an Indenture, dated as of
June 1, 1991 ("Indenture"), between NW Natural and Deutsche Bank Trust Company
Americas, as trustee ("Indenture Trustee").
Material terms of the unsecured notes are summarized below. The
Indenture was filed with the SEC and you should read the Indenture for
provisions that may be important to you. The statements in this "Description of
the Unsecured Notes" concerning the unsecured notes and the Indenture make use
of terms defined in the Indenture and are qualified in their entirety by express
reference to the cited sections and articles. They may be changed with respect
to any unsecured note by the applicable pricing supplement, which should be read
in conjunction with this description.
The Indenture provides that debt securities (including the unsecured
notes and including both interest bearing and original issue discount
securities) may be issued under the Indenture, without limitation as to
aggregate principal amount. (See Indenture, Section 301.) All debt securities
issued or to be issued under the Indenture (including the unsecured notes) are
collectively referred to as the "Indenture Securities".
The Indenture does not limit the amount of other debt, secured or
unsecured, which may be issued by NW Natural.
The unsecured notes will rank equally with all other unsecured and
unsubordinated indebtedness of NW Natural. Substantially all of the gas plants,
distribution systems and other materially important physical properties of NW
Natural are subject to the lien of the Mortgage securing the Bonds. (See
"Description of the Secured Notes--Security" and "-- Issuance of Additional
Bonds", above.)
The unsecured notes will be offered on a continuing basis, and each
unsecured note will mature on such date, not less than nine months nor more than
30 years from its date of issue, as selected by the purchaser and agreed to by
NW Natural.
The pricing supplement relating to any unsecured note will include the
principal amount, interest rate, interest payment dates, regular record dates,
issue price and agent's commission or discount, original issue and maturity
dates, redemption or repayment provisions, if any, and other material terms of
such unsecured note.
INTEREST
Unless otherwise specified in the pricing supplement relating to any
unsecured note, interest on such unsecured note will be payable semi-annually in
arrears on June 1 and December 1 of each year and at maturity.
Unless otherwise specified in the pricing supplement relating to any
unsecured note, interest payable on any interest payment date for any unsecured
note will be paid to the person in whose name such unsecured note is registered
on the record date with respect to such interest payment date, which shall be
the May 15 or November 15 (whether or not a business day), as the case may be,
immediately before such interest payment date; provided that, (i) if the
original issue date of any unsecured note is after a record date and before the
corresponding interest payment date, such unsecured note will bear interest from
the original issue date but payment of interest shall commence on the second
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interest payment date following the original issue date, and (ii) interest
payable on the maturity date will be paid to the person to whom the principal
thereof is paid.
Unless otherwise indicated in the applicable pricing supplement,
interest on the unsecured notes will be computed on the basis of a 360-day year
consisting of twelve 30-day months. (See Indenture, Section 310).
FORM, EXCHANGE AND PAYMENT
The unsecured notes will be issued in fully registered form in
denominations of $1,000 or any amount in excess thereof that is an integral
multiple of $1,000. The unsecured notes will be exchangeable at the office of
Deutsche Bank Trust Company Americas in New York City, without charge other than
taxes or other governmental charges incident thereto. Principal, premium, if
any, and interest will be payable at such office. Notwithstanding the foregoing,
for so long as the unsecured notes shall be held by DTC or its nominee, owners
of beneficial interests in the unsecured notes will not be entitled to have any
individual unsecured notes registered in their names, and transfers of
beneficial interests and payments of principal, premium, if any, and interest
will be made as described herein under "Book-Entry System".
REDEMPTION
Optional Redemption at Fixed Redemption Prices
To the extent, if any, provided in the pricing supplement relating to
any unsecured note, such unsecured note will be redeemable, on not less than 30
days' notice, in whole or in part, at any time on or after the initial
redemption date, if any, fixed at the time of sale and set forth in the
applicable pricing supplement. On or after the initial redemption date, such
unsecured note will be redeemable in whole or in part, at the option of NW
Natural, at a redemption price determined in accordance with the following
paragraph or as described in the related pricing supplement, plus accrued
interest to the redemption date.
The redemption price for each unsecured note subject to redemption
shall, for the twelve-month period commencing on the initial redemption date, be
equal to a certain percentage of the principal amount of such unsecured note
and, thereafter, shall decline for the twelve-month period commencing on each
anniversary of the initial redemption date by a percentage of the principal
amount ("Reduction Percentage") until the redemption price shall be 100% of the
principal amount. The initial redemption price and date and any Reduction
Percentage with respect to each unsecured note subject to redemption will be
fixed at the time of sale and set forth in the applicable pricing supplement.
If so specified in the pricing supplement relating to any unsecured
note, NW Natural may not, prior to the redemption limitation date, if any, set
forth in such pricing supplement, redeem such unsecured note as described above
as a part of, or in anticipation of, any refunding operation by the application,
directly or indirectly, of moneys borrowed having an effective interest cost to
NW Natural (calculated in accordance with generally accepted financial practice)
of less than the effective interest cost to NW Natural (similarly calculated) of
such unsecured note.
Optional Redemption at Make-Whole Redemption Price
To the extent, if any, provided in the pricing supplement relating to
any unsecured note, such unsecured note will be redeemable, on 30 days' notice,
in whole or in part, at the option of NW Natural, at any time, at a redemption
price equal to the greater of (i) 100% of the principal amount thereof and (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon (exclusive of interest accrued to the date of redemption)
discounted to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus the Make-Whole
Spread, plus, in each case, accrued interest to the redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity or interpolated
yield (on a day count basis) of the Comparable Treasury Issue, assuming a price
11
for the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such redemption date.
"Make-Whole Spread" means the amount, expressed as a percentage, fixed
at the time of sale and set forth in the applicable pricing supplement.
"Comparable Treasury Issue" means the United States Treasury security
or securities selected by an Independent Investment Banker as having an actual
or interpolated maturity comparable to the remaining term of the unsecured notes
to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of a comparable maturity to the remaining term of such unsecured
notes.
"Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by NW Natural.
"Comparable Treasury Price" means, with respect to any redemption date,
(A) the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Independent Investment Banker obtains fewer than four
such Reference Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker by such
Reference Treasury Dealer at 3:30 p.m. New York time on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means each of the investment banking firms
or their affiliates which are primary U.S. Government securities dealers and
which are appointed by NW Natural as Reference Treasury Dealers, and their
respective successors; provided, however, that NW Natural shall appoint at least
five Reference Treasury Dealers, and if, at the time of any determination of the
Treasury Rate, there shall be less than five Reference Treasury Dealers which
are, or whose affiliates are, primary U.S. Government securities dealers in the
United States (each a "Primary Treasury Dealer"), then NW Natural shall appoint
one or more additional investment banking firms which are, or whose affiliates
are, Primary Treasury Dealers as Reference Treasury Dealers.
Redemption - General
If, at the time the notice of redemption shall be given, the redemption
money has not been deposited with the Indenture Trustee, the redemption shall be
made subject to the receipt of such money on or before the redemption date, and
such notice shall be of no effect unless such money shall be so received. (See
Indenture, Article Four.)
Unless otherwise indicated in the applicable pricing supplement, the
unsecured notes will not be subject to any sinking fund.
REPAYMENT AT OPTION OF HOLDER
To the extent, if any, provided in the pricing supplement relating to
any unsecured note, such unsecured note will be repayable by NW Natural at the
option of the registered holder thereof on the date of repayment specified in
such pricing supplement at a repayment price equal to a percentage of the
principal amount of such unsecured note specified in such pricing supplement,
plus accrued interest to the date of repayment.
For any unsecured note to be repaid, NW Natural must receive such
unsecured note at its office or agency in the Borough of Manhattan, The City of
New York (currently, the office of the Indenture Trustee), within the period
("Election Period") commencing at the opening of business and ending at the
close of business on the dates specified in the pricing supplement relating to
such unsecured note (provided that, if the last day of the Election Period shall
12
not be a business day, the Election Period shall end at the close of business on
the next succeeding business day), together with the form entitled "Option to
Elect Repayment" on the reverse of, or otherwise accompanying, such unsecured
note duly completed.
Any such election so received by NW Natural within such Election Period
shall be irrevocable. The repayment option may be exercised by the registered
holder of an unsecured note for less than the entire principal amount of such
unsecured note, provided that the principal amount to be repaid is equal to
$1,000 or an integral multiple of $1,000. All questions as to the validity,
eligibility (including time of receipt) and acceptance of any unsecured note for
repayment will be determined by the Indenture Trustee, whose determination will
be final and binding.
So long as DTC or DTC's nominee is the registered holder of the
unsecured notes, DTC or such nominee will be the only entity that can exercise
the repayment option, and repayment will be made in accordance with DTC's
repayment procedures in effect at the time. See "Book-Entry System." In order to
ensure that DTC or its nominee will timely exercise a repayment option with
respect to a particular beneficial interest in the unsecured notes, the
beneficial owner of such interest must instruct the broker or other participant
through which it holds such interest to notify DTC of its election to exercise
the repayment option. In addition, the beneficial owner of unsecured notes must
effect delivery of such interest at the time such notice of election is given to
DTC by causing the broker or other participant through which it holds such
interest to transfer such interest on DTC's records to the Indenture Trustee.
Different firms have different deadlines for accepting instructions from their
customers and, accordingly, each beneficial owner of unsecured notes should
consult the broker or other participant through which it holds an interest in
the unsecured notes in order to ascertain the deadline by which such instruction
must be given in order for timely notice to be delivered to DTC.
DEFEASANCE
The principal amount of any unsecured notes issued under the Indenture
will be deemed to have been paid for purposes of the Indenture and the entire
indebtedness of NW Natural in respect thereof will be deemed to have been
satisfied and discharged, if there shall have been irrevocably deposited with
the Indenture Trustee, in trust:
(1) money in an amount which will be sufficient, or
(2) in the case of a deposit made prior to the maturity of the
unsecured notes, Government Obligations (as defined below),
which do not contain provisions permitting the redemption or
other prepayment thereof at the option of the issuer thereof,
the principal of and the interest on which when due, without
any regard to reinvestment thereof, will provide moneys which,
together with the money, if any, deposited with or held by the
Indenture Trustee, will be sufficient, or
(3) a combination of (1) and (2) which will be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on the unsecured notes that are outstanding. For this purpose,
Government Obligations include direct obligations of, or obligations
unconditionally guaranteed by, the United States of America entitled to the
benefit of the full faith and credit thereof and certificates, depositary
receipts or other instruments which evidence a direct ownership interest in such
obligations or in any specific interest or principal payments due in respect
thereof. (See Indenture, Sections 101, 701.)
If NW Natural deposits any money and/or Government Obligations with
respect to the unsecured notes, or any portion of the principal amount thereof,
prior to the maturity or redemption of such unsecured notes or such portion of
the principal amount thereof, for the satisfaction or discharge of the
indebtedness of NW Natural in respect to such unsecured notes or such portion
thereof as described in Section 701 of the Indenture, NW Natural shall deliver
to the Indenture Trustee either:
(1) an instrument wherein NW Natural, notwithstanding such
satisfaction and discharge, shall assume the obligation to
irrevocably deposit with the Indenture Trustee such additional
sums of money, if any, or additional Government Obligations,
13
if any, or any combination thereof, at such time or times, as
shall be necessary, together with the money and/or Government
Obligations previously deposited, to pay when due the
principal of and premium, if any, and interest due and to
become due on such unsecured notes or such portions thereof,
all in accordance with and subject to the provisions of said
Section 701; provided, however, that such instrument may state
that the obligation of NW Natural to make additional deposits
as described above shall be subject to the delivery to NW
Natural by the Indenture Trustee of a notice asserting the
amount of such deficiency accompanied by an opinion of an
independent public accountant of nationally recognized
standing, selected by the Indenture Trustee, showing the
calculation thereof, or
(2) an opinion of counsel to the effect that the holders of such
unsecured notes, or such portions of the principal amount
thereof, will not recognize income, gain or loss for United
States federal income tax purposes as a result of such
satisfaction and discharge and will be subject to United
States federal income tax on the same amounts, at the same
times and in the same manner as if such satisfaction and
discharge had not been effected.
In the event that NW Natural shall elect to deliver to the Indenture
Trustee an instrument as described in clause (1) of the preceding paragraph in
connection with any such deposit of money and/or Government Obligations with the
Indenture Trustee, under current applicable United States federal income tax
regulations, the holders of such unsecured notes, or such portions thereof, will
not recognize income, gain or loss for United States federal income tax purposes
as a result of such satisfaction and discharge and will be subject to United
States federal income tax on the same amounts, at the same times and in the same
manner as if such deposit had not been effected. There can be no assurance that
such United States federal income tax regulations will not change such that, as
a result of such deposit and delivery by NW Natural of such instrument, holders
of unsecured notes may recognize income, gain or loss for United States federal
income tax purposes and may not be subject to United States federal income tax
on the same amounts, at the same times and in the same manner as if such deposit
had not been made.
EVENTS OF DEFAULT AND NOTICE THEREOF
Events of default are:
(1) default for three business days in payment of principal,
(2) default for 60 days in payment of interest,
(3) certain events in bankruptcy, insolvency or reorganization,
(4) default for 90 days after notice in the case of a breach of any
other covenant, and
(5) any other event of default specified with respect to the
Indenture Securities of a particular series.
No event of default with respect to a series of Indenture Securities
necessarily constitutes an event of default with respect to the Indenture
Securities of any other series.
The Indenture Trustee may withhold notice of default (except in payment
of principal, interest or any funds for the retirement of Indenture Securities)
if it, in good faith, determines that withholding of such notice is in the
interest of the holders of the Indenture Securities. (See Indenture, Sections
801 and 903.)
Either the Indenture Trustee or the holders of not less than 33% in
principal amount (or such lesser amount as may be provided in the case of
discount Indenture Securities) of the outstanding Indenture Securities of all
defaulted series, considered as one class, may declare the principal and
interest on such series due on default, but NW Natural may annul such default by
effecting its cure and paying overdue interest and principal. No holder of
Indenture Securities may enforce the Indenture without having given the
Indenture Trustee written notice of default, and unless the holders of a
majority of the Indenture Securities of all defaulted series, considered as one
class, shall have requested the Indenture Trustee to act and offered reasonable
indemnity, and for 60 days the Indenture Trustee shall have failed to act. But,
14
each holder has an absolute right to receive payment of principal and interest
when due and to institute suit for the enforcement of such payment. The
Indenture Trustee is not required to risk its funds or incur any financial
liability if it has reasonable grounds to believe that repayment is not
reasonably assured.
The holders of a majority of the Indenture Securities of all defaulted
series, considered as one class, may direct the time, method and place of
conducting any proceedings for any remedy available to the Indenture Trustee, or
exercising any trust or power conferred on the Indenture Trustee, with respect
to the Indenture Securities of such series, but the Indenture Trustee is not
required to follow such direction if not sufficiently indemnified and the
Indenture Trustee may take any other action it deems proper which is not
inconsistent with such direction. (See Indenture, Sections 802, 807, 808, 812
and 902.)
EVIDENCE TO BE FURNISHED TO THE INDENTURE TRUSTEE
Compliance with Indenture provisions will be evidenced by written
statements of NW Natural's officers. An annual certificate with reference to
compliance with the covenants and conditions of the Indenture and the absence of
defaults is required to be filed with the Indenture Trustee. (See Indenture,
Section 1004.)
MODIFICATION OF THE INDENTURE
The rights of the holders of the Indenture Securities may be modified
with the consent of the holders of a majority of the Indenture Securities of all
series or Tranches, as defined below, affected, considered as one class.
However, certain specified rights of the holders of Indenture Securities may be
modified without the consent of the holders if such modification would not be
deemed to adversely affect their interests in any material respect.
In general, no modification of the terms of payment of principal and
interest, no reduction of the percentage in principal amount of the Indenture
Securities outstanding under such series required to consent to any supplemental
indenture or waiver under the Indenture, no reduction of such percentage
necessary for quorum and voting, and no modification of certain of the
provisions in the Indenture relating to supplemental indentures, waivers of
certain covenants and waivers of past defaults is effective against any holder
of Indenture Securities without the consent of such holder. "Tranche" means a
group of Indenture Securities which are of the same series and have identical
terms except as to principal amount and/or date of issuance. (See Indenture,
Article Twelve.)
THE INDENTURE TRUSTEE
Deutsche Bank Trust Company Americas also serves as the Corporate
Trustee under the Mortgage under which the secured notes are issued.
PLAN OF DISTRIBUTION
The Medium-Term Notes are being offered on a continuing basis for sale
by NW Natural through the agents which have agreed to use their reasonable best
efforts to solicit purchases of the Medium-Term Notes. The initial agents are
Merrill Lynch, Pierce, Fenner & Smith Incorporated, UBS Warburg LLC, Banc One
Capital Markets, Inc. and U.S. Bancorp Piper Jaffray Inc. Should NW Natural
designate other persons to act as agents, the names of such persons will be
disclosed in a pricing supplement. NW Natural will pay each agent a commission
which, depending on the maturity of the Medium-Term Notes, will range from .125%
to .750% of the principal amount of any Medium-Term Note sold through such
agent.
NW Natural may also sell Medium-Term Notes to any agent, as principal,
at a discount from the principal amount thereof, and the agent may later resell
such Medium-Term Notes to investors and other purchasers at varying prices
related to prevailing market prices at the time of resale as determined by such
agent or, if so agreed, at a fixed public offering price. In the case of sales
to any agent as principal, such agent may utilize a selling or dealer group in
connection with resales. An agent may sell Medium-Term Notes it has purchased as
principal to any dealer at a discount and, unless otherwise specified in the
applicable pricing supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by such agent from NW Natural.
15
After the initial public offering of Medium-Term Notes to be resold to
investors and other purchasers, the public offering price (in the case of a
fixed price public offering), concession and discount may be changed.
The Medium-Term Notes also may be sold by NW Natural directly to
purchasers. No commission will be payable to the agents on Medium-Term Notes
sold directly by NW Natural.
NW Natural reserves the right to withdraw, cancel or modify the offer
made hereby without notice and may reject, in whole or in part, offers to
purchase Medium-Term Notes whether placed directly with NW Natural or through
one of the agents. Each agent will have the right, in its discretion reasonably
exercised, to reject any offer to purchase Medium-Term Notes received by it, in
whole or in part.
Payment of the purchase price of the Medium-Term Notes will be required
to be made in immediately available funds in New York City on the date of
settlement.
No Medium-Term Note will have an established trading market when
issued. The Medium-Term Notes will not be listed on any securities exchange.
Each of the agents may from time to time purchase and sell Medium-Term Notes in
the secondary market, but is not obligated to do so. There can be no assurance
that there will be a secondary market for the Medium-Term Notes or liquidity in
the secondary market if one develops. From time to time, each of the agents may
make a market in the Medium-Term Notes.
In connection with certain types of offers and sales of Medium-Term
Notes, SEC rules permit the agents to engage in certain transactions that
stabilize the price of such Medium-Term Notes. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Medium-Term Notes.
If the agents create a short position in any Medium-Term Notes in
connection with certain types of offers and sales, i.e., if they sell more
Medium-Term Notes than are set forth in the applicable pricing supplement, the
agents may reduce that short position by purchasing Medium-Term Notes in the
open market.
In connection with certain types of offers and sales, the agents may
also impose a penalty bid on certain agents and selling group members. This
means that if the agents purchase Medium-Term Notes in the open market to reduce
the agents' short position or to stabilize the price of the Medium-Term Notes,
they may reclaim the amount of selling concession from the agents and selling
group members who sold these Medium-Term Notes as part of the offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither NW Natural nor any agent makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the Medium-Term Notes. In addition, neither NW
Natural nor any agent makes any representation that the agents will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act. NW Natural has agreed to indemnify each of the agents against,
or to make contributions relating to, certain liabilities, including liabilities
under such Act. NW Natural has agreed to reimburse each of the agents for
certain expenses. Each of the agents may engage in transactions with, or perform
services for, NW Natural in the ordinary course of business.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to NW Natural's Annual Report on Form 10-K for the year ended December 31, 2001
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
16
LEGALITY
The legality of the Medium-Term Notes will be passed upon for NW
Natural by Beth A. Ugoretz, Esquire, General Counsel of NW Natural, and by
Thelen Reid & Priest LLP, New York, New York, and for the agents by Simpson
Thacher & Bartlett, New York, New York. Ms. Ugoretz may rely upon the opinion of
Thelen Reid & Priest LLP as to certain legal matters arising under New York law.
Thelen Reid & Priest LLP and Simpson Thacher & Bartlett may rely upon the
opinion of Ms. Ugoretz as to certain legal matters arising under Oregon law, and
Ms. Ugoretz, Thelen Reid & Priest LLP and Simpson Thacher & Bartlett may rely
upon the opinion of Stoel Rives LLP as to certain legal matters arising under
Washington law. However, all matters pertaining to titles, the lien and
enforceability of the Mortgage and franchises, will be passed upon only by Ms.
Ugoretz, who may rely on the opinion of Stoel Rives LLP as to certain legal
matters arising under Washington law.
17
$150,000,000
[GRAPHIC OMITTED]NW NATURAL
NORTHWEST NATURAL GAS COMPANY
SECURED MEDIUM-TERM NOTES,
SERIES B
UNSECURED MEDIUM-TERM NOTES,
SERIES B
--------------------------------
P R O S P E C T U S
--------------------------------
MERRILL LYNCH & CO.
UBS WARBURG
BANC ONE CAPITAL MARKETS, INC.
U.S. BANCORP PIPER JAFFRAY INC.
January 15, 2003