SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [X] Definitive Proxy Statement
[ ] Definitive Additional Materials [ ] Soliciting Materials
[ ] Confidential, for use of the Pursuant to S.240.14a-11(c)
Commission Only (as permitted or S.240.14a-12
by Rule 14a-6(e)(2))
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 Registrant)
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computed pursuant to Exchange Act Rule 0-11 (Set forth
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NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
Portland, Oregon, April 16, 1999
To the Shareholders:
The 1999 Annual Meeting of Shareholders of Northwest Natural Gas Company
will be held in the Mayfair Ballroom of the Benson Hotel, 309 S. W. Broadway,
Portland, Oregon, on Thursday, May 27, 1999, at 2:00 p.m., Pacific Daylight
Time, for the following purposes:
(1) to elect four Class III directors to a term of three years;
(2) to elect independent auditors for the year 1999; and
(3) 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 8, 1999
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 Administrator, or its agent, under the
Company's Dividend Reinvestment and Stock Purchase Plan to vote any shares held
for shareholders' benefit under this Plan, 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.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING.
WE URGE YOU TO EXERCISE YOUR RIGHT TO VOTE BY PROMPTLY MARKING, SIGNING,
DATING AND RETURNING THE ENCLOSED PROXY CARD. THE PROMPT RETURN OF YOUR PROXY
WILL SAVE YOUR 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
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NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1999
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 Mayfair Ballroom of
the Benson Hotel, 309 S. W. Broadway, Portland, Oregon, on Thursday, May 27,
1999, at 2:00 p.m., Pacific Daylight Time. The Company requests that you sign
and return the enclosed proxy promptly.
The Company's Annual Report for the fiscal year ended December 31, 1998,
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 16, 1999.
All shares represented by proxies which have been properly executed and
returned to the management will be voted at the meeting. Where a shareholder
eligible to vote specifies a choice by means of the ballot space provided in the
proxy, the shares will be voted in accordance with the specification so made. If
no specification is made, such shares will be voted FOR Items 1 and 2, and may
be cumulatively voted for the election of directors. The proxy may be revoked by
you at any time before it is exercised by delivering to the Company a later
dated proxy, by giving written notice of revocation to the Secretary of the
Company at the address shown above, or by attending the meeting and voting your
shares in person.
The close of business on April 8, 1999 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting.
VOTING SECURITIES OF THE COMPANY
The 24,912,079 shares of Common Stock outstanding on March 19, 1999 were
held by about 9,200 shareholders residing in 50 states and a number of foreign
countries.
Each holder of Common Stock of record at the close of business on April
8, 1999 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 8, 1999 must be represented at the meeting, in person or by
proxy, to constitute a quorum for the transaction of business.
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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.
ITEM 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 resolution
adopted by the Board. The Board has fixed the number of directors at twelve. 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 Annual Meeting of Shareholders. Ms. Mary Arnstad and
Messrs. Thomas E. Dewey, Jr., Richard G. Reiten and Benjamin R. Whiteley are
nominees for election to the Board as Class III directors to serve until the
2002 Annual Meeting or until their successors have been duly elected and
qualified. Each of the nominees was elected by the shareholders at the 1996
Annual Meeting. In case any 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 any of the
nominees would be unable to serve if elected.
Under Oregon law, if a quorum of shareholders is present at the Annual
Meeting, the four 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 either
directors or proposal 2.
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THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF THE NOMINEES
LISTED BELOW.
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
CLASS III
(FOR A THREE-YEAR TERM ENDING 2002)
[PHOTO HERE] MARY ARNSTAD
President and Chief Executive Officer, Broken Top, Inc., Bend,
Oregon
Age: 50
Director since: 1992
Board Committees: Audit, Environmental Policy
Since January 1998, Ms. Arnstad has been President and CEO of Broken
Top, Inc., a private golf club and residential community development located in
Bend, Oregon. In 1997, she established Arnstad Accommodations, Inc., a
hospitality company based in Portland, to undertake hotel projects in the
Pacific Northwest. From 1992 through February 1997, she served as President of
The Heathman Management Group, Inc., which owns and operates The Heathman Hotel
and the B. Moloch/Heathman Bakery and Pub, both located in Portland, and The
Greenwood Inn in Beaverton, Oregon. Ms. Arnstad formerly served as Vice Chairman
of the Board of Directors of Preferred Hotels and Resorts Worldwide, and is on
the governing board of the Northwest Business Committee for the Arts. In 1996,
Ms. Arnstad was appointed Oregon Tourism Commissioner. She is a graduate of
Wittenberg University.
[PHOTO HERE] THOMAS E. DEWEY, JR.
General Partner, McFarland Dewey & Co., New York, New York
Age: 66
Director since: 1986
Board Committees: Finance (Chairman), Audit
Since 1989, Mr. Dewey has been a general partner in the investment
banking firm of 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., and Chairman Emeritus of Lenox Hill Hospital, and formerly served as a
member of the Board and as Vice Chairman of New York City Housing Development
Corporation. Mr. Dewey is a graduate of Princeton University and the Harvard
Business School.
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[PHOTO HERE] RICHARD G. REITEN
President and Chief Executive Officer of the Company, Portland
Age: 59
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. From August 1992 through
December 1995, Mr. Reiten served as President and Chief Operating Officer of
Portland General Electric Company (PGE) after having served as President of
PGE's parent company, Portland General Corporation (PGC), from January 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, Regence
BlueCross and BlueShield of Oregon, The Regence Group and Aegis Insurance
Services. He serves on the boards of the American Gas Association, the Pacific
Coast Gas Association, the United Way and The Nature Conservancy of Oregon. He
is immediate past General Chairman of the United Way campaign for Portland and
is 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.
[PHOTO HERE] BENJAMIN R. WHITELEY
Chairman and CEO, Retired, Standard Insurance Company, and Lead
Director of the Company, Portland
Age: 69
Director since: 1989
Board Committees: Executive (Chairman), Organization and
Executive Compensation
Mr. Whiteley is Chairman and CEO, Retired, of Standard Insurance
Company. He served as Standard's President and Chief Executive Officer from 1983
to 1993; as its Chairman of the Board and Chief Executive Officer from 1993 to
1994; and as Chairman of the Board from 1994 until his retirement in March 1998.
He is also a director of Standard Insurance Company, Gunderson, Inc., The
Greenbrier Companies and Willamette Industries, Inc., and is Chairman of the
Board of Canor Energy Ltd. He has served as Lead Director of the Company's Board
of Directors since September 1994. Mr. Whiteley has been active in numerous
civic organizations and currently serves on the boards of Pacific University,
the Oregon State University Foundation, the Oregon Business Council, the Oregon
Community Foundation and the St. Vincent Medical Foundation. He is a graduate of
Oregon State University, the University of Michigan and the advanced management
program at the Harvard Business School.
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MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS I
(TERM ENDING 2000)
[PHOTO HERE] RICHARD B. KELLER
President and Chief Executive Officer, Keller Enterprises Inc.,
Vancouver, Washington
Age: 70
Director since: 1983
Board Committees: Executive, Pension (Chairman), Retirement
(Chairman), Organization and Executive
Compensation
Since 1975, Mr. Keller has served as the President and CEO of Keller
Enterprises Inc., a holding company. He is also the President of High Point
Management, Inc., the general partner of High Point Keller Limited Partnership,
which invests in telecommunications. He is a member of the Board of Crown
Pacific Management L.P., the managing general partner of Crown Pacific Partners,
L.P., and a life trustee of the Oregon Graduate Institute and Lewis & Clark
College. Mr. Keller is a graduate of the United States Military Academy and the
Harvard Business School.
[PHOTO HERE] RANDALL C. PAPE
President and Chief Executive Officer, The Pape Group, Inc.,
Eugene, Oregon
Age: 48
Director since: 1996
Board Committees: Audit, Environmental Policy, Finance
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, Industrial Finance Corporation and Pape
Properties, Inc. He also serves as President, CEO and a director of Liberty
Financial Group, a holding company for Liberty Federal Bank SB, EcoSort LLC, and
Sanipac, Inc. He is also a partner in Pape Investment Company. Mr. Pape serves
as President and a director of Mt. Bachelor, Inc. and as a director of Obie
Media Corporation. He is First Vice President and President-elect of the Board
of Trustees of the University of Oregon Foundation. He also serves on the Oregon
Business Council and is a trustee for the Nature Conservancy of Oregon. He is a
graduate of the University of Oregon.
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[PHOTO HERE] ROBERT L. RIDGLEY
Retired Chairman of the Board of the Company, Portland
Age: 65
Director since: 1984
Board Committee: Executive, Pension, Retirement, Finance
Mr. Ridgley served as President and Chief Executive Officer of the
Company from January 1, 1985 until March 1, 1996 when he became Chairman of the
Board and CEO. He retired as CEO on December 31, 1996 and as Chairman of the
Board on February 28, 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 a director of the
Association for Portland Progress, the Oregon Independent College Foundation and
the Oregon Chapter of The Nature Conservancy, and as a trustee of the Oregon
Health Sciences Foundation. He is a graduate of Cornell University and the
Harvard Law School.
[PHOTO HERE] DWIGHT A. SANGREY
President and Chief Executive Officer, Santa Fe Technologies,
Inc., Vancouver, Washington
Age: 58
Director since: 1992
Board Committees: Environmental Policy (Chairman), Pension,
Retirement
Since 1997, Mr. Sangrey has been President and Chief Executive Officer
of Santa Fe Technologies, Inc., an international company offering information
technology products and services for the transportation industry. From 1995
until he assumed his present position, he served as President and CEO of
Fraction Biologics, LLC, an advanced biotechnology firm that produces and
markets pharmaceutical products. From 1988 until 1994, he 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 board member of
Northwest NeuroLogic, Inc., Pacific University and Saturday Academy 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.
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CLASS II
(TERM ENDING 2001)
[PHOTO HERE] TOD R. HAMACHEK
Chairman and Chief Executive Officer, Penwest Pharmaceuticals
Company
Patterson, New York
Age: 53
Director since: 1986
Board Committees: Pension, Retirement, Organization and
Executive Compensation (Chairman)
Since October 1997, Mr. Hamachek has been Chairman and Chief Executive
Officer of Penwest Pharmaceuticals Company. Penwest, which was spun off from
Penford Corporation in September 1998, is engaged in the research, development
and commercialization of novel drug delivery products and technologies. From
1985 until August 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). Mr. Hamachek is a trustee and/or director of Williams
College, Outward Bound, Inc., and the National Peace Garden Foundation. He is a
graduate of Williams College and the Harvard Business School.
[PHOTO HERE] WAYNE D. KUNI
Chairman and Chief Executive Officer, Kuni Enterprises,
Beaverton, Oregon
Age: 68
Director since: 1980
Board Committees: Executive, Audit (Chairman), Finance,
Organization and Executive Compensation
Mr. Kuni is the founder, Chairman, CEO and principal shareholder of Kuni
Enterprises, which owns Cadillac, Lexus, BMW and other automobile dealerships in
Oregon, Colorado and California. He is a past President of the Oregon Automobile
Dealers Association, the Portland Chamber of Commerce and the Arlington Club. He
is a member of the Boards of Trustees of Linfield College and the Oregon Health
Sciences Foundation, and serves on the Board of Keller Enterprises. 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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[PHOTO HERE] MELODY C. TEPPOLA
Managing Partner, National Builders Hardware Company, Portland
Age: 56
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, and a director of the Bonnie Bronson Fund of the Oregon Community
Foundation. Ms. Teppola is a Mills College graduate.
[PHOTO HERE] RUSSELL F. TROMLEY
President and Chief Executive Officer, Tromley Industrial
Holdings, Inc., Tualatin, Oregon
Age: 59
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 the
Oregon State Bar Association. He is a founding director of The Bank of the
Northwest, and also serves as a director of Canor Energy Ltd., 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,
Pape and Tromley, 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 1998.
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, Keller,
Ridgley, Sangrey and Teppola. These directors, together with a representative
chosen by the bargaining unit members, also constitute the Pension Committee.
The two Committees met three times during 1998.
The Organization and Executive Compensation Committee, which is
comprised of directors Hamachek, Keller, Kuni 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 1985 Stock Option Plan. This Committee also makes
recommendations to the Board on organization and executive succession matters.
Three meetings of this Committee were held during 1998.
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, Sangrey and Teppola. This Committee
held three meetings in 1998.
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, Pape, Ridgley and Tromley. The Committee held
four meetings in 1998.
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
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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 Keller, Kuni, Reiten, Ridgley, Teppola and Whiteley,
held one meeting in 1998.
In 1994, the Board created the position of Lead Director and elected
Mr. Whiteley to the position. The Lead Director consults with the Chairman of
the Board and 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 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. Non-employee directors who also serve as directors of Canor Energy
Ltd., a majority-owned subsidiary of the Company, receive an additional fee of
$750 for each board meeting of Canor Energy Ltd. attended and an annual retainer
of $5,000. The Chairman of the Board of Canor receives an additional $1,500
annual retainer. Non-employee directors who serve as directors of NNG Financial
Corporation, a wholly-owned subsidiary of the Company, also receive a fee of
$250 for each Board meeting of NNG Financial Corporation attended.
Under an agreement entered into in September 1994, Mr. Ridgley,
formerly President and CEO of the Company, was paid $10,000 per month for his
services as Chairman of the Board and consultant from March 1997 through
February 1999 when he retired as Chairman of the Board. During this period, the
Company also provided Mr. Ridgley the continued use of a Company automobile and
reimbursed him for the payment of certain club dues and assessments.
During 1998, there were seven meetings of the Company's Board, an
aggregate of five meetings of the Boards of the above-mentioned subsidiaries and
a total of 18 committee meetings. No director attended fewer than 75 percent of
the total meetings of the Board and subsidiary Boards 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 with interest quarterly at a rate equal to the annual rate
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of interest paid on 30-year U.S. Treasury securities plus three percentage
points, 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
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
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Deferred Compensation Plan. Certificates representing a director's vested
shares are not delivered to the director until after the director leaves the
Board.
TERMINATION OF DIRECTORS RETIREMENT BENEFIT
Prior to January 1, 1998, directors who retired from the Board at the
mandatory retirement age of 72 after serving at least 10 years on the Board,
were paid an annual lifetime benefit equal to the annual retainer paid to active
directors. Effective January 1, 1998, this benefit was terminated for all
current directors, but will continue for directors who retired before that date.
In lieu of this benefit, a buy-out amount was determined for each current
director equal to the present value of the director's lifetime benefit using a
7% discount rate, certain actuarial mortality assumptions and other assumptions
that included no change in the annual retainer and retirement from the Board at
age 72. The amount determined in this manner for each current director was
credited to a stock account under the Directors Deferred Compensation Plan, with
the number of shares credited based on a current market price of the Company's
Common Stock. If a director retires from the Board at age 72 with 10 years of
service or if there is an earlier change in control of the Company, the Company
is obligated to deliver to the director 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 shares of
the Company's Common Stock with a market value equal to the aggregate of the
buy-out amounts for all directors. 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 credited to the stock account of each current
director was: Mary Arnstad, 479; Thomas E. Dewey, Jr., 1,544; Tod R. Hamachek,
592; Richard B. Keller, 2,138; Wayne D. Kuni, 1,811; Randall C. Pape, 447;
Richard G. Reiten, 981; Robert L. Ridgley, 1,428; Dwight A. Sangrey, 911;
Melody C. Teppola, 733; Russell F. Tromley, 911; and Benjamin R. Whiteley,
1,966.
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
filings of those reports made by its directors and executive officers during
1998. 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 1998 all directors and executive officers timely
filed all such required reports.
12
<PAGE>
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, 1999 (except as
otherwise noted) by all directors and nominees, each of the executive officers
named in the Summary Compensation Table on page 14 and all directors and
executive officers as a group.
PERCENT OF
NUMBER OUTSTANDING
NAME OF BENEFICIAL OWNER OF SHARES(1) COMMON STOCK
------------------------ --------- ------------
Mary Arnstad 4,156(2) *
Bruce R. DeBolt 23,315(3) *
Thomas E. Dewey, Jr. 5,754(4) *
Mark S. Dodson 7,002(5) *
Dwayne L. Foley 28,540(6) *
Tod R. Hamachek 6,586(7) *
Richard B. Keller 18,393(8) *
Wayne D. Kuni 11,522(9) *
Michael S. McCoy 25,855(10) *
Randall C. Pape 4,759(11) *
Richard G. Reiten 75,771(12) *
Robert L. Ridgley 29,309(13) *
Dwight A. Sangrey 4,478(14) *
Melody C. Teppola 5,919(15) *
Russell F. Tromley 7,148(16) *
Benjamin R. Whiteley 8,330(17) *
All directors and officers
as a group (21 in number) 322,447(18) 1.3
- ---------------------------
* The total for each individual is less than 1.0 percent and the total
for all directors and executive officers as a group is 1.3 percent of
the shares of Common Stock outstanding.
1 Unless otherwise indicated, beneficial ownership includes both sole
voting power and sole investment power.
2 Includes 1,763 shares subject to forfeiture under the Non-Employee
Directors Stock Compensation Plan (NEDSCP) and 1,381 shares credited
to a stock account under the Directors Deferred Compensation Plan
(DDCP).
3 Includes 2,916 shares held jointly with wife and 9,691 shares which
Mr. DeBolt has the right to acquire within 60 days through the
exercise of options under the 1985 Stock Option Plan (1985 SOP).
4 Includes 1,686 shares subject to forfeiture under the NEDSCP and 2,402
shares credited to a stock account under the DDCP.
5 Includes 1,700 shares which Mr. Dodson has the right to acquire within
60 days through the exercise of options under the 1985 SOP.
6 Consists of 11,465 shares held jointly with wife and 17,075 shares
which Mr. Foley has the right to acquire within 60 days through the
exercise of options under the 1985 SOP.
7 Includes 1,686 shares subject to forfeiture under the NEDSCP and 2,470
shares credited to a stock account under the DDCP.
8 Includes 769 shares subject to forfeiture under the NEDSCP, 9,000
shares held by Keller Enterprises, and 3,030 shares credited to a
stock account under the DDCP.
9 Includes 1,466 shares subject to forfeiture under the NEDSCP, 4,592
shares held in trust, and 3,947 shares credited to a stock account
under the DDCP.
10 Consists of 9,530 shares held jointly with wife and 16,325 shares
which Mr. McCoy has the right to acquire within 60 days through the
exercise of options under the 1985 SOP.
11 Includes 1,807 shares subject to forfeiture under the NEDSCP and 1,491
shares credited to a stock account under the DDCP.
12 Includes 13,043 shares held indirectly by Mr. Reiten under the
Retirement K Savings Plan (RKSP) at December 31, 1998, 56,500 shares
which Mr. Reiten has the right to acquire within 60 days through the
exercise of options under the 1985 SOP and 1,039 shares credited to a
stock account under the DDCP.
13 Includes 1,824 shares subject to forfeiture under the NEDSCP and 2,317
shares credited to a stock account under the DDCP.
14 Includes 1,763 shares subject to forfeiture under the NEDSCP and 1,717
shares credited to a stock account under the DDCP.
15 Includes 1,686 shares subject to forfeiture under the NEDSCP, 2,022
shares held in trust, and 1,543 shares credited to a stock account
under the DDCP.
16 Includes 1,686 shares subject to forfeiture under the NEDSCP, 1,731
shares credited to a stock account under the DDCP and 24 shares held
indirectly by wife in Individual Retirement Account.
17 Includes 1,144 shares subject to forfeiture under the NEDSCP and 3,784
shares credited to a stock account under the DDCP.
18 Includes 55,604 shares of which 15,462 shares are held jointly with
spouses, 5,196 shares are held indirectly under the RKSP at December
31, 1998 and 31,441 shares which the executive officers not named
above have the right to acquire within 60 days through the exercise of
options under the 1985 SOP.
13
<PAGE>
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,
1998, 1997 and 1996, of those persons who were, during 1998 and at December 31,
1998 (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
-------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL COMPEN-
POSITION YEAR SALARY BONUS SATION(1)
- ------------------------- ---- -------- -------- ---------
Richard G. Reiten 1998 $391,670 $ 0 $ 11,929
President and Chief 1997 367,500 115,200 0
Executive Officer 1996 275,000 181,900 10,716
(became an officer on
3/1/96)
Bruce R. DeBolt 1998 200,520 0 4,872
Senior Vice President 1997 194,500 53,300 0
and Chief Financial 1996 187,950 75,900 0
Officer
Mark S. Dodson 1998 175,008 0 19,533
Senior Vice President 1997 51,717 13,500 0
and General Counsel 1996 0 0 0
(became an officer on
9/15/97)
Dwayne L. Foley 1998 191,870 0 23,216
Senior Vice President 1997 188,084 47,200 0
1996 184,617 70,700 0
Michael S. McCoy 1998 183,354 0 27,111
Senior Vice President 1997 174,254 51,700 0
1996 169,020 68,000 0
LONG-TERM
COMPENSATION
------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL UNDERLYING COMPEN-
POSITION YEAR OPTIONS(2) SATION(3)
- ------------------------- ---------------------------
Richard G. Reiten 1998 10,000 $ 10,137
President and Chief 1997 0 14,188
Executive Officer 1996 52,500 110,500
(became an officer on
3/1/96)
Bruce R. DeBolt 1998 5,000 5,076
Senior Vice President 1997 0 8,608
and Chief Financial 1996 7,500 7,887
Officer
Mark S. Dodson 1998 5,000 3,770
Senior Vice President 1997 0 1,034
and General Counsel 1996 0 0
(became an officer on
9/15/97)
Dwayne L. Foley 1998 5,000 4,781
Senior Vice President 1997 0 4,468
1996 7,500 4,051
Michael S. McCoy 1998 5,000 4,701
Senior Vice President 1997 0 4,236
1996 7,500 4,107
- -------------------
1 Amounts shown for Messrs. Reiten and DeBolt for the year 1998
represent the employee portion of the Medicare Hospital Insurance Tax
liability paid by the Company on the present value increase in that
year 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. The amounts shown for Messrs. Dodson, Foley and McCoy for the
year 1998 include $0, $3,861 and $5,196, respectively, for the payment
of the tax liabilities discussed in the preceding sentence and $15,480
each for the payment of automobile allowances. The amount shown for
Mr. Reiten for 1996 represents the amount paid to him by the Company,
pursuant to the Employment Agreement between the Company and Mr.
Reiten dated November 2, 1995, to reimburse him for the payment of
certain federal and state income taxes.
2 The numbers of options shown for the year 1996 have been adjusted to
reflect the three-for-two split of the Company's Common Stock,
effective September 6, 1996.
3 Amounts for the year 1998 include Company matching amounts contributed
or accrued for the year 1998 for the Named Executive Officers under
the Company's Executive Deferred Compensation Plan ( $6,937 for Mr.
Reiten, $1,876 for Mr. DeBolt, $570 for Mr. Dodson, $4,781 for Mr.
Foley and $4,701 for Mr. McCoy) and its Retirement K Savings Plan
($3,200 each for Messrs. Reiten, DeBolt and Dodson, and $0 each for
Messrs. Foley and McCoy).
14
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of shares of the Company's
Common Stock subject to stock options granted to the Named Executive Officers
listed in the Summary Compensation Table during 1998, together with related
information.
INDIVIDUAL GRANTS
----------------------------------------------------------
PERCENT OF
NO. OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR(2) ($/SH) DATE
- ------------------ -------- ------------ ------------ ----------
Richard G. Reiten 10,000 8.3 $27.875 3/4/08
Bruce R. DeBolt 5,000 4.2 27.875 3/4/08
Mark S. Dodson 5,000 4.2 27.875 3/4/08
Dwayne L. Foley 5,000 4.2 27.875 3/4/08
Michael S. McCoy 5,000 4.2 27.875 3/4/08
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM(3)
--------------------------
5 PERCENT 10 PERCENT
------------- ----------
Richard G. Reiten $175,304 $444,256
Bruce R. DeBolt 87,652 222,128
Mark S. Dodson 87,652 222,128
Dwayne L. Foley 87,652 222,128
Michael S. McCoy 87,652 222,128
- --------------------
1 Approximately one-third of the options became exercisable on
February 25, 1999, one-third will become exercisable on January 1,
2000 and the remainder on January 1, 2001.
2 The indicated percentages represent the options to purchase the
Company's Common Stock granted to each Named Executive Officer
expressed as a percentage of the aggregate number of options to
purchase the Company's Common Stock granted to employees of the
Company in 1998.
3 The 5 and 10 percent growth rates for the period ending March 4, 2008,
which were determined in accordance with the rules of the Securities
and Exchange Commission, illustrate that the potential future value of
the granted options is linked to future increases in growth of the
price of the Company's Common Stock. Because the exercise price for
options equals the market price of the Company's Common Stock on the
date of grant, no gain to the Named Executive Officers is possible
without an increase in the stock price. The 5 and 10 percent growth
rates are intended for illustration only and are not intended to be
predictive of future growth; the actual value, if any, that may be
realized by any Named Executive Officer will depend on the market
price of the Company's Common Stock on the date of exercise.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
Shown below is information with respect to options to purchase shares of
the Company's Common Stock exercised in 1998 and unexercised options granted
under the 1985 Stock Option Plan to the Named Executive Officers and held by
them at December 31, 1998.
NO. OF SECURITIES
NO. OF UNDERLYING UNEXERCISED
SHARES OPTIONS AT
ACQUIRED DECEMBER 31, 1998
ON VALUE --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE(1)
- ----------------- -------- -------- ----------- -------------
Richard G. Reiten 0 $ 0 52,500 10,000
Bruce R. DeBolt 0 0 7,991 5,000
Mark S. Dodson 0 0 0 5,000
Dwayne L. Foley 4,872 70,184 15,375 5,000
Michael S. McCoy 0 0 14,625 5,000
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998
-----------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(1)
- ----------------- ----------- -------------
Richard G. Reiten $260,138 0
Bruce R. DeBolt 38,083 0
Mark S. Dodson 0 0
Dwayne L. Foley 51,928 0
Michael S. McCoy 50,522 0
- ----------------------
1 Unexercisable options are those options which cannot be exercised due
to the restriction that options are not exercisable during the first
year following the date they are granted. Approximately one-third of
the options shown became exercisable on February 25, 1999, one-third
will become exercisable on January 1, 2000 and the remainder on
January 1, 2001.
2 Represents the difference between the option exercise prices for
in-the-money options and the closing price of $25.875 for the
Company's Common Stock as quoted on the Nasdaq Stock Market on
December 31, 1998 times the number of options. Options granted in 1998
were not in-the-money at year-end 1998.
15
<PAGE>
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, Keller, Kuni 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:
() Tieing a portion of each executive's total compensation to the
achievement of previously-established annual performance goals.
() Aligning executives' long-term interests with those of the Company's
shareholders by encouraging ownership of the Company's Common Stock.
() Providing total compensation, including base salary and incentive
compensation, which is competitive with that of other utilities and
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 options.
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.
This same methodology is used for all non-bargaining unit employees. These
analyses include salary data for comparable executive positions of electric and
gas utilities as well as service and industrial companies of approximately the
same size in terms of total revenues located throughout the United States. The
gas utility 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 19). 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.
16
<PAGE>
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, 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 Plan currently is limited to 11 executive
officers designated 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 20% to 40% of base salary if the
prescribed Company and individual performance goals are met, or up to 30% to 60%
of base salary if these goals are exceeded.
Performance goals established for 1998 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 1998
was conditioned upon the Company's 1998 net income exceeding a percentage of the
target designated in advance by the Board and being sufficient to cover the
payment of all dividends.
1985 STOCK OPTION PLAN
The long-term component of the Company's executive compensation
program consists of the 1985 Stock Option Plan. Stock options enable executives
to benefit from increases in the price of the Company's Common Stock, thereby
aligning their interests with those of the other common shareholders.
The Company has not made grants under the Plan on an annual basis.
When grants are made, as they were in 1998, the number of options granted is not
based upon a predetermined formula, but rather upon the Committee's judgment as
to how many options will provide meaningful incentives to executives. The number
of options granted to the Named Executive Officers in 1998, as shown in the
17
<PAGE>
table on page 15, was based on a consideration of factors that included 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.
CEO COMPENSATION
As discussed above, the Company's executive compensation program is
based in part upon the Company's business performance, with a portion of each
executive's annual compensation being dependent upon that performance.
Compensation paid to Richard G. Reiten for the year 1998, as President
and Chief Executive Officer, was dependent in part upon the Company's 1998
performance in relation to performance goals established for that year. Because
the minimum threshold for incentive awards under the Executive Annual Incentive
Plan was not achieved for the year 1998, no incentive award was paid to
Mr. Reiten for that year. Upon the Committee's recommendation, the Board
approved an increase in Mr. Reiten's annual base salary of $20,000 (5.3%),
effective March 1, 1998. The Board considered this increase to be appropriate in
order to maintain the market competitiveness of his base salary.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986 (the Code) 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 as described below.
It is the Company's policy generally to grant options that meet the
requirements of Internal Revenue Service regulations so that any such
compensation recognized by an optionee will be fully deductible. In May 1995,
the shareholders approved an amendment to the 1985 Stock Option Plan to comply
with the 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. In February 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.
Tod R. Hamachek, Chair
Richard B. Keller
Wayne D. Kuni
Benjamin R. Whiteley
18
<PAGE>
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, 1993 and ended December 31, 1998.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
Based on $100 invested on 12/31/93
[SHAREHOLDER RETURN PERFORMANCE GRAPH APPEARS HERE]
1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------
NW NATURAL $100.00 $91.08 $107.82 $123.79 $167.64 $146.35
S&P SmallCap 600 $100.00 $95.24 $123.72 $150.04 $188.40 $185.88
EdwardJones NGDI $100.00 $89.20 $114.62 $128.15 $166.72 $178.89
------------------------------------------------------------------------
* 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., Bay
State Gas, Berkshire Gas Co., Cascade Natural Gas Corp., Colonial
Gas Co., Connecticut Energy Corp., Corning Natural Gas Corp., CTG
Resources Inc., Delta Natural Gas Co. Inc., Energy West Inc.,
EnergyNorth Inc., EnergySouth Inc., Fall River Gas Co., Indiana
Energy Inc., Laclede Gas Co., New Jersey Resources, North Carolina
Natural Gas, Northwest Natural Gas Co., NUI Corp., Pennsylvania
Enterprises Inc., Peoples Energy Corp., Piedmont Natural Gas Co.,
Providence Energy Corp., Public Service Co. of N.C., Roanoke Gas
Co., South Jersey Industries, Southern Union Co., Washington Gas
Light Co., Yankee Energy Systems Inc.
19
<PAGE>
RETIREMENT 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) for participants (consisting of all executive officers) in the
Company's Executive Supplemental Retirement Income Plan (ESRIP) from all Company
defined benefit plans: the qualified Retirement Plan for Non-Bargaining Unit
Employees, the Executive Deferred Compensation Plan supplemental benefit and the
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 $ 48,600 $ 81,100 $ 84,900 $ 88,600
200,000 70,300 113,600 118,600 123,600
250,000 91,900 146,100 152,400 158,600
300,000 113,600 178,600 186,100 193,600
350,000 135,300 211,100 219,900 228,600
400,000 156,900 243,600 253,600 263,600
450,000 178,600 276,100 287,400 298,600
500,000 200,300 308,600 321,100 333,600
550,000 221,900 341,100 354,900 368,600
600,000 243,600 373,600 388,600 403,600
650,000 265,300 406,100 422,400 438,600
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,
DeBolt, Dodson, Foley and McCoy are 11 years, 19 years, 1 year, 31 years and 29
years, 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.
20
<PAGE>
ITEM 2 - ELECTION OF AUDITORS
The Audit Committee of the Board of Directors has recommended that
PricewaterhouseCoopers LLP (formerly, Price Waterhouse LLP), independent
certified public accountants, be retained as independent auditors of the Company
for the year 1999, 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE YEAR
1999.
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 of 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
21
<PAGE>
agreement, the Company recognized eight years of past service for purposes of
the ESRIP. Accordingly, Mr. Reiten is treated under the 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.
2000 ANNUAL MEETING OF SHAREHOLDERS
The 2000 Annual Meeting of Shareholders is scheduled to be held in
Portland on Thursday, May 25, 2000. 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 2000 proxy materials by December 17, 1999.
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
2000 Annual Meeting of Shareholders any such notice must be submitted to the
Secretary of the Company on or before March 2, 2000.
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GENERAL
Proxies may be solicited on behalf of the Board of Directors by regular
employees in person or by mail, telephone 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 of such shares. All
solicitation costs will be borne by the Company. The Company has retained Beacon
Hill Partners Inc. to assist in the solicitation of proxies from banks, brokers
and nominees at a fee of $2,000 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 so that the business of the meeting can
be transacted.
By Order of the Board of Directors,
Portland, Oregon C. J. Rue
April 16, 1999 Secretary
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[NW NATURAL LOGO]
220 N.W. SECOND AVENUE o PORTLAND, OR 97209-3991
April 16, 1999
Dear Shareholder:
We cordially invite you to attend the 1999 Annual Meeting of Shareholders of
Northwest Natural Gas Company (the Company), which will be held in the Mayfair
Ballroom of the Benson Hotel 309 S. W. Broadway, Portland, Oregon, on Thursday,
May 27, 1999, 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
four directors and (2) the election of independent auditors. Your Board of
Directors unanimously recommends that you vote FOR proposals 1 and 2.
WHETHER OR NOT YOU EXPECT TO ATTEND, TO ASSURE YOUR REPRESENTATION AT THE
MEETING AND THE PRESENCE OF A QUORUM, PLEASE COMPLETE, DATE, SIGN AND MAIL
PROMPTLY THE ENCLOSED PROXY, for which a return envelope is provided.
Sincerely,
Richard G. Reiten
President and Chief Executive Officer
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PROXY FORM [NW NATURAL LOGO] PROXY FORM
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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 ITEMS 1 AND 2.
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.
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ITEM 1. Election of Directors: Class III Nominees: Mary Arnstad, Thomas E.
Dewey, Jr., Richard G. Reiten, Benjamin R. Whiteley
(INSTRUCTIONS: To withhold authority to VOTE FOR [ ] VOTE WITHHELD [ ]
vote for any individual nominee, write all nominees listed
that nominee's name in the space above (except as
provided below:) marked to the
contrary to the
- ---------------------------------------- left)
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ITEM 2. Election of PricewaterhouseCoopers FOR AGAINST ABSTAIN
LLP as Auditors for 1999 --- ------- -------
[ ] [ ] [ ]
Please mark this box if you have any Please mark this box if you
comments or changes to names or plan to attend the
addresses. [ ] Annual Meeting. [ ]
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PLEASE MARK ALL
CHOICES LIKE THIS [X]
SIGNATURE ____________________________________ DATE _____________
SIGNATURE ____________________________________ DATE _____________
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PROXY FORM [NW NATURAL LOGO] PROXY FORM
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PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND MAIL WITHOUT DELAY IN
THE ENCLOSED ENVELOPE.
NORTHWEST NATURAL GAS COMPANY
PROXY FOR 1999 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 27, 1999, 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.
The Administrator, or its agent, under the Company's Dividend Reinvestment and
Stock Purchase Plan hereby is instructed to execute a proxy with identical
instructions to vote those shares of the undersigned, if any, held under the
Plan.
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.
