SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A--INFORMATION REQUIRED
IN A PROXY STATEMENT
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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Filed by a Party other than the Registrant [_]
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Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Materials Pursuant toss.240.14a-11(c) orss.240.14a-12
NORTHWEST NATURAL GAS COMPANY
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
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computed pursuant to Exchange Act Rule 0-11 (Set forth amount
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NORTHWEST NATURAL GAS COMPANY
ONE PACIFIC SQUARE
220 N.W. SECOND AVENUE
PORTLAND, OREGON 97209
(503) 226-4211
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
Portland, Oregon, April 14, 2000
To the Shareholders:
The 2000 Annual Meeting of Shareholders of Northwest Natural Gas
Company will be held in the Lloyd Center Ballroom of the DoubleTree
Hotel-Portland-Lloyd Center, 1000 N.E. Multnomah Street, Portland, Oregon, on
Thursday, May 25, 2000, at 2:00 p.m., Pacific Daylight Time, for the following
purposes:
(1) to elect four Class I directors to a term of three years;
(2) to reapprove the 1985 Stock Option Plan;
(3) to amend the Employee Stock Purchase Plan;
(4) to elect independent auditors for the year 2000; and
(5) 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 6,
2000 are entitled to vote upon all matters properly submitted to shareholder
vote at the meeting.
The Board of Directors of the Company is soliciting the proxies of all
holders of the Common Stock who may be unable to attend the meeting in person.
These proxies also will instruct the relevant fiduciary under the Company's
Dividend Reinvestment and Stock Purchase Plan, its Retirement K Savings Plan or
its Employee Stock Purchase Plan to vote any shares held for shareholders'
benefit under those Plans, as indicated on the proxies. A proxy and a stamped
return envelope are enclosed herewith for your use. No postage is needed if
mailed in the United States.
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
2000 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 2000
PROXY STATEMENT
The Board of Directors of Northwest Natural Gas Company is soliciting
the proxies of all holders of the Common Stock who may be unable to attend in
person the Annual Meeting of Shareholders to be held in the Lloyd Center
Ballroom of the DoubleTree Hotel-Portland-Lloyd Center, 1000 N.E. Multnomah
Street, Portland, Oregon, on Thursday, May 25, 2000, 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,
1999, 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 14, 2000.
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, 2, 3 and 4, 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 6, 2000 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 25,163,387 shares of Common Stock outstanding on March 15, 2000
were held by about 11,300 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 6, 2000 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 6, 2000 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 I
directors expires with this Annual Meeting of Shareholders. Messrs. Richard B.
Keller, Randall C. Pape, Robert L. Ridgley and Dwight A. Sangrey are nominees
for election to the Board as Class I directors to serve until the 2003 Annual
Meeting or until their successors have been duly elected and qualified. Each of
the nominees was elected by the shareholders at the 1997 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 directors.
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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 I
(FOR A THREE-YEAR TERM ENDING IN 2003)
RICHARD B. KELLER
[Picture President and Chief Executive Officer, Keller Enterprises Inc.,
omitted] Vancouver, Washington
Age: 71
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.
RANDALL C. PAPE
[Picture President and Chief Executive Officer, The Pape Group, Inc.,
omitted] Eugene, Oregon
Age: 49
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 President 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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ROBERT L. RIDGLEY
[Picture Retired Chairman of the Board of the Company, Portland, Oregon
omitted] Age: 66
Director since: 1984
Board Committees: 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
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.
DWIGHT A. SANGREY
[Picture Business Development Consultant, Portland, Oregon
omitted] Age: 59
Director since: 1992
Board Committees: Environmental Policy (Chairman), Pension,
Retirement
Mr. Sangrey works in the development of new businesses, primarily in
health care and information technologies. He has served as CEO of Santa Fe
Technologies, Inc. and Fraction Biologics, LLC, and from 1988 until 1994 was
President of the Oregon Graduate Institute of Science & Technology (OGI), and
was Professor of Environmental Science and Engineering at OGI until 1995. He is
a board member of Santa Fe Technologies, Inc., Airadvice, 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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MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS II
(TERM ENDING 2001)
TOD R. HAMACHEK
[Picture Chairman and Chief Executive Officer, Penwest Pharmaceuticals
omitted] Company
Patterson, New York
Age: 54
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.
WAYNE D. KUNI
[Picture Chairman, Kuni Enterprises, Beaverton, Oregon
omitted] Age: 69
Director since: 1980
Board Committees: Executive, Audit (Chairman), Finance,
Organization and Executive Compensation
Mr. Kuni is the founder, Chairman and principal shareholder of Kuni
Enterprises, which owns Cadillac, Lexus, BMW and other automobile dealerships in
Oregon, 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 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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MELODY C. TEPPOLA
[Picture Managing Partner, National Builders Hardware Company, Portland,
omitted] Oregon
Age: 57
Director since: 1987
Board Committees: Executive, Pension, Retirement, Environmental
Policy
Ms. Teppola has been associated with National Builders Hardware
Company, a regional and national distributor of builders hardware, woodworking
machinery and decorative plumbing, since 1965, and a managing partner since
1975. Her community activities have focused on art, education and advocacy for
women and children. She is a member of the Marquam Hill Steering Committee of
the Oregon Health Sciences University, the Public Art Advisory Committee of the
Regional Arts and Culture Council and the Advisory Board of the Port of Portland
Mentor Program. She also serves as a director of the Bonnie Bronson Fund of the
Oregon Community Foundation. Ms. Teppola is a Mills College graduate.
RUSSELL F. TROMLEY
[Picture President and Chief Executive Officer, Tromley Industrial
omitted] Holdings, Inc., Tualatin, Oregon
Age: 60
Director since: 1994
Board Committees: Audit, Finance
Mr. Tromley has served as President and Chief Executive Officer of
Tromley Industrial Holdings, Inc., since its formation in 1990. Tromley
Industrial Holdings is involved in nonferrous metals alloying and distribution,
the manufacture and sale of equipment for the foundry and steel industry,
industrial equipment leasing and industrial and retail business property
investments. Mr. Tromley is a past President of the Casting Industry Suppliers
Association and of the Arlington Club, and is a non-lawyer arbitrator for, and a
member of the House of Delegates of, the Oregon State Bar Association. He is a
founding director of The Bank of the Northwest, and also serves as a director of
the Evans Scholars Foundation and the Western Golf Association. He formerly
served as a director of Canor Energy Ltd. Mr. Tromley attended the University of
Washington and the Harvard Business School.
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CLASS III
(TERM ENDING 2002)
MARY ARNSTAD
[Picture Former President and Chief Executive Officer, Broken Top, Inc.,
omitted] Bend, Oregon
Age: 51
Director since: 1992
Board Committees: Audit, Environmental Policy
From January 1998 until October 1999, Ms. Arnstad served as President
and CEO of Broken Top, Inc., a residential community and golf club 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. In 1988, she became President of the Heathman Hotel and in
1992 became President of The Heathman Management Group, Inc., which owns and
operates the Heathman Hotel, located in Portland, The Greenwood Inn in
Beaverton, Oregon, and other hotels in the region. 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. She also serves on the Board of Directors of Telos Development
Company, based in Salem, Oregon. In 1996, Ms. Arnstad was appointed Oregon
Tourism Commissioner. She is a graduate of Wittenberg University.
THOMAS E. DEWEY, JR.
[Picture Member, McFarland Dewey & Co., LLC, New York, New York
omitted] Age: 67
Director since: 1986
Board Committees: Finance (Chairman), Audit
Since 1989, Mr. Dewey has been a general partner (now member) in the
investment banking firm of McFarland Dewey & Co. (now McFarland Dewey & Co.,
LLC), 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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RICHARD G. REITEN
[Picture President and Chief Executive Officer of the Company, Portland,
omitted] Oregon
Age: 60
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 a past General Chairman of the United Way campaign for Portland and a past
Chairman of both the Portland Metropolitan Chamber of Commerce and the
Association for Portland Progress. Mr. Reiten is a graduate of the University of
Washington and the executive and board of directors programs at the Stanford
Business School.
BENJAMIN R. WHITELEY
[Picture Chairman and CEO, Retired, Standard Insurance Company, and Lead
omitted] Director of the Company, Portland, Oregon
Age: 70
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, The Greenbrier Companies
and Willamette Industries, Inc., and formerly served as 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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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 1999.
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 four times during 1999.
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 1999.
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 1999.
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
three meetings in 1999.
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
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consent of the nominee, shall be received from a shareholder of record entitled
to vote at such election by the Secretary of the Company on or before the later
of (a) the thirtieth day prior to the date fixed for the meeting, or (b) the
tenth day after the mailing of the notice of that meeting. This Committee, which
is comprised of directors Keller, Kuni, Reiten, Ridgley, Teppola and Whiteley,
held one meeting in 1999.
In 1994, the Board created the position of Lead Director and elected
Mr. Whiteley to the position. The Lead Director consults with the Chief
Executive Officer on Board organization matters, including the selection of
committee members and chairs. The Lead Director also chairs meetings of the
Executive Committee and regularly scheduled meetings of outside directors, which
are held at least twice each year, and coordinates the periodic evaluation by
outside directors of the Board's performance.
Directors who are not employees of the Company receive an annual
retainer of $10,000, a fee of $1,000 for each Board meeting attended and a fee
of $800 for each Committee meeting attended. In 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 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. Non-employee
directors who previously served as directors of Canor Energy Ltd., formerly a
majority-owned subsidiary of the Company, received an additional fee of $750 for
each board meeting of Canor Energy Ltd. attended and an annual retainer of
$5,000. The former Chairman of the Board of Canor received an additional $1,500
annual retainer.
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. Upon his
retirement as Chairman of the Board, the Board presented Mr. Ridgley with the
Company automobile, then valued at about $19,000, as a gift.
During 1999, there were eight meetings of the Company's Board, two
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
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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
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
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purchased in the open market by the Company at the time of award. Directors may
elect to defer unvested shares into their stock accounts under the Directors
Deferred Compensation Plan. Certificates representing a director's vested shares
are not delivered to the director until after the director leaves the Board.
DIRECTORS RETIREMENT BENEFIT
On January 1, 1998, in connection with the termination of a prior
retirement benefit for directors and in lieu of that benefit, the Company
credited a number of shares of Company Common Stock to a stock account under the
Directors Deferred Compensation Plan for each then current director. If such a
director retires from the Board at age 72 or older with 10 or more years of
service as a director or if the director earlier dies or becomes disabled or if
there is an earlier change in control of the Company, the Company is obligated
to deliver to the director (or to his or her beneficiary) the number of shares
credited to the account, plus an additional number of shares based on reinvested
dividends credited to the account over time. Concurrently with the creation of
the stock accounts, the Company contributed to the Umbrella Trust for Directors
a number of shares of the Company's Common Stock equal to the number of shares
credited to directors' accounts. Such stock is held in the Umbrella Trust and
will be used to fund the Company's obligation to pay out the stock accounts. The
number of shares of Common Stock in the retirement benefit stock account of each
director at December 31, 1999 was: Mary Arnstad, 527; Thomas E. Dewey, Jr.,
1,697; Tod R. Hamachek, 651; Richard B. Keller, 2,349; Wayne D. Kuni, 1,990;
Randall C. Pape, 491; Richard G. Reiten, 1,078; Robert L. Ridgley, 1,569; Dwight
A. Sangrey, 1,002; Melody C. Teppola, 806; Russell F. Tromley, 1,002; and
Benjamin R. Whiteley, 2,160.
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
1999. 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 1999 all directors and executive officers, other
than director Mary Arnstad, timely filed all such required reports. Ms. Arnstad
filed a late report relating to the sale of 100 shares of Company stock in
December 1999.
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 29, 2000 (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 OUTSTANDING
NAME OF BENEFICIAL OWNER NUMBER OF SHARES 1 COMMON STOCK
------------------------ ---------------- ----------------------
Mary Arnstad 6,283 2 *
Bruce R. DeBolt 25,015 3 *
Thomas E. Dewey, Jr. 6,351 4 *
Mark S. Dodson 14,666 5 *
Dwayne L. Foley 30,240 6 *
Tod R. Hamachek 8,587 7 *
Richard B. Keller 18,705 8 *
Wayne D. Kuni 13,475 9 *
Michael S. McCoy 38,218 10 *
Randall C. Pape 6,668 11 *
Richard G. Reiten 85,578 12 *
Robert L. Ridgley 28,903 13 *
Dwight A. Sangrey 5,187 14 *
Melody C. Teppola 6,705 15 *
Russell F. Tromley 7,998 16 *
Benjamin R. Whiteley 9,698 17 *
All directors and officers as 365,836 18 1.5
a group (21 in number)
* The total for each individual is less than 1.0 percent.
1 Unless otherwise indicated, beneficial ownership includes both sole
voting power and sole investment power.
2 Includes 1,866 shares subject to forfeiture under the Non-Employee
Directors Stock Compensation Plan (NEDSCP), 1,956 shares credited to a
stock account under the Directors Deferred Compensation Plan (DDCP)
and 1,300 shares held in an Individual Retirement Account (IRA).
3 Includes 10,708 shares held jointly with wife and 11,391 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 1,809 shares subject to forfeiture under the NEDSCP and 2,876
shares credited to a stock account under the DDCP.
5 Includes 3,400 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 18,775 shares
which Mr. Foley has the right to acquire within 60 days through the
exercise of options under the 1985 SOP.
7 Includes 1,809 shares subject to forfeiture under the NEDSCP and 4,143
shares credited to a stock account under the DDCP.
8 Includes 427 shares subject to forfeiture under the NEDSCP, 9,000
shares held by Keller Enterprises, and 3,538 shares credited to a
stock account under the DDCP.
9 Includes 1,124 shares subject to forfeiture under the NEDSCP, 4,836
shares held in trust, and 5,846 shares credited to a stock account
under the DDCP.
10 Consists of 10,663 shares held indirectly by Mr. McCoy under the
Retirement K Savings Plan (RKSP) at February 15, 2000, 9,530 shares
held jointly with wife and 18,025 shares which Mr. McCoy has the right
to acquire within 60 days through the exercise of options under the
1985 SOP.
11 Includes 1,882 shares subject to forfeiture under the NEDSCP and 2,781
shares credited to a stock account under the DDCP.
12 Includes 14,774 shares held indirectly by Mr. Reiten under the RKSP at
February 15, 2000, 59,500 shares which Mr. Reiten has the right to
acquire within 60 days through the exercise of options under the 1985
SOP and 1,094 shares credited to a stock account under the DDCP.
13 Includes 1,902 shares subject to forfeiture under the NEDSCP and 2,834
shares credited to a stock account under the DDCP.
14 Includes 1,866 shares subject to forfeiture under the NEDSCP and 2,175
shares credited to a stock account under the DDCP.
15 Includes 1,809 shares subject to forfeiture under the NEDSCP, 2,129
shares held in trust, and 1,972 shares credited to a stock account
under the DDCP.
16 Includes 1,809 shares subject to forfeiture under the NEDSCP, 2,170
shares credited to a stock account under the DDCP and 24 shares held
by wife in an IRA.
17 Includes 768 shares subject to forfeiture under the NEDSCP and 5,298
shares credited to a stock account under the DDCP.
18 Includes 53,553 shares of which 9,023 shares are held jointly with
spouses, 254 shares are held as custodian for minor children, 11,269
shares are held indirectly under the RKSP at February 15, 2000 and
31,233 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, 1999, 1998 and 1997, of those persons who were, during 1999 and at
December 31, 1999 (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
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ------------
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION 1 OPTIONS COMPENSATION 2
- -------------------------- -------- --------- --------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Reiten 1999 $405,004 $190,500 $9,300 0 $7,900
President and Chief 1998 391,670 0 11,929 10,000 10,137
Executive Officer 1997 367,500 115,200 0 0 14,188
Bruce R. DeBolt 1999 206,504 71,300 785 0 4,030
Senior Vice President 1998 200,520 0 4,872 5,000 5,076
and Chief Financial 1997 194,500 53,300 0 0 8,608
Officer
Mark S. Dodson 1999 179,175 62,800 0 0 3,500
Senior Vice President 1998 175,008 0 19,533 5,000 3,770
and General Counsel 1997 51,717 13,500 0 0 1,034
(became an officer on
September 15, 1997)
Dwayne L. Foley 1999 192,504 38,500 0 0 2,888
Senior Vice President 1998 191,870 0 23,216 5,000 4,781
1997 188,084 47,200 0 0 4,468
Michael S. McCoy 1999 197,504 69,300 692 0 3,700
Executive Vice President 1998 183,354 0 27,111 5,000 4,701
1997 174,254 51,700 0 0 4,236
</TABLE>
1 Amounts shown for Messrs. Reiten and DeBolt for the years 1998 and
1999 and the amount shown for Mr. McCoy for the year 1999 represent
the employee portion of the Medicare Hospital Insurance Tax liability
paid by the Company on the present value increase in those years of
their benefits under the Executive Supplemental Retirement Income
Plan, together with an additional payment relating to income tax
payable by such officers in respect of the payments made by the
Company. 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.
2 Amounts for the year 1999 include Company matching amounts contributed
or accrued for the year 1999 for the Named Executive Officers under
the Company's Executive Deferred Compensation Plan ($4,700 for Mr.
Reiten, $830 for Mr. DeBolt, $300 for Mr. Dodson, $2,888 for Mr. Foley
and $3,700 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
No stock options were granted to the Named Executive Officers during
1999.
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
Shown below is information with respect to options to purchase shares
of the Company's Common Stock exercised in 1999 and unexercised options granted
under the 1985 Stock Option Plan to the Named Executive Officers and held by
them at December 31, 1999.
<TABLE>
<CAPTION>
NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
NO. OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE 1 EXERCISABLE 2 UNEXERCISABLE
- ----------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard G. Reiten 0 $ 0 56,500 6,000 $53,419 $ 0
Bruce R. DeBolt 0 0 9,691 3,300 7,631 0
Mark S. Dodson 0 0 1,700 3,300 0 0
Dwayne L. Foley 0 0 17,075 3,300 7,631 0
Michael S. McCoy 0 0 16,325 3,300 7,631 0
</TABLE>
1 Unexercisable options are those options that have not vested. Of the
options shown, approximately one-half became exercisable on January 1,
2000 and the remainder will become exercisable on January 1, 2001.
2 Represents the difference between the option exercise prices for
in-the-money options and the closing price of $21.9375 for the
Company's Common Stock as quoted on the Nasdaq Stock Market on
December 31, 1999 times the number of options. Options granted in 1994
and 1998 were not in-the-money at year-end 1999.
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:
o Tieing a portion of each executive's total compensation to the achievement
of previously-established annual performance goals.
o Aligning executives' long-term interests with those of the Company's
shareholders by encouraging ownership of the Company's Common Stock.
o Providing total compensation, including base salary and incentive
compensation, which is competitive with that of other 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 20). 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 10 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 1999 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 1999
was conditioned upon the Company's 1999 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 and
no options were granted to the Named Executive Officers in 1999. When grants are
made, 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
17
<PAGE>
meaningful incentives to executives. The number of options to be granted is
based on a consideration of factors that include 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
Compensation paid to Richard G. Reiten for the year 1999, as President
and Chief Executive Officer, consisted of his base salary and an incentive
bonus. Mr. Reiten's 1999 compensation reflects a 3% increase in his base salary
effective as of March 1, 1999, which was deemed by the Committee and the Board
to be appropriate to maintain the competitiveness of his base salary. His
compensation also reflects a cash bonus of $190,500 under the Executive Annual
Incentive Plan. The award of the bonus for 1999, which is equal to 46.8% of Mr.
Reiten's 1999 base salary, was based on the Committee's evaluation of Mr.
Reiten's performance in relation to the achievement of the 1999 financial goals
and the partial achievement of the operating goals described above. For 1999,
the Company reported earnings of $1.70 a diluted share and net income applicable
to common stock of $42.8 million. These 1999 results exceeded the financial
performance goals established for the year. For 1999, the Company's return on
equity of 10.1% ranked 14th among 24 comparable companies. Combined with the
return on equity in 1998, the Company's weighted two-year ranking for return on
equity was 16th within this group. The Committee determined that the
achievements made with respect to these performance goals, together with the
partial achievement of the operating goals discussed above, warranted the bonus
awarded to Mr. Reiten for 1999.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
Code), generally limits to $1 million per person the amount that the Company may
deduct for compensation paid in any year to any individual who, on the last day
of the taxable year, is its chief executive officer or is among its four highest
compensated officers (other than the chief executive officer). Certain
exceptions to this limitation apply to so-called "performance-based
compensation." The Company does not expect the sum of the base salary, annual
cash incentive bonus and other relevant compensation paid to any executive
officer to exceed $1 million in any year. In the event that in the future the
Company determines that an executive's annual compensation may approach or
exceed this limitation, it will consider the use of this exception to the
limitation under Code Section 162(m) as it has in the case of stock options as
described below.
It is the Company's policy generally to grant options that meet the
requirements of the Code and the regulations thereunder so that any such
compensation recognized by an optionee will be fully deductible
performance-based compensation. In May 1995, the shareholders approved an
amendment to the 1985 Stock Option Plan to comply with the performance-based
compensation requirements of Code Section 162(m) so that compensation received
on the exercise of options granted under this Plan would not be subject to the
18
<PAGE>
$1 million limitation. The 1985 Stock Option Plan is proposed to be reapproved
by the shareholders to continue to comply with the performance-based
compensation regulations under Code Section 162(m) (see Item 2, below). 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
19
<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, 1994 and ended December 31, 1999.
[GRAPH OMITTED}
1994 1995 1996 1997 1998 1999
- ----------------- --------- --------- --------- --------- --------- ---------
NW NATURAL $100.00 $118.30 $135.93 $184.18 $160.79 $143.26
S&P SmallCap 600 $100.00 $129.90 $157.55 $197.82 $195.18 $217.66
EdwardJones NGDI $100.00 $130.50 $148.25 $192.57 $206.63 $198.99
* 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., Berkshire Energy Resources,
Cascade Natural Gas Corp., 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, Northwest Natural Gas Co., NUI Corp., Peoples Energy
Corp., Piedmont Natural Gas Co., Providence Energy Corp., Public Service Co. of
N.C., RGC Resources Inc., South Jersey Industries, Southern Union Co.,
Washington Gas Light Co., Yankee Energy Systems Inc.
20
<PAGE>
PENSION PLANS
The following table shows the estimated annual retirement benefit
payable upon retirement at age 65 as a straight life annuity (net of Social
Security offset) to the Company's executive officers under the Company's defined
benefit plans: the qualified Retirement Plan for Non-Bargaining Unit Employees,
the Executive Deferred Compensation Plan supplemental benefit and the Executive
Supplemental Retirement Income Plan (ESRIP). Optional forms of payment,
including joint and survivor forms, are available, subject to an actuarial
adjustment in the amount of payment.
PENSION PLAN TABLE
COMPENSATION YEARS OF SERVICE
--------------- ---------------------------------------------------------
10 15 20 25 or more
-- -- -- ----------
$ 150,000 $ 47,700 $ 80,300 $ 84,000 $ 87,800
200,000 69,400 112,800 117,800 122,800
250,000 91,000 145,300 151,500 157,800
300,000 112,700 177,800 185,300 192,800
350,000 134,300 210,300 219,000 227,800
400,000 156,000 242,800 252,800 262,800
450,000 177,600 275,300 286,500 297,800
500,000 199,300 307,800 320,300 332,800
550,000 220,900 340,300 354,000 367,800
600,000 242,600 372,800 387,800 402,800
650,000 264,200 405,300 421,500 437,800
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 12 years, 20 years, 2 years, 32 years and 30
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.
21
<PAGE>
ITEM 2 - PROPOSED REAPPROVAL OF THE 1985 STOCK OPTION PLAN
In 1985, the Board of Directors adopted and the shareholders approved
the Company's 1985 Stock Option Plan (the Plan). In 1995, the Board of Directors
adopted, and the shareholders approved, an amendment to increase to 800,000 the
number of shares of the Company's Common Stock available for issuance under the
Plan. As a result of the Company's 3-for-2 stock dividend in 1996, there are now
a total of 1,200,000 shares of the Company's Common Stock that have been
reserved for issuance under the Plan.
The Board proposes that the shareholders reapprove the Plan,
specifically including reapproval of the 75,000 share annual per-employee limit
on option grants under the Plan. This reapproval is required every five years
for continued compliance with the performance-based compensation regulations
under Section 162(m) of the Code. See "Tax Consequences." Pursuant to provisions
of the Plan regarding adjustments for changes in capital structure, the limit
was increased from 50,000 to 75,000 as a result of the Company's 3-for-2 stock
dividend in 1996.
The purpose of the Plan is to enable the Company to attract and retain
experienced and able employees and to provide additional incentive to these
employees to exert their best efforts for the Company and its shareholders.
Reapproval of the Plan will allow the Company to continue to grant Incentive
Stock Options and Non-Statutory Stock Options to officers and other key
employees. The material terms of the Plan are described below, and a complete
copy of the Plan is attached to this Proxy Statement as Appendix A. The
following description is qualified in its entirety by reference to Appendix A.
All capitalized terms have the meaning set forth in the Plan.
ADMINISTRATION
The Board of Directors has delegated authority to administer the Plan
to the Organization and Executive Compensation Committee of the Board of
Directors (the Committee) which consists of four outside directors as defined in
the regulations under Section 162(m) of the Code. All determinations of the
Committee are conclusive.
ELIGIBILITY
Only officers and other key employees of the Company whom the
Committee has determined will perform services of special importance to the
Company in the management, operation and development of its business are
eligible for receipt of options granted under the Plan.
SHARES AVAILABLE
Subject to the provisions of the Plan regarding adjustments for
changes in capital structure, no more than 1,200,000 shares of authorized but
unissued or reacquired Common Stock may be issued pursuant to the Plan. Any
shares of Common Stock subject to an option that are not issued before the
expiration of the option will again be available for award under the Plan.
22
<PAGE>
INCENTIVE STOCK OPTIONS
The Plan authorizes the Committee to grant Incentive Stock Options, as
defined under Section 422 of the Code, on terms and conditions it deems
appropriate, subject to the following: (1) the option price per share may not be
less than 100% of the fair market value of the Common Stock when the option is
granted; (2) the term of the option may not exceed ten years; (3) the purchase
price of Common Stock on exercise of an option will be paid in cash or by
surrender to the Company of shares of previously acquired Common Stock held for
one year or more valued at fair market value on the date of the option exercise;
(4) unless otherwise determined by the Committee, an option will expire on the
earlier of (i) the expiration of the term for which it was granted, (ii) 12
months after termination of an optionee's employment due to death or physical
disability, or (iii) three months after termination of an optionee's employment
for any reason other than death or physical disability; (5) no optionee may be
granted options for more than 75,000 shares of Common Stock in any fiscal year;
and (6) the aggregate fair market value (determined on the date of grant) of
shares for which Incentive Stock Options become exercisable for the first time
by an optionee in any calendar year shall not exceed $100,000. No monetary
consideration is received by the Company for the granting of options. On March
15, 2000, the closing price of the Common Stock on the Nasdaq Stock Market was
$18.69 per share.
NON-STATUTORY STOCK OPTIONS
The Committee may also grant Non-Statutory Stock Options. The option
price may not be less than 100% of the fair market value of the Common Stock
when the option is granted. The term of the option may not exceed ten years plus
seven days, the purchase price will be paid as described in clause (3) above,
the option will expire as described in clause (4) above, and the number of
shares covered by options granted to any one employee in any fiscal year will be
limited as described in clause (5) above.
EXERCISE OF OPTIONS
Generally, no option when granted under the Plan may, by its terms, be
exercisable during the first year following the date it is granted. Thereafter,
options may be exercised as prescribed by the Committee and stated in the
option.
AMENDMENT OR TERMINATION
The Board of Directors may alter, amend, suspend or terminate the Plan
at any time but may not, without shareholder approval, adopt any alteration or
amendment that would: (1) increase the total number of shares of Common Stock
that may be purchased under the Plan, unless the increase results from a
recapitalization, stock split, stock dividend, or other change in the capital
structure of the Company; (2) change the minimum purchase price at which options
may be granted; (3) increase the maximum option period; or (4) materially modify
the requirements for eligibility for participation in the Plan. Unless earlier
terminated by the Board of Directors, the Plan will continue in effect until
23
<PAGE>
options have been granted and exercised with respect to all shares reserved for
the Plan; provided, however, that no Incentive Stock Options may be granted
under the Plan on or after February 23, 2005.
TAX CONSEQUENCES
The principal federal tax consequences to participants and the Company
of the grant and exercise of Incentive Stock Options and Non-Statutory Stock
Options pursuant to the Plan are summarized below.
Incentive Stock Options. Under federal income tax law currently in
-----------------------
effect, an optionee recognizes no income upon grant or exercise of an Incentive
Stock Option. Federal income tax upon any gain resulting from exercise of an
Incentive Stock Option is deferred until the optioned shares are sold by the
optionee. However, the gain resulting from the exercise of an Incentive Stock
Option is included in the alternative minimum taxable income of the optionee and
may, under certain conditions, be taxed under the alternative minimum tax.
If an optionee exercises an Incentive Stock Option and does not
dispose of any of the optioned shares within two years following the date of
grant and within one year following the date of exercise, then any gain upon
subsequent disposition will be treated as long-term capital gain for federal
income tax purposes. If an optionee disposes of shares acquired upon exercise of
an Incentive Stock Option before the expiration of either the one-year or the
two-year holding period, any amount realized will be taxable for federal income
tax purposes as ordinary income in the year of such disqualifying disposition to
the extent that the lesser of the fair market value of the shares on the
exercise date or the fair market value of the shares on the date of disposition
exceeds the exercise price.
The Company will not be allowed any deduction for federal income tax
purposes either at the time of the grant or exercise of an Incentive Stock
Option. Upon any disqualifying disposition by an optionee, the Company will
generally be entitled to a deduction to the extent the optionee realizes
ordinary income.
Non-Statutory Stock Options. Under federal income tax law presently in
---------------------------
effect, no income is realized by the grantee of a Non-Statutory Stock Option
until the option is exercised. At the time of exercise of a Non-Statutory Stock
Option, the optionee will realize ordinary income, and the Company will
generally be entitled to a deduction, in the amount by which the market value of
the shares subject to the option at the time of exercise exceeds the exercise
price. Upon sale of shares acquired upon exercise of a Non-Statutory Stock
Option, the excess of the amount realized from the sale over the market value of
the shares on the date of exercise will constitute long-term capital gain if the
shares have been held for the required holding period.
Deductibility of Compensation. Section 162(m) of the Code limits to $1
-----------------------------
million per person the amount that the Company may deduct for compensation paid
to any individual who, on the last day of the taxable year, is its chief
executive officer or among its four highest compensated officers (other than the
chief executive officer). Pursuant to Section 162(m) of the Code and the
regulations thereunder, compensation received through the exercise of an option
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will not be subject to the $1 million limit if the option and the Plan meet
certain requirements. One such requirement is shareholder approval at least once
every five years of a per-employee limit on the number of shares as to which
options may be granted. Approval of this proposal will constitute reapproval of
the per-employee limit under the Plan previously approved by the shareholders.
Other requirements are that the option be granted by a committee of at least two
outside directors and that the exercise price of the option be not less than the
fair market value of the Common Stock on the date of grant. Accordingly, the
Company believes that if this proposal is approved by shareholders, compensation
received on exercise of options granted under the Plan in compliance with all of
the above requirements will continue to constitute performance-based
compensation and will be exempt from the $1 million deduction limit.
VOTE REQUIRED
Reapproval of the Plan by the shareholders will require the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company present, or represented by proxy, and entitled to vote on the matter
at the Annual Meeting. Abstentions have the effect of "no" votes in determining
whether the amendments are approved. Broker non-votes are counted for purposes
of determining whether a quorum exists at the Annual Meeting but are not counted
and have no effect on the results of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
ITEM 3 - PROPOSED AMENDMENTS TO THE EMPLOYEE STOCK PURCHASE PLAN
In 1967, the Board of Directors adopted and the shareholders approved
the Company's Employee Stock Purchase Plan (the ESPP). The ESPP was amended in
1968, 1976, 1980, and 1996. A total of 600,000 shares of the Company's Common
Stock have been reserved for issuance under the ESPP. At March 15, 2000, only
34,851 shares were available for future issuance under the ESPP.
On February 24, 2000, the Board adopted, subject to shareholder
approval, amendments to the ESPP that would: (1) increase the number of shares
authorized to be issued under the ESPP from 600,000 to 800,000 shares; and (2)
change the purchase price for shares purchased in an ESPP offering from 92% to
85% of the fair market value of the Common Stock on the offering date.
The purposes of the ESPP are to encourage employees to become
shareholders in the Company, to stimulate increased interest on their part in
the affairs of the Company, to afford them the opportunity to share in the
earnings and growth of the Company and to promote systematic savings by them.
The proposed amendments are intended to further these purposes. The material
terms of the ESPP, as proposed to be amended, are described below, and a
complete copy of the ESPP, marked to show the proposed amendments, is attached
to this Proxy Statement as Appendix B. The following description is qualified in
its entirety by reference to Appendix B.
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SUMMARY OF THE ESPP
The ESPP will provide for future offerings of the Company's Common
Stock to eligible employees at such times and in such amounts, up to the total
shares authorized for the ESPP, as shall be determined by the Board of
Directors. The Board currently intends to continue its practice of making annual
offerings under the ESPP. The price of each offering will equal 85 percent of
the fair market value of the Common Stock on the date of that offering.
All regular full-time employees (including officers and directors who
are full-time employees) are eligible to participate. However, no employee may
participate if he or she owns, or through any subscription will acquire,
sufficient Common Stock to give him or her 5 percent or more of the total
combined voting power or value of all classes of stock of the Company. At March
15, 2000, approximately 1,220 employees were eligible to participate in the
ESPP.
An eligible employee may participate by subscribing for shares within
a prescribed period after each offering. Each participant may subscribe for a
minimum of 10 and a maximum of 900 shares per year. If any offering is
oversubscribed, the shares offered will be allocated among the participants.
Payment for shares subscribed will be made through payroll deductions
within a period of not less than 6 months from the offering date. The maximum
period under the Plan for payment for shares is 27 months, although the Board
historically has limited the maximum period to 12 months consistent with its
practice of making annual offerings. At any time prior to payment in full, a
participant may cancel his subscription as to shares not then fully paid.
Certificates for shares subscribed in any offering will be issued only
upon payment in full. Prior to that time, shares paid for will be held in trust
for the participant and any dividends thereon applied to the unpaid subscription
price. There are no restrictions upon the disposition of shares purchased
through the ESPP.
None of the participants' rights under the ESPP are assignable or
transferable. The right to participate in, and any subscription under, the ESPP,
terminates upon the termination of employment, subject to the limited right of
the participant or his legal representative to complete a pending purchase in
the event of retirement or death.
The Board of Directors, without shareholder approval, may amend,
modify, suspend or terminate the ESPP at any time without notice, but it may
not, without the affected employee's written consent, adversely affect any
existing subscription or offering, and it may not amend the ESPP, without
shareholder approval, to change the number of shares authorized to be offered
(otherwise than to reflect a change in capitalization, such as a stock dividend
or stock split), decrease the offering price below 85 percent of fair market
value or change the eligibility requirements.
TAX CONSEQUENCES
The Plan is an "employee stock purchase plan" under Section 423 of the
Code. In the event of a disposition within one year after acquisition by the
participant of the shares or within two years after they were offered under the
Plan the participant would recognize ordinary income at the time of disposition
in an amount equal to the difference between the fair market value of the shares
at the time of their purchase by the participant and the price at which such
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shares were offered under the Plan. This ordinary income would be added to the
participant's cost basis in determining gain or loss on a sale, which would
generally be capital gain or loss. If held for a period in excess of these
limitations, gain or loss upon a sale of shares purchased under the Plan is
treated as capital gain or loss, except that any gain is treated as ordinary
income to the extent of the difference between the fair market value of the
shares at the time of offering and the offering price.
PURCHASES UNDER THE ESPP
The following table indicates shares purchased under the ESPP during
the last fiscal year by the Named Executive Officers, by all executive officers
as a group and by all employees (excluding executive officers) as a group:
Shares Purchased in 1999
--------------------------------
Name Number of Shares Dollar Value 1
---- ---------------- -------------
Richard G. Reiten 897 $2,020
Bruce R. DeBolt - -
Mark S. Dodson 616 1,404
Dwayne L. Foley - -
Michael S. McCoy - -
All Executive Officers (10 persons) 2,884 6,503
All Employees, excluding Executive Officers 10,735 24,098
- ------------------------
1 "Dollar Value" equals the difference between the price paid for shares
purchased under the ESPP and the fair market value of the shares on the
offering date.
VOTE REQUIRED
Approval of the ESPP amendments by the shareholders will require that
the votes cast in favor of the proposal at the Annual Meeting exceed the votes
cast against the proposal. Accordingly, abstentions and broker non-votes will
have no effect on the results of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
ITEM 4 - ELECTION OF AUDITORS
The Audit Committee of the Board of Directors has recommended that
PricewaterhouseCoopers LLP, independent certified public accountants, be
retained as independent auditors of the Company for the year 2000, 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.
Under Oregon law, if a quorum of shareholders is present at the Annual
Meeting, the election of PricewaterhouseCoopers LLP as independent auditors will
27
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require that the votes cast in favor of the proposal at the Annual Meeting
exceed the votes cast against the proposal. Abstentions and broker non-votes are
counted for purposes of determining whether a quorum exists at the Annual
Meeting but are not counted and have no effect on the results of the vote for
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS FOR THE YEAR
2000.
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
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
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retirement if he (a) dies or becomes disabled, (b) is terminated other than for
cause, or (c) becomes entitled to severance benefits under his executive
severance agreement in connection with a change in control of the Company.
On July 2, 1997, the Company entered into an employment agreement with
Mr. Dodson for a term extending until December 31, 2002, with an option for Mr.
Dodson to renew for an additional term through December 31, 2007. Under this
agreement, the Company modified the service requirements applicable to Mr.
Dodson for purposes of the ESRIP. Accordingly, Mr. Dodson will be vested and
eligible under the ESRIP for supplemental retirement benefits at 32.5% of final
annual compensation upon retirement on or after December 31, 2002 and 65% of
final annual compensation upon retirement on or after December 31, 2007. The
agreement also provides that Mr. Dodson will be vested and eligible under the
ESRIP for supplemental retirement benefits at 65% of final annual compensation
with no reduction in benefits based on early retirement if he (a) becomes
disabled, (b) dies after December 31, 2002, (c) is terminated other than for
cause, or (d) becomes entitled to severance benefits under his executive
severance agreement in connection with a change in control of the Company.
On May 11, 1999, the Company entered into a special employment
agreement with Mr. Foley relating to his planned retirement from the Company on
September 30, 2000. The agreement provided that he would continue to perform
services for the Company and receive his regular salary through March 31, 2000,
that he would receive a minimum bonus for 1999 of $38,500, and that from April
1, 2000 until his retirement on September 30, 2000 he would use up his accrued
vacation time. If he elects early retirement benefits under the ESRIP, the
agreement provides that his benefits will be subject to only half of the
otherwise applicable early retirement reduction in benefits and that his
benefits will not be subject to Social Security offset until he reaches age 65.
If he is married at the time of his retirement, the agreement also gives him a
right to a lump sum payment which is the actuarial equivalent of the cost to
provide his spouse with lifetime retiree medical coverage starting in September
2007.
2001 ANNUAL MEETING OF SHAREHOLDERS
The 2001 Annual Meeting of Shareholders is scheduled to be held in
Portland on Thursday, May 24, 2001. 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 2001 proxy materials by December 15, 2000.
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
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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
2001 Annual Meeting of Shareholders any such notice must be submitted to the
Secretary of the Company on or before February 28, 2001.
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 14, 2000 Secretary
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Appendix A
NORTHWEST NATURAL GAS COMPANY
1985 STOCK OPTION PLAN
(as amended as of May 25, 1995, April 25, 1996)
1. PURPOSE. The purpose of this 1985 Stock Option Plan (the "Plan") is
to enable Northwest Natural Gas Company (the "Company") to attract and retain
experienced and able employees and to provide additional incentive to these
employees to exert their best efforts for the Company and its shareholders.
2. SHARES SUBJECT TO THE PLAN. Except as provided in paragraph 15, the
total number of shares of the Company's Common Stock, $3-1/6 par value per share
("Common Stock"), covered by all options granted under the Plan shall not exceed
1,200,000 authorized but unissued or reacquired shares. If any option under the
Plan expires or is cancelled or terminated and is unexercised in whole or in
part, the shares allocable to the unexercised portion shall again become
available for options under the Plan.
3. DURATION OF THE PLAN. The Plan shall continue until options have
been granted and exercised with respect to all of the shares available for the
Plan under paragraph 2 (subject to any adjustments under paragraph 15), unless
sooner terminated by action of the Board of Directors. The Board of Directors
has the right to suspend or terminate the Plan at any time except with respect
to then outstanding options.
4. ADMINISTRATION.
4.1 The Plan shall be administered by the Board of Directors,
which shall determine and designate from time to time the employees to whom
options shall be granted and the number of shares, option price, the period of
each option, and the time or times at which options may be exercised. Subject to
the provisions of the Plan, the Board of Directors may from time to time adopt
rules and regulations relating to administration of the Plan, and the
interpretation and construction of the provisions of the Plan by the Board of
Directors shall be final and conclusive. No director who holds or is eligible to
hold an option under the Plan may vote on any action taken by the Board of
Directors involving such matter, and such action may only be taken if both a
majority of the Board of Directors and a majority of directors voting on the
action are not eligible and have not at any time within one year prior thereto
been eligible to receive an option pursuant to the Plan or any other stock plan
of the Company or an affiliate of the Company.
4.2 The Board of Directors may delegate to a committee of the
Board of Directors consisting of three or more members (the "Committee") any or
all authority for administration of the Plan. No person may be appointed to the
Committee if within one year prior thereto he or she was eligible to receive an
option pursuant to the Plan or any other stock plan of the Company or an
A-1
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affiliate of the Company. Members of the Committee are not eligible to receive
an option pursuant to the Plan or any other stock plan of the Company or an
affiliate of the Company while on the Committee. If a Committee is appointed,
all references to the Board of Directors in the Plan shall mean and relate to
the Committee unless the context requires otherwise.
5. ELIGIBILITY; GRANTS.
5.1 Options may be granted under the Plan only to officers and
other key employees of the Company (including employees who are directors) who,
in the judgment of the Board of Directors, will perform services of special
importance to the Company in the management, operation, and development of its
business.
5.2 Options granted under the Plan may be Incentive Stock Options
as defined in ss.422 of the Internal Revenue Code of 1986, as amended ("IRC"),
or Non-Statutory Stock Options. A Non-Statutory Stock Option means an option
other than an Incentive Stock Option. The Board of Directors has the sole
discretion to determine which options shall be Incentive Stock Options and which
options shall be Non-Statutory Stock Options, and, at the time of grant, it
shall specifically designate each option granted under the Plan as an Incentive
Stock Option or a Non-Statutory Stock Option. No Incentive Stock Option may be
granted under the Plan on or after the tenth anniversary of the last action by
the Board of Directors approving an increase in the number of shares available
for issuance under the Plan, which action was subsequently approved within 12
months by the shareholders.
6. LIMITATION ON AMOUNT OF GRANTS.
6.1 The aggregate fair market value (determined for each
Incentive Stock Option when it is granted) of shares for which Incentive Stock
Options are exercisable for the first time by an optionee in any calendar year
under the Plan and under any other incentive stock option plan (within the
meaning of IRC ss.422) of the Company or any parent or subsidiary of the Company
shall not exceed $100,000.
6.2 No employee may be granted options under the Plan for more
than 75,000 shares of Common Stock in any fiscal year.
7. OPTION PRICE. The option price per share under each option granted
under the Plan shall be determined by the Board of Directors, but except as
provided in paragraph 9, the option price for an Incentive Stock Option and a
Non-Statutory Stock Option shall be not less than 100 percent of the fair market
value of the shares covered by the option on the date the option is granted.
Except as otherwise expressly provided, for purposes of the Plan, the fair
market value shall be deemed to be the closing sales price for the Common Stock
as reported by the Nasdaq Stock Market and published in the Wall Street Journal
for the day preceding the date of grant, or such other fair market value of the
Common Stock as determined by the Board of Directors of the Company.
8. DURATION OF OPTIONS. Subject to paragraphs 9 and 13, each option
granted under the Plan shall continue in effect for the period fixed by the
Board of Directors, except that no Incentive Stock Option shall be exercisable
after the expiration of 10 years from the date it is granted and no
Non-Statutory Stock Option shall be exercisable after the expiration of 10 years
plus seven days from the date it is granted.
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9. LIMITATIONS ON GRANTS TO 10 PERCENT SHAREHOLDERS. An Incentive
Stock Option may be granted under the Plan to an employee possessing more than
10 percent of the total combined voting power of all classes of stock of the
Company, or of any parent or subsidiary of the Company, only if the option price
is at least 110 percent of the fair market value of the stock subject to the
option on the date it is granted, as described in paragraph 7, and the option by
its terms is not exercisable after the expiration of five years from the date it
is granted.
10. EXERCISE OF OPTIONS. Except as provided in paragraphs 13 and 15,
no option when granted under the Plan may by its terms be exercisable during the
first year following the date it is granted. Thereafter, options may be
exercised over the period stated in each option in amounts and at times
prescribed by the Board of Directors and stated in the option. If the optionee
does not exercise an option in any period with respect to the full number of
shares to which the optionee is entitled in that period, the optionee's rights
shall be cumulative and the optionee may purchase those shares in any subsequent
period during the term of the option.
11. LIMITATIONS ON RIGHTS TO EXERCISE. Except as provided in paragraph
13 or as otherwise approved by the Board of Directors, no option granted under
the Plan may be exercised unless when exercised the optionee is employed by the
Company and shall have been so employed continuously since the option was
granted. Absence on leave or on account of illness or disability under rules
established by the Board of Directors shall not, however, be deemed an
interruption of employment for this purpose.
12. NONASSIGNABILITY. Each option granted under the Plan by its terms
shall be nonassignable and nontransferable by the optionee except by will or by
the laws of descent and distribution of the state or country of the optionee's
domicile at the time of death, and each option by its terms shall be exercisable
during the optionee's lifetime only by the optionee.
13. TERMINATION OF EMPLOYMENT.
13.1 Unless otherwise determined by the Board of Directors, if
employment of an optionee by the Company is terminated by retirement or for any
reason other than in the circumstances specified in 13.2 below, any option held
by the optionee may be exercised at any time prior to its expiration date or the
expiration of three months after the date of termination of employment,
whichever is the shorter period, but only if and to the extent the optionee was
entitled to exercise the option on the date of termination.
13.2 Unless otherwise determined by the Board of Directors, if an
optionee's employment by the Company is terminated because of death or physical
disability (within the meaning of IRC ss.22(e)(3)), any option held by the
optionee may be exercised for all remaining shares subject thereto, free of any
restriction on exercise of the option during the first year after the date of
grant or any limitation on the number of shares for which the option may be
exercised in any period, at any time prior to its expiration date or the
expiration of one year after the date of termination, whichever is the shorter
period. If an optionee's employment is terminated by death, any option held by
the optionee shall be exercisable only by the person or persons to whom the
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optionee's rights under the option pass by the optionee's will or by the laws of
descent and distribution of the state or country of the optionee's domicile at
the time of death.
13.3 To the extent an option held by any deceased optionee or by
any optionee whose employment is terminated is not exercised within the limited
periods provided above or otherwise determined by the Board of Directors, all
further rights to purchase shares pursuant to the option shall terminate at the
expiration of such periods.
14. PURCHASE OF SHARES. Shares may be purchased or acquired pursuant
to an option granted under the Plan only on receipt by the Company of notice in
writing from the optionee of the optionee's intention to exercise, specifying
the number of shares the optionee desires to purchase and the date on which the
optionee desires to complete the transaction, which may not be more than 30 days
after receipt of the notice, and, unless in the opinion of counsel for the
Company such a representation is not required to comply with the Securities Act
of 1933, containing a representation that it is the optionee's intention to
acquire the shares for investment and not with a view to distribution. On or
before the date specified for completion of the purchase, the optionee must have
paid the Company the full purchase price in cash, in shares of Common Stock
previously acquired by the optionee and held for at least one year, valued at
fair market value as defined in paragraph 7, or in any combination of cash and
shares of Common Stock. No shares shall be issued until full payment therefor
has been made, and an optionee shall have no rights as a shareholder until a
certificate for shares is issued to the optionee. Each optionee who has
exercised an option shall, on notification of the amount due, if any, and prior
to or concurrently with delivery of the certificates representing the shares for
which the option was exercised, pay to the Company amounts necessary to satisfy
any applicable federal, state, and local withholding tax requirements. If
additional withholding becomes required beyond any amount deposited before
delivery of the certificates, the optionee shall pay such amount to the Company
on demand. If the employee fails to pay the amount demanded, the Company shall
have the right to withhold that amount from other amounts payable by the Company
to the optionee, including salary, subject to applicable law.
15. CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
Stock are increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason of any reorganization, merger, consolidation, plan of
exchange, recapitalization, reclassification, stock split-up, combination of
shares, or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares for the purchase of
which options may be granted under the Plan. In addition, the Board of Directors
shall make appropriate adjustments in the number and kind of shares as to which
outstanding options, or portions thereof then unexercised, shall be exercisable,
to the end that each optionee's proportionate interest shall be maintained as
before the occurrence of such event. Adjustments in outstanding options shall be
made without change in the total price applicable to the unexercised portion of
any option and with a corresponding adjustment in the option price per share.
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Any such adjustment made by the Board of Directors shall be conclusive. In the
event of dissolution or liquidation of the Company or a merger, consolidation,
or plan of exchange affecting the Company, in lieu of providing for options as
provided above in this paragraph 15, the Board of Directors may, in its sole
discretion, provide a 30-day period prior to such event during which optionees
shall have the right to exercise options in whole or in part without any
limitation on exercisability and upon the expiration of such 30-day period all
unexercised options shall immediately terminate.
16. AMENDMENT OF PLAN. The Board of Directors may at any time and from
time to time modify or amend the Plan in such respects as it deems advisable
because of changes in the law while the Plan is in effect or for any other
reason. After the Plan has been approved by the shareholders and except as
provided in paragraph 15, however, no change in an option already granted to an
employee shall be made without the written consent of such employee.
Furthermore, unless approved at an annual meeting or a special meeting by a vote
of shareholders in accordance with Oregon law, no amendment or change shall be
made in the Plan (a) increasing the total number of shares which may be
purchased under the Plan, (b) changing the minimum purchase price specified in
the Plan, (c) increasing the maximum option period, or (d) materially modifying
the requirements for eligibility for participation in the Plan.
17. APPROVALS. The obligations of the Company under the Plan are
subject to the approval of the Oregon Public Utility Commission, the Washington
Utilities and Transportation Commission, and such other state and federal
authorities or agencies with jurisdiction in the matter. The Company will use
its best efforts to take steps required by state or federal law or applicable
regulations, including rules and regulations of the Securities and Exchange
Commission and any stock exchange on which the Company's shares may then be
listed, in connection with the granting of any option under the Plan, the
issuance or sale of any shares purchased on exercise of any option under the
Plan, or the listing of such shares on said exchange. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver shares
of Common Stock under the Plan if the Company is advised by its legal counsel
that such issuance or delivery would violate applicable state or federal laws.
The Company shall not be obligated to register shares issuable on exercise of
options under the Securities Act of 1933.
18. EMPLOYMENT RIGHTS. Nothing in the Plan or any option granted
pursuant to the Plan shall confer on any optionee any right to be continued in
the employment of the Company or to interfere in any way with the right of the
Company by whom such optionee is employed to terminate such optionee's
employment at any time, with or without cause.
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Appendix B
PROPOSED AMENDED
NORTHWEST NATURAL GAS COMPANY
EMPLOYEE STOCK PURCHASE PLAN *
1. PURPOSES OF THE PLAN
The purposes of this Employee Stock Purchase Plan are to encourage
employees to become stockholders in the Company, to stimulate increased interest
on their part in the affairs of the Company, to afford them an opportunity to
share in the profits and growth of the Company, and to promote systematic
savings by them. These purposes are sought to be accomplished under the Plan by
enabling employees to subscribe for and purchase directly from the Company a
limited number of the authorized and unissued shares of its Common Stock at a
discount from the market price at the time offerings are made, with an
opportunity to pay the purchase price in installments, by payroll deductions
over a period of not more than 27 months from the offering date. The Plan has
been found desirable by the Board of Directors and is believed by the management
to be advantageous to employees desiring to become holders of Common Stock, and
in the best interests of the Company. Participation in the Plan is entirely
voluntary. Each employee must decide for himself whether it is in his best
interests to purchase shares of Common Stock under the Plan.
2. ADMINISTRATION
The Plan shall be administered for the Company by a committee to be known
as the Employee Stock Purchase Plan Committee (the Committee), the membership of
which shall be designated from time to time by the President of the Company. The
secretary or an assistant secretary of the Company shall serve as a member of
the Committee and shall be responsible for recording and maintaining the
Committee's records.
3. EMPLOYEES ELIGIBLE TO PARTICIPATE
Regular full-time employees of the Company are eligible to participate in
the Plan, including officers but excluding directors not otherwise employed by
the Company, and also excluding any employee who, after an offering under the
Plan, would own or be deemed (under Section 425 (d) of the Internal Revenue
Code) to own stock (including stock which may be purchased under outstanding
options, if any, or offerings and subscriptions under the Plan) possessing 5% or
more of the total combined voting power or value of all classes of stock of the
Company or, if applicable, its parent or subsidiaries. A regular full-time
employee is one who has been in the employ of the Company for at least six
months and who is in the active service of the Company on the date an offering
is made under the Plan, excluding, however, any employee whose customary
employment is 20 hours or less per week or whose customary employment is for not
more than five months per calendar year.
4. METHOD OF PARTICIPATION
Until the number of shares authorized for offering under the Plan is
exhausted, there may be an offering or offerings under the Plan each year on a
* NOTE: Matter in bold face is proposed new matter; matter in brackets and
italics is proposed to be deleted.
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date or dates to be determined beforehand by the Board of Directors. An eligible
employee may participate in the Plan by filing with the Company, on a form
furnished by it, a subscription within a number of days, not to exceed 90, to be
prescribed by the Board of Directors. Subscriptions must be for a minimum of ten
shares of Common Stock. Subscriptions for more than ten shares may be made, but
not more than 900 shares will be allotted any one employee in any one calendar
year. No employee will be allowed to subscribe for any shares under the Plan
which would permit his rights to purchase shares under all stock purchase plans
of the Company and, if applicable, its parent or subsidiaries, to accrue at a
rate which exceeds $25,000 of fair market value of such shares (determined at
the time such shares are offered) for each calendar year in which such right to
subscribe or a subscription is outstanding at any time. A payroll deduction
authorization on a form furnished by the Company must be filed with the
subscription, authorizing the Company to make monthly payroll deductions in an
aggregate amount sufficient to pay in full for all shares subscribed within a
period of not less than six months nor more than 27 months from the offering
date.
Subscriptions and accompanying papers and correspondence relating to the
Plan should be forwarded by regular or Company mail to Employee Stock Purchase
Plan Committee, Northwest Natural Gas Company, One Pacific Square, Portland,
Oregon 97209.
5. PURCHASE PRICE
The purchase price of shares of Common Stock offered to employees under the
Plan shall be [92%] 85% (stated to a full one-tenth of one dollar) of the fair
---
market value of the Company's shares of such Common Stock on the date such
offering is made. The fair market value of said shares will be determined by
taking the mean between the bid and asked prices as quoted in the
over-the-counter market on the offering date. Should the Company's Common Stock
hereafter be listed on a national securities exchange, as defined in the
Securities Exchange Act of 1934, the fair market value of said shares will be
determined as the opening price quoted for the Common Stock (in lots of 100) on
such exchange on the offering date.
6. SOURCE OF STOCK AND ALLOCATION IN EVENT OF OVERSUBSCRIPTION
All Common Stock issued under the Plan will come from authorized but
unissued shares of Common Stock. A total of [600,000] 800,000 shares of Common
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Stock, $3-1/6 par value, has been reserved for this purpose (or such number of
shares of said [600,000] 800,000 shares or any unissued portion thereof into
-------
which such reserved shares may be changed as a result of split-ups or
reclassifications of said Common Stock). If any offering is oversubscribed, the
Company will allot the shares among subscribing employees by first allotting to
each such employee 20 shares or such lesser number subscribed for by him. The
shares then remaining will be allotted to employees subscribing for more than 20
shares, in proportion to their subscriptions. If the available shares are
insufficient to allot to each subscribing employee 20 shares or such lesser
number as may have been subscribed for by him, each employee will be allotted
the lesser of (a) the number of shares he subscribed for or (b) the number of
shares available divided by the number of subscribing employees.
7. PAYMENT OF STOCK AND ISSUANCE THEREOF
When a subscription application has been accepted by the Company, a stock
purchase account will be opened by the Company in the name of the participating
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employee, and he will be notified of the number of shares allotted to him, the
amount payable on his subscription contract, and the amount of his monthly
payroll deduction on that account. No shares of stock subscribed for under any
offering will be issued and delivered to an employee until he has paid for all
shares for which he has subscribed under that offering. When there is
accumulated in an employee's stock purchase account an amount sufficient to pay
for one or more full shares of Common Stock, such share or shares will be issued
from time to time to the Company as trustee for the employee. Dividends
thereafter declared and paid on such shares will be credited to the employee's
stock purchase account and applied toward the purchase price of the shares for
which he has not paid in full. Upon payment of the full purchase price of the
shares subscribed by an employee under any one subscription (or upon
cancellation of such subscription as provided in Section 8), the Company will
issue to the employee a certificate for the shares for which he has paid under
such subscription, his payroll deduction authorization will be cancelled with
respect to that subscription, and any balance in his stock purchase account on
account of such subscription will be returned to him.
An employee for whom the Company holds shares as trustee under the Plan may
instruct the trustee how to vote the shares credited to his account and the
trustee will vote them accordingly.
No interest will be charged to an employee on the unpaid balance of the
purchase price, and no interest will be paid by the Company to an employee on
his payments, payroll deductions, or dividends. The Company will pay the
administrative costs of the Plan.
8. CANCELLATION OF SUBSCRIPTION
At any time prior to payment in full for his shares, each employee
participating under the Plan will have the right to cancel his subscription for
unpaid shares by giving the Company written notice to that effect. Upon
cancellation, the Company will issue to the employee a certificate for the
shares for which he has paid, his payroll deduction authorization will be
cancelled, and any balance in his stock purchase account will be returned to
him.
9. TERMINATION OF EMPLOYMENT
Upon termination of employment for any reason except retirement or death,
an employee's right to subscribe is revoked and any outstanding subscriptions
will be treated as cancelled and dealt with as provided in Section 8. Upon
termination of employment by reason of retirement or death, while an offering
remains open, the employee or, if deceased, his legal representative may elect
to subscribe within the time prescribed in Section 4. With regard to any
outstanding subscription, the retired employee or deceased employee's legal
representative may, within three months after the happening of such event but
within the time prescribed in Section 4, pay the entire balance due upon the
subscription and thereupon receive delivery of the stock certificate. If such
election shall not be made within said period, the Company will treat the
failure to make such election as a notice of cancellation and will, except as
may be otherwise required by law, make the delivery and refund, if any, to the
employee or his legal representative as provided in Section 8 hereof.
10. EXCUSED ABSENCES
If an employee is granted a leave of absence, or if his absence from
service is excused on account of illness, disability, or entering the armed
forces, payments for stock to which such employee has subscribed may be
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<PAGE>
suspended, at the discretion of the Committee, subject to any applicable law or
governmental regulation, provided that full payment must (and shall be permitted
to) be made not later than 179 days from the date upon which the employee's
absence begins or 27 months from the offering date, whichever is earlier.
11. RIGHTS NOT TRANSFERABLE
Neither the right to participate in the Plan, a subscription under the Plan
nor any interest in any shares of stock held for an employee by the Company, as
trustee, shall be assignable or transferrable to any person other than the
employee, except in the event of death as provided in Section 9 hereof; and,
except as otherwise may be provided by law, no such right or interest shall be
liable for or subject to the debts or obligations of the employee. Should any
such assignment or transfer be attempted by an employee, or should any such
claim be asserted by any other persons, such attempted transfer or assertion of
claim may be taken and treated as a rejection of the offering or a cancellation
of the subscription, as the case may be. In such event the Company, except as
may otherwise be required by law, will observe the provisions of Section 8
hereof governing cancellations.
12. DISPOSAL OF STOCK
The Plan is intended to provide a convenient means by which the employee
may acquire Common Stock of the Company as an investment but it does not impose
restrictions on selling shares after subscriptions have been fully paid and
stock certificates issued and delivered to the employee. The Company will not
buy back shares which have been purchased by a participating employee under the
Plan.
13. TERMINATION OR AMENDMENT OF PLAN
No subscription application will be accepted after the shares referred to
in Section 6 have been subscribed. The Company reserves the right to reject any
subscription application or applications not meeting the requirements of this
Plan, and the right to abandon, amend, modify, or suspend the Plan at any time
without notice, and to revoke or terminate it at any time; provided, however,
that no such amendment, revocation, or termination shall, without the employee's
written consent, adversely affect any existing subscription or offering; and
provided further that no such amendment of the Plan by the Board of Directors
shall change the number of shares authorized to be offered under the Plan as
stated in Section 6 hereof (other than a change merely reflecting a change in
capitalization such as a stock dividend or stock split-up), change the price at
which the shares shall be offered under the Plan to a price below that specified
in Section 5 hereof, or change or modify the eligibility requirements contained
in Section 3 hereof.
No shares may be purchased hereunder if such purchase would constitute a
violation of the Securities Act of 1933, as amended, or the regulations
promulgated thereunder, or of any other applicable law or regulation. The
Company reserves the right to amend any offer made hereunder in any manner which
may be necessary to cause the offer to conform with any law applicable thereto
or any valid regulation promulgated under any such law, and any such required
amendments may be made effective either before or after subscriptions have been
received by the Company hereunder. If the terms of the offer shall be amended,
however, after a subscription has been received, any employee who does not agree
to the amendment may, if he so desires, cancel his subscription and the Company
thereupon will refund to him any payment made by him thereunder.
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NW NATURAL
220 N.W. SECOND AVENUE
PORTLAND, OR 97209
April 14, 2000
Dear Shareholder:
We cordially invite you to attend the 2000 Annual Meeting of Shareholders of
Northwest Natural Gas Company (the Company), which will be held in the Lloyd
Center Ballroom of the DoubleTree Hotel-Portland-Lloyd Center, 1000 N.E.
Multnomah Street, Portland, Oregon, on Thursday, May 25, 2000, 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; (2) the reapproval of the 1985 Stock Option Plan; (3) the
amendment of the Employee Stock Purchase Plan; and (4) the election of
independent auditors. Your Board of Directors unanimously recommends that you
vote FOR proposals 1, 2, 3 and 4.
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,
/s/ Richard G. Reiten
Richard G. Reiten
President and Chief Executive Officer
<TABLE>
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NW NATURAL
<S> <C> <C> <C> <C>
VOTE ON DIRECTORS FOR WITHHOLD FOR ALL To withhold authority to vote, mark "For All Except"
ALL ALL EXCEPT: and write the nominee's name on the line below.
ITEM 1. Election of Directors: Class I Nominees: [ ] [ ] [ ]
01) Richard B. Keller, 02) Randall C. Pape, -----------------------------------------------
03) Robert L. Ridgley, 04) Dwight A. Sangrey
FOR AGAINST ABSTAIN
This proxy when properly executed will be voted
ITEM 2. Reapproval of the 1985 Stock Option Plan [ ] [ ] [ ] 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, 2, 3 AND 4.
ITEM 3. Amendment of the Employee Stock
Purchase Plan [ ] [ ] [ ]
When signing as attorney-in-fact, executor,
ITEM 4. Election of PricewaterhouseCoopers administrator, trustee, guardian or officer of a
LLP as Auditors for 2000 [ ] [ ] [ ] corporation, please give full title as such. On joint
accounts, each owner should sign.
Please mark this box if you plan to attend
the Annual Meeting. [ ]
Please mark this box if you have any comments
or changes to names or addresses. [ ]
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Signature Date Signature (Joint Owner) Date
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</TABLE>
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PROXY FORM NW NATURAL PROXY FORM
PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND MAIL
WITHOUT DELAY IN THE ENCLOSED ENVELOPE.
NORTHWEST NATURAL GAS COMPANY
PROXY FOR 2000 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 25, 2000, and at all adjournments thereof,
(i) as designated on the reverse of this card and, (ii) at their discretion,
upon any and all other matters which properly may be brought before such meeting
or any adjournment thereof.
If shares of the Company's Common Stock are held for the account of the
undersigned under the Company's Dividend Reinvestment and Stock Purchase Plan,
its Retirement K Savings Plan or its Employee Stock Purchase Plan, then the
undersigned hereby directs the respective fiduciary of each applicable plan to
vote all shares of Northwest Natural Gas Company Common Stock in the
undersigned's name and/or account under such Plan in accordance with the
instructions given herein, at the 2000 Annual Meeting and at any adjournments or
postponements thereof, on all matters properly brought before such meeting or
any adjournment thereof, including but not limited to the matters set forth on
the reverse side.
The Company will provide reasonable accommodation for a disability. If you need
an accommodation, please contact the Company at (503) 226-4211 ext. 3411 at
least 72 hours before the meeting.
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